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.
Idaho State Journal – Several prominent hedge fund managers told Congress Thursday they support a new central exchange to open the murky world of some complex investments partly blamed for the global financial crisis, but stopped short of endorsing stricter regulation of hedge funds themselves.
The managers testified at a House hearing examining the role of hedge funds in the crisis, and the risks that critics say they pose to the financial system. Hedge funds, vast pools of capital holding an estimated $2.5 trillion in assets, operate mostly outside of government supervision.
Billionaire investor and liberal activist George Soros, who runs a hedge fund, said new regulations were needed to gauge the underlying financial strength of banks. But he warned against "going overboard" with regulations that could do more damage than good to the financial system.
Petroleumworld.com – The hedge fund of billionaire investor George Soros increased its stake in Brazilian state-run oil company Petroleo Brasileiro ( Petrobras) to 21.1 million American Depositary Receipts as of Sept. 30 from 11.5 million at June 30.
Soros Fund Management LLC made the move as the ADRs tumbled during the quarter to about $44 from about $71 each. Although the fund added nearly 10 million ADRs to its Petrobras stake, the value of the holding only rose to $930.7 million from $811.5 million.
Since the end of the quarter, Petrobras ADRs have fallen further, closing on Friday at $21.45.
Reuters – Quadrangle Equity Investors, a hedge fund that concentrates on media and communications stocks, will wind down its business after losses and investor redemptions, according to people familiar with the situation.
The relatively small fund employs fewer than a half dozen people, but it is part of Steve Rattner’s prominent Quadrangle Group LLC and so is well-known in media circles.
Quadrangle Equity, like other funds investing in media, has struggled as media stock prices have been hit hard by an advertising downturn and worries that consumers will sharply curtail spending on entertainment.
Straits Times – Hedge fund assets fell by US$100 billion (S$151 billion) in October as investors withdrew their money and funds were forced to sell stock, exacerbating the severe volatility that pounded global markets during the month.
About US$60 billion of the US$100 billion in asset losses during the month came from investor redemptions, according to a report on Wednesday released by Eurekahedge, a data and research provider.
Hedge funds’ assets totalled US$2.497 trillion at the end of the third quarter, according to HedgeFund.net, a hedge fund data provider.
Hedge fund selling has widely cited as one of the reasons for the increase in volatility in equity and bond markets during October.
Bloomberg – The global hedge fund industry lost $100 billion of assets in October, according to an estimate from Eurekahedge Pte, as firms including Sparx Group Co. and Man Group Plc were hammered by investor redemptions.
Funds fell an average 3.3 percent, based on preliminary figures from the Singapore-based data provider, as measured by the Eurekahedge Hedge Fund Index, which tracks the performance of more than 2,000 funds that invest globally. That compares with a 19 percent slide in the MSCI World Index last month.
The biggest market losses since the Great Depression and investor withdrawals hurt the $1.7 trillion hedge funds industry that manages largely unregulated pools of capital. The index of global funds has lost 11 percent this year, set for the worst performance since 2000 when Eurekahedge began tracking the data.
Investors Chronicle – Activist investor Laxey has sunk its claws into yet another Aim-traded overseas property fund. Having built up a 9 per cent stake in Indian township developer Hirco, it wrote to management this week demanding they take action to address the whopping 90 per cent discount to net asset value (NAV) at which the shares were trading.
Laxey is calling for Hirco to use cash held in subsidiary companies to mount a share buy-back programme to address the discount. The news caused Hirco’s shares to bounce 8 per cent to 79p, but this remains woefully below the last stated NAV of 682p, and 79 per cent lower than a year ago. Laxey’s intervention follows hot on the heels of action from fellow activist Carrousel. It is targeting Indian real estate fund Trikona, calling for a break-up and return of cash to shareholders. Trikona is trading at a 72 per cent discount to its last stated NAV.
Activists have also recently jumped on board Equest Balkan Properties, Spazio, Bulgarian Land Development and NR Nordic and Russian Properties – and these won’t be the last.
Time – Benjamin Graham was well prepared for the Crash of 1929. The now legendary investor had hedged his bets: he would buy preferred stock in a company and sell short common stock in the same company. When stocks crashed in October 1929, common shares fell much faster than preferreds, and Graham made a lot of money off short sales.
