Shortly after SocGen won Best Derivatives House 2007, it was hit by its’ enormous trading loss. Now, Peloton Partners is being forced to wind down its $2bn ABS fund, which had been named best new fixed-income hedge fund last month.
Peloton ABS was one of the big winners from the US subprime crisis, gaining 87 per cent last year after shorting sub-prime mortgages. This year they began buying distressed AAA mortgage assets. However, continued falls in the value of such assets have prompted margin calls and tightening of lending conditions by lenders.
According to FT.com, the fund was 4-5 times leveraged, normal for a credit fund, with 14 banks owed money, including Goldman Sachs, UBS and Merrill Lynch. The banks are allowing Peloton to lead the sale.
Inevitably, this public sale of assets will drive prices even lower but may allow other less leveraged firms to mop up assets cheaply.