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.
Atlantic Online – For all the talk these last few years about the risks to investors of "secretive, unregulated" hedge funds, they certainly haven’t turned out to be the big problem, have they? Thousands of hedge funds lost, in the aggregate, hundreds of billions of dollars last year, and hundreds have shut down. But nobody in government is calling for a hedge fund bailout because hedge funds losses, however painful to investors, don’t create systemic risks to the nation’s financial apparatus. As it turns out, it was the big regulated entities, the banks and investment banks, that were the problem, not the unregulated hedge funds.
Bloomberg – FRM Capital Advisors Ltd., a unit of London-based asset manager Financial Risk Management Ltd., plans to make as much as $300 million of strategic investments in hedge funds this year, including its first in Asia.
FRM Capital may invest in six more managers in 2009, with two expected by June and its first Asian deal in the third quarter, Chief Operating Officer Patric de Gentile-Williams said. The London-based company makes strategic investments in hedge funds for two to four years in exchange for a share of their fee incomes for as long as 10 years.
Record losses and redemptions have cut hedge funds’ assets and fee revenue, making them more reliant on so-called seeders like FRM Capital. Some investment banks, insurers and private equity houses have exited the hedge fund seeding business amid the credit crisis, said de Gentile-Williams.
Bloomberg – Brazilian hedge funds that survived the Bovespa stock index’s record tumble last year by loading up on debt are missing out on a 2009 rally.
All four classes of Brazilian hedge funds, known as multimercados, had a weighted return of less than 5 percent through April 28, according to the National Association of Investment Banks, or Anbid. The Bovespa rose 22 percent in the year through April 28 and 35 percent through today.
West Palm Beach (HedgeCo.net) – Singapore hedge fund manager, 3 Degrees Asset Management, is launching ADF Prime Ltd, a credit opportunities fund that will invest primarily in the performing debt obligations of Asian companies that have been mispriced as a result of the Global Financial Crisis.
3 Degrees also manages the award winning Asian Debt Fund, an Asian distressed debt fund that has been active since 2004.
In Asia, debt prices have corrected far more sharply than in the US and Europe. This is driven by technical factors, the fund manager says, as Asian investment banks unwind their portfolios, global hedge funds close their Asian operations, and capital is generally pulled from the region.
The new fund will capitalize on the systemic inefficiencies endemic to Asian credit markets. Due to the limited number of players, and the highly relationship‐driven nature of Asian markets, inefficiencies are being exaggerated by the global financial crisis.
Targeting quality companies that either have, or can generate, enough cash flow to repay maturing debt without dependence on capital markets, the fund seeks annual, unlevered net returns in excess of 25%.
3 Degrees has received numerous awards, including “Best Asian Distressed Debt Fund” and “Best Singapore Hedge Fund”. In 2007, Moe Ibrahim, the founder, was selected as one of 20 Rising Stars of Hedge Funds by Institutional Investor. ADF Prime will be co‐managed by Moe Ibrahim and Jeff Tolk.
ADF Prime is also available to institutional investors and ultra high net worth individuals via the Firm’s Managed Accounts platform.
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West Palm Beach (HedgeCo.net) – Hedge funds returned a healthy 1% in January, wrapping up a tumultuous 2008 at -12.3%, according to Eurekahedge. Hedge fund assets fell $380 billion or 20% in 2008, from just under $1.9 trillion to just over $1.5 trillion.
Eurekahedge’s forecast expects to see more hedge fund start-ups in the near future, given the increasing number of people moving out of investment banks (whether voluntarily or otherwise) to venture into the hedge fund space.
In terms of returns, hedge funds are in a better position to generate superior returns than most other conventional managers and market players, owing to the flexibility that hedge fund managers enjoy, the Eurekahedge report says, their ability to identify new trends and investment ideas and act on them promptly.
"We anticipate trend-following strategies to continue benefiting from market movements across the currency and commodity markets, as they had through most of 2008. We expect the equity markets to remain volatile and range-bound over the next few months, but long/short managers could potentially benefit from pockets of opportunities (even if short-term ones) on both the long and the short side, given the uncertainty around the 4Q08 earnings reports and deeply discounted valuations across most sectors."
Atlanta Journal Constitution – Unlike the nation’s banks, hedge funds haven’t been lining up for government bailouts in the wake of losses they can’t handle. But the funds do share one Wall Street problem: a huge mismatch between the short-term funds they take in and the long-term bets they make. Without a rethink of their business models, many in the hedge fund business risk going the way of the investment banking dodo.
Recall the nightmare on Wall Street. Going into 2008, America’s five big investment banks held trillions of dollars in long-term and illiquid assets that were financed largely by short-term borrowings. That did not work out so well. Two of them disappeared. Another was swallowed by a traditional bank, and the last two had to don the sober garb of regulated, deposit-taking banks to survive.
