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.
Stuff – As the collectivisation of middle class capital accelerated, a multiplicity of managed fund choices emerged to confuse the investor. There are active funds, passive funds, index funds, hedge funds, specialist funds trading in commodities, shares, junk debt, securitised rubbish, mortgages, small cap shares, large cap shares, contrarian funds.
You name it, there is a manager out there for every conceivable flavour of investment approach and every conceivable investment asset. In addition you can buy ethical funds and green funds to tap into the social issues, which by the way underperform but we feel better somehow. (Ethical funds seem to outperform but this is more to do with the weight of money argument (see below) than the underlying performance of the assets).
New York (HedgeCo.Net) – John Paulson, head of hedge fund firm Paulson & Co., recently spoke his mind on the wave of redemption freezes that many managers have chosen to impose.
“We think it’s a mistake for our managers to use gates and other tools to limit investor access to their funds,” Paulson stated in a recent outlook to investors that was obtained by Bloomberg News. “While we recognize the difficulties of the current environment, we think it is a manager’s responsibility to raise liquidity to meet the redemption needs of their investors.”
Paulson’s hedge funds did not see the effects of the troubled economy, where most funds posted their worst year to date. In fact, when the subprime crisis wreaked havoc on the financial markets, Paulson was catapaulted into billionaire status, by successfully predicted the housing mess. His hedge funds, in turn, were up about $15 billion in 2007.
This year also saw admirable gains, with his Advantage Plus Fund climbing 3.19 percent in November, and currently up 38 percent on the year. His slightly smaller Advantage Fund was also up 21 percent through the end of November.
Most other funds haven’t experienced that level of success this year. According to the Credit Suisse/Tremont Hedge Fund Index, funds are down over 19 percent on the year through the end of November. Dozens of large, reputable funds have suspended withdrawals including Citadel, RAB, Harbinger and Cerberus, just to name a few.
Paulson also disagrees with managers that “have the cash and one of the stated reasons for restricting withdrawals is so the manager can continue to invest in new opportunities.”
Paulson’s firm is teaming up fellow New York firms Dune Capital Management and J.C. Flowers & Co. to purchase failed bank IndyMac. A deal is expected to be finalized in the near future.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
Times Online – Hedge fund managers are spivs and speculators, directly responsible for creating carnage in the world’s financial markets and threatening the future of high street banks. At least, that’s what some argue.
But it is, emphatically, not true, according to Christopher Fawcett, the hedge fund executive who has taken on the role of de facto cheerleader for Britain’s embattled alternative investment industry.
Such criticism is misplaced, he argues. Investment banks, rather than hedge funds, were behind the surge in gearing, or leverage, that pushed markets to breaking point in the middle of last year. Hedge funds were actually more conservative and only moderately geared.
Free Internet Press – George Soros, 78, has made billions as a hedge-fund manager and investor. Germany’s Spiegel magazine spoke with him about the current financial crisis, how he expect President-elect Barack Obama to respond to the economic disaster and the responsibilities borne by speculators.
SPIEGEL: Mr. Soros, in spite of massive interventions by governments and federal banks the financial crisis is getting worse. The stock markets are in free fall, millions of people could lose their jobs. More and more companies are in trouble, from General Motors in Detroit to BASF in Ludwigshafen. Have you ever seen anything like it?
Soros: Never. I find the present situation dramatic and overwhelming. In my latest book, “The New Paradigm for Financial Markets: The Credit Crisis of 2008”, I predicted the worst financial crisis since the 1930s. But to tell you the truth: I did not actually anticipate that it would get as bad as it did. It has gone beyond my wildest imagination.
Bloomberg – Commodities markets are heading for the biggest annual decline since 2001 as investors exit leveraged bets and slowing economic growth erodes demand for raw materials.
The value of the 19 commodities in the Reuters-Jefferies CRB Index fell $280.6 billion, or 43 percent, from its July 3 peak, a loss larger than their total worth two years ago, data compiled by Bloomberg show. UBS AG, the Zurich-based bank that bought Enron Corp.’s energy unit in 2002, plans to exit most commodity trading. About 15 percent of investors in Boone Pickens’s BP Capital LLC hedge fund may want their money back.
The same credit-market seizure that led to last month’s bankruptcy of New York-based Lehman Brothers Holdings Inc. and the forced sale of Merrill Lynch & Co. is squeezing speculators who drove commodities to record highs. Slower expansion in the U.S., China and India is also undermining prices of crude oil, which fell 36 percent, and corn, down 43 percent.
Independent – An unprecedented crackdown on speculators preying on falling share prices began on both sides of the Atlantic yesterday, as Gordon Brown promised to "clean up the financial system" after days of turmoil.
The Financial Services Authority (FSA) banned "short selling" of bank shares from midnight last night, after warnings that the practice helped fuel market turmoil that forced the dramatic £12.2bn takeover of HBOS by Lloyds TSB. This came as the New York Attorney announced his office had launched an investigation into illegal manipulation to profit from short selling. The move is to uncover whether speculators have spread misleading information or acted in concert to purposely drive down share prices.
