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Problems at Peloton

The Peloton story illustrates the dangers of leveraged dealing in what can be illiquid assets. It’s great when things move your way, but it can be catastrophic when things conspire against you.

Peloton Partners, the fund set up by a group of partners including former Goldman Sachs’ alumni Ron Beller and Geoff Grant, took its name from the French word given to the main bunch of riders in a cycling road race. The peloton, by working together, moves forward faster than any individual rider can – teamwork will always beat individual flair.

When the fund was set up, one of my push-biking muckers pointed out that there are frequently crashes in the peloton, leading to substantial collateral damage. For a long time, it looked as if his view would be proved wrong. But when Peloton did crash, the results were, as has been widely reported elsewhere, quite spectacular.

Some of the press coverage has displayed a large amount of Schadenfreude. Like most hedge funds, Peloton tried to operate largely below the radar – one thing the fund never did was shout about how successful it was. Its founding partners are all market-savvy and were no doubt very aware of their dependence on their banks and prime brokers to operate.

A couple of weeks ago, a reliable source called me and told me that a major disagreement had broken out between Beller and Grant, who had spent a considerable amount of time working together at Goldman.

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