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HedgeCo.net (West Palm Beach) – Hedge fund investor consultant and adviser, Hennessee Group LLC, today announced some highlights from the first half of 2009 and the month of June, excerpts follow:
“Most hedge fund managers are not buying into the ‘Green Shoots’,” commented Charles Gradante, Co-Founder of Hennessee Group. “While markets rallied sharply in April and May, most managers remained conservative. I think we have reached an inflection point as momentum seems to have faded. We should see a return to stock picking based on fundamentals, which are rather negative. In addition, the technicals are also bad, leading us to believe in a summer correction.”
“Hedge funds have outperformed equity benchmarks by a 10% margin in the first half of 2009,” said Lee Hennessee, Managing Principal of Hennessee Group. “The outperformance is largely due to the ability of hedge funds to profit from their short portfolios, as we saw in January and February. While hedge funds are routinely publicized as high risk vehicles, the reality of the situation is that the average hedge fund has demonstrated significantly less volatility than traditional asset classes for the 22 years we have been advising investors.”
Despite a flat June, the second quarter gain was the strongest quarterly gain since 1998. In June, energy and materials sectors declined as worries mounted that the global economy could experience a drawn out recovery after the World Bank cut the global growth forecast.
Managers remain concerned that the recent rally in the financial markets and resurgence in confidence is built on hope supported by government stimulus rather than a real improvement in fundamentals (i.e., employment and housing).
Long/short equity funds will continue to rely on individual security selection while maintaining low levels of directional exposure as the official second quarter earnings season gets under way with the Alcoa earnings announcement on July 8th. Many managers are overweight technology in long portfolios, the top performing sector for the month and the year, while maintaining short positions in consumer and financial sectors.
Managers have found opportunities in strategic acquisition activity as well as distressed merger and acquisition activity.
After three months of strong gains, emerging markets cooled, declining slightly in June, but are substantially positive year to date. China was one of the few bright spots in June as the equity markets continued to advance. The Hennessee Macro Index declined -1.08% in June (+7.10% YTD).
While May was a record breaking month for commodities, June brought a sharp pull back. Positions in gold, silver, and agricultural commodities all detracted from performance as prices fell. Managers also suffered losses as the U.S. dollar rallied versus most currencies on speculation that the current market rally has ended and reports that the Fed will not expand its purchases of Treasuries. Oil was a positive, up +5.4% in June; although, many believe that prices are being driven by speculation and expect profit taking as oil is up +56.4% thus far this year.
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Bloomberg – Alphex Investments Co., the adviser to Japan’s first short-biased hedge fund, plans to sell exporters’ shares, wagering they’ll fall on a rising yen and weak global economy, boosting the fund that started in March.
“What we’re seeing right now is nothing more than a bear- market rally,” Ichiro Takamatsu, 44, chief executive officer of the Tokyo-based hedge fund advisory firm, said in an interview yesterday. “We’re going to see a really bad yen rally this year, and that will create an opportunity to profit on exporters.”
The firm started its ASB Opportunity Fund on March 3 with $25 million of seed funding from a New York fund-of-funds seeking to diversify its portfolio, said Takamatsu. The ASB fund, with a net short position at all times, is the first of its kind in Japan, he said.
First Post – Hopes are growing that the world has turned the corner, after a number of high profile figures made encouraging noises about the state of the global economy. Billionaire hedge fund manager George Soros said that "the economic freefall has been stopped" and "national economic stimulus programmes are starting to take effect".
His thoughts marked a change of heart, as he was negative on the markets last year. He expects Asia to recover first and the US shortly thereafter.
Jerusalem Post – While the recent G-20 summit in London provided world financial leaders with the opportunity to begin charting a path of recovery for the ailing global economy, the work to build the markets up and to ensure that a crisis like this never happens again will be left to the world’s securities regulators. Regulators around the world, due to their supposed lapse of supervision on the international securities industry, have come under fire for their role in allowing the crisis to occur.
