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Hedge Fund Grows 1,000 Percent

By James Mackintosh,

Financial Times

Posted: 2007-11-27 10:48:55

A Californian hedge fund has made more than 1,000 per cent return this year by betting against US subprime home loans, making it one of the worlds best-performing funds of all time.

Lahde Capital, set up in Santa Monica last year by Andrew Lahde, last week passed the 1,000 per cent mark, after fees, following the latest leg of the credit market turmoil. The fall in the value of subprime-linked securities has boosted a group of funds which spotted the problems in advance.

The decision to use derivatives to short, or bet against, low-quality US home loans taken by a select group of hedge funds last year appears to have become the most profitable single trade of all time, making well over $20bn in total so far this year. John Paulsons New York-based Paulson & Co, the biggest of the group with $28bn under management, is said by investors to have made $12bn profit from the trade already.

However, Mr Lahde, whose fund is one of the smallest specialists shorting subprime, has now begun to return money to investors, telling them in a letter: The risk/return characteristics are far less attractive than in the past.

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In his letter, Mr Lahde said he expected the collapse in value of subprime mortgage-linked securities to be repeated for bonds backed by commercial property loans in a deep recession which he also predicts.

Our entire banking system is a complete disaster, he wrote. In my opinion, nearly every major bank would be insolvent if they marked their assets to market. He also said he would be putting some of his own profits into gold and other precious metals.

Mr Lahde has used the phenomenal returns to boost his business, launching a fund to bet against commercial real estate this autumn which made 42 per cent in its first two months and is in the process of creating a third fund to short credits with a broader mandate.

Lahdes first fund, US Residential Real Estate Hedge V Class A, soared 712.8 per cent in the year to the end of October, before this months sell-off pushed it past the 1,000 per cent mark.

There is no reliable data on how many other funds have made 1,000 per cent, or ten times the investment, in a year. But RAB Capital, London hedge fund manager, shot to prominence in 2003 when it returned 1,475.5 per cent in its Special Situations fund, which now runs $2.4bn and is the biggest shareholder in troubled bank Northern Rock.

Bigger subprime top performers include Paulsons Credit Opportunities fund, up 550.8 per cent to the end of October, and the Subprime Credit Strategies fund run jointly by Texas-based Hayman Capital and Corriente Advisors, up 526.5 per cent.

2007-11-26 15:43:59

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653 comments

Undrgrndgirl 12:21:07 AM Nov 30 2007

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who said i have any investments?

Undrgrndgirl 12:20:47 AM Nov 30 2007

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who says i have any investments?

SkaterPowerboats 07:26:04 PM Nov 27 2007

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Alot of people still miss the bigger picture. The sub-prime debacle is nothing but a pimple on someone's xxx compared to other factors. The dollar is at record lows and by trying to prop up the housing market to save $1 to only cost $10 in the bigger picture spells disaster. Add to this recessionary pressures in China. China oil prices were held down by the government for 18 months and now are starting to allow the prices to slowly climb, along with export credits for imported raw materials disappearing in that market and US consumer prices will see a 10% - 15% spike and consumer spending is what drives the economy. This is beyond an ugly picture. The fallout is going to be a long protracted recession despite what the fed claims. The perceived wealth is gone which was real estate. Disposable income is gone. Add to this the loss of domestic jobs and manufacturing productivity and stagnant to lower salaries and there is no positive signs on the horizon. Oh yes, we forgot the war costing

jeffbarbm 04:53:00 PM Nov 27 2007

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Hold the phone. Don't you know there was a righteous outcry from the people with nothing to pay for a house. The interest gimic and no down payment have the the sanctity of the left. To make it 'fair', we gave them what they wanted and sold the loan like a hot potato. How stupid is that? Be mad at the 'I got mine' morality. Find the shooters who profited and let them play cards with Brenie for 20 years.

ajgorm 04:03:55 PM Nov 27 2007

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Thus, society must act to "save capitalism from the capitalists" -- i.e. take appropriate steps to protect the free market from powerful private interests who would seek to impede the efficient function of free markets, entrench themselves, and thereby reduce the overall level of economic opportunity in society

lulunaplesfl 03:39:50 PM Nov 27 2007

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rustydog1 01:20:31 PM Nov 27 2007

Report This! if we are in such bad shape how is it that lumber yards,companys that produce products for new home construction are still in business ?
_________________________
Both Home Depot and Lowes announced lower profits because new construction has slowed.

lulunaplesfl 03:37:51 PM Nov 27 2007

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originalxdj 01:22:44 PM Nov 27 2007: samgoodlaw, if the enviro-mentals would actually let us drill on our own land and build a refinery or two, gas prices could come back down (note to enviro-mentals...humans are part of the eco-system, too!)
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Did you ever stop to consider that the oil companies DO NOT WANT TO DRILL or REPAIR THE REFINERIES? It is too costly. They have made BILLIONS in profits by letting Cheney dictate oil policy. Why don't you ask these companies why they are not leading the country on finding alternate energy resources?

ajgorm 03:31:44 PM Nov 27 2007

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Let me start. Billions lost 1000% gains ???

ajgorm 03:28:15 PM Nov 27 2007

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Does anybody know anything about who is makeing money off this mess ?

jmsulli 03:11:50 PM Nov 27 2007

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The bubble that is our economy is about to burst.you cant spend trillions on a foolish war and cut taxes. This mess will be passed on to the next president and he or she will be blamed for it by the ill informed and ignorant masses then we'll reinstall the greedy pigs who brought this mess home to begin with and it goes on and on and on. The rich stay rich, the rest think theyre doing ok but never catch up. Even when they die they still owe money.

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