Well, that was fast. The Wall Street Journal reports that a hedge fund run by a former head of risk for Morgan Stanley and a 28-year old trader from Galleon Fund Management lost all but $200,000 of its $60 million assets in three weeks. Yes, less than a month.
In the annals of hedge fund flameouts, this has to be a record.
According to the Journal, Canarsie Capital imploded in less than a month but the reasons are unclear. In a letter to investors – one of whom included Richard Axelrod of Moore Capital Management – Canarsie fund manager Kenneth deRegt wrote expressing, sorrow and deep regret for engaging in a series of transactions over the last several weeks that have resulted in the loss of all but two hundred thousand dollars.
According to the letter, Owen Li, the former trader at Galleon, has stepped down and deRegt will oversee the unwinding of the Canarsie fund.
Later in the letter, the former Morgan Stanley head of risk wrote, I acted overzealously.
One gem from the WSJ article includes a warning from deRegts former employer: In March, Morgan Stanley, Carnarsies sole prime broker, executing and financing the funds trades, told the fund it was uncomfortable with its risk practices, people close to the situation say. Canarsie at the time hired an independent consultant to look into Morgan Stanleys concerns, one person familiar with the firm said.
