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.
18 Nov 2009
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 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 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 Guardian quoted David Clark, former special advisor at the Foreign Office and chairman of the Russia Foundation, a UK-based organisation that promotes a deeper understanding of Russian affairs. Hermitage's case is "real daily life" in Russia Clark said.
"The cap we have is $200 billion," House Financial Services Committee Chairman Barney Frank said, referring to legislation which would collect funds from large financial institutions and hedge funds with $10 billion in capital or more.
The Chairman's regulatory-overhaul package, in opposition to the Obama administration, which wants to collect fees after a company fails, is up for vote by the House this month.
The fund would be used to make payments to creditors and counterparties of a large failing financial institution so that its collapse does not unsettle the financial markets.
17 Nov 2009
Precious metals have always been intriguing to investors because they tend to hold their value. In times of geopolitical crisis or currency devaluation, for example, the value of paper money might fluctuate, but a hard asset will always be worth something. As a result, historically, precious metals have been considered a “safe haven” in times of economic and financial instability.
That brings us to why gold is on a tear today. It declined in 2008 and early 2009 as panicked investors rushed into cash in an attempt to weather the financial crisis. But sometime in the middle on 2009, when investors began to move their money from the sidelines, gold started to rally. It returned 32.59% through the third quarter of 2009, vs. 19.26% for stocks.
The question is, where can we expect gold to go from here? In order to predict whether gold prices will skyrocket or come crashing down, it’s important to understand the principal factors that affect the price of any commodity: supply and demand.
The supply side of the equation is not particularly relevant in regard to gold because gold supplies remain fairly constant. That’s because production has not significantly increased due to a lack of new mining sites. Should supplies increase, however, investors may want to be cautious.
The demand side of the equation, then, is the one gold investors must look at. And as we noted above, demand for gold tends to increase when investors have a lack of confidence in the U.S. economy and financial markets.
That’s certainly the case today. In fact, we see two factors, that could lead gold to outperform in the near future: inflation and currency devaluation. In response to the financial crisis of 2008 and 2009, the Federal Reserve injected massive amounts of liquidity into the money markets. Ultimately, that increase in the money supply could devalue the U.S. dollar and lead to inflation. In fact, the U.S. dollar is already shockingly low. On October 14, 2009, it fell to a 14-month low against the euro, hitting $1.4947, the weakest since August 2008, according to Bloomberg. And while inflation is not yet a problem, economists are on the lookout for it.
These conditions led Standard & Poor’s (S&P) to raise its gold price assumption for 2010 from $750 per ounce to $800 per ounce. “Investors seeking a hedge against inflation risks and uncertainty in the financial markets continue to support gold prices,” the S&P analysts write. “The metal's properties as a safe haven, and to a lesser extent the demand for jewelry, also support its longer-term price prospects.”
S&P’s estimate, however, may be on the low side. As of November 2009, gold was trading at more than $1,000 per ounce. And since gold exceeded $1,000 per ounce level, the price has been extremely resilient, with no meaningful pullback seen. There have been periods of profit-taking, but increased demand quickly appears on any weakness in price.
In sum, then, good old-fashioned gold fever is back—and investors who are looking for a promising trend may want to consider investing in it and other precious metals.
But don’t consider gold an investment only for troubled times. One of the greatest advantages of precious metals exists regardless of economic and market conditions. Precious metals tend to perform differently from other assets. As a result, investing in precious metals may be a good diversification strategy for a portfolio comprised mainly of stocks, bonds and real estate—in all environments.
This article was written by OilPrice.com - who offer free information and analysis on Energy and Commodities. The site has sections devoted to Fossil Fuels, Alternative Energy, Metals, Oil prices and Geopolitics.
While a number of factors are responsible for this oversight, including relative geographical isolation (Uzbekistan, along with Liechtenstein, is one of the world’s doubly landlocked nations, requiring crossing two other nations to gain access to the oceans), which currently limits energy exports available for the global market, there are a number of pluses that the country has for investors willing to “think outside the box.”
With a population of 27 million, Uzbekistan is Central Asia's most populous and dominant power. A conservative fiscal policy since 1991, including inconvertibility of the national currency, the som, has shielded its citizens from the hyperinflation that ravaged other former Soviet republics, but the policy previously diminished potential foreign investment.
Since the global recession that began a year ago, however, Uzbekistan’s fiscal conservatism, previously dismissed by the foreign investment community, has looked more and more like a pragmatic policy that isolated the country from the worst aspects of the recession in stark contrast to other post-Soviet states that fervently embraced free market capitalism like Lithuania, whose economy contracted 18.1% this year and is expected to shrink further by 3.9% in 2010. In a move certain to be welcomed by foreign investor Uzbekistan is slowly moving towards making its currency convertible but whenever it happens, for the present the country offers a fiscal stability unmatched by many of its more free-market neighbors.
And now, the good news about the country’s resources. In 2006 Uzbekistan's natural gas reserves were estimated at 1.798 trillion cubic meters (tcm). During the Soviet era Uzbekistan was the USSR’s third-largest producer of natural gas, accounting for more than 10% of the Soviet Union’s production, trailing only Russia and Turkmenistan. In 1992, the country’s first year of independence, Uzbekistan produced 42.8 billion cubic meters (bcm) of natural gas. Uzbekistan currently produces 60 bcm of natural gas annually, an amount nearly equal to Turkmenistan's production. Uzbekistan’s reserves are primarily concentrated in Qashqadaryo province and near Bukhara in the country’s south-central region. During the 1970s Uzbekistan’s largest natural gas deposit at Boyangora-Gadzhak was discovered in Surkhandaryia province north of the Afghan border.
