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LJM Preservation and Growth Fund, collapsed by 82 percent! (WTF?)

  1. A Mutual fund of all things! and the name "LJM Preservation and Growth Fund" Makes it sound like Capital preservation is part of the plan with some growth thrown into the mix.

    All these jokers did at LJM Partners did was take in investor money and bet all on black and they did not even bother to hedge obviously.

    I bet they collected a shit tone of fees in the process. They are gonna get hit hard with lawsuits and I would have to say they are in deep shit.

    https://www.cnbc.com/2018/02/08/fund-crashes-after-wrong-way-volatility-trade.html
     
  2. Wow, this is big. I remember when they took that 67% hit in 2008 and came back from that swearing it would never happen again.
     
  3. "Preservation and Growth Fund". At least they have a sense of humor (but I doubt the investors do).
     
  4. LOL Wow so many trophies. I bet the sucked in a lot of investors to go into that fund by showing them all these rewards they won.

    Well they were right, they did not take a 67% hit they broke new records with this 82% hit! :)
     
  5. What about 'Long Term Capital Management'?

    I think to not jinx it, its best not to do some overt marketing name.

    Definitely not bagholder fund
    Double bagger every year fund
    Best fund on Wall Street fund
    Buy low sell high fund
     
  6. It's a hedge fund, not a mutual fund.
     
  7. If I ever invest in a mutual fund again I'll pick one called 'short term capital destruction' just to be on the safe side.
     
  8. Not sure why nobody made a fund with a stupid name like that as a joke.

    Bagholder fund
    Buy high sell low fund
    Margin called often fund

    Maybe it hurts attracting investor money. Maybe that's it. It's all about marketing yourself right?

    Up bigly fund
    Yuuuuuuge money fund
    MAGA fund
     
  9. Maybe I'll Make a Moderate Profit But I Might Lose It All Capital Management.
     
  10. Hmm I remember in one of the market wizard books were a trader talked about how he opened a fund called LS. It originally stood for Larry Shag (spelling?) which was a term they had in the city he was from of a person who was a bit of a gambler or a 'gunslinger'.

    Later he told his clients it stood for long short instead, as he was afraid the actual meaning would scare clients away.
     
  11. "Preservation" 18% of capital
     
  12. that was the attraction of the Madoff scam. it was the sales pitch of a moderate consistent profit of 12% per year.
     
  13.  
  14. I'll try again.
    Maybe I'll Make a Moderate Inconsistent Profit With High Volatility But Most Probably Will Go Bust Capital Management.
     
  15. Minimum investment: $3M, so their investors are not mom and pop and supposed to be well heeled.

    Maybe they got careless after all those years of gain betting on low volatility and forgot to hedge this one time? However, they are not hurting collecting 3.3% fee. Poor investors though.:vomit:
     
  16. Here is a bit more info:
    https://www.zerohedge.com/news/2018-02-07/vol-selling-fund-disintegrates-down-80-2-days

    The question is were they liquidated? If not, a big chunk of that loss was erased during Tuesday rally.

    What happened on Monday night was a lot worse than 2008 (from options pricing perspective). Just 1 example, February Week2 1550 puts (1000 points away from the market) were trading at 9 points. This was pure madness.

    The rumor is that ETNs liquidations like XIV were part of the root cause.
     
  17. Funds should be named after the founders to keep it simple.

    Ben Dover fund would be appropriate.
     
  18. You could only lose that much if you were long xiv like 90percent or massively levered. Listed vol and gamma didn't produce that much pnl this week.

    It doesn't make sense.
     
  19. Most OPM vol sellers got pushed to the front of the curve over the past year or so. The curve has been compressed for a while and if you are gonna compete with or try to replicate XIV's performance you have to sell near dated vol where the convergence is steep which is exactly where the unprecedented 100% jump occurred.

    Then there's the tripling of margins. To be honest i am surprised there aren't much more blowups hitting the news but i guess its not over yet.
     
  20. If I remember correctly, you had some interesting long vol / short sp structures that you were trading a few months ago. Everything perform as expected during the past week or two?
     
