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.
guardian.co.uk – Investment companies and private equity firms suspect that they have been caught up in a directive whose real aim was hedge funds largely because it is so difficult to define hedge funds.
The Group of 20 leading world economies agreed in April that hedge funds above a certain size should be subject to authorisation and required to report data to supervisors as part of a broader extension of financial regulation in response to the global financial crisis.
But hedge fund managers believe the EU directive is so unclear and badly drafted that it would be dangerous to stick around to find out exactly what it means. The most worrying aspect of the directive is that it would allow regulators to limit the amount of leverage assumed by hedge funds.
Citywire.co.uk – European regulation intended to introduce some controls on hedge funds will inadvertently capture almost all investment trusts.
Draft rules released by the European Commission define ‘alternative’ funds as any non-UCITS investment fund, said the Association of Investment Companies.
Among the proposals unsuited to listed funds is a requirement to allow for the redemption of all shares and the assumption that one manager will be responsible for both asset management and administration.
SmartBrief – Carlyle Group is being investigated by New York prosecutors and the Securities and Exchange Commission for allegations that it made improper payments to get investments from the state’s pension fund.
The payments allegedly were made to intermediaries and might have totaled in the millions. The investigation involves several investment companies and a practice that has long been considered standard by hedge funds and private-equity firms.
EatrhTimes – In response to investor demand for greater transparency as well as pending new legislation, Grant Thornton LLP’s Financial Services practice is launching Hedge Fund Internal Control, Governance and Regulatory Compliance Services. These services will help funds attract new investors who might be wary of alternative investments in light of recent news. It will also assist funds in attracting and retaining investors and assets and help them prepare for pending legislation.
By the fourth quarter, Congress is expected to pass The Hedge Fund Transparency Bill of 2009, which would require investment companies or advisers that are exempt from normal registration, but have at least $50 million in assets under management (AUM), to register with the SEC. “Those funds that have already registered must be prepared for additional oversight and a more aggressive examination and enforcement agenda; those funds that have not yet registered may be required to create a complete internal control and compliance infrastructure in order to be prepared for the regulatory examination process,” said Jack Katz, national managing partner of Grant Thornton’s Financial Services practice. In addition to developing the internal control, compliance and governance facilities to comply with the new rules, firms may also be required to establish an anti-money laundering program and report suspicious activities.
guardian.co.uk – The shadow business secretary, Kenneth Clarke, has become the latest victim of the credit crunch after losing his job on the board of a hedge fund, the Guardian has learned.
Clarke, who was parachuted back on to the Tory frontbench to beef up the party’s handling of the financial crisis, has been axed from the board of Centaurus Capital as the sector faces its worst crisis in decades.
The hedge fund, which like other investment companies faces huge withdrawals of cash from clients anxious about plunging stock markets, has scrapped its advisory board, which also included José María Aznar, the former Spanish prime minister.
New York (HedgeCo.Net) – The Securities and Exchange Commission charged San Francisco-based MedCap Management & Research LLC and its principal Charles Frederick Toney, Jr. with defrauding investors via “portfolio pumping.”
“Fund investors relied on MMR and Toney to abide by their fiduciary duties and put the fund’s interests ahead of their own,” said San Francisco Regional Director of the SEC Marc J. Fagel in a press release yesterday. “Instead, Toney engaged in trading activity which hid his poor performance.”
Engaging in “portfolio pumping” in this case meant that Toney invested heavily at the quarter’s end with a thinly-traded penny stock, which in turn quadrupled the stock price and allowed him to inflate his quarterly results to investors. By doing this, the fund was able to hide what would have been a 40 percent quarterly loss for MedCap.
Instead, the scheme helped the company up its reported value by $29 million thanks to Toney’s four day buying frenzy which pushed the price of the stock from $.85 to $3.72. The fund was then able to charge higher management and performance fees that were based on the inflated numbers.
While MMR did not confirm or deny the allegations, the company has agreed to settle out of court by paying $100,000 in penalties and giving back the amount received in inflated management fees totaling over $70,000. Toney has also agreed not to act as an investment advisor for the next year.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
West Palm Beach (HedgeCo.net) – Hedge fund advisor and manager American Pegasus LDG, LCC., is seeing the 36th subsequent month of positive returns for the Pegasus Auto Loan Fund, which invests in US subprime auto loans.
The fund has returned an average of 1.55% per month with 100% positive months since inception in September of 2005.
Providing the opportunity to profit from stable high yields via sub-prime auto loans with collateral in the form of automobiles, the fund currently has $89 million under management and uses no leverage.
"In the $200 billion auto industry there is high demand for auto loan originations." The Pegasus preformance sheet shows, "In 2005, 4.7% of U.S. workers used public transportation and 90% workers own a car; 1/3 households own > 1 car; Average 1.9 cars/household"
That number rises and falls with energy fluctuations, according to the Energy Information Administration, "Transportation costs have increased due to many factors related to travel and prices paid for transportation fuel, while being somewhat offset by improved fuel economy." But the numbers remain viable ant the US now has 765 motor vehicles per 1000 capita.
The American Pegasus Auto Loan Fund directly sources fully, collateralized sub prime US auto loans. Underwriting criteria is strictly enforced along with well designed risk controls.
Pegasus was founded in 1997 as an investment advisory firm focusing on equity investment in managed accounts. The advisory firm launched first equity long–short hedge fund was established in the same year. In 2001, Pegasus began to manage portfolios in currencies and commodities, launching a series of life settlement funds., followed by the American Pegasus Auto Loan Fund in 2005. American Pegasus Investment Management is registered with the SEC as an investment advisor.
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