Have hedge funds been played out?

    Of course, play out! Such a loud statement with an equally loud heading smacks of yellowness, but the facts speak for themselves. The fact that hedge funds play a huge role in the modern financial system of the world, I hope no one doubts. But few ordinary rank-and-file speculators raised in the lavas of domestic DCs could have imagined that it was hedge funds whose activities are aimed at reducing risks that would cause financial instability. Therefore, you need to start from the beginning.

    I was not mistaken. You need to search for the "beginning". A normal description of the structure and mechanism of activities of hedge funds can be found at this link.. For a general understanding, you can do with a brief description. A hedge fund is a type of business consisting in private joint entrepreneurial activity, having different organizational and legal structures in different countries, but performing one function - risk management.

    In other words, these funds were created as a distribution pocket from which investor funds (here - “limited partner”, USA) were invested by asset managers (here - “common partner”, USA) in various financial instruments in order to “dispel” the risk and increase profitability. We will not go further into the intricacies of the investment business. And just analyze the dynamics of hedge fund assets. For clarity, I’ll give you a chart made by Expert magazine", which shows an investment bubble, the existence of which cannot occur separately from the price bubble. Most major hedge funds invested in bonds of US construction companies secured by mortgages. Rising rates, as well as breaking the price bubble in the housing market, sales (data here and here ) which still show the long-term lows, were the main reasons for the depreciation of the bonds ( the CDO ). A significant role was played by the rating agencies, often setting unfairly high ratings of this p Yes bonds. (Remember after all the hype about the investigative activities of these agencies?) This can be said "the ice was broken."

    To summarize, so far we can talk about such serious collapses: two investment fund Bear Stearns , which was trying to restore its reputation ; German investment bank IKB ; Dutch NIBC Holding ; Australian Macquarie Bank ; French BNP Paribas indirectly confirmed that he had problems in this regard.

    But another major European bank UBS AG confirmedtheir problems associated with subprime mortgages and, as a consequence, with the crisis in the credit market, having published a profit report for the 3rd quarter yesterday (October 1). According to this document, losses are in the range of 800 million francs, while last year the bank earned 2.2 billion francs over the same period.

    In order to understand how the markets reacted to all this, you should not bother too much. You can take a look at the pound / yen chartand everything will become clear. Why exactly this couple? Because this pair carried out carry trade operations in large volumes, and we know that the activation of such transactions occurs in conditions of financial, political, economic stability in the markets. When the crisis came, all highly profitable assets (not only bonds, but also gold, some currencies, later oil) began to fall in price. The following interesting point emerges from here: what is carry trades, and how far have they fled from the activities of the hedgehogs? A very interesting theory is put forward by Stephen Ian, of Morgan Stanley . Interesting topic, translated from here. The main idea of ​​the article is a comparison of carry and volumes of currency hedging. This has little to do with what I describe in this article, but it is nevertheless connected: most major export-import operations are hedged, so do not neglect the volume of these operations, even if we know that the development of derivatives gave a tremendous impetus to speculative operations.

    The collapse of hedge funds, of course, by itself does not appear on my trading. For example. But here is how the market reacts, and will be the main engine of trade. I noticed for myself in the last month that the focus has definitely changed. About 2 weeks before September 18, when the FOMCraised the rate, the main focus of the market was focused on the decision. After the meeting, the market focus shifted to the data that may affect a further change in the rate. But the problems of the sub-standard sector, and in particular the problems of hedge funds, have not gone away. Maybe they are in the background, but they are. What will happen next - see.

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