Just give up.
Andrew Lahde (he of the 1000 per cent returns) has.
He’s shutting down his Short Credit fund in the name of preserving profit. From the FT:
The Short Credit fund being closed was set up last December to bet mainly against the credit quality of banks and broker/dealers, with some broader bets against corporate credit indices, using credit default swaps.
One investor said it was up about 40 per cent this year at the end of August, depending on the share class, although exact numbers had not yet been calculated. Mr Lahde said it would be up ‘double digits - missed the triple or quadruple digits with this one’.
Lahde’s fund got its basic investment premise right - it bet against the debt of banks and broker/dealers. By using over-the-counter derivatives to do so however, it simultaneously exposed itself to bank failure (counterparty risk).
Bit of a credit Catch-22 there - and that’s why Lahde’s pulling out.
This is an attractive, albeit finite, strategy. You’re cashing in your chips before they’re gambled away.
But, it can also be read as either very defeatist or very prescient.
Hedgefunds are supposed to beat the market - producing the alpha part of this web site’s name. If an investor like Lahde sees no way of them being able to do that in current circumstances, then we’re all in big trouble. Let’s hope then, that he’s just being a bit lazy.
Related Links
More detail about the Short Credit fund’s investments here and here - FT Alphaville.