  21. Well XIV caused alot of turbulence. I was having a dejavu from the flash crash when the VIX futures asks disappeared completely. In a situation like this you can't do anything but hope you are hedged sufficiently. There is no exit for any meaningful size so admittedly i took some hits but i am still around. I've been through enough of these and it's never fun watching the market virtually disappear in a matter of minutes. I am personally glad reckless vol sellers are blowing up left and right, it would make for a more orderly market at each vix spike in the future.
     
  22. Gotcha, thanks for sharing. I'd imagine a vol blowout like this creates some opportunities for you; although I suppose one could just as easily argue that there aren't enough data points to model environments like this, so it's best to wait for things to normalize.
     
  23. Ironically, XIV would have been a good play at these levels. The front of the curve pushing 25 would make it a nice short vol play with limited downside. Let's see how long until it's resurrected under a new name :sneaky:
     
  24. So anyone hard if LJM still in business?
     
  25. " LJM is registered as a Commodity Trading Advisor and Commodity Pool Operator with the CFTC and is a member of the NFA. The firm manages liquid alternative investment strategies with low correlation to other asset classes. "

    https://www.ljmpartners.com/about/about-us
     
  26. LJM Performance vs S&P 500 Total Return Index
    LJM Aggressive LJM Moderately Aggressive LJM P&G S&P 500
    1998 -10.16%1 n/a n/a 9.23%1
    1999 60.52% n/a n/a 21.04%
    2000 -3.07% n/a n/a -9.10%
    2001 21.02% n/a n/a -11.89%
    2002 -4.24% n/a n/a -22.10%
    2003 68.10% 22.14%2 n/a 28.68%
    2004 53.76% 38.22% n/a 10.88%
    2005 42.21% 32.08% n/a 4.91%
    2006 37.71% 31.35% 6.84%3 15.79%
    2007 21.25% 26.33% 12.56% 5.49%
    2008 -48.05% -18.69% 12.12% -37.00%
    2009 50.01% 29.18% 11.11% 26.46%
    2010 38.16% 22.78% 11.22% 15.06%
    2011 -5.10% 2.09% 8.23% 2.11%
    2012 46.48% 34.41% 10.88% 16.00%
    2013 -3.80% -4.98% -8.42% 32.39%
    2014 2.35% 3.26% 0.98% 13.69%
    2015 26.99% 20.70% 12.55% 1.38%
    2016 25.40% 19.01% 13.66% 11.96%
    2017 17.69% 17.58% 9.20% 21.83%
    2018 -7.79% -4.45% -4.74% 5.73%
    LJM Total Return 2,432.23%1 936.74%2 146.07%3
    S&P 500 Total Return 260.48%1 351.20%2 176.42%3
    LJM Ave. Annual Return 17.94% 17.08% 7.96%
    S&P 500 Ave. Annual Return 6.77% 10.69% 9.04%
    Correlation 0.28 0.21 -0.07 1.00
    Max Drawdown 63.65% 43.22% 12.64% -
    Max Drawdown Time Period Aug-Oct 2008 Aug-Oct 2008 Feb-May 2013 -
    Past results are not necessarily indicative of future results. Performance stated above is net of fees and expenses. January returns are estimated.
     
  27. I assume you were replying to me?

    Uh yes. Actually, the example merely points to irony. It's ironic that a hedge fund called Long Term Capital Management can't survive the long term. Likewise, it is ironic that a Preservation and Growth Fund can't do either claims stated in the name at the end of the day.
     
  28. Was there a portfolio manager change for this fund?
     
  29. Yeah it's tacky when the name is totally all about marketing itself.

    It's like pizza places that plaster on their windows "best pizza in town", you know they're FOS. Any time someone tries hard to market themselves, it gives me pause.

    As far as naming funds go, things like the Rentec's Medallion Fund sounds better. Nice and simple and not outrageously marketing itself in it's name with hopes and dreams and performance prowess like some others.
     
  30. All those nice little premiums they picked up like nickels on the street. And then the gamma steamroller comes along and takes it all back. And then some.
     
  31. Of course, the fund industry is all about minimal drawdowns, below average returns and as high fees as possible. The fact that most funds put more money into marketing than they do research, nothing else needs to be said. The fact that people still fall for that shit is ludicrous.
     
  32. Wasn't this the least aggressive of their 3 strategies? What happened to the "aggressive" strategy, I wonder...
     
  33. It almost makes you angry that a professional volatility fund manager with a 20 year track record would blow up on an event like that. Its gross negligence.
     
  34. If you saw the prices Monday to Tuesday night you would be in shock. S&P 500 Puts that expired yesterday 1000 points away from the market where trading around 9. Options price wise, this was the worst ever event.

    This was THE BLACK SWAN of the black swans. Even tough market decline was not too horrible option prices were like nothing anyone saw. Not even in 2008.

    Another amazing/weird thing about that night was that the spead was “tight” like within 5 points. During August 2015 it was as wide as 20 points.
     
  35. The question is were they liquidated or not by their broker.
     
  36. I've been trading vol for 17 years. It was not as bad as some other events. it was certainly inside the universe that a professional vol pm should be managing his risk towards.
     
  37. I agree. The monster in the room is that these guys were trading way too big to compensate for a sub 10 VIX to offer attractive returns. Selling vol the last couple of years was lucrative but it should not have been as lucrative as some of these funds have shown. The market has been forcing vol sellers to accept lower and lower yields. This of course was not acceptable to these funds so they sized up way beyond what should have been appropriate.

    Nobody should have been blown out by a move up to 35 in the VIX. We use to see two to three 10% corrections a year and the avg mean level of the VIX for over a decade was close to 20! This is simply a case of juicing returns to satisfy investors.
     
  38. Even in that "juicing" these guys were long the equivalent of 100percent xiv. That's ludicrous. If they were running that kind of risk they should have made at least 100percent last year.

    Perhaps they were selling tinies in massive notional compared to their equity, which exploded in value as the vix rallied. But not prudent short vol biased trader would do that.

    I can only explain it as gross negligence.
     
  39. Mav,

    You have been around for a long while, but have you seen prices Monday night to Tuesday morning ???? They were absolutely insane. On Friday when we hit lowest 5 point away from Tuesday night, option prices where moon away from what went went on Tuesday night. No one EVER saw anything like this. Think about it, I was able to sell S&P put option expiring in 4 days, 1000 points away from strike at 9 points. This was utter madness.
     
  40. I'm too young to compare against many points in the past, but what I observed on Monday night looked insane. Some of the puts maturing 2 weeks later that I bought for $2 before the super bowl were worth $80 just 24 hrs later
     
  41. How do you figure they spend more on marketing than research?

    What does research constitute? Surely it includes salaries of all the analysts and PMs a fund hires to manage a portfolio for a fund. Salaries and bonuses alone are likely higher than any marketing cost a fund will spend. The marketing all lies in going to events and schmoozing rich guys to give them money.
     
  42. Yeah.

    Take the 2500 strike ES put expiring Feb 09 that I was watching. I recalled it went from like $2 on Sunday to $100+ by the time it plunged between monday-tuesday. That's insane. You could sell puts down to 1000 on the S&P and still get decent premium. It was that crazy.
     
  43. Exactly.
     
  44. This was madness indeed. That is why LJM with all their experience could do nothing. Up until that night it was basically impossible.

    And s@p move in points was not that bad as we saw on Friday. About the same low, but options were priced normally and sagnificay less than Monday to Tuesday.
     
  45. I believe that Monday night's option prices were very similar to the sunday night in August 2015. Granted, that period of time was a lot of back and forth (up/down) in the weeks/months prior. This mini-collapse happened after more than a year of literally a handful of modest down days prior to it.
     
  46. Take a look at Apr 7-14, 2000. I remember trading at that time and it was very similar to the past week, a complete reversal of a spike up parabola. Options markets were way better in those days, there was more liquidity and spreads were not a mile wide. But that was also a 10-12% decline in a matter of days.

    There were also some truly insane days in the summer/fall 1998, the collapse after 9/11, a mini crash in the fall of 1997, plenty of examples. The main difference being that traders in that era were not nearly as complacent as they have become with the past 9 years of quant easing and volatility compression.
     
  47. If I remember correctly the ES 2200p (exp 02-09) did spike up to $60 Monday night, from roughly $1.50 intra-day. So definitely a panic episode there right as it looked like markets were headed for limit down (2512 or so).

    Edit: ES 2200p (exp 02-16-18) 0.40 intra-day to $71.50 Monday night. bid/offers a mile wide thru the next day.
     
  48. Out of those events I can only speak about 9-11, prices were no where near as bad.
     
  49. Yep, and modeling something like this would be a stroke of genuis.
     
  50. I agree with you. Prices/spreads were also tight even during the mini-meltdown in April 2000 with RAES, etc. Monday/Tuesday, there was hardly a functioning options market, which has long been speculated would be the case after years of one-way liquidity/passive investing flows, etc.
     

  51. The move was extraordinary only in that vol moved faster relative to spx than most models would have predicted. But this was not out of the realm of what a professional firm should be testing for.

    Virtually every professional vol trader will be shocking their book for the "overnight gap event." Especially a volatility seller.


    Either they were doing it and ignoring that risk (perhaps dismissing it as low probability) or they weren't doing it.

    If the first case then that's gross negligence. If the second then gross incompetence.

    It's even more shocking if you look at their past performance. Whatever they were doing in 2008 clearly they weren't doing in 2018. I get the sense whatever they were doing in 2017, they weren't doing in 2018.
     
  52. Looks like they are done. Just google LJMAX symbol.
     

  53. I calculated that with ES at 2519, with 10 days to expiration a price of 71.500 for this put would be a 122 % implied vol
     
  54. Yup looks like the name is gonna get them in big trouble.

    lost most of its value despite touting its ability “to deliver solid returns while maintaining risk parameters” in its most recent annual report to shareholders.

    “In truth, however, [the fund] was not focused on capital preservation and left investors exposed to an unacceptably high risk of catastrophic losses,” the complaint said.
     
  55. yeah I made about 8K this last few days some premiums were inflated. (I did hedge of course just in case). things are slowly getting back to normal. I do hope we keep VIX over 20s for the next few months.

    I did lose some money on a fat finger trade, My first fat finger trade ever and it cost me 600 dollars :)
     
  56. I sold some OTM SPY puts for 2.10 bucks a pop with 2 days of expiration. way above typical prices. all worthless now but imagine being able to sell these things every 2-3 days for those premiums. :)
     
  57. Today's morning was perfect example when to sell puts
     
  58. No such thing as free lunch though. If volatility stays elevated, it's also pricing a big move. Could still end up in the money. Do you sell options naked or in a spread?
     
  59. May I ask, what was the ATM straddle pricing at around the time OTM 1000 strike was trading around $9. Rough % of stock price is more than sufficient

    TIA

    PS input from all welcome.
     
  60. No idea. You can purchase data directly from CME datamine to check this out. It is cheap if you only need few days.
     
  61. Or just look at similar contracts that are still trading and work backwards on what an expired contract for that week would have roughly been.
     
  62. Will not work that way, all expectations and models went out of the window that night. No one ever saw anything like this.
     
  63. What? I know nobody expected the plunge.

    I'm talking about trying to figure out past options pricing of an expired contract at a specific point in time without subscribing to the service you suggested with historical pricing data. You can look at options pricing of contracts at strikes that are still trading today, extrapolate back to the time/date of the plunge, and based on the price of those contracts at the time and assuming even higher implied volatility of options for that week's expiration (but of course with lower theta), to then get a rough estimate of what prices were at the time of the plunge for those expired contracts.
     
  64. The funny thing is I pretty much wound down all my portfolios in Janurary and was p
    I always hedge. I like to define my risk level. The problem with companies like LJM is they did not hedge worth shit so they had no defined risk level and were greedy wanting to collect the entire thing. like they say bull and bears make money, pigs get slaughtered.
     
  65. Is their portfolio public?
     
  66. Like I said, all rules and models went out of the window that night.

    It was not the plunge (it was not that big) that was the issue, it was pricing of options. No one ever saw anything like this. Another weird thing was that the spreads were tight like within 5 points. For example, during August of 2015, the spreads were 10 to 20 points but the prices were rational. Also, last Friday when the market sold off hard and almost hit Tuesday night low, option prices were normal, way above what took place Tuesday night.

    One had to be in it trading to fully comprehend.
     
  67. They were trying to hedge with futures, which usually works but that night options were raising a lot faster that futures shorts were making. Another oddity. It was definitely a night to remember.
     
