The collapse of Peloton or certainly of its major hedge fund has given the financial media a good news hook for its coverage of the story. Peloton is a term from cycling describing the mass of cyclists in a race, all bunched together. When one falls in the peloton he or she can bring down many others. For journalists that image is a powerful one suggesting wider ramifications not just the fall of one hedge fund.
Today's Financial Times (6th March) covering Pelton's public apology to its investors suggests that problems for hedge funds are increasing as banks are requiring much higher margins to lend to hedge funds. Mr Beller, the former Goldman Sachs trader who along with other Goldman Sachs' colleagues founded the company was quoted as saying "In some cases, he said, margin requirements doubled or tripled the cash required to be put up to buy loans – moves that also threaten other leveraged investors."
The remarkable collapse of Peloton's ABS Fund - valued at £2bn in January to near worthless today - has actually led so far to little schadenfreude on behalf of the media. Schadenfreude being the German word for pleasure in someone else's misfortune. But the fact that the banks are requiring so much extra margin to lend to even supposedly well run hedge funds, does illustrate that the business model of some or many hedge funds can be particularly vulnerable to external shocks. Perhaps it is time for all the major investors to take their money out of hedge funds and put them into a nice safe bank account - such as in Lichtenstein, as long as you have told the tax authorities.
Thursday, 6 March 2008
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