HedgeCo News - The hedge fund manager of Eureka Fund, Europe's largest telecom, media and technology sector hedge fund is set to pay out £54.8 million ($87.6 million) in bonuses, according to UK newspaper The Daily Mail.
The hedge fund set up by Paul Marshall is one of Europe's largest alternative investment groups, Marshall founded the hedge fund in 1997 with Ian Wace. The hedge fund gathered steam when it developed a computer system to analyse recommendations from investment banks.
Marshal Wace reported a strong year with profits up from £50 million to £89 million, ($80 million to $142 million) the newspaper reported. The firm's 21 fund managers will share the bulk of the bonus pot while the remainder will go to 75 administrative workers.
28 Dec 2009
HedgeCo News - The hedge fund manager of Eureka Fund, Europe's largest telecom, media and technology sector hedge fund is set to pay out £54.8 million ($87.6 million) in bonuses, according to UK newspaper The Daily Mail.
18 Dec 2009
Magnitskiy died on November 16 in a detention centre in Moscow. The US-born, British naturalised lawyer was arrested in 2008 after accusing senior officers in the Interior Ministry of taking part in a $230m state-sponsored scam, leading to the theft of companies owned by hedge funds Hermitage and HSBC. Hermitage has filed law suits and sent letters to Russian anti-corruption authorities, naming top-ranked officials and their role in the alleged tax scam.
The 37 year old father of two was held in Moscow’s Matrosskaya Tishina detention center for almost a year. "Sergey Magnitskiy was refused bail and kept in detention for a year without trial," Hermitage said in a statement. "He was denied the ability to see his mother and his wife and speak to his children for the entire time of his detention."
The U.K. Government has also contacted senior Russian politicians regarding the investigation, the newspaper said.
17 Dec 2009
100 Women in Hedge Funds partners with Prince William in support of Youth Homeless Charity Centrepoint
Centrepoint is the UK’s leading national youth homeless charity, to build on its existing mentoring programme. This announcement follows the news in October that Prince William, who in 2005, chose Centrepoint to be the first charity of which he would become patron, will be patron of 100 Women in Hedge Funds’ philanthropic initiatives.
100 Women in Hedge Funds has a track record of supporting charities in the fields of family health, mentoring and education. From January 2010, 100 Women in Hedge Funds will focus its philanthropic endeavours consecutively, for a year each, on three of Prince William’s Patronages: Centrepoint in 2010; the Child Bereavement Charity in 2011; and Skill Force in 2012.
Seyi Obakin, Chief Executive, Centrepoint said: “At Centrepoint, we are committed to giving homeless young people a future. We are delighted that, with Prince William’s patronage, 100 Women in Hedge Funds will be supporting Centrepoint throughout 2010. This support will make an invaluable contribution to lives of the 800 homeless young people we support each day.”
Commenting on the announcement, Anne Popkin, Chair of 100 Women in Hedge Funds, said: “We are thrilled as an organisation to partner with Centrepoint as they continue to meet their mission beyond their 40th anniversary, and are pleased to be working in partnership with Prince William to do so. All of our efforts and programs are aimed at supporting our three pillars of education, professional peer leverage, and philanthropy; and this partnership allows us to leverage our collective abilities and expertise in order to give back to the community.”
Funds raised by 100 Women in Hedge Funds in 2010 will be used to fund a mentoring programme aimed at enhancing the efforts already made by Centrepoint to impact the lives of young people by developing their employability skills, building their sense of self worth and self-esteem and setting goals for the future.
“In addition to Prince William’s patronage, we are pleased to announce that Financial Risk Management and its chairman Blaine Tomlinson have signed on to be the first Patronage Sponsor where they will support the charity of the year selected by 100 Women in Hedge Funds over the next three years,” added Popkin.
100 Women in Hedge Funds is planning a number of events in London during the year that will culminate in the 100 Women in Hedge Funds London Gala on September 30, 2010 at The Honorable Society of the Middle Temple.
Firms and individuals interested in learning more about sponsorship opportunities or for further details on 100 Women in Hedge Fund’s Gala event for 2010, email:
In October of this year, Khan pleaded guilty to a criminal information charging her with conspiracy to commit securities fraud and obstruction of justice, she entered her plea three days after hedge fund billionaire Raj Rajaratnam’s arrest.
Khan lived in California, where she traded securities on her own behalf, and also served as a paid consultant to a hedge fund located in New York. Khan admitted to compensating certain of her sources of inside information by giving them other inside information, cash and/or by executing trades in their personal brokerage accounts.
Khan also admitted in her plea to deleting an incriminating e-mail that she had received from a co-conspirator and attempted to deter other co-conspirators from sending incriminating e-mails or instant messages in light of the then-pending SEC investigation. Khan profited approximately $1.6 million as a result of her insider trading.
Bloomberg reported that U.S. District Judge Richard Berman yesterday formally accepted her plea after asking her several questions, including one about her cooperation agreement with prosecutors. “I just want to make sure you understand you have that obligation?” Berman asked.
Khan answered with "Yes, Sir" or "I understand" to the judge's questions.
Khan is one of six traders or lawyers who have pleaded guilty and are cooperating.
Lee was sentenced to 298 months in prison, to be followed by 3 years of supervised release. In addition, he was ordered to pay over $78 million in restitution.
In December 2006, Won Sok Lee, Jung Kim, and Yung Bae Kim were indicted on charges that they orchestrated a massive investment fraud in the operation of various hedge funds under the umbrella of the KL Group, LLC, initially in California and later in Palm Beach County.
According to the Indictment, documents filed with the court, and statements made during the plea hearings, the defendants used quarterly mailings and website postings to misrepresent to investors that the KL Financial Group was a hugely successful family of hedge funds. In fact, however, the KL funds lost millions of dollars, and, in Ponzi scheme fashion, used new investors’ monies to make payments owed to previous investors. From 2000 through 2005, KL received approximately $194 million in investor funds.
Also charged in the Indictment were three hedge fund advisor companies that were owned and controlled by the individual defendants: KL Group, LLC, KL Triangulum Management, LLC, and Shoreland Trading, LLC. The companies pled guilty in July 2007 to participating in the investment fraud conspiracy.
Defendant Won Lee remained a fugitive from December 2006 until early 2009. In 2009, federal authorities located Won Lee in South Korea. He was extradited to South Florida in April 2009 to face the federal charges pending against him. Won Lee admitted lying to investors to induce them to invest in the hedge funds and to keep their monies invested or to reinvest in different hedge funds.
The misrepresentations included false statements about the soundness and performance of particular funds. Victims were told that the funds were profitable, when in fact, none were. Lee also admitted his complicity in creating counterfeit clearing firm statements that were used to perpetrate and conceal the scheme.
In addition, Lee admitted lying to a clearing house about the origin of monies used to buy and sell stocks cleared through Penson, a Texas-based clearing firm. Lee also admitted to creating fictitious stock trading sheets, which were used to show a one-day profit of $22 million in a stock known as RIMM, the company that manufactures the popular “Blackberry” device. The RIMM trade, however, never took place, and the fictitious stock trading sheets were used to fool investors concerning the profitable trades being conducted by the KL hedge funds.
The case is being prosecuted by Assistant U.S. Attorneys Stephen Carlton and Edward Nucci.
16 Dec 2009
The High Court in London said that the Lehman funds were not “ring-fenced,” by the investment bank’s European arm and could not be claimed out of a $1 billion pool of funds currently controlled by Lehman administrators.
The Financial Times also said that while the ruling is a win for Goldman and GLG, whose cash was properly ring-fenced, it is a blow to several Lehman affiliates and other hedge fund clients, who now will not be eligible to pursue $3 billion worth of claims against the pool of funds.
The New York Times reported that roughly $11.4 billion in assets, including stocks, bonds, derivative contracts and other securities owned by hedge funds, insurance companies and other investors remain to be distributed in Lehman International’s trust account. Those funds have been frozen since Lehman collapsed in September 2008, frustrating some hedge funds that made trades through the firm before it fell into bankruptcy, the newspaper said.
“Mr. Rajaratnam is innocent and looks forward to his day in court when a jury of his fellow citizens will examine and evaluate all of the evidence,” his lawyer, John Dowd, said.
The indictment includes 17 counts of conspiracy and securities fraud and seeks to recover $20.8 million. Among the stocks they traded illegally were those of Google Inc., Advanced Micro Devices Inc. and Intel Corp., according to the indictment.
“We intend to plead not guilty and defend the case and hopefully at the end prove the client’s innocence,” Chiesi’s lawyer, Alan Kaufman, said in an interview with Bloomberg. A court hearing is scheduled in Manhattan on Monday.
15 Dec 2009
HedgeCo News Archives - The hedge fund industry grew by $14.93 billion in November, according to the Eurekahedge report, with performance-based gains of $9.92 billion and net inflows of $5 billion. The total size of the hedge fund universe now stands at $1.47 trillion – back to December 2008 level.
Hedge funds are up 18.24% November YTD, at par with the best November YTD performance on record. Asia ex-Japan funds are up 34.4% November YTD, on track to post the biggest annual gains on record across all regional hedge fund indices.
The Eurekahedge report also found that funds of funds withdrawals have accounted for 60% of the total redemptions from the hedge fund industry in 2009.
-- Government Balance Sheet Risk: The soaring U.S. budget deficit and a Chinese currency revaluation will drive 10-year U.S. Treasury yields above 4 percent by year-end 2010. Shorter-duration Treasuries and U.S. investment-grade corporate credit are less susceptible to such risks.
-- Rising Taxation: The soaring U.S. budget deficit, looming U.S. healthcare reform and a likely second stimulus package will need to be funded through higher tax rates. Opportunities include essential purpose revenue and general obligation municipal bonds, and municipal bond exchange-traded funds.
-- Alternative Dividend Yield Strategies: Dividend taxes are likely to rise in 2011, and as the prospect of higher taxes erodes the popularity of traditional dividend yield-oriented strategies, tax-advantaged or tax-deferred strategies will benefit.
-- Financial Sector Rehabilitation: Steepening yield curves around the world, increased M&A activity and the still-underestimated normalized earnings power of financials should foster their returns surprise on the upside. Opportunities can be found in best-of-breed mega-cap global financials.
-- Corporate Cash Flow Beneficiaries: High cash balances will translate into strategic M&A, a term describing non-speculative, non-private equity mergers. In addition, companies will increase capital spending and possibly dividends. We expect the beneficiaries of capital spending to include the industrial sector and temporary staffing companies as production expands.
-- Rising Global Growth: The global policy stimulus seen in 2009 will continue to support global growth led by emerging markets, while in the U.S. an inventory restocking cycle and higher capex converge to push global growth well above 4 percent. Opportunities include best-of-breed mega-cap multinationals based in developed markets with a large presence in emerging markets.
-- The Emerging Market Consumer: The emerging market consumer is at the beginning, not the end, of the credit cycle. Opportunities include emerging market currencies versus the U.S. dollar and, in equities, U.S. energy stocks, global energy majors and mega-cap multinationals.
-- Commodity Price Inflation: Supply constraints are likely to resurface in the year ahead as commodity demand outpaces the productive capacity of current resources. Investment opportunities include long position in gold and global energy stocks.
-- Alternative Energy: Truly economical renewables may be years away, buy investment in alternative energy is an important secular theme that will continue to gain ground. Alternative energy ETFs offer exposure to the burgeoning industry while providing important diversification across multiple technologies and business models. Old technology
energy equities such as utilities will be a source of, not a beneficiary of, alternative energy investment.
-- The Return of Active Management: Volatility has come down in 2009, especially since central banks began their critical quantitative easing in March. Lower volatility leads to lower correlation, resulting in greater differentiation in asset price performance. The trend favors active over passive management. Such a stock-picking environment should result in high-quality, best-of-breed stocks outperforming in 2010.
"Poor returns from the equities markets over the past decade, particularly from large cap equities, have created a pessimism bubble among investors," said Bianco. "We believe the S&P 500 is now undervalued, which could create many investment opportunities in the year ahead. Given our expectations for global growth led by emerging economies, a slow but steady U.S. recovery, and healthy S&P 500 EPS growth, we think that the pessimism bubble will finally burst in 2010."
"We believe the global economy will gather momentum in 2010," said Ethan Harris, head of North America economics and coordinator of global economics. "We think that the unprecedented mix of near-zero interest rates and high budget deficits will engineer an economic recovery that is real and sustainable. We aren't forecasting a swift return to robust growth. In fact, the recovery will likely lag behind those of previous recessions - but we believe that the world economy will perform far better than the economic consensus would indicate."
2010 Forecast Highlights
-- The BofA Merrill Lynch Global Economics Research team forecasts global
GDP growth to be 4.4 percent in 2010, well above the 3.1 percent
predicted by the International Monetary Fund. The team projects growth
will be led by China at 10.1 percent, while projecting U.S. GDP growth
to be 3.2 percent.
-- Harris expects a further fall in core inflation and projects that the
U.S. Consumer Price Index will be 2.5 percent. He feels that the
transmission process whereby monetary easing leads to rising prices is
currently "stuck in neutral" as banks are rebuilding there balance
sheets. He also believes that central banks will have plenty of time
to sop up liquidity before inflation becomes a real issue.
-- Michael Hartnett, chief global equity strategist and chairman of the
BofA Merrill Lynch Research Investment Committee, is targeting the
MSCI All-Country World Index at 350, roughly a 20 percent upside and
is bullish on European equities, Asia and emerging markets.
-- David Bianco, head of U.S. equity strategy, expects the S&P 500 to
appreciate about 15 percent by 2010 year end to 1275. Bianco expects
this appreciation to be driven by S&P 500 sales growth in four "global
cyclical" sectors of Technology, Energy, Industrials and Materials.
"These four sectors have high direct foreign sales and benefit from
high commodity prices and U.S. exports," said Bianco. "We also expect
Financials to outperform as a result of steepening yield curves and
underestimated normalized earnings power."
-- Francisco Blanch, head of commodities strategy, expects that
commodities will be driven by strong demand in emerging markets.
"Crude oil could break $100 per barrel by late 2010 and we're
forecasting gold to top $1,500 per ounce in the next 18 months,
particularly if the dollar weakens further against certain undervalued
emerging market currencies," said Blanch.
-- The BofA Merrill Lynch Research U.S. Interest Rate Committee expects
returns on long-term Treasuries and municipals to be modestly negative
and forecasts 10-year Treasury yield to be 4.25 percent, while the
30-year Treasury yield is predicted to be 4.95 percent.
-- Jeff Rosenberg, chief global credit strategist, expects to see
normalized returns as corporate credit outperforms both government
bonds and cash. "We expect high-yield returns to reach 10 percent,
outperforming the high-grade sector, which we forecast as providing
returns in the 2 percent to 3 percent range," said Rosenberg. "The
returns delivered by the credit markets over the past year are
impressive, but unsustainable. Going forward, investors will need to
adjust their expectations for price appreciation to more normalized
levels for the entire asset class."
-- Steven Pearson, head of G10 currency strategy, forecasts the U.S.
dollar to strengthen against G10 currencies next year, primarily
against the euro. However, over the first half of 2010, he expects the
Japanese yen to rise further against both the USD and EUR.
"Despite reassuring market strength, 2009 ultimately played out as a year of contradictions," said Hartnett. "While credit markets, commodities and stocks surged, many investors stayed on the sidelines, awaiting surer signs of recovery. The coming months will reveal whether investors can move forward with confidence or whether a policy misstep will interrupt the slow and steady recovery we think is possible."
14 Dec 2009
"Hedge fund clients are telling us their investors are demanding an independent validation of their holdings. The price verification/asset validation service helps address this need, which in turn helps hedge funds retain and grow their investor base," said Brian Ruane, chief executive officer of BNY Mellon Alternative Investment Services. "While our broad network of pricing vendors and counterparties are the power behind this new offering, greater transparency is clearly the motivation."
