| NEW YORK, April 10
NEW YORK, April 10 Platinum Grove Asset
Management, the $5.8 billion hedge fund group headed by
financial luminary Myron Scholes, last month suffered its worst
performance since inception amid turbulence in fixed income
markets, the firm told investors this week.
Platinum Grove, which the Nobel Prize-winning Scholes
founded in 2000 with other alumni from defunct hedge fund
Long-Term Capital Management (LTCM), suffered an 11.37 percent
drop for its domestic fund and 10.72 percent for its offshore
sister fund, according to a letter the fund sent to investors
on April 7.
The performance reflects the turmoil in the U.S. credit
markets in March, when global interest rate and credit default
swap spreads blew out to their widest levels ever after
investors dumped mortgage bonds. Platinum Grove trades mostly
interest rate swaps and sovereign debt.
The market turmoil also slammed hedge funds with similar
fixed income strategies, such as JWM Partners' flagship
Relative Value Opportunity fund, a $1.6 billion hedge fund
founded by John W. Meriwether, another LTCM alumnus.
And Carlyle Capital Corp, an affiliate of buyout firm
Carlyle Group, was forced to liquidate in March after it
defaulted on $16.6 billion in debt, much of it in residential
mortgage-backed bonds. London-based Endeavour Capital
Management, founded by former Salomon Brothers fixed income
trader Paul Matthews, also faced challenges.
Platinum Grove, formerly called Oak Hill Platinum Partners,
didn't detail the reasons for its performance in the one-page
note to investors this week.
But a person familiar with the company's performance said
stabilizing fixed income markets are helping the firm recover,
and the funds were up 2.6 percent in April as of last Friday.
In addition, the firm isn't suffering high levels of
investor redemption requests or margin calls from its lenders,
this person said. It was up about 3.2 percent in the first two
months of this year, according to the March note to investors.
Platinum Grove declined to comment.
The firm's co-founder, Myron Scholes, has an illustrious
career in academics and financial markets. He won a Nobel Prize
in economics in 1997 with Robert Merton for research in the
pricing of options and derivatives that formed the basis for
the widely used Black-Scholes pricing model.
In 1994, he joined with Meriwether and Merton to establish
LTCM with $1 billion of investor capital, but the firm
spectacularly blew up in 1998 after the Russian debt crisis in
one of the most high-profile hedge fund collapses ever.
(Reporting by Dane Hamilton, editing by Gerald E. McCormick)