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.
Law.com – The 8th U.S. Circuit Court of Appeals has become the first circuit in the country to rebuff efforts by a hedge fund to call in a debt based on an alleged technical violation of bond terms in a dispute over an $850 million note issued to United Health Group Inc.
The circuit noted that at least three other federal judges and a New York state court have come down the same way, rejecting the practice used to assert a default claim against United Health in United Health Group Inc. v. Wilmington Trust Co., No. 08-1904 (8th Cir.)
Claims similar to Wilmington Trust’s have cropped up in other cases as an investment strategy derided by attorney Robert Giuffra, as a "shakedown strategy" that takes from shareholders and gives to bondholders. Giuffra of Sullivan & Cromwell in New York represented United Health in the case. "We are pleased with the 8th Circuit’s decision holding that United fully complied with the terms of its indenture, the relevant federal statute and acted in good faith," he said.
Seeking Alpha – With the news getting worse and worse for the hedgies (e.g. Fortress, Thomas Lee, D. E. Shaw), it’s time for a rethink on hedge funds.
For hedge fund investors: You probably went into them believing that they were uncorrelated absolute return vehicles, or pure alpha. Isn’t it funny how correlations all go to 1 in times of crisis? Maybe it’s time to return to your roots and understand the role of alternative investments in your portfolio.
For hedge fund managers: The really successful ones began fifteen or twenty years ago as small, nimble, guerilla investors. Somewhere along the way the guerillas came down from the hills, got big and became the government. Maybe it’s time to return to the hills again.
Investors thought hedge funds were the panacea when the hedgies showed positive returns in the post-Tech bubble crash. Ultimi Barbarorum writes:
Last time we had a bear market, hedge fund fortunes were made. Andor Capital, William von Meuffling, Crispin Odey, Chris Hohn, even Jim Cramer when he was trading, all made out like bandits producing 20-50% returns on the short side in 2000-2002, many after having doubled their money by being long in 1999.
Reuters – Hedge funds should be wary of being pressured into cutting fees because of poor performance numbers during the financial crisis, a director at fund research company Lipper FMI said on Thursday.
Speaking at a briefing on trends for the fund management industry, director of fiduciary operations Ed Moisson said the industry was seeing much discussion around a potential overhaul of the standard ’2 and 20′ structure.
Hedge funds have traditionally charged a 2 percent management fee and a 20 percent performance fee on investments in their funds.
Reuters – Hedge funds in the European Union will be regulated following a public consultation that is currently underway, a senior EU official said on Wednesday.
"On hedge funds, we have used as our basis that they must be regulated," EU Economic and Monetary Affairs Commissioner, Joaquin Almunia told the European Parliament.
On Monday the bloc’s internal market commissioner, Charlie McCreevy, launched a public consultation on whether hedge funds needed more oversight but stopped short of saying if there will be regulation or a softer approach, such as an industry code.
Washington Post – The European Union will this week take the first step toward new rules governing high-risk hedge funds, the EU’s financial services chief said Monday.
EU Commissioner Charlie McCreevy, long opposed to regulating the funds, is bowing to calls from the G-20 group of the world’s leading industrialized and emerging economies and many European politicians for more oversight for hedge funds that invest large sums and often operate in near secrecy.
He said the European Commission would consult European financial firms and others, sparking a debate that might see regulators eventually come up new rules.
He said he wanted to focus on the risks hedge funds might pose to the financial system if current rules were left in place. EU regulators also have to define hedge funds and consider how they should deal with hedge funds based in jurisdictions with little supervision, he said.
Barron – In the 1980s, Carl Icahn loomed large as a corporate raider, in the mold of the Gordon Gekko character in the movie Wall Street. Icahn made a lot of money but was vilified for what some considered a slash-and-burn approach to taking over companies.
