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West Palm Beach (HedgeCo.net) – Hedge funds measured by both the Greenwich Global Hedge Fund Index ("GGHFI") and the Greenwich Composite Investable Index ("GI2") significantly outperformed equity indices despite posting their greatest losses since August 1998 during September.
"It was a perfect storm for both credit/equity markets and hedge funds in September," said Thomas Whelan, Greenwich CEO, "The already deflated values of financial firms provided the perfect trap for value investors while government intervention limited the ability of hedge funds to effectively mitigate their risk. Simultaneously, the continued freezing of credit markets combined with investor redemptions forced fixed-income funds to liquidate or otherwise mark down assets at depressed prices. The results of the market turmoil and unpredictable regulatory environment are evident in their returns this month."
Long/Short Equity managers fared better than both US and foreign equity markets during the month, but still were subject to unpredictable market movements, losing -6.69%. Both Growth and Value funds struggled to find profitable trades, returning -8.16% and -7.05%, respectively. Short Selling managers by contrast enjoyed their most profitable month this year, advancing +9.27% on average. Year-to-date, Short Selling funds have gained 17% and remain the best performing subsector of hedge fund strategies.
Market Neutral funds were not immune to market forces during September, as they felt the effects of dysfunctional credit markets, declining -4.49%.
Despite the marked weakness in hedge funds in September, not all hedge fund strategy groups moved lower for the month. Directional Trading funds advanced by +0.51% on average, led by Futures managers who capitalized on declining commodity values. Macro managers did not fare as well, losing -3.62% on the month.
Specialty Strategy managers were the weakest performing strategy group for the month of September, with funds losing -7.33% on average. Emerging Markets funds were once again the main reason behind the losses as these managers shed nearly 10% during the month.
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West Palm Beach (HedgeCo.net) – Mooring Financial Corp., a private investment firm specializing in the management of alternative assets, has seen its hedge fund, the Mooring Intrepid Opportunity Fund gain 37% year-to-date, while global hedge fund returns have declined almost 10% this year.
The fund gained by capitalizing on corrections in the high-yield corporate bond, commercial mortgage-backed securities and subprime residential mortgage markets. The Fund has gained 132.1% since its inception on March 1, 2007, the Fund’s highest gain on investment to date.
"The centerpiece of our objective for Mooring Intrepid Opportunity Fund is the expectation of a repricing of risk in the credit markets," said president and founder John Jacquemin, "We mapped out a strategy two years ago in anticipation of the credit markets debacle now taking place. The fund’s positions are volatile and aggressive, and appropriate only for investors who understand these risks."
In recent weeks, the fund has begun to take additional bearish positions in financial and commercial real estate stocks as well as exchange traded funds in anticipation of continued deterioration within these markets.
"We believed strongly that the credit markets had reached a point of excess never before experienced in modern history." Jacqumin explained, "and we felt strongly that the risk/reward ratio was very much in our favor. This has proven to be the case."
The firm has acquired and managed more than $2 billion of financial assets since inception in 1982. Mooring Financial Corporation manages four funds across different asset classes, including distressed commercial loans, real estate tax liens, publicly traded equities and credit derivatives.
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West Palm Beach (HedgeCo.net) – Conservatively positioned given the high level of stress that existed on the global financial system, the 3 Pharos Russia Funds’ current strategy uses alpha generation which comes from a combination of stock selection and active use of hedging tools available in the marketplace.
The three funds are showing the most resilience among funds in the Russia & CIS universe year-to-date. However, during the month of August, the Pharos Russia Fund was down 7.8%, the Pharos Small Cap Fund was down 8.8% and the Pharos Gas Investment Fund was down 2.3%. Meanwhile the MSCI Russia Index was down 14.7% over the same period.
August saw a continuation in the decline in markets globally, with Russian markets succumbing to the sell-off in global credit markets, continued pressure on commodities and dollar strength.
The Russian authorities have shown a willingness to intervene to protect against domestic dislocations caused by distressed selling. The Russian state has announced a liquidity package of more than $150bn.
