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Thursday, October 07, 2010

'Flash Crash' PM Opens Up to WSJ

News summary by MFWire's editors

The Wall Street Journal today takes a closer look at the culprit of the May 6 "flash crash": Kansas City-based Waddell & Reed Financial.

Specifically, the WSJ article puts the the firm's $27 billion hedge-fund like Ivy Asset Strategy Fund under the microscope. The fund reportedly sold $4.1 billion for 75,000 E-mini futures contracts linked to the S&P 500 Index, which helped set off the infamous selloff that caused the Dow Jones Industrial Average to lose 700 points in seven minutes.

However, the fund's portoflio manager Michael Avery, told the WSJ that the fund has made this type of trade a dozen times in the previous three years, and has continued making it after the May 6 episode. The PM explained that this was the fund's mandate from the get-go.

CEO Henry Hermann offered that the firm "doesn't reach for the brass ring for fear of falling off the merry-go-round."

But no harm no foul for the fund, which reportedly suffered some investor withdrawals, but has since recovered the inflows. Some investment advisers have even thanked the fund's PM for using the hedge to protect clients' assets. All in a day's work. 

Edited by: Hung Tran

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