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.
Financial Times – Hedge funds cut their borrowing to almost nothing in the wake of the collapse of Lehman Brothers, according to research by the City watchdog.
Data compiled by the Financial Services Authority show that leverage fell to just 1.15 times hedge fund net assets in October, down from almost twice a year earlier.
The survey, the only authoritative data on the opaque industry, also found that hedge funds had their highest level of "dry powder", or ability to borrow, since the research started in 2005.
However, prime brokers, the bankers who service hedge funds, say borrowing has fallen even further since the survey was carried out, and many hedge funds now have more assets than debt, or less than one times leverage.
"People are still holding quite a lot of cash," said Daniel Caplan, co-head of European prime brokerage at Deutsche Bank. "They are certainly not using the leverage that’s available to them."
The FSA carries out its survey of hedge fund exposure twice a year, and found leverage – measured as the proportion of total long positions to net assets, ignoring short positions – dropped from 1.44 times in April to 1.15 times in October.
Wall Street Journal – Some high-profile Bain Capital credit-investment funds are choking on losses of as much as 50%, said people familiar with the matter, the latest revelation in a day of shake-ups across the hedge-fund business.
The private-equity firm’s credit affiliate, Sankaty Advisors LLC, has lost between 40% and 50% across two funds that bought up highly secured corporate loans, these people said. The two vehicles had roughly $4 billion in assets just a few weeks ago, and used a relatively low amount of borrowed money to fund their investments.
Steep losses have also hit London hedge fund Centaurus Capital LP, which Wednesday offered its investors a chance to cut their fees. And, at Tudor Investment Corp., one of the oldest and best-regarded hedge funds, fund manager James Pallotta finalized a plan to run his own firm separate from longtime colleague Paul Tudor Jones.
USA Today – The great unwind in the secretive hedge fund world caused by steep losses has contributed to the megapain in the stock market.
Wealthy folks and big investors yanked a record $31 billion to $43 billion out of hedge funds in the third quarter, according to estimates from tracking firms Hedge Fund Research (HFR) and TrimTabs. As a result of ongoing redemption requests from worried investors, the so-called smart-money crowd has been forced to sell assets to raise money to pay back investors.
That vicious cycle of forced selling by these private investment funds has exacerbated the heavy pressure that has pushed the U.S. stock market down as much as 43% from its October 2007 high. "It is really like a global margin call. It feeds on itself," says Woody Dorsey, president of Market Semiotics, which specializes in behavioral finance.
Seattle Times- Lehman Brothers on Tuesday denied that it was forced to tap the Federal Reserve’s discount window to stave off cash problems, and maintains that its books remain liquid.
The nation’s fourth-biggest investment bank was battered Tuesday amid reports it needs to raise up to $4 billion of capital because of steep losses linked to the ongoing credit crisis. The securities firm is set to report its first loss later this month since splitting off from American Express in 1994.
Shares of the company tumbled 15 percent Tuesday after market rumors surfaced that it was forced to borrow from the Federal Reserve’s discount window to maintain operations.
