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Motley Fool - What does the turmoil in the hedge fund world mean to most investors? Losses and more losses. Over the past few weeks, the forced deleveraging of the industry, combined with redemptions by frantic clients, has led to hundreds of billions in stock sales (redemptions in the third quarter amounted to $117.3 billion, according to a new report out by HedgeFund.Net), creating horrific declines in many stocks — but interestingly, not in all stocks.
According to an equity strategist for one of the most successful fund-of-funds outfits in the country, stock holdings among equity hedge fund managers are and have been highly concentrated. Described as "crowded longs," these most-favored stocks tanked in September and October as funds scrambled for cash. Overall, equity long-short funds are down 25% year to date, according to Hedge Fund Research, compared with a near-40% slide in the S&P 500. While hedge funds have outperformed, the showing certainly is disappointing for an industry that is supposedly hedged. The shortfall is because so many managers own the same stocks, and all rushed to sell at the same time. (There were more than 8,000 hedge funds operating at the start of 2008.)
Northern Star Online - Media conglomerate Tribune Co., smothered by $13 billion in debt and weak prospects for generating cash through advertising, on Monday became the first major newspaper publisher to seek bankruptcy protection since the Internet began siphoning readers from traditional outlets.
Although Tribune’s next major principal payment on the debt, of $593 million, isn’t due until June, has been in danger of missing lender-imposed financial targets at year’s end. Those targets are based on the level of Tribune’s debt relative to its cash flow, and become harder to meet as revenue declines, even if the debt itself doesn’t increase.
Other newspaper companies have also struggled with their debts, but many have successfully negotiated with lenders to ease their targets in exchange for higher interest rates.
Bloomberg - There’s not a lot of light in Paulson & Co.’s 28th-floor headquarters on a drizzly November afternoon. The Alexander Calder sculpture and multicolored prints have been shipped to the firm’s new offices six blocks south. Darkness envelops the New York skyline.
The Dow Industrials have lost a total of 929 points over two days, and the jobless rate is poised to hit 6.5 percent. And John Paulson, who oversees $36 billion in hedge fund assets, isn’t exactly Mr. Sunshine either.
“You have deterioration in almost every asset class,” Paulson says. “You’re looking at declines in housing prices, the health of manufacturers and the earnings of various companies. There are rising delinquencies in auto loans and commercial real estate.”
Bloomberg - Brazilian hedge funds saw a record 14.3 billion reais ($6.7 billion) in withdrawals last month after returns trailed a fixed-income benchmark even while defying a 25 percent plunge in the Bovespa stock index.
The redemptions brought total outflows this year to 48.9 billion reais, shrinking the industry by 16 percent, according to data released by the National Association of Investment Banks yesterday. The rate of withdrawals is similar to hedge funds globally, even though the worst-performing Brazil funds lost a third as much on average as their overseas rivals.
Brazilian managers avoided declines even as the Bovespa plunged 43 percent this year. Investors withdrew money because they compare performance against fixed-income indexes, said Luiz Felipe Andrade, a director at the association known as Anbid. Bond yields in Brazil are among the highest in the world.
Bloomberg - Brazilian hedge funds saw a record 14.3 billion reais ($6.7 billion) in withdrawals last month after returns trailed a fixed-income benchmark even while defying a 25 percent plunge in the Bovespa stock index.
The redemptions brought total outflows this year to 48.9 billion reais, shrinking the industry by 16 percent, according to data released by the National Association of Investment Banks yesterday. The rate of withdrawals is similar to hedge funds globally, even though the worst-performing Brazil funds lost a third as much on average as their overseas rivals.
Brazilian managers avoided declines even as the Bovespa plunged 41 percent this year. Investors withdrew money because they compare performance against fixed-income indexes, said Luiz Felipe Andrade, a director at the association known as Anbid. Bond yields in Brazil are among the highest in the world.
The Australian - David Gray, UBS’s head of prime services in the Asia-Pacific, says: "In the next three months, people will make decisions about whether they want to continue their business that may prove uneconomic for them," Hong Kong-based Mr Gray said. "Fund managers are quite a hardy lot who don’t give up easily; they’ve gone through a couple of crises."
About 20 per cent of hedge funds in Asia, which underperformed rivals in the US and Europe, are profitable this year, according to Mr Gray. Their performance diverged from declines of 40 per cent to gains of 20 per cent, he said.
Hedge Funds Review Magazine - Troubled Swiss-based alternative asset management group Gottex Fund Management Holdings said assets under management (AUM) were down over $2 billion to $13.5 billion at September 30, 2008, compared with $15.6 billion at June 30, 2008. The fall represented a 13.6% decrease.
The fall was mainly caused by “negative performance in extremely challenging markets”, according to a company statement on third quarter trading. The poor performance was despite Gottex’s market neutral and directional products performing better than or in-line with the broader market indices and relevant hedge fund benchmarks.
