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) – It doesn’t help matters when a company, who is at the forefront of a government bailout, is expected to provide rescue to another faltering company. But that’s exactly what General Motors has found themselves in the middle of, as Delphi is again turning to their former parent company for assistance.
GM is in talks to buy back some parts of the Troy, Michigan-based auto parts supplier, including some unprofitable plants. While this may help Delphi achieve the exit refinancing that they need to emerge from Chapter 11, it certainly doesn’t make things easy on GM, who is already set to receive over $13 billion in government aid. However, some believe that Delphi’s dependence could help GM’s case in requesting more federal funds.
Since Delphi filed for bankruptcy protection in October 2005, they have faced a string of disappointments in trying to secure the needed capital. A $6.1 billion refinancing plan, led by hedge fund Appaloosa Management, was supposed to provide the influx of capital. GM had also promised a $2 billion chunk of the puzzle to ensure Delphi met the minimum requirements. When the hedge fund backed out of the deal at the last minute, Delphi was left without an alternative.
GM has agreed to advance up to $100 million this month to Delphi, to keep the company running for the next few months. Delphi has until Feb 27th to restructure its exit plan, including an amended budget with payouts to creditors and how they plan on becoming profitable following the exit of Chapter 11 protection. They have also requested that the U.S. Bankruptcy Court allow them to halt their retiree medical benefits.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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New York (HedgeCo.Net) – Financial institutions that have received generous assistance from Congress may be forced to restrict executive compensation and their dividends, if Barack Obama and his new Treasury have their way.
“Those receiving exceptional assistance will be subject to tough but sensible conditions that limit executive compensation until taxpayer money is paid back,” said Larry Summers, who Obama chose to head the White House National Economic Council. He also said they would ban dividend payments beyond the minimum amounts while putting limits on stock buybacks.
Obama has expressed his disappointment with the current administration and the lax oversight in doling out the first $350 billion of the bailout, along with failing to focus on areas like housing and consumer credit. Summers tackled the subject in a letter to Congress yesterday that outlined the issues Obama supports in distributing the other half of the $700 billion Troubled Asset Relief Program.
Summers told Congress that the President-elect believes there has been “too little transparency and accountability,” among the financial institutions. In addition, Obama believes the executives acted irresponsibly and did not provide enough support for small-businesses owners. Small businesses and community banks are where more of the money needs to be directed, Obama says.
In addition, he wants to provide help to struggling homeowners in order to avoid foreclosure, along with providing enhanced oversight of the relief program which includes public accounting to see how the money is being spent.
The House of Representatives will vote on a proposal this week that include some of the restrictions outlined by Summers.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
New York (HedgeCo.Net) – The glitz and glamour that is usually indigenous to one of the world’s most prestigious car shows will be somewhat absent this year, as the U.S. auto makers instead will focus on what’s to come at the annual Detroit Auto Show.
Chrysler, who was granted a $4 billion bailout by Uncle Sam, announced they would unveil 24 new models over the next four years while denying rumors of a sale.
“No one should read what we’re doing as if we are trying to position the company for sale,” said Chrysler CEO Robert Nardelli. “Hibernation would be the furthest thing from the truth.”
Private equity firm Cerberus Capital Management purchased over 80 percent of Chrysler from Daimler AG in August 2007, although Daimler has said that their demands had surpassed their original $7.2 billion investment.
Consumers should expect three or four brand new or revamped models in 2009. All 30 of Chrysler’s plants have halted production until at least January 19th, so dealers can get rid of current inventory first.
The Detroit Auto Show, formally called the 2009 North American International Auto Show, will see a plethora of new models and ideas. All in all, there will be 57 new car debuts, with 14 coming from North America.
GM is no exception. After almost sinking in the wake of its troubles, GM will be forced to come up with new concepts and ideas that lean more towards fuel efficiency. Such as the Cadillac Converi concept car, introduced this past weekend, which would run for about 40 miles on just electric power before needing a charge or switching over to its gas-assist engine.
The Detroit Auto Show runs from January 17 – January 25.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
MSNBC – Nonprofits that are struggling because their donors lost money with Bernard Madoff are getting a bailout — but not from the government. Richer foundations are stepping in to help.
