Boston Globe- James Pallotta, Boston’s highest-paid hedge fund manager and a part owner of the Boston Celtics, told investors in his $8.5 billion Raptor fund yesterday that some of the investments in the fund were “simply crushed” by the market turmoil of the past month, losing $400 million in a matter of weeks and leaving his investors with an 8 percent loss so far this year.
The loss and the lengthy explanation for it in a letter to investors are a comedown for Pallotta, a superstar in the hedge fund world whose pay in 2005 was estimated by a trade magazine at $200 million, making him the 14th-highest paid hedge fund manager in the United States.
Hedge funds, largely unregulated investment pools for wealthy individuals and institutions, have been hard-hit by declines in the stock market and turmoil caused by the crisis in subprime mortgages. Many funds owned stocks, bonds, and other securities using borrowed money.
They were forced to sell at a loss when the value of some bonds, affected by the subprime scare, fell below lending requirements. That panic selling in turn pushed prices lower, creating additional pressure to sell some holdings to raise cash.
The squeeze proved fatal for some funds. Last month, Sowood Capital Management of Boston said it was shutting down after bad bets on bonds led to a loss of 57 percent of the fund’s total value. It sold off its remaining securities and returned the remainder of investors’ money.
