Originally published March 21 2015
Florida hedge fund goes broke, loses $830 million in client money after Swiss franc fiasco
by J. D. Heyes
(NaturalNews) As currencies adjust to changing economic conditions around the world, there have been a series of financial events that, taken together, are beginning to form a pattern that could mean disaster in the months ahead.
The latest event, the decoupling of the Swiss franc from the euro came as a surprise to a number of financial experts. One man who thought he foresaw the future, so to speak, was Marko Dimitrijevic, a hedge fund manager who, in December, bet that the franc would fall. As such, he initially profited after voters in Switzerland dismissed a plan to have the central bank hold one-fifth of its assets in gold, and so did one of his his Miami-based firm's oldest and biggest fund, the $830 million Everest Capital Global fund.
But the winning bet was short-lived. And the fund would eventually suffer, fatally.
"For the $830 million Everest Capital Global, his Miami-based firm's oldest and biggest fund, investments from Switzerland contributed 0.6 percentage points to gains that month. Last week, the wager had a far bigger impact. In less than a day, it wiped out the 24-year-old fund, according to a person familiar with Everest Capital, leaving the firm with about $2.2 billion in seven other funds," Bloomberg News reported.
An emerging market specialist who has managed to navigate nearly a half-dozen debt crises in those markets, Dimitrijevic's gambit was done in by the central bank in the country where he was raised. In a surprise move just days ago, the Swiss National Bank made the decision to allow the country's currency to trade freely against the euro, which brought closure to a three-year-old policy of pegging the franc at 1.20 a euro.
"Carnage is widespread"
Bloomberg News reported:
The carnage is widespread. Brokerage firms in New Zealand and the U.K. failed and retail investors have suffered hundreds of millions of dollars of losses on leveraged foreign exchange trades. Citigroup Inc., the world's biggest currency dealer, lost more than $150 million, according to a person briefed on the matter.
In addition, some mutual funds were also caught in the open. The John Hancock Absolute Return Currency Fund, worth $1.9 billion before the Swiss bank decision, fell 8.7 percent on Jan. 15, the largest one-day drop on record and the highest among some 2,000 U.S.-domiciled funds with at least $1 billion under management that are tracked by Bloomberg.
Meanwhile, Comac Capital, a $1.2 billion hedge fund company operated by Colm O'Shea, fell about 8 percent on the fateful day. Based in London, the financial management firm had already declined some .05 percent as of Jan. 9, said an investor update, and that was little-changed from 2012 when it fell about 9 percent.
The carnage would wind up being even worse, Bloomberg News reported.
"Profits and losses for most of the hedge fund industry aren't disclosed yet as managers typically give performance figures at the end of each month and don't need to reveal the information outside of their investors," said the financial newswire.
In the case of Everest Capital, there simply was no other option; the losses were too big, so ending the Global fund became inevitable.
Furthermore, few analysts are willing to discuss the losses. Bloomberg noted that Armel Leslie, a spokesman for Everest with Peppercomm, would not comment; additional calls to Dimitrijevic were not returned.
Many financial analysts have argued that keeping the franc pegged to 1.20 per euro was "unsustainable," and lifting the peg was thus just a matter of time. Simon Cox of BNY Mellon disagrees here.
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