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.
West Palm Beach (HedgeCo.net) – Funds of listed hedge funds are no longer providing reliable rates of return as the credit crunch continues – despite having been marketed as risk-free investments.
Analysis from Citywire shows that the sector has declined by 1.8% in net asset values (NAVs) so far in 2008, with funds losing much of the growth they enjoyed last year prior to the onset of the financial crisis.
The news gets still worse in terms of share prices in funds of hedge funds – which are seven% down on the year.
Increased market volatility is thought to have cancelled out the advantages invested in listed hedge funds enjoy, such as having a permanent base of capital.
Speaking to the news source, Simon Elliott, head of research at Wins, commented: "Performance across the board has been disappointing this year and the difference between NAV and share price performance gives you an idea of how premiums have evaporated and discounts widened.
"They have held up pretty well in NAV terms, but investors are exposed to the share price and it makes a big difference to returns."
Zawya – Lionhart (Middle East) Limited, part of the Lionhart group of companies, a firm specializing in global multi-strategy arbitrage, today announced that it has gained regulatory approval from the Dubai Financial Services Authority (DFSA) to open an office in the Dubai International finance Center (DIFC).
The Dubai office will be headed by Jim Quinn who has over 20 years experience in the asset management industry with 10 years experience in the Gulf region. The office opening and the establishment of a dedicated team is the culmination of many years of investing in the Middle East. The increasing sophistication of Gulf investors and the rapid development of economies mean that the region is set to play an increasingly important role in the world’s economy. With this new office opening, Lionhart is committing itself to the Gulf region for the long term.
Abdulla Al Awar, Managing Director of DIFC Authority said: "The funds industry in the Middle East has seen rapid growth in the past few years, spurred by the growth of the economy and the availability of a world-class financial services infrastructure. The increasing commitment shown by leading firms like Lionhart in the region will boost the market for funds generally, and for hedge funds specifically. We look forward to providing Lionhart with the services that will support their efforts to develop their business in the region."
Bloomberg – Dai-ichi Mutual Life Insurance Co., with more than 30 trillion yen ($274 billion) in assets, will invest more money with hedge funds to safeguard returns as financial markets falter.
Tokyo-based Dai-ichi Mutual, Japan’s second-largest life insurer, currently invests in more than 100 hedge funds as well as funds of hedge funds, Yuji Hirai, manager of the firm’s structured and alternative investment department, said in an interview in Tokyo yesterday. He declined to provide specific targets for hedge fund allocations.
“Our goal is to increase our allocation to hedge funds,” said Hirai, 40. “We’re in a difficult market, no doubt, but for hedge funds chasing absolute returns, this is the time to prove their outperformance.”
West Palm Beach (HedgeCo.Net) – Baader Wertpapierhandelsbank AG has been granted membership to the Compensation Fund of German Banks (EdB) by the German Financial Supervisory Authority (BaFin).
Once the entry into the commercial register has been completed, the institution will be known under its corporate name, Baader Bank AG.
"Receiving the full banking licence is a significant sign of the faith that is placed in the capability of our bank’, commented Uto Baader, Chairman of the Baader Board of Directors.
The bank operates as an all-round service provider for asset managers and other institutional customers as well as an arranger of financial innovations. The main products and services provided by the bank include certificates, publicly offered funds, single hedge funds and funds of hedge funds as well as managed accounts.
Baader Service Bank currently has 26 employees and reported net profit of EUR 0.56 million ($1 million) with total assets of EUR 53.3 million ($83.2 million) in 2007.
Bloomberg- Mitsubishi Asset Brains Co., an investment advisory firm of the Mitsubishi financial group, plans to start a fund of hedge funds as it seeks to invest in managers that can make money in falling markets.
The company aims to start advising a fund in the next “two- to-three years” with the aim of raising “several tens of billions of yen,” Akihiro Nishi, executive director at the Tokyo-based company’s investment advisory division, said in an interview in Tokyo. The company has hired a hedge fund manager who will start in August, he said.
Mitsubishi Asset Brains aims to tap growing demand for funds of hedge funds since the credit crunch that stemmed from U.S. subprime loan problems prompted investors to seek diversified investments to secure steady returns. The money managed by funds of hedge funds has grown more than 800 percent since 2003, according to Singapore-based research firm Eurekahedge.
West Palm Beach (HedgeCo.Net) New York-based Fairfield Greenwich Group ("FGG"), a $16.6 billion global hedge fund and fund of hedge funds management firm has formed a cooperative venture with Sceptre Investment Counsel Limited, one of Canada’s leading independent money management firms.
The venture sees two of the oldest, most established, and most accomplished management firms in their respective markets forming a mutually supportive relationship to provide Sceptre’s clients access to the best-of-breed alternative asset products on FGG’s global platform.
"Sceptre has many strong relationships in the Canadian investment community, and our clients have long trusted us to manage their pooled funds, mutual funds, and other investments. FGG manages some of the industry’s finest funds of hedge funds and other alternative asset products." Richard L. Knowles, Sceptre’s President and CEO said, "We believe that Sceptre’s clients will understand the great value that FGG brings to the table, and that they will have considerable interest in the outstanding hedged products to which they may now gain access through this new relationship."
"We are excited to be working with Sceptre in Canada. For more than 25 years, FGG’s expertise in manager selection, due diligence, and risk management has benefited our investors." David B. Horn, Partner and Chief Global Strategist of FGG commented, "We have great confidence that Sceptre’s extensive network of investors will appreciate the quality and diversity of FGG’s platform of products, and the institutional investment and risk management with which we support it."
Sceptre manages client assets of $9.5 billion, utilizing a broadly diversified investment approach. Originally founded as an institutional fund manager, Sceptre has broadened its expertise to include both retail and private client portfolio management. Sceptre manages segregated and pooled fund portfolios for pension and other savings plans of corporations, government sponsored funds, universities, unions, charitable foundations, endowments and reserve funds of insurance companies.
West Palm Beach (HedgeCo.net)- Stanford University’s Graduate School of Business is using a hedge fund, GlobeOp Financial Services, in a business model case study developed for classroom.
The case study, ‘GlobeOp: Enabling Hedge Funds, 2000-2003,’ emphasizes how vital a robust operational and technology infrastructure is in a constantly evolving and highly competitive market.
“GlobeOp exemplifies the strategic value of cutting-edge technology in an entrepreneurial, global organization." Professor Glenn R. Carroll, who led the study, said, "This is exactly the kind of new firm that our students want to learn about and will work in. We are gratified that they opened their doors to us."
“We are honored to be the focus of this study, which we hope will provide students with useful insight into the vision, team commitment and plain hard work it takes to establish a business for growth and long-term success." Hans Hufschmid, CEO of GlobeOp said.
The initial case study documents how GlobeOp identified and targeted an opportunity and then defended its market position by effectively managing growth and stabilizing the organization. It includes GlobeOp’s strategic decision to establish a significant presence in India to optimize scalability and time zones, and subsequently provide its global client base with comprehensive 24/5 service. The study also discusses GlobeOp’s responses to market opportunities, client demands and resourcing challenges, which paralleled financial technology innovations and the expansion of its client base from hedge funds to funds of hedge funds.
The second part of the Stanford case study, documenting GlobeOp’s history from 2003 to the present, is in development. GlobeOp grew from a small core team of 20 people to a business employing more than 400 people serving 82 hedge fund clients representing more than $26 billion in assets under management (AuM). Today GlobeOp employs 1,700 people worldwide and serves more than 155 clients representing $102 billion AuM.
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West Palm Beach (HedgeCo.net)- In a summary of hedge fund performance for the second quarter of 2008, Morningstar, Inc. marked June as a bad end to a good quarter. The Morningstar 1000 Hedge Fund Index fell 0.73% during the month, pushing down second-quarter returns to 2.07%. Year to date, the index is up only 0.31%, as hedge funds struggled through poor market conditions.
Overall, hedge funds, including funds of hedge funds, buffered the traditional stock and bond markets over the second quarter. Equity and bond markets saw losses all over the world, while the Morningstar Fund of Hedge Funds Index gained 1.43%. Over the last year, the Morningstar 1000 Hedge Fund Index and the Morningstar Fund of Hedge Funds Index outperformed the major global stock indexes, which experienced double-digit declines (with the exception of emerging markets). Both hedge funds and funds of hedge funds underperformed bond markets, however, over this same period.
“Equity markets suffered steep declines in June,” said Morningstar hedge fund analyst Nadia Van Dalen. “Volatility returned to levels not seen since March, amid fears of recession and rising inflation. Most hedge funds are not immune to these economic shocks, despite what their name might imply.”
There were significant exceptions. Over the last 12 months, the Morningstar Global Trend Hedge Fund Index, which tracks funds that profit from price trends in futures, options and currencies, benefited from the sharp rise in commodity prices, returning over 18% (3.28% in June). Funds in the Morningstar Global Non-trend Hedge Fund Index, those that take macro-economic bets on interest rates and currencies, benefited from the falling dollar and the rising Euro, earning 0.33% in June and more than 12% over the last 12 months. The last 12 months also saw high volatility. Those equity arbitrage funds that specialize in trading volatility helped drive the Morningstar Equity Arbitrage Hedge Fund Index to a gain of more than 8.57% in the last year and 1.12% in June.
Not surprisingly, these top-performing categories have also experienced the most inflows. For the period ending May 31 (asset flow reporting lags performance reporting), hedge fund investors poured more than $6 billion into global trend funds and $2.4 billion into global non-trend funds tracked by Morningstar. On the opposite end of the spectrum, investors fled the U.S. equity and Europe equity hedge funds in the Morningstar database, taking more than $7.7 billion and $6.9 billion out of these categories, respectively.
