PayPal Founder Peter Thiel's Hedge Fund Blows Up

PayPal founder Peter Thiel’s Clarium was doing great though the summer, up 58% for the year.  But since then? Whoops.

Bloomberg: Clarium Capital Management LLC, the hedge-fund firm run by PayPal co-founder Peter Thiel, slumped 18 per cent in October, its biggest monthly decline, because of losses on bonds.

The firm’s Clarium LP fund reported a year-to-date loss of about 3 per cent, wiping out the 58 per cent gain it made in the first half, according to estimates given to investors.

“Clarium is known for taking large risks, and their performance reflects that,” said Patrik Safvenblad, head of hedge-fund research in Stockholm for DnB NOR ASA, Norway’s biggest bank. “Investors can get overly optimistic that periods of strong performance will continue”…

Clarium had 81 per cent of its money in positions used by investors when they expect a widening spread, or gap, between bond yields, such as for 10-year Treasury notes and 30-year bonds. Instead, yield spreads narrowed in October. Armel Leslie, a spokesman for the San Francisco-based firm, declined to comment.

Thiel, who manages $5.2 billion, trades everything from stocks to commodities, seeking to profit from broad economic trends, a strategy known as macro investing.

How could Peter lose so much so fast? L-E-V-E-R-A-G-E.  (What does that mean?  Gambling.  Wait, sorry.  It means “borrowing a ton of money from your friends before you walk into the casino.”)

Clarium borrowed $4.40 for every $1 in equity capital invested as of Oct. 31, compared with $3.90 for every $1 a week earlier, according to the investor letter.

Thiel, 41, started Clarium in 2002 after selling online- payments service PayPal to EBay Inc. for $1.5 billion. The hedge fund has gained more than fourfold since starting in 2002.

In the context of the rest of the hedge-fund industry and global capital markets, of course, the year-to-date results are just dandy. Still, a 40% loss in three months hurts.

See Also: Jerry Yang To Steve Ballmer: Please, Please Take Me Back

Photo Excerpt: New York Times

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