Twenty years later, Icahn has morphed into a shareholder activist and rails against what he considers to be incompetence among senior executives and on boards. "They call me raider. They call me an activist," says Icahn, who, at 72, shows no sign of slowing down. "I don’t know what those labels mean. All I know is that something should be done to improve corporate governance and management. If we don’t, managements will remain unaccountable and our economy will suffer."
Politico – On the same day Lawrence Summers was announced as President-elect Barack Obama’s top White House economics adviser, the veteran economist said he would resign as the part-time managing director of one of the nation’s largest and most successful hedge funds, D.E. Shaw & Co.
But even as Summers takes the lead of economic policy thinking for the Obama White House, which has promised to be one of the most open and transparent in history, neither the Obama transition team nor D.E. Shaw would say exactly what Summers had done in his two years of work for the $36 billion hedge fund, or how much he has been paid.
In a press release issued Monday, D.E. Shaw said only that Summers had been working on “various strategic initiatives, high-level research and advising the executive committee on the overall business.”
Washington Post – Hedge funds cut stock holdings by almost two-thirds from a year ago, signaling that they are less willing to take risks amid tighter credit and almost $1 trillion in write-downs and losses, Goldman Sachs Group said.
Net holdings of equities decreased to 17 percent from 47 percent a year ago, David Kostin, who leads Goldman’s New York-based portfolio strategy team, wrote in a note.
"Hedge funds may have returned closer to their roots as ‘hedged’ investors, less dependent on market direction to produce returns, migrated away from the levered long strategies that many funds pursued during the upward-trending market of 2002 to 2006," Kostin said.
Globe and Mail – Amaranth Advisors LLC and two of its former traders have reached a settlement with U.S. regulatory staff over the alleged manipulation of natural gas futures prices.
The deal, which was submitted to the U.S. Federal Energy Regulatory Commission, could end the long case against hedge fund traders Brian Hunter and Matthew Donohue.
A spokesman for Mr. Hunter, a Calgarian who made more than $100-million trading natural gas for Amaranth before the hedge fund collapsed, declined to comment.
The commission accused the traders last year of manipulating prices on the New York Mercantile Exchange, and proposed a $291-million (U.S.) fine.
EasyBourse.com – Global securities regulators have formed three task forces targeting short selling, hedge funds and unregulated financial trading, in an effort to take "urgent action" to coordinate responses to current market turmoil, Securities and Exchange Commission Chairman Christopher Cox announced Monday.
The newly formed short-selling task force, chaired by the Securities and Futures Commission of Hong Kong, will work to eliminate different approaches to "naked" short sales, including delivery requirements and disclosure of short positions, while minimizing any harm to legitimate securities lending, hedging and other transactions. Read Complete Article
AP – President George W. Bush has granted pardons to 14 individuals and commuted the prison sentences of two others convicted of misdeeds ranging from drug offenses to tax evasion, from wildlife violations to bank embezzlement, The Associated Press learned Monday.
The new round of White House pardons are Bush’s first since March and come less than two months before he will end his presidency. The crimes committed by those on the list also include offenses involving hazardous waste, food stamps, and the theft of government property.
Free Internet Press – George Soros, 78, has made billions as a hedge-fund manager and investor. Germany’s Spiegel magazine spoke with him about the current financial crisis, how he expect President-elect Barack Obama to respond to the economic disaster and the responsibilities borne by speculators.
SPIEGEL: Mr. Soros, in spite of massive interventions by governments and federal banks the financial crisis is getting worse. The stock markets are in free fall, millions of people could lose their jobs. More and more companies are in trouble, from General Motors in Detroit to BASF in Ludwigshafen. Have you ever seen anything like it?
Soros: Never. I find the present situation dramatic and overwhelming. In my latest book, “The New Paradigm for Financial Markets: The Credit Crisis of 2008”, I predicted the worst financial crisis since the 1930s. But to tell you the truth: I did not actually anticipate that it would get as bad as it did. It has gone beyond my wildest imagination.
