The US Sub-Prime Crisis Jumps Over The Hedge And Knocks Down Peloton

Peloton Partners, a hedge fund firm in London, which made investments in securities backed by mortgages, has just announced that it will have to liquidate their 1 billion bond Peloton Multi Strategy Fund and stop further trading or calculating net asset values, due to the bad performance of Peloton ABS Fund, in which the firm had a large position. The continuing credit crunch in the international markets seem to have triggered this fall, which incidentally was considered as one of the top performing hedge funds in the previous year.

Peloton has tried to explain its current crisis by writing a letter to its investors in which it mentions that due to the tightening of the norms by its creditors including banks, without considering the past track records or without any regards to the credit worthiness of individual firms, its liquidity had been crippled. There is speculation that the firm might be forced into bankruptcy. There was, however, no news of the financial loss that this crash would have on the funds investors. Peloton’s two partners, Mr. Ron Beller and Mr. Geoff Grant, who were ex-bankers from Goldman Sachs and who had founded the firm in 2005, also wrote that they deeply regretted their decision and that they were “working night and day” to make the firm secure but were looking at many options including looking out for a buyer.

The previous year was a very good one, with the firm reaping an impressive 87% return through its success in dealing in sub-prime securities. Unfortunately, it seems that the same sub-prime crisis has forced the firm into a corner. There were whispers in the market that two hedge funds, namely GLG Partners and Citadel Investment Group, were some of the firms that could be in the race to pick up the fallen firm. Peloton’s ABS Fund was one of the two funds that the firm was operating, and is backed by different assets, including investments of around 40% by Peloton’s own Multi Strategy Fund and which also include other mortgage loans. The collapse of this hedge fund highlights the credit crisis that is going on in the international markets since the past year. The growth for these Hedge Funds in the previous year was quite impressive but the continuing crisis in the US mortgage market has turned the tables in the current year. Incidentally Peloton was planning to launch a third fund, but this crisis has not only forced them to abandon that plan but has also forced them to liquidate both their existing funds. The firm claimed that the Peloton ABS Fund, which had a 4 to 5 times leverage ratio, could not meet margin calls and hence had decided on an “orderly liquidation” to pay off its lenders.

One of the firm’s partners, Mr. Beller shot into the limelight when a former Goldman Sachs secretary, Joyti De Laurey, who managed to siphon off more that 1 million pounds from the account, which was held by him and his wife. He is also known to engage in various charity works like sponsoring a new primary school situated in London. Peloton has a staff of 70 people in its London Office and 10 in its California Office. A Peloton spokesman said that they were victims of the current credit crisis and that they had “acted honorably”. So, Peloton is gasping for breath and it remains to be seen whether other firms can rescue it in time. The US sub prime crisis has thus claimed one of its top hedge fund victim in the UK and analysts are cautioning that this could be followed by many other businesses, linked to the US property and credit market.

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Article written by: Craig Parker - Make Money Expert