hedge funds are poor investments

Discussion in 'Wall St. News' started by zdreg, Jul 10, 2008.

hedge funds by their structure are poor investments

  1. no

    6 vote(s)
  2. yes

    6 vote(s)
  3. rarely

    0 vote(s)
  4. mostly

    3 vote(s)
  1. zdreg


    Devaney's Funds Wiped Out After United Capital Gets Margin Call

    By Jody Shenn and Caroline Salas

    July 10 (Bloomberg) -- John Devaney is liquidating hedge funds at his United Capital Markets Holdings Inc. after failing to meet a margin call from Deutsche Bank AG.

    Deutsche Bank seized and auctioned off collateral after the Horizon group of funds failed to meet the bank's demands, according to a letter to clients obtained by Bloomberg News yesterday. The funds were frozen a year ago because of wrong-way bets on mortgage securities.

    ``The survival of the funds and any potential recovery for their investors has been dependent on these lenders continuing their relationships with the funds,'' Devaney wrote in the letter dated July 9. United Capital is based in Key Biscayne, Florida.

    The global credit rout spurred by the collapse of the subprime-mortgage market has led firms from Sailfish Capital Partners LLC to Peloton Partners LLP to liquidate funds or shut down this year. Fixed-income hedge funds are among the worst- performing groups, according to data compiled by Hedge Fund Research Inc. in Chicago. Hedge funds overall have lost 0.2 percent this year through May, Hedge Fund Research said.

    Devaney, 38, said in an interview that he decided to liquidate bonds backing a smaller credit line from Pershing LLC and that Pershing ``has been extremely cooperative'' as a lender and clearing agent. Pershing gave the funds loans in excess of the worth of their collateral because of a personal guarantee by Devaney, the founder and chief executive officer of United Capital, the investor letter said.

    No Equity

    ``Since the funds currently owe Pershing more than the market value of the bonds still held by the funds, we are expecting that there will be no equity remaining and that the funds will be fully liquidated,'' Devaney said in the letter.

    Michael Geller, a spokesman at Pershing, an affiliate of Bank of New York Mellon, declined to comment. Renee Calabro, a spokeswoman for Deutsche Bank in New York, didn't immediately comment.

    The Horizon funds had held most of United Capital's assets under management, which stood at about $619 million as of March 2007, according to the firm.

    Devaney, who bought the mansion featured in the 1983 Al Pacino movie, ``Scarface,'' founded United Capital Markets in 1999. The firm, which is also a broker, specializes in trading asset-backed bonds with low ratings or ones being dumped en masse, such as aircraft-lease securities after the September 2001 terrorist attacks.

    The Horizon ABS offshore fund, which gained almost 40 percent in 2006, stopped investors from taking money out during July 2007, Devaney said in a statement at the time.

    Bear Stearns

    A month before Devaney's funds froze investor redemptions, two Bear Stearns Cos. funds collapsed as declines in mortgage- bond prices began to accelerate, losing all of investors' $1.6 billion. The world's largest banks and securities firms have reported $400 billion of writedowns and credit losses since the beginning of 2007, stemming from the collapse of the subprime mortgage market.

    In February, Devaney said at a conference that there was as much as a 20 percent chance that a ``major international investment bank'' would fail. About a month later, Bear Stearns collapsed.

    Losses, mainly from mortgage bonds and collateralized debt obligations, forced Devaney to sell his 142-foot (43-meter) yacht, a jet and real estate last year. CDOs package pools of debt then slice them into pieces with varying ratings and risk.

    To contact the reporters on this story: Jody Shenn in New York at jshenn@bloomberg.net.; Caroline Salas in New York at csalas1@bloomberg.net
  2. The happiest days of a boat owner's and plane owner's life......the day he buys those toys AND the day he sells them. :cool:
  3. normal banks generally don't lend money to market speculators at prime rate.

    these hedge funds are lucky or previlleged to even have the banks lend them money to invest in bonds, stocks.