Hedgeweek Comment: Hedge fund sees opportunity in "new sub-prime"
As world grapples with the consequences of the implosion of the US sub-prime mortgage sector, some hedge fund managers seem to have already spotted a comparable market, following reports that funds are now turning their attention to student loans.
Jim Chanos, founder and president of Kynikos, one of the best known short-selling US hedge funds, is reported to have student loan providers high on his list to short in the near future. 'This industry has much in common with the sub-prime mortgage industry,' he is quoted as saying. 'Things do not look very bright.'
More than two-thirds of American university students rely on loans to pay for their college education, but applications are being turned down in record numbers as the fallout in credit markets makes many types of loan impossible to write.
More than 137 lenders that participate in a US government-backed student loan programme have reportedly been forced to suspend operations in recent weeks, and another 33 firms have stopped issuing loans to students at private universities.
Analysts say that in addition to the troubled financial markets, changes in the law have also made the provision of student loans a lot less attractive to lenders. Hedge funds, now ready to resume to return to short selling with a vengeance after the ban on shorting financial stocks was lifted by the SEC, sense blood in the water.
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