AUM change across Gottex strategies during the quarter 2008 included declines in market neutral and directional strategies (-13.1%), asset based strategies (-15.8%), advisory mandates (-15.2%) and enhanced index strategies (-3.2%).
CNBC - Ongoing hedge fund losses and liquidations spooked markets Wednesday, and some of the biggest names in the mix now are Citadel Investments and Highland.
Hedge funds had their worst month ever in September, with average losses of 6.2 percent, according to an estimate by TrimTabs Investment Research.
All major categories of funds chalked up losses over the month, but emerging markets, long equity funds and distressed strategies had the worst results. The declines came as investors withdrew $43 billion from hedge funds—almost seven times the previous monthly record for redemptions, TrimTabs said.
Citadel confirmed to CNBC that its flagship Kensington and Wellington funds, which hold around $15 billion in assets, are down between 26 percent and 30 percent so far this year.
RK Capital Management LLP, the metals hedge-fund firm co-founded by Michael Farmer, lost as much as 30 percent last month amid falling copper and aluminum prices, according to an investor with the firm.
The declines cut the combined returns of the firm’s five funds to about 2 percent this year, said the investor, who asked not to be identified because the information is private. Red Kite Metals, the company’s biggest fund, dropped about 40 percent, bringing this year’s loss to as much as 7 percent.
The London Metal Exchange Index of six industrial metals fell 6.6 percent last month and is down 3.6 percent in 2008 as the slowing global economy cut demand for materials such as lead and zinc. Ospraie Management LLC, the New York-based commodity hedge-fund firm run by Dwight Anderson, said last week it will shut down its biggest fund after it lost 39 percent this year.
Bloomberg - Asia hedge-fund closures jumped 19 percent this year, with the industry set to shrink for the first time as clients withdraw more money after funds in the region underperformed rivals in the U.S. and Europe.
“It is likely that we’ll see a net reduction in the number of Asian hedge funds through this current year,” Peter Douglas, principal of Singapore-based hedge fund consulting firm GFIA Pte, said in an interview yesterday. “Almost without exception, the managers that we talk to in Asia are seeing capital outflows, some of it is minor, some of it major.”
About 70 hedge funds in Asia have shut down as of August, an increase from 59 in the first eight months of last year, according to Eurekahedge. There are 618 Asia-focused managers managing 1,199 hedge funds, compared with 1,196 funds in December. Assets under management fell to $168 billion in August, from $176 billion at the end of 2007, according to the Singapore-based hedge fund research and publishing company.
Asia’s hedge-fund managers — more than half of whom trade only equities — have underperformed their U.S. and European counterparts whose more diverse strategies allowed them to profit from turmoil in financial markets. Asia’s hedge-fund average returns fell 12.6 percent this year, compared with declines of 0.1 percent in North America and 5.8 percent in Europe, Eurekahedge said. Asia gained 18 percent in 2007, outperforming both regions.
Times Online - Surging fears of Armageddon in the global financial system ravaged a wide selection of commodities across Asia as groups ranging from hedge funds to day traders spent the day in a headlong flight from risk.
The shock waves from the bankruptcy of Lehman Brothers reverberated through markets for vegetable oil, soy beans, rubber and industrial metals as confidence in the financial system faltered, global growth prospects dimmed and cash became king.
Broad baskets of commodities — once seen by speculators as a sure-fire bet because of China and India’s apparently unstoppable growth — were sold, with food and metals tracking the sharp declines in crude oil.
Dealing floors in Asia descended into mayhem as analysts forecast a period where commodity markets were effectively “frozen” by a sudden drought of fresh capital.
Globe and Mail - A year ago, Dwight Anderson was being hailed as the "king of commodities," a precocious 40-year-old hedge fund manager who made a prescient - and highly profitable - bet that global food prices would spike in unprecedented fashion.
Now he is merely another in a long line of hard-luck speculators, his crown handed to him by a fickle commodities market that has proven itself capable of ruining fortunes as quickly as it created them.
In a letter to investors yesterday, Mr. Anderson announced he was shutting down the largest fund of Ospraie Management LLC, the firm he built into one of the largest commodities-themed hedge funds in the world. The Ospraie Fund, which focuses on natural gas, oil, metals and other resources, boasted assets of almost $4-billion (U.S.) at its peak last year, but so far in 2008 it is down 39 per cent - including a gut-wrenching 27-per-cent slide in August.
"I am extremely disappointed with this result and the fund’s sudden reversal in performance," Mr. Anderson wrote. "The losses were primarily caused by a substantial selloff in a number of our energy, mining and resource equity holdings during a six-week period characterized by some of the sharpest declines in these sectors in the past 10 to 20 years."