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.
Globe and Mail – Goodwood Inc., a value-oriented manager, briefed investors Thursday on a dismal September. There’s a lot of these letters going out from hedge fund managers. Goodwood’s funds were down 16 per cent last month, bringing the year-to-date loss to 32 per cent. Year-to-date, the S&P/TSX benchmark is down 13 per cent.
Goodwood executives Peter Puccetti and Cam MacDonald used their September letter to unitholders to explain the madness of markets, and plead for patience and perspective. They certainly deserve a hearing. But investors who bought into hedge funds on the basis of absolute returns – making money in good markets and bad – are going to struggle with these pleas.
“We have seen many well-known investment management operations badly harmed as a result of their leverage exacerbating the effects of the ongoing credit crunch and deleveraging we are currently living through,” said Goodwood’s team.
Globe and Mail – On monday, when North American markets cratered, was not the most auspicious day to launch a closed-end fund of hedge funds, but Star Hedge Managers Corp. has been quietly trading since then.
This fund invests in the hedge funds or portfolios run by Eric Sprott of Sprott Asset Management Inc., Rohit Sehgal of Dynamic Mutual Funds Ltd. and Normand Lamarche of Front Street Capital.
Star Hedge Managers, which closed down 39 cents yesterday at $9.35 on the Toronto Stock Exchange, raised $75-million through an initial public offering of $10 a unit. It had targeted raising $500-million.
"I’m surprised" that it did raise $75-million given the tough market environment, said Phil Schmitt, chairman of the Canadian unit of the Alternative Investment Management Association. "There’s still a market for quality managers."
Globe and Mail – Once viewed as a safe haven, crude oil has lost its lustre as investors bet that the crisis in financial markets will hurt an already weakened global economy and drive down petroleum demand.
At the same time, speculators who piled into oil and other commodities on the way up have reversed course, as brokerages and hedge funds are being forced to liquidate those positions to buttress their balance sheets, traders said yesterday.
Lehman Brothers Inc. and Merrill Lynch & Co. Inc. are both major players in the crude oil markets, and both companies are expected to unwind their positions after Lehman sought bankruptcy protection and Merrill agreed to be acquired by Bank of America.
Crude prices fell sharply yesterday on futures markets in London and New York after hurricane Ike blew through the Gulf of Mexico without doing major damage to U.S. oil production there.
Globe and Mail – Fairfax Financial Holdings Ltd. is claiming a victory in a long-running legal battle with U.S. hedge funds after brokerage firm Morgan Keegan & Co. Inc. revealed on Wednesday it has fired an analyst embroiled in a dispute with Fairfax.
Morgan Keegan confirmed it fired analyst John Gwynn last month for giving a report on Fairfax to some clients before it was published.
Fairfax has sued Morgan Keegan, based in Memphis, Tenn., and a group of U.S. hedge funds, alleging they worked together to damage Fairfax’s reputation and drive down its share price. Fairfax called it a “massive, illegal and continuing scheme that has targeted and severely harmed Fairfax.”
One of Fairfax’s claims in the suit is an allegation that Mr. Gwynn told hedge funds about negative reports before he issued them publicly, allowing hedge funds to short-sell Fairfax’s stock and profit after the news was released.
Toronto-based Fairfax has particularly pointed to Mr. Gwynn’s first report on the company, published Jan. 16, 2003, which said the company had a shortfall in its reserves. The company’s share price fell 28 per cent in the three days after the report was published.
Globe and Mail – A year ago, Dwight Anderson was being hailed as the "king of commodities," a precocious 40-year-old hedge fund manager who made a prescient – and highly profitable – bet that global food prices would spike in unprecedented fashion.
Now he is merely another in a long line of hard-luck speculators, his crown handed to him by a fickle commodities market that has proven itself capable of ruining fortunes as quickly as it created them.
In a letter to investors yesterday, Mr. Anderson announced he was shutting down the largest fund of Ospraie Management LLC, the firm he built into one of the largest commodities-themed hedge funds in the world. The Ospraie Fund, which focuses on natural gas, oil, metals and other resources, boasted assets of almost $4-billion (U.S.) at its peak last year, but so far in 2008 it is down 39 per cent – including a gut-wrenching 27-per-cent slide in August.
"I am extremely disappointed with this result and the fund’s sudden reversal in performance," Mr. Anderson wrote. "The losses were primarily caused by a substantial selloff in a number of our energy, mining and resource equity holdings during a six-week period characterized by some of the sharpest declines in these sectors in the past 10 to 20 years."
