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 – As Marc S. Dreier was being arrested for attempting to defraud hedge funds of more than $100 million, some of the 10 affiliates of Dreier LLP were peeling off and others were trying to hold the firm together even as money for insurance and some operating expenses is frozen.
Declarations filed Monday by the Securities and Exchange Commission in connection with a civil case it brought against Dreier also indicated that some firm attorneys were concerned that escrow accounts, which Dreier controlled, had been depleted.
One named partner of an affiliated firm, Vincent Pitta of Pitta & Dreier, stated in a declaration that the firm could not meet its expenses. The reason, Pitta said, was that he and Dreier were the sole signatories to the firm’s operating account, and Pitta had only limited authority to approve spending.
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.
BloggingStocks – Congress will bring in a bunch of big hedge fund managers like George Soros and ask them why they make so much money. It will also try to figure out if they control too much of the trading on Wall Street and borrow too much money from banks putting them at risk if the hedge funds default.
According to The Wall Street Journal, "Already, momentum is building to monitor hedge-fund activities more closely and curtail some trading activities, through greater regulatory oversight and lower borrowing limits, industry insiders said."
The government may be going a little too far here. For starters, hedge funds are private institutions with the exception of a couple which have gone public. To a large extent what they pay their traders is based on a formula which their customers accept. These fees are not forced on anyone. It is not an odd analogy to say that a farmer who makes $100 million because he owns 50,000 acres of corn has reaped what he deserves for his labor. But, he is not going to be in front of Congress testifying about what he made. Free enterprise has given him his reward.
Reuters – Chrysler LLC is rapidly burning through cash and being driven to prepare for a possible break-up if it can’t clinch a merger with General Motors Corp or get government funding needed to ride out the economic crisis, people with knowledge of the situation said.
Without new funding or a wrenching restructuring, executives have raised concern about the automaker’s ability to finance its operations from existing cash beyond the first half of 2009, said the sources, who were not authorized to discuss Chrysler’s performance.
Chrysler has had to pay out over $100 million a month to support strained suppliers on top of a total $200 million support to sales through dealers in August and September as it suspended vehicle lease financing, the sources said.
Bloomberg – The U.S. Securities and Exchange Commission extended a rule forcing hedge funds to tell the agency about short-sale positions amid concerns investors bet against companies after spreading false rumors they will fail.
Investment managers who oversee more than $100 million must to disclose to the SEC the stocks they’ve bet will fall in price until Aug. 1, the agency said in a statement on its Web site today. Those positions won’t be made public, the SEC said.
The SEC said it’s concerned “about the possible unnecessary or artificial price movements” in stocks “that may be based on unfounded rumors and may be exacerbated by short selling.”
The SEC is investigating hedge funds and cracking down on short-selling after lawmakers questioned whether traders spread misinformation and used abusive tactics to attack companies. The collapse of Bear Stearns Cos. in March and Lehman Brothers Holdings Inc.’s September bankruptcy fueled concerns that investors were manipulating financial markets.
Bloomberg – Harry Tyser, manager of the $100 million New Star Firefly Hedge Fund in London, was still trading while being wheeled into the operating room for kidney- stone surgery.
“It’s life and death out there right now,” said Tyser, 40, who used his mobile phone to call in sales before his July procedure. “You need to keep moving your feet in markets like this. There are moments in life to make money and moments where the secret is just not to lose it.”
Tyser’s fund, which bets on rising and falling stocks, returned 3.7 percent last month, according to investors. Few rivals were as fortunate as the average hedge fund fell 6.9 percent, the biggest one-month loss in a decade, according to Hedge Fund Research Inc.’s HFRX Global Index.
Managers who did post profits last month include John Horseman, whose $3.2 billion Horseman Global stock fund rose 5.7 percent, bringing the gain this year to 15 percent, investors said. Carol Brown, a spokeswoman for Horseman Capital Management LP in London, declined to comment.
CFO.com – At 12:01 a.m. this morning, the Securities and Exchange Commission pushed out a new "emergency" disclosure rule that requires hedge funds and other large investors to disclose their short positions. The mandate is one of three new SEC investor protection rules that went into effect early this morning in response to widespread drops in stock prices in the wake of a liquidity crisis exacerbated by this week’s Lehman Brothers bankruptcy and sale of Merrill Lynch.
