By the Opalesque Team: Geneva’s private bank Syz & Co is involved in the Madoff affair too, according to a report by Swiss daily newspaper Le Temps. The bank bought stakes in the Thema International fund for its private clients. This Irish-domiciled SICAV was one of the main European vehicles
Alternative Market Briefing 16.Jan 2009
Opalesque Exclusive: 2009 Outlook (9) – Pension funds see opportunities in hedge funds as long term investment
By Benedicte Gravrand, Opalesque London: See yesterday’s 2009 outlook (8) here.
Anxious investors may have been rushing to redeem from their hedge fund investments, especially since September ’08, but the most resilient of all are institutional investors. They are in for the long haul, and from their perspective, there is value in alternatives.
USS sees ‘compelling opportunities’ in the hedge fund industry, will launch investment program later this year
UK Universities Superannuation Scheme (USS)’s CIO Peter Moon anticipates another step down from current market levels, with a bottom sometime around the second quarter of 2009. From the bottom of the bear market in 1974, the market took 15 years to exceed its previous peak.
However, he believes that in the context of a pension scheme, lengthy recovery periods amount to fractions of a working life time and funds with sturdy cash flows can use these periods to invest in growth assets such as equities.
The great thing about the cash flow at schemes like USS, he says, is it enables them to buy assets over a period of time. USS can diversify the fund into a wider spread of asset classes which will hopefully give it a much more stable investment return in future.
Mike Powell, head of alternative assets at USS, told Opalesque that USS’s medium term aim was to increase its alternatives allocation to 20%. The 20% allocation to alternatives excludes property to which USS already has a 10% benchmark allocation.
USS does not ‘target’ specific allocations to each sub-asset class within alternatives and is driven more by where it sees the best medium term risk adjusted returns. The current alternatives portfolio contains investments across private equity, infrastructure, commodities and absolute return strategies.
“We continue to see significant opportunities within all these asset classes as a result of the current distress in financial markets,” he said. “In particular, the contraction in the hedge fund industry is beginning to present some compelling opportunities for long term investors such as USS. As a result, we are in the process of building the internal capability to invest into hedge funds and expect to launch our hedge fund investment programme later in 2009.”
USS are developing an integrated approach to hedge fund investing, which includes replication strategies and a direct single manager hedge funds. The scheme’s approach is to capture the beta within hedge fund returns as cheaply as possible and gain access to alpha via a focussed single manager programme.
Watson Wyatt sees less short-termism among pension funds, hopes for lower fees
According to the heads of investment consulting and senior investment consultants at the global investment consultancy Watson Wyatt, 2009 will be a time of deep recession and a more conservative investment regime.
2009 will see more pension funds matching their investment strategies with their governance capabilities, by either simplifying their strategy or raising their game. This may mean they will move towards lower cost passive solutions.
The crisis might herald greater innovation and more cost-effective solutions from the asset management and consulting industries. Watson Wyatt will recommend that funds re-locate their spending to internal governance resources.
Pension funds’ demand for derivatives to hedge risk should remain high in 2009, however, the UK inflation-linked market is expected to be in the range of £20bln-£25bln.
Watson Wyatt also expects that 2009 will see ‘beta creep’ and the coming of age of smart betas, which will eventually increase the options available to investors to secure cheap market and ‘market plus’ returns.
Watson Wyatt, which is negotiating fairer fee deals, forecasts improvement in fee structures and great alignment of interests – especially for institutional managers (press release).
Related article on Opalesque:
Pension schemes call on managers to cut fees – bfinance study (13-Jan-09)
Opalesque Exclusive: Aduro Asset Group to launch manager of managers hedge fund, `the separate managed account model is going to be a standard`
From Kirsten Bischoff, Opalesque New York: West Palm Beach, Florida-based Aduro Asset Group LLC recently announced the March 1st 2009, launch of a manager of managers hedge fund.
The fund will focus on a subset of managers which the firm oversees already through other products and strategies. As with Aduro’s prior launches, the Aduro liquidity strategy was in response to current investor demand and so even in this brutal asset raising environment the firm expects to launch with approximately $30-$40m.
Aduro, which runs a late stage VC PIPE fund as well as structured products in-house, opted to design the liquidity strategy on a manager of managers model, largely because of the additional transparency available through separately managed accounts.
While the firm has been utilizing this model since its start in 2007, the current debate on the future of the fund of funds model has served to strengthen the firm’s philosophy. There has been much talk about the “death of” the fund of funds model. James McKee, director of hedge fund research at investment consulting firm Callan Associates Inc told Bloomberg.com this week that funds of hedge funds had not demonstrated their ability to add value above the broad market, and that he expected there would be pressure for future change.
“The separate managed account model is going to be a standard,” Michael Elias of Aduro told Opalesque. “And we feel that and think the market realizes that. Transparency and trust are in even more demand right now than performance.”
However, with pro-forma performance of the strategy ranging from +53.93% (conservative) to +78.42% (aggressive) in 2008, the firm is looking to prove that transparency, trust, and performance can co-exist, even in a post-Madoff, recessionary world.
The fund offers 90 day liquidity, and 2% management and 20% performance fees. The strategies include macro discretionary, managed currencies and options arbitrage and the fund will invest in US Treasuries, currencies, futures and/or commodities. Aduro.
Related article: Low barriers to entry through model portfolios create opportunities for asset managers to enter the managed accounts fray
According to the Cerulli Report, ‘Managed Accounts: Economics of Asset Managers, Sponsors, and Advisors’, low barriers to entry through model portfolios create opportunities for asset managers to enter the managed accounts fray. UMA managers are beginning to select emerging managers for their platforms… full press release: Source
From Komfie Manalo, Opalesque Asia: Mary Schapiro, President-elect Barack Obama’s nominee to be the next chief of the Securities and Exchange Commission, on Thursday said she favored reinstating the hedge fund registration rule and at the same time requiring hedge funds to show their books to regulators.
Testifying before the Senate Banking Committee at her nomination hearing, Schapiro said her plans “will give us a better handle on who is out there and what they are doing.”
