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.
Globe and Mail – This is how bad things are for hedge funds right now. On the CanadianHedgeWatch.com website, a hub for the hedge business, the lead article one recent day was headlined "The hedge fund collapse."
The article, which originally appeared on the Portfolio.com website, tells us that as many as half the 10,000 hedge funds that existed earlier this year could fail or be wound up in the next 12 months. Outsmarted by the financial crisis of 2008, some prominent hedge fund managers lost 20 to 65 per cent of their assets even before October came. "The hedge fund mystique died with the crash of 2008," the article says.
The mystique is dead for sure, but hedge funds are not. The Horizons Global Contrarian Fund proves it.
What we have in Horizons Global Contrarian is a hedge fund of the old school. Rather than acting as a supercharged equity fund willing to push all risk boundaries, it tries in a measured and conservative way to make money no matter what the stock markets are doing.
Reuters – Hedge fund managers could play a key role in jump starting the ailing U.S. economy if Washington offers them appropriate tax breaks, a prominent hedge fund industry lawyer said on Tuesday.
Sitting on billions of dollars in cash, dozens of hedge funds are looking for investments at the same time cash- strapped small and mid-sized companies search for new money to help them stay in business.
Together these unlikely partners could find a way to escape a debilitating liquidity crisis that threatens to push the country further into its deepest financial crisis since the Great Depression, Perrie Weiner, a partner at law firm DLA Piper told Reuters in an interview.
"There is a way out, but the answer lies not with the current government rescue plan, but rather with hedge funds," Weiner, who advises dozens of hedge funds as international co-chair of DLA Piper’s Securities Litigation group said one day before speaking about the topic at an industry conference.
Reuters – European shares climbed on Friday while most Asian shares fell as investors sought to balance economic worries with a new era of lower interest rates ahead of key U.S. jobs data.
Oil dropped briefly below $60 a barrel before bouncing back to nearly $62 and the dollar was generally weaker.
The latest U.S. non-farm payrolls report is widely expected to show the world’s largest economy continuing to bleed jobs. The median forecast of economists polled by Reuters last week is for payrolls losses of 200,000 in October.
Investors have found few consistent havens except for the yen and some government bonds, with the financial crisis expected to see the world’s developed economies headed for the first full-year contraction since World War Two.
Times Online UK – Litigation departments at the City’s leading law firms have grown significantly busier in recent weeks as investors turn to legal action to recover losses suffered as a result of the financial crisis.
Although lawyers have been predicting an upturn in litigation since the credit crunch began last summer, that has yet to emerge as investors were reluctant to admit to holding negative positions.
But Jonathan Kelly, a partner at Simmons & Simmons, the international law firm, said that financial institutions, hedge funds, municipalities and other investors had begun considering legal action as the market showed signs of settling.
Mr Kelly said that there had been a significant increase in instructions and conflict referrals in recent weeks — an observation confirmed by lawyers at other City firms.
Washington Post – The Bush administration’s decision to drop proposed money-laundering rules for hedge funds is "inexplicable, ill-timed and unwise," Sen. Carl M. Levin (D-Mich.) said yesterday.
Hedge funds, private investment pools whose investors are often wealthy individuals, have drawn increased scrutiny during the financial crisis. But even before the market troubles, some legislators worried that the largely unregulated funds could serve as a vehicle for money laundering, perhaps for tax evaders or terrorists.
"Hedge funds are unregulated financial companies that can handle millions of dollars in offshore money without any legal obligation to check who is behind the funds or report suspicious activities," Levin said in a statement. "But instead of plugging the hedge fund regulatory gap by issuing a final rule, the Administration went the opposite way, withdrew its anti-money laundering proposal, and offered nothing in its place."
Washington Post – Seven years ago the Patriot Act required every financial institution to establish a program to combat money-laundering.
But the roughly $2 trillion hedge-fund industry today remains free of any such government restrictions, and this week the Treasury Department formally withdrew its once proposed rules.
"Hedge funds do represent some risk because their operations and the identity of investors are generally not very transparent," said Steve Hudak, a spokesman for the Financial Crimes Enforcement Network of the Treasury Department. But "that risk needs to be studied and carefully assessed prior to implementing any anti-money-laundering regulations."
Hedge funds, which are largely unregulated investment pools whose investors are often wealthy individuals or sophisticated financial firms, have drawn increased scrutiny during the financial crisis.
Bloomberg – Deephaven Capital Management LLC, the hedge-fund unit of stockbroker Knight Capital Group Inc., froze a $1.6 billion fund after investors asked to get back 30 percent of their money.
