market folly

By now, many of you may have already heard the startling tale of Lars Steffensen's hedge fund Ebullio Capital Management. For the month of February 2010, they were down a whopping 86.25%. That brought their year to date total return to -95.83%. Immediately, questions swirl in one's head such as 'How did this happen? What kind of risk management did they have in place? How will they recover?' Remarkably, their investor letter had quite a calm tone to it. And even more surprisingly, the rationale for how such a travesty happened was quite vague.

If we were investors in a fund that lost that much money that quickly, we'd certainly want to know *exactly* what happened. While it's still not totally clear as to what happened, maybe they ought to take a look at fellow hedge fund D.E. Shaw & Co's insight on leverage. We have heard through the grapevine though that they were massively long tin and then flipped it to a short (with leverage). Once other hedge funds smelled blood, they pounced on the opportunity to bet against his massive position. Needless to say, this is what you would call anti-risk management.

At any rate, embedded below is Ebullio Capital Management's investor letter for February 2010:



You can directly download a .pdf here.

Amazing stuff, right? And people wonder why hedge funds are often looked at in a negative light. For more commentary from managers who don't lose all their money in two months time, head to our coverage of hedge fund investor letters.