Moody's Cuts Greece to 'Junk'

It certainly is nice to own the world's major ratings agencies.

Oh no, not the US government -- the Anglo-American hedge funds and a few multinational banks.

Bloomberg
Greece Cut to Junk by Moody’s on ‘Substantial’ Economic Risks
By Ben Martin and Maria Petrakis

June 15 (Bloomberg) -- Greece’s credit rating was cut to non-investment grade, or junk, by Moody’s Investors Service, threatening to further undermine demand for the debt-strapped nation’s assets as it struggles to rein in its budget deficit.

In making the four-step downgrade to Ba1 from A3, Moody’s cited “substantial” risks to economic growth from the austerity measures tied to a 110 billion-euro ($134.5 billion) aid package from the European Union and the International Monetary Fund. The lower rating “incorporates a greater, albeit, low risk of default,” Moody’s said in a statement yesterday in London. The outlook is stable, it said.

Greece has cut spending, raised taxes and trimmed wages to tackle the deficit, which swelled to 13.6 percent of gross domestic product last year, more than four times the EU limit. To secure the EU-IMF aid, the government pledged to trim the shortfall to 8.1 percent of GDP this year and bring it back under the 3 percent EU ceiling in 2014. The crisis has prompted investors to sell the bonds of Greece and other high-deficit nations and pushed the euro down 15 percent this year.

“We’ve got a lot of uncertainty around the growth outlook for Greece,” Sarah Carlson, vice president-senior analyst in Moody’s sovereign-risk group, said in a telephone interview yesterday. “It’s rare for a country to implement so much structural reform in a very short time...”

More Hedge Funds Face Indictments As Federal Wiretaps Uncover Insider Trading Rings

It is about time the Feds started tracking some of the more eyebrow raising examples of insider trading. Whenever there is new, you see a spike in the volume and the options ahead of the announcement these days.

This is most likely the tip of the iceberg, and the hedge funds are not the only culprits.

Its a step in the right direction. Let's hope it is not diversion to placate people because of the lack of serious market reform from Washington.

Bloomberg
U.S. Plans to Charge 10 More After Rajaratnam Arrest
By Joshua Gallu and David Scheer

Oct. 19 (Bloomberg) -- Federal investigators plan to charge at least 10 securities professionals with insider trading, some linked to the criminal case against billionaire hedge-fund manager Raj Rajaratnam that shook Wall Street last week, people familiar with the matter said.

The pending crackdown, more than two years in the making and among the biggest undercover operations into insider trading, may yield charges against hedge-fund managers and their associates as early as this week, the people said, declining to be identified because the cases aren’t public. Authorities had planned to arrest Rajaratnam this week as part of a broader sweep, expediting it after learning he had bought a plane ticket to travel to London on Oct. 16, one person said.

The case against Rajaratnam, built on recorded conversations within a web of alleged conspirators, offers a glimpse of how U.S. investigators are using more aggressive tactics to identify illegal trades hidden within a blizzard of hedge-fund investments. Additional probes stem from a secret Securities and Exchange Commission data-mining project set up to pinpoint clusters of people who make similar well-timed stock investments. Some probes, like the one against Rajaratnam, rely on wiretaps.

“If you’re going to shoot the king, you better shoot to kill,” said Bradley Bennett, a law partner at Baker Botts LLP in Washington who formerly focused on insider-trading cases as an SEC investigator. “If they’re going to take on a billionaire, they need to have the strongest possible cases. The defendant’s own words are the strongest possible evidence....”

A Run On the Funds: Majority of Cerberus Investors Want Out -- Now

When investors or depositors ask for the immediate withdrawal of 71% of their money there is only one thing to call it: a run on the bank.

The selling in the markets is still quiet, and overshadowed by some of the visible bubbles in financial assets and rosy headlines. The bank bailouts are working, but only to produce a false Spring to lure in the last of the greater fools.

