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 – Aozora Bank Ltd., the Japanese lender controlled by Cerberus Capital Management LP, posted its first loss in a decade, after investments in U.S. lender GMAC LLC and Bernard Madoff soured.
The bank booked a 242.6 billion yen ($2.5 billion) deficit in the year ended March 31, compared with a profit of 5.93 billion yen a year earlier, it said in a statement today. It lost 35.8 billion yen on U.S. auto financing company GMAC.
Aozora, rescued by Japan’s government during the 1990s banking crisis, has pledged to focus on domestic lending after racking up losses in the U.S. Chief Executive Officer Brian Prince, who replaced Federico Sacasa on Feb. 10 when the bank forecast a loss, declined to comment on reports he merge the company with Shinsei Bank Ltd.
Bloomberg – Looking for a new definition of a hedge fund? How about an organization that takes 20 percent of the profits on your money in the good times, then refuses to let you have it back when the weather turns rough?
We all know the hedge-fund industry had a terrible 2008. With a few honorable exceptions, its promises of being able to deliver steady, positive returns in either a rising or falling market turned out to be empty.
Yet, in many cases, the industry has taken a bad situation and made it worse. Many funds have placed limits on withdrawals that investors can make. In effect, people are locked into a falling asset.
That is a big mistake. In any investment business, the return of capital is far more important than the return on capital. By forcing investors to keep their money tied up during a bad year, the hedge funds are damaging their own reputation, and it may well never recover.
There are numerous examples of funds limiting withdrawals.
Citadel Investment Group LLC said last month it was stopping year-end withdrawals from its two biggest funds after investors sought to take out $1.2 billion, or 12 percent of assets.
Magnetar Capital LLC took similar action after its largest fund lost 30 percent of its value in the year through November.
Cerberus Capital Management LP last month limited redemptions from a hedge fund that lost 16 percent of its value.
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
