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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.
West Palm Beach (HedgeCo.net) – Due to their recent share decrease, Lehman Brothers Holdings Inc. has agreed to sell majority interest to asset manager Neuberger Berman. The transaction will create a new, independent investment management company to be called Neuberger Investment Management, managing approximately $160 billion of assets as of 30 November 2008.
Lehman Brothers Private Equity Partners Limited (LBPE) and certain of its affiliates will be a part of this transaction. The sale is subject to final Bankruptcy Court approval, and closing is expected in the first quarter of 2009.
LBPE’s Board of Directors believes this transaction will significantly benefit the Company by providing the management team of the Investment Manager a strong platform from which to continue managing LBPE’s high quality private equity portfolio and support the long term success of the Company.
LBPE will also host a conference call later this week for investors and analysts to discuss the Investment Manager update and the Company’s performance. An updated investor presentation will be published on the Company’s Web site prior to the conference call on 12 December 2008.
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West Palm Beach (HedgeCo.net) - Top financial industry leaders and more than 200 attendees gathered in New York late last week discuss the volatile hedge fund market and provide insights on distressed funds.
Sponsored by global offshore law firm Walkers, the "Fighting the Tape" seminar included a wide variety of speakers offered a comprehensive look at the changes in the market over the past year, as well as predictions for what the alternative investment funds industry can expect in the months ahead.
The experts anticipate a new era of hedge fund regulation, greater flexibility and versatility in hedge fund offering documents, broader discretion for fund managers, and continued growth in many of the world’s key economies such as China, India, Russia, Brazil, the Middle East, and South Korea.
Investment manager George Hall, founder and president of The Clinton Group gave his personal views on the financial crisis and what the market might see under President-elect Barack Obama. While he felt it was too early to say how the "Obama factor" might influence the hedge fund industry, Mr. Hall said that he hoped the new President would make good choices when selecting his Treasury Secretary and a leader for the SEC.
"The true impact of the US credit crisis will not be tangible for many months to come," Yolanda McCoy, head of the Investments and Securities Division at the Cayman Islands Monetary Authority (CIMA) said, although she was able to confirm that to date they were aware of a total of 340 Cayman funds that had been impacted by the problems with Lehman Brothers, Merrill Lynch, and AIG, with more than 200 of those affected by issues with Lehman.
Professor Jeffrey Rosensweig, director of the Global Perspectives Program at Goizueta Business School at Emory University, closed the seminar with insights into the investment opportunities presented by this current stage in the cycle, shifting the focus from New York and London to emerging markets such as Brazil, Russia, China, the Middle East and India.
"The world adds 100 people every 42 seconds," Professor Rosensweig said, "and 98% of that population growth is in the emerging markets." Pointing to the expectation of long-term continued economic expansion in these regions, Professor Rosensweig said this massive population growth, combined with a move out of poverty in these regions, presents real future opportunities for investors.
The Daily Deal - Lehman Brothers Holdings may have gone bankrupt eight weeks ago, but the filing continues to reverberate throughout the financial world and even in some unexpected places like the National Football League’s New York Giants. The latest to join the ranks of the exposed are hedge funds. All those 140,000 failed or reconciled credit derivative swaps trades that PricewaterhouseCoopers is involved in identifying could hit the hedge funds and numerous other Lehman clients next month.
According to the Financial Times, four unnamed U.S. hedge funds are likely to close in mid-December because they cannot access holdings held at the London arm of Lehman Brothers. All of the shares and loans cannot be accessed so that PwC can unravel those CDS’s.
Bloomberg – Millennium Partners LP, the $13.5 billion hedge-fund firm run by Israel Englander, plans to return $1 billion to investors who asked for their cash back by year-end, according to two people familiar with the matter.
The redemptions, equal to 7.4 percent of client assets, would have been higher except the New York-based firm limits redemptions in any quarter, said the people, who asked not to be identified because the information is private. A spokeswoman for Millennium declined to comment.
Millennium lost about 3 percent this year through October, the people said, compared with hedge funds’ average decline of 16 percent, according to data compiled by Hedge Fund Research Inc. Two percentage points of Millennium’s loss were caused by assets frozen in the September bankruptcy of Lehman Brothers Holdings Inc., one of the people said.
West Palm Beach (HedgeCo.net) – Independent alternative asset and hedge fund management group, Gottex Fund Management Holdings Limited, announced the opening of an office in Dubai to capitalise on the growth opportunities in the region.
In addition, Gottex appointed Wassim Nasrallah as Managing Director responsible for sales and marketing in the Middle Eastern region. With significant business lines already in the Middle East, Gottex says the region is one of its core growth areas over the coming years. The region and office will be managed by Hashem Arouzi, Managing Director and a founding partner of Gottex. Wassim Nasrallah, who recently joined Gottex from Lehman Brothers, will work alongside Hashem Arouzi in Dubai and co-manage the region.
"We are very pleased to announce the opening of our new Dubai office which will enable us to better service and expand our Middle Eastern customer base," Joachim Gottschalk, Chairman and CEO of Gottex, said, "Similarly, we welcome Wassim to Gottex, who, with his extensive experience in the Gulf region, will be essential to our growth plans in the Middle East."
Before joining Gottex, Wassim Nasrallah worked for Lehman Brothers International, where he was Head of Generalist Sales in Dubai for Capital Markets and Investment Management products. While at Lehman he was involved in Private Investment Management in Boston, New York and Dubai.
Incorporated in Guernsey, Gottex provides investment management services to a diversified range of hedge funds and funds of hedge funds. The Gottex group also structures and manages specialised fund of hedge funds, managed accounts, real asset funds and provides related investment advisory services. As of 30 September 2008, Gottex had $13.5 billion in assets under management (AUM).
Christian Johnson Staff Writer for HedgeCo.Net
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Forbes – Major Wall Street firms placed large bets against Morgan Stanley using credit-default swaps, two days after Lehman Brothers Holdings Inc sought bankruptcy protection, the Wall Street Journal said, citing trading records.
The firms included Merrill Lynch & Co, Citigroup Inc, Deutsche Bank AG and UBS AG, according to the paper.
The paper said that a close examination of the trading revealed that the swaps played a critical role in magnifying bearish sentiment about Morgan Stanley.
CNNMoney.com – For equity markets, 2008 will long be remembered as a year of massive selling, and it’s likely to end the same way.
Hedge funds will find it increasingly difficult to obtain lending at the end of the year, a time when banks typically tighten their lending anyway as part of the "window dressing" process. This year, two key securities firms that supplied loans to hedge funds, Bear Stearns and Lehman Brothers, have disappeared, and the remaining firms that lend to hedge funds are hanging on to cash in an effort to deleverage themselves.
"These tight financing positions over year-end are likely to result in the forced sales of securities prior to year-end," said an Alliance Bernstein research report put out Wednesday.
CNBC – The head of Morgan Stanley’s prime brokerage arm in Asia, Kurt Baker, has left the firm amid the slump in Asia’s hedge fund industry, a source with direct knowledge of the situation said on Wednesday. A spokesman for the U.S. bank declined to comment. But the source confirmed Baker was no longer coming into the office.
His departure comes after Morgan Stanley last week announced a further round of job cuts, including 10 percent of staff in its institutional securities unit, its main business, and 9 percent in asset management. The cuts are in addition to roughly 4,800 jobs eliminated since the middle of 2007 by what was once Wall Street’s second-largest investment bank.More than 100,000 financial services jobs have been eliminated worldwide over that time.
Morgan Co-President James Gorman said at the time the firm plans to "reshape" operations including prime brokerage, which lends securities and provides other services to hedge funds. Morgan Stanley and Goldman Sachs Group Inc were widely regarded as the two leading prime brokerages in Asia in recent years. But industry sources said hedge fund clients moved assets from the firms in the wake of Lehman Brothers Holdings Inc’s bankruptcy, which raised questions about the stability of investment banks.
Reuters – Investors who bought protection against a Lehman Brothers default in the credit default swaps market have little to worry about getting paid on Tuesday, when an estimated $8 billion in cash payments on Lehman CDS come due.
While these payments may push a few fragile hedge funds over the edge, analysts say, stringent collateral requirements mean most protection buyers will not be out of pocket.
Comment has circulated in the markets and in the media that CDS counterparties may not be able to come up with the cash.
"The big issue is whether they (CDS) will be settled successfully," wrote ING rate strategist Padraic Garvey on Friday. "The talk is that hedge funds sold protection on Lehman … well now they will have to cough up."
Reuters – Malaysia is working on a plan to allow the creation of Islamic hedge funds.
"It is now in the developmental stage,” Goh Ching Yin, an executive director at the Securities Commission, was quoted as saying by Business Times newspaper.
"There’s no timeline, but we are making good progress.”
He said the plan could get off the ground next year, depending on market conditions.
Hedge funds’ bets on falling share prices have been blamed for contributing to the near-collapse of investment bank Bear Stearns, the demise of Lehman Brothers and for a sharp drop in financial stocks in general.
Bloomberg – Hedge funds run by Jeffrey Gendell and John Burbank III posted their worst monthly losses in October. Peter Thiel gave back gains made earlier in the year. Nobel-prize winner Myron Scholes froze his biggest fund.
The managers, like many in the $1.7 trillion hedge-fund industry, were caught in a downdraft of market declines, client redemptions, demands from lenders for more collateral and forced asset sales that accelerated after Lehman Brothers Holdings Inc. collapsed in mid-September.
Funds fell by an average 5.4 percent last month, pushing the year-to-date drop to 15.5 percent, according to the HFRI Fund Weighted Composite Index compiled by Chicago-based Hedge Fund Research Inc. Investors have been handed losses for five straight months, the longest streak since HFRI started the index in 1990.
“October was the perfect storm for liquidity drying up, especially in the credit markets,” said Gary Vaughan-Smith, co- founder of London-based SilverStreet Capital LLP, which has $600 million invested in hedge funds for its clients. “We are through the worst and the turmoil should be gone by the end of November.”