The economy is not improving fundamentally, the recovery is not sustainable, and the wealthy insiders are increasingly trying to liquidate investment positions to raise cash and diversify their holdings into cash and hard assets.

Risk is once again being spread from the financial sector to the public, which is what Fed Chairman Greenspan had said was one of the objectives of the Fed in their positions on the regulation of complex financial products. We were assured that the markets were sound, no additional regulation was required, the pensions were adequately funded. And finally when disaster struck and the facade fell away, that a generation's ransom was required by the banks, in order to heal themselves and avert disaster.

And then they took the money for themselves.

"He's mad, that trusts in the tameness of a wolf, a horse's health, a boy's love, or a whore's oath." The Fool, King Lear

And so they have made fools of us all.


Reuters
Cerberus clients overwhelmingly want out
Fri Aug 28, 2009 4:21pm

BOSTON (Reuters) - Cerberus Capital Management has been swamped with redemption requests with the Wall Street Journal reporting that investors are asking to pull out $5.5 billion or 71 percent of assets from its hedge funds.

Cerberus last month tried to entice investors into staying with the firm, but found that its clients overwhelmingly wanted to leave, the newspaper reported.

"We have been surprised by this response," Cerberus chief Stephen Feinberg and co-founder William Richter wrote in a letter delivered to clients late on Thursday, according to the newspaper.

A spokesman for the firm was not immediately available for comment.

The bulk of investors elected to put their money into a fund that will liquidate hard-to-sell assets over time.

The news comes as several prominent hedge fund managers have closed their funds and as investors are less willing to leave their money locked up in potentially risky hedge funds.

Last year, when the average hedge fund lost 19 percent, Partners lost 24.5 percent on investments.

John Merriwether to Close Hedge Fund After Heavy Losses

The markets are brutal indeed for speculation, with a few predatory institutions, well supplied with freshly minted central bank liquidity, preying the markets with high frequency programs designed to manipulate prices, squeezing the leverage out of funds and speculators.

The marvel is not that a professional like John Merriwether has failed again, although less spectacularly this time as compared to the great flameout that was LTCM.

The marvel is that people, including the wealthy and presumably sophisticated, continue to give their funds to gamblers and ponzi dealers.

Even more amazing how the people continue to allow their economies to be so thoroughly distorted and perverted by the corrupting influence of a relatively few but powerful market participants from the financial sector.

"While boasting of our noble deeds we're careful to conceal the ugly fact that by an iniquitous money system we have nationalized a system of oppression which, though more refined, is not less cruel than the old system of chattel slavery." Horace Greeley

The banks must be restrained, and the markets reformed, and balance restored to the economy before a sustained recovery can be achieved.

A good first step would be an independent audit of the Federal Reserve. And a second would be aggregate position limits on all commodities and traded financial instruments with disclosure. A third would be the aggressive abolition of naked shorting.


Bloomberg
Meriwether Said to Shut Hedge Fund; London Chief Plans Startup
By Katherine Burton and Saijel Kishan
July 7, 2009 21:41 EDT

July 8 (Bloomberg) -- John Meriwether plans to shut the hedge fund he started after the collapse of his Long-Term Capital Management LP in 1998 roiled global markets, according to a person familiar with the matter.

Long-Term Capital lost more than 90 percent of its $4.8 billion of assets in the weeks following Russia’s currency devaluation and bond default. The Federal Reserve orchestrated a $3.6 billion bailout by the fund’s 14 banks to calm fears that the firm’s lenders and trading partners would be dragged down.

The decline of Meriwether’s current firm, JWM Partners LLC, played out over months, with its main fund losing 44 percent from September 2007 to February 2009. The Relative Value Opportunity II fund, which sought to profit from price differences among related bonds, returned an average of 1.46 percent a year since it began trading Nov. 30, 1999. The Credit Suisse/Tremont Hedge Fixed-Income Arbitrage Index gained 2.4 percent a year in the same period.

