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.
New York (HedgeCo.net) – A new independent study that examines the continued emergence of investment managers in the equity long and short marketplace and their convergence with hedge funds has been published by Pershing LLC, a BNY Mellon company, and Finadium LLC.
The report entitled, Competition and Convergence: The Evolving Landscape for Hedge Funds, indicates that while investment managers have relatively few assets in equity long and short investment portfolios, this segment of the market continues to grow rapidly as firms seek to diversify their business lines and compete with hedge funds. This new competition for assets has pushed some hedge funds into long-only investment strategies and others towards retail distribution. The report suggests that investment managers will become more important to hedge funds as potential partners in product offerings and mergers and acquisitions. Key findings from the study include:
– Growth of Equity Long and Short Investment Strategies Among Investment Managers Expected to Increase – Investment managers’ control of equity long and short investment portfolios is expected to rise from $204 billion to $345 billion by 2012 representing an increase from 19% to 28% of today’s $694 billion marketplace. According to a recent Finadium survey, 65% of investment managers now operate some sort of long and short fund, up from 33% one year ago. Independent hedge funds are also expected to continue to grow and increase their equity long and short portfolios to $810 billion by 2012 as equity markets recover;
– Potential Regulatory Reform Remains a Wild Card – Investment managers view potential regulatory reform as a wild card in driving convergence between themselves and hedge funds. The report indicates that some investment managers advocate working more closely with hedge funds as sub-advisors and potential acquisition targets with the expectation that increased regulation will occur. Without specific regulation, hedge funds will continue to have few legal obligations to disclose fees and practices;
– Hedge Funds Continue to Benefit from Strong Prime Brokerage Relationships – Investment managers have notably different servicing needs than their hedge fund competitors. These organizational requirements have created challenges for investment managers looking to do business with noncustodian prime brokers, to the benefit of hedge funds with strong prime brokerage relationships. While investment managers are becoming more agile in their technology and operations, no party has surmounted the funding obstacles that regulatory and market pressures have put in place; and
– Tri-Party Custodial Relationships May Offer Hedge Funds an Edge – Hedge funds have a wide range of opportunities and challenges to take into consideration when evaluating the strategies of investment managers in the long and short arena. For example, hedge funds should consider tri-party custodial relationships which bring many traits of the asset management industry into their domain. These arrangements allow hedge funds to mitigate their counterparty risk by custodying cash and fully paid for securities with a less leveraged bank custodian, while prime brokerages still hold the fund’s short positions and provide margin financing.
“As investment managers increasingly expand into the equity long and short marketplace, hedge fund managers need to provide their investors with a distinct value proposition that uniquely positions them in the marketplace.” Craig Messinger, managing director of Pershing Prime Services, said, “Exploring new investment strategies, embracing potential merger and acquisition opportunities and offering clients innovative separately managed account solutions are several tactics hedge funds should consider to help continue growing their businesses.”
New York (HedgeCo.net) – Global fund of hedge funds group, Financial Risk Management and its seeding arm, (FCA), has entered into a strategic relationship with an Asian hedge fund expected to launch at the beginning of December with between $50 and $75 million in assets under management.
The FoHF group will make a significant investment in the first fund to be launched by Isometric Capital Management, owned and managed by Sanjiv Bhatia, the former head of Deephaven Capital Management’s Asia office. The fund is
The fund will use a fundamental research strategy to identify investment opportunities in Asian companies where it can identify a catalyst which will drive investment returns. The fund will invest predominantly in equities although positions will range across the capital structure.
“This deal reinforces the global nature of FCA’s business and is the first investment we have made outside of the US and Europe.” Neil Mason, CIO, FCA says, “Asia is an important focus in our manager research. Asian economies have shown their strength and there are numerous market inefficiencies that hedge funds can profit from. The industry has grown significantly in recent years and there are a number of high quality managers with interesting investment strategies.
Isometric is the third seeding deal announced by FCA in the past four months having previously agreed strategic relationships with JD Capital and WestSpring Advisors.