Globe and Mail – Black clouds have been building over the hedge fund industry for much of the year, and a storm could break in coming weeks as investors receive their second set of lousy monthly results from funds that are meant to do well in good markets and bad.
A series of challenges, some unrelated to the hedge funds’ investment strategies, have combined to create lower returns and investor redemptions.
Industry experts expect some funds will be forced to close down as clients walk away.
The single biggest problem is performance. The most recent update of Scotia Capital Inc.’s hedge fund index shows the average fund was down 8.6 per cent in July, compared to a 1.74-per-cent decline in the S&P/TSX equity benchmark. Since its inception in 2005, the Scotia Capital hedge fund index averaged a 13.9-per-cent annual gain.
Globe and Mail – Joe E. Lewis, the late American nightclub comic and inveterate horse player, once quipped: "I hope I break even. I need the money." That could very well become a mantra in the hedge fund world, where even the best and brightest of managers with impressive track records have been suffering through some of their worst results in years.
In the first three months of this year alone, 170 funds in the United States went out of business, and that was before things got really bad. Globally, hedge funds ended the first half with their most dismal performance in a decade. And then came the selloff in resource stocks, which brought misery to commodity funds, one of the few bright spots earlier in the year. July ended up being the worst month for futures in more than five years.
Scotia Capital’s Canadian hedge fund index, a useful measure of performance, was off 8.6 per cent on an asset-weighted basis last month, bested by both the gloom-laden TSX composite and S&P 500 indexes.
Globe and Mail – Hedge-fund manager Ben Shoval, wearing a green Thomas Pink shirt and a $1,600 Giorgio Armani suit, grabbed the microphone last week at New York’s Broadway Comedy Club to riff on his day job.
The 31-year-old hedge fund manager started his stand-up career in January, taking as many as a dozen private and group lessons a month that have cost about $3,500, he says. By humbling himself before small groups at open-mike shows, Mr. Shoval said he hopes he’ll learn to perform at conferences and charity events.
Hedge fund managers may need comic relief. The industry is composed of unregulated investment pools that typically charge 2 per cent in fees and reap 20 per cent of profits. Hedge funds suffered their worst first-half performance in almost two decades, according to Hedge Fund Research Inc.
"When things are bad, particularly like they are now, we seem to be a good scapegoat for absolutely everything," Mr. Shoval said. "That’s what’s neat about the whole hedge fund manager routine that I’m doing, because there are so many misunderstandings."
Globe and Mail – GMP Securities enjoyed a solid debut with its new and much-scrutinized hedge fund.
GMP Diversified Alpha Fund, a multi-strategy fund launched last year by the investment dealer, published its first set of performance numbers Thursday as part of the parent income trust’s financial results.
The fund, which is run in part by GMP’s star stock trader and vice chairman Michael Wekerle, posted a 6.2 per cent return over its first three months of operation, a quarterthat ended June 30. The fund has $196-million of assets.
Over the same period, the benchmark Scotia Capital Canadian hedge fund index returned 5.93 per cent over the same period on an equal weighted basis, and 9.93 per cent on an asset weighted basis that puts more emphasis on performance at the larger domestic hedge funds.
GMP’s venture into the hedge fund world has drawn attention on the Street because of Mr. Wekerle’s dual role as both a part of the hedge fund team and head of the dealer’s equity desk.
Globe and Mail- Hedge funds may post their worst month in at least five years after bets on financial stocks falling and on crude oil rising backfired.
Hedge Fund Research Inc.’s Global Hedge Fund Index of more than 55 funds slid 3.2 per cent through July 24, heading for the biggest monthly drop since the measure started in 2003.
Wagers on a drop in financial stocks and home builders soured after shares of U.S. mortgage lenders Fannie Mae and Freddie Mac more than doubled during the six trading days to July 23.
Bullish bets on crude oil turned to a loss as oil slid 15 per cent from a record $145.29 (U.S.) a barrel on July 3 after doubling in a year.
Globe and Mail- Friday, the Ontario government put out a release announcing that the government is "thrilled’ to welcome to Toronto a new arm of Goldman Sachs Administration Services, the part of Goldman Sachs Group Inc. that helps hedge funds with back offices. But from Goldman, aside from a quote in the release, there wasn’t much more info on what fund managers can expect.
A new week brings a little more detail: The office will be a small addition to a roughly 160-person division of GS that will provide such services as portfolio analytics and accounting. The division already has offices in the Cayman Islands, Dublin, Hong Kong, Jersey City and Princeton, N.J., and the word is Goldman wanted to add capacity and liked Toronto’s skilled work force.