  68. As always, the problem is not the strategy. The problem is leverage.

    It is sad that those supposedly highly educated and trained fund managers still have no idea about the most important aspect of trading - position sizing.
     
  69. People are simply human after all; Your reply made me think of the bible.

    Free Will: Good vs Evil. Temptation surrounds us 24/7.
    Follow the straight path, or stray....money/greed...will you bend your morals and values and ideals for it.
    Loyal to your wife/girlfriend -- or cheat.
    Stick to a healthy diet/exercise routine...or watch TV and eat fried chicken.
    etc etc decisions that surrounds us everyday.

    All the great Wall St/trading bomb stories could have been prevented...if they were bible readers, and followers of it.
    Keep things kosher and proper in your professional and personal life. o_O
    2018...High-Five`, KK
     
  70. Well, those quotes are very helpful in life in general, not only trading.

    But when you give your hard earned money to professionals, you still expect better. Drawdowns are part of trading, they are inevitable. But blowing up the accounts in 2 days is a completely different story. I cannot even imagine what kind of leverage they had to implement to be blown up like this after 5-7% correction.
     
  71. You do not really comprehend what went on that night. LJM survived 2008, and that speaks highly of them. It was not the severity of the move (was not so bad) nor the position sizing that was the issue (no idea what it was, just assuming) it was a totally insane pricing of options that no one ever saw before. S&P 500 put expiring in 4 days 1000 points away was trading at 9. That is a very definition is risk free money if you were in position to capitalize on it.

    How imagine the price of the options few months away and let’s say 10 percent away from the market.
     
  72. Obviously none of us knows exactly what happened.

    However, I did some simulations., selling options on different strikes and expirations. With proper position sizing, they would be down 10-15%, not 50%, even with those crazy prices. The only explanation is excessive leverage and margin calls that came as a result.
     
  73. Which strikes did you assume? I'm wondering if most of their loss is due to convexity, as RedDuke mentioned the "insane" prices we both observed between Feb 5 and 6.

    It is one thing to sell a put for $100 and see it go to $400, but it is a little different if you sell 50 puts for $2 and they go to $50 and you can't delta hedge on the way down, which I believe is something they wrote in their recent letter. As spot moves down, these $2 puts have more and more vega and your delta hedge won't help much.

    My guess is that they had excessive leverage for implied vols they did not anticipate.
     
  74. I tried few scenarios. Deltas from 2 to 20.

    We had few short volatility positions too that day. In fact our whole Steady Condors portfolio is short vega and short gamma. The whole portfolio was down 3-4% that day, with all the crazy prices.

    Why can't you hedge on the way down? This is exactly what we did.
     
  75. Were your positions naked or limited? That makes a big difference with implied volatilities.

    I meant to say you can't hedge the implied vol with delta, and sell futures fast enough because it is too jumpy. Sorry for the confusion.
     
  76. I never ever do naked positions.

    Yes, it makes a big difference.
     
  77. That's my guess as well.

    If they were only trading VIX, their performance in 2017 would equate to a position of 6% long XIV (which tripled in value to earn approx. 20%). To have the loss they did in 2018 they would have then had to have 80% XIV.

    Either they changed their position drastically or they had a different risk. My guess is that they were short a lot of tails and perhaps long ATM to flatten or get long the spot gamma. The small move in the SPX didn't allow the ATM to earn while the rally in VIX caused (or was caused by) a rally in the DOTM puts which caused substantial marked to market pain. They were probably buying in the post market and that's where the insanity came from. Their book is vega flat and gamma flat but short a lot of vol gamma. If I'm right, if they were able to hold on for a week, they would have survived.

    It's still inexcusable in my opinion. But it seems more and more funds are doing stupid things like the fund last year that was trading 1x4 callspreads so that they were long that market but hedged for a down move.
     
  78. You'll never have enough delta on the downside and you will have too much on the upside.
     
  79. You mentioned that they survived 2008 - what I'm saying is that this particular fund was launched in 2013, long after 2008.
     
  80. Does anyone have any idea what happened to their Aggressive Strategy? It's supposed to be an even more levered version...
     
  81. I wonder if their hedgfunds survived and only their retail fund blew up.
     
  82. Stranger things have happened in this industry...
     
  83. I've been told that the retail funds run by prominent hedge funds are like the restaurant week menu at fancy restaurants. You feel like you are getting the real experience at a discount but aren't really.

