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 former Florida hedge fund manager is being held without bail in a West Palm Beach prison after prosecutors convinced the judge he is a flight risk.
Attorneys for Won-Sok Lee were seeking a continuance for his arraignment on Friday so that he could find a local lawyer.
Lee and his company, The KL Group, were accused of swindling over $200 million out of investors through their hedge funds back in 2006. He was arrested in February after trying to board a plane from Seoul to Argentina after spending three years on the run.
Lee and his brothers, who are currently serving lengthy prison terms, ran hedge funds out of locations in Florida and Nevada from 2000 to 2005.
Lee is facing dozens of charges, including conspiracy, money laundering, and mail and wire fraud. His next hearing is scheduled for April 17.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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CNN Money – Hedge funds may be struggling and closing up shop in the current market environment, but Goldman Sachs Group Inc. (GS) was able to make more money tending to the funds’ needs this year than last.
The company, which on Tuesday reported its first quarterly loss since it went public a decade ago, was able to post a 19% gain in revenue in its securities services operations for the three months that ended Nov. 28, compared to the same period last year. The business also turned in record net revenues for all of fiscal 2008 at a time when Goldman’s normally high-octane trading and principal investing line was down by 71% for the year.
Goldman’s security services business is dominated by its prime brokerage operations, whose clientele comes primarily from hedge funds. Competitor Morgan Stanley (MS), which runs a similar prime brokerage business that turned in record net revenues last quarter, reports its earnings on Wednesday.
Though hedge funds have been hard-hit by customer redemptions and market losses, Goldman was able to generate more revenue this year because its securities services business mix became more profitable, Chief Financial Officer David Viniar told analysts during a conference call.
Bloomberg – Artradis Fund Management Pte, RAB Capital Plc’s Northwest unit and Cannizaro (Hong Kong) Ltd. are cutting fees and locking up investors’ money for longer in new hedge funds that will buy bonds after prices fell in Asia.
Merrill Lynch & Co.’s prime brokerage unit has been approached by at least eight money managers about starting such funds in Asia to buy beaten-up fixed-income securities such as convertible bonds, said Eddie Guillemette, the firm’s regional co-head of global markets financing and services. Some of the hedge fund managers are offering to reduce management and performance-based fees by as much as 50 percent, he said.
“You’ve got people who are now setting up vehicles with long lockups to take advantage of distressed or stressed asset classes where the pricing is now at a multidecade level of cheapness,” said Richard Johnston, Hong Kong-based Asia head of hedge fund consulting firm Albourne Partners Ltd. The UBS Convertible Asia ex-Japan Index is down 37 percent in dollar terms this year.
Bloomberg – Artradis Fund Management Pte, RAB Capital Plc’s Northwest unit and Cannizaro (Hong Kong) Ltd. are cutting fees and locking up investors’ money for longer in new hedge funds that will buy bonds after prices fell in Asia.
Merrill Lynch & Co.’s prime brokerage unit has been approached by at least eight money managers about starting such funds in Asia to buy beaten-up fixed-income securities such as convertible bonds, said Eddie Guillemette, the firm’s regional co-head of global markets financing and services. Some of the hedge fund managers are offering to reduce management and performance-based fees by as much as 50 percent, he said.
New York Post – The days of hedge funds operating behind a curtain may soon be over.
Bruised and bloodied by unprecedented losses, hedge-fund investors are rebelling, demanding lower fees, greater transparency and, in a growing number of cases, unfettered access to their dough.
They’re doing this through separately managed accounts (SMAs), which basically act as a portfolio for individual investors.
SMAs are common with brokerage firms but have long been shunned by hedge-fund managers.
Mike Murray of Shoreline Trading Group, which acts as a prime brokerage for small hedge funds, said he’s seeing such a spike in demand for SMAs among hedge fund investors that he expects them to double by next year.
CNN Money – In another sign the financial crisis is hitting Asia’s once booming hedge-fund industry, Alexis Fosler, the head of Citigroup Inc.’s ( C) prime brokerage team in Singapore has left the company, two people familiar with the situation said Tuesday.
Fosler was leading a three-person team that was set up more than a year ago to serve hedge funds clients in the island. She had previously worked in the offshore banking industry based in the British Virgin Islands.
One person said Citigroup remains committed to the Singapore prime broking business despite Fosler’s departure.
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.
Bloomberg – BNP Paribas SA, France’s biggest bank, won prime brokerage business in Asia with hedge fund CQS (U.K.) LLP as it seeks to lure clients in the region from rivals.