ForexHound – I admit I had not heard of this fellow until I saw this interview on Zerohedge, but apparently this is the key brain behind the massive bet against subprime mortgages that made John Paulson both famous and one of the wealthiest men on the planet.
The man who “made billions of dollars for John Paulson shorting real estate,” Paolo Pellegrini of PSQR LLC, discusses his economic outlook and investment strategies.
New York (Press Release) – Citadel Solutions announced today that it has changed its name to Omnium, effective immediately. This name change reflects the continuing evolution of the state-of-the-art hedge fund administrator, which has grown significantly since it began in 2007.
“We chose the name Omnium because it signifies excellence and agility across all disciplines,” said John Buckley, President of Omnium. “We have an unrelenting spirit of problem solving that drives our ability to deliver innovative solutions. Our business has rapidly expanded as we have reacted swiftly to market trends, and provided our clients with an industry-leading platform supported by superior people, processes and technology.”
Last month, Omnium announced that it had been selected by Lehman Brothers Holdings Inc. (LBHI) to provide administration services, including the creation of an asset servicing platform. After a lengthy search, LBHI selected Omnium because it has the capabilities to service LBHI’s complex and diverse asset portfolios. The retention on an interim basis was approved on August 26th by the bankruptcy court and is subject to the negotiation and execution of definitive documentation.
About Omnium
Launched in 2007, Omnium provides world-class, technology-driven fund administration and reporting services to hedge funds and financial institutions that operate across a broad spectrum of investment strategies. With more than $25 billion in assets under administration, Omnium leverages Citadel’s best-in-class infrastructure and leading-edge technology to provide Operational Alpha(R) to its clients.
West Palm Beach (HedgeCo.net) – Roy H. Callahan has been selected as portfolio manager and member of the investment committee at alternative investment firm, Coast Asset Management, LLC firm’s , effective June 15.
"We are thrilled that Roy Callahan has agreed to rejoin our team," said David Smith, president of Coast. "Roy brings a wealth of knowledge and alternative investments expertise that will be invaluable as we continue to steer Coast through the challenges brought on by the global recession."
Callahan joins Coast from Stratos Advisers, a southern California-based hedge fund of funds manager. Previously, Callahan worked at Financial Risk Management (FRM) where his responsibilities included serving on the investment and portfolio management committees as well as training and mentoring FRM investment analyst groups. He spent six years from 1994-2000 at Santa Monica, CA-based Coast as director of research where he helped Coast founder David Smith develop and launch the firm’s initial multi-manager investment strategies.
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Herald Tribune – Investors are always searching for the "Holy Grail" of investing; that is, investments with high returns, low risk and little correlation to the returns of the broad stock and bond markets.
Some investors believe that they have found it in the category of investments labeled as hedge funds.
A hedge fund is an investment partnership open only to a limited number of "qualified" (meaning wealthy and supposedly sophisticated) investors that engages in a range of non-traditional investment strategies, many of which are not permitted to mutual funds.
West Palm Beach (HedgeCo.net) – Alternative asset manager, Duet Group, has launched the first Middle East and North Africa (MENA) multistrategy hedge fund "Duet MENA Opportunities Fund". The new fund will target both equity and fixed income markets in the MENA region and will be managed by Duet MENA Limited, a DIFC licensed asset manager.
Rabih Sultani, Chief Investment Officer, will manage the fund under the leadership of Hedi Ben Mlouka, Chief Executive Officer of Duet MENA. Rabih brings over 9 years of fund management and research experience across equities and fixed income.
"The investment team has one of the longest established track records in the Middle East." Hedi Ben Mlouka said, "The current unfolding crisis has created unprecedented opportunities in global markets. Such opportunities appear to be even more eye-catching in the MENA region, and we, Duet Group, are well positioned to take advantage of these prospects for our clients. I am pleased to announce that Duet’s commitment to the Middle East has led to the allocation of significant capital to the fund from existing shareholders and clients".
The new hedge fund will deploy three main investment strategies: Conviction, Relative Arbitrage and Opportunistic trading. These will be premised on pricing dislocations and valuation imbalances that are created from time to time under the influence of economic, political and capital flow factors.
The hedge fund manager has $2 billion of equity under management and their flagship hedge fund ‘Duet Global Opportunities Fund’ was awarded Best Equity Market Neutral Fund of the year in 2007 by Euro Hedge and HFM.
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West Palm Beach (HedgeCo.net) – James Chanos, Chairman of the Coalition of Private Investment Companies (CPIC), said in response to the SEC’s five proposed rules put forward to curb short-selling, "Rebuilding investor confidence should be the primary objective of any new regulatory effort and it is not clear that today’s proposals will meet that simple goal."
The SEC voted unanimously to seek public comments on all of the proposed rules intended to limit short-sales.
"Skeptics, independent research and critical analysis must continue to play a vibrant role for our markets to grow sustainably and with integrity." Chanos continued, "Short selling is integral to improving the efficiency of markets and enhancing market quality through narrower spreads, deeper liquidity, less volatility, and greater price discovery.
"In recent years, short-sellers have publicly warned the marketplace about the dangers at AIG, Lehman Brothers, and Enron, as well as sounding the alarm over the credit ratings agencies, non-bank subprime lenders, and credit insurers. Proposals to inhibit short-selling have the effect of limiting this vital market-based antidote to corporate fraud and speculative bubbles, and must be carefully weighed against the clear harm that comes from ill-conceived government intervention in basic market functions,” Chanos concluded.
CPIC is a coalition of private investment companies whose members and associates are diverse in both size and investment strategies.
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Reuters – The heat is on hedge funds to outperform markets and prove their worth to skeptical investors, and to do so requires strategies based on riding out spikes in volatility, seeking liquidity and deft trading.
Returns this year will, of course, not be what they were in the over-leveraged days before the financial crisis, but convictions on one’s investment strategies and asset allocation will help the best and brightest funds survive, industry experts told the Reuters Private Equity and Hedge Funds Summit.
The strategies expected to do well include commodity trading advisors’ managed futures accounts because they can perform well in times of heightened volatility. Funds that focus on macroeconomic developments were also seen outperforming other strategies given the tremendous changes in policy affecting markets globally and risks of both deflation and inflation.
Bloomberg – Gather round, children, to hear about the investments you’ve been waiting for. They suggest that you might get positive returns in any economic climate, regardless of whether stocks are going up or down.
Wait — don’t run! It’s not Bernard Madoff or even R. Allen Stanford, the mini-Madoff, who allegedly bilked savers out of $8 billion in supposedly high-rate certificates of deposit. It’s sanctified by hedge funds and brought to you by America’s finest financial engineers. What could be more inspirational than that?
I’m talking about the mutual funds whose investment strategies aim to be “market neutral” or to deliver “absolute returns.” Morningstar in Chicago, which publishes fund data, currently has 28 of them on its list, up from a handful five years ago.
Business Report – Hedge funds lost more money last year than any year on record. It may get worse this year, forcing fund managers to overhaul investment strategies, reduce fees and make it easier for clients to withdraw cash.
The $1.2 trillion (R12 trillion) industry might shed as much as $450 billion in assets, or 37 percent, through market losses and client withdrawals this year, Morgan Stanley analyst Huw van Steenis said on Friday.
That was on top of the $600 billion that disappeared last year, and would leave hedge funds with $750 billion, the lowest since 2002. "It’s hard not to be bearish in this environment," said Van Steenis.
Bloomberg – Hedge funds lost more money in 2008 than any year on record. It may get worse in 2009, forcing fund managers to overhaul investment strategies, reduce fees and make it easier for clients to withdraw cash.
The $1.2 trillion industry may shed as much as $450 billion in assets, or 37 percent, through market losses and client withdrawals this year, according to Morgan Stanley analyst Huw van Steenis in London. That’s on top of the $600 billion that disappeared last year and would leave hedge funds with $750 billion, the lowest since 2002.
