Knowing about the worst hedge fund losses and failures always stun us. It should be because hedge funds are supposed to mitigate risk by using hedging techniques. They are supposed to give a positive return on investment even during a bearish market. However, it is a universal fact that human beings are prone to making mistakes regardless of how expert they are. Furthermore, financial markets behave in mysterious ways and it isn’t always possible to be on the right side of the spectrum. The worst hedge fund losses in history testify to these facts.
Do you want to know about the worst hedge fund losses that stunned the world? Then you are on the right platform. In this article, we are going to share with you the 10 worst hedge fund losses and failures. Here we go.
10 worst hedge fund losses and failures of all time
1. Long-term Capital Management
John Meriwether founded Long-term Capital Management in 1994. The hedge fund performed really well in the first few years with returns of over 40%. Meriwether appointed Nobel Prize-winning economists as directors. So, there was huge hype about the hedge fund and it lived up to the expectations early on. The assets of the group also grew at quite a pace. However, a loss of $4.6 billion in AUM rattled its foundations. Long-term Capital Management was shut down because of the inability to pay outstanding debt.
2. Satellite Capital
Lief Roseblatt, Gabe Nechamkin, and Mark Sonnino founded Satellite Capital in 1999. This hedge fund also performed well early on. 2004 was the best year for investors because the group returned 25% in 2004. Satellite Capital was reportedly managing $7 billion by the end of 2007. This was quite a remarkable achievement. However, the economic recession of 2008 hit the hedge fund very hard. It lost 35% in 2008. These facts are quite unbelievable but prove how lethal that recession was for the entire world’s economy in general and hedge funds in particular. The founders were forced to shut down Satellite Capital in 2008 because of growing demands for compensation by the investors. Thus, it is among the worst hedge fund losses of all time.
3. Amaranth Advisors
Nicholas Maounis founded Amaranth Advisors in 2000. The hedge fund quickly became popular and highly successful. Assets of $9 billion were under the group’s management by 2005 and it was reporting returns of up to 86%. However, the group took a huge risk when it made a delta hedge transaction on future derivatives of natural gas. It won’t be wrong to say that this wasn’t a well-calculated investment. Instead, it was a gamble that proved costly. The decision caused losses of $6.5 billion. As a result of this single transaction, Amaranth Advisors stopped operating in 2006. Its demise is among the world’s worst hedge fund losses and failures of all time.
4. Tiger Fund
Julian Robertson founded Tiger Fund in 1980. This hedge fund is among the pioneers of the hedge fund. It performed astonishingly well from the start and continued to grow over the years. The fund was managing assets of $7 billion by 1993. Tiger Fund also returned a whooping 80% in 1993. This was a commendable success. However, a mistake led the fund to bankruptcy. Robertson’s bet on the doomed US Airline proved very costly. His judgment cost him almost everything he had earned. Eventually, Tiger Fund was shut down in 2000. Thus, one of the most successful hedge funds turned to ashes after suffering the worst hedge fund losses. Although Robertson suffered huge losses, he prepared some good hedge fund managers. His disciples are still running numerous hedge funds all across the globe.
5. Peloton Capital
Ron Beller and Geoff Grant founded Peloton Capital in 2005. It makes us stunned to know that the hedge fund returned 87% to investors in 2006. Yes, just after one year of its operations. This is quite remarkable. Furthermore, Peloton Capital was also managing assets of $3 billion by 2006. However, the subprime mortgage crisis led to the demise of Peloton Capital. Founders liquidated the hedge fund in 2008 after suffering irrecoverable losses. Ron Beller returned $2 billion to investors. In short, Peloton Capital is also among the worst hedge fund losses and failures of all time. The fall of this hedge fund also testifies that financial markets are unpredictable. They behave in mysterious ways and even a single mistake in this arena can lead you to bankruptcy.
6. Marin Capital
The next hedge fund loss in the list of the worst hedge fund losses is Marin Capital loss. John Hull and J. T. Hansen founded the hedge fund in 1999 and performed well for a long time. Marin Capital was using low-risk strategies such as credit arbitrage and convertible arbitrage. However, their bet on General Motors went wrong as the stock price dipped dramatically. Thus, the hedge fund suffered huge losses. Founders eventually shut the hedge fund stating that there were no more profitable opportunities in credit arbitrage and convertible arbitrage.
7. The Galleon Group
Ari Arjavalingam, Gary Rosenbach, Krishen Sud, and Raj Rajaratnam founded Galleon Group in 1997. The hedge management firm was one of the most highly successful firms in the world back then. It was managing assets of $7 billion in 2009. However, the Securities Exchange Commission investigated the hedge fund for insider trading. The investigation led to the arrest of Raj Rajaratnam and a few others. They were charged with multiple counts of insider trading and fraud. The insider trading scandal led to the closure of The Galleon Group. Thus, one of the largest hedge fund management firms fell from the sky. This is one of the worst hedge fund losses and failures that were the subject of a number of books such as The Billionaire’s Apprentice.
8. Pequot Capital Management
Arthur Samberg founded Pequot Capital Management in 1998. The firm quickly became popular and had offices opened in numerous American cities as well as in London, United Kingdom. The hedge fund was managing $15 billion in assets in 2001 and that made it the largest hedge fund in the world. However, an investigation for insider trading led to the demise of the hedge fund. Samberg announced that the firm was going to close because of the investigation. Thus, the largest hedge fund management firm became part of the long list of the worst hedge fund losses.
9. Aman Capital
Aman Capital was founded in 2003. The management team consisted of highly accomplished professionals like Mayur Ghelani. Ghelani was Salomon Brothers and USB’s foreign exchange and credit specialist before joining Aman Capital. The hedge management firm quickly became the biggest firm in Singapore. It was managing assets of $242 million in 2004. Aman Capital had been investing in multiple assets including derivatives. However, credit derivatives caused huge losses to the firm. Eventually, investors lost confidence and the group was closed in 2005.
10. Bayou Group
Samuel Israel founded Bayou Group in 1996. It was one of the top hedge fund management groups. In fact, Israel claimed to reach the $7 billion milestone by 2006. Bayou Group claimed to make $43 million in 2003 alone. However, the SEC’s investigation revealed that the group was running a Ponzi Scheme. Investigators accused that the group actually lost $49 million in 2003 and didn’t make $43 million. Thus, Bayou Group was closed and Israel was sentenced to 22 years in prison.