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.
Hedge Week.com – Pacific Alternative Asset Management Company, an Irvine, California-based fund of hedge funds manager with USD9bn in assets has announced the recruitment of the investment team of KBC Alpha Asset Management, a USD700 million Asia-focused fund of hedge funds manager.
KBC Alpha was established in 2001 by chief investment officer Neale Safaty as the fund of hedge funds division of KBC Alternative Investment Management. The fund investment team will be integrated into Paamco’s global portfolio management team and will initially operate as a separate division within the firm known as Pan Asia Alpha Strategies.
Times Online – Hedge fund managers are spivs and speculators, directly responsible for creating carnage in the world’s financial markets and threatening the future of high street banks. At least, that’s what some argue.
But it is, emphatically, not true, according to Christopher Fawcett, the hedge fund executive who has taken on the role of de facto cheerleader for Britain’s embattled alternative investment industry.
Such criticism is misplaced, he argues. Investment banks, rather than hedge funds, were behind the surge in gearing, or leverage, that pushed markets to breaking point in the middle of last year. Hedge funds were actually more conservative and only moderately geared.
Bloomberg – Office rents in Mayfair and St. James’s, the London districts with Europe’s biggest concentration of hedge funds, are falling for the first time since 2005 as the alternative investment industry has its worst year in two decades.
The cost of renting new or refurbished offices in those neighborhoods, the most expensive in the world, fell 6.5 percent to 107.50 pounds ($168) a square foot in the six months ended Sept. 30, data compiled by Jones Lang LaSalle Inc. show. Incentives such as rent-free periods lowered the net figure to 95.96 pounds, the commercial property broker estimates.
Demand for space is falling as at least 350 funds in the $1.7 trillion hedge fund industry have closed this year amid the global financial crisis, including Peloton Partners’ ABS Fund and MKM Longboat Capital Advisors’ Multi-Strategy Fund. Client redemptions and forced asset sales have given investors losses for five straight months through October, the longest streak since 1990, and the slump may push rents down to as low as 90 pounds a foot, Jones Lang of Chicago estimates.
Reuters – Hedge funds using technical indicators are likely to fare better in the next two years than those purely basing their strategy on economic fundamentals, a survey of around 200 investors showed on Wednesday.
The survey of asset managers, institutions, and high net worth investors at the Global Alternative Investment Management (GAIM) Fund of Funds conference in Geneva showed 36 percent saw such trading-based strategies set to outperform in 2009-2010.
These strategies generally use technical indicators or a combination of technical and fundamental indicators to make short or medium-term bets on market movements.
Long/short equity strategies were chosen by 16.7 percent. Long/short managers vary their overall market exposure via long positions in those equities that they expect to outperform the broader market and short positions in those expected to underperform.
West Palm Beach (HedgeCo.net) – Alternative investment management firm and Hedge Fund Launch of the Year Award Winner, AdultVest, Inc., announced it officially closed its offering in the Priapus Investment Fund, LLC.
"In spite of the US and Global economic condition, the Priapus Investment Fund, LLC is on track for a great year," Francis Koenig, the Manager of the Priapus Fund said, saying also that he has plans to re-open a new offering soon.
This year the Priapus Investment Fund acquired iPorn. com, HandJob. com, and several adult content libraries. The fund has invested in the development and acquisition of several internet technologies, software platforms, and mobile technologies, and also acquired a stake in a public company operating gentlemen’s clubs.
"We have identified a few more opportunities that will close out the year and expect the fund to be fully invested by early 2009," Koenig said, 2We are already hard at work on the development of Priapus Investment Fund II and have very high expectations for the new fund."
The Beverly Hills, California-based investment company deals exclusively in the estimated 100 billion dollar Adult Entertainment Industry. It is active in mergers, acquisitions, and operates the only on-line investment community with over 4,500 registered investors and over 1,000 adult entertainment companies seeking investments, mergers, and acquisitions.
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West Palm Beach (HedgeCo.net) – A pioneering collaboration that brings together the best of the academic and finance worlds has been such a success that the venture has outgrown its premises, just a year after its establishment.
Man Group plc, one of the world’s largest alternative investment companies, founded the Man Research Laboratory ("MRL"), in Oxford in September 2007. The role of MRL is to undertake commercial research projects for the various quantitative groups within Man, and in particular, for its wholly owned subsidiary fund manager AHL. Although quantitative techniques are widely used throughout Man, it is within AHL that they have been used extraordinarily successfully for more than twenty years.
The laboratory was established at the same time as the Oxford-Man Institute of Quantitative Finance ("OMI"), which is part of the University of Oxford. Man provides the principal funding (an initial commitment of GBP 13.75 million – $21.9 million) for the institute, which shares common facilities with the laboratory.
"The partnership between Man and the University of Oxford is unique," said Dr Anthony Ledford, a senior executive at AHL and Research Director of MRL. "While other hedge fund managers have opened their own, private research centres, none has done so in partnership with the University of Oxford itself."
"The aim for both the University and Man is to create a stimulating environment of research and innovation, where ideas flourish," Dr Ledford continues. "Practitioners from a wide spectrum of disciplines can bring their skills into collaboration, and learn from each other."
Staff numbers are expected to double over the coming year. OMI, which brings together academics from a wide spectrum of Oxford University departments, already has fourteen faculty members, another fourteen associate members and four permanent academic staff – three research fellows and the institute’s Director – along with twelve higher-degree students.
"The collaboration has been a great success", Dr Ledford added. "It has exceeded the expectations of both the University and Man. Planned staffing levels in both the laboratory and the institute were met ahead of schedule, and the number of applications for positions has necessitated a search for larger premises."
Although the institute and laboratory are independent of each other and follow different research programmes, there is significant interaction between them. This has benefited both parties, and OMI is attracting significant international attention. In its first year, as well as a series of over one hundred seminars and presentations, it has hosted a symposium and two conferences – one of its guest speakers being a Nobel Prize winner.
MRL has already made significant commercial contributions to Man and AHL, which specialises in systematic automated trading. A new trading model – first conceived at the laboratory – which operates on high frequency data is now actively trading the global markets and providing new sources of enhanced investment opportunities. Another benefit is the magnetic effect the laboratory is having in attracting the next generation of top talent into Man from around the world.
Dr Ledford added: "The interaction between our Research Lab and the Institute has put us at the cutting edge in our field. Looking at what we’ve already achieved, we’re really excited about the prospects for the future."
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Reuters – Up to half of Russian hedge funds could go out of business as the financial crisis sends investors fleeing and the stock market continues to fall, according to industry experts.
Speaking at the Russia Alternative Investment Summit on Wednesday, Simon Fentham-Fletcher, head of fund of hedge funds at Raiffeisen Bank, said in a worst-case scenario, 50 percent of Russian hedge funds could close.
The primary source of failure will be a lack of funding as performance deteriorates and investors redeem their money, he said.
"If they’re not well-capitalised they can’t look after themselves properly. It’s expensive to run a hedge fund out of Russia and you can eat into your reserves very quickly," said Fentham-Fletcher, who is based in Moscow.
Seeking Alpha – Investors pulled at least $43bn from U.S. hedge funds in September as market turmoil led to unprecedented withdrawals, an analysis by a leading research house shows.
The data from TrimTabs Investment Research – which was to be sent to clients late on Wednesday – come as hedge funds are working to prevent far bigger redemptions by the end of the year, when many funds give investors a chance to take out money.
Withdrawals can lead to a vicious circle in the markets, as funds sell holdings to return money to clients, depressing prices and prompting further redemptions.
The chief executive of a leading alternative investment manager said he expected the hedge fund industry to shrink by 50 per cent in coming months – with half the decline coming from withdrawals and half coming from investment losses.
Conrad Gunn, chief operating officer of TrimTabs, said the $43bn in September withdrawals would mark “the beginning of what we expect to be a series of outflows for the remainder of the year. We expect October outflows to be larger.”
The industry, which manages close to $2,000bn, has experienced outflows during only a handful of months previously, including a small outflow in April of this year.
West Palm Beach (HedgeCo.net) – The alternative investment sector will continue to benefit from increasing asset allocations from Single Family Offices (SFOs), according to "On the Rise," the latest research report sponsored by CPA firm Rothstein Kass.
The white paper, co-sponsored by G Capital highlights the growing relationship between the alternative investment community and SFOs, entities established to serve the needs of individual high-net-worth families. "On the Rise" was co-authored by Russ Alan Prince, a leading authority and counselor on private wealth, and Hannah Shaw Grove, a widely recognized expert on behaviors and finances of high-net-worth individuals.
The findings include that almost three-quarters of SFOs currently invest in hedge funds, with nearly 60% of this group planning additional allocations in the coming year
SFOs with hedge fund allocations hold an average of 3.2 hedge funds or fund-of-funds in the portfolio. Nearly 70% of SFOs with hedge fund allocations report that these investments have met or exceeded performance expectations over the past 12 months.
Over 70% of SFOs with hedge fund allocations report "lack of transparency" as a key concern. Other concerns sited include lock-up periods (60%), style drift (55%) and fraud (37%)
"As SFOs consider an ever-expanding range of investment options, they are increasingly turning to the alternative investment sector and its proven ability to deliver superior returns independent of underlying market conditions," said Rick Flynn, a Principal in Rothstein Kass’ Family Office Group. "Moreover, our findings suggest that performance continues to drive alternative investment allocations. Nearly 70% of those polled said that performance over the last 12 months has been ‘as expected’ or ‘better than expected.’"
