Definition of 'Blow Up'

Discussion in 'Risk Management' started by slacker, Aug 26, 2007.

  1. slacker


    What is the common definition of the term 'blow up' as in "his hedge fund blew up in 1999"?

    Is it 'the market moved against him and margin calls rendered the fund insolvent and in debt"? Investors get no money back.... The business of the fund failed and everybody ruined.


    I believe I read in Put Bull that Schwartz said that when redemptions were greater than 20% the fund would usually close because the numbers were so bad that it is easier to close the fund and start a new fund than to carry that year's results on the books. Investors get some money back. The business failed but investors are still alive but not whole.


    when redemptions of a major percentage of investors exceeded the ability of the fund to continue. In this case investors get some of their investment returned.

    Is the term 'blow up' reserved only for those occasions when investors do not recover some of their funds?

    If so, how little need the investors receive to avoid saying that the fund had blow up?

    I have no experience with hedge funds that have blown up thankfully and would like more experienced posters thoughts and comments.

    Thank you!
  2. squall


    couldn't have defined it better myself, compadre
  3. Blow up refers to the fund losing most of it's money.
    Good example would be 90+%
  4. I'd say Timmay has a good head start then.

  5. Heheheheheh....

    Got to diversify with the books.

    Well, investment are not just stocks and futures.
  6. yeah he's gotta do something alright.
  7. In the current era, losing an amount of capital in a measurement period which causes the current investors to request redemption at a rate which affects the fund's ability to continue as a going concern.

    Many fund OM's state the fund will be required to wind down if the loss is n%.

    Often a fund manager voluntarily winds a fund down after suffering a loss which blows out his capital account balance. Choosing to start a new fund without being in a negative.

    Or taking in enough new capital contributions to enable a smaller gain to replenish the investors capital accounts., ie Goldman receiving a massive infusion from Broad and Greenberg.

    Richard Dennis's Futures Fund in 1988 'blew up' and was wound down when he suffered a 50% haircut. The fund was underwritten by Drexel Burhnam. The offer memo stated the fund would be shut down if it sustained a 50% haircut.

    90% isn't a blow is a 'crime scene'.