By JASON BOOTH
The multibillion-dollar collapse of Long-Term Capital Management has given hedge funds a bad name. But the controversy is causing little concern among the few hedge funds based in Los Angeles.
Hedge funds are investment pools that use short or long positions, options or other derivatives to bet against volatility in the securities markets. Increasingly, as in the case of LTC, they have taken to borrowing large amounts of money is order to amplify their potential returns, and in turn have multiplied their risk.
Local hedge-fund managers who were willing to talk say they do not use the massive leverage employed by LTC, so they are less vulnerable should the market go against them.
At the same time, they said their investors, typically fund managers and wealthy individuals, have refrained from pulling their money out of the pool. In fact, with stocks having fallen so sharply in recent weeks, local funds see new opportunities to prosper.
“There is no effect on us except for opportunity, because whenever there are dramatic changes, there are opportunities,” said Mike Foley, administrator at Strome Susskind Investment Management in Santa Monica, one of the largest such funds locally with almost $400 million in assets under management.
Strome Susskind is an opportunistic hedge fund that takes positions in securities that have moved substantially outside their historic trading ranges, Foley said. While the fund typically focuses on U.S. public companies, it also invests in the bond and currency markets.
Hollister Asset Management, a Century city-based hedge fund with about $50 million under management, fits the more traditional definition of a hedge fund, using options to hedge against sharp fluctuations in the stock market.
With U.S. stocks having fallen steadily in recent weeks, the fund is now considering jumping back into the market in anticipation of a stock market recovery.