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Bloomberg – Dalton Investments LLC, the Los Angeles-based hedge fund with 70 percent of its assets in Japan, is starting a 50 billion yen ($550 million) fund that will invest in U.S. distressed assets, taking advantage of low prices.
The fund has raised about 10 billion yen from U.S. investors and will begin marketing in Japan by the end of March, said Junichiro Sano, chief executive officer of Dalton’s local unit. It will invest in bonds sold by U.S. companies that once had AAA ratings and have since been downgraded below investment grade, aiming to profit from the high yields on the debt.
Dalton, co-founded by James Rosenwald and Steven D. Persky in 1998, aims to raise its assets under management after they fell 23 percent to about 100 billion yen this year amid the biggest financial market losses since the Great Depression. Global financial institutions have posted about $989 billion in writedowns and credit losses linked to the U.S. mortgage market collapse, pushing corporate bond yields higher.
Bloomberg – Hedge funds that profit from turbulence in the financial markets are beating stock, bond and commodity investments for the first time in five years.
Volatility hedge funds climbed 7.3 percent this year through August, according to the Newedge Volatility Trading Index. The average equity fund fell 8.38 percent, corporate fixed-income funds declined 4 percent, and energy and basic- materials stock funds dropped 6.36 percent in the same period, data compiled by Chicago-based Hedge Fund Research Inc. show.
“Nobody knows the direction of the markets or economy at the moment, and we’re profiting from that uncertainty,” said Trevor Taylor, 35, co-chief investment officer at Miami-based Innovative Options Management LLC. The firm’s $90 million hedge fund rose 12.3 percent this year through August, after returning 25 percent in 2007.
Price swings that helped Taylor started with the collapse of subprime mortgages that have left the world’s biggest banks with $506 billion of writedowns and credit losses in the past year, according to data compiled by Bloomberg. The Standard & Poor’s 500 Index fell 19 percent since October as credit dried up and the U.S. economy edged to the brink of recession.
Bloomberg- Asian hedge funds are increasing their use of multiple prime brokers after the U.S. subprime mortgage market collapse heightened the risk of relying on a single investment bank for brokerage services, an AsiaHedge survey found.
Hedge funds that are managed in Asia or invest primarily in the region awarded 326 shared mandates to prime brokers, 36 percent more than last year, according to Bloomberg calculations based on information in AsiaHedge’s 2007 and 2008 Asian prime brokerage surveys. The pace of growth exceeded the less than 20 percent increase in sole mandates to 778 in the past year.
Rising delinquencies in the subprime market that led to the near collapse of Bear Stearns Cos., once among the top three Wall Street prime brokers, have forced the world’s largest banks and securities firms to post more than $400 billion of asset writedowns and credit losses since the beginning of last year.
CNNMoney.com – It’s time to say goodbye to Old Lane, the hedge fund management company bought by Citigroup last July.
Citi paid a very dear $800 million to snag the fund and its founder Vikram Pandit, who now runs the entire bank, but the fund’s investors got very little out of the deal. One wonders whether Old Lane was doomed from the moment it was bought, and whether death is the fate of funds that become part of Wall Street conglomerates like Citi (C, Fortune 500), Goldman Sachs (GS, Fortune 500) and UBS (UBS) – the mega-banks that have rolled up merchant bankers, trading floors, and personal wealth management groups.
True, the hedge fund had problems independent of Citi, generating a modest 6.5% in its first year and falling about 6% amid last August’s credit turmoil. It continued to lag other multi-strategy funds thanks to bad credit bets. But problems at Old Lane are the latest in a string of blowups at banks that operate hedge funds. UBS shuttered its Dillon Read Capital Management last May due to big credit losses; and those problems gave markets a warning shot of the credit crisis to come.
The implosion of two highly leveraged credit hedge funds last June was the beginning of the end for Bear Stearns. And Goldman Sachs’ flagship Global Alpha fund began 2007 with $10 billion and ended the year with about $4 billion. Each of these debacles has had its own special flavor, but they all show how hedge funds can lose their mojo when they live within a big, bureaucratic institution.
