The "Dear Investor" Letters

Call it The Schadenfreude Chronicles.

A digital compilation of hedge funds' apologia—the letters they have sent to shareholders in the past few weeks trying to explain away precipitous losses—has been bouncing around Wall Street trading desks this week.

It's worth the 15 minutes it will take to read them all, but allow us to offer some highlights.

(1) The most direct: Cliff Asness of AQR Capital. No beating around the bush here.

"...in hindsight, we underestimated the magnitude and the speed with which danger could strike."

(Asness also gets points for keeping his letter to just one page.)

(2) The most absurd offhand remark: Minder Cheng of Barclays Capital Management.

"Nor do we believe that there has been a significant shift in investor sentiment."

No, Minder, there's been no shift at all. Just a 180 from near-drunken celebration to all-out panic.

(3) The most surprising explanation: Jonathan DeMers of Black Mesa Capital.

"The losses were in our proprietary factors or, in other words, attributable to risks to which we deliberately expose ourselves."

Oh, okay, you did it on purpose. No worries then. All part of the plan.

(4) The honest man: Jim Simons of Renaissance Capital admits of a secret ingredient to his investing strategy that's been missing of late.

"Regrettably we have not had good luck during these last few days of August."

(5) The end of the road: Jeff Larson of Sowood Capital.

"We, therefore, reached the conclusion over the weekend that, in the interest of preserving our investors' capital, the appropriate course of action was to sell the funds' portfolio."

by Duff McDonald

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