Continuing Cracks

Watch for similar events on this side of the pond.


City Hedge Funds Head for Domino Collapse
Peter Koenig and Louise Armitstead
The Times, LondonSunday, May 15, 2005

Bad investments by some of the biggest hedge funds in London have triggered unprecedented losses, record demands for money back, and talk of a death spiral weighing heavily on stocks and bonds. GLG, a hedge fund started in 1995 by a group of former Goldman Sachs bankers, has in recent weeks had demands for more than $500m(£270m) from investors wanting to pull out of its $4 billionmarket-neutral fund.

The predicament of GLG, the biggest group in Europe, with $13 billion under management, highlights the stress being felt at many hedge funds in Europe and America after four months of deteriorating results. Prime brokers and the credit departments in investment banks have been calling clients to check their capital strengths as rumours of a big hedge-fund blow-out grip the industry.

London-based Cheyne is thought to be down by at least 10% in its credit fund after the downgrading of debt at General Motors and Ford. Ferox, another of London's most successful funds, isthought to be down nearly 20%. Bailey Coates, Polygon, Rubicon, Vega, Moore Capital, and Brevan Howard are all nursing heavy losses of about 5% each in April.

Bailey Coates, whose losses reported in The Sunday Times three weeks ago first alerted the wider market to the industry crisis, has had yet more redemption calls. "What you're seeing is like a run on the bank," said Narayan Naik,director of hedge-fund studies at the London Business School. "Selling forces more selling and there's a cascade effect."