1000% hedge fund wins subprime bet

Discussion in 'Wall St. News' started by neke, Nov 25, 2007.

  1. neke


    If a $2billion fund can return 1000% a year, I just thought that should be a good target for someone with <200K, if you know what you are doing!
    1000% hedge fund wins subprime bet
    By James Mackintosh in London

    Published: November 25 2007 22:20 | Last updated: November 25 2007 22:20

    A Californian hedge fund has made more than 1,000 per cent return this year by betting against US subprime home loans, making it one of the world’s best-performing funds of all time.

    Lahde Capital, set up in Santa Monica last year by Andrew Lahde, last week passed the 1,000 per cent mark, after fees, following the latest leg of the credit market turmoil. The fall in the value of subprime-linked securities has boosted a group of funds which spotted the problems in advance.

    Low-risk trades put all others in the shade - Nov-25One hedge fund in 10 to go bust, says Man - Nov-20View from the Top: Peter Clarke - Nov-20Hedge funds on new ground - Nov-20Jabre raising second hedge fund - Nov-05Hedge funds home in on UK targets - Nov-05The decision to use derivatives to short, or bet against, low-quality US home loans taken by a select group of hedge funds last year appears to have become the most profitable single trade of all time, making well over $20bn in total so far this year. John Paulson’s New York-based Paulson & Co, the biggest of the group with $28bn under management, is said by investors to have made $12bn profit from the trade already.

    However, Mr Lahde, whose fund is one of the smallest specialists shorting subprime, has now begun to return money to investors, telling them in a letter: “The risk/return characteristics are far less attractive than in the past.”

    In his letter, Mr Lahde said he expected the collapse in value of subprime mortgage-linked securities to be repeated for bonds backed by commercial property loans in a deep recession – which he also predicts.

    “Our entire banking system is a complete disaster,” he wrote. “In my opinion, nearly every major bank would be insolvent if they marked their assets to market.” He also said he would be putting some of his own profits into gold and other precious metals.

    Mr Lahde has used the phenomenal returns to boost his business, launching a fund to bet against commercial real estate this autumn – which made 42 per cent in its first two months – and is in the process of creating a third fund to short credits with a broader mandate.

    Lahde’s first fund, US Residential Real Estate Hedge V Class A, soared 712.8 per cent in the year to the end of October, before this month’s sell-off pushed it past the 1,000 per cent mark.

    There is no reliable data on how many other funds have made 1,000 per cent, or ten times the investment, in a year. But RAB Capital, London hedge fund manager, shot to prominence in 2003 when it returned 1,475.5 per cent in its Special Situations fund, which now runs $2.4bn and is the biggest shareholder in troubled bank Northern Rock.

    Bigger subprime top performers include Paulson’s Credit Opportunities fund, up 550.8 per cent to the end of October, and the Subprime Credit Strategies fund run jointly by Texas-based Hayman Capital and Corriente Advisors, up 526.5 per cent
  2. This is one for the record books. It tops Livermore's windfall in the 29 crash, PTJ's windfall profits in the 87 crash, Soro's one billion dollar win against the pound, etc. One thing I don't understand is how much leverage he had on. It was probably an insane amount like 30-1 or something. I'd be interested in knowing what his unleveraged return was.
    With the exception of PTJ, these guys tend to be one trick ponies - they nail one big move with a lot of leverage and you never hear from them again.
  3. nothing wrong with just making one move and retire
  4. Nassim Taleb still had a better return with one of his funds in 1987. That was one heck of a great return though..nice call on the sub-prime bet!
  5. Yes but that's the gambling mentality. Bet it all on black (hopefully with OPM), then double down, double down, double down and hope that you get lucky. No real skills or talent involved.
  6. I disagree..this fund manager had excellent talent with fundamental analysis.
  7. One trick pony? He nailed more on one trade than most men will make on a million trades. He just won the Masters in Golf; if he chooses to retire and never play Golf again, he's still a great golfer.
  8. Really?

    I know you don't believe that, its just envy talkin'.

    In all likelihood these guys figured the play had a huge edge and went all in.

    Now fess up and admit you were talkin out yer pitutie.
  9. I wasn't trading around from 2000-2003 but there were thousands of tech companies that went bankrupt. I'm sure there were many bear funds that cleaned up during that move. And from 2003-2007 you never heard of them again. Same thing with Tim Sykes performance. In trading is really difficult to distinguish between skill and luck unless you're looking at a minimum track record of 10 years.
  10. neke


    With billions of dollars under management, I would like to think they were not going "all in". All they needed were the gains from the first bet to keep playing the same leveraged bet over and over again. They were using derivatives. I dont know which, but it is not difficult to see how someone could have cleaned up on homebuilders with, say, a consistent 30% monthly option exposure.
    #10     Nov 25, 2007