New York (HedgeCo.net) - U.S. prosecutors yesterday filed papers saying Raj Rajaratnam’s profits in the alleged Galleon hedge fund scheme are higher than previously thought. Federal prosecutors doubled the sum to $36 million from the previous allegations of $17 million in fraudulent income. Prosecutors also opposed Rajaratnam’s bid for reduced bail.
The investigation started with suspicions in the 1990s when chip maker Intel Corp alleged that Rajaratnam was receiving tips from an Intel insider. The investigation was based on a witness who had first entered into a plea agreement with the United States before she began to cooperate in an investigation into Rajaratnam's practices.
Rajaratnam was taken into custody in New York on Oct. 16, 2009 in the USA's largest hedge fund insider-trading scheme. His bail was set at $100 million, Rajaratnam said in regard to the charges, that, "they are, without exception, entirely baseless. I am innocent and will vigorously defend myself and our firm."
Rajaratnam was hailed a hero in post-tsunami Sri Lanka, now however, his massive donations are being called into question.
Rajaratnam is a U.S. citizen and the most prominent defendant among 21 people criminally or civilly charged in an insider trading case involving employees of some of America's best-known companies, according to Bloomberg, including International Business Machines Corp, McKinsey & Co and Intel Capital, an arm of Intel Corp.
4 Jan 2010
Trends in Hedge Fund Capital Raising for 2010
HedgeCo News - Several dominant trends regarding capital flows into the hedge fund arena were identified through conversations with more than 200 hedge fund organizations and 1000 institutional investors during 2009, according to Agecroft Partners.
These hedge fund trends include:
Continued Improvement of Capital Flows: The past 16 months witnessed unprecedented changes in the hedge fund industry with assets off 40% from their peak levels and industry revenues down approximately 70%. The environment was worse for fund raising where we estimate that new flows were likely down 95% from peak levels for the 4Q08 and 1Q09. The asset raising environment slowly improved during the 2nd and 3rd quarter, with a significant increase in the 4th quarter. However, it was still down an estimated 60% to 70% from the peak. During each successive quarter in 2010, we expect hedge fund capital inflows will continue to improve. A major driver of this renewed growth will be a gradual yet substantial increase in allocations made by pension funds.
Increased Competition: While asset flows had been a fraction of their previous highs, 2009 saw a significant increase in competition as many hedge funds, previously closed to new investors, began to market their funds. This trend will continue throughout 2010 as many leading hedge funds strive to return to their previous asset peak. The asset raising environment in 2009 was also affected by the development of a large secondary market for hedge funds, where investors could buy into many hedge funds at a large discount to NAV, as well as receive the benefit of investing below the high-water mark. Secondary funds should not be as big a factor in 2010 as discounts to NAV narrow. Finally, while there was a ‘flight to safety’ by institutional investors to larger hedge funds with strong brands in 2009, this trend should reverse itself as investors seek out smaller and more nimble alpha generators.
Increased Importance of Marketing: Due to the aforementioned increased competition, and the dynamic changes occurring amongst the major investor types, marketing and branding of hedge funds plays a more crucial role today than in the past. While most institutional allocators were stable investors throughout the crisis, high net worth individuals led the redemption wave and created liquidity problems for many hedge funds and hedge fund of funds, along with their underlying investors. Hedge funds will be more focused on their investor demographics in the wake of 2008. The resulting landscape features institutional investors as the preferred client, controlling a greater market share of hedge fund allocations. This trend will continue as pension funds significantly increase allocations to hedge funds. These changes highlight the need for a professional, proactive and knowledgeable sales force able to sell a fund’s specific attributes to an appropriate mix of investors.
Extension of the Due Diligence Process: The due diligence process of hedge fund investors is longer, more focused and deeper than ever before. Institutional investors typically require three to five meetings before making an investment decision. Their process focuses on multiple evaluation factors including: (1) organizational quality, (2) investment team, (3) investment process, (4) risk controls, (5) operational infrastructure, (6) terms and (7) historical performance. The weighting of the various attributes varies among investors, but the trend, particularly in the wake of the Madoff scandal, is toward longer due diligence and increased focus on areas of operational due diligence and risk management policies.
Marketplace Segmentation by Investor Type: The hedge fund marketplace consists of many different segments each displaying a unique profile with regard to the following factors: (1) decision-making structure, (2) length of due diligence process, (3) evaluation factors utilized, (4) average duration of investment and (5) impact on capital flows in the hedge fund industry. Next we will highlight the trends in hedge fund allocations by major investor types.
Pension Funds: The average pension fund portfolio allocates approximately 2.5% to hedge funds. Although it is still only a small fraction of the allocation of the top endowments, this percentage represents a significant increase from ten years ago. We anticipate that pension funds will gradually increase allocations to hedge funds during the next decade, approaching 15% of their asset base. Furthermore, we estimate that 90% of pension funds that allocate to hedge funds currently use a fund of hedge funds structure. However, over time we expect an increasing number of pension funds to choose direct access to managers as they acquire more knowledge and experience of hedge funds. Smaller pension funds will continue to use fund of funds. In addition, rather than separating hedge funds out as a separate asset class, we expect many pension funds to use hedge fund managers within their existing equity and fixed income buckets as a best of breed solution. During the recent crisis, pension funds were the most stable investor in hedge funds and will continue to be a sought-after investor by managers.
