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Bloomberg - When Jon Wood opened his Monaco-based hedge fund, the former UBS AG trader told investors he’d beat the market by buying stakes in no more than 40 companies — the same way he made $2.4 billion in six years for his old employer.
Instead, holdings such as failed U.K. bank Northern Rock Plc and Calabasas, California-based Countrywide Financial Corp., the largest U.S. mortgage lender, imploded. From its start in late 2006 with $3 billion, Wood’s SRM Global Fund lost about 70 percent through March 31, said two investors, who asked not to be identified because the firm doesn’t publicly disclose returns.
“These concentrated funds scare the hell out of me,” said Brad Alford, head of Alpha Capital Management LLC, an investment consultant based in Atlanta. “Either the manager knocks it out of the park or he strikes out.”
Other managers who follow the approach of betting big on out- of-favor stocks are also struggling as market volatility hits historic highs. Edward Lampert’s ESL Investments Inc. dropped 27 percent last year and an additional 1.3 percent in the first three months of 2008, investors said. The 45-year-old Lampert, who oversees $17.5 billion, has been hurt primarily by a $6.1 billion stake in retailer Sears Holdings Corp. of Hoffman Estates, Illinois, that has fallen 48 percent in the past year.
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