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.
Reuters – The regulator of U.S. commodity markets said on Tuesday his agency’s weekly Commitments of Traders report will be revamped to include hedge fund positions for better transparency.
"Enhancing the quality of information in these weekly reports will better inform market participants and the public about the positions of the various types of traders," Gary Gensler, chairman of the Commodity Futures Trading Commission, said in a statement.
Bloomberg – Fion Ye, who led the Pinpoint Rising China Fund to a 70.9 percent gain last year, has started a new asset management company aiming to profit from the country’s growing sway over global commodity markets.
Ye and former Pinpoint Investor Advisor Ltd. Chief Executive Officer Alex Li are setting up the Hong Kong head office for Everest Investment Advisors Ltd. Their first fund began investment on May 4 with initial capital of about $45 million, 60 percent of which came from outside investors, Li said in an interview yesterday.
West Palm Beach (HedgeCo.net) – Morningstar reported a summary of hedge fund performance for January 2009 as well as asset flows for 2008. As stocks and government bonds got clobbered in January, hedge funds held up relatively well, the report said.
The Morningstar 1000 Hedge Fund Index declined only 1.2% and the currency-hedged Morningstar with MSCI Hedge Fund Composite Asset-Weighted Index rose 1.2%, against the MSCI World Index’s 8.9% drop and the BarCap Global Aggregate Index’s 3.3% decline.
"Some liquidity returned to the credit markets in January, helping certain hedge fund strategies, but even hedge funds trading equities persevered through January’s tough markets," said Morningstar Hedge Fund Analyst Nadia Papagiannis. "Overall, hedge funds held their own in January."
The rise in the U.S. dollar created profits for some price-trend-following and global-macro non-trend funds in January, but volatility across equity, government bond, and commodity markets throughout the month led to trading losses. The Morningstar Global Non-Trend Hedge Fund Index rose 0.1% while the Morningstar Global Trend Hedge Fund Index declined 1.6%.
Investors continued to pull out of hedge funds, withdrawing $26 billion in December and $70 billion for the year. Europe- and U.S.-equity hedge funds saw the largest redemptions, losing $14.8 and $18.3 billion respectively in 2008.
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West Palm Beach (HedgeCo.net) – Hedge funds returned a healthy 1% in January, wrapping up a tumultuous 2008 at -12.3%, according to Eurekahedge. Hedge fund assets fell $380 billion or 20% in 2008, from just under $1.9 trillion to just over $1.5 trillion.
Eurekahedge’s forecast expects to see more hedge fund start-ups in the near future, given the increasing number of people moving out of investment banks (whether voluntarily or otherwise) to venture into the hedge fund space.
In terms of returns, hedge funds are in a better position to generate superior returns than most other conventional managers and market players, owing to the flexibility that hedge fund managers enjoy, the Eurekahedge report says, their ability to identify new trends and investment ideas and act on them promptly.
"We anticipate trend-following strategies to continue benefiting from market movements across the currency and commodity markets, as they had through most of 2008. We expect the equity markets to remain volatile and range-bound over the next few months, but long/short managers could potentially benefit from pockets of opportunities (even if short-term ones) on both the long and the short side, given the uncertainty around the 4Q08 earnings reports and deeply discounted valuations across most sectors."
West Palm Beach (HedgeCo.net) - Canada’s hedge fund industry gathered in November to raise $150,000 in support of Hedge Funds Care Canada (HFCC), which is dedicated exclusively to the treatment and prevention of child abuse and neglect.
"The Canadian hedge fund industry is particularly devoted to philanthropic causes, and this cause resonates, even more so in these difficult economic times," said Corey Goldman, President and Director of Hedge Funds Care Canada. "Hard times bring stress, and stress causes pain but there is no reason that any child should be exposed to physical or psychological trauma, maltreatment or neglect."
HFCC is part of a larger alliance of hedge fund industry professionals that comprise New York-based Hedge Funds Care, including prime brokers, attorneys, accountants, information providers, investors and managers. They have raised approximately $31 million through annual benefits in Toronto, New York, San Francisco, Chicago, Atlanta, Boston, Denver, London and the Cayman Islands.
Seeking Alpha – Risk management Rule No.1: if it can happen then it will happen. Hope for the best but plan for the worst. Recent events have provided good returns for some hedge funds, hard times for other hedge funds but harsher times for long only. Skilled absolute return managers don’t make money every month but they do have milder and shorter duration drawdowns than index funds.
I wrote back in January that the Dow and Nikkei would likely fall below 10,000 this year as a result of the credit crisis and owning stock index option puts has indeed been the top performing strategy this year. But those were just lucky guesses. I can’t time markets so personally I’ll be focusing on funds that can preserve capital, control drawdowns and generate alpha no matter what happens.
