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) – Axiom Valuation has released a new platform for hedge funds to avoid the SEC’s new screening tool, Aberrational Performance Inquiry (API), which identifies possible fraudulent valuations and misreported returns by hedge fund managers reporting above benchmark returns.
“For a hedge fund seeking to avoid being subject to the SEC’s API process, Axiom Valuation’s AIRAS capability can protect the fund from a possible SEC API by demonstrating through a quantitatively robust and empirically defensible report that the fund’s self-reported returns match the fund’s strategies.” The company said.
Last week’s SEC announcement of enforcement actions against three hedge funds and six individuals for misconduct including improper use of fund assets, fraudulent valuations, and misrepresenting fund returns, demonstrated a ground-breaking shift in the operating environment for hedge funds.
These are the first actions brought by the SEC using their new API capability, which utilizes proprietary risk analytics to test hedge fund’s self-reported returns against the fund’s investment strategy or other benchmarks. For the first time, the SEC has an analytical and information advantage over the hedge funds it regulates.
The SEC is casting a wide net across all hedge funds that are reporting performance of greater than 3% above market indexes, according to testimony by Robert Khuzami, Director of the Division of Enforcement for the SEC in March, 2011. This means that most successful hedge funds will be targeted for at least some degree of further scrutiny by the SEC’s API process. This scrutiny cannot be good news for hedge funds in terms of management time, legal costs, and reputational risk. In essence, these successful hedge funds are guilty until proven innocent.
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New York (HedgeCo.net) – In the upcoming issue of The New Yorker, writer George Packer profiles hedge fund and venture-capital entrepreneur Peter Thiel. The article “No Death, No Taxes” comes out on November 28th.
His venture-capital firm, Founders Fund, has an online manifesto about the future that begins with a complaint: “We wanted flying cars, instead we got 140 characters.” Thiel believes that this failure of imagination explains many of the country’s problems—from the collapse in manufacturing to wage stagnation to the swelling of the financial sector. As he puts it, “You have dizzying change where there’s no progress.”
His hedge fund, Clarium Capital Management, “became one of the meteors of the hedge-fund world,” Packer writes.
Thiel also founded PayPal, which he and his partners sold to eBay for $1.5 billion, he also gave Mark Zuckerberg a half-million-dollar loan, the first outside investment in Facebook, in the summer of 2004—a loan that Thiel later converted into a seven-per-cent ownership stake and a seat on the board.
Packer writes, “The information age has made Thiel rich, but it has also been a disappointment to him.” The creation of virtual worlds turns out to be no substitute for advances in the physical world.” “The Internet—I think it’s a net plus, but not a big one,” Thiel tells Packer.
Twitter has a lot of users, but it doesn’t employ that many Americans: “Five hundred people will have job security for the next decade, but how much value does it create for the entire economy?” Thiel’s questioning of the Internet’s significance does not, however, come from an indifference to technology. “He’s enraptured with it,” Packer writes. “Indeed, his main lament is that America… has lost its belief in the future. Thiel thinks that Americans who are beguiled by mere gadgetry have forgotten how expansive technological change can be.”
He believes that education is the next bubble in the U.S. economy, and dislikes the idea of using college to find an intellectual focus; above all, because “a college education teaches nothing about entrepreneurship,” Packer writes. “Thiel thinks that young people—especially the most talented ones—should establish a plan for their lives early, and he favors one plan in particular: starting a technology company.”
Last September, Thiel and Luke Nosek—Thiel’s friend and a partner at Founders Fund—came up with the idea of giving hundred-thousand-dollar fellowships to brilliant young people who would leave college and launch their own startups. The Thiel Fellowships “would help ambitious young talents change the world before they could be numbed by the establishment,” Packer writes.
Thiel has also poured money into futuristic projects such as artificial intelligence, space travel, life extension, and seasteading—the establishment of floating city-states on the high seas. He says, however, that even though he ideologically believes “that it’s unhealthy if society is totalitarian or dominates everything, if I had been libertarian in the most narrow, Ayn Rand-type way, I would never have invested in Facebook.”
He hasn’t backed a Presidential candidate for 2012 yet; he is spending his time and money building “the machinery of freedom” outside politics, so that, Packer writes, “technology will win the race.”
Thiel tells Packer that he is “weirdly hopeful…… There is a very cathartic crisis that’s gone on, and it’s not clear where it’s going to go. But at least everyone knows things are rotten. We’re in a much better place than when things were rotten and everyone thought things were great.”
New York (HedgeCo.net) – Citi’s Hedge Fund 1.0, saw the hedge fund industry as a niche business, with funds typically relying upon a single prime broker to support trading and reporting. In Hedge Fund 2.0, the next evolutionary phase, funds expanded to include more specialized arbitrage, event-driven, macro and credit-related strategies.
“The Hedge Fund 3.0 concept reflects the emergence of specialty providers who focus on the hedge fund industry, enabling fund managers to concentrate on key aspects of investment management while reducing their base of fixed costs,” Alan Pace, Head of Prime Finance in the Americas at Citi, said. “These experts have a keen understanding of the complexities of hedge fund management and can lift the burden of building and maintaining the infrastructure needed to handle complex trading strategies, as well as extensive regulatory and reporting demands.”
The Citi Prime Finance Hedge Fund 3.0 model proposes to help fund managers control the ratio of support staff to investment professionals, reduce the cost of the internal employees and remove the need for an extensive infrastructure and IT support function.
3.0 includes:
Business process outsourcing for middle-Office, collateral management, cash & treasury, and reference data management functions
Specialist HR and benefits brokers, including professional employee outsourcing (PEO) options.
