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The Street - Forced selling by hedge funds is behind the late-day market volatility these days, Jim Cramer told the viewers of his "Mad Money" TV show Thursday.
He fears we may never see a bottom until the selling comes to an end.
Cramer said many hedge fund strategies have just been dead wrong, such as the betting on a Chinese recovery after the Olympics that failed to materialize. As evidence, he used the Baltic Dry Shipping Index and the Shanghai Composite Index to graphically show how much China’s economy has slowed.
The result of hedge funds gone bad is forced selling, he said. At around 2:45 p.m. each day, hedge funds begin preparing for the next day’s round of redemptions by liquidating their ill-conceived positions.
Reuters - Switzerland’s fledgling hedge fund industry is set for strong growth in the coming years as the credit crisis forces the industry to focus on lower-cost centres and the country aims to lure managers back from London.
Lower living costs, as well as better personal tax rates than London in some cantons, improving tax terms for fund firms and a high quality of life are carrots Switzerland is dangling in front of continental European managers based in London.
And as the credit crisis and huge market volatility decimate returns in the hedge fund industry, Switzerland looks set to benefit as managers facing fee pressure and outflows look for cheaper places to relocate to in order to survive.
Reuters UK - Switzerland’s fledgling hedge fund industry is set for strong growth in the coming years as the credit crisis forces the industry to focus on lower-cost centres and the country aims to lure managers back from London.
Lower living costs, as well as better personal tax rates than London in some cantons, improving tax terms for fund firms and a high quality of life are carrots Switzerland is dangling in front of continental European managers based in London.
And as the credit crisis and huge market volatility decimate returns in the hedge fund industry, Switzerland looks set to benefit as managers facing fee pressure and outflows look for cheaper places to relocate to in order to survive.
"London is still dominant, but we’re seeing some activity (new funds) in Geneva," said Mark Lewis, senior investment funds partner at Cayman Islands-based law firm Walkers Global.
Reuters - Clients of Spain’s BBVA Patrimonios have cut hedge fund exposure by more than two-thirds over the past year after disappointing returns, says its chief investment officer, who believes the industry is in meltdown.
"Appetite for hedge funds has diminished dramatically," Enrique Marazuela told the Reuters Wealth Management Summit, adding that hedge funds had not met his clients’ return and risk expectations.
"The idea customers had about hedge funds was that they were going to have absolute returns and hedge funds controlled the risks."
However, hedge fund returns have disappointed many investors this year in high market volatility.
Hedge Fund Research’s HFRI index fell 4.68 percent in September, its second worst month after August 1998’s 8.7 percent drop, taking the year-to-date loss to 9.41 percent.
Reuters - Britain’s new Personal Accounts scheme, a plan for savers without a company pension, is "highly unlikely" to invest in hedge funds and private equity, said the head of the authority in charge of setting up the scheme.
The investment portfolio of the Personal Accounts scheme, which is set to grow to 150 billion pounds ($279 billion) in 50 years’ time, has not been decided, although the scheme has said its default fund is likely to consist mainly of index-tracking funds.
Tim Jones, chief executive of the Personal Accounts Delivery Authority (PADA), told Reuters on the sidelines of an industry conference: "My personal view is that it highly unlikely because that’s not where our low to middle income earners are."
Hedge funds, which have been blamed for adding to current market volatility due to their role in short-selling stocks, are viewed by pension funds as a diversifier, although returns have been disappointing for many investors this year.
Jones also said the scheme is likely to offer around a dozen funds for savers to select from.
Reuters HK - Asian hedge fund managers are waiting with dread to see if tough new short selling restrictions sweep across the region after Australia and Taiwan joined U.S. and UK regulators in cracking down on the practice.
Major Asian markets, such as Japan and Hong Kong, have so far held their fire. But industry executives, many angry with the recent restrictions, said the combination of market volatility and politics makes the outcome impossible to predict.
"My fundamental view is that it is utterly idiotic. In the current market environment, the priority I would have thought would be to encourage liquidity," said Peter Douglas, founder of Singapore-based hedge fund consultancy GFIA.
"Most regulators that I’ve met have been fundamentally quite sensible people, so you have to make the assumption this is driven a mixture of politics and public opinion. And that makes it very difficult to predict the course."
West Palm Beach (HedgeCo.net) - Funds of listed hedge funds are no longer providing reliable rates of return as the credit crunch continues - despite having been marketed as risk-free investments.
Analysis from Citywire shows that the sector has declined by 1.8% in net asset values (NAVs) so far in 2008, with funds losing much of the growth they enjoyed last year prior to the onset of the financial crisis.
The news gets still worse in terms of share prices in funds of hedge funds - which are seven% down on the year.
Increased market volatility is thought to have cancelled out the advantages invested in listed hedge funds enjoy, such as having a permanent base of capital.
Speaking to the news source, Simon Elliott, head of research at Wins, commented: "Performance across the board has been disappointing this year and the difference between NAV and share price performance gives you an idea of how premiums have evaporated and discounts widened.
"They have held up pretty well in NAV terms, but investors are exposed to the share price and it makes a big difference to returns."
Reuters - Investors almost halved the money they put into Asia-focused hedge funds in the second quarter compared to the first three months of the year as a selloff in stocks hurt appetite for risky assets, data showed.
Asia-focused hedge funds received a net $530 million from investors in the April-June quarter, down from $1 billion in the first quarter, Chicago-based Hedge Fund Research said in a statement released late on Thursday.
Asian hedge funds grew by approximately $200 million to $100.48 billion, up just 0.25 percent from the first quarter, as inflows were mostly offset by a decline of nearly $320 million due to poor performance.
"Asian hedge fund investors reacted to continuing market volatility by adjusting allocations opportunistically to those regional markets that had posted sharp year-to-date losses," said Kenneth Heinz, president of Hedge Fund Research.
Reuters- Hedge fund returns look set to pick up this year after a poor start, as managers learn the painful lessons of recent months and feel well positioned to profit from opportunities arising in credit and equity markets.
Having cut back the leverage that caught out some funds last year and rebuilt computer-driven models hit by a vicious circle of selling last summer, funds now see opportunities amid high market volatility and a greater chance of corporate default.