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Globe and Mail – Daniel Gross, writing on Slate, makes an interesting point about the latest version of the U.S. government’s bailout plan: The plan, officially known as the Emergency Economic Stabilization Act of 2008, looks a lot like the prospectus for a hedge fund.
“In the past, hedge funds – secretive pools of capital – were open only to qualified (read: rich) investors,” he said. “But with the stroke of a pen, President Bush will soon make all American citizens investors in the world’s biggest fund – and a democratic one at that.”
Hedge funds often use leverage, or borrowed money, to amplify their returns and often use the money to buy beaten up assets. Similarly, the bailout plan, which Mr. Gross dubs the Universal Hedge Fund, will use $750-billion (U.S.) of borrowed money to buy distressed assets. But the similarities don’t end there. The manager of the Universal Hedge Fund can hold bonds to maturity or flip them for a profit. The manager can also bring in outside expertise, making the fund look like a fund of funds.
“Like many of today’s sharpest hedge funds, the Universal Fund will also have the ability to drive a harder bargain by demanding equity stakes, or new debt securities, from the institutions it is helping,” Mr. Gross said.
New York (HedgeCo.Net) – The $700 billion rescue plan proposed by the Treasury and backed by President Bush seems to be greeted with disdain by republicans and democrats alike. After excruciatingly long hearings and even an emergency meeting with the two presidential candidates, an agreement was still not reached as to how the rescue will play out.
“There will ultimately be $700 billion available, but how soon and with what other steps, are still being debated,” House Financial Services Committee Chairman Barney Frank told reporters.
Some issues that lawmakers are trying to come to terms on include executive compensation, foreclosures, accountability, regulation, and how taxpayers can be provided equity stakes in the companies whose rescues they would be helping to fund.
Some republicans are pushing for financial institutions to purchase insurance on mortgage-backed securities, while the Treasury is opting for a plan where the government would instead purchase the bad debt.
"I don’t believe this Paulson plan will solve the problems, it might exacerbate them,” said Richard Shelby, a Republican member of the Senate Banking Committee.
Experts agree that unless the majority of the party hops on board with the president, it’s unlikely this will be passed through congress.
“Ms. [Nancy] Pelosi will not bring a partisan bill to the floor,” Frank said. “If the House Republicans continue to reject the president’s approach then there is no bill.”
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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Guardian.co.uk – Hedge funds are known for playing many roles on Wall Street, but last-resort lender to small businesses that are turned down by banks is hardly one of them.
Yet with the credit crunch pushing many major U.S. banks to set tougher lending standards for small and medium-sized businesses, hedge funds have stepped in.
The money isn’t cheap, with interest rates of 14 percent or more. But small businesses have few places to turn.
"A major void has been created in the marketplace by banks tightening their credit standards and trying to stabilize their balance sheets," said David Grin, co-founder of Laurus-Valens, a hedge fund with around $1.7 billion under management. "From the investment point of view, this is as good as it gets."
Laurus-Valens provides loans to public and private companies with average revenues of $30 to $50 million. The fund charges interest rates of about 10 percent to 11 percent, and takes equity stakes in the companies.
