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Chicago Tribune – Citadel Investment Group is covering "a substantial portion" of its operating expenses this year, a break from passing those costs on to clients, Katie Spring, a spokeswoman for the Chicago-based hedge fund, said Thursday.
"We felt it was the right thing to do." Spring said, citing Citadel’s "long-standing relationship with our investors."
Citadel declined to specify how much of the costs it would absorb, but estimates range from $200 million to $300 million. When management fees were high relative to returns in 2005, Citadel founder Ken Griffin reimbursed investors. The hedge fund will again start charging its standard fees in January.
Citadel’s two largest funds have suffered losses of almost 50 percent through November. Assets under management total around $13 billion and clients have requested about $1 billion worth of redemptions. Hedge funds typically finance operations by taking 2 percent of assets, then retaining 20 percent of profits to pay employee performance bonuses. Citadel bills investors for expenses, which can represent as much as 8 percent of assets, and keeps 20 percent of profits. Among expenses charged to investors are annual bonuses to Citadel employees, according to people familiar with the hedge fund.
New York Times Blogs – After pouring money into Barack Obama’s campaign, what can hedge funds and their executives expect from the new president?
If history is any exmaple, says FINAlternatives, they shouldn’t expect a cuddly relationship.
Mr. Obama didn’t appear sympathetic to the industry on the campaign trail, the publication noted, calling John McCain the candidate of “Joe the Hedge Fund Manager,” a riff on McCain’s pledge to serve the “Joe the Plumbers” of the U.S.
And during his time in the Senate, FINAlternatives noted, Mr. Obama sponsored a bill that would have required hedge fund managers to set up anti-money laundering programs supervised by the Treasury Department. (The Treasury abandoned a similar proposal last week).
The president-elect has also backed tax proposals that increase the burden on hedge funds and private equity shops, the publication said.
Seeking Alpha – Sailors out there will know that boats can sail down with the wind - like a leaf being blown across the water – or into the wind at an angle, zigzagging back and forth along the way. Sailing downwind is easier and since it offers a direct path from A to B, and is therefore faster. Zigzagging directly upwind, on the other hand, requires more skill and is much slower. But who would want a boat that could only sail along with the direction of the wind? This is where sailing can offer a useful lesson for hedge fund investors.
Since the beginning of the last bull market, questions have been raised about the high correlation between hedge funds and equity markets. Arguably, this relationship gave birth to the field of hedge fund “replication” (a field that now involves a wide variety of “alternative” betas as well).
But all along, hedge funds have said that when markets rise, why shouldn’t they try to capture all this upside – and then some? The value in alternative investments comes not necessarily from their consistent absolute outperformance, but in the option-like behaviour of their returns. In other words, your “2 and 20″ buys you a market put. Long-only managers, hedgies are apt to say, simply don’t have the ability to make dramatic adjustments to net exposure in response to market gyrations.
