September 30, 2006

Fund Managers Sitting Not So Pretty

The fat bonuses that line their pockets will soon become a thing of the past if hedge fund managers are unable to bring about a change in the fortunes of the funds they are responsible for. The headmen in the immediate line of fire are those at Peloton Partners and Vega.

Peloton is down 0.18 percent for the year after losing 1.64 percent in September. The fund has been adversely affected by the irregular handling of accounts by the founder’s wife’s secretary and by the exodus of various senior staff members. Peloton made waves when it debuted with an initial investment of $1 billion a year ago.

The manager at Vega stands to lose more as the fear of demands for redemptions from investors looms large after all its funds registered a significant drop in performance. Vega Select lost 8.24 percent this month while the $348 million Vega Diversified dropped by 6.54 percent. Industry gossip has it that the losses were incurred after a series of bad bets on bond prices and the Japanese yen. Vega lost half of its $13 billion assets in 2005 to lose its position as the largest hedge fund in Europe.

Hedge fund managers routinely appropriate 20 to 30 percent of the profits under the guise of performance fees.

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