Morningstar just issued preliminary hedge fund performance for August as well as asset flows through July. The Morningstar MSCI Composite Hedge Fund Index fell 2.4% in August, but still significantly outpaced the S&P 500′s 5.4% decline for the month.

Funds in the Morningstar MSCI Europe Hedge Fund Index posted some of the largest declines in August, 4.5% on average, but they held up significantly better than the MSCI Europe Index, which plummeted 10.0%. Relative-value strategies, including arbitrage, performed comparatively well this month, as these strategies hedge out equity market risk.

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Effective October 17, 2011, certain personnel involved in the back office operations of a broker-dealer must pass a FINRA qualification examination, and subsequently register as an Operations Professional.

The Rule further requires senior management having direct responsibility over such personnel to also register.

Operations Professionals can be considered: (i) senior management with a direct responsibility over back office functions; (ii) supervisors or other personnel who are responsible for approving or authorizing work; and (iii) personnel with authority or discretion to commit a firm’s capital or to authorize a contract or agreement on behalf of a firm as related to back-office functions.

New Personnel must be registered before engaging in any activities that require registration.

More here

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SAN DIEGO, CA, December 15, 2010 — A report released by PrivateEquityCompensation.com signals improvement in the private equity and venture capital markets and an upward compensation trend that will likely continue in 2011.

In a year where buyout deals heated up and the big players are complaining of being priced out of the market for some deals, private equity professionals reported a solid increase in total earnings over the previous year, with the average cash earnings coming in at $230,000 USD.

As 2010 wraps up, 45 percent expected double-digit increases over last year. The average expected increase was 13 percent.

Private equity investors will be pleased to know that bonus practices are aligned with fund performance for 2010. Last year about half of the firms reported positive fund performance. That number this year is an impressive 85 percent.

“Last year, there was plenty of discussion around the bank bailouts and public scrutiny of financial pay programs, especially bonus payouts,” says David Kochanek, publisher of PrivateEquityCompensation.com. “This year funds performed well and the average expected bonus increase is over 20 percent.”

28 percent of contributors reported having some level of bonus guarantees, although the level of guarantee was all across the board, from 5 percent up to 100 percent. Of those receiving bonuses, only 12 percent were required to invest some amount of their bonus back into the fund.

With plenty of investment reserves at the larger firms and the clock ticking on the time frame to make investments, firms are looking to put that money to work. This means more deals and greater demand for talent from both the investment and operational sides of the business.

Have better times arrived? “We believe this is a sign of improvement in the private equity and VC markets,” said Kochanek. “We expect continued demand for junior level investment professionals and operational improvement players at the senior levels. Add to this that firms are now positioning to keep talented professionals from leaving for greener pastures, and an upward compensation trend will likely continue in 2011, even if overall economic conditions show only minor improvement.”

About The Report

The 2011 Private Equity Compensation Report is based on an industry survey conducted in October and November 2010. Data was collected directly from hundreds of private equity and venture capital partners and employees. The full report can be found at PrivateEquityCompensation.com

The Report has grown to be the most comprehensive benchmark for private equity and venture capital compensation practices. Some of the participating firms over the years include: 3i, Actis, American Capital, Babson Capital Management, Bain Capital, Barclays Capital, BlackRock, Clairvest, CPP Investment Board, Deutsche Bank, DuPont Capital Management, EDC Equity, EdgeStone Capital Partners, Global Environment Fund, Highland Capital Partners, Hilco Consumer Capital, Kaiser Permanente Ventures, Kayne Anderson, North Atlantic Capital, Qualcomm, RBS, Safeguard Scientifics, SV Life Sciences, and Time Warner Investments.

About PrivateEquityCompensation.com

PrivateEquityCompensation.com is a division of Job Search Digest, publishers of Private Equity Jobs Digest, a web-based career service catering to professionals in the private equity industry since 2002. Annually, the firm collects compensation data directly from hundreds of private equity and venture capital partners and employees from firms both large and small.

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Credit Suisse Tremont Index LLC released a new research piece, “Hedge Funds Hit a High Note: 2009 Industry Review,” that examines hedge fund performance in 2009 with a focus on the key factors that contributed to the turnaround seen in the industry last year.

2009 marked the best annual hedge fund performance in a decade (as measured by the Credit Suisse/Tremont Hedge Fund Index “the Index”) and the greatest performance rebound since inception of the Index in 1994. The report examines the key return drivers in the industry in 2009 and explores some of the noteworthy trends which have developed as a result of the current market dislocation. Overall, the Index was up nearly 19% with 83% of all funds posting positive performance as of December 31, 2009.

