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BullionVault – The Gold Price fell sharply against a strong US Dollar on Monday morning, falling through what one Asian dealer called "technical and psychological support at $942" to record the lowest Gold Fix so far this month at $937.50 an ounce.
Crude oil sank below $66 per barrel, while base metals and silver lost more than 3%.
Adding to Friday’s 0.7% loss despite news that France and Germany crept out of recession between April and July, world stock markets sank 1.4% early Monday on average – the biggest one-day loss in more than six weeks – after Japan reported 0.9% growth in its second-quarter GDP.
Bloomberg – Tudor Investment Corp., the firm run by Paul Tudor Jones, temporarily suspended redemptions from the $10 billion BVI Global Fund Ltd. as it splits the hedge fund into two, according to a person familiar with the matter.
Tudor is planning to put hard-to-sell investments, mostly corporate bonds and loans from emerging markets, into a new fund called Legacy, said the person, who asked not to be identified because the information is private. BVI Global, which started in 1986, would focus on easier-to-trade stocks, bonds, commodities and currencies.
More than 80 firms have liquidated funds, restricted redemptions or segregated assets following stock-market declines and a credit freeze that started with rising defaults on U.S. subprime mortgages. Emerging-markets securities have fallen as commodity prices plunged and investors shunned riskier assets on concern the global economy is entering a recession. The MSCI Emerging Markets Index has dropped 58 percent this year.
New York (HedgeCo.Net) – Two hedge funds run by famed portfolio manager Jeffrey Gendell are being closed because of heavy losses suffered this year. Both Tontine Partners LP and Tontine Capital Partners LP are liquidating assets, although no time table has been given.
The Greenwich-based Tontine Associates, which manages over $11 billion through their four hedge funds, reached their decision after the two funds lost more than two-thirds of their value this year. Tontine Partners was down 65 percent for the year through September September 30th, while Tontine Capital Partners plunged over 75 percent.
“The combination of falling commodity prices, massive anticipated hedge-fund redemptions and the seizing up of the credit markets caused an enormous dislocation in our portfolios,” Gendell told clients last month.
The hedge funds will be liquidated in an orderly fashion, in order to maximize shareholder returns.
Tontine Associates will continue to offer two other hedge funds; the Tontine Financial Partners LP and the Tontine-25 Fund, both run by Gendell. Before the recent credit crisis, all of the firm’s hedge funds were posting admirable returns of almost 40 percent annually since inception.
Hedge funds as a whole have not been faring too well as of late, with research by Hedge Fund Index showing losses of over 15 percent overall this year. The Tontine hedge funds are just the latest in a string of closures stemming from massive hits. Big names like Drake Management, Highland Capital and Ospraie have all closed funds this year.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
West Palm Beach (HedgeCo.net) – The Morningstar 1000 Hedge Fund Index lost 3.12% in August, significantly underperforming U.S. and global equity and bond markets.
August, like July, was characterized by a large drop in emerging markets and commodities. "Even though commodity prices have started to descend, their lofty valuations slowed growth and demand, especially in emerging markets,” said Morningstar Hedge Fund Analyst Nadia Van Dalen. "It was only a matter of time before hedge funds riding these waves crashed."
The Morningstar Emerging Markets Hedge Fund Index lost 7.13% in August while the Global Trend Hedge Fund Index, which profited from a previous upward trend in commodities, lost 5.35%. Both of these indexes experienced similar losses in July. Through July however, these funds continued to receive the largest inflows of assets this year, approximately $10.9 billion.
Unlike emerging market hedge funds, U.S. equity hedge funds fared relatively well. The Morningstar US Equity Hedge Fund Index earned 0.47% in August. Even though these hedge funds performed better than those in other equity categories, they still underperformed the markets—the S&P 500 Index gained 1.45% in August. Similarly, the Morningstar US Small Cap Equity Hedge Fund Index lost 2.81% while the Russell 2000 Index gained 3.61%
The U.S. equity markets were propped up for most of the month by the rising dollar and weakening Euro. Morningstar calculates its hedge fund indexes by converting hedge fund returns into U.S. dollars using the spot rate at the end of the month. This methodology does not hedge U.S. dollar exposure, and reflects the negative impact of Euro-denominated funds.