“For many investors, John Meriwether is by now just another hedge-fund manager,” said Tammer Kamel, president of Toronto-based Iluka Consulting Group Ltd., which advises clients on investments in the private pools of capital. “LTCM’s infamy was a big story in 1998, but the events of 2008 might finally relegate LTCM and 1998 to footnote status.”

JWM Partners, based in Greenwich, Connecticut, managed about $1 billion at the beginning of 2008. Meriwether, 61, joins hedge-fund veterans Art Samberg, James Pallotta and William von Mueffling in closing funds this year. He didn’t return a telephone call and an e-mail seeking comment.

London Chief Departs

Adrian Eterovic, who ran the JWM Partners’ London office, plans to start his own fund, according to the person, who asked not to be named because the information is private.

Eterovic, 46, ran the quantitative strategies within JWM’s funds, according to the person. Eterovic registered Episteme Capital Partners (U.K.) LLP with the U.K.’s Financial Services Authority, according to the market regulator’s Web site. Calls to Episteme’s offices after business hours weren’t answered.

Long-Term Capital relied on borrowed money to enhance returns. The average leverage at the beginning of 1998 was about $28 for every $1 of net assets. JWM Partners was more conservative, aiming to produce returns of 15 percent a year and borrowing $15 or less for every dollar of net assets.

Before Long-Term Capital, Meriwether worked at Salomon Brothers, where he was vice chairman and built its proprietary trading desk. His team, with at least a half-dozen Ph.D’s, used computer models to make money from small price differences in related bonds. His group was responsible for as much as 60 percent of Salomon’s revenue in some years.

He lost his job at the firm following the 1991 government bond scandal. Regulators ruled that he’d failed to supervise traders who violated bond-auction rules.

Palotta's Raptor Hedge Fund Halts Redemptions - To Close

No doubt overwhelmed by the heady perfume of green shoots wafting from the Fed's printing presses.

WSJ
Pallotta, Noble to Close Funds
By JENNY STRASBURG and PETER LATTMAN

Two prominent Boston money managers are winding down their biggest funds, another sign of the relentless shakeout in the hedge fund industry.

James Pallotta, who runs the $800 million Raptor fund, has decided to return money to outside clients, people familiar with the matter said.

George Noble, a former mutual-fund manager who controls some $550 million across two funds named Gyrfalcon, intends to refund clients this month. He describes his 2009 performance in a letter to investors Tuesday as "the most professionally disappointing and personally frustrating of my entire career."

Their simultaneous exits show how veteran investors still regard these markets with caution, despite stocks' recent ascent. The decisions could portend similar moves by other fund managers who, burned by losses and facing pressure from clients, opt to shutter, even as the hedge fund industry's returns have improved.

Mr. Pallotta less than a year ago split off from hedge-fund pioneer Paul Tudor Jones, his investment partner for 15 years. Mr. Pallotta ran Tudor Investment Corp.'s Raptor fund, a stock-picking vehicle that at its peak had $9 billion in assets and some of the best returns in the industry but that hit a money-losing skid starting in mid-2007.

Mr. Pallotta, 51 years old, grew up in Boston's working-class North End neighborhood and became one of the city's richest men and a minority owner of its beloved Celtics professional basketball team. This year, he opened a New York office in addition to his Boston location. Yet amid the market tumult, he kept most of his assets in cash and for now has put fundraising and major organizational decisions on hold, people familiar with the matter said.

Speculation Nation Part 2

Our national priorities favor financial engineering, financial speculation, consumption on credit.

They penalize manufacturing, savings, and the median wage of labor.

It could not be any clearer.


Financial Times
Hedge funds gain access to $200bn Fed aid
By Krishna Guha in Washington
December 20 2008 05:01

Hedge funds will be allowed to borrow from the Federal Reserve for the first time under a landmark $200bn programme intended to support consumer credit.

The Fed said on Friday it would offer low-cost three-year funding to any US company investing in securitised consumer loans under the Term Asset-backed Securities Loan Facility (TALF). This includes hedge funds, which have never been able to borrow from the US central bank before, although the Fed may not permit hedge funds to use offshore vehicles to conduct the transactions.