Flight to quality? Some real hedge funds are positive for the year even when the aggregate returns for the industry are negative. Performance dispersion is enormous in such a diverse universe. Several strategies have not been affected by prime brokers imploding, changes in short selling rules or the leverage lockdown. The best managed futures CTAs, global macro and options traders have been generating absolute returns throughout the equity and credit mayhem. Strategy diversification is so important since forecasting is difficult. Transitions from one market regime to another often requires a financial revolution. Read Complete Article
West Palm Beach (HedgeCo.net) – Hedge fund technology service, Point Nine, has announced the opening of their new office in Limassol, Cyprus. This is the second office opening for Point Nine this year, which follows the recent opening of Point Nine’s facilities in New Delhi, India.
The Cyprus office is the second to be launched by newly appointed CEO of Point Nine, Yannis Matsis. Matsis’ 15 years experience in building and managing global debt capital market teams for Mizuho Bank and ING has been instrumental in the direction and supporting technology of Point Nine’s Middle and Back Office Services offering.
"The current financial crisis and the associated reduction in revenues for fund managers has put a bigger emphasis on cost reduction. Outsourcing of the middle and back office operations to reliable service providers like Point Nine is an ideal way for fund managers to increase their operating efficiencies and reduce their operational risks and cost base”, says Yannis Matsis, CEO Point Nine. “We are expanding our geographical coverage to provide the highest quality service to our clients that we can be proud of."
The recent expansion from its London headquarters into the Middle East and Asia means a more personalised service for customers and ensures that all trade capturing/management, operations and reporting can now be handled in the relevant time zones required.
“When choosing to outsource the middle and back office operations, a customer must feel like the provider is an extension of their own team”, says Pavlos Christoforou, Head of Technology. “This expansion allows us to be closer to our customers and provide them with the best service within the industry.”
Point Nine’s technology interfaces with a number of prime brokers and fund administrators and provides accurate and secure transactions, which are processed by experienced staff across three locations in Europe, Middle East and Asia. Customers include Tier-1 banks, large Asset Managers and cutting-edge hedge funds.
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West Palm Beach (HedgeCo.net) – Morningstar, Inc. reported that hedge funds reported the worst losses in the Morningstar Hedge Fund Index’s history, which began in January 2003.
In September, the Morningstar 1000 Hedge Fund index dropped 7.87%, more than double August`s losses. Hedge funds entered the third quarter virtually flat for the year, but the index`s 13.17% third-quarter drop dragged year-to-date performance into the red.
"In September, the financial world as we know it turned upside down. We saw a shakeout in the hedge fund industry all around the globe. Hedge funds experienced poor borrowing, hedging, and trading conditions while liquidity dried up and volatility skyrocketed," said Morningstar hedge fund analyst Nadia Van Dalen.
Hedge funds were affected by extreme and unforeseen events during the month, including failures and takeovers of mortgage agencies, banks, insurers, and prime brokers.
As the world watched in anticipation of a U.S. government bailout, the global equity markets roiled. The Morningstar Global Equity Hedge Fund Index lost 11.22% in September. The Morningstar Europe Equity Hedge Fund Index declined 9.62% during the month but outperformed the MSCI Europe Index by more than five percentage points, while the Morningstar US Equity Hedge Fund Index underperformed the SandP 500 Index by more than one percentage point.
Developed Asia and emerging markets equity hedge funds managed to avoid some of the market losses, as these indexes outperformed the MSCI AC Asia Index and the MSCI Emerging Markets Index by about five percentage points in September. For the year to date, however, these emerging markets funds have taken more than a 30% hit.
Hedging proved difficult for hedge funds this month. The SEC and the FSA announced temporary bans on shorting financial stocks. Many convertible arbitrage funds taking long positions in financial sector convertible bonds were unable to hedge with short stock positions. The Morningstar Convertible Arbitrage Hedge Fund Index lost 12.39% in September. Fortunately, some equity arbitrage hedge funds were able to avoid financials. The Morningstar Equity Arbitrage Hedge Fund Index lost only 4.60%.
Debt-oriented hedge funds also experienced hedging problems. Credit default swaps, a common way to hedge bond exposure, became more expensive and less attractive with fears of default and counterparty risk. Both the Morningstar Debt Arbitrage and the Morningstar Global Debt Hedge Fund Indexes underperformed global and U.S. bonds, losing 4.39% and 7.50% respectively. The Morningstar Distressed Securities Hedge Fund Index closed the month down 6.21% as risky debt yields rose.
