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Reuters UK – Hedge funds are going to have to dance to their investors’ tune once more as lucrative profits fall and a new breed of clients begins flexing its muscles, demanding more results from managers.
Institutional clients, a growing part of the hedge fund investor base, are questioning high fee levels and say they want to see what managers are really doing with their money — an understandable worry since the Madoff fraud.
They also want to know how hedge funds manage risk in choppy markets after record performance losses last year, and are balking at funds that are restricting investors from accessing their money by using so-called gates.
Financial Standard – Australian fund of hedge fund managers can manage liquidity levels in real time after Northern Trust enhanced the firm’s Hedge Fund Monitor product.
The feature, which is available via Northern Trust’s relationship with youDevise, allows the fund of hedge fund manager to integrate all hedge fund gating terms into the fund’s liquidity calculations so they understand how and when they can access cash.
Gates are setup by hedge fund managers to limit redemptions and prevent a run on the fund.
Reuters – Not only are Hedge funds losing clients and money, they are losing clout, too, as large investors turn the table on them and demand better terms.
Stung by investment losses and vexed by so-called gates that limit redemptions, some of the largest pension funds and other large investors are demanding that fund managers trim fees, provide more information and increase access to cash.
Bloomberg – Magnetar Capital LLC, the $8 billion hedge-fund firm co-run by former Citadel Investment Group LLC trader Alec Litowitz, limited withdrawals from its biggest fund after it lost 30 percent this year through November, according to two people familiar with the fund.
The restrictions, known as gates, were triggered after clients sought to pull more than 15 percent of their money from the firm’s $4.8 billion multistrategy fund, said the people, who asked not to be identified because the information is private.
Hedge funds including D.E. Shaw & Co. LP and Farallon Capital Management LLC this month imposed gates so they wouldn’t be forced to raise cash by liquidating assets at distressed prices. Magnetar, based in Evanston, Illinois, told clients who asked for redemptions by Dec. 31 that they will get 10 percent of their requests in cash and 5 percent in shares of its two credit funds, the people said.
New York Times – Hedge funds’ annus horribilis is getting worse. The average fund, after losing nearly 5 percent in the first eight months of the year, was down an additional 7 percent in September, according to Hedge Fund Research. Many other factors are making life difficult for fund managers, too. An industry shakeout looks inevitable.
At the end of last month, many funds were expecting more than the usual level of requests from jittery investors to pull cash out. It’s hard to plan longer-term trades if your investment funds might suddenly be snatched away. And a flood of redemptions can force the sale of assets, hurting remaining investors — one reason that fund managers sometimes block withdrawals.
On top of that, hedge funds used to bolster returns with lots of borrowed money. Now that has become a scarce commodity. The ability to bet on price declines has also suffered, thanks to partial or complete bans on selling stocks short in markets around the world.
Reuters – Britain’s new Personal Accounts scheme, a plan for savers without a company pension, is "highly unlikely" to invest in hedge funds and private equity, said the head of the authority in charge of setting up the scheme.
The investment portfolio of the Personal Accounts scheme, which is set to grow to 150 billion pounds ($279 billion) in 50 years’ time, has not been decided, although the scheme has said its default fund is likely to consist mainly of index-tracking funds.
Tim Jones, chief executive of the Personal Accounts Delivery Authority (PADA), told Reuters on the sidelines of an industry conference: "My personal view is that it highly unlikely because that’s not where our low to middle income earners are."
Hedge funds, which have been blamed for adding to current market volatility due to their role in short-selling stocks, are viewed by pension funds as a diversifier, although returns have been disappointing for many investors this year.
Jones also said the scheme is likely to offer around a dozen funds for savers to select from.