Endowments and Foundations: During 2009, endowments and foundations redeemed well below industry average. Primarily liquidity issues, as opposed to less favorable long-term opinion on the merits of investing in hedge funds, drove these redemptions. The endowment and foundation space is a bifurcated market comprised of organizations with more than $1B AUM and those with less than $1B AUM. Many of the larger endowments and foundations are fully allocated to hedge funds and will continue (in some instances) to favor a portfolio allocation of more than 50% to managers. Although we do not underestimate the positive impact that endowments and foundations have had as early adopters of hedge funds, the growth in this space is limited given current, already large allocations. The primary opportunity in this space is, as we see it, takeaway business, where a new manager will replace an existing manager. For endowments and foundations with less than $1B AUM, we anticipate growing portfolio allocations to hedge funds up from an estimated 10-25% overall. We also anticipate an increase in reliance on access to hedge funds through consultants for smaller endowments and foundations.
Fund of Hedge Funds: 2009 saw significant contraction in hedge fund of funds assets. The crisis of 2008 did not treat all fund of hedge funds equally. Some fund of funds experienced significantly fewer redemptions relative to peers due to a variety of factors including, (1) higher concentrations of institutional clients, (2) avoiding extreme leverage, (3) low Madoff exposure, (4) outperforming peers and (5) proactively educating clients on appropriate comparative benchmarks. While we expect the absolute dollar amount invested in funds of funds to increase with the expansion of assets in the hedge fund industry, the market share of funds of funds should decrease as increasing numbers of institutional investors go ‘direct’ to single managers.
The hedge fund of funds industry also consolidated throughout 2009—a trend we expect to continue. Some larger funds of funds ceased operations due to (1) Madoff exposure, (2) poor performance or (3) strategic decisions by a parent company. Larger competitors with greater distribution capabilities also acquired some smaller funds of hedge funds. As funds of funds continue to consolidate, opportunities will arise for smaller firms to differentiate themselves.
Consultants: The institutional hedge fund consultant market place has seen explosive growth as more institutional investors begin to go direct. Most of these firms saw few redemptions from their client base in 2009, while seeing the number of clients expand. This trend will continue well into the future, with increased competition from traditional institutional consultant firms and fund of fund organization that create separately managed portfolios for large institutional investors.
High Net Worth Investors: Generally, high net-worth investors fall into two categories: institutional and non-institutional. The first group, categorized by high sophistication, portfolio stability and endowment style approach to investing, constitutes a desirable investor. Many among this group operate from a family-office structure or spend a majority of their time independently evaluating hedge fund managers. The second category, characterized by less sophistication and fewer resources, tends to chase performance, and utilize a follow the herd mentality to investing. Unfortunately, we believe that this group bears primary responsibility for redemptions from both hedge funds and hedge fund of funds in the recent crisis. A large percent of assets controlled by this latter group have left the hedge fund space and we anticipate their return to be a lengthy process. The return of this capital will likely involve the engagement of advisors and consultants
Conclusion: The hedge fund industry is moving toward a period of sustained growth driven by institutional investors that will increasingly adopt a more institutionalized process for evaluating hedge fund managers. The majority of assets will flow to a small percentage of managers representing firms characterized by: (1) strong distribution, (2) clear comprehension of nuances among investor segments, (3) strong brand, and (4) consistent high-quality marketing message.
These hedge fund trends include:
Continued Improvement of Capital Flows: The past 16 months witnessed unprecedented changes in the hedge fund industry with assets off 40% from their peak levels and industry revenues down approximately 70%. The environment was worse for fund raising where we estimate that new flows were likely down 95% from peak levels for the 4Q08 and 1Q09. The asset raising environment slowly improved during the 2nd and 3rd quarter, with a significant increase in the 4th quarter. However, it was still down an estimated 60% to 70% from the peak. During each successive quarter in 2010, we expect hedge fund capital inflows will continue to improve. A major driver of this renewed growth will be a gradual yet substantial increase in allocations made by pension funds.
Increased Competition: While asset flows had been a fraction of their previous highs, 2009 saw a significant increase in competition as many hedge funds, previously closed to new investors, began to market their funds. This trend will continue throughout 2010 as many leading hedge funds strive to return to their previous asset peak. The asset raising environment in 2009 was also affected by the development of a large secondary market for hedge funds, where investors could buy into many hedge funds at a large discount to NAV, as well as receive the benefit of investing below the high-water mark. Secondary funds should not be as big a factor in 2010 as discounts to NAV narrow. Finally, while there was a ‘flight to safety’ by institutional investors to larger hedge funds with strong brands in 2009, this trend should reverse itself as investors seek out smaller and more nimble alpha generators.
Increased Importance of Marketing: Due to the aforementioned increased competition, and the dynamic changes occurring amongst the major investor types, marketing and branding of hedge funds plays a more crucial role today than in the past. While most institutional allocators were stable investors throughout the crisis, high net worth individuals led the redemption wave and created liquidity problems for many hedge funds and hedge fund of funds, along with their underlying investors. Hedge funds will be more focused on their investor demographics in the wake of 2008. The resulting landscape features institutional investors as the preferred client, controlling a greater market share of hedge fund allocations. This trend will continue as pension funds significantly increase allocations to hedge funds. These changes highlight the need for a professional, proactive and knowledgeable sales force able to sell a fund’s specific attributes to an appropriate mix of investors.