Currently, the price verification/asset validation service reconciles more than 27,000 client investment positions, with a total market value in excess of $24 billion. Client coverage rates (assets validated as a percentage of total portfolio scope and value) are in the range of 95-99%. Clients can elect the service on a monthly or quarterly basis.
BNY Mellon Alternative Investment Services is a leading hedge fund administrator with more than $225 billion in assets under administration and an extensive global presence, including locations in Bermuda, Cayman Islands, Hong Kong, Ireland, Luxembourg, Singapore and the United Kingdom, as well as U.S. offices in California, Florida, Massachusetts, New Jersey, New York, Pennsylvania and Texas. In addition to administration the company offers a wide range of accounting, cash management, collateral management, custody, corporate trust, asset management and wealth management services to the hedge fund industry.
10 Dec 2009
The effort to transform Cyprus into a global hedge fund and asset management epicenter has been in the works for over 5 years, with the aim of providing access to key markets such as the Middle East, the Eastern European region, Asia and Russia. Some of the top hedge funds globally have already established a footprint in Cyprus in an effort to adapt to international standards. As an accesspoint to the EU, Cyprus works for the Pan/European hedge fund model, with worldwide offices and execution from the island.
In an exclusive interview with the Cyprus Trade Commissioner, Aristos Constantine of the Ministry of Commerce, Industry and Tourism, I learned that Cyprus has the lowest corporate tax regime in the whole of the EU, at 10%. Cyprus also has some of the EU’s strongest double taxation treaties (DTT), with more than 40 countries worldwide.
“It has been a primary mandate in the past five years to transform the financial system into a favored conduit for International investment.” Trade Commissioner Aristos Constantine said in the interview, “The close private-public sector cooperation that characterizes Cyprus’ approach to forming its regulatory policy is a key factor in our ability and aim for continually reviewing and reforming our regulatory framework to provide greater flexibility, efficiency and transparency within the financial services and asset management sub-sector, whilst taking into account international compliance mechanisms with due consideration to recent changes in the industry.”
Cyprus maintains a fluid regulatory system which means that the Government will have the ability to anticipate potential issues and reconcile policy to meet private sector needs, ensuring a modern and transparent regulatory framework conducive to investment funds, including a favourable tax regime.
Over the past 10 years, specifically since its accession to the EU in 2004, Cyprus has moved from being an offshore to an onshore jurisdiction. It has completed a program of reforming finance sector legislation with international best practice.
“The Cypriot Government has put a simplified, effective and transparent tax system in place that is fully compliant with the EU, the Financial Action Task Force on Money Laundering (FATF), the Organization for Economic Co-operation and Development (OECD) and the Financial Stability Forum,” Commissioner Aristos Constantine, said.
Cyprus is actively involved with the OECD and part of its “white list”. It closely works with the EU and the Commonwealth in modelling global regulatory policy.
“Within the context of the prevailing global economic climate, the need to better function within the perspective of an ever increasing global environment has never been more profound. Cyprus, as a dynamic, flexible and adaptive economy, has seriously taken up this challenge and has worked extensively to ensure we function with clarity and transparency among both our EU neighbors and partners abroad.” Trade Commissioner Aristos Constantine stated in closing.Alex Akesson
Editor for HedgeCo.net
9 Dec 2009
Added Focus on Sovereign Wealth Funds Illuminates Interconnectivity of ‘The New Normal’ of Capital Markets
The G&A Institute tracks the major players in Sovereign Wealth Funds and ESG/Sustainable investing (environmental, social and governance Key Performance Indicators), and select US Public Sector Employee Investment Funds.
In a “Perspectives & Insights” communiqué to its clients, the G&A Institute detailed RiskMetrics’ rise and ever-expanding presence as a third party advisor beyond its already formidable role as a major player worldwide in corporate proxy season activities, including advising on corporate governance issues and assisting asset owners and managers in voting their proxies.
According to G&A Institute Chairman Hank Boerner: “We see this as part of the trend of accelerating the embrace of ESG and Sustainability among many more asset owners – which will have profound effects on corporate issuers. Stay tuned to ESG and RiskMetrics’ actions – in the company’s traditional spheres of influence, and now, with the recent moves, in the areas of ESG / Sustainability Investment and the activities of a powerful group of investors – the Sovereign Wealth Funds!
Noted the G&A Institute: “RiskMetrics is a major player worldwide in corporate proxy season activities, including advising on corporate governance issues and assisting asset owners and managers in voting their proxies. In 2009 the company bought the business of Innovest Strategic Investment Advisors and in November, the business of KLD Research and Analytics, Inc. Both moves move RiskMetrics firmly into the pantheon of global ESG / Sustainability research organizations.”
Recently RiskMetrics established its presence in the emerging (and increasingly more important) universe of sovereign investors, and especially Sovereign Wealth Funds. RiskMetrics and its affiliated Investors Responsibility Research Center (IRRC) are examining the transparency and disclosure practices of these investors.
As the sovereign investors (nation-states, city-states, regional coalitions, public sector pension funds, and related institutions) direct their strategic investments in other countries – by definition, SWFs are public sector monies invested outside of the home country – questions are raised about these investments, and whether the investors are transparent enough (most are not is the general opinion).
The RiskMetrics/IRRC Institute study found the following:
- Half of the top 10 largest SWFs have achieved a relatively high level of disclosure;
- Other funds have yet to adopt meaningful initiatives to improve compliance with the voluntary code of conduct;
- While the aggregate size of the top 10 SWFS is USD$2.2 trillion, the actual impact on international markets has been smaller at USD$1 trillion.
The SWFs covered in the report: the funds of Abu Dhabi, Australia, China (2), Singapore (2), Kuwait, Libya, Russia, and Qatar.
About Governance & Accountability Institute
Governance & Accountability Institute, Inc. (www.ga-institute.com) provides timely news, actionable research and information, perspectives and opinion, reliable data, and customized advisory services to organizations, institutions and individuals seeking to do the right thing for the right reasons. INSIGHTS-edge is the Institute’s Web-based platform, available to subscribers and clients to identify, understand, track and engage with third party organizations that are shaping the capital markets and the corporate environment through their focus on key sustainability factors.
8 Dec 2009
"I’m delighted to welcome Ian Morley to our Board and to have Virginia Gambale take its Chair. Virginia is an exceptionally well experienced Director of fast growing companies and I look forward to making great strides under her leadership. Ian Morley brings a wealth of experience across the global asset management industry, and Infonic is privileged to be benefiting from his insight and expertise,” said Tom Furrer, CEO of Infonic AG. “As founding Chairman of the Alternative Investment Management Association (AIMA) and advisor to central banks and regulatory authorities, Ian is a true industry leader who understands the business, regulatory, and operational issues that the hedge fund industry faces. We look forward to leveraging the combined talents of this amazing team to become the global operational backbone of the hedge fund industry.”
Morley has had an extensive career in financial services, and the alternative asset management industry in particular. He holds chairmanships and directorships at several firms, including Corazon Capital, Allenbridge Hedge, and Wentworth Hall, a consulting and private equity company. During his career, Morley served as CEO of DDO, a fund of hedge fund, and as Head of Derivatives and Quantitative Fund Management at AIB Govett. Earlier, he was Managing Director of Rudolf Wolff Fund Management and European Director of Managed Futures at Lehman Brothers.
Ms. Gambale is Managing Partner of Azimuth Partners LLC, an investment and advisory firm she founded in 2003. She has served on over 20 public and private boards as well as several Advisory Boards in the finance and technology industry. Today, she holds public company board seats on Jet Blue and Piper Jaffray. Prior to 2003, she held senior management positions, including CIO, at global corporations including: Merrill Lynch, Marsh & McLennan, Bankers Trust Alex Brown and Deutsche Bank. Additionally, she headed DB Strategic Ventures, was General Partner in ABS Ventures, and was subsequently a partner at DB Capital Partners.
“While hedge funds have generated strong returns this year and kept pace with the majority of the equity benchmarks, they have not been without their challenges,” said Lee Hennessee, Managing Principal of Hennessee Group. “The rally that commenced in March has been very broad based. Stock specific fundamentals have not mattered much to investors. This has resulted in consistent losses in the short portfolios of many hedge funds and has served as a drag on performance. That said, we are beginning to see the environment for shorting improve.”
