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West Palm Beach (HedgeCo.net) - Morningstar presented their monthly analysis of hedge fund performance for November and asset flows through October.
"Hedge funds have a long path to recovery ahead of them," said Hedge Fund Analyst Nadia Papagiannis. "November was a better month than the last two, mostly because hedge funds hoarded cash, but they are still losing money on their investments and facing the ongoing challenge of funding investor redemptions."
Hedge funds slid again in November, as the Morningstar 1000 Hedge Fund Index lost 2.5% for the month and 23.7% year to date. Hedged against the appreciating U.S. dollar, the asset-weighted Morningstar Composite Hedge Fund with MSCI Index fared better dropping only 0.8%. Hedge funds charge performance fees on any new profits earned, but those have been scarce since November 2007.
Compounding the funds’ pain, investors have responded to the lackluster performance by pulling more than $20 billion in October, which accounts for the bulk of the $29 billion withdrawn over the last 12 months from hedge funds.
Hedge funds of funds performed better than multi-strategy hedge funds this month, as the Morningstar Hedge Fund of Funds and the Morningstar Multi-Strategy Hedge Fund Indexes dropped 2.3% and 3.0% respectively.
November returns and October asset flows for the Morningstar Hedge Fund Indexes are based on funds that reported as of Dec. 16, 2008. Returns for the Morningstar Hedge Fund Indexes with MSCI are based on funds that reported November performance as of Dec. 14, 2008.
As announced in September 2008, Morningstar is also now calculating hedge fund indexes by applying the MSCI Hedge Fund Index Methodology and Hedge Fund Classification Standard to Morningstar’s hedge fund database. These indexes demonstrate the performance of hedge funds to investors who have hedged their currency exposure back into U.S. dollars. The MSCI Hedge Fund Index Methodology classifies hedge funds by investment process, geography, and asset class.
But the news was not all doom and gloom. Once again, the Morningstar Global Trend and Global Non-trend Hedge Fund Indexes performed well, funds in these categories experienced outflows during October, global trend funds saw overall inflows of $9 billion for the first 10 months of the year, more than every other category. Emerging markets fared poorly, as dwindling demand for commodities depressed the equities in commodity-based economies. The Morningstar Emerging Markets Hedge Fund Index lost 5.1% in November.
The Morningstar Developed Asia Hedge Fund Index’s relatively small loss of 0.3% was bolstered by the Bank of Japan’s interest rate cut and stimulus package announcement. The Morningstar Japan with MSCI Hedge Fund Index gained 0.5%. U.S. equity hedge funds performed among the worst this month, small capitalization equities took a beating in November, but most hedge funds hedged, as the Morningstar US Small Cap Equity Hedge Fund Index ended down only 4.6%, as compared to the Russell 2000 Index’s almost 12% decline.
The Morningstar Security Selection with MSCI Hedge Fund Index, with component funds that also take directional bets on equities, lost 2.7%. For the year to date through October, directional Europe and U.S. equity funds experienced significantly more outflows than other categories. Funds that kept a lid on market exposure fared relatively well this month. U.S. Treasuries across the board showed the largest monthly gain in decades amid poor economic data, fears of deflation, and a government plan to buy U.S. mortgage-backed securities.
The Morningstar 1000 Hedge Fund Index, a global, broadly representative benchmark for hedge fund performance, has return history from January 2003.
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Reuters UK - Artificial intelligence is helping trend-following commodity hedge funds triumph in treacherous markets when human brains alone aren’t enough.
With industry data showing the average hedge fund down 20 percent or more this year due to strategies messed up by plunging commodity and stock prices, some in the game called Commodity Trading Advisors are up 50 percent or more.
But the trend-following CTAs say it isn’t all their work: credit should also go to their computerized trading systems.
"It’s like a computer playing chess against an excellent individual chess player," said Bernard Drury, president and chief executive at New Jersey’s Drury Capital, a CTA relying entirely on systemic trading or trading without discretion.
"The computer can be counted on not to make human errors, not to make a miscalculation, not to be tired and not to have a bad day," said Drury, whose systemic flagship fund is up 57 percent on the year managing about $155 million (98 million pounds) in commodity and financial investments.
CTAs count themselves as part of the $1.7 trillion hedge fund industry, trading in a wide array of markets that include energy, metals, agriculture, financial futures, bonds, stock indexes and currencies. Like hedge funds, they have management fees of 2 percent and performance fees of 20 percent and strive for alpha, or performance beyond market expectations.
Bloomberg - Man Group Plc, the largest publicly traded hedge-fund manager, rose in London trading after its biggest pool reported gains for a fourth consecutive week.
