They don’t typically do so but this has been an extraordinary month and one which begs a whole bunch of questions, including but not limited to, what happened, where are we now, were we drinking too much of our own Kool-Aid and, most importantly, what does rectal prolapse really feel like?
“This document is strictly confidential. Please do not distribute.”
You’ll be hearing from my attorneys.
Regards,
Monty Python, CFA
They obviously have no idea what the hell they’re doing.
–Len
https://www.nailsinvestments.com/
A copy of my “Principles” is being sent their way as I type this.
–RD
So how much were they down in May?
Bess, did anyone ever make you bleed in the ass?
@4 they’re keeping that to themselves for now.
Somehow images of Emperor Hirohito come to mind.
To our good and loyal investors: After pondering deeply the general trends of the world and the actual conditions obtaining in our fund today, we have decided to effect a derisking of the present situation by resorting to an extraordinary measure. We have ordered our traders to communicate to our prime brokers that our fund accepts the provisions of their margin calls.
To strive for the common prosperity and happiness of all our limited partners as well as the security and well-being of our employees is the solemn obligation which has been handed down by our offering memorandum and which we lay close to the heart.
Indeed, we went long out of our sincere desire to insure the fund’s self-preservation and the stabilization of our retuns, it being far from our thought either to take on risk from the sovereignty debt of other nations or to embark upon excessive leverage.
But now the ass bleeding has lasted for nearly four weeks. Despite the best that has been done by everyone–the gallant traders, the diligence and assiduity of out risk managers and the devoted service of our investor relations–the fund situation has developed not necessarily to our advantage, while the general trends of the world have all turned against her interest.
All in see in their last 13-F is 500mil of SPY Calls. Doesn’t seem like stock picking but just a punt on the market direction to me.
http://www.sec.gov/Archives/edgar/data/1434612/000136200810000002/quarter12010.txt
According to their most recent 13F, they had 80% of the portfolio in front month, out of the money S&P call options as of March 31. Assuming they kept that weighting into May, they could be down as much as 80%. It’s likely that hedges and intra month position reduction cut the magnitude, but I wouldn’t be surprised if they were down 30-50% for the month.
the long equity portfolio is down at least 21% thru yesterday’s close. some real fucking trash in there. (SPMD DEX0 LVLT GLBC PAET TWTC RAD ABVT Q)
ass bleeding, indeed.
So what’s the guess on the magnitude of a$$-bleeding that has to occur to write this grovelling letter in advance of month end? Rule of thumb at my old firm was that -25% got you stopped out and had you writing a graduate thesis on why you lost so much. They don’t seem to be cutting positions, so I’m thinking -15 to -20%.
Anyone want to deal on that?
The 13F doesn’t account for that SPY call correctly – couldnt have held 4,000,000 contracts when peak open interest on that contract was 243,000
Post #9– you are an idiot. They are a credit fund and credit positions dont get listed on a 13f. so 80% of there 13F is a tiny portion of their entire portfolio. Also, if you are saying that 80% of their position was in front month calls as of march 31st, then those calls would have been expired already by May. This letter is about their performance in may. Go back to your day job– cleaning pools or mowing lawns.
“Lesson Learned: When our performance is materially above our peers and the markets (i.e., 2010, but not 2009), that out-performance must be assumed to carry with it a much higher downside, regardless of the specifics of our individual positions, or the strength of our specific investment convictions.”
-That’s the assumption with high beta, not alpha.
“As it happened, our hedges did indeed afford some protection and
generated some small profits as our portfolio positions declined across the board. However – some of them were ineffective; others
actually generated losses on some days..”
-Nice hedge. Fund.
Nobody is in the office right now. We have brought out the Patron from our drawers. Its fucking mayheemmmmmmmm in here woooooooooooooo
on 3/31 open interest in SPY 4/17/10 C120 was 200,445 and they held 40,000 of those – equiv to 4,000,000 shares @ 117 = $468,000,000….except contracts werent in the money. Notional value of the position was $0.33 * 40,000 = $13,200 so was a small % of total capital. Delta-adjusted would be worth ~ $170mm but with max loss of $13,400
Is there a mercy rule?
Was Scottwood on the other side of the Citi trades for the quarter? Is that the only way Vikki could have a perfect record?
#16, you’re missing two places. the amount lost is $1,320,000. each contract is 100 shares.
