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.
Washington Post – It’s easy to explain the continuing financial chaos — and the failure of governments to control it — as the triumph of psychology. Fear reigns, and panic follows. Everyone dumps stocks because everyone believes that everyone else will sell. Only rapidly falling prices attract sufficient buyers. All this is true. But it ignores the real engine of mayhem: "deleveraging." That’s economic shorthand for purging the financial system of too much debt.
Just how this deleveraging proceeds will largely determine the fate, for good or ill, of the crisis. The turmoil has already moved beyond "subprime mortgages," which (it now seems) merely exposed widespread financial failings. These were global, not just American, and their pervasiveness explains why leaders of the major economies have struggled, so far unsuccessfully, to fashion a common response.
Alone, American subprime mortgages should not have triggered a global crisis. Losses are smaller than they seem. Mark Zandi of Moody’s Economy.com estimates that all U.S. mortgage losses will ultimately reach $650 billion. But that hefty amount pales against the value of all financial assets — stocks, bonds, bank loans. For the United States, these totaled almost $60 trillion at the end of 2007; for the world, the comparable figure exceeded $250 trillion.
Seeking Alpha – Some analysts say a big-picture trend presently unfolding involves hedge funds and other players unwinding bets on commodities/foreign currencies and plowing the proceeds into U.S. financial and other stocks. They are doing this for valuation reasons and as a haven against weakening economies overseas.
There is some evidence that it at least partly reflects hedge funds scrambling to raise cash to meet redemption requests. Financial stocks have risen for sure, but that likely reflects hedge funds buying back short positions to generate cash, not to go long because they think the fundamentals are turning.
I remain somewhat skeptical of the thesis that the U.S. economy is close to coming out of the downturn, and so the places to shift into are U.S. stocks and the U.S. dollar. When one looks at the problems the U.S. has, especially in its financial sector, they would seem to have the potential to inflict more pain on the economy than we have seen to date.
Wall Street Journal – Harbinger Capital Partners and Firebrand Investments LLC, the hedge funds that put two representatives on the board of the New York Times Co. this past spring, are again adding to their stake in the media company.
Through share purchases and a series of equity swaps, Harbinger Capital Partners and Firebrand Investments added economic exposure to 1.9 million Times shares in August, according to filings with the Securities and Exchange Commission.
Harbinger and Firebrand increased their Class A stake in the Times to nearly 20% this spring, and shortly after gaining board representation, the funds stopped buying shares. After four months of silence, however, Harbinger disclosed that it is again adding to its stake, mostly through equity swaps.
By entering into the swaps with an unnamed counterparty, Harbinger and Firebrand effectively gained economic exposure to an additional 1.7 million Class A shares. The funds also bought 200,000 shares outright for $13 a share.
CNBC – Cramer got a chance Thursday to check in briefly with CSX Chairman and CEO Michael Ward.
Ward’s been a regular guest on Mad Money as his company has battled with activist hedge funds fighting to have him ousted.
Those hedge funds have managed to get two people on CSX’s board of directors, and another two are pending approval based on a lawsuit that proceeds to oral hearings this coming Monday, Aug. 25 in the Second Court of Appeals in New York.
“Maybe they can actually help,” Cramer said of the board additions.
Reuters India- A Chinese fund manager has won a lunch with famed U.S. investor Warren Buffett after bidding $2.11 million for the opportunity in a charity auction, more than three times what the lunch fetched last year.
Zhao Danyang, who runs Hong Kong-based Pureheart China Growth Investment Fund, had the winning bid in the eBay Inc auction that ended late on Friday.
Proceeds of the lunch with the 77-year-old chairman of Berkshire Hathaway Inc benefit Glide, a nonprofit foundation in San Francisco that offers programs for the poor, hungry and homeless.
Mohnish Pabrai, an Irvine, California-based investor, paid $650,100 for the right to dine with Buffett last year.
Buffett began donating lunches in 2000 after his wife Susan introduced him to the Rev. Cecil Williams, who founded Glide and runs the Glide Memorial United Methodist Church. The auctions, including the current one, have grossed more than $4 million for the organization. Last year’s winning bidder paid $650,000 for lunch with Buffett.
Los Angeles Times – The hedge fund industry can only exist because investors believe their fund managers will deliver above-average returns over time, despite the portfolios’ hefty fees.
Master investor Warren Buffett, who has long derided those fees, now has made an interesting bet with a firm that runs so-called funds-of-hedge-funds: He’ll beat their net returns over the next decade simply by owning a mutual fund that tracks the Standard & Poor’s 500 index.
The bet is the subject of this article in Fortune magazine by Buffett’s long-time friend, writer Carol Loomis.
Buffett is going up against Protégé Partners LLC, a New York-based money manager that picks hedge funds for its clients.
Loomis writes: "Each side put up roughly $320,000. The total funds of about $640,000 were used to buy a zero-coupon Treasury bond that will be worth $1 million at the bet’s conclusion." Whichever side wins, the proceeds will go to charity.
