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.
Bloomberg – HSBC Holdings Plc, Europe’s largest bank, is facing lawsuits in Ireland by investors faulting the lender for how it performed as custodian for money lost in Bernard Madoff’s $65 billion Ponzi scheme.
A Dublin court may rule tomorrow on whether investors must wait to pursue claims against HSBC until suits by mutual funds that used the bank as a custodian are resolved. Two Irish funds suspended redemptions due to exposure to Madoff.
Custodian banks, especially those serving European Union- regulated funds that are typically low risk, face scrutiny as the European Commission seeks to increase their responsibilities after the Madoff scandal. Investors in Luxembourg and Ireland, Europe’s biggest and third-largest mutual fund markets, have sued custodians, asking courts to break legal ground by ordering them to repay billions of dollars lost in Madoff’s fraud.
Forbes – Earlier in the decade, the mutual fund world was rocked by a market-timing scandal. Mutual fund companies allowed certain deep-pocketed hedge funds to trade in and out of their portfolios to take advantage of pricing imbalances caused by markets opening and closing in different time zones, as well as redemptions, fund share sales and other things. The market timing was halted and investigated, with some of the worst actors prosecuted, as it was done at the expense of retail investors.
Now we have “high-frequency trading,” a catch-all term for firms that use computers and algorithms to execute trades in a millionth of a second, seeking gains in fractions of pennies or, at the very least getting the best execution before slower market movers can get an order filled.
Reuters – The value of Japanese retail- targeted mutual funds rose for the seventh consecutive month to $650 billion in August due to strong inflows into stock and bond funds, an industry body said on Friday.
Gains in share prices, with the benchmark Nikkei share average .N225 advancing 1.3 percent in August, helped push up the overall value, but the strength of the yen limited the climb.
BusinessWeek – Convertible and equity arbitrage strategies have the winning performance among hedge funds so far this year. Latin American stock funds lead the way for mutual funds.
The Standard & Poor’s 500-stock index returned 15% year to date through Aug. 31. For the same period, the Dow Jones industrial average was up 10.8%, the Russel 2000 +15.8%, the Nasdaq Composite +28.3%, the MSCI EAFE +21.1%, and the MSCI Emerging Markets index +50.5%.
Bloomberg – JPMorgan Chase & Co., the second- biggest U.S. bank, created a group to help fund managers broaden their trading and assure investors that assets won’t be tied up by a brokerage failure like the one that felled Lehman Brothers Holdings Inc.
The team also will help mutual funds get access to hedge fund services such as financing, Michael Minikes, chief executive officer of JPMorgan Clearing Corp., the bank’s U.S. broker-dealer, said in an interview yesterday. The group will draw on resources of the New York-based bank’s prime brokerage and securities services units, he said.
Reuters – The value of Japanese retail-targeted mutual funds rose to a 10-month high of 58.8 trillion yen ($613 billion) in July, lifted by inflows into international equities funds and strength in share prices, an industry body said on Thursday.
It was the sixth straight month of increases in the value of publicly placed investment trust funds, or "toshins", as signs of a global economic recovery boost investor confidence. The value was also helped by rises in share prices, with the benchmark Nikkei share average .N225 gaining 4 percent in July.
The overall value of publicly placed investment trust funds rose by 1.7 trillion yen or 3 percent from the previous month to 58.8 trillion yen in July, the highest since September, Japan’s Investment Trusts Association said.
Reuters UK – A draft European Union law that will require hedge fund managers to be authorised needs refining to cover other types of alternative investments better, a senior MEP said on Tuesday.
The Alternative Investment Fund Managers law is before the European Parliament and EU states for adoption, but is already subject to heated debate.
It covers many types of investments that do not come under the EU’s long-standing mutual funds framework known as UCITS.
Stamford Advocate – With a new regulatory regime hanging over the industry’s head and a field of shellshocked investors looking for safety, it may seem that hedge fund managers are poised to make a rush into the mutual fund arena.
But there’s a disagreement over how many hedge fund managers will follow AQR Capital Management LLC of Greenwich and others into mutual funds.
Ben Alpert, a hedge fund analyst at Morningstar Inc., said he expects the move will be significant. But David Kabiller, founding principal and head of client strategies for AQR Capital Management, said he wouldn’t bet it will be very big.
Greenwich Time – With a new regulatory regime hanging over the industry’s head and a field of shellshocked investors looking for safety, it may seem that hedge fund managers are poised to make a rush into the mutual fund arena.
But there’s a disagreement over how many hedge fund managers will follow AQR Capital Management LLC of Greenwich and others into mutual funds.
Ben Alpert, a hedge fund analyst at Morningstar Inc., said he expects the move will be significant. But David Kabiller, founding principal and head of client strategies for AQR Capital Management, said he wouldn’t bet it will be very big.
Morningstar – A new breed of clone funds seeks to capture "alternative beta." It wasn’t long ago that hedge funds were on the very cutting edge of finance. Their pitch was simple: they could deliver pure alpha , rather than the heavy doses of beta being dished up by long-only mutual funds. The rub was that you’d have to pay dearly for that elusive component, and to get it, managers would often have to operate in inefficient markets where liquidity and capacity were scarce. Now that some of the mystique has left the asset class, a new concept has made its way to the investing frontier: hedge fund replication.
UPDATE: HedgeCo.net (West Palm Beach) – Najy N. Nasser, Chief Investment Officer of the Bahamas/UK based hedge funds, Headstart Advisers Limited (HAL) and Headstart Fund, has agreed with the SEC to pay $17.8 million in a settlement regarding a 2003 alleged late trading scheme.
Without admitting or denying the allegations, the civil settlement includes payments of $17 million by the defunct Headstart Fund Ltd (domiciled in the Bahamas), $200,000 by Headstart Advisers Ltd and $600,000 by Mr Najy Nasser, the Chief Investment Officer. This settlement will conclude the case brought by the SEC against Headstart Fund Ltd, Headstart Advisers Ltd and Mr Najy Nasser arising from Headstart’s historic market-timing strategy.
The Commission’s Complaint alleged that the Bahamas hedge fund, Headstart, acting through its United Kingdom investment adviser, HAL, engaged in fraudulent late trading and deceptive market timing of U.S. mutual funds through accounts at U.S. broker-dealers. Headstart has since September 2003 focused its business on other successful strategies.
Nasser said in response to the settlement, “Headstart is very pleased to have reached a settlement. We responded to US concerns about market timing and immediately ceased this element of Headstart’s business in September 2003. We have since worked hard to build up Headstart’s funds using different strategies. As we equalled or bettered our overall returns against our benchmark, we are especially pleased with what we have achieved.
"We have superb long-term performance against both the market and our peer group and have some interesting plans to grow Headstart’s investment business,” he concluded.
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Houston Chronicle – A London-based hedge fund manager and its chief investment officer have agreed to a nearly $18 million settlement resolving U.S. regulators’ allegations that one of its funds defrauded U.S. mutual funds and investors through trading practices such as market-timing.
The Securities and Exchange Commission and Headstart Advisers Ltd. on Monday separately announced a settlement in which the firm neither admitted nor denied allegations covering the period September 1998 through September 2003.
Headstart Fund Ltd., a hedge fund that had been incorporated in the Bahamas and is now defunct, will pay a $17 million penalty to resolve a complaint the SEC brought in April 2008. London-based Headstart Advisers will pay an additional $200,000, and Chief Investment Officer Najy N. Nasser will pay $600,000. The firm and Nasser are also barred from future violations of antifraud provisions of U.S. securities laws.
