Sunday, December 03, 2006

read this twice! / hedge funds

welcome in the wonderland where instead of milk and honey leverage/credit are flowing or in this case running amok........

willkommen im wunderland wo anstelle von milch und honig waghalsige hebel und kredite fließen oder in diesem fall wohl besser gesagt amok laufen........

dank geht an russ winter

Citadel trading costs hit $5.5bn

The importance to Wall Street of a handful of large hedge funds was starkly illustrated by the disclosure that Citadel Investment Group paid more than $5.5bn in interest, fees and other investment costs last year.

Although the net asset value of Citadel's two funds is only about $13bn, its costs are high because its managers trade frequently and take on huge leverage.

More than 90 per cent of the investment expenses represent interests payments, including the cost of the roughly $100bn of net debt provided by investment and commercial banks. Citadel had gross assets at the end of August of $166bn, representing leverage of 12.5 times.....(unfortunatly the can´t hire the stuntmen........)

The interest and fees will be spread among a large number of investment banks that act as "prime brokers" and commercial banks. Citadel also has huge interest income which in the current year is running slightly ahead of payments.

Senior Wall Street executives on Friday expressed surprise at the high interest costs and Citadel's willingness to reveal the leverage of its funds.

.....The figures, disclosed in Citadel's prospectus for a $2bn debt issue, explain why regulators are concerned that banks may be tempted to loosen their controls to win hedge fund business.

.....Citadel is raising $2bn in a debt issue managed by Lehman Brothers and Goldman Sachs. Fortress Investment Group, which has $26bn in hedge fund and private equity assets, last month filed for an initial public offering that is expected to value it at about $7.5bn......

Citadel's main fund, Kensington, had $9.5bn in assets under management at October 1 this year, and has returned an average of 20.7 per cent a year since 1998, well above the long-term average of about 10 per cent over that period. In 2005 it returned 7.2 per cent, partly as a result of losses in the credit, energy and reinsurance markets, Citadel said in the document.......

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