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
Life and Style
Fans line up at the AVNs, straining to capture a photo of their favourite star
life Tim Walker asks how much longer it can flesh out an existence
Life and Style
Every minute of every day, Twitter is awash with anger as we seek to let these organisations know precisely what we think of them
techWhen it comes to vitriol, no one on attracts our ire more than big businesses offering bad service
News
Professor David Nutt wants to change the way gravely ill patients are treated in Britain
people Why does a former Government tsar believe that mind-altering drugs have a place on prescription?
News
Norway’s ‘The Nordland Line – Minute by Minute, Season by Season’ continues the trend of slow TV
television
Arts and Entertainment
art
Sport
Jonny Evans has pleaded not guilty to an FA charge for spitting at Papiss Cisse
football
Life and Style
Kate Moss will make a cameo appearance in David Walliams' The Boy in the Dress
fashion
News
The image released by the Salvation Army, using 'The Dress'
news
Sport
Liverpool defender Kolo Toure
football Defender could make history in the FA Cup, but African Cup of Nations win means he's already content
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Customer Relations Officer

£13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Jemma Gent: Project Coordinator

£12 - £15 Hourly Rate: Jemma Gent: In this role you will report to the Head of...

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable