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.
New York (HedgeCo.net) – Northern Trust has been named the Best Overall Hedge Fund Administrator by HFMWeek in the magazine’s inaugural U.S. Service Provider Awards. The awards recognize companies that have outperformed their peers during 2008-2009 and demonstrated financial progress, growth and genuine innovation.
“Northern Trust was recognized for the strength of its service offering and for demonstrating business momentum and product innovation during a challenging period for the hedge fund industry,” said Lucy Guest, senior publishing executive for HFMWeek.
“The importance of a Third Party Administrator is now being disseminated throughout the industry so that all funds, including start ups, are embracing the need for the service.” Joe Goldstein, Managing Partner at G&S Fund Services, said. “Prior to Madoff, start up and smaller funds were reluctant to use third party administrators even though we provided them with a higher quality of financial management at a lower cost.”
What Goldstein sees as a change in the industry is that the necessity of a hedge fund administrator is now understood by investors. “This change is contributing to the growth of the hedge fund administration business, as funds who were reluctant to use hedge fund administrators are now either turning over their financial administration to a third party, or at very least using them to review and confirm their NAV calculations.” Goldstein said.
Northern Trust has a growing hedge fund servicing business, with assets under administration of $75.5 billion as of June 30, 2009, an increase of 54 percent over the prior year. Northern Trust services nearly 300 hedge funds worldwide as of June 2009, and in the previous 12 months had provided global operations services to more than 120 new fund launches and transitions.
“We’re delighted to be recognized as best overall administrator as it validates our approach of blending innovative technology, strong process and automation with the exceptional service standards that set Northern Trust apart from our competitors,” said Matt Ward, Head of Fund Administration-North America for Northern Trust. “Ultimately this is a service business and our experienced and attentive people are the real strength of our offering.”
Cayman Net News – In a landmark decision the Cayman Islands Court of Appeal has settled various questions on the suspension of redemption. The ruling (December 12, 2008) in the Strategic Turnaround Master Partnership (based in New York) versus Culross Global case specifically defined the meaning of redemption in an investment fund context and at what point a member is actually redeemed from an investment fund.
After examining the articles of association, the Court of Appeal found redemption did not take place on the redemption date but was a process which was not completed until the member’s name was removed from the register of members and the member’s shares were available for re-issue.
Given the investment climate and the rash of redemption requests, the court’s decision is important to directors, administrators, auditors, legal advisers and other third parties involved in the determination of the rights and liabilities of investment funds and investors.
Reuters - The investment banks and global hedge funds that are the usual buyers of debt and equity in struggling Asian companies have largely fled the market, leaving the distressed asset space to home-grown investors.
Local players with the cash — and the stomach — to remain in the hunt for cheap assets find themselves with the luxuries of time, choice and pricing power.
"We’re just taking our time and doing our homework, because a lot of the traditional buyers are not in the market," said Chris Gradel, managing partner at Hong Kong-based Pacific Alliance Group, which runs $1.6 billion (1 billion pounds) in hedge funds.
Wall Street Journal - If you thought the collapse of one of the biggest leveraged buyouts in history would be devastating for merger-arbitrage hedge funds, you’d be right. But pure merger arbitragers weren’t the only hedge funds hurt.
The $41 billion buyout of Canadian telephone company BCE Inc. (BCE) has been officially nixed, sending the stock down to its lowest levels in six years. Even investors who don’t typically play merger deals have gotten hurt.
That’s because starting in mid-September, the spread between the deal price and BCE’s share price had widened considerably, thanks to what turned out to be legitimate
Motley Fool – What does the turmoil in the hedge fund world mean to most investors? Losses and more losses. Over the past few weeks, the forced deleveraging of the industry, combined with redemptions by frantic clients, has led to hundreds of billions in stock sales (redemptions in the third quarter amounted to $117.3 billion, according to a new report out by HedgeFund.Net), creating horrific declines in many stocks — but interestingly, not in all stocks.
