Hedge Funds Expect Gains in the Face of JPMorgan’s Crisis

May 17, 2012 Debbie Jacobs Economic Barometer

JPMorgan’s recent announcement of a $2 billion trade loss sent the industry reeling, but hedge funds are prepared to extract gains from the incident nonetheless.

Insiders revealed that managers are sticking with their bets from the first quarter as America’s largest credit bank scrambles to minimize its losses. One of the more common bets is that the price gap between credit default swaps and its constituents will balance itself out, they said.

“It still looks relatively attractive, and funds are likely to think the trade can run further,” said a hedge fund investor. “There’s been some booking profit, which is good risk management,” he said, adding that for the most part, “exposure has been maintained. Once you hit your targets, if there still seems momentum in the trade and valuation metric remains reasonable, you stick with it.”

The losses to JP Morgan were a result of bets connected to debt through the CDX.NA.IG.9. The index keeps tabs on 127 investment-related companies in the U.S. 

Banking, Hedge Fund Industry, hedge fund managers, JPMorgan Asset Management, JPMorgan Losses,

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