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.
Wall Street Journal – Jeffrey Gendell’s new hedge fund returned more than 25% during its first quarter, as bets on energy and a steady economic recovery paid off, according to a letter the manager sent recently to investors.
Gendell, who suffered big losses last year and is still winding down some old hedge funds, also criticized some of President Barack Obama’s policies and argued that political ”gridlock” could help equity markets in 2010.
The manager opened the new Tontine Total Return Fund in April after some of Tontine’s other funds lost more than 60% last year. The new fund, which focuses on more liquid, or easily tradable, securities, returned 25.3% in its first quarter after management fees, Gendell said in a July 20 letter to investors.
CNN Money – Hedge fund firm Och-Ziff Capital Management Group reported a wider second-quarter net loss Tuesday and lower-than-expected distributable earnings, a number analysts look at closely.
The New York-based firm, one of only a small number of publicly traded hedge fund firms, said its net loss grew to $88.3 million, or $1.15 per diluted Class A share because it earned less in management fees as assets under management shrunk. A year ago, Och-Ziff earned $60.8 million, or 82 cents per share.
NASDAQ – Hedge funds’ traditional "2 and 20" fee structure is being eroded by demanding investors who want a better deal.
According to a survey by research firm Preqin released Wednesday, the average hedge fund collects 1.63% for management fees and 17.21% on any performance gains. The industry has long been know for the 2% management fees and 20% performance fees it charges.
"Fees which for years have conformed to the industry standard of "2 and 20" are now being driven down as investors become more powerful in the manager/ client relationship," Preqin said in the report.
Reuters – Many of Switzerland’s smaller fund of hedge funds providers could be forced to consolidate in order to cover increasingly onerous expenses if they are unable to attract significant assets, a Swiss academic said on Monday.
The small average size of Swiss funds of funds produced low income from management fees, making it more difficult for funds to achieve economies of scale, Peter Meier, head of the centre for alternative investments and risk management at the Zurich University of Applied Science, said in a presentation in Zurich. "I’m sure there are many funds around which no longer have the asset base to cover their costs. Some will need to attract more assets to survive," Meier told Reuters after the presentation on Swiss fund of hedge funds.
Stuff – Some of the biggest fund-of-fund investors expect hedge funds to lower management fees and introduce terms that let shareholders eventually claw back performance fees,
The traditional take-it-or-leave-it stance in the hedge fund world is wobbling. Investors are demanding better terms from managers after hedge funds worldwide lost an average of 19 percent last year.
Institutions and affluent families withdrew record amounts from funds last year even as a number of funds imposed bans on redemptions at the end of 2008.
Bloomberg – Like plenty of financial players, hedge funds are taking a beating.
Many once-high-flying managers have been swamped by losses. Others have abandoned the business after discovering it wasn’t such an easy path to riches. Even some of the biggest firms — Citadel Investment Group LLC, D.E. Shaw Group and Tudor Investment Corp., among others — have had to block investors from withdrawing money.
This is great news for, well, hedge funds and their investors.
The retrenchment might force hedge funds, lightly regulated investment pools, to rediscover what they once were — small, guerrilla investors focused on returns, not artery-clogging management fees.
Money Management Letter – The Utah Retirement Systems has proposed that hedge funds’ management fees cover operating expenses only, that performance fees be paid either at the end of a lockup period or placed on a deferred schedule, and that managers should meet the transparency needs of every investor.
The scheme has issued what it calls a summary of preferred hedge fund terms, a copy of which was obtained by MML’s sister publication Alternative Investment News. Spokesman Dave Anderson declined to answer any questions, saying that the document was confidential and only meant for Utah’s hedge funds.
MIGHT two-and-twenty become one-and-ten? Since 1990 the number of hedge funds has grown by 14 times to over 7,000, but abundance has not lowered prices. Funds typically still charge clients a management fee of 2% of assets and 20% of any profits above a given hurdle. Rough calculations suggest that in the boom year of 2007, hedge funds globally received $33 billion in management fees alone—roughly equivalent to the bonus pool paid by Wall Street’s securities industry.
That may now be changing. The average hedge fund lost 18% during 2008, according to Hedge Fund Research, an analysis firm. Assets fell by a quarter, reflecting both losses and client redemptions, which are expected to accelerate. To prevent fire sales, perhaps a third of funds have restricted client withdrawals. Giving clients temporary fee cuts has helped sweeten this pill.
West Palm Beach (HedgeCo.net) – In their summary of hedge fund performance for the fourth quarter and full year of 2008, Morningstar reported that 2008′s low returns wiped out the last two years gains.
Investors lost their appetite for hedge funds in 2008, Morningstar says, as the vehicles intended to deliver absolute returns were forced to resort to relative claims of success.
"In 2008, hedge fund managers generally failed to deliver," said Morningstar Hedge Fund Analyst Nadia Papagiannis. "The average hedge fund may have lost less than the stock market, thanks in part to large cash allocations, but this level of performance was not why investors agreed to pay 2% management fees and 20% performance fees."
Hedge fund inflows peaked in June 2007 and bottomed in October 2008, when more than $21 billion left the industry. In November 2008, another $19.4 billion flowed out of hedge funds, setting the year-to-date outflows at more than $44 billion.
The number of funds dropping out of Morningstar`s database increased more than 150% in 2008 from 2007—1,158 single-manager funds and 490 funds of funds were removed in 2008 compared to 434 single-manager funds and 208 funds of funds in 2007. (Funds are removed from Morningstar’s database if the fund liquidates, if the manager wishes to stop reporting returns, or if funds fail to report returns for six months.)
Emerging market equities proved to be the worst strategy in 2008, along with convertible arbitrage funds, which took a big hit in 2008.
The best-performing strategy this year was global trend following, a systematic strategy that tracks price trends in liquid derivatives such as futures, options, and currency forwards.
Morningstar has approximately 8,400 hedge funds and funds of hedge funds in its database.
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BloggingStocks – Over the past few weeks you probably saw signs in retail stores touting "big sales" with discounts of 50% to 70& off. It seems that Wall Street has caught on to main street’s way of doing business – discounts, discounts, discounts!
The Renaissance Technologies LLC, a large hedge fund, has waived all of its management fees for 2009. Originally it charged a 1% fixed management fee, but with the new policy it will take a $30 million dollar haircut. However, the other larger Simon’s Renaissance Institutional Equities Fund will not cut its management fee in 2009. Other funds are using similar practices. The Citadel Investment Group LLC gave back about $300 million dollars in fees it collected in 2008.
Renaissance, like many other hedge funds, suffered losses in 2008 ranging from 12% to 16% but managed to beat the S & P losses by 4-6%.
West Palm Beach (HedgeCo.net) – Renaissance Institutional Futures, a $3 billion futures fund run by hedge fund management company, Renaissance Technologies, has waived all it’s management fees for 2009, even if the fund delivers good results in 2009, according to the Wall Street Journal.
Renaissance told investors in a end-of-year letter that the futures fund was waiving it’s 1% fixed management fee following poor performance in 2008. The discount is estimated by the Journal to save investors $30 million.
Renaissance Technologies was started in 1982 by James Simons, Renaissance currently has approximately $20 billion in assets under management. The company operates in East Setauket, Long Island, New York, near Stony Brook University. Administrative functions are handled out of offices in Manhattan.
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