Financial Education Series: Hedge Funds

There has been a lot of coverage in the media about the financial markets. Some of the MBAs BRAG has come in contact with over the weeks have been really chatty about the role retail is playing as a key economic indicator, especially this time of year where every lead story on the news is about retail sales.

They also mentioned that private equity and hedge funds are playing a huge role because some hedge funds and equity firms have put a large amount of capital into the retail sector. Apollo Group, the private equity firm managed by Leon Black, is the owner of Linen's & Things. As you already know Linen's & Things had to be liquidated and sources say, that Linen's & Things is currently have trouble liquidating due to the depressed credit market.

Prentice Capital, the hedge fund that was able to turn around Wet Seal, has been hit hard by the bankruptcy of KB Toy Stores. The fund CEO, Michael Zimmerman thought lighting could strike twice when he took the same strategies he used to turn around Wet Seal, and apply them to KB Toys. Experts say the reduction of inventory strategy for KB was a botched one, because it deprived the store of hot game consoles like the Nintendo Wii.

Some people are not exactly sure how hedge funds and private equity were able to buy some of their holdings when cash was so scarce. We had the same question at BRAG so we were able to have the Senior Editor of Marketplace, Paddy Hirsch (video below)explain how hedge funds acquire leverage.





A look inside hedge funds from Marketplace on Vimeo.