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.
Idaho State Journal – Several prominent hedge fund managers told Congress Thursday they support a new central exchange to open the murky world of some complex investments partly blamed for the global financial crisis, but stopped short of endorsing stricter regulation of hedge funds themselves.
The managers testified at a House hearing examining the role of hedge funds in the crisis, and the risks that critics say they pose to the financial system. Hedge funds, vast pools of capital holding an estimated $2.5 trillion in assets, operate mostly outside of government supervision.
Billionaire investor and liberal activist George Soros, who runs a hedge fund, said new regulations were needed to gauge the underlying financial strength of banks. But he warned against "going overboard" with regulations that could do more damage than good to the financial system.
Bloomberg – The global hedge fund industry lost $100 billion of assets in October, according to an estimate from Eurekahedge Pte, as firms including Sparx Group Co. and Man Group Plc were hammered by investor redemptions.
Funds fell an average 3.3 percent, based on preliminary figures from the Singapore-based data provider, as measured by the Eurekahedge Hedge Fund Index, which tracks the performance of more than 2,000 funds that invest globally. That compares with a 19 percent slide in the MSCI World Index last month.
The biggest market losses since the Great Depression and investor withdrawals hurt the $1.7 trillion hedge funds industry that manages largely unregulated pools of capital. The index of global funds has lost 11 percent this year, set for the worst performance since 2000 when Eurekahedge began tracking the data.
Globe and Mail – Daniel Gross, writing on Slate, makes an interesting point about the latest version of the U.S. government’s bailout plan: The plan, officially known as the Emergency Economic Stabilization Act of 2008, looks a lot like the prospectus for a hedge fund.
“In the past, hedge funds – secretive pools of capital – were open only to qualified (read: rich) investors,” he said. “But with the stroke of a pen, President Bush will soon make all American citizens investors in the world’s biggest fund – and a democratic one at that.”
Hedge funds often use leverage, or borrowed money, to amplify their returns and often use the money to buy beaten up assets. Similarly, the bailout plan, which Mr. Gross dubs the Universal Hedge Fund, will use $750-billion (U.S.) of borrowed money to buy distressed assets. But the similarities don’t end there. The manager of the Universal Hedge Fund can hold bonds to maturity or flip them for a profit. The manager can also bring in outside expertise, making the fund look like a fund of funds.
“Like many of today’s sharpest hedge funds, the Universal Fund will also have the ability to drive a harder bargain by demanding equity stakes, or new debt securities, from the institutions it is helping,” Mr. Gross said.
RightSide Advisors- Nimbleness and creativity are qualities rarely ascribed either to America’s financial regulators or to Congress. Perhaps that is one reason why both groups continue to fumble over how to deal with hedge funds, which typically exhibit both in abundance. These lightly regulated pools of private capital employ an array of complex trades, frequently shifting strategies and, in theory, generating above-average returns.
The argument for more regulation is twofold. First, nowadays it is not only a few aficionados of the investment world who are exposed to them but a growing number of people—either directly, if they are rich enough, or through their pension funds. Secondly, some hedge funds are so large that a big one’s failure could threaten the financial system.
Politico.com- Sometimes in Washington, stealth is more important than strength.
In recent years, hedge fund managers, who oversee those secretive and lightly regulated pools of billions of dollars of investment capital, have gotten increasingly worried about whether Washington will change tax rules for offshore investors.
Many hedge funds set up subsidiaries in the Cayman Islands and other low-tax locales so their investors can pay lower taxes on a certain amount of their activity. If Congress were to make a grab for that money by changing the tax rules governing the hedge funds, it could generate hundreds of millions of dollars in new taxes at the hedge funds’ expense.
Reuters UK- Mortgage market specialist edeus is launching a service that it says will allow investors and bankers to assess the quality of pools of mortgages behind asset-backed securities based on up-to-date information.
Edeus says its service differs from traditional due diligence in its scope; whereas traditional practices look at around 15 percent of a mortgage pool at the point of origination, edeus analyses the whole pool based on current credit scores and borrower data.