Withdrawals from the Deephaven Global Multistrategy Fund were suspended so managers wouldn’t be forced to sell assets in falling stock and debt markets, the Minnetonka, Minnesota-based firm said yesterday in a letter to investors. Lenders and trading partners also imposed stricter financing requirements, according to the letter.
Deephaven Global, which trades a variety of securities including bonds and commodities, follows RAB Capital Plc, Ore Hill Partners LLC and Highland Capital Management LP in limiting withdrawals amid the worst financial crisis since the Great Depression. The fund lost 15 percent this year through September, and Deephaven estimated it has fallen an additional 10 percent this month. The fund has returned an average of 16 percent annually since opening in 1994.
“This level of redemptions in the current market environment forces the question of whether such redemptions can be processed in the ordinary course without disadvantaging both continuing and later redeeming investors,” said the letter, signed by Colin Smith, Deephaven’s chief executive officer .
Bloomberg – At 5-foot-4 and 48 years, Nissim “The Miracle” Tse is the shortest and oldest of 34 boxers signed up for this year’s Hong Kong Hedge Fund Fight Nite.
Calling himself “a financial warrior,” Tse likens boxing to his daytime job as a co-founder and head of trading for Hong Kong-based Pi Investment Management Ltd., a unit of London hedge fund manager RAB Capital Plc.
“It’s mental, it’s physical, it’s crazy, it’s stressful,” Tse said in an interview. “But it all happens very quickly, just like you are managing a hedge fund.”
The annual charity fight tonight, in its second year, takes place amid the most severe financial crisis since the 1930s and with the hedge fund industry bracing for its biggest annual loss since Hedge Fund Research Inc. started to keep data in 1990.
The fight night aims to raise HK$1 million ($129,000) to repair children’s facial deformities and combat crime and juvenile delinquency in low-income and immigrant communities. The event beat the same target last year.
BusinessWeek – For the first time in 76 years, a financial crisis is occurring at the same time as a Presidential election. Based on recent polls, the coincidence seems to have boosted the chances that Illinois Senator Byearack Obama, the Democratic nominee, will defeat Republican Arizona Senator John McCain on Nov. 4.
The financial crisis has affected the Presidential race, but how is the election affecting the financial markets? Pundits offer endless theories on that question, and their answers are often suspiciously similar to their political views.
Thus, right-leaning market experts insist Obama’s tax proposals would be disastrous for investors. More liberal Obama supporters insist the market will celebrate if he is given the job of leading the world out of the financial crisis.
Bloomberg – Five straight quarters of losses and a 70 percent slide in its stock this year haven’t stopped Merrill Lynch & Co. from allocating about $6.7 billion to pay bonuses.
Goldman Sachs Group Inc. and Morgan Stanley, both still on track for profitable years, have set aside about $13 billion for bonuses after three quarters, down 28 percent from a year ago. Even some employees at Lehman Brothers Holdings Inc., which declared the biggest bankruptcy in U.S. history last month, will get the same bonus they received a year ago.
The worst financial crisis since the Great Depression, a $700 billion taxpayer bailout, public outcry over excessive pay and the demise of three of the biggest securities firms won’t deter Wall Street from offering year-end rewards to employees on top of their salaries, compensation experts say.
Reuters – Up to half of Russian hedge funds could go out of business as the financial crisis sends investors fleeing and the stock market continues to fall, according to industry experts.
Speaking at the Russia Alternative Investment Summit on Wednesday, Simon Fentham-Fletcher, head of fund of hedge funds at Raiffeisen Bank, said in a worst-case scenario, 50 percent of Russian hedge funds could close.
The primary source of failure will be a lack of funding as performance deteriorates and investors redeem their money, he said.
"If they’re not well-capitalised they can’t look after themselves properly. It’s expensive to run a hedge fund out of Russia and you can eat into your reserves very quickly," said Fentham-Fletcher, who is based in Moscow.
People – Bowing to Europe’s enthusiasm fora new global financial order, U.S. President George W. Bush has agreed recently to host a world summit on reforms of the international financial system.
After a weekend meeting at Camp David some 100 km north of Washington D.C., Bush said in a joint statement with French President Nicolas Sarkozy and European Commission President Jose Manuel Barroso that the summit would "seek agreement on principles of reform needed to avoid a repetition of the problems and assure global prosperity in the future."
It was regarded as a victory for European Union (EU) leaders, who are pushing hard for an overhaul of the current global financial system in the wake of the financial crisis.
Europe has become a big victim in the financial crisis, which originated in the United States. As European banks are still struggling with tight credit triggered by the U.S. sub-prime mortgage defaults, Europe learned it can hardly be separated from the United States.
