Financial Times- Hedge fund managers like to brag about the “Darwinian selection†that kills off their less successful brethren and helps the best-performing to grow rapidly.
But evolution is hardly the word to describe changes the hedge fund arm of KBC, the Belgian bank, went through. Its dramatic story illustrates how quickly fortunes can change in this capricious industry and how the reactions of managers can determine whether funds survive a crisis.
From nothing in 2001, the business leapt to become one of the biggest hedge funds in Europe by 2004, running more than $5bn, mostly in convertible bonds.
“We were at the right time with the right product in the right market,†says Carlo Georg, chief investment officer of KBC Alternative Investment Management since the start of last year. “Convertibles were hot, hedge funds as an asset class had phenomenal growth and we had a very good product.â€Â
But within 18 months, a crisis in convertibles prompted a wave of investor withdrawals that left it with just $500m of unredeemed assets – and a big problem.
“Everyone in the convertible space was getting redemptions so they had to sell, which drove the values down even further,†Mr Georg says. “The only way to avoid it is to size your position in the market beforehand, so you don’t get into that position in the first place. Everyone in convertibles learnt that lesson in 2005.â€Â
