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To: Bald Eagle who wrote (5316)	1/6/1998 12:47:00 PM
From: Robert Floyd	Respond to of 116825

It's a Kharma thing.

To: Bald Eagle who wrote (5316)	1/6/1998 2:05:00 PM
From: LesX	Respond to of 116825

The trees are finally starting to fight back.

To: Bald Eagle who wrote (5316)	8/23/2000 11:17:10 AM
From: long-gone	Read Replies (1) \| Respond to of 116825

Creeping growth of the hedge funds There are worrying signs that the lessons of a financial near-catastrophe are easily forgotten, says Howard Davies Published: August 14 2000 19:02GMT \| Last Updated: August 14 2000 19:06GMT The events surrounding the 1998 rescue of Long-Term Capital Management were useful reminders of the dangers of excessive leverage and over- reliance on "reputation". They also showed the severe consequences of ineffective risk management by hedge funds, or other highly leveraged institutions (HLI) and their counterparties. Unfortunately, the half-life of these reminders seems in some places to have been remarkably short. To most outside observers, LTCM was an extremely large but "expertly managed" fund, making startlingly high returns from apparently low-risk arbitrage trades in high-grade government securities. But the leverage and market risk it ran to produce these returns posed dangers not only to its counterparties but also to the global financial system. Collapse was averted by the timely intervention of the Federal Reserve Bank of New York but it was a close run thing. Since then, regulators and the private sector have produced a series of worthy reports detailing how these risks could be mitigated. Several themes emerge: the importance of market discipline in governing risk and leverage; the need for improved counterparty risk management by broker-dealers and banks that extend credit to hedge funds and other HLIs; the need for enhanced official sector supervisory oversight/capital rules for HLI credit providers; and the importance of improving disclosures, in particular by hedge funds and, more generally, by all big financial institutions. Progress is being made but more needs to be done. There are also some worrying signs of backsliding, which must be addressed. According to the latest data, the firms we regulate in London that provide credit to hedge funds generally have exposures below the level seen at the peak of market turmoil in 1998. Despite recent market volatility, which can alter the value of positions significantly on a daily basis, there is no sign that any firm has extremely large outstanding positions with individual counterparties, as LTCM did. This may lend support to industry observers' reports of reduced leverage in the hedge fund sector. But this is not wholly reassuring. It might be as much a reflection of the substantial changes in the structure of the hedge fund industry as of enhanced counterparty prudence and risk management. Some of the biggest funds that operated in the industry - the Soros and Tiger funds and LTCM itself - have either closed or significantly restructured. Many new funds have been created, particularly in European markets, though most of these are currently relatively small. Industry growth is also being stimulated by the creation of hedge funds by established mainstream asset managers and by banks. They are driven by motives ranging from offering clients a wider range of investment vehicle to the desire to "outsource" proprietary risk taking. It is impossible to estimate accurately the total asset size of the industry - a problem in itself - but it is unlikely to be less than $900bn. There are other less encouraging signs too. Some firms still maintain uncollateralised exposures to a small minority of their HLI counterparties. Equally worrying is recurring anecdotal evidence that some firms are foregoing requests for cash downpayments on certain transactions with highly leveraged counterparties. All this makes me anxious about whether the lessons of LTCM have been truly learnt or whether they will be forgotten because of competitive pressures, myopia and complacency. The hedge fund industry remains (cont) markets.ft.com