ValueWalk – New York Times published an article on September 4th that observes how risky trades are flourishing in hedge funds, amid flexible regulations. In places like Bermuda and the Cayman Islands, hedge funds can generate millions in permanent capital through the reinsurance business. As the reinsurer will itself invest in the hedge fund, the investment becomes permanent.
The report explains how hedge funds venturing into the reinsurance market could lead to a “chain reaction”, where hedge funds will rush to sell risky assets, in order to fulfill payment on claims-loss liquidity needs. As insurers and reinsurers invest heavily in the stock market and any economic catastrophe will magnify their losses, the detrimental effects will be felt on the stock market as well. Miller Tabak & Co.’s Thomas Mitchell is out with a report today rebutting the Times Piece. Mitchell thinks that the author did not get the full picture in his article.