Hedging hedge funds

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Bermuda: home to hedge-funds

If only LTCM had been quoted on the Bermuda Stock Exchange, UBS could have shorted the stock and properly hedged its $800 million long position. Well, here, only a couple of years late, is the answer to Mathis Cabiallavetta's nightmare.
Plusfunds.com is inviting hedge funds to list themselves for electronic trading on the Bermuda exchange. But there's a catch. The hedge fund manager has to mark himself to market each day. And he has to say how much of the portfolio consists of illiquid assets - such as a dam project in India - whose price can't be determined daily. "The hedge funds have to agree to set up a new fund on the platform," says Chris Sugrue, chief executive of Plusfunds.com. "They have to commit to give us all their transactions. And the shares of the hedge fund must be fully transferable."
This doesn't sound like the kind of thing John Meriwether would have agreed to. But 43 funds have signed up, says Sugrue, including "four funds north of $1 billion". Some top firms have also signed up to use the platform including BNP, Chase, CSFB, JP Morgan, Mitsui&Co and Nomura. Chase plans to use it to rebalance its hedge fund portfolio, BNP to manage its $1 billion-plus book of hedge fund derivatives. "A secondary market should reduce redemption pressure," says Sugrue. "Funds won't necessarily have to sell their positions to raise cash."

No. 6: If you don’t give it to me you’ll only lend it to someone else and look where that got us

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Hedging hedge funds

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