Switzerland’s unexpected decision to allow its currency to float freely once more against the euro may have claimed another victim—Everest Capital’s Global Fund.
Bloomberg News, citing a person close to the firm,
reported Saturday that Everest’s $830 million fund, its largest, took a
bath after the Swiss National Bank unyoked the franc from Europe’s
single currency this week. The Miami-based firm is run by Marko
Dimitrijevic, a hedge fund veteran who has a long history in turbulent
The SNB’s decision to remove the three-year-old peg,
a legacy of Europe’s debt crisis, left a number of financial firms
reeling. One of the worst hit was retail currency trading firm FXCM was
forced to take a $300 million lifeline from Leucadia National. Major Wall Street banks like Citigroup, Deutsche Bank and Barclays also took a hit. Read more
The Swiss central bank has pulled the plug on the euro and the euro
has dived across the board and crashed against the Swiss franc. The
Swiss franc has exploded against all currencies up 13% against the
dollar as I write. At one stage it was down around an earth shaking 25%.
Meanwhile gold, an analogue to the Swiss franc, has spiked $20.
So this is the background: During the euro crisis huge waves of hot
money swamped the Swiss franc as fear of a euro collapse made
international funds dash for safety. The Swiss franc is a renowned and
historic haven for hot money in times of uncertainty. The Swiss franc
span upwards out of control and threatened to crush Swiss commerce. This
was terrible news for Switzerland. How can you export your goods to the
world when your currency is so high it is better than gold?
The answer is to peg yourself to the offending currency–the euro–and
buy it and other currencies to pull the price of your currency down. In
effect you say, “you want my currency, then have it, I’ll print it.” You
are then flooded with foreign currency reserves, which is a nice result
and your currency doesn’t rise to the moon. You can always buy back
your currency with that money later and probably turn a fat profit. Read more