mick silver
29th October 2008, 23:38
The sports car giant Porsche has pulled off one of the greatest share killings on record in a coup that has left some of the world's largest hedge funds nursing combined losses that could total $20bn (£12.6bn).
The vast sum was won and lost in bets on the share price of Volkswagen. While Porsche has been building a secret 74 per cent stake in its rival, the hedge funds have been betting that the shares will fall. The shares soared by 400 per cent in two days, leaving Porsche with a huge profit and the hedge funds – some of which are based in London – with losses that could drive them into bankruptcy.
City traders were stunned by the audacity of Porsche's move, although there is no suggestion that it broke German law or trading regulations.
The sudden rise in Volkswagen's share price – from about €200 to more than €900 – was triggered by the announcement at the weekend of Porsche's share-buying. The hedge funds had short-sold the shares – in effect a bet that they would fall – and so were left huge losses by the rally.
The Volkswagen debacle is the latest blow for hedge funds. In the boom years, these investors made dramatic returns – often on behalf of pension funds – by taking huge bets on a variety of financial instruments. But they have been hit hard by the credit crunch, with markets moving against them and banks increasingly unwilling to lend them money. Analysts at Morgan Stanley, the investment bank, last week estimated the global hedge fund industry could lose as much as $500bn in the value of funds under management in the second half of this year, with Europe worst-hit because of its reliance on short-selling
http://www.independent.co.uk/news/business/news/porsche-in-20bn-sting-976896.html
The vast sum was won and lost in bets on the share price of Volkswagen. While Porsche has been building a secret 74 per cent stake in its rival, the hedge funds have been betting that the shares will fall. The shares soared by 400 per cent in two days, leaving Porsche with a huge profit and the hedge funds – some of which are based in London – with losses that could drive them into bankruptcy.
City traders were stunned by the audacity of Porsche's move, although there is no suggestion that it broke German law or trading regulations.
The sudden rise in Volkswagen's share price – from about €200 to more than €900 – was triggered by the announcement at the weekend of Porsche's share-buying. The hedge funds had short-sold the shares – in effect a bet that they would fall – and so were left huge losses by the rally.
The Volkswagen debacle is the latest blow for hedge funds. In the boom years, these investors made dramatic returns – often on behalf of pension funds – by taking huge bets on a variety of financial instruments. But they have been hit hard by the credit crunch, with markets moving against them and banks increasingly unwilling to lend them money. Analysts at Morgan Stanley, the investment bank, last week estimated the global hedge fund industry could lose as much as $500bn in the value of funds under management in the second half of this year, with Europe worst-hit because of its reliance on short-selling
http://www.independent.co.uk/news/business/news/porsche-in-20bn-sting-976896.html