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26 Oct 2006

MPs warned against Over-regulation of Hedge Funds

MPs warned against Over-regulation of Hedge Funds
FSA Chief executive John Tiner warned the House of Commons Treasury Committee in London that the over-regulation of hedge funds would drive firms based in the UK offshore. He told the Committee that the current regulatory regime helped the City to compete directly with New York.

US hedge funds have been opening offices in London to gain access to European investors and increase their trading in the region’s capital markets. Mr Tiner told the MPs: “Our worry would be that, if we had a disproportionate effect on these companies, they would take their business offshore.”

Mr Tiner’s comments come six weeks after it emerged that star trader Philippe Jabre will set up a hedge fund in Geneva next year, away from the FSA, who fined the two hedge fund managers GLG Partners and Jabre 750,000 pounds each “for market abuse and breaching FSA principles.”

A new report also found that the London market needs to do more to develop business relations with China and India. The report, by risk analysts Sami Consulting and Oxford Analytica, said that London was not achieving its potential, the specialist monitoring team follows about 30 hedge funds “that comprise a major part of the market”.

The sudy showed that despite London’s status as a major financial hub, Indian companies have been establishing more links with the United States and Dubai, and Chinese companies with the United States, Singapore and Hong Kong, the report said.

“To counter this threat,” it said, “City companies will need to seek out and develop long-term relationships with people at all relevant levels within the Indian and Chinese financial and business communities.”

It noted that “both countries are rich with opportunity – but also with risk.”

Investors dissatisfied with Fund of Hedge Fund Results

According to Mercer Investment Consulting, a global survey has revealed that despite growing interest in hedge funds, less than a quarter of the pension schemes that invest in them are satisfied with their investment returns.

When asked to rate overall satisfaction with their funds of hedge funds manager, the survey of over 180 large pension schemes worldwide found less than half (47%) were satisfied. A further 19% indicating they have not invested in hedge funds yet, but would begin using them within the next two years.

Mercer global head of investment consulting policy Divyesh Hindocha said the lack of satisfaction expressed by investors was likely to be due to a mixture of high expectations and fund managers not explaining their strategies clearly enough.

“While FoHF are attracting a great deal of attention, many investors are unclear about what they wish to achieve by investing in them, and what the funds can realistically deliver,” he said.

“If investors’ objectives are unclear and their expectations are out of kilter with reality, there is scope for disappointment….The survey shows that fund of hedge fund managers can do far more to improve their client servicing skills” Hindocha said.

“Investors want to look under the bonnet to gain a better understanding of a fund’s strategy and operations, but many investment managers are reluctant to disclose full details.”

“Fund managers that are transparent about their strategies and processes are more likely to attract investors and be able to manage their clients’ expectations better.”

25 Oct 2006

Indian Stock Prices Rising

India is at the top of the BSE index in emerging markets with a 30-share benchmark. The country’s trading has recovered from a steep sell off earlier this year to hit a record high last week of 12,994.45.

Philip Ehrmann, a $374.7m fund manager at Jupiter Asset Management said in an interview with Reuters “Given the very high levels of valuation and the strong stock market performance, I think the Indian market is very expensive,”

Ehrmann is former head of Pacific and Emerging Markets at Gartmore where he ran 2 billion pounds in assets. He now manages Jupiter’s Asian portfolio, which was formed after the group split its 73 million pound Far Eastern fund.

The index in India stands at around 16 times 2007 forecast earnings, the growth in the Indian Stock markets undoubtedly helped boost the Indian economy to one of the fastest growing markets in the world.

Around 40 to 50% of the overseas money flowing into the Indian market is through participatory notes, and most of it is coming from hedge funds. Although the Indian authorities continue to modernize its regulatory laws over hedge funds, leading to some positive laws, hedge funds are still a cause for concern not only for the country’s stock markets, but also for the securities and Exchange Board of India [SEBI].

Other emerging markets on the rise according to other of Ehrmann’s recent Gartmore investments are Malaysia, Singapore, Philippines and Indonesia, Korea, Australia, China and Hong Kong.

Hedge Funds to Finance Football Club

Sam Hammam quit his post as Cardiff chairman and has been replaced by Peter Ridsdale as the club prepares for a huge new investment strategy. The identities of the new investors are still unknown, but in a statement Hamman revealed that they are looking to hedge funds to manage Cardiff’s £24m debt in exchange for equity in the club.

The statement read: “It has been clear for some time that if Cardiff City Football Club were to fulfil their ambitions to build their new 30,000-seater stadium…there was a requirement to bring new funding into the club… an agreement has now been reached for a debt for equity swap with institutional hedge funds, who have acknowledged the unique huge potential that exists with Cardiff City Football Club.”

Sam Hammam says they are “two or three” London-based financial institutions who specialise in hedge funds. The deal is being brokered by former Football League chairman Keith Harris, now head of investment bank Seymour Pierce. Harris is also advising the Icelandic businessman hoping to buy West Ham United.