The new contract with CQS, a London-based hedge fund manager that has an office in Hong Kong and oversees about $7.5 billion, adds to BNP Paribas’s existing relationships with major hedge funds in the region, according to Talbot Stark, global head of BNP Paribas hedge fund relationships. He declined to name other existing clients.
“We have prime brokerage relationships with three or four of the market leaders in Asia that are outperforming their peers and look to be longer-term survivors in the Asian hedge fund market,” Stark, 43, said in a telephone interview yesterday. “We’re in discussions with several other key players that are making decisions to change their prime brokerage providers and are seeking alternative providers that are established and committed to the region.”
West Palm Beach (HedgeCo.net) – Hedge fund IT provider, Richard Fleischman & Associates, announced that Colin Moe has joined the firm as account manager. The appointment furthers RFA’s unprecedented growth and commitment to serve its client base of 400-plus alternative asset firms.
Increased demand for flexible technology solutions by RFA clients is being driven by turbulent market conditions and the need to stay nimble with IT infrastructure for expansion or contraction in the immediate future.
In this role, Colin will work with clients to assure optimized service levels and performance outcomes. As a focal point of contact, he will orchestrate the deep bench of resource available to RFA clients ensuring client satisfaction.
“Colin is an accomplished and respected industry professional with outstanding credentials and extensive prime brokerage expertise that our clients will immediately identify with,” said Don Previti, director of business development at RFA. “His important role as Strategic Account Manager will further reinforce RFA’s position as the vendor of choice for firms in the alternative asset space."
With more than ten years of experience, Colin joins RFA following long tenures in account management with Citigroup Prime and Bear Stearns Prime. He has a wide range of account experience, having worked in depth with hedge funds of differing trading strategies, investment styles and asset sizes, ranging from start-ups to multi-billion-dollar funds. His professional specializations encompass trading facilitation, technologies, implementation and training, and asset financing.
Established in 1990 and headquartered in New York, NY, Richard Fleischman & Associates is a trusted technology advisor to over 400+ hedge funds, private equity funds and fund of funds globally, offering both turnkey IT solutions and on-site and remote monitoring staffed 24/7/365.
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Reuters – Several hedge funds with assets frozen at Lehman Brothers may have been hit by wrong-way bets on Volkswagen, industry executives said, possibly hurting funds on trades they cannot close.
While no money has yet been demanded by the prime brokerage unit of Lehman — which filed for bankruptcy protection in September — a fund using Lehman to short-sell VW may have to pay up next year when administrators have worked out which positions belong to whom.
"Could there be some people who are short Volkswagen and can’t close the trade? Yes, there could be some," said one hedge fund executive who declined to be named, in order to speak candidly.
West Palm Beach (HedgeCo.net) – BNP Paribas has launched a global, transversal, multi-asset, hedge fund client service team. The team will be a single point of entry for Hedge Funds for all inquiry, according to BNP, leveraging the bank’s capabilities and focusing on operational efficiencies.
The team is headed globally by John Polivko, based in New York and reporting locally to Jean-Patrick Kaiser, Deputy Chief Operating Officer, and globally to Bernard Gavgani, Equity and Commodity derivatives COO and Francois Freyeisen, Fixed Income COO.
Polivko recently joined the firm from Merrill Lynch where he was in charge of the client service organization for Prime Brokerage and more recently worked in financing sales. Prior to Merrill Lynch, Polivko also spent 7 years as a Managing Director at Bears Stearns in Prime Brokerage.
In addition, the appointments of regional managers reporting directly to John Polivko are Victoria Baker, Neil Spice and Jacqueline Man as regional head of hedge fund client service based in Hong Kong.
Talbot Stark, global head of hedge fund relationship management said, "Hedge Funds are a very important client base for BNP Paribas, following the acquisition of Bank of America’s Prime Brokerage business as well as the growth of the hedge fund relationship managements team, the creation of this function is another step in better serving those clients."
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guardian.co.uk – Morgan Stanley survived the recent panic in financial markets, but its prime brokerage business may never fully recover.
More than a third of Morgan’s prime brokerage assets went out the door during the past month — some rivals said attrition could be as large as one-half — as investors unnerved by the credit crunch lost confidence in the bank.
Across Wall Street, hundreds of investment funds that relied on broker-dealers established accounts with commercial banks boasting stronger credit. The moves have shaken up a business long dominated by Morgan Stanley, Goldman Sachs Group Inc and Bear Stearns.
"It’s a $2 trillion business and in normal market conditions, people kill themselves to move 1 percent of market share. In recent weeks, probably 35 to 40 percent of global market share has been redistributed," said Alex Ehrlich, global head of prime services at UBS. "Never has there been a more disruptive period."
