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.
guardian.co.uk – Hedge fund investors may face an expensive tug-of-war with managers, according to a new research paper that suggests they could lose as much as 15 percent of their initial investments should they be unable to exit when they want.
Hedge fund investors have rarely been allowed to pull their cash out immediately, but now they are sometimes being told that they may not be able to pull it out at all as the industry faces its worst-ever returns.
Dozens of prominent hedge funds, including Fortress Investment Group LLC and Tudor Investment Corp, have recently restricted redemptions in some of their portfolios.
This trend is not only aggravating but also extremely pricey, Nicolas Bollen, a professor at Vanderbilt University’s Owen Graduate School of Management, said in an interview.
guardian.co.uk – Bolder hedge funds are looking to snap up convertible bonds at bargain prices, returning to an asset class that became a no-go area for them only a short while ago.
The convertible bond market has tumbled 44.5 percent since September, as hedge funds facing a wave of client redemptions paid back bank debt. Many said convertible arbitrage strategies were a thing of the past.
But yields are now reaching all-time highs and are starting to attract the first daring hedge funds back to the investment arena they traditionally dominated.
"You can buy a convertible right now on a 25 percent discount to the same bond issued by the same company," Emmanuel Roman of GLG Partners, one of Europe’s biggest hedge funds, told a recent conference.
"You get a 25 percent discount plus a call option. That doesn’t make any sense," he said.
Guardian.co.uk – Hedge funds and banks are expected to bear the brunt of derivative losses estimated at $15bn (£9.4bn) linked to the collapse of Iceland’s three major banks – Landsbanki, Glitnir and Kaupthing – which failed in rapid succession last month.
The complex unwinding of trades linked to debt issued by the banks began yesterday with a settlement auction to determine the payout price on credit default swap (CDS) contracts – insurance taken out against the risk of debts going bad – for Landsbanki.
Payouts on all three banks are expected to be some of the largest ever seen in the $54.6tn CDS market – greater than those relating to Lehman Brothers, whose collapse triggered the meltdown of the global financial system.
The high settlement prices for Icelandic bank CDSs will be a blow to hedge funds, banks and other derivative traders who insured the debt.
Guardian.co.uk – Housebuilder Taylor Wimpey has slipped more than 8% on news that Toscafund, the hedge fund run by former bank analyst Martin Hughes, has sold a chunk of shares in the business.
Tosca, which is said to have lost about £300m in the collapse of US bank Washington Mutual, held a 10.2% stake in Taylor Wimpey. But in an official filing just out, Tosca has now reduced that to below the 3% disclosable threshold.
Taylor Wimpey is down 1.75p at 19p, but rival Redrow, where Tosca had a 27% stake, has climbed 6.75p to 163p. On Friday, Redrow said Bridgemere Securities had bought 14.4m shares to take its stake to 16.24%. Traders wondered whether some of these shares might have come from Tosca.
Bridgemere is a fund set up by the Redrow founder, Stephen Morgan, and the purchase has prompted talk of a possible takeover of Redrow.
Guardian.co.uk – MEPs will call tomorrow for EU legislation to force private equity groups and hedge funds to disclose unprecedented amounts of information about their activities.
The demand for tougher regulation comes as private equity groups are warning that the enduring credit crunch will reduce new money inflows into their funds by up to 30% over the next two years, and mirrors a call from the UK’s largest trade union, Unite, for hedge funds to be forced to demonstrate that their investment strategies are not perpetuating the current market turmoil.
The union, which has put forward an emergency motion to the Labour party conference on the Lloyds TSB takeover of HBOS, is demanding that hedge funds be more transparent, give greater disclosure and must be subject to risk management.
Guardian.co.uk – Four large hedge funds, all shareholders of Huntsman Corp, have proposed a plan to salvage a $6.5 billion buyout of the chemical company by a unit of Apollo Global Management.
But Apollo’s Hexion Specialty Chemicals unit late Thursday rejected the plan, saying Huntsman’s increased debt and decreased earnings since the deal was struck in July 2007 would no longer make a combined company solvent.
