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.
Globe and Mail – When Salida Capital Corp. beat all other bidders in a charity auction last month to score lunch with Warren Buffett, the $1.68-million (U.S.) win sent a signal to Bay Street: Salida is back.
Salida, the once high-flying, resource-focused hedge fund manager known for its appetite for risk, became one of Canada’s high-profile victims of last year’s market meltdown when its flagship Multi Strategy Fund plunged 67 per cent and three of its hedge funds got locked up in the Lehman Brothers Holdings Inc. bankruptcy.
That was followed by a rapid exodus of key staffers and by dwindling assets under management.
Reuters – CIT Group Inc (CIT.N), which is looking at selling off some assets, is most likely to sell its aviation-finance and rail-finance operations, the Wall Street Journal said, citing sources familiar with the matter.
The people, who said evaluations were still in the early stages, told the paper that CIT was approached by Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) (BRKb.N) and Leucadia National (LUK.N) to buy parts of the company, but spurned the offers because of low bids.
CIT, which is a lender to nearly a million small- and mid-sized businesses, averted a crisis and bought some time this week with a $3 billion emergency financing from large bondholders to restructure its debt and avoid bankruptcy, after the collapse of rescue talks with the U.S. government.
Sioux City Journal – Last year’s winning bid for lunch with legendary investor Warren Buffett topped $2.1 million, but given the economic turmoil, who knows if this year’s bidding will approach that level.
Yet Buffett has built a devoted following as demonstrated by the crowd of 35,000 people at his recent Berkshire Hathaway shareholders meeting, and he offers only one lunch per year.
The online bidding begins at $25,000 Sunday in a charity auction that benefits the Glide Foundation, which provides social services to the poor and homeless in San Francisco. The bids will likely escalate significantly before the auction closes Friday evening at 9 p.m. CDT.
Reuters – Yorkville Advisors, a $1 billion hedge fund, said it is stepping into the lending vacuum left by banks as it provides struggling firms with loans for up to two years, typically in the $5 million to $40 million range.
More recently the value of the loans has increased as larger-cap companies seek assistance. At end-January, Yorkville loaned $147.9 million to shipping firm Ocean Freight Inc.
The move is one way for hedge funds to thrive despite the global financial and economic crisis, and mirrors similar investments by billionaire investor Warren Buffett.
CNN Money – Hedge funds may be struggling and closing up shop in the current market environment, but Goldman Sachs Group Inc. (GS) was able to make more money tending to the funds’ needs this year than last.
The company, which on Tuesday reported its first quarterly loss since it went public a decade ago, was able to post a 19% gain in revenue in its securities services operations for the three months that ended Nov. 28, compared to the same period last year. The business also turned in record net revenues for all of fiscal 2008 at a time when Goldman’s normally high-octane trading and principal investing line was down by 71% for the year.
Goldman’s security services business is dominated by its prime brokerage operations, whose clientele comes primarily from hedge funds. Competitor Morgan Stanley (MS), which runs a similar prime brokerage business that turned in record net revenues last quarter, reports its earnings on Wednesday.
Though hedge funds have been hard-hit by customer redemptions and market losses, Goldman was able to generate more revenue this year because its securities services business mix became more profitable, Chief Financial Officer David Viniar told analysts during a conference call.
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 – Tozai Investment Advisory Ltd., a Tokyo-based hedge fund adviser, is closing its business after market losses and investor redemptions cut its funds’ assets to zero from a peak of $70 million, a senior partner said.
The Cayman Island-based Trident Pacific Japan Absolute Return Fund, which Tozai advises, was closed last month, Angus McKinnon, senior partner at Tozai said in an interview in Tokyo yesterday. The fund, launched in December 2004, invested in Japanese equities using a so-called long-short strategy that bets on rising and falling stock prices, McKinnon said.
Global hedge funds are bracing for the worst year on record as more than 80 firms liquidated hedge funds, segregated assets or limited withdrawals following the MSCI World Index’s 44 percent drop this year and tightening credit conditions. Citadel Investment Group LLC, the hedge-fund manager founded by Kenneth Griffin, said yesterday it will close its Tokyo office, eliminating 12 jobs.
Bloomberg – Satellite Asset Management LP, founded by former employees of billionaire George Soros, stopped client withdrawals from its three largest hedge funds and eliminated more than 30 jobs after losses reduced the firm’s assets to about $4 billion this year.
Satellite Overseas Fund Ltd., Satellite Fund II LP and Satellite Credit Opportunities Ltd. have declined as much as 35 percent in 2008, said a person with knowledge of the funds’ performance. Simon Rayler, Satellite’s general counsel, declined to comment and wouldn’t disclose how many people remain at the firm’s New York headquarters or London offices. Satellite oversaw about $7 billion for clients at the end of last year.
More than 75 hedge funds have liquidated or restricted investor redemptions since the start of the year as they cope with fallout from the global financial crisis. Investors pulled $40 billion from hedge funds last month, while market losses cut industry assets by $115 billion to $1.56 trillion, according to data compiled by Hedge Fund Research Inc. in Chicago.
Money Morning – Hedge funds looking to slash their use of borrowed money may have to unload another $200 billion in assets to reach their objectives, a new study found, though a Money Morning expert believes the exit door could get pretty narrow should the holiday shopping season get off to a rocky start later this week.
Investors yanked $40 billion from the $1.5 trillion hedge fund industry in October, a month in which market losses slashed industry assets by an additional $115 billion, Hedge Fund Research Inc., reported. A new survey of hedge fund managers conducted by Sanford C. Bernstein & Co. LLC found that 63% said the sale of assets to cut leverage was at least half completed. Another 23% said the process was three-quarters complete.
Bloomberg – Hedge-fund assets may fall to about $1 trillion by the middle of next year, a decline of almost 50 percent from their peak in June, because of market losses and client withdrawals, Citigroup Inc. said in a report.
Managers are likely to see investors, led by funds of funds, pull 20 percent of their money, Tobias Levkovich, an analyst at the New York-based bank, wrote yesterday. Funds of funds are middlemen who select hedge funds for their clients.
“The so-called `Swiss hot money’ wants out and funds are responding,” Levkovich wrote, referring to Swiss investors who have a shorter investing period than pension funds. “Citi’s credit analysts estimate that hedge funds have raised cash to roughly 40% of assets already in anticipation of known redemptions and possibly unanticipated demands from investors.”
Hedge funds lost an average of 16 percent this year through October, according to data compiled by Hedge Fund Research Inc., as stock and commodity markets tumbled and lending tightened. The industry has lost money in only one year — a 1.45 percent decline in 2002 — since the Chicago-based firm began tracking returns in 1990.
Bloomberg – Hedge-fund managers including George Soros and Philip Falcone, in an unprecedented appearance before Congress, defended their practices and profits while splitting over whether the U.S. should impose stricter regulations.
"This is not a case where management takes huge bonuses or stock options while the company is failing,” said Falcone, one of five billionaire investors who testified today before the House Committee on Oversight and Government Reform in Washington.
Falcone, senior managing director of New York-based Harbinger Capital Partners, urged Congress to require more disclosure by hedge funds, which oversee $1.7 trillion of investments. Soros, founder of Soros Fund Management LLC, cautioned against “ill-considered” rules because this industry is reeling from market losses and client defections.