Ridsdale said: “We will end up within 12 months being debt-free business and having a new stadium….Sam has taken his shareholding down from 82.5% to not a lot and people who are putting the money in wanted to see a change of management before their investment.” and that the new hedge funds will “become the majority shareholders.”

Hedge Fund wants Board Seat

Hedge fund Basswood Capital Management, a New York hedge fund with about $2 billion in assets under managements, is asking for a boad seat with WCI Communities Inc., due to the company’s “extreme underperformance”.

Basswood has about 2 million invested in WCI shares, or 5%. The hedge fund wrote in a letter that given WCI’s “large inventory of entitled land in coastal Florida purchased prior to 2000,” Bosswood is entitled to private meetings with each of WCI’s board members “a request it says has been previously ignored…...and debate if WCI could be sold to a larger, better capitalized and more profitable home-building company.”

WCI is a luxury home builder based in Bonita Springs, recent tradings have been down at $15.87, 16.5 percent below its March 2002 initial public offering price. The company has been progresing steadily downhill,condo defaults are at 4 percent. New orders were down by 80%, and in July, workers were laid off.

Other hedge funds with vested intrest in the issue are Highbridge Capital Management LLC, another activist shareholder with 3% and Wellington Management Co. LLC, with 12.6 percent of WCI.

24 Oct 2006

Hedge Funds see Record Results

Hedge Fund Research(HFR) reported this week that hedge funds took $44.5 billion in the third quarter this year, almost as much as the $46.9 billion invested in the whole of 2005.

HFR said that hedge fund assets under management grew to $1.34 trillion, the most the hedge fund research firm has seen since its inception in 2003. HFR President Joshua Rosenberg said
“This has been another record quarter and it looks as if it will be a record year,”

Rosenberg also said “While quarterly performance was again less than spectacular, the flow of new assets into the industry remained remarkably strong,.......This may suggest that investors are taking a longer-term perspective with regards to how they allocate assets to hedge funds.”

HFR reported that over half of the new money went to multistrategy funds, equity hedge and event-driven strategies. On average, hedge funds returned just over 1 percent in the third quarter, putting performance this year through the end of September at 7.1 percent.

Funds of hedge funds also had a record quarter for inflows, despite year-through-September returns of just 4.77 percent. They collected $23.8 billion over the quarter, up from $15.6 billion in the second quarter and more than double last year’s net inflow of $9.5 billion.

Two banks set up Hedge Funds

Eastern Europe
Erste Bank AG, Austria’s Vienna-based lender, has set up a new hedge fund with $30 million of Erste’s own capital on October 1. The Maximum Emerging Alpha Fund will invest 40% of its capital in Central and Eastern Europe.

Erste has put Eastern Europe at the center of its strategy. Last week it paid $2.76 billion to buy Romania’s largest lender, Banca Erste, which has more than $1.3 billion invested in hedge fund Comerciala Romana SA.

Part of the Maximum Emerging Alpha capital will be used to seed new funds, and expects to invest in between 20 and 30 hedge funds at any given time, the company said. It aims to make money by investing in hedge funds active in central and eastern Europe as well as by giving hedge-fund managers from the region and other emerging markets seed capital for their funds. It will also invest directly in emerging-market financial instruments.

Harcourt has launched their first onshore fund of hedge funds product structured specifically for Canadian investors. The Belmont Dynamic Growth Fund has aligned itself with the Royal Bank of Canada to offer what the firm believes will be a superior product solution.

The Belmont Dynamic Growth hedge fund was launched on August 1 and is investing in existing Belmont fund of hedge fund managers with long-term performance records. Presently, the portfolio is tactically positioned having exposure to Asia, Europe, US Long/Short Equity, Fixed Income and Market Neutral strategies.

Senator Alarmed by lack of Hedge Fund Transparency

U.S. Senate Finance Committee Chairman Charles Grassley said in a letter to federal agency heads that he plans to look into risks posed by hedge funds to pension funds.

Grassley, a republican from Iowa, said in a letter to treasury secretary Henry Paulson and SEC chairman Christopher Cox “to report to him on any transparency requirements facing hedge funds…..Tens of millions of Americans are exposed to the risk of hedge funds through intermediaries such as pension funds, endowments and other investment pools,....The potential for significant losses at our nation’s pension funds due to hedge fund investments could put the retirement security of American workers in jeopardy.’‘

Grassley also sent letters to labor secretary Elaine Chao, commodity futures trading commission chairman Reuben Jeffery, pension benefit director Vincent Snowbarger and six US senators among others.

In an interview with Bloomberg, Grassley said “It’s quite obvious that some hedge funds have problems, maybe even some showing criminal activity,....We want to make sure there’s transparency. Sunshine in the best disinfectant and transparency is our goal at this point.”

19 Oct 2006

German Comapny Moves to Restructure with London Hedge Funds

A group of hedge funds based in London have been restructuring an agreement with Schefenacker, a German vehicle parts company with whom they have investments.

Many of Schefenacker’s creditors are in London and the group of hedge funds believe it would be easier to organise a speedy restructuring if the company would move its headquarters to the UK. Creditors there can force stakeholders to accept the new plan through a scheme of agreement, which is not possible in Germany.

