Hedge fund manager Marko Dimitrijevic is closing his largest hedge fund, Everest Capital’s Global Fund, having lost almost all its money after the Swiss National Bank (SNB) scrapped its three-year-old cap on the Swiss franc against the euro, Bloomberg news reported on Saturday.
Citing a person familiar with the firm, Bloomberg said the fund had been betting that the Swiss franc would decline. The fund had about $830 million in assets at the end of 2014, according to a client report cited by Bloomberg.
The SNB triggered big losses around the globe on Thursday when it removed a three-year-old cap on the value of the Swiss franc against the euro, allowing it to soar.
More than three years of stability between the euro and Swiss franc ended suddenly this week, as the Swiss central bank abandoned attempts to cap the currency’s value.
The bank previously aimed to let the franc rise no higher than 1.20 to the euro. As soon as the change was announced, it smashed immediately higher, breaking through the previous “ceiling.”
Foreign-exchange brokers who had relied on the stability of the Swiss franc, which until Wednesday was pegged to the euro, were taken by surprise when the Swiss National Bank abolished its controls, and millions of dollars were lost at firms around the world.
The euro plunged against the franc, going down by nearly 28% as the news broke. Associated Press reported that in the world of currencies, a move like that “can seem as rare as Halley’s Comet.”
I thought the idea of a hedge fund was to hedge one’s bets, not put everything on red at 50-to-1 leverage, but I’m naive. More important, how dumb are these guys to bet on what was in effect a scheme of artificial price control, counting on it continuing indefinitely? Wage and price controls have never worked, can never work, and if these traders were surprised by that fact, they should probably demand their tuition back from their lefty professors at Harvard who told them otherwise.