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guardian.co.uk - Hedge fund investors may face an expensive tug-of-war with managers, according to a new research paper that suggests they could lose as much as 15 percent of their initial investments should they be unable to exit when they want.
Hedge fund investors have rarely been allowed to pull their cash out immediately, but now they are sometimes being told that they may not be able to pull it out at all as the industry faces its worst-ever returns.
Dozens of prominent hedge funds, including Fortress Investment Group LLC and Tudor Investment Corp, have recently restricted redemptions in some of their portfolios.
This trend is not only aggravating but also extremely pricey, Nicolas Bollen, a professor at Vanderbilt University’s Owen Graduate School of Management, said in an interview.
Reuters UK - Hedge fund investors may face an expensive tug-of-war with managers, according to a new research paper that suggests they could lose as much as 15 percent of their initial investments should they be unable to exit when they want.
Hedge fund investors have rarely been allowed to pull their cash out immediately, but now they are sometimes being told that they may not be able to pull it out at all as the industry faces its worst-ever returns.
Dozens of prominent hedge funds, including Fortress Investment Group and Tudor Investment, have recently restricted redemptions in some of their portfolios.
West Palm Beach (HedgeCo.net) - The Opalesque South Africa Roundtable was held November 10th 2008 in their Cape Town Office. There, the participants also discussed the particularities of investing in Africa (ex-South Africa).
South Africa’s equity and fixed income markets displayed exemplary robustness during 2008. Many global allocators may not be aware that the South African financial market infrastructure matches or exceeds its "first world" counterparts in many respects.
The equity and fixed income markets demonstrated exemplary robustness throughout the turbulences of 2008: no short-selling ban, no trading halt and no failed trades. Offshore investors can benefit from efficient and proven ways to get pure South African alpha without taking currency risk.
During the Roundtable, portfolio managers explained new ways to construct hedges, and informed on new and upcoming products. How global investors can benefit from the "Africa story", which is probably the largest opportunity set in the new investment paradigm called "frontier investing"? How do you deal with restricted liquidity, and is Africa really uncorrelated?
The following experts participated in the Opalesque South Africa Roundtable: James Gubb, Founding Partner of Clear Horizon Capital St. John Bungey, Partner, Praesidium Capital Management James Addo, Portfolio Manager, Finch Asset Management Simone Lowe, Portfolio Manager, Thames River Capital Andy Pfaff, Founding Partner of Trendline Funds Ian Hamilton, Founder, IDS Group Ryan Proudfoot, Co-Head RMB Prime Broking Warren Chapman, Head of Peregrine Prime Broking Kevin Ewer, Portfolio Manager, Blue Ink Investments.
South African hedge fund managers and hedge fund investors share surprising insights. For example, - South African single strategy hedge funds offer transparency "far superior to anything anywhere else", according to investors - South African hedge funds suffered their first - and only until that point - net redemptions in October 2008, but only 2.5% of total assets - South Africa is the first country in the world that actually distinguishes between normal fund managers and hedge fund managers, with higher criteria required for hedge fund managers.
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Seeking Alpha - With the news getting worse and worse for the hedgies (e.g. Fortress, Thomas Lee, D. E. Shaw), it’s time for a rethink on hedge funds.
For hedge fund investors: You probably went into them believing that they were uncorrelated absolute return vehicles, or pure alpha. Isn’t it funny how correlations all go to 1 in times of crisis? Maybe it’s time to return to your roots and understand the role of alternative investments in your portfolio.
For hedge fund managers: The really successful ones began fifteen or twenty years ago as small, nimble, guerilla investors. Somewhere along the way the guerillas came down from the hills, got big and became the government. Maybe it’s time to return to the hills again.
Investors thought hedge funds were the panacea when the hedgies showed positive returns in the post-Tech bubble crash. Ultimi Barbarorum writes:
Last time we had a bear market, hedge fund fortunes were made. Andor Capital, William von Meuffling, Crispin Odey, Chris Hohn, even Jim Cramer when he was trading, all made out like bandits producing 20-50% returns on the short side in 2000-2002, many after having doubled their money by being long in 1999.
New York Post - The days of hedge funds operating behind a curtain may soon be over.
Bruised and bloodied by unprecedented losses, hedge-fund investors are rebelling, demanding lower fees, greater transparency and, in a growing number of cases, unfettered access to their dough.
They’re doing this through separately managed accounts (SMAs), which basically act as a portfolio for individual investors.
SMAs are common with brokerage firms but have long been shunned by hedge-fund managers.
Mike Murray of Shoreline Trading Group, which acts as a prime brokerage for small hedge funds, said he’s seeing such a spike in demand for SMAs among hedge fund investors that he expects them to double by next year.
West Palm Beach (HedgeCo.net) - Companiesandmarkets.com has released a report presenting views on the market for hedge fund investment based on a survey of 100 leading asset managers across Europe.
The report, which covers mass market, high net worth and institutional customer groups, forms part of a series looking at the market for alternative investments in Europe. Looking at the onshore hedge fund market in France, Germany, Italy, Spain and the UK, the report provides forecasts to 2012, analysing legislative developments and their implications for growth in the European hedge fund market. The report also identifies the primary client segments and appropriate marketing and distribution strategies for individual countries.
There will be strong growth in funds of hedge funds over the next year, the report states, with less demand for single hedge funds according to 65% of asset managers in Europe. Asset managers in Spain and Italy believe most strongly that the demand for funds of hedge funds will outstrip that for single hedge funds, followed by France, Germany and finally the UK.
