Friday, March 25, 2016

Leveraged hedge funds seeing capital flight

The markets are soon going to be in serious trouble because left and right we can see the big money edging for the exits.  Today's proof point of this growing trend is the story about Fidelity Investments pulling its money out of a shady Blackstone Mutual fund.  Blackstone would in turn lend the money at high rates to risky gamblers running hedge funds. 

Let me say that again in case you really didn't understand the implications.  Supposedly safe and sane Fidelity Investments was funding the risky hedge fund industry using Blackstone as a front.  For whatever reason, the signal has been given that this is no longer going to work and so the mutual fund that was used to channel cash to hedge fund saw the flight of 50% of its capital.    

This is a significant development because it is going to cause margin lenders everywhere to stand up and take notice.  I am telling you that there is a lot of margin being used to prop up these markets. If (when) that margin backs out, the thinly traded (once you back out the bot trades...) markets are going to collapse with an awful sound.


Anonymous said...

This article is incredibly misleading. Fidelity was providing access to a mutual fund which uses diversified and low-correlated strategies to provide a ballast for investor portfolios against stocks and bonds. The types of strategies in the underlying funds included equity long/short funds, credit long/short funds, event driven, relative value, etc.

In most instances the individual sub managers which were allocated to had less than half the volatility of the stock market. In aggregate the volatility of the fund was closer to 1/3 of broad stock market volatility.

Fidelity wasn't lending anyone money through this fund. I think this article is irresponsible.

I'm posting anonymously, but I do not own this fund, nor do I stand to benefit in any way from fidelity's arrangement with Blackstone. Do your research BEFORE publishing.

The Captain said...

Everything I post here is my opinion. I can't tell you how many times people have given me the official story only to find out later that they were just clueless believers in whatever the status quo told them. Time will tell what the story is here but if this is all so on the up and up then the timing for divestment is interesting. But yes, it is speculation, something that I have a pretty good track record of accuracy at doing. Sorry man, a person can't really do a bunch of valuable research on what has always been stated to be speculation.

Maybe you should have done more research before commenting? Just a thought.

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