Hedge fund legends hit by financial crisis
Drizzt:
Its abit funny to come across this Daily Telegraph post on the struggles in the hedge fund industry, or rather, hedge fund managers. I was reading HedgeHogging by Barton Briggs over last week, which essentially writes about the hedge fund managers this hedge fund manager have encountered. This article would fit right in there.
The credit crunch is exposing the masters of the universe as mere mortals after all, reports Louise Armitstead
Even for the affluent residents of London’s Holland Park, the arrival in the area last year of Gerard Griffin, head of Tisbury Capital, was big news. Curtains twitched as a multi-million-pound refurbishment of his house began. Rather than buy furniture or even appoint an interior designer, Griffin and his wife Sarah commissioned top artists to produce original work specifically for their home.
Soon the Griffins boasted a dining-room chandelier by glass artist Deborah Thomas, two installations by potter-sculptor Edmund de Waal (including a complete room of more than 600 porcelain vessels), and an architectural version of a Morandi painting in the gallery by ceramist Julian Stair. It was, Mrs Griffin modestly told one visiting reporter, "simply an extension of collecting on a domestic scale".
To the neighbours, the house had been "hedged" - snapped up and spruced up by a rich hedge fund manager. These flash Wunderkinder are branching out, and surpassing toffs, lawyers and even footballers’ wives with their reputation for ostentatious opulence.
As head of Tisbury, a $2.7bn (£1.35bn) event-driven fund founded in 2003, Griffin was the archetypal hedge fund manager: aggressive, arrogant and nearly always right. He audaciously took large positions in big public companies including ICI, J Sainsbury, EMI and Alliance Boots, and was listened to by their managements despite being smaller than other shareholders.
But just a year on from the refurbishment of his Holland Park house, this pillar of London’s hedge fund industry is on shaky ground. The latest bite of the credit crunch has caught Griffin offguard and Tisbury offside with some of its biggest investments. The fund was down 8 per cent in the first two months of the year, according to Tisbury’s monthly letter - and losses are getting worse.
The financial crisis in full
Hamstrung by the lack of liquidity and savaged by increasing redemptions, Griffin has had to negotiate new terms with his prime brokers, beg for patience from investors and offered his business for sale to bigger rivals, including GLG Partners.
One insider said: "Tisbury has gone from darling to disaster is a short space of time. Griffin is losing staff and probably won’t get much for the sale. It’s been amazing turn of fortunes."
Griffin is not alone. Some of the most successful players in the industry also have serious problems. The past month has been littered with high-profile calamities.
At the end of February, Peloton Partners, the award-winning fund run by ex-Goldman Sachs star Ron Beller, imploded. Focus Capital, another EuroHedge fund of the year, wound up days later. Then came the biggest casualty so far: the spectacular collapse of Carlyle Capital Corportation after a $16bn debt default.
Last week, it was the turn of John Meriwether, the man behind the collapse a decade ago of Long Term Capital Market. His bond fund at JWM Partners is struggling with losses of 28 per cent this month.
One industry expert told The Sunday Telegraph: "This is just beginning. Somewhere been 40 and 100 hedge funds will liquidate shortly. It’s a bloodbath and it will get worse."
Already investors are showing their fury. One said: "I thought volatility was what hedge funds lived for? Making money, or at least preserving cash, during volatile times is certainly what we pay them for. They have been poncing around during the good times and are now found wanting at the first sign of trouble. It’s a debacle out there."
Worse, the sector is being vilified for the first time in years. Hedge funds have been blamed for all market woes from the implosion of Bear Stearns three weeks ago, the collapse of HBOS’s share price days later and now the weaknesses of the entire Icelandic economy.
Away from the credit crunch, Pentagon Capital Management, a London-based fund, last week said it was winding up its $2bn funds after being embroiled in the SEC investigation into market timing.
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