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Bloomberg - When Manhattan lawyer Marc Dreier needed to apply a patina of reality to allegedly bogus promissory notes he was pitching to hedge funds, he used Mission Impossible- type tricks.
As the U.S. Attorneys Office in Manhattan tells it, he would lie his way into an accounting firm’s or real estate developer’s offices as if he had business there.
He then would use their conference rooms for meetings with hedge-fund officials to make it seem the accountants or developers were in on the deal, according to the feds.
Appropriating the accounting firm’s letterhead, he fabricated financial statements and forged audit letters, prosecutors and the Securities and Exchange Commission allege. He would arrange conference calls between hedge-fund representatives and someone pretending to be the chief executive of Solow Realty, the developer and former Dreier client whose fake notes the feds say Dreier was trying to sell.
Bloomberg - Millennium Partners LP, the $13.5 billion hedge-fund firm run by Israel Englander, plans to return $1 billion to investors who asked for their cash back by year-end, according to two people familiar with the matter.
The redemptions, equal to 7.4 percent of client assets, would have been higher except the New York-based firm limits redemptions in any quarter, said the people, who asked not to be identified because the information is private. A spokeswoman for Millennium declined to comment.
Millennium lost about 3 percent this year through October, the people said, compared with hedge funds’ average decline of 16 percent, according to data compiled by Hedge Fund Research Inc. Two percentage points of Millennium’s loss were caused by assets frozen in the September bankruptcy of Lehman Brothers Holdings Inc., one of the people said.
CNNMoney.com - For equity markets, 2008 will long be remembered as a year of massive selling, and it’s likely to end the same way.
Hedge funds will find it increasingly difficult to obtain lending at the end of the year, a time when banks typically tighten their lending anyway as part of the "window dressing" process. This year, two key securities firms that supplied loans to hedge funds, Bear Stearns and Lehman Brothers, have disappeared, and the remaining firms that lend to hedge funds are hanging on to cash in an effort to deleverage themselves.
"These tight financing positions over year-end are likely to result in the forced sales of securities prior to year-end," said an Alliance Bernstein research report put out Wednesday.
Wealth Bulletin - Millionaire hedge fund manager Andrew Lahde might have got it right. The man whose valediction last month to his industry peers announced that “with all due respect, I am dropping out”, left the industry while the going was still relatively good.
, at the time of his speech, nine out of every 10 hedge funds were not able to take 20% of their profits as a performance fee, and the average hedge fund had lost about 19% of its value, reversing at least the two previous years’ gains. But hedge funds face withdrawals at year end that will match or exceed third-quarter record redemptions of $31bn (€24bn), according to data provider Hedge Fund Research.
Reuters - Man Group plans to be a consolidator in the hedge fund industry in the long-term, said Chief Executive Peter Clarke, who thinks the industry could see redemptions of between a third and a quarter at the year-end. "Consolidation is undoubtedly going to happen … Longer-term we’d expect to be a consolidator in these markets," he told Reuters in an interview on Thursday.
However, he said the firm was "doing nothing in these markets, there’s too much uncertainty."
Clarke also said redemptions in the $1.7 trillion hedge fund industry of between a quarter and a third at the end of the year would be "the right sort of figure."
"The year-end is seeing significant levels of redemptions," he said.
West Palm Beach (HedgeCo.net) - In a letter to investors, Hedge Fund manager Pentwater Capital announced that due to a number of unexpected redemption notices for year-end they have suspended redemptions and withdrawals, effective immediately.
"The entire hedge fund industry is bracing for large redemptions at year-end so as not to become forced sellers in the midst of a severe market crisis," says the Pentwater letter, "In turn, this has put additional pressure on hedge fund investors to find liquidity wherever they can, because they have to fund their own potential redemptions."
"If the Fund were to meet the year-end redemption requests we have received, the Fund would be forced to sell more of its investments into one of the worst markets since the great depression."
The fund has instead opted to create two new classes that have modified liquidity, fee and expense provisions as compared with the current classes. Investors will have the choice to transfer all or part of their investment into one or both of the new classes or remain in the existing classes.
"We will allow investors that wish to invest new capital to do so in one of these new classes and until further notice allow them to retain the benefit of their existing high water mark on any new investment. Further, investors that have already submitted a redemption notice will have a one-time option to rescind that notice, reduce the size of their redemption request, and/or choose to participate in one of our new classes."
Pentwater was not immediately available for comment.
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Bloomberg - Five straight quarters of losses and a 70 percent slide in its stock this year haven’t stopped Merrill Lynch & Co. from allocating about $6.7 billion to pay bonuses.
Goldman Sachs Group Inc. and Morgan Stanley, both still on track for profitable years, have set aside about $13 billion for bonuses after three quarters, down 28 percent from a year ago. Even some employees at Lehman Brothers Holdings Inc., which declared the biggest bankruptcy in U.S. history last month, will get the same bonus they received a year ago.
The worst financial crisis since the Great Depression, a $700 billion taxpayer bailout, public outcry over excessive pay and the demise of three of the biggest securities firms won’t deter Wall Street from offering year-end rewards to employees on top of their salaries, compensation experts say.
Bloomberg - Morgan Stanley Chief Executive Officer John Mack said tumbling markets may drive some hedge funds out of business, prompting his firm to “resize.”
“Friends in that community say that by year-end, you’ll see the number of firms in the hedge-fund area shrink, I’ve heard as large as 30 percent,” Mack, 63, told CNBC today. As the industry contracts, “we need to resize our prime brokerage,” he said.
Morgan Stanley’s prime brokerage unit, which lost clients last month after the bankruptcy of Lehman Brothers Holdings Inc. fueled a global bank crisis, is regaining some customers since sealing a $9 billion investment from Mitsubishi UFJ Financial Group Inc., Mack said.
“Funds that took some of their money, in some cases all their money, are coming back,” he said. “Without question those people who pulled out are coming back.”
24/7 Wall St. - The idea of bailing out hedge funds or helping them in any way runs counter to the best instincts of most citizens, regulators, and law makers. The wealthy do not need a Good Samaritan.
Allowing hedge funds to fail is likely to accelerate and put pressure on whatever forces are in place that are moving down the markets. By some estimates, hedge funds control over $2 trillion. Most of the investments they have made involve some level of leverage. As those investments lose their value in the crisis, hedge funds have few resources to pay back the money which has created that leverage..
According to The Wall Street Journal industry experts are "expecting between 10% and 20% of the hedge-fund industry’s assets to be withdrawn by year end." That means a lot of investments will be sold off, and many of those will be stocks. An equity market recovery could certainly be undermined by that level of liquidation.
Reuters - Final bids for the Chicago Cubs will likely be due late September or early October, two sources said on Thursday, as owner Tribune Co seeks to sell the storied baseball team by the year end.
The next stage in the drawn-out sale of the team, its landmark stadium and a cable TV network stake will be management presentations starting next week to give bidders more information on the assets, the sources said.
Those will likely take about two weeks, after which final bids will be sought.
Tribune, which owns the Chicago Tribune and Los Angeles Times newspapers, put the Cubs assets on the block in April 2007 when it announced it would be bought by a group led by real estate magnate Sam Zell. It is selling the Cubs to cut debt it took on as a result of the leveraged buyout.
Zell said last month that of 10 groups that bid, five made it through the first round for the package of assets — the Cubs, Wrigley Field and an interest in SportsNet Chicago.