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.
Times Online – Why did HBOS need to be rescued by Lloyds TSB? Where should the finger of blame point?
For many, the answer is clear – Mayfair.
The streets of London W1 house some of the world’s biggest hedge funds, which now stand accused of bringing HBOS and other financial institutions to their knees.
Their weapon? Short-selling, the process of betting that a share price will fall.
Reuters Singapore – U.S. investment bank Morgan Stanley is weighing whether it should remain independent or merge with a bank, given the recent turbulence in the company’s share price, broadcaster CNBC reported on Wednesday.
Morgan Stanley officials were not in merger talks as of late Tuesday, CNBC said, citing unnamed people close to the matter.
"But senior people at Morgan concede that further zig-zags in the company’s stock price could and possibly will force the company to change course and seek a merger partner, probably a well capitalized bank," CNBC reported on its Website.
Morgan Stanley shares closed down 10.8 percent at $28.70 on Tuesday, having fallen 46 percent so far this year.
Morgan Stanley officials in Hong Kong declined to comment on the report.
CNBC – Remember Superman the movie, where Lex Luther takes away the super hero’s powers with a Kryptonite necklace? Well we’re here again. Only this time it is the financial equivalent of the man of steel – the hedge fund manager that has met their own version of the power-draining substance.
Barely a day passes it seems without one of these masters of the universe crashing to earth with swinging losses in their fund, or non-survivable business issues.
RAB Capital star, Philip Richards, has stepped down from his role as CEO of the business in the wake of a profit warning and a plunging share price. Mr Richards has already taken some flak taking a large position in ailing UK bank Northern Rock before it was nationalized. Now he goes back to focusing on the group’s special situations fund. So at least he keeps the day job, but this is an embarrassing development for the company.
Reuters UK – "Does anyone know what is happening with the markets?" former U.S. Treasury Secretary Lawrence Summers asked after stepping out of his car and into a hedge fund industry conference in Connecticut on Tuesday.
And he wasn’t the only one wondering.
As Summers, now a managing director at hedge fund DE Shaw, and hundreds of managers and investors scanned Blackberries for prices and dialled cell phones for updates, the words Morgan Stanley American International Group tripped off dozens of tongues and faces went pale.
Only one day after watching financial markets tumble as Lehman Brothers Holdings hurtled toward liquidation and Merrill Lynch stunned investors with a surprise sale to Bank of America Morgan Stanley’s share price tumbled but its CFO declared that things were getting out of hand.
AIG’s shares sank 48 percent after the market closed as the insurance group struggled to get the funding it needed to survive.
"I would describe the mood here as a little bit wary," said Raj Mohamad, who travelled to the two-day conference from Singapore where he helps U.S. hedge funds find Middle Eastern investors as Managing Director at Five Pillars Pte Ltd.
Reuters UK – The bankruptcy filing of Lehman Brothers is another blow for the hedge fund industry, but at least the damage is limited from here for funds exposed the U.S. investment bank.
Even legendary fund manager George Soros, who runs around $18 billion (10 billion pounds) in assets, is likely to have been affected after raising his stake in the investment bank to 9.5 million shares in the second quarter.
A spokesman for Soros Fund Management declined to comment on the composition of their portfolio.
British activist hedge fund Algebris is also likely to have been hit by the fall in the share price of Lehman, once the fourth-largest U.S. investment bank.
The hedge fund firm owned just over 4.45 million shares at end-June, Thomson Reuters data show. Algebris sold its stake this year, a spokesman said, declining to give further details.
Wall Street Journal – Deutsche Börse AG’s supervisory board reaffirmed the stock-exchange operator’s business model Friday, defying activist hedge funds that had been seeking a change in strategy after this year’s steep fall in the company’s share price.
"The ongoing implementation and continuation of the existing strategy of the integrated business model including its further development [are] the best conditions to further increase value for all shareholders and customers of the group," Deutsche Börse said in a statement after an extraordinary supervisory board meeting.
The company has three main businesses: its Eurex derivatives arm, a share-trading platform called Xetra, and Clearstream, which handles post-trade processing.
Deutsche Börse shares rose 0.8% to €63.44 ($90.19) Friday. Its stock has fallen more than 50% this year.
The board meeting was convened after the company’s biggest investors — activist hedge funds The Children’s Investment Fund LLP and Atticus Capital LP, which together control 19% of votes in Deutsche Börse — joined forces to explore options for creating shareholder value at the company. The hedge funds haven’t presented any formal proposals.
News.com.au – Takeover target Ausdrill has blamed a fall in the company’s share price on hedge fund selling after comments from suitor Macmahon that its bid was unlikely to succeed.
Ausdrill said that it believes selling from hedge funds accounted for the "majority" of the "large number" of shares traded in the belief that Macmahon’s offer would fail.
The drilling contractor’s share price sank 20 per cent from a closing price of $2.50 on Tuesday to close at $2.00 yesterday.
Ausdrill chairman Terry O’Connor said the impact of hedge fund selling on the share price was likely to be "short term" and that the price did not reflect the group’s excellent outlook and earnings.
Shares in Ausdrill gained nine cents to $2.09 by 10.41am (AEST), while Macmahon put on 1.5 cents to $1.815.
Macmahon is offering 1.65 of its own shares for every Ausdrill share, valuing the company at $511 million at Macmahon’s previous closing price of $1.80.
Globe and Mail – Fairfax Financial Holdings Ltd. is claiming a victory in a long-running legal battle with U.S. hedge funds after brokerage firm Morgan Keegan & Co. Inc. revealed on Wednesday it has fired an analyst embroiled in a dispute with Fairfax.
Morgan Keegan confirmed it fired analyst John Gwynn last month for giving a report on Fairfax to some clients before it was published.
Fairfax has sued Morgan Keegan, based in Memphis, Tenn., and a group of U.S. hedge funds, alleging they worked together to damage Fairfax’s reputation and drive down its share price. Fairfax called it a “massive, illegal and continuing scheme that has targeted and severely harmed Fairfax.”
One of Fairfax’s claims in the suit is an allegation that Mr. Gwynn told hedge funds about negative reports before he issued them publicly, allowing hedge funds to short-sell Fairfax’s stock and profit after the news was released.
Toronto-based Fairfax has particularly pointed to Mr. Gwynn’s first report on the company, published Jan. 16, 2003, which said the company had a shortfall in its reserves. The company’s share price fell 28 per cent in the three days after the report was published.
Forbes – Daimler AG. was told last week that a foreign hedge fund is buying a large number of shares in the car maker after its share price slumped on the back of a profit warning barely two weeks ago, Focus weekly magazine said.
Citing a supervisory board source, the magazine reported that banks have tipped off the company regarding the matter.
A company spokesman declined comment to Focus, saying only that Daimler is ‘satisfied’ with its shareholder structure and ‘is also open for new investors’.
Independant- Hedge funds may have made more than £1bn from shorting shares in HBOS, whose £4bn rights issue faced intense pressure from investors betting on the share price falling.
Almost 15 per cent, or about 550 million, of the bank’s shares are out on loan, according to Data Explorers. That stock will mainly be lent to funds who have sold the shares expecting to buy them back cheaper.
HBOS’s last closing share price before the cash call was announced was 495.24p, but the shares plunged during the rights issue process. At the closing price of 264.5p yesterday, short funds who bought at the closing price before the cash call was announced on 29 April would have made 230.74p a share, or a total of £1.27bn.
Six funds have announced positions since the Financial Services Authority changed its rules to require the declaration of short holdings over 0.25 per cent for companies undertaking rights issues.
Sydney Morning Herald- There should be no doubt in anyone’s mind that those aggressive funds we all love to hate were responsible for the massive fall in Babcock & Brown’s share price yesterday – a fall so large it prompted a "review" by the company’s banks of its corporate debt facility.
There is also no doubt B&B provides a fertile environment for the hedge funds to operate. B&B and many of its satellite investment companies are vulnerable because they are over-geared, with flawed business models.
