Morningstar, Inc. reported that hedge funds reported the worst losses in the Morningstar Hedge Fund Index’s history, which began in January 2003.
In September, the Morningstar 1000 Hedge Fund index dropped 7.87%, more than double August`s losses. Hedge funds entered the third quarter virtually flat for the year, but the index`s 13.17% third-quarter drop dragged year-to-date performance into the red.
"In September, the financial world as we know it turned upside down. We saw a shakeout in the hedge fund industry all around the globe. Hedge funds experienced poor borrowing, hedging, and trading conditions while liquidity dried up and volatility skyrocketed," said Morningstar hedge fund analyst Nadia Van Dalen.
Hedge funds were affected by extreme and unforeseen events during the month, including failures and takeovers of mortgage agencies, banks, insurers, and prime brokers.
As the world watched in anticipation of a U.S. government bailout, the global equity markets roiled. The Morningstar Global Equity Hedge Fund Index lost 11.22% in September. The Morningstar Europe Equity Hedge Fund Index declined 9.62% during the month but outperformed the MSCI Europe Index by more than five percentage points, while the Morningstar US Equity Hedge Fund Index underperformed the SandP 500 Index by more than one percentage point.
Developed Asia and emerging markets equity hedge funds managed to avoid some of the market losses, as these indexes outperformed the MSCI AC Asia Index and the MSCI Emerging Markets Index by about five percentage points in September. For the year to date, however, these emerging markets funds have taken more than a 30% hit.
Hedging proved difficult for hedge funds this month. The SEC and the FSA announced temporary bans on shorting financial stocks. Many convertible arbitrage funds taking long positions in financial sector convertible bonds were unable to hedge with short stock positions. The Morningstar Convertible Arbitrage Hedge Fund Index lost 12.39% in September. Fortunately, some equity arbitrage hedge funds were able to avoid financials. The Morningstar Equity Arbitrage Hedge Fund Index lost only 4.60%.
Debt-oriented hedge funds also experienced hedging problems. Credit default swaps, a common way to hedge bond exposure, became more expensive and less attractive with fears of default and counterparty risk. Both the Morningstar Debt Arbitrage and the Morningstar Global Debt Hedge Fund Indexes underperformed global and U.S. bonds, losing 4.39% and 7.50% respectively. The Morningstar Distressed Securities Hedge Fund Index closed the month down 6.21% as risky debt yields rose.
Global trend following hedge funds actually profited from some of the downward trends in the market, as these funds trade stock index futures as well as interest rates, currencies, and commodities. The Morningstar Global Trend Hedge Fund Index lost only 1.26% in September, the best-performing category other than short equity. The Morningstar Global Non-trend Index, comprised of funds with a more macro-economic approach, slid only 1.56%.
Funds of funds performed in line with the Morningstar 1000 Hedge Fund Index, outperforming the index by about 20 basis points in September, but falling slightly short for the quarter and year to date. The Morningstar Multistrategy Hedge Fund Index underperformed the overall index by about 200 basis points in September.
14 Oct 2008
Russian Trader Looses $50 Million In Risky Trades
Moscow's The Statesman reports that a Russian rogue trader lost his investment bank up to $50 million in risky trades that went wrong in the financial crisis, the Vedomosti business daily reported today. Quoting unnamed sources at Renaissance Capital, one of Russia’s biggest investment banks, Vedomosti reported that the rogue trader had disappeared.
A source close to the bank’s top management put the loss at about $50 million, although chief executive Mr Ruben Aganbegyan said it was only around $10 million. “He opened positions on blue-chip companies that were above the limits and outside of the controls. The market fell and we quickly found the problem,” he was quoted as saying.
The incident is eerily reminiscent of Nick Leeson ~ the rogue trader whose unchecked risk-taking caused the biggest financial scandals of the 20th century.
The collapse of Barings Bank (personal bank to Queen Elizabeth II) in 1995 and Leeson’s role in it is one of the most spectacular debacles in modern financial history, according to the Leeson website.
A source close to the bank’s top management put the loss at about $50 million, although chief executive Mr Ruben Aganbegyan said it was only around $10 million. “He opened positions on blue-chip companies that were above the limits and outside of the controls. The market fell and we quickly found the problem,” he was quoted as saying.
The incident is eerily reminiscent of Nick Leeson ~ the rogue trader whose unchecked risk-taking caused the biggest financial scandals of the 20th century.