In a joint statement, SEC chairman Christopher Cox and SEC Enforcement Division director Linda Chatman Thomsen said that the rule, which is designed "to ensure transparency in short selling," will affect funds with more than $100 million invested in securities. Those fund managers, who are currently reporting their long positions, will now be required to "promptly begin public reporting of their daily short positions."
New York Post – The Securities and Exchange Commission met last night in emergency session to consider requiring hedge funds to disclose their short positions and institutional traders to secure their records in anticipation of subpoenas.
Under the proposals, managers with more than $100 million invested in securities would have to issue reports of their daily short positions.
The meeting came after the SEC adopted two regulations that go into effect today that will force traders and brokers to actually borrow shares used in all short sales, amid concern that so-called "naked short sales" are driving down prices by flooding markets with sell orders.
Reuters UK – Balyasny Asset Management LP recruited more than 30 money managers and analysts from competing hedge funds in the first eight months of the year, exceeding its total for all of 2007.
“We have been aggressively looking for talent, and in a year like this, there are a lot more candidates out there,” said Barry Colvin, vice chairman of the Chicago-based firm, which oversees $2.5 billion. Hires came from New York-based Satellite Asset Management LP and Magnetar Capital LLC in Chicago, which have both lost money this year.
While more than 200 hedge funds shut down this year, Balyasny, SAC Capital Advisors LLC and Citadel Investment Group LLC are taking advantage of the industry’s worst performance in a decade to go on a hiring spree. Hedge funds, diminished by a scarcity of credit and enfeebled stock markets, fell by an average 4.7 percent as of Aug. 28, according to data compiled by Hedge Fund Research Inc. in Chicago.
Sixty-one percent of the 2,795 funds managing more than $100 million that are in New York-based HedgeFund.net’s database are losing money in 2008.
Wall Street Journal – Harbinger Capital Partners and Firebrand Investments LLC, the hedge funds that put two representatives on the board of the New York Times Co. this past spring, are again adding to their stake in the media company.
Through share purchases and a series of equity swaps, Harbinger Capital Partners and Firebrand Investments added economic exposure to 1.9 million Times shares in August, according to filings with the Securities and Exchange Commission.
Harbinger and Firebrand increased their Class A stake in the Times to nearly 20% this spring, and shortly after gaining board representation, the funds stopped buying shares. After four months of silence, however, Harbinger disclosed that it is again adding to its stake, mostly through equity swaps.
By entering into the swaps with an unnamed counterparty, Harbinger and Firebrand effectively gained economic exposure to an additional 1.7 million Class A shares. The funds also bought 200,000 shares outright for $13 a share.
Bloomberg – Eurasia Capital Management plans to increase the world’s first Mongolia-focused fund fivefold to $100 million to tap economic growth fueled by the nation’s mining industry.
Eurasia’s hedge funds, which have about $200 million of investments across Central Asia, also expect to sell shares on London’s Alternative Investment Market or Deutsche Boerse AG by next June, said Alisher Djumanov, managing partner of the Singapore-based firm. Proceeds would be used to start private- equity and property funds, and expand in Central Asia, he said.
Mining in Mongolia, which has reserves of coal, copper, gold and uranium, will spur "double-digit” economic growth rates over the next 10 years as commodity prices remain high, Djumanov said in an interview. Mining accounted for about two- thirds of Mongolia’s exports last year, and foreign direct investment in the country rose more than 33 percent.
"The spillover effect from the mining sector will be significant,” Djumanov, 35, said. "We’re investing in companies that are expected to grow significantly on the back of this strong economic growth.”
Eurasia’s Mongolia Discovery Fund rose 12 percent this year, compared with the 16 percent drop in the MSCI World Index. The fund invests in coal mines, water utility as well as oil and gas companies, Djumanov said.
CFO.com – Even hedge funds are not immune to the credit crunch. A small hedge fund that provided short-term debt to companies has filed for Chapter 11 bankruptcy protection.
Greenwich, Connecticut-based SageCrest Finance, managed by Windmill Management, said in its Chapter 11 petition filed in U.S. bankruptcy court that it had listed assets of $50 million to $100 million, and debt between $1 million and $10 million, reported Reuters. The fund had about $1 billion in assets under management as recently as a year ago, according to hedgefund.net.
In fact, the website points out that the credit crunch put the squeeze on SageCrest’s business strategy — which is providing asset-backed specialty financing to smaller private companies that have been closed out of traditional sources of capital. Many of its projects involved extending art-, real estate-, and structured settlement-based loans.
