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Reuters – Pension funds will likely funnel more money into hedge funds and become a powerful engine of growth for the industry in the coming months, a hedge fund industry veteran said on Wednesday.
"We are finding that corporate pension funds are looking at hedge funds for allocations for their equity exposures, said Carrie McCabe, chief executive of Lasair Capital LLC, a firm that creates portfolios of hedge funds for clients.
McCabe, who cemented her reputation in the hedge fund industry while running Blackstone Alternative Asset Management and FRM Americas, described a real urgency to pension funds’ desire to beef up their returns with hedge funds in a hurry.
The major broker-dealers have been decimated, with only Morgan Stanley and Goldman Sachs remaining independent and solvent.
There are daily fears of hedge funds facing the equivalent of a bank run, as investors scramble to withdraw their cash. Those private-equity firms, such as Blackstone and Fortress, which had entered the public markets to take their positions alongside the investment banks are now trading at massive discounts to their IPO values.
Reuters – Lasair Capital, a hedge fund industry newcomer that boasts General Electric Co as its blue-chip backer, said on Tuesday that it has hired a senior investment officer to help put $180 million to work.
Carrie McCabe, who founded Lasair as a "next generation" hedge fund firm earlier this year, told investors that Jennifer Coffey will now help select hedge funds as well as infrastructure and timber assets for clients.
"Jennifer will report directly to me and I will continue to oversee all investment decisions," McCabe, who cemented her reputation in the hedge fund industry while running Blackstone Alternative Asset Management and FRM Americas, told clients.
Reuters – Blackstone and Kohlberg Kravis Roberts & Co are each looking to buy parts of Lehman’s real estate and asset management units, sources familiar with the situation said on Friday, sparking a broad rebound in financial stocks.
The real estate unit of Lehman Brothers Holdings Inc, which includes property and some asset-backed securities, could be worth about $5 billion (2.8 billion pounds), the sources said.
Lehman shares jumped 5.3 percent after the Reuters report. That helped lift the S&P financial index , which had slipped earlier on Friday, by 1.8 percent.
"Lehman has been so shredded in terms of confidence that anything like this is something that can ignite a upward movement at any point," said Michael Holland, founder of money manager Holland & Co LLC.
New York (HedgeCo.Net) – While the U.S. Treasury has done all it can to stave off rumors of a government bailout of Fannie Mae and Freddie Mac , some say the inevitable rescue is bound to take place after attempts to raise capital for the two mortgage giants have proved futile.
Preferred shares of the two companies are trading as low as 19 cents on the dollar, fueled by assumptions that their dividends will be suspended. This belief was the reason behind Moody’s recent ratings downgrade of their preferred stock to Baa3, the lowest possible investment-grade. Meanwhile, shares of both companies have experienced month after month of sharp declines, with Freddie down 93 percent and Fannie down 89 percent since November.
Together, the two companies account for over $5 trillion of outstanding U.S. mortgages. As the number of foreclosures reached record heights thanks to defaults on mortgages by subprime borrowers, Freddie Fannie have taken a beating since last summer, writing down almost $15 billion and forcing some to believe they will not be able to weather this housing crisis without the help of Uncle Sam.
Both Freddie and Fannie make money by offering mortgage-backed security bonds to investors. By selling these bonds, they assume the risk involved in the repayment of these loans. In exchange, they get to keep a guarantee fee that investors pay upon purchasing the bonds. It is easy to see, then, how the two companies that were believed to be “too big to fail,” started to experience problems. As more and more borrowers were unable to pay their mortgages, the responsibility fell on Freddie and Fannie. As they tried to stay afloat in their sea of debt, values of their securities started to plummet.
Recent attempts to try and find investors have been unsuccessful. Hedge funds like the Carlyle Group and Blackstone both expressed interest, only to rescind until further action by Treasury Secretary Henry Paulson.
"I think it starts with the constant doom and gloom, which makes investors quick to react when there is any sign of trouble ahead, and rightfully so," explains Michael Facchini, Portfolio Manager for Chicago-based Regent Global Funds. "Right now, investors are only interested in the cream of the crop when it comes to the MBS markets."
Federal Reserve Chairman Ben Bernanke has spoken several times about increased regulation of the companies, thanks to the widespread belief that Freddie and Fannie are government-backed. While both were created by Congress in an effort to increase homeownership and profits through the sale of their mortgage backed securities, they are in no way guaranteed by government funds.
In July, the Treasury and Federal Reserve outlined a plan to save Fannie and Freddie in order to prevent any chance of a Bear Stearns-like debacle. Among the suggestions, Paulson’s plan allowed for the Treasury to purchase shares of the two companies, should it prove to be necessary. That time has come, with some estimating the government may have to purchase about $60 billion worth of preferred shares.
Shares of Fannie Mae closed on Monday at $5.19, up 4 percent, while Freddie Mac rose 17 percent to close at $3.29.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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Reuters- Private equity firm Cerberus Capital Management is starting a new fund to invest in assets it thinks have been driven down too low by the credit crisis, Chairman John Snow told Reuters on Thursday.
The decision by Cerberus to wade more heavily into the market for distressed assets follows similar moves by a growing number of its rivals, including Apollo and Blackstone.
The Cerberus fund will focus on international assets, with only a small percentage likely to be devoted to the United States, Snow said. The former U.S. Treasury Secretary declined to give a target size for the fund.
Financial Times – China’s State Administration of Foreign Exchange has agreed to invest more than $2.5bn in the latest TPG fund, in what could be the largest commitment ever made to a private equity firm, people familiar with the matter say.
The investment by the Chinese entity, known as Safe, underscores the growing inclination of sovereign wealth funds to invest through private equity firms – rather than directly – to minimise the potential political backlash to their growing activity.
It also illustrates the growing importance of sovereign wealth funds to private equity firms at a time when pension funds and non-profit endowments are cutting back their exposure to leveraged buy-out investments.
Investments in private equity firms are usually not made public, but industry executives believe the largest previous investment in a private equity firm came from pension funds in the US states of Oregon and Washington. The two funds both invested about $1bn to $1.5bn in Kohlberg Kravis Roberts.
Safe declined comment.
In recent years, a growing percentage of the money for US private equity firms has come from overseas. In 2002, for example, 25 per cent of the money that Blackstone raised came from outside the US. In 2005, it increased to 40 per cent.
China Investment Corporation, another sovereign wealth fund, has been given authority to invest a small portion of China’s $1,600bn in reserves.