The asset-backed securities to be funded under the programme are pools of credit card receivables, automobile loans and student loans.

The idea is to increase the supply of these loans and reduce borrowing rates by ensuring that the companies that make the loans can sell them on to investors who have guaranteed access to low-cost funding from the Fed.

The TALF is a key plank of the unorthodox strategy set out by the Fed last week as it cut interest rates virtually to zero. Washington insiders expect the programme will be dramatically expanded next year with further capital support from Treasury once the Obama administration takes office.

A senior official in the outgoing Bush administration told the Financial Times it could also be broadened to include new commercial and residential mortgage-backed securities.

The Fed thinks risk premiums or “spreads” for consumer loans are much higher than would be justified by likely default rates, even assuming a nasty recession.

It attributes this to a lack of buying interest in the secondary market where the loans are sold on to investors. By making loans to these investors on attractive terms it aims to increase market liquidity.

Making the scheme open to all US companies is a radical departure for the Fed, which normally supports financial market liquidity indirectly by ensuring banks have adequate liquidity to make loans to other investors.

However, the liquidity the Fed is providing to banks is not flowing through to financial markets, because banks are balance-sheet constrained and risk-averse. So it is channelling funds directly to investors.

The scheme is not designed specifically for hedge funds and a wide range of financial institutions are likely to participate.

Nonetheless, Fed officials hope that hedge funds will be among those investors that take advantage of the low-cost finance to drive down spreads.

The loans will be secured only against the securities and not the borrower. However, the Fed will lend slightly less than the value of the securities pledged as collateral. The Treasury has committed $20bn to cover potential losses.

Since the credit crisis erupted, hedge funds have complained that they cannot get the leverage they need to arbitrage away excessive spreads and meet high hurdle rates of return.

“Demand is there for leverage but not supply,” said Sylvan Chackman, head of global equity financing at Merrill Lynch.

In effect, the Fed will now take on the role of prime broker – the lead bank that lends to a hedge fund – for specific assets.

Citadel Suspends Withdrawals to Halt the Run on Two Funds

Are the hedge fund runs the modern day equivalent of the bank runs of the 1930's or even the Panic of 1907?

That is not as glib an observation as you might think at first. The hedge funds like Citadel and Fortress resemble the private banks of New York in the early 1900's in many ways.

As in the case of Bernie Maddow, as a type of Richard Whitney, we're seeing echoes of certain periods in the past in many of the events today.

This is clearly not your father's recession, but we are not quite sure what it will be yet, and are often unpersuaded by those who think they do.

"Why can't you just accept that this is deflation?" It is clearly a deflation in terms of aggregate demand, no question. All one has to do is look at GDP. But we do not see it as a true straightforward money deflation with a sustainable increase in the value of the dollar. The dollar is a financial asset and not a store of value. It is an artifice.

Something is going to replace the dollar, but we cannot tell what it will be yet.

The Fed and Treasury have given away three trillion dollars at least so far, with commitments to give away five more. It only seems to be a deflation if you are not on the list of the chosen few, and take a shower before leaving for work instead of after. In the short term deleveraged cash is king, no doubt about it. Risk is still high, and we have much further to do to the downside. Stocks are poison and debt is unstable.

The dollar is decoupled from reality, far from the conventional mechanisms of savings and investment. Its all policy now in the short term, and then the next phase of this transformation will begin, and it will contain a surprisingly large portion of the unexpected, the unanticipated, on the order of the stagflation of the 1970's that left so many economists with their mouths gaping open.

The natural question is "But Jesse, this is all well and good, and it makes my head hurt. What is the endgame? Where should I put my money now?"

Cash. The safer stores of value of wealth. Its no coincidence that short term Treasuries have spiked to negative returns, and manageable forms of gold and silver bullion are in scarce supply. And then we wait and see what happens next. Take risks if you must, but only with a very small percentage of your portfolio, and sit on the rest, get out of debt, cut consumption, and wait.