Extension of the Due Diligence Process: The due diligence process of hedge fund investors is longer, more focused and deeper than ever before. Institutional investors typically require three to five meetings before making an investment decision. Their process focuses on multiple evaluation factors including: (1) organizational quality, (2) investment team, (3) investment process, (4) risk controls, (5) operational infrastructure, (6) terms and (7) historical performance. The weighting of the various attributes varies among investors, but the trend, particularly in the wake of the Madoff scandal, is toward longer due diligence and increased focus on areas of operational due diligence and risk management policies.
Marketplace Segmentation by Investor Type: The hedge fund marketplace consists of many different segments each displaying a unique profile with regard to the following factors: (1) decision-making structure, (2) length of due diligence process, (3) evaluation factors utilized, (4) average duration of investment and (5) impact on capital flows in the hedge fund industry. Next we will highlight the trends in hedge fund allocations by major investor types.
Pension Funds: The average pension fund portfolio allocates approximately 2.5% to hedge funds. Although it is still only a small fraction of the allocation of the top endowments, this percentage represents a significant increase from ten years ago. We anticipate that pension funds will gradually increase allocations to hedge funds during the next decade, approaching 15% of their asset base. Furthermore, we estimate that 90% of pension funds that allocate to hedge funds currently use a fund of hedge funds structure. However, over time we expect an increasing number of pension funds to choose direct access to managers as they acquire more knowledge and experience of hedge funds. Smaller pension funds will continue to use fund of funds. In addition, rather than separating hedge funds out as a separate asset class, we expect many pension funds to use hedge fund managers within their existing equity and fixed income buckets as a best of breed solution. During the recent crisis, pension funds were the most stable investor in hedge funds and will continue to be a sought-after investor by managers.
Endowments and Foundations: During 2009, endowments and foundations redeemed well below industry average. Primarily liquidity issues, as opposed to less favorable long-term opinion on the merits of investing in hedge funds, drove these redemptions. The endowment and foundation space is a bifurcated market comprised of organizations with more than $1B AUM and those with less than $1B AUM. Many of the larger endowments and foundations are fully allocated to hedge funds and will continue (in some instances) to favor a portfolio allocation of more than 50% to managers. Although we do not underestimate the positive impact that endowments and foundations have had as early adopters of hedge funds, the growth in this space is limited given current, already large allocations. The primary opportunity in this space is, as we see it, takeaway business, where a new manager will replace an existing manager. For endowments and foundations with less than $1B AUM, we anticipate growing portfolio allocations to hedge funds up from an estimated 10-25% overall. We also anticipate an increase in reliance on access to hedge funds through consultants for smaller endowments and foundations.
Fund of Hedge Funds: 2009 saw significant contraction in hedge fund of funds assets. The crisis of 2008 did not treat all fund of hedge funds equally. Some fund of funds experienced significantly fewer redemptions relative to peers due to a variety of factors including, (1) higher concentrations of institutional clients, (2) avoiding extreme leverage, (3) low Madoff exposure, (4) outperforming peers and (5) proactively educating clients on appropriate comparative benchmarks. While we expect the absolute dollar amount invested in funds of funds to increase with the expansion of assets in the hedge fund industry, the market share of funds of funds should decrease as increasing numbers of institutional investors go ‘direct’ to single managers.
The hedge fund of funds industry also consolidated throughout 2009—a trend we expect to continue. Some larger funds of funds ceased operations due to (1) Madoff exposure, (2) poor performance or (3) strategic decisions by a parent company. Larger competitors with greater distribution capabilities also acquired some smaller funds of hedge funds. As funds of funds continue to consolidate, opportunities will arise for smaller firms to differentiate themselves.
Consultants: The institutional hedge fund consultant market place has seen explosive growth as more institutional investors begin to go direct. Most of these firms saw few redemptions from their client base in 2009, while seeing the number of clients expand. This trend will continue well into the future, with increased competition from traditional institutional consultant firms and fund of fund organization that create separately managed portfolios for large institutional investors.
High Net Worth Investors: Generally, high net-worth investors fall into two categories: institutional and non-institutional. The first group, categorized by high sophistication, portfolio stability and endowment style approach to investing, constitutes a desirable investor. Many among this group operate from a family-office structure or spend a majority of their time independently evaluating hedge fund managers. The second category, characterized by less sophistication and fewer resources, tends to chase performance, and utilize a follow the herd mentality to investing. Unfortunately, we believe that this group bears primary responsibility for redemptions from both hedge funds and hedge fund of funds in the recent crisis. A large percent of assets controlled by this latter group have left the hedge fund space and we anticipate their return to be a lengthy process. The return of this capital will likely involve the engagement of advisors and consultants
Conclusion: The hedge fund industry is moving toward a period of sustained growth driven by institutional investors that will increasingly adopt a more institutionalized process for evaluating hedge fund managers. The majority of assets will flow to a small percentage of managers representing firms characterized by: (1) strong distribution, (2) clear comprehension of nuances among investor segments, (3) strong brand, and (4) consistent high-quality marketing message.
Diamond Notch Fund Manager to Join WindTamer Board
Wind turbine technology company WindTamer Corporation has elected hedge fund investment advisor Steven DiNunzio as an independent member of the Company's Board of Directors.