Here in Israel, the country’s chief securities watchdog, Prof. Zohar Goshen, chairman of the Israel Securities Authority, has also been a center of attention with the publication of his "Goshen Plan," an ambitious agenda that seeks to restructure the local corporate bonds market by giving institutions a government guarantee covering 75-80 percent of new corporate bonds issued. This means the institutions will bear 20% of any loss, with the government bearing the rest.
NEW YORK, N.Y. – SecondMarket, the largest marketplace for illiquid assets, announced today that it has launched markets for mortgage-backed securities (MBS), whole loans, and collateralized debt obligations (CDO). Through SecondMarket, buyers and sellers are able to trade these assets in a robust, centralized marketplace that provides transparency, price discovery and an extensive network of market participants.
“Today, the multi-trillion-dollar MBS, whole loans and CDO secondary markets are nearly frozen. For the global economy to recover, it is critical to unfreeze these assets from the balance sheets of financial institutions around the world and restart the securitization markets,” said SecondMarket CEO Barry Silbert. “The most effective solution lies in a time-tested model – an organized, independent secondary marketplace that provides transparency and price discovery.”
Through its online trading and auction platform, proprietary matching algorithm and deep network of relationships, SecondMarket has successfully established itself as a trusted marketplace for a variety of illiquid asset classes since its founding in 2004, including auction-rate securities, bankruptcy claims, limited partnership interests, and restricted securities and blocks in small capitalization companies.
SecondMarket’s trading network includes 2,500 buyers and sellers, hundreds of whom have already expressed an interest in purchasing residential and commercial MBS, CDOs, and portfolios of various whole loans, including residential, commercial, construction, consumer and industrial loans. To date, more than $1 billion in illiquid assets have already been traded over SecondMarket.
Due to the esoteric and opaque nature of many of these assets, pricing is extremely difficult. In an effort to improve investors’ abilities to determine the value of these assets, SecondMarket is providing unparalleled transparency by aggregating data on MBS, whole loans and CDOs and offering it for free to SecondMarket participants. SecondMarket also has established a network of third-party service providers – the SecondMarket Ecosystem – to offer valuation, research, data, analytics, legal and transaction advisory services.
Bill Seidman, former chairman of the FDIC and Resolution Trust Corporation (RTC) and advisor to SecondMarket, endorsed the SecondMarket model. “When we were working with troubled bank assets during the S&L crisis, we were forced to do a lot of work to create a market for these assets,” said Seidman. “Had there been a SecondMarket when I was at the RTC, I would have jumped at using their platform.”
The SecondMarket online marketplace and auction platform is expected to serve as a complementary market to assist the efforts being undertaken to address the legacy asset problem by governments in the U.S. and abroad. “We applaud the federal government’s initial efforts to address the legacy assets and restart the securitization markets,” Silbert said, “and an independent, active secondary marketplace is essential to bolster those efforts.”
SecondMarket is also pleased to announce that it has hired two former Credit Suisse directors to lead its efforts in these asset classes. Elton Wells, previously a Director with Credit Suisse in their Structured Products Group, will head SecondMarket’s MBS and whole loans markets and Adrian Radulescu, formerly a Director with Credit Suisse and Head of the European Leveraged Finance CDO Structuring Desk in London, will head SecondMarket’s CDO market.
“Over the past six months, SecondMarket has been diligently and expeditiously preparing for the launch of these markets by hiring dozens of employees, expanding our technology capabilities and developing key industry relationships,” said Silbert. “We are confident that our efforts will result in transparency, liquidity, a functioning secondary market for the so-called ‘legacy’ assets and, consequently, the restart of the securitization market.”
About SecondMarket
Founded in 2004, New York-based SecondMarket (member FINRA | MSRB | SIPC) is the world’s largest marketplace for illiquid assets, such as auction-rate securities, bankruptcy claims, collateralized debt obligations, residential and commercial mortgage-backed securities, limited partnership interests, restricted securities and blocks in small capitalization companies, and whole loans. SecondMarket has 2,500 participants, including global financial institutions, hedge funds, private equity firms, mutual funds, corporations and other institutional and accredited investors that collectively manage over $500 billion in assets available for investment. For more information, visit www.SecondMarket.com.
