Depending which hedge fund you ask, the current hurricane season has either been a blessing or a curse. Those hedgies that looked at last year’s turbulent season and piled into catastrophe bonds are hoping to make a profit from all the purchases of insurance, should it turn out to be a quieter period. Thankfully, residents of regions traditionally hit by hurricanes have been breathing pretty easy this year as no storm has yet reached the level of last year’s Katrina or Rita. Likewise, hedge funds owning CAT bonds or insurance companies are breathing easy as they stand to make many a million because of fewer claims. Then there are those hedge funds that listened to forecasters who predicted a repeat of the 2005 hurricane season and stocked up on gas investments, expecting prices to soar as the result of supply shortages from disruptions brought on by the storm. Just ask Amaranth Advisors and MotherRock, whose investors by now are cursing the firms - and Mother Nature - for falling down on their respective jobs. Considering how inaccurate meteorologists are in just normal forecasts, one wonders why hedge funds would have put so much faith in their long-range hurricane prognostications. Meanwhile, one unnamed hedge fund is being investigated for profiting from Hurricane Katrina in a way other than through CAT bonds. The Street.com reports that the fund allegedly engaged in naked short selling shares of Hibernia, a company based in New Orleans. Apparently the firm, which the Securities and Exchange Commission is now investigating, short sold Hibernia stock believing that Capital One would lower its bid for the Katrina-battered company. According to TheStreet.com, the deal was to close on Sept. 1, a couple of days after Katrina struck, and indeed Capital One lowered the offering price by $350 million to $5 billion, giving the hedgie a pretty profit in the process.
