Hedge Funds Weeping In Their Tar Sands

The can't miss trade is...missing, pretty hard.
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The collapse in oil prices seems to have gone a long way towards turfing Stephen Harper out of a job last night (he went the rest of the way on his own). But the outgoing Canadian prime minister isn’t alone bemoaning crude crisis: Legions of hedge funds were sure they had found the next subprime-mortgages-in-2006 jackpot in the form of energy company debt. At least so far, those bets have proved about as prescient as John Paulson’s sequel to his mortgage mint-making, gold.

Hedge-fund and private-equity managers over the past year began piling into debt issued by troubled energy companies, hoping to profit off a reversal of oil’s slide. They raised billions of dollars for the effort, in many cases telling backers it was a once-in-a-generation chance to pounce. But crude has continued to fall, slamming the companies and many large investors who thought they had bought in near the bottom….

“A lot of hot money chased into what we believe are insolvent companies at best,” said Paul Twitchell, partner at hedge-fund firm Whitebox Advisors LLC, which he said steered clear of the trade. “Bonds getting really cheap doesn’t mean they are a good buy.”

For Hedge Funds, a Can’t-Miss Trade Goes Bust [WSJ]

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