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Reuters - Hedge funds around the world extended their losses last month when the average portfolio declined 1.41 percent amid fresh stock market turmoil, data released on Friday shows.
The average hedge fund lost 17.70 percent in the first 11 months of 2008, figures from Hedge Fund Research show.
These numbers mark the worst-ever returns in an industry that once wooed investors with promises of strong returns in all market conditions and whose only unprofitable year was 2002, when the HFRI index lost 1.45 percent and the S&P 500 dropped 23 percent.
Reuters UK - Hedge funds are suffering "tremendous" reputational damage because promises to make money whichever way markets move have not been fulfilled, although in the long run the industry will benefit from the shake-out, Veritas Asset Asset Management manager Ezra Sun said.
Hedge fund "cowboys" boosting returns with lots of borrowing rather than smart strategies were the main culprits for the reputational damage, with investors blaming them for charging high fees and blocking them from withdrawing their money, he said.
"The market in the past few years has been rewarding people who’ve been running basically leveraged long-only funds," Sun told Reuters in an interview.
The Associated Press - College endowments and state pension funds plowed billions of dollars into hedge funds and private-equity investments as a way to balance their stock holdings, and for a time they got supercharged returns.
Those days are over. From Harvard University to the state pension fund of California, officials are watching the value of their alternative investments shrink.
So far, the losses are mostly on paper, but analysts say they could eventually lead to reduced payouts to retirees, higher taxes so state governments can fulfill their promises, or less cash available for colleges to give out financial aid.
Denver Post - College endowments and state pension funds that once plowed billions of dollars into hedge funds and private-equity investments as a way to balance their stock holdings officials are watching the value of their alternative investments shrink.
So far, the losses are mostly on paper, but analysts say they could eventually lead to reduced payouts to retirees, higher taxes so state governments can fulfill their promises, or less cash available for colleges to give out as financial aid.
In recent years, endowments and pensions heaped cash into hedge funds — private investment funds that often use unconventional and risky trading strategies. They also bought into private-equity funds, which make direct investments into private companies or buy them out.
Reuters - Massachusetts’ top securities regulator on Monday charged a hedge fund manager, who promised to earn as much as 20 percent for his clients, with improperly soliciting investors.
William Galvin, the state’s secretary of the commonwealth, said Michael Regan did not check whether investors in his River Stream fund were wealthy enough to legally invest with him.
Galvin’s office also found documents that suggest most of the money clients entrusted to Regan may be lost.
Decades-old rules designed to protect less affluent investors from putting their savings into loosely regulated hedge funds require fund managers to make sure that all of their investors meet a minimum net-worth requirement.
Regan could not be reached for comment.
Investigators found River Stream client data thrown into a dumpster near an empty office where Regan said he worked.
The money manager wooed friends and social contacts with false Ivy League credentials and promises of healthy returns between 10 percent and 20 percent a year. He claimed to have an MBA in Finance from Columbia University which he did not earn, Galvin’s office said.
Bloomberg - It’s Friday, March 14, and hedge fund adviser Tim Backshall is trying to stave off panic. Backshall sits in the Walnut Creek, California, office of his firm, Credit Derivatives Research LLC, at a U-shaped desk dominated by five computer monitors.
Bear Stearns Cos. shares have plunged 50 percent since trading began today, and his fund manager clients, some of whom have their cash and other accounts at Bear, worry that the bank is on the verge of bankruptcy. They’re unsure whether they should protect their assets by purchasing credit-default swaps, a type of insurance that’s supposed to pay them face value if Bear’s debt goes under.
Backshall, 37, tells them there are two rubs: The price of the swaps is skyrocketing by the minute, and the banks selling the insurance are also at risk of collapsing. If Bear goes down, he tells them, it may take other banks with it.
“There’s always the danger the bank selling you the protection on Bear will fail,” Backshall says. If that were to happen, his clients could spend millions of dollars for worthless insurance.
Investors can’t tell whether the people selling the swaps — known as counterparties — have the money to honor their promises, Backshall says between phone calls.
“It’s clearly a combination of absolute fear and investors really not knowing,” he says.
On this day, a CDS-market meltdown doesn’t happen. In a frenzy of weekend activity, the Federal Reserve and JPMorgan Chase & Co. rescue Bear Stearns from bankruptcy — removing the need for the sellers of credit-default protection to pay up on their contracts.