By Saijel Kishan Nov. 6 (Bloomberg) -- Platinum Grove Asset Management LP, the hedge-fund firm co-founded by Nobel laureate Myron Scholes, temporarily stopped investor withdrawals from its biggest fund after it lost 29 percent in the first half of October. The decline left Platinum Grove Contingent Master fund with a 38 percent loss this year through Oct. 15, according to investors. Funds employing a similar approach of exploiting differences in the value of related securities fell 14 percent last month and 30 percent this year, according to data compiled by Chicago-based Hedge Fund Research Inc. ``The suspension is necessary given current market conditions,'' Ryebrook, New York-based Platinum Grove said in an e-mailed statement today. ``Platinum Grove will use this period to consult with its investors and counterparties, determine their future intentions and manage the assets of the fund accordingly.'' Hedge funds are reeling from the worst financial crisis since the Great Depression, losing an average of 20 percent this year, according to Hedge Fund Research. A surge of investor redemptions forced firms such as Blue Mountain Capital Management LLC and Deephaven Capital Management LLC to freeze funds to stem the tide of withdrawals. Scholes, 67, winner of the 1997 Nobel Prize in economics, was a founding partner in Long-Term Capital Management LP, the hedge fund that lost $4 billion a decade ago after a debt default by Russia. He started Platinum Grove in 1999 with Chi-fu Huang, Ayman Hindy, Tong-sheng Sun, and Lawrence Ng, who had all worked at Long-Term Capital. $4.8 Billion Platinum Grove managed as much as $4.8 billion as of Aug. 31, according to investors, while its Platinum Grove Contingent Master fund oversaw $3.75 billion. Investors worldwide may pull as much 25 percent of their money from hedge funds by the end of the year, Morgan Stanley said in an Oct. 24 report. Combined with investment losses, industry assets may shrink to $1.3 trillion, a 32 percent drop from the peak in June, the New York-based bank said. Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets, bet on falling as well as rising asset prices and participate substantially in profits from money invested. To contact the reporter on this story: Saijel Kishan in New York at skishan@bloomberg.net http://www.bloomberg.com/apps/news?pid=20601087&sid=aWQVwbD5Hfxw&refer=home
it's no wonder, since entire strategies are formulated around years of normal behaving data. So now, we have had another significant cluster of fat tail events just 20 years later from 87. Looks like even the power law models are getting outdated. Used to be 1 black swan in 100yrs , now we are approaching n black swans per decade. Good luck to formulating reliable strategies around that.
Power law concept can help explain why we have more of these events lately. In short, there are MORE highly concentrated money power houses playing various markets since 2003. It is known that most market participants are not important. Only those power houses matters. e.g. If a casino let all the players to bet unlimited amount of money, then given enough power house players playing against the casino, it will go bankrupt - very fast.
these guys know they are going to blow up they just try to get as much money under management until they do. They are not sitting in their offices going oh man I can't believe I got wiped out. My life's work proven wrong... What am I gonna do now. They are already working on their next marketing scam.
thing that surprises me YTD, none of the option sellers have crawled out from their rocks and collapsed yet.
Well, I for 1 don't feel sorry for those they fleeced. A lot of people out there need to be parted from their money.
There must be tons of HFs that our totally cooked. I still think Citadel is totally finished, but we havent heard about it yet