There is no way to adequately measure and assess risk in a system in which the price discovery mechanisms are broken, and the standards of value are changing to something radically different, and success and failure can rely on the somewhat arbitrary policy decisions of a few politicians and bankers and the decisions of foreign governments.


Citadel Suspends Withdrawals in Two Hedge Funds After 50% Drop
By Saijel Kishan and Katherine Burton

Dec. 12 (Bloomberg) -- Citadel Investment Group LLC, the Chicago-based hedge-fund firm run by Kenneth Griffin, halted year- end withdrawals from its two biggest funds after investors sought to take out $1.2 billion, according to a letter sent to clients.

The Kensington and Wellington funds, which together manage about $10 billion, have lost 49.5 percent of their value this year through Dec. 5. Withdrawals may resume as early as March 31, said the letter, signed by Griffin and sent to investors today.

“We have not made this decision lightly,” Griffin wrote. “We recognize how a suspension impacts our investors, especially those with current financial obligations of their own to meet.”

Citadel joins hedge funds including Fortress Investment Group LLC and Tudor Investment Corp. in limiting withdrawals as hedge funds head for their biggest annual losses since at least 1990. Hedge funds have declined 18 percent, on average, this year through Nov. 30, according to Chicago-based Hedge Fund Research Inc.

As of October, 18 percent of hedge-fund assets, or about $300 billion, managed by 5 percent of hedge funds, were subject to some sort of restriction on withdrawals, according to Peter Douglas, principal of Singapore-based hedge-fund consulting firm GFIA Pte.

Citadel normally allows clients to withdraw up to 1/16th of their assets quarterly. If total withdrawals exceed 3 percent of the fund, investors must pay a fee back into the fund ranging from 5 percent to 9 percent. Redemptions have never before surpassed the limit.

Citadel will also absorb “a substantial portion” of the funds’ expenses this year, the letter said. Citadel clients usually pay these charges, which have traditionally amounted to about 3 percent to 4 percent of assets.

The fund is holding between 25 percent and 30 percent of its assets in cash.

Katie Spring, a spokeswoman for Chicago-based Citadel, declined to comment.

Before 2008, Citadel had posted just one losing year since Griffin started the firm in 1990, dropping 4 percent in 1994. Three Citadel funds, whose returns are tied to the firm’s market- making business, have climbed about 40 percent this year. Those funds manage about $3 billion.

The Baited Banker Thus Desponds: Citadel Loses 47%

Bloomberg
Citadel Funds Lose 13% in November, 47% This Year
By Saijel Kishan and Katherine Burton

Dec. 4 (Bloomberg) -- Citadel Investment Group LLC, the Chicago-based hedge-fund firm run by Kenneth Griffin, lost 13 percent in November, bringing the decline for the year to 47 percent, according to two people familiar with the matter.

Losses at the Citadel’s two biggest funds came from investments in convertible bonds, high-yield bonds and bank loans, and investment-grade bonds, which were hedged with credit default swaps that protect the buyer in the event of a default. These same wagers started the funds’ tumble in mid-September.

“Digging out of this hole may be tough for them,” given the lack of trading in the credit markets, said Michael Rosen, principal at Santa Monica, California-based Angeles Investment Advisors LLC, which advises clients on hedge-fund investments....


"A baited banker thus desponds,
From his own hand foresees his fall,
They have his soul, who have his bonds;
'Tis like the writing on the wall. "

THE RUN UPON THE BANKERS
Jonathan Swift

The bold encroachers on the deep
Gain by degrees huge tracts of land,
Till Neptune, with one general sweep,
Turns all again to barren strand.

The multitude's capricious pranks
Are said to represent the seas,
Breaking the bankers and the banks,
Resume their own whene'er they please.

Money, the life-blood of the nation,
Corrupts and stagnates in the veins,
Unless a proper circulation
Its motion and its heat maintains.

Because 'tis lordly not to pay,
Quakers and aldermen in state,
Like peers, have levees every day
Of duns attending at their gate.

