International
Lehman linked Hedge Fund group admits flaws in trading model
By Finfacts Team
Jun 14, 2005, 19:45

The Financial Times says that Europe’s largest hedge fund manager, GLG Partners, has revealed that flaws in its trading model may have been to blame for the 14.5 percent drop in value of its Credit Fund in May. The fund is down 15.5 per cent in the year to date.

CLG's mathematical model failed to foresee market swings in credit derivatives after General Motors and Ford were downgraded.

According to the FT, GLG believes conditions will remain difficult as hedge funds and banks try to get out of the same positions.

GLG made losses on its Credit Fund because it failed to accurately predict how vehicle makers’ debt would react to downgrading of General Motors and Ford a sharp drop in the price of collateralised debt obligations was also not anticipated. None of the firm’s 15 other funds were badly hit.

GLG’s model assumed that the type of price swing that was seen last month is so unlikely that it is hardly worth considering. However the downgrade of GM had been widely anticipated in the market.

Last week, GLG won the first City award for alternative investment vehicles, despite being investigated by regulators and two of its funds being down in the year.

The group, was founded in 1995 by Noam Gottesman, Pierre Lagrange and Jonathan Green, was named as Europe's most respected hedge fund in the Thomson Extel survey of brokers.

GLG's market-neutral fund, one of two convertible bond arbitrage vehicles, fell 9 per cent in May.

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The UK financial regulator, the FSA is investigating GLG activities relating to a bond issued by Sumitomo Mitsui Financial Group to check if GLG profited in any way through the use of privileged information received from Goldman Sachs brokerage operations before the bond was issued.

The second GLG convertibles vehicle, known as the credit fund, also fell 14.5 per cent in May and is down 15.5 per cent in the year to date.

GLG's four founders worked at Lehman Brothers and the investment bank has a 20 per cent stake. It has about $13bn (£7.1bn) in assets under management.

According to the FT, the fund is currently under investigation by the AMF in Paris and by the Financial Services Authority in London in relation to the pre-marketing of convertible bond issues.

The Paris investigation relates to an issue by Vivendi Universal in 2002 and the London investigation to an offering a year later by Sumitomo Mitsui of Japan.

It's reported that Noam Gottesman earns £30 million annually. He and his colleagues certainly are not poor as the Sunday Times confirmed in its April Rich List.

 
Table: The 10 companies or bands with the most Rich List millionaires
 
The 10 companies or bands with the most Rich List millionaires. To qualify, there must be at least three millionaires associated with a company or band. Fortunes are personal or family wealth
Tetra Laval £7,525m
Hans Rausing £4,950m
Kirsten and Jorn Rausing £2,575m
Carphone Warehouse £1,120m
Charles Dunstone £550m
David Ross £360m
Guy Johnson £110m
Martin Dawes £100m
Goldman Sachs £1,091m
See table: The Goldman Sachs millionaires
The Beatles £1,065m
Sir Paul McCartney £800m
Olivia and Dhani Harrison £140m
Ringo Starr £125m
GLG Partners £800m
Noam Gottesman* £200m
Jonathan Green* £200m
Philippe Jabre* £200m
Pierre Lagrange* £200m
Manchester United £685m
Harry Dobson £500m
Martin Edwards £110m
David & Victoria Beckham £75m
The Rolling Stones £490m
Sir Mick Jagger £180m
Keith Richards £165m
Charlie Watts £80m
Ronnie Wood £65m
Warner Chilcott £475m
Dr Allen McClay £255m
Dr John King £160m
Geoffrey Elliott £60m
Bourne Leisure £460m
Peter Harris £195m
John Cook £180m
David Allen £85m
Gullivers Travel £400m
David Babai* £200m
Edward Faith* £100m
Uzi Kattan* £100m
* denotes new entry Source: Sunday Times



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