Schefenacker refinanced $400m after its business came under pressure last year and the bonds and loans were acquired by London and New York hedge funds. Last month, the company issued a dire earnings statement that left rating agencies downgrading its debt to a level that implies the company is close to bankruptcy.

The bonds went from about 80% of face value to 30%, and its loans now trade at about 85% of face value, compared with 103% three weeks ago. Schefenacker said on Monday that there was no formal agreement on such a move yet, and it stressed that any move would not affect its German operations.

Schefenacker has 27 production plants and six engineering centres gobally, employing more than 7,900 people the company supplies to car makers such as DaimlerChrysler AG, Ford Motor Co. and General Motors Corp.

Hedge Funds Involved in Scania/MAN Takeover

The Frankfurter Allgemeine Sonntagszeitung reported that several large hedge funds are buying shares in MAN AG and Scania. Not saying who these hedge funds are, the Frankfurter reports they may now have over 15% of Scania shares. The newspaper also said that hedge funds own a significantly smaller amount of MAN’s shares, without giving a specific percentage.

These numbers may play a role in the decisions made with the 18.7 pct stake in Scania owned by that Volkswagen AG, which is comparable to the hedge fund shares. VW said it would only offer that holding to MAN if the latter’s bid draws commitments from holders of at least 71.3% of Scania’s shares.

Truck maker Scania AB, however is fighting the $12.9 billion bid from rival MAN AG, saying they would pay extra dividend on their shares this year. This special dividend, worth a total of $949 million, makes it more attractive for shareholders to hold on to Scania shares and may force MAN to increase its bid for a second time, analysts say.

Volkswagen, the largest shareholder of both MAN and Scania, wants the two companies to treat the deal as a merger rather than a takeover, asking MAN and Scania to negotiate following MAN’s $10.3bn hostile bid for Scania.

Attorney General Creates Hedge Fund Task Force

Connecticut’s attorney general, Richard Blumenthal, is taking a special interest in the “regulatory void” surrounding hedge funds. After the spectacular faliure of the Amaranth Advisors $6 billion hedge fund last month, Blumenthal has used his position to start a task force on hedge funds, although at the moment it’s only an informal group.

Connecticut is home to an estimated $250 billion of the $1.2 trillion under management in hedge funds, according to Chicago’s Hedge Fund Research. Blumenthal says us he’s still in the early stages of studying the issue and would prefer leave it to the federal government rather than taking action himself. “I don’t want to disadvantage Connecticut hedge funds” by imposing excessively burdensome rules, he claims, but “The facts about mammoth losses by Amaranth offer additional powerful and compelling evidence about the need to reform disclosure and oversight requirements.”

It is unclear how hedge fund abuse would play as a political issue as Blumenthal considers running for higher office, but the Wall Street Journal reported last week that 23 of 41 economists surveyed said they think hedge funds need more regulatory oversight. More than once in the past Blumenthal has made statements that suggest he looks at business failure and investing losses as a criminal act.

16 Oct 2006

RMF Team creates Four Funds of Funds

A new hedge fund run by former RMF-Man Investment analysts is being set up and named after its Swiss latitude, 47 Degrees North Capital Management in Pfaeffikon, Switzerland, the hedge fund also plans on offices in New York.

47 Degrees North Capital is launching four new funds of funds, including one this year. This alternative investment firm will be backed by Jim Kelly, former Moore Capital Management co founder and president of Third Point Capital. The team of partners are Bruno Wicki, Raphael Blunschi and Claude Porret. Kelly plans to invest in the fund wth his own money as well as investments from other hedge fund managers.
When with RMF/Man Investments, this alternative team specialized in researching and developing hedge fund strategies, such as CAT bonds, electricity trading or insurance securities. Wicki, Blunschi and Porret were involved in the launch of the RMF Commodity Fund, which has grown to $2 billion and has yielded a 20% annual rate of return.

47 Degrees North New Generation Fund will offer investors access to emerging managers with a track record of between a few months and two or three years. This fund will target returns of 12% with 5% to 7% volatility.

The 47 Degrees N Seeding Fund will invest in start-up hedge funds, this fund aims for annual returns of 15% over a five-year cycle with volatility of 6% to 8%.

The 47 Degrees N Commodity Fund will use the expertise of the team in selecting commodity managers and invest in hedge funds using both directional and non-directional strategies across commodity markets.

Finally, the 47 Degrees N Innovation Fund will invest in hedge funds trading in innovative markets, such as emissions rights or weather derivatives as well as exotic products, including insurance-linked securities or financing and lending.

Hedge Fund Billionaire Couple donate $19 Million to the Arts

Kenneth C. Griffin, president and CEO of Citadel Investment Group, one of the world’s largest hedge funds and his wife Anne Dias Griffin, founder of hedge fund Aragon Global Management, donated $19 million to the Art Institute of Chicago late last week.

