Everest Capital Global Fund Closes After Massive Swiss Franc Trading Loss
On January 15, 2015, the Swiss National Bank (SNB) decided to remove a three-year cap, or peg, on its currency versus the Euro. In September 2011, the SNB set a minimum exchange rate of 1.20 Francs per Euro, thereby capping the Swiss Franc’s appreciation against the Euro, and other world currencies. The SNB claimed that “the value of the Franc is a threat to the economy,” and it was “prepared to buy foreign currencies in unlimited quantities.” Within 15 minutes of the 2011 announcement, the value of the Franc dropped nearly 9% versus both the Euro and US Dollar.
Warning signs were available that the SNB would change its monetary policy due to the abrupt decline of the Euro in the second half of 2014. One warning sign was on December 18, 2014, when the Swiss Central Bank introduced a negative interest rate of -0.25% on overnight bank deposits, meaning investors needed to pay interest (as opposed to collect interest) on their cash deposits. At some point the SNB would have to uncap its currency against the Euro, because such a large scale monetary policy is not sustainable for eternity, the question was just a matter of when. With an important decision coming soon from the European Central Bank (ECB), the SNB decided to be proactive and uncap the Swiss Franc in anticipation of the ECB potentially launching new quantitative easing (QE) measures to stabilize its own currency. Within a matter of minutes of the SNB’s decision, the Swiss Franc had appreciated over 30% against the Euro before settling around a 15% move.
Many traders, investment funds, hedge funds, and brokerage firms were on the wrong side of the trade anticipating the Swiss Franc to continue losing value against world currencies due to the sharp decline in the value of the Euro. As a result of the severe and sudden currency losses, Everest Capital, a Miami, FL based hedge fund, announced that they will be forced to close their flagship Global Fund due to insolvency.
According to Everest Capital’s Form ADV: Part 2A brochure, which was updated on December 15, 2014, the fund “provides advisory services on a discretionary basis primarily intended for sophisticated and institutional investors. Everest Capital generally has broad and flexible investment authority, and does not tailor its advisory services to the individual needs of investors.”
The form clearly warns investors about the risk of loss of capital. “Everest Capital typically invests using an opportunistic, thematic investment approach that combines top-down and bottom-up approaches to investing. Everest Capital may try to hedge their risk [of non-US investments] by investing in foreign currencies, options, and derivative contracts, but there can be no assurance that such strategies, if implemented, will be effective. These investment strategies and methods of operation involve the risk of loss to Advisory Clients and Advisory Clients should be prepared to bear the loss of their entire investment.”
If your financial advisor or stockbroker recommended that you invest in the Everest Capital Global Fund, you may have options to recover your investment loss. If your advisor failed to fully disclose the risks of investing in the Everest Capital Global Fund, then you may have a claim for misrepresentation. If your investment objective was to only invest in safe and stable investments, you may have a claim for unsuitability. If the Everest Capital Global Fund made up a large portion of your portfolio, then you may have a claim for over-concentration and lack of diversification. If your advisor purchased this fund without your knowledge, you may have a claim for unauthorized trading. If your advisor purchased this fund on margin, you may have a claim for excessive use of margin and negligence.
The attorneys at Carlson & Associates, P.A., located in Miami, Florida, represent investors who have lost money due to the improper conduct of financial advisors. If you would like to have a free consultation, we can be reached at (305) 372-9700 to discuss your options.