The Hennessee Long/Short Equity Index advanced +1.76% in November (+18.98% YTD). The equity markets rebounded in November due to encouraging economic data and better than expected earnings reports. Large cap stocks outperformed with the S&P 500 Index gaining +5.3% and reaching new highs for 2009. All ten sectors experienced gains during the month led by materials (+11.3%), industrials (+8.7%) and healthcare (+9.0%). Long/short equity funds generated gains in November, however lagged their traditional counterparts due to their defensive posturing and reduced exposures. Long/short equity managers remain cautious as they measure the strength and depth of the economic recovery and question current market multiples. In addition, some managers appear content maintaining reduced risk exposures through the end of the year.
The Hennessee Arbitrage/Event Driven Index gained +1.85% in November (+28.25% YTD). The spread on the Merrill Lynch High Yield Index widened slightly from 760 basis points to 765 basis points in November, hitting a low of 751 basis points mid-month. Bonds were again positive, however high yield bonds underperformed high grade and treasuries for the first time in a year. High yield and high grade primary markets remain open with significant investor interest. The Hennessee Distressed Index advanced +3.13% in November (+36.78% YTD). Distressed funds continue to benefit from their directional bias. Many managers are now focusing on post-reorganization equities as several companies emerge from bankruptcy, including Delphi and CIT. Managers are also starting to look at the 2005 to 2007 leverage buyout vintages and expect these deals to be the next large set of defaults. The Hennessee Convertible Arbitrage Index advanced +0.75% (+40.57% YTD). Despite a slight widening of spreads and decline in volatility, managers were able to generate gains due to strong secondary market performance and lower interest rates. New issuance remains disappointing, while redemptions remained high. The Hennessee Merger Arbitrage Index advanced +0.74% in November (+7.84% YTD). Many managers saw allocations to merger arbitrage decline significantly after closure of the big pharmaceutical deals. However, many feel that M&A activity is going to continue and anticipate increasing allocations as new deals emerge. Many are encouraged by the pick up in bidding situations, such as Hershey and Kraft bidding for Cadbury.
The Hennessee Global/Macro Index advanced +1.46% in November (+22.34% YTD). Global equities increased, though underperformed U.S. markets, as the MSCI EAFE Index advanced +1.75% (+26.03% YTD). The Hennessee International Index advanced +2.67% (+20.78% YTD). Emerging markets were strong, led by Latin America . Managers lost money in India due to Dubai World’s announcement of restructuring and request of a standstill agreement from providers of financing. The Hennessee Macro Index advanced +1.00% in November (+9.73% YTD). One of the most common macro themes, long gold, was profitable in November as the S&P GSCI gold spot index increased +13.64% during the month, its largest monthly advance in 2009. The dollar short continues to be a profitable trade as the US dollar index continued to decline in November. One of the key detractors for the month was the short treasury trade. Treasures rallied as the 2-year Treasury yield dropped from 0.85% to 0.65%, and the 10-year Treasury yield fell from 3.39% to 3.20%. At the same time, the 30-year Treasury yield eased from 4.23% to 4.19%.
“The gold trade continued to snow ball in November as Central Banks have become net buyers along with major hedge funds,” commented Charles Gradante, Co-Founder of Hennessee Group. “Never in my 38 year investment career have I seen so many respected investors focused on a single strategy.”
5 Dec 2009
Other important upcoming dates:
* December 24, 2009 - Deadline to submit any form filings for 2009.
* December 25, 2009 to January 3, 2010 - Both the IARD and CRD systems will be unavailable between these dates.
* January 1, 2010 - FINRA’s new fee hikes on the Gross Income Assessment schedule take effect. See Regulatory Notice 09-68
* February 5, 2010 - Deadline to submit any renewal changes or final payments on delinquent accounts.
* March 31, 2010 - Deadline for Form ADV and Form BD amendments.
“However we do wish to express our concern over a measure contained in the proposed Financial Stability Improvement Act of 2009, which was just approved by the House Committee on Financial Services, whereby the hedge fund industry would be subject to more onerous requirements than other financial institutions.” Under this proposal, the asset threshold for firms required to contribute to the Systemic Resolution Fund – a pool of capital that would be used to rescue firms deemed too big to fail – would be set at $10 billion for hedge funds yet $50 billion for all other financial institutions.
The result of this would be to impose disproportionately high costs on hedge fund managers who do not themselves pose systemic risk. “We hope this proposed measure is reconsidered before it becomes law and look forward to working with policymakers on a proportionate and workable outcome.”
4 Dec 2009
"We are pleased that we were able to come to a mutually satisfactory agreement with Deutsche Bank regarding this dispute. As a staunch advocate of our investors' interests, we reached a mutually beneficial financial resolution for our funds." said Jim Dondero, President.
The terms of the settlement remain confidential.
HedgeCo News Archive - Hedge fund founder Raj Rajaratnam was investigated by federal prosecutors ten years ago according to legal filings obtained by The Wall Street Journal. The paper reported that the prosecutors were unable to prove their suspicions at the time.
The investigation started with suspicions in the 1990s when chip maker Intel Corp alleged that Rajaratnam was receiving tips from an Intel insider. The investigation was based on a witness who had first entered into a plea agreement with the United States before she began to cooperate in an investigation into Rajaratnam's practices.
Rajaratnam was taken into custody in New York on Oct. 16, 2009 in the USA's largest hedge fund insider-trading scheme. His bail was set at $100 million, Rajaratnam said in regard to the charges, that, "they are, without exception, entirely baseless. I am innocent and will vigorously defend myself and our firm."
3 Dec 2009
Launched with President Bill Clinton in 2008, LeapFrog has raised $47 million to date from leading banks, funds, and microfinance and insurance investors. Its profit-with-purpose investment approach has been hailed by many global leaders as a new frontier for alternative investment and microfinance.
"AllLife has developed a distinctive and profitable business model, reaching customers that other insurers have been unable to access," says Gary Herbert, a LeapFrog Principal. "LeapFrog is providing AllLife's team with support to grow their client base by several multiples, and expertise to help management cascade their unique systems into new products and markets."
AllLife, a pioneer in continuous underwriting, links insurance products to an adherence management program. The program ensures clients manage their health appropriately, routinely alerting them to potential health concerns and helping them take action to maintain their wellbeing - such as regularly testing and taking anti-retroviral medications. As a result, AllLife offers more competitively priced products, and covers people whom the insurance industry has often regarded as uninsurable.
"No one who is willing to manage their disease appropriately should be denied life insurance," says Ross Beerman, Managing Director of AllLife. "These are potential policyholders, willing to pay for reasonably priced insurance, and willing to take steps to manage their disease so that they lead long and productive lives. From a business risk and profitability perspective, of course they're insurable - we simply had to invent systems to monitor and support them in the right ways."
AllLife's world-class team and strong strategic plan position it to continue a rapid growth trajectory - its client base grew by 250% last year. AllLife targets reaching 50,000 HIV+ and diabetic policyholders in just a few years, generating strong profits and significant social impact.
In total, 250,000 policyholders and dependents will enjoy the financial security that insurance provides. Most have been unable to obtain insurance or could do so at very high cost - preventing them from taking out home loans, starting businesses, or engaging in other economic activities requiring insurance. Access to insurance has also been shown to reduce stigma associated with HIV, and measurably improve health outcomes. According to Beerman, the company sees an average 15% improvement in clients' health, just from having an AllLife insurance policy.
"We saw in this extraordinary company an opportunity to generate meaningful profits for investors while ending the exclusion of thousands of families from life insurance and participation in the economy," says Ingo Weber, an Investment Committee Member of LeapFrog and a former Managing Director at Swiss Re. LeapFrog's Founder and President, Andrew Kuper, concluded: "For anyone wondering if it's possible to do well by doing good, today that question is answered."
