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 – Hedge funds and private equity could face more than 3 billion euros in costs and investors could see fund choice shrink by up to 40 percent due to proposed new EU rules, a Financial Services Authority report said.
The analysis of the impact of the Alternative Investment Fund Managers (AIFM) directive conducted by Charles River Associates and commissioned by the FSA found that it could load one-off costs of up to 3.2 billion euros on the affected parts of the funds industry.
Bloomberg – D.E. Shaw & Co., the $29 billion investment firm run by David Shaw, said the Dubai Financial Services Authority granted its Middle East unit a license to operate from the Dubai International Financial Centre.
The firm aims to build on its public and private investment through regional unit D.E. Shaw & Co. MENA Ltd., the New York- based hedge fund manager said in an e-mailed statement from Dubai today. This will be D.E. Shaw’s first office in the Middle East and North Africa region and adds to its 13 across North America, Europe and Asia, it added.
Reuters UK – Britain’s Financial Services Authority (FSA) plans to triple some of the fines it imposes on financial sector wrongdoers as part of a crackdown on offences such as mis-selling and insider dealing.
The bigger fines are designed to deter firms and individuals from breaking market rules by making the costs of doing so prohibitively high, the FSA said in a statement on Monday.
"By hitting companies and individuals in the pocket where it hurts, the fines will be a stark warning to others on what they can expect to pay for flouting our rules," FSA director of enforcement Margaret Cole said.
Times Online – Alistair Darling has warned that he will impose tougher regulation to avoid a repeat of the banking crisis amid fears of a return of the bonus-driven, risk-taking culture in the City.
The Chancellor told The Independent newspaper that bankers who are too complacent will be “brought back to earth” by new legislation.
An important White Paper on the banking sector, due next week, will grant new powers to the Bank of England and the Financial Services Authority (FSA), Mr Darling said.
He promised “new tools” for the regulatory bodies to strengthen their powers, which could mean that the FSA will be able to extend its reach to hedge funds, some of the riskiest investment funds.
Bloomberg – Hedge funds and other investors who short-sell shares in Britain’s financial companies must continue to disclose their trades, the U.K.’s financial regulator said.
A reporting requirement put in place by the Financial Services Authority in January will continue until new short- selling rules come into place, the agency said in a statement today. The requirement had been due to lapse on June 30. The new set of rules is expected to come into force in 2010.
“Keeping the disclosure requirements will continue to enhance transparency and limit the potential for market abuse, while details of a long-term regime for short-selling are being drawn up,” said Sally Dewar, the FSA’s managing director of wholesale and markets.
Times Online – The role of the City of London as one of the world’s preeminent financial centres came under attack for the second time in two weeks yesterday, this time from proposed EU rules for private equity and hedge funds.
The EU wants private equity firms with more than €500 million under management and hedge funds with more than €100 million of funds to file detailed financial information with the Financial Services Authority. Private equity firms will also need to file figures relating to debt, risk and cash.
If the European Parliament approves the proposed legislation, about 1,000 British companies – owned by private equity firms either headquartered or with an office in the EU and with more than €500 million under management – would be saddled with annual compliance costs estimated at about £30,000.
Times Online – Weavering Capital, one of London’s oldest hedge funds, was today in the hands of liquidators just a week after it discovered that its flagship fund’s main investment was a derivatives trade with an offshore company controlled by its founding chief executive.
PricewaterhouseCoopers, the auditor and consultancy, confirmed this morning that it had been appointed as Weavering Capital’s liquidator.
It is understood that PwC is investigating suggestions that fraudulent activity may have taken place.
It is not known whether the Financial Services Authority has been contacted. The FSA did not immediately return a call seeking comment.
LONDON (AP) – Britain’s financial services watchdog proposed sweeping changes to global banking regulations on Wednesday, including a crackdown on the "shadow banking" activities of institutions like hedge funds.
The government-commissioned banking services report recommends new rules on a wide range of issues from increased requirements on banks on holding capital to stricter controls on bankers’ bonuses to discourage excessive risk taking.
Financial Services Authority chairman Adair Turner said that the market economy remained the best means of delivering global prosperity, but major changes in regulation and supervision were required to ensure that it is focused on the needs of businesses and households rather than taking risks for quick return.
The report embraces actions necessary in Britain and also discusses those that would require international cooperation. Britain will host an April 2 summit of the Group of 20 rich and developing countries that will discuss ways to address the world financial crisis, including more regulation
Times Online – Secretive hedge funds will eventually be subject to the same supervisory rules as banks, under a tightening of Britain’s system of regulation.
The changes, which will require banks and other lenders to build up their reserves in healthy economic times, could become the basis for international efforts to overhaul regulation at the G20 summit in London on April 2. The moves will be proposed on Wednesday in a report by Lord Turner of Ecchinswell, chairman of the Financial Services Authority, who will call for an overhaul of the tripartite links between the FSA, the Bank of England and the Treasury.
They follow repeated pledges from Gordon Brown for a crackdown on the “shadow banking system”.
Seeking Alpha – Britain’s Financial Services Authority (FSA) recently found that hedge fund leverage was nearly extinct (for now). In what is billed by the FT as the “only authoritative data on the opaque industry”, the FSA found that the average hedge fund had leverage of 1.15x, down from about 2x a year ago and 1.44x as late as last spring. According to the FT, the FSA defined leverage as long positions over NAV, “ignoring short positions.”
But what happens when you account for shorts? Regular readers may remember the chart below left from a recent European Central Bank report.
Times Online – The Financial Services Authority is facing a multimillion-pound compensation claim from a group of investors who say that the City watchdog failed to stop the activities of a suspected rogue trader.
Former clients of GFX Capital Markets, which has collapsed with estimated losses of £44 million, say that the FSA knew of serious concerns about its boss, Terry Freeman, but allowed him to continue trading.
The accusation comes as the regulator is struggling to cope with the most serious loss of public confidence in its decade-long history. It was accused of being negligent in its monitoring of Northern Rock, the mortgage lender that was nationalised last year, and the regulator’s chairman, Lord Turner of Ecchinswell, has been forced to draw up radical plans to improve its ability to police the City.
Financial Times – Hedge funds cut their borrowing to almost nothing in the wake of the collapse of Lehman Brothers, according to research by the City watchdog.
Data compiled by the Financial Services Authority show that leverage fell to just 1.15 times hedge fund net assets in October, down from almost twice a year earlier.
The survey, the only authoritative data on the opaque industry, also found that hedge funds had their highest level of "dry powder", or ability to borrow, since the research started in 2005.
However, prime brokers, the bankers who service hedge funds, say borrowing has fallen even further since the survey was carried out, and many hedge funds now have more assets than debt, or less than one times leverage.
"People are still holding quite a lot of cash," said Daniel Caplan, co-head of European prime brokerage at Deutsche Bank. "They are certainly not using the leverage that’s available to them."
The FSA carries out its survey of hedge fund exposure twice a year, and found leverage – measured as the proportion of total long positions to net assets, ignoring short positions – dropped from 1.44 times in April to 1.15 times in October.
