FINAL Profit: $306.8 million. That’s how much our fake Make Us Rich hedge fund made during its slightly more than one month in existence.
Thanks largely to a correct call that the Japanese yen would decline in value, we were able to score a $200 million gain on just one trade.
It took guts, since we had to leverage ourselves up to $20 billion – just like the real hedge fund managers would have done. But since Wall Street veteran Bill King and I were using play money, there really weren’t very many anxious moments.
We had some stumbles along the way and some missed opportunities.
The most notable whiff came during the week of Aug. 14 when we documented in this column that we believed stocks would rally because it was an options expiration week.
But we forgot to put down a trade. Hey, life sometimes gets in the way even when you are a big shot hedge fund manager.
The whole purpose of these series of columns was to make hedge funds a little less mysterious and to show how complicated (and rewarding) trades can be when they are virtually unregulated by any government agency.
All the trades we made have been recorded in real time on http://www.nypost.com. And with any luck, the Web site managers haven’t purged them yet, so you still might be able to view the action.
The other purpose was to show you how easy it is for hedge fund managers to become rich and why they’d prefer that government regulators mind their own business.
Imagine if we had been doing this with real money – our customers would already owe us 20 percent of the profits, or $61.4 million.
And at the end of a full year we’d also be getting a 2 percent fee on the $1 billion we were managing – another $20 million.
So the fund really would have made Bill and me rich. And right now I’d be happily spending my share of $81.4 million and – quite frankly – you wouldn’t be reading me in the paper anymore.
This scenario is unlikely, I admit, but if we kept up that pace of profits for the full year, Make Us Rich would have earned $3.7 billion. Bill and my cut of that would have been $740 million, plus the $20 million management fee.
Some of what we did to make the $306.8 million profit was actually easy, as long as the Japanese yen cooperated.
Since hedge fund managers can borrow money cheaply in Japan and deposit it at higher LIBOR rates in London, this arbitrage – as they call it – was an easy way to make a guaranteed $80 million in interest a month.
Now that we aren’t in business, want to know what we were going to do next?
We think stock prices will rally this week because it’s another one of those options expiration periods, where professional money managers have to roll over their options into the next series.
But then we think the market will sustain its usual fall swoon, especially if, on top of things like the slowing economy and Middle East problems, it looks like changes in Congress could disrupt the U.S. political structure.
The Latin name for our hedge fund was Creos Nos Dives – and, luckily, there were no dives.