Originally posted by AtW
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Hedge funds these days
Tempus: Pain in the A
Carlyle Capital Corporation admitted today it is likely to be liquidated after failing to reach an agreement with its lenders
If Carlyle, one of the world's largest and most influential private equity groups, could not rescue its mortgage-backed fund, you have to wonder who can.
Banks had every reason to help Carlyle. Carlyle Capital Corporation (CCC) was one of 56 different funds owned and managed by the Washington based group. Banks have earned millions (probably billions over the years) in fees from Carlyle so it was in their interests to work hard to get a deal done. (AtW's comment: no you numpty, banks earnED the money and now they do a runner - they are not stupid to risk their own money now)
But in the end, so great was the fear on Wall Street that the banks decided to pull the plug. And where Carlyle has fallen, dozens of others are bound to follow. Like Peloton before it, any highly leveraged hedge funds invested in mortgaged backed securities are likely to topple.
The defence that the assets are triple-AAA rated and US government-backed no longer holds any water. The contagion of sub-prime has moved to prime, and with it billions of dollars worth of carnage will follow. As more than $16 billion of Carlyle's assets hit the market, prices will fall further and other banks will rush to liquidate their positions.
Witness Drake Management, the New York based hedge fund which has warned it may have to close its fund, and GO Capital Asset Management, the Amsterdam investment group that has frozen its $881 million fund.
One by one, the funds will be forced into messy and public liquidations. And once the banks have moved through hedge funds, the next target is likely to be private equity. Billions of dollars worth of deals were done in the heyday - all using mountains of cheap debt and only the tiniest slices of equity. As the financial world unwinds the leverage of the last five years the pain looks like only just beginning.
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"Hedge
Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract."
When I had my first job while still in Soviet Russia I worked for a small company that had "Hedge" in their name - it was good choice of words as the word itself is good - hedge risk, but here with those "hedge funds" actually the risks were much higher in the first place, it's like criminals would put a label saying "police", those guys who started them years ago should have been done for false advertising and misleading statements ages ago - highly leveraged bets that are effectively designed to manipulate the market - if I was in charge the economy would be well and those guys would be figuring our how to hedge their
'es in the showers of a big purpose build building just for them 
truly down the pan
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