James Cuno, president of the Institute said the wing will be named the “Kenneth and Anne Griffin Court.” The Modern Wing’s central court, scheduled to open in 2009, is expected to cost $260 million.

The Griffins have collections of modern art, and have been known to loan them out to museums and exhibitions.

Citadel Investment Group is a $12 billion Chicago-based hedge fund. The alternative investment firm is known for its daily trading volume, which amounts to 1 to 2% of daily trading activity in New York and Tokyo. Citadel was founded by Kenneth Griffin in 1990.

Anne Dias Griffin is managing partner and founder of the firm Aragon Global Management, a long/short hedge fund focusing on global equities.

Hedge Funds accused of Securities Violation

Hedge fund managers Michael A. Roth and Brian J. Stark have had a complaint lodged aganst them by Multi Fineline Electronix (M-Flex) with the United States District Court.

The complaint alleges that the Stark hedge fund filings are misleading to their stockholders and that the hedge fund failed to disclose their 32,075,000 shares of M-Flex securities. The complaint asks that the hedge funds be required to amend their filings stateing the nature of their investment and wants an injunction keeping them from voting their shares in favor of the offer.

The complaint also alleges that the Stark hedge funds have been short selling their stock, causing a negative effect on the value of M-Flex stock.

Other hedge funds and management companies controlled by these individuals, including Stark Master Fund Ltd., Stark Asia Master Fund Ltd., Stark Onshore Master Holdings, LLC, Stark Offshore Managements, LLC, and Stark Asia Management, LLC., have also been accused of planning to profit at the expense of the company and its shareholders.

According to the filing with the U.S. Securities and Exchange Commission (SEC), the Stark hedge funds own approximately 4.5 million shares of M-Flex stock, representing approximately 18.4% of M-Flex’s outstanding shares of common stock, and approximately 48% of the shares held by non-affiliated stockholders.

According to Phil Harding, M-Flex’s chairman and chief executive officer, the company believes that the Stark hedge funds have little or no interest in the company’s current business operations and strategies nor in the long term well being of M-Flex.

13 Oct 2006

YouTube Sale Boosts Hedge Fund Stock

When Google made its biggest deal ever in buying YouTube for $1.65bn, it boosted hedge fund Sequoia Capital’s performance again with about $495 million in Google stock. Sequoia has also invested in Apple Computer, Cisco, eBay and Yahoo, having again proved their slogan as, “Entrepreneurs Behind the Entrepreneurs.”

Sequoia was the only hedge fund to publicly back YouTube, although hedge fund Artis Capital Management also holds an undisclosed amount invested in the firm. Launched in January 2002, Artis Capital Management currently manages $1bn of assets, investing primarily in public companies in the emerging technologies field.

Founded in a Californian garage, YouTube has become one of the most visited sites online, gathering 100 million video views every day, it could now be looking at collecting anywhere between $500m-$700m.

Most of Sequoia Capital’s investors are educational institutions or philanthropies. According to their website, Sequoia says; “We like being involved with companies when they are composed of less than a handful of people. We like being the very first investors.”

12 Oct 2006

Activist Hedge Fund reports 5% Ownership of Applebees

Breeden Capital Management LLC, the activist hedge fund of former Securities and Exchange Commission Chairman Richard Breeden, reported that it owns 3.9 million shares, or 5.24% of Applebee’s International Inc.’s common stock.

In a filing with the Securities and Exchange Commission, Breeden Capital said that it had bought the shares due to their undervalued price listings, not to retain control. The purchase price for the shares was $77.7 million.

Breeden Capital said it had spoken with Applebee’s CEO Dave Goebel and recommended to Applebee’s CEO Dave Goebel, that the company should refranchise and modify executive compensation practices to increase shareholder value.

Between Sept. 18 and Sept. 29, Breeden Capital bought about 740,000 shares of Applebee’s stock for about $22 a share, or a total of $16.3 million, the filing said.

Breeden Capital Management is registered as an investment adviser to Breeden Partners LP as well as Breeden Partners Ltd., a private fund organized as an exempted company under the laws of the Cayman Islands, according to filings with the SEC.

GLG Fund Manager to set up Geneva Hedge Fund

The former manager of GLG Partners, worth $16 billion and Europe’s biggest hedge fund, is starting up a new fund. The hedge fund, based in Geneva, is likely to start trading next year, after the expiration of a noncompete agreement with GLG.

He is in the process of recruiting around 25 staff, and has so far chosen around 12. The new asset management firm is said to be worth about $2 billion.

Hedge fund manager Philippe Jabre was fined 750,000 pounds by the FSA earlier this year, making it the largest ever on an individual. The charge was insider trading on a convertible bond sale for Japan’s Sumitomo Mitsui Financial Group.

Because the offshore entity is legally separate from the U.K. hedge fund, Jabre had previously argued that the FSA had no jurisdiction in Japan, but the Financial Services and Markets Tribunal said in a ruling it was satisfied the FSA did have jurisdiction because the bonds were also traded in London and ultimately controlled by the U.K. hedge fund.

