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.
Bloomberg – Former Bear Stearns Cos. hedge fund manager Ralph Cioffi, indicted for an alleged fraud that helped bring down the securities firm, attempted to use his $2 million redemption from a fund he supervised as collateral for a condominium, U.S. prosecutors said.
Cioffi, 53, also ”rarely” heeded compliance trading measures, the government said in a court filing in Brooklyn, New York, federal court. Cioffi and another former Bear Stearns hedge fund manager, Matthew Tannin, 47, were indicted last year for misleading investors about the health of two hedge funds that failed in July 2007, costing investors $1.6 billion. The implosion helped trigger the credit crunch and the eventual sale of Bear Stearns to JPMorgan Chase & Co.
Reuters – A global regulatory body backed compulsory registration of hedge fund managers on Monday to restore investor confidence, saying the $1.3 trillion sector did not cause the credit crunch but may have amplified its effects.
The International Organization of Securities Commissions (IOSCO) represents regulators from over 100 countries, including the United States, Japan and the 27-nation EU.
Its final principles flesh out a statement made in March and a pledge from the G20 group of industrialized and emerging market countries in April that all hedge fund managers should be registered and directly supervised.
New York Times Blogs – The compulsory registration of hedge fund managers was backed by a global regulatory body on Monday in an effort to restore investor confidence.
The International Organization of Securities Commissions, representing regulators from more than 100 countries, said the $1.3 trillion hedge fund sector did not cause the credit crunch but may have amplified its effects.
IOSCO’s final six principles flesh out a statement made in March, and a pledge from the G20 group of industrialized and emerging market countries in April, that all hedge fund managers should be registered and directly supervised, Reuters reported. Those principles include mandatory registration of hedge fund managers while prime brokers who provide funding to hedge funds should also be subject to mandatory registration and supervision.
The European Union has also put forward a draft law that goes further than IOSCO, while the U.S. is also planning mandatory registration of hedge funds but so far in a less extensive way than the EU.
Caymen Net News – Hedge funds and financial institutions based in the Cayman Islands have been pulling their money out of Britain as they are hit by the credit crunch, according to figures from the Bank of England. The low-tax regime and limited regulation of the Cayman Islands – with a population of 52,000 – has attracted 80% of the world’s $1.3tn (£790bn) hedge fund industry.
The drop in Cayman Islands’ deposits comes as hedge funds are being forced to return money to investors who have made big losses from the financial crisis. Loans from UK banks to Cayman institutions also fell, but at a lower pace. Outstanding loans from UK banks to Cayman institutions outweighed Cayman deposits in UK banks by $124bn in the first quarter, a sharp increase from $12bn in the last quarter of last year, the data shows.
Hedge funds and financial institutions based in the Cayman Islands have been pulling their money out of Britain as they are hit by the credit crunch, according to figures from the Bank of England.
The low-tax regime and limited regulation of the Cayman Islands – with a population of 52,000 – has attracted 80% of the world’s $1.3tn (£790bn) hedge fund industry.
Those institutions have almost halved their deposits in UK banks over the past 12 months, from $356bn at the end of the first quarter in 2008, to $173bn at the end of March, Bank of England data shows. The drop in Cayman Islands’ deposits comes as hedge funds are being forced to return money to investors who have made big losses from the financial crisis. It also reflects fund losses from falling markets.
The outflow of funds from Britain puts the spotlight on hedge fund threats to abandon the UK because of higher taxes, tighter regulation and potential caps on executive pay and bonuses.
West Palm Beach (HedgeCo.net) – In a preliminary hedge fund performance report for April 2009 and asset flows through March, Morningstar reported the largest one month-return since January 2006—bringing hedge fund returns into positive territory for 2009.
"Over the last two months, the bulls have dominated the markets, and stories of green shoots in the economy colored the financial media. The rally was led by higher-risk asset classes, including small-cap, financial sector, and emerging market stocks, as well as high-yield bonds and leveraged loans. Many hedge fund managers weren’t confident in the sustainability of the rally, and invested with a more conservative market exposure," said Nadia Papagiannis, Morningstar hedge fund analyst.
U.S. convertible bonds benefited from the trend toward higher-risk, low-credit-quality investments. According to the Merrill Lynch All U.S. Convertibles Index, these securities enjoyed their best month since 1987, with speculative-grade convertibles returning more than double the gains of investment-grade securities. The Morningstar Convertible Arbitrage Hedge Fund Index, the best-performing Morningstar hedge fund index this year, rose 5.1% in April and 12.5% year to date.
Also in the lower-quality field, the Morningstar Distressed Securities Hedge Fund Index increased 2.1% in April, the largest since the beginning of the credit crunch in mid 2007.
In emerging market equities, Eastern European countries produced the best returns in April, although this region is still recovering from its early 2009 nosedive. The only losers in April were the Morningstar Global Trend and Global Non-Trend Hedge Fund Indexes, which dropped 1.7% and 0.5% respectively.
According to Morningstar’s database, hedge funds overall continued to show a decline in outflows. In January, investors withdrew more than $29 billion from hedge funds, but February outflows totaled less than $6 billion, while March’s preliminary figure showed an even lower amount, at $3.6 billion. Despite the overall March trend of outflows, developed Asia equity hedge funds actually had net inflows of $4.1 billion in March, and investors were rewarded.
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New York Times Blogs – John Paulson, the hedge fund manager who reaped a windfall betting against the U.S. housing market before the credit crunch, is now hoping to ride to riches on the property industry’s recovery, The Telegraph reported.
