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.
Citywire.co.uk – Fund selector Christian Lundström, from Independent Investment Group in Sweden, is welcoming the evolution of the Ucits III space which is seeing more and more hedge fund groups entering the area.
Last week, HSBC Asset Management’s Farley Thomas warned on the trend of hedge fund groups launching Ucits-compliant funds, saying ‘Ucits is about trust, so retail fund firms in Europe should be protective of Ucits. Will the hedge fund firms be there to hold retail investors’ hands when things go wrong?’
While there may be fears for retail investors accessing such funds, many selectors are greeting the changes with open arms. Lundström is excited by the opportunity to access strategies which can ‘generate portfolio returns with low or even negative correlation to equities and commodities.’
Reuters – Fortress Investment Group LLC, one of the few publicly traded U.S. hedge fund groups, reported a narrower quarterly loss on surprisingly strong revenue Wednesday, and forecast improved demand for its portfolios in coming quarters.
Fortress executives said several funds delivered respectable returns in the first half the year, and they expect demand to pick up as financial markets recover.
HedgeCo.net (West Palm Beach) – Press Release – Hedge fund, funds of funds and managed futures funds group, the Managed Funds Association (MFA) has commended the working group paper, “Report to the Supervisors of the Major OTC Derivatives Dealers on the Proposals of Centralized CDS Clearing Solutions for the Segregation and Portability of Customer CDS Positions and Related Margin,” which was submitted to industry regulators on June 30, 2009.
"The efforts of the special working group and the Report are both comprehensive and timely." Richard H. Baker, MFA President and CEO, said, "MFA has been a strong proponent in advocating collateral segregation, portability of trades and direct and indirect buy-side access to centralized clearing. We remain committed to working with industry regulators, industry working groups such as the Operations Management Group, and other trade associations on the next steps toward providing such access."
The report was written by a special working group of eight dealers, four MFA members and four other buy-side market participants, addresses key concerns raised by supervisors and legislators globally, to analyze the various U.S. and European CDS clearing solutions with respect to the issues of customer margin segregation and portability of cleared customer CDS positions.
MFA fully endorses the collaborative efforts with industry regulators to support commercially viable centralized clearing platforms and to promote sound business practices.
MFA members include the vast majority of the largest hedge fund groups in the world who manage a substantial portion of the approximately $1.5 trillion invested in absolute return strategies. MFA is headquartered in Washington, with an office in New York. For more information, please visit: www.managedfunds.org
The Independent – Three major European and US hedge fund groups yesterday pledged to work towards worldwide best practice standards after G20 ministers outlined plans to regulate the freewheeling sector.
The London-based Alternative Investment Management Association and US counterparts the President’s Working Group and the Managed Funds Association have written to the Financial Stability Forum to draw together different industry standards, of which the first draft is expected by the end of next month, said Andrew Baker, head of AIMA.
The organisations are discussing a global standard on issues such as disclosure, risk management, dealing with conflicts of interest within an organisation and statements about operational and business controls.
Reuters – One of the bizarre effects of Bernard Madoff’s alleged $50 billion fraud is that it has boosted the performance of one group of hedge funds when measured against their peers, industry insiders said.
At least one major index, the CS/Tremont equity market neutral index, has been distorted by the failures of three large funds or fund groups which were index components: Kingate, Fairfield Sentry and Rye Select.
"The values of these funds have been taken to zero and we have no plans to restate them, nor to create additional indexes which exclude these funds," said Elaine Bourke, an associate at Credit Suisse/Tremont Hedge Index.
DST International – One group of hedge funds has had its performance boosted in comparison to its peers as a result of the Bernard Madoff scandal, according to a number of industry insiders.
Due to the failures of three large funds or fund groups – Fairfield Sentry, Kingate and Rye Select – which were components in the Credit Suisse/Tremont equity market neutral index, the listing has been distorted.
As such, the surviving funds are able to claim they have outperformed the index’s benchmark, Reuters notes.
Detroit Free Press – In our view, incessant selling is coming from the liquidation of hedge funds, and it is the new element in the securities markets that no one has experienced before.
