After my prior post about Andrew Ladhe’s farewell letter, I was searching for more information on his hedge fund, Ladhe Capital. I came across his February 2008 letter to investors. Hedge funds usually send these monthly letters to their investors to give updates on their fund’s positions and reasoning behind their investments. Top tier hedge funds usually provide enough information to make their investors feel comfortable, but not enough so that someone could copy their investment strategies (as Ladhe Capital points out in their letter).
At my prior position at my investment bank, we landed a huge deal valuing and restructuring a $4 billion distressed hedge fund. Part of my analyst duties were to go through each letter and summarize the key points they made, in addition creating complex financial models to value their positions. This hedge fund also had fund-of-fund positions, and I was able to see the performance of other hedge funds they had invested in. By far the most impressive was Centaurus Energy Advisors, who returns of >20% each month for the greater part of 2007!
Here are some great excerpts from Ladhe Capital’s letter. If you read the full letter you will see that he was way ahead of the curve and spotted the economic troubles that plague the US today:
We shorted the general obligations (via credit default swaps) of California, Florida, and Michigan – sort of an appetizer plate for the feast to come. We do not necessarily expect any of these states to file for bankruptcy. However, as their respective economies fall further into the toilet, we expect that the risk premiums for their debt will rise. This is how we make money.
We have a few more tricks up our sleeves with regards to shorting credit. We cannot share these with you at this time, as we have not yet executed trades in the latest space we are studying. Until we trade we would rather not tip off all the readers of this letter to our next great idea.