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 HK – Share prices were sharply lower at mid-morning, with the key index briefly slipping below the 12,000 level, on global recession fears and worries about hedge fund redemptions.
Dealers noted concerns that the Japanese yen’s surge against the US dollar will force more unwinding of positions by some funds as they seek to repay yen-denominated loans.
China banks were sharply lower after China Construction Bank (CCB) and Industrial and Commercial Bank of China (ICBC) reported disappointing third-quarter results.
Commodity firms slumped on ongoing worries that a global economic downturn will reduce demand for energy and raw materials.
Commodity Online – Steep performance losses and record investor capital redemptions reduced the size of the hedge fund industry by $210 billion in 3Q08. This represents the largest historical quarterly decline in assets, according to data released the other day by Hedge Fund Research, (HFR), a leading source of hedge fund information and performance data.
Analysis compiled using HFR Database shows investors withdrew over $31 billion in third quarter, the largest net capital redemption in the industry’s history. At the end of the third quarter, total industry capital stood at $1.72 trillion, down from $1.93 trillion at the end of second quarter..
The third quarter withdrawals entirely offset the capital inflows into hedge funds during the first half of the year, bringing year-to-date net capital flows to a decline of $2.5 billion. The decline in industry assets also exceeds the entire amount of investor capital inflow from 2007, which was a record $194 billion.
RK Capital Management LLP, the metals hedge-fund firm co-founded by Michael Farmer, lost as much as 30 percent last month amid falling copper and aluminum prices, according to an investor with the firm.
The declines cut the combined returns of the firm’s five funds to about 2 percent this year, said the investor, who asked not to be identified because the information is private. Red Kite Metals, the company’s biggest fund, dropped about 40 percent, bringing this year’s loss to as much as 7 percent.
The London Metal Exchange Index of six industrial metals fell 6.6 percent last month and is down 3.6 percent in 2008 as the slowing global economy cut demand for materials such as lead and zinc. Ospraie Management LLC, the New York-based commodity hedge-fund firm run by Dwight Anderson, said last week it will shut down its biggest fund after it lost 39 percent this year.
Reuters UK – Hedge funds are likely to increase short exposure to retail stocks following a ban on short selling financial shares imposed by UK and U.S. regulators, industry insiders said on Friday.
Equity long/short and market neutral hedge funds will be among those most affected by the ban as short selling — betting the price of a share will fall — is a key component of their investment strategies.
Shorting financial stocks has been a popular trade among hedge funds this year, but now they will be forced to switch their attention to other sectors.
John Godden, of hedge fund consultant IGS Group, said: "Commodity and infrastructure providers are continuing to be strong and showing signs of growth going forward. Some service industries are likely to be pretty heavily hit by a slowdown so from a market neutral perspective, there’s your long and short sectors."
Reuters – The commodity half of oil tycoon T. Boone Pickens’s BP Capital hedge fund lost 35 percent of its value in July, the New York Post said, citing sources.
The fund is believed to be down about 10 percent for the year, the paper said.
A Pickens spokeswoman told the paper that commodity-fund investors were informed that the steep decline in natural gas and oil prices has had an adverse impact on its performance.
"We continue to analyze the market and adjust accordingly," the spokeswoman was quoted as saying.
Irish Independant – The fund manager who predicted that the credit crunch would rip a hole through the banking sector has been rewarded with £28m (€35m) in pay and bonuses.
Crispin Odey trousered the bulk of the profits made by his Odey Asset Management Group after a hugely successful year with profits soaring from £16m to £55m. Mr Odey, 49, the founder, paid himself £28m. His 11 partners shared the other £27m.
The performance was driven by the flagship hedge fund Odey European Inc, which generated returns of 55 per cent, and is up 15 per cent in the first half of 2008. Launched in 1992, it is one of the longest established hedge funds in Europe, delivering an annual average return of 14.2 per cent.
The fund made millions from the risky practice of going short on bank stocks – selling shares not already owned in the hope they can be bought back at a lower price later. David Stewart, chief executive officer for Odey Asset Management, said: "We went short of banks and financials because we expected them to have a difficult time. We were long of agricultural and other commodity companies which did well and helped to boost overall performance."
Financial Times- Coal prices have doubled over the past year to record levels and could spike even higher as a power crisis in China combines with supply problems in leading exporting countries to tighten the market further.
The surge in prices coincides with fresh interest from hedge funds and other investors looking to gain exposure to the commodity thanks to greater liquidity in the previously opaque over-the-counter coal market.
"Coal has the strongest fundamentals of any commodity play," says Adam Knight, co-head of commodities at Credit Suisse.
Daily Telegraph- The chief executive of the sugar refining group Tate & Lyle has hit out at hedge funds and other commodity speculators, calling for them to face greater regulation in a bid to hold back soaring food prices.
Hedge funds have been blamed for contributing to the rocketing price of commodities including oil, wheat and corn by speculating in the futures market with highly leveraged bets on forward prices.
Tate & Lyle boss Iain Ferguson called for limits to be placed on speculators’ involvement in the futures market and the way hedge funds and others finance their activity.
Cayman Net News- The Royal Cayman Islands Police Service (RCIPS) have arrested an unidentified 47-year-old man in connection with last month’s collapse of several Cayman-domiciled investment funds.
Detectives from the Financial Crimes Unit (FCU) arrested the man on suspicion of theft, false accounting and uttering false documents after their investigations into the collapse of four hedge funds listed under the umbrella name “Grand Island”.
In June the Cayman Islands Monetary Authority (CIMA) confirmed that the “Grand Island” funds were put into voluntary liquidation by the funds’ shareholders. Three of the four funds involved were registered with CIMA in 2006 and one other was an unregulated fund.
Police say that the funds were believed to have been worth millions of dollars, though it is still unclear how much money was lost and how many people are affected by its collapse.
However, it is widely speculated that the losses are up to $70 million dollars and the main commodity being traded was oil. Because of the nature of the three registered funds investors had to contribute at the very least US$100,000.
