Wednesday, August 01, 2007

Hedge Funds Slip on Their Grave-Dancing Shoes

Here come the grave dancers. As the credit market continues to tighten, opportunistic hedge funds are coming out of the woodwork to pick over the debris. Meanwhile, other funds are also taking advantage of dislocations in the credit markets to quickly raise funds to put to work.

In his latest graveside watusi, Kenneth D. Griffin’s Citadel Investment Group snapped up ailing Sowood Capital Management’s portfolio, after the fund lost more than half its value since beginning of the summer.

For example, Silver Point Capital, a multibillion hedge fund in Greenwich, Conn., started by two Goldman Sachs executives, is seeking to raise opportunistic funds, according to The New York Times.

And Marathon Asset Management, a $9 billion hedge fund firm focused on debt markets, is planning a new fund that will buy distressed mortgage-related assets to take advantage of the carnage in the subprime home loan business, according to MarketWatch.

The new fund, the Marathon Distressed Sub-Prime Fund, will begin taking commitments from investors in August, MarketWatch said, citing a letter sent to clients by Marathon’s president, Bruce Richards.

“The meltdown in the subprime mortgage market has been absolutely stunning, and given this significant opportunity, Marathon has decided to roll out this fund,” Mr. Richards reportedly wrote in the letter.

Citadel’s Mr. Griffin is one of the original grave dancers, The New York Times says, earning that sobriquet within the industry because of his penchant for taking advantage of these opportunistic transactions.

His Sowood deal echoes Citadel’s move last year to buy the distressed energy book of Amaranth Advisors, the $9 billion hedge fund that lost $6 billion in one week last year.

Both Sowood and Amaranth got caught with leveraged positions — bonds and derivatives — whose value plummeted in a remarkably short time in markets with few buyers and with lenders that started demanding more collateral.

After the collapse of Enron, Citadel hired several of its energy traders and started an energy-trading business amid dramatic dislocations in the market.

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Lunch is for wimps

Lunch is for wimps
It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.