(1888PressRelease)
October 19, 2007 - The move on the part of Appia Capital and the investors indicates the severity of last week’s shifts in the market as well as the potential for significant losses for other hedge funds.
The pain for hedge funds and banks has been broad, starting in the mortgage market, spreading to the wider credit markets and ultimately the stock market.
The problems have been aggravated by the debt that hedge funds have taken on and used to invest to amplify gains.
Now hedge funds are quickly taking off that leverage, responding to tighter lending standards from banks or redemptions from anxious investors.
The casualties have included investment banks like Bear Stearns, which witnessed the collapse of two hedge funds that were invested in mortgage-backed securities, and blue-chip quantitative funds, whose computer-driven trading models did not anticipate recent market movements.
A spokesperson for Appia Capital, said yesterday that the investment should not be seen as an attempt to bail out the fund, but an effort to take advantage of the unusual conditions in the market. “This is not a rescue,” said the spokesperson, “Given the dislocation in the markets, we believe this is a good investment opportunity for us and for the other investors that we have brought in.”
