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.
Independent – A new EU directive aimed at tightening up the regulation of hedge funds could be counter-productive and cause a mass exodus of business from the International Financial Services Centre, a Dail committee was told yesterday.
The directive, being prepared under the supervision of EU Commissioner Charlie McCreevey, has run into opposition from almost every EU country and is unlikely to be finalised before the end of the current Swedish presidency, the Dail Committee on European Scrutiny was told yesterday.
The draft Alternative Investment Fund Managers Directive has been the subject of submissions from every EU member state, Colm Breslin of the Department of Finance told the committee.
The Guardian – The BIS said the retreat from riskier investments such as stocks in favour of safer bonds could pressure stock markets, delaying their recovery. "Similarly, the decline in the pension wealth of households participating in defined contribution plans and of employers sponsoring defined benefit plans has implications for aggregate spending," the BIS said.
Hedge funds did not play a central role in shaping the crisis but they will feel its impact, the BIS said.
After many wealthy individual investors withdrew, the funds are targeting institutions.
"Such a shift engenders demands for greater transparency about the investment strategy and greater scrutiny of risk management processes," the BIS said.
Law.com – Federal prosecutors Thursday unsealed an indictment charging the chief executive of what used to be one of the world’s largest investment funds with constructing elaborate tax shelters for some of his wealthiest clients. The executive, Jeffrey Greenstein, the former head of the Seattle-based fund Quellos Group, and two lawyers face 18 counts related to tax evasion and fraud for a scheme that netted them $86 million in fees and allowed six clients to avoid paying about $400 million in federal taxes, according to the indictment.
What’s interesting for our purposes is that the indictment details how lawyers from Cravath, Swaine & Moore and Bryan Cave blessed the shelters with letters indicating to the taxpayers that they were legal and would withstand scrutiny from the Internal Revenue Service. (The firms are identified as "C.S.M." and "B.C." in the indictment, but two sources familiar with the matter confirm they are Cravath and Bryan Cave. In addition, a 2006 congressional investigation mentioned the role the two firms played in the Quellos tax shelters, and at least one lawyer, Lewis Steinberg, then of Cravath and currently at Linklaters, testified before a congressional subcommittee.)
Hedge Week.com – For most of the past decade, the Cayman Islands have been the world’s dominant offshore alternative fund domicile. At the last count, the jurisdiction had around 10,000 funds, the vast majority of which are hedge funds of one stripe or another.
But with offshore financial services under hostile scrutiny as never before, Cayman finds itself on a ‘grey list’ of jurisdictions assessed by the Organisation for Economic Co-operation and Development as having signed up to the principles of tax transparency and exchange of information but failed, so far at least, to have adequately implemented them by signing tax information exchange agreements with OECD members.
Wealth Bulletin – The Securities and Exchange Commission’s decision to expand its examination of advisory firms to include contact with clients has irked the advisers, according to an investmentnews report. The advisers fear that their clients might panic and get nervous because of the unwanted scrutiny.
The SEC sent a letter this week to several trade associations, saying that its examiners would increase the number of sources used to verify account assets, including contacting clients, hedge fund investors and managers, bank and broker-dealer custodians, account administrators and others.
MSN UK News – A hedge fund body has thrown its weight behind regular disclosure of large holdings and risks to regulators, as calls grow for greater scrutiny of the industry.
The Alternative Investment Management Association (AIMA), said on Tuesday it supported regulators being able to get information from large hedge funds to build up a regular picture of systemically significant holdings and risk exposure.
The move by AIMA, which represents more than 75 percent of hedge fund assets worldwide, comes with the industry under pressure for greater regulation and the Hedge Fund Standards Board (HFSB) facing criticism for the low number of funds signed up to its voluntary standards on governance and disclosure.