Wealthy hedge fund traders, heavy users of the shorting strategy, have sparked fury after making millions from the collapse in value of UK banking stocks.
Interactive Investor – Investors are cheering the temporary ban on shorting financial stocks which came into play on Friday morning.
The Financial Services Authority introduced the four-month freeze on profiteering from falling share prices after the markets closed last night in a bid to stem the chaos in the financial sector. The new rules, which cover 29 shares, prevent investors from taking out new short positions or adding to existing ones in all publically listed financial firms.
Investors currently shorting more than 0.25% of a financial company’s shares have until Tuesday to either close their position or declare it to the regulator.
Short-sellers have been blamed for sending share prices in the financial sector plummeting in recent weeks with HBOS the latest victim of speculators looking to make a quick buck from its demise.
Hector Sants, chief executive of the Financial Services Authority, says: "While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets. As a result, we have taken this decisive action, after careful consideration, to protect the fundamental integrity and quality of markets and to guard against further instability in the financial sector."
CNNMoney.com – Wall Street equity traders usually thrive on volatility, but the latest arrival of carnage on their doorstep has distracted and confounded them.
This habitually brusque bunch is even more harried than usual, worrying about their livelihoods and the safety of their funds’ accounts in addition to the direction of a crazy market. One prominent form of escape: gallows humor.
Asked what floor he was going to in an office complex in Jersey City, N.J., an employee of one major brokerage replied, "I might as well go up to your floor, and apply for a job. It looks like we’re next."
Even the diehard speculators in the hedge-fund community are in a state of confusion. The funds have watched two of the prime brokerages that serve them collapse and another get swallowed by a bank in a few months, and some are close to sticking money under a mattress, said Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund. Some funds are too busy working out where to put their account to even bother with securities or commodities.
Times Online – Surging fears of Armageddon in the global financial system ravaged a wide selection of commodities across Asia as groups ranging from hedge funds to day traders spent the day in a headlong flight from risk.
The shock waves from the bankruptcy of Lehman Brothers reverberated through markets for vegetable oil, soy beans, rubber and industrial metals as confidence in the financial system faltered, global growth prospects dimmed and cash became king.
Broad baskets of commodities — once seen by speculators as a sure-fire bet because of China and India’s apparently unstoppable growth — were sold, with food and metals tracking the sharp declines in crude oil.
Dealing floors in Asia descended into mayhem as analysts forecast a period where commodity markets were effectively “frozen” by a sudden drought of fresh capital.
Globe and Mail – Once viewed as a safe haven, crude oil has lost its lustre as investors bet that the crisis in financial markets will hurt an already weakened global economy and drive down petroleum demand.
At the same time, speculators who piled into oil and other commodities on the way up have reversed course, as brokerages and hedge funds are being forced to liquidate those positions to buttress their balance sheets, traders said yesterday.
Lehman Brothers Inc. and Merrill Lynch & Co. Inc. are both major players in the crude oil markets, and both companies are expected to unwind their positions after Lehman sought bankruptcy protection and Merrill agreed to be acquired by Bank of America.
Crude prices fell sharply yesterday on futures markets in London and New York after hurricane Ike blew through the Gulf of Mexico without doing major damage to U.S. oil production there.
Globe and Mail – A year ago, Dwight Anderson was being hailed as the "king of commodities," a precocious 40-year-old hedge fund manager who made a prescient – and highly profitable – bet that global food prices would spike in unprecedented fashion.
Now he is merely another in a long line of hard-luck speculators, his crown handed to him by a fickle commodities market that has proven itself capable of ruining fortunes as quickly as it created them.
In a letter to investors yesterday, Mr. Anderson announced he was shutting down the largest fund of Ospraie Management LLC, the firm he built into one of the largest commodities-themed hedge funds in the world. The Ospraie Fund, which focuses on natural gas, oil, metals and other resources, boasted assets of almost $4-billion (U.S.) at its peak last year, but so far in 2008 it is down 39 per cent – including a gut-wrenching 27-per-cent slide in August.
"I am extremely disappointed with this result and the fund’s sudden reversal in performance," Mr. Anderson wrote. "The losses were primarily caused by a substantial selloff in a number of our energy, mining and resource equity holdings during a six-week period characterized by some of the sharpest declines in these sectors in the past 10 to 20 years."
Los Angeles Times – Regulators had long classified a private Swiss energy conglomerate called Vitol as a trader that primarily helped industrial firms that needed oil to run their businesses.
But when the Commodity Futures Trading Commission examined Vitol’s books last month, it found that the firm was in fact more of a speculator, holding oil contracts as a profit-making investment rather than a means of lining up the actual delivery of fuel. Even more surprising was the massive size of Vitol’s portfolio — at one point in July, the firm held 11% of all the oil contracts on the regulated New York Mercantile Exchange.
The discovery revealed how an individual financial player had gained enormous sway over the oil market without the knowledge of regulators. Other CFTC data showed that a significant amount of trading activity was concentrated in the hands of just a few speculators.
The CFTC, which learned about the nature of Vitol’s activities only after making an unusual request for data from the firm, now reports that financial firms speculating for their clients or for themselves account for about 81% of the oil contracts on the Nymex.