DiNunzio is currently CFO of Diamond Notch Asset Management, LLC, a multi-strategy investment advisor with approximately $430 million of assets under management. His responsibilities at the company include accounting and financial management and reporting, middle and back office operations and managing service provider relationships, for administration, audit, tax and most prime broker relationships for the Diamond Notch Funds.
Prior to joining Diamond Notch Asset Management, from 2002 to 2007 Mr. DiNunzio held several positions in the Fund Derivatives Department at BNP Paribas and Zurich Capital Markets, most recently as Director and Head of Fund Derivatives Operations for BNP Paribas in New York. Previous to that, Mr. DiNunzio was a Director at Dune Partners, Ltd., a London based hedge fund where his responsibilities included directing operations, compliance and finance. Mr. DiNunzio has also held various positions at Swiss Bank/UBS in the Foreign Exchange, Middle Office and Program Management groups.
"We are very pleased that Steve DiNunzio has agreed to join the WindTamer team," said Gerald E. Brock, WindTamer's Chairman and Chief Executive Officer. "Steve's skills and his long experience in the financial services industry will bring a valuable perspective to our Board of Directors."
DiNunzio is currently CFO of Diamond Notch Asset Management, LLC, a multi-strategy investment advisor with approximately $430 million of assets under management. His responsibilities at the company include accounting and financial management and reporting, middle and back office operations and managing service provider relationships, for administration, audit, tax and most prime broker relationships for the Diamond Notch Funds.
Prior to joining Diamond Notch Asset Management, from 2002 to 2007 Mr. DiNunzio held several positions in the Fund Derivatives Department at BNP Paribas and Zurich Capital Markets, most recently as Director and Head of Fund Derivatives Operations for BNP Paribas in New York. Previous to that, Mr. DiNunzio was a Director at Dune Partners, Ltd., a London based hedge fund where his responsibilities included directing operations, compliance and finance. Mr. DiNunzio has also held various positions at Swiss Bank/UBS in the Foreign Exchange, Middle Office and Program Management groups.
"We are very pleased that Steve DiNunzio has agreed to join the WindTamer team," said Gerald E. Brock, WindTamer's Chairman and Chief Executive Officer. "Steve's skills and his long experience in the financial services industry will bring a valuable perspective to our Board of Directors."
28 Dec 2009
Marshall Wace To Spend $87.6 Million On Hedge Fund Bonuses
HedgeCo News - The hedge fund manager of Eureka Fund, Europe's largest telecom, media and technology sector hedge fund is set to pay out £54.8 million ($87.6 million) in bonuses, according to UK newspaper The Daily Mail.
The hedge fund set up by Paul Marshall is one of Europe's largest alternative investment groups, Marshall founded the hedge fund in 1997 with Ian Wace. The hedge fund gathered steam when it developed a computer system to analyse recommendations from investment banks.
Marshal Wace reported a strong year with profits up from £50 million to £89 million, ($80 million to $142 million) the newspaper reported. The firm's 21 fund managers will share the bulk of the bonus pot while the remainder will go to 75 administrative workers.
18 Dec 2009
UK to Look Into Russia Hedge Fund Corruption Claims
New York (HedgeCo.net) - Commenting on the death of hedge fund Hermitage Capital's anti-corruption lawyer Sergey Magnitskiy, the U.K. Prime Minister said he "was deeply concerned to hear of the death," and, "I welcome the Russian undertaking that there will be a full investigation." the Daily Telegraph reported this morning.
Magnitskiy died on November 16 in a detention centre in Moscow. The US-born, British naturalised lawyer was arrested in 2008 after accusing senior officers in the Interior Ministry of taking part in a $230m state-sponsored scam, leading to the theft of companies owned by hedge funds Hermitage and HSBC. Hermitage has filed law suits and sent letters to Russian anti-corruption authorities, naming top-ranked officials and their role in the alleged tax scam.
The 37 year old father of two was held in Moscow’s Matrosskaya Tishina detention center for almost a year. "Sergey Magnitskiy was refused bail and kept in detention for a year without trial," Hermitage said in a statement. "He was denied the ability to see his mother and his wife and speak to his children for the entire time of his detention."
The U.K. Government has also contacted senior Russian politicians regarding the investigation, the newspaper said.
Magnitskiy died on November 16 in a detention centre in Moscow. The US-born, British naturalised lawyer was arrested in 2008 after accusing senior officers in the Interior Ministry of taking part in a $230m state-sponsored scam, leading to the theft of companies owned by hedge funds Hermitage and HSBC. Hermitage has filed law suits and sent letters to Russian anti-corruption authorities, naming top-ranked officials and their role in the alleged tax scam.
The 37 year old father of two was held in Moscow’s Matrosskaya Tishina detention center for almost a year. "Sergey Magnitskiy was refused bail and kept in detention for a year without trial," Hermitage said in a statement. "He was denied the ability to see his mother and his wife and speak to his children for the entire time of his detention."
The U.K. Government has also contacted senior Russian politicians regarding the investigation, the newspaper said.
17 Dec 2009
100 Women in Hedge Funds partners with Prince William in support of Youth Homeless Charity Centrepoint
100 Women in Hedge Funds, announced during Prince William’s visit to a Centrepoint hostel that, as part of the Prince’s patronage of 100 Women in Hedge Funds, it has chosen to partner with Centrepoint as well.
