Due to the stakes of placing a massive fortune into an investment that has no 100% guarantee of paying off big time in the long run, entering the world of hedge funds is not for the weak of heart and for those not prepared to lose a huge sum of money.
In fact, losing on investments is part of the game, and some have fallen off way harder than other hedge funds. Here are a few firms that have experienced the worst losses ever recorded.
20. Amaranth Advisors
The downfall of Amaranth Advisors is the prime example of what could go wrong when the financial management skills of a hedge fund do not play out as expected. According to sources, the firm — which was worth well over $9.5 billion at its peak — suffered a devastating 65% drop when its managers mistakenly went all-in on the natural gas industry.
Losing billions of dollars in the process, the huge failure that Amaranth Advisors had experienced despite the excellent record that the firm was able to keep for a long time is a testament to the massive risks that even the most experienced traders face regularly in the financial market.
19. Aman Capital
Aman Capital initially had high hopes to be a dominating force in Singapore and among other competing hedge funds all over the world. However, a series of events that focused mainly on Aman Capital’s poor management of risk when it comes to investing in credit derivatives proved to be the firm’s downfall.
The Financial Times has reported that the hedge fund which held over $242 million in assets had failed to satisfy its investors who ended up with negative returns amounting to 22% below zero. Just two years after the hedge fund kicked things off, Aman Capital had ultimately closed its doors to the public in the year 2005.
18. Pequot Capital
Pequot Capital is another top firm that earned the trust of many investors during its peak. Worth billions of dollars in assets managed, the hedge fund’s success was virtually impossible to crumble. However, after ongoing reports of insider trading allegations were placed on Pequot Capital, the firm was unable to return to its original reputation.
It was soon discovered that the impressive record of the firm was only possible due to the abuse of confidential information by members of Pequot Capital. In the end, Pequot Capital had to pay a hefty $28 million penalty in order to settle the case of fraud set against it.
17. Marin Capital
During its peak, the net worth of Marin Capital was reported to have amounted to over $1.7 billion. The main strategy of the hedge fund was focused on executing the credit arbitrage and convertible arbitrage strategies. Essentially, the strategy transfers the risk attached to default payments to hedge funds that can then invest the money at higher interest rates.
Convertible arbitrage on the other hand focuses on transforming debt into stock. Marin Capital’s business model made money by betting off of the automaker General Motors.
Things would take a turn for the worse however when General Motors experienced a collapse in operations. In the process, Marin Capital also suffered huge losses from the investment risk which forced the hedge fund to shut down its operations.
16. The Galleon Group
The Galleon Group was yet another hedge fund that made the headlines not only for its fall from grace but also after a number of accusations had been attached to the company which led to the ruin of many investors’ funds in the process.
It was announced through articles that executives of Galleon Group, including its owner Raj Rajaratnam had been guilty of crimes such as fraud and insider trading while in charge of over $7 billion in assets. Since then, the hedge fund was never able to recover from the damage brought about by the scandal.
15. Bayou Group
The controversy surrounding the Bayou Group hedge fund is one of the more scandalous cases on this list. The media has talked about how the Bayou Group’s executives — namely founder Samuel Israel and top brass Daniel Marino — have been committing fraud in order to trick investors out of their money.
The accused company members have been found guilty of stealing over $450 million through their hedge fund by writing up fake accounting reports in order to fool investors that the Bayou Group was a high-performing hedge fund. The company would soon file for bankruptcy.
14. Archegos Capital Management
The eruption of Archegos Capital Management — a hedge fund that primarily managed the assets of its founder, the billionaire Bill Hwang — was mainly due to the exposure of the company to crimes such as racketeering and fraud.
Articles from media companies such as Bloomberg had reported that Hwang had lost a massive $20 billion fortune in the span of a few days after it was found out that Archegos Capital Management had been fooling top banks around the world by borrowing billions of dollars with basically no promise of ever returning the money he owed.
Using his wealthy reputation to his advantage, Hwang had practically built his empire without ever suffering financially — not until the end, however. The sham would eventually catch up to him and Archegos Capital Management would never be the same again.
13. Sowood Capital
Sowood Capital is known to many as being one of the first casualties of the credit market financial crisis. Previously being involved with the business arm of Harvard University, Harvard Management Company, the founder of Sowood Capital Jeff Larson had enough traction in order to win the trust of the organization.
With funds of over $500 million being invested by Harvard into his hedge fund Sowood Capital, Larson was on the road to success. However, things would soon come to a sad conclusion after Sowood Capital was unable to avoid the effects of the credit crisis. Apologizing to his investors, Larson announced that Sowood Capital had lost over 50% of its value with over $1.5 billion in losses recorded.
12. Melvin Capital
Melvin Capital, a hedge fund established by Gabe Plotkin, is one of the more recent hedge fund failures. While the company had relatively done well for itself through dealing mainly with technology-related stocks, the infamous 2021 GameStop short squeeze spelled the demise of Melvin Capital with the organization losing over 53% of its total value.
