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Seems the essence of the whole story is contained in the name of the hedge
fund, "Eifuku".
Regards,
Norman
----- Original Message -----
From: "profitok" <profitok@xxxxxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>; <wheelsinthesky@xxxxxxxxxxxxxxx>;
<ntt-list@xxxxxxxxxxxxxxx>
Sent: Friday, January 24, 2003 11:28 AM
Subject: [RT] Heard On The Street: Hedge Fund In Japan Plummets
>
> Sent: Friday, January 24, 2003 12:14 AM
> Subject: 01/23 11:00P (WJ) WSJ(1/24) Heard On The Street: Hedge Fund In
> Japan Plummets
>
>
> >
> >
> >
> >
> > 01/23 11:00P (WJ) WSJ(1/24) Heard On The Street: Hedge Fund In Japan
> > Plummets
> > Story 12317 (DCM, DJDAY, J.NTT, J.NTX, J.SEA, NTT, JP3165650007...)
> > By Henny Sender in New York and Jason Singer in Tokyo
> > EVEN BY HEDGE-FUND standards, this was a spectacularly rapid demise.
> > A $300 million hedge fund in Japan is being wound down after losing
> > virtually all its capital in just seven trading days in early January --
> the
> > latest illustration of the perils of such secretive and increasingly
> popular
> > investment partnerships.
> > Eifuku Master Fund, run by a former Lehman Brothers Tokyo-based
trader,
> > took
> > huge bets with borrowed money on a limited number of trades that went
> wrong.
> > Investors in the fund, now facing a loss of their money, may include
many
> > wealthy individuals in the U.S., according to hedge-fund managers in
both
> > Tokyo and New York.
> > "Substantial trading losses have consumed nearly all the fund's
> capital,"
> > John Koonmen, the manager, wrote in a letter to investors, dated Jan.
15.
> > The
> > letter details a nerve-racking, rapid downward spiral for the fund,
whose
> > Japanese name can be translated as "good fortune" or "prosperity."
> > The swift reversal in the fund, which was up 76% in 2002, shows just
how
> > volatile hedge funds can be. Hedge funds -- lightly regulated and
> generally
> > available only to institutions and the wealthy -- sometimes need to take
> > uncommon risks as they try to make money in sluggish markets. Currently,
> > there
> > is heightened scrutiny of the activities of these funds, which manage
$600
> > billion.
> > What is unusual about Eifuku is the speed of the fund's demise, which
> was
> > accentuated by the heavy use of leverage, or borrowed funds.
> > Securities-brokerage-firm executives in Tokyo say Mr. Koonmen was the
> > biggest
> > producer of trading commissions in Japan, as he used borrowed money to
> wager
> > far beyond the $300 million in his fund. While the fund's actual capital
> was
> > down to almost nothing as of the Jan. 15 letter, Eifuku still had long
> > positions valued at $80 million and short positions at $117 million,
> > according
> > to the letter. At the beginning of this week, rumors of the fund's
demise
> > preyed on market sentiment in Japan.
> > People familiar with the situation suggest that Mr. Koonmen borrowed
> funds
> > from three securities brokerages that multiplied the equity capital by a
> > factor of at least three. None of the brokers, including units of
Goldman
> > Sachs Group Inc., Credit Suisse Group and Deutsche Bank AG, expect any
> > losses,
> > however, as all the money lent was backed by collateral from Eifuku, and
> > when
> > the positions started going wrong they demanded and got their money
back,
> > according to people familiar with the matter. Mr. Koonmen declines to
> > comment.
> > Even in the mercurial world of hedge funds, Eifuku's turnaround was
> > startlingly swift. Established just three years ago, it became a quick
> > success. It rose 18% in 2001, and then rocketed 76% in 2002, according
to
> > people familiar with the fund. Mr. Koonmen became a well-known fixture
at
> > the
> > watering-holes where Tokyo's financial crowd hangs out. He made millions
> of
> > dollars from rapid-fire trading of stocks, bought a metallic-gray Aston
> > Martin
> > Vantage sports car, lived near the top of a luxury tower in a posh Tokyo
> > district, and owned a plush home in Hawaii.
> > Despite his busy social calendar, Mr. Koonmen was an intensely
active --
> > and
> > secretive -- trader. He spread his transactions out to virtually all the
> big
> > brokerage firms in Tokyo, so no one firm would know the extent of his
> bets.
> > Mr. Koonmen hired a team of computer programmers from Romania to develop
> an
> > expensive proprietary trading system, a rare and costly move for a hedge
> > fund.
> > In early January, Eifuku made massive wagers on three trades,
according
> to
> > the letter to investors. The largest of those trades, involving a total
of
> > $1
> > billion, included a bearish position in NTT DoCoMo Inc., Japan's biggest
> > cellular-telephone provider, and a long position in its parent company,
> > Nippon
> > Telegraph & Telephone Corp, according to people familiar with the
trades.
> > (Short sales involve the use of borrowed shares on a bet that they can
be
> > bought back later at lower prices.)
> > In addition, Mr. Koonmen bet $150 million buying a "significant
position
> > in
> > a Japanese tech stock [where] we detected a large degree of panic
selling
> > and
> > aggressive and large short sales of the stock." The letter doesn't name
> the
> > stock, but people familiar with the trades say it is Sega Corp., a maker
> of
> > videogames.
