Monday, September 15, 2008

Hedge funds dealt another blow by Lehman failure (LEH)

From Reuters:
The bankruptcy filing of Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz) is another blow for the hedge fund industry, though the writing has been on the wall long enough for many to have reduced their exposure to the U.S. investment bank.

Legendary fund manager George Soros, who runs around $18 billion in assets, looks likely to have had his fingers burned after raising his stake in Lehman to 9.5 million shares in the second quarter.

A spokesman for Soros Fund Management declined to comment on the composition of their portfolio.

British activist hedge fund Algebris will also probably have taken a hit from the fall in the share price of what was the fourth-largest U.S. investment bank.

The hedge fund firm owned just over 4.45 million shares at end-June, Thomson Reuters data show. Algebris sold its stake this year, a spokesman said, declining to give further details.

Dealings through Lehman's prime brokerage business were also suspended on Monday, which will have caused problems for some hedge funds, though the industry has been seeking to increase the number of banks they deal with to spread risk.

The slump in Lehman's share price is unlikely to have benefited many hedge funds, even though they have the ability to "short" a stock -- which is essentially a bet that makes them money when the share price falls....MORE