We want our money on the nail;
The banker's ruin'd if he pays:
They seem to act an ancient tale;
The birds are met to strip the jays.

"Riches," the wisest monarch sings,
"Make pinions for themselves to fly;" [1]
They fly like bats on parchment wings,
And geese their silver plumes supply.

No money left for squandering heirs!
Bills turn the lenders into debtors:
The wish of Nero now is theirs, [2]
"That they had never known their letters.

"Conceive the works of midnight hags,
Tormenting fools behind their backs:
Thus bankers, o'er their bills and bags,
Sit squeezing images of wax.

Conceive the whole enchantment broke;
The witches left in open air,
With power no more than other folk,
Exposed with all their magic ware.

So powerful are a banker's bills,
Where creditors demand their due;
They break up counters, doors, and tills,
And leave the empty chests in view.

Thus when an earthquake lets in light
Upon the god of gold and hell,
Unable to endure the sight,
He hides within his darkest cell.

As when a conjurer takes a lease
From Satan for a term of years,
The tenant's in a dismal case,
Whene'er the bloody bond appears.

A baited banker thus desponds,
From his own hand foresees his fall,
They have his soul, who have his bonds;
'Tis like the writing on the wall. [3]

How will the caitiff wretch be scared,
When first he finds himself awake
At the last trumpet, unprepared,
And all his grand account to make!

For in that universal call,
Few bankers will to heaven be mounters;
They'll cry, "Ye shops, upon us fall!
Conceal and cover us, ye counters!

"When other hands the scales shall hold,
And they, in men's and angels' sight
Produced with all their bills and gold,
"Weigh'd in the balance and found light!"

1. Proverbs 23:5

2. Nero, signing the death sentence of a condemned criminal, exclaimed:
"Quam vellem nescire litteras!" ("How I wish I'd never learned to write!") Suetonius, 10;

3. Daniel 5:25 מנא ,מנא, תקל, ופרסין (Mene, Mene, Tekel u'Pharsin)

Credit Crisis Storms the Walls of Fortress the Hedge Fund

NY Times
Fortress, the Hedge Fund, Is Crumbling
By MICHAEL J. DE LA MERCED
December 4, 2008

When Wesley R. Edens and his partners founded their investment firm a decade ago, they chose a name that evoked unshakeable bastions: Fortress.

But now their stronghold is under siege — and some of its investors are running for cover.

Cracks are spreading throughout the Fortress Investment Group, once a leading player in the worlds of hedge funds and leveraged buyouts. On Wednesday, Fortress’s shares fell 25 percent to $1.87, a new low, after the company temporarily suspended withdrawals from its largest hedge fund. Investors had asked to withdraw $3.51 billion from the money-losing fund, Drawbridge Global Macro.

But Wednesday’s slide was just the latest turn in a long, downward spiral for Fortress. The once-celebrated company has lost 89 percent of its market value over the last year as hedge funds and private equity, once lucrative businesses that helped define an era of unrivaled Wall Street wealth, have crumbled in the credit crisis.

It is a remarkable turnabout for Fortress, which less than two years ago was soaring along with the rest of Wall Street. Its debut as a public company, in February 2007, was heralded as the dawn of a new age of big hedge funds and buyout firms. Mr. Edens, a former executive at Lehman Brothers and BlackRock, and his fellow founders became instant billionaires. Their deal paved the way for even splashier initial public offerings by the likes of the Blackstone Group.

But life as public companies has proved treacherous for Fortress, Blackstone and the other so-called alternative investment firms that sold stock to the public shortly before the credit crisis erupted. They have had to contend with the harsh judgment of stockholders as the credit on which they depend has grown increasingly scarce.

“Frankly, it’s very difficult to say anything other than that I would have no interest as an investor in holding or buying these shares,” Jackson Turner, an analyst at Argus Research, said. Mr. Turner has a sell rating on Fortress shares.

A Fortress spokeswoman declined to comment.

