long term capital management

Does the use of multiple prime brokers boost risk?

Wed, 27 Feb 2008 06:59:55 -0500

Although most hedge funds use more than one prime broker, the question remains: Does this pose any problems for investors? The Financial Times reports that the GAO is concerned that when information is held by several service providers, and not readily shared, it makes it harder to assess the amount of leverage used by a single fund. Even if this information were available, it would be hard to decipher. The study also found, however, that hedge funds have seen an increase transparency and instituted higher standards since the LTCM meltdown in 1998.

For more:
- here's the Financial Times article

What's next for Ralph Cioffi?

Mon, 03 Dec 2007 06:59:55 -0500

Is there life after a hedge fund blow up? Sure. Just ask John Meriwether, still better known as the leader of Long-Term Capital Management, which collapsed in 1998 for JMW Partners, and has fared well in recent years. Is Ralph Cioffi, who managed the Bear Stearns hedge funds that in many ways kicked off the credit crisis, going to fare as well? According to the New York Post, he would like to start an independent hedge fund and may have some investors lined up. But apparently there are some lingering issues related to the legal defense of Bear Stearns, which faces a lot of suits over the hedge fund mishaps. The Post reports that they are trying to keep Cioffi aboard as a consultant, which may work against his plans. Interesting.

For more:
- here's the article

Related articles:
- Behind the Bear Stearns hedge fund fiasco
- More on the Bear Stearns hedge fund fiasco
- Subprime meltdown hits Bear Stearns hedge fund

Read more on: Bear Stearns

Big banks banding to save SIVs

Mon, 15 Oct 2007 06:59:54 -0400

An announcement as early as today could be forthcoming from a group of banks that have been in talks to create a large investment fund to prevent severe losses in various mortgage and other markets. This is at the behest of the Treasury Department. Banks involved include Citigroup, Bank of America and JP Morgan Chase. According to the New York Times, the idea "echoes the 1998 bailout of the hedge fund Long Term Capital Management." Back then, banks banded to prevent the fund from collapsing. The main issue seems to be short-term structured investment vehicles, basically higher-yielding commercial paper backed by mortgage-related debt among other things. This will surely revive the moral hazard debate.

For more:
- here's the New York Times article

Related articles:
- And the top hedge fund manager is...
- Hedge fund risks mounting?

And the top hedge fund manager is...

Wed, 12 Sep 2007 06:59:58 -0400

Will the current turmoil re-order the hedge fund rankings? It is distinctly possible. Long-term Capital Management at one point ranked as a pretty darn big fund. For now, the leader of the pack seems to be Highbridge Capital Management, owned by JPMorgan Asset Management, which remained the largest hedge fund manager in the first half of 2007, according to Absolute Returns via FINalternatives. Assets more than doubled during the period, hitting $37 million. Goldman Sachs comes in second, managing $40 billion. My guess is that by dint of the massive bailout "opportunity," Goldman will stay high in the rankings. But you never know, at times like this, new winners are made.

For more:
- here's a brief from FINalternatives

Hedge funds lure professors

Wed, 12 Sep 2007 06:59:56 -0400

There have been some great cases of professors who try their hand at hedge fund investing. Remember how proud Long-Term Capital Management was of their Nobel Laureates? They didn't stop the fund from imploding. But the lure remains strong. And more than a few today--Andrew Lo of MIT comes to mind--are joining or launching funds. Roger Ibbotson Zhiwu Chen, both of Yale, founded Zebra Capital Management in 2001. The AP notes that there are lab-like benefits for students, testing theories and all. Of course, they all want to make a buck as well. LTCM is of course a cautionary tale.

For more:
- here's the AP article

Related articles:
- Is the subprime meltdown really contained?
- Carlyle's fixed-income woes continue

Carlyle's fixed-income woes continue

Thu, 30 Aug 2007 06:59:55 -0400

The August Carlyle Group, best known as a private equity outfit (a good one), is having some trouble with one its fixed income funds. According to Financial News Online, the firm has told clients that the business model was designed so that the fund could weather a long-term Capital Management-like shock. It also said the current carnage was "significantly worse." Whew! That puts it in perspective right there. The fund has already drawn down a $100 million loan and just received a second bailout loan. Most fixed-income funds are in similar straits. Stay tuned.

For more:
- here's the Financial News Online article

Is the subprime meltdown really contained?

Sun, 01 Jul 2007 20:01:38 -0400

So far, all the drama over the subprime implosion has not led to anything remotely similar to the meltdown of Long-term Capital Management. There has been no coordinated Fed-directed government effort to staunch the losses. This time around, more than a few government officials have been sticking to what seems to be a similar script: That the mess is contained, notes the New York Times. "Contained" indeed seems to be the favored word. But the issue is exactly how much really "toxic" debt is out there and who owns it? Breakingviews.com suggests that about $500 billion in low-rated subprime debt is out there. It might be held by hedge funds, commercial banks (mainly in Europe), investment banks and possibly insurers. At some point, it will have to be marked to market or written off or somehow accounted for. I do not think we can assume the danger has completely passed. Hopefully, the ultimate wind-down will be orderly.

For more:
- here's the Breakingviews.com article

CDO systemic risk debate rages

Wed, 27 Jun 2007 20:01:34 -0400

Nobody wants to scare people into thinking that Bear Stearns' troubled hedge funds is going to lead to a big market meltdown. But at least PIMCO's Bill Gross mentions that the Bear problems at least have rekindled memories of Long-Term Capital Management. Many shudder at the thought. You do have to wonder what is going at the Fed. You can bet they are monitoring all this very carefully. Not to get scary here, but there are some issues with the entire CDO market. Gross notes that they are all worth 100 cents to the dollar, that's how they're marked anyway--which is an issue. One pundit puts it starkly: "What about the dozens--many dozens--of other hedge funds and prime brokers out there with similar asset valuation and collateral margin issues festering behind the facade of mark-to-broker?" I think we can all agree that the coming wave of mortgage resets means the issue is not going away.

For more:
- here's Gross's commentary
- here's more commentary on the CDO market

What to make of the Bear Stearns fund meltdown

Sun, 24 Jun 2007 20:01:38 -0400

This is not another Long-term Capital Management is it? On the surface, it sure doesn't seem that way. As far as we know, there was no involvement by the Federal Reserve Board or any public officials behind the $3.2 billion cash infusion that Bear Stearns will provide its two troubled hedge funds. So in a sense, the woes of Bear's High-Grade Structured Credit Strategies fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund (the one in really bad shape) actually signifies some progress. But there are worries that perhaps this is the tip of something larger. There are some dependencies and exposures, perceived or real. Note the cancellation of Bear's Everquest IPO, which bought some subprime exposure from the two funds. You have to wonder what will happen to the entire CDO market. It may well be that others are in the exact same position.

For more:
- here's a Business Week Online article
- Bear Stearns mauled before in other hedge fund. Article

Hedge fund risks mounting?

Sun, 06 May 2007 20:01:34 -0400

The Federal Reserve Board is growing increasingly cautious about hedge funds and the risks they pose to the financial system. Key officials have been speaking out about the many ways that funds make bets. The concern is evident from a page one article in the Wall Street Journal, for which officials were interviewed and quoted. What's different these days? A rising correlation among hedge funds returns. With so much leverage pushing the market in the same direction, you can understand the concerns. In many ways, we're in unknown territory. The world has changed much since the Long-Term Capital Management fiasco. How would the total return swap market respond to a big shock? We don't know.

For more:
here's a column in the New York Post