Assets in U.K. hedge funds have nearly quadrupled, to $128.9 billion at the end of the second quarter from $33.1 billion in 2000, according to Hedge Fund Research Inc., a Chicago-based firm that compiles data on hedge funds. That is nearly 11 percent of the $1.2 trillion invested in hedge funds world-wide, according to HFR.

10 Oct 2006

Andrew Cuomo Investment of Campaign Money in Supporter's Hedge Fund

Andrew M. Cuomo, Democratic candidate for attorney general, put $750,000 of his campaign treasury into a hedge fund directed by one of his largest financial backers. Two years later, the investment showed a return of nearly 20 percent, according to the New York Times.

In the case of Mr. Cuomo’s campaign, Rachel Leon, executive director of Common Cause New York, an organization that monitors campaign finance, said that the hedge fund investment was troubling, given that hedge funds are run privately, pick and choose their investors, and can be run by political supporters who benefit financially from the campaign’s investment. “It raises multiple questions on multiple levels,” she said.

Most campaigns are focused on their short term needs, keeping their money in conservative vehicles like savings accounts.

Government watchdogs say that because of the unregulated nature of hedge funds, it may be a good to ask whether a high return reflects a smart bet or simply a campaign supporter’s efforts to evade contribution limits by padding the return of a favored campaign account.

In an interview with the New York Times, Fred Wertheimer, president of Democracy 21, said “There’s no way to know what’s going on with a hedge fund,....The candidate knows, and the hedge fund manager knows, but the public doesn’t.” Democracy 21 is a Washington based nonpartisan group that works to reduce the influence of money in politics.

Wendy Katz, a spokeswoman for the campaign, wrote in an e-mail message to The New York Times, “The rationale for investing campaign funds in a hedge fund is the same rationale employed by nonprofits, universities (for example, Harvard and Columbia), state and city public pension funds and charitable foundations for investing in hedge funds, which is to grow the asset and maximize returns.” The spokeswoman also said that the investment did not represent any potential conflict of interest.

9 Oct 2006

Hedge Fund causes Rand Slide

The South African rand seems to be the world’s worst performing currency this year. According to an article by Bloomberg, an expanding trade deficit and the 12% gold drop since May have pummeled the rand, which has lost 19% against the dollar in 2006.

John Taylor, chairman of New York based hedge fund FX Concepts Inc., which manages $12 billion in currency assets, said; “There are plenty of reasons why South Africa ought to have a weaker currency,”One of the hedge fund’s portfolios, the Global Currencies Fund, has half of its assets wagered against the rand. “We have to feel pretty strongly, as we do, if we have as big a bet with such a volatile currency.”

Trading in rand futures on the Chicago Mercantile Exchange more than tripled in the past four months. The rand is a favorite in the foreign exchange market because it fluctuates against the dollar more than any of the other 16 most actively traded currencies, according to data compiled by Bloomberg.

The rand fell 0.7 percent last week to 7.82 to the dollar, the weakest since June 2003. It is headed for the worst annual performance since tumbling 37 percent in 2001, when the central bank stepped up enforcement of rules limiting international investors’ trading.

South African Reserve Bank Governor Tito Mboweni said last week that the currency was falling in an “orderly fashion,” a signal policy makers won’t seek to stem the slide.

“Exchange rate developments are expected to be positive for export growth,” which “will not be a bad thing,” Mboweni said at a conference in Johannesburg on Oct. 5. A weaker rand also contributes to risks for inflation, he said. The central bank will raise its key rate half a percentage point to 8.5 percent when policy makers meet Oct. 12, according to the median forecast of 16 economists surveyed by Bloomberg News.

Kimon Boyiatjis, who heads Trident Capital, a Cape Town based hedge fund with about $400 million in assets, says he’s been investing in “rand hedge” stocks, because he anticipates the rand will reach 8.25 per dollar this year. “It’s definitely been working for us,” he said.

6 Oct 2006

Hedge Fund Whitebox Challenges Late Filing Company

Business process outsourcer Affiliated Computer Services (ACS), missed its extended filing date for its fiscal year ended June 30, 2006. Which was the time period allowed under Securities and Exchange Commission rules for an issuer to be deemed to have filed in a timely manner.

Hedge fund Whitebox Advisors LLC, is claiming that when the company defaulted on the terms of its bonds by not filing its annual reports on time, ACS should be required to to immediately repay nearly $260 million to its bondholders. That dollar figure was disclosed in a formal filing by ACS on Wednesday, but the company has previously said it was in a dispute over whether it was in default.

The company’s stock options grant practices have been under scrutiny by a team of outside counsellors, which is reviewing grants from 1994 to the present and related disclosures. ACS also said it that it has received an amendment from lenders under its March 2006 credit facility with respect to some covenants, including the requirement that the company deliver audited financial statements within 90 days of its fiscal year end.

Minneapolis-based Whitebox Advisors LLC said in a letter sent to ACS on Sept. 29 that the failure to file the annual report on time “due to an ongoing internal investigation over how the company granted stock options# triggered a condition in some of the company’s debt agreements that required the debts to be repaid immediately, rather than in 2015.