Along with the Euro, European equity markets dropped in August, reacting to weak economic data. The Morningstar Europe Equity Hedge Fund Index dropped 3.33%. Year to date through July 31, funds in this index have seen the largest outflows, approximately $9.6 billion. Despite the appreciation of the Yen, developed Asian equity markets followed that of emerging markets in general. The Morningstar Developed Asia Equity Hedge Fund Index lost 3.10%. Currency traders on the right side of the dollar, Yen, and Euro trades helped to cushion the blow for the Global Non-trend Hedge Fund Index, which lost 1.63%.
Global bonds, as measured by the Lehman Global Aggregate index ended the month in the red, and the Morningstar Global Debt Hedge Fund Index and the Morningstar Debt Arbitrage Hedge Fund Index both experienced losses of 3.64% and 1.33%, respectively. During the month, credit spreads widened amid financial distress at Fannie Mae and Freddie Mac, hurting funds in these indexes. Volatility in the credit markets also affected funds in the Morningstar Convertible Arbitrage Hedge Fund Index, which lost 1.08%.
Distressed securities funds and corporate event funds continued to wait for a market turn around. The Morningstar Distressed Securities Hedge Fund Index and Corporate Actions Hedge Fund Index dropped 1.28% and 2.34%, respectively. Multi-strategy funds outperformed hedge funds of funds. These indexes fell 2.40% and 3.99%, respectively. Read Complete Article
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."
Reuters Dubai – Gas exporter Qatar and Vietnam have set up a $1 billion fund (56 million pounds) to invest in sectors including agriculture, a Qatar-based newspaper reported on Tuesday.
Qatari sovereign wealth fund, the Qatar Investment Authority QIA.L, will provide 90 percent of the fund’s equity, Gulf Times reported, citing Phung The Long, Vietnam’s Ambassador to Doha.
"We have exchange ideas about setting up an animal farm for breeding cattle and lambs," The Long said. "We like to have cooperation in this field. Qatar can provide the finance to grow food grains in our land and these can be exported to Qatar."
Gulf government funds, with windfall income from energy exports, have set up several joint funds, some designed to improve access to food supplies.
The desert states in the world’s top oil-exporting region rely on imports of food — a factor that has stoked inflation to multi-decade highs this year as global commodity prices soared.
Wall Street Journal – Harbinger Capital Partners and Firebrand Investments LLC, the hedge funds that put two representatives on the board of the New York Times Co. this past spring, are again adding to their stake in the media company.
Through share purchases and a series of equity swaps, Harbinger Capital Partners and Firebrand Investments added economic exposure to 1.9 million Times shares in August, according to filings with the Securities and Exchange Commission.
Harbinger and Firebrand increased their Class A stake in the Times to nearly 20% this spring, and shortly after gaining board representation, the funds stopped buying shares. After four months of silence, however, Harbinger disclosed that it is again adding to its stake, mostly through equity swaps.
By entering into the swaps with an unnamed counterparty, Harbinger and Firebrand effectively gained economic exposure to an additional 1.7 million Class A shares. The funds also bought 200,000 shares outright for $13 a share.
Bloomberg – Eurasia Capital Management plans to increase the world’s first Mongolia-focused fund fivefold to $100 million to tap economic growth fueled by the nation’s mining industry.
Eurasia’s hedge funds, which have about $200 million of investments across Central Asia, also expect to sell shares on London’s Alternative Investment Market or Deutsche Boerse AG by next June, said Alisher Djumanov, managing partner of the Singapore-based firm. Proceeds would be used to start private- equity and property funds, and expand in Central Asia, he said.
Mining in Mongolia, which has reserves of coal, copper, gold and uranium, will spur "double-digit” economic growth rates over the next 10 years as commodity prices remain high, Djumanov said in an interview. Mining accounted for about two- thirds of Mongolia’s exports last year, and foreign direct investment in the country rose more than 33 percent.
"The spillover effect from the mining sector will be significant,” Djumanov, 35, said. "We’re investing in companies that are expected to grow significantly on the back of this strong economic growth.”
Eurasia’s Mongolia Discovery Fund rose 12 percent this year, compared with the 16 percent drop in the MSCI World Index. The fund invests in coal mines, water utility as well as oil and gas companies, Djumanov said.
Financial Times – Brian Hunter, the trader who was blamed for the collapse of $9bn hedge fund Amaranth Advisors two years ago, has taken advantage of last month’s plunge in commodity prices to help propel the year-to-date return at the fund he now advises to 230 per cent.
The Peak Ridge Capital Commodities Volatility fund, which Mr Hunter advises, returned 24 per cent in July as commodities prices fell 10 per cent for the month.