Centrepoint is the UK’s leading national youth homeless charity, to build on its existing mentoring programme. This announcement follows the news in October that Prince William, who in 2005, chose Centrepoint to be the first charity of which he would become patron, will be patron of 100 Women in Hedge Funds’ philanthropic initiatives.
100 Women in Hedge Funds has a track record of supporting charities in the fields of family health, mentoring and education. From January 2010, 100 Women in Hedge Funds will focus its philanthropic endeavours consecutively, for a year each, on three of Prince William’s Patronages: Centrepoint in 2010; the Child Bereavement Charity in 2011; and Skill Force in 2012.
Seyi Obakin, Chief Executive, Centrepoint said: “At Centrepoint, we are committed to giving homeless young people a future. We are delighted that, with Prince William’s patronage, 100 Women in Hedge Funds will be supporting Centrepoint throughout 2010. This support will make an invaluable contribution to lives of the 800 homeless young people we support each day.”
Commenting on the announcement, Anne Popkin, Chair of 100 Women in Hedge Funds, said: “We are thrilled as an organisation to partner with Centrepoint as they continue to meet their mission beyond their 40th anniversary, and are pleased to be working in partnership with Prince William to do so. All of our efforts and programs are aimed at supporting our three pillars of education, professional peer leverage, and philanthropy; and this partnership allows us to leverage our collective abilities and expertise in order to give back to the community.”
Funds raised by 100 Women in Hedge Funds in 2010 will be used to fund a mentoring programme aimed at enhancing the efforts already made by Centrepoint to impact the lives of young people by developing their employability skills, building their sense of self worth and self-esteem and setting goals for the future.
“In addition to Prince William’s patronage, we are pleased to announce that Financial Risk Management and its chairman Blaine Tomlinson have signed on to be the first Patronage Sponsor where they will support the charity of the year selected by 100 Women in Hedge Funds over the next three years,” added Popkin.
100 Women in Hedge Funds is planning a number of events in London during the year that will culminate in the 100 Women in Hedge Funds London Gala on September 30, 2010 at The Honorable Society of the Middle Temple.
Firms and individuals interested in learning more about sponsorship opportunities or for further details on 100 Women in Hedge Fund’s Gala event for 2010, email:
Londongala@100womeninhedgefunds.org.
Centrepoint is the UK’s leading national youth homeless charity, to build on its existing mentoring programme. This announcement follows the news in October that Prince William, who in 2005, chose Centrepoint to be the first charity of which he would become patron, will be patron of 100 Women in Hedge Funds’ philanthropic initiatives.
100 Women in Hedge Funds has a track record of supporting charities in the fields of family health, mentoring and education. From January 2010, 100 Women in Hedge Funds will focus its philanthropic endeavours consecutively, for a year each, on three of Prince William’s Patronages: Centrepoint in 2010; the Child Bereavement Charity in 2011; and Skill Force in 2012.
Seyi Obakin, Chief Executive, Centrepoint said: “At Centrepoint, we are committed to giving homeless young people a future. We are delighted that, with Prince William’s patronage, 100 Women in Hedge Funds will be supporting Centrepoint throughout 2010. This support will make an invaluable contribution to lives of the 800 homeless young people we support each day.”
Commenting on the announcement, Anne Popkin, Chair of 100 Women in Hedge Funds, said: “We are thrilled as an organisation to partner with Centrepoint as they continue to meet their mission beyond their 40th anniversary, and are pleased to be working in partnership with Prince William to do so. All of our efforts and programs are aimed at supporting our three pillars of education, professional peer leverage, and philanthropy; and this partnership allows us to leverage our collective abilities and expertise in order to give back to the community.”
Funds raised by 100 Women in Hedge Funds in 2010 will be used to fund a mentoring programme aimed at enhancing the efforts already made by Centrepoint to impact the lives of young people by developing their employability skills, building their sense of self worth and self-esteem and setting goals for the future.
“In addition to Prince William’s patronage, we are pleased to announce that Financial Risk Management and its chairman Blaine Tomlinson have signed on to be the first Patronage Sponsor where they will support the charity of the year selected by 100 Women in Hedge Funds over the next three years,” added Popkin.
100 Women in Hedge Funds is planning a number of events in London during the year that will culminate in the 100 Women in Hedge Funds London Gala on September 30, 2010 at The Honorable Society of the Middle Temple.
Firms and individuals interested in learning more about sponsorship opportunities or for further details on 100 Women in Hedge Fund’s Gala event for 2010, email:
Londongala@100womeninhedgefunds.org.
Khan's Plea Accepted At Hedge Fund Billionaire Raj Rajaratnam’s Trial
HedgeCo News Archives - Hedge fund consultant Roomy Khan made her first public appearance a Manhattan court yesterday, according to Bloomberg.
In October of this year, Khan pleaded guilty to a criminal information charging her with conspiracy to commit securities fraud and obstruction of justice, she entered her plea three days after hedge fund billionaire Raj Rajaratnam’s arrest.
Khan lived in California, where she traded securities on her own behalf, and also served as a paid consultant to a hedge fund located in New York. Khan admitted to compensating certain of her sources of inside information by giving them other inside information, cash and/or by executing trades in their personal brokerage accounts.
Khan also admitted in her plea to deleting an incriminating e-mail that she had received from a co-conspirator and attempted to deter other co-conspirators from sending incriminating e-mails or instant messages in light of the then-pending SEC investigation. Khan profited approximately $1.6 million as a result of her insider trading.
Bloomberg reported that U.S. District Judge Richard Berman yesterday formally accepted her plea after asking her several questions, including one about her cooperation agreement with prosecutors. “I just want to make sure you understand you have that obligation?” Berman asked.
Khan answered with "Yes, Sir" or "I understand" to the judge's questions.
Khan is one of six traders or lawyers who have pleaded guilty and are cooperating.
In October of this year, Khan pleaded guilty to a criminal information charging her with conspiracy to commit securities fraud and obstruction of justice, she entered her plea three days after hedge fund billionaire Raj Rajaratnam’s arrest.
Khan lived in California, where she traded securities on her own behalf, and also served as a paid consultant to a hedge fund located in New York. Khan admitted to compensating certain of her sources of inside information by giving them other inside information, cash and/or by executing trades in their personal brokerage accounts.
Khan also admitted in her plea to deleting an incriminating e-mail that she had received from a co-conspirator and attempted to deter other co-conspirators from sending incriminating e-mails or instant messages in light of the then-pending SEC investigation. Khan profited approximately $1.6 million as a result of her insider trading.
Bloomberg reported that U.S. District Judge Richard Berman yesterday formally accepted her plea after asking her several questions, including one about her cooperation agreement with prosecutors. “I just want to make sure you understand you have that obligation?” Berman asked.
Khan answered with "Yes, Sir" or "I understand" to the judge's questions.
Khan is one of six traders or lawyers who have pleaded guilty and are cooperating.
Manager Gets 24 Years In Hedge Fund Fraud Case
HedgeCo News Archives - Hedge fund manager Won Sok Lee, was sentenced this week by Judge Kenneth Ryskamp on wire fraud charges for his participation in a massive hedge fund fraud scheme, according to the Miami FBI.
Lee was sentenced to 298 months in prison, to be followed by 3 years of supervised release. In addition, he was ordered to pay over $78 million in restitution.
In December 2006, Won Sok Lee, Jung Kim, and Yung Bae Kim were indicted on charges that they orchestrated a massive investment fraud in the operation of various hedge funds under the umbrella of the KL Group, LLC, initially in California and later in Palm Beach County.
According to the Indictment, documents filed with the court, and statements made during the plea hearings, the defendants used quarterly mailings and website postings to misrepresent to investors that the KL Financial Group was a hugely successful family of hedge funds. In fact, however, the KL funds lost millions of dollars, and, in Ponzi scheme fashion, used new investors’ monies to make payments owed to previous investors. From 2000 through 2005, KL received approximately $194 million in investor funds.
Also charged in the Indictment were three hedge fund advisor companies that were owned and controlled by the individual defendants: KL Group, LLC, KL Triangulum Management, LLC, and Shoreland Trading, LLC. The companies pled guilty in July 2007 to participating in the investment fraud conspiracy.
Defendant Won Lee remained a fugitive from December 2006 until early 2009. In 2009, federal authorities located Won Lee in South Korea. He was extradited to South Florida in April 2009 to face the federal charges pending against him. Won Lee admitted lying to investors to induce them to invest in the hedge funds and to keep their monies invested or to reinvest in different hedge funds.
The misrepresentations included false statements about the soundness and performance of particular funds. Victims were told that the funds were profitable, when in fact, none were. Lee also admitted his complicity in creating counterfeit clearing firm statements that were used to perpetrate and conceal the scheme.
In addition, Lee admitted lying to a clearing house about the origin of monies used to buy and sell stocks cleared through Penson, a Texas-based clearing firm. Lee also admitted to creating fictitious stock trading sheets, which were used to show a one-day profit of $22 million in a stock known as RIMM, the company that manufactures the popular “Blackberry” device. The RIMM trade, however, never took place, and the fictitious stock trading sheets were used to fool investors concerning the profitable trades being conducted by the KL hedge funds.
The case is being prosecuted by Assistant U.S. Attorneys Stephen Carlton and Edward Nucci.
Lee was sentenced to 298 months in prison, to be followed by 3 years of supervised release. In addition, he was ordered to pay over $78 million in restitution.
In December 2006, Won Sok Lee, Jung Kim, and Yung Bae Kim were indicted on charges that they orchestrated a massive investment fraud in the operation of various hedge funds under the umbrella of the KL Group, LLC, initially in California and later in Palm Beach County.
According to the Indictment, documents filed with the court, and statements made during the plea hearings, the defendants used quarterly mailings and website postings to misrepresent to investors that the KL Financial Group was a hugely successful family of hedge funds. In fact, however, the KL funds lost millions of dollars, and, in Ponzi scheme fashion, used new investors’ monies to make payments owed to previous investors. From 2000 through 2005, KL received approximately $194 million in investor funds.
Also charged in the Indictment were three hedge fund advisor companies that were owned and controlled by the individual defendants: KL Group, LLC, KL Triangulum Management, LLC, and Shoreland Trading, LLC. The companies pled guilty in July 2007 to participating in the investment fraud conspiracy.
