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.
Telegraph.co.uk – The City is staring into the abyss. If the proposed EU directive on hedge funds goes through, London will go the way of Bruges, Venice and Amsterdam: a once dominant financial entrepôt sidelined by more virile cities.
This, of course, is precisely what some in the EU want. I have lost count of how often I’ve heard voices raised in Brussels against London’s “jungle capitalism”. In the eyes of many Continental politicians, the Square Mile is parasitical: a lawless free city, whose lax regulations caused the financial crisis. They deeply resent the fact that 80 per cent of managed equity and hedge funds are based in London.
Hedge Funds Review – US hedge fund managers could be subject to higher personal taxes if changes to the taxation rules included in President Barack Obama’s 2010 budget proposal are adopted.
The budget proposal includes measures to treat carried interest as ordinary income as opposed to capital gains for tax purposes. That would raise taxes on income earned from performance and incentive fees from the current rate of 15% applicable to capital gains to over 39%.
Carried interest has been a sensitive topic in Washington for many years. Some politicians have argued that hedge funds and private equity groups have used the carried interest exemption to avoid paying their fair share of taxes.
The proposed change in tax rules could have a deep impact on the earnings of hedge fund managers. The compensation structure at many hedge fund companies puts the onus on performance and incentive fees as the principal source of income for the manager.
Guardian Unlimited – European hedge funds believe capping the amount banks can lend them will be more effective in preventing systemic risks than direct regulation, but this is unlikely to satisfy politicians eager for tougher rules.
The funds are often based in far-away and loosely regulated off-shore centres, so a U.S.-style system to limit lending by prime brokers may be more effective to hem in any systemic risk from the opaque industry.
"Instead of targeting hedge funds themselves it would be more effective to target the providers of leverage," said John Donohoe, chief executive of hedge fund consultant Carne Consulting.
Bloomberg – A group of hedge funds offered to increase disclosure to head off demands from politicians on at least two continents for more transparency.
“We know which way the wind is blowing,” said Andrew Baker, chief executive of London-based Alternative Investment Management Association, the industry’s largest lobby group. “We see a lot of this as inevitable and we’d like to put ourselves in a position to say, ‘You don’t have to drag this out of us.’”
European leaders meeting in Berlin on Feb. 22 said they want to subject the $1.4 trillion industry to more regulation because hedge funds “may present a systemic risk” to world economies, according to German Chancellor Angela Merkel.
Independent – European leaders backed major reform of hedge funds yesterday as part of structural changes to help the world’s financial institutions emerge stronger from the global economic crisis.
Short-selling by the secretive hedge fund industry — selling borrowed stock in the anticipation that the prices will fall — was blamed by some politicians for exacerbating the banking crisis and economic meltdown.
A copy of the summary from the summit hosted by German Chancellor Angela Merkel in Berlin said banks should bring in reforms to ensure they build up a buffer of resources in good times and called for sanctions against tax havens.
While media-shy TCI founder Chris Hohn and others will face tough questions from the Treasury Select Committee on financial stability, short-selling and other issues, it nevertheless seems that the pro-legislation lobby’s position may be weaker than it has been in recent years.
For one thing, many hedge funds simply do not have the financial clout — and therefore carry the associated risks seen by some politicians — that they once did.
New York (HedgeCo.Net) – Barclays Bank Plc has sued Chicago-based Ritchie Capital Management and the hedge fund’s principal Thane Ritchie, accusing them of concealing a $150 million investment in the controversial and now collapsed Petters Group Worldwide LLC.
According to the complaint filed on November 18th, Thane Ritchie gave the go-ahead to invest “significant sums” from two of Petters’ hedge funds, at a time when the funds were “supposed to be winding down.”
Barclays is seeking $380 million they believed they are owed from Ritchie and 19 other related businesses.
“Barclays’ lawsuit lacks merit as a matter of law and is premised upon inaccurate and misleading factual contentions,” said Justin Meise of River Communications who handled Ritchie’s public relations. “We will vigorously defend this baseless action.”
Tom Petters, head of the now bankrupt Petters group is being held without bail in a Minnesota jail after suspicions of leading a $3 billion fraud. Although Petters is in custody, he has not yet been charged with anything.
Ritchie has claimed that they lost a total of $275 million in the Petters matter. Ritchie Structured Investments Ltd. And Ritchie Targeted Investments Ltd, the two hedge funds being targeted by Barclays, are ironically not listed on Petters’ debt schedule.
Ritchie set a precedent earlier this year when a Chicago judge denied a request by investors to open up Ritchie’s books after its Multi-Strategy Fund experienced losses.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
Bloomberg – Ritchie Capital Management and Thane Ritchie, the hedge fund manager’s principal, were sued by Barclays Bank Plc over accusations they concealed more than $150 million in investments made in the collapsed Petters Group Worldwide LLC and affiliates.
Now bankrupt, Petters Group, based in Minnetonka, Minnesota, was raided in September by FBI agents acting on information that the company may have cheated at least 20 investors. Principal Tom Petters, accused of leading a $2 billion fraud, is being held without bail in a Minnesota jail.
“Thane Ritchie made the decision to invest significant sums” from two of his firm’s hedge funds with Petters, at a time when those funds “were supposed to be winding down,” Barclays said in a complaint filed Nov. 18 in Illinois state court in Chicago.
New York (HedgeCo.Net) – Petters Group Worldwide has filed for Chapter 11 bankruptcy protection after feds launched a probe into an alleged $3 billion scam that was said to be orchestrated by the founder. The subsidiary company under investigation is Petters Co. Inc., a Minneapolis-based venture capital firm.
In a ponzi-like scheme, Tom Petters allegedly used new money brought in by investors to fund his lavish lifestyle by creating false retail transactions.
The company has not made any comments on the pending fraud case, only that filing for bankruptcy was “in the best interest” of the business and that the receiver will “assess the business and develop plans for them that best serve the interests of their creditors, employees, suppliers and customers.”
In addition to the federal probe, PCI also has big-time Chicago hedge fund Ritchie Capital Management to deal with. Ritchie has claimed that it lost $275 million as a result of the scam, and they want that money back.
However, there is some question as to whether Minnesota or Illinois should have jurisdiction regarding the Ritchie case. R.J. Zayed, the attorney representing Ritchie, wants the matter handled in Illinois court, saying, "We’re not just creditors, we’re victims of fraud."
This is the second fraud-related scheme that Ritchie Capital has found itself in the middle of as of late. The fund had recently purchased several hundred million dollars of life insurance from Coventry First, a Pennsylvania-based life insurance company. It was eventually found out that Coventry was defrauding clients out of millions of dollars by paying insurance brokers to suppress competitive bids.
Tom Petters was arrested earlier this month with charges of money laundering, wire fraud, mail fraud and obstruction of justice. He was denied bail.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
