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West Palm Beach (HedgeCo.net) – Morningstar reported a sharp decline in credit and equity markets as the U.S. government announced its stimulus package and financial stability plan. February saw a huge sell-off in U.S. and European bank stocks caused by concerns of financial health and nationalization.
U.S. bank stocks hit a 17-year low and spreads on corporate bonds widened, according to the report.
"Hedge fund managers, like other investors, are nervous about the efficacy and unpredictability of government involvement in the economy. They just don’t know what the U.S. government will do next, and this uncertainty is wreaking havoc in the markets," said Nadia Papagiannis, Morningstar hedge fund analyst.
Widening spreads hurt hedge funds that invest in distressed debt, as lower-quality credits became cheaper. The Morningstar Distressed Securities Hedge Fund Index was one of the worst-performing category indexes, falling 4.1%. The Morningstar MSCI Specialist Credit and Relative Value Hedge Fund Indexes fell only 0.5% and 0.1%, respectively, as some areas of the credit market, such as leveraged loans, performed better than others.
Global non trend funds, those that make macro-economic bets, and global trend funds, those that bet on price trends in commodity and financial futures, showed mixed results in February. These funds took advantage of the rise in gold and the depreciation of the Japanese yen against the U.S. dollar, but volatility in other commodities such as oil caused declines.
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Bloomberg – Bank of America Corp., the largest U.S. bank by assets, received a $138 billion emergency lifeline from the government to support its acquisition of Merrill Lynch & Co. and prevent the global financial crisis from deepening.
The U.S. will invest $20 billion in Bank of America and guarantee $118 billion of assets “as part of its commitment to support financial-market stability,” the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement shortly after midnight in Washington.
New York (HedgeCo.Net) – Several hedge fund firms led by J.C. Flowers & Co., are closing in on a deal to purchase the assets of IndyMac, the failed mortgage lender, as of Sunday.
The group of firms, which also include Paulson & Co. and Dune Capital Management, would buy the bank’s 33 branches, along with its $176 billion loan-servicing portfolio and its reverse-mortgage unit.
The IndyMac Bank unit was seized by regulators in July after clients moved to withdrawal $1.3 billion in cash in little over a week. The result was one of the worst U.S. bank failures in history, from a firm who managed $32 billion in assets.
Paulson & Co. is a New York-based hedge fund run by famed manager John Paulson. In the midst of one of the worst years for hedge funds to date, Paulson’s funds have managed to reap consistent returns.
Dune Capital Management is a New York-based private equity firm, founded in 2004 by ex-Goldman employees Steven Mnuchin and Daniel Niedich.
J.C. Flowers & Co., another New York-based firm, was founded in 2001 by billionaire J. Christopher Flowers, also formerly of Goldman. In 2007, the company was close to purchasing loan servicer Sallie Mae for $25 billion.
The Federal Deposit Insurance Corp is being advised on the sale by Barclays Capital and Deutsche Bank. A deal is expected to be finalized by the end of this year.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
