Controversy In Swedish Fund Community Over Latitude Closure

According to reports in the Swedish press, the closure of the Brummer hedge fund Latitude has sparked controversy in the Swedish fund community. Latitude's ill fated investment into British fixed income is the problem, says Dagens Industri. Latitude had positioned

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According to reports in the Swedish press, the closure of the Brummer hedge fund Latitude has sparked controversy in the Swedish fund community. Latitude’s ill-fated investment into British fixed income is the problem, says Dagens Industri.

Latitude had positioned itself heavily for an unchanged performance of the UK short term interest rate, Dagens Industri reports. However, general expectations and the pricing in the fixed income markets were geared towards a rising interest rate. What has caused wonder is that Latitude had not protected itself risk-wise in case the position was wrong despite the fund having lost 20% already during the year. The rising of the rate by the Bank of England in the beginning of August became the straw that broke the camel’s back. According to Dagens Industri, Latitude lost an estimated 275-300 million SEK the last month of its run.

“One would have hoped that they would have had a better internal risk control,” says Johan Held, head of finance at KP Pension and Insurance. Both the pension fund and the pension trust of the Swedish Consumer Co-operative were investors in Latitude.

“The reputation faltered,” says Brummer VP Klaus Jntti to Dagens Industri. “We are extremely disappointed. We had complete confidence in the managers up until August.”

The ownership and management structure of the Brummer hedge funds leave the managers of each fund independent. They make all investment decisions while being main-owners of their funds while the Brummer and Partners company steps in as co-owner.

According to Dagens Industri, there is still mystery concerning the last UK investment position. According to some industry insiders, the fund managers panicked at the heavy losses and decided to putt all their eggs in one basket. Other rumours have it that the fund was scuttled deliberately. Reportedly, the motivation behind that course of action would have been that it would have taken a long time with successful management before Latitude once again would have been able to claim performance fees.

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