Monday, June 04, 2007

UBS Hedge Fund Loss -- Dillon Read Capital Management LLC

This is a remarkable situation. It truly is. Earlier this year we were reading about the losses and resulting dissatisfaction at Goldman Sachs' hedge fund. If neither Goldman nor UBS can run their hedge funds with satisfactory results, then why should you consider one? It might be just that simple a question. What, after all, does a hedge fund have to give you to provide a rational basis for believing in its ability to make money for you? Its alleged superior trading skills? The larger, more highly-developed brains of its people?

As the linked Bloomberg article notes, UBS lost about $700 million back when Long-Term Capital Management collapsed in 1998, and the damage from this new iteration of 'good hedge funds gone bad' will approach that level. It, like all these stories, is a good read. I would guess that it lives worse than it reads, especially for the investors. One hopeful note in the story, is that investors balked at the fees, 3 percent of assets and 35 percent of investment gains. At least now we know at what point people will say "No thanks". They then "sweetened" the deal for all but UBS to 0 percent af assets and 40, yes forty percent of gains. Then they lost money for UBS' account in subprime mortgages. UBS acted. Exclusive

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