“I will move aggressively to reinvigorate enforcement. We need an SEC that is the investor’s advocate—that has the staff, the will and the resources necessary to move with great urgency. I think the agency has to have a laser-like focus on fraud and investor protection,” she told the committee.
The measures Schapiro proposed include a semi-independent, government-backed credit ratings agency and a central clearinghouse for credit default swaps. She also suggested to look into the so-called uptick rule market regulations and vowed better enforcement capability that has been largely criticized for failing to detect the reported $50bln Ponzi scheme by Bernard Madoff.
Her proposal of greater regulatory control was echoed by the G30, a group of influential economists and policy-makers which suggested non-binding changes in international financial regulation.
The group said regulators should be given the authority to establish "appropriate standards for capital, liquidity and risk management" for "private pools of capital" that are large enough to threaten the entire system, reported Reuters.com yesterday.
Schapiro also proposed wider federal oversight of insurance companies, which are now under state regulations, and of credit default swaps, reported NY Times.
She said some of the major policies under the Bush administration may have to be reviewed and reversed, particularly decisions that made it more difficult for the SEC staff to bring enforcement cases.
The enforcement staff investigating and prosecuting fraud had a total of 1,232 full-time employees at its peak in 2005 and is expected to have 1,093 at the end of fiscal year in September.
In recent years, there had been a decline in penalties against companies and individuals. An estimated $1bln was generated by the SEC in fines and illegal profit during the fiscal year of 2008, and $1.6bln in 2007, said Bloomberg.com.
Schapiro was silent on the current turf war between the SEC, the Commodity Futures Trading Commission and the Fed, on the issue of which regulator has jurisdiction over financial swaps. She expressed reservations about the recently-approved SEC directive requiring American corporations to adopt international accounting standards.
“There are many reasons for this crisis — and one of them is that our regulatory system has not kept pace with the markets and the needs of investors. It is precisely during times like this that we need an S.E.C. that is the investor’s advocate — that has the staff, the will and the resources necessary to move with great urgency to bring transparency and accountability to all corners of the marketplace, to vigorously prosecute those who have broken the law and cheated investors, and to modernize our country’s regulatory system to match the realities of today’s global, interdependent markets,” Schapiro said.
Schapiro, served as an SEC commissioner from 1988 until 1994 and as head of the Commodity Futures Trading Commission from 1994 until 1996. She resigned from the board of a Kraft Foods, Inc. this week following her nomination as SEC chief, according to Chicago Tribune.
It remains to be seen how fast she can move her proposed agenda that was similar to the one proposed by former SEC chairman William H. Donaldson.
Related article: Comment: Who said Mary’s FINRA is fast asleep?
From Greg Newton’s blog: Source
Related article: Michael Dunn to lead CFTC in interim as Lukken steps down and Obama choice awaits Senate confirmation
From Bloomberg.com: Michael Dunn was elected by fellow commissioners to lead the U.S. Commodity Futures Trading Commission until President-elect Barack Obama’s choice to run the agency is confirmed. Dunn, a Democrat, will take over when Acting Chairman Walter Lukken steps down on Jan. 20...
The agency oversees $5 trillion worth of daily trading on futures and options exchanges. It has come under Congressional criticism as oil market futures prices reached record levels last year…Full article: Source
Opalesque Exclusive: Schapiro`s plans to revisit mandatory hedge fund registration makes annual compliance review a good time to do more than `dust off and update` last year’s review
From Kirsten Bischoff, Opalesque New York: “…And then there was Madoff,” Paul Roth, Founding Partner of law firm Schulte Roth & Zabel said dryly at the end of his summary of the year in hedge fund news at the firm’s 18th Annual Private Investment Funds Seminar.
The Madoff fraud is expected to “place increased investment scrutiny on compliance, third party auditing, and risk management processes,” CP Eaton Partners said today. It is also expected to be working as an accelerant on an already fired up public outcry for regulatory change. Ironically, Bernard L Madoff Investments Securities was a registered investment advisor, which has proven to be one of a number of related embarrassments for the SEC.
Mary Schapiro, President-elect Barak Obama’s pick to replace Christopher Cox at the head of the Securities and Exchange Commission indicated this in no uncertain terms today during her confirmation hearing. "I will move aggressively to re-invigorate enforcement at the SEC," Schapiro said.
SEC to revisit mandatory hedge fund registration, reminds firms of legal obligation to maintain compliance even in the face of tightening budgets
In specific testimony regarding hedge funds, Schapiro discussed the desire to reconsider requiring hedge fund managers to register with the SEC, requiring funds to open their books for periodic inspections. "This will give us a better handle on who is out there and what they are doing," Schapiro said.
With this expected focus on all things compliant (by both regulators and investors alike), law firm Bingham recently advised Chief Compliance Officers at registered investment advisors to take extra steps this year in annual reviews of compliance procedures.
The SEC provides at its website an inventory of compliance risks, as well as information the regulatory agency requests during requests for information of registered investment advisors (see here).
Bingham also reminded registered investment advisors of an open letter recently published by The Office of Compliance Inspections and Examinations. The document (issued on December 2nd, prior to the discovery of the Madoff fraud) as a reminder to chief executives of investment companies and advisers, among others, reminding them of their legal obligation to maintain adequate compliance programs, even when faced with tightening budgets and cost-cutting requirements (letter available here). No online Source
Fund Launches – Update: Former Merrill trader Mark Devonshire`s distressed debt fund on track to launch in February, Fortress scraps plan for MENA fund, Grail Advisors to launch first actively managed ETFS, Update: Matrix`s two planned FoHFs set to launch on March 1, AQR takes a leap into mutual funds, aims to diversify amid downturn
Update: Former Merrill trader Mark Devonshire`s distressed debt fund on track to launch in February
From Reuters/Guardian.co.uk: Ailing retailers and debt-ridden resource companies hurt by falling commodity prices offer strong investment opportunities, a fund manager planning to invest an initial $500 million in distressed debt told Reuters.
Mark Devonshire, a former co-head of the proprietary trading desk at Merrill Lynch, said his new fund aims to make 30 to 40 investments, each at about $25 million to $50 million, with a holding period of around two and a half years.
This is longer than our usual holding period, because we think this recession has real teeth,' he said.
