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.
Reuters – Even hedge-fund managers with portfolio gains are in trouble this year.
Dozens of managers who are outperforming the market and their troubled rivals with gains of as little as a few percent or as much as nearly 100 percent are facing a surge of withdrawals as investors try to exit during the worst bear market since the Great Depression.
Connective Capital, a Palo Alto, California-based hedge fund, treated investors in its short strategy to an eye-popping 85 percent gain this year as its benchmark Nasdaq Index slumped 42 percent. Still, clients asked manager Robert Romero to return roughly 20 percent of their capital.
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.
Bloomberg – The financial crisis is imposing heavy burdens on the hedge-fund industry, and the strain has become more visible. By the end of last week, about 100 hedge funds imposed restrictions on withdrawals. Many funds have become financial roach motels: Investors can put their money in, but they can’t get it out.
Deregulation has taken a lot of blame for this financial crisis, but an interesting footnote is that the lightly regulated hedge-fund industry has stayed healthy enough to avoid the bailout game.
But are rising redemptions a sign that hedge funds may need a handout, too?
It’s small wonder that some funds have decided to put the brakes on. Morgan Stanley estimates that redemption requests are running at 15 percent to 30 percent of total hedge-fund assets.
Seeking Alpha – "In my view they didn’t do what they set out to do … which was to hedge. I saw a few hedge funds that did much worse than my long-only fund, which is rather ironic," [Veritas Asset Management manager Ezra Sun] said.
The losses have disappointed many investors who had expected positive returns in all market conditions, and hefty withdrawals of somewhere between a fifth and a third of the industry are widely expected at the end of the year. There was the risk people could perceive hedge funds as a "rip-off" because they had been charging high rates on the implicit promise they could deliver absolute returns, but did not deliver when global markets collapsed.
New York Times – Hedge funds are facing many agonies. They are tortured by redemptions. Then there are “high water marks,” another now-troublesome part of their model. They need to fix such flaws if they are to fight another day.
The list of funds blocking investors from withdrawing their money is growing daily. Tudor Investment, the Fortress Investment Group and dozens of others have done so, at least temporarily. The rationale is to protect the fund’s remaining investors, who can be harmed if the fund needs to deplete its cash balance or sell assets at fire-sale prices.
Reuters – Hedge fund manager John Paulson told investors that he made money again in November, leaving his biggest funds with double-digit gains for the year at a time many prominent rivals are nursing heavy losses.
Paulson’s roughly $5 billion Advantage Ltd fund gained 2.04 percent in November and is now up roughly 21 percent since January, according to an investor.
His roughly $10 billion Advantage Plus Ltd fund rose 3.19 percent in November and is now up 33.52 percent year-to-date.
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.
Forbes – Fortress Investment Group pulled up the portcullis on its Drawbridge funds Wednesday, but it’s stock is under seige.
Fortress Investment Group‘s directors voted to temporarily suspend pending redemptionsafter investors asked to pull out roughly $3.5 billion by year’s end from its Drawbridge funds, nearly as much as the vehicles have in assets.
Reuters – Ramius Capital, an activist hedge fund, is informing its investors that it will close four funds with a combined $550 million in assets, the Wall Street Journal said, citing people familiar with the fund.
The assets of the four funds are focused in convertible bonds, distressed credit and securities of merging companies, the paper said.
Ramius’ biggest fund, the $2.1 billion multistrategy Ramius Fund, could shrink by about $500 million or more if investors stick with plans to pull out money, the paper said citing people familiar with the fund.
"Going forward, these strategies will continue to be important allocations in our multistrategy funds and will continue to be managed by the same portfolio teams," a spokesman for Ramius told the paper.
Bloomberg – Artradis Fund Management Pte, RAB Capital Plc’s Northwest unit and Cannizaro (Hong Kong) Ltd. are cutting fees and locking up investors’ money for longer in new hedge funds that will buy bonds after prices fell in Asia.
Merrill Lynch & Co.’s prime brokerage unit has been approached by at least eight money managers about starting such funds in Asia to buy beaten-up fixed-income securities such as convertible bonds, said Eddie Guillemette, the firm’s regional co-head of global markets financing and services. Some of the hedge fund managers are offering to reduce management and performance-based fees by as much as 50 percent, he said.
FT Alphaville – Centaurus Capital is running down its flagship hedge fund after investors with the London activist failed to back an emergency restructuring. Centaurus, founded by former BNP Paribas traders Bernard Oppetit and Randy Freeman, will now repay the bulk of investors in the $1.2bn Centaurus Alpha fund, with only a handful expected to remain.
The failure to persuade half the investors to lock up their money until June, in return for lower fees, is a surprise as others – including the flagship funds of RAB Capital and Henderson – have won investor backing for similar proposals.
Time – Here’s one upside to a down market: a number of historically prominent mutual funds that long ago shut their doors to new investors are reopening.
It’s been years since anyone without an existing account could put money into some of the best-known names in the business, like Sequoia Fund, Dodge & Cox Stock, Longleaf Partners, Fidelity Magellan, Artisan Mid Cap Value, Oakmark Equityand Income, Vanguard International Explorer and Third Avenue Small-Cap Value.
