Hedge funds learn to identify debt crisis after Lehman Brothers collapse - report

October 17
5:00 AM 2013

The government shutdown was the least of many money managers' worries. According to a Reuters report, a lot of hedge funds already knew that the current US debt crisis was not something they should worry about. On Wednesday, Wall Street show a strong force amid worry over a US debt default. S&P 500 rose 1.38%, wrapping up a 3.6% average increase in the last five days. Dow Jones Industrials climbed 1.36% or 205 basis points.

Hedge fund manager David Tawil manages a USD60 million stock portfolio at Maglan Capital. He said, "Those of us who invest on the basis of assigning probabilities to various outcomes, essentially gave this one a zero."

USD1.6 billion hedge fund firm Hudson Bay Capital Management chief investment officer Sander Gerber said that the company was more concerned about the debt default in 2011 than the possible default this year. However, he said the fear on the debt default was otherwise manifested on US Treasury bond investments

Gerber said, "The majority of the fund world thought it was utterly inconceivable that the U.S. would default on their debt."

Ader Investment Management founder Jason Ader said another indication that hedge funds weren't worried about the US government defaulting on its debts was that as of Wednesday, Standard & Poor's future contracts crash protection was still low.

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