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 Times – Hedge funds are facing many agonies. They are tortured by redemptions. Then there are “high water marks,” another now-troublesome part of their model. They need to fix such flaws if they are to fight another day.
The list of funds blocking investors from withdrawing their money is growing daily. Tudor Investment, the Fortress Investment Group and dozens of others have done so, at least temporarily. The rationale is to protect the fund’s remaining investors, who can be harmed if the fund needs to deplete its cash balance or sell assets at fire-sale prices.
New York Times – Some of the nation’s universities are trying to sell chunks of their portfolios privately as their endowments swoon with the markets.
Among institutional investors, school endowments aggressively embraced private equity, real estate partnerships, venture capital, commodities, hedge funds and other so-called alternative investments over the last few years. Endowments with more than $1 billion in assets reported 35 percent of their holdings in these types of investments on average last year, a much greater portion than big public pension funds, for example.
New York Times Blogs – Duff Capital Advisors has recently laid off dozens of its employees and is holding off on its plans to raise as much as $1.5 billion just eight months after the hedge fund firm began business, according to people briefed on the actions.
The Greenwich, Conn.-based firm was started in March by Philip N. Duff, a former chief financial officer of Morgan Stanley, with $500 million of capital from the New York private equity firm Lindsay Goldberg. At the time, Duff Capital said then that it was in discussions with several financial institutions to provide seed money for its investment strategies, beginning in the past spring.
While the firm is still in discussions with clients and some potential investors, it has failed to find any new capital so far.
New York Times – Several leading hedge fund managers told Congress on Thursday they support some new regulation of hedge funds and the complex derivative securities that are partly blamed for the global financial crisis.
But they advocated only the lightest supervision of their industry, and said they would be willing to disclose their secretive trading activities to regulators only with a guarantee the information would not be released to the public. One executive claimed that requiring hedge funds to publicly disclose their proprietary trading strategies would be like requiring Coca-Cola Co. to reveal to competitors its proprietary recipe for Coke.
"Proper regulation is critical, but the best regulation is created with an eye toward unleashing opportunities, not limiting possibilities," said Citadel Investment Group Chief Executive Officer Kenneth C. Griffin. "We must solve the serious issues we face but in a way that does not stifle the best innovative qualities of our financial markets."
New York Times Blogs – After pouring money into Barack Obama’s campaign, what can hedge funds and their executives expect from the new president?
If history is any exmaple, says FINAlternatives, they shouldn’t expect a cuddly relationship.
Mr. Obama didn’t appear sympathetic to the industry on the campaign trail, the publication noted, calling John McCain the candidate of “Joe the Hedge Fund Manager,” a riff on McCain’s pledge to serve the “Joe the Plumbers” of the U.S.
And during his time in the Senate, FINAlternatives noted, Mr. Obama sponsored a bill that would have required hedge fund managers to set up anti-money laundering programs supervised by the Treasury Department. (The Treasury abandoned a similar proposal last week).
The president-elect has also backed tax proposals that increase the burden on hedge funds and private equity shops, the publication said.
New York (HedgeCo.Net) – In an ironic turning of the tables, divorce lawyer Raoul Felder has lost $200,000 at the hands of a hedge fund, or so he says.
According to the New York Times, the “Duke of Divorce,” is accusing AllianceBernstein of placing his money into a risky hedge fund in order to collect higher fees and commissions for the firm.
According to Felder, he had given the investment firm simple instructions as to what to do with his $750,000. Instead, the firm placed the money into the riskier fund out of sheer “greed and self-interest.”
“It’s like the owner of a restaurant who tells his waiters to push the chopped liver,” Felder said.
The New York City-based AllianceBernstein manages over $590 billion of capital and is a subsidiary of French insurance company AXA.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
New York (HedgeCo.Net) – Activist hedge fund Harbinger Capital might be looking to make some strategic changes to another management team. They are expected to hold talks with Leap Wireless International, in which they hold a substantial 14.8 percent stake or just over 10 million shares. The hedge fund is looking to discuss both short-term and long-term management solutions while figuring out the best way to maximize shareholder returns.
