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Saturday, January 17, 2015 2:23 PM

It Only Takes One: Hedge Fund Manager Who Survived Five Debt Crises Wiped Out Overnight on Swiss Franc

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Someone asked me for a list of winners and losers and what the unexpected move by the Swiss National Bank meant in the long term for Switzerland. I will address that later today.

First, consider one of the big losers who was wiped out overnight.

Bloomberg reports Swiss Franc Trade Is Said to Wipe Out Everest’s Main Fund.

Marko Dimitrijevic, the hedge fund manager who survived at least five emerging market debt crises, is closing his largest hedge fund after losing virtually all its money this week when the Swiss National Bank unexpectedly let the franc trade freely against the euro, according to a person familiar with the firm.

Everest Capital’s Global Fund had about $830 million in assets as of the end of December, according to a client report. The Miami-based firm, which specializes in emerging markets, still manages seven funds with about $2.2 billion in assets. The global fund, the firm’s oldest, was betting the Swiss franc would decline, said the person, who asked not to be named because the information is private.

Armel Leslie, a spokesman for Everest Capital with Peppercomm, declined to comment on the losses. Calls to Dimitrijevic weren’t returned.

Last year, the main fund rose 14.1 percent, driven by Chinese equities and bets against currencies, including a wager that the Swiss franc would fall after citizens rejected a referendum that would require the central bank to hold at least 20 percent of its assets in gold, the investor report said.
It Only Takes One

When you speculate with leverage, you can turn from being a hero to a goat in 15 minutes. Poof. $830 million in assets turned to ashes overnight.

Dimitrijevic grew assets over five crises, then lost it all on one bet, a recent one, speculating the wrong way on the Swiss Franc after Switzerland voted against a referendum on gold.

Morals of the Story

  1. Don't borrow money in other currencies, especially long-term mortgages.
  2. Don't expect currency interventions to work forever.
  3. Don't believe statements made by central bankers. They are not the economic wizards they are made out to be, and they often lie when it suits their purpose.
  4. It only takes one wrong macro bet with leverage to make a fortune or wipe you out. 
  5. When you are speculating with other people's money, especially when you take in a 20% performance fee, there is a huge incentive to make leveraged bets.

Points 1-3 above from Rabbit Hole Intervention Fails: Wild Moves in Swiss Franc as Switzerland Abandons Euro Peg; Morals of the Story

Points four and five added to the above list today.

My guess, and it is just that, is all of Dimitrijevic's funds will see huge withdrawals. People will be wondering, and rightly so, "What the hell else is he doing?"

Mike "Mish" Shedlock

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