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West Palm Beach (HedgeCo.net) – A survey conducted by Job Search Digest, publishers of Hedge Fund Jobs Digest, revealed a shift in the hedge fund industry. Given the current state of the market, the results tell an interesting story and show that key players in hedge fund careers knew trouble was on the horizon earlier this year.
Some findings of interest are that despite no significant increase in compensation, there was a substantial increase in satisfaction with hedge fund compensation. This indicates that well before Wall Street’s meltdown, hedge fund employees knew the market had shifted. This year’s report reveals that 42% of hedge fund employees are happy with their current level of compensation – up from a mere 25% last year.
The survey also found that pay is not correlating with fund performance. When the fund performs well, employees are paid well – most of the time. The hedge funds reporting this year performed well with the majority reporting more than 10% return (and many reporting over 25% return). firms reporting flat performance (that is, zero return) had the highest average pay.
Although the hedge fund industry is often referred to as a meritocracy, many respondents to the survey indicated their bonus is disconnected from their individual performance and, instead, based on overall firm performance.
Job Searcg Digest also found that people are attracted to hedge fund careers because of a huge potential upside. Last year, dissatisfaction with compensation was primarily driven by the desire for greater upside. Now, with all the nervousness in the market, many hedge fund employees feel lucky simply to still be working in the industry.
Alex Akesson
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Guardian.co.uk – Hedge funds and banks are expected to bear the brunt of derivative losses estimated at $15bn (£9.4bn) linked to the collapse of Iceland’s three major banks – Landsbanki, Glitnir and Kaupthing – which failed in rapid succession last month.
The complex unwinding of trades linked to debt issued by the banks began yesterday with a settlement auction to determine the payout price on credit default swap (CDS) contracts – insurance taken out against the risk of debts going bad – for Landsbanki.
Payouts on all three banks are expected to be some of the largest ever seen in the $54.6tn CDS market – greater than those relating to Lehman Brothers, whose collapse triggered the meltdown of the global financial system.
The high settlement prices for Icelandic bank CDSs will be a blow to hedge funds, banks and other derivative traders who insured the debt.
Times of India – Often-touted as manipulative, hedge funds have been time and again blamed for indiscriminate selling and thereby pulling down the domestic stock prices even in India. But India-focused hedge funds have also been affected by the meltdown.
The big and secretive India-focused funds have booked losses to the tune of 46% in 2008 — in the process effectively wiping out the 50% returns clocked by the posted by them in 2007. Hedge funds have an aggressively managed portfolio of investments which use advanced investment strategies such as leverage, long, short and derivative positions in both domestic and international markets with the goal of generating high returns.
AlterNet – Jack Nash, a key pioneer of the global hedge fund industry, passed away this past summer. Much of the rest of the industry may soon join him six feet under. The industry, one insider told the Financial Times last week, has embarked on "a sort of death march."
Hedge funds now appear to be the next chunk of high finance headed for meltdown. They may actually do their melting before most Americans even know what they are.
A quick primer: Hedge funds have been operating in the financial world’s immensely lucrative shadows ever since Jack Nash co-founded Odyssey Partners, the granddaddy of the modern hedge fund, in 1982, just one year after Ronald Reagan slashed tax rates on America’s highest incomes.
The new tax rates — the lowest the rich had seen since the early 1930s — meant that wealthy Americans suddenly had plenty of new cash sloshing in their pockets. Nash promised these affluents high annual returns if they gave him their money to invest — and then delivered. Over the next 14 years, Odyssey delighted investors with a 24 percent average annual return.
Gawker – Last week the Observer, Tom Wolfe said the truly rich would be protected from the Wall Street meltdown because all the smart guys had long since decamped for hedge funds, leaving investment banks staffed by "real second-raters." This weekend in the Times, the author of Bonfire of the Vanities clarified that statement by adding that elite hedge funders may still be ruined, just not until September 30, that is to say tomorrow. In other words, these strapping Masters of the Universe are so ingenious they staved off the sad fate of i-bankers for all of maybe 14 extra days:
Their hedge funds have blown up here and there, but unlike the investment banks, they are still very much in business. They have hurriedly pulled themselves into defensive positions inside their shells, like turtles. Their Armageddon, if any, will not come for two more days, which is to say, Tuesday, Sept. 30.