Unlike its energy-rich neighbors to the West, Kazakhstan and Turkmenistan, nearly 80 percent of Uzbekistan's production, about 48.4 bcm, is currently reserved for domestic use at heavily subsidized rates. Of the remaining 12 bcm of natural gas that Uzbekistan exports, more than half currently goes to Russia, with the remainder to neighboring Central Asian states.
Under Uzbekistan’s fiercely patriotic President Islam Karimov relations with Europe’s favorite bête noire, Russia ’s state-owned gas firm Gazprom, have been subject to fierce negotiations to win an equitable price for the country’s exports. Like other former Soviet republics, the Uzbek government chafed under Gazprom's "buy cheap, sell dear" policies and in early December 2008 scored a significant negotiating success by getting an agreement that in 2009 Gazprom would pay $305 per thousand cubic meters (tcm). To put the accomplishment in perspective, Uzbekistan’s state gas company Uzbekneftegaz sold gas to Gazprom for $130 per tcm in the first half of 2008, which then rose to $160 in the second half of 2008.
Those betting on the eventual pacification of Afghanistan and the subsequent pipelines that would crisscross the country to deliver Central Asian gas to the massive Pakistani and Indian markets would also do well to take note of Uzbekistan’s persistent, low key policies over more than a decade attempting to bring peace to its hapless southern neighbor. The initiatives put forward by Uzbek President Islom Karimov during the NATO summit in Bucharest in April 2008 take on heightened importance as one of the few foreign policy ideas offering some hope to quelling Afghanistan ’s three decades of turmoil.
Nearly completely overshadowed by the Bush administration’s relentless efforts to have Georgia and Ukraine join the alliance, Karimov proposed that the UN’s Afghanistan "6 plus 2" assembly, established in 1999, be revived by expanding it into a "6 plus 3" ensemble by including NATO because of its anti-terrorist operations in Afghanistan among the "six" members Uzbekistan, Tajikistan, Turkmenistan, Pakistan, China and Iran and the "two," the United States and Russia.
Noting that that it is impossible to solve Afghanistan's problems without the direct involvement of neighboring countries, which have felt the destructive impact of the Afghan crisis for more than 30 years, as Afghanistan's problems are now of global nature, Karimov told his audience in Bucharest that their resolution must also be global, with the participation of members of the international coalition that comprise NATO's International Security Assistance Force (ISAF). Karimov concluded by noting that the current situation in Afghanistan precludes a purely military solution and that while it is possible to continue increasing the foreign military presence there, without a clear model of national reconciliation it will be impossible to end the conflict.
Needless to say, one of the benefits of peace and the aforementioned pipelines for Uzbekistan would be that it could export its surplus gas through Afghanistan to southern Asian markets for a higher price than it receives at home or Gazprom’s miserly accountants. Acting on Tashkent’s belief that economic assistance is of greater utility than military operations, Uzbekistan has become involved in a host of reconstruction projects in Afghanistan, including railways, power generation, mining, agriculture, irrigation, education and the exchange of specialists as well as providing its neighbor with construction materials, metals, fertilizer, food and other goods. Uzbek companies and engineers have built 11 bridges in the Mazar-e-Sharif-Kabul area and are finishing the construction of a 275-mile high-voltage line capable of transmitting 150 megawatts from Termez to Kabul across some of the world’s most mountainous terrain, which when it becomes fully operational next month, will provide power and light not only to the capital but the country’s five northern provinces.
For now, Uzbekistan remains largely a transit country rather than a net energy exporter in its own right. But the fiercely independent nationalist policy that Tashkent has followed since 1991 indicates that any company whose policies most benefit the country will have an inside track, and as the old saying goes, “fortune favors the bold.” Chinese, Malaysian, Russian and South Korean companies have already begun investing in Uzbekistan’s energy infrastructure – what do they seemingly know that American and European companies do not?
This article was written by John C.K. Daly for OilPrice.com - Who offer free information and analysis on Energy and Commodities. The site has sections devoted to Fossil Fuels, Alternative Energy, Metals, Oil prices and Geopolitics.
New York (HedgeCo.net) - Jean-Philippe Blochet has left Europe's biggest hedge fund firm, Brevan Howard, Bloomberg reports, "Following his return from sabbatical last year, Jean-Philippe Blochet has decided to cease to be an active member of Brevan Howard Asset Management LLP," the firm said in a statement.
Blochet was co-founder of Brevan Howard and was part of the hedge fund firm's macro team, focusing on currencies and interest rates.
Brevan Howard had $25.7 billion in assets under management as of September 2009, it returned more than 20% last year while the average hedge fund lost around 19%.
Also leaving Brevan Howard is UCITS fund manager Stephane Diederich, who was hired from Credit Suisse in 2007 to set up an alternative CDO (collateralized debt obligation) business, an area of the financial world that was hit hard by the credit crisis, Bloomberg reported.
