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Tim,
What you said about agreements a bank would sign when depositing
investment capital in a fund such as LTCM makes a lot of sense.
However, the WSJ reported last Monday that two-thirds of the $685.9
million charge that UBS booked (roughly $457M) "was attributable to an
equity warrent the bank sold that effectively enabled the partners to
turn $250 million of their capital into $750 million of equity. That
$750 million represented about half of Long Term Capital's employee's
equity in the fund at the start of the year".
If I am interperting this correctly (and I'm not at all sure I am): that
the transaction was between UBS and LTCM "employees"...not directly
between UBS and LTCM, would this then imply that UBS would *not* have
had to sign the type of agreement which you mentioned below?
Must I give up my Warm Fuzzy feelings thanks to a ruse on the part of
UBS and LTCM "employees"; heralding a return of the Grey Poupon Gang???
Dave
Tim wrote:
> The first problem with demanding any of the business from a fund in trouble is
> the agreement a bank would have signed when depositing capital in such a fund:
> These agreements are built with the notion that as an investor in such a fund,
> the institution might be less than above board and try to front run or piggyback
> the fund's positions; therefore, the agreements make an institution pledge that
> its trading groups, as well as anyone not involved in the decision to invest in
> the fund, will remain ignorant of the fund's positions and P&L.
> <snip>
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