Human Rights Watch, The Center for Constitutional Rights and others are already slated to receive more than $1 million in help from philanthropies and donors who share their interests.
New York (HedgeCo.Net) – Stephen Feinberg’s Cerberus Capital Management has followed in the footsteps of many faltering hedge funds this year, limiting client redemptions in one of its funds after investors moved to withdrawal 16.5 percent of their capital, according to a recent letter to investors.
The Cerberus Partners Fund is down 16 percent this year through the end of November. Cerberus said they would honor about 20 percent of the redemption requests, while others might have to wait a year to pull out their cash. However, they are planning on waiving 60 percent of the incentive fee for a year after the losses are made up for any money that is still in the fund as of December 31.
“This is a very hard decision for us, and the realization that taking these steps is now necessary is deeply disappointing,” said the letter.
Cerberus agreed to give its stake in Chrysler to creditors and employees as per an agreement with Uncle Sam for the auto manufacturer to receive a loan. Its ties with the U.S. auto industry, however, don’t end there. They also invest in GMAC, the financing sector of GMC. Both GMC and Chrysler have taken a beating this year, more so than any other American car maker, prompting them to seek a $15 billion bailout from the government.
Cerberus isn’t the only hedge fund choosing to halt redemptions this year. Around 80 reputable firms including Harbinger, Citadel, RAB and Blue Mountain have chosen to freeze funds in an effort to stave off withdrawals fueled by fear in a sour economy.
Fortunately, Cerberus has confirmed that none of their funds are directly or indirectly invested with Bernard Madoff, the Ponzi-schemer who is responsible for bilking $50 billion out of investors.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
International Herald Tribune – Hedge funds have suffered a shakeout in 2008. The average hedge fund fell almost 20 percent, according to Hedge Fund Research. No fund has yet required a bailout. But many won’t be around in the new year, and those that have survived are battered and bruised. Hedge fund managers must accept that the industry won’t be quite the same again.
Here are six changes they need to prepare for:
Liquidity is the new watchword. Like investment banks, hedge funds didn’t think much about the structure of their financing during the boom times. But a flood of redemption requests in late 2008, just as they were struggling with illiquid markets and scarce credit, caught them out. Many hedge funds annoyed their investors by blocking withdrawals. In the future, funds that invest in illiquid assets will need to lock in their investors longer. And those wishing to give investors regular access to their money will have to focus on liquid markets.
New York Times – Hedge funds have suffered a shakeout in 2008. The average hedge fund fell almost 20 percent, according to Hedge Fund Research. No fund has yet required a bailout. But many won’t be around in the new year, and those that have survived are battered and bruised. Hedge fund managers must accept that the industry won’t be quite the same again. Here are six changes they need to prepare for:
Liquidity is the new watchword. Like investment banks, hedge funds didn’t think much about the structure of their financing during the boom times. But a flood of redemption requests in late 2008, just as they were struggling with illiquid markets and scarce credit, caught them out. Many hedge funds annoyed their investors by blocking withdrawals. In the future, funds that invest in illiquid assets will need to lock in their investors for longer. And those wishing to give investors regular access to their money will have to focus on liquid markets.
Fees will face greater scrutiny. The archetypal hedge fund charges 2 percent of assets and skims off 20 percent of investment gains, the longstanding “2-and-20” structure. But some funds have had to offer breaks on fees lately to persuade investors not to take their money out. Investors will be more selective and are likely to put downward pressure on fees. All the same, it is probably too soon to sound a Last Post bugle call for 2 and 20.
Wall Street Journal – In 2006, Lawrence Summers resigned as president of Harvard University and took a position as a part-time managing director with D.E. Shaw Group, a New York hedge fund with a reputation as one of the most secretive trading outfits in the world.
D.E. Shaw is known for using sophisticated computer-based quantitative strategies to make money on fleeting movements in the stock and bond markets. The fund has been a top performer, returning 15% to 20% a year over the long term, and in two decades has grown into a global powerhouse. But like many funds, it has taken hits in the credit crisis.