The prices were down 19 per cent from their peak on July 3rd – the biggest monthly decline since March 1980, measured by the Reuters-Jefferies CRB Index.
Slumping demand and steadily rising inventories sent the prices for contracts ranging from oil to soyabeans plunging in July, suggesting that the six-year-old commodity bubble may have burst.
Bloomberg – Lone Pine Capital LLC, run by Stephen Mandel, and Traxis Partners LLC are among 56 overseas funds that registered to buy shares in India in July, the most in six months, betting on a recovery in stocks.
Helios Capital Management Pte and Stonewater Capital LLC also won approval from the nation’s regulator, nine months after authorities forced hedge funds to register. The Securities & Exchange Board of India will review those rules in Mumbai today.
India’s stock market recovered its $1 trillion in market value last month, helped by the biggest drop in commodity prices in 28 years. The new funds may help reverse record sales of stocks by overseas investors that led to the biggest first-half slump in the Sensitive Index since its 1979 creation.
Financial Times- Private equity and hedge funds risk suffering massive losses from a binge of investments in the troubled North American automotive industry.
Many of the funds saw turnround opportunities in the sector in 2005 and 2006 when suppliers were squeezed between rising commodity prices, cutbacks by the three Detroit carmakers, and customers’ demands for lower prices.
West Palm Beach (HedgeCo.net)- In a summary of hedge fund performance for the second quarter of 2008, Morningstar, Inc. marked June as a bad end to a good quarter. The Morningstar 1000 Hedge Fund Index fell 0.73% during the month, pushing down second-quarter returns to 2.07%. Year to date, the index is up only 0.31%, as hedge funds struggled through poor market conditions.
Overall, hedge funds, including funds of hedge funds, buffered the traditional stock and bond markets over the second quarter. Equity and bond markets saw losses all over the world, while the Morningstar Fund of Hedge Funds Index gained 1.43%. Over the last year, the Morningstar 1000 Hedge Fund Index and the Morningstar Fund of Hedge Funds Index outperformed the major global stock indexes, which experienced double-digit declines (with the exception of emerging markets). Both hedge funds and funds of hedge funds underperformed bond markets, however, over this same period.
“Equity markets suffered steep declines in June,” said Morningstar hedge fund analyst Nadia Van Dalen. “Volatility returned to levels not seen since March, amid fears of recession and rising inflation. Most hedge funds are not immune to these economic shocks, despite what their name might imply.”
There were significant exceptions. Over the last 12 months, the Morningstar Global Trend Hedge Fund Index, which tracks funds that profit from price trends in futures, options and currencies, benefited from the sharp rise in commodity prices, returning over 18% (3.28% in June). Funds in the Morningstar Global Non-trend Hedge Fund Index, those that take macro-economic bets on interest rates and currencies, benefited from the falling dollar and the rising Euro, earning 0.33% in June and more than 12% over the last 12 months. The last 12 months also saw high volatility. Those equity arbitrage funds that specialize in trading volatility helped drive the Morningstar Equity Arbitrage Hedge Fund Index to a gain of more than 8.57% in the last year and 1.12% in June.
Not surprisingly, these top-performing categories have also experienced the most inflows. For the period ending May 31 (asset flow reporting lags performance reporting), hedge fund investors poured more than $6 billion into global trend funds and $2.4 billion into global non-trend funds tracked by Morningstar. On the opposite end of the spectrum, investors fled the U.S. equity and Europe equity hedge funds in the Morningstar database, taking more than $7.7 billion and $6.9 billion out of these categories, respectively.
Morningstar’s hedge fund flow data also show that, through May, assets moved to the Morningstar-rated 4-, and 5-star hedge funds, and redeemed the 1-, 2-, and 3-star hedge funds. Four- and 5-star hedge funds received more than $10 billion in new assets through May, while 1- and 2-star hedge funds bled almost $10 billion in assets over the same period.
Returns of Morningstar’s Broad Category Indexes, indexes that group funds in related categories, highlight that the event-driven funds were the hardest hit. This index includes funds in the Morningstar Corporate Actions and Distressed Securities Categories, which sometimes take bets on depressed or out-of-favor companies, and look for a reversal over the longer-term. These bets may look worse before they look better, given the economic conditions.
Morningstar has approximately 8,500 hedge funds and funds of hedge funds in its database and is is a leading provider of independent investment research in North America, Europe, Australia, and Asia.
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