ACS said in the filing on Wednesday that it does not believe that it is in default, and therefore early repayment is not required. ACS filed a lawsuit with U.S. District Court, seeking a formal ruling on whether it in fact is in default.

Shares of ACS rose 47 cents to $52.47 in recent after-hours trade.

Whitebox claims on its website that it “is a trading firm not an investment firm. We continuously search for relatively short-term inefficient market behavior (arbitrage opportunities) to capture, with the expectation that most will bear fruit in less then a year.”

5 Oct 2006

Hedge Funds Launches vs Closures

Since January 2005, a total of 2,622 new hedge funds have been launched, according to a report by Hedge Fund Research Inc., released on wednesday. But figures also show that 1,071 hedge funds have shut in the past two years, as competition has squeezed profits.

Even some veteran managers, in a bid to boost returns, have made concentrated bets that have backfired, two funds set up by Hans van Hoof, the former Europe chief of Soros Fund Management and another fund run by Thierry Serero, a former manager at Fidelity Investments’ Fidelity Europe mutual fund. All this has set up the $1.23 trillion industry for its first meaningful consolidation, Wall Street executives say.

In just the past few weeks, Amaranth Advisors LLC lost $6 billion, and Narragansett Management LP in New York said it will return $800 million to investors, two European based hedge funds recently have told investors they are shutting down one or all of their funds, also the Vega Select Opportunities fund, which manages about $1.4 billion, lost about 11.5% of its value in September.

The fund closures, which stem from a variety of reasons, underscore a numbing fact about the hedge fund business: Even though new hedge funds seem to be popping up every day, almost half as many funds have been closing their doors since 2005.

About 300 hedge funds manage more than $1 billion each and represent roughly 90 percent of the assets in the industry today. “In the older days, raising $100 million was great,” says Richard Portogallo, head of U.S. stocks at Morgan Stanley. “Now it is not going to be good enough.”

HFR said a record $42.1 billion was added in the second quarter after $24 billion flowed in during the first quarter.

Hedge Fund Research Inc. is a firm specializing in the aggregation, dissemination and analysis of alternative investment information. The company produces HFR Database, the industry’s most widely used commercial database of hedge fund performance, as well as other research products for the alternative investment industry.

Hedge Funds and Australia

UBS hosted a Melbourne conference last week, attended by hedge funds FrontPoint Partners, Highbridge, Och-Ziff Capital Management, Pequot Capital and York Capital.

Finance Minister Nick Minchin said at the conference. “We have a very strong financial services industry,....and hedge funds add an extra dimension to that industry…..The critical thing with all investments is that people understand the risks….In terms of the investment marketplace, hedge funds have a critical role to play.”

In a report published in The Australian, Robert Clow writes, “Given the immense amounts of money that hedge funds have been able to raise and invest in the US and Europe, it is not surprising that they have mostly concentrated on those markets until now. But hedge funds now have so much money to put to work and the developed markets are so well-mined that they have turned increasingly to the Asia Pacific region.”

Hedge funds Fortress Investments and Tudor Investments already have Australian operations running. But more often the foreign firms parachute in, taking positions remotely from their external offices. One attraction in the market for merger is 45% of Australian takeover deals attract increased bids, according to the presentation at the UBS conference, compared with 5 to 10% of US deals.

The Australian industry manages $35 billion in hedge fund investment, according to a study compiled earlier this year by Axiss Australia. Another study completed in April by the University of NSW forecast that Australian investors would increase their hedge fund investment by 41% over the next 2 to 5 years.

4 Oct 2006

Morgan Stanley offers Hedge Fund Options as Incentive to Employees

Morgan Stanley, the largest securities firm in the world market, has offered its staff millions of dollars in incentives to keep and retain new employees, as Lehman Brothers and Goldman Sachs present tough competition and pay 10 to 20% more

Under the new incentive structure, employees who earn at least $500,000 will be able to invest part of their annual bonus in Morgan Stanley funds of hedge funds and private equity funds.

Morgan Stanley will also lend qualified employees $2 for every $1 invested in the funds. The loans are forgivable if the investments decline to the point where employees would have no equity remaining after paying the money back.

Employees can begin taking part in the scheme starting with bonuses to be paid later this year. Anyone who leaves before three years forfeits the investments and any gains.

Morgan Stanley will offer low-interest loans so employees can triple the size of their investments in hedge funds and buyout funds. The new pay scheme comes after executives Vikam Pandit, John Havens and Guru Ramakrishnan left to launch their own hedge fund and merger bankers Joseph Perella and Terry Meguid departed to start a boutique bank.

3 Oct 2006

Hedge Funds Care Gala

Hedge Funds Care Cayman will be hosting its second annual black tie dinner, Open Your Heart to the Children Benefit, at the Ritz Carlton on 16 November.

