this is how bad it is out there....

fc123

[quote=Generali;9228415

Before you feel too sorry for their investors, the fund made 87% last year so they must have at least guessed that this was a pretty high risk strategy.

One of the owners was the bloke who worked at Goldman Sachs whose secretary stole 3 million quid from him. He noticed because his current account was 'a couple of million short'.[/quote]


No sympathy from me, just a smug smile......but secretaries and other businesses who provided them with services...they are the ones that will really feel it.

Generali

fc123 wrote: »

No sympathy from me, just a smug smile......but secretaries and other businesses who provided them with services...they are the ones that will really feel it.

TBH, the services required to keep a hedge fund going aren't huge.

Given that they had funds under management of about $1,000,000,000 they probably had a back office of 4 or 5 people plus an IT guy. Then perhaps an hour or two of compliance work a month and probably $100k worth of accountancy each year.

ManAtHome

Peloton seem to be pretty close to a "red or black" hedgie (100% less costs = 87% return, guessed wrong this year). Surely the bigger shock is Carlyle who were going for a relatively tiny margin on "triple As"..?

Generali

ManAtHome wrote: »

Peloton seem to be pretty close to a "red or black" hedgie (100% less costs = 87% return, guessed wrong this year). Surely the bigger shock is Carlyle who were going for a relatively tiny margin on "triple As"..?

Peloton shorted CDOs last year and made a packet. This year I understand they are long which is what has caused the problem - I guess they thought they were oversold and they turned out to be wrong.

Carlyle were buyers of mortgage debt and that has caused their problems too. Again, they've received a margin call that they can't meet.

From my facile take on it, the problems faced by both firms are pretty much identical.

ManAtHome

Yes, they've both been "gotchad" by the margin calls, but they seemed to me to be at opposite ends of the scale. I was thinking more along the lines of getting (eg) a 6% loan and...
Peloton - down the casino and bung it on red or black
Carlyle - bung it in "guaranteed" income bond paying 6.1%

Declaration of Interest: closest I've been to the finance industry was
(a) getting a contract offer (IT) from the Midland 2 months after the interview (had to decline as I'd been working somewhere else around 6 weeks).
(b) Barclays thought I was "over qualified" (twice)

Generali

ManAtHome wrote: »

Yes, they've both been "gotchad" by the margin calls, but they seemed to me to be at opposite ends of the scale. I was thinking more along the lines of getting (eg) a 6% loan and...
Peloton - down the casino and bung it on red or black
Carlyle - bung it in "guaranteed" income bond paying 6.1%

Declaration of Interest: closest I've been to the finance industry was
(a) getting a contract offer (IT) from the Midland 2 months after the interview (had to decline as I'd been working somewhere else around 6 weeks).
(b) Barclays thought I was "over qualified" (twice)

These things are always a bit murky but I think they both made basically the same errors which led to their downfall - they borrowed too much so relatively small drops in asset values has wiped them out.

Jonbvn

Generali wrote: »

Peloton went bust because they used a lot of leverage (borrowing). The assets that they bought (mortgages basically) fell in value by a little bit and so they had to find more collateral. They couldn't.

I read that the amount of leverage they had was quite huge. AFAIK only about 2p in the pound was actually theirs!:eek:

I guess that those who live by the sword......

Generali

Jonbvn wrote: »

I read that the amount of leverage they had was quite huge. AFAIK only about 2p in the pound was actually theirs!:eek:

I guess that those who live by the sword......

I read (in the FT) that they used 4-5x leverage so about 18p in the pound was the investors' money.

As I say, these things are always pretty murky. I'd be surprised if they managed to pursuade their prime brokers to lend them that much TBH. Anything's possible though.

Nicola550

The way that I understand it (and it's a layman understanding), Carlyle are 32x leveraged.

When you consider the amount of UK homeowners who zero leverage (100% mortgages) and 20x leverage (5% mortgages) then it starts to look quite scary in the current climate.

I'm fairly sure that banks have the option to margin call those who have mortgages with them. I don't think many people understand this.

Example: you put a 5% deposit down on a £300k house (£15k) but get a northern crock 125% and spend it on a new car and a holiday.
Your home falls 20% in value to £240k. The bank can now call in the shortfall plus an additional 5% on the new value. You now owe the bank £57k in cash and are paying interest on a loan of £375k

Probably got my maths all wrong tho.

Probably got the whole thing wrong but I am sure about one thing. Ain't no way, no how that I am buying a house when I can rent one for less than half the cost of a mortgage.

That is a very uncomplicated calculation...

Nicola550

The way that I understand it (and it's a layman understanding), Carlyle are 32x leveraged.

When you consider the amount of UK homeowners who zero leverage (100% mortgages) and 20x leverage (5% mortgages) then it starts to look quite scary in the current climate.

I'm fairly sure that banks have the option to margin call those who have mortgages with them. I don't think many people understand this.

Example: you put a 5% deposit down on a £300k house (£15k) but get a northern crock 125% and spend it on a new car and a holiday.
Your home falls 20% in value to £240k. The bank can now call in the shortfall plus an additional 5% on the new value. You now owe the bank £57k in cash and are paying interest on a loan of £375k

Probably got my maths all wrong tho.

Probably got the whole thing wrong but I am sure about one thing. Ain't no way, no how that I am buying a house when I can rent one for less than half the cost of a mortgage.

That is a very uncomplicated calculation...