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.
Explore the most informative hedge fund articles and take the news with you, using HedgeCo RSS.
Still want more? Browse the hedge fund blogs, authored by hedge fund industry experts.
The Daily Deal - Lehman Brothers Holdings may have gone bankrupt eight weeks ago, but the filing continues to reverberate throughout the financial world and even in some unexpected places like the National Football League’s New York Giants. The latest to join the ranks of the exposed are hedge funds. All those 140,000 failed or reconciled credit derivative swaps trades that PricewaterhouseCoopers is involved in identifying could hit the hedge funds and numerous other Lehman clients next month.
According to the Financial Times, four unnamed U.S. hedge funds are likely to close in mid-December because they cannot access holdings held at the London arm of Lehman Brothers. All of the shares and loans cannot be accessed so that PwC can unravel those CDS’s.
CNNMoney.com - For equity markets, 2008 will long be remembered as a year of massive selling, and it’s likely to end the same way.
Hedge funds will find it increasingly difficult to obtain lending at the end of the year, a time when banks typically tighten their lending anyway as part of the "window dressing" process. This year, two key securities firms that supplied loans to hedge funds, Bear Stearns and Lehman Brothers, have disappeared, and the remaining firms that lend to hedge funds are hanging on to cash in an effort to deleverage themselves.
"These tight financing positions over year-end are likely to result in the forced sales of securities prior to year-end," said an Alliance Bernstein research report put out Wednesday.
Chicago Tribune - The credit crunch and global economic recession have squeezed many independent filmmakers, who were already struggling from a glut of films and a shortage of funds even before the global economy went into a tailspin last month.
While the major studios have long-term deals in place to co-finance their movies, independent producers aren’t nearly as fortunate. Most of them do not have easy access to capital and instead must cobble together a patchwork of financing to make one film at a time. That patchwork has become frayed as lenders cool on making loans to filmmakers and foreign buyers grapple with access to credit and depressed currencies.
"The entire ability of independent filmmakers to finance their films has been shaken dramatically," said Mark Damon, chief executive of Foresight Unlimited, a Los Angeles film production company, who produced the 2003 drama "Monster."
Bloomberg - The U.S. Treasury and the Federal Deposit Insurance Corp. are considering a program that may offer about $500 billion in guarantees for troubled mortgages to stem record foreclosures, people familiar with the matter said.
The plan, which might put as many as 3 million homeowners into affordable loans, would require lenders to restructure mortgages based on a borrower’s ability to repay. Under one option, the industry would keep lower monthly payments for five years before raising interest rates, the people said.
FDIC Chairman Sheila Bair mentioned the program at an international deposit insurers conference in Arlington, Virginia, yesterday without offering details. “A framework is needed to modify loans on a scale large enough to have a major impact,” Bair said.
Reuters - Lehman Brothers Holdings Inc agreed on Wednesday to sell its 45 percent stake in hedge fund R3 Capital Partners for $250 million in cash and a $250 million investment in another fund managed by R3.
Lehman, which filed for bankruptcy protection last month, acquired the stake in May in return of a roughly $1 billion investment, according to document filed in U.S. Bankruptcy Court in Manhattan.
R3 Capital is run by Richard Rieder, a former head of global principal strategies at Lehman.
Lehman owned the non-voting, minority ownership stakes in the master fund, general partner, special limited partner and management company of R3 Capital Partners, an asset manager of funds investing primarily in corporate bonds and loans.
Hindu Business Line - Worried that global financial services provider Morgan Stanley may land into financial troubles like Lehman Brothers, several hedge funds fled the bank resulting in a loss of billions of dollars in its prime brokerage business last week, a media report says.
“Many of the world’s biggest hedge funds moved their assets to commercial banks regarded as safer last week, as they and their investors worried that Morgan Stanley could follow Lehman into trouble,” the Financial Times said.
Quoting people familiar with the business Financial Times said, “Losses will deal a big blow to Morgan Stanley as its prime brokerage is one of its most profitable and successful businesses.”
The withdrawal of client assets is likely to make Morgan Stanley’s business less profitable by restricting its ability to fund loans to hedge funds from balances left by other hedge funds, FT added.
Hedge funds are pooled investment funds, usually a private partnership that seeks to maximise absolute returns using a broad range of strategies, including unconventional and illiquid investments.
DealBreaker.Com - Morgan Stanley and Goldman Sachs are linking their lending to hedge funds to the market’s assessment of the credit worthiness of the investment banks. Morgan Stanley will reportedly evaluate the amount of leverage it will supply to hedge funds based on the price of its own credit insurance pricing. Goldman is said to be linking its willingness to provide loans to hedge funds based on its bond prices.
