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.
Examiner.com – David Kotz, Securities and Exchange Commission Inspector General, told the U.S. House Committee on Financial Services last week he was determined to learn "the reasons for the SEC’s apparent failure to act" on repeated warnings about Bernard Madoff’s massive $50 billion Wall Street swindle.
The SEC had first been warned about Madoff in 1999 and again in greater detail in 2005 by Harry Markopolos, a Boston accountant and securities consultant. Markopolos noted several dozen "red flags" in a 19-page memorandum he prepared for the SEC that should have triggered agency interest in Madoff’s ponzi scheme.
Markopolos, a former U.S. Army Special Operations commander who led clandestine teams in Europe and Africa in the mid-1990’s, had made it easy for SEC officials by titling his 2005 report The World’s Largest Hedge Fund is a Fraud.
West Palm Beach (HedgeCo.net) – Hedge fund Trian Partners said that they will buy about 49.4 million shares of fast-food operator Wendy’s/Arby’s Group for $4.15 per share, or about $205 million.
The hedge fund and their affiliates now own about 21.6% of Wendy’s/Arby’s, or 52.1 million shares, up from its previous 11.1% stake. In November, Trian Fund Management L.P., led by billionaire investor Nelson Peltz, Peter W. May and Edward P. Garden, said it would buy shares of the fast-food restaurant business for about $4.15 per share.
The deal was subject to certain conditions, including that there would not be a decline of more than 10% in the Dow Jones Industrial average or the S&P 500 index after Nov. 5. Another condition was that Wendy’s/Arby’s shares would not lose 10% of their value.
Triarc Cos. Inc., which operates Arby’s and was run by billionaire investor Nelson Peltz, bought Wendy’s in a deal that closed in September.
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Bloomberg – Och-Ziff Capital Management Group LLC, the New York-based hedge-fund manager that went public last year, eliminated at least 10 jobs in Asia, including partner Raaj Shah, said two people familiar with the matter.
The cuts made last week, out of a global workforce of about 460, included employees in the firm’s credit and distressed- investment units, said the people, who asked not to be identified because the information wasn’t publicly announced.
“We have made some minor reductions in Asia, and we remain committed to the region,” the company said today in an e-mailed statement. Hong Kong-based Shah referred calls to the company.
Citadel Investment Group LLC, the Chicago-based firm run by Kenneth Griffin, and New York-based Ramius LLC have also laid off staff in Asia as hedge funds suffer their biggest annual loss and highest investor withdrawals since at least 1990. The HFRX Global Hedge Fund Index declined 23 percent this year through Dec. 5 amid a global credit squeeze and a more than 40 percent decline in the MSCI World Index.
Seeking Alpha – A report making the rounds today detailed managers’ Form 13-F filings. This report shows what managers own. Their holdings of U.S. stocks by and large plummeted. The decline in the size of the positions could be from market share losses or the sale of a position, or most likely, both.
Atticus Capital reduced its holdings from $8.1 billion to $510 million. Tudor Investment from $5.7 billion to $453 million. SAC Capital Advisors said its holdings of U.S.-based stocks (and options and converts) were $7.7 billion vs. $14.4 billion last quarter. Moore Capital said the "value of its 13-F securities fell 69% to $1.4 billion." And on and on.
Bloomberg – Hedge-fund assets may fall to about $1 trillion by the middle of next year, a decline of almost 50 percent from their peak in June, because of market losses and client withdrawals, Citigroup Inc. said in a report.
Managers are likely to see investors, led by funds of funds, pull 20 percent of their money, Tobias Levkovich, an analyst at the New York-based bank, wrote yesterday. Funds of funds are middlemen who select hedge funds for their clients.
“The so-called `Swiss hot money’ wants out and funds are responding,” Levkovich wrote, referring to Swiss investors who have a shorter investing period than pension funds. “Citi’s credit analysts estimate that hedge funds have raised cash to roughly 40% of assets already in anticipation of known redemptions and possibly unanticipated demands from investors.”
Hedge funds lost an average of 16 percent this year through October, according to data compiled by Hedge Fund Research Inc., as stock and commodity markets tumbled and lending tightened. The industry has lost money in only one year — a 1.45 percent decline in 2002 — since the Chicago-based firm began tracking returns in 1990.
Globe and Mail – Canadian hedge funds posted a brutal 11.2 per cent decline in September, losses that are likely to leave many investors questioning this expensive alternative asset strategy.
The latest installment of the Scotia Capital Canadian Hedge Fund Performance shows these funds outperformed the S&P/TSX composite index last month – it was down 14.7 per cent. But mounting losses on funds sold to investors as market neutral, or absolute return, are going to translate into redemptions.
“September was an extremely challenging month for Canadian hedge fund managers who were largely unable to successfully navigate erratic price movements in stocks and falling energy prices,” said Scotia Capital’s note on the sector’s performance.
“Panic selloffs in an environment driven by fear and uncertainty left major equity markets significantly down at the end of September,” said the investment bank. Obviously, the market swings have become even more violent in October.