With billions of dollars being lost from the sudden economic shift, Melvin Capital had never recovered from the impact of the squeeze. Not long after, Melvin Capital announced that it will be ceasing its operations with all remaining funds returned to its investors.
11. LF Woodford Equity Income Fund
The 3.7 billion pound-worth hedge fund LF Woodford Equity Income Fund also showed no signs of slowing down during its initial stages. However, the stubbornness of its founder Neil Woodford had negatively affected its investors in the hardest way possible.
With lawsuits piling up even years after the hedge fund had closed, analysts have blamed Woodford’s preference for investing in hard-to-sell assets for the huge losses that investors had to endure while LF Woodford was still up and running.
To this day, the company’s former investors are still finding a way to recover the funds they have lost from Woodford’s lack of risk awareness brought about by poor financial management skills and decision-making.
10. Carlyle Capital
The Carlyle Capital Corporation is an investment firm that experienced a huge blunder in its operations when it was still up and running. Yet another company that was severely hit by the ongoing crisis of 2007-2008, the Carlyle Capital Corporation was unable to escape the harsh economic impact brought about by the nationwide issue. Losing over $1 billion of investable assets, the unpredictable nature of the market crisis which plagued the economy back then proved to be too much to handle for Carlyle Capital — the company would soon be liquidated.
9. Dillon Read Capital Management
Way back in 2007, Dillon Read Capital Management, a hedge fund owned by the Union Bank of Switzerland, closed its doors for good amidst the rampaging sup-prime mortgage crisis during the time.
At the peak of the firm’s problems and lack of financial foresight, a total of £62 million was reported by Dillon Read Capital to its investors. Ultimately, even this hedge fund which was backed by wealthy investors was unable to escape the financial crisis that had already claimed several other hedge funds in its wake.
8. Archeus Capital
Valued at over $700 million, it was not probable at the time to witness the downfall of the Archeus Capital hedge fund. Being able to collect a total net worth of $3 billion at its peak, the success of Archeus Capital would come to an abrupt halt due to a mishap with its financial statements.
Due to a delay in the release of the records for the years 2004 and 2005, investors went into a panic and quickly pulled their funds out of the company. Despite assuring its investors, Archeus Capital would never recover again from the issue.
7. Wood River Capital Management
Wood River Capital Management closed its doors for good after its founder John Whittier was embroiled in a fraud scandal that saw over $88 million in reported losses. Sentenced to over three years in prison, Whittier’s failure to disclose his stock investments combined with the growing inability of Wood River Capital Management to fulfill its obligations raised the concerns of investors who would then go on to notify the Securities and Exchange Commission.
6. Bailey Coats Cromwell Fund
The Bailey Coats Cromwell Fund had high expectations when it entered the hedge fund business. However, the firm would be dissolved as quickly as it was established after its total losses reached an astounding 25% due to making poor investment decisions in U.S. and Europe-based stocks.
Managing over $1.3 billion during its best performance, Bailey Coates would only end up with $500 million remaining from its total assets to be returned to its investors as the company is winding down its business for good.
5. SAC Capital
SAC Capital’s business was looking stable in the early stages. However, things would take a turn for the worse when the Securities and Exchange Commission would step in after reports have uncovered that SAC Capital was involved in several allegations of fraud and insider trading. Paying over a $1.1 billion penalty and losing its $50 billion empire in the process, the firm would soon lose its reputation forever.
4. Long-Term Capital Management
Holding over $120 billion in trading instruments and reporting over 40% in annual returns, Long-Term Capital Management was definitely one of the hottest hedge funds at the time. Things will soon come crashing down however when the leading traders of the company would lose over $4.6 billion when its investments in Russia were threatened shortly after the country had defaulted. Long-Term Capital Management would soon file for bankruptcy.
3. Atticus Global
During its peak, Atticus Global was a powerhouse hedge fund that had over $13 billion in managed assets with over 19% in yearly returns. Unfortunately, the firm was unable to escape the 2008 crisis which plagued many hedge funds and Atticus Global would soon close its doors for good with returns crashing down disastrously as time passed by.
2. Tiger Management
Being run by one of the world’s most tenured managers, Julian Robertson, Tiger Management was a hedge fund that many investors had excitedly put their assets into. Raising funds from $8 million to an astounding $7.2 billion, things are seemingly doing well.
However, the success would be completely wiped out after Tiger Management had lost out on its trading bets with US Airways and the Japanese Yen.
1. Bernard L. Madoff Investment Securities
Bernard Madoff would forever be known as one of the most infamous fraudsters in the trading world. His hedge fund, Bernard L. Madoff Investment Securities, would swindle over $65 billion from investors who trusted in Madoff’s phony financial statements and empty promises.
Sentenced to 150 years in prison, it’s an understatement to say that Madoff’s hedge fund failure is not only one of the most scandalous firm closures but also the most damaging one as well.
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