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To: HiSpeed who wrote (55947)	10/21/1998 12:17:00 AM
From: ViperChick Secret Agent 006.9	Respond to of 58727

New hedge fund woes crop up, worry stock market By Jennifer Westhoven NEW YORK, Oct 20 (Reuters) - Talk that another hedge fund, this time Paloma Partners Management Co., had hit hard times contributed to a late sell-off in stocks on Tuesday, traders said. The fund declined to comment on losses, but hedge fund sources said rumors that Paloma is in trouble have been circulating recently. One fund manager said word around the hedge fund industry was that Paloma had lost 20 percent in August and September. The Dow Jones industrial average, which reached as high as 8652 earlier in the day, up 186 points, sheared its gains late in the session to close a paltry 39 points up at 8505. Some traders said that, in addition to a late slide in technology stocks, the hedge fund talk might have worried Wall Street. A source familiar with Paloma said any rumored losses would be nowhere near as large as headliner Long-Term Capital Management, which shocked markets when a group of 14 firms shelled out $3.6 billion to prevent the fund from going under. Paloma, for its part, would not confirm any statistics about its performance, or any details about its size. ''I can confirm that Paloma was an original investor in D.E. Shaw Investments, which is different from D.E. Shaw Securities,'' said executive vice president Leon Metzger from Paloma's headquarters in Greenwich, Conn. He said that, although the two Shaw entities had some overlapping strategies, he believed D.E. Shaw Investments took less risky positions and was less leveraged than D.E. Shaw Securities. D.E. Shaw Securities Trading became a source of high anxiety last week after BankAmerica Co. (NYSE:BAC - news) had to write off part of a loan to the firm. The rumors of trouble at Paloma could just mean an unusually big loss, or worse, that its banks and brokers are forcing it to liquidate some positions, another industry insider said. The fund could have as much as $4 billion under management, he said, although that figure could include some leverage, or borrowed money. Banks have started to ask hedge funds for additional capital, or margin, in the wake of the loss posted by Long-Term Capital Management. Like Long-Term Capital, Paloma, uses a variety of bond arbitrage strategies, keeps a low-profile, and has billions of dollars under management. ''It's possible that Paloma, with an excess of hubris, used too much leverage,'' the industry insider said. On the other hand, the source doubted Paloma's long-time chief executive, Donald Sussman, would over extend himself. ''He is a very conservative...individual,'' the source said. ''It would be very surprising if he took a lot of risk.'' Paloma has its own traders, but also places money with traders outside the firm, the industry source said.