<Hedge Fund Fiasco> LTCM's losses less than feared
Good morning Lee:
Ran in to this article this morning in Financial Times (London),I guess it could be construed as good news or could it?Any thoughts?
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By William Lewis in New York
Long-Term Capital Management, the US hedge fund, has suffered just a 3 per cent or $120m (£71m) loss since it was rescued by a group of leading financial institutions at the end of September, allaying fears that the fund had lost half its capital.
According to people close to the crisis-hit fund, its net asset value was showing a3 per cent loss on capital of approximately $4bn. The performance data is as of the close of business on Wednesday, the most recently available record. Partners at the fund on Friday declined to comment.
However, the details of the fund's relatively robust performance in recent days are likely to help calm traders who have been concerned that LTCM has been suffering much worse losses. Since last weekend, people close to the fund have been insisting - correctly - that the fund has been suffering only "modest" losses.
They also said it had no large yen-dollar position "and had not had for years". Neither was it holding any gold. There has been widespread speculation about the fund's involvement in both these areas.
At the end of last month the fund received a capital injection of $3.625bn from 14 institutions. Approximately $500m of this has been used to pay off a loan facility led by Chase Manhattan. However, the facility is still open for the fund to draw down until the end of the year.
Approximately $1.7bn of the bail-out money is in the fund's bank account, with about $1.3bn invested in government securities "unencumbered," according to one person close to the fund. These government securities could be used at short notice as collateral - against most of the full amount of the value of the bonds - to help manage cash needs. The small remainder of the bail-out injection has been used to help finance charges on trades with other parties.
People close to the fund say that while market conditions are still tough, there is a growing belief that the worst period for LTCM may have passed.
A report in the Wall Street Journal on Friday stated that the "fund's bail-out money is going fast". However, this is dismissed by people close to the fund, as is the suggestion that funds put up by the consortium may run out before it is able to turn its positions around.
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