In the wake of the Madoff scandal, Tuckerbrook Alternative Investments is offering its hedge fund investors the daily market value of assets in their capital accounts.
"In light of the impact 2008 is having on the hedge fund business, transparency is the most important enhancement the industry can embrace," John Hassett, Managing Principal of Tuckerbrook, said, "Tuckerbrook has always used third-party prime brokers, administrators and auditors in order to provide independent verification of fund activity, so it made sense to us to have daily asset transparency reports distributed directly from Citi Hedge Fund Services, to underscore the importance of both independent asset pricing and more frequent transparency. Although unique in the industry now, we would expect this level of reporting to become standard practice in the future."
Moses Grader, Chief Operating Officer of Tuckerbrook, said, "Ninety percent or more of all hedge fund investments are in commingled fund structures, with only the largest investors having daily accountability through separately managed accounts. Daily transparency at the client-account level, delivered by a trusted third party, is a major step up in accountability to those investors that don't have an SMA."
2 Feb 2009
Russian Hedge Fund Pharos Reports on the Russian Investment Landscape
The events of 2008 were dramatic everywhere in the world, but particularly so in Russia. Despite the decline of -72.2% for the MSCI Index in 2008, the Pharos Russia Fund produced a positive 3 year annualized return of 1.3% with 24.8% volatility as compared to the MSCI Russia Index.
The Pharos Russia Fund's 5 year returns also show a strong outperformance against the MSCI Russia Index. The 11 year period of January 1998 through December 2008, which encompasses two market meltdowns and many other mini-crises, the Pharos Russia Fund has returned a total of 100.33%, against a gain of only 3.81% for the MSCI Russia Index.
"Our long history in the Russian financial markets through good times and bad times helps guide our investment philosophy and makes us mindful of the periodic crises that hit the market," Pharos says, "We seek to maximize our investor's returns over the medium term, and one of the most important aspects of that is to protect against severe losses in times of crisis."
Their flagship fund, Pharos Russia Fund, has been the most resilient performer in the Russia & CIS universe in 2008 and in January 09, Pharos Russia was up +0.4% whereas the Russian market RTS was down -15.3% and the MSCI Russia down -11.6%.
The market conditions in Russia deteriorated in an accelerating fashion once the May holiday revelry had ended. The commodity cycle reversed as economic indicators began to reflect the demand destruction caused by the slowing of credit availability. Waves of deleveraging of the global financial system soon followed. Russia suffered initially as the commodity focused investors sold positions, and again as investors generally sold down positions to reduce leverage. The last victim was the Russian oligarch.
The typical Russian billionaire was in fact a house of cards having taken on massive debt against the assets underlying his personal holdings. The publicly traded assets became subject universally to margin calls by international banks, while private assets found their mezzanine financing had evaporated. The result was a flashpoint in late-September when several of the largest local financial groups had become technically insolvent. The markets were frozen for a couple of days while the government intervened to provide liquidity and arrange shotgun marriages.
By this time, Pharos said, they had adjusted their positions to reflect the bankruptcy of Lehman Brothers and the growing instability of global markets. "While our overlay gave investors protection against a collapsing market, we realized that the fundamental structure of the markets was changing, and that our risk management concerns had to change."
"As the financial crisis continued, we were concerned about other effects on the market. Our experience in the 1998 crisis taught us that markets can get caught in downward spirals. We were particularly concerned that most Russian market players were fully invested and many were highly leveraged. This was a situation ripe for forced selling and further dramatic market declines."
While this tale of misadventure is unsurprising for an emerging market, it has also become the dangerous reality in the US and other developed markets as well, Pharos said.
"In Russia, there are a few key triggers that we are looking for before investing fully into the market. In past letters, we have identified credit normalization and commodity price stabilization as the two necessary, but perhaps not sufficient, conditions for Russia's bear market to end. While we do not expect credit availability to reach the extreme levels of the last few years, basic credit does need to flow again for companies to move out of crisis mode and for trade to resume in a normal manner. The Russian government has taken admirable steps to deal with the shutdown of credit, and after a slow start is now using the large reserves built up during the commodity boom to supply credit to Russian corporations that need help rolling over their debt."
The instability of the Russian markets will continue so long as oil prices remain unstable. At this stage, the oil price determines the fair value of the ruble, which, in turn, dictates the future course of Russia's economic growth, however, Pharos believes that the key to success from here is sizing positions to adjust for volatility, while being prepared to act quickly once signs of stability emerge.
The Pharos Russia Fund's 5 year returns also show a strong outperformance against the MSCI Russia Index. The 11 year period of January 1998 through December 2008, which encompasses two market meltdowns and many other mini-crises, the Pharos Russia Fund has returned a total of 100.33%, against a gain of only 3.81% for the MSCI Russia Index.
"Our long history in the Russian financial markets through good times and bad times helps guide our investment philosophy and makes us mindful of the periodic crises that hit the market," Pharos says, "We seek to maximize our investor's returns over the medium term, and one of the most important aspects of that is to protect against severe losses in times of crisis."
Their flagship fund, Pharos Russia Fund, has been the most resilient performer in the Russia & CIS universe in 2008 and in January 09, Pharos Russia was up +0.4% whereas the Russian market RTS was down -15.3% and the MSCI Russia down -11.6%.
The market conditions in Russia deteriorated in an accelerating fashion once the May holiday revelry had ended. The commodity cycle reversed as economic indicators began to reflect the demand destruction caused by the slowing of credit availability. Waves of deleveraging of the global financial system soon followed. Russia suffered initially as the commodity focused investors sold positions, and again as investors generally sold down positions to reduce leverage. The last victim was the Russian oligarch.
The typical Russian billionaire was in fact a house of cards having taken on massive debt against the assets underlying his personal holdings. The publicly traded assets became subject universally to margin calls by international banks, while private assets found their mezzanine financing had evaporated. The result was a flashpoint in late-September when several of the largest local financial groups had become technically insolvent. The markets were frozen for a couple of days while the government intervened to provide liquidity and arrange shotgun marriages.
By this time, Pharos said, they had adjusted their positions to reflect the bankruptcy of Lehman Brothers and the growing instability of global markets. "While our overlay gave investors protection against a collapsing market, we realized that the fundamental structure of the markets was changing, and that our risk management concerns had to change."
"As the financial crisis continued, we were concerned about other effects on the market. Our experience in the 1998 crisis taught us that markets can get caught in downward spirals. We were particularly concerned that most Russian market players were fully invested and many were highly leveraged. This was a situation ripe for forced selling and further dramatic market declines."
While this tale of misadventure is unsurprising for an emerging market, it has also become the dangerous reality in the US and other developed markets as well, Pharos said.
"In Russia, there are a few key triggers that we are looking for before investing fully into the market. In past letters, we have identified credit normalization and commodity price stabilization as the two necessary, but perhaps not sufficient, conditions for Russia's bear market to end. While we do not expect credit availability to reach the extreme levels of the last few years, basic credit does need to flow again for companies to move out of crisis mode and for trade to resume in a normal manner. The Russian government has taken admirable steps to deal with the shutdown of credit, and after a slow start is now using the large reserves built up during the commodity boom to supply credit to Russian corporations that need help rolling over their debt."
The instability of the Russian markets will continue so long as oil prices remain unstable. At this stage, the oil price determines the fair value of the ruble, which, in turn, dictates the future course of Russia's economic growth, however, Pharos believes that the key to success from here is sizing positions to adjust for volatility, while being prepared to act quickly once signs of stability emerge.
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