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5 Nov, 2008 05:17

Hedge funds look for rays of light amidst market gloom

Hedge fund, Wermuth Asset Management is reported to be one the latest victims of the global financial crisis. Trading Russian stocks, it has suffered a 27% loss and is poised to default, according to Interfax.

The President of Hedge Fund, VR-Capital Group – Richard Deitz – is known for his talent in making money when others are losing it.

“I looked around in August ’98 after the crisis and you could take two opinions.  You could either take the opinion that Russia was radioactive and the place that you just had to get all your money out.  Or you could look at it and say that it was the best time ever to be investing in Russia.  And we took the latter view.  In 1999 and 2000 we made a return of 72%.  All that was because of the opportunities that were created by the Russian crisis.  Now the time is back.”

Richard is launching a new Liquidity Crisis Recovery Fund. He hopes to attract up to $1 Billion and trade distressed securities – such as bonds and debts of defaulting companies. His high-risk strategy may help troubled businesses survive while letting Richard and his investors cash in on the shaky market.

“Gazprom, VTB, the mobile companies, the oil companies, the steel companies, all of them are trading at valuations that are really, frankly, pretty absurd.  Types of assets that are interesting to invest in, should generate returns of, say, between say 30% and 50% per annum over the next several years.”  

The manager of Kaltchuga Hedge Fund, Aleksandr Starinsky, has a more conservative strategy, buying securities with an expectation that they will appreciate.

“I hope there still will be, after the crisis, high net worth individuals, with the need to allocate part of their holdings into risky assets. And other large institutions will be too regulated to go into risk activities, risk taking activities.  I think its an important duty for hedge funds to be this kind of alternative supply of liquidity to the market.  You know, buying in when the markets are going down.”

Hedge fund managers believe investors are driven by the twin motives of fear and greed. But their memory is short, and after even after the losses they've suffered this year they'll soon be back – in search of exceptional profits.

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