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.
Reuters AlertNet – The newly elected European parliament starts its five-year term on Tuesday in a combative mood which could slow the passage of laws intended to fight Europe’s worst economic crisis in decades. At its first session since an election in June, the assembly will put off for at least two months a vote on reappointing European Commission President Jose Manuel Barroso, although he is backed by all 27 European Union governments.
Detroit News – President Barack Obama is ready to roll out an overhaul of the intricate rules and systems that govern America’s troubled financial institutions, proposing the most ambitious revision since the Great Depression.
The goal is to prevent a recurrence of the economic crisis that erupted in the United States and exploded last fall with devastating consequences still reverberating around the world.
Unlike the government’s temporary ownership stake in automakers and major financial companies, the regulatory changes set to be announced Wednesday are designed to be permanent. They could result in a major realignment of power and authority among government agencies that set the rules for banking, lending and investing and touch American lives through daily transactions, from credit cards to mortgages and mutual funds.
Daily Guide – Foreign investors in the Nigerian capital market withdrew some $4 billion from the Nigeria Stock Exchange and precipitated its steep decline, the Exchange’s Director General, Professor Ndidi Okereke-Onyiuke has said.
Appearing before the joint Senate Committees on Finance, Capital Market, Banking, Insurance and other financial institutions investigating the economic crisis facing the country, Mrs Okereke-Onyiuke said in 2008, foreign hedge fund managers went out and withdrew their investment of N556 billion due to the financial crisis in their countries.
Okereke, who was responding to questions posed to her by Senators as to the reasons why share prices in the stock market kept crashing despite assurances by financial managers that the fundamentals of the nation’s economy are strong, said hedge fund managers were shocked by the global financial crisis and quickly withdrew their investments from Nigeria and took it back to their countries.
Reuters – Yorkville Advisors, a $1 billion hedge fund, said it is stepping into the lending vacuum left by banks as it provides struggling firms with loans for up to two years, typically in the $5 million to $40 million range.
More recently the value of the loans has increased as larger-cap companies seek assistance. At end-January, Yorkville loaned $147.9 million to shipping firm Ocean Freight Inc.
The move is one way for hedge funds to thrive despite the global financial and economic crisis, and mirrors similar investments by billionaire investor Warren Buffett.
New York (HedgeCo.Net) – As the Obama administration prepares to distribute the remaining $350 billion in the Troubled Asset Relief Program, a new requirement will ensure that the salaries of top executives be capped at $500,000 a year.
“For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis is not only in bad taste, it’s a bad strategy, and I will not tolerate it as president,” Obama said at a White House press conference.
While last year saw a handful of top financial organizations crumble amidst record write downs and unsustainable losses, companies continued to dole out bonuses to those in high positions. Even as the first half of the TARP funds were distributed by the Bush administration, the public demanded transparency for fear that taxpayer money was being used to pad the paychecks of the ultra wealthy; the individuals whose greed was no doubt responsible for the financial meltdown in the first place. It was estimated that the banks receiving bailouts paid their top officials $1.6 billion in salaries and bonuses last year, according to the Associated Press.
Merrill Lynch CEO John Thain took home a record $83 million in 2008, despite taking $10 billion of taxpayer-funded government aid to keep his company afloat. Lloyd Blankfein, CEO of Goldman Sachs, pocketed $54 million while the company shelled out $242 million to their top five execs. Jamie Dimon of JPMorgan Chase, on the other hand, pocketed a mere $1 million while forgoing any bonus.
Treasury Secretary Tim Geithner was also on board with the new plan, saying that our economic woes were “made worse by a loss in faith,” referring to the gluttony of these top execs. While the plan cannot retroactively take back bonuses that were awarded with the first half of the TARP funds, provisions will likely be set in place that can reclaim compensation from senior executives if they are discovered engaging in any fraudulent practices.
In addition to outlining the plan, Obama urged Congress to finalize the economic stimulus legislation, saying that any delays “will turn crisis into a catastrophe and guarantee a longer recession.”
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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Reuters – Flashiness is out and subdued celebration is in among wealthy Americans on Valentine’s Day.
As the economic crisis spreads and conspicuous consumption loses its luster, hedge fund millionaires and oil barons are shunning eye-catching items like yellow, red and blue diamonds in favor of lower-key gifts, luxury industry watchers say.
In Hollywood, it is easier to book reservations at marquee restaurants than last year for the romantic day on Feb. 14, a restaurant publicist said, noting entertainment big shots now tend to favor eateries that have cut their entree prices.
Jamaica Gleaner – The presidents of Colombia and Venezuela pledged Saturday to invest US$100 million each in a special fund in hopes of boosting cross-border trade as the world economic crisis slashes global demand for their exports.
The cash will help create small businesses and should finance infrastructure projects along the border, Venezuelan President Hugo Chávez said after four hours of talks in the Caribbean port of Cartagena with his Colombian counterpart, Alvaro Uribe.
"Nobody knows where this crisis might go," Chávez told a televised news conference.
Trade between the two nations reached a record US$7.2 billion in 2008, and Chávez said they should aim for US$10 billion a year in 2009 and 2010.
Reuters – The Obama administration plans to tighten the nation’s financial regulatory system, including stricter federal rules for hedge funds, credit rating agencies and mortgage brokers, the New York Times reported in Sunday editions.
The broad changes include increased oversight of the complex financial instruments that helped spawn the current economic crisis, the newspaper said on its website Saturday night.
The newspaper based its story on interviews with officials as well as confirmation hearings for senior administration appointees, and a recent report by an international committee led by Paul Volcker, one of President Obama’s chief economic advisers.
Seattle Times – The big stories in the mutual-fund world are always taking shape, but the new year gives us a chance to gaze into the crystal ball to try to read future headlines.
Performance stories always rule the day — and I don’t make market forecasts, leaving that task to people willing to volunteer for the job of village idiot — so maybe it will be a good year if the economic crisis winds up serving as the backdrop for the developing stories, rather than continuing to dominate the news itself.
Here are the fund-world stories that could capture the headlines in the year ahead:
Reuters – General Motors Corp and Chrysler LLC are considering accepting a pre-arranged bankruptcy as the last-resort price of getting a multi billion dollar government bailout, Bloomberg reported, citing a person familiar with internal discussions.
In response to automakers’ bailout plea, staff for three members of Congress have asked restructuring experts if a pre-arranged bankruptcy — negotiated with workers, creditors and lenders — could be used to reorganize the sector without liquidation, Bloomberg said.
General Motors and Chrysler could not be immediately reached for comment by Reuters.
Industry executives and analysts say the immediate carnage from a bankruptcy of General Motors Corp, Ford Motor Co or Chrysler would spread throughout an industry that is bleeding cash in a global slowdown.
Cayman Net News – Despite the ongoing housing crisis in the US, the credit crunch, and the general slowing of the American economy the number of hedge fund terminations in the most recent financial year has been only slightly higher than last year.
Caroline Williams, a partner at Walkers told Cayman Net News: “It is interesting that the number of hedge fund terminations in the last financial year is only slightly higher than in the previous 12 months.
“In some cases where funds have run into difficulties, the hedge fund manager has employed certain techniques to try and weather the storm and continue trading, such as imposing gates, which limit the amount of redemptions that can be made, or by creating side pockets in which the illiquid or hard-to-value securities are placed.
“Overall, for both investors and hedge fund managers, the winding up and dissolution of a hedge fund is very much a last resort and as such these situations are quite rare. Investors prefer to avoid having the fund wound up and dissolved, because they realise that there is less chance that they will have their benefits maximised.”
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.