Debt prices for 200 companies in Europe and Asia are already trading at low levels, Devonshire said, with 40 of them so cheap they could be categorised as distressed. 'This is only the beginning of the distressed cycle. We will see a lot more distressed debt created in 2009,' he added…Full article: Source
Fortress scraps plan for MENA fund
From FT.com: Fortress Investment Group has scrapped plans for a new hedge fund to invest in the Middle East and Africa, confirming the dire state of the market for new funds.
Fortress, which has suspended its $7bn Drawbridge fund, down by 22.1 per cent last year, had been expected by investors to raise $400m-$500m for the new fund, according to investors and industry magazine HFMWeek…Full article (subscription required): Source
Grail Advisors to launch first actively managed ETFS
Grail Advisors, an innovator in the development and distribution of active Exchange Traded Funds (ETFs), has filed a registration statement for two new actively managed ETFs, the Grail American Beacon Large Cap Value ETF and the Grail American Beacon International Equity ETF. The funds represent the industry’s first actively-managed ETFs in the equity space using traditional active management.
Both funds will be sub-advised by American Beacon Advisors, Inc. of Fort Worth, Texas, a firm noted for its ‘manager-of-managers’ approach to portfolio construction. American Beacon, which oversees more than $37 billion in equity and fixed-income assets, expects to manage the new Grail Advisor offerings in substantially similar fashion to the American Beacon Large Cap Value and American Beacon International Equity strategies.
Update: Matrix`s two planned FoHFs set to launch on March 1
From HedgeFundsReview.com: Matrix Money Management is to launch two fund of hedge funds (FoHFs) in February with a March 1 investment date. The FoHFs will be managed by the company's in-house FoHF team, headed by Stuart Ratcliff.
Matrix Strategic Opportunities fund will capitalise on the opportunities within credit markets, particularly within distressed debt, high yield bonds, corporate loans and the restructuring process in bankruptcies. The fund will target a 15%-20% annualised return. It has the flexibility to hold cash until the timing is right to invest in underlying hedge funds.
Matrix New Horizon fund will be a highly diversified multi strategy FoHF feeding into the existing Horizon fund. It will exploit the dislocations within the macro, credit and market neutral environment… full article: Source
AQR takes a leap into mutual funds, aims to diversify amid downturn
From WSJ.com: Hedge-fund firm AQR Capital Management LLC is getting into the mutual-fund business. Its first mutual fund, a diversified arbitrage fund, will start trading Friday, and in February the firm will launch a global and international fund.
AQR's move comes at a time when the hedge-fund industry is grappling with losses and investor redemptions. More hedge funds could follow AQR to gain a foothold in the mutual-fund world, which offers relatively stable assets, albeit with lower fees.
… Another large hedge fund that already has a presence in mutual funds is Highbridge Capital Management LLC, a unit of J.P. Morgan Chase & Co., which manages the JP Morgan Highbridge Statistical Market Neutral mutual fund… full article: Source
JV – IDeaA and new Blue Skye Special Opportunities Fund acquire Blue Skye Investment group, Punter Southall Group and Fortune A. M. announce the formation of a new strategic partnership in the provision of hedge fund services
IDeaA and new Blue Skye Special Opportunities Fund acquire Blue Skye Investment group
Blue Skye Investment Group (“Blue Skye”) and IDeA Alternative Investments (“IDeA”) announce that a newly formed special opportunities and distressed fund, Blue Skye Special Opportunities Fund, LP (the “Blue Skye Fund”) has completed the acquisition of Blue Skye from funds managed by D.B. Zwirn & Co.
The Blue Skye Fund is backed by a consortium of investors led by IDeA and the Blue Skye management team and including DeA Capital. D.B. Zwirn & Co. has indirectly retained a minority interest in the Blue Skye Fund.
The Blue Skye Fund will be managed by the existing managers of Blue Skye, Salvatore Cerchione and Gianluca D'Avanzo, leveraging on existing skills, resources and operating platforms utilised in the successful expansion of Blue Skye. The Fund will continue to seek additional capital from qualified international investors in order to grow its activities and pursue its core strategies including through investment in new products and markets.
The Blue Skye Fund will continue to target investments in special opportunity and distressed assets and securities. It will ultimately seek to “chase illiquidity” in circumstances where Collateral is solid and the Blue Skye Fund can, directly or indirectly, maintain Control of process and/or operations. Investments will span a variety of industries, investment products and core geographies to find permutations that can provide optimal risk-adjusted returns. The Blue Skye Fund has assets under management of approx. €250 million invested mainly in Special Lending/Mezzanine, Illiquid Credit/Factoring, Non Performing Loans, Real Estate, and other Distressed Assets.
Blue Skye Investment Group is a group of investment companies which started its activity during 2005 with less than €20 million and since then has completed investments with a value of more than €440 million through an integrated network of almost 10 companies which are a combination of fully owned subsidiaries and joint ventures. Blue Skye and its exclusive partners have, between them, more than 30 employees in multiple office locations.
IDeA Alternative Investments SpA (Milano, Italy) is the ultimate holding company of a group which acts as managers of private equity funds, private equity funds of funds and other funds, with aggregate funds under management of approximately €1.9 billion. IDeA was founded at the end of 2006 as a joint venture between certain managers and key shareholders of each of Investitori Associati S.p.A. SGR and Wise S.p.A. SGR, certain other private investors and De Agostini Group through DeA Capital S.p.A.
Punter Southall Group and Fortune A. M. announce the formation of a new strategic partnership in the provision of hedge fund services
PSG and London-based Fortune today entered into a new strategic partnership in the provision of hedge fund advisory services.
The collaboration between PSG and Fortune will provide PSG's UK customer base with the full complement of Fortune’s research, advisory and product expertise with a specific focus on innovative, highly liquid investment solutions.
As part of the strategic partnership, at the end of January 2009, Fortune will take over the management of io Alternative Investment Strategies plc’s three Irish listed funds (Grenfell Defensive Equity Fund, Grenfell Low Volatility Fund and Grenfell Select Opportunities Fund)* from the previous sub-investment manager, Grenfell PAI Limited. Fortune has entered into a sub-investment management agreement with the investment manager of the three funds, Grenfell PAI Guernsey Limited.
