The Contrarian

“In the investment markets, what everyone knows is usually not worth knowing.”

Hedge Fund Problems Spread

Last year was one of the worst for hedge fund performance since 2008. We believe that the problems will now accelerate.

Hedge Fund billionaire John Paulson has had a bad year. He made about $25 billion during the 2008 crisis by betting on a financial crisis. Now he needs cash. He is using his own personal fortune to guarantee loans to the funds.

Bloomberg reported the Paulson pledged his personal investments in four of his firm’s hedge funds as additional collateral for a credit line Paulson & Co. has had with HSBC Bank USA for at least five years. Reportedly, he is worth over $9 billion.

According to Bloomberg, “other wealthy managers who have borrowed against stakes in their own funds include George Soros, whose lender is also HSBC, and Blackstone Group LP co-founder Stephen Schwarzman. Their collateral wasn’t being used to back their firms, filings show.”

Our takeaway: the shakeout in wealth management has started. This includes venture capital, private equity, and major financial firms that manage money. HSBC seems to have targeted such firms for loans. They might suffer if the current bearish trends accelerate.