One of the most sucessful hedge funds, Citadel loses 22% in October

Parent Cafe
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<p>That’s not too good.</p>

<p>[CITADEL</a> INVESTMENT GROUP POSTS 22% LOSS IN OCTOBER - New York Post](<a href=“BUSINESS 0.5”>BUSINESS 0.5)</p>

<p>"The Chicago-based hedge fund lost about 22 percent last month, which followed a 16 percent loss in September. October’s loss was Griffin’s biggest setback since he launched the now $18 billion fund nearly 20 years ago with $1 million in capital. </p>

<p>Year to date, Griffin’s Wellington and Kensington flagship multi-strategy hedge-fund vehicles are down 38 percent, according to people familiar with Citadel’s performance. </p>

<p>The carnage underscores what is turning out to be an abysmal run for Griffin and other high-profile hedge-fund titans. </p>

<p>According to Hedge Fund Research, hedge funds lost 8.4 percent in October, racking up the industry’s worst performance in a decade thanks to the stock market’s wild gyrations. </p>

<p>Sources tell The Post that despite the flagging performance which has walloped Griffin over the past two months, the hedge-fund manager is sanguine about credit markets, which appear to be thawing after a long freeze, and about the prospect that Citadel will emerge from the crisis stronger."</p>

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<p>[FT.com</a> / Home UK / UK - Goldman Sachs to reduce hedge fund client numbers](<a href=“http://www.ft.com/cms/s/0/b52d03aa-aba3-11dd-b9e1-000077b07658.html?nclick_check=1]FT.com”>http://www.ft.com/cms/s/0/b52d03aa-aba3-11dd-b9e1-000077b07658.html?nclick_check=1)</p>

<p>"Goldman Sachs is cutting back the number of its hedge fund clients in an indication of tougher market conditions and of the changes sweeping through what was once the premier investment bank.</p>

<p>“Their ability to leverage themselves has been affected by their new reiteration,” says George Kellner, founder of hedge fund Kellner, DiLeo. “They are reviewing many of their relationships.”</p>

<p>That review is especially intensive for hedge funds pursuing strategies that involve trading securities that aren’t very liquid, such as convertible bonds, or that rely on the massive use of borrowed money, such as the computer-driven strategies that seek to profit from small price discrepancies.</p>

<p>During the bull market, such strategies appeared liquid and borrowing was cheap. But in recent months, prime brokers raised the cost of funding and many hedge funds were forced to sell convertible and junk-rated bonds that dealers can’t readily lend. Such securities have become “dead-end collateral” in Wall Street parlance.</p>

<p>People familiar with Goldman say it has long had the practice of reviewing its client list every year and winnowing out the least profitable and leverage-dependent relationships. These people add that earlier in the year, when hedge funds first became nervous about Bear Stearns - and later Lehman Brothers and Merrill Lynch - and moved their prime brokerage business, Goldman expanded its prime brokerage client list.</p>

<p>Still, the magnitude of cuts at Goldman is far more dramatic this year, clients and rivals say. “For the first time, as opposed to annually, a flurry of clients are telling us Goldman has asked them to move off their platform,” says the head of prime brokerage at one competitor. “Goldman Sachs, which is arguably the most efficient broker-dealer, looked uptown at Lehman and Morgan Stanley and said we need to protect ourselves from illiquid securities,” this person adds.</p>

<p>People familiar with the matter insist the cutbacks have more to do with the changing of hedge fund circumstances and market conditions than Goldman’s changed circumstances, though. A spokesman says “We don’t anticipate any impact on our prime brokerage business as a result of becoming a bank holding company.”</p>

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<p>Even hedge funds that were somewhat successful have had to sell holding because of redemptions.</p>

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<p>Yes…</p>

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<p>[Markets</a> hurt as hedge funds sell off stock | The Australian](<a href=“http://www.theaustralian.news.com.au/business/story/0,28124,24617538-36418,00.html]Markets”>http://www.theaustralian.news.com.au/business/story/0,28124,24617538-36418,00.html)</p>

