Financial Times has a story out on the 1000% return of a hedge fund betting against (wait for it... wait... wait...) subprime! Shocker. Now, there is no easy way for average Joe to do what this guy did, but more power to him - this is apparently the same stuff that is helping Goldman Sachs (GS) stand above the morass. What is interesting is the manager is so negative on the entire credit spectrum (join the club, mate!) and also thinks commercial is the next dangerous area (join the club, mate!) For those who want to join that party, one UltraShort I've held since August is UltraShort Real Estate (SRS) which is actually a bet against a basket of commercial REITs. (there is no pure play UltraShort for the carnage in residential real estate, so this was my next best option.) In fact I think this UltraShort will be even better in 2008, when the economy will slow and commercial rates start falling, than it has been in latter 2007. But it's been a great hedge this year as well. And in fact I just bought more.
Nice job! And this folks is why Helicopter Ben must continue to inject liquidity by the week into the market. And why we allow things that people went to jail for at Enron to be pushed through by our Treasury Secretary - Superfund! We can't dare allow those things to go on balance sheets. At least HSBC bit the bullet and did the honorable thing. Transparency is key; even if the news is horrible. We still don't get that here in the good ole US of A. Or maybe if the full plight were known it would simply cause panic of epic proportions. Hmmm.... oh well back to the printing presses Ben. Keep printing, keep handing that money over to our responsible financial institutions and keep destroying the peso... I mean dollar. Let's inflate our way out of this... all together now... heave!
- A Californian hedge fund has made more than 1,000 per cent return this year by betting against US subprime home loans, making it one of the world’s best-performing funds of all time.
- Lahde Capital, set up in Santa Monica last year by Andrew Lahde, last week passed the 1,000 per cent mark, after fees, following the latest leg of the credit market turmoil. The fall in the value of subprime-linked securities has boosted a group of funds which spotted the problems in advance.
- The decision to use derivatives to short, or bet against, low-quality US home loans taken by a select group of hedge funds last year appears to have become the most profitable single trade of all time, making well over $20bn in total so far this year. John Paulson’s New York-based Paulson & Co, the biggest of the group with $28bn under management, is said by investors to have made $12bn profit from the trade already.
- However, Mr Lahde, whose fund is one of the smallest specialists shorting subprime, has now begun to return money to investors, telling them in a letter: “The risk/return characteristics are far less attractive than in the past.”
- In his letter, Mr Lahde said he expected the collapse in value of subprime mortgage-linked securities to be repeated for bonds backed by commercial property loans in a deep recession – which he also predicts.
- “Our entire banking system is a complete disaster,” he wrote. “In my opinion, nearly every major bank would be insolvent if they marked their assets to market.” He also said he would be putting some of his own profits into gold and other precious metals. (sound familiar folks?)
- Mr Lahde has used the phenomenal returns to boost his business, launching a fund to bet against commercial real estate this autumn – which made 42 per cent in its first two months – and is in the process of creating a third fund to short credits with a broader mandate.
- Lahde’s first fund, US Residential Real Estate Hedge V Class A, soared 712.8 per cent in the year to the end of October, before this month’s sell-off pushed it past the 1,000 per cent mark.
Long Ultrashort Real Estate in fund; no personal position