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 – Nick Taylor, a former executive of Citadel Investment Group LLC, is preparing to open the largest Asia-focused hedge-fund startup since May 2007 after receiving the backing of Blackstone Group LP, said three people familiar with his plan.
Senrigan Master Fund is scheduled to start trading Nov. 2 with at least $220 million committed by investors, said two of the people, who declined to be identified because the information isn’t public. The fund will invest in companies whose valuations are affected by announced or possible events such as mergers, Taylor said in an interview yesterday. He declined to comment on the fund’s starting size or investors.
New York (Hedgeco.net) – CME Group is restructuring its credit default swap (CDS) with hedge fund Citadel Investment Group as a strategic program targeted at providing clearing-only services for the nearly $27 trillion CDS market.
Key features developed as part of the joint effort with Citadel, which was known as CMDX, will be carried forward in the clearing-only service, including state-of-the-art trade booking and legacy trade migration facilities.
“We remain committed to bringing stability and transparency to the CDS market, while further enhancing confidence in the financial marketplace,” said Terry Duffy, Executive Chairman, CME Group. “Over the past several months, we have been working closely with all market participants. Both buy-side and sell-side participants have expressed an interest in continuing to execute their CDS transactions the same as they do today, but with the added benefit of central counterparty clearing.”
Citadel remains a founding member of the newly restructured CDS initiative. The other buy-side founding members are: AllianceBernstein, BlackRock, BlueMountain Capital Management, the D. E. Shaw group and PIMCO. A number of leading sell-side participants are in the process of becoming founding members. CME Group plans to announce the launch of the clearing initiative’s pilot program in the weeks ahead. CME’s clearing solution builds on the existing over-the-counter (OTC) market.
Alex Akesson
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Bloomberg – Ken Griffin started trading convertible bonds 22 years ago from his Harvard University dorm room. Now he’s moving away from the investments that made him a billionaire hedge-fund manager — and unraveled last year, leaving clients with a 55 percent loss, almost three times the industry average.
Citadel Investment Group LLC, Griffin’s $13.5 billion firm, is reducing its two biggest funds’ holdings of convertible bonds and other so-called relative-value trades that try to profit from small price differences in related securities, and amplify the gains with debt. At last year’s peak in May, the firm used borrowings of nine times net assets to hold $145 billion in gross assets. That was triple the average leverage ratio of hedge funds, according to a report from JPMorgan Chase & Co.
CNBC – Private equity firm Citadel Investment Group LLC said Monday that one of its affiliates has canceled a plan to sell a portion of its stake in retail brokerage firm E-Trade Financial Corp.
Under a previously announced plan, Chicago-based Citadel was to have sold up to 120 million shares of E-Trade as early as Monday. Citadel owns about 1.1 billion shares in the brokerage firm.
Reuters – Hedge fund Citadel Investment Group claims it is owed $470.5 million on derivatives contracts it held with Lehman Brothers, according to a claim filed in a New York bankruptcy court last week.
Citadel, which manages around $12 billion in assets, claims it is owed the money in its Citadel Equity Fund. The filing said the claim was at least partly based on a guarantee, but did not give details.
Reuters – Hedge fund firm Citadel Investment Group will return millions to clients who asked to exit last year, but were locked in when its flagship funds lost more than half their value during the financial crisis.
The Chicago-based firm, which invests $12 billion, informed clients on Tuesday it plans to give back $250 million on October 1 and to make another distribution at the end of the year, according to an investor who asked not to be named.
Citadel last year was one of many hedge funds to block investor exits. Now its decision to return the money suggests the worst may be over for the $1.4 trillion hedge fund industry after it suffered its worst-ever losses and record outflows last year.
Bloomberg – Paul Touradji had a good year in 2008, a 12-month span that most other traders would like to forget. His flagship hedge fund, Touradji Global Resources Fund LP, returned 8.6 percent trading oil, copper and aluminum.
