Ooh-er.

Last year's most profitable hedge fund goes belly up! (From Bloomberg):

By Katherine Burton and Tom Cahill
Feb. 28 (Bloomberg) -- Peloton Partners LLP, the London- based hedge-fund firm run by former Goldman Sachs Group Inc.
partners, is selling assets because of losses on mortgage-backed securities, said two people with knowledge of the matter.
Peloton, founded by Ron Beller and Geoff Grant in 2005, is liquidating part of its asset-backed fund after declines in higher-rated mortgage securities, said the people, who declined to be identified because Peloton hasn't disclosed the information.
The firm has bids for holdings of the Peloton ABS Fund from firms, including Citadel Investment Group LLC and GLG Partners Inc., and is working with lenders to meet commitments, the people said.
The Peloton ABS Fund was named the best new fixed-income fund of 2007 by EuroHedge magazine after rising 87 percent on what Beller called a ``world-coming-to-an end'' trade that debt linked to subprime loans would tumble and higher-rated securities would rise. The fund had about $1.8 billion of assets.
``The rubbish goes down first and then the good stuff is pulled down with it,'' said Nigel Blanshard, a partner at London- based Culross Global Management Ltd., an $800 million fund that invests in other hedge funds and isn't a Peloton client. ``The flight to quality this year has been to get out of mortgages altogether.''
Grant, 47, who works in Santa Barbara, California, declined to comment.

`No Clothes'

When he collected his EuroHedge award last month, Beller, 45, said the firm's investment strategy had been built on a conviction that ``the emperor had no clothes.'' The ABS fund is managed by Peter Howard and David Watson.
``Our shorts last year were largely in subprime and our longs in prime assets,'' Beller said in a Jan. 25 telephone interview. ``We just benefited from the sharp drop in subprime and feel well positioned going forward as we expected our longs to continue to perform and our shorts to continue to deteriorate.''
A short sale is designed to profit when the security falls in value, while a long position is a bet the security will rise.
At New York-based Goldman, Beller headed the fixed-income, currency and commodity sales groups in Europe, and Grant oversaw the global foreign exchange business and was co-head of the firm's macro proprietary trading group. After Beller left Goldman in 2001, he worked for a year reorganizing New York City's school system.

Stick With Success

Peloton, which is named after a bicycle-racing formation in which riders work together to increase their speed, held its profitable trades into this year because it was confident they would continue to advance, according to a December investor report to investors in its Multi-Strategy fund, a copy of which was obtained by Bloomberg News. The firm's $1.6 billion Multi- Strategy fund, run separately from the ABS fund, gained 27 percent in 2007.
``We believe there is substantial profit potential built into our portfolio and expect plenty of opportunities to augment this through opportunistic trading around our core positions,''
the report said.
``We have recently fielded questions from ABS investors about `the trade' in 2008 and are confident we already have it on,'' the report said. ``As each month passes, this will become increasingly evident as our senior securities amortize at par while our subordinate shorts start receiving writedown payments.''

--With reporting by Jody Shenn in New York. Editors: Larry Edelman, Tim Quinson.

To contact the reporters on this story:
Katherine Burton in New York at +1-212-617-2335 or kburton@bloomberg.net.
Tom Cahill in London at +44-20-7673-2052 or tcahill@bloomberg.net