Eifuku (2003): The Japanese hedge fund lost all of its $300 million in capital in seven days when large, highly leveraged bets on a handful of Japanese stocks went bad. The fund returned 75% in 2002 and 18% in 2001, and some analysts said the large return swings should have been an indication of higher risk. Manager John Koonmen recently said he thought someone deliberately traded against the fund.
Gotham Partners (2003): Gotham Partners Management Co. co-founders William Ackman and David Berkowitz shut down their $300 million hedge funds after losing big on golf investments. The high-profile firm's closure was especially notable because Gotham posted its company analysis on its website, and it is now under investigation by New York State Attorney General Eliot Spitzer for manipulating the stock prices of companies it bet against by posting negative analysis.
Beacon Hill (2002): Beacon Hill Asset Management Co. lost huge sums of money in September on specialized mortgage securities and inadvertently locked in those losses by selling 10-year U.S. Treasury notes short just before prices rose. The fund's positions were also leveraged three times, worsening the losses. Beacon Hill started liquidating its two largest funds in October after disclosing that September losses had been twice what was initially reported. The firm also suspended redemptions and for six months clamped down on information available to investors.
Lipper (2001-2002): In March 2002, Kenneth Lipper said he would liquidate three hedge funds with a combined $540 million in equity capital due to losses in the convertible bond market and questions about how portfolio managers valued securities. In February, Mr. Lipper announced that the values of two funds were 45% and 10% less, respectively, than reported in November. The sudden disclosure helped spur discussion about investor confidence in hedge fund reporting, along with calls for greater transparency.
Integral (2001): It lost as much as 90% of its value investing in, among other things, consumer debt. A big investor, the Art Institute of Chicago, sued Integral in December 2001, alleging the hedge fund assured the endowment it could not lose money on its investments. Integral countersued, claiming the Art Institute engaged in a smear campaign against it. The fund also accused prime broker Morgan Stanley of making improper margin calls based on a computer glitch, which Morgan Stanley denied.
Cambridge Partners (2000): In March, John C. Natale pleaded guilty to defrauding investors in his Cambridge Partners and Cambridge Partners II funds of more than $40 million over eight years. Mr. Natale lost millions shorting tech stocks in the midst of the tech boom and used capital from new investors to cash out investors who left the funds. He created false audits, tax documents and monthly statements.
Long-Term Capital (1998): The highly leveraged relative value fund lost almost all its $2.3 billion in equity capital when spreads on bonds, equity volatility and equity risk arbitrage widened amid the fallout of the Russian debt default. LTCM, which used overall leverage of 25-to-1 - and much higher for some individual trades - was unable to meet margin calls. The biggest banks on Wall Street bailed out the fund to keep its huge positions from dragging down the world financial system.
Convergence Asset Management (1998): Convergence was one of several bond hedge funds caught in the whirlpool of LTCM's liquidation. The 15-to-1 leveraged bond arbitrage fund reported in September that it had lost 30% since its launch in March. In the next three years, the fund struggled to put on trades as prime brokers shied away from funds that followed LTCM's strategy. The fund's assets fell from $460 million in 1998 to $70 million in June 2001, when manager Andrew Fisher announced he was closing it.
Everest Capital (1998): By October, Everest had lost half the $2.7 billion it started the year with, thanks to the Russian debt default and related losses in Latin American emerging markets. Among the investors who lost big money: university endowments like Yale and Brown, and several public firms.
Tiger Management (1998-1999): Tiger lost 20% of its $23 billion in assets on bad Russian debt, bad bets on yen spreads and a stubborn - albeit ultimately correct - insistence that the tech boom was a bubble. The fund lost 9% of its value in a single day in October 1998, according to some published reports. Even that didn't do in it right away, but unfortunately for star manager Julian Robertson, the bubble didn't burst until after frustrated limited partners began pulling out capital and he decided to scale back the fund.
Soros Fund Management (1998-2000): It lost $2 billion of a $20 billion portfolio by holding bad Russian securities, ultimately marking down ruble-denominated debt by 90%. But what really hurt was the Nasdaq collapse in April 2000. Soros' Quantum Fund lost $5 billion on long bets on tech stocks, and Soros eventually merged it with another fund. He then radically revamped the entire firm into smaller investment pools that bought less risky securities.
Niederhoffer Investments (1997): Victor Niederhoffer lost all of the $130 million he managed when the stock market crashed in October. He had purchased S&P 500 index futures on the Chicago Mercantile Exchange, and when the market crashed, he was unable to meet margin calls and had to liquidate. In a cruel twist, the market snapped back, and Mr. Neiderhoffer lamented that if he had been able to hold on one more day, he would not have been forced to liquidate his fund.
Askin Capital (1994): It lost almost all of its nearly $600 million in equity capital on bad bets at a terrible time in the collateralized mortgage obligation market. When interest rates rose, the number of mort- gage refinancings fell, forcing manager David Askin to wait longer for principal payments and driving the prices of his holdings down. His 2.5-times capital leverage was a contributing factor in forcing Askin to liquidate to meet margin calls on his devalued securities.