The average hedge fund lost 19 percent, and some expert managers, such as Chicago-based Citadel Investment Group LLC, saw their funds drop more than 50 percent. Touradji’s biggest competitor, Ospraie Management LLC, closed its largest fund.
Winton Capital Management Ltd., the U.K. hedge fund with $12 billion in assets, will start a new fund in Japan and hire staff in Hong Kong as it expands when rivals such as Citadel Investment Group LLC retreat from Asia.
The London-based firm is going to advise a new fund sold to Japanese retail investors through Mitsubishi UFJ Securities Co. that will track the performance of its flagship commodity trading adviser fund as it seeks a slice of the nation’s $15 trillion in personal savings.
Bloomberg – Convertible bonds that punished hedge funds in 2008 are driving returns at Canyon Partners and Citadel Investment Group LLC and helping companies from JetBlue Airways Corp. to Alliance Data Systems Corp. raise capital.
Canyon, the $14.4 billion investment firm run by former Drexel Burnham Lambert Inc. bankers, gained more than 51 percent in its convertible fund through May 22, according to a May 29 letter sent to investors. Citadel posted a 21 percent return in its two main funds through May, aided by convertible bets.
New York Times Blogs – E*Trade Financial is in talks with Citadel Investment Group, the hedge fund that is its largest shareholder, about a deal to shore up the struggling brokerage firm’s balance sheet, The Wall Street Journal reported, citing people familiar with the matter.
The two companies have been in negotiations for weeks to find a solution to E*Trade’s financial problems, The Journal said, adding that terms of the deal were unknown.
On Tuesday, E*Trade announced that Citadel Chief Executive Kenneth C. Griffin would be joining the firm’s finance and risk-oversight committee.
St. George Daily Spectrum – According to the Center for Responsive Politics, hedge funds and private equity firms donated $2,992,456 to the Obama campaign in the 2008 cycle. Obama, vocal critic of the campaign finance practice known as "bundling," accepted more than $200,000 in bundled contributions from billionaire hedge-fund manager James Torrey, more than $100,000 in bundled contributions from billionaire hedge-fund manager Paul Tudor Jones and more than $50,000 in bundled contributions from billionaire hedge-fund manager Kenneth C. Griffin, chief executive officer of Citadel Investment Group in Chicago.
In an extraordinarily candid open letter to Obama, hedge-fund manager Cliff Asness defended his industry from the president’s "backwards and libelous" charges. "Managers have a fiduciary obligation to look after their clients’ money as best they can, not to support the president, nor to oppose him, nor otherwise advance their political views," Asness wrote. He has oversight of some $20 billion at AQR Capital Management, LLC, which is not involved in the Chrysler case.
Bloomberg – The global hedge fund industry may shrink by 11 percent this year as funds liquidate and investor withdrawals persist, a Deutsche Bank AG survey said.
Industry assets may fall to $1.33 trillion by December, according to 68 percent of the 1,000 investors surveyed by Germany’s largest bank last month. The respondents, which hold a combined $1.1 trillion of hedge-fund assets, on average expect outflows from the industry to accelerate to $168 billion this year, 8 percent faster than last year.
The deepest financial crisis since the 1930s led to the worst average hedge-fund performance in history last year, prompting funds managed by Citadel Investment Group LLC and D.E. Shaw & Co. LP. to limit withdrawals to stem record outflows.
“If 2008 was a story about performance of hedge funds, 2009 is very much going to be a story about restructuring,” said Sean Capstick, Deutsche Bank’s London-based global head of capital introduction. “Our survey indicates redemptions will continue as a phenomenon for the foreseeable future.”
In a March 13 note to investors, Sanford C. Bernstein & Co. analyst Brad Hintz forecast hedge-fund assets to fall 18 percent this year, dropping below $1 trillion before a recovery in 2013.
The HFRI Fund Weighted Composite Index retreated 18 percent in 2008, its steepest annual decline. Still, that was less than half the 42 percent slump of the MSCI World Index.
