Speaking the language of hedge funds

This article on MSNBC was a cutting piece on the explanations being offered by Hedge Funds on their current "discomfort".

Some great highlights included

Hedge-Fund Phrase: Challenging
Translation: Run for the hills!

Hedge-Fund Phrase: Unprecedented, unique circumstances
Translation: Stuff happens. But we had no clue.

Hedge-Fund Phrase: Market volatility has produced unfair, unrealistic prices.
Translation: The market is efficient only when it works in our favour.

Hedge-Fund Phrase: Our results were affected by the selling behavior of other firms.
Translation: We made the same dumb trades as everyone else.

Goldman Sachs CFO David Viniar noted that the firm's decision to inject $2 billion into its ailing Global Equity Opportunities fund "reflects our collective belief that the value of this fund is suffering from a market dislocation that does not reflect the fundamental value of the fund's positions." In other words, the losses shown by these funds isn't the fault of the managers, it's the fault of a market that just won't value assets properly. Ironically, you never hear fund managers say that their gains have been unwarrantedly large due to the market's failure to reflect stocks' fundamental value.

Today is also the last day for investors to give their usual 45 days notice to withdraw funds ahead of Q407. So a number of hedge funds are going to find out what investors think about the current situation and their confidence in their managers. Of course, this could well prompt another bout of selling to create cash to fund redemption, which will be amplified by leverage i.e. if you used investors funds as a deposit on leveraged trades say 10x. Then for every hundred dollars they need to be paid, you need to liquidate a thousand dollars of positions.

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posted by John Wilson @ 11:22 AM Permanent Link newsvine reddit


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