> > Mr. Koonmen's third trade involved both long positions and short
> positions
> > in Japanese bank shares.
> > According to the letter, "things got off to a bad start immediately in
> > 2003." In the first two trading days of the year, Jan. 6 and Jan. 7, the
> > fund
> > lost about 15% of its capital, the letter states. "This was very
> concerning
> > to
> > us as it immediately put us in a precarious" situation with its lenders,
> > "and
> > forced us to consider unwinding positions."
> > The incident underscores just how thinly traded even the largest
shares
> in
> > the Tokyo stock market can be, making large, leveraged bets particularly
> > treacherous. While the telecom trade Mr. Koonmen made would have been
> > profitable for much of 2002, if a trader put one dollar on NTT itself at
> the
> > end of November and another dollar on a short position in DoCoMo, by
> > mid-January, the loss would have been 15% as the market became more
> > optimistic
> > about DoCoMo's prospects, amid talk of share buybacks, market
participants
> > say. That in itself shouldn't have been a lethal blow, but the size of
the
> > bet
> > and the leverage compounded the loss.
> > The thinly traded Sega shares, meanwhile, were taking a pounding for
> > reasons
> > that aren't entirely certain.
> > Trading results on Wednesday Jan. 8, "came as a real shock," the
letter
> > continues. While the fund tried to raise cash from some of its
positions,
> it
> > "sustained a loss of an additional 15% of its capital," with "large
> adverse
> > moves in the last hour of trading." This loss created a margin call at
the
> > fund's main broker, identified by people close to the matter as Goldman,
> > that
> > "it could not meet."
> > The fund talked with the main broker "throughout the day and they
agreed
> > to
> > a day's grace period," the letter says.
> > "Unfortunately," the letter adds, Jan. 9 "was as bad as Wednesday and
> the
> > fund lost another 16% of its capital." After the close of trading, the
> > broker
> > exercised its right "to supervise further trading/liquidation in the
> > positions."
> > The liquidation activity on Jan. 10 "had the effect of further losses
in
> > the
> > fund's positions." The fund ended the day down a further 12% -- a loss
for
> > the
> > week of about 58% of its capital, the letter says.
> > Over the long weekend -- Monday Jan. 13, was a trading holiday in
> Japan --
> > the fund had "numerous discussions" with the prime broker, and the
> decision
> > was made to liquidate the fund's two largest positions as soon as
> possible.
> > The broker arranged several large block trades with its customers around
> the
> > world on Jan. 14. The trades "came at a dear cost and left the fund with
a
> > loss for the day of approximately 40%," the letter says.
> > Still, dealers point out that despite increasing edginess in global
> stock
> > markets, Eifuku's demise doesn't give rise to any stress in the
financial
> > system itself. That alone marks an important contrast to the situation
in
> > the
> > fall of 1998 when losses at hedge fund Long-Term Capital Management
posed
> a
> > threat of significant losses for others, prompting the Federal Reserve
> Bank
> > of
> > New York to organize a bailout of the highly leveraged fund.
> > ---
> > SELL, SELL, SELL: The volume of sell ratings on stocks has reached its
> > highest point since the late 1980s. Wall Street currently rates 10% of
> > stocks
> > a sell, 46% a buy, and 44% a hold, according to Zacks Investment
Research
> in
> > Chicago. That is the highest level since the number of sell
> recommendations
> > rose after the 1987 stock-market crash.
> > The current market downturn, combined with new regulations that
require
> > investment banks to detail the percentage of buys, sells and holds their
> > analysts assign to stocks, has fueled the more-negative outlook. The
> > regulations went into place in September, and the percentage of sell
> ratings
> > rose within a week to 7.3% from 4.7%, according to
> > Thomson First Call, which tracks analyst ratings. Throughout the late
> > 1990s,
> > less than 1% of stocks were rated sell.
> > The level of sells varies widely from firm to firm. Prudential
> Securities
> > Inc., which has highlighted its lack of an investment-banking presence,
> > rates
> > 3% of its stocks sell, 58% hold and 39% buy, according to the
most-recent
> > data
> > available. Big investment-banking firm Salomon Smith Barney, a key
target
> in
> > New York State Attorney General Eliot Spitzer's probe of research
> conflicts
> > of
> > interest, rates 26% of the stocks it covers sell, 42% hold and 33% buy.
> > ---
> > Lynn Cowan and Cheryl WinokurMunk contributed to this article.
> > (END) Dow Jones Newswires
> > 01-23-03 2300ET
> > Additional Codes ( JP3419000009, JP3735400008, I/CTS, I/ENT, I/FIS,
I/LDS,
> > I/REC, I/TEL, I/TLS, I/TMF, I/X225, I/XATI, I/XBNY, I/XISL, I/XSTT,
> P/5043,
> > N/DJN, N/DJPF, N/ADR, N/ANL, N/CNW, N/DDY, N/DJSS, N/DJWB, N/DJWI,
N/DJYY,
> > N/EDC, N/FND, N/FRT, N/HGF, N/HRD, N/JNL, N/NJR, N/STK, N/WEI, N/WLS,
> M/CYC,
> > M/FIN, M/NND, M/TPX, M/UTI, P/PIC, R/ASI, R/FE, R/JA, R/NME, R/PRM,
R/US,
> > J/HST, J/MIM, J/TFR)
>
>
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