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.
Globe and Mail – The Caisse de dépôt et placement du Québec, hammered by losses on international holdings, has been forced in recent weeks to sell billions of dollars of stocks into a falling market.
A fund that began the year with $155.4-billion of assets has sold $10-billion of stocks in the past two months, sources said.
Canada’s biggest pension fund needed cash to shore up or shut down money-losing positions in areas such as currency hedging and derivatives, along with international real estate and private equity. Part of the problem, sources said, is that the fund’s hedging strategy was sideswiped by the recent fall in the Canadian dollar.
New York (HedgeCo.Net) – CSX is finding themselves in the middle of another battle, this time with a shareholder who is suing the railroad company along with hedge funds TCI and 3G Capital Partners.
Shareholder Deborah Donoghue is seeking the recovery of “short swing” profits from sales conducted by the two hedge funds between August and September 2007. She is hoping to recover profits from the sale of shares by the funds, before they announced their plan to launch a proxy battle and shake up the Board of Directors.
Donoghue is claiming that TCI and 3G sold 2 million shares of CSX stock and within six months, bought a large amount of shares and derivatives equal to shares of CSX common stock at lower prices.
“Such profits are recoverable on behalf of CSX by plaintiff as a shareholder of CSX, the latter having failed or refused to act in its own right and for its own benefit,” stated the complaint.
Donoghue isn’t the only one who believes the hedge funds didn’t act in good faith. CSX has been in a battle with the two funds ever since they exerted their controlling stakes to take over four board seats on the Jacksonville, Florida based company after a drawn out proxy battle.
CSX had argued that the funds “secretly coordinated” their fight to gain the seats on the board while failing to disclose their full stake in the company. The judge eventually ruled with the hedge funds, allowing them to vote their shares at the company’s annual meeting in June.
Hedge funds are not required to report to the Securities and Exchange Commission, thus these “short-swing” profits were not publicized.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
CNNMoney.com – A shareholder has sued CSX Corp. (CSX) and two hedge funds over sales of CSX shares before the funds publicly disclosed plans to shake up the railroad operator’s board in a proxy fight earlier this year.
The lawsuit, filed in U.S. District Court in Manhattan on Tuesday, is seeking recovery of so-called "short-swing" profits related to sales by The Children’s Investment Fund Management LLP, or TCI; 3G Capital Partners LP and their principals between August and September 2007 on behalf of the company and its shareholders. CSX is a nominal defendant in the case.
The complaint alleges the funds or their principals purchased large numbers of shares and derivatives equivalent to CSX shares within six months of their prior share sales and at lower prices.
Globe and Mail – Since many hedge fund managers like to drive Porsche roadsters, it’s somehow appropriate that the German auto maker just ran them down.
The European hedge fund community took a pounding Monday covering short positions in Volkswagen. Shares in the auto company doubled Monday on a short squeeze that came after Porsche announced it had used derivatives to build a 74 per cent stake in VW. That move brought a long-running takeover near the finish line, and also meant portfolio managers betting on a drop in Volkswagen shares had to cover positions.
In their rush to cover shorts, often at massive losses, hedge funds pushed up the value of Volkswagen by 123 per cent on Monday, briefly making the auto maker the largest company on earth. Shares subsequently slipped, but ended the day up 25 per cent.
Bloomberg – Credit-default swap dealers reduced the volume of outstanding contracts for the first time amid efforts to reduce risks in a market used to hedge against bond losses and speculate on corporate creditworthiness.
The volume of outstanding trades fell to $54.6 trillion from $62 trillion in the first half, the International Swaps and Derivatives Association said in a statement yesterday. It was the first decline since ISDA started surveying traders in 2001.
“This decrease primarily reflects the industry’s efforts to reduce risk by tearing up economically offsetting transactions and demonstrates the industry’s ongoing commitment to reduce risk and enhance operational efficiency,” ISDA Chief Executive Officer Robert Pickel said in the statement. “We expect to see more effects of this over time.”
Reuters – On Main Street, insurance protects people from the effects of catastrophes.
But on Wall Street, specialized insurance known as a credit default swaps are turning a bad situation into a catastrophe.
When historians write about the current crisis, much of the blame will go to the slump in the housing and mortgage markets, which triggered the losses, layoffs and liquidations sweeping the financial industry.
But credit default swaps — complex derivatives originally designed to protect banks from deadbeat borrowers — are adding to the turmoil.
"This was supposedly a way to hedge risk," says Ellen Brown, the author of the book "Web of Debt."