“One of the most interesting findings from our survey is that both institutions and advisors continue to view alternative investments optimistically, despite their questionable performance, correlation, and liquidity during last year’s global downturn as well as the high-profile scandals that rocked the hedge fund industry,” said Steve Deutsch, director of the pension, endowment, and foundation database at Morningstar. “Again this year, the majority of participants indicate that they plan to increase allocations to alternatives, but with greater scrutiny and due diligence given to those investments.”
Among the survey findings:
Current and Future Usage of Alternatives
• More than 60% of institutions and advisors believe that alternatives will be as important or more important than traditional investments over the next five years.
• The majority of institutions and advisors expect alternatives to account for more 10% of their portfolios over the next five years; a quarter of institutions expect alternatives to account for more than 25% of their portfolios.
• Hedge funds were the most popular alternative vehicles over the last five years, and institutions and advisors expect to continue to increase allocations to hedge funds over the next five years.
Motivation and Hesitation
• For both institutions and advisors, the top three reasons for investing in alternatives remain the same as in last year’s survey: portfolio diversification, absolute returns, and exposure to different investment techniques, like arbitrage or shorting.
• Institutions and advisors are much more concerned, however, about lack of liquidity and transparency than they were last year.
Definitions of “alternative”
• Compared to the 2008 survey, fewer institutions and advisors view real estate investment trusts and commodities as alternative asset classes.
• Both institutions and advisors tend to classify investments as “alternative” based on the investment’s strategy, i.e. absolute return, rather than the investment’s designation, i.e. mutual fund versus hedge fund.
“Perhaps most important for investment consultants, advisors, and money management firms to note is the survey once again found that overall both institutions and advisors want the benefits of alternative strategies with the positive characteristics of traditional investments—low correlation with liquidity, absolute returns with transparency, and redemptions without restrictions,” Deutsch added.
Morningstar and Barron’s conducted the Web-based survey in late September through early October 2009; 89 institutions and 300 financial advisors participated. Survey results appear in the Nov. 9 issue of Barron’s and online at Barrons.com.
13 Nov 2009
The South Florida Benefit for Hedge Funds Care hopes to unite hedge funds, investors, local luminaries, and the financial and art world, for an evening dedicated to preventing and treating child abuse. The evening reception includes cocktails, hors d'oeuvres and live entertainment.
* Multiple open bars and hand-rolled cigars inside the private B-Bar and under the moonlight on the rooftop of The Betsy Hotel, with unobstructed views of the ocean along Miami Beach.
* Visit the Miami Investor Lounge where hedge funds can connect in style with family offices, funds of funds, institutional investors and wealthy individuals.
* Live music by the John Branzer Band who have performed with Frank Sinatra, Sammy Davis, Jr., Tony Bennett, Louis Prima, and Keely Smith.
* Silent auction featuring artwork from the Peter Lik Gallery and Friedland Art, a private island getaway at the Turks & Caicos Sporting Club at Ambergris Cay, a spa day at the Mandarin Oriental, a tour of Miami with the Official Bud Light Poker Run Team, among others.
Thanks to our sponsors, 100% of event proceeds will go to Hedge Funds Care - Preventing and Treating Child Abuse.
Click this link to register
“There will be those who might think that a poor year is unduly influencing my decision, and it is probably true that if the fund had had a better year, I might have been tempted to continue,” Horseman wrote in a letter to investors, obtained by Bloomberg. “But with a time frame of three to four years at most, I feel now is the time to make way for others.”
The hedge fund fell in value by almost a quarter this year. Russell Clark and John-Paul Burke are teaming up to take his place. The pair had run Horseman Emerging Markets Funds, which will close, the letter said.
Pharos Russia Fund is an absolute return hedge fund focused on securities in Russia and the former Soviet Union. The Fund is the top performing Russia Fund over the past 11 years. The Fund has the possibility of using derivatives or going short, and is positioned with a long bias due to the manager's positive outlook for the Russian market.
Barclay Hedge, founded in 1985, is a computerized database that tracks and analyzes performance of 5804 hedge fund and managed futures investment programs worldwide. Barclay indices are utilized worldwide by financial media and investment consultants as performance benchmarks for the alternative investment industry.
What investors want today, says TABB in a new research report, is more transparency and greater asset safety, which requires improvements in infrastructure for middle- and back-office operations, enhanced reporting to stakeholders and independent verification of portfolio values. This shift in investors’ priorities is significantly altering the role and responsibilities of fund administrators and, by extension, the processes by which administrators are selected.
According to Paul Rowady, senior analyst, and Adam Sussman, director of research, who co-authored the report, “(Hedge) Fund Administration: The Selection Criteria for a New Market Reality,” administration is no longer centered simply on back-office functions dealing with accounting, valuation and share registration. “Fund administration can now be defined as everything after the trade.”
Facing high switching costs, fund managers tell TABB they are keenly aware of how important it is to make the correct administration selection. With managers in Europe as well as the US becoming more sensitive to investor’s increasing demands, TABB Group estimates that from 2009 to 2010 the frequency of daily NAV (net asset value) calculations will increase to 56% of hedge funds, up from 46% in 2009. Operational integrity, says Sussman, is crucial to a fund’s survival, especially when faced with this increase demand in fund performance. “Hedge funds are seeking the best possible resources, including people, processes and technology, so they can meet and exceed the demands of the industry’s changing landscape.”