"Long/Short Equity hedge funds underperformed most global equity markets as managers maintained relatively neutral exposure to equity markets and many began to lock in profits before the end of the year." Dr. Drachman noted, "Global Macro hedge funds experienced positive performance this month as managers capitalized on increased macro-economic activity. The LAB Long/Short Equity Liquid Index was down -0.75% (net) for the month, while the Credit Suisse Global Macro Liquid Index (LAB Global Macro Liquid Index) finished up 2.23% (net) in the same period."
LAB (formerly known as Alternative Index Replication or AIR) is a series of indices that seek to replicate the aggregate return profiles of alternative investment strategies using liquid, tradable instruments. The LAB umbrella currently includes the Long/Short Equity Liquid Index and the Global Macro Liquid Index which enable investors to gain liquid, transparent insight into the Global Macro and Long/Short Equity sectors of the Credit Suisse/Tremont Hedge Fund Index.
2 Dec 2009
New York (HedgeCo.net) – State Street Corporation is expanding its global servicing capabilities with an agreement to acquire alternative fund manager Mourant International Finance Administration in a cash transaction. The UK fund is headquartered in Jersey in the Channel Islands with approximately $170 billion in assets under administration.
“As alternative asset classes have become more mainstream, our institutional customers plan to continue to expand their use of this asset class,” said Jay Hooley, president and chief operating officer of State Street.
State Street has been expanding its capabilities in alternative investments over the last seven years. In 2002, the company acquired International Fund Services (IFS), a leading provider of hedge fund administration services and in 2007 State Street significantly expanded its leadership in this market with its acquisitions of both Investors Financial Services Corp. and Palmeri Fund Administrators.
State Street’s Alternative Investment Solutions (AIS) team has more than $420 billion in alternative assets under administration as of September 30, 2009. The acquisition will bring the total to $600 billion, ranking the combined State Street and MIFA businesses No. 1 in alternative asset, private equity and real estate asset servicing globally and No. 2 in hedge fund servicing globally, based on industry survey data. The transaction is expected to close in the first quarter of 2010.
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“Our clients increasingly seek to trade around the clock and around the globe. We have launched our 24-hour international and domestic desk to provide comprehensive access to the world’s markets,” said Eric Morgan , senior partner and head of trading at Merlin Securities. “Our clients now have the capability to execute in 96 countries across six continents – a level of access that has historically been provided only by the largest prime brokers to the largest hedge funds. The trading team at Merlin takes great pride in our outstanding trading capabilities, services and technology that clients cannot find elsewhere. We welcome Troy and John to the firm as we launch this new level of coverage.”
Troy Prince was most recently a U.S. and Asian equity trader with RBC Capital Markets, where he was the primary trader for a discretionary global equity long/short fund. Prior to that he was a Japanese and global equity execution trader for Barclays, based in Tokyo. Previously, Prince spent five years with ETG, LLC – an affiliate of Spear, Leeds & Kellogg – where he served as a global equity proprietary trader based in New York and Madrid. Earlier in his career Prince was a Japanese equity and convertible bond sales trader with Diawa Securities in Tokyo as well as a portfolio trader with O.G. Williams Capital. He holds a bachelors degree from the Stern School of Business at New York University.
John Perna was most recently a vice president and international equities sales trader at J.P. Morgan and, prior to that, an associate director and international trader for Bear Stearns. In these roles he gained extensive experience trading in Asian, European and Latin American markets, executing customer orders using DMA, DOT and various types of algorithms. Perna holds a bachelors degree in economics from Duke University.
The hedge fund has some $300 million in capital, the Wall Street Journal reports. Meru started trading on December 1st with a large chunk of the partner's own funds, up to $75 million, according to some reports.
The New York based hedge fund invests in derivatives, equities, fixed-income, and currencies. It plans to move in and out of positions quickly, with no single investment accounting for more than 5% of the fund’s assets, the Wall Street Journal reported this morning.
1 Dec 2009
In an effort to match up investors with hedge funds looking for new allocations, HedgeCo held the Fall 2009 Capital Introduction Round Tables. The event attracted 65 investors and 6 hedge fund managers. The investors were separated into 6 groups, while the hedge fund managers rotated at 20 minute intervals, enabling the investors to address each manager individually.
"Unlike other capital introduction events where the ratio of managers to investors is small, we take pride that our events have a substantial qualified investor turnout." Evan Rapoport, Co-Founder of HedgeCo Networks, said, "As a result of our conferences, investors have reported notable asset increases."
"I've been to a lot of capital introduction events and as a veteran Hedge Fund manager I can say that this has been the best event so far." Kurt Hovan, manager of Hovan Capital Management, said of the event, "The HedgeCo team did a terrific job in putting together a group of high quality investors, and giving the managers a format which enabled direct interaction with every investor. I look forward to attending future events."
The next event will be held mid-to-late January in NYC, it will also be a Round Table format and HedgeCo is currently accepting applications for new managers to present their funds to members of the alternative investment community.
“We hope to continue having these events and keeping the hedge fund community well networked.” Andrew Schneider, co-founder of HedgeCo Networks, said, “Networking is especially important as the economy continues to change, knowing what is going on in the hedge fund community and having connections in the industry is all-important.”
Recognized as having the largest attendance for any type of event in the hedge fund industry, the HedgeCo Networking Events have quickly become the top destination for generating new business and meeting new industry contacts.
"Last week there were expansions, as back and middle office service providers globally, caught up with the trend." Andrew Schneider, founder and co-principal of hedge fund research and services firm, HedgeCo Networks, said.
Privately owned hedge fund administration company, Opus Fund Services, today opened a Chicago office, appointing Stephen Giannone as the firms President. He has previously worked in senior management positions at Bear Stearns and Deutsche Bank and most recently at hedge fund administrators Spectrum and Omnium (formerly Citadel Solutions). Opus Fund Services is headquartered in Bermuda and has offices in New York, the United Kingdom, and the Cayman Islands.
And also in the off-shore news, hedge fund law firm, Conyers Dill & Pearman, announced an expansion into Cyprus. Conyers will launch its Cyprus practice out of its Moscow office and will advise on all aspects of Cyprus corporate law.
Cypriot law firm Antis Triantafyllides & Sons LLC (ATS) has entered into an arrangement with Conyers for mutual co-operation on Cyprus, Bermuda, British Virgin Islands, Cayman Islands and Mauritius work, and will assign a lawyer from their Cyprus office to Conyers' Moscow office.
30 Nov 2009
Charles Gradante, Co-Founder of the Hennessee Group, stated “We believe the ‘December Effect, whereby investors choose to defer paying taxes on equity market gains until the following year, will provide additional support to the equity markets as we close out the year. And historical data seems to support this thesis as the equity markets have experienced gains during the final month of the year 70% of the time when positive through the month of November.”
Gradante added, “In addition, hedge funds have experienced gains in December 100% of the time during these same calendar year periods.”
Hennessee Group recently conducted a brief study examining the historical performance of the equity markets and hedge funds when entering the final month of the year with positive year-to-date gains. Hennessee Group focused on the calendar year periods dating back to 1995; using the S&P 500 Index and the Hennessee Hedge Fund Index as proxies.
Dating back to 1995, the S&P 500 Index has generated positive returns through November in ten calendar year periods and experienced additional gains in December 70% of the time. In comparison, hedge funds managed to generate gains in nine of the calendar year periods the S&P 500 Index was positive through November and experienced gains in December 100% of the time.
Gradante stated, “The data supports the ‘December Effect Theory’ and bodes well for investors as we close out 2009. Hennessee Research indicates that when the equity markets were positive through November, they gained on average +2.1% in December while hedge funds gained +1.9%.”
While the Hennessee Group is optimistic for both the equity markets and hedge funds heading into the final month of the year due to the “December Effect”, we are more optimistic that hedge funds are well positioned for a good year on a relative basis in 2010.
In addition, the equity markets are likely to trade in a range as opposed to trend in one particular direction in 2010. The Hennessee Group believes such an environment should favor hedge funds relative to their traditional counterparts as they will have the opportunity to generate alpha on the both the long and short side of their portfolios while not having to rely on market direction or beta for returns.
