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LiveMint (WSJ) – After the global financial meltdown of the last year, hedge funds have been under considerable stress globally. The operations of all such funds have been viewed as being non-transparent, not subject to regulatory oversight, and high-risk, high-return operations that are run away from the limelight of financial markets.

The very nature of their operations has made them costly, in the sense that payments of upfront 2% fees and 20% of profits are the norm rather than exception. There have also been several scandals connected with hedge funds in the last year, most notably the Bernie Madoff one, which has reduced investor confidence in these funds and their operations.

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Tags: bernie madoff, clones, financial-markets, hedge funds, regulatory oversight

HedgeCo.net (West Palm Beach) – State Street Corporation released two papers on alternative investments as part of its Vision series of thought-leadership reports. The papers examine two key components of alternative investments, hedge funds and private equity, and their future prospects amid the global economic downturn.

While both industries have been hard-hit by the financial crisis, they will likely adapt to the changed investment environment and continue to provide significant long-term opportunities for institutional investors, State Street says.

“With so much debate within these sectors as complexity has heightened over the past year, we want to help identify the actual market conditions and trends that will determine the future of hedge funds and private equity,” said Jack Klinck, executive vice president and global head of State Street’s Alternative Investment Solutions team. “The research and insights presented in these reports will help institutional investors as they make their investing decisions.”

“New Views of the Hedge Fund Industry” cites two major trends affecting the industry: a migration to third-party administration and custody services and increased regulatory oversight. While hedge fund redemptions are expected to continue through 2009, according to the report, “anecdotal evidence suggests that investors are starting to regain confidence.”

“The hedge fund industry will emerge from the financial crisis – smaller, in terms of the number of funds, but eventually larger in terms of assets under management,” the report states.

State Street’s second Vision paper, “Private Equity at the Cross Roads,” notes that although the industry is currently under pressure from the financial crisis and recession, “many believe that private equity is about to enter a new phase of more sustainable growth. Over the long-term, investors and governments will look to private equity for its significant capital resources, management expertise, and high risk tolerance to help restore economic strength as impaired assets are wound down and fresh investments are required for new and expanding businesses.”

With approximately $252 billion in hedge fund assets as of March 31, 2009, State Street provides a complete set of servicing and management solutions for hedge funds, including recordkeeping, fund accounting, valuation, risk management and regulatory reporting.

Alex Akesson

Editor for HedgeCo.net
alex@hedgeco.net

HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!

Tags: alternative investments, assets-under-management, custody services, economic-downturn, future prospects, global-head, hedge fund redemptions, institutional-investors, investment environment, investment solutions, regulatory oversight, rsquo, second vision, solutions team, term investors, third party administration, thought leadership, vision paper, vision series, west palm beach

Bloomberg – Federal Reserve Chairman Ben S. Bernanke said American International Group Inc. operated like a hedge fund and having to rescue the insurer made him “more angry” than any other episode during the financial crisis.

“If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG,” Bernanke told lawmakers today. “AIG exploited a huge gap in the regulatory system, there was no oversight of the financial- products division, this was a hedge fund basically that was attached to a large and stable insurance company.”

Bernanke’s comments foreshadow tougher oversight of systemically important financial firms, and come as President Barack Obama seeks legislative proposals within weeks for a regulatory overhaul. The U.S. government has had to deepen its commitment to prevent AIG’s collapse three times since September as the company accumulated the worst losses of any U.S. company.

The company “made huge numbers of irresponsible bets, took huge losses, there was no regulatory oversight because there was a gap in the system,” Bernanke said. At the same time, officials “had no choice but to try and stabilize the system” by aiding the firm.

AIG is getting as much as $30 billion in new government capital and relaxed terms on its bailout announced yesterday.

In another sign of tighter regulation to come, Bernanke said supervisors should have authority to bar new financial products that may be destabilizing to markets.

Bernanke made the AIG comments in response to a question from Senator Ron Wyden, an Oregon Democrat, at a Senate Budget Committee hearing today in Washington.

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Tags: aig, american international group inc, american-international-group, bailout, barack obama, bernanke, committee hearing, federal-reserve-chairman, government capital, international-group-inc, legislative proposals, oregon democrat, regulatory oversight, regulatory system, ron wyden, senate budget committee, senator ron wyden, time officials, u s company