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Platinum Grove Asset Mgmt. - fixed income relative value

2008-11-06

Count of distinct funds: 2
Capital base: $5.5B
Loss: 2008: 38% thru Oct 1st

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stories: bloomberg.com, reuters.com, ft.com, wsj.com

Update, 2008-11-06:

Redemptions have been temporarily suspended from Platinum Grove's Contingent Master fund:

Platinum Grove Asset Management LP, the hedge-fund firm co-founded by Nobel laureate Myron Scholes, temporarily stopped investor withdrawals from its biggest fund after it lost 29 percent in the first half of October.

It wasn't immediately clear how long the "temporary" suspension was supposed to last. Please contact us if you know more.

Update, 2008-04-11:

The March figures are in :

Platinum Grove, which the Nobel Prize-winning Scholes founded in 2000 with other alumni from defunct hedge fund Long-Term Capital Management (LTCM), suffered an 11.37 percent drop for its domestic fund and 10.72 percent for its offshore sister fund, according to a letter the fund sent to investors on April 7.

However the situation is apparently better (so far) in April:

But a person familiar with the company's performance said stabilizing fixed income markets are helping the firm recover, and the funds were up 2.6 percent in April as of last Friday.

It is said that investor redemptions and margin calls are still not a problem.

Original Writeup, 2008-03-28:

FT has a brief synopsis of the woes of this fund:

Others hurt by Japanese price moves include Platinum Grove, the $5.5bn Rye Brook, New York, hedge fund set up by former Long Term Capital Management co-founder Myron Scholes, which fell about 7 per cent, according to investors.

Ah, another LTCM alum—this one a Nobel laureate. Aside from the LTCM thing, it does not exactly comfort us how far Scholes' lauded creation, the Black-Scholes option pricing formula, may diverge most from reality when it really matters the most (when the excrement hits the oscillator). But then again, truly successful investors with a nuanced understanding of markets and human society (think Buffett or Soros) don't need anyone to give them awards.

The WSJ article (dated later) has the fund down 13% on the month; 10% on the year. If both sets of numbers are true, then in one week, Platinum Grove's loss on the month almost doubled.

But as far as we know, Platinum has not halted redemptions, so we classify this one as a mere "watch closely".

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Important: This fund is on our list of hedge funds that are apparently ailing or which we think are worth watching for any other reason. Ailing funds haven't shut down, but they've suffered significant value declines and/or temporarily halted redemptions. Funds on watch may not even have unusual declines, but may be posted if it is felt there may be risk of developing a more serious condition eventually.