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Swiss Franc Spike Causes Hedge Fund Failures

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.

The Hedge Fund BlogMan provides timely information on Hedge Funds including performance, fund closings, jobs and more.

This post first appeared on The Hedge Fund Blog Man, please read the originial post: here

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Swiss Franc Spike Causes Hedge Fund Failures


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