But after the crash, most of those preferred shares seemed so cheap that Graham couldn’t bear to part with them, he wrote in his memoirs. They kept falling, and his profit soon turned to a loss. His fund (equivalent to a modern hedge fund) ended the year down 20%. In 1930 it dropped 50.5%; in 1931 16%; in 1932 3%. "The stock market," as Graham resignedly put it in the first edition of his book with David Dodd, Security Analysis (1934), "is a voting machine rather than weighing machine."
It had actually begun voting along with Graham by then — his fund gained 50% in 1933, and he did spectacularly well for himself in the next two decades. "In the short run, the market is a voting machine," he later took to saying, "but in the long run, it is a weighing machine."
Minneapolis Star Tribune – Hedge fund manager Whitebox Advisors won’t let customers cash out, according to a national publication that follows the lightly regulated industry that manages money for affluent individuals and institutions.
The Minneapolis firm, which runs about $4 billion in investor assets through several funds and strategies, is drafting a letter to investors that explains recent investment losses and constraints and the terms under which investors may redeem some of their money, according to the Oct. 22 edition of Hedge Fund Alert.
The publication, which circulates among investment managers, said Goldman Sachs put Whitebox in a box earlier this month by requiring that the firm double the amount of collateral it puts up against margin loans used to trade convertible bonds. That puts Whitebox in a temporary squeeze because it must put up more of its own capital and devalued holdings against its margin accounts, which are trading accounts that use borrowed money in part to invest.
Reuters Tokyo – The yen dipped against higher-yielding currencies on Monday while the Australian dollar surged as leaders from Europe to the United States rushed out plans to shore up banks and stem the panic gripping investors.
After many stock markets suffered their worst weekly losses ever last week, leaders from Group of Seven industrialised nations set out a plan of action.
European officials offered to guarantee some bank debt and inject public funds into individual banks if necessary.
The United States said it would take stakes in banks in a first such move since the Great Depression, Australia guaranteed bank deposits and Britain was set to pump more than 40 billion pounds into its four biggest banks.
The flurry of initiatives to contain the worst financial crisis since the 1930s increased investor appetite for risk, though analysts were uncertain whether the improving mood would last very long.
RK Capital Management LLP, the metals hedge-fund firm co-founded by Michael Farmer, lost as much as 30 percent last month amid falling copper and aluminum prices, according to an investor with the firm.
The declines cut the combined returns of the firm’s five funds to about 2 percent this year, said the investor, who asked not to be identified because the information is private. Red Kite Metals, the company’s biggest fund, dropped about 40 percent, bringing this year’s loss to as much as 7 percent.
The London Metal Exchange Index of six industrial metals fell 6.6 percent last month and is down 3.6 percent in 2008 as the slowing global economy cut demand for materials such as lead and zinc. Ospraie Management LLC, the New York-based commodity hedge-fund firm run by Dwight Anderson, said last week it will shut down its biggest fund after it lost 39 percent this year.
Money Management – HSBC will soon provide local services to its global hedge fund and private equity clients as they chase “the superannuation dollar”.
HSBC plans to increase its footprint in the Australian market with the introduction of local alternative fund services.
The alternative fund services business will form part of HSBC Securities Services in Australia and will provide local fund accounting, investor servicing and financial reporting to a range of hedge funds, fund of hedge funds, absolute return managers and private equity partners.
HSBC head of fund services, Asia Pacific, Lillian Wong said the group has seen increasing demand from its global hedge fund clients for “onshore servicing in Australia as they target the superannuation dollar”.
Wong said the group aims to provide its clients with a “seamless service” for their Australian domiciled businesses.
The group’s new alternative fund services division will be led by Howard Yip and will be part of the wider HSBC global banking business led by Janie Wanless in Australia.
Globe and Mail – Black clouds have been building over the hedge fund industry for much of the year, and a storm could break in coming weeks as investors receive their second set of lousy monthly results from funds that are meant to do well in good markets and bad.
A series of challenges, some unrelated to the hedge funds’ investment strategies, have combined to create lower returns and investor redemptions.
Industry experts expect some funds will be forced to close down as clients walk away.
The single biggest problem is performance. The most recent update of Scotia Capital Inc.’s hedge fund index shows the average fund was down 8.6 per cent in July, compared to a 1.74-per-cent decline in the S&P/TSX equity benchmark. Since its inception in 2005, the Scotia Capital hedge fund index averaged a 13.9-per-cent annual gain.