Forbes – In December, Forbes was a media partner to Markets Media, host of the Global Markets Summit inNew York City. Forbes Intelligent Investing Editor Michael Maiello moderated a hedge fund industry panel that included activist investors Clay Lifflander of Millcap Advisors and Stephen Roseman of Thesis Capital, along with Samuel Hocking, global head of sales for the prime brokerage at BNP Paribas and Kenneth Springer of Corporate Resolutions.
During the discussion, Hocking predicted a 30% failure rate for hedge funds in 2009, rising operating costs and higher margin requirements. Lifflander and Roseman discussed strategies for low-margin investing and the implication of hedge fund failures on shareholder activist strategies. Springer, a former FBI investigator and due diligence expert, revealed the increased scrutiny that hedge fund managers will have to bear.
Reuters – State regulators urged Congress on Thursday to restore their authority to protect investors from fraud in the banking sector and to beef up oversight of hedge funds.
Hedge fund advisers should be subject to the same kind of scrutiny as investment advisers, the North American Securities Administrators Association told reporters.
The NASAA said Congress should give the Securities and Exchange Commission explicit authority to regulate the $1.4 trillion industry, which has the potential to destabilize markets.
Reuters – The G30, a group of high-profile economists and policy-makers, on Thursday called for changes in international financial regulation to help avoid future meltdowns, but its recommendations were vague and non-binding.
In findings that made no reference to the issue of executive compensation, the group of bankers and policy-makers indicated that big firms that pose a risk to the entire system should be subject to particularly close scrutiny.
The global economy has been reeling from a financial crisis that began with a popping U.S. housing bubble and has since infected the entire financial system, shaking confidence and breeding mistrust.
istockAnalyst.com – First it was the sovereign wealth funds, controlling vast portions of American companies. Then it was the private equity cowboys who came in and took public companies private, removing them from public investment – and scrutiny.
Finally, there were the hedge funds, large pools of private money moving the markets and making stunning returns at the expense of small investors.
Just like their predecessors, who have found that they aren’t as invincible as once believed, hedge funds are having a difficult year. Seven percent of all hedge funds closed in the first three quarters of 2008 – nearly 700 of them. That doesn’t even include the fourth quarter.
New York (HedgeCo.Net) – Investors in the hedge fund Fairfield Greenwich Group have sued the company after about $7.5 billion in potential losses stemming from ties to Bernard Madoff.
The investors claimed that Fairfield sustained “avoidable losses,” by not practicing proper due diligence and failing to manage their investments properly. The lawsuit, filed by Pasha and Julia Anwar in New York State Supreme Court on Friday, is one of many attempts lately to salvage some of the estimated $50 billion lost by Madoff through his infamous Ponzi scheme. The Anwars are residents of Illinois and had an interest in Greenwich Sentry LP.
Massachusetts Mutual Life Insurance is also facing a scrutiny from angry investors. On Monday, Arthur E. Lange of Connecticut and Arthur C. Lange of New York filed a lawsuit in the Southern District of New York, claiming that the company “breached their fiduciary duties by failing to conduct adequate due diligence and/or numerous red flags,” regarding their investments with Madoff.
Massachusetts Mutual has denied the claims and plans to “vigorously defend itself,” according to a spokesman for the company.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
BloggingStocks – Congress will bring in a bunch of big hedge fund managers like George Soros and ask them why they make so much money. It will also try to figure out if they control too much of the trading on Wall Street and borrow too much money from banks putting them at risk if the hedge funds default.
According to The Wall Street Journal, "Already, momentum is building to monitor hedge-fund activities more closely and curtail some trading activities, through greater regulatory oversight and lower borrowing limits, industry insiders said."
The government may be going a little too far here. For starters, hedge funds are private institutions with the exception of a couple which have gone public. To a large extent what they pay their traders is based on a formula which their customers accept. These fees are not forced on anyone. It is not an odd analogy to say that a farmer who makes $100 million because he owns 50,000 acres of corn has reaped what he deserves for his labor. But, he is not going to be in front of Congress testifying about what he made. Free enterprise has given him his reward.