"There was bound to be a reaction of some sort, when these kind of changes are made," Andrew Schneider, co-founder of HedgeCo, said, "The industry as a whole has bounced back in dramatic fashion. If the EU commission wants to set up a watchdog system for hedge funds, investors and markets, there is sure to be an opening for competition from emerging markets and countries with lower taxes."
When HSBC disclosed that it was reviewing the placement of its headquarters, it fuelled fears of an exodus of leading companies. Three FTSE250 firms disclosed in October that they were leaving London. Among key tax concerns include government proposals to begin taxing "non-domiciled" foreign staff.
European Union lawmakers have also said that hedge fund managers in the UK may be subject to the same kind of restrictions and bonuses currently being imposed on regular banks to limit rewards for short-term success.
25 Nov 2009
Hedge fund managers and stock traders have been closely following the Government's case, as wiretapping is a common tactic for investigations into organized crime, terrorism, and drug running. This case is the first insider-trading prosecution based on Government wiretaps.
The Wall street Journal reported that Rajaratnam’s lawyers argued that wiretaps were used without first demonstrating that conventional investigative techniques were inadequate, as required under the Wiretap Act of 1968.
23 Nov 2009
New York (HedgeCo.net) – The seventh-largest U.S. public pension fund is reported to be investing $200 million in Asia private equity hedge funds.
Bloomberg reported this morning that the Teachers Retirement System of Texas fund has assigned $100 million each to hedge fund firms Squadron Capital and Morgan Creek Capital Management LLC to help it invest with private-equity firms that focus on emerging markets.
According to the Asian Venture Capital Journal, Asia private-equity investments in have reached $25 billion since July, overtaking the $22.4 billion total for the first half.
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Jamie has a strong background in fund management and African markets, garnered during eight years with New Star Asset Management. Jamie joined New Star in 2001 as an equity analyst. Over the next five years, Jamie served as portfolio manager to two of New Star’s high profile funds. Part of his responsibility in this role was marketing the fund to a cross-section of international investors.
In 2007, Jamie launched the New Star Heart of Africa Fund, which invested in Sub Saharan equities. As portfolio manager of the fund, Jamie developed a deep knowledge of African markets, as well as first-hand experience of the region through extensive trips to the Sub Saharan region. He was responsible for raising £90m of new investment into the fund through a global marketing campaign.
Jamie’s appointment is the latest step in Insparo’s efforts to ramp up the marketing of the fund. The firm recently announced plans to increase the scope of the fund’s marketing to target investors in the US, Europe, South Africa and the Middle East.
His appointment also represents the third hire made by Insparo in as many months, as the firm has looked to build on the success of its first year by increasing its investment, operational and marketing personnel. The Insparo Africa and Middle East Fund has now returned 31% YTD.
“Jamie is a very significant hire for the firm." Mohammed Hanif, Chief Investment Officer at Insparo, said ,"His experience of managing and capital raising for a major African-focussed fund positions him perfectly for the role we’re asking him to take on. By hiring a specialist of the calibre of Jamie, who also has hands on fund management experience, we believe we are able to provide our current and future investors with a superior and well rounded service that we feel is appropriate for a frontier market product.”
The Insparo Africa and Middle East Fund currently has US$160 million of assets under management. Investors include IPGL Limited, a private holding company in which Michael Spencer, CEO of ICAP plc, together with his wife and family trusts, are majority shareholders; and South African entrepreneur Mark Shuttleworth’s Here Be Dragons. It targets traditional hedge fund and institutional investors such as funds of hedge funds, private banks, family offices, HNWIs and pension funds.
The success of the fund in its first year saw the firm awarded the Emerging Markets (excl Asia) Asset Manager of the Year Award at the recent Global Investor Awards.
Insparo Asset Management, founded in July 2007 is a UK-based limited liability company, whose investment team has collectively 40 years of emerging markets experience, focused on esoteric investments.
20 Nov 2009
A. Create a Financial Services Oversight Council
1. We propose the creation of a Financial Services Oversight Council to facilitate information sharing and coordination, identify emerging risks, advise the Federal Reserve on the identification of firms whose failure could pose a threat to financial stability due to their combination of size, leverage, and interconnectedness (hereafter referred to as a Tier 1 FHC), and provide a forum for resolving jurisdictional disputes between regulators.
a. The membership of the Council should include
(i) the Secretary of the Treasury, who shall serve as the Chairman;
(ii) the Chairman of the Board of Governors of the Federal Reserve System;
(iii) the Director of the National Bank Supervisor;
(iv) the Director of the Consumer Financial Protection Agency;
(v) the Chairman of the SEC;
(vi) the Chairman of the CFTC;
(vii) the Chairman of the FDIC; and
(viii) the Director of the Federal Housing Finance Agency (FHFA).
b. The Council should be supported by a permanent, full-time expert staff at Treasury. The staff should be responsible for providing the Council with the information and resources it needs to fulfill its responsibilities.
2. Our legislation will propose to give the Council the authority to gather information from any financial firm and the responsibility for referring emerging risks to the attention of regulators with the authority to respond.
B. Implement Heightened Consolidated Supervision and Regulation of All Large,
Interconnected Financial Firms
1. Any financial firm whose combination of size, leverage, and interconnectedness could pose a threat to financial stability if it failed (Tier 1 FHC) should be subject to robust consolidated supervision and regulation, regardless of whether the firm owns an insured depository institution.
2. The Federal Reserve Board should have the authority and accountability for consolidated supervision and regulation of Tier 1 FHCs.
3. Our legislation will propose criteria that the Federal Reserve must consider in identifying Tier 1 FHCs.
4. The prudential standards for Tier 1 FHCs – including capital, liquidity and risk management standards – should be stricter and more conservative than those applicable to other financial firms to account for the greater risks that their potential failure would impose on the financial system.
5. Consolidated supervision of a Tier 1 FHC should extend to the parent company and to all of its subsidiaries – regulated and unregulated, U.S. and
foreign. Functionally regulated and depository institution subsidiaries of a Tier 1 FHC should continue to be supervised and regulated primarily by their functional or bank regulator, as the case may be. The constraints that the Gramm-Leach-Bliley Act (GLB Act) introduced on the Federal Reserve’s ability to require reports from, examine, or impose higher prudential requirements or more stringent activity restrictions on the functionally regulated or depository institution subsidiaries of FHCs should be removed.
6. Consolidated supervision of a Tier 1 FHC should be macroprudential in focus. That is, it should consider risk to the system as a whole.
7. The Federal Reserve, in consultation with Treasury and external experts, should propose recommendations by October 1, 2009 to better align its structure and governance with its authorities and responsibilities.
C. Strengthen Capital and Other Prudential Standards For All Banks and BHCs
1. Treasury will lead a working group, with participation by federal financial regulatory agencies and outside experts that will conduct a fundamental reassessment of existing regulatory capital requirements for banks and BHCs, including new Tier 1 FHCs. The working group will issue a report with its conclusions by December 31, 2009.
2. Treasury will lead a working group, with participation by federal financial regulatory agencies and outside experts, that will conduct a fundamental reassessment of the supervision of banks and BHCs. The working group will issue a report with its conclusions by October 1, 2009.
3. Federal regulators should issue standards and guidelines to better align executive compensation practices of financial firms with long-term shareholder value and to prevent compensation practices from providing incentives that could threaten the safety and soundness of supervised institutions. In addition, we will support legislation requiring all public companies to hold non-binding shareholder resolutions on the compensation packages of senior executive officers, as well as new requirements to make compensation committees more independent.
4. Capital and management requirements for FHC status should not be limited to the subsidiary depository institution. All FHCs should be required to meet the capital and management requirements on a consolidated basis as well.
5. The accounting standard setters (the FASB, the IASB, and the SEC) should review accounting standards to determine how financial firms should be required to employ more forward-looking loan loss provisioning practices that incorporate a broader range of available credit information. Fair value accounting rules also should be reviewed with the goal of identifying changes that could provide users of financial reports with both fair value information and greater transparency regarding the cash flows management expects to receive by holding investments.
6. Firewalls between banks and their affiliates should be strengthened to protect the federal safety net that supports banks and to better prevent spread of the subsidy inherent in the federal safety net to bank affiliates.
