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.
New York (HedgeCo.net) – Winner of the “Fund of Hedge Funds Leader of the Year” 2009, Liongate Capital Management, has opened a Dubai office after being awarded a license by the Dubai Financial Services Authority (DFSA) to operate from the Dubai International Financial Centre (DIFC).
The $2.3 billion FoHF’s manager will focus on advising institutional clients in the MENA region on allocations to hedge fund investment strategies out of the new Dubai office.
“With investors increasingly seeking to diversify their portfolios to include alternative investments, the long-term potential for the growth of the hedge funds market in the Middle East, North Africa and India is strong.” His Excellency Dr Omar Bin Sulaiman, Governor of the DIFC, commented. “DIFC offers the infrastructure and regulations for providers of hedge fund investments to take advantage of opportunities in the region. The establishment of Liongate Capital Management’s office is testimony to DIFC’s ability to offer a secure and productive platform for the growth of hedge funds. It also demonstrates the continued confidence of the global financial industry in the potential of the regional market.”
Liongate Capital Management has also appointed hedge fund allocator, Fahad Al-Bader, as Senior Executive Officer of the Dubai office. Fahad Al-Bader has over six years experience of investing in hedge funds. Previously, he was Head of Hedge Funds at the Kuwait Fund, Head of Alternative Investments at Ryada Capital and an Investment Analyst at KIA (Kuwait Investment Authority). Fahad al-Bader is a graduate of Purdue University, and joined Liongate Capital Management in May 2008.
New York (HedgeCo.net) – A new independent study that examines the continued emergence of investment managers in the equity long and short marketplace and their convergence with hedge funds has been published by Pershing LLC, a BNY Mellon company, and Finadium LLC.
The report entitled, Competition and Convergence: The Evolving Landscape for Hedge Funds, indicates that while investment managers have relatively few assets in equity long and short investment portfolios, this segment of the market continues to grow rapidly as firms seek to diversify their business lines and compete with hedge funds. This new competition for assets has pushed some hedge funds into long-only investment strategies and others towards retail distribution. The report suggests that investment managers will become more important to hedge funds as potential partners in product offerings and mergers and acquisitions. Key findings from the study include:
– Growth of Equity Long and Short Investment Strategies Among Investment Managers Expected to Increase – Investment managers’ control of equity long and short investment portfolios is expected to rise from $204 billion to $345 billion by 2012 representing an increase from 19% to 28% of today’s $694 billion marketplace. According to a recent Finadium survey, 65% of investment managers now operate some sort of long and short fund, up from 33% one year ago. Independent hedge funds are also expected to continue to grow and increase their equity long and short portfolios to $810 billion by 2012 as equity markets recover;
– Potential Regulatory Reform Remains a Wild Card – Investment managers view potential regulatory reform as a wild card in driving convergence between themselves and hedge funds. The report indicates that some investment managers advocate working more closely with hedge funds as sub-advisors and potential acquisition targets with the expectation that increased regulation will occur. Without specific regulation, hedge funds will continue to have few legal obligations to disclose fees and practices;
– Hedge Funds Continue to Benefit from Strong Prime Brokerage Relationships – Investment managers have notably different servicing needs than their hedge fund competitors. These organizational requirements have created challenges for investment managers looking to do business with noncustodian prime brokers, to the benefit of hedge funds with strong prime brokerage relationships. While investment managers are becoming more agile in their technology and operations, no party has surmounted the funding obstacles that regulatory and market pressures have put in place; and
– Tri-Party Custodial Relationships May Offer Hedge Funds an Edge – Hedge funds have a wide range of opportunities and challenges to take into consideration when evaluating the strategies of investment managers in the long and short arena. For example, hedge funds should consider tri-party custodial relationships which bring many traits of the asset management industry into their domain. These arrangements allow hedge funds to mitigate their counterparty risk by custodying cash and fully paid for securities with a less leveraged bank custodian, while prime brokerages still hold the fund’s short positions and provide margin financing.