    They are ventures to use their name brand to get management fees but you don't get the same quality portfolio. The renaissance mutual fund didn't do well if I recall.
     
  84. I think it very much depends, but yeah, it's not likely to be the special "secret sauce" stuff. I mean it's only logical, right?
     
  85. Not sure what the "special sauce" of premiumselling is, but anyway, often the mutual-fund versions have extra layers of fees, and thus underperform.
     
  86. Not a good example. The renaissance stock fund is a long only equity strategy that is highly correlated to the S&P 500. Their internal hedge fund trades everything in the world, long and short, options, futures, some of that very HFT. Completely different strategies.
     
  87. Actually, in most cases they ARE the same. I see this trend more and more now where big hedge funds are trying to access the non accredited investor market through a mutual fund version of one of their lesser leveraged strategies. Their performance is almost EXACTLY identical. The only difference is, there are actually more fees on the mutual fund, usually a high front end load that drags performance in the first year.

    I'll cite a real example. DUNN Capital Management. One of the best performing CTAs in the last 25 years offers their flagship trend following fund as a mutual fund for non accredited investors with a 5k minimum investment vs the 100k and 1 million minimums in their CTA structure. The performance numbers are identical.
     
  88. The "special sauce" is all marketing BS. A large majority of the fund space is simply harvesting risk premia and adding beta to it. Throw some fancy marketing on top of that and your kids get to go to really nice private schools and mom and dad get invited to nice cocktail parties.
     
  89. I think you were spot on earlier saying their performance just doesn't up and should be investigated. My guess is as a mutual fund they were in direct competition with XIV and perhaps in early January this guy https://www.ljmpartners.com/about/bio/yang-xu-cfa-cipm-frm comes up with the genius idea to increase leverage and get more aggressive since they were under performing. What really irks me is why fuck around with SP ops and implied vol and not just sell forward vols like everyone else. That's where the juice was. If you are gonna expose yourself to a blowup to the tune of 80% you should be earning north of 100% like XIV was.
     
  90. This is one of their "marketing" pieces.
     
  91. I dunno about this one, but I know that a few larger names in macro space have attempted to launch lower-cost "retail"(ish) vehicles (e.g. Brevan Howard). The liquidity profile of the retail offering is explicitly different, so the strategy is as well. My point was only to suggest that, if I were a traditional investor and I found that the manager is offering the same strategy at a lower cost, I might feel a bit miffed.
    I wasn't referring to LJM's specific vol strategy here...
     
  92. I don't think it is at a lower cost though Marty. For example, at least with DUNN, they outsource their mutual fund to another firm who administers the fund. They still pay the 2/20 to the actual fund and on top of that charge extra fees. It's not trivial Marty. In the case of DUNN, I think there is a 4.75% front end load plus another annual fee. That is all on top of the 2/20 which goes to DUNN itself. Fees on top of fees on top of fees. So when I say the performance is identical, the strategy itself in most cases is the same and the gross numbers are the same but the net will be lower after the higher fees.
     
  93. Here is another "marketing" piece. This one highlights their strategy a bit more and talks about how "safe" the growth and preservation fund is. :)
     
  94. Yes, back to the future. Old-time CTAs raised retail money in the 1980s/90s via public funds. Nowadays managed-futures mutual funds play the same role.
     
  95. Yes, like I said, I dunno about this specific example... Maybe. CTAs approach this differently. I am only speaking from experience with the particular corner of the market that I am somewhat familiar with.

    I am also not referring to the case where it’s specifically the same strategy, just wrapped in a listed form. In such a case, obviously, the original concerns about the underperformance of the mutual fund would be moot.

    It’s not entirely clear what the structure of LJM is. I don’t know enough about them.
     
  96. LJM have been in business for almost 20 years. My assumption that LJMAX was using similar strategy.
     
  97. The firm is in business for 20 years, but not this fund. My guess is they wouldn't survive 2008 if they implemented the same strategy then.
     