BloombergThe financial wreckage of 2008 has left no part of our country untouched. It exposed the bankruptcy of business models employed by mortgage companies, investment banks, and rating agencies as well as the flaws of innovations such as structured finance and credit default swaps. It also highlighted regulatory gaps and failures at almost every level of oversight.
In 2008 Bear Stearns Cos. and Lehman Brothers Holdings Inc. imploded, Fannie Mae and Freddie Mac were placed into conservatorship, mainstay Wall Street firms like Merrill Lynch & Co. Inc. were forced to merge with other companies, and giant institutions such as American International Group Inc. clung to existence on federal life support.
More painfully, too many Americans face the twin perils of home foreclosure and job loss as frozen credit markets signal an increasingly deep economic slowdown.
International Herald Tribune – Hedge funds have suffered a shakeout in 2008. The average hedge fund fell almost 20 percent, according to Hedge Fund Research. No fund has yet required a bailout. But many won’t be around in the new year, and those that have survived are battered and bruised. Hedge fund managers must accept that the industry won’t be quite the same again.
Here are six changes they need to prepare for:
Liquidity is the new watchword. Like investment banks, hedge funds didn’t think much about the structure of their financing during the boom times. But a flood of redemption requests in late 2008, just as they were struggling with illiquid markets and scarce credit, caught them out. Many hedge funds annoyed their investors by blocking withdrawals. In the future, funds that invest in illiquid assets will need to lock in their investors longer. And those wishing to give investors regular access to their money will have to focus on liquid markets.
Forbes – The investment banks and global hedge funds that are the usual buyers of debt and equity in struggling Asian companies have largely fled the market, leaving the distressed asset space to home-grown investors.
Local players with the cash — and the stomach — to remain in the hunt for cheap assets find themselves with the luxuries of time, choice and pricing power.
"We’re just taking our time and doing our homework, because a lot of the traditional buyers are not in the market," said Chris Gradel, managing partner at Hong Kong-based Pacific Alliance Group, which runs $1.6 billion in hedge funds.
New York Times – Hedge funds have suffered a shakeout in 2008. The average hedge fund fell almost 20 percent, according to Hedge Fund Research. No fund has yet required a bailout. But many won’t be around in the new year, and those that have survived are battered and bruised. Hedge fund managers must accept that the industry won’t be quite the same again. Here are six changes they need to prepare for:
Liquidity is the new watchword. Like investment banks, hedge funds didn’t think much about the structure of their financing during the boom times. But a flood of redemption requests in late 2008, just as they were struggling with illiquid markets and scarce credit, caught them out. Many hedge funds annoyed their investors by blocking withdrawals. In the future, funds that invest in illiquid assets will need to lock in their investors for longer. And those wishing to give investors regular access to their money will have to focus on liquid markets.
Fees will face greater scrutiny. The archetypal hedge fund charges 2 percent of assets and skims off 20 percent of investment gains, the longstanding “2-and-20” structure. But some funds have had to offer breaks on fees lately to persuade investors not to take their money out. Investors will be more selective and are likely to put downward pressure on fees. All the same, it is probably too soon to sound a Last Post bugle call for 2 and 20.
Washington Post – New evidence has emerged in an insider-trading investigation that the Securities and Exchange Commission closed two years ago without filing charges, raising questions on Capitol Hill about the government’s oversight of what was once one of the nation’s most prominent hedge funds.
According to documents, the hedge fund — Pequot Capital Management — secretly began to pay $2.1 million to a key witness in the case last spring, just three months after several senators called on the SEC to reopen its investigation.
Top Republicans on the Senate Finance and Judiciary committees asked Pequot’s chairman this week to provide records related to the payments. The FBI is also looking into the matter, according to people familiar with the case.
New York (HedgeCo.Net) – Dallas Mavericks owner and billionaire investor Mark Cuban has been accused of insider trading by the SEC after allegedly using private information that helped him avoid over $750,000 in losses tied to stocks.
Search engine company Mamma.com supposedly invited Cuban to participate in its offering, but made Cuban swear he would keep the information private. The lawsuit filed in Dallas claims that Cuban was well aware that his 6 percent stake in the company would be sold below the current market price after learning some inside information. Cuban allegedly took that information and got rid of all of his shares.
"As we allege in the complaint, Mamma.com entrusted Mr. Cuban with nonpublic information after he promised to keep the information confidential. Less than four hours later, Mr. Cuban betrayed that trust by placing an order to sell all of his shares," Deputy Director of the SEC’s Division of Enforcement Scott W. Friestad said. "It is fundamentally unfair for someone to use access to nonpublic information to improperly gain an edge on the market."
In Cuban’s popular blog, blogmaverick.com, the outspoken investor wrote, ““I am disappointed that the Commission chose to bring this case based upon its Enforcement staff’s win-at-any-cost ambitions. The staff’s process was result-oriented, facts be damned. The government’s claims are false and they will be proven to be so.”
Cuban has an estimated net worth of close to $3 billion. In addition to owning the Mavericks, he serves as the Chairman of HDNet, an HDTV cable network.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
