Panic grips markets as hedge fund fears spread

PANIC GRIPPED the financial markets yesterday after rumours swept dealing rooms that Tiger, the giant hedge fund advised by Lady Thatcher, was in financial difficulty and having to liquidate a substantial part of its $40bn (pounds 24bn) portfolio to meet obligations.

Shares plunged around the world as the dollar recorded its steepest daily fall against the yen since 1971. Experienced dealers described conditions in the markets as the worst they had experienced.

The quarter-point cut in UK interest rates was widely seen by traders as "too little too late", and the FTSE 100 index dived 130 points to close at 4,698. Every major world market recorded a similar scale of loss. On Wall Street, the Dow Jones was more than 3 per cent down at 7,504. Nasdaq, the US hi-tech stock market, was 7 per cent down.

Among factors fuelling the market frenzy were:

r Disappointment that the quarter-point rate cut by the Bank of England was not bigger;

r Reports that New York-based Tiger Fund was having to liquidate positions wholesale to cover margin calls due on derivatives contracts, and of other smaller funds being late on margin calls. Tiger is the world's largest hedge fund with $20bn of capital;

r Rumours that continued losses at Long-Term Capital Management have used up a substantial proportion of the $3.75bn of new capital injected by the 14 banks, and that more money may now be needed;

r Fears of further big trading losses by investment banks - Salomon Smith Barney, whose merger with Citicorp was consummated yesterday, last night reported a net loss for the third quarter of $325m, including $700m bond arbitrage losses;

r Reports of credit lines to institutions judged to be high risk being cut.

The dollar fell from 111.16 to 123 yen at its worst. The central banks of Britain, Germany, the US and Japan were rumoured to be checking prices - the first stage towards active intervention in the currency markets.

Dealers said such volatility was "unprecedented", blaming the unwinding of dollar-yen positions by hedge funds. "It shows the power of the hedge funds," said Nic Stamenkovic at Bank Austria/ Creditanstalt Futures. "A few people have been hit for six. "

Some hedge funds have gambled large proportions of capital on the so- called yen carry trade. This involved borrowing in yen, taking advantage of the 0.25 per cent Japanese interest rate to fund speculative investment in US dollar bonds, particularly high-yielding ones.

Julian Robertson, who runs Tiger, told investors the fund lost 10 per cent of its value in September. An observer said that unless Mr Robertson had got out of his positions since then, he would now be facing losses of "$20bn or even $40bn".

A Tiger spokesman dismissed reports the fund was in difficulty or had failed to meet margin calls. "Tiger is operating normally," he said. He insisted that unlike LTCM, which was caught out by a sharp correction in bond markets, Tiger invests partly in shares and is only three times leveraged, against 40 times for LTCM.

Despite attempts to reassure the markets, it is still widely believed that there are two or three hedge funds in the $100m to $1bn category which may be about to go under.

Start your day with The Independent, sign up for daily news emails
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Recruitment Genius: Online Customer Service Administrator

£16000 - £18000 per annum: Recruitment Genius: An Online customer Service Admi...

Recruitment Genius: Digital Marketing Executive

£18000 - £22000 per annum: Recruitment Genius: This global, industry leading, ...

Day In a Page

'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Russell Brand's interview with Ed Miliband has got everyone talking about The Trews

Everyone is talking about The Trews

Russell Brand's 'true news' videos attract millions of viewers. But today's 'Milibrand' interview introduced his resolutely amateurish style to a whole new crowd
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before
'Queer saint' Peter Watson left his mark on British culture by bankrolling artworld giants

'Queer saint' who bankrolled artworld giants

British culture owes a huge debt to Peter Watson, says Michael Prodger
Pushkin Prizes: Unusual exchange programme aims to bring countries together through culture

Pushkin Prizes brings countries together

Ten Scottish schoolchildren and their Russian peers attended a creative writing workshop in the Highlands this week
14 best kids' hoodies

14 best kids' hoodies

Don't get caught out by that wind on the beach. Zip them up in a lightweight top to see them through summer to autumn
Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk