Financial Standard – Pension funds around the world are expected to pump up their $547 billion hedge fund allocation by more than $60 billion before December as they look to balance assets and liabilities, new research shows.

Hedge fund managers are expected to heap an extra $63 billion into their coffers from pension funds and family offices.

But insurance companies, private banks, endowments and foundations are all likely to decrease their allocations to the sector, according to Barclays Capital.

The report, which surveyed 300 investors and 100 hedge fund managers representing $873 million of hedge fund assets, noted investors were ready to aggressively allocate their cash balances but will demand liquidity in the process.

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Minneapolis Star Tribune – Hedge fund manager Whitebox Advisors won’t let customers cash out, according to a national publication that follows the lightly regulated industry that manages money for affluent individuals and institutions.

The Minneapolis firm, which runs about $4 billion in investor assets through several funds and strategies, is drafting a letter to investors that explains recent investment losses and constraints and the terms under which investors may redeem some of their money, according to the Oct. 22 edition of Hedge Fund Alert.

The publication, which circulates among investment managers, said Goldman Sachs put Whitebox in a box earlier this month by requiring that the firm double the amount of collateral it puts up against margin loans used to trade convertible bonds. That puts Whitebox in a temporary squeeze because it must put up more of its own capital and devalued holdings against its margin accounts, which are trading accounts that use borrowed money in part to invest.

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New York (HedgeCo.Net) – Disdained investors of the former Bayou hedge fund, run by one-time fugitive Sam Israel, are going after Goldman Sachs for $20 million to try and recover some of their losses.

Goldman Sachs served as the prime broker while clearing trades and taking custody of the securities.  They also provided reports on the hedge fund’s investments.  Reports that some say should hold them partly accountable for the $450 million that was duped out of trusting investors. 

The suit, which was filed as a private arbitration case in Federal Court, claims that Goldman Sachs Execution and Clearing provided monthly statements to Bayou highlighting its losses.  The reports showed more than $88 million between August 1999 and August 2005.  But while the reports may have been right on, creditors claim that Goldman knew that Bayou was turning around and reporting substantial gains to investors and did nothing about it. 

“Through either gross negligence or a willful choice to ignore the signs of fraud, G.S.E.C. failed to diligently investigate the red flags it was made aware of it, to contact Bayou’s auditors to request additional information, or to alert the appropriate authorities of what it had learned,” the suit alleges.

In 2004, Bayou provided Goldman with reports that claimed it had earned returns of almost 18 percent since its inception, which the suit says was “completely inconsistent with the actual returns the Bayou Funds had been realizing in their trading accounts at G.S.E.C., in which they had done nothing but lose money.”

Goldman has declined to comment.

Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net

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