Prior to 2008, the fund-administrator selection process was straightforward and largely handled by managers, a check-the-box type of exercise that revolved around fund administrators’ brands and fees. The problem with relying too heavily on brand awareness, says Rowady, is that a brand’s quality was often correlated with size. “But size and brand do not ensure that an administrator deploys the most reliable technology, SAS Level II certified processes, domain expertise and scalability, not only in terms of size but the funds ability to adapt its operation to changing technology, regulations and market conditions.”
TABB details three administrator models in the report: custodian-owned, broker-owned and independent/hybrid independent. Although the independent model strives to minimize conflicts of interest that could influence the administrator’s asset valuation and verification practices, “The hybrid independent model enjoys arm’s-length operating independence combined with the financial backing of a larger entity and this may represent the best model,” says Rowady.
As firms move to validate their processing and servicing partners, TABB Group believes that the traditional method of choosing administrators by brand or reputation will be replaced by a selection process that prioritizes due diligence. “This shift should benefit boutique administrators more than many of the traditional providers,” maintains Rowady.
The authors believe the industry is seeing an end to the era in which funds manage their processing internally with a “trust me” nod to their investors. “We see more investors pushing hedge funds to migrate their processing and valuation responsibilities to qualified third parties, firms that will need to expand their processing capabilities to be more on demand, more responsive and more global.” Selecting an administrator is a complex and resource-intensive process, says Sussman. “The good news is, there are clues that investors and managers can use to make well-informed selections based on their needs and the ability of an administrator, regardless of size, to meet those needs.”
The 21-page report with 6 exhibits covers the changing market landscape for both alternative and traditional fund managers, how this new market reality serves as a driver for the broadening spectrum of administrator service offerings, enhances the importance of fund administrators – and the outlook for the fund administration business – and details how fund administrators are now instrumental to the long-term success of funds. The report describes the strengths and weaknesses of the three primary business models of fund administrators, including a discussion of the optimal model. The report also covers the fund administration landscape, pinpointing as many as many as 70 administrators globally, and details a comprehensive list of selection criteria with focus on the two factors that have replaced brand and size as the most important selection drivers.
by TABB Group Equity Research Alliance clients and all pre-qualified media at https://www.tabbgroup.com/Login.aspx. For an executive summary or to purchase the report, visit http://www.tabbgroup.com or write to firstname.lastname@example.org.
Other recent TABB Group hedge fund research includes “Prime Brokerage 2009: The Hedge Fund Perspective,” which provides the capital markets industry with an in-depth analysis of hedge fund/prime brokerage relationships, and “US Hedge fund 2009: Fees, Redemptions and Managed Accounts,” covering hedge funds’ challenges dealing with fees, redemption policies, including lockups, advanced notification and frequency of redemptions, plus managed accounts, gate provisions and fund launches.
TABB Group is the financial markets industry’s only research and strategic advisory firm focused exclusively on capital markets, with offices in New York and London . Founded in 2003 and based on the proven interview-based research methodology of “first-person knowledge” developed by founder Larry Tabb, TABB Group analyzes and quantifies the investing value chain from the fiduciary, investment manager and broker, to exchange and custodian, helping senior business leaders gain a truer understanding of financial markets issues.
12 Nov 2009
The hedge fund collapsed in April this year when investors applied for it to be put into liquidation, making accusations of "gross mismanagement and misfeasance".
The Guardian reports that it is alleged that the hedge fund moved a large proportion of its assets out of equities and into asset-backed bonds that could be converted into oil. According to reports, the company then "received legal advice that raised questions relating to the counterparties to the oil sales contracts that lie behind the bonds".
Dynamic Decisions’ chairman, Dr Alberto Micalizzi, said in an interview with the Times, “The investigations are not founded, first of all. There have been complaints from investors about the delays in payment of redemptions.” He said that it was his “expectation” that investors would receive their money back in full.
The 2010 report shows that on average, 2009 base salaries for all investment professionals and traders were essentially flat (regardless of fund size or performance)with increases in the low single-digits.
Estimates call for 2009 cash bonuses for investment professionals (those paid in early 2010) to increase about 15% on average above suppressed 2008 levels. The highest percentage increases will go to professionals at those funds that decreased compensation the most in 2008. These bonus levels are still, on average, below 2007 levels.
Adam Zoia, CEO at Glocap, pointed out that in 2008, owners of hedge funds heavily subsidized employee compensation in order to keep their teams together and to help boost morale given that funds needed everyone motivated this year to dig out of the high water mark hole created from last year’s abysmal returns. This year there was some initial thought of taking back some of that subsidy from last year and paying lower bonuses than would otherwise be the norm given performance levels.
11 Nov 2009
Overall, the message was that the leading international financial centres in which Conyers operates have emerged as those able to enact innovative legislation with sound financial regulation meeting the standards of international bodies including the OECD and G20.
A panel of Conyers lawyers provided an in-depth look at the state of the market and the impact of the credit crunch on legal systems in the major jurisdictions of the Cayman Islands, British Virgin Islands (“BVI”) Bermuda and Mauritius.
Robert Briant, Managing Partner of the firm’s BVI office, opened the seminar by drawing an important distinction between offshore financial centres and tax secrecy jurisdictions: “The jurisdictions we advise on are tax neutral locations that facilitate international cross-border transactions. Bank secrecy jurisdictions facilitate the confidentiality of one’s affairs. The difference could not be more stark. Each of our jurisdictions plays a legitimate role in global transactions, and all are on the OECD White List.” Briant also gave updates on the BVI commercial court and upcoming Securities and Business Act, which will require every BVI company worldwide which carries on investment business to be licensed.