According to an equity strategist for one of the most successful fund-of-funds outfits in the country, stock holdings among equity hedge fund managers are and have been highly concentrated. Described as "crowded longs," these most-favored stocks tanked in September and October as funds scrambled for cash. Overall, equity long-short funds are down 25% year to date, according to Hedge Fund Research, compared with a near-40% slide in the S&P 500. While hedge funds have outperformed, the showing certainly is disappointing for an industry that is supposedly hedged. The shortfall is because so many managers own the same stocks, and all rushed to sell at the same time. (There were more than 8,000 hedge funds operating at the start of 2008.)
Reuters – Belgian banking and insurance group KBC said on Monday that it will discontinue some of its hedge fund-related activities and that the move could lead to some redundancies.
KBC said it will also close its Alternative Investment Management service.
"KBC FP (Financial Products) has conducted a strategic review of operations and decided to discontinue some of its hedge fund-related activities," KBC said in a statement, adding that the remaining positions of existing investors will be managed until they reach maturity.
"This decision has already led to and could lead to further internal transfers and, where no suitable alternatives are available, to redundancies," the company said.
Reuters – Volatility spread across stock and foreign exchange markets on Tuesday as investors eyed a Federal Reserve meeting expected to cut interest rates and hint at future unorthodox monetary policies to lift the U.S. economy.
European stocks reversed early losses to put in solid gains after better-than-expected euro zone manufacturing data. The dollar firmed against the euro after earlier hitting a two-month low.
Oil was trading below $45 but was supported by expectations that OPEC will agree its largest supply cut ever later in the week.
The Fed is widely expected to cut interest rates to just 0.5 percent or lower. Futures markets are setting a two-thirds possibility of a 75 basis points cut to 0.25 percent.
Detroit Free Press – In our view, incessant selling is coming from the liquidation of hedge funds, and it is the new element in the securities markets that no one has experienced before.
This new source of selling has added to the normal amount of selling pressure generated by pessimistic investors, and in a confusing way. Hard information is tough to come by, but a better understanding can be achieved by arranging what we know.
In round numbers, the hedge fund industry peaked at some $1.6 trillion in assets. By the nature of the beast, that asset base is composed of trading strategies using stocks, bonds, options, futures, credit default swaps, you name it.
The funds are also leveraged 1.4 times as an industry average. So, $1.6 trillion becomes $2.25 trillion on a working basis. It is also to be noted that for every position in a trade, someone is on the other side of it. By definition, then, one part of the trade is right, and the other is wrong.
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.
Gold Seek – Risk has quickly regained its status as a four-letter word.
No one wants to hear about it and no one wants to think about it. But those willing to take it on (pragmatically, mind you) will likely earn greater rewards than they would have at any other point in the past twenty years.
Right now, the herd is absolutely afraid of any risk at all…even good risks. My case in point is when the bond market went upside-down again yesterday. Investors were buying up the “safest” assets in the world as fast as they could.
At one point in the day, T-bills were yielding less than zero. Essentially, someone was willing to lend the government money for nothing, absolutely zero, in return.
It’s like selling dollar bills for 99 cents. It just doesn’t make any sense, but it does prove one thing; practically no one is willing to take on any risk right now. No one knows what’s going to happen next and the sidelines are a cozy, warm, and safe place to be. I can hear the beaten down hedge fund managers (that still has a job) now, “I may not get ahead, but I’m not going to fall behind either.”
SF Gate – There probably won’t be many tears for Larkspur’s Copper River Management LLC. The $1 billion hedge fund’s partiality to short selling earned it obloquy, lawsuits and, ultimately, death.
No trace of company personnel could be found for comment Wednesday, after the Wall Street Journal reported that the fund is "liquidating and returning funds to investors." The only sign of life was a forlorn logo on the company’s Web site. The cause of demise? Some observers predicted it after the company, formerly known as Rocker Partners, got caught on the wrong side of derivative trades with the going-bankrupt Lehman Bros. Others pronounced the patient terminal when the feds banned short selling of financial stocks in September.
Forbes – A group of Dillard’s Inc. investors is asking the family that controls most shares in the department store chain for corporate records containing information on family and business relationships and perks given to directors or executives of the department store chain.
The request was detailed in a filing with the Securities and Exchange Commission and comes as softening consumer spending has many retailers, including Dillard’s, posting weak sales ahead of the crucial holiday season.
