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.
Bloomberg – Indea Capital Pte, an India-focused hedge fund that manages about $300 million, plans to buy shares even if India’s election results disappoint investors, said Chief Investment Officer Raj Mishra.
The ruling Congress party-led coalition and the main opposition-led group may have each failed to secure enough votes to form a government, based on exit polls after a five- week election that ended May 13.
“The bias is to buy when there’s a post-election decline rather than to panic,” said Singapore-based Mishra, whose six- year-old Absolute Return Fund has returned an average 14.75 percent annually since it was set up. “Once the election is complete and we have better clarity about the strength of the government, then probably potential long-term investors will feel more comfortable.”
Reuters – China, setting out its stall for the next global financial summit, wants the International Monetary Fund to get tougher with developed countries that let their economies run off the rails.
In a position paper prepared for the April 2 meeting in London of the Group of 20, China calls for more power for developing countries in the IMF and World Bank and issues a warning against investment protection.
On financial regulation, the memo says accounting standards and credit ratings should be adjusted to contain the "pro-cyclical" bias of financial institutions to ramp up lending and investment when times are good, leading to excessive risks.
Seattle Times – Bill Fleckenstein, a well-known Seattle investor who bets exclusively on falling stocks, is shutting his 12-year-old fund and starting a new one that will buy equities, too.
Fleckenstein said he doesn’t think the worse is over in the U.S. stock market. Yet he no longer wants to limit himself to so-called short bets.
"I’m not wildly bullish right now," he said. "The market hasn’t reached its ultimate lows, but we might be in a trading range for a long time."
Short sellers have been the best-performing hedge funds this year, up 32 percent through November, according to Chicago-based Hedge Fund Research, whose data show an industry average decline of 18 percent during that period. Fleckenstein, founder and president of Fleckenstein Capital, declined to comment on the fund’s size or its returns.
Reuters – Private equity investor Thomas H. Lee may shrink or shut down two funds that had $1.5 billion in assets after suffering losses of about 40 percent this year, the Wall Street Journal reported on Thursday, citing people familiar with the situation.
Hard-hit hedge funds run by Lee farmed out investor money to about 110 other funds, including SAC Capital Advisors and D.E. Shaw Group, according to the paper.
While Lee designed the so-called funds-of-funds to have low volatility with steady, consistent returns, he borrowed heavily to multiply the size of his bets, piling up debt of as much as $3.2 billion, the sources told the paper.
Hemscott – UK-based fund firm Augustus Asset Managers said on Tuesday assets under management in its fixed income and currency macro hedge fund have bucked market trends and doubled in the year to end-October.
Augustus, formed from the management buyout of Julius Baer Investments, said assets at the JB Global Rates Hedge Fund have grown to $308.8 million in the year to end-October, up from $134.8 million.
During the period the fund, which takes directional bets in fixed income and currency, has returned 13.56 percent.
Augustus has assets under management of about $12 billion in long-only, absolute return and hedge funds.
Forbes – Major Wall Street firms placed large bets against Morgan Stanley using credit-default swaps, two days after Lehman Brothers Holdings Inc sought bankruptcy protection, the Wall Street Journal said, citing trading records.
The firms included Merrill Lynch & Co, Citigroup Inc, Deutsche Bank AG and UBS AG, according to the paper.
The paper said that a close examination of the trading revealed that the swaps played a critical role in magnifying bearish sentiment about Morgan Stanley.
Bloomberg – Money manager John Paulson has started buying beaten-up mortgage bonds as hedge funds stumbled for a fifth straight month.
Paulson, 52, is purchasing debt backed by home loans after generating sixfold returns last year with help from bets against subprime mortgages, investors in his funds said. Paulson’s Advantage Plus fund rose 29 percent this year through October, while the Eurekahedge Hedge Fund Index, which tracks more than 2,000 funds that invest globally, dropped about 12 percent.
“Paulson’s timing is typically very good,” said Louis Gargour, chief investment officer of LNG Capital LLP, a London- based hedge fund that invests in distressed credit markets.
Reuters – Malaysia is working on a plan to allow the creation of Islamic hedge funds.
"It is now in the developmental stage,” Goh Ching Yin, an executive director at the Securities Commission, was quoted as saying by Business Times newspaper.
"There’s no timeline, but we are making good progress.”
He said the plan could get off the ground next year, depending on market conditions.
Hedge funds’ bets on falling share prices have been blamed for contributing to the near-collapse of investment bank Bear Stearns, the demise of Lehman Brothers and for a sharp drop in financial stocks in general.
Reuters – Hedge funds using technical indicators are likely to fare better in the next two years than those purely basing their strategy on economic fundamentals, a survey of around 200 investors showed on Wednesday.
The survey of asset managers, institutions, and high net worth investors at the Global Alternative Investment Management (GAIM) Fund of Funds conference in Geneva showed 36 percent saw such trading-based strategies set to outperform in 2009-2010.
These strategies generally use technical indicators or a combination of technical and fundamental indicators to make short or medium-term bets on market movements.
Long/short equity strategies were chosen by 16.7 percent. Long/short managers vary their overall market exposure via long positions in those equities that they expect to outperform the broader market and short positions in those expected to underperform.
International Herald Tribune – Hedge fund managers usually shun the spotlight. But five of them, billionaires all, are about to come under the glare on Capitol Hill.
The money managers — Philip Falcone, Kenneth Griffin, John Paulson, James Simons and George Soros — have been called by a House panel to discuss some of their trade secrets at a hearing on Thursday.
The topics are likely to range from the managers’ use of leverage — the borrowed money that fuels investment returns on the way up but can be devastating on the way down; their funds’ bets in the markets; and the managers’ pay.
Also front and center will be the matter of oversight, one of the most contentious issues confronting the loosely regulated hedge fund industry. Regulation, or the lack of it, has been an issue since the 1990s, but it has come to the fore this year as questions have swirled about hedge funds’ role in the financial crisis.
Reuters – Several hedge funds with assets frozen at Lehman Brothers may have been hit by wrong-way bets on Volkswagen, industry executives said, possibly hurting funds on trades they cannot close.
While no money has yet been demanded by the prime brokerage unit of Lehman — which filed for bankruptcy protection in September — a fund using Lehman to short-sell VW may have to pay up next year when administrators have worked out which positions belong to whom.
"Could there be some people who are short Volkswagen and can’t close the trade? Yes, there could be some," said one hedge fund executive who declined to be named, in order to speak candidly.
Time – Benjamin Graham was well prepared for the Crash of 1929. The now legendary investor had hedged his bets: he would buy preferred stock in a company and sell short common stock in the same company. When stocks crashed in October 1929, common shares fell much faster than preferreds, and Graham made a lot of money off short sales.
But after the crash, most of those preferred shares seemed so cheap that Graham couldn’t bear to part with them, he wrote in his memoirs. They kept falling, and his profit soon turned to a loss. His fund (equivalent to a modern hedge fund) ended the year down 20%. In 1930 it dropped 50.5%; in 1931 16%; in 1932 3%. "The stock market," as Graham resignedly put it in the first edition of his book with David Dodd, Security Analysis (1934), "is a voting machine rather than weighing machine."
It had actually begun voting along with Graham by then — his fund gained 50% in 1933, and he did spectacularly well for himself in the next two decades. "In the short run, the market is a voting machine," he later took to saying, "but in the long run, it is a weighing machine."
