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.
Commodity Online – Agoracom market analyst Peter Grandich, who isn’t among those who expect the world at large to emerge from “this absolutely horrific downturn” by year-end, instead sees good opportunities on the horizon for investors who want to “buy things on the cheap” because prices will fall in the equity markets.
He also sees bright prospects for gold—particularly gold ETFs and mining companies that are in or near production and have potential for developing additional deposits. At the same time, Peter tells The Gold Report that the “severely wounded” U.S. economy should anticipate rougher and tougher times.
Sarasota Herald-Tribune – Richard W. Fields says he has come up with a win-win financial strategy for the downturn. He is investing in lawsuits.
Not in trip-and-fall cases, mind you, but in disputes that are far larger, more costly and potentially more lucrative, often pitting major corporations against each other.
Mr. Fields is chief executive of Juridica Capital Management. which runs a fund that invests in one side of a lawsuit in exchange for a share of any winnings.
Alibaba News Channel – Aggressive government action can hurt the market, but regulators should clamp down on leverage among banks and investors to prevent another credit crisis, veteran hedge fund manager Paul Singer said at a conference.
Singer said the current "anti-capitalist" fervor, inspired by last year’s market meltdown and the ongoing recession, will likely lead to increased regulation. These measures would only prolong the problem, he told some 1,200 hedge fund executives at the Ira Sohn Investment Research Conference on Wednesday.
By the same token, he observed that highly regulated banks fueled last year’s market implosion because they ramped up their use of leverage, or borrowed money, for trading and investments. High levels of leverage in a downturn can multiply losses and throw markets into chaos.
Bloomberg – The cost of insuring hedge funds against negligence has risen as much as 20 percent in the past six months after Lehman Brothers Holdings Inc.’s bankruptcy and Bernard Madoff’s Ponzi scheme increased the threat of lawsuits.
A fund manager with $200 million of assets running a “straightforward” strategy is typically paying as much as $60,000 a year for $5 million of coverage, up from $50,000 at the end 2008, said Brian Horwell, director of professional risks at London-based Miller Insurance Services Ltd.
“We’ve had Lehman Brothers, Madoff and the financial downturn, all of which are hitting claims,” said Paul Towler, head of financial and professional insurance at Jardine Lloyd Thompson Group Plc in London. “There’s a lot of worry and concern about what other claims are still to come out.”
Fortune Magazine - Is the current downturn merely a severe slump, or are we facing a second coming of the Great Depression? That’s the question everyone is asking these days. But Ray Dalio, founder of Bridgewater Associates and manager of what is now the world’s biggest hedge fund, has been preparing to answer it for eight years.
In 2001 he had his investment team build a "depression gauge" into the firm’s computer system, line by line in the code, to adjust the portfolio’s strategy and risk profile if the economy ever entered a massive deleveraging period – the kind of multiyear process that ricocheted through the world economy in the 1930s and that has eviscerated markets periodically through the ages.
Reuters – It would be hard for many to imagine hedge funds buying stock in a U.S. company with the word "home" in its name in the worst housing downturn since the Great Depression — let alone speak admiringly of its solid cash flow and growth prospects.
But to a number of hedge funds, Brink’s Home Security Holdings Inc is just such a company, benefiting from long-term solid cash flow and more security-conscious consumers who fear rising crime as the nation’s economic slump drags on.
"With its very predictable cash flow, this stock is the Rock of Gibraltar," said a principal at a hedge fund that has owned Brink’s shares for years. He said he could not be quoted on the record, in part because the fund was considering raising its stake in the home-security system provider.
West Palm Beach (HedgeCo.net) – Canadian mining, development and exploration company, Frontera Copper Corporation, has agreed, due to the recent downturn in the copper market, to Mexican hedge fund Invecture’s hostile take over bid.
After determining that the hedge fund, Invecture Group, S.A. de C.V’s, offer was superior to the offer previously received from Southern Copper Corporation, the Company’s financial advisor, RBC Capital Markets, said that from a financial point of view, the hedge fund’s offer is fair to Frontera shareholders.