“We respect and welcome the views and opinions of all Leap stockholders, said Leap spokesman Greg Lund while avoiding any specifics. “We look forward to continuing the open and productive dialogue we’ve had and expect to have with all of our stockholders.”
Harbinger is no stranger for pushing for internal change within companies in which they invest. By acquiring board seats, the hedge fund gets a say in major decisions while giving them more control over the company. Harbinger won three seats on the board of Media General and two seats on the board of the New York Times after a nasty near proxy battle.
Shares of Leap closed at $27.90 yesterday and have fallen over 60 percent in the course of a year.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
New York Times – Back when he was vice president, Dan Quayle noted that: “People that are really very weird can get into sensitive positions and have tremendous impact on history.”
He was right, as the Germans know, even if his own impact was limited by the fact the president he was understudying for stayed alive.
Quayle’s words came back to me because, like a lot Americans, I’ve come down with Palinitis: the acute fear that Sarah Palin might get into one of those “sensitive positions.”
New York Times – Kenneth C. Griffin was one of those Wall Street whiz kids. As a teenager, he traded out of his dorm room at Harvard. In his 20s, he opened his own hedge fund. In his 30s, he boasted that his company might one day rival Goldman Sachs.
But it can be tough for a boy wonder to grow up — particularly in the midst of the gravest financial crisis since the Depression. A week before his 40th birthday, Mr. Griffin finds himself in an unaccustomed position: on the defensive.
The Citadel Group of Chicago, the giant hedge fund that Mr. Griffin has run so successfully for nearly 20 years, is leaking money. As of Sept. 30, its two main investment funds were down 20 percent this year, according to Citadel investors. Most of the losses came in the last few weeks, when the markets swooned. Two other smaller Citadel funds are still well in the black.
New York Times – Hedge funds’ annus horribilis is getting worse. The average fund, after losing nearly 5 percent in the first eight months of the year, was down an additional 7 percent in September, according to Hedge Fund Research. Many other factors are making life difficult for fund managers, too. An industry shakeout looks inevitable.
At the end of last month, many funds were expecting more than the usual level of requests from jittery investors to pull cash out. It’s hard to plan longer-term trades if your investment funds might suddenly be snatched away. And a flood of redemptions can force the sale of assets, hurting remaining investors — one reason that fund managers sometimes block withdrawals.
On top of that, hedge funds used to bolster returns with lots of borrowed money. Now that has become a scarce commodity. The ability to bet on price declines has also suffered, thanks to partial or complete bans on selling stocks short in markets around the world.
New York Times Blogs – Turns out hedge funds will not have to publicly disclose their secret strategies after all, at least not any time soon.
The reprieve for the industry came late Wednesday. The Securities and Exchange Commission quietly said it would relent on an emergency order, first issued Sept. 19, that would have required hedge funds to publicly disclose vast amounts of detail on their short positions, which are the bets they make against individual stocks.
Hedge fund managers and their lobbyists in Washington immediately attacked the order, saying it amounted to making the Coca-Cola Company disclose its top-secret formula.
Many hedge funds would simply cease to operate, the argument went. Others would go to great lengths to avoid the rule, including by setting up offshore affiliates and conducting trades through complex swap agreements.
New York Times – For some hedge funds, Lehman Brothers has become the Roach Motel of Wall Street: They checked in, but they can’t check out.
Two weeks after Lehman spiraled into bankruptcy, hedge funds that did business with the Wall Street bank are still fighting to get their money out of the firm. For some, it has become a life-or-death struggle.
Big funds like GLG, Harbinger, Amber Capital and Elliott Associates have varying degrees of exposure to Lehman Brothers.
But even a $6.2 million fund run by students at the Darden School of Business at the University of Virginia has been caught up in the bankruptcy. The fund, like its larger counterparts, used Lehman as a prime broker, and no longer has access to its money.
