Top Stories: Market Puts Hedge Funds on the Hot Seat. Who's Next?
(excerpts from Street.com. The only reason for a big seller
to dump Flexf at these distressed prices is because there is
little other choice. This article though focused on funds with
Russian exposure, might highlight who is possibly selling and
why. If I'm stretching here, so be it, but I don't think so. Peter)
By Suzanne Kapner Staff Reporter 9/3/98
"Wall Street is taking a lot of pain," said one hedge-fund
manager whose fund had been the subject of implosion
rumors this week. "But we're okay."
Within days, that phrase has become a cliche. But now as
more hedge-fund managers start alluding to losses and
some preliminary numbers are emerging, speculation is
growing that more bad news and more cratering funds will
follow.
This doomsday scenario is a white-knuckle one for many in
the high-net-worth-investor set who have used the investment
vehicles so successfully for so many years. Rumors of
additional blowups among hedge funds are rampant;
however, verification of such talk is more difficult to come by.
In fact, it often seemed like the only hedge fund on Wall
Street that wasn't underwater was the one on the other end
of the phone line at the time. ("I'm only down about 30 basis
points after [Monday], so I call that a win," said a fund
manager, requesting anonymity.)
As wild rumors of imminent implosion swirled among the
usually secretive clique of hedge-fund managers and their
clients, some names popped up more than others. Among
them:
Croesus Capital Management confirmed it has "some
exposure" to Russia in its $400 million under management.
But a spokeswoman at the Manhattan hedge fund declined
to specify the percentage. (Hedge/MAR, a data
fund-tracking service, listed Croesus' UFG Russia Fund as
its weakest performer, posting a 57.5% loss for August.)
...Andrew Boszhardt Jr., partner at Oscar Capital in New
York, which manages a total $600 million in assets under
several different funds, said the firm's hedge fund was down
20% year to date. "We're volatile," Boszhardt said. "In 1994,
we were down 30%, but last year we were up 62% net of fees."
Oscar has lightened up some positions and is solvent in
highly liquid names, such as Travelers (TRV:NYSE), Ford
(F:NYSE) and Merrill Lynch (MER:NYSE), he said. Oscar
Capital's investors also have agreed not to withdraw funds
until Jan. 1, 2000.
...All the stiff upper lips, however, do not mean that fund
managers have stopped buying Pepto Bismol. "Wait until
the [third-quarter results], you will see funds losing tons and
tons," said Jeff Werbalowsky, senior managing director at
Houlihan Lokey Howard & Zukin, a Los Angeles-based
specialty investment bank and consulting firm.
Hedge-fund heavyweights such as Everest Capital, Omega
Advisors and Appoloosa have already either announced
losses or seen them reported in the press. And yesterday,
Long Term Capital, a $2.3 billion fund run by the former
vice chairman of Salomon, John Meriwether, joined the
crowd. LTC issued a press release saying it "experienced
significant decline" in net asset value during August --
reports put the figure at a 44% loss. Year to date, the fund
has lost about 50%, according to the release. A spokesman
for the firm would not comment beyond the release.
Overall, about 75% out of 155 hedge funds reporting results
were negative in August, said Lois Peltz, Hedge/MAR's
managing editor.
More alarmingly than the numbers themselves, said Peltz, is
that certain funds aren't calculating their net asset values or
allowing redemptions on the rationale that they don't know
what the underlying securities are worth. Their attitude is: "If
we give you an estimate, it might be wrong," Peltz said,
adding that some funds are allowed to do that according to
their prospectus. For example, the Hong Kong-based
Regent Pacific Group last week suspended redemptions
for 12 of its funds, many of which carried heavy Russian
exposure.
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