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.
Times Online – One of the most senior fund managers at Prudential has attacked hedge funds as selfish and devious and blasted derivatives as “the scourge of the modern age”.
Tom Dobell, who manages the £3 billion Recovery Fund for M&G, the insurer’s asset management unit, made the remarks in letters sent this month to the fund’s 100,000 investors.
The salvo came amid evidence that hedge funds are poised to deliver their best first-half returns in a decade, bouncing back from a disastrous spell last autumn.
Forbes – Plummeting stock prices in Eastern European should have made the region full of rich pickings for Western investors, but hedge funds and private equity firms have been sitting on the side lines for the last few months, fearful that things would continue to deteriorate. Now the tide is finally changing, and the some of the first investors dipping their toes back in are from the private-equity sphere.
Italian insurer Assicurazioni Generali has just put 300 million euros ($419.8 million) into a joint private-equity fund to invest in Central and Eastern Europe. It is launching the 615.0 million euro ($874.7 million) fund with PPF Group of the Czech Republic, which has already invested some 400.0 million euros ($568.9 million) into the region, focusing on mid-cap companies, a PPF spokesman said.
domain-B – Indian financial services firm Religare Enterprises is reported to have bid for the investment management arm of beleaguered US insurer, American International Group (AIG) as part of its plans to expand its financial services portfolio.
he reports say the Delhi-based company, leading the race for fund management unit among eight others, could pay around $600-700 million for the US insurer’s investment subsidiary. Religare has been talking to AIG Investments top management, led by Win Neuger, for nearly two months.
Interactive Investor – Activist hedge fund Algebris has sold its stake in Italian insurer Assicurazione Generali SpA , a newspaper said on Tuesday, but a financial source said Algebris would attend the shareholder meeting this week.
Algebris head Davide Serra criticised Generali’s governance last year, a rare move among Italian shareholders, and lost his bid to appoint an auditor. He resumed his campaign last July by querying Generali investments.
Boston Globe – Investors of disgraced financier Bernard Madoff have filed 18 lawsuits against Massachusetts Mutual Life Insurance Co. in an effort to recoup $3.3 billion that its hedge fund group lost in the scandal. But the Springfield insurer is trying to distance itself from the ordeal and says it has no liability in the matter.
MassMutual maintains that the losses racked up by investors in its hedge fund group, Tremont Group Holdings Inc., are their own – and not the responsibility of the insurance company. Tremont had the second-largest loss among Madoff clients after Fairfield Greenwich Advisors, a New York hedge fund that lost $7.5 billion.
Washington Post – About half a dozen investment managers have put forward bids, ranging between $400 million to $800 million, for troubled insurer American International Group’s asset management business, the Wall Street Journal reported, citing people familiar with the matter.
Private equity firms Ashmore Investment Management, Hellman & Friedman LLC, Rhone Group and TA Associates as well as mutual fund manager Franklin Templeton and asset manager Southgate Alternative Investments are among those who have shown interest, the Journal said in a report on its website.
Independent – Lansdowne Partners, the hedge fund, has made almost £13m from a short position in Aviva – and stands to make more if the beleaguered insurer announces a rights issue.
The London-based investor has had a net short position on 0.27 per cent of Aviva shares since 13 February. The stock has since tumbled to less than half its value and on Friday a trade could have netted the fund £12.7m.
Hedge funds which made a killing last year short-selling banks ahead of rights issues are turning their attention to the insurance sector.
Lansdowne last month made a possible profit of almost £2.7m from short positions in Old Mutual and Legal & General, and has continued with trades in Aviva and Prudential. Lansdowne is not alone. Rivals including Odey Asset Management, Diamondback Capital and Gilder Gagnon Howe have also been playing the game.
New York (HedgeCo.Net) - After handing AIG another $30 billion in taxpayer-funded, government bailout funds, U.S. Federal Reserve Chairman Ben Bernanke defended the decision, with the worn-out argument that the insurer’s failure may trigger an economic domino effect.
