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Hedge fund's 1000% subprime bet

Here's another interesting update to last August's, "Subprime: winners and losers" post.

The Financial Times has reported that Lahde Capital, a Santa Monica based hedge fund, has made more than 1000% on its short positions in the US subprime loan market this year. This makes it "one of the world's best performing funds of all time".

Here's more from FT:

Lahde Capital, set up in Santa Monica last year by Andrew Lahde, last week passed the 1,000 per cent mark, after fees, following the latest leg of the credit market turmoil. The fall in the value of subprime-linked securities has boosted a group of funds which spotted the problems in advance.

The decision to use derivatives to short, or bet against, low-quality US home loans taken by a select group of hedge funds last year appears to have become the most profitable single trade of all time, making well over $20bn in total so far this year. John Paulsonā€™s New York-based Paulson & Co, the biggest of the group with $28bn under management, is said by investors to have made $12bn profit from the trade already.

Lahde Capital is now among the handful of funds that have become publicly recognized for their outsized returns from subprime market positions.

We mentioned Paulson & Co.'s savvy bets in the subprime market in an earlier update post entitled, "Excellent timing: John Paulson". Check out that profile if you haven't already.

What's interesting about Andrew Lahde's position is that he expects similar problems in the market for commercial property backed loans.

He also feels the entire banking system is suspect due to unrealistic accounting of assets, and has moved some of his profits into gold "and other precious metals".

I found this especially noteworthy; to me this says that Lahde is "smarter than your average bear"/fund manager. He is obviously aware of worldwide inflation due to excess money creation, and hopes to hedge against this risk.

See the FT article for more on this, as well as FinAlternative's article, which also focuses on Lahde's new Short Credit Fund.

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