The report of both changes ran in the Financial Times. The changes would limit the ability of hedge funds to borrow from either firm if borrowing by Morgan and Goldman became too expensive, indicating a lack of market confidence in the financial health of the firms.
In one sense, this seems a practical response to volatility in the credit markets, reducing exposure to hedge fund leverage as credit markets for financial companies become unsettled. It does, however, create a self-serving dynamic for the investment banks. If hedge funds taking the view that the companies have become unstable push up CDS or bond yields on the firms, they may find themselves unable to borrow from the firms. In other words, it gives the hedge funds an incentive not to bet against Goldman and Morgan.
Guardian.co.uk - Hedge funds are known for playing many roles on Wall Street, but last-resort lender to small businesses that are turned down by banks is hardly one of them.
Yet with the credit crunch pushing many major U.S. banks to set tougher lending standards for small and medium-sized businesses, hedge funds have stepped in.
The money isn’t cheap, with interest rates of 14 percent or more. But small businesses have few places to turn.
"A major void has been created in the marketplace by banks tightening their credit standards and trying to stabilize their balance sheets," said David Grin, co-founder of Laurus-Valens, a hedge fund with around $1.7 billion under management. "From the investment point of view, this is as good as it gets."
Laurus-Valens provides loans to public and private companies with average revenues of $30 to $50 million. The fund charges interest rates of about 10 percent to 11 percent, and takes equity stakes in the companies.
Telegraph.co.uk - BAA is in urgent talks with a hedge fund client of investment bank UBS that is threatening to scupper the airport operator’s proposed £7.65bn refinancing.
As today’s deadline for bondholders to vote through a crucial part of the deal nears, the hedge fund was last night still refusing to accept BAA’s terms for transferring more than £225m of bonds into a new financing structure.
BAA is seeking agreement from holders of £4.7bn of bonds to "migrate" their debt into a new investment-grade, ring-fenced structure backed by Heathrow, Gatwick and Stansted airports. Only if the bondholders agree to such "migration" can BAA begin to draw the £7.65bn of fresh loans put in place by a nine-strong banking syndicate.
BusinessWeek - In early 2008, Jim Gee hit an impasse. Over the previous five years, Gee had been expanding Trinity Communications, a small cable-TV company in Marion County, Tenn., that he founded in 2003. With startup costs of nearly $3 million, Gee had used personal funds to get the business rolling, laying fiber optic cables across two rural towns and attracting new subscribers. By 2008 he had 600 customers and 6 employees, but Gee couldn’t find additional funds to service new towns and sign new subscribers.
"Local lending was just not available," says Gee. After he exhausted possibilities at traditional lenders, his attorney recommended that he reach out to a hedge fund that had recently started providing asset-based loans to small companies. So Gee met with Genesis Merchant Partners, a fund launched by the $145 million, Connecticut-based hedge fund Sands Brothers Asset Management. Within two weeks of the meeting, Gee had secured a 15-month, $500,000 loan from Genesis, carrying an interest rate of over 14% after fees, with a 10% penalty if he were to pay it off early. Trinity has nearly tripled its subscriber base since it secured the loan, says Gee. His company is now taking out a second loan for a similar amount from Genesis to continue its growth plan. He doesn’t consider the terms particularly onerous: "I was open to go as high as 15%."
Reuters- Lone Star’s deal to buy bad loans from Merrill Lynch & Co signals a growing power shift as private equity firms mop up after the year-long credit crisis.
Merrill Lynch said on Monday it will take a $5.7 billion (2.9 billion pound) third-quarter write-down as it unloads large holdings of risky debt. More than $400 billion of write-downs and losses at major banks since last year characterized the first phase of the financial crisis.
"The second part of the story is the distressed funds that have been raising funds to take advantage of motivated sellers," said Frank Morgan, president of the UK-based Coller Capital’s U.S. unit in New York, where it has $8.5 billion in assets under management.
International Herald Tribune- A former manager of a Citigroup Inc hedge fund has filed a complaint with a British tribunal accusing the bank of causing his fund’s demise, the Wall Street Journal reported on Saturday, citing people familiar with the matter.
In a sealed complaint filed last month with a state-run employment tribunal, John Pickett, who ran a hedge fund known as CSO Partners that specialized in corporate debt, accuses the bank of pressuring CSO to buy billions of dollars in troubled loans, the newspaper reported.
Pickett said the loans undermined CSO and led to his resignation. Citigroup called the complaint "without merit," the Journal said.