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Parkcentral Global Hub - Perot family hedge fund

2009-04-26

Count of distinct funds: 1
Capital base: 2.5 bn (2007)
Loss: approximately 90%

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stories: dallasnews.com

Dallas News has published a fairly exhaustive account of the demise of the Perot family Bermuda-chartered fund, Park Central Global Hub Ltd. The fund apparently went into a virtual free fall back in November of 2008, losing as much as $300 million in one day per the article. J.P. Morgan, the fund's "banker and a trading partner" claims to be owed more than $700 million alone. Per the article:

[By] Nov. 21, Global Hub's assets had almost evaporated – down from nearly $2.5 billion months earlier.

Days later, the Perot family shut down the fund and relinquished control to Bermuda liquidators. Court records show there may be about $266 million left for creditors, whose claims total more. J.P. Morgan says it alone is owed more than $700 million, according to a lawsuit in New York State Supreme Court.

...

It's not known how much of their personal wealth the Perots lost in the fund.

Parkcentral Global Hub apparently had the freedom to invest in a wide swath of securities, including mortgage backed securities, foreign curerncies, and interest swaps:

Parkcentral Global Hub's master trading agreement with J.P. Morgan allowed just about any kind of financial investment, including "currency swaps, options, caps, collars, floors, credit derivatives, equity derivatives, or any similar transactions." Hedge funds also use borrowed money to try to maximize returns.

Regarding the fund's capital base and losses, the article notes:

Global Hub held $2.468 billion in assets by the end of 2007, according to an affidavit filed by Roderick Forrest, a Bermuda director of Global Hub. Then came 2008.

...

In September ... Global Hub lost 13 percent of its value, in part because of commercial mortgage-backed securities, the Bermuda affidavit says.

In October, it lost an additional 26 percent, reducing the fund's net assets to just under $1.5 billion.

...

In just one day, Nov. 18, the fund lost $300 million.

A week later on November 25 the fund announced it was shutting down. The following day, approximately $250 million that was held by the bank was seized by the New York sheriff. The fund's assets had decreased by nearly 90%.

"[L]iquidators and J.P. Morgan" have been fighting over that $250 million ever since.

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Important: This fund is on our list of hedge funds that have "imploded" (see also ailing lenders). However, please note that "imploded" is a somewhat subjective. The "imploded" list contains hedge funds (or other unregulated and autonomous speculative investment funds) which have gone through some sort of permanent adverse change. This is a somewhat subjective call, and does not necessarily mean total shutdown or bankruptcy. It can also mean steep and rapid mark-downs in net asset value; or abnormal "bail-out" by corporate parents or peers in order to avoid write-downs and provide liquidity. The funds are of any type and sector.