Top 4 Hedge Fund Fails

The financial sector has taken several beatings over the past few decades. As a result of this economic instability, a lot of consumers and investors have put some money into hedge fund offerings. Unfortunately, not all of these schemes end on a positive note, and quite a few of them have come to an end prematurely. Any investment is risky, and hedge funds are no different in that regard.

 

#4 BAYOU GROUP PONZI SCHEME

One of the main concerns regarding hedge fund operations is whether or not they are legitimate. Israel’s Bayou Group has gotten a lot of attention in 2003, which attracted an influx of fresh capital. However, the company turned out to be a Ponzi Scheme due to a 2005 SEC investigation. As one would expect, a lot of people lost hard-earned money in the collapse, and it is estimated the losses added up to US$500m.

 

#3 PELOTON CAPITAL

The Peloton Capital is quite an intriguing hedge fund, all things considered. It was founded in 2005, yet managed US$3bn in assets the next year. Interestingly enough, the company provided an 87% return to its investors during 2006. That is rather unheard of in the hedge fund sector, and this feat has not been repeated ever since.

Sadly, this also spelled the beginning of the end for Peloton Capital as the hedge fund was liquidated in 2008. At that time, a total of the US$2bn worth of Peloton’s AUM was returned to clients. Things came to an abrupt halt when the subprime mortgage crisis sent shockwaves throughout the US economy in 2008.

 

#2 SATELLITE CAPITAL

This particular hedge fund has seen a few highs and lows throughout its nine-year history. Satellite Capital, founded in 1999, started gaining traction quickly. The year 2004 was particularly good, as the company returned 25% of investments back to its clients. Things only improved from there on out, resulting in the hedge fund managing US$7bn by 2007.

Unfortunately, things took a nose dive in 2008, as the hedge fund lost 35% of its assets. When the hedge fund finally shut down at the end of 2008, less than US$3bn in assets remained. The year 2008 will always be remembered as the period of the most recent financial crisis, affecting a lot of financial players in quick succession.

 

#1 LONG-TERM CAPITAL MANAGEMENT

The name Long-term Capital Management will be in the history books forever, as it is one of the few hedge fund operations to post annualized returns of over 40% for several years straight.  At its peak, the group held US$120bn in trading liabilities. After this explosive growth between 1994 and 1999, the company was forced to close down in 2000. The hedge fund also took a government bailout payment in 1996 after losing US$4.6bn in AUM.