Politico.com – Even as the storied financial names vanish — Lehman Brothers, Merrill Lynch and Bear Stearns — they’re being quietly replaced by less familiar ones: Cerberus Capital Management, Citadel Investment Group, SAC Capital Partners and the other biggest hedge funds and private equity shops in the world.
The consensus in Washington is that the Wall Street meltdown means an inevitable resurgence of regulatory authority over the financial sector. But what it may actually portend is just the opposite: the emergence of an almost entirely unregulated financial sector that replaces investment banks that were more rigorously regulated.
It has now become very clear to market insiders that the $2.1 trillion hedge fund industry is larger in terms of capital than the remnants of the investment banking sector.
Reuters – Fidelity Investments’ Harry Lange, manager of its one-time star Magellan fund, made what now looks like a poorly timed move in June: he nearly doubled his holdings of AIG.
Lange, who has already seen other financial bets sour, driving the $35.2 billion (19.6 billion pound) fund down 17.3 percent since July, may be just one of several fund managers to get burned by American International Group Inc’s meltdown.
Though it’s unclear where Magellan’s holding stood when the government launched its $85 billion government bailout of the giant insurer on Tuesday, Lange in June boosted the fund’s holdings of AIG to $865.1 million from $475 million in May.
And that was just a piece of the substantial 5.81 percent stake, or 156 million shares, held by Fidelity, the world’s biggest mutual fund company, as of the end of June, according to Reuters data.
Reuters – Private equity firm Blackstone Group LP’s chief operating officer said on Tuesday that the limit on bank financing for leveraged buyouts was about $5 billion.
But COO Tony James said there were multiple opportunities to invest despite the market turmoil and the limit on financing, adding the company has had a very active 12 months, investing $8.7 billion in 27 deals since the credit meltdown.
"People say you can’t do leveraged buyouts," said James. "That’s not correct. We are getting bank financing for LBOs (leveraged buyouts), but we’re not getting bank financing for deals over about $5 billion in size."
He said the current volatile market conditions were ideal times for Blackstone to invest.
"One could be forgiven for thinking this is a hostile environment for Blackstone," said James, speaking at a Lehman Brothers conference that was webcast. "I don’t agree at all. I think it’s a fantastic environment. Turmoil, discontinuity in the market and scarce capital are absolutely ideal forces for our businesses."
Blackstone has taken part in some of the largest leveraged buyouts ever, such as the $23 billion purchase of Equity Office Properties Trust, but has also done numerous smaller buyouts.
ITNews- Recent second quarter figures from the Cayman Islands Monetary Authority (CIMA), have confirmed the achievement of a key milestone by the Cayman Islands financial services industry, with more than 10,000 investment funds currently registered in the jurisdiction.
At the end of June 2008 there were 10,037 funds on CIMA’s register, compared with 9,681 at the end of the previous quarter and 8,972 at the mid point of 2007. The current annual growth rate of 12% in net new hedge funds, which takes cancellations into account, is particularly striking in the context of the deterioration in global markets following the sub-prime meltdown and associated credit crunch.
"This is yet another round of impressive statistics from CIMA," said Mark Lewis, senior investment funds partner at Walkers. "The 10,000 barrier has been breached as hedge funds continue to be formed in the Cayman Islands, which remains the clear jurisdiction of choice for investment managers and their advisers around the world.
The Herald- Bearish fund manager Ian Rushbrook has moved the £190m Personal Assets Trust (PAT) from zero to 75% in equities in recent weeks, and is overweight in banks, he told the trust’s shareholders yesterday.
But the veteran manager, who a year ago apologised to shareholders for being 80% in cash but correctly predicted the meltdown in financial markets, said that "doesn’t mean we think there are no problems ahead for the market".
An unusually packed an-nual meeting at the headquarters of F&C in Edinburgh, at which a lifesize stuffed bear sat on the end of the front row, heard Rushbrook warn that the "fault lines" in banking rights issues were being exploited by hedge funds to drive down the price, then buy shares back on the cheap.
Reuters- Some of the best known U.S. fund firms probably suffered significant losses in last week’s meltdown in the stocks of mortgage finance agencies Fannie Mae and Freddie Mac.
Among the casualties may be the one-time star stock-picker Bill Miller at Legg Mason, whose funds have owned a series of companies that have been battered by the credit crisis and the weakening economy.
Others include Capital Group, including its Growth Fund of America, which is the largest U.S. fund, AllianceBernstein, and Fidelity Investments.
