Are Hedge Funds ‘Too Big to Fail’?

13-Aug-2011

I like this.

By

A banker turned social finance entrepreneur. Liu-Yue built and managed two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a social financial education website that helps facilitate the exchange of ideas on emerging alternative investment opportunities along the new Silk Road (emerging markets). Liu-Yue also co-founded Cute Brands, Inc. – Cute and Happy with a Cause! Cute Brands is a cause-oriented, character-based brand licensing and social impact fund that creates social awareness on global issues and societal challenges through character creations, and also supports select charities (WWF, WCS, and ASPCA) through consumerism. A NYC native, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group. Prior to M&T, he held a number of positions in emerging markets bonds and Latin American equities at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities and special situation investing at Steinberg Priest Capital Management (family office). Liu-Yue has a Bachelor of Science in Finance and Marketing from the Stern School of Business at NYU, and an MBA specializing in investment management and strategy from Georgetown University. He also completed graduate studies in international management at the University of Oxford, Trinity College.







By Gregory Zuckerman, WSJ,

Who’s afraid of hedge funds?

A year after Dodd-Frank was signed into law, regulators still have not decided which large financial firms pose a risk to the financial system. Hedge funds want to be excluded.

They may have a point, according to a new paper by two academics at Columbia Business School and a Citigroup executive.

The average hedge fund is “modestly leveraged,” with borrowed money amounting to just over two times the fund’s equity, according to the research. What’s more, funds reduced their leverage ahead of the housing crisis, even as banks increased leverage. In the first quarter of 2009, the average fund was leveraged at 1.4 times its equity, even as leverage at investment banks topped 40 times, says the paper, which is based on data from various funds of hedge funds.

Hedge-fund leverage began falling in the middle of 2007, likely because fund managers were becoming nervous, say the authors, who claim their study is the first to examine actual hedge-fund borrowings, rather than leverage estimates.

So what about Long-Term Capital Management, the big hedge fund that regularly borrowed $30 for each $1 of equity, and saw leverage race to more than 100-to-1 as it melted down and brought financial markets to their knees in 1998? The academic paper only covers the December 2004 – October 2009 period.

Correction:

An earlier version of this post said the two academics working on the paper are professors. One is a professor and the other is a graduate student.

Tags: , , , , ,

Post a Comment

Your email is never published nor shared. Required fields are marked *

*
*

Subscribe without commenting





Loading...
Join Oxstones Investment Club's Daily Newsletter