In Focus

June 27, 2005

hey bet wrong", betting that long term interest rates would rise. That's the explanation provided by a lawyer to the Ohio Bureau of Worker's Compensation, which oversaw millions of dollars in losses to its plan over a short period of time.

That cavalier explanation — betting wrong on interest rates — is disconcerting. Then one learns of the magnitude, and the timing, of the loss. Consider that the Ohio Bureau of Worker's Compensation allocated $100 million to the hedge fund, MDL Capital Management of Pittsburgh, in May, 2004, after the fund had lost nearly $41 million in the past three months. Then the fund lost another nearly $74 million before another $25 million was allocated to it in September, 2004. Overall, the fund had lost $215 million when it was shut down in October, 2004.

Worse still, bureau officials report that the funds had been moved to the hedge fund from conservative bond investments, that senior bureau officials were not aware that the money was being moved, and that they didn't learn about the losses until September.

"They bet wrong" doesn't even scratch the surface of an acceptable explanation!

— James J. Eccleston
FinancialCounsel.com