1. The profit model of long-term capital management company is: 2% commission is charged to investors every year, and 25% profit is shared from investors' investment profits. Even so, there are still a constant stream of customers who entrust the asset management company to invest. What they value is the reputation of this company and the slogan of "making money with investment genius".
Indeed, in the early days of the establishment of Long-term Capital Management Company, the company operated very well. Long-term capital management company made a good start after setting a record of $654.38+0.25 billion in the history of hedge fund raising. Long-term capital management company has hired the old ministers and management team who used to work in Solomon Company. In the new company, these experts in arbitrage trading can devote all their energy to trading development without external interference, and their hard-earned profits will not be divided up by other departments of the company. When I was in Salomon, the wealth created by the arbitrage trading department often became the coveted object of many departments, but in the long-term capital management company, this will never happen again. In the first three years after the establishment of Long-term Capital Management Company, the performance was very good, and the total investment of investors quadrupled. By the end of 1997, the company's accumulated capital reached 7 billion US dollars. However, the good times did not last long, and the fierce competition of hedge funds began to restrict the growth of the company's income. Beautiful tree had to return $2.3 billion in assets to investors to make up for their losses, and the rest was fully put into the market. At that time, the arbitrage trading of long-term capital management companies remained at the level of 654.38+029 billion yuan, but this figure looked more like the company's total liabilities. In fact, at that time, the long-term capital management company had only $4.7 billion in liquid assets. The company's initial strategy was to accumulate wealth by raising investors' funds and taking Buffett's portfolio as the blueprint. But now meriwether finds that almost half of the company's assets are recorded in the names of its partners.
2. The Russian financial storm of1998 finally destroyed all the ideas of long-term capital management companies.
1On July 7, 1998, the Russian government announced the devaluation of the ruble. The financial turmoil triggered global financial turmoil, and long-term capital management companies were hit hard. The only choice investors can make is to sell all the stocks and bonds.
The practice of long-term capital management companies profiting from huge financial arbitrage transactions is tantamount to provoking a nickel crisis that may happen at any time in front of heavy bulldozers.
The financial turmoil caused the capital of long-term capital management companies to shrink seriously, and the company's net asset value decreased by 50% in less than a week.
3. The life of a long-term capital management company is extremely luxurious.
There are only two billiard tables, a 3,000-square-meter gym and professional fitness instructors in the office building.
Meriwether, the leader, did not face up to the reality, but created an illusion for people.
He believes that long-term capital management companies have the ability to raise funds to make a comeback. It can wait until the financial turmoil subsides before making up for the loss. In fact, if the company wants to make up for the lost losses, it needs a lot of money as the backing. At present, companies can only use leverage to trade, and the high leverage ratio makes this idea unrealistic. In this case, the only explanation of investment risk is loss. Obviously, long-term capital management companies are not prepared to lose money.
5. Long-term capital management companies ignore risks.
Buffett often said that no matter how big the base is, the result of his multiplication with zero is still zero.
For Buffett, the concept of zero is to lose any balance. As long as there is the possibility of total loss in any investment, no matter how likely it is to become a reality, if we ignore this possibility and continue to invest, the possibility of zero capital will continue to climb. Sooner or later, the risk will expand infinitely, and even huge sums of money may be lost. No one can escape all this.
But Buffett's theory obviously does not exist in long-term capital management companies. They always think that the probability of the so-called catastrophic situation is less than 20%, and the concept of inspiration described by Buffett basically does not exist in their eyes.