This new source of selling has added to the normal amount of selling pressure generated by pessimistic investors, and in a confusing way. Hard information is tough to come by, but a better understanding can be achieved by arranging what we know.
In round numbers, the hedge fund industry peaked at some $1.6 trillion in assets. By the nature of the beast, that asset base is composed of trading strategies using stocks, bonds, options, futures, credit default swaps, you name it.
The funds are also leveraged 1.4 times as an industry average. So, $1.6 trillion becomes $2.25 trillion on a working basis. It is also to be noted that for every position in a trade, someone is on the other side of it. By definition, then, one part of the trade is right, and the other is wrong.
Denver Post – College endowments and state pension funds that once plowed billions of dollars into hedge funds and private-equity investments as a way to balance their stock holdings officials are watching the value of their alternative investments shrink.
So far, the losses are mostly on paper, but analysts say they could eventually lead to reduced payouts to retirees, higher taxes so state governments can fulfill their promises, or less cash available for colleges to give out as financial aid.
In recent years, endowments and pensions heaped cash into hedge funds — private investment funds that often use unconventional and risky trading strategies. They also bought into private-equity funds, which make direct investments into private companies or buy them out.
New York Times – Several leading hedge fund managers told Congress on Thursday they support some new regulation of hedge funds and the complex derivative securities that are partly blamed for the global financial crisis.
But they advocated only the lightest supervision of their industry, and said they would be willing to disclose their secretive trading activities to regulators only with a guarantee the information would not be released to the public. One executive claimed that requiring hedge funds to publicly disclose their proprietary trading strategies would be like requiring Coca-Cola Co. to reveal to competitors its proprietary recipe for Coke.
"Proper regulation is critical, but the best regulation is created with an eye toward unleashing opportunities, not limiting possibilities," said Citadel Investment Group Chief Executive Officer Kenneth C. Griffin. "We must solve the serious issues we face but in a way that does not stifle the best innovative qualities of our financial markets."
Reuters – Hedge fund managers are reluctantly preparing to disclose their short positions to U.S. regulators on Monday, a move set to give a rare public glimpse into their secretive trading strategies two weeks later.
For shareholders who have blamed short sellers for driving down company stocks, it will be a chance to see who is targeting their firm.
It is also an experiment by U.S. securities regulators, putting short sellers briefly on a similar footing to large investors who accumulate stocks and are required to regularly disclose their positions publicly.
Under a temporary Securities and Exchange Commission order, big money managers will have to reveal the number and value of securities sold short each day last week.
Financial Times – Hedge funds charging hefty fees for sophisticated trading strategies aimed at outperforming the wider market have collectively parked $100bn in simple money market funds typically used by investors seeking safe rather than spectacular returns.
Citigroup estimates that hedge funds have now placed $600bn in cash, and that $100bn of this is held in money market funds, normally seen as some of the safest places to invest cash.
However, last week, those money funds became embroiled in the wider financial crisis to the point that the US Treasury was forced to offer a blanket guarantee on them as part of its attempts to prevent the spillover of the financial crisis into the $3,400bn sector.
The extreme measures taken by the Treasury followed mounting fears that retail investors in the sector could be starting to panic and might withdraw funds on a large scale.
Hedge Funds Review Magazine – Greenwich Associates conducted a study of 146 institutions in North America and Europe to determine how fears of counterparty risk were affecting institutional investment and trading strategies.
The study revealed that 37% of participating institutions have over $50 billion in assets under management. A further 18% have more than $100 billion.
Survey respondents were divided between 32 hedge funds, 114 banks and traditional long-only investors, with the majority domiciled in the US (70%) and 30% in Canada and Europe.
Among US institutions, 85% sees credit default swap (CDS) counterparty risk as a serious threat to global markets. Institutions in Europe are slightly more sanguine; with just over 55% describing CDS counterparty risk as a significant danger.
Over 905 of hedge funds, however, said they see counterparty risk relative to credit default swaps as posing a significant threat to global markets.