D. Close Loopholes in Bank Regulation
1. We propose the creation of a new federal government agency, the National Bank Supervisor (NBS), to conduct prudential supervision and regulation of all federally chartered depository institutions, and all federal branches and agencies of foreign banks.
2. We propose to eliminate the federal thrift charter, but to preserve its interstate
branching rules and apply them to state and national banks.
3. All companies that control an insured depository institution, however organized, should be subject to robust consolidated supervision and regulation at the federal level by the Federal Reserve and should be subject to the nonbanking activity restrictions of the BHC Act. The policy of separating banking from commerce should be re-affirmed and strengthened. We must close loopholes in the BHC Act for thrift holding companies, industrial loan companies, credit card banks, trust companies, and grandfathered “nonbank” banks.
E. Eliminate the SEC’s Programs for Consolidated Supervision
The SEC has ended its Consolidated Supervised Entity Program, under which it had been the holding company supervisor for companies such as Lehman Brothers and Bear Stearns. We propose also eliminating the SEC’s Supervised Investment Bank Holding Company program. Investment banking firms that seek consolidated supervision by a U.S. regulator should be subject to supervision and regulation by the Federal Reserve.
F. Require Hedge Funds and Other Private Pools of Capital to Register
All advisers to hedge funds (and other private pools of capital, including private equity funds and venture capital funds) whose assets under management exceed some modest threshold should be required to register with the SEC under the Investment Advisers Act. The advisers should be required to report information on the funds they manage that is sufficient to assess whether any fund poses a threat to financial stability.
G. Reduce the Susceptibility of Money Market Mutual Funds (MMFs) to Runs
The SEC should move forward with its plans to strengthen the regulatory framework around MMFs to reduce the credit and liquidity risk profile of individual MMFs and to make the MMF industry as a whole less susceptible to runs. The President’s Working Group on Financial Markets should prepare a report assessing whether more fundamental changes are necessary to further reduce the MMF industry’s susceptibility to runs, such as eliminating the ability
of a MMF to use a stable net asset value or requiring MMFs to obtain access to
reliable emergency liquidity facilities from private sources.
H. Enhance Oversight of the Insurance Sector
Our legislation will propose the establishment of the Office of National Insurance within Treasury to gather information, develop expertise, negotiate international agreements, and coordinate policy in the insurance sector. Treasury will support proposals to modernize and improve our system of insurance regulation in accordance with six principles outlined in the body of the report.
I. Determine the Future Role of the Government Sponsored Enterprises (GSEs)
Treasury and the Department of Housing and Urban Development, in consultation with other government agencies, will engage in a wide-ranging initiative to develop recommendations on the future of Fannie Mae and Freddie Mac, and the Federal Home Loan Bank system. We need to maintain the continued stability and strength of the GSEs during these difficult financial times.
We will report to the Congress and the American public at the time of the President’s 2011 Budget release.
II. ESTABLISH COMPREHENSIVE REGULATION OF FINANCIAL MARKETS
A. Strengthen Supervision and Regulation of Securitization Markets
1. Federal banking agencies should promulgate regulations that require originators or sponsors to retain an economic interest in a material portion of the credit risk of securitized credit exposures.
2. Regulators should promulgate additional regulations to align compensation of market participants with longer term performance of the underlying loans.
3. The SEC should continue its efforts to increase the transparency and standardization of securitization markets and be given clear authority to require robust reporting by issuers of asset backed securities (ABS).
4. The SEC should continue its efforts to strengthen the regulation of credit rating agencies, including measures to promote robust policies and procedures that manage and disclose conflicts of interest, differentiate between structured and other products, and otherwise strengthen the integrity of the ratings process.
5. Regulators should reduce their use of credit ratings in regulations and supervisory practices, wherever possible.
B. Create Comprehensive Regulation of All OTC Derivatives, Including Credit
Default Swaps (CDS)
All OTC derivatives markets, including CDS markets, should be subject to comprehensive regulation that addresses relevant public policy objectives:
(1) preventing activities in those markets from posing risk to the financial system;
(2) promoting the efficiency and transparency of those markets; (3) preventing market manipulation, fraud, and other market abuses; and (4) ensuring that OTC derivatives are not marketed inappropriately to unsophisticated parties.
C. Harmonize Futures and Securities Regulation
The CFTC and the SEC should make recommendations to Congress for changes to statutes and regulations that would harmonize regulation of futures and securities.
D. Strengthen Oversight of Systemically Important Payment, Clearing, and Settlement Systems and Related Activities
We propose that the Federal Reserve have the responsibility and authority to conduct oversight of systemically important payment, clearing and settlement systems, and activities of financial firms.
E. Strengthen Settlement Capabilities and Liquidity Resources of Systemically Important Payment, Clearing, and Settlement Systems
We propose that the Federal Reserve have authority to provide systemically important payment, clearing, and settlement systems access to Reserve Bank accounts, financial services, and the discount window.
III. PROTECT CONSUMERS AND INVESTORS FROM FINANCIAL ABUSE
A. Create a New Consumer Financial Protection Agency
1. We propose to create a single primary federal consumer protection supervisor to protect consumers of credit, savings, payment, and other consumer financial products and services, and to regulate providers of such products and services.
2. The CFPA should have broad jurisdiction to protect consumers in consumer financial products and services such as credit, savings, and payment products.
3. The CFPA should be an independent agency with stable, robust funding.
4. The CFPA should have sole rule-making authority for consumer financial protection statutes, as well as the ability to fill gaps through rule-making.
5. The CFPA should have supervisory and enforcement authority and jurisdiction over all persons covered by the statutes that it implements, including both insured depositories and the range of other firms not previously subject to comprehensive federal supervision, and it should work with the Department of Justice to enforce the statutes under its jurisdiction in
6. The CFPA should pursue measures to promote effective regulation, including conducting periodic reviews of regulations, an outside advisory council, and coordination with the Council.
7. The CFPA’s strong rules would serve as a floor, not a ceiling. The states should have the ability to adopt and enforce stricter laws for institutions of all types, regardless of charter, and to enforce federal law concurrently with respect to institutions of all types, also regardless of charter.
8. The CFPA should coordinate enforcement efforts with the states.
9. The CFPA should have a wide variety of tools to enable it to perform its functions effectively.
10. The Federal Trade Commission should also be given better tools and additional resources to protect consumers.
B. Reform Consumer Protection
1. Transparency. We propose a new proactive approach to disclosure. The CFPA will be authorized to require that all disclosures and other communications with consumers be reasonable: balanced in their presentation of benefits, and clear and conspicuous in their identification of costs, penalties, and risks.
2. Simplicity. We propose that the regulator be authorized to define standards for “plain vanilla” products that are simpler and have straightforward pricing. The CFPA should be authorized to require all providers and intermediaries to offer these products prominently, alongside whatever other lawful products they choose to offer.
3. Fairness. Where efforts to improve transparency and simplicity prove inadequate to prevent unfair treatment and abuse, we propose that the CFPA be authorized to place tailored restrictions on product terms and provider practices, if the benefits outweigh the costs. Moreover, we propose to authorize the Agency to impose appropriate duties of care on financial
4. Access. The Agency should enforce fair lending laws and the Community Reinvestment Act and otherwise seek to ensure that underserved consumers and communities have access to prudent financial services, lending, and investment.
C. Strengthen Investor Protection
1. The SEC should be given expanded authority to promote transparency in investor disclosures.
2. The SEC should be given new tools to increase fairness for investors by establishing a fiduciary duty for broker-dealers offering investment advice and harmonizing the regulation of investment advisers and broker-dealers.
3. Financial firms and public companies should be accountable to their clients and investors by expanding protections for whistleblowers, expanding sanctions available for enforcement, and requiring non-binding shareholder votes on executive pay plans.
4. Under the leadership of the Financial Services Oversight Council, we propose the establishment of a Financial Consumer Coordinating Council with a broad membership of federal and state consumer protection agencies, and a permanent role for the SEC’s Investor Advisory Committee.
