Thursday, March 13, 2008

Hedge fund on verge of collapse (More to Come) CARC.AS

Yesterday in a comment on the MarketBeat post The Hedge Fund Deleveraging I asked:
Any updates on the involuntary deleveraging of Carlyle Capital?
I saw the Journal story, but it repeated Carlyle’s Monday statement that lenders “may” have liquidated $5 bil.
How far do the assets have to drop when leveraged 32:1, before equity goes to zip?
Any Nobel Laureates out there to help me with the math?
Comment by Climateer - March 12, 2008 at 3:52 pm

and got the response:
The answer to your question is 3.03% (1/33).
Comment by
Anon - March 12, 2008 at 4:21 pm


I guess it didn’t take Merton and Scholes.
(that isn’t you, is it, Myron?)
I note that the answer is remarkably close to:
“…and over the November-to-January period fell 3.5%…”
Comment by
Climateer - March 12, 2008 at 4:32 pm
Sometimes I get cynical. Here's Aerosmith's "Jaded". Here's the stanza I was thinking of:

You're thinkin' so complicated
I've had it all up to here
But its so overrated
Love and hate it
Wouldn't trade it
Love me jaded

From the BBC:

Carlyle Capital Corporation (CCC), a unit of the private equity firm Carlyle Group, has said it will not be able to meet lenders' demands for money.

The US mortgage-backed bond fund will collapse if, as expected, its lenders seize its remaining assets.

CCC's problems are the latest sign of the credit market turmoil that has prompted billions of dollars of losses at some of the world's biggest banks.

Other investment funds may now face similar problems, analysts fear....MORE

Meanwhile, FT Alphaville asks:
CDS report: Is Carlyle the tip of an iceberg?

Carlyle Capital defaulting on its debt sent new ripples of fear through credit markets on Thursday, compounded by falling stocks and the slumping dollar.

Fragile sentiment took a hit after the highly-leveraged fund said it was unable to meet snowballing margin calls, sending the investment-grade European credit derivative index to record highs.

Carlyle Capital, the mortgage backed-securities fund of private equity group Carlyle, said it had defaulted on about $16.6bn of its debt, having faced margin calls in excess of $400m in the past week.

“As you get more and more risk aversion, collateral requirements increase, which in turn forces further deleveraging. It’s a vicious cycle,” said Mehernosh Engineer, credit strategist at BNP Paribas.

“The question is, are there dozens of hedge funds like Carlyle in a similar position?”>>>MORE

Earlier posts on Carlyle included:

Carlyle's Blue Wave Hedge Fund Loses 9.3% Since March

It is not known if they will be attending Hedge Funds World Zurich 2007 - Leading the way for the world’s most sophisticated investors!