Richard Finlay, Managing Partner of the firm’s Cayman Islands office, discussed developments in the Cayman Islands: “Cayman has modernized its partnership legislation in response to the increased use of exempted limited partnerships by private equity and hedge funds. Also, we are pleased to report this quarter that for the first time since 2008, there has been an increase in the number of funds being licensed in Cayman. Another important development is the admission of CIMA as a member of IOSCO, which will allow Cayman funds access to emerging markets like India. The timing could not be better: we are already seeing Cayman funds investing in India through Mauritius subsidiaries.”
Devalingum Gopalla, a Mauritius associate based in the firm’s London office, talked about Mauritius as the jurisdiction of choice for structuring investments into Africa, India and China: “Mauritius has an extensive network of double taxation treaties and offers something different to the traditional offshore jurisdictions. It is attracting some of the biggest enterprises in the US and Europe who are looking to invest in emerging markets, and has fast become a hub for private equity investment into Africa. Mauritius already accounts for about 44% of foreign direct investment into India. We are seeing increased interest from China in investing in Africa through Mauritius.”
Meanwhile in Bermuda, new Partnership Legislation introduced this summer is expected to improve the efficiency of formation and administration of Bermuda partnerships and streamline procedures for overseas partnerships and will be particularly welcomed by investment fund clients. The Companies Act was also revised this year to improve the efficiency for Bermuda companies listed on US exchanges.
Anthony Whaley, partner in the firm’s Bermuda office, commented: “We are pleased to be able to deliver insight on the leading jurisdictions to onshore lawyers, particularly during this time of global economic uncertainty. The audience’s response was very positive, and we look forward to next year’s forum.”
The $2.3 billion FoHF's manager will focus on advising institutional clients in the MENA region on allocations to hedge fund investment strategies out of the new Dubai office.
“With investors increasingly seeking to diversify their portfolios to include alternative investments, the long-term potential for the growth of the hedge-funds market in the Middle East, North Africa and India is strong." His Excellency Dr Omar Bin Sulaiman, Governor of the DIFC, commented. "DIFC offers the infrastructure and regulations for providers of hedge fund investments to take advantage of opportunities in the region. The establishment of Liongate Capital Management’s office is testimony to DIFC’s ability to offer a secure and productive platform for the growth of hedge funds. It also demonstrates the continued confidence of the global financial industry in the potential of the regional market.”
Liongate Capital Management has also appointed hedge fund allocator, Fahad Al-Bader, as Senior Executive Officer of the Dubai office. Fahad Al-Bader has over six years experience of investing in hedge funds. Previously, he was Head of Hedge Funds at the Kuwait Fund, Head of Alternative Investments at Ryada Capital and an Investment Analyst at KIA (Kuwait Investment Authority). Fahad al-Bader is a graduate of Purdue University, and joined Liongate Capital Management in May 2008.
"We welcome Senate action to reform our broken financial regulatory system," said David Hirschmann, president and CEO of the U.S. Chamber's Center for Capital Markets Competitiveness (CCMC). "This effort needs to have a strong focus on protecting consumers and investors, while ensuring that our markets also supply businesses and entrepreneurs with the capital they need to grow, innovate, and create jobs."
The Chamber supports:
-- An overhaul of existing regulators and greater transparency in
-- Greater coordination among regulators, including mechanisms to ensure
regulators have the information needed to identify systemic risks.
-- Closing the gaps to end regulatory "dead zones" and eliminating
duplicative layers in current regulatory structure.
-- Greater global regulatory cooperation primarily focusing on cross
border regulatory issues and financial reporting.
-- An exit strategy for programs established by Congress, Treasury, and
the Federal Reserve to address the financial crisis.
-- Predictable mechanisms to dissolve failing financial institutions in
an orderly fashion.
-- Registration of hedge fund advisers, including appropriate reporting
-- Ensuring transparency in the derivatives markets through a greater use
of central clearing, while preserving the accessibility and
affordability of the over-the-counter markets for corporate end-users
The Chamber opposes regulatory proposals that would impair financial markets and our members' access to capital:
-- A new stand-alone Consumer Financial Protection Agency, which would
add a duplicative regulatory layer to the current structure.
-- Proposals such as so-called proxy access that advance the agendas of
activist special interests at the expense of good governance.
-- One-size-fits all corporate governance rules such as those
contemplated in proposed "Shareholder Bill of Rights" legislation.
-- A systemic risk regulator that duplicates existing regulation or
permanently designates specific financial institutions as systemically
significant, thereby designating them "too big to fail."
-- Mechanisms for sustained, open-ended government intervention in the
private economy. We can only support resolution authority if it is
narrowly tailored to achieve the orderly bankruptcy and dissolution of
"The regulatory systems governing our markets need to be modernized, and the current debate should not be about more regulation, but smarter regulation," said Hirschmann. "We must ensure the viability of global accounting, protect companies from excessive litigation and abusive enforcement, and stop special interests from stretching the rules governing markets in order to pursue activist agendas. We look forward to working with Chairman Dodd in shaping a regulatory system needed to meet the demands of a dynamic 21st century economy."
Since its inception three years ago, the Center for Capital Markets Competitiveness has led a bipartisan effort to modernize and strengthen the outmoded regulatory systems. Fundamental to this effort, the Chamber believes we must eliminate duplicative and overlapping layers of regulation and enforcement that undermine efficiency.
10 Nov 2009
Hedge funds had a slightly positive month overall with a widening dispersion of returns among strategies, based on whether managers could take advantage of October’s market volatility.
The Chicago Board Options Exchange Volatility Index (VIX), that measures the implied volatility of S&P 500 Index options, began a surge of approximately 30% on October 23 that took the VIX from just over 20 to just over 30, as equity markets took a turn downward in the second half of the month.
October’s US equity gains for many Long/Short managers were concentrated in the industrial, utilities and health sectors, and from shorting financials. Some managers which have had positive returns in recent months have begun to take profits and wind down for the year, while others which have struggled due to their defensive positions earlier in the year continued to actively seek opportunities arising from the market volatility.
Macro data was mixed, with positive earnings momentum in the US and globally, as well as positive GDP growth figures for the third quarter in the US and China , and encouraging PMI numbers for the Eurozone (except the UK which saw its economy shrink by 0.4% in 3Q). On the other hand, PMI numbers in Singapore slipped to 50.2 from a peak of 54.4 in August, personal spending in the US dropped by 0.5%, and US consumer confidence dropped from 73.5% in September to 70.6%, according to the Reuters/University of Michigan Consumer Sentiment Index.
Certain managers in Equity Market Neutral and Relative Value strategies believe that the increase in market volatility may continue and will likely favor securities pickers who perform fundamental analysis. We believe sideways markets are also generally a better environment for arbitraging rather than long-biased, directional approaches.
For example, Merrill Lynch reports that the convertible bond market was down for the first time since January, but Convertible Arbitrage managers had their 11th consecutive month of positive performance as they shifted their focus to arbitraging strategies rather than the long-only-type credit plays that were profitable earlier in the year.
Equity Market Neutral managers also experienced a positive month and their performance relative to other hedge fund strategies improved, since its market neutral profile can give the strategy an advantage over those with higher market correlations when volatility rises. Dedicated Short Bias had its first positive month since February, and was the performance leader with 5.86% for the month, while many Managed Futures managers gave back some of the profits of the previous two months.
The report entitled, Competition and Convergence: The Evolving Landscape for Hedge Funds, indicates that while investment managers have relatively few assets in equity long and short investment portfolios, this segment of the market continues to grow rapidly as firms seek to diversify their business lines and compete with hedge funds. This new competition for assets has pushed some hedge funds into long-only investment strategies and others towards retail distribution. The report suggests that investment managers will become more important to hedge funds as potential partners in product offerings and mergers and acquisitions. Key findings from the study include:
– Growth of Equity Long and Short Investment Strategies Among Investment Managers Expected to Increase – Investment managers’ control of equity long and short investment portfolios is expected to rise from $204 billion to $345 billion by 2012 representing an increase from 19% to 28% of today’s $694 billion marketplace. According to a recent Finadium survey, 65% of investment managers now operate some sort of long and short fund, up from 33% one year ago. Independent hedge funds are also expected to continue to grow and increase their equity long and short portfolios to $810 billion by 2012 as equity markets recover;
– Potential Regulatory Reform Remains a Wild Card – Investment managers view potential regulatory reform as a wild card in driving convergence between themselves and hedge funds. The report indicates that some investment managers advocate working more closely with hedge funds as sub-advisors and potential acquisition targets with the expectation that increased regulation will occur. Without specific regulation, hedge funds will continue to have few legal obligations to disclose fees and practices;
– Hedge Funds Continue to Benefit from Strong Prime Brokerage Relationships – Investment managers have notably different servicing needs than their hedge fund competitors. These organizational requirements have created challenges for investment managers looking to do business with noncustodian prime brokers, to the benefit of hedge funds with strong prime brokerage relationships. While investment managers are becoming more agile in their technology and operations, no party has surmounted the funding obstacles that regulatory and market pressures have put in place; and
– Tri-Party Custodial Relationships May Offer Hedge Funds an Edge – Hedge funds have a wide range of opportunities and challenges to take into consideration when evaluating the strategies of investment managers in the long and short arena. For example, hedge funds should consider tri-party custodial relationships which bring many traits of the asset management industry into their domain. These arrangements allow hedge funds to mitigate their counterparty risk by custodying cash and fully paid for securities with a less leveraged bank custodian, while prime brokerages still hold the fund’s short positions and provide margin financing.
“As investment managers increasingly expand into the equity long and short marketplace, hedge fund managers need to provide their investors with a distinct value proposition that uniquely positions them in the marketplace.” Craig Messinger, managing director of Pershing Prime Services, said, “Exploring new investment strategies, embracing potential merger and acquisition opportunities and offering clients innovative separately managed account solutions are several tactics hedge funds should consider to help continue growing their businesses.”
9 Nov 2009
HedgeCo New Archives - Regulatory hedge fund compliance consulting firm, FrontLine Compliance LLC, sent out an alert announcing that the House Financial Services Committee has taken the first official steps toward actual financial regulatory reform. The Committee approved three bills that will be moved to the full House for vote in early December. The bills are:
- Private Fund Investment Advisers Registration Act of 2009
- Investor Protection Act of 2009
- The Accountability and Transparency in Rating Agencies Act
The legislative weight of the above bills includes registration and recordkeeping requirements for hedge funds, fiduciary standards for brokers, new restrictions on rating agencies, and enhanced enforcement powers for the SEC, including the ability to pay informants.
FrontLine Compliance is staffed by former SEC and FINRA regulators.
6 Nov 2009
1. Zvi Goffer, who formerly worked at The Schottenfeld Group LLC (Schottenfeld), a broker dealer in New York, and currently operates a trading firm called Incremental Capital (Incremental), in New York;
2. Arthur Cutillo, an attorney at the law firm of Ropes & Gray LLP in New York;
3. Jason Goldfarb, an attorney in New York;
4. Craig Drimal, who worked in the offices of the Galleon Group (Galleon), in New York, but is not employed by Galleon;
5. Emanuel Goffer, who formerly worked at Spectrum Trading LLC, a trading firm in New York, and currently is associated with Incremental;
6. Michael Kimelman, currently associated with Incremental;
7. David Plate, formerly employed by Schottenfeld, and currently associated with Incremental; and
8. Ali Hariri, a Vice President of Atheros Communications, Inc. (Atheros).
A ninth charged defendant, Deep Shah, who was formerly employed by Moody’s Investors Service, Inc. (Moody’s) in New York, remains at large.
Zvi Goffer, Jason Goldfarb, Emanuel Goffer and David Plate were arrested at their homes in New York. Arthur Cutillo was arrested at his home in Ridgewood, N.J. Craig Drimal was arrested at his home in Weston, Conn. Michael Kimelman was arrested at his home in Larchmont, N.Y. Ali Hariri was arrested in San Francisco. All of the defendants except Hariri are expected to be presented in Manhattan federal court later today; Hariri is expected to appear in San Francisco federal court later today.
The five defendants who were previously charged and have pleaded guilty in Manhattan federal court to insider trading crimes are:
1. Steven Fortuna, formerly a Managing Director of S2 Capital LLC (S2 Capital), a hedge fund based in Boston;
2. Ali Far, founder of Spherix Capital LLC (Spherix), a hedge fund based in California;
3. Richard Choo-Beng Lee, former President of Spherix;
4. Roomy Khan, a California trader who served at certain times as a paid consultant to a hedge fund based in New York; and
5. Gautham Shankar, a proprietary trader at Schottenfeld in New York.
According to the complaints and criminal informations unsealed today in Manhattan federal court, the 9 defendants charged list as follows:
The Goffer Insider Trading Network
Zvi Goffer operated an insider trading network through which he obtained, passed to others and traded on material, nonpublic information (the “Inside Information”) regarding mergers and acquisitions of public companies. In exchange for the Inside Information, Zvi Goffer and others paid sources for the Inside Information. In an unsuccessful effort to conceal their fraudulent schemes, Zvi Goffer and his co-conspirators used prepaid telephones to share the Inside Information.
One of Goffer’s sources of Inside Information was a Ropes & Gray attorney, Arthur Cutillo. In violation of his duty of confidentiality to his law firm and its clients, Cutillo provided Inside Information about several mergers and acquisitions of public companies for which Ropes & Gray was providing legal services prior to the public announcements of the deals. Cutillo allegedly stole Inside Information about the following acquisitions: Avaya, Inc. (Avaya); 3Com Corporation (3Com); and Axcan Pharma, Inc. (Axcan). Cutillo provided the Inside Information concerning these companies to Jason Goldfarb, another New York attorney, who in turn passed the Inside Information to Zvi Goffer and other co-conspirators. In exchange for providing the Inside Information to Goffer and his network, Cutillo and Goldfarb received cash payments.
Zvi Goffer and his co-conspirators also obtained Inside Information from another co-conspirator about the acquisition of Kronos, Inc. (Kronos), and Hilton Hotels Corp. (Hilton) prior to the public announcements of those deals.
According to the complaint, on Sept. 4, 2007, Craig Drimal provided an individual with a piece of paper listing the stock symbols of four companies and disclosed that 3Com was going to be acquired. Drimal told that individual to destroy the list and to be careful trading in these securities because there were no public rumors that the companies on the list were acquisition targets. The next day, Drimal told that individual that he did not want to talk about the four stocks on the list over the telephone but said that it was “like shooting fish in a barrel.”
During the course of the government’s investigation, the government used wiretaps to obtain critical evidence against Zvi Goffer and his illegal insider trading network. Some of the intercepted calls show that Zvi Goffer and his co-conspirators used prepaid telephones and that they tried to disguise their criminal conduct by collecting research reports and other publicly available data to justify their transactions in the event that they were scrutinized by regulators. For example, during a Feb. 18, 2008, intercepted call, Zvi Goffer instructed Michael Kimelman:
PF Changs just had earnings and they all put out research reports the next day. There’s like eight of them out there … So you know you print all those out … get everything printed out, because if we’re going to make a big trade and make a big bet and it works … it’s always good to have that on file why you did it.
Wire interceptions also showed that Zvi Goffer and his co-conspirators were conscious of the fact that they would go to jail if they were caught. For example, during a Feb. 20, 2008, intercepted call with Goldfarb, Zvi Goffer expressed concern over someone’s purchase of a large number of options on a particular stock: “[T]hey paid a nickel for them … You know what that means? Someone’s going to jail, going directly to jail so don’t let it be you, okay?” Later, Zvi Goffer reiterated: “That’s a ticket right to the [expletive] big house.” Goldfarb confirmed to Zvi Goffer that he had not purchased the options, and Zvi Goffer responded: “Good, better that way. Better that way. Perfect. All right then, you know what? All it does is give me more cover.”