Frontera’s principal activity is the production of copper cathode from the Piedras Verdes run-of-mine heap-leach copper operation in Sonora, Mexico. Based on the January 1, 2008 ore reserves and the estimated recoverable copper contained on the leach pads at December 31, 2007, approximately 1 billion pounds of copper is projected to be produced over the remaining 17-year life of the operation.
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Lexington Herald-Leader – When does "absolute" imply something that in reality is far less than certain?
When it comes to "absolute return funds." That’s the label mutual fund companies have put on hedge fund-style products that they’ve been rolling out the past three years. The funds seek to smooth out the bumpy, downward ride the markets have taken lately.
But you can still lose money, even if you manage to fare better than most investors in a downturn. Absolute return funds lost an average 11.7 percent over the 12-month period ended Wednesday, according to Morningstar Inc.
CNN Money – Citadel Investment Group’s main hedge fund lost 53% for 2008, according to a person familiar with Citadel’s preliminary estimates.
The $10 billion Kensington and Wellington funds lost about 9% during the first 24 days of December, punctuating the toughest year yet for Citadel founder Ken Griffin. That came after a 13% loss in November. In 2007, the fund was up 30%.
A bright spot this year was Citadel’s $3 billion market-making family of funds, which ended 2008 up about 43%, according to preliminary estimates.
Citadel has weathered the downturn better than some fund managers thanks to its financial flexibility and its size, at a time when the industry is contracting and many smaller funds are forced to close down.
Reuters – Hedge funds are set to return to their roots as niche products for the happy few as they have been unable to deliver the gleaming returns they were promising ever since the start of the credit crisis.
Hedge fund managers have long been flaunting alpha — returns down to their skills to beat markets by using advanced investment techniques — but many were caught short just as any other investor in this year’s protracted downturn.
The industry now faces rapid shrinkage driven by losses of more than 20 percent, as measured by Hedge Fund Research’s daily HFRX index, and redemptions that are predicted at somewhere between "large" and "catastrophic."
"Eighty percent of the hedge fund sector will not be here in three to four months," Robert McAdie, a credit strategist at Barclays Capital, said at a recent briefing. "Levered strategies are dead in this environment."
Funds have delivered worst-ever losses of 17.70 percent in the 11 months to November, according to Hedge Fund Research, as stocks have slumped and volatility has surged.
Investors Chronicle – 2008 witnessed a boom and bust of monumental proportions in the junior mining and oil and gas sectors. From being among the London market’s strongest performers, driven by record commodity prices, resources stocks plummeted out of favour even more rapidly to languish among the market’s laggards.
Although strong recovery is unlikely in the short term, the longer term outlook for resources remains bullish. The world will run on oil for many years to come, and analysts estimate a $70-80/barrel oil price is needed to drive sufficient exploration and supply to satisfy likely demand when economies recover. Growth-driven Asian demand for all commodities, though slowing, has in all probability built up an unstoppable momentum.
Supply-side constraints plus the possibility of a weakening dollar and further falls in equities will create upward price pressure on oil, gold and other commodities. Commodities may start to recover during the year, depending on the severity and duration of the recession. Even if they don’t, continued low prices will deter exploration and development, and cause supply shortages, which will simply store upward price momentum to be released when economies eventually do recover. What’s more, the depth of the current downturn suggests that post-recession demand could rapidly create supply pressures, an over-correction and renewed price shocks.
Toledo Blade – President-elect Barack Obama is forming a White House leadership team that combines experienced Washington insiders who can help build a bridge with Congress and trusted associates who share his Chicago roots.
The West Wing appointments that Mr. Obama has announced in recent days stand in contrast to those of President Bush, who relied heavily on fellow Texans for top posts. They had virtually no experience dealing with Congress, nor did the former Texas governor who was their boss.
Mr. Obama comes to the Oval Office with an ambitious list of campaign promises that will require Capitol Hill’s cooperation and approval, and his team is heavy on the legislative experience that Mr. Obama is lacking. He resigned his Illinois Senate seat yesterday after just under four years of service, half of which he spent out on the presidential campaign trail.