The collapse of Barings Bank (personal bank to Queen Elizabeth II) in 1995 and Leeson’s role in it is one of the most spectacular debacles in modern financial history, according to the Leeson website.
Edge Launches New Alternative Investment Site
Hedge fund advisor Edge Capital Partners, LLC has launched a new website (www.edgecappartners.com) highlighting the firm's offerings in the areas of asset allocation strategies, benchmarked investment options, corporate mergers and acquisitions and finance strategies, wealth management and individual portfolio management.
Designed by Glick Interactive, the Edge Capital Partners new website decribes the firm's culture and goals. "(our firm) is built on providing unbiased wealth management solutions. Our goal is to elevate the standards of wealth management and use our website as a tool to communicate our firm’s values in this challenging global market environment,” said Partner J. Peek Garlington III.
Edge Capital Partners, LLC is a provider of wealth management and investment advisory services to a select group of high-net-worth and institutional clients globally. Seasoned advisors understand the challenges of creating solutions that match clients’ unique and evolving needs and work in unison with clients, their advisors and accountants to capture, generate, and implement all points of strategy and service.
Designed by Glick Interactive, the Edge Capital Partners new website decribes the firm's culture and goals. "(our firm) is built on providing unbiased wealth management solutions. Our goal is to elevate the standards of wealth management and use our website as a tool to communicate our firm’s values in this challenging global market environment,” said Partner J. Peek Garlington III.
Edge Capital Partners, LLC is a provider of wealth management and investment advisory services to a select group of high-net-worth and institutional clients globally. Seasoned advisors understand the challenges of creating solutions that match clients’ unique and evolving needs and work in unison with clients, their advisors and accountants to capture, generate, and implement all points of strategy and service.
Overstock Settles After Gradient Apologises
Overstock.com Inc. announced it has settled all claims against Gradient Analytics and its principals and officers named as defendants in Overstock's defamation case filed in Marin County, California.
Overstock.com chairman and CEO, Patrick Byrne said, "I am pleased to publish this statement from Gradient Analytics:"
Having reviewed all SEC filings, relevant accounting literature, and all other information available to it, Gradient now believes that, to the best of it knowledge, Overstock's stated accounting policies did in fact conform with Generally Accepted Accounting Principles (GAAP) and regrets any prior statements to the contrary.
Some of Gradient's prior reports asserted that certain Overstock directors, i.e., Allison Abraham, John Fisher and Gordon Macklin, were not independent directors according to Gradient's criteria for evaluating independence.
However, under NASD Rules, those directors were independent. Gradient extends its apology to the Macklin family for any remarks or observations concerning the suitability or independence of Mr. Gordon Macklin.
Gradient has examined and improved its internal policies concerning how it communicates with clients, including hedge funds, and the media.
Gradient regrets that the parties have been embroiled in litigation over its reports and looks forward to both sides' moving forward with their respective businesses.
Byrne added, "I wish Gradient Analytics the best in their future endeavors. Overstock.com will now focus on the remaining defendants, Copper River, David Rocker, and Mark Cohodes."
The details of the settlement reached are confidential.
Overstock.com chairman and CEO, Patrick Byrne said, "I am pleased to publish this statement from Gradient Analytics:"
Having reviewed all SEC filings, relevant accounting literature, and all other information available to it, Gradient now believes that, to the best of it knowledge, Overstock's stated accounting policies did in fact conform with Generally Accepted Accounting Principles (GAAP) and regrets any prior statements to the contrary.
Some of Gradient's prior reports asserted that certain Overstock directors, i.e., Allison Abraham, John Fisher and Gordon Macklin, were not independent directors according to Gradient's criteria for evaluating independence.
However, under NASD Rules, those directors were independent. Gradient extends its apology to the Macklin family for any remarks or observations concerning the suitability or independence of Mr. Gordon Macklin.
Gradient has examined and improved its internal policies concerning how it communicates with clients, including hedge funds, and the media.
Gradient regrets that the parties have been embroiled in litigation over its reports and looks forward to both sides' moving forward with their respective businesses.
Byrne added, "I wish Gradient Analytics the best in their future endeavors. Overstock.com will now focus on the remaining defendants, Copper River, David Rocker, and Mark Cohodes."
The details of the settlement reached are confidential.
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