"We are not seeking to renegotiate this transaction," Hexion responded in a statement. "We are seeking to terminate it, and obtain judicial confirmation that Hexion has no obligation to pursue the acquisition or to pay Huntsman a termination fee."
Apollo’s Hexion has been locked in a legal battle to try to get out of the $28-per-share deal, reached last year at the height of the leveraged-buyout boom. Since then, the credit markets have seized up, making the math behind the deals no longer attractive. In June, Hexion filed suit against Huntsman seeking to limit its liability in the event that the deal falls apart.
Guardian Unlimited – Hedge funds are buying into power supplier Scottish & Southern Energy in hopes of a bid for the company, currently valued at over £12bn.
The latest fund to have bought shares is Centaurus, headed by Frenchman Bernard Oppetit, who is understood to have made millions via a recent investment in British Energy.
It caused a splash in the UK in 2006 when it blocked a bid for engineering company Amec from private equity group Texas Pacific on the grounds that it was too low.
Centaurus has been joined at SSE by other hedge funds such as Lansdowne, GLG and Odey Asset Management.
Oppetit is known in the City as a canny investor and has built up Centaurus into a £5bn fund after leaving BNP Paribas, where he was head of proprietary trading. On its website, Centaurus says: ‘We develop a close and constructive ongoing dialogue with the executives of the companies that we invest in, and focus on achieving an in-depth fundamental understanding of their businesses.’
Guardian.co.uk – Hedge funds are known for playing many roles on Wall Street, but last-resort lender to small businesses that are turned down by banks is hardly one of them.
Yet with the credit crunch pushing many major U.S. banks to set tougher lending standards for small and medium-sized businesses, hedge funds have stepped in.
The money isn’t cheap, with interest rates of 14 percent or more. But small businesses have few places to turn.
"A major void has been created in the marketplace by banks tightening their credit standards and trying to stabilize their balance sheets," said David Grin, co-founder of Laurus-Valens, a hedge fund with around $1.7 billion under management. "From the investment point of view, this is as good as it gets."
Laurus-Valens provides loans to public and private companies with average revenues of $30 to $50 million. The fund charges interest rates of about 10 percent to 11 percent, and takes equity stakes in the companies.
Guardian.co.uk- Funds of hedge fund managers are looking to global macro funds to try and steer clear of the mess thrown up by the credit crisis while cautiously dipping their toes in a small pool of more risky assets, a Reuters poll found.
Stormy markets have torn through the hedge fund market this year, forcing many to shut up shop and others to tumble, but most have still managed to keep well ahead of the severe double digit losses suffered by global stock markets in the first half of the year.
The quarterly survey of 13 managers which invest in a basket of hedge funds and manage a total of around $150 billion in assets showed global macro funds leading the way through 2008 as they tend to benefit from periods of high volatility.
Reuters- Beleaguered Swiss bank UBS is considering the sale of Paine Webber, the heart of its U.S. wealth management business, according to sources with direct knowledge of the matter.
UBS is under pressure from the Swiss financial watchdog and from one of its top shareholders, Olivant, to overhaul its business after more than $37 billion (18 billion pounds) in writedowns during the credit turmoil.
The bank’s management, led by Chief Executive Marcel Rohner, is also grappling with the U.S. trial of a former employee for helping a billionaire client hide $200 million.
Guardian.co.uk- Foreign sovereign wealth investors are targeting London’s hedge fund industry as they seek to boost returns on their vast savings, much of it generated from trade with the west in oil and other commodities.
The hedge funds have seen billions of pounds pour into their investment plans at a time when the industry desperately needs cash to replace debt funding that collapsed during the credit crunch.
According to a survey by the magazine Hedge Fund Manager Week, the rapidly expanding group known as fund of hedge funds are the main beneficiary of investments from sovereign wealth funds. Assets in fund of hedge funds, which spread their investments across a range of individual projects, have grown 10% in the last six months to £700bn.
Fortis Prime Fund Solutions topped the table of funds, with assets under administration of £107bn. Total industry assets have reached £2.2tn, according to the magazine’s annual Hedge Fund Assets Under Administration survey.
