The most successful fund in the “bet against subprime” game is Lahde Capital, established last year by Andrew Lahde, is up 100% after fees. However, the fund is so small that the article in the Financial Time on its results didn’t say how much has under management.
Firms that produce such dazzling returns can turn out to be one shot wonders. RAB Capital’s Special Situations fund returned nearly 1500% in 2003, but is now the biggest shareholder in failed UK building society Northern Rock.
One way of assessing Lahde’s odds of being a long term success is to see whether his sharply negative views of the health of the financial system prove to be correct. From the Financial Times:
Mr Lahde said he expected the collapse in value of subprime mortgage-linked securities to be repeated for bonds backed by commercial property loans in a deep recession – which he also predicts.
“Our entire banking system is a complete disaster,” he wrote. “In my opinion, nearly every major bank would be insolvent if they marked their assets to market.” He also said he would be putting some of his own profits into gold and other precious metals.
Mr Lahde has used the phenomenal returns to boost his business, launching a fund to bet against commercial real estate this autumn – which made 42 per cent in its first two months – and is in the process of creating a third fund to short credits with a broader mandate.