I am the CEO of a hedge fund. What is “capital preservation”?
goddamnit. thx, 19. dumb mistake. knew something didnt seem right but rushed
9 here, agreed, I read the filing wrong. I just made a quick look at the value column which is wrong because it represents the underlying, not the value of the options. Anyone know the AUM at Scottwood?
@20 I like the way you think. Pls send me a prospectus.
Ron@WSfundoffunds.com
@9/22 you sound like the kind of analyst I’m looking for. Contact me at:
Ron@WSfundoffunds.com
@15 Then quickly release the kittens and infants that are hidden in the basement antechamber and get them out of their before Lloyd goes on to one of his sacrificial orgies to the sky gods…..
@22: $1 bob.
How much money do these guys have under management?
nice letterhead!
@24 I’m a PM at a fund that shall remain nameless- let’s just say it gets a lot of press on here- so I’ll have to pass.
long equity portfolio was $103mm @ 3/31, have seem total aum referenced at $350mm
Hi, I’m Scott. I’ve got Wood.
This comment string should be placed prominently on the banner. No wonder this shit is all fucked up.
@32 what the hell does that comment even mean? the thread should be on the banner? what shit is fucked up? the fund? the site? consider leaving a comment that approaches making sense next time.
This is no big deal. This happens all the time when you’re 400% exposed long into a craptastic month. Rather than apologizing, they should be asking their investors to apologize for being sissies. Buckle your seatbelts or don’t get on the ride.
It’s funny, there is a storied rule that says that when a manager gets a cover story or prominent story in one of the trade rags, its a SELL signal! Well, in Scottwood’s case, they were just prominantly featured in the most recent issue of Absolute Return / Alpha hedge magazine!
The article is a profile on founder Ed Perlman (he is a strange bird to say the least..) and his Risk Manager Milton Lewin… To their credit, Scottwood has a long trackrecord and they did relatively well during the 2008 – 2009 period. Therefore, I am a bit surprised at this as my impression of them was they that they lacked relationship skills but were decent credit curmudgeons and real pros….
Dear Investor:
We are changing our name Scottrade Capital Management until our positions recover.
Sincerely,
The Management
Addressing a letter, however, indeed, well-intentioned, initially, it may have been, while failing, in part or, more likely, in whole, to put a number in writing; instead, opting for, IMO, a litany of unnecessary, albeit humorous, punctuation, consisting, primarily, of commas, without mentioning, for public consumption, the magnitude of the drawdown, is, without question, retarded.
That letter will do nothing but freak everyone out. I say -21.08% (gross).
Plus the PM looks like a cross between Antonio Banderas and a Tolkein character.
@35
They are old Oppenheimer dudes and had good reps, but much of the outperformance of 2007-2008 was punting short mortgages and the like.
Here is the article #35 is talking about:
http://www.nxtbook.com/nxtbooks/ii/ar_1543j_v2/index.php?startid=59#/46
I too had to learn the hard way that bad positioning can result in ass-bleeding
@33 and you can be the poster boy or girl for what I’m talking about.
Have a nice weekend anyway.
~ 32
Bravo, V Vol.
barrons profiled them in top 100 last wk. aum is (was) 550. how much were they down?
@34 Do you have a newsletter?
- Scott W
Like BP, they can’t stop the spill (from their ass).
Agree with @28. The letterhead more than makes up for any losses.
Die Scottwood, Die!!!
How the hell did these morons convince anyone to give them money? Their big ‘lesson learned’ is the difference between beta and alpha for chrissakes.
AUM as of April 2010 was $ 920 million. Way long corp. credits, limited equity exposure.
these guys have lots of hot money(quarterly redemptions) they will be out of biz shortly. A good biz model would be to short their longs and collect your cash when they redemption notices hit
One of these days hedge funds will actually learn how to hedge. Most of these idiots are only in business as a compensation scheme. These guys who raise money as a hedge fund but are actually long only funds and use ETF’s to hedge should go out of business. They charge x% mgmt fee and the incentive fee for not doing there job. Wait until the market gets really nasty again and everyone will be crying.
the firm has totally changed since end of 2007–they never used to have huge swings in p/l or exposure like they do now. i think maybe has to do with the other founder that left after 07. these guys starting to remind me of pirate capital–where AUM and marketing was more important than risk management.
WOW #52.. how right you are. I had not thought of that but you are right. I was invested in Pirate also… ugh…One man show with PM that thinks he is God and analysts as window dressing. Zero risk management. I made money on Pirate, a lot actually. But when that civil war happened I got out. Scottwood is the same. How did I not see it before. They have a COO and Risk Manager but he does nothing. 4 marketers.. yes 4, for a fund that had a big year in 2009 and a bunch of return chasing investors trying to catch a wave.. they caught it all right.
