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West Palm Beach (HedgeCo.net) – Morningstar and Barron’s today released highlights of a recent national survey examining the perception and usage of alternative investments among institutions and financial advisors.
“Our survey found that both institutions and advisors want alternative investments that are liquid, transparent, and regulated like traditional investments,” said Steve Deutsch, director of separate accounts and collective investment trusts at Morningstar. "We conducted this survey during one of the worst market downturns in history, where traditional U.S. and international investments plummeted and almost no alternative investments provided safe haven."
"One particularly interesting survey result was that against this backdrop, the majority of both advisors and institutions still reported that they expected to increase usage of alternative investments in the future, and they believed alternative investments will continue to grow in importance versus traditional investments," Deutsch added. "Recent poor performance of alternatives has not caused advisors or institutions to question their usage."
Among the survey findings are that for institutions limited partnerships, including hedge funds, direct real estate, and private equity, are the most popular alternative vehicles for institutions.
Almost half of institutions surveyed allocate more than 10 percent of their portfolios to alternative investments, and nearly 20 percent allocate more than 25 percent of their portfolios to alternatives. Institutions generally expect their portfolio allocations to alternative investments, particularly hedge funds and private equity, to increase over the next five years. Close to a quarter (23 percent) of institutions expect to invest more than 25 percent of their portfolios into alternatives.
The survey shows that advisors are predominantly investing in alternative investments through liquid, regulated, and transparent vehicles like mutual funds and exchange-traded funds (ETFs), but they’re also employing other non-traditional investments with their clients, like oil and gas limited partnerships, non-traded Real Estate Investment Trusts (REITs), church bonds, and equipment leasing.
Among advisors who work with average individual investors, almost 80 percent use alternative investments with some clients. About 40 percent of advisors had more than half of their higher-net-worth clients in some alternative investments.
Morningstar and Barron’s conducted the Internet-based survey in October 2008; 252 institutions and 1,180 financial advisors participated. The complete survey results appear in the Nov. 10 issue of Barron’s.
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New York Post – Three board members at the embattled Dillard’s department-store chain lashed out at a pair of hedge funds that are agitating to oust the retailer’s top management.
In a rare public statement, the Dillard’s trio of independent directors rejected a call by Barington Capital and Clinton Group to fire Chief Executive Bill Dillard Jr. The hedge funds have accused Dillard and his three siblings of being "overpaid and underqualified."
The hedge funds note that the four Dillard siblings have earned more than $16 million annually for the past three years despite a steady decline in the company’s performance and stock price.
But Dillard’s directors Warren Stephens, Peter Johnson and Robert Connor countered that the CEO’s salary was "well below the median in its peer group in 2007," citing a report from Institutional Shareholder Services, a leading proxy adviser. The directors also noted that the board decided against paying out bonuses last year, based on the company’s poor performance.
New York (HedgeCo.Net) – Three Dillard’s Inc board members rejected a plea from hedge funds to have the company’s CEO, William Dillard II, booted from the chair.
Barington Capital Group LP and Clinton Group Inc. had been calling for the board to start an immediate search for a new CEO in addition to ousting other family members due to the company’s poor performance and lagging stock prices.
However, in a letter obtained by Reuters yesterday, directors Peter Johnson, Warren Stephens and Robert Connor said the current management team “has an appropriate strategy for dealing with the new environment.”
The board members also failed to side with the hedge funds on their claim that William Dillard II along with other family members make far more than the same executives at similar firms. Going a step further, they cited reports from the Institutional Shareholder Services and stated that the CEO’s salary is “far below the median in its peer group in 2007.”
The hedge funds original complaint mentioned a report by advisory Proxy Governance while claiming William Dillard II makes 54 percent above the median. The board fired back, pointing out that the peer group selected by the hedge funds “included companies in totally dissimilar industries to Dillard’s.”
Together, the hedge funds own nearly 6% of Dillard’s class A stock. The Dillard family owns nearly all of the class B stock, a move originally designed by the current CEO in order to make ceding control virtually impossible.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
New York (HedgeCo.Net) – Two hedge funds are looking to oust William Dillard II, CEO of Dillard’s Inc., after poor performance and lagging stock prices.
Barington Capital Group LP and Clinton Group Inc sent a letter to the SEC that was released yesterday, which asked the company to start to an immediate search for a new CEO.
"In our opinion, a management team with a comparable record of poor performance at any other company would have been fired long ago," the hedge funds said in the letter.
In addition to sales declining over the course of the year, Moody’s Investors Service warned last week that it may cut Dillard’s credit ratings to junk status.
The hedge funds are also looking to replace some of the other family members who work for the company, saying they are "overpaid and under-qualified for the positions they hold and can be readily replaced with more talented retailers."
The hedge funds claim that William Dillard II makes far more than other CEOs at similar companies. According to a report they cite from advisory firm Proxy Governance, William makes 54 percent above the average, while other executives at Dillard’s make 185 percent above the median.
Dillard’s, in an attempt to avoid a proxy battle with the aggressive hedge funds, agreed to place four candidates from the fund onto the Board of Directors in April.