Hedge Funds Care (HFC), established in 1998, is a group of hedge fund money managers, investors, prime brokers, attorneys, accountants, and information providers. Funds are raised through annual Open Your Heart to the Children Benefits in New York, San Francisco, Chicago, Atlanta, Boston, Denver, Toronto, London and the Cayman Islands. To date they have raised almost $18 million dollars and awarded more than 250 grants to organisations and professionals committed to protecting children from abuse and neglect.

Guests will be entertained with a colourful performance by modern circus artists Cirque Le Masque, involving acrobatic dancing and special effects. Last November, the inaugural benefit dinner raised a net total of $143,000 for the Cayman charity.

Other upcoming events are being held in New York on October 4th in Tenjune; Chicago, October 5th, at the Carnivale; London on October 12th, at the Cafe de Paris; and in Atlanta, October 20th at the Georgia Aquarium. For more information see;

Hedge Funds Care provide training for community members such as teachers, social workers, hospital/medical staff, lawyers, judges, and religious leaders on recognition of abuse and reporting of abuse, as well as prevention services to at-risk children and families, treatment for children who have been abused, training to enhance awareness and understanding of abuse and neglect for children, parents and community members, research on best practices in child welfare and legal advocacy to children in crisis among other things.

These funds are put to work locally through the following institutions: Children and Youth Services Foundation, National Council of Voluntary Organisations, Cayman Islands Crisis Centre, the Department of Children and Family Services and the National Gallery.

Glen Wigney, Chairman of HFCC, commented: “It is incredible to see not only these worthy projects in action with the money raised from Hedge Funds Care, but to see the organisations who had previously worked remotely, now working together. It is encouraging to see this development and, it has sparked our desire to raise even more money this year for future programmes.”

House Debates Hedge Fund Regulation

According to the SEC, hedge funds represent 5% of all US assets under management, and about 30% of all US equity trading volume. So concern over hedge fund oversight and regulation is on the agenda of the US House of Representatives. Lawmakers debated a bill on the the floor last Thursday, requiring a White House body to come up with recommendations on hedge fund disclosure requirements.

Hedge fund regulation has remained a priority since a US court in July overturned a SEC rule requiring hedge fund managers to register with the regulator. The bill would require the President’s Working Group to study the growth of pension funds investing in hedge funds and “whether hedge fund investors are able to protect themselves adequately from risk associated with their investments”.

The current light regulation enables the funds to raise and deploy capital very quickly and to use very sophisticated financial strategies. Today there are more than 8,000 such funds with more than $1 trillion of capital under management.

The bill debated by the Presidents Working Group, was seen likely to pass in a “voice vote” on the House floor, was tabled by congressman Mike Castle, a Delaware Republican. The President’s Working Group is made up of the heads of the Treasury, the SEC and the Commodity Futures Trading Commission, the US futures industry regulator and other agencies.

Timothy Geithner, president of the New York Fed, said supervision of core banks and investment banks had encouraged the transfer of risk to unregulated institutions such as hedge funds.

However, hedge funds are not as “unregulated,” as they seem. The anti-fraud provisions of the 1933 and 1934 acts apply to the activities of the funds and state laws against investor fraud apply as well. Banking laws also restrict the activities of hedge fund lenders.

The SEC has also set new registration requirements to take effect in February of 2006, in effect narrowing the traditional exemption under the Investment Advisors Act of 1940, they will require funds to register their name and location, the professional history of the funds’ managers, and a brief statement of the funds’ investment strategy. The SEC will have the option of auditing the accounts of selected funds.

2 Oct 2006

Hedge Fund Amaranth forwarned by NYMEX

Hedge fund Amaranth Advisers made a disastrous bet on natural gas prices that produced losses of $4 to $6 billion, once among the nation’s largest and hottest hedge funds, the hedge fund scrambled in an effort last week “aggressively reducing” their natural gas positions, the hedge fund said in a letter to investors.

Amarath did have due warning though; according to sources, the New York Mercantile Exchange warned the hedge fund a month before its extreme losses that its natural gas bets were too big.

U.S. lawmakers say Amaranth’s loss is the biggest ever by a hedge fund and is a good example a problem they are facing. Lawmakers complained that speculators were raising energy prices and avoiding oversight with trades that were not conducted on exchanges.

Amaranth, based in Greenwich, Connecticut, with $7.5bn under management, has warned investors that its main funds are down 35% or more this year. Nicholas Maounis, Amaranth’s founder, said in a letter to investors,
“We are in discussions with our prime brokers and are working to protect our investors while meeting the obligations of our creditors,”

Traders said Amaranth could cause some volatility by moving quickly to liquidate holdings to meet margin calls and possible investor redemptions. Amaranth, which employs more than 115 traders, analysts and fund managers, describes itself as a multi strategy hedge fund which invests in a “highly disciplined, risk controlled manner.”

Sears and Controversial Hedge Fund Managers

Sears and Controversial Hedge Fund Managers
Sears Holdings Corp, headed by hedge fund billionaire Edward Lampert, is trying to offer a controversial $908-million privatization bid for its subsidiary Sears Canada Inc.

Sears is planning “seek leave to appeal” the Ontario court decision that blocked the offer. Sears Holdings Corp. has also extended until Oct. 31 its $802 million offer to buy the 46 percent of Sears Canada Inc. it doesn’t already own, leaving the door open to more extensions.

Last month the Ontario Securities Commission found the Chicago based retailer violated provincial securities law by failing to disclose support agreements with the Bank of Nova Scotia and the Royal Bank of Canada.

Edward Lampert, is set to become chairman of the combined companies, Kmart and Sears. As Kmart’s chairman, he owns nearly 53 percent of its stock through his ESL Investments hedge fund. He is also the largest shareholder in Sears. ESL holds a 15 percent stake in the retailer.

Besides stakes in Kmart and Sears, Lampert’s fund also owns large positions in car dealer AutoNation and auto parts retailer AutoZone. He has built a reputation as a one of Wall Street’s most successful and renowned hedge fund managers.

Early last year he was kidnapped at gunpoint from a parking garage at ESL’s Greenwich, Conn., offices. Four captors held him for ransom, keeping him bound and blindfolded for some 30 hours before he negotiated his own release.

China's Banking Chairman warns of Hedge Fund risks.

At the end of April 2006, there were altogether over 28,000 banking institutions in Mainland China. The total assets of the banking industry registered nearly RMB40 trillion, accounting for more than 90 per cent of the total financial assets in the Mainland.

In 2005, 72 foreign banks from 21 countries have established 254 operational entities in the Mainland. Their total assets amounted to $88 billion. In addition, hedge funds and non banking financial institutions, including finance companies affiliated to enterprise groups, trust & investment companies and financial leasing companies are now organizing business re-engineering by actively drawing experiences from their counterparts in Hong Kong.

In short, the Mainland banking industry as a whole has been moving forward on the right track.

But China’s banking regulatory head said steps are being taken to regulate the increasingly powerful $1.2 trillion hedge fund industry,
“Regulators in all countries should strengthen the monitoring of hedge funds and be on alert against any counterparty and liquidity risks they introduce,” Liu Mingkang, head of China Banking Regulatory Commission, said in a statement.

The notice followed meetings that Liu held with his counterparts from Singapore, Italy, Germany, Thailand and Hong Kong from September 16 to 26. Liu suggested that regulators should exchange information about hedge funds promptly to make sure their trading does not cause regional or global economic instability.

Liu noted the increasing activity of hedge funds in Asian countries including China, India, Singapore, Hong Kong and Thailand.

His suggestion comes days after U.S. hedge fund Amaranth Advisors disclosed the biggest hedge fund loss ever, about $6 billion, on wrong-way natural gas market trades.

SEC worried about Hedge Funds

In an article by Marketwatch it was reported that Securities and Exchange Commission enforcement director Linda Thomsen, told a Senate panel that insider trading by hedge funds is “an area of significant concern” to the SEC and to lawmakers.

In the prepared testimony to the Senate Judiciary Committee, Thomsen told the panel the SEC has brought five insider-trading cases this fiscal year involving hedge funds, out of 44 total insider trading cases.

The SEC is developing new ways to monitor hedge funds following a court’s voiding of its authority to register hedge fund advisers.

The enforcement director recently said the agency is going to focus on how hedge funds and broker-dealers interact, and that broker-dealers should report insider trading by the funds.

Federal securities regulators are planning to meet with organizations like the NASD and the New York Stock Exchange to discuss ways to possibly beef up their joint fight against insider-trading, the Securities and Exchange Commission official said.

Ex-Hedge Fund manager pleads Not Guilty

The Securities and Exchange Commission filed a complaint against Hilary L. Shane in the United States District Court for New York this May, alleging that Shane committed insider trading and registration violations by short selling 122,900 shares of Compudyne in October 2001, prior to the public announcement, but the ex-hedge fund manager has plead not guilty to the charges of insider trading.

Shane, 39, former hedge fund manager at First New York Securities, appeared in U.S. District Court in Manhattan and was released on her own recognizance. She has been charged with five counts of securities fraud and each count holds a maximum sentence of 20 years.

According to the press release, it is stated that usually in a PIPE offering, investors commit to purchase a certain number of restricted shares from a company at a specified price and the company agrees, in turn, to file a resale registration statement so that the investors can resell the shares to the public.

But the Commission’s complaint alleges that on Oct. 8, 2001, the hedge fund manager agreed to purchase shares in the PIPE offering for her personal account and for one of the hedge fund accounts she managed. Shane agreed both orally and in writing to keep the information confidential. The following morning, before the public announcement, Shane began short selling CompuDyne securities in both her personal account and the hedge fund’s account. Shane continued short selling CompuDyne shares, selling the same number of shares, covering all the short sales with the shares obtained in the offering making substantial profits for both accounts.

The total illegal profit from the exchange was $315,000 and the hearing on the criminal charges before Judge Naomi Reice Buchwald is scheduled for Oct. 10. She has also been permanently barred from associating with any NASD registered firm and will pay more than $1.45 million to settle NASD and Securities and Exchange Commission (SEC)