Thursday, August 16, 2007

Hedge Fund - Redemption Song..

(With apologies to the late, great, Bob Marley - If you have forgot the original...It's here.. This maybe appropriate too ............. OK..I am getting carried away now, sorry.. (Can you tell we have closed our positions!!)

Old hedge funds, yes, they rob I;
Sold I to the merchant banks,
Minutes after they thought my
cash was a bottomless pit.
But my will remains strong
By the love of the Almighty.
Move forward in this general mayhem

Won't you help to sing
These songs of freedom? -
'Cause I've submitted my:
Redemption forms;
Redemption forms.

Emancipate yourselves from Quant slavery;
None but ourselves can free our cash.
Have no fear for aggressive managers,
'Cause none of them can stop the crash.
How long shall they kill our profits, ... (er...sorry!..Ed)
While we stand aside and look? Ooh!
Some say it's just a part of it:
We've got to fulfil de book.

Won't you help to sing
These songs of freedom? -
'Cause I've submitted my:
Redemption forms;
Redemption forms;
Redemption forms.

Emancipate yourselves from 2 & 20 slavery;
None but ourselves can free our cash.
Wo! Have no fear for market crashes,
'Cause none of them-a can-a stop-it this time.
How long shall they kill our profits,
While we stand aside and look?
Yes, some say it's just a part of it:
We've got to fulfil de book.

Won't you help to sing
Dese songs of freedom? -
'Cause they have had all I ever had:
Redemption forms -
Submitted my:
Redemption forms:
These songs of freedom,
Songs of freedom.

This is the last one, I promise......

Is that a hedge fund manager in the video??

Yesterday was a red letter day in the hedge fund market and should produce some absolutely fascinating stories over the coming days and weeks. For those who are panicking about their investment in hedge funds, Wednesday was the last day to get redemptions (via 45 days notice) to get the funds back for the 4th quarter.

Those likely to be affected most are the sub-prime based funds and those in the quant sector. I would imagine also that little known funds that have mostly taken investment from family based money and high net worth individuals would be a little apprehensive of the post yesterday. Institutional investors can and do ride out the storms, but 'retail' money is more protective and, generally, more easily swayed by the media coverage of the markets.

One of the investment strategies that is common is 'stop loss' where an investor has a price at which he/she wants to sell the investment to avoid further losses. We saw in the crash of '87 that losses were exacerbated by computer programs auto selling positions when stop losses were triggered. There will, no doubt, be investors who have these kind of arrangements with funds and these will need to be redeemed, of course the quant funds will be the main sellers on stops.

However, it is not as if this situation has just occurred and caught everyone by surprise, hedge fund managers will have been cutting back leverage positions and preparing for redemptions for some time. Also there are many hedge funds that have increased their notice period for redemptions and created 'gates' within their documentation which limits the amount of redemptions to 10%-15% of assets being withdrawn in one quarter.

Market Speak...

We are all aware of the double talk that real estate agents pour into our ears when advertising.

Benefits From: Contains a feature you may expect to be the bare minimum for the extraordinary price you are paying. Example: "Benefits from roof, floors, walls".

Bijou: Would suit contortionist with growth hormone deficiency.

Borders: Loose term signifying that a property is sufficiently close to a desirable area to ensure the burglars who live next door to you will travel to work. Example: "Fidel Castro's house is situated in the highly desirable Bahamas Borders area".

Charming: Pokey

Compact: See Bijou, then divide by two.

You get the picture. As a public service to our readers we now provide the translation of 'Market Speak' that you may have heard in the last few weeks.

"Challenging market conditions"

..1000 point drop in the Dow caught us with our pants down, panic!

"Unprecedented market"

We don't know whats going on.

"Our Black Box solution is programmed to work the market. "

Lets hope our maths geeks got it right.

On a pulled IPO..."We believe the inherent market value is beyond what the market would be prepared to pay"

We overpriced the IPO, and now we can't place it.

"....these specific conditions have not materially impacted our funds' performance, but there can be no assurance that we will not suffer adverse effects from the overall tightening of global credit markets... "

We are not in sub-prime, but our lenders have given huge margin calls..

"...we are unable to "accurately estimate" the value of units..."

Things have gone tits up so fast, we can't be bothered to tally up the losses...but they are big!

"We are encouraging a rational view to the current conditions, as a correction was always likely, at this stage we feel that there is no place in the market for irrational selling.."

We are so fully invested that redemptions would kill us... (Or) ..Please help us out and stop selling positions, we can't get out fast enough...

Performance is.."Unsatisfactory"

Someone will be sacked

Losses are "significant"

Your money is gone... sorry..

We would be happy to add any others to this list...please leave them in the comments section...
UPDATE..... OK I lied, but this time this really is the last one (unless some rastafarian Hedge Fund Manager wants to do a YouTube video with the above lyrics...I would just HAVE to post that.... Serious service will now be resumed....) This, however, is genius....

No comments: