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.
Los Angeles Times – When a well-known investment advisor gave the Securities and Exchange Commission some unsolicited advice this week about protecting investors in hedge funds, he had already been talking to the agency about his own behavior.
About half an hour before Charles J. Gradante issued a public call Wednesday for the SEC to "reduce fraud and systemic risk" in the hedge fund industry, the SEC charged him with failure to perform due diligence on the Bayou hedge funds — one of the industry’s biggest scams in recent years.
New York (HedgeCo.Net) – Citigroup Inc. will be liquidating its Corporate Special Opportunities fund after losing over half its value last month, according to a report by the Financial Times.
The hedge fund had frozen redemptions for almost a year before deciding to shut it down. Many funds freeze redemptions in hopes that market conditions will improve and to prevent a liquidity crunch that may just be fueled by fear.
According to the report, Citigroup infused the hedge fund with $450 million in credit and about $320 million in equity. In its heyday, the fund managed about $4.2 billion.
October was a rough month for hedge funds as a whole, with the average fund down almost 5.5 percent according to data from Hedge Fund Research. With only two months to go, 2008 looks to be the worst year ever recorded by hedge funds, with the average fund down almost 15.5 percent.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
Globe and Mail – Canadian hedge funds posted a brutal 11.2 per cent decline in September, losses that are likely to leave many investors questioning this expensive alternative asset strategy.
The latest installment of the Scotia Capital Canadian Hedge Fund Performance shows these funds outperformed the S&P/TSX composite index last month – it was down 14.7 per cent. But mounting losses on funds sold to investors as market neutral, or absolute return, are going to translate into redemptions.
“September was an extremely challenging month for Canadian hedge fund managers who were largely unable to successfully navigate erratic price movements in stocks and falling energy prices,” said Scotia Capital’s note on the sector’s performance.
“Panic selloffs in an environment driven by fear and uncertainty left major equity markets significantly down at the end of September,” said the investment bank. Obviously, the market swings have become even more violent in October.
New York Times – Back when he was vice president, Dan Quayle noted that: “People that are really very weird can get into sensitive positions and have tremendous impact on history.”
He was right, as the Germans know, even if his own impact was limited by the fact the president he was understudying for stayed alive.
Quayle’s words came back to me because, like a lot Americans, I’ve come down with Palinitis: the acute fear that Sarah Palin might get into one of those “sensitive positions.”
Telegraph.co.uk – A move by US and European central banks, as well as by central banks in China, Taiwan, Hong Kong, Australia and South Korea, to slash borrowing costs has failed to reassure investors.
"It’s impossible to predict the bottom, and technical analysis is meaningless as panic and fear overwhelm the markets," said Jang Huh, at Prudential Asset Management in Seoul.
Japan’s Nikkei stock index fell 10pc, the biggest loss since “Black Monday” in October 1987 and it third biggest loss ever. The index, which closed down 881.06 points at 8,276.43, has lost more than 24pc over the past week.
Prime Minister Taro Aso warned that the slump could have real effects on Asia’s largest economy. The share price fall “has reached a point where it affects the real economy and fund raising,” he told reporters.
All indications are that European markets will open sharply lower.
Denver Post – First, the money rushed into hedge funds. Now, some fear, it could rush out.
No one expects a wholesale flight from the nearly $2 trillion world of hedge funds, but even a modest outflow could reverberate through the financial markets.
To pay back investors, some funds might be forced to dump investments at a time when the markets already are shaky.
The big worry is that a spate of hurried sales could unleash a vicious circle within the hedge fund industry, with the sales leading to more losses and those losses leading to more withdrawals, and so on.
This is shaping up to be the industry’s worst year on record, with the average fund down nearly 10 percent so far, according to Hedge Fund Research.
New York Times – First, the money rushed into hedge funds. Now, some fear, it could rush out.
Even as Washington reached a tentative agreement on Sunday over what may become the largest financial bailout in American history, new worries were building inside the nearly $2 trillion world of hedge funds. After years of explosive growth, losses are mounting — and so are concerns that some investors will head for the exits.
No one expects a wholesale flight from hedge funds. But even a modest outflow could reverberate through the financial markets. To pay back investors, some funds may be forced to dump investments at a time when the markets are already shaky.
The big worry is that a spate of hurried sales could unleash a vicious circle within the hedge fund industry, with the sales leading to more losses, and those losses leading to more withdrawals, and so on. A big test will come on Tuesday, when many funds are scheduled to accept withdrawal requests for the end of the year.
Seeking Alpha – If you happen to be in need of Vaseline and find that your local pharmacy is sold out, never fear. Chances are, the entire stock has been purchased by your friendly neighbourhood hedge fund manager. If you ask nicely, perhaps he’ll let you borrow a tub or two.
One of the signal trends of the past month or so has been the sharp decline in the oil price. Part of this is likely attributable to the China/global growth slowdown theme that Macro Man has highlighted recently, and part of it is likely a result of some sort of dollar strength feedback loop, which itself is at least partially attributable to a softening of the ECB’s rhetoric.
On the face of it, it would appear that the hedge fund world has dodged a bullet in oil. After all, the CFTC data has shown net speculative positioning to be fairly light over the past month or two, and even slightly negative for the last few weeks.
Financial Times- When hedge fund manager and convicted fraudster Samuel Israel III disappeared this month, leaving nothing but the message "suicide is painless" scrawled in the dust on his car, you can be sure his life assurer did not pay out – not least because police believe he was trying to fake his death.
Another type of insurance policy might soon help investors caught up in scams such as the $400m Mr Israel sucked out of Bayou Management.
At the least, the new products being created should provide hedge fund investors with peace of mind amid widespread fear of fraud in the industry.
Today, a second insurance product begins offering hedge fund investors cover for fraud losses, as Integro, a New York insurance broker, and Amber Partners, a risk rating agency for the industry, aim to capitalise on the fear of swindlers.
"While they [frauds] are not frequent within our industry, they occur enough that it causes investors to consider it seriously," said Reiko Nahum, chief executive of Amber.
