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New York Times Blogs – A closely watched report by Goldman Sachs found that hedge funds made an outsize bet on financial stocks in the second quarter, The Wall Street Journal reported.
The Goldman “Hedge Fund Trend Monitor” said hedge funds increased their ownership in financial stocks by 55 percent to $70 billion, compared with the previous quarter.
New York Times – In mid-March, with the global stock markets plunging, Philippe Jabre, a hedge fund manager based in Geneva, started buying bombed out financial stocks in the United States, Europe and Asia.
A procession of sleepless nights followed as he wondered whether his bets would pan out, or send his nascent $2.5 billion fund outfit reeling.
Now, with his main fund up 30 percent this year, rest comes a little more easily.
News.com.au – An independent monitor of local hedge funds has rubbished claims domestic financial stocks would be targerted if the ban on short selling was lifted.
Australian Fund Monitors’ chief executive Chris Gosselin hosed down concerns expressed by the Australian Securities and Investments Commission (ASIC) to extend the short selling ban on financial stocks for a third time until May 31.
The risk of damage from aggressive or predatory practices from short selling justified any loss of market efficiency or price discovery caused by extending the ban, ASIC said last Thursday.
Business Standard – Spooked by increasing performance losses and record investor redemptions, the global hedge fund industry saw net outflows worth $158.91 billion in the fourth quarter of calendar year 2008, the highest level since 1994.
According to a report by fund tracking firm Lipper, global hedge fund assets are estimated to have decreased from $1.5 trillion in September to $1.29 trillion at the end of December 2008.
All hedge fund sub-strategies posted negative money flows (outflows) in the three-month period with cumulative net outflows in 2008 as the industry witnessed a collapse in global equity markets, liquidity issues and failure of a number of key institutions.
In absolute terms, the performance of Credit Suisse/Tremont hedge fund index in Q4 2008 registered -10.21 per cent, the second worst quarterly performance since the start of the index. The index had posted 10.33 per cent negative returns during the third quarter. "A majority of hedge fund managers were hit by panic selling and deleveraging that followed, combined with changes in broker requirements and the enforcement of a ban on short selling in certain financial stocks," said the Lipper report.
In US dollar terms, the largest hedge fund sub-strategy outflows were experienced by long/short equity at $42.52 billion.
Bloomberg – Distressed assets offer the best investment opportunities this year as the global recession deepens, billionaire hedge-fund manager John Paulson said.
“The decline in the market has created a very good buying opportunity,” Paulson, 53, whose New York-based Paulson & Co. oversees about $30 billion, said in a speech at a hedge-fund seminar hosted by Societe Generale and Lyxor Asset Management in Tokyo today. “Distressed opportunity in the U.S. is shaping up to be the best opportunity in a lifetime.”
Paulson said he’s focused on assets such as mortgages and debt from bankrupt companies, while in the equities markets he cited the utilities, consumer staples and pharmaceutical industries. Financial stocks remain risky, Paulson said.
In the 15 years since starting its first funds, Paulson & Co.’s one down year was 1998. All his funds were profitable in 2008, with the flagship fund returning about 38 percent, compared with a loss of 19 percent for hedge funds worldwide on average. The 2008 returns came after his funds made more than $3 billion for the firm in 2007 by anticipating the collapse of the U.S. housing market and subprime mortgages.
Investors are chasing distressed assets after more than $1.1 trillion in losses at financial firms globally and frozen credit markets helped drag the U.S., Europe and Japan into their first simultaneous recessions since World War II.
The New York-based hedge fund manager reportedly made a record $3.7 billion in 2007. In 2008, his $7 billion Advantage Plus fund returned an incredible 37.6 percent. Another smaller fund he manages returned nearly 590 percent last year, thought to be the largest one-year hedge fund return in history.
How he did it: In early 2008, Paulson began short-selling shares of financial stocks, including the doomed Fannie Mae and Freddie Mac. He also bet big on Anheuser-Busch’s sale to Belgium’s InBev at a time when the deal looked to be falling apart.
LONDON (Reuters) – Hedge funds may have missed out on sharp falls in banks’ shares in recent days because few rushed in after the UK’s ban on short selling financial stocks expired on Friday, data shows.
According to figures from research firm Data Explorers, the amount of stock out on loan — a good indication of how much a stock has been sold short — did not increase on Friday in Royal Bank of Scotland and actually fell in HBOS.
Stock out on loan in HSBC, Lloyds TSB and Barclays rose only slightly.
Wall Street Journal – Experts say hedge funds are not responsible for the wholesale selloff in U.K. financial stocks which saw shares in the four remaining major banks dive to record lows earlier this week and prompted renewed calls to the U.K. financial regulator to reintroduce a ban on the short-selling of financial stocks.
While Lloyds Banking Group (LYG), HSBC Holdings PLC and Royal Bank of Scotland Group PLC (RBS) all closed in positive territory Wednesday with Barclays PLC (BCS) only down 0.07%, all four had had massive falls Monday and Tuesday.
The Wall Street Journal – The U.K.’s markets regulator plans to end its ban on short selling of financial stocks.
The Financial Services Authority said Monday that it would continue to ask hedge funds, which said the ban had hurt markets and failed in its objectives, to disclose short positions in banks and other financial stocks, and it would reinstate the ban if necessary. The ban is set to expire Jan. 16.
The FSA introduced the ban Sept. 18, after a tumultuous week that saw share prices of some U.K. banks plummet, partly on what was believed to have been short-selling activity. In short selling, investors borrow shares and sell them, hoping they can buy the shares later at a lower price and replace them, turning a profit.
The FSA wanted to stymie the potential for market abuse in which funds may spread rumors in companies in which they had short positions. The decision to remove the ban is an acknowledgment that market conditions have changed since that time, the FSA said.
The Australian – After suffering one of the worst years on record, Australia’s $62 billion hedge fund industry is bracing for even tougher times in 2009 as a confluence of factors works against them, including poor performance, more regulation, further short-selling bans, and a flood of redemption requests in late 2008 that are due to be repaid right about now.
The result is that an unprecedented level of cash is being pulled out of hedge funds and funds-of-hedge-funds by investors this quarter, just as they face millions of dollars of losses from the ban on short selling.
It is no surprise, then, that a lot of lobbying is going on behind the scenes to ensure that corporate watchdog ASIC lifts the ban on short selling financial stocks on January 27.
But speculation is running hot that the ban will be rolled over and some believe it could remain until the credit crisis subsides — a move hedge funds can ill afford.
In Britain, the ban is due to be lifted on January 17, but Andrew Baker, deputy chief executive of the Alternative Investment Management Association, recently said the ban could last for the entire length of the financial crisis.