Grenfell PAI Guernsey Limited is co-owned by PSG (78%) and Octane Holding Limited (22%). Fortune is a subsidiary of Close Brothers Group plc.
PSG advises on over £18 bn of assets. Fortune contributes to Close Brothers’ £8.2 bn of assets under management (as at 31 July 2008), a significant share of which is invested in alternatives. PSG and Fortune plan to work together to develop and implement a wide range of products for its combined institutional and high net worth client base. No online Source
By the Opalesque Team: Equity long/short indices had negative returns in 2008 ranging from -12% to -22% for the year (Hennessee -18.34%; Greenwich -21.9%; BarclayHedge -11.88%; Credit Suisse/Tremont -19.76%).
European equity long short fared just as badly: the Eurekahedge European L/S equity returned -22.92% (the European hedge fund index -22.26%). And European equity indices did even worse: FTSE 100 went down by 31.33% and MSCI Europe Index -43.3%.
But here are a couple of hedge funds who rose well above the European equity crowd.
Fund Analytics` European equity hedge fund returned around 6% in 2008
According to information obtained by Opalesque, Fund Analytics` Conservative Fund finished the year 2008 up 6.07%.
The FA European Conservative Fund is an absolute return multi manager European equity hedge fund. The aim of the fund is to generate annual absolute returns of 10-12% with a low volatility of 4-6% and a low correlation to the European equity markets. According to the management, the return/volatility ratio is 1.68. In 2007, the fund returned 7.49%
The fund is managed by Amir Sajjadi. Prior to setting up Fund Analytics in Oct 2003, Amir worked at GLG Partners in London, where he was responsible for risk analysis of the European long/short fund (€1bln AUM) and the management of a €10m European long/short fund. Source
F&C`s systematic European long/short trading fund finishes first year up 19.07%
F&C Zircon Fund, since its launch on January 14 2008 until the end of last year, returned 19.07% with an annualised daily volatility of 10.26%.
F&C Zircon, managed by London-based F&C Alternative Investments, the single strategy hedge fund division of F&C, is an absolute return trading strategy that aims to capture dispersion between same sector pairs of stocks within a Pan European Equity universe. The portfolio is managed by Darren Jordan and Phil Robinson who have worked together for over 10 years. Their philosophy is to capture excessive and unwarranted short term dispersion between same sector pairs of stocks in Pan European equity markets within an efficient and diversified portfolio context.
The F&C Zircon Fund is domiciled in the Cayman Islands with a listing on the Irish Stock Exchange. No online Source
Indices – Update: Credit Suisse/Tremont Hedge Fund Index confirms December performance down 0.03%, down 19.07% in 2008, Dow Jones Hedge fund indices down for 2008, merger arb best performer, HFRI mid-month update, Weighted Composite Index at -18.36% for 2008
Update: Credit Suisse/Tremont Hedge Fund Index confirms December performance down 0.03%, down 19.07% in 2008
Final Performance for the Credit Suisse/Tremont Hedge Fund Index was down 0.03% in December, according to Oliver Schupp, President of Credit Suisse Index Co., Inc.
Mr. Schupp said, “Despite a late month equity rally, hedge funds finished marginally down in December, losing 0.03% to bring overall hedge fund performance to -19.07% for 2008.” Schupp went on to say, “Managed Futures had another strong month, adding 2.37% to bring their performance to 18.33% for the year. Dedicated Short Bias funds also generated strong positive returns amidst extremely adverse conditions last year, finishing up 14.87% for 2008.”… Performance table: Source
Dow Jones Hedge fund indices down for 2008, merger arb best performer
The Dow Jones Hedge Fund Strategy Benchmarks finished off a very difficult year down for the month of December with the exception of one strategy.
Merger arbitrage closed out the year with a net-of-fee gain of 1.09% bringing its 2008 performance to -7.73%, the best among the strategies.
The remaining three strategies took heavy losses as a result of a weakening marketplace. Event driven finished the year down -27.69%, while distressed securities was down -36.89%. Lastly, convertible arbitrage lost nearly half of its value finishing with a return of -49.80%. The equity market neutral and equity long/short benchmarks were suspended at the start of November, and it has not been determined when the calculation of these benchmarks will resume.
On a float-adjusted basis, the Dow Jones Wilshire 5000, the only broad measure of the domestic equity market, gained 1.73% (1.85% on a full-cap basis) in December and ending 2008 with a return of -37.23% (-37.34% on a full-cap basis).
The fixed income asset class, as measured by the Dow Jones Corporate Bond Index was up 8.29% this month and its cumulative return is up 1.80% for 2008.
Finally, the Dow Jones Wilshire Global Index, the broadest measure of global equity markets, gained 4.01% for the month and finishing the year down 42.48%. Press release and performance table: Source
HFRI mid-month update, Weighted Composite Index at -18.36% for 2008
Performance table: Source
From Bloomberg.com: Arminio Fraga, the former Brazilian central bank president who runs investment company Gavea Investimentos Ltda., is increasing holdings of private equity and thinly traded shares to counter losses at his flagship fund.
Fraga, whose Gavea Brasil FI Multimercado LP hedge fund lagged more than 80 percent of its peers last year, said he is looking for opportunities to invest $600 million from his Gavea Investments Fund III started in August. The fund, Fraga’s third targeting illiquid assets in Brazil since 2006, already invested half the $1.2 billion raised. Gavea may open a fourth, he said.
“This strategy grew a lot since we started,” Fraga said yesterday after a press conference of the so-called Group of Thirty former central bankers, finance ministers and academics in New York. “We would like to continue investing as long as we find reasonable opportunities.” … full article: Source
From Bloomberg.com: Sparx Group Co., Asia’s biggest hedge-fund manager, dropped to a record low in Tokyo trading on concern that declining stock prices will undermine its asset- management business. The stock rebounded to close higher.
Sparx slid as much as 10 percent to 9,770 yen on the Jasdaq exchange, its lowest since listing in December 2001, before closing 0.9 percent higher at 11,000 yen. The stock has slid more than 70 percent in the past year, compared with the 37 percent drop by the benchmark Topix index.
The Nikkei 225 Stock Average slid below 8,000 yesterday as bigger-than-estimated drops in machinery orders and U.S. retail sales fueled concern the global recession is deepening. Companies including Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank, and Sony Financial Holdings Inc. yesterday announced valuation losses on their equity holdings… full article: Source
Hedge Funds in Crisis – Update: Polar Capital expects further heavy redemptions following Barnett`s resignation, Ashmore assets down by more than a fifth to $24.5bln, Aladdin Capital cuts 15 jobs, shifts to corporate bonds
Update: Polar Capital expects further heavy redemptions following Barnett`s resignation
From Reuters / iii.co.uk: British fund manager Polar Capital Holdings said on Friday that assets under management in the nine months to December fell by 22 percent to $2.45 billion, due to market deterioration.
The fund manager, which runs hedge funds and long-only funds, said it expects $500 million of redemptions in the three months to March. The resignation of Julian Barnett, manager of its Paragon hedge fund, is expected to bring about a further $400 million outflows when the fund is wound up. Polar announced Barnett's resignation earlier this week, saying it was due to personal reasons. The Paragon fund has $875 million in assets…. Full article: Source
Ashmore assets down by more than a fifth to $24.5bln
From Wealth-Bulletin.com: Ashmore Investment Management, a specialist emerging-markets fund manager, lost more than a fifth of the money it runs in the fourth quarter, as the markets it invests in fell and clients withdrew their assets. Some analysts have predicted worse to come.
Ashmore's assets under management fell 23%, from $31.9bn (€24.1bn) to $24.6bn, as of December 31. Slightly less than half the fall was thanks to clients pulling $3.1bn from the company's funds. Most of the company's business is in emerging-market debt, with only about $100m in public equities…Full article: Source
Aladdin Capital cuts 15 jobs, shifts to corporate bonds
From Reuters.com: Aladdin Capital Holdings' chief investment officer said on Thursday he has cut 15 jobs in the company's structured bond business as it shifts focus to investment opportunities in corporate bonds and the loan market.
The latest moves mark Aladdin Capital's transition from a Stamford, Connecticut-based alternative asset manager to a boutique investment bank under its recently hired CIO.
Vice Chairman and CIO Neal Neilinger said he made the cuts to the company's collateralized debt and loan obligation desk, trimming global headcount to about 75 staffers. "We are going back to good old-fashioned investing," Neilinger said in an interview… full article: Source
Settlement – Massachusetts` William Galvin gets 100% of investments back to small group of investors in defunct Bear Stearns funds
From TheDailyBeast.com: A small group of lucky Massachusetts investors in two now-defunct and worthless Bear Stearns hedge funds received an unexpected Christmas windfall: the return of 100 percent of their original investment in the billion-dollar funds.
The checks—some for as much as $1 million—were sent to the investors last month, after a confidential settlement between the state of Massachusetts and Bear Stearns Asset Management Inc., which is now owned by JPMorgan Chase. One investor was told by a JPMorgan lawyer that Galvin “put a gun to our head” to agree to the settlement…Full article: Source
Outlook – Credit Suisse: Hedge funds` $400bln cash pile could spur market rally if redemption flood doesn’t occur for 1Q09, Shariah-compliant hedge funds could outperform traditional counterparts this year
Credit Suisse: Hedge funds` $400bln cash pile could spur market rally if redemption flood doesn’t occur for 1Q09
From Wealth-Bulletin.com: Hedge funds could stoke a significant stock market rally and ease the pressure on Europe's exchanges if they re-invest an estimated $400bn (€304bn), which they hold in cash in anticipation of investor withdrawals.
Hedge fund managers currently hold a record 30% of their assets, or $400bn, in cash, after withdrawing from stock and bond markets to fund mounting investor redemptions, according to a Credit Suisse research note. That cash, which is stored in bank deposits and money market accounts, could be swiftly redeployed when the market turns and redemption requests abate, Credit Suisse said…Full article: Source
Shariah-compliant hedge funds could outperform traditional counterparts this year
From FinancialStandard.com: Shariah-compliant hedge funds could outperform their traditional hedge fund counterparts this year, predicts Aureliano Gentilini, global head of hedge fund research at Thomson Reuters Lipper.
Gentilini said that Shariah-compliant hedge funds stand to benefit from emerging trends in the investments industry and developments in the Gulf Cooperative Countries namely the Persian Gulf states of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
"Although the economic slowdown across the world does not portray a very optimistic picture for oil prices, we believe plans by some emirates in the Gulf Cooperation Council (GCC) region to boost budget expenditure and run a budget deficit to better manage a scenario of global market recession may act as a catalyst for insulating, to some extent, stock markets in the GCC region from market disturbances." …Full article: Source
To subscribe to Opalesque’s free daily briefing on Islamic finance, please click on ‘Islamic Finance Briefing’ (and uncheck other options) here: Source
Research – Academic study finds hedge funds more likely to sail into the sunset than go down in blaze of glory
From AllAboutAlpha.com: A variety of euphemisms are often used to describe hedge funds that close their doors from “going under“, to “collapsed“, to “failures“, to “forced into liquidation“. While colorful imagery is engaging, the reality is actually much more boring. As we have written before, most hedge funds that cease operations do so by simply sailing off into the sunset, not going down in a blaze of glory.
A new academic paper makes this point in spades. Jung-Min Kim of Ohio State University studied hundreds of now-defunct hedge funds and found that most of them closed their doors after a relentless period of poor performance and bleeding assets, not as the result of a sudden violent drawdown as is often assumed…Full article: Source
From Hedgeworld.com: By Bruce Frumerman, Frumerman & Nemeth Inc.
There is nothing like dire economic conditions, investor uncertainty and a few scandals in the money management business to make it even more challenging for hedge fund managers to market their funds.
Arms-length administration, recordkeeping and reporting oversight have gone from being "nice to have" to "need to have." Not to mention, more regulation is coming. Event-driven news reports that have been covering the new challenges that hedge funds face will continue to do so.
While these present business management challenges, operations-related issues are not going to be the key selling points of tomorrow that will differentiate one hedge fund firm from another.
Instead, hedge funds will battle to stand out from one another by communicating about the other key due diligence factors that investment committees discuss behind closed doors: Performance, Pedigree and Process…. Full article (registration): Source
Profile – MFA`s Richard Baker who was once a fierce critic of hedge funds, now wants to convince Washington they`re on the level
From Money.cnn.com: When the headhunter first called Richard Baker in late 2007 and asked him if he was interested in becoming president and CEO of the Managed Funds Association - the hedge fund trade group - Baker thought it was a joke. "My reaction was, 'You want me to do what?'"…
I realize Bernie Madoff didn't run a hedge fund, but are you worried that this scandal will result in more regulation and forced disclosure for all types of loosely regulated investments, hedge funds included?
We have a lot of work to do to educate people about the differences between what Madoff was actually engaged in and what our members do. For instance, he was his own broker-dealer clearing his own trades. Based on our best practices, our members use independent broker-dealers who validate and close our trades. What he did was all only permissible because there weren't any outside eyes - any third parties - looking at anything…Full interview: Source
From Nasdaq.com: The Swiss bourse Thursday said it will lift a ban on short-selling financial stocks Friday, moving in step with the U.K. regulator, where a similar ban is also set to end. "This means that the creation of increase of net short positions, either naked or covered, in financial stocks traded on SWX Europe will be permitted," the exchange said in a statement… Full article: Source
Legal – Update: Infuriated Schwarzman promptly fired Blackstone employee over insider trading charges, Update: Dreier files a new request for bail, details $380m spent on law firm, art, investments
Update: Infuriated Schwarzman promptly fired Blackstone employee over insider trading charges
From NYPost.com: Stephen Schwarzman went ballistic yesterday over insider-trading charges leveled against one of his young Blackstone managing directors who allegedly blabbed about a supermarket takeover to help a friend's parents…
"I am personally infuriated that one person's behavior could damage our unblemished record built up over nearly a quarter century," Schwarzman said. He said the alleged act by "a 30-year-old vice president" was "the first time in the firm's history that any employee of the firm has been accused of any infringement of securities laws."…Full article: Source
Update: Dreier files a new request for bail, details $380m spent on law firm, art, investments
From Bloomberg.com: Marc Dreier, the New York lawyer accused of cheating hedge funds, lost part of the $380 million that prosecutors say he stole in failed investments and used the rest to repay the funds, cover his firm’s expenses and buy property, he said.
Dreier, who is being held in jail on fraud charges, yesterday filed a new request for bail. As part of the request, Dreier detailed assets he owns including 150 pieces of artwork and numerous cars and homes. He and his lawyer, Gerald Shargel, also outlined how Dreier used the money the government says he stole… full article: Source
Madoff Update – Madoff might not have made any trades, Credit Suisse study shows that actual Madoff strategy returns might have been 8.6% annualized, UBS ordered to return Madoff-related funds to Oddo et Cie, Investors file lawsuits against UBS and HSBC, Madoff paid staff more each year even as stock-trading business revenue declined, Sonja Kohn says Madoff was not a friend, pain is `unbearable`, Broker Jaffe ordered to appear at Madoff-related hearing in Massachusetts, Questions arise as to what Madoff`s wife knew
Madoff might not have made any trades
From Boston.com: As investigators try to untangle the scheme that Bernard L. Madoff hid from investors and regulators for a decade or more, one basic fact is emerging: He may not have been making any trades at all.
A federal agency that regulates brokerage firms says there is no record of Madoff's investment funds placing trades through his brokerage operation. That leaves only two options - either he was placing trades only through other firms, which would be highly unusual, or he was not placing any trades… full article: Source
Credit Suisse study shows that actual Madoff strategy returns might have been 8.6% annualized
From WSJ.com: If Bernard Madoff had employed the investment strategy that he allegedly told investors he was using, then what would his returns have actually looked like?
According to a study by Credit Suisse, the tactics that Mr. Madoff purported to use -- incorporating trades in both stocks and options -- would have generated an annual average return of 8.6%, beating the Standard & Poor's 500-stock index. Several of Mr. Madoff's investors have said they were told they had gains of about 10% for many years…Full article: Source
UBS ordered to return Madoff-related funds to Oddo et Cie
From FT.com: A Luxembourg judge on Thursday ordered the UBS unit there to hand over €30m that French investment house Oddo et Cie has been trying to withdraw from a fund that had invested with Bernard Madoff, the US financier charged with running a $50bn fraud scheme.
UBS served as custodian for the Luxalpha fund, which was managed by Access International. Oddo said in a statement that it decided in early November – more than a month before Mr Madoff was arrested – to sell its shares in Luxalpha on November 17, but it never received the money. The Luxembourg court told UBS to turn over the money by Friday or pay a daily penalty of €3m until it does so…Full article (subscription required): Source
Investors file lawsuits against UBS and HSBC
From Wealth-bulletin.com: Investors who lost money in the alleged $50bn (€37.7bn) swindle perpetrated by Bernard Madoff have filed lawsuits against UBS and HSBC in New York and Luxembourg, claiming the two banks should have protected assets allocated through “feeder” funds to the financier’s business more carefully, according to a report in the Financial Times…. Full article: Source
Madoff paid staff more each year even as stock-trading business revenue declined
From WSJ.com: Even as revenue and profit at Bernard Madoff's original stock-trading business fell in recent years, the firm continued to pay its staff more each year, according to documents reviewed by The Wall Street Journal.
Bernard L. Madoff Investment Securities LLC grew to be a force on Wall Street based on the growth of its market-making business, where the firm's traders matched buyers and sellers of stocks. But that business has been in decline for years, steadily pulling down the revenue of the firm's trading operations. Over the past two years, pretax profit dropped 92% and net revenue fell 54%…Full article: Source
Sonja Kohn says Madoff was not a friend, pain is `unbearable`
From Bloomberg.com: Sonja Kohn, chairman of the Austrian private bank that invested $3.2 billion with Bernard Madoff, said the man accused of running what may be the world’s biggest Ponzi scheme wasn’t a personal friend and didn’t confide in her.
“Having fallen victim to a company supervised by a U.S. regulator, as did many of the world’s most illustrious financial institutions, does not ease the pain,” Bank Medici AG Chairman Kohn, 60, said in an e-mailed statement, her first public comment since Madoff was arrested last month. “Reading that some voices believe that I should have known better makes the pain even more unbearable.” …Full article: Source
Broker Jaffe ordered to appear at Madoff-related hearing in Massachusetts
From Boston.com: Secretary William F. Galvin today gained some leverage in his effort to compel Robert Jaffe to testify before the Massachusetts Securities Division in its investigation of disgraced investor Bernard L. Madoff. …Full article: Source
Questions arise as to what Madoff`s wife knew
From NYTimes.com: To friends, they were “Bernie-and-Ruth” or “Ruth-and-Bernie,” a pair so inseparable that you wouldn’t mention one without the other. After nearly 50 years of marriage, they worked in the same Midtown Manhattan office, they traveled together, and they dined together night after night, just the two of them. … But little about the love story of Ruth and Bernard Madoff looks enviable today…Full article: Source
Investing – Seabreeze`s Kass says it is too late to short Citi, BofA, believes there is still such a thing as `too big to fail`, Distressed asset indices fall sharply, HSBC: Buy China shares as earnings outperform region, Armored Wolf expects oil to hit $60 a barrel by July
Seabreeze`s Kass says it is too late to short Citi, BofA, believes there is still such a thing as `too big to fail`
From Reuters.com: Hedge-fund manager Doug Kass, who successfully shorted U.S. equities last year, said on Thursday that it's too late to short the shares of Citigroup and Bank of America and believes they are "too big to fail" following the Lehman Brothers bankruptcy. "Citigroup and Bank of America are not going out of business ...
They both will likely become wards of the state," Kass, who heads hedge fund Seabreeze Partners Management, said in an interview with Reuters. "They are too big to fail. It was the failure of Lehman that had a domino effect on our financial system and provided the next leg of large investment writedowns and losses."…Full article: Source
Distressed asset indices fall sharply
From FTAlphaville: Indices tracking the value of the trillions of dollars of distressed assets that continue to blight bank balance sheets fell sharply this week amid continuing signs of financial distress.
The declines, which signal further potential writedowns by banks, are fuelling fears that the current quarter could herald further pain for the financial system, even as many banks reveal sharp losses for the final quarter of 2008. After several weeks of stabilisation and even some improvement, there have been renewed falls this week in the value of securities linked to subprime mortgages, leveraged loans and commercial mortgages. Article: Source
HSBC: Buy China shares as earnings outperform region
From Bloomberg.com: Investors should favor China shares because economic growth and earnings in the nation will be better than most of the region, HSBC Holdings Plc said.
Earnings for companies on the Hang Seng China Enterprises Index, which tracks Chinese companies’ so-called H shares, will be down an estimated 5 percent this year. That compares with a projected 15 percent decline for all Asian companies outside of Japan that HSBC tracks, said Garry Evans, chief Asian equity strategist at HSBC… full article: Source
Armored Wolf expects oil to hit $60 a barrel by July
From Reuters / Forbes.com: Oil is likely to hit $60 a barrel or higher by July because by then supplies will be shrinking at a faster rate than demand, a U.S-based fund manager told Reuters on Thursday.
But Adam Robinson, director of commodities at Armored Wolf, said prices could test new lows before the market starts to tighten. U.S. crude was below $38 a barrel on Thursday.
'In the near-term commodity prices are likely to continue falling because the macro-economy is in freefall,' he said. 'Across the commodities space, the supply side -- while tightening -- just can't keep up.' … full article: Source
To subscribe to Opalesque’s free daily briefing on commodities, please click on ‘Commodities Briefing’ (and uncheck other options) here: Source
Credit Crunch Update – U.S. lawmakers unveil $825bn stimulus, JP Morgan Chase reports net income of $702m, Citigroup plunges another 25% on concern it may seek more government help, BofA drops 18%, U.S. gives Bank of America a $138bln lifeline, Goldman Sachs downgrades HSBC to sell
U.S. lawmakers unveil $825bn stimulus
From FT.com: Democratic lawmakers on Thursday unveiled a much-awaited $825bn stimulus package to halt America’s vertiginous economic slide which Nancy Pelosi, the speaker of the House, said was only the “first step” in a process that could take weeks to pass into law.
The bill, which Barack Obama, the incoming president, wants enacted before mid-February when Congress goes into a short recess, comes in at $50bn (€38bn, £34bn) higher than the initial ceiling set by his transition team. But economists said they expected it to climb towards the important psychological threshold of $1,000bn by the time it becomes law… full article: Source
JP Morgan Chase reports net income of $702m
JPMorgan Chase & Co. today reported fourth-quarter 2008 net income of $702 million, compared with net income of $3.0 billion in the fourth quarter of 2007. Earnings per share were $0.07, compared with $0.86 in the fourth quarter of 2007. For the full year 2008, net income was $5.6 billion, or $1.37 per share, down 64% from $15.4 billion, or $4.38 per share, in 2007.
Jamie Dimon, Chairman and Chief Executive Officer, commented …Full press release: Source
Citigroup plunges another 25% on concern it may seek more government help
From Bloomberg.com: Citigroup Inc. plunged as much as 25 percent in New York trading on concern the bank may be forced to seek more government assistance on top of the $45 billion of U.S. funds that it already received…Full article: Source
BofA drops 18%
From Bloomberg.com: Bank of America Corp., the biggest U.S. bank by assets, plunged 18 percent in New York trading on concern the company needs more government aid to absorb losses from the acquisition of Merrill Lynch & Co…Full article: Source
U.S. gives Bank of America a $138bln lifeline
From Bloomberg.com: The U.S. government agreed to invest $20 billion more in Bank of America Corp. and guarantee $118 billion of its assets to help the lender absorb Merrill Lynch & Co. and prevent the financial crisis from deepening.
The government agreed to the rescue “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… full article: Source
Goldman Sachs downgrades HSBC to sell
From MarketWatch.com: Goldman Sachs downgraded banking giant HSBC Holdings to a sell from neutral on likely further impact from the lender's exposure to the U.S. property and housing markets. The brokerage expects HSBC to post a loss of $1.5 billion in 2009 as its bills continue to add up, particularly referring to HSBC's $134 billion household subprime business and its $92 billion consumer and commercial property loan book… full article: Source
From FTAlphaville: The Irish government on Thursday night nationalised Anglo Irish Bank, the country’s third-largest lender, after the collapse of its share price accelerated in recent days amid fresh reports of large scale deposit withdrawals.
The move ends all attempts to keep the bank in private ownership and came in response to fears that the bank’s failure would trigger the state’s guarantee, leaving the government responsible for settling close to €100bn of liabilities, including €50bn of customer deposits and €20bn of wholesale deposits… full article: Source
Pengana Capital opens Singapore office
From AsianInvestor.net: The fund house sets up its Asian headquarters and hires three investment professionals. Diversified funds manager Pengana Capital has announced a strategic expansion into Asia, opening an office in Singapore and appointing three investment professionals.
The Singapore office will act as a research and product development hub supporting Pengana’s international funds management activities. It joins Pengana’s global headquarters in Sydney and other offices in Melbourne, London, Chicago and Connecticut. The fund house manages around A$1.4 billion worldwide…Full article: Source
CIC plans to buy back China banks stakes
From ChinaHedge.com.cn: UBS kicked off the trend of Western banks selling their China bank stakes to build up their balance sheets with its Bank of China stake sale on New Year's Eve... full article (subscription): Source
Comment – SocGen: Depression ahead, prepare for stock rout, global trade war with China, Pimco`s El Erian on the global markets (video), Roubini - Doom & Gloom in `09 (video), Dying banks threaten to take auditors with them
SocGen: Depression ahead, prepare for stock rout, global trade war with China
From Reuters.com: Societe Generale said on Thursday that the United States' economy looks likely to enter a depression and China's could implode.
In a highly bearish note, veteran cross asset strategist Albert Edwards said investors should now cut equity exposure after a turn-of-the-year rally and prepare for a rout. He predicted that the S&P 500 index of U.S. stocks could be set for a fall of around 40 percent from recent levels. Edwards also raised the danger of a global trade war with China… full article: Source
Pimco`s El Erian on the global markets (video)
From CNBC: Discussing the global economic situation, with Mohamed El-Erian, Pimco co-CEO and Michael Spence, Philip H. Knight economics professor/Nobel Laureate 2001. Source
Roubini - Doom & Gloom in `09 (video)
From CNBC: An outlook for 2009, with Nouriel Roubini, RGEmonitor.com chairman and Michael Spence, Philip H. Knight economics professor. Source
Dying banks threaten to take auditors with them
From Bloomberg.com: … Credit raters, regulators, Wall Street executives, even hedge-fund managers all got summoned to Capitol Hill last fall for televised floggings. And yet barely a glove has landed on the Big Four accounting firms that didn’t bark.
One after another, huge financial institutions collapsed last year bearing fantasyland balance sheets, while their accounting firms couldn’t manage to find anything wrong. Ernst & Young LLP was auditor for Lehman Brothers Holdings Inc. and IndyMac Bancorp Inc. KPMG LLP audited Wachovia Corp. Deloitte & Touche LLP had Washington Mutual Inc. and Fannie Mae.
PricewaterhouseCoopers LLP somehow missed that Freddie Mac’s books were a joke. PwC also audited American International Group Inc. At least there the firm had the good sense to tell us AIG’s accounting controls were weak. (Talk about an understatement.) … Full article: Source
News Briefs – Deutsche Bank shares tumble after chief has health scare, Goldman finds a way to dole out cash to employees through changes in stock grants, Morgan Stanley and Citigroup plan to withdraw client money from UBP fund
Deutsche Bank shares tumble after chief has health scare
Investors in Deutsche Bank were given a scare on Thursday after learning Josef Ackermann, its chief executive, had been briefly sent to hospital with an illness later attributed to a hastily eaten meal of sausage and sauerkraut. Uncertainty about the nature of illness – which came only hours after reporting dire fourth quarter results and his bank’s first postwar loss – sent Deutsche’s shares down 3 per cent in early trading in Frankfurt. (www.ft.com)
Goldman finds a way to dole out cash to employees through changes in stock grants
This week, some of the roughly 30,000 employees at Goldman got a letter telling them that the Wall Street firm has changed how it doles out certain stock grants, including by easing the rules on when restricted shares may be sold.
Translation: Cash-strapped employees now can use their Goldman stock like an automated teller machine. In response, some rushed to sell, fueling a spike in the trading volume of Goldman shares on Tuesday, when most employees officially got their newly unrestricted stock. (online.wsj.com)
Morgan Stanley and Citigroup plan to withdraw client money from UBP fund
Morgan Stanley and Citigroup intends to redeem clients’ money from a nearly $8bn (€6bn) fund run by Union Bancaire Privée, after news of the Swiss private bank’s exposure to Bernard L. Madoff’s operations emerged, sources said, according to a report in The New York Times.
It is believed that the two US banks, at a combined level, had invested almost $2bn of client money in the UBP fund through their wealth management divisions. (www.wealth-bulletin.com) No online Source
From Germany's Sueddeutsche Zeitung: As a pub owner in Mannheim, Germany, was too drunk for to do the checks, two patrolling police officers did the adding up for her.
During a pub inspection, the officers realized that the 38-year-old landlady could barely stand. As neither she nor her remaining two customers were able to add up the figures, the cops decided to help her out and collected the open tabs from the guests. No online Source
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Hedge Funds at Inflexion Point:
A SQUARE FacultyArt - Affiliated Investing
CME - S&P 500 INDEX (March) - Daily
Near Term Trend: Negative Wednesday’s Close: 832.50 (- 28.80) UPDATE: As we stated last Sunday evening,“Friday’s price action and settlement (885.50) could potentially be somewhat detrimental to the market, near term”. Subsequently, the Index fell another 25 points on Monday, at which time we wrote, “Market participants are now moving away from a near term optimistic outlook to one that may be much more negative. Support near 834.00 needs to hold, or we are looking at the prospect of a test of the multi- year low 100 points lower”. As of Wednesday’s trade session, the market traded as low as 832.50, but did in fact settle slightly above at 839.80. Same parameters apply for the balance of the week.