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.
The major broker-dealers have been decimated, with only Morgan Stanley and Goldman Sachs remaining independent and solvent.
There are daily fears of hedge funds facing the equivalent of a bank run, as investors scramble to withdraw their cash. Those private-equity firms, such as Blackstone and Fortress, which had entered the public markets to take their positions alongside the investment banks are now trading at massive discounts to their IPO values.
guardian.co.uk – Morgan Stanley survived the recent panic in financial markets, but its prime brokerage business may never fully recover.
More than a third of Morgan’s prime brokerage assets went out the door during the past month — some rivals said attrition could be as large as one-half — as investors unnerved by the credit crunch lost confidence in the bank.
Across Wall Street, hundreds of investment funds that relied on broker-dealers established accounts with commercial banks boasting stronger credit. The moves have shaken up a business long dominated by Morgan Stanley, Goldman Sachs Group Inc and Bear Stearns.
"It’s a $2 trillion business and in normal market conditions, people kill themselves to move 1 percent of market share. In recent weeks, probably 35 to 40 percent of global market share has been redistributed," said Alex Ehrlich, global head of prime services at UBS. "Never has there been a more disruptive period."
Forbes – In an op-ed in the Financial Times on Monday , I described the unraveling and demise of the shadow banking system that started with non-bank mortgage lenders, structured investment vehicles (SIVs) and conduits, major independent monoline broker dealers and money market funds. I then argued that the next leg of this unraveling would be hedge funds and private equity firms and their reckless leveraged buyouts (LBOs).
Let me now discuss in more detail this unraveling of parts of the hedge fund industry.
First, note that too much of the shadow banking system was about "Schmalpha" rather than "Alpha" (i.e. the returns that fund managers and asset managers–with their ridiculously high management fees of 2% or more–were getting by parting investors from a good chunk of their assets, rather than by superior absolute returns). In fact, the hedge-fund math of "2/20" was, most of the time, 2% for the fund managers and not 20% (sometimes single digit returns and, this year, actual negative ones) for investors. This scam is now unraveling.
West Palm Beach (HedgeCo.net) – Hedge fund Provider, Fidelity ActionsXchange, has appointed Laura J. Pollard as executive vice president and head of the company. Pollard will report to Larry C. Renfro, president of Fidelity Developing Businesses, a new division that comprises a number of growing businesses and strategic initiatives for Fidelity.
“Working in partnership with ActionsXchange’s management team, Laura has done an outstanding job of leading the company over the past several months, and I am confident that her industry experience, proven strengths as a leader and ability to build strong relationships with clients will position her for success in her new role,” said Renfro. “Laura will lead a talented and experienced management team that will continue its focus on providing the most accurate, timely, and comprehensive global corporate actions information to our clients.”
Pollard, a 19-year Fidelity veteran, will lead all aspects of ActionsXchange’s day-to-day operations. Prior to her new role, Pollard spent the past two years as ActionsXchange’s senior vice president of client services, product development and implementation. Before joining ActionsXchange, Pollard spent four years at Fidelity Charitable Services and 13 years in a variety of leadership roles in Fidelity’s 401(k) retirement services and benefits outsourcing divisions.
ActionsXchange was formed in 1997 to offer corporate actions processing software and outsourcing solutions to financial institutions. Operating as an independent company, ActionsXchange partners with more than 50 major global financial institutions such as banks, asset managers, hedge funds and broker-dealers.
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West Palm Beach (HedgeCo.Net) – The global Equities business of UBS announced the launch of Direct Market Access (DMA) for international clients to trade securities on the Bovespa stock exchange in Brazil. UBS is among the first broker-dealers to offer non-Brazilian clients direct electronic equities trading and execution in this major market.
Recent market regulation enacted in Brazil allows for non-domestic investors access to direct electronic trading on Bovespa (Bolsa de Valores de Sao Paulo), a Sao Paulo-based stock exchange. Bovespa is the second-largest stock exchange in the Americas, and the third largest in the world.
"We have a longstanding commitment to providing clients with seamless, direct, electronic access to the major markets all over the world." Mario Campos, Head of Latin America Sales & Trading, said, "We are pleased to be one of the first brokers to offer global clients with DMA in Brazil."
"International DMA is one milestone in providing advanced electronic trading in this market – other tools and strategies will follow very soon," said Will Sterling, Head of Institutional Electronic Trading. "Making DMA available for clients trading into Brazil is particularly exciting, given our global buy-side clients’ increasing focus on this region."
