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.
Chicago Tribune – "The key change in the next decade is that policymakers around the world have chosen the winners and losers," Griffin said at a Wednesday panel. "The winners are the banking system."
By selecting commercial banks to become the centerpiece of the financial industry, the government closed the era of investment banks and hedge funds with highly leveraged balance sheets.
That should translate into safer and more conservative investing choices, but also less innovation by financiers and higher interest rates for borrowers, he predicted.
As roughly 8,000 hedge funds respond by reducing the size of their multitrillion-dollar balance sheets, their role in the system will inevitably be diminished, Griffin said.
AllAboutAlpha.com – The Bank for International Settlements in Basel, Switzerland was probably abuzz last week watching history unfold before its eyes. After all, one of the lynchpins of the organization’s Basel II Accord was the requirement for banks to mark-to-market all assets – including less liquid ones. And it appears that doing so in a leveraged environment has put several banks into a death spiral in recent weeks (see featured post below).
But the BIS is also keeping an eye on hedge fund leverage. The organization just released a working paper called “Estimating Hedge Fund Leverage” that proposes a new method of calculating the level of leverage used by hedge funds and, it is hoped, a way to measure any resulting systemic risks to the financial system. Regular readers may remember that this topic was also covered by the Fed’s Tobias Adrian last year.
As the authors of this report point out, leverage comes in two basic forms: funding leverage – where you literally borrow money to goose returns (or losses) and instrument leverage - where the securities themselves have leverage baked in (such as a futures contract, option or swap). But at the end of the day, if a fund rises twice as much as the market on “up” days and falls twice as much on “down” days, then the source of leverage is less relevant. In fact, divining leverage based on historical returns will also capture the leverage implicit in the balance sheets or business models of individual securities.
Globe and Mail – Once viewed as a safe haven, crude oil has lost its lustre as investors bet that the crisis in financial markets will hurt an already weakened global economy and drive down petroleum demand.
At the same time, speculators who piled into oil and other commodities on the way up have reversed course, as brokerages and hedge funds are being forced to liquidate those positions to buttress their balance sheets, traders said yesterday.
Lehman Brothers Inc. and Merrill Lynch & Co. Inc. are both major players in the crude oil markets, and both companies are expected to unwind their positions after Lehman sought bankruptcy protection and Merrill agreed to be acquired by Bank of America.
Crude prices fell sharply yesterday on futures markets in London and New York after hurricane Ike blew through the Gulf of Mexico without doing major damage to U.S. oil production there.
Guardian.co.uk – Hedge funds are known for playing many roles on Wall Street, but last-resort lender to small businesses that are turned down by banks is hardly one of them.
Yet with the credit crunch pushing many major U.S. banks to set tougher lending standards for small and medium-sized businesses, hedge funds have stepped in.
The money isn’t cheap, with interest rates of 14 percent or more. But small businesses have few places to turn.
"A major void has been created in the marketplace by banks tightening their credit standards and trying to stabilize their balance sheets," said David Grin, co-founder of Laurus-Valens, a hedge fund with around $1.7 billion under management. "From the investment point of view, this is as good as it gets."
Laurus-Valens provides loans to public and private companies with average revenues of $30 to $50 million. The fund charges interest rates of about 10 percent to 11 percent, and takes equity stakes in the companies.
Independent- The man who made a personal $3.7bn (£1.85bn) fortune by predicting the credit crisis is hoping to make another killing by helping to prop up financial companies brought to the brink of ruin by the chaos in the debt markets.
John Paulson, who went from being an obscure Manhattan hedge fund manager to one of the financial world’s hottest properties last year, is raising a new fund that will invest in banks, insurance companies and other financial institutions as they rebuild their battered balance sheets.
Financial companies have written off more than $460bn since the collapse in the debt markets began last summer, and Mr Paulson believes that is barely one-third of the final total that will be lost. At a conference in Monaco last month, he said writedowns could ultimately reach $1.3 trillion.
New York (HedgeCo.Net) – The legal battles that ensued between Ritchie and investors who once tried to force an involuntary bankruptcy upon them are slowing simmering down.
Chicago based Ritchie Capital has dismissed a complaint it brought against Benchmark Plus Management, LLC, an investor in their Multi-Strategy Fund. Benchmark, along with the Sterling Low-Volatility Fund, had originally sought to expose balance sheets and other secretive information when the fund started experiencing declines.
Ritchie Capital filed a suit against the investors following those actions, seeking $5 million in damages and citing a breach of the confidentiality and non-disparagement provisions of the governing documents of the fund.
In April, the involuntary suit was dismissed by a Chicago court, prompting Ritchie to drop their charges and focus on the Multi-Strategy fund, which is not closing according to the company.
“We are pleased that the communication channels between Ritchie and Benchmark Plus have been re-established. Benchmark is supportive of Ritchie Capital’s continued management of the Multi-Strategy Fund and applauds its recent actions of having an independent expert verify the relevant books and records of the Fund,” said Robert Ferguson, Principal of Benchmark Plus. He went on to say that Benchmark has terminated their relationship with their legal counsel, Winston & Strawn, though reasons weren’t stated as to why.
It is estimated that Ritchie is managing approximately $1 billion in assets. Ritchie has not yet dropped their case against Sterling.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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