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The Australian – HFA, which has $5.8 billion in assets, joins a long line of fund managers — including Perpetual, Babcock & Brown and Macquarie Group — in suspending redemptions from some funds this year as the credit crisis takes its toll on the value of fund assets.
Standard & Poor’s has placed 80 to 90 per cent of all the mortgage funds, property funds and fund of hedge funds it rates "on hold" this year due to changes in the redemption process.
HFA shares plummeted 55 per cent to 4.3c in local trade yesterday, taking the year’s decline to 98 per cent, after the company said it had stopped allowing withdrawals from the HFA Diversified Investments Fund, the HFA Octane Fund and the HFA Octane Fund Series 2 because of "deteriorating liquidity in underlying investments".
Seeking Alpha – "In my view they didn’t do what they set out to do … which was to hedge. I saw a few hedge funds that did much worse than my long-only fund, which is rather ironic," [Veritas Asset Management manager Ezra Sun] said.
The losses have disappointed many investors who had expected positive returns in all market conditions, and hefty withdrawals of somewhere between a fifth and a third of the industry are widely expected at the end of the year. There was the risk people could perceive hedge funds as a "rip-off" because they had been charging high rates on the implicit promise they could deliver absolute returns, but did not deliver when global markets collapsed.
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.
Welcome, I’m Steve Forbes. It’s a pleasure and privilege to introduce you to our featured guest, Cantor Fitzgerald CEO Howard Lutnick. He’ll tell us why October was his company’s best month ever.
But first…This ongoing financial crisis is driven by fear, not by a lack of cash or liquidity in the global markets. There is no reason why our economy can’t get back on track by springtime. But how do we get there form here? One answer is that we simply let financial markets work.
The economy still has very real strengths, and we know how smart, pro-growth policies work. We also already know what doesn’t work. Tax and spending does not work. One-time stimulus checks have no lasting effect. But if we actually lowered tax rates, including corporate tax rates, we’d see real stimulus.
Even Detroit could self-repair, if we let it. Right now they make money everywhere but North America. Why? Because they aren’t allowed to count the thrifty cars made overseas toward their efficiency standards. This makes no sense. Also, consider how the economy would roar ahead if we got rid of the government’s crazy mark-to-market accounting rule and had a sensible monetary policy and a strong dollar. Because if the dollar isn’t right, the world isn’t right economically. That’s the bottom line.
Reuters UK – Robust returns for a group of powerful hedge funds that thrived for years using sophisticated trading programs may be a thing of the past after a "Black Swan" event hit global markets this year.
The carnage in financial markets worldwide, what many viewed as a so-called Black Swan event because it was out of the ordinary and had severe repercussions, has scorched returns for most of these funds. That forced them to embrace new models that place less capital at risk and employ little or no leverage.
With the failure of many investment systems that ran on algorithms created by mathematicians-turned-traders, quantitative funds, also known as "quants" are also veering away from models with longer-term horizons. They have instead focused on high-frequency strategies, or very short-term trades that often are executed in seconds.
Straits Times – Hedge fund assets fell by US$100 billion (S$151 billion) in October as investors withdrew their money and funds were forced to sell stock, exacerbating the severe volatility that pounded global markets during the month.
About US$60 billion of the US$100 billion in asset losses during the month came from investor redemptions, according to a report on Wednesday released by Eurekahedge, a data and research provider.
Hedge funds’ assets totalled US$2.497 trillion at the end of the third quarter, according to HedgeFund.net, a hedge fund data provider.
Hedge fund selling has widely cited as one of the reasons for the increase in volatility in equity and bond markets during October.
West Palm Beach (HedgeCo.net) – State Street Global Markets, the investment research and trading arm of State Street Corporation, released the results of the State Street Investor Confidence Index for October 2008.
Confidence among North American investors fell particularly sharply from a revised level of 75.1 to 50.8. Elsewhere, the declines were less dramatic, with European confidence falling just 1.5 points to 79.6, and Asian confidence declining 0.6 points from 87.1 to 86.5.
“This month we saw a dramatic and unprecedented decline in investor confidence to a new record low, led by investors in North America,” commented Froot. “We saw broad and important reductions of risk across investor portfolios previously at times like the Asian Crisis in 1997 and the Russian-LTCM crisis in 1998. However, even the strong broad-based selling of risk we saw during those events appears small compared with the current outflows. The combination of financial crisis along with truly global macroeconomic risk of deep recession has been causing a complete re-evaluation of risk across a wide investment community centered on US institutional investors.”
