After Peloton Partners' demise the WSJ provides an autopsy

The WSJ delves into the rise and rapid flame-out of Peloton Partners....

When hedge-fund chief Ron Beller's investments in U.S. mortgages turned against him, he got a rude awakening to Wall Street's unsentimental ways. Bankers who had vied for his business reeled in credit lines and seized the fund's assets. In a matter of days, Peloton Partners LLP, once one of the world's best-performing hedge-fund operators, lost some $17 billion.

In its sheer speed, Peloton's demise offers an illustration of the delicate relationships upon which the financial industry is built, and the breakneck pace at which they have been unraveling.

There is a widespread weakness in the hedge-fund business: Highflying managers sometimes fail to fully factor in broader risks, such as what happens when troubled banks pull back the borrowed money many funds need to make their investments. Peloton was particularly susceptible because it borrowed heavily to boost returns. For every dollar of client money, Peloton had borrowed at least another nine dollars to buy some bonds.

"If you run out of money, you can't stay in the game," notes Chris Jones of Key Asset Management Ltd., a hedge-fund management firm and early Peloton investor.

Mr. Beller, who personally lost about $60 million in investments, believes Peloton failed not because it made the wrong investments but because his bankers didn't stick with him when the prices of those investments were temporarily out of whack, according to people familiar with the fund. Among investors that lost money are New York investment firm BlackRock Inc., Swiss private bank Lombard Odier Darier Hentsch & Cie. and United Kingdom asset-management firm Man Group PLC.

"We are deeply sorry about this outcome," Mr. Beller said on a final investor conference call in early March....

Peloton Flew High, Fell Fast - Wall Street Journal

Comments

[Aaron Krowne]

Gotta love that logic... we'd all just make money forever if only everyone would overlook the fact that most of it is borrowed and has to be paid back.