In a world where hedge funds crowd the market in semi-liquid or illiquid investments, it should come as little surprise when a sharp spike or decline in a given asset leads to significant losses for a large number of funds. Even more so when such an investment is made in a so-called "low-risk investment". Queue the spike in the Swiss Franc. Apparently hedge fund managers are not all ready to accept that the obvious: the riskiness of an asset is based as much on the investors as the investment itself. And when short-term investors crowd the market for an otherwise low-risk asset it can become high-risk almost overnight.

On January 15th the USD/CHF was trading at 1.02. By the next day it was trading at .85. An almost unheard of spike of over 15% for a traditionally somewhat stable currency. And many hedge funds, we found out, were short the Franc.

According to Forbes, a couple of the big losers in the trade are London-based COMAC and Everest Capital in Florida. And yet the greater irony may be that COMAC, which claims to only have lost 10% on the year, is closing down its global macro fund. Why? Surely 10% losses shouldn't neccessitate such a draconian move. Except that high-water marks and incentive fees now mean that the managers of that fund have a lot of work to do to start earning their fees. And apparently its a whole lot easier to just start over.