It has increased its deposits held at the largest banks and offered them repo lending that references inflated asset valuations. The state-owned Vneshekenom Bank will also provide up to $50bn to Russian companies and banks to help redeem the $65bn of external debt coming due through 1Q’09. Meanwhile the interbank lending market is being supported by a government guarantee against defaults.
"Given the relative size of the economy," Pharos says, "Russia is better positioned than most to withstand a downturn in credit markets with its $581bn of reserves and over $200bn Stabilization Fund."
"Valuations are compelling and we expect to take advantage of these opportunities. We look for catalysts to the market to guide our entry points, such as stability in the industrial commodities markets, a reversal in measures of global risk aversion and global monetary easing."
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New York (HedgeCo.Net) – Federal Reserve Chairman Ben Bernanke joined Treasury Secretary Henry Paulson yesterday in an attempt to sway lawmakers to pass a $700 billion rescue plan that would purchase illiquid mortgage-backed assets in an attempt to restore the U.S. financial system. Reaffirming that his interest lies solely in the recovery of the U.S. economy and not in Wall Street, Bernanke proceeded to outline a plan that would attack the root cause of our current credit crisis while bring stability back to the markets.
“I believe if the credit markets are not functioning, that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover,” Bernanke pleaded to the Senate Banking Committee. “My interest is solely for the strength and recovery of the U.S. economy.”
Bernanke explained that the Treasury should buy the illiquid assets at their hold-to-maturity date, instead of at their discounted rates.
“I believe that under the Treasury program, auctions and other mechanisms could be designed that will give the market good information on what the hold-to-maturity price is for a large class of mortgage-related assets,” he explained. The reverse auction system would entail firms bidding to the Treasury to sell their assets. By removing these assets from our system, Bernanke believes that we can get to the root of the current financial crisis.
Reaffirming that taxpayers will get “good value,” Bernanke is hoping that the bipartisan rescue plan will be approved swiftly and not be slowed down with “other provisions that are unrelated or don’t have broad support." However, the Treasury’s plan has met resistance from both parties, who feel that taxpayers are going to bear the burden while there are no repercussions for Wall Street execs.
Republican Senator Richard Shelby of Alaska scoffed at the plan, saying that it “codifies the Treasury’s ad-hoc approach.” Democratic Representative Barney Frank of Massachusetts agreed, saying that “CEO’s put their ability to get unrestricted excessive compensation, including rewards for failure, over and above trying to cooperate in helping the economy.”
Christopher Dodd, who heads the Senate Banking Committee, opened the hearing by saying that “we must address the root cause by putting an end to the rising number of foreclosures sweeping across our nation,” while also expressing concerns about the taxpayers well-being.
As Paulson and Bernanke were making their case, Dick Cheney and other top White House advisors were sent to lobby House Republicans amidst growing discontent.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
New York (HedgeCo.Net) – The recent controversial moves of Henry Paulson and the U.S. Treasury have Washington divided not only on the future of Fannie Mae and Freddie Mac, but on government’s new role in the U.S. mortgage market.
On Monday, Paulson and Federal Housing Finance Agency Director James Lockhart placed the two mortgage giants in a conservatorship, allowing the government to replace chief executives and eliminate their dividends, while giving them themselves the power to purchase up to $200 billion of stock in the companies. A new program has also been launched to purchase mortgage-backed securities from the two firms, starting with $5 billion worth this month. In accordance with the government assistance, Fannie and Freddie will have to eventually reduce their holdings of mortgages and mortgage backed securities.
This decision was months in the making, after downplaying problems and staving off rumors of a government bailout. Finally, Bush came out and called the situation an “unacceptable” risk for an economy that has been battered by the subprime fallout and the worst housing slump since the great depression.
"Allowing the companies to fail or further deteriorate would damage our home mortgage market, and could weaken other credit markets that are unrelated directly to housing," Bush said in his statement. "Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth."
The two companies guarantee about half of the nation’s $12 billion in outstanding mortgages. For months, amidst rumors of capital shortages, Fannie and Freddie denied any problems. It was only after Paulson hired Morgan Stanley to probe into the company’s finances did it come to light that the two firms were overstating their capital and did not have sufficient reserves. Concerns over their finances sent stock prices plummeting and mortgage rates soaring.
