Second major hedge fund: $2bn loss betting on the yen
Friday, October 9, 1998 Published at 11:42 GMT 12:42 UK
$2bn loss for hedge fund
Betting on the yen proved costly
The financial turmoil in the world's markets has claimed
another high profile victim.
The second major hedge fund in a matter of weeks has
incurred huge losses.
Tiger Management, which has $20bn under
management, is reported to have lost $2bn on the foreign
currency markets on Wednesday when the dollar
dropped dramatically against the yen.
The fund had bet heavily that the yen would continue to
weaken.
According to the Wall Street Journal, the fund was then
forced to buy $8bn to $10bn worth of yen to cover its
position, thus worsening the turmoil in the currency
market.
At one point the dollar lost more than a fifth of its value
against the yen, its biggest two day move in a quarter of
a century.
It is now trading at around 118 yen, down from 130 yen
at the start of the week.
There were also sharp fluctuations in bond prices, as
other hedge funds attempted to cover their positions.
Hedge funds are private investment trusts where wealthy
individuals invest in often risky ventures in a search for a
higher rate of return.
One of the biggest, Long Term Capital Management, had
to be rescued by a consortium of banks two weeks ago
after the US government concluded that its failure could
cause turmoil on the world financial markets.
The current volatility is considered another example of
the potentially damaging influence hedge funds can have
on markets.
Big losses in September
The Tiger Management Fund also lost 9.9% of its value
in September, partly due to earlier bets on the yen.
And the fund has suffered losses on its American stocks
as well. It reportedly owned big positions in US Airways,
Tricon Global Restaurants, and Capital One Financial
Corporation - all of which have suffered big losses in
recently.
In a letter to investors the fund denied that it was as
leveraged as Long Term Capital Management, which had
borrowed billions against its capital.
But Julian Robertson, manager of the fund, admitted that
there may be more problems to come.
"At least as far as Tiger is concerned, this will not be the
last bad month," Julian Robertson told investors.
But the fund is still showing an overall gain for the year,
beating the performance of many of its rivals that have
had a horrific time
Even some of the major banks have suffered massive
losses on currency trading and emerging markets. One
of the biggest, Citigroup, admitted a $700m third quarter
loss this week. |