<p>“Many funds are dealing with deep losses, and because some of them have barred or limited withdrawals, investors now are turning to healthier funds to get their hands on cash.”</p>

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<p>[Hedge</a> funds lost 5.43% on average in October, HFR says - MarketWatch](<a href=“http://www.marketwatch.com/news/story/Hedge-funds-lost-543-average/story.aspx?guid={E27BCFC6-E66E-441C-96A6-56B365DDB3B3}]Hedge”>http://www.marketwatch.com/news/story/Hedge-funds-lost-543-average/story.aspx?guid=&#37;7BE27BCFC6-E66E-441C-96A6-56B365DDB3B3})</p>

<p>“Hedge funds lost 5.43% on average in October as the financial crisis hit the $1.7 trillion industry hard, Hedge Fund Research said on Friday. Those declines left HFR’s main hedge fund index down 15.48% so far in 2008. Convertible arbitrage managers lost the most last month, ending down 19.18%, HFR said. Macro hedge funds that use systematic, often computer-driven trading strategies, performed the best, returning 7.52% in October.”</p>

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<p>[Blackstone</a> sheds light on the real private-equity industry - MarketWatch](<a href=“Myth-busting Blackstone - MarketWatch”>Myth-busting Blackstone - MarketWatch)</p>

<p>"The myth that private equity firms make their money from making portfolio companies leaner and meaner is in danger of getting busted.</p>

<p>Blackstone Group LP posted a net loss of $340.3 million, or $1.27 a share, compared with a net loss of $113.2 million, or 44 cents a share, a year earlier. Revenue was negative $160.3 million, compared with $526.7 million a year ago amid lower values for its portfolio holdings across its corporate private equity, real estate and alternative asset management businesses"</p>

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<p>[Debt</a> from private-equity deals could pinch many companies - International Herald Tribune](<a href=“http://www.iht.com/articles/2008/11/03/business/equity.php]Debt”>http://www.iht.com/articles/2008/11/03/business/equity.php)</p>

<p>"Debt from private-equity deals could pinch many companies</p>

<p>NEW YORK: Private equity firms embarked on one of the biggest spending sprees in corporate history for nearly three years, using borrowed money to gobble up huge swaths of industries and some of the biggest names - Neiman Marcus, Metro-Goldwyn-Mayer and Toys “R” Us, among them.</p>

<p>The new owners then saddled the companies with the billions of dollars of debt used to buy them. But now many of the loans and bonds sold to finance the deals are about to come due at the worst possible time. Like homeowners with adjustable-rate mortgages that just went up, some of private equity’s titans are facing a huge squeeze. And that is coming at the same time as consumers are staying home with their wallets closed.</p>

<p>Already this year, big U.S. retailers backed by private equity, like Linens 'n Things, Mervyn’s and Steve & Barry’s, have filed for bankruptcy. And analysts expect an even broader array of companies backed by private equity - including resorts like Harrah’s Entertainment and lenders like GMAC, the financing arm of General Motors - to face more pressure as profits shrivel and creditors come knocking.</p>

<p>On Monday, the problems for private equity deepened. Kohlberg Kravis Roberts, the leveraged buyout firm, said it would postpone its plans to go public as the credit crisis worsened.</p>

<p>“There’s absolutely going to be a lot of pain to go around,” said Josh Lerner, a professor of investment banking at Harvard Business School, who wrote a seminal paper on private equity. “The big question is how apocalyptic it will be.”</p>

<p>The shakeout could have enormous implications for both the U.S. and the global economies: People who work for companies owned by private equity firms could lose their jobs as the companies cut costs to meet debt obligations. And private equity firms like Apollo Management, which owns Harrah’s and Linens 'n Things, face deep markdowns on the value of their holdings."</p>