Overall, Fannie and Freddie suffered about $14 billion in losses, leaving the government with a tough decision to make.
Democratic Senator Charles Schumer agrees with the course chosen. “Paulson has threaded the needle just right by taking necessary action to stabilize U.S. financial markets while minimizing the liability for taxpayers,” he said. “This plan will be met with broad acceptance in Congress because it doesn’t prejudge the ultimate fate of Fannie Mae and Freddie Mac."
But while some current political figures may be on board, it is really going to fall on the next administration to determine the role of the government in matters such as this, and ultimately, the fate of the both Fannie and Freddie.
"The new Congress and the next administration must decide what role government in general, and these entities in particular, should play in the housing market,” Paulson said in Washington. “There is a consensus now that they cannot continue in their current form.”
However, the fear of alienating voters has forced both candidates to spew nothing more than political rhetoric while never fully disclosing their position on this issue. While Obama pushes for “some” invention and McCain expresses that there must be a surge of “confidence,” it is unclear what either of their stances are on the role of the government in matters such as this.
Lately there has been an increase in the government’s role in the financial markets. Six months ago, the Fed infamously funded the $30 billion in financing needed to rescue Bear Stearns and facilitate the purchase by JPMorgan. There are several permanent courses of action that may be taken with Fannie and Freddie, including a full blown nationalization that would cement the government’s role in the markets permanently. Whatever the course chosen, it will most likely fall on the watch of the next presidential candidate. It’s about time to put politcal jargon aside and pick a side.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
Guardian.co.uk – Four large hedge funds, all shareholders of Huntsman Corp, have proposed a plan to salvage a $6.5 billion buyout of the chemical company by a unit of Apollo Global Management.
But Apollo’s Hexion Specialty Chemicals unit late Thursday rejected the plan, saying Huntsman’s increased debt and decreased earnings since the deal was struck in July 2007 would no longer make a combined company solvent.
"We are not seeking to renegotiate this transaction," Hexion responded in a statement. "We are seeking to terminate it, and obtain judicial confirmation that Hexion has no obligation to pursue the acquisition or to pay Huntsman a termination fee."
Apollo’s Hexion has been locked in a legal battle to try to get out of the $28-per-share deal, reached last year at the height of the leveraged-buyout boom. Since then, the credit markets have seized up, making the math behind the deals no longer attractive. In June, Hexion filed suit against Huntsman seeking to limit its liability in the event that the deal falls apart.
Reuters – Some bearish option players are betting that Wells Fargo & Co and SunTrust Banks Inc could both lose as much as 10 to 15 percent of their current stock values by October options expiration.
Nagging worries about the credit markets on Monday have been slamming financial stocks, including banks and brokerage firms.
"We are seeing some limited speculation based on put spreads going up in SunTrust and Wells Fargo showing that investors are still nervous about earnings, potential failures and other industry events," said Scott Fullman, director of derivative investment st
DealBreaker.Com – Morgan Stanley and Goldman Sachs are linking their lending to hedge funds to the market’s assessment of the credit worthiness of the investment banks. Morgan Stanley will reportedly evaluate the amount of leverage it will supply to hedge funds based on the price of its own credit insurance pricing. Goldman is said to be linking its willingness to provide loans to hedge funds based on its bond prices.
The report of both changes ran in the Financial Times. The changes would limit the ability of hedge funds to borrow from either firm if borrowing by Morgan and Goldman became too expensive, indicating a lack of market confidence in the financial health of the firms.
In one sense, this seems a practical response to volatility in the credit markets, reducing exposure to hedge fund leverage as credit markets for financial companies become unsettled. It does, however, create a self-serving dynamic for the investment banks. If hedge funds taking the view that the companies have become unstable push up CDS or bond yields on the firms, they may find themselves unable to borrow from the firms. In other words, it gives the hedge funds an incentive not to bet against Goldman and Morgan.