Developed through State Street Global Markets’ research partnership, State Street Associates, by Harvard University professor Ken Froot and State Street Associates Director Paul O’Connell, the State Street Investor Confidence Index measures investor confidence on a quantitative basis by analyzing the actual buying and selling patterns of institutional investors.
The index is based on financial theory that assigns precise meaning to changes in investor risk appetite, or the willingness of investors to allocate their portfolios to equities. The more of their portfolio that institutional investors are willing to devote to equities, the greater their risk appetite or confidence.
“When you remember that this measure of investor confidence is not a survey, but rather is based on the actual trades of institutional investors, the readings are particularly striking,” added O’Connell. “The period over which this reallocation was measured in investor portfolios, September 17 to October 15, saw the largest single reallocation away from risky assets that we have witnessed in the data since it first became available in 1994.”
The index is released globally at 10 a.m. Eastern time in Boston on the second to last Tuesday of each month. With $14 trillion in assets under custody and $1.7 trillion in assets under management at September 30, 2008, State Street operates in 26 countries and more than 100 geographic markets worldwide.
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Reuters – A U.S.-based trade group for hedge funds has urged the Bank of England to step in and speed up the freeing up of assets frozen in the collapse of Lehman Brothers Holdings Inc, saying it has become "an issue of very substantial systemic significance."
Richard Baker, a former U.S. congressman who heads the Managed Funds Association (MFA), said the lock-up of Lehman assets threatens British prime brokerage businesses and "will exacerbate systemic risks if not handled properly."
He made the plea in a letter dated Oct. 13, sent to the British central bank’s governor on the eve of a meeting between the administrators of Lehman Brothers International (Europe) (LBIE) and UK regulators.
Baker also said the current process is adding more uncertainty to global markets and that expediting the return of assets will give the market "a much needed boost of liquidity and confidence."
Forbes – In light of the higher risks which are sweeping global markets, Finvest Asset Management is set to launch a new capital protected offering for investors who are seeking to generate annual returns of between 12-20 percent in a low risk structure.
The total offering is for $500 million and is open to non-U.S. investors only. It is anticipated, based on early interest in the product, that the product will be oversubscribed. The capital protected investment vehicle will be protected by a AAA institution which will not have any association with an investment bank or exposure to sub-prime which has been a crippling factor to global markets, and an issue of concern through the current credit crunch crisis. In an environment where cash is king, and several high profile hedge funds have experienced blow outs, this capital protected product offers investors an alternative possibility of security and the ability to earn above average risk adjusted returns.
Reuters – Hedge fund managers are facing D-day as investors demand back billions of dollars from ailing and healthy funds alike.
Funds managers around the world said they are sitting on record levels of cash to meet an expected flood of "I want my money back" notices on Sept. 30 — the end of another month of horrible industry performance and the deadline for most funds offering monthly and quarterly redemptions.
"This is not like flicking a light switch," said Timothy Mungovan, a partner who advises hedge funds at law firm Nixon Peabody LLP. "It is more like a bowling ball careening down an alley where we don’t know if it will go down the gutter or be a strike and take out several big funds."
The issue goes beyond well-paid hedge fund managers losing lucrative asset management fees: Global markets could be jolted if hedge funds are forced to dump stocks, bonds and other securities to meet redemptions.
Even industry stars such as Kenneth Griffin of Citadel Investment Group are nursing losses and the average hedge fund is down roughly 10 percent so far this year — the worst performance in more than a decade.
Reuters – Leveraged loan prices fell on Wednesday as hedge funds facing redemptions and forced to cover short equity positions sold loans, traders told Reuters Loan Pricing Corp.
Leveraged loans have declined over the past week amid a rout in global markets that has led to the bankruptcy of Lehman Brothers and a $700 billion U.S. government plan to bail out the financial sector.
The loan credit default swap index, the Markit LCDX10, traded around 93.70-to-93.90 cents on the dollar on Wednesday, down about a point from Tuesday’s close. It hit a low of 93.60-to-93.80 cents on the dollar earlier in the day.
TXU Corp’s leveraged buyout loan was among several that traded down. Its term loan B2 fell to 86.75-to-87.25 cents on the dollar from 87-to-87.5 cents on the dollar on Tuesday afternoon.