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<p>“Hedge funds lost 5.43% on average in October as the financial crisis hit the $1.7 trillion industry hard, Hedge Fund Research said on Friday. Those declines left HFR’s main hedge fund index down 15.48% so far in 2008”</p>

<p>Compared to the typical mutual fund, losing 5.43% in October is great!</p>

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<p>Peoiple seem to be freaking out when it comes to hedge funds because …</p>

<p>This is arguably their worst perfromance ever.
Many of them use incredible leverage.
Many of them invest in very illiquid assets.
It can be difficult to withdraw your money from hedge funds.
Hedge funds charge enormous fees.</p>

<p>There are going fewer hedge funds in the near future. Maybe close to half are going to shut down. It’s getting worse by the day.</p>

<p>Hedge funds are doing much better than mutual funds.</p>

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<p>[Too</a> many excuses from Wall Street - MSN Money](<a href=“http://articles.moneycentral.msn.com/Investing/StrategyLab/Rnd18/P1/SkepticalCapitalistJournal20081105.aspx]Too”>http://articles.moneycentral.msn.com/Investing/StrategyLab/Rnd18/P1/SkepticalCapitalistJournal20081105.aspx)</p>

<p>"There is a very legitimate reason many investors have taken to calling their 401(k) plans by the catchy new name “201(k).”</p>

<p>According to the most recent data compiled by the Wall Street Journal, one of every 10 mutual funds with at least a one-year track record has lost at least half of its value in the previous 12 months, and more than 100 funds were down at least 60%.</p>

<p>That represents many so-called “investing experts” who actually charged money to lose half of their investor’s cash. After a period like this, why would anyone in their right mind be surprised by the public backlash against Wall Street bonuses and bank bailouts, or by doubt about the sustainability of the capitalist system in general? </p>

<p>Sorry, but losses matter
But what surprises me the most that these experts actually have a nerve and arrogance to come on TV and say something like this: “You know, our models utilize a very long-term strategy and thus the fact that we lost half of your money is really irrelevant in the short term.” Or maybe even something like this: “Based on X historical trends and other X factors, the intrinsic value of securities in our portfolio represents a very attractive proposition, and these price declines are only temporary?”</p>

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<p>Yes, I agree with this - it is truly astonishing. Most people I know are afraid to look at their 401k plans - just like deer in headlights. How the mutual funds take such advantage of the clueless investor!</p>

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<p>We would be fired if we managed our money like that. I think some people have left the market and never return.</p>

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<p>Perhaps - I hear people around me say that this has eliminated a whole generation of investors - never to return. I heard the exact same words in 2001 during which some people I know did pull out their money and are now laughing at those who kept it in.</p>

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<p>I don’t know how anybody can ask people to invest money with them after losing 50% of their money under management.</p>

<p>Some people have chutzpah.</p>

<p>Some people associate money managers with intelligence when most of the time, money managers just have bigger bal@@. I could never solicitate money from investors with these kind of performances. A friend of mine says, “You can’t embarrass a whore”.</p>

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<p>I don’t have the link to an article that has an example where an investor came out ahead if this person had put the money under the mattress.</p>

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<p>Especially for active management fund and not index fund.</p>

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<p>“I don’t have the link to an article that has an example where an investor came out ahead if this person had put the money under the mattress.”</p>

<p>If you look at the following chart, you can see where having your money in a mattress since 2001 might be better than having your money in the stock market.</p>

<p><a href=“^GSPC Interactive Stock Chart | S&P 500 Stock - Yahoo Finance”>http://finance.yahoo.com/echarts?s=&#37;5EGSPC#chart1:symbol=^gspc;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined&lt;/a&gt;&lt;/p&gt;

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<p>Not to change the topic but does anybody know where I can get historical intraday stock price data for free? Yahoo only has daily data and I’m trying to more finely backtest my models.</p>

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<p>DocT, I reread your post.</p>

<p>Ok. I see what you want.</p>

<p>It has to be out there.</p>

<p>I don’t know. </p>

<p>Sorry.</p>