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.
New York Times – The managing director of a collapsed Chicago hedge fund, Lake Shore Asset Management, was indicted by a federal grand jury. Prosecutors say the director, Philip J. Baker, operated a $300 million fraud.
The 27-count indictment was unsealed on Monday, said Patrick J. Fitzgerald, a United States attorney, in a statement on Tuesday. An arrest warrant has been issued for Mr. Baker, but his whereabouts are unknown, Mr. Fitzgerald said.
The Commodity Futures Trading Commission accused Mr. Baker in a civil lawsuit last year of having defrauded at least 700 investors by hiding trading losses. The commission won court orders banning Lake Shore from commodities trading.
Mr. Baker said that Lake Shore had a long history of trading success, though it lost about $38 million from 2002 to 2007, according to the indictment.
Times Online – Hedge fund managers are paranoid. And they are right to be. The other day I had lunch with a senior financial official whose view of hedge funds was simple. “They were a con. The returns were all due to leverage. And now that the leverage has gone everyone will see they were a con.”
You may disagree with this analysis. You may be convinced that for some hedge funds at least the returns were down to skill. You may argue that their role in the credit crisis has been at worst neutral. But you cannot deny it is pretty worrying for hedge funds when this is the view of a top regulator.
And my lunch companion is not alone. According to an e-mail from Dick Fuld, the former chairman of Lehman Brothers, quoted by The Wall Street Journal, Hank Paulson, the US Treasury Secretary, said he wanted to “kill” the bad hedge funds and “heavily regulate the rest”. The Italian Finance Minister has promised to put the extermination of hedge funds on the international agenda when Italy takes over presidency of the G8 in January.
Seattle Post- Incriminating messages allegedly sent by two ex-Bear Stearns Cos. hedge fund managers indicted on fraud charges that even sophisticated professionals disregard the dangers of putting sensitive information in e-mails, ex-prosecutors said.
Ralph Cioffi, 52, and Matthew Tannin, 46, were charged last week with misleading investors by saying two funds were thriving while knowing subprime-mortgage investments threatened their collapse. The indictments, the first relating to the subprime crisis, cited e-mails from both business and personal accounts describing looming problems. Investors in the funds ultimately lost $1.6 billion.
"It is pretty dumbfounding that people still use e-mail in such a casual way," said Carol Bruce, a former federal prosecutor now with law firm Bracewell & Giuliani in Washington. "But they do — and they will into the foreseeable future."
Reuters – Pictures of hedge fund managers in handcuffs being led away to face fraud charges on Thursday have sent a chilling message to the $2 trillion (1 trillion pound) industry.
The warning was clear: mind what you say in your e-mails if you are a manager and do a lot of due diligence if you are an investor.
While this is not the first time hedge fund managers have been arrested — police are searching for a convicted manager who recently faked his suicide to avoid prison — the two former Bear Stearns managers who were surrounded by a swarm of federal agents on Thursday were in a different league.
Ralph Cioffi and Matthew Tannin were called savvy managers who understood the complicated credit markets and worked for a bulge bracket investment bank that promised investors strong risk controls. Bear Stearns also had deep pockets in case something went wrong, analysts thought.
Much of the case against the two was based on e-mail traffic between Tannin and Cioffi, including one that included the prophetic line: "… the entire subprime market is toast."
Bloomberg- Bank of America Corp. agreed to sell its prime brokerage unit that serves hedge funds to BNP Paribas SA, France’s biggest bank, for as much as $300 million after profit at its investment bank tumbled.
BNP Paribas’s purchase price includes some goodwill, Todd Steinberg, head of equities and derivatives in Paris-based BNP Paribas’ Americas unit, said in an e-mail. The division provides record-keeping, securities lending and secured financing to more than 500 hedge funds and has 320 employees, he said.
Bloomberg – Value Partners Group Ltd., Asia’s second-largest hedge fund manager by assets, said worsening returns in the industry may lead to bigger firms taking over smaller rivals.
“I think the industry may go through certain consolidation,” said Chief Executive Officer Franco Ngan in an e-mail. “Our company is financially strong and will keep an open mind to explore if appropriate opportunities arise.”
Asian hedge funds, dominated by equity-focused managers, have struggled with negative returns and redemptions this year, after the end of a five-year stock rally. Hong Kong’s Hang Seng Index has tumbled 23 percent from an Oct. 30 record and Japan’s Topix index has fallen 19 percent in the past year.
Eurekahedge’s Asian hedge fund index dropped 5.2 percent this year, based on preliminary data for May. That’s the worst start to a year since the Singapore-based company began compiling data in 2000, and the worst performance among six regional indexes Eurekahedge compiles.
Smaller, younger firms that have never weathered a market slump may struggle to attract and retain money as the global fallout from surging home loan delinquencies in the U.S. erodes appetite for risk.
“Institutional investors are becoming more and more demanding in terms of proper infrastructure such as risk control, compliance, operation, information technology, client services and reporting,” Ngan said. “The situation is more challenging for smaller boutiques with a relatively short track record.”