New York Times – The Blackstone Group may be best known as an immense private equity firm, but the firm’s earnings report on Wednesday made it clear that Blackstone has been buoyed by its hedge fund operations.
Blackstone reported $165.6 million in profit for its second quarter, excluding costs tied to its initial public offering last June. That represented a nearly 75 percent drop from the same period last year, a consequence of the troubles still plaguing the credit markets. On the basis of generally accepted accounting principles, the firm reported a pretax loss of $185.5 million.
Yet Blackstone’s results, which amount to 15 cents a unit, still beat the average analyst estimate of 8 cents a unit, according to Bloomberg News.
Other publicly traded alternative-asset managers also reported quarterly earnings on Wednesday. Och-Ziff Capital Management, a big hedge fund, said it earned $93.3 million, while GLG Partners, a large hedge fund based in London, reported profits of $44.2 million. Both figures exclude costs related to the firms’ public offerings.
New York (HedgeCo.Net) – Budweiser maker Anheuser-Busch is suing InBev after declaring that their “bargain price” offer of $65 a share is illegal. Anheuser-Busch accuses InBev of using “deceptive conduct” to try to win control of the company.
InBev recently filed a consent solicitation statement with regulators in an attempt to take over Anheuser-Busch’s board. In the new suit, Anheuser-Busch is seeking an injunction against them, in hopes of quelling any form of takeover.
They also claim that InBev was spewing false rumors of an acquisition last month and their attempts to take over the board is a "self-serving effort" to try to purchase the company at a lowered price.
"To date, Anheuser-Busch has been unwilling to engage with InBev in a dialogue to achieve a friendly combination. As such, InBev believes it is time to take action to ensure Anheuser-Busch shareholders are provided the opportunity to have a direct voice in the process and a say in the future direction of the company," according to a recent statement by InBev.
Anheuser-Busch also claims in the suit that InBev does not have sufficient financing to facilitate the $46 billion takeover bid stating, "Given the state of the credit markets today, no group of financial institutions would unconditionally commit $40 billion to a borrower to pursue a hostile acquisition."
With St. Louis serving as the battlefield for the case, InBev placed a full-page ad in yesterday’s St. Louis Post-Dispatch. The ad stated that Budweiser would be expanded globally and the takeover would make for a stronger, more competitive global company.
Anheuser-Busch shares closed at $61.76 at a share on Tuesday.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
New York (HedgeCo.Net) – New York-based Avenue Capital, the hedge fund that manages roughly $20 billion, is back after a lagging first quarter. The company informed investors that the fund experienced gains in May for the second straight month.
The firm’s $1.5 billion Avenue International Ltd Fund was up over 1.5% in May, while the $1 billion Avenue Europe International Ltd Fund and the $574 million Avenue Investments LP Fund followed suit and also posted gains.
Hedge funds are optimistic after experiencing losses stemming from last years credit crunch and subprime fallout. Improved performance in credit markets as of late are making the future look bright for hedge funds.
The Avenue Capital Group was founded in 1995 and is headed by famed manager Marc Lasry. The funds specialize in a long/short strategy while focuses on distressed and undervalued debt and equity opportunities. The company recently raised $6.1 billion for “special situations” trading strategies.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
Reuters – Pictures of hedge fund managers in handcuffs being led away to face fraud charges on Thursday have sent a chilling message to the $2 trillion (1 trillion pound) industry.
The warning was clear: mind what you say in your e-mails if you are a manager and do a lot of due diligence if you are an investor.
While this is not the first time hedge fund managers have been arrested — police are searching for a convicted manager who recently faked his suicide to avoid prison — the two former Bear Stearns managers who were surrounded by a swarm of federal agents on Thursday were in a different league.
Ralph Cioffi and Matthew Tannin were called savvy managers who understood the complicated credit markets and worked for a bulge bracket investment bank that promised investors strong risk controls. Bear Stearns also had deep pockets in case something went wrong, analysts thought.
Much of the case against the two was based on e-mail traffic between Tannin and Cioffi, including one that included the prophetic line: "… the entire subprime market is toast."