Some key conclusions from the report include:

– Overall, hedge funds have recouped 77% of 2008 losses from previous peak performance levels or “high water marks.”

– An estimated 58% of all “impaired” assets have returned to standard liquidity status, representing a total of $102 billion. An additional $72 billion in impaired assets currently remain illiquid.

– The hedge fund industry experienced net inflows of $12 billion in the fourth quarter; however, overall the industry lost $74 billion as a result of investor redemptions in 2009.

– Including performance gains, current industry assets under management are estimated at $1.5 trillion as of December 31, 2009.

– The percentage of closed funds in the industry has dropped from 17% to 13% since November 2007, signifying increased investor access to some of the industry’s most in-demand managers.

In addition, Credit Suisse Tremont LLC has also published a new monthly commentary which offers insight into December hedge fund performance. All industry commentaries and publications are available in the Research section on www.hedgeindex.com.

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The Securities and Exchange Commission yesterday adopted rules designed to increase the oversight of SEC-registered investment advisers that maintain custody of client assets. Most investment advisers do not maintain physical custody of their clients’ assets. Instead, those assets are held by a qualified third-party custodian, such as a regulated bank or a broker-dealer. However, over the past year, the SEC has brought a series of enforcement cases against advisers who had access to their clients’ assets and allegedly misused them. The SEC alleged in certain of these enforcement actions that advisers often concealed the misuse of client assets by distributing false account statements to their clients reflecting assets that did not really exist. The SEC’s new rules were adopted in response to these SEC concerns.

The SEC’s custody rule as amended will encourage independent custody and require the use of independent public accountants as third-party monitors. Depending on the investment adviser’s custody arrangement, the rules will require the adviser to be subject to a surprise exam and custody controls review that are generally not required under the prior rules.

Surprise Exam
Investment advisers are now required to engage an independent public accountant to conduct an annual “surprise exam” to verify that client assets exist. The accountants are required to contact the SEC if they discover client assets are missing.

Custody Controls Review
When the adviser or an affiliate serves as custodian of client assets, the adviser is now required to obtain a written report — prepared by an accountant that is registered with and subject to regular inspection by the Public Company Accounting Oversight Board — that, among other things, describes the controls in place at the custodian, tests the operating effectiveness of those controls and provides the results of those tests.

The new rules also will impose a new control on advisers to hedge funds and other private funds that comply with the custody rule by obtaining an audit of the fund and delivering the fund’s financial statements to fund investors. The rule will require that the auditor of such a private fund be registered with and subject to regular inspection by the PCAOB.

The new rules also require that the adviser reasonably believe that the client’s custodian delivers the account statements directly to the client. This requirement is intended to provide greater assurance of the integrity of these account statements and enable clients to compare the account statement they receive from their adviser to determine that the account transactions are proper.

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West Palm Beach (HedgeCo.net) – The Hedge Fund Journal’s Funds of Hedge Funds GLOBAL50, produced in association with Newedge Prime Brokerage Group, reports that minus a few exceptions, funds were happy to participate in the survey and submitted their assets under management figures as at 30th June 2009, which goes some way to prove that funds are taking the issue of transparency more seriously. Those funds that declined to participate have been given estimates based on a variety of data and industry sources.

In responding to the survey, many funds wanted to emphasise that liquidity terms were often the key to how a firm had been able to retain assets, the Journal reports. Those funds with more generous liquidity terms believed, rightly, that they were victims of what is now aptly-called the ‘ATM effect’.

The data shows that between 30th September 2008 and 30th June 2009, over $200 billion was withdrawn from the top 50 funds. Most funds lost an average of between 25% – 30% of their assets under management. However, UBS Alternative and Quantitative Investments remains in pole position, despite losing over 33% of its assets: at 30th June, 2009 assets under management stood at $31.4 billion (down from $46.6 billion in September 2008).

The top 50 funds are certainly managing less, but they are not out of the game. Smaller funds, of course, are facing an even tougher time. Chicago-based Hedge Fund Research (HFR) has reported that over 200 funds of hedge funds liquidated in 2009. This is a significant increase on the last quarter and represents an annual attrition rate of over 8%; nearly double the previous record set in Q4 2008. Falling assets and rising costs due to heightened due diligence and compliance demands from investors will continue to have a strong impact on the business viability of smaller funds.

Hitting rock bottom
The crisis has raised some important questions. Having grown at more than 20% a year between 2000 and 2008, the reversal in fortunes has come as a shock to many within the industry. At their peak, assets under management for funds of hedge funds reached $825 billion according to HFR, but by the end of Q2 2009, assets in the sector had dropped to $530 billion. Importantly, that marked a $5 billion gain from 31st March 2009 and may indicate that redemptions have bottomed out.

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