Morningstar’s hedge fund flow data also show that, through May, assets moved to the Morningstar-rated 4-, and 5-star hedge funds, and redeemed the 1-, 2-, and 3-star hedge funds. Four- and 5-star hedge funds received more than $10 billion in new assets through May, while 1- and 2-star hedge funds bled almost $10 billion in assets over the same period.
Returns of Morningstar’s Broad Category Indexes, indexes that group funds in related categories, highlight that the event-driven funds were the hardest hit. This index includes funds in the Morningstar Corporate Actions and Distressed Securities Categories, which sometimes take bets on depressed or out-of-favor companies, and look for a reversal over the longer-term. These bets may look worse before they look better, given the economic conditions.
Morningstar has approximately 8,500 hedge funds and funds of hedge funds in its database and is is a leading provider of independent investment research in North America, Europe, Australia, and Asia.
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West Palm Beach (HedgeCo.net)- New York based fund manager Auda Hedge LLC has selected hedge fund manager Northern Trust to provide fund administration, custody, banking and foreign exchange services to its fund of hedge fund program, with assets in excess of US$1 billion.
In January 2008, Northern Trust announced a worldwide exclusive partnership with youDevise to provide enhanced fund of hedge fund data to the fund of hedge fund community via the Hedge Information Provider ("HIP") system.
"Funds-of-hedge-funds have become the route chosen by many institutional investors when accessing hedge funds." Wilson Leech, head of Northern Trust’s Global Fund services group said, "By fully integrating HIP onto Northern Trust’s global platform we will be able to deliver an enhanced reporting capability and reduce operational risk, enabling our clients to make decisions faster and more effectively."
The HIP is an online portfolio management system developed specifically for funds-of-hedge-funds. It considerably improves the timeliness of information that funds-of-hedge-fund managers receive from underlying hedge funds regarding hedge fund holdings, current value, performance, liquidity and hedging, as well as a detailed breakdown of assets and transactions. HIP makes it possible for funds-of-hedge-fund managers to see portfolio management data daily that, historically, was only available monthly.
Where Northern Trust’s UK entities undertake regulated business, they are authorized and regulated in the United Kingdom by the Financial Services Authority.
West Palm Beach (HedgeCo.net)- According to a new report by DataMonitor, ‘Hedge Funds in Europe 2008′, the European hedge fund market is going through a period of growth but the extent of the mortgage-backed security crisis is still uncertain.
The report forecasts strong growth in funds of hedge funds over the next year, with less demand for single hedge funds according to 65% of asset managers in Europe.
Asset managers in Spain and Italy believe most strongly that the demand for funds of hedge funds will outstrip that for single hedge funds, followed by France, Germany and finally the UK.
Across the five core economies in Western Europe – France, Germany, Italy, Spain and the UK – institutional investors now dominate the market for hedge funds. On average, slightly more than two-thirds of asset managers confirmed that this group represents their biggest customer segment for hedge funds today.
40% of asset managers in Italy say mass market investors may also be put off by the price of hedge fund investment. In Spain, on the other hand, demand from mass market clients is being limited by competition from capital-protected and structured products and inadequate promotion of hedge fund products by banks and advisers.
DataMonitor, a provider of online database and analysis services for key industry sectors, has put out the report presenting views on the market for hedge fund investment based on a survey of 100 leading asset managers across Europe.
Covering mass market, high net worth and institutional customer groups, ‘Hedge Funds in Europe 2008′ is part of a series of reports looking at the market for alternative investments in Europe.
FINalternatives- The $154.5 billion New York State Common Retirement Fund last month made commitments to a trio of hedge fund and private equity managers.
The CRF committed €150 million (US$233 million) to CVC European Equity Fund V and $50 million to Levine Leichtman Capital Partners IV, a $4 billion middle-market, woman-owned private equity shop.
The fund last month also made a $1 million commitment to Clarium Capital, a global macro hedge fund, through one of its funds of hedge funds, which was not disclosed for competitive reasons
CNN Money- A listed fund of hedge funds operated by Goldman Sachs Group Inc. (GS) has lifted its assets by about 25% by raising an additional $ 221.3 million on the London Stock Exchange on Tuesday.
Goldman Sachs Dynamic Opportunities Ltd. (GSDO.LN), which invests in 20 hedge funds run by managers including New York’s Och-Ziff Capital Management Group LLC and London’s The Children’s Investment Fund Management (UK) LLP, now manages about $840.2 million, making it the second-largest fund of hedge funds trading in London.
Investors have been scooping up shares in listed funds of hedge funds as a way to diversify from traditional stocks and try to preserve capital in turbulent markets. Funds of hedge funds have historically posted flat returns in years when stock markets suffered sharp declines.
