Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
New York (HedgeCo.net) – This coming April issue of Bloomberg Markets magazine reports that four of Citi’s seven biggest hedge funds have underperformed their indexes since they started, according to investors. Five of the seven lost money in 2011.
The last time Citigroup told shareholders how its Citi Capital Advisors hedge fund group (CCA) performed was the first quarter of 2008, when the unit lost $509 million.
Citigroup told the magazine that the bank planned to sell a “significant” portion of its hedge fund group (CCA) to managers of the group.
This decision to sell the hedge and private-equity funds comes at a time when Citigroup is still recovering taking $45 billion from the Troubled Asset Relief Program, $99 billion in loans from the Federal Reserve and $301 billion in government asset guarantees to stay alive.
Other highlights Bloomberg uncovered include:
In the third quarter of 2011, CEO Vikram Pandit invested $800 million of the bank’s own money — not cash from investors or clients — into CCA, even as traders from Goldman Sachs Group Inc. (GS) and other banks were jumping ship to start their own hedge funds in advance of the Volcker rule. The Volcker rule says a deposit-taking bank’s proprietary capital can’t account for more than 3 percent of any hedge fund.
The worst performer among the seven largest funds last year was the Strategic Credit Fund, which lost 14.2 percent, according to people who were solicited to invest. Credit funds, on average, climbed 1.5 percent in 2011, according to data compiled by Bloomberg. The $200 million fund is run by Fred Hoffman and manages mostly Citi capital.
The $400 million Mortgage/Credit Opportunity Fund, managed by Rajesh Kumar, lost 4.2 percent in 2011, including a 10 percent dive in August. The loss is striking because mortgage funds were the best performers among hedge funds, gaining an average of 14.5 percent, according to Bloomberg data.
CNN – The FBI on Monday unveiled a videotaped message from the actor who played the infamous fictional insider trader Gordon Gekko to help bolster a wide-ranging attack on financial crimes.
At an FBI headquarters briefing on the stepped-up fight against financial misdealings, the bureau proudly showed a 30-second public service announcement featuring actor Michael Douglas. His character in the 1987 film “Wall Street,” Gordon Gekko, proclaimed that “greed, for lack of a better word, is good.”
Baltimore Sun – Bridgewater Associates, the world’s biggest hedge fund, handed clients $13.8 billion last year, catapulting founder Ray Dalio above long-time rivals such as George Soros and John Paulson as the industry’s biggest money maker in 2011, research showed.
Bridgewater’s flagship Pure Alpha fund, which runs $71.9 billion, has now made clients $35.8 billion after fees since its inception in 1975, according to research from hedge funds investor LCH Investments, part of the Edmond de Rothschild Group.
Reuters – Bold merger arbitrage funds are set to enjoy rich pickings this year amidst a rebound in M&A activity, helped by the reluctance of many investors to trade complex deals after last year’s choppy markets, says hedge fund firm Cheyne Capital.
Simon Davies, whose European Event Driven fund, has raised $500 million (314 million pounds) since launch in October 2009, told Reuters that last year’s volatility had made many investors “quite risk averse”, meaning there is room for arbs to profit from more complex deals.
CNBC – Last year was one of the worst on record for hedge funds, but the industry appears to be shrugging off the bad times. According to Deutsche Bank’s latest Alternative Investment Survey, hedge fund assets are expected to rise 12 percent to a record $2.26 trillion this year.
One of the most notable changes in the hedge fund industry recently has been its composition, Anita Nemes, Global Head of Capital Introduction at Deutsche Bank, told CNBC.
Bloomberg – On the lengthy list of things Dan Zwirn has lost, a few items jump out. There’s the $17 million condo on Central Park South, the summer place in Quogue, New York, and the $18 million Gulfstream IV jet.
Then there’s D.B. Zwirn & Co., the hedge fund that once managed $12 billion in assets, employed 275 people in 14 global offices, and created the roughly $700 million in personal wealth that made so many of Zwirn’s spectacular purchases possible. Zwirn, 40, misses his money and the things it afforded him. But what he misses most, he said, is his “beautiful machine.”
Proactive Investor UK – Healthcare Locums lost a fifth of its value in early trade after revealing that an American hedge fund has filed proceedings against the recruitment firm.
The proceedings have been filed by Permian Master Fund, Permian Investments Partners, Arundel Capital, Arundel Long Fund, Arundel Hedge Fund, Privet Capital and Flinn Investments.
Advanced Trading – Today’s American mafia bears little resemblance to the shadowy, fearsome organization that captured the nation’s imagination throughout the 20th century.
During the 1980s and early 1990s, crime bosses like John Gotti, Vincent “The Chin” Gigante, and Paul Castellano routinely found their names in the headlines – and their wrists in handcuffs – with federal prosecutors looking to break their organizations after decades of apparently looking the other way.
New York (HedgeCo.net) – Seward & Kissel, the law firm that helped create the first hedge fund over 60 years ago, A.W. Jones & Co., announced its first study of New Hedge Funds in the U.S. The Seward & Kissel 2011 New Hedge Fund Study takes a look at newly launched hedge funds sponsored by U.S. based managers entering the market for the first time in 2011. Key findings include:
Half of the responding new U.S. hedge funds created in 2011 have an equity or equity-related investment strategy. About 1/3 of these equity funds were focused on U.S. equities while the rest had a global focus.
Majority of new U.S. hedge funds created in 2011 are charging a 2% management fee.
75% of new U.S. hedge funds in the study permitted quarterly redemptions with the balance allowing for monthly exits.