Global trend following hedge funds actually profited from some of the downward trends in the market, as these funds trade stock index futures as well as interest rates, currencies, and commodities. The Morningstar Global Trend Hedge Fund Index lost only 1.26% in September, the best-performing category other than short equity. The Morningstar Global Non-trend Index, comprised of funds with a more macro-economic approach, slid only 1.56%.
Funds of funds performed in line with the Morningstar 1000 Hedge Fund Index, outperforming the index by about 20 basis points in September, but falling slightly short for the quarter and year to date. The Morningstar Multistrategy Hedge Fund Index underperformed the overall index by about 200 basis points in September.
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Daily Telegraph – Lawyers are being galvanised on behalf of a raft of hedge funds which claim the financial watchdog has illegitimately extended its powers and caused "wide-spread capital destruction."
One said: "The FSA’s remit is to maintain orderly markets – the markets were working fine, only the banks were going bust. With one swoop, the regulators have wiped out perfectly legitimate businesses and have cost some funds millions. They have gone for the big political hit without a thought for the damage they are wreaking. There may be unintended consequences but it’s outrageous and illegal."
The backlash follows a week in which the multi-billion pound hedge fund industry has been plunged into crisis. Prime brokers in London estimated that 35 per cent of European hedge funds were organising emergency measures to avoid closing funds as a ban on short-selling has hamstrung managers at a time when they need flexibility to survive.
Bloomberg- Asian hedge funds are increasing their use of multiple prime brokers after the U.S. subprime mortgage market collapse heightened the risk of relying on a single investment bank for brokerage services, an AsiaHedge survey found.
Hedge funds that are managed in Asia or invest primarily in the region awarded 326 shared mandates to prime brokers, 36 percent more than last year, according to Bloomberg calculations based on information in AsiaHedge’s 2007 and 2008 Asian prime brokerage surveys. The pace of growth exceeded the less than 20 percent increase in sole mandates to 778 in the past year.
Rising delinquencies in the subprime market that led to the near collapse of Bear Stearns Cos., once among the top three Wall Street prime brokers, have forced the world’s largest banks and securities firms to post more than $400 billion of asset writedowns and credit losses since the beginning of last year.
New York (HedgeCo.Net) – Bear Stearns has triumphed in a case involving disgruntled investors seeking $141 million for the losses they incurred following the collapse of the Manhattan Investment Fund Ltd., a hedge fund where Bear served as the prime broker.
The fund, which filed for Bankruptcy in 2000, started experiencing losses almost immediately after its launch in 1995. After shorting technology stocks to no avail, fund manager Michael Berger issued false documentation showing profits and gains and ultimately collected $575 million from investors. Berger pleaded guilty in 2000 to securities fraud.
The suit against Bear Stearns was an attempt to hold hedge funds’ prime brokers responsible for investigating fraudulent clients. However, it was ruled that Bear Stearns had acted in good faith. The eight person jury in Manhattan concluded on June 27th that Bear was not liable for failing to see the discrepancies in the hedge fund’s books.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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West Palm Beach (HedgeCo.net)- The EU Parliament has come up with new guidelines regarding hedge fund transparency and ‘asset stripping’. Also proposing some investigative measures and rules so that companies are not left in the dark on the investment policies of hedge funds or private equity investors who buy up their shares.
They also want much more light to be shed on pay and bonus packaged for fund managers. The commission also asked that the EU address the issue of money laundering, specifically in the context of hedge and private equity funds.
MEPs in committee unanimously approved the report by Klaus-Heiner Lehne (EPP–ED, DE) which would – if approved by the plenary – become a formal request to the Commission to put forward EU legislation.
The EP committee proposes to oblige hedge funds and private equity funds to disclose and explain the companies whose shares they acquire or own, retail and institutional investors, prime brokers and supervisors – their investment policy and the associated risks.
The committee also asks the Commission to investigate the possibility to apply, to alternative investments, contract terms allowing for a clear limitation of risk, for measures to be taken if thresholds are exceeded, for a clear description of lock-up periods and for explicit conditions concerning cancellation and termination of investment contracts.
MEPs want the Commission to propose rules forbidding "asset stripping" by investors who misuse their financial power in a way that merely disadvantages the company acquired in the long term, without having any positive impact on its future – or the interests of employees, creditors and business partners. They therefore propose common EU rules to guarantee capital maintenance of companies.
Regarding private equity funds, Members in committee suggested, among several proposals, that the Commission should address the issue of irresponsible lending to private equity funds, where banks disclaim any responsibility for what the loan is used for and where the money that repays the loan comes from.
