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Dallas Morning News – To bank employees monitoring the hedge fund’s collapse, the e-mailed instructions were emphatic.
"No securities, or cash, FOR ANY REASON are allowed to be sent out from JP Morgan."
At issue that morning last November were the accounts of Parkcentral Global Hub Ltd., a Bermuda-chartered fund run from Plano and Dallas by the Perot family, one of the richest families in the world. J.P. Morgan Chase & Co. was the fund’s banker and a trading partner.
Times Online – Accountants and lawyers who are trying to sort out the European collapse of Lehman Brothers, the American investment bank, have charged more than £100million in fees in six months.
The bonanza shows no sign of abating. PricewaterhouseCoopers (PwC), the administrator, says that costs will accrue at a similar rate over the coming months as a team of nearly 1,500 people unwinds the complex financial web behind the world’s biggest bankruptcy.
PwC paid a further £114.8 million to 800 employees of the bankrupt bank who stayed on to help to unwind millions of trades between Lehman and other banks and hedge funds.
SmartBrief – Michael Berger, an Austrian banker accused of securities fraud, might go free without facing any charges, Vienna prosecutors said. Berger pleaded guilty to securities fraud in Manhattan, N.Y., in 2000 after the $400 million collapse of his hedge fund, but he became a fugitive in 2002 until his arrest in Austria in 2007.
Marketwatch – When the $9.2 billion Connecticut hedge fund Amaranth Advisors collapsed in 2006, securities attorneys jumped all over each other to express gleefully how the markets absorbed such a mega-fund failure.
In fact, the markets did soak up the implosion fairly well.
However, two and a half years later, policymakers aren’t so sure the volatile and fragile markets of 2009 could handle another mega-hedge fund collapse.
Business Standard – Spooked by increasing performance losses and record investor redemptions, the global hedge fund industry saw net outflows worth $158.91 billion in the fourth quarter of calendar year 2008, the highest level since 1994.
According to a report by fund tracking firm Lipper, global hedge fund assets are estimated to have decreased from $1.5 trillion in September to $1.29 trillion at the end of December 2008.
All hedge fund sub-strategies posted negative money flows (outflows) in the three-month period with cumulative net outflows in 2008 as the industry witnessed a collapse in global equity markets, liquidity issues and failure of a number of key institutions.
In absolute terms, the performance of Credit Suisse/Tremont hedge fund index in Q4 2008 registered -10.21 per cent, the second worst quarterly performance since the start of the index. The index had posted 10.33 per cent negative returns during the third quarter. "A majority of hedge fund managers were hit by panic selling and deleveraging that followed, combined with changes in broker requirements and the enforcement of a ban on short selling in certain financial stocks," said the Lipper report.
In US dollar terms, the largest hedge fund sub-strategy outflows were experienced by long/short equity at $42.52 billion.
Financial Times – Hedge funds cut their borrowing to almost nothing in the wake of the collapse of Lehman Brothers, according to research by the City watchdog.
Data compiled by the Financial Services Authority show that leverage fell to just 1.15 times hedge fund net assets in October, down from almost twice a year earlier.
The survey, the only authoritative data on the opaque industry, also found that hedge funds had their highest level of "dry powder", or ability to borrow, since the research started in 2005.
However, prime brokers, the bankers who service hedge funds, say borrowing has fallen even further since the survey was carried out, and many hedge funds now have more assets than debt, or less than one times leverage.
"People are still holding quite a lot of cash," said Daniel Caplan, co-head of European prime brokerage at Deutsche Bank. "They are certainly not using the leverage that’s available to them."
The FSA carries out its survey of hedge fund exposure twice a year, and found leverage – measured as the proportion of total long positions to net assets, ignoring short positions – dropped from 1.44 times in April to 1.15 times in October.
Bloomberg – Distressed assets offer the best investment opportunities this year as the global recession deepens, billionaire hedge-fund manager John Paulson said.
“The decline in the market has created a very good buying opportunity,” Paulson, 53, whose New York-based Paulson & Co. oversees about $30 billion, said in a speech at a hedge-fund seminar hosted by Societe Generale and Lyxor Asset Management in Tokyo today. “Distressed opportunity in the U.S. is shaping up to be the best opportunity in a lifetime.”
Paulson said he’s focused on assets such as mortgages and debt from bankrupt companies, while in the equities markets he cited the utilities, consumer staples and pharmaceutical industries. Financial stocks remain risky, Paulson said.