The hedge funds own almost 6 percent of Dillard’s class A stock. Dillard’s stock is divided into two shares, a move that William made almost four decades ago to guard against takeovers.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
Hedge Funds Review Magazine – Troubled Swiss-based alternative asset management group Gottex Fund Management Holdings said assets under management (AUM) were down over $2 billion to $13.5 billion at September 30, 2008, compared with $15.6 billion at June 30, 2008. The fall represented a 13.6% decrease.
The fall was mainly caused by “negative performance in extremely challenging markets”, according to a company statement on third quarter trading. The poor performance was despite Gottex’s market neutral and directional products performing better than or in-line with the broader market indices and relevant hedge fund benchmarks.
AUM change across Gottex strategies during the quarter 2008 included declines in market neutral and directional strategies (-13.1%), asset based strategies (-15.8%), advisory mandates (-15.2%) and enhanced index strategies (-3.2%).
Bloomberg – Investors withdrew a record $43 billion from hedge funds in September as they fled distressed-securities and stock funds because of poor performance, TrimTabs Investment Research said today.
The estimated outflows were the most since TrimTabs started tracking the industry in 2000, Chief Executive Officer Charles Biderman said in an interview. Investors pulled $14.4 billion from funds focused on troubled securities and $8.4 billion from equity long-short funds, which bet on rising and falling stocks, the Sausalito, California-based company said in a statement.
“We’re told from some of our clients that most of the hedge funds have sold enough equities to cover the redemptions,” Biderman said. “There shouldn’t be more forced selling.”
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
New York (HedgeCo.Net) – New York hedge fund Elliott International’s quest to place two members of its team on the board of New Zealand-based Telecom has officially come to an end when they failed to win the bid at the annual shareholders meeting today.
Elliot had nominated Mark Tume and Mark Cross in August, after poor performance by Telecom prompted their desire to shake up the board in pursuit of higher returns.
"In our view, Telecom’s performance languishes behind that of other key telecommunications players in the international market, and we believe this is partly due to an unclear and outdated strategy. Shareholders and customers remain dissatisfied with Telecom’s progress," Portfolio Manager James Smith had said.
Elliot is well known in the states for taking over faltering companies and engaging in proxy battles with the intentions of restructuring.
In 2006, Elliot proposed that Telecom be split into two separate entities, with each company having its own listing on the stock exchange. Telecom Chairman Wayne Boyd came to his company’s defense, saying that a split was not in the best interest of the shareholders.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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Forbes – Russia’s government and central bank must act to lure additional funds into its financial market, President Dmitry Medvedev said on Thursday.
"The government and central bank should undertake all necessary measures to ensure inflows of additional funds into the financial market," Medvedev told reporters ahead of a meeting of government officials on financial markets.
"The situation on the Russian market today does not reflect the real state of the economy," he said. "Russian remains an attractive place for financial investments."
Russia’s stocks fell more than 5 percent on Wednesday to a fresh two-year low as poor performance prompted redemptions from hedge funds ahead of results, while falling oil prices weighed on future prospects.
The sell-off has seen the benchmark RTS index shed nearly half of its value since mid-March.
Reuters Singapore – Investors almost halved the money they put into Asia-focused hedge funds in the second quarter compared to the first three months of the year as a selloff in stocks hurt appetite for risky assets, data showed.
Asia-focused hedge funds received a net $530 million (268 million pounds) from investors in the April-June quarter, down from $1 billion in the first quarter, Chicago-based Hedge Fund Research said in a statement released late on Thursday.
Asian hedge funds grew by approximately $200 million to $100.48 billion, up just 0.25 percent from the first quarter, as inflows were mostly offset by a decline of nearly $320 million due to poor performance.
Reuters – Investors almost halved the money they put into Asia-focused hedge funds in the second quarter compared to the first three months of the year as a selloff in stocks hurt appetite for risky assets, data showed.
Asia-focused hedge funds received a net $530 million from investors in the April-June quarter, down from $1 billion in the first quarter, Chicago-based Hedge Fund Research said in a statement released late on Thursday.
Asian hedge funds grew by approximately $200 million to $100.48 billion, up just 0.25 percent from the first quarter, as inflows were mostly offset by a decline of nearly $320 million due to poor performance.
"Asian hedge fund investors reacted to continuing market volatility by adjusting allocations opportunistically to those regional markets that had posted sharp year-to-date losses," said Kenneth Heinz, president of Hedge Fund Research.
Reuters – Jerome Abernathy has a proposition for the world’s biggest pension funds — better returns than hedge funds without the headaches or heavy costs.
This may sound too good to be true to institutional investors, who have poured billions of dollars into the loosely regulated $2 trillion hedge fund industry in the hope of earning better returns, even as they worry about poor performance and the possibility a fund will fail.
But Abernathy, a money manager armed with electrical engineering and computer science degrees, is quietly convincing skeptics with proof that his Alternative Beta Fund delivers exactly that by investing in indexes instead of managers.
Sometimes called a "synthetic" hedge fund product or a "hedge fund replicator" — a phrase Abernathy said he dislikes because it sounds pejorative — the $250 million fund ended its first 12 months of trading in April with a 3.18 percent return after fees. That trumps the average hedge fund’s 1.78 percent return during the same period, Hedge Fund Research data show.
