Conspiracy Theories

[thepennyking]

Sometimes there is such a thing as a reverse conspiracy theory whereby a large group (the masses) are moved to take certain actions by smaller disorganized unaffiliated and disenfranchised groups who somehow manage to come together for a particular offensive against those secret societies who keep them in the dark for extended periods of time. This is the chaos theory at work. A good example can be found at the history of www.chaordic.org.

For another example, hedge funds were all the rage for wealthy investors just less than 6 months ago, with many of them using huge amounts of borrowed funds to short various stocks. Now over half of them are finding themselves in deep trouble after covering over 1 trillion in outstanding short positions during the past 8 weeks. Now that they have mostly covered, the are counting up their losses which will further depress the markets as the bad news rolls out:

Big Bond Mgrs Find Hedge Fund World Rough Sleddin
Large, total-rate-of-return bond managers such as PIMCO, Miller, Anderson & Sherrard, BlackRock


Large, total-rate-of-return bond managers such as PIMCO, Miller, Anderson & Sherrard, BlackRock and Alliance Capital Management have been suffering of late with their captive hedge funds. Hedge funds managed by all four firms are down considerably, due in large part to poorly hedged bets across the credit and mortgage-backed spectrum, as well as the National Century Financial Enterprises asset-backed scandal.
For example, bond market behemoth PIMCO's global relative value (GRV) fund, launched last April, is down 6.54% through the end of October. Calls to Bruce Brittain, director of hedge fund products at PIMCO, and Vineer Bhansali, portfolio manager, were not returned by press time last Friday. John Loftus, PIMCO's partner in charge of hedge fund development, declined to comment. An individual with knowledge of PIMCO's results says this month should erase some of the losses, speculating that returns may come in as high as 4%.

Hedge fund of funds managers also point to Morgan Stanley's Miller, Anderson unit as having suffered sharp losses, with several managers putting its losses this year above 10%. A call to David Armstrong, co-manager of its hedge fund, was not returned as by press time.

Alliance's High-Grade Strategy Fund, launched in January 2001, has been down two out of the last three months, losing 1.75% in October. Observers say ACM's fund will almost certainly be down in November as it realizes losses from its (firm-wide) $188.5 million bond position in the ABS of bankrupt NCFE. A call to ACM spokesman John Meyers was not returned by press time.

Hedge fund of fund managers point to BlackRock's Obsidian fund, which, at nearly $2.5 billion in assets is one of the largest captive hedge funds in the sector, as another that has been creamed. It is reportedly down 18% year-to-date, say several fund-of-fund managers. Keith Anderson, the manager of the fund, was traveling late last week and did not return a phone call seeking comment. Several investors in the fund say disastrous bets on corporate credit and the swaps market (paying versus receiving) are the basis of the losses.

The losses by the hedge funds are even more striking in comparison to the performance of independent fixed-income arbitrage hedge funds. For instance, MKP Capital Management's $480 million mortgage-backed securities oriented MKP Partners L.P. fund is up 20.86% year-to-date and has not shown a down month since December 2000, according to HedgeFund.net. Even more telling is the performance of MKP's $140 million credit fund, which has a higher securities selection correlation to the captive hedge funds, and is up 10.43%.

Richard Brounstein, the head of marketing at $2.1 billion in assets Ellington Capital Management in Old Greenwich, Ct., says the differential in performance is likely a function of the fact that the large managers' hedge funds have substantial MBS exposure, without a concomitant depth of MBS management experience.



Penny King Holdings Corporation, a Delaware Investment Holding Company.