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.
FP – “We see continued dedication to hedge funds,” Catherine Keating, chief executive of JP Morgan Chase’s private bank, told Reuters. “The things our clients are focused on are how does that hedge fund generate its returns? How much is correlated o the market? Clients care about transparency—what fees are they getting charged? They don’t mind paying fees as long as they’re getting value.”
Moffett Cochran, CEO of Silvercrest Asset Management, added, “The events of last year may have forever changed attitudes toward investing. It may be that their allocations to growth and equities will be lower. The vast majority of hedge funds had negative returns. The whole concept of absolute returns embedded in the hedge fund rationale was thrown out of the window.”
Reuters – Many hedge fund investors burned by last year’s market meltdown will likely demand a system of checks and balances in which outsiders keep a closer watch over assets, data released on Wednesday show.
Pension funds, endowments and wealthy investors that have long funneled money into loosely regulated hedge funds will want to see more data detailing how their investments are valued and priced, researchers at State Street Corp found.
New York (HedgeCo.Net) – Connecticut has long been a haven for the hedge fund industry; where light regulation and a dense population of ultra wealthy investors lure the most talented of hedge fund managers. But if some state lawmakers have their way, hedge funds will have to jump through a lot more hoops than they are used to, according to the Hartford Business Journal.
Under current law, hedge funds only allow accredited investors who have a net worth of $1 million or higher to participate. The proposed legislation would bump that minimum requirement up to $2.5 million, with institutions needing at least $5 million in assets.
The new legislation would also require hedge funds to provide greater transparency by disclosing their fees and other information about management or investment strategy. Hedge funds would also be required to obtain a state license as well as have an independent annual financial audit performed.
Many fear that by imposing these guidelines, Connecticut would have less of a draw, and many hedge fund managers could simply pack up and move to nearby metropolises like New York or Boston.
The pull for stricter oversight on hedge funds is by no means limited to the state level. Many members of Congress have been pushing for greater transparency after hedge funds got blasted for having a hand in the financial crisis thanks to controversial practices like short selling.
Others push for heightened regulation due to the recent outbreak of Ponzi schemes from so-called “trustworthy” individuals, like Arthur Nadel of Sarasota or the obvious case of Bernard Madoff where hundreds of investors were swindled out of their retirement. However, many who oppose the oversight based on increased fraud argue that investors are ultimately responsible for where their money goes and should perform greater due diligence themselves before trusting anyone with large sums of capital.
Republican State Representative John Stripp told the Hartford Business Journal that it’s not about a “vendetta against hedge funds,” just that “there is a need to have some kind of regulation in place.”
Even European finance ministers agreed this past weekend to the direct regulation of hedge funds overseas, leading most to believe that the era where hedge funds could get away with anything, is coming to an abrupt end.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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Reuters – Millionaires who long put money with hedge funds are now skittish about adding fresh cash after these loosely regulated portfolios posted record losses last year, a top industry executive said on Thursday.
"We have probably seen the worst of the (hedge fund industry redemptions), but I think it will be a slow go to build up that asset base again," Don Heberle, executive director at Bank of New York Mellon Corp’s Wealth Management unit where he oversees the Family Office and Charitable Gift Services groups, said in an interview.
The potential of hedge funds to deliver strong returns in all markets because they can sell stocks short and use borrowed money has appealed to wealthy investors for years. With the help of people like Heberle’s clients — families that are worth more than $100 million — hedge fund industry assets doubled to $2 trillion between 2005 and 2008.
Forbes – Financial assets have become so cheap because of the credit crisis that now is a good time to scoop up bargains, the head of one of the world’s biggest hedge funds, Avenue Capital, said on Wednesday.
‘Now is a phenomenal time to buy, assuming you think we’re not in a depression,’ Marc Lasry, chairman and CEO of the company, said at the 2008 Clinton Global Initiative meeting in Hong Kong.
‘We’re looking at valuations we think are extremely low. Unless the unthinkable happens, you’ll be fine,’ he said, referring to the investment environment.
SEOUL (Reuters) – South Korea will allow mutual savings firms and online-based companies to sell investment funds from next February, and draw up measures to cut sales fees for long-term investors, a regulator said on Sunday.
The Financial Services Commission FSC.L said in a statement that it will also tighten investor protection rules for fund sellers to teach customers risks from an investment, as well as its commissions and fees.
"South Korea’s fund sales market has been in the oligopolistic structure, which lacked competition for services and commissions between sellers," the statement said.
Currently, only banks, securities houses and insurance companies are authorised to sell investment funds which accounted for nearly 10 percent of the country’s household financial assets in 2007.
Washington Post – It’s easy to explain the continuing financial chaos — and the failure of governments to control it — as the triumph of psychology. Fear reigns, and panic follows. Everyone dumps stocks because everyone believes that everyone else will sell. Only rapidly falling prices attract sufficient buyers. All this is true. But it ignores the real engine of mayhem: "deleveraging." That’s economic shorthand for purging the financial system of too much debt.
Just how this deleveraging proceeds will largely determine the fate, for good or ill, of the crisis. The turmoil has already moved beyond "subprime mortgages," which (it now seems) merely exposed widespread financial failings. These were global, not just American, and their pervasiveness explains why leaders of the major economies have struggled, so far unsuccessfully, to fashion a common response.
Alone, American subprime mortgages should not have triggered a global crisis. Losses are smaller than they seem. Mark Zandi of Moody’s Economy.com estimates that all U.S. mortgage losses will ultimately reach $650 billion. But that hefty amount pales against the value of all financial assets — stocks, bonds, bank loans. For the United States, these totaled almost $60 trillion at the end of 2007; for the world, the comparable figure exceeded $250 trillion.
West Palm Beach (HedgeCo.net) – Mooring Financial Corp., a private investment firm specializing in the management of alternative assets, has seen its hedge fund, the Mooring Intrepid Opportunity Fund gain 37% year-to-date, while global hedge fund returns have declined almost 10% this year.
The fund gained by capitalizing on corrections in the high-yield corporate bond, commercial mortgage-backed securities and subprime residential mortgage markets. The Fund has gained 132.1% since its inception on March 1, 2007, the Fund’s highest gain on investment to date.
"The centerpiece of our objective for Mooring Intrepid Opportunity Fund is the expectation of a repricing of risk in the credit markets," said president and founder John Jacquemin, "We mapped out a strategy two years ago in anticipation of the credit markets debacle now taking place. The fund’s positions are volatile and aggressive, and appropriate only for investors who understand these risks."
In recent weeks, the fund has begun to take additional bearish positions in financial and commercial real estate stocks as well as exchange traded funds in anticipation of continued deterioration within these markets.
"We believed strongly that the credit markets had reached a point of excess never before experienced in modern history." Jacqumin explained, "and we felt strongly that the risk/reward ratio was very much in our favor. This has proven to be the case."
The firm has acquired and managed more than $2 billion of financial assets since inception in 1982. Mooring Financial Corporation manages four funds across different asset classes, including distressed commercial loans, real estate tax liens, publicly traded equities and credit derivatives.
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Reuters UK – Funds of hedge fund portfolios are battening down the hatches in the current volatile markets by building up cash or steering clear of strategies with too much exposure to market movements.
With returns in the hedge fund industry hard to come by as the credit crisis continues to hit markets, managers who hold portfolios of hedge funds have become wary of strategies that could be caught out by another sharp downturn.
"These are the toughest conditions I’ve seen in 16 years," said Ken Kinsey-Quick, fund of hedge funds manager at Thames River Capital, who expects billions of dollars more of asset sales by banks.
"We’re expecting a big leg down in all financial assets … We do think in the short-term we don’t want much beta." Beta means exposure to overall market movements.
