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Here's my opinion of a phenomenon that with hindsight one may say was the
cause of the very unusual flows in the bond market this past summer.
The mistake that LTC made, from which most of their other problems seemed to
flow, was to build positions that overwhelmed the liquidity of certain
markets. That is, slippage as a ratio to liquidity was clearly inverted, and
therefore it became completely impractical to manage risk in the usual way
that relative-value trading demands. The problem couldn't dissipate soon
enough, as LTC was "the problem." Hedging against a hedge, against a hedge,
against a hedge, ad infinitum isn't workable when the hedge becomes or is
the risk!
Regards,
Colin West
303.741.8690
Managed Capital Services
Englewood, CO 80112
http://www.managedcapital.com
Hedge Fund Management
-----Original Message-----
From: Tom Rehberger [mailto:trehberger@xxxxxxxxxx]
Sent: Monday, September 28, 1998 8:54 AM
To: JRT@xxxxxxxxxx; Timothy Morge; omega-list@xxxxxxxxxx
Subject: Re: Hedge Fund
I havnt been following the discussion here on the fund. but Im wondering if
everybody thinks these guys actted improperly. If you look at the margin on
spreads they are very low and they were leveraged out in the cash probubly
to a lower level then you could trade the futures spreads at. In my
experience most big govie operations trade the spreads in a big way, these
guys just got stuck.
tom
-----Original Message-----
From: Gerrit Jacobsen <jrt@xxxxxxxxxx>
To: Timothy Morge <tmorge@xxxxxxxxxxxxxxx>; omega-list@xxxxxxxxxx
<omega-list@xxxxxxxxxx>
Date: Monday, September 28, 1998 9:45 AM
Subject: Re: Hedge Fund
Tim,
> Someone posted here that the managers of such funds were indemnified
> from prosecution--I would say this is not generally true. There are
> always ways to get to the managers, and in the past five years, many
> managers have found themselves staring down the uncomfortable hand
> that held out a subpoena.
I did not state that the managers are indemnified from prosecution.
Most funds imdemnifiy their investment managers. Which means that the
directors of the fund will not go after the investment manager in
case of losses.Furthermore the fund reimburses the investment
manager's legal fees in case investors or prosecutors go after him
personally.
Gerrit
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