The most successful fund in the “bet against subprime” game is Lahde Capital, established last year by Andrew Lahde, is up 100% after fees. However, the fund is so small that the article in the Financial Time on its results didn’t say how much has under management.
Firms that produce such dazzling returns can turn out to be one shot wonders. RAB Capital’s Special Situations fund returned nearly 1500% in 2003, but is now the biggest shareholder in failed UK building society Northern Rock.
One way of assessing Lahde’s odds of being a long term success is to see whether his sharply negative views of the health of the financial system prove to be correct. From the Financial Times:
Mr Lahde said he expected the collapse in value of subprime mortgage-linked securities to be repeated for bonds backed by commercial property loans in a deep recession – which he also predicts.
“Our entire banking system is a complete disaster,” he wrote. “In my opinion, nearly every major bank would be insolvent if they marked their assets to market.” He also said he would be putting some of his own profits into gold and other precious metals.
Mr Lahde has used the phenomenal returns to boost his business, launching a fund to bet against commercial real estate this autumn – which made 42 per cent in its first two months – and is in the process of creating a third fund to short credits with a broader mandate.
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The plan proposed will mean that Virgin Money, the group’s personal finance operation, will merge with Northern Rock. Cash will be pumped into Virgin Money, valuing it at around £250 million, and in return the Virgin consortium will take a stake of between 50 per cent and 60 per cent.
That is expected to be followed by a deeply discounted rights issue – likely to be controversial with existing shareholders – because it will value the new shares at somewhere between 20p and 40p each. Northern Rock ended last week trading at 86p, valuing it at £362 million.
Formal approval by the Treasury was granted yesterday evening, after a weekend of talks, during which the number of bidders was gradually whittled down. Virgin’s bid includes an immediate repayment of £11 billion of the £25 billion that the bank owes to the Bank of England.
The Virgin consortium also includes Wilbur Ross, the American distressed debt investor, AIG, the insurance giant, Toscafund, a hedge fund, and First Eastern Investment Group, a Hong Kong-based finance house It is backed by RBS and Citigroup. Sir Brian Pitman, the former Lloyds TSB chief executive, is expected to become the Rock’s chairman.
Virgin Money is a UK-based financial services company owned by the Virgin Group and founded by Sir Richard Branson in March 1995. It was originally known as Virgin Direct, and pioneered index tracking by launching the a value Personal Equity Plan into the market. Virgin Money currently offers the Virgin Credit Card (provided by MBNA), a prepaid debit card, loans, mortgages, cancer cover, insurance, savings accounts and pensions.
Business Wire, July 6, 2005
NEW YORK — Fitch Ratings affirms the classes A, B, and C ratings assigned to all outstanding series issued by the BA Master Credit Card Trust, Fleet Credit Card Master Trust II, MBNA Credit Card Master Note Trust, and the MBNA Master Credit Card Trust II, including MBNA’s series 2001-Emerald notes following Bank of America Corporation’s (BAC) announced purchase of MBNA Corporation (MBNA). The affirmation affects approximately $67.9 billion of credit card debt.
As of June 30, 2005, the MBNA Credit Card Master Trust II contained roughly $66.6 billion in principal receivables which supported approximately $61.1 billion in outstanding investor certificates and notes. Collateral performance metrics continue to be within Fitch’s expectations.
I agree with Lahde. If their assets were marked to market, most of the world’s large banks would be insolvent. The central banks’ answer: inflation. My response: got gold?