The Ledger – Anxiously assembled at the most perilous moment for the global economy since the Great Depression, the world’s financial powers pledged more than $1 trillion Thursday for emergency loans to combat spreading chaos. But they rebuffed President Barack Obama’s bid for new stimulus spending and made no guarantees of success.
"This was the day the world came together to fight back against global recession," declared British Prime Minister Gordon Brown, the summit host, as he led a choreographed show of unity designed to boost confidence in homes and boardrooms everywhere. "This is just the beginning," added Obama.
No one promised an immediate impact, and all agreed much remained to be done.
Boston Globe – The leaders of Germany, Britain, France, and Italy yesterday said that the resources of the International Monetary Fund should be doubled, to $500 billion, to help head off new problems in countries already hit hard by the global economic and financial crisis.
The officials also said, in a statement clearly aimed at hedge funds and other big private pools of capital, that "all financing markets and participants" need to fall under regulation in the future. And they vowed to make a tough push against tax havens.
With one eye on a crisis that is rapidly spreading to Eastern Europe and even countries that use the euro, the leaders highlighted the crisis-prevention role of the IMF, an institution whose relevance to the current global economy seemed in doubt only a few years ago.
Middle East Online – Can a Hedge-Fund Island Lose Its Shirt and Gain Its Soul?
In December, reports surfaced that Treasury Secretary Henry Paulson pushed his Wall Street bailout package by suggesting that, without it, civil unrest in the United States might grow so dangerous that martial law would have to be declared. Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF), warned of the same risk of riots, wherever the global economy was hurting. What really worried them wasn’t,
West Palm Beach (HedgeCo.net) – Beijing-based fund manager, Lowes Wealth Management (LWM), has announced a bullish programme of stock acquisition, building on the opportunities thrown up by the global downturn.
LWM, which runs the recently launched Elite East-West Value Fund, said that its strategy of investing in what it considers to be ‘the 25-35 best value companies in the world’ will reward investors equipped with a long-term investment horizon.
“We invest solely on the basis of classical value principles, in companies strong in tangible assets that operate with low levels of debt,” said fund manager Justin Lowes.
“We moved 90% of the funds we manage into cash in the summer of 2008 and thereby protected our clients from the worst of the market falls. We are now seeing opportunities to carefully and gradually move back into the market, one stock at a time, and believe that opportunities are now presenting themselves which will, in the future, be seen as once-in-a-lifetime investment windows,” he said.
“The key is to invest in companies that are not in danger of capitulation should credit continue to be hard to come by, whose products and services will be in demand even if the global economy does take an additional downwards lurch.
“A good example would be firms operating in sustainable markets, such as those linked to Asian infrastructure development and oil. The continuing development of the likes of China and India will continue to provide support in these areas.” he added.
A longer term investment horizon is essential, said Lowes, as the US and UK/Euro-zone recessions are unlikely to be short-lived.
“Consider first the discrepancy between debt and equity markets,” he said. ”Spreads are suggesting that defaults on corporate debt are likely to be at 1930s levels. This is very much at odds with the message from equity markets.
“And, along with the still falling property markets and rising unemployment, there is almost certainly more bad news to emerge in terms of bad debt in the core US loans market.
“Here we are still seeing a huge amount of sub prime, Alt-A and even prime mortgage debt that is going to sour.
“On top of this, add massive amounts of now unsecured home-equity lines of credit, car loans, student loans and credit card debt.
“Credit card debt in the US alone tops $1 trillion, of which around $250 billion may well be written off. Remember that much of this debt was securitised and sold far and wide, so this is just not a US problem.”
And, continued Lowes, the “sheer amount” of deleveraging that is required by banks, hedge funds, governments and individuals is likely to put continued pressure on asset prices.
