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theSun | MONDAY NOVEMBER 3 2008 21

business news

Hedge funds take a beating

HONGKONG: The aura of invincibility around But the funds lost an average of 7.7% in Rajeev Baddepudi, a senior analyst at Eu-
hedge funds, the investment pools for the the first nine months of this year, according rekahedge.
super-wealthy, has been eroded by the global to data from Eurekahedge, a Singapore-based The fallout has hit some of the world’s
financial crisis, and the fallout has helped fuel company that monitors the industry. biggest blue chip firms, including banking
ongoing market chaos. The worst-hit funds were those in Asia. giant HSBC, which had avoided much of the
Analysts say the industry – often maligned Excluding Japan, the Asian funds have lost recent turmoil in the banking industry.
for its secrecy and short-selling tactics, but more than 20% in the first nine months of Its Hongkong-listed shares fell 15% on Mon-
lauded for its lucrative returns – has strug- 2008, and more than 6% in September alone, day to its lowest close since September 2001,
gled in the economic meltdown despite its EurekaHedge found. before rebounding 20% the following day.
aim to thrive in both bull and bear markets. “I think there is going to be a lot of pain “HSBC is one of the core stocks many of There
At the same time, the industry’s aggres- within the industry,” said one Hongkong-based these funds hold. Because some of them had
sive attempts to recoup losses and the flight hedge fund manager, who added that although to liquidate on Monday, you saw the fall,”
will be a
of capital from investors worried about poor such a downturn was “inevitable”, the speed said Peter Lai, sales director at DBS Vickers, reduced
returns has helped fuel the swings on the had taken many people by surprise. who said short-selling was also to blame for number
world’s stock markets. The dire performance has taken the the chaos. of asset
Some funds have already collapsed, and lustre off the industry, which had attracted Short-selling, where funds bet the price manage-
more are under pressure with analysts pre- increasing amounts of capital in the last five of the stock will fall, is one of the key tactics
dicting that consolidation is inevitable. years. It has also led investors, including huge of hedge funds, that allows them to prosper ment
“You are already seeing a pretty phenom- institutional bodies such as pension funds, to even in collapsing markets. com–
enal change in the industry,” said Rob Lance, cut their losses, forcing some hedge funds to This week, hedge funds that bet the share panies, as
chief executive officer of Hongkong-based cash in their holdings at a loss just to pay the prices of German carmaker Volkswagen there are
hedge fund DragonBack Capital Limited. redemption requests. would fall faced catastrophic losses, as Por-
“There will be a reduced number of asset As a result, stock prices across the world sche moved to take over the firm, sending
management companies, as there are already have been dragged down. the stock into the stratosphere. reduced
reduced levels of capital to go round.” The tough times for the hedge funds The hedge funds and other investors were levels of
Hedge funds are private investment pools come on top of a deleveraging process forced to buy back the stock at hugely inflated capital to
that are typically run on behalf of a limited that was already under way, under which prices, leading some analysts to worry it could go round.”
group of wealthy investors. they have been forced by troubled banks to lead to the collapse of some funds.
The global industry, which is worth around quickly pay down the huge borrowings they “The losses will be extreme. I don’t think
US$1.7 trillion (RM6.035 trillion), has become took on to maximise their bets. it is going to bring down a big fund, but it
notorious for the huge fees the funds charge, “Deleveraging of big funds is one of will probably bring down some small ones,”
on the basis that their returns will be so spec- the biggest factors responsible for such a one unnamed hedge fund manager told the
tacular they beat conventional investments. bad month on world stock markets,” said Financial Times. – AFP

Brown urges Gulf states to

give funds to IMF
RIYADH: British Prime Minister Gordon US$250 billion (RM887.5 billion) bailout
Brown said yesterday it is in Gulf states’ facility.
interests to help countries hit by world He said on Saturday that hundreds of
financial chaos while backing a bigger role billions of extra dollars were needed to
for them in international bodies like the make sure the IMF, which is currently set
IMF. to bail out Hungary, Ukraine and Iceland,
Brown is on a four-day tour of the has enough funds to take similar action
oil-rich Gulf trying to persuade countries elsewhere.
including Saudi Arabia to give extra funds “I very much hope that as part of that,
to extend the International Monetary Fund’s you and other Gulf states will be willing
to join with other countries to
help stop the financial crisis
spreading by helping to boost the
international fund for distressed
economies,” he told a business
breakfast yesterday in Riyadh.
“I believe it is in all our
interests to stop this contagion
and to rebuild confidence in the
financial system for the future.”
He said he had discussed
the plan for extra IMF funds,
to which he also hopes China
will contribute, with its chief
Dominique Strauss-Kahn, as well
as with French President Nicolas
Sarkozy and German Chancellor
Angela Merkel.
As he seeks to persuade Gulf
states to buy into the plan, Brown
stressed his support for them
having a greater role in the IMF.
He said he supported
“reforming the international
institutions ... to give countries
like your own a bigger place in the
Saudi Arabia has “a crucial role
to play” at the G20 international
summit in Washington on Nov 15,
where its voice “must be heard,”
Brown added.
Leaders from rich nations and
emerging powers will discuss
a restructuring of the world
financial system, including the
IMF, at the meeting.
A “new global order” which
is fairer and more stable can
emerge from the recent economic
turbulence, he added on day two
of his tour. – AFP