The "On the Rise" survey was based on telephone interviews with 146 SFOs and was concluded in August 2008. Investable assets ranged from $312.2 million to $1.3 billion, with a median of roughly $500 million. Just under 60% of the firms polled are based in the Americas, with the balance operating in Europe (21%) and Asia (20%). Additional results were generated from only those entities with reported allocations to the alternative investment sector. For the purposes of this research, SFOs are defined as "created exclusively for or by a single exceptionally wealthy family to provide control, negotiating leverage, and a defense for family members."
"’On the Rise’ details the latest evidence of the growing interrelation between SFOs and the alternative investment community. While high-net-worth individuals generally recognize advantages of hedge fund investing, they are frequently confounded by the growing roster of products and services available. SFOs have had great success in bridging this knowledge gap," said Peter Gerhard, Chief Executive Officer of G Capital Management LLC. "Still, lingering challenges face this blossoming relationship. Both transparency (73%) and style drift (55%) rated as key concerns among respondents. It seems that although high-net-worth families are comfortable involving SFOs in the asset allocation process, they themselves retain a level of involvement. Investors need to feel confident that the funds that have been selected are not only good choices in the moment, but reflect overarching and longer-term investment objectives."
Rothstein Kass is a financial services firm, recognized nationally as a top service provider to the alternative investment industry. The Firm provides audit, tax, accounting and consulting services to hedge funds, fund of funds, private equity funds, broker-dealers and registered investment advisors. Rothstein Kass has offices in New York, New Jersey, California, Colorado, Texas and the Cayman Islands.
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Bloomberg – Nippon Life Insurance Co., Japan’s biggest life insurer, said it will boost hedge fund investments and may target distressed assets to take advantage of volatility caused by the collapse of the U.S. subprime mortgage market.
Nippon Life, with about 100 billion yen ($920 million) in hedge funds, increased its allocation to this asset class by about 30 billion yen during the past two years in a trend it intends to continue, Hideya Sadanaga, deputy general manager of the firm’s Credit & Alternative Investment Department, said in an interview in Tokyo.
The global credit crisis that’s caused more than $500 billion of losses and writedowns at financial firms has increased volatility in debt markets and led to a 20 percent decline in the value of the 1,737 companies on the MSCI World Index this year.
“There will be investment opportunities in the credit and distressed asset class eventually, given this market environment,” said Hiroshi Aikawa, head of alternative investment at office at Nippon Life’s Nissay Asset Management Corp., in the same interview on Sept. 5. “Investments that profit from trading volatility also look attractive.”
Bloomberg – Tantallon Capital, founded by Merrill Lynch & Co. former head of sales Nicholas Harbinson, closed one of its hedge funds after bad bets on Asian stocks, three people familiar with the matter said.
The Singapore-based firm shut its Tantallon Smaller Companies Fund, managed by Steve Sun, after it lost 25.6 percent this year, according to data compiled by Bloomberg, more than twice a benchmark that tracks similar funds. Assets shrank to $18 million as of end July, from as much as $29 million in February, the people said, asking not to be identified because details are private.
The market turmoil has wiped $19 trillion off global stock markets in the first nine months of this year. That has hurt even the most experienced managers, said Jennifer Carver, who runs the Asian business of 3A SA, the alternative investment unit of Geneva-based Banque Syz & Co.
“There are a lot of funds out there that are effectively net long that are getting killed this year,” said Hong Kong- based Carver, adding that 3A doesn’t invest in Tantallon’s funds. “The bigger funds have lost a lot of assets too, their performance has been bad; smaller funds have to close quicker because they don’t have the depth of the larger funds to keep going.”
West Palm Beach (HedgeCo.net) – Hedge fund managers KP Securities and Sophia Capital Securities announced that they are joining forces, enhancing the 2 firms ability to raise capital for alternative investment managers. The transaction between the two firms was finalized on September 1, 2008.
The new combined company, Belvedere Global Investors LLC, is headquartered in Belvedere, California, a short distance from the San Francisco financial district. The company is a distribution boutique focused on alternative investments. It raises capital for investment manager clients that include hedge, private equity and venture capital funds and funds of funds, as well as for private companies seeking direct investments.
"This transaction will allow our team to continue deepening its geographic coverage of investing clients and fund managers, bringing under one roof a truly global collection of relationships", said Keith Pagan of KP Securities.
Over the past 4 years, the combined team, now run by Keith Pagan and Patrick Beaudan, the principals of Belvedere, has raised over $1.5 billion in capital for alternative investment managers in the U.S., Europe and Asia, working with investors in over 50 different countries.
"The combination of our firms enhances the depth of the professional assets we can deploy in supporting the capital raising efforts of an increasing range of clients in the alternative investment space, while preserving our focus on delivering top-notch investor relations services", said Patrick Beaudan.
As part of its activities, Belvedere also organizes private roundtables, where institutional investors meet select alternative investment managers over the course of a high-quality, one-day event that excludes vendors and the press.
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