Wednesday, August 15, 2007

Bankruptcy democracy

When hedge funds go belly up, the fund managers are forced to explain why their funds are shutting down, losing money hand over fist, and freezing investors' funds. When they do so, however, they frequently lapse into a strange euphemistic dialect. Dan Gross of Newsweek has brought out a glossary of some hedge funds speak inside out.

Here’s how he ribs French bank BNP Paribas that last week froze redemptions of three funds that held mortgage-backed securities.

“Declining performance frequently leads investors to withdraw their funds, which can, in turn, force hedge funds to sell securities to raise cash. To forestall the ensuing death spiral, funds sometimes lock the door. BNP said it was limiting the liberté of its investors for the sake of protecting the Gallic virtues of égalité and fraternité. Locking up the funds temporarily is the best way "to protect the interests and ensure the equal treatment of our investors.”

Democratizing bankruptcy, shall we say…?

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