Mr. Paulson’s firm, Paulson & Company, is in the early stages of raising money for a new private equity fund, Paulson Real Estate Recovery Fund, the newspaper said.
Reuters – India Church Pension Fund has invested in Future Group backed Indivision India, Advantage Partners and IDG Accel China.
The $8 billion Church Pension Fund based in New York City has roped in Eric Mason(ex-Carlyle Group), to open a new Hong Kong office, its first in Asia, reports Dow Jones.
Mason is a former JP Morgan banker and most recently headed Carlyle Group’s Asian leveraged finance team(set-up in 2007 but disbanded in November 2008 after the credit crunch hampered its ability to raise funds). He will look after all asset classes including private equity, real estate and hedge fund investments in the continent, the report said.
New York (HedgeCo.Net) – Hedge funds can expect to be kept on a tighter leash in the near future, as leaders from all over the world met at the G20 summit in London to discuss the next steps towards remedying the worst financial crisis in six decades.
Agreeing that lax regulation on all levels helped to fuel the credit crunch, the 20 leaders agreed to vamp up national regulators and to keep a watchful eye on any practices that may threaten international markets.
To some, this includes hedge funds, who have taken much of the blame for market meltdowns thanks to domino effects that stem from imploding funds and the practice of short selling which some say can create enough speculation and fear to cause plummeting stock prices.
The Financial Stability Forum, which has been around for over a decade, will be renamed the Financial Stability Board, and will have the task of overseeing international markets, banks, and to some extent, hedge funds.
The FSF has already stated that hedge funds must disclose how much leverage they are using, so that investors can better gauge the risks involved.
In an effort to quell outrageous bonuses and pay, the FSF has said that an executive’s pay must directly reflect the risks they are taking, halting any million dollar pay days for a risky wager. They also vowed to closely monitor the credit ratings agencies, whose actions contributed greatly to the economic meltdown.
The leaders also pledged to boost the war chest of the International Monetary Fund by adding $500 billion, promised to crack down on offshore tax havens and those individuals who failed to disclose information, and threw in $250 billion to help kick start trade over the next two years. An agreement was made not to introduce any new policies that would restrict trade through 2010.
Although the FSF has not drafted any rules as of yet on hedge funds or tax havens, they did agree that “systemically important hedge funds” will be regulated.
"Today the largest countries of the world have agreed on a global plan for economic recovery and reform," said British Prime Minister Gordon Brown.
President Obama agreed, saying that “the London summit was historic.”
French President Nicolas Sarkozy, who is an advocate on stricter regulations for hedge funds added, “The G20 countries have decided on a profound reform of the international financial architecture, which has not been done to such an extent since the Bretton Woods accords in 1945.”
U.S. stocks surged following the summit and the promise of a renewed economy that came with it. The Dow Jones Industrial Average shot past 8,000 for the first time since February 10. It ended the day up 2.8 percent.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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CNN Money – They are finally getting more serious on regulation. But success will hinge on delivery, not just detail.
The G20 summit in London will adopt a more detailed approach to overhauling the world’s financial rules in a bid to avert a rerun of the credit crunch that has floored economies.
Last November the G20 couched regulatory reform in general terms and Thursday’s summit will inject some much-needed detail in a bid to quell criticism from Germany and France.
West Palm Beach (HedgeCo.net) – Despite the credit crunch, sixth formers at Sunningdale Preparatory School, near Ascot, Berkshire, have entered funds into a virtual trading competition… and their early efforts are beating the market. Far from being discouraged by the doom and gloom reported on a daily basis, their interest has been ignited.
William Brooks, Deputy Headmaster, is impressed. "The boys are enthused; they have opened accounts and are trading against each other and the staff. I recently showed some prospective parents around and they could not believe their eyes… two boys discussing what limit to place on their newly acquired Allied Irish stock." In the past, schools would introduce pupils to share dealing by referring to price lists in the daily newspapers, and tallying results by hand. But the internet has brought realistic trading simulations that bring real time reporting, automated paper trails and full historical records, all at the click of a button.
Brooks continued, "We looked at several alternatives but chose Stockopedia as it enables us to research, discuss and trade all from the same website. Using the site allows the boys to better understand market timing without risking real money, while the online community has helped to generate trading ideas."
Before the markets resumed their recent plunge to new lows, the Sunningdale sixth formers traded a rally in banking stocks and managed to exit profitably. Overall, the Sunningdale funds have outperformed the FTSE benchmark by 8.1% over the last month. At the end of March, the 2009 Stockopedia Challenge officially launches and both the boys and the staff are well placed for the prizes on offer, including flights to visit Wall Street.
Edward Croft, Managing Director of Stockopedia, is pleasantly surprised by the results. "Sunningdale’s performance to date has been impressive and one of their boys, Archie Bannister, 13, has been this week’s top performer. While the FTSE 100 has dropped 15% recently, his fund has made positive gains – making up 10% in the last week alone… it’s a very promising start." Croft is pleased that young people are using the site to learn to become more financially autonomous. "Recent scandals, like the Madoff affair, have shown that blindly trusting market professionals can be extremely dangerous – so it’s reassuring to see schools encourage independent thinking and analysis in this area at such an early age".
The Headmaster, Tom Dawson, is "delighted that the boys are filling in some of their free time in this way. My only concern is that they are proving far better investors than I am!"
