Brian posted the letter from Sowood to investors about losing half of their money (in a few weeks). And then I read about it on Reuters.
Why did this happen? Because it was possible. Why was it possible? I don’t know. It seems like a huge mistake to allow something like this to happen when managing $3 billion in capital. But maybe there is some reason I don’t understand? Is the industry so competitive and the environment so hard to make a profit that they have to resort to this type of risk? I doubt it. Most likely Jeff Larson assumed this wouldn’t happen. But did he know that it was possible? How could he not know it was possible? And if he knew it was possible, shouldn’t he have informed his investors of the risk?

But investors also said nervousness was lingering and could give rise to speculation about other funds going under.

“For the next month, we are not going to be out of the woods quite yet,” said Charles Gradante, principal at Hennessee Group, which invests in hedge funds and tracks their returns.

I’m just really surprised that big money like this and Amaranth Advisors would be so careless. How could they be so careless with so much money?
Is there something I am missing? Is so, leave a comment and let me know.
Meanwhile Citadel Investments Group has aquired both Sowood’s credit portfolio and Amaranth’s energy portfolio.

This entry was posted on Tuesday, July 31st, 2007 at 5:14 pm and is filed under stocks. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.