5. Promote retirement security for all Americans by strengthening employmentbased and private retirement plans and encouraging adequate savings.
IV. PROVIDE THE GOVERNMENT WITH THE TOOLS IT NEEDS TO MANAGE FINANCIAL CRISES
A. Create a Resolution Regime for Failing BHCs, Including Tier 1 FHCs
We recommend the creation of a resolution regime to avoid the disorderly resolution of failing BHCs, including Tier 1 FHCs, if a disorderly resolution would have serious adverse effects on the financial system or the economy. The regime would supplement (rather than replace) and be modeled on to the existing resolution regime for insured depository institutions under the Federal Deposit Insurance Act.
B. Amend the Federal Reserve’s Emergency Lending Authority
We will propose legislation to amend Section 13(3) of the Federal Reserve Act to require the prior written approval of the Secretary of the Treasury for any extensions of credit by the Federal Reserve to individuals, partnerships, or corporations in “unusual and exigent circumstances.”
V. RAISE INTERNATIONAL REGULATORY STANDARDS AND IMPROVE
A. Strengthen the International Capital Framework
We recommend that the Basel Committee on Banking Supervision (BCBS) continue to modify and improve Basel II by refining the risk weights applicable to the trading book and securitized products, introducing a supplemental leverage ratio, and improving the definition of capital by the end of 2009. We also urge the BCBS to complete an in-depth review of the Basel II framework to mitigate its procyclical effects.
B. Improve the Oversight of Global Financial Markets
We urge national authorities to promote the standardization and improved oversight of credit derivative and other OTC derivative markets, in particular through the use of central counterparties, along the lines of the G-20 commitment, and to advance these goals through international coordination and cooperation.
C. Enhance Supervision of Internationally Active Financial Firms
We recommend that the Financial Stability Board (FSB) and national authorities implement G-20 commitments to strengthen arrangements for international cooperation on supervision of global financial firms through establishment and continued operational development of supervisory colleges.
D. Reform Crisis Prevention and Management Authorities and Procedures
We recommend that the BCBS expedite its work to improve cross-border resolution of global financial firms and develop recommendations by the end of 2009. We further urge national authorities to improve information-sharing arrangements and implement the FSB principles for cross-border crisis management.
E. Strengthen the Financial Stability Board
We recommend that the FSB complete its restructuring and institutionalize its new mandate to promote global financial stability by September 2009.
F. Strengthen Prudential Regulations
We recommend that the BCBS take steps to improve liquidity risk management standards for financial firms and that the FSB work with the Bank for International Settlements (BIS) and standard setters to develop macroprudential tools.
G. Expand the Scope of Regulation
1. Determine the appropriate Tier 1 FHC definition and application of requirements for foreign financial firms.
2. We urge national authorities to implement by the end of 2009 the G-20 commitment to require hedge funds or their managers to register and disclose appropriate information necessary to assess the systemic risk they pose individually or collectively
H. Introduce Better Compensation Practices
In line with G-20 commitments, we urge each national authority to put guidelines in place to align compensation with long-term shareholder value and to promote compensation structures do not provide incentives for excessive risk taking. We recommend that the BCBS expediently integrate the FSB principles on compensation into its risk management guidance by the end of 2009.
I. Promote Stronger Standards in the Prudential Regulation, Money
Laundering/Terrorist Financing, and Tax Information Exchange Areas
1. We urge the FSB to expeditiously establish and coordinate peer reviews to assess compliance and implementation of international regulatory standards, with priority attention on the international cooperation elements of prudential regulatory standards.
2. The United States will work to implement the updated International Cooperation Review Group (ICRG) peer review process and work with partners in the Financial Action Task Force (FATF) to address jurisdictions not complying with international anti-money laundering/terrorist financing (AML/CFT) standards.
J. Improve Accounting Standards
1. We recommend that the accounting standard setters clarify and make consistent the application of fair value accounting standards, including the impairment of financial instruments, by the end of 2009.
2. We recommend that the accounting standard setters improve accounting standards for loan loss provisioning by the end of 2009 that would make it more forward looking, as long as the transparency of financial statements is not compromised.
3. We recommend that the accounting standard setters make substantial progress by the end of 2009 toward development of a single set of high quality global accounting standards.
K. Tighten Oversight of Credit Rating Agencies
We urge national authorities to enhance their regulatory regimes to effectively oversee credit rating agencies (CRAs), consistent with international standards and the G-20 Leaders’ recommendations.
19 Nov 2009
New York (HedgeCo.net) – “Hedge funds performed as advertised in October—they hedged,” said Nadia Papagiannis, Morningstar alternative investment strategist. “Though the economy may be recovering, hedge fund managers appear positioned for a reversal.”
Hedge funds following arbitrage strategies and buying distressed securities have enjoyed a tremendous year, as they continue to profit from assets acquired at fire-sale prices in late 2008. Profits are starting to narrow, however, as the discounts on assets are diminishing.
Certain emerging market countries, such as China and Russia, posted significant gains, the performance of emerging market hedge funds depended on country allocation. In developed markets, European and Asian equity markets declined less than the U.S. equity market, but this did not carry over to hedge funds.
Hedge funds that make make macro-economic bets in equities, fixed-income, currencies, and commodities benefited from the appreciation of gold, which reached record highs in October, moves in the Australian dollar versus the U.S. dollar, and price trends in global government bonds. Price-trend-following funds were hit by a reversal in the trends in equity and currency markets in late October, though, resulting in overall losses.
Meanwhile, Eurekahedge reported global hedge fund inflows totaling $10.2 billion for October, while performance-based losses were $2.4 billion. Total hedge fund assets under management (AUM) have increased by $7.8 billion in October, bringing hedge fund AUM to a total of $1.45 trillion.
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The Hedgebay Global Hedge Fund Secondary Market Index reveals a wide discrepancy between the highest and lowest prices at which secondary market users were willing to trade at.
The highest trade took place at NAV, the second time in the last three months that this watermark has been reached. This is symptomatic of confidence returning to some sections of the industry. However, the number of trades occurring at the lower end of the scale, the lowest of which took place at only 40% of NAV, shows that the search for liquidity and the cleaning-up of unwanted positions is still taking place.
“The trade at 100% of NAV shows that investors are increasingly willing to pay top dollar for high quality and hard to come by funds." Elias Tueta, co-founder of Hedgebay, commented, "More and more we will see trades reaching, and maybe even exceeding, NAV as investors increasingly put their faith in these high end assets. However, in the other extreme, the trade at 40% of NAV, and the volume of trades at a similar level, still shows that riskier, less liquid assets –notably side-pockets -are increasingly overvalued. Sellers currently still have to offload these kinds of assets at whatever price they can get”
Though the disparity in the valuation of assets suggests a continuing lack of conviction among hedge fund investors, the index also provides signs of encouragement for the industry. The average price (in terms of percent of NAV) rose to 87% - the first time in five months that the average price of assets being traded has risen. While the rise in the average price is a reason for optimism, Hedgebay has indicated that hedge funds’ portfolios have not yet been fully cleaned-up:
“During a month of heavy trading volume, the average price is up almost 400 basis points from September. This, perhaps even more than the trade at 100% of NAV, is a sign of increasing optimism, but it is not yet conclusive. When we start to see a substantial amount of trades being done at around the 95% level, then we might begin to say that the hedge fund market is almost back to normal.”
The Hedgebay Global Hedge Fund Secondary Market Index, launched in September, provides hedge fund investors with statistics on the key aspects of the secondary market. Most notably it offers the average discount or premium to Net Asset Value (NAV) of hedge fund shares traded during the month.
The Wall Street Journal reports that the gold fund will aim to outperform gold prices, by investing in gold-related shares and derivatives. Paulson currently has more than 10% of his $30 billion or so under management in gold-related investments, according to his investors.
“Gold has gone up 10% since the start of the month,” Andrew Schneider, co-founder of HedgeCo Networks, said, “Investors may also see gold as a hedge against US dollar fluctuations.”
John Paulson is best known for his bet against financial companies before the credit crisis which some have speculated earned his firm as much as $15 billion in 2007.