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New York (HedgeCo.Net) – Two senators are pushing for greater regulation of hedge funds, introducing legislation that would call on the U.S. government to oversee them.
Michigan Senator Carl Levin, a Democrat, and Iowa Senator Charles Grassley, a Republican, passed the legislation on Thursday, amidst a much broader attempt by President Barack Obama to vamp up the entire regulatory system. It also comes at a time when the administration is still in talks over how to distribute the remaining $350 billion in the Troubled Asset Relief Program.
“We need to regulate firms that are big enough to destabilize our economy if they fail," said Levin. "It’s time to subject financial heavyweights like hedge funds to federal regulation and oversight to protect our investors, markets and financial system."
The overhaul of the regulatory system is intended to restore faith in an economy that has been shaken by fear. In addition to tighter regulation of hedge funds, the broader plan will include greater oversight of mortgage lenders and credit rating agencies.
Regulation of hedge funds has long been a debate in the financial world. While some push for greater transparency, hedge funds have taken the defensive, saying that they provide plenty of transparency to their clients, with performance reports and other data usually available via a secure website. However, the collapse of many major hedge funds along with the handful of fraud cases has forced the government to try again.
The closest that hedge funds have come to regulation was when they were required to register as investment advisors with the U.S. Securities and Exchange Commission. That requirement was overturned in 2006.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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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.
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.
Times Online – Hedge fund managers are spivs and speculators, directly responsible for creating carnage in the world’s financial markets and threatening the future of high street banks. At least, that’s what some argue.
But it is, emphatically, not true, according to Christopher Fawcett, the hedge fund executive who has taken on the role of de facto cheerleader for Britain’s embattled alternative investment industry.
Such criticism is misplaced, he argues. Investment banks, rather than hedge funds, were behind the surge in gearing, or leverage, that pushed markets to breaking point in the middle of last year. Hedge funds were actually more conservative and only moderately geared.
CNBC – The head of Morgan Stanley’s prime brokerage arm in Asia, Kurt Baker, has left the firm amid the slump in Asia’s hedge fund industry, a source with direct knowledge of the situation said on Wednesday. A spokesman for the U.S. bank declined to comment. But the source confirmed Baker was no longer coming into the office.
His departure comes after Morgan Stanley last week announced a further round of job cuts, including 10 percent of staff in its institutional securities unit, its main business, and 9 percent in asset management. The cuts are in addition to roughly 4,800 jobs eliminated since the middle of 2007 by what was once Wall Street’s second-largest investment bank.More than 100,000 financial services jobs have been eliminated worldwide over that time.
Morgan Co-President James Gorman said at the time the firm plans to "reshape" operations including prime brokerage, which lends securities and provides other services to hedge funds. Morgan Stanley and Goldman Sachs Group Inc were widely regarded as the two leading prime brokerages in Asia in recent years. But industry sources said hedge fund clients moved assets from the firms in the wake of Lehman Brothers Holdings Inc’s bankruptcy, which raised questions about the stability of investment banks.
Bloomberg – Brazilian hedge funds saw a record 14.3 billion reais ($6.7 billion) in withdrawals last month after returns trailed a fixed-income benchmark even while defying a 25 percent plunge in the Bovespa stock index.
The redemptions brought total outflows this year to 48.9 billion reais, shrinking the industry by 16 percent, according to data released by the National Association of Investment Banks yesterday. The rate of withdrawals is similar to hedge funds globally, even though the worst-performing Brazil funds lost a third as much on average as their overseas rivals.
Brazilian managers avoided declines even as the Bovespa plunged 43 percent this year. Investors withdrew money because they compare performance against fixed-income indexes, said Luiz Felipe Andrade, a director at the association known as Anbid. Bond yields in Brazil are among the highest in the world.
Bloomberg – Brazilian hedge funds saw a record 14.3 billion reais ($6.7 billion) in withdrawals last month after returns trailed a fixed-income benchmark even while defying a 25 percent plunge in the Bovespa stock index.
The redemptions brought total outflows this year to 48.9 billion reais, shrinking the industry by 16 percent, according to data released by the National Association of Investment Banks yesterday. The rate of withdrawals is similar to hedge funds globally, even though the worst-performing Brazil funds lost a third as much on average as their overseas rivals.
Brazilian managers avoided declines even as the Bovespa plunged 41 percent this year. Investors withdrew money because they compare performance against fixed-income indexes, said Luiz Felipe Andrade, a director at the association known as Anbid. Bond yields in Brazil are among the highest in the world.