“We now see the bursting of two bubbles. A near decade long housing boom that ranks as the biggest asset bubble in history, combined with the bursting of a consumer credit bubble that began to inflate in the early 1980s under Reagan and Thatcher. The seeds of current market distress were long in the making. It is unlikely that a fundamental resolution of such entrenched issues can be achieved in such a short period of time.
“The UK looks particularly troubled. Massive levels of consumer debt, the ongoing impact of the collapse of the UK housing market and the sheer size of the financial services market as a proportion of the UK economy levels all mean that the UK is likely to be particularly badly hit,” he said.
But, despite the gloomy picture in the short term, Lowes is “tremendously optimistic” of the longer-term investment scenario.
“We’re bearish on global markets, but we don’t invest in ‘global markets’ – we invest in a select portfolio of the best 25-35 companies available from around the world. The fear that stalks the markets and indiscriminate selling has resulted in some superb companies being marked down to mouth-watering prices.
“Also, as value investors we approach investment from a different angle: looking at the markets over the next 12 months is short-termist in our view,” he said.
“The question should not be ‘by investing today, will I earn good returns in 6-12 months?’ The question should be, by buying into the markets at this time, am I likely to lay the foundation for superb returns over the next 3-5 years and beyond?’ And the answer to this question, we believe, is an unequivocal ‘Yes’.”
The LWM investment management team has recently invested in a number of well-established companies including Blue Scope Steel (Australia) and Aero Inventory, a UK aircraft maintenance outsourcing company. Also under consideration are US aluminium giant Alcoa and Cimarex Energy, an oil and gas company.
“We are looking to average into the markets over the next 5-9 months to take advantage of ongoing volatility,” said Lowes. “We believe that some emerging markets are likely to bounce back quickly from their current positions. We also feel that the US is likely to recover more quickly than the UK as it is further forward in the economic cycle.”
The Fund is suitable for investment for ISAs, SIPPs, SSASs and regular savers with a minimum investment level of £5,000 for lump sums or £100 per month. The Fund is also available through Transact and discussions are currently ongoing with a number of additional platforms.
Lowes Wealth Management has been managing funds on behalf of discretionary clients since October 2005. Since that period its classical value strategy has outperformed all major markets with lower volatility. With the launch of the Elite LWM East-West Value Fund on December 1st, the Lowes Wealth strategy is now made available to UK retail investors.
Reuters – The G30, a group of high-profile economists and policy-makers, on Thursday called for changes in international financial regulation to help avoid future meltdowns, but its recommendations were vague and non-binding.
In findings that made no reference to the issue of executive compensation, the group of bankers and policy-makers indicated that big firms that pose a risk to the entire system should be subject to particularly close scrutiny.
The global economy has been reeling from a financial crisis that began with a popping U.S. housing bubble and has since infected the entire financial system, shaking confidence and breeding mistrust.
Reuters – Officials from the Federal Reserve and the European Central Bank on Sunday vowed to fight the damaging effects of deflation as the global economy suffers a deep and lengthy recession.
In just a few months, central bankers’ concerns have flipped from fighting inflation to staving off possible deflation — a condition in which falling prices cause consumers and businesses to delay purchases, resulting in an even steeper economic downturn.
Both Janet Yellen, president of the San Francisco Federal Reserve Bank, and Lucas Papademos, vice president of the ECB, highlighted the risks of deflation at the annual meeting of the American Economics Association.
Seeking Alpha – In 1997, some observers feared an impending global recession as a result of the headwinds stemming from the Asian financial crisis. However, within two years, those fears had dissipated and were replaced with new concerns of irrational exuberance.
In contrast, the U.S. economic downturn beginning in 2008 initially appeared to be relatively benign. Most observers believed that a moderation in U.S. economic growth was essential to prevent an over-heating of the global economy. It was further believed that the problems confronting the U.S. economy were of its own making and would have little effect on global economic growth.
To be sure, some economists did forecast a U.S. recession in 2008 as a result of mounting home foreclosures. Such forecasts were however widely dismissed as being unduly alarmist during the first quarter of 2008.
