[Archive c 17.03.2008] Humour [Archive to 28.04.2012] - page 347
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MM Martingale or how to lose 220 million on Forex
Udmurtinveststroybank managers have shown
The financial market may forget the uneasy story with Uniastrumbank's BMMF. The little-known Udmurtinveststroybank lost 98.68% of Bazovyi UFBU in the Forex market - in money terms it amounts to 220 million rubles. The fund suggests its depositors not to get discouraged: the bank will try to recover the funds in three to five years.
OFBU "Basic" was one of the leaders in 2009, its 4 thousand investors were not scared off by the investment declaration of the fund, which provided for the widest opportunities of the managers. This included investments in promissory notes of all issuers, derivatives and Forex instruments. The latter particularly appealed to traders from Udmurtinveststroybank's trust management department, who preferred to trade in the euro/dollar currency pair.
Alexander Kolodkin, director of the trust management department of Udmurtinveststroybank, told RBC Daily, "I am still managing and supervising the department; we have nine people, including six traders. He said that the fund's strategy was based on the Martingale capital management methodology. It involves increasing the size of a position in case of a losing trade and returning capital in case of a profitable one; the bank has used it to play against the market. The principle is to double your bet when you lose - it is commonly promoted as a win-win option in casinos.
Banks, on the other hand, have not used such techniques. "This is not normal for the collective investment market, as the risks in this case were significantly exceeded, and it is not possible to talk about capital management in this case," says Alexander Dorofeev, portfolio manager of Finam IC. According to him, the case at Udmurtinveststroybank was possible also because the rules of management and activities of BMMFs are not regulated by the law.
According to Mr. Kolodkin, his strategy had shown positive results for several years, but this summer there were several exits on the risk management system (footfalls): "According to our strategy, one exit means the loss of half of the fund. In the end there have been two. He also said that the drawdown was 98.68%: only 1.3 million roubles was left from 220 million roubles. But he has hope that in five years he will be able to win back what he has lost.
The bank, which had made good money in previous years, could help him do so. Mr Kolodkin also envisaged a back-up option: BMMFs did not disclose all the information on losses to clients, trying to negotiate with Saxobank so that in exchange for a certain amount the broker would return the fund's funds. But, he said, this remains only a slim hope.
According to Garegin Tosunian, president of the Association of Russian Banks, such an example of money management suggests that regulation of BMMFs and responsibility of bank managers themselves should be tightened. Otherwise clients of funds will suffer further losses.
http://www.rbcdaily.ru/2010/09/09/finance/509304
Breath
the comments are also bleeping.
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