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Clarium Down 6.1% In March - Just Another Example Of Massively 330% Leveraged Hedge Funds?
You've heard of 130/30. How about 278/56? That's the most recent net exposure of Clarium. That Peter Thiel's fund is not doing that hot with that kind of leverage is not big news. What however is, is the fact that his hedge fund was 3.7x levered as recently as last week, and currently has 3.3x exposure as % of NAV. And just in case you were wondering how much risk is attributable to a long debt position that is nearly 3x your NAV, Clarium assigns a cumulative 6.4% 3-Sigma risk as a % of NAV. So what if the fund was 10x leveraged? Would that mean a linear expansion and just under 20% in risk? How about 100x leverage? 1000x? How many other hedge funds currently have well over 3x leverage and think their risk of NAV loss is negligible? Clarium has one thing going for it: its L/S equity ratio is 3:52. Too bad now even Bill Gross is saying to sell bonds and go all in into stocks. At least we know who will be covering shorts. And one wonders: just how many other hedge funds have asked their prime brokers to give them 4x leverage? Sure, 4x, 5x even 10x, leverage happens every day, but primarily for market neutral funds. When this shifts to LS, it is a recipe for disaster. In the end this will all explode so spectacularly, just like in those long forgotten days of 2008...
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"How many other hedge funds currently have well over 3x leverage and think their risk of NAV loss is negligible? "
The answer is tons, which is why they will get burned the next time markets head south. All those hedgies charging pension funds 2 & 20 for leveraged beta - it's truly pathetic. But if you get the directional moves right, leverage can certainly juice your returns.
PPT will be there to bid in case markets turn south. What happened in 2008 will not happen for many years to come. they will do whatever it takes to make that sure.
I think the market as a whole is too big to control, even with a printing press. The lesson learned once we figure that out will be a destroyed currency unfortunately. =\
Ladies and gentlemen, "This is Quantitative Easing."
I once used this image to describe how QE is exacerbating pension deficits:
Leo - learn me how to post a pic, again. Thanks.
Thanks for the pic, Leo.
I might add that after the Redcoats set course for QE, the picture could be edited, although counter-intuitive, to have the ship hanging over the falls but with the water spigot turned off (water be dammed or damned, depending on how you look at it).
Then upon exiting QE, the picture could be, yet again, edited to show the re-flow of water pushing the stuck vessel over the falls!!!
+1 for the pic
Clarium should of bought these stocks, per directive of Larry Summers
Best performers of Q1 2010, 52 stocks returned over 50% - and that's just in the >$300M market cap arena
http://www.fundmymutualfund.com/2010/04/52-stocks-returning-50-in-2010.html
3x is nothing. I've let 10x-20x leveraged positions run 24/7 months at a time in futures. If you know what you're doing you can lever up almost any x and still be good. You have to have an exit plan for each and every trade that you enter, and by exit plan I don't mean just stop losses.
I can't wait for the next massive hedge fund explosion, I miss 2008!!
Where are we here, kindergarden? 3x leverage for a global macro fund like Thiels is NOTHING. Especially considering this very likely includes bond and interest rate futures, distorting the notional exposure.
Judging by the positions, looks to me like market risk is the issue highlighted.
As Tyler noted, if they are wrong in their exposures, they are going the way of the dodo.
Who gives a shit as long as the management has siphoned off its fees before the implosion occurs? Anybody investing in Hedge Funds DESERVES what's coming their way, especially after the 2008 implosion.
Thank you Blogger for this statement; have you also Clarium's AUM, since Clarium is extraordinary less for its ROI than for its great decrease in AUM.
The problem with Clarium has never been about poor understanding of markets... fundamentally, they are about as solid as it gets, certainly better than many other "name" funds out there. Their problem is market timing, "tapereading" whatever you want to call it.
You will not lose money long in this market this year. The PPT grinds it higher with phony round trip C, BAC and AIG trades as a base. We'll be at 13k easy by year end... And triple digit pe's . Either that or the whole ponzi collapses. You know it won't be allowed to drop, unless it's options ex, but that will be temporary trading opportunity..
The oligopoly is in control...
The Hedge Funds are going to have a massive implosion and when it happens it will cascade to other instruments out there.
Did you see this fund's levered allocation? These guys aren't going to blow up. More likely, their performance will cause big redemptions and they'll have to start tracking the Tremont subindex if they want to stay alive.
Hedge funds need stable money. Being different makes it worse when you are on the wrong side of the trade.
RE: "its L/S equity ratio is 3:52"
How are you getting (or computing) Long/Short Equity Ratio of 3:52? TIA.
Actually Clarium is net short both the US stock market and foreign stock market and is net long both the US debt market and foreign debt market. So it looks like Clarium seems to agree with those who are bearish on US stock market (bears).
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