Defendant Won Lee remained a fugitive from December 2006 until early 2009. In 2009, federal authorities located Won Lee in South Korea. He was extradited to South Florida in April 2009 to face the federal charges pending against him. Won Lee admitted lying to investors to induce them to invest in the hedge funds and to keep their monies invested or to reinvest in different hedge funds.
The misrepresentations included false statements about the soundness and performance of particular funds. Victims were told that the funds were profitable, when in fact, none were. Lee also admitted his complicity in creating counterfeit clearing firm statements that were used to perpetrate and conceal the scheme.
In addition, Lee admitted lying to a clearing house about the origin of monies used to buy and sell stocks cleared through Penson, a Texas-based clearing firm. Lee also admitted to creating fictitious stock trading sheets, which were used to show a one-day profit of $22 million in a stock known as RIMM, the company that manufactures the popular “Blackberry” device. The RIMM trade, however, never took place, and the fictitious stock trading sheets were used to fool investors concerning the profitable trades being conducted by the KL hedge funds.
The case is being prosecuted by Assistant U.S. Attorneys Stephen Carlton and Edward Nucci.
16 Dec 2009
Hedge Funds Win London Lehman Case
Hedge funds controlled by Goldman Sachs and GLG Partners won a significant court ruling yesterday, over how to properly distribute billions of dollars of clients money held by Lehman Brothers when it collapsed, The Financial Times reported.
The High Court in London said that the Lehman funds were not “ring-fenced,” by the investment bank’s European arm and could not be claimed out of a $1 billion pool of funds currently controlled by Lehman administrators.
The Financial Times also said that while the ruling is a win for Goldman and GLG, whose cash was properly ring-fenced, it is a blow to several Lehman affiliates and other hedge fund clients, who now will not be eligible to pursue $3 billion worth of claims against the pool of funds.
The New York Times reported that roughly $11.4 billion in assets, including stocks, bonds, derivative contracts and other securities owned by hedge funds, insurance companies and other investors remain to be distributed in Lehman International’s trust account. Those funds have been frozen since Lehman collapsed in September 2008, frustrating some hedge funds that made trades through the firm before it fell into bankruptcy, the newspaper said.
The High Court in London said that the Lehman funds were not “ring-fenced,” by the investment bank’s European arm and could not be claimed out of a $1 billion pool of funds currently controlled by Lehman administrators.
The Financial Times also said that while the ruling is a win for Goldman and GLG, whose cash was properly ring-fenced, it is a blow to several Lehman affiliates and other hedge fund clients, who now will not be eligible to pursue $3 billion worth of claims against the pool of funds.
The New York Times reported that roughly $11.4 billion in assets, including stocks, bonds, derivative contracts and other securities owned by hedge funds, insurance companies and other investors remain to be distributed in Lehman International’s trust account. Those funds have been frozen since Lehman collapsed in September 2008, frustrating some hedge funds that made trades through the firm before it fell into bankruptcy, the newspaper said.
Rajaratnam and Chiesi Indicted In Hedge Fund Fraud Case
HedgeCo.net News Archives - Galleon hedge fund founder Raj Rajaratnam and Danielle Chiesi, an executive at New Castle Funds LLC were indicted Tuesday on multiple counts of conspiracy and securities fraud.
“Mr. Rajaratnam is innocent and looks forward to his day in court when a jury of his fellow citizens will examine and evaluate all of the evidence,” his lawyer, John Dowd, said.
The indictment includes 17 counts of conspiracy and securities fraud and seeks to recover $20.8 million. Among the stocks they traded illegally were those of Google Inc., Advanced Micro Devices Inc. and Intel Corp., according to the indictment.
“We intend to plead not guilty and defend the case and hopefully at the end prove the client’s innocence,” Chiesi’s lawyer, Alan Kaufman, said in an interview with Bloomberg. A court hearing is scheduled in Manhattan on Monday.
“Mr. Rajaratnam is innocent and looks forward to his day in court when a jury of his fellow citizens will examine and evaluate all of the evidence,” his lawyer, John Dowd, said.
The indictment includes 17 counts of conspiracy and securities fraud and seeks to recover $20.8 million. Among the stocks they traded illegally were those of Google Inc., Advanced Micro Devices Inc. and Intel Corp., according to the indictment.
“We intend to plead not guilty and defend the case and hopefully at the end prove the client’s innocence,” Chiesi’s lawyer, Alan Kaufman, said in an interview with Bloomberg. A court hearing is scheduled in Manhattan on Monday.
15 Dec 2009
Hedge Funds Gain $14.93 Billion in November
HedgeCo News Archives - The hedge fund industry grew by $14.93 billion in November, according to the Eurekahedge report, with performance-based gains of $9.92 billion and net inflows of $5 billion. The total size of the hedge fund universe now stands at $1.47 trillion – back to December 2008 level.
Hedge funds are up 18.24% November YTD, at par with the best November YTD performance on record. Asia ex-Japan funds are up 34.4% November YTD, on track to post the biggest annual gains on record across all regional hedge fund indices.
The Eurekahedge report also found that funds of funds withdrawals have accounted for 60% of the total redemptions from the hedge fund industry in 2009.
10 Investment Themes for 2010
HedgeCo News Archives - In the recently published December RIC Report, the BofA Merrill Lynch Research Investment Committee, led by Hartnett, identified 10 key themes that the bank's clients should be positioned for in 2010.