“As investment managers increasingly expand into the equity long and short marketplace, hedge fund managers need to provide their investors with a distinct value proposition that uniquely positions them in the marketplace.” Craig Messinger, managing director of Pershing Prime Services, said, “Exploring new investment strategies, embracing potential merger and acquisition opportunities and offering clients innovative separately managed account solutions are several tactics hedge funds should consider to help continue growing their businesses.”
There are currently several proposals on the floor of Congress that would affect the future of hedge fund regulatory requirements. The proposals call for increased transparency and accountability of hedge funds in a governmental mission to minimize systemic risk. The following proposals are currently being considered:
•Consumer Financial Protection Agency Act of 2009
•Private Fund Transparency Act of 2009
•Hedge Fund Advisor’s Registration Act
•Private Fund Investment Advisers Registration Act of 2009
•Hedge Fund Transparency Act of 2009
All of the aforementioned proposals would eliminate the private advisor exemption that currently excludes hedge funds under 15 clients from having to register with the SEC. Though it’s uncertain which of the proposals will pass, it is apparent that hedge funds can expect registration and development of a compliance program to be a requirement in their near futures – likely to pass by the end of the year with a 6 month implementation schedule.
By eliminating the hedge fund registration exemption, all of these bills would require hedge funds to register with the SEC, have compliance policies and procedures and a code of ethics, develop business continuity plans, and implement an anti-money laundering program. What’s more, as SEC regulated firms, Hedge Funds can also expect to be subject to an annual audit by FINRA or another examination body that will be examining the compliance program with increased scrutiny to avoid another messy scandal.
To this point, Rick Nummi a former senior attorney at the SEC who helped to write the Hedge Fund Examination module and currently serves as an Executive Consultant at Accounting & Compliance International suggests that regulations and examinations are just going to get more focused. Nummi says “FINRA Management will have “game changing” directives to their exam staff to avoid another Madoff/Stanford/Bluestein. The primary driver will be/currently is, ‘If you (the FINRA Exam Staff) don’t find it (while you are onboard a firm examining) and it happens (another embarrassing fraudster) on my (Senior FINRA Staff) watch, you (the examiner) will be castrated (fired)’. It doesn’t matter what the priorities are, there will be no quarter given to lax compliance staff.”
To cope with the looming registration requirement, it is advisable to register your hedge fund sooner rather than later and to appoint your firm’s Chief-Compliance Officer before these experience compliance professionals become a precious and expensive commodity. Compliance firm’s such as Nummi’s Accounting & Compliance International can spearhead the registration process for your firm and develop a customized compliance manual to help you create a strong compliance infrastructure.
If you’re not ready to register, you should run your firm as if you are registered and follow compliance best practices for Investment Advisors (under SEC Rule 206), which include appointment of a CCO, development of a compliance manual, and an annual review of your program. A strong compliance infrastructure will inspire investor confidence and benefit your firm.
You should also be sure to maintain for review accurate books and records that might be required for inspection. For a comprehensive list of documentation that your firm should keep on file review Books and Records to be maintained by Hedge Funds.
The regulatory landscape is changing for Hedge Funds and keeping up with those changes is imperative for your firm to remain competitive, compliance, and successful.
If you would like to inquire into Hedge Fund Registration or Compliance for your firm, contact Accounting & Compliance International (ACI) and request a complimentary consultation with one of our representatives: Email: info@acisecure.com or Phone: 212-668-8700. Website: www.acisecure.com.
There are currently several proposals on the floor of Congress that would affect the future of hedge fund regulatory requirements. The proposals call for increased transparency and accountability of hedge funds in a governmental mission to minimize systemic risk. The following proposals are currently being considered:
Consumer Financial Protection Agency Act of 2009
Private Fund Transparency Act of 2009
Hedge Fund Advisor’s Registration Act
Private Fund Investment Advisers Registration Act of 2009
Hedge Fund Transparency Act of 2009
All of the aforementioned proposals would eliminate the private advisor exemption that currently excludes hedge funds under 15 clients from having to register with the SEC. Though it’s uncertain which of the proposals will pass, it is apparent that hedge funds can expect registration and development of a compliance program to be a requirement in their near futures – likely to pass by the end of the year with a 6 month implementation schedule. By eliminating the hedge fund registration exemption, all of these bills would require hedge funds to register with the SEC, have compliance policies and procedures and a code of ethics, develop business continuity plans, and implement an anti-money laundering program. What’s more, as SEC regulated firms, Hedge Funds can also expect to be subject to an annual audit by FINRA or another examination body that will be examining the compliance program with increased scrutiny to avoid another messy scandal. To this point, Rick Nummi a former senior attorney at the SEC who helped to write the Hedge Fund Examination module and currently serves as an Executive Consultant at Accounting & Compliance International suggests that regulations and examinations are just going to get more focused. Nummi says “FINRA Management will have “game changing” directives to their exam staff to avoid another Madoff/Stanford/Bluestein. The primary driver will be/currently is, ‘If you (the FINRA Exam Staff) don’t find it (while you are onboard a firm examining) and it happens (another embarrassing fraudster) on my (Senior FINRA Staff) watch, you (the examiner) will be castrated (fired)’. It doesn’t matter what the priorities are, there will be no quarter given to lax compliance staff.” To cope with the looming registration requirement, it is advisable to register your hedge fund sooner rather than later and to appoint your firm’s Chief-Compliance Officer before these experience compliance professionals become a precious and expensive commodity. Compliance firm’s such as Nummi’s Accounting & Compliance International can spearhead the registration process for your firm and develop a customized compliance manual to help you create a strong compliance infrastructure. If you’re not ready to register, you should run your firm as if you are registered and follow compliance best practices for Investment Advisors (under SEC Rule 206), which include appointment of a CCO, development of a compliance manual, and an annual review of your program. A strong compliance infrastructure will inspire investor confidence and benefit your firm. You should also be sure to maintain for review accurate books and records that might be required for inspection. For a comprehensive list of documentation that your firm should keep on file review Books and Records to be maintained by Hedge Funds. The regulatory landscape is changing for Hedge Funds and keeping up with those changes is imperative for your firm to remain competitive, compliance, and successful. If you would like to inquire into Hedge Fund Registration or Compliance for your firm, contact Accounting & Compliance International (ACI) and request a complimentary consultation with one of our representatives: Email: info@acisecure.com or Phone: 212-668-8700. Website: www.acisecure.com. – hedgeco.net
Reuters – Institutional investors are going to gang up on “arrogant” hedge funds, a pension fund chairman warned, as investors increasingly press for changes that would link lucrative fees more closely to genuine outperformance.
A key complaint of investors has been that while many of them lost money during the financial crisis, hedge fund managers were still able to rake in millions of dollars in fees. Last year, average hedge fund returns were a minus 19 percent.
Reuters – Activist investor, The Children’s Investment fund (TCI), has closed down in Asia following the departure of its regional head earlier this year, sources familiar with the matter said on Tuesday.
The UK-based fund had approached other global hedge funds with a regional presence to take over its Asian portfolios, said another source close to the issue.
TCI did manage to sell off most of its regional investments but it was not clear who the buyers were, the source said.
New York (HedgeCo.net) – Northern Trust has been named the Best Overall Hedge Fund Administrator by HFMWeek in the magazine’s inaugural U.S. Service Provider Awards. The awards recognize companies that have outperformed their peers during 2008-2009 and demonstrated financial progress, growth and genuine innovation.
“Northern Trust was recognized for the strength of its service offering and for demonstrating business momentum and product innovation during a challenging period for the hedge fund industry,” said Lucy Guest, senior publishing executive for HFMWeek.
“The importance of a Third Party Administrator is now being disseminated throughout the industry so that all funds, including start ups, are embracing the need for the service.” Joe Goldstein, Managing Partner at G&S Fund Services, said. “Prior to Madoff, start up and smaller funds were reluctant to use third party administrators even though we provided them with a higher quality of financial management at a lower cost.”
What Goldstein sees as a change in the industry is that the necessity of a hedge fund administrator is now understood by investors. “This change is contributing to the growth of the hedge fund administration business, as funds who were reluctant to use hedge fund administrators are now either turning over their financial administration to a third party, or at very least using them to review and confirm their NAV calculations.” Goldstein said.
Northern Trust has a growing hedge fund servicing business, with assets under administration of $75.5 billion as of June 30, 2009, an increase of 54 percent over the prior year. Northern Trust services nearly 300 hedge funds worldwide as of June 2009, and in the previous 12 months had provided global operations services to more than 120 new fund launches and transitions.
“We’re delighted to be recognized as best overall administrator as it validates our approach of blending innovative technology, strong process and automation with the exceptional service standards that set Northern Trust apart from our competitors,” said Matt Ward, Head of Fund Administration-North America for Northern Trust. “Ultimately this is a service business and our experienced and attentive people are the real strength of our offering.”
Reuters – Hedge fund firm Galleon Group, whose founder has been charged with insider trading, paid $250 million to its Wall Street banks last year and in return received market information that other investors did not get, the Financial Times reported.
New York-based Galleon, which invested $7 billion at its peak last year, became known for pushing its contacts at banks for hints about market developments such as big buy and sell orders, the newspaper wrote.
WSJ – Galleon Group’s liquidation of its hedge funds’ portfolios is “largely complete,” a person familiar with the matter told Dow Jones Newswires on Tuesday.
The person said that the liquidation was done under “very difficult conditions,” considering Raj Rajaratnam’s hedge fund firm had about $3.7 billion under management as recently as two weeks ago.
Some of Galleon’s largest positions were in big companies like Apple Inc. (AAPL) and Google Inc. (GOOG), but it also had positions in non-mega-cap stocks, like OSI Pharmaceuticals Inc. (OSIP).
New York (HedgeCo.net) – $703 billion global asset management firm, Legg Mason, announced today that an outstanding shareholder, hedge fund manager Nelson Peltz, will be elected to the Company’s Board of Directors,
Peltz is Chief Executive Officer and a founding partner of hedge fund Trian Fund Management, L.P., which owns 6,946,756 shares, or approximately 4.3% of Legg Mason’s outstanding common stock.
“Over the past several months, my colleagues and I have been engaged in constructive dialogue with Mark Fetting and other members of the Legg Mason management team.” Peltz commented, “We share their view that Legg Mason’s recent strategic initiatives are improving the Company’s operating performance and I look forward to contributing as a Board member and working with the management team and the Board to help this great company achieve its full potential.”
The addition of Peltz to the Board reflects an agreement between Legg Mason and Trian Fund Management, L.P., certain funds managed by it and certain of its affiliates. In addition, pursuant to the agreement, Trian Partners has agreed to vote its shares in favor of Legg Mason’s director nominees as provided in the agreement and made certain other commitments.
Guardian.co.uk – Palestinian house builders on the West Bank could benefit from an influx of cash if plans by the $900m (£552m) Palestine sovereign wealth fund to invest in London-based hedge funds go ahead.
The Palestine Investment Fund (PIF) is considering switching investments into hedge funds as part of a move to expand international investments to make up 30% of its portfolio.
Social housing projects, already underway on the northern outskirts of Ramallah, will be expanded along with other projects on the West Bank if the investment grows as expected over the next few years, a spokesman for the fund said yesterday.
Bloomberg – Hedge fund managers are trailing benchmark commodity indexes by the widest margin in four years after copper doubled and oil surged 58 percent.
Touradji Capital Management LP, the second-biggest in commodities, earned 7 percent in its largest fund in the first nine months, according to an investor with knowledge of the result. Krom River Trading AG, which has $590 million, lost 8.1 percent in its raw materials fund. Commodity hedge funds lost 3.2 percent through September, according to Hedge Fund Research Inc. of Chicago. All lag behind the 12 percent gain in the S&P GSCI Enhanced Total Return Index.
Bloomberg – First came the biggest bear market since the 1930s, then Bernard Madoff’s $65 billion Ponzi scheme and the threat of increased regulation. Now hedge funds have a new concern: getting caught on tape as the government expands its use of wiretaps to ferret out insider trading.
Prosecutors, using secretly recorded phone conversations for the first time against hedge funds, alleged Oct. 16 that billionaire Raj Rajaratnam and five others made $20 million by swapping material inside information on companies such as Hilton Hotels Corp. and Google Inc. They may charge at least 10 more people soon, people familiar with the matter said last week.