  98. Or even 2007, when vol started to perk up.
     
  99. http://www.investmentlossattorney.c...MI_KOR382z2QIVzbrACh2zcggnEAAYAiAAEgJkGfD_BwE

    If you are have suffered losses in LJM Preservation and Growth Fund, you may be able to pursue recovery of your losses through FINRA arbitration or securities litigation. Please call Kons Law Offices at (312) 757-2272 for a FREE, NO OBLIGATION consultation to discuss your investment loss recovery options.

    LJM Preservation and Growth Fund Investors Can Pursue Recovery of their Losses
    If you have suffered losses in the LJM Preservation and Growth Fund, you may be able to pursue recovery of those losses through FINRA arbitration or securities litigation due to the lack of due diligence on the LJM Preservation and Growth Fund, or an inappropriate level of risk that you were exposed to in the LJM Preservation and Growth Fund.

    According to recent news reports, the LJM Preservation and Growth Fund (LJMAZ, LJMCX, LIMIX) recently collapsed and approximately 82% of its value as a result of recent volatility in the equity markets. The LJM Funds relied heavily on a strategy that is designed to profit from calm markets. The LJM Preservation and Growth Fund, which once had $800 million in assets, ultimately closed to new capital as a result of this staggering loss.

    Short volatility strategies, selling options and collecting premium, have been critically described as a highly risky strategy that can generate very good risk-adjusted returns until volatility spikes – which creates the potential for a fund employing this strategy to lose most of their assets if not properly hedged.

    The LJM Preservation and Growth Fund had been run by Anthony Caine, a veteran of the 1990s technology boom who later founded LJM, and Anish Parvataneni, a former trader for well-known investor Ken Griffin’s Citadel. According to Thompson Reuters, despite having fees exceeding 3.3%, the LJM Preservation and Growth Fund took in $393 million in new cash from investors in 2017, which was its best-ever sales since launching in 2013.

    Brokerage Firms Had a Duty to Conduct Proper Due Diligence on LJM Preservation and Growth Fund
    Securities broker-dealers have a regulatory duty to ensure that any investments they recommend to customers are suitable for them. This is especially important for brokerage firms selling complex investments like the LJM Preservation and Growth Fund.

    FINRA Rule 2111 (NASD Rule 2310) requires that securities broker-dealers to conduct a suitability analysis when recommending securities to investors that will take into account the investors’ knowledge and experience. The brokerage firm must make reasonable efforts to gather and analyze information about the customer’s other holdings, financial situation and needs, tax status, investment objectives and such other information that would enable the firm to make its suitability determination.

    In addition to ensuring that securities are suitable for its customers on an individual level, FINRA Rule 2111 (NASD Rule 2310) also states that a securities broker must have reasonable grounds to believe that a recommendation to purchase, sell or exchange a security is suitable for the customer. This “reasonable-basis” suitability requirement means that in the context of complex investments like the LJM Preservation and Growth Fund, or any of the LJM Funds, brokerage firms have a duty to conduct due diligence on:

    • The LJM Preservation and Growth Fund and its fund managers;
    • The business prospects of the LJM Preservation and Growth Fund;
    • The investment strategy of the LJM Preservation and Growth Fund;
    • The claims being made by the LJM Preservation and Growth Fund; and
    • The potential risks of investing clients in the LJM Preservation and Growth Fund.
    Brokers and brokerage firms “may not rely blindly upon the fund manager for information concerning the fund,” nor may it rely on the information provided by the fund manager lieu of conducting its own reasonable investigation.

    LJM Preservation and Growth Fund Investors May Be Able to Pursue Recovery of their Losses through FINRA Arbitration
    Fortunately for investors, they may be able to recover their investment losses in the LJM Preservation and Growth Fund through FINRA arbitration or securities litigation against the stockbroker, brokerage firm, or investment adviser that recommended the LJM Preservation and Growth Fund to them.

    If you are have suffered losses in LJM Preservation and Growth Fund (LJMAZ, LJMCX, LIMIX) or any other LJM Fund, you may be able to recover your losses through FINRA arbitration or securities litigation. Please call Kons Law Offices at (312) 757-2272 for a FREE, NO OBLIGATION consultation to discuss your investment loss recovery options.

    Kons Law Offices represents investors nationwide in securities arbitration and litigation matters. To learn more about the Firm’s securities litigation and FINRA arbitration practice, please visit www.investmentlossattorney.com.
     
  100. Here is the "dear investor letter" from Tony himself.