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Courthouse News Service – The founder and general partner of a $5 billion hedge fund used the company’s CFO as a scapegoat when investors found out he used their money to buy a private Gulfstream jet, the former CFO claims in Federal Court. Perry Gruss claims that Daniel Zwirn, of D.B. Zwirn and Co., told him he had to leave the company so Zwirn could remain ”pearly white” and ”bullet proof.”
Zwirn and Co. once managed more than $5 billion in assets. Gruss claims its founder began to live the life of an ”investment magnate,” including the private jet, ”scores of professional and personal assistants,” and a vacation home on the East End of Long Island.
Reuters – Bill Ackman, founder of the Pershing Square hedge fund, has joined the board of bankrupt shopping mall operator General Growth Properties Inc, where he is a large shareholder.
Ackman is the founder and managing member of the general partner of Pershing Square Capital Management L.P. Pershing and its affiliates own slightly less than 7.5 percent of General Growth’s outstanding common stock, the company said late on Friday.
Ackman has said he could gain 13 times his investment in the company once it is reorganized, calling General Growth "high quality."
Wall Street Journal – Prosecutors said $160 million is unaccounted for in a Ponzi scheme allegedly run by hedge-fund manager James Nicholson.
At a bail hearing Thursday, Assistant U.S. Attorney Maria E. Douvas said the government’s investigation showed that $293 million was invested with Mr. Nicholson, who was president and general partner of Westgate Capital Management LLC. Of that, $160 million is unaccounted for, Ms. Douvas said.
Prosecutors had alleged that Mr. Nicholson, of Saddle River, N.J., falsely represented to investors that the firm had assets under management ranging from $600 million to $900 million.
At Thursday’s hearing, U.S. Magistrate Judge Ronald L. Ellis in Manhattan didn’t change the bail conditions set for Mr. Nicholson — a $10 million personal recognition bond, with five co-signers and secured by three pieces of property. He also would be subject to home detention and electronic monitoring.
West Palm Beach (HedgeCo.net) – Carried interest legislation is being considered at the federal, state and local level, raising significant local and international tax issues.
Carried interests, which form an essential element of business in almost every section of the U.S. economy (real estate, private equity, hedge funds and health care), have been subject to significant legislative proposals over the last two years.
Most investment funds (hedge and equity) have a general partner (LLC or LP) which receives a management fee (2%) and a carried interest equal to a percentage (e.g., 20%) of economic income including realized capital gains.
Proposals to reform the taxation of carried interest started in January of 2007 with legislation introduced by Senator Levin (D-MI) that would recharacterize "carried interest" income as ordinary income.
During 2008 New York State proposed and New York City introduced legislation that would change the way carried interest is taxed.
President Obama’s Budget Blueprint released on February 26, 2009 includes a line item related to taxing carried interest as ordinary income.
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West Palm Beach (HedgeCo.net) – Funds of listed hedge funds are no longer providing reliable rates of return as the credit crunch continues – despite having been marketed as risk-free investments.
Analysis from Citywire shows that the sector has declined by 1.8% in net asset values (NAVs) so far in 2008, with funds losing much of the growth they enjoyed last year prior to the onset of the financial crisis.
The news gets still worse in terms of share prices in funds of hedge funds – which are seven% down on the year.
Increased market volatility is thought to have cancelled out the advantages invested in listed hedge funds enjoy, such as having a permanent base of capital.
Speaking to the news source, Simon Elliott, head of research at Wins, commented: "Performance across the board has been disappointing this year and the difference between NAV and share price performance gives you an idea of how premiums have evaporated and discounts widened.
"They have held up pretty well in NAV terms, but investors are exposed to the share price and it makes a big difference to returns."
Reuters UK – Bombed-out valuations present an unprecedented buying opportunity in the European biotech sector, according to venture capital firm Index Ventures, which is eyeing both early and late-stage opportunities.
"It’s like being in a candy shop," partner Francesco De Rubertis told Reuters. "I’m very optimistic about the fact that a year from now, or a year and a half from now, the market will be very high."
He sees a major disconnect in current pricing for biotech assets, with Big Pharma companies regularly paying 50 to 100 percent takeover premiums for businesses that have been shunned by risk-averse investors.
Europe is a particularly fertile ground because of its relative immaturity.