With offices in 50 countries, UBS is present in all major financial centers worldwide. Its shares are listed on the Swiss Stock Exchange (SWX), the New York Stock Exchange (NYSE) and the Tokyo Stock Exchange (TSE).
West Palm Beach (HedgeCo.Net)- The SEC has released a new `ComplianceAlert´ letter identifying common deficiencies and weaknesses that SEC examiners have found during recent compliance examinations of registered investment companies and broker-dealers.
The alert finds weakness in several areas including; personal trading by investment advisory employees, incomplete code of ethics, soft dollar practices, "Free lunch" sales seminars, broker-dealers’ issues, supervision, and use of mortgage financing as credit for the purchase of securities among others.
"Our June 2007 ComplianceAlert was very well-received by industry compliance and legal professionals," said Lori Richards, Director of the SEC’s Office of Compliance Inspections and Examinations. "Many industry compliance staff told us that, after reading it, they reviewed their firms’ practices in the areas we noted and took steps to ensure that their firms’ practices were fully compliant. By highlighting our recent examination findings in this way, we expect that this second ComplianceAlert will be similarly helpful to industry firms that are seeking to be proactive in addressing compliance risks."
Boston Globe- Dozens of hedge funds and broker-dealers are scrambling to send reams of e-mails and trading records to regulators probing suspected stock price manipulation, several sources at hedge funds said.
The Securities and Exchange Commission recently sent subpoenas to more than 50 firms concerning trading in investment banks Bear Stearns, which was rescued in March, and Lehman Brothers Holdings Inc., whose shares have been hurt badly by rumors about its financial health, said four sources, who have seen the documents but were not authorized to speak about them publicly.
Among those receiving subpoenas were investment bank Goldman Sachs Group Inc. and prominent hedge fund firms SAC Capital Advisors LLC and Citadel Investment Group.
New York Post- Wall Streeters who suspect that hedge funds are behind false rumors about Lehman Brothers and other banks say they’re skeptical that regulators will be able to find and punish those responsible.
"I would love to have someone pinned and pilloried for doing this stuff," said one investment pro who says he is constantly battling merger rumors. "But it’s hard to believe it’s going to be effective."
The doubtful commentary refers to the Securities and Exchange Commission’s oddly timed announcement Sunday that it plans to crack down on false rumors spread by broker-dealers and financial advisers.
The SEC said it will examine controls and procedures at these outfits to ensure they’re doing what they can to prevent a practice that, legally speaking, counts as market manipulation.
Boston Globe- The Securities and Exchange Commission yesterday said that it and other regulators would begin examining rumor-spreading intended to manipulate securities prices.
The timing of the announcement, made before the markets opened in Asia, was meant to warn broker-dealers, hedge funds, and investment advisers to quell any spreading of rumors before trading started today.
The SEC has been engaged in an internal debate over what kind of investigation to mount with respect to rumors. The turbulence in the markets last week, with rumors adding to concerns about fundamentals affecting commercial banks, investment banks, and the government-chartered enterprises Fannie Mae and Freddie Mac, sped the decision to begin the examination and make it public.
"Traders know there is false information in the market. They need to think twice if they are going to pass it on," said Lori Richards, an SEC official.
Washington, D.C., Jan. 3, 2008 – The Securities and Exchange Commission has received and posted on its Web site the text of the RAND Corporation’s final report on practices in the investment adviser and broker-dealer industries. The Commission has been anxious to receive RAND’s study of the investment adviser and broker-dealer industries, and the nature of their relationships with customers. The report will assist the Commission’s efforts to update our regulations to improve investor protections in today’s new marketplace," said SEC Chairman Christopher Cox. Our staff is now studying the report and the potential regulatory implications of its findings. RAND produced the report under contract with the Securities and Exchange Commission (http://www.sec.gov/news/press/2006/2006-162.htm). The report is the product of more than a year of empirical study and analysis. Following a March 2007 Court of Appeals decision that overturned a 2005 SEC rule permitting non-adviser broker-dealers to charge fees to investors based on account size, the SEC and RAND agreed that RAND would deliver its final, peer-reviewed report in pre-publication format on Dec. 31, 2007, three months earlier than the contract had originally required. The text of the posted report is final and has been peer-reviewed. Neither the data nor the analysis on which it is based will change.