Bloomberg – Komodo Capital Management Pte’s hedge fund outperformed rivals as Chief Investment Officer Angus Cameron employed strategies he developed during Japan’s slump in the 1990s to profit from the global financial turmoil.
The Singapore-based firm’s KC Asia Fund has gained 8.3 percent this year, Cameron said yesterday. Other macro hedge funds, which seek to profit from broad economic trends by trading currencies, bonds and stocks in the region, lost an average of 6.7 percent in the first nine months of the year, according to Eurekahedge, a Singapore-based data provider.
“We traded through Japan during the 1990s,” Cameron, 37, said in an interview. “The strategies that worked then will work now.”
Government bonds “should do well in most markets” as policy makers shift their focus to supporting growth from fighting inflation, Cameron said. Central banks from Australia to South Korea have joined a global effort to cut interest rates, following the year-long credit-market seizure that has toppled some of Wall Street’s biggest investment banks, including Lehman Brothers Holdings Inc.
Chicago Tribune – "The key change in the next decade is that policymakers around the world have chosen the winners and losers," Griffin said at a Wednesday panel. "The winners are the banking system."
By selecting commercial banks to become the centerpiece of the financial industry, the government closed the era of investment banks and hedge funds with highly leveraged balance sheets.
That should translate into safer and more conservative investing choices, but also less innovation by financiers and higher interest rates for borrowers, he predicted.
As roughly 8,000 hedge funds respond by reducing the size of their multitrillion-dollar balance sheets, their role in the system will inevitably be diminished, Griffin said.
Bloomberg – If Sherlock Holmes were analyzing the credit crunch, he would be drawing our attention to the dog that didn’t bark, just as he did in “The Hound of the Baskervilles.”
The dog, of course, would be hedge and private-equity funds.
Anyone tracking markets in recent years will remember the prediction that the unregulated, feverish trading of hedge funds, and the massive debts and complex financial engineering of buyout firms, would cause the next crash.
The crash happened, but it was started by what appeared to be safer institutions. It was the relatively dull mortgage lenders, and the investment banks that supplied their funding through the wholesale money markets, that sparked the collapse.
West Palm Beach (HedgeCo.net) – Employment offers in financial services fell by 11% in September compared to 6 months ago, according to Powerchex Limited, a pre-employment screening firm for financial institutions.
Research by Powerchex showed that Investment Banks made the biggest cutback with 52% less jobs being offered in September compared to 6 months ago. Uncertainty about the world economy heightened with the collapse of U.S investment bank Lehman Brothers, meaning that investment banks are reluctant to hire with the fear they may be the next to falter. Unemployed stockbrokers will also be worried by the news that there has been an 11% decline in the amount of jobs being offered by brokerage firms.
Despite this, investment managers saw a 22% increase in job offers as rival firms take advantage of the increasing number of financial services workers looking for a job by “snapping up the cream of the crop on much less than they would have been able to 6 months ago”, said Alexandra Kelly, Managing Director of Powerchex Limited.
Hedge fund and insurance companies also made more employment offers than 6 months ago as those companies who have been able to remain stable through the turmoil prepare to put themselves at the head of the pack to take advantage of any economic recovery.
IT contractors based at financial services firms have been the big winners with a 30% rise in job offers. Harvey Nash, whose business is predominantly IT outsourcing, this year announced a large rise in profits and strong revenue growth. The trend towards temporary workers is likely to continue as companies attempt to avoid long term commitments in the current economic climate, coupled with the fact that there are more highly skilled workers willing to take on temporary positions.
According to financial recruitment specialists Morgan McKinley, there has been a 42% rise in the number of financial services workers looking for a job in September, with this number likely to rise, those who are unable to secure permanent positions will be forced to accept temporary roles.
“The employment landscape in financial services is getting decisively more difficult, with offers being made only to the best candidates” says Kelly. “Applicants are well advised to be very candid in their CVs, as even a small discrepancy may disqualify them from a job they can ill afford to lose”. “I expect to see a rise in CV discrepancies, as the competition for financials jobs becomes more fierce”, she concludes.
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Reuters - An unprecedented cash crunch is choking the ability of banks to lend and creating an opportunity for hedge funds to launch, or ramp up corporate lending facilities.
Companies that have relied on bank borrowing to grow, or even maintain their business, are turning to hedge funds in a move that some say may signal a broad shift of lending from banks to asset managers.
"I have a very strong belief that the new investment banks will be the absolute return hedge funds and the managers of private equity," said Thomas Priore, Chief Executive at ICP Capital, an investment firm that manages $13 billion in fixed income assets, in New York.