60% of funds in the study had a soft lock-up, usually a year, while 30% had no lock-up and the rest had a hard lock-up.
Vast majority of funds in the study had no gates with about ¼ having an investor level gate.
Stated minimum initial investment of a majority of the funds in the study was set at $1,000,000, with some outliner funds having a stated minimum of $250,000 on the low end and $5,000,000 on the high end.
45% of responding funds obtained some form of founders, seed or strategic capital, while the rest had no strategic capital.
New York (HedgeCo.net) – Today Rule Financial, the independent provider of business consultancy, IT consultancy and hedge fund IT services announced an increase in sales and a number of senior hires to support its growing business.
In London, Jim Warburton comes in as the global head of the investment banking domain group – previous roles include senior vice president at Citigroup and director at Credit Suisse.
Jeremy Taylor who specialises in operational processing and derivatives, will be supporting Jim in London. Jeremy’s comes from UBS where he was Global Head of the OTC Derivatives Documentation unit.
Ciaran Henry has been appointed as the country manager in the United States. Ciaran is an expert in capital markets technology with over 25 years of experience gained as CTO and Managing Director at Merrill Lynch, CTO and Managing Director at JP Morgan ChaseandManaging Director at Credit Suisse.
“Growing the business in 2011 was a tremendous achievement for Rule Financial and a testament to the high quality work our specialists are performing within banks.” Chris Potts, CEO, Rule Financial, said, “Our consultants are the foundation of our business and we recruit and develop domain experts who truly innovate to solve the needs of the world’s leading banks. We fully intend to develop these capabilities in 2012 with more investment in our domain experts and delivery teams, to offer world-class support to our growing client base.”
Supporting the new appointments, Rule Financial is also expanding its near-shore operations in Europe by expanding its presences in ?ód?, Poland to support increased demand for services in Europe.
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New York (HedgeCo.net) – According to a survey released by Citi Prime Finance, 78 leading investors who provide capital to hedge fund managers upon launch (Day One) or within the first 12 months of a fund’s existence (Early Stage) allocated $12.4 billion to Day One/Early Stage managers from 2009-2011, with an average ticket size of $16 million for new funds compared to $37.7 million for established managers,
The report, “Day One & Early Stage Investor Allocations to Hedge Funds,” sheds light on the most important factors investors consider when assessing Day One/Early Stage opportunities including the size and frequency of allocations, preferences for investment strategy type, and fund terms.
The findings show that 75% of global investors surveyed approach hedge funds opportunistically, evaluating emerging managers alongside more established funds. Survey respondents, however, risked significantly less money on new funds than with proven managers. Across the investors surveyed, only 39% of Day One/Early Stage allocations transitioned to a core investment, but when the manager was successful, the size of that core position, on average, was nearly 5 times the initial ticket in both the US and EMEA and 3.6 times in APAC.
Raising Day One/Early Stage capital remains a substantial challenge. Hedge fund managers interviewed for the survey indicated that they had to pursue up to 100 meetings to win 2-4 allocations. On average, investors made only 5.0 Day One/Early Stage allocations each over the past 3 years, and 2.2 such allocations in 2011.
“Our Day One & Early Stage survey provides a glimpse into the investor’s decision-making process, giving new funds this valuable insight for the first time,” said Chris Greer, Global Head of Capital Introductions, Citi Prime Finance. “Given the ongoing market volatility and shifting landscape for hedge funds, it is necessary that managers understand investor demands in order to raise capital and ultimately mature.”
The investment team’s previous experience and its track record were noted as the two most important criteria investors considered when making Day One/Early Stage allocations. These were followed by the stability of the investment team, as demonstrated by the general partner’s ownership structure, and the fund’s operational infrastructure support.
“It’s not just a matter of transparency and reduced fees anymore,” Greer added. “We found investors also want more two-way dialogue with the new funds management and portfolio teams.”
“Our survey indicates that US investors were the most active Day One/Early Stage allocators, with overall mandates more than three times those of EMEA investors,” said Michael Kane, Head of Capital Advisory, Citi Prime Finance. “There is a general perception across the investment community that a manager’s initial performance is often a fund’s best. Early investors are typically offered management and performance fee concessions to compensate for the incremental risk of providing capital, which makes getting in early an attractive proposition.”
The survey also finds that experienced hedge fund investors such as fund of funds tend to be the most frequent investors in newly launched funds. Day One/Early Stage investors are acutely focused on the incremental risks involved in successfully launching and managing a new fund and rely on experienced teams to evaluate potential opportunities, with the majority of survey respondents citing teams with more than 10 years of allocation experience.
The research paper details the results of a series of qualitative interviews and quantitative surveys, conducted by the Citi Capital Advisory and Capital Introduction teams, with more than 90 managers and Day One/Early Stage investors globally, including fund of funds, family offices, private banks, and endowments. Participants were surveyed to determine key trends that have emerged since 2008 and to better understand the most important factors they consider when placing capital with managers.
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FBI – The founder of a $7 billion hedge fund is convicted of insider trading. A drug company pleads guilty to making and selling unsafe prescription drugs to Americans. The head of a financial company admits scamming distressed homeowners who were trying to avoid foreclosure.
These recent crimes and many more like them—investigated by the FBI, in some instances along with our partner agencies—can cause great harm to the U.S economy and American consumers. That’s why financial crimes are such an investigative priority at the Bureau.
New York (HedgeCo.net) – This coming April issue of Bloomberg Markets magazine reports that four of Citi’s seven biggest hedge funds have underperformed their indexes since they started, according to investors. Five of the seven lost money in 2011.