In the 15 years since starting its first funds, Paulson & Co.’s one down year was 1998. All his funds were profitable in 2008, with the flagship fund returning about 38 percent, compared with a loss of 19 percent for hedge funds worldwide on average. The 2008 returns came after his funds made more than $3 billion for the firm in 2007 by anticipating the collapse of the U.S. housing market and subprime mortgages.
Investors are chasing distressed assets after more than $1.1 trillion in losses at financial firms globally and frozen credit markets helped drag the U.S., Europe and Japan into their first simultaneous recessions since World War II.
Bloomberg – Billionaire investor George Soros said the current economic upheaval has its roots in the financial deregulation of the 1980s and signals the end of a free-market model that has since dominated capitalist countries.
Liberalization of the financial industry begun by the Reagan administration has led to a series of crises forcing government intervention, Soros told economists and bankers at a Feb. 20 private dinner at Columbia University in New York. The global recession, triggered by the collapse of the U.S. housing market, has “damaged the financial system itself,” he said.
Independent – The collapse of Lloyds’ share price on Friday afternoon was deeply upsetting – and not just for shareholders in the bank.
Two weeks ago, those annoying folk at Paulson & Co, the hedge fund that has made a fortune from the credit crunch, took a sizeable short position in the bank. It looked like a duff bet: having sold Lloyds short at about 65p, the fund watched as the bank’s share price climbed to about 125p. And then the HBOS loss was disclosed and Lloyds plunged to 61p on Friday. That calamitous drop will have earned Paulson tens of millions of pounds. Darn it.
Bankers at the Japanese investment bank Nomura are cock-a-hoop at having earned fat fees advising Chinalco on its £200bn investment in the mining giant Rio Tinto. For various cultural and historical reasons, it is pretty unusual for Japanese companies to win work from China, so this was a breakthrough deal for Nomura. It was secured by the mining team that Nomura acquired when it bought bits of Lehman last year. In every cloud there’s a silver lining.
New York (HedgeCo.Net) – Wachovia customers who invested in auction rate securities prior to their collapse will most likely get their money back. The SEC announced a settlement yesterday with Wachovia Securities that will provide $7 billion in liquidity to those clients, which resolves the agency’s original charges that the bank misled investors about the risks associated with ARS.
"The goal of the SEC in these matters was to return as much liquidity to investors as quickly as possible, while at the same time avoiding further disruption in the financial markets. Today’s final settlement with Wachovia represents substantial progress toward fulfilling that goal,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement.
The original SEC complaint alleged that Wachovia peddled ARS to clients, while representing them as safe, highly liquid investments, much like cash or money market instruments. In addition, the agency charges that the bank became aware of the mounting risks associated with these investments, yet continued to market them as safe. When the ARS market plummeted, thousands of clients were left with billions of dollars of illiquid investments.
"Wachovia did not ensure that its sales force understood the ARS products it was selling. As a result, Wachovia’s customers were not adequately informed of the nature and risks associated with ARS and were caught holding illiquid securities when the ARS market froze," explained Merri Jo Gillette, Director of the SEC’s Chicago Regional Office.
The settlement has several facets, including buying back ARS from investors who purchased them on or before February 13, 2008. For more information on the matter, or for buyback eligibility, the SEC suggests you contact Wachovia directly at 1-866-283-7943.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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American Thinker – There are several culprits in the recent market crash, but one key source of the problem has hitherto escaped attention: an economic index that can be easily manipulated by hedge funds and whose gyrations have shaken the foundation of Wall Street: the ABX index, launched in 2007 by the Markit Group, a London-based company that specializes in credit derivative pricing and that administers the index.
The collapse in the American stock markets was a calamity for the campaign of John McCain. In September, McCain was running strongly against Barack Obama. Some polls had him leading Barack Obama by 3 percent before the market broke. By October 7th, Obama had taken the lead across America. What changed in one month? The trigger was the market crash. Who pulled the trigger and why? Who benefited?
Bloomberg – Royal Bank of Canada, the country’s biggest bank by assets, was sued by investors in Olympus United Funds who claim they lost more than $90 million in the funds’ collapse.
Royal Bank, based in Toronto, “secretly managed” the funds, according to a complaint filed Jan. 23 in U.S. District Court in Manhattan. The funds’ parent company Norshield Financial Group filed for receivership in June 2005 amid probes by securities regulators.
“In its dealings and relationships with Norshield, Royal Bank of Canada assumed control of investments, exercised discretion in key areas and thus became liable for my clients’ losses,” Lee Squitieri, a lawyer for the investors, said in an interview.