“It increases the probability that they will be earning performance fees on the fund,” said Gurjit Kambo, an analyst at Numis Securities, who rates the stock an “add.”
AHL Diversified Plc gained 1.9 percent in the week to Oct. 20, and is up 12 percent in the past 12 months, Man said in a statement yesterday. AHL, whose computer-trading program dictates about a third of Man’s investments, is now closer to its so-called high-water mark, the level above which the firm begins to collect performance fees.
London-based Man rose as much as 6.1 percent and was up 14.5 pence at 368.5 pence by 10:10 a.m. The stock has gained 16 percent so far this week, valuing Man at about 6.3 billion pounds ($10.3 billion).
New York (HedgeCo.Net) - The Securities and Exchange Commission charged San Francisco-based MedCap Management & Research LLC and its principal Charles Frederick Toney, Jr. with defrauding investors via “portfolio pumping.”
“Fund investors relied on MMR and Toney to abide by their fiduciary duties and put the fund’s interests ahead of their own,” said San Francisco Regional Director of the SEC Marc J. Fagel in a press release yesterday. “Instead, Toney engaged in trading activity which hid his poor performance.”
Engaging in “portfolio pumping” in this case meant that Toney invested heavily at the quarter’s end with a thinly-traded penny stock, which in turn quadrupled the stock price and allowed him to inflate his quarterly results to investors. By doing this, the fund was able to hide what would have been a 40 percent quarterly loss for MedCap.
Instead, the scheme helped the company up its reported value by $29 million thanks to Toney’s four day buying frenzy which pushed the price of the stock from $.85 to $3.72. The fund was then able to charge higher management and performance fees that were based on the inflated numbers.
While MMR did not confirm or deny the allegations, the company has agreed to settle out of court by paying $100,000 in penalties and giving back the amount received in inflated management fees totaling over $70,000. Toney has also agreed not to act as an investment advisor for the next year.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
New York (HedgeCo.Net) - The SEC has targeted hedge funders David Myatt and William Eichengreen, both of Directors Performance Fund, with charges of fraud.
The two men allegedly took $25 million of their investment advisors money and put it into a “prime bank” scheme. This kind of scheme generally involves investors fraudulent claims that funds will be used to purchase “prime” financial instruments, usually in overseas markets, with the promise of high returns. Most of the time, neither the instruments nor the markets they supposedly trade on through special “access” even exist. In this case, Myatt and Eichengreen promised returns in excess of 10% per week with minimum risk.
Eichengreen then falsified documents pertaining to performance while lying about the fund strategy and asset allocation. The hedge fund also raked in performance fees that were based on the doctored numbers.
Investors in the fund should receive their money back, after a previous suit resulted in the court being responsible for distributing the assets back to investors. Myatt also previously pleaded guilty to an obstruction of justice charge that was brought against him in connection with this hedge fund.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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Reuters - Switzerland plans to ease the tax burden for hedge funds and private equity funds and soften regulations for investment funds in a first step to boost its standing among other financial centres.
The goal is to get the tax burden for hedge funds and private equity funds in line with taxes of 15 to 20 percent in competing centres like London or New York, the chairman of the Swiss Bankers Association Urs Roth told journalists on Friday.
Peter Siegenthaler from the Federal Finance Administration said up until now taxation varied widely due to different application of local, state and federal tax rules, putting Switzerland at a disadvantage with other financial centres competing for the growing hedge fund industry.
The Federal Tax Administration will ask tax collectors to clarify tax-related problems linked to performance fees and carried interest, to make the Swiss tax environment "competitive", the joint committee of Swiss financial sector associations and the government said in a statement.
New York (HedgeCo.Net) - Drake Management will shut down its two remaining hedge funds one month after winding down the $2.5 billion Global Opportunities Fund. The $1.4 billion Absolute Return Fund and the $160 million Low Volatility Fund will follow suit, after experiencing similar losses originally fueled by the subprime fallout and credit crunch.
Drake had informed investors in March that they were considering shutting down the funds, citing “challenging market conditions.”
The Absolute Return Fund was down 14.36 percent in 2007, while the Low Volatility Fund was down 4 percent. Drake will be launching new funds, and investors that choose to stay with the firm will only pay performance fees once the original losses are recouped.
"We are committed to launching successor vehicles for the funds later this year, for those investors who have expressed a desire to remain invested in strategies substantially similar to those of the funds and to new investors who would like to invest," said the company.
Drake was formed in 2001 by former BlackRock manager Anthony Faillace and his partner Steve Luttrell.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@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! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com