So here is the deal. 2008 was a lucky year because they feel into a decent return that on a relative basis saved them but they got hit with redemptions.. including my investment. PM was behaving differently in my view. Big exposure swings. No risk management and it was obvious the investment team was not deep and pretty second rate. 2009 they were long, concentrated, and levered and had a great year but it was way beyond what is normal for these guys. Not what investors expect from this fund. Stayed long, concentrated, levered… they have NO IDEA how to hedge. None whatsoever. Up 20% after April, believed they were Superman and could not be wrong. Market moved hard against them… did not have hedges and do not have any risk management at all and trader did not know what to do. Got run over and to prevent redemptions seems that they may have understated how bad first weeks were. HMMMMM…. question is… Do these guys have the make up to run more than $500 or so? Seems like with a one man investment team and analysts and window dressing and zero risk management and 4 marketers it would seem no. And that bald guy.. COO and Risk … ??? what were you doing in May.
Our view was in 2008 that these guys can’t handle the size. Too concentrated and too directional with no hedges. I was considering investing at end of 2009 but wanted to see how they would handle success, fame, fortune, and larger AUM. When that big article came out about them in that magazine it looked very weird to me.. pensive PM shots, new offices, “we’re the best” attitude “but we are still humble and we don’t drink the Kool Aid here.” That article sealed it for us.. we figure that they would try and keep pushing. They did and got hammered. This is the kind of month that kills a firm because we as investors did not expect this from the PM there. Too bad really. I like the guy a lot. I really do. Smart guy, funny, goofy, geeky, weird. Just what a PM should be.. but he has changed since early 2008. Not sure what it is exactly but he definitely changed.
Going to add to my Paulson and my macro guys.
Trader – what do I do…. were down like … ummmm… duuuhhhh… let me do the math. Hey Risk Manager.. Hey CFO…. what are we down.. I have no idea. -10%? -15%… Ed, do we stay long? Market might come back… right. Wait, oh, we are still way above high water mark. Thank God we can still charge fees.
Hell with it guys let’s just ride it out. No need to hedge or cut. Elmer Fudd and the Coyote always survived getting hit by a train. Don’t sell. Was it over when the Germans bombed Pearl Harbor… Hell No.
PM – I am with you kid. Keep it all on. Analysts.. keep playing poker and solitaire. I do not what to hear one idea or “we told you so” out of any of you morons. You are not getting paid anyway. Hey risk manager… go yell at the 4 marketers and tell them to start putting the fires out and see if anyone wants to invest with us… I want sticky pension money … go find it. Better yet… I am going to join the marketing team. Trader… you are in charge now so I can hang you out to dry. Risk manager.. you and the marketers will take the blame for this. We will tell the world that you convinced me to keep it all long and levered. YEEEEEEEHAAAAAAAWWW. Let’s go to Vegas and go all in on the first hand against Phil Helmuth.
Trader – Gee thanks…. okay. Let’s turn this ship around and invest in deep water oil drillers, and insurance companies. Maybe even shift our mandate a little while were are at it. I have been reading some macro economics text books and I think I have that strategy all figured out. You have to be liquid and hedge .. got it. But how do all those interest rate trades and currency things work? And what the hell is a commodity.
Thanks Eddie … you are THE MAN…. You made me look good because you look like a HUGE MORON. At least my performance never really suffered. And certainly not that fast. I just didn’t pay my guys, made myself rich, banged Bolton’s daughter (she was awesome by the way), and a few other skanks.. they all walked out on me but now I am rich. I WIN !!!
oops.. sorry.
have these guys put out an actual number estimate? interesting question…. what is their redemption notice? I commend them for 44% in 2009 … but maybe they should have been conservative and locked it in… but return chasers probably wanted them to push it and pit pressure on them. Sucks because it was all going so well for them. Silly really.. they got cocky but they also probably got pushed and they felt need to deliver again. if you survive guys go back to playing it a little safer
@57–i think they got a 45 day pre-quarter end notice–which means may 15. very LUCKY that they were only down a few percent before that date! am guessing that if they were down 10-15 by may 15 they would have been hit with redemptions. anyone know if they got money pulled?
They look like they are going to have to shut down to meet redemptions
What do you expect! he cares more about art and works 10-3. Redemptions are scary here.
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