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West Palm Beach (HedgeCo.net) -The events of 2008 were dramatic everywhere in the world, but particularly so in Russia. Despite the decline of – 74.2% for the MSCI Index in 2008, the Pharos Russia Fund produced a positive 3 year annualized return of 1.3% with 24.8% volatility as compared to the MSCI Russia Index.
The Pharos Russia Fund’s 5 year returns also show a strong outperformance against the MSCI Russia Index. The 11 year period of January 1998 through December 2008, which encompasses two market meltdowns and many other mini-crises, the Pharos Russia Fund has returned a total of 100.33%, against a gain of only 3.81% for the MSCI Russia Index.
"Our long history in the Russian financial markets through good times and bad times helps guide our investment philosophy and makes us mindful of the periodic crises that hit the market," Pharos says, "We seek to maximize our investor’s returns over the medium term, and one of the most important aspects of that is to protect against severe losses in times of crisis."
Their flagship fund, Pharos Russia Fund, has been the most resilient performer in the Russia & CIS universe in 2008 and in January 09, Pharos Russia was up +0.4% whereas the Russian market RTS was down -15.3% and the MSCI Russia down -11.6%.
The market conditions in Russia deteriorated in an accelerating fashion once the May holiday revelry had ended. The commodity cycle reversed as economic indicators began to reflect the demand destruction caused by the slowing of credit availability. Waves of deleveraging of the global financial system soon followed. Russia suffered initially as the commodity focused investors sold positions, and again as investors generally sold down positions to reduce leverage. The last victim was the Russian oligarch.
By this time, Pharos said, they had adjusted their positions to reflect the bankruptcy of Lehman Brothers and the growing instability of global markets. "While our overlay gave investors protection against a collapsing market, we realized that the fundamental structure of the markets was changing, and that our risk management concerns had to change."
While this tale of misadventure is unsurprising for an emerging market, it has also become the dangerous reality in the US and other developed markets as well, Pharos said. "In Russia, there are a few key triggers that we are looking for before investing fully into the market. In past letters, we have identified credit normalization and commodity price stabilization as the two necessary, but perhaps not sufficient, conditions for Russia’s bear market to end. While we do not expect credit availability to reach the extreme levels of the last few years, basic credit does need to flow again for companies to move out of crisis mode and for trade to resume in a normal manner. The Russian government has taken admirable steps to deal with the shutdown of credit, and after a slow start is now using the large reserves built up during the commodity boom to supply credit to Russian corporations that need help rolling over their debt."
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Reuters – General Motors Corp and Chrysler LLC are considering accepting a pre-arranged bankruptcy as the last-resort price of getting a multi billion dollar government bailout, Bloomberg reported, citing a person familiar with internal discussions.
In response to automakers’ bailout plea, staff for three members of Congress have asked restructuring experts if a pre-arranged bankruptcy — negotiated with workers, creditors and lenders — could be used to reorganize the sector without liquidation, Bloomberg said.
General Motors and Chrysler could not be immediately reached for comment by Reuters.
Industry executives and analysts say the immediate carnage from a bankruptcy of General Motors Corp, Ford Motor Co or Chrysler would spread throughout an industry that is bleeding cash in a global slowdown.
Times Online – Hedge fund managers are spivs and speculators, directly responsible for creating carnage in the world’s financial markets and threatening the future of high street banks. At least, that’s what some argue.
But it is, emphatically, not true, according to Christopher Fawcett, the hedge fund executive who has taken on the role of de facto cheerleader for Britain’s embattled alternative investment industry.
Such criticism is misplaced, he argues. Investment banks, rather than hedge funds, were behind the surge in gearing, or leverage, that pushed markets to breaking point in the middle of last year. Hedge funds were actually more conservative and only moderately geared.
Reuters UK – Robust returns for a group of powerful hedge funds that thrived for years using sophisticated trading programs may be a thing of the past after a "Black Swan" event hit global markets this year.
The carnage in financial markets worldwide, what many viewed as a so-called Black Swan event because it was out of the ordinary and had severe repercussions, has scorched returns for most of these funds. That forced them to embrace new models that place less capital at risk and employ little or no leverage.
With the failure of many investment systems that ran on algorithms created by mathematicians-turned-traders, quantitative funds, also known as "quants" are also veering away from models with longer-term horizons. They have instead focused on high-frequency strategies, or very short-term trades that often are executed in seconds.
Caymen Net News – Insolvency lawyers in Scotland should take an interest in a bankruptcy case in the Cayman Islands involving two Bear Stearns hedge funds and an American judge with the wonderful name of Burton Lifland.
The issue is this: where did a business that has gone bust have its main commercial interests?
The two funds were involved in what is now a familiar story amid the carnage on the world financial markets. They bet heavily on sub-prime mortgages and, as defaults increased, creditors demanded their money back leaving the funds with no cash.
CNNMoney.com – Wall Street equity traders usually thrive on volatility, but the latest arrival of carnage on their doorstep has distracted and confounded them.
This habitually brusque bunch is even more harried than usual, worrying about their livelihoods and the safety of their funds’ accounts in addition to the direction of a crazy market. One prominent form of escape: gallows humor.
Asked what floor he was going to in an office complex in Jersey City, N.J., an employee of one major brokerage replied, "I might as well go up to your floor, and apply for a job. It looks like we’re next."
Even the diehard speculators in the hedge-fund community are in a state of confusion. The funds have watched two of the prime brokerages that serve them collapse and another get swallowed by a bank in a few months, and some are close to sticking money under a mattress, said Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund. Some funds are too busy working out where to put their account to even bother with securities or commodities.
