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FINalternatives- It’s not the first time “hedge fund” has been used as an epithet, but a former U.S. Treasury chief is using the H.F. words to describe mortgage giants Fannie Mae and Freddie Mac.
The two firms, into which Treasury said yesterday it will inject billions of dollars in loans and investments, have been “arbitraging their lower borrowing costs that came about because of the implied status as government entities,” John Snow, who now serves as chairman of private equity firm Cerberus Capital Management, told Bloomberg News.
“The business model they were using was really the model of a hedge fund,” he added.
West Palm Beach (HedgeCo.net)- The Hang Seng Index posted its biggest single-day loss in a month, as investors fretted about the recurring subprime credit crisis in the United States and its impact on regional banks and other financials.
"It’s a very bad day for financial markets across Asia. What’s happening to Fannie Mae and Freddie Mac is a clear indication of more troubles ahead in the mortgage market. What the U.S. Treasury is doing smacks of political desperation rather than genuine concern for the financial markets," said Benjamin Collett, head of hedge fund sales trading at Daiwa Securities SMBC Co. in Hong Kong.
The U.S. Treasury also announced plans to rescue Fannie Mae and Freddie Mac, further fuelling fears that the subprime crisis may have intensified.
"While Chinese banks are sound and have very little exposure to subprime, the market is trading very short term and the selloff in the financial sector is just an extension of the overall market moves." Collet said.
The Hang Seng Index lost 3.8 percent, closing at the lowest since March 20.
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New York (HedgeCo.Net) – Mortgage lenders Fannie Mae and Freddie Mac may get some help from the Fed in hopes of staving off a market implosion following a crippling credit crunch and a period of great stress in the financial markets.
"Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owner companies," Treasury Secretary Hank Paulson said.
The Federal Reserve of New York has been authorized to provide funding should it prove necessary, in which case the loans will be dispersed with a 2.25 percent interest rate. Meanwhile, the U.S. Treasury is seeking to expand their credit line and make an equity investment if approved by Congress. The Treasury is currently allowed to extend $2.25 billion to each company.
"This affirmation of the important role [of both companies] – and that we should continue to operate as shareholder-owned companies – should go a long way toward reassuring world markets," said Freddie Mac head Richard Syron.
The two companies back about $5.3 trillion in mortgages, about half of the total mortgage debt in the U.S. Freddie Mac is scheduled to sell about $3 billion in short-term notes today.
Shares of Fannie Mae and Freddie Mac plummeted last week amidst investor scares, but saw a sharp rise before the bell today. Fannie shares rose 22 percent to $12.50 while Freddie shares climbed 27.1 percent to $9.85.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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Reuters- Private equity firm Cerberus Capital Management is starting a new fund to invest in assets it thinks have been driven down too low by the credit crisis, Chairman John Snow told Reuters on Thursday.
The decision by Cerberus to wade more heavily into the market for distressed assets follows similar moves by a growing number of its rivals, including Apollo and Blackstone.
The Cerberus fund will focus on international assets, with only a small percentage likely to be devoted to the United States, Snow said. The former U.S. Treasury Secretary declined to give a target size for the fund.
HedgeCo.Net – Cranwood Capital Management LLC has announced the launch of their new fund, the Cranwood Fixed Income Arbitrage Fund. The fund seeks to generate high, absolute returns by using Treasury futures to arbitrage temporary discrepancies occurring along the U.S. Treasury Yield Curve.
After building their reputation as a propriety trading firm and posting average monthly returns of 2.93% since July 2005, growing interest from outside investors prompted the team to restructure themselves as a hedge fund. So far, the fund has received interest from both high net worth individuals and institutional investors.
The management team, headed by CEO Peter Powers, has been working together for five years, covering the full 22 1/2 hour trading day. They are able to assemble and liquidate substantial positions in all of the spreads up and down the yield curve as the market presents opportunities over the course of the trading day.
“We make our money daily, in small increments, by taking advantage of minor price adjustments caused by technical supply and demand factors, thus capitalizing on our execution edge,” explains Powers.
Cranwood uses no leverage, seeking more consistent and stable returns. Risking no more than 2-3% of capital each day, their objective is to never take a loss they can’t recover from in two to three days.
The Cranwood Fixed Income Arbitrage Fund has a sister fund, The Cranwood International Fund, a British Virgin Island-domiciled hedge fund, that mirrors the domestic fund.
For more information, please contact John Page at 561-789-7472 or by emailing Jpage@Cranwoodcapital.com.
News Channel 8- A U.S. Treasury official said Monday the global credit crunch is gradually calming following efforts by the Federal Reserve and other central banks.Clay Lowery, assistant secretary for international affairs at the U.S. Treasury, said the Fed and other central banks have coordinated their actions to protect the financial system from possible disruptions after the U.S. subprime mortgage crisis surfaced last year.
As a result, the availability of credit has improved "modestly," Lowery told the Foreign Correspondents Club of Japan.
He said U.S. financial institutions reported more than $300 billion in subprime-related losses, but that was alleviated by the raising of an additional $200 billion in capital.