“We know that failure of major financial firms in a financial crisis can be disastrous for the economy,” Bernanke said in a testimony to the senate Budget Committee on Tuesday. “We really had no choice.”
So far, the government has come to AIG’s rescue four different times, pumping over $160 billion into the insurance giant. In an attempt to appease furious lawmakers who disagree with the latest handout, Bernanke said, "If there’s a single episode in this entire 18 months that has made me more angry, I can’t think of one (other than) AIG."
AIG reported an industry wide record $61.7 billion quarterly loss this week, attributing that to losses on their credit default swaps; worthless pieces of paper that “guarantee” mortgage-backed securities. AIG sold these credit default swaps, which supposedly insured about $440 billion in bonds. In reality, AIG did not have the funds to cover these investments. When the securities inevitably plummeted in value, AIG couldn’t cover what they promised. Unfortunately, credit default swaps, which were invented in the late 90’s by several employees at J.P. Morgan Chase as a means to make quick cash, are not regulated by the U.S. government.
Many feel AIG has acted irresponsible, and that no amount of government funds will turn the poorly run business around. AIG even “cleverly attached a hedge fund to their insurance company, taking advantage of a gap in federal and state oversight,” Bernanke added.
In exchange for the funds, the government will receive $26 billion in preferred stock in two AIG subsidiaries – American Life Insurance Co. and American International Assurance Co. AIG will not have to pay interest on the outstanding loan.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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The Australian – Some of the City of London’s shrewdest hedge fund investors, who made millions of pounds betting that UK bank shares would fall, have turned their guns on insurers amid heightened worry about the financial strength of the sector
Lansdowne Partners, which spent three years gambling on the collapse of Northern Rock, and made huge profits when the bet paid off in the fourth year, has gambled tens of millions that the share prices of four household-name insurance companies will fall.
Lansdowne, founded in 1998 by Paul Ruddock and Steven Heinz, has disclosed that it had a short position in Prudential, Britain’s No 2 insurer, worth about £10.5 million ($24 billion); a £26.2 million bet against Aviva, owner of Norwich Union; and further gambles against Legal & General (L&G) and Old Mutual. With the exception of the Pru, insurers’ shares have continued to fall.
Times Online - Some of Britain’s most powerful fund managers are setting aside billions of pounds to fund cash calls from sound companies hamstrung by a lack of bank lending.
Investment bankers say that they have been inundated with calls from Britain’s biggest institutional investors over the past few weeks offering billions of pounds to fund the right recapitalisation deals. The institutional investors, corporate brokers say, are insisting that they be shown deals before private equity funds that are also waiting to snap up bargains.
Scottish Widows Investment Partnership, owned by Lloyds Banking Group, and M&G, owned by Prudential, the insurer, are among big investors ready to take up equity or debt of UK plc, whose shares have slumped in the past year. The FTSE all-share index is down almost 30 per cent over the period.
Forbes – Following are some of the companies exposed to the alleged $50 billion securities fraud by Wall Street pioneer Bernard Madoff:
* AUSTIN CAPITAL MANAGEMENT – The company managed money for the Massachusetts state pension fund, which lost $12 million with Madoff, the pension fund said.
* BALOISE-Holding AG – The Swiss insurer will have to writedown $13 million after investing in hedge fund Kingate Global, which in turn invested in Madoff’s investment vehicle.
Bloomberg – Bernard Madoff’s alleged Ponzi scheme may cost insurers who cover financial institutions more than $1 billion as they pay legal costs for investment managers who gave client money to Madoff, an industry executive said.
Insurers who sell such coverage never expected, or charged their clients, for the possibility of investor losses in such a massive fraud, said Greg Flood, the president of the management liability practice at Ironshore Inc., the Bermuda-based insurer.
“This isn’t supposed to happen in America,” Flood said. “There will be extraordinary losses paid for this year.” About $1 billion in claims costs industrywide “wouldn’t be too difficult to imagine.”
