8 Incredible Facts About Hedge Funds

Nathan Anderson | September 2, 2015

8 Mind Blowing Facts About Hedge Funds#8. Some of the largest hedge funds in the world (including Och-Ziff, Blackrock, and GLG) financed Zimbabwean despot Robert Mugabe’s latest violent election coup in exchange for mining rights. (I)

#7. Elliot management and several other funds have fought relentlessly with the government of Argentina over the Argentine debt default of 2001, going so far as forcing an Argentine Naval vessel to be detained in a port in Ghana until debts were repaid. [II]

#6. The Renaissance Nova fund, a quantitative fund staffed by 2 traders has at times accounted for up to 14% of the volume on Nasdaq. [III]

#5. That any of these strategies exist: Top 13 Weirdest Hedge Fund Strategies

#4. Despite having 2 Nobel prize winners on staff, Long-Term Capital Management (LTCM) caused the worst hedge fund blowup in history. It required 16 banks to step in and bail them out in order to avoid a total market meltdown. (I guess that’s what happens when you have $4.6b in assets, employ 25x leverage, and add $1.25t in notional derivatives exposure.) [IV]

#3. Amaranth Advisors blew up after losing $6b on a wrong way bet on weather, of all things. Head trader Brian Hunter bet that hurricanes and extreme weather would cause natural gas shortages and spike the price. Instead, a mild winter led to a surplus supply and a one-month wipeout of approximately 75% of investor capital for Amaranth. [V]

#2. Some high-frequency trading firms use microwaves to transmit data because microwaves travelling in air suffer a less than 1% speed reduction (versus light travelling in a vacuum,) whereas fiber optic light travels over 30% slower. [VI]

#1. Harry Markopolos, an executive at a major Boston options-trading firm tried to blow the whistle on Bernie Madoff numerous times over the course of 8 years. The fraud grew by over 10x from about $5b to $65b during that time. At one point Markopolos even gave the SEC a document titled “The World’s Largest Hedge Fund is a Fraud.” The SEC didn’t even respond. Madoff’s fraud later blew up because he couldn’t meet redemption requests, not because of regulatory action. Markopolos subsequently wrote a book  “No One Would Listen” and lambasted the SEC for their negligence in front of Congress. [VII]
[I] The Hedge Fund and the Despot
[II] Let’s Remember the Time a Hedge Fund Seized the Flagship of Argentina’s Navy
[III] Renaissance Technologies
[IV] Long-Term Capital Management
[V] Losing The Amaranth Gamble
[VI] High-frequency trading
[VII] Harry Markopolos, SEC Chairman?

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Nathan Anderson

Nate co-founded ClaritySpring and oversees the company's strategy and operations.

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