The Journal provides a Greatest Hits compilation from hedge fund letters of late. The general tone of the tracks is hardly conciliatory but rather contains a fair bit of surprise, bewilderment and pounding bass. It’s not that the hedge fund managers are sorry that a rift opened in the universe causing an anomaly we were unlikely to see throughout measured time (see Goldman’s excuse below). Tough to take the direct rap for that sort of thing, or at least it seems like a solid defense in the face of investor lawsuits.
Here’s a track listing (it’s best if you imagine us presenting these to you in turtlenecks in front of a fireplace… “But Bess, how do you pack all those classic hits on to one CD?!”):
"We have always attempted to do the very best for our investors. A loss of this magnitude in such a short period is as devastating to us as it is to you."
-Jeff Larson, Sowood Capital Management
Translation: Forget me not. Jeff Larson will soon be working for Hallmark writing sympathy cards.
"Based on our own research and market knowledge, we believe that this increase in volatility is technical rather than fundamental in nature."
- Minder Cheng, Barclays Global Investors
Translation: Being technically screwed instead of fundamentally screwed is so much better in a metaphysical sense, in reality, not so much.
“The cause of the initial deleveraging is unclear, but could be related to a combination of a need for cash by multi-strategy quant funds, closing down positions at sell-side prop desks, tight credit markets, and real and perceived increases in volatility.”
-The hyper-evolved MCP from Tron, Goldman Sachs Asset Management
Translation: James Bianco from Bianco Research helps us out here. He points out that Goldman’s statement is pretty much a fancy way of saying “we are guessing here” and taking the Larson “I’m as shocked as you” defense. Bianco also notes that Goldman should be shocked, because according to it’s conference call Monday, the losses the Geo fund experienced in the first few dog days of summer amount to a 29-sigma event, which is an event that should occur on average once every 1x10^185 days. This is longer than the universe has existed. At least it’s comforting to know that Goldman employs the emergency proctology visit defense in the face of heavy losses, “It was a million to one shot guys, we swear.”
"There was (and is) the possibility that, as great as liquidations had been so far, that it was just the beginning of a spiral of me-too liquidations. The question was, when will it end? The answer is, we don't know."
- Dave DeMers and Jonathan Spring, Black Mesa Capital
Translation: See: ending, Flash Gordon, “The End?” followed by Emperor Ming the Merciless’ evil laughter. Also, a great acoustic cover of the Pixies song (with a twist), “Wave of Liquidation.”
The fictitious hedge fund Short-Term Capital, run by Bloomberg satirist Mark Gilbert does a nice job of parodying the recent wave of hedge fund letters:
As our alpha generation collapses, our beta has turned negative, our delta hedging has gone toxic and, trust me, you do not want to hear about our gamma. We can't even find our epsilons in the dark with both hands…
We have, of course, been in touch with the rating companies to update our default-probability scenarios, particularly on the AAA rated investments we own. They recommended a forecasting method using stochastics to regress the drift-to-downgrade timescales for the past 100 years and throw them forward for the next five minutes. The technical term for this is ``induction,'' though those of you of a less quantitative bent may know it as ``guessing.''
Dear Investors, We're... [Wall Street Journal]
Hedge-Fund Guy Atones for His Subprime Bond Sins: Mark Gilbert [Bloomberg]
Bianco Research (subscription page)