Wall Street Journal – Deutsche Börse AG’s supervisory board reaffirmed the stock-exchange operator’s business model Friday, defying activist hedge funds that had been seeking a change in strategy after this year’s steep fall in the company’s share price.
"The ongoing implementation and continuation of the existing strategy of the integrated business model including its further development [are] the best conditions to further increase value for all shareholders and customers of the group," Deutsche Börse said in a statement after an extraordinary supervisory board meeting.
The company has three main businesses: its Eurex derivatives arm, a share-trading platform called Xetra, and Clearstream, which handles post-trade processing.
Deutsche Börse shares rose 0.8% to €63.44 ($90.19) Friday. Its stock has fallen more than 50% this year.
The board meeting was convened after the company’s biggest investors — activist hedge funds The Children’s Investment Fund LLP and Atticus Capital LP, which together control 19% of votes in Deutsche Börse — joined forces to explore options for creating shareholder value at the company. The hedge funds haven’t presented any formal proposals.
Bloomberg- William Ackman put more cash into the $2 billion hedge fund he started to invest in Target Corp. as shares of the second-largest U.S. discount retailer declined 38 percent in the past year, according to two people with knowledge of the matter.
Pershing Square Capital Management LP, Ackman’s New York- based firm, added at least $100 million to the fund, while he personally committed $5 million. Ackman also solicited money from current and new investors, said the people, who declined to be identified because the fund is private.
The Target fund’s loss may exceed the drop in the Minneapolis-based company’s stock because it uses derivatives, which can amplify gains and losses. Target peaked at a record $70.14 on July 13, 2007, three days before Ackman disclosed owning a stake. Earnings have fallen for three straight quarters as consumers cut back on purchases of clothing and home goods.
Reuters- Some of the world’s biggest property fund firms could eventually be tempted to trade property derivatives in a material way as long as the young market continues growing.
However, listed property firms such as real estate investment trust (REITs) could be a tougher nut to crack, leading industry figures at the Reuters Global Real Estate Summit said this week.
Matthias Danne, who sits on the board of DekaBank, Germany’s biggest operator of open-ended property funds, said he was interested in putting investor money to work quickly using property derivatives.
Reuters- Some of the world’s biggest property fund firms could eventually be tempted to trade property derivatives in a material way as long as the young market continues growing.
However, listed property firms such as real estate investment trust (REITs) could be a tougher nut to crack, leading industry figures at the Reuters Global Real Estate Summit said this week.
Matthias Danne, who sits on the board of DekaBank, Germany’s biggest operator of open-ended property funds, said he was interested in putting investor money to work quickly using property derivatives.
"I would use them if the market was liquid enough so I could invest my liquidity and I have a lot of that," Danne said.
New York – Hong Kong based hedge fund manager, PCM Capital, has successfully launched it second Fund of Funds (FoF) – PCM Green Power Fund on 1st, April 2008. The fund (Class A) returned 1.34% and 1.10% in the first two months respectively.
The new “Green” fund – with its emphasis on Asia – trades or invests in a number of environmental and alternative energy related sectors including clean energy, water management, waste management, power trading, CO2 derivatives and environmental technologies.
Norman Chan, CIO of PCM Capital, said, “We are launching this product in response to the compelling investment opportunities emerging in the environmental sectors, particularly in Asia. In addition, there is increasing demand from institutional investors for exposure to environmental related investment.”
Norman further added, “The demand reflects growing environmental awareness, attractive upside potential and solid diversification benefits.”
Established in 2006, PCM Capital has two funds under management – PCM Asia Pioneer Fund and PCM Green Power Fund.
For more information, please visit www.pcm-cap.com
Bloomberg- BlackRock Inc., the largest publicly traded U.S. money manager, and Ospraie Management LLC, are among five companies that will start Shariah-compliant hedge funds based in Dubai.
The funds will get $50 million each in so-called seed capital from the Dubai Multi Commodities Centre Authority, a government-backed agency. Barclays Capital, securities unit of Britain’s fourth-largest bank, will also back the funds which will start in the next two weeks, said Frank Gerhard, the bank’s head of fund-linked derivatives strategy in an interview.
Shariah forbids investment in companies judged by scholars to be highly indebted, and those involved in alcohol, gambling and weaponry. Financial information companies including Standard & Poor’s and Dow Jones & Co. have started Islamic indexes that show only Shariah-compliant companies. The world’s Muslim community has about $3.6 trillion of combined wealth, Standard & Poor’s estimated in 2006.
