In this article, we’re going to look through top 5 biggest hedge fund failures. To get a better understanding of how hedge funds work and why their failures are so important, as well as to see a more detailed list, head over to 10 Biggest Hedge Fund Failures.
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5. SAC Capital
SAC Capital was run by Steve Cohen and used to have at least $50 billion assets under management at its peak. However, the peak soon began to lead towards a fall as the SEC investigated the hedge fund for years before raiding the offices of the company and several traders were charged with insider trading from 2011 to 2014, with eight former employees even being convicted, and leading to the downfall of a global hedge fund giant.
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4. Atticus Global
In 2007, Attiucs was at the top of the world, with more than $20 billion in assets and excellent returns. However, it was one of the many casualties of the 2008 global financial crisis, and had to fold in 2009 after major losses. Through its tenure, it provided a return of nearly 20%, which was around 16% greater than the S&P 500 Index return for the same period.
3. Tiger Management
Tiger Management was the brainchild of Julian Robertson, who started the fund with $8 million and in 16 years, the assets were worth $7.2 billion, making it the biggest hedge fund globally at the time. However, to earn its place on the list of the biggest hedge fund failures, the hedge fund had to take a massive misstep, which was basically shorting against tech companies which had no intrinsic value. However, due to the dotcom bubble, the share prices continued to increase, which led to major losses and the closure of the fund in 2000. While it counts as one of the biggest hedge fund failures, Tiger Management continues to operate as Julian Robertson’s family office and a big number of Tiger’s employees became highly successful hedge fund managers on their own (commonly referred to as “Tiger Cubs”).
2. Long-Term Capital Management
Long-Term Capital Management was founded in 1994 by John Meriwether, a former head of fixed-income arbitrage at Salomon Brothers, and he even got two Nobel-prize laureates, Myron S. Scholes and Robert C. Merton for their work on value of derivatives. Nevertheless, Long-Term Capital Management suffered major crashes in Asia in 1997 and in Russia due to Russia’s default, causing losses of over $4.0 billion. The fund got bailout from the Federal Government with the argument that its closure might negatively impact the solvency of its creditors, which included some major banks. Nevertheless, it closed its doors in 2000.
1. Madoff Investment Securities
Unsurprisingly, topping the list of the 10 biggest hedge fund failures is Madoff Investment Securities, led by Bernie Madoff. Bernie Madoff, one of the most influential people on Wall Street, had under him what was the biggest hedge fund at the time. He would simply take money and proclaim to invest it, while keeping the money in his own bank accounts. However, he would also report fictitious profits, which were high enough for the investors to accept without questioning, with said investors also paying taxes on these fictitious profits. However, Madoff realized in 2008, that the liabilities were far too much to pay off, and get out from the hole he’d dug himself and so, confessed to his sons, who reported him to the authorities. It is estimated that the fraud was worth nearly $65 billion and Bernie Madoff ended up being sentenced to 150 years in prison as well as restitution of around $170 billion. Even now, this is said to be the biggest investment scandal in history as the biggest hedge fund in the world turned out to be a glorified Ponzi scheme, duping investors of tens of billions of dollars.