As a result of their trades of hundreds of thousands of shares of stock based on the Inside Information that Cutillo, Goldfarb and others provided them — including trades in 3Com, Avaya, Axcan, Kronos and Hilton — Zvi Goffer, Drimal, Emanuel Goffer, Kimelman and David Plate earned profits of at least approximately $11 million for themselves and their firms.
The Ali Hariri Complaint
Between 2008 and March 2009, Ali Hariri, a Vice President at Atheros, provided Inside Information to a cooperating witness who managed a hedge fund in California in exchange for advice received from that cooperating witness about the purchase and sale of other securities. The cooperating witness caused the hedge fund to execute securities transactions in Atheros stock based on the Inside Information, realizing hundreds of thousands of dollars of profits.
The Deep Shah Complaint
Between 2006 and July 2007, former Moody’s analyst Deep Shah provided Inside Information concerning Hilton, a client of Moody’s, to a cooperating witness in exchange for a cash payment of $10,000, with the understanding that the cooperating witness would use the Inside Information to engage in securities transactions. Specifically, on July 2, 2007, Shah told the cooperating witness that Hilton was going to be taken private the following day. The cooperating witness purchased Hilton securities the day Shah provided that information and the next day, and later sold those securities for a profit of $630,000. The cooperating witness then arranged to pay Shah $10,000 in cash. In 2006 and 2007, Shah provided Inside Information concerning Adesa, Inc., and Kronos, to the cooperating witness. The cooperating witness realized profits of approximately $37,000 from the Inside Information concerning Kronos.
The Five Defendants Who Have Pleaded Guilty:
The Steven Fortuna Information
On Oct. 20, 2009, Fortuna pleaded guilty to a criminal information charging him with three counts of conspiracy to commit securities fraud and one count of securities fraud. Between July 2008 and March 2009, Steven Fortuna, formerly the Managing Director of hedge fund S2 Capital, in three separate conspiracies, conspired with four individuals: (1) the Managing Director of a hedge fund based in New York; (2) a Managing Director of S2 Capital; (3) an analyst for a hedge fund based in Chicago; and (4) the manager of a hedge fund based in Boston. Among other things, Fortuna obtained Inside Information concerning the quarterly earnings of a technology company and the plans of a semiconductor company to spin off its manufacturing operations into a separate entity. Based on that Inside Information, Fortuna executed trades which netted profits of approximately $2.4 million for S2 Capital. Fortuna obtained the Inside Information from a co-conspirator who provided the information because s/he was his friend and because Fortuna provided him/her with trading advice about other technology companies.
The Ali Far and Richard Choo-Beng Lee Informations
On Oct. 13 and 19, 2009, respectively, Richard Choo-Beng Lee, former President of California-based hedge fund Spherix, and Ali Far, founder of Spherix, pleaded guilty to criminal informations each charging one count of conspiracy to commit securities fraud and wire fraud and a substantive count of securities fraud. Far and Lee both admitted to conspiring with each other as well as employees of several publicly traded technology companies and individuals employed by hedge funds in New York and elsewhere. Lee also admitted to conspiring to commit insider trading with an employee of a California investor relations firm and individuals associated with three other hedge funds. Far and Lee compensated certain of their sources of Inside Information with cash payments each fiscal quarter and with Inside Information about other companies. Far and Lee used the Inside Information that they received to earn profits and/or avoid losses in excess of approximately $5 million in one or more brokerage accounts affiliated with Spherix.
The Roomy Khan Information
On Oct. 19, 2009, Roomy Khan pleaded guilty to a criminal information charging one count each of conspiracy to commit securities fraud, securities fraud and obstruction of justice. 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. From 2004 through November 2007, Khan conspired with, among others: (1) an executive at a technology company headquartered in California; (2) an analyst at a credit ratings agency located in New York; (3) an individual who worked at an investor relations firm located in California; (4) the manager of a hedge fund located in New York; (5) the manager of another hedge fund located in New York; (6) a portfolio manager for a hedge fund; (7) the President and principal portfolio manager of a hedge fund located in California; and (8) the Managing Director at a hedge fund located in New York. Khan compensated 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 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.
The Gautham Shankar Information
Gautham Shankar pleaded guilty on Oct. 20, 2009, to conspiracy to commit securities fraud and securities fraud. Shankar received Inside Information from a friend in advance of the publicly announced acquisitions of Kronos and Hilton. Shankar also received Inside Information from a proprietary trader at Schottenfeld in advance of the publicly announced acquisitions of Avaya, 3Com, and Axcan. Shankar shared the Inside Information, collected cash payments for certain of the Inside Information and, along with his co-conspirators, used the Inside Information to execute profitable securities transactions. Shankar made hundreds of thousands of dollars in profits from his insider trading.
The criminal investigation, which was led by the U.S. Attorney’s Office for the Southern District of New York and the FBI, working in close coordination with the U.S. Securities and Exchange Commission (SEC), employed various investigative techniques including the analysis of information from the SEC, business records obtained from relevant entities, court-authorized pen register and telephone toll records, consensually-recorded conversations between cooperating sources and others and court-authorized wire taps on various telephones.