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.
Chicago Tribune – Citadel Investment Group is covering "a substantial portion" of its operating expenses this year, a break from passing those costs on to clients, Katie Spring, a spokeswoman for the Chicago-based hedge fund, said Thursday.
"We felt it was the right thing to do." Spring said, citing Citadel’s "long-standing relationship with our investors."
Citadel declined to specify how much of the costs it would absorb, but estimates range from $200 million to $300 million. When management fees were high relative to returns in 2005, Citadel founder Ken Griffin reimbursed investors. The hedge fund will again start charging its standard fees in January.
Citadel’s two largest funds have suffered losses of almost 50 percent through November. Assets under management total around $13 billion and clients have requested about $1 billion worth of redemptions. Hedge funds typically finance operations by taking 2 percent of assets, then retaining 20 percent of profits to pay employee performance bonuses. Citadel bills investors for expenses, which can represent as much as 8 percent of assets, and keeps 20 percent of profits. Among expenses charged to investors are annual bonuses to Citadel employees, according to people familiar with the hedge fund.
Chicago Tribune – The Citadel Investment Group will shutter its Tokyo offices and cut 37 jobs from its Asian operations.
The Chicago-based hedge fund will still have a presence in Hong Kong, where 25 positions will be cut, the company said Monday. The investment firm founded by billionaire Ken Griffin in 1990 will maintain 25 to 30 staffers in Hong Kong. A regional group that invested in companies undergoing mergers, asset sales or lawsuits will be cut.
Citadel’s decision comes after its two primary funds reported losses of 47 percent through November. The firm manages $16 billion in assets.
New York (HedgeCo.Net) – Five billionaire hedge fund managers stood up before Congress yesterday and shared their differing views on the hedge fund industry.
George Soros, Philip Falcone, John Paulson, James Simons and Ken Griffin all took turns defending hedge funds at the House hearing yesterday, though they clearly weren’t on the same page regarding opinions on regulation.
The hearing was called by democratic committee Chairman Henry Waxman of California, as part of a much larger attempt by Congress to delve deeper into the cause of the credit crisis and to see whether or not hedge funds have had a hand in driving down the values of certain markets.
While Harbinger Capital head Falcone was all about greater regulations, saying that investors "have a right to know what assets companies have an interest in," Soros disagreed. The founder of Soros Fund Management warned against "ill-considered" rules and guidelines if they were merely a product of the recent turmoil in the economy.
Griffin of Citadel Investments agreed saying, "We do not need greater regulation of hedge funds. We’ve not seen hedge funds as a focal point of the carnage."
The issue of taxes was also raised, with a slew democratic representatives firing accusations that the fund managers enjoy special tax breaks.
Paulson & Co. head John Paulson came to the defense saying, "If your constituents, whether a plumber or a teacher, bought a stock and if they held that stock for more than a year they would pay a long-term capital gains rate."
Waxman suggested the hedge fund industry faces increased regulation and transparency when President-elect Barack Obama, who has also been vocal on wanting to raise the capital gains tax, takes office in Janary.
All five hedge fund managers who testified have enjoyed extreme success in the hedge fund industry. George Soros, who is best known for his infamous bet against the British Pound in which he pocketed $1 billion overnight, manages over $19 billion through his company.
Phil Falcone and John Paulson both predicted the subprime crisis before it happened. Paulson took home an estimated $3 billion in 2007, the largest single-year profit by a fund manager to date.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
EasyBourse.com – When CME Group Inc. (CME) chose Citadel Investment Group founder Ken Griffin to front the first in a series of corporate advertisements last year, the symbiotic relationship between exchanges and hedge funds was at its peak.
The image of Griffin, poised calmly over a crevasse, was intended to illustrate how the best managers can navigate risk to maximize returns, helped of course by the exchanges.
New York (HedgeCo.Net) – After a disappointing year, Citadel will launch several new hedge funds in hopes of countering the losses of their main hedge fund.
The multi-strat $10 billion Kensington Global Strategies Fund has fallen over 30 percent this year. CEO Ken Griffin attributed some of that loss to the temporary ban on short selling, saying it “created material dislocations across many of our portfolios and disrupted our ability to assume and manage risk.”
After much speculation and some bad press, Griffin warned investors last week that returns on the fund would experience “significant volatility” in the next few weeks.
The new funds will focus more on global macro, convertible arbitrage and fixed income strategies, according to the Wall Street Journal.
Griffin told investors, "The financial crisis dramatically raised the cost of borrowing and reduced the availability of credit to market participants, materially reducing the value of cash assets as compared to the value of derivative instruments.” He went onto explain how he did not foresee the financial crisis that has unfolded this past year.
While the Kensington Fund will still be available to investors, many clients are interested in allocating their assets across numerous strategies.
Citadel was founded in 1990 and manages over $20 billion in capital.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