Fortress’s plight reflects the ills plaguing much of high finance. Investors are abandoning hedge funds in growing numbers, and the industry, once so profitable, is now in the midst of a wrenching shakeout.

Even before Fortress lowered the gates on redemptions at its Drawbridge Global Macro fund, other big-name hedge funds had done so. More are expected to follow suit. Some investors fear that a rush of withdrawals could force funds to dump investments en masse, unsettling already shaky financial markets.

Fortress’s biggest fund is withering. In a regulatory filing on Wednesday, Fortress said that Drawbridge Global would have about $3.7 billion in assets under management as of Jan. 1, compared to the $8 billion it reported having as of Sept. 30.

But while Fortress’s earnings will suffer because of the redemptions — hedge funds earn fees based on both the amount of assets they manage and the performance of those funds — the withdrawals alone do not necessarily spell the company’s doom. Less than 30 percent of Fortress’s $34 billion in assets under management are subject to investor redemptions. Most are locked up in private equity funds that do not allow quick withdrawals of capital.

Still, private equity firms have been hurt by the near-freeze in the credit markets, which has limited their ability to strike new deals and dealt a severe blow to many of the debt-laden companies they own.

Fortress dodged a major setback when it managed to refinance IntraWest, the big Canadian ski resort. But investors worry that Fortress has taken damage from its exposure to the commercial real estate market, which is coming under severe stress. Fortress was a major lender to Harry Macklowe, the real estate mogul, who had to sell off trophy properties like the General Motors Building in Manhattan to pay back his creditors.

Just as it was the first major alternative-investment manager to go public, Fortress is now being watched closely as a canary in the coal mine. The Drawbridge fund’s nearly 50 percent redemption rate far outpaces the 20 to 30 percent that the market had expected at hedge funds on average, said Roger Freeman, an analyst at Barclays Capital.

“From my standpoint, I wonder how many other funds are seeing similar redemption rates,” he said. “This is definitely a negative indicator for the industry.”

For months, Fortress has been the subject of gallows humor suggesting that it might simply buy back its shares and take itself private once more. While the company’s executives have asserted their commitment to remaining public, several analysts said that Fortress’s problems were clearly intensified by the brighter light that comes with being a public company.

“It forces their problems to be out in the open,” Mr. Turner said. “It made the issues that they have much more amplified.”

Myron Scholes Takes Another Hedge Fund to the Brink

Bloomberg
Scholes's Platinum Grove Fund Halts Withdrawals After Losses
By Saijel Kishan

Nov. 6 (Bloomberg) -- Platinum Grove Asset Management LP, the hedge-fund firm co-founded by Nobel laureate Myron Scholes, temporarily stopped investor withdrawals from its biggest fund after it lost 29 percent in the first half of October.

The decline left Platinum Grove Contingent Master fund with a 38 percent loss this year through Oct. 15, according to investors. Funds employing a similar approach of exploiting differences in the value of related securities fell 14 percent last month and 30 percent this year, according to data compiled by Chicago-based Hedge Fund Research Inc.

``The suspension is necessary given current market conditions,'' Rye Brook, New York-based Platinum Grove said in an e-mailed statement today. ``Platinum Grove will use this period to consult with its investors and counterparties, determine their future intentions and manage the assets of the fund accordingly.''

Hedge funds are reeling from the worst financial crisis since the Great Depression, losing an average of 20 percent this year, according to Hedge Fund Research. A surge of investor redemptions forced firms such as Blue Mountain Capital Management LLC and Deephaven Capital Management LLC to freeze funds to stem the tide of withdrawals.

Scholes, 67, winner of the 1997 Nobel Prize in economics, was a founding partner in Long-Term Capital Management LP, the hedge fund that lost $4 billion a decade ago after a debt default by Russia. He started Platinum Grove in 1999 with Chi-fu Huang, Ayman Hindy, Tong-sheng Sun, and Lawrence Ng, who had all worked at Long-Term Capital...