BusinessWeek – What did investors do when the Dow Jones industrial average plunged 777.68 points, or 7%, on Sept. 29, to 10,365.45? Head for the nearest bar for a double? Or rush to double up, or down, on their stocks?
Either way, the Dow’s sharp response to the unexpected rejection by the House of Representatives of the Treasury’s buyout plan reminded investors yet again of how unpredictable and volatile the market can be.
"You’ve got to have a steel stomach to confront these types of markets—to survive or win," says William Harnisch, president of hedge fund Peconic Partners, which manages some $1.5 billion in assets. And a winner he’s been at a time when most other hedge funds are struggling to avoid sinking. In 2007, Peconic posted a 64% gain, and this year is up 8% though Sept. 29, vs. a decline of more than 20% for the Standard & Poor’s 500-stock index. So Harnisch wasn’t one of those who scurried to the nearest tavern: He dared to buy stocks as the market plummeted.
Bloomberg – Wolver Hill Japan Multi-Strategy Fund, run by Deutsche Bank AG’s former prime brokerage sales chief in Tokyo, resisted the worst month for the nation’s stocks in almost 15 years to be little changed in September.
The $11 million fund of hedge funds, which invests in 14 hedge funds with a combined $5.8 billion of assets, slipped 1.4 percent in September based on preliminary figures, said Ed Rogers, chief executive officer of Wolver Hill’s local advisory firm, Rogers Investment Advisors Y.K. The Topix index of 1,714 companies tumbled 13 percent.
Foreseeing a decline in equity prices, Wolver Hill made a shift during the past year into hedge funds that use trading- focused strategies, and away from so-called long-short funds that depend on rising and falling stock prices, Rogers said. Trading- focused funds, including so-called event-driven strategies, trade securities of companies going through events such as mergers, acquisitions and management changes.
Telegraph.co.uk – In the biggest-ever round of redemptions, funds around the world are braced to give back between 10pc and 50pc of their assets under management.
Hedge funds were faced with a slew of redemption notices at the start of the quarter, but investors were prepared not to withdraw their money if returns improved, according to one prime broker. He said many would now be forced to close.
None of the strategies used by hedge funds produced a positive return in September. According to the Dow Jones Hedge Fund Indexes , equity market-neutral funds, which often try to manage risk by shorting a stock in one sector and going long on one if its competitors, have fallen 1.85pc this month, while convertible arbitrage securities have dropped 7.96pc and distressed securities by 7.34pc. That compares with a 9pc decline by the FTSE 100. Hedge fund of funds, which are designed to spread risk, are expected to face the biggest redemptions.
Bloomberg – Credit-default swap dealers reduced the volume of outstanding contracts for the first time amid efforts to reduce risks in a market used to hedge against bond losses and speculate on corporate creditworthiness.
The volume of outstanding trades fell to $54.6 trillion from $62 trillion in the first half, the International Swaps and Derivatives Association said in a statement yesterday. It was the first decline since ISDA started surveying traders in 2001.
“This decrease primarily reflects the industry’s efforts to reduce risk by tearing up economically offsetting transactions and demonstrates the industry’s ongoing commitment to reduce risk and enhance operational efficiency,” ISDA Chief Executive Officer Robert Pickel said in the statement. “We expect to see more effects of this over time.”
TMCnet – Several months ago, economist David Hale had a private meeting with Federal Reserve Chairman Ben Bernanke, who was trying to ward off a recession by lowering interest rates and increasing the money supply in the economy.
The problem with that approach is that the value of the dollar plunged against foreign currencies, causing crude oil prices to skyrocket because oil is pegged to the dollar. It affected food prices, gasoline and family budgets.
"Ben, you are playing a very unique role in world economic history," Hale recalled telling Bernanke, an expert in the Great Depression. "You are the first central bank governor of the United States to preside over a recession with no decline in commodity prices."
CNBC – Hedge funds have more control over stock prices than market and business fundamentals, Cramer said yesterday during Wednesday’s show, but now it looks like at least two companies are fighting back.
Yesterday Cramer explained how massive hedge fund selling has been forcing down commodity-related stocks. It’s true that the fall of commodities themselves is partly to blame, but the rate of decline for the sector’s stocks has far outpaced that of oil, natural gas and other resources. So what’s going on? Investors in poorly performing hedge funds are demanding their money back, so the funds are dumping millions of shares into the open market to generate cash.
The trend has been enough to drive both investors in and CEOs of these commodity-related companies crazy. But today Joy Globalcnbc_comboQuoteMove(‘popup_JOYG_ID0EZE15839609′);and CSX pulled a Howard Beale, declaring they’re mad as hell and they’re not going to take it anymore. cnbc_quoteComponent_init_getData(“CSX”,”WSODQ_COMPONENT_CSX_ID0EZBAC15839609″,”WSODQ”,”true”,”ID0EZBAC15839609″,”off”,”false”);