Across the five core economies in Western Europe – France, Germany, Italy, Spain and the UK – institutional investors now dominate the market for hedge funds. On average, slightly more than two-thirds of asset managers confirmed that this group represents their biggest customer segment for hedge funds today. In Italy, mass market investors may also be put off by the price of hedge fund investment, according to 40% of asset managers there. In Spain, on the other hand, demand from mass market clients is being limited by competition from capital-protected and structured products and inadequate promotion of hedge fund products by banks and advisors.
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Because of the recent market turmoil, many hedge-fund investors have questions regarding what regulations are applicable to hedge funds, and how to withdraw their money from their hedge-fund investments if they want out. Indeed, hedge funds often present many different barriers to withdrawal, and there are essentially no regulatory prohibitions on these barriers.
Perhaps the best way to understand the regulations that apply to hedge funds is to compare them with mutual funds. Mutual funds are investment companies that are required by law to register with the U.S. Securities and Exchange Commission (SEC) and, therefore, are subject to stringent regulatory oversight. Virtually every aspect of a mutual fund’s structure and operation is subject to regulation under four federal laws, including the Securities Act of 1933, the Investment Company Act of 1940, the Securities Exchange Act of 1934 and the Investment Advisers Act. The Investment Company Act regulates the structure and operation of mutual funds and forces funds to safeguard their portfolio securities.
Reuters - Blue Mountain Capital Management LLC has temporarily halted redemptions at its largest hedge fund after clients asked to withdraw money despite its "distinguished" performance, according to a letter to its investors.
New York and London-based Blue Mountain said in the letter it had come up with a "redemption and recapitalization plan" to protect all its investors in the $3.1 billion Blue Mountain Credit Alternatives Fund.
The fund is down 2.4 percent year-to-date, the letter said, far less than the average fund which has lost 20 percent this year. Blue Mountain has a total of $5.5 billion assets under management.
The pressure on the credit fund came from some large fund-of-fund investors, "themselves facing liquidity pressures from their own investors," submitting significant redemption notices, the letter said.
"If we were to unwind or sell positions to meet current redemptions, the severe liquidation costs would be borne inequitably by the remaining investors," wrote CEO Andrew Feldstein in the letter, seen by Reuters.
He’s explaining how hedge fund investors — technically, limited partners — are only allowed to withdraw money on an quarterly or annual basis, which can result, when a fund is performing poorly, in a rush of redemptions that resembles a run on a bank.
To meet those redemption requests, a hedge fund leveraged 5 to 1 will have to sell at least $5 of investments to meet every $1 of redemptions. (And 5 to 1 is conservative; a hedge fund can, in theory, be almost infinitely leveraged.)
West Palm Beach (HedgeCo.net) - In a letter to investors, Hedge Fund manager Pentwater Capital announced that due to a number of unexpected redemption notices for year-end they have suspended redemptions and withdrawals, effective immediately.
"The entire hedge fund industry is bracing for large redemptions at year-end so as not to become forced sellers in the midst of a severe market crisis," says the Pentwater letter, "In turn, this has put additional pressure on hedge fund investors to find liquidity wherever they can, because they have to fund their own potential redemptions."
"If the Fund were to meet the year-end redemption requests we have received, the Fund would be forced to sell more of its investments into one of the worst markets since the great depression."
The fund has instead opted to create two new classes that have modified liquidity, fee and expense provisions as compared with the current classes. Investors will have the choice to transfer all or part of their investment into one or both of the new classes or remain in the existing classes.
"We will allow investors that wish to invest new capital to do so in one of these new classes and until further notice allow them to retain the benefit of their existing high water mark on any new investment. Further, investors that have already submitted a redemption notice will have a one-time option to rescind that notice, reduce the size of their redemption request, and/or choose to participate in one of our new classes."
Pentwater was not immediately available for comment.
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New York (HedgeCo.Net) - The Securities and Exchange Commission charged San Francisco-based MedCap Management & Research LLC and its principal Charles Frederick Toney, Jr. with defrauding investors via “portfolio pumping.”
“Fund investors relied on MMR and Toney to abide by their fiduciary duties and put the fund’s interests ahead of their own,” said San Francisco Regional Director of the SEC Marc J. Fagel in a press release yesterday. “Instead, Toney engaged in trading activity which hid his poor performance.”
Engaging in “portfolio pumping” in this case meant that Toney invested heavily at the quarter’s end with a thinly-traded penny stock, which in turn quadrupled the stock price and allowed him to inflate his quarterly results to investors. By doing this, the fund was able to hide what would have been a 40 percent quarterly loss for MedCap.
Instead, the scheme helped the company up its reported value by $29 million thanks to Toney’s four day buying frenzy which pushed the price of the stock from $.85 to $3.72. The fund was then able to charge higher management and performance fees that were based on the inflated numbers.
While MMR did not confirm or deny the allegations, the company has agreed to settle out of court by paying $100,000 in penalties and giving back the amount received in inflated management fees totaling over $70,000. Toney has also agreed not to act as an investment advisor for the next year.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
Stamford Advocate - A Greenwich hedge fund company is among hundreds of the risky investment entities that have closed or are projected to close this year amid volatile equity and commodity markets.
Turnberry Capital Management told investors last week that it will liquidate its fund and close its doors after most of the clients sought to withdraw their money, Reuters reported. The fund, which invests in distressed debt, once managed about $800 million.
"We intend to take a series of steps to liquidate the Fund and redeem all Fund investors at the same pace," fund manager Jeff Dobbs wrote in a letter to clients that Reuters obtained. "After Labor Day, we will commence a sell-down of the Fund’s security holdings in order to raise cash to fund redemptions."