Off-premise IT services, often leveraging cloud technologies
“While the Hedge Fund 3.0 model will benefit firms that are about to launch or are in the early stages of their development, the model is also useful for funds with established infrastructure and resources,” Sandy Kaul, US Head of Business Advisory at Citi, said. “Over time, many funds will move to a hybrid approach that combines in-house and outsourced resources.”
New York (HedgeCo.net) – Citi Prime Finance has released the new survey results on how much hedge funds’ are spending on IT. The survey documents for the first time both the industry’s aggregate expenditure on IT and the average expenditure per hedge fund.
Hedge funds will spend over $2 billion on technology in 2011, with investments in data management platforms and collateral optimisation tools accounting for a significant share of overall expenditure, according to the survey.
Large funds managing $5 billion or more are expected to spend an average of $7.9 million on technology in 2011, more than 13 times the amount forecast for small funds with AUM less than $500 million. Large managers also charge 20%-30% of their technology costs to the fund, while small funds charge nearly the entire IT expense to the management company.
The survey findings also include:
· Bigger “franchise” funds (more than $5 billion AUM) have some IT cost advantages, and better ability to pass on costs, than smaller funds
· More funds are adapting unified data management solutions to consolidate data on risk, accounting, trading, finance and other elements into a single platform.
· Hedge funds are changing their approach to investing in new information technologies, often opting build in-house IT capabilities rather than relying on outside vendors.
· Technology innovations are helping launch new hedge funds, and helping existing hedge funds launch new funds more quickly.
Citi found that 49% of sub-$500 million hedge funds launched in the last five years currently use managed service providers. Only 39% of these small hedge funds host their own infrastructure. Of the large funds that have been in existence for more than five years, only 24% source their technology from managed service providers or hosted vendors.
The findings are based on responses from 75 hedge funds and 15 vendors in the US and Europe that participated in the 2011 Citi Prime Finance IT Trends & Benchmark Survey.
New York (HedgeCo.net) – Hedge fund manager Philip Falcone’s new satellite internet venture, LightSquared, is seeing resistance from the European Space Agency.
The hedge funded project last month outlined a solution to the problem of interference with US GPS receivers, planning for the the co-existence of a variety of wireless broadband services alongside current GPS and space technologies.
“(The) plan offers a clear path for LightSquared to move forward with the launch of a nationwide wireless network that will introduce world class broadband service to rural and underserved areas which still find themselves on the wrong side of the digital divide,’’ said Sanjiv Ahuja, LightSquared Chairman and CEO.
In a move that would revolutionize the U.S. wireless industry, LightSquared would deploy an open 4G network to be used by existing and new service providers to sell their own devices, applications, and services – at a competitive cost and without retail competition from LightSquared. The deployment and operation of LightSquared’s network represent more than $14 billion of private investment over the next eight years.
A group of 30+ tech companies have filed a petition to the FCC in support of LightSquared.
“It is imperative, and in the vital interest of the country, that the FCC create an environment where LightSquared and GPS can co-exist. Indeed, crafting such a solution is consistent with the charter of the FCC, who defines its mission as promoting competition, innovation, and investment in broadband services and encouraging the highest and best use of spectrum. The U.S. has successfully integrated different technologies before, and it can and must do so again,” the open letter to the FCC said.
New York (HedgeCo.net) – Motif Investing today emerged from stealth mode, announcing an October 2010 close of $6 million in Series A funding led by hedge funds Norwest Venture Partners (NVP) and Foundation Capital and new board members.
Founded by a former Microsoft executive and an experienced hedge fund analyst, Motif Investing is a platform for customers to turn ideas into investments. Set to launch in fall 2011, Motif is now accepting beta users.
“For the past few years I’ve been searching for innovative companies that can successfully create new opportunities in the retail investment market. The meltdown of 2008 left consumers weary of financial markets and it was clear that change was needed,” said Sergio Monsalve, Norwest Venture Partners (NVP) and Motif Investing board member. “When I found Motif, I was excited about the team’s approach to bringing a new investment platform to consumers who are looking for simple and exciting investment alternatives that provide more customer control at low costs. It was a logical and exciting early investment for us.”
“We aim to fill a desire by investors to invest in what they believe in versus what the financial industry sells. We believe ideas not only move the world, but they also make the best investments,” said Hardeep Walia, co-Founder and CEO of Motif Investing. “Our platform will dramatically shift the economics of retail investing and we’re working closely with our seasoned team to bring this exciting platform to investors this fall.”
New York (HedgeCo.net) – Global application software and services company Misys plc., today has won the leading single technology platform award at the Hedge Fund Journal Awards.
Misys Sophis VALUE was recognised by the publication for its complete cross-asset coverage integrated into a single front-to-back solution.
“We are very proud to win this award and to be recognised for the products that we provide to the hedge fund industry,” said Pascal Xatart, EVP and CEO, Misys Sophis. “2010 was a great year for our company, with six new European hedge fund customers selecting our products among 21 new buy-side customers worldwide. And with the recent launch of the latest version of VALUE, version 4.1, we look forward to a successful 2011 and to continuing to improve on the products we offer to the buy-side industry.”
The winners are chosen by a select group from The Hedge Fund Journal and Misys Sophis VALUE was chosen as the winner in the Leading Single Technology Platform (Portfolio, Trading and Risk Management) category because of its strength at delivering a cross-asset single technology platform that covers the portfolio, trading and risk management disciplines.
New York (HedgeCo.net) – Axiom Valuation has released a new platform for hedge funds to avoid the SEC’s new screening tool, Aberrational Performance Inquiry (API), which identifies possible fraudulent valuations and misreported returns by hedge fund managers reporting above benchmark returns.