-- Government Balance Sheet Risk: The soaring U.S. budget deficit and a Chinese currency revaluation will drive 10-year U.S. Treasury yields above 4 percent by year-end 2010. Shorter-duration Treasuries and U.S. investment-grade corporate credit are less susceptible to such risks.
-- Rising Taxation: The soaring U.S. budget deficit, looming U.S. healthcare reform and a likely second stimulus package will need to be funded through higher tax rates. Opportunities include essential purpose revenue and general obligation municipal bonds, and municipal bond exchange-traded funds.
-- Alternative Dividend Yield Strategies: Dividend taxes are likely to rise in 2011, and as the prospect of higher taxes erodes the popularity of traditional dividend yield-oriented strategies, tax-advantaged or tax-deferred strategies will benefit.
-- Financial Sector Rehabilitation: Steepening yield curves around the world, increased M&A activity and the still-underestimated normalized earnings power of financials should foster their returns surprise on the upside. Opportunities can be found in best-of-breed mega-cap global financials.
-- Corporate Cash Flow Beneficiaries: High cash balances will translate into strategic M&A, a term describing non-speculative, non-private equity mergers. In addition, companies will increase capital spending and possibly dividends. We expect the beneficiaries of capital spending to include the industrial sector and temporary staffing companies as production expands.
-- Rising Global Growth: The global policy stimulus seen in 2009 will continue to support global growth led by emerging markets, while in the U.S. an inventory restocking cycle and higher capex converge to push global growth well above 4 percent. Opportunities include best-of-breed mega-cap multinationals based in developed markets with a large presence in emerging markets.
-- The Emerging Market Consumer: The emerging market consumer is at the beginning, not the end, of the credit cycle. Opportunities include emerging market currencies versus the U.S. dollar and, in equities, U.S. energy stocks, global energy majors and mega-cap multinationals.
-- Commodity Price Inflation: Supply constraints are likely to resurface in the year ahead as commodity demand outpaces the productive capacity of current resources. Investment opportunities include long position in gold and global energy stocks.
-- Alternative Energy: Truly economical renewables may be years away, buy investment in alternative energy is an important secular theme that will continue to gain ground. Alternative energy ETFs offer exposure to the burgeoning industry while providing important diversification across multiple technologies and business models. Old technology
energy equities such as utilities will be a source of, not a beneficiary of, alternative energy investment.
-- The Return of Active Management: Volatility has come down in 2009, especially since central banks began their critical quantitative easing in March. Lower volatility leads to lower correlation, resulting in greater differentiation in asset price performance. The trend favors active over passive management. Such a stock-picking environment should result in high-quality, best-of-breed stocks outperforming in 2010.
"Poor returns from the equities markets over the past decade, particularly from large cap equities, have created a pessimism bubble among investors," said Bianco. "We believe the S&P 500 is now undervalued, which could create many investment opportunities in the year ahead. Given our expectations for global growth led by emerging economies, a slow but steady U.S. recovery, and healthy S&P 500 EPS growth, we think that the pessimism bubble will finally burst in 2010."
2010 Forecast Highlights
BofA Merrill Lynch Global Research released its Global Macro Year Ahead economic and market forecasts, projecting higher-than-consensus GDP growth, low inflation, a bullish outlook for equities, a strengthening U.S. dollar against select currencies and a less attractive outlook for government and corporate bonds.
"We believe the global economy will gather momentum in 2010," said Ethan Harris, head of North America economics and coordinator of global economics. "We think that the unprecedented mix of near-zero interest rates and high budget deficits will engineer an economic recovery that is real and sustainable. We aren't forecasting a swift return to robust growth. In fact, the recovery will likely lag behind those of previous recessions - but we believe that the world economy will perform far better than the economic consensus would indicate."
2010 Forecast Highlights
-- The BofA Merrill Lynch Global Economics Research team forecasts global
GDP growth to be 4.4 percent in 2010, well above the 3.1 percent
predicted by the International Monetary Fund. The team projects growth
will be led by China at 10.1 percent, while projecting U.S. GDP growth
to be 3.2 percent.
-- Harris expects a further fall in core inflation and projects that the
U.S. Consumer Price Index will be 2.5 percent. He feels that the
transmission process whereby monetary easing leads to rising prices is
currently "stuck in neutral" as banks are rebuilding there balance
sheets. He also believes that central banks will have plenty of time
to sop up liquidity before inflation becomes a real issue.
-- Michael Hartnett, chief global equity strategist and chairman of the
BofA Merrill Lynch Research Investment Committee, is targeting the
MSCI All-Country World Index at 350, roughly a 20 percent upside and
is bullish on European equities, Asia and emerging markets.
-- David Bianco, head of U.S. equity strategy, expects the S&P 500 to
appreciate about 15 percent by 2010 year end to 1275. Bianco expects
this appreciation to be driven by S&P 500 sales growth in four "global
cyclical" sectors of Technology, Energy, Industrials and Materials.
"These four sectors have high direct foreign sales and benefit from
high commodity prices and U.S. exports," said Bianco. "We also expect
Financials to outperform as a result of steepening yield curves and
underestimated normalized earnings power."
-- Francisco Blanch, head of commodities strategy, expects that
commodities will be driven by strong demand in emerging markets.
"Crude oil could break $100 per barrel by late 2010 and we're
forecasting gold to top $1,500 per ounce in the next 