Can Platinum Grove Asset Management Survive a Reported 38% Decline?

Myron Scholes - if you follow the world of hedge funds, then that name should ring a bell.

Scholes, who won a Nobel Prize in economics, was a founding partner in the now infamous LTCM fund. LTCM famously cratered in the 1990s, losing $4 billion dollars over a short period of time after Russia defaulted on its debt. The fund was bailed out by a cabal of banks and brokerages, heading off what could have been a much larger disaster for the economy in general.

Anyways, Scholes moved on and co-founded Platinum Grove Asset Management in 1999 with a number of his co-workers from LTCM.

Platinum Grove had a reported $4.8 billion dollars in assets as of the end of August, of which nearly four billion was in the Platinum Grove Contigent Master Fund.

That was then and this is now. The fund announced that it has temporarily frozen investor withdrawals after sustaining a 29% loss in its "Master" fund in the first half of October. The Contigent Master Fund, according to multiple sources, is now down almost 40% on the year.

The company have said that they will be "consulting" with their investors and counterparties over the short-term and managing the assets of their fund "accordingly."

Many hedge funds are struggling right now. This isn't the first fund that has frozen investor withdrawals, and it won't be the last.

It is interesting to note, however, that one of the original founders of the LTCM hedge fund is on the brink of blowing up yet again.

A 40% decline in just one year is nearly impossible for any hedge fund to claw back from. It does happen, but most funds which find themselves down 40% in one year end up in the hedge fund graveyard, never to return.

If Platinum Grove does in fact close up shop - will Scholes attempt to start up another hedge fund? And if so, will he be able to find anyone to invest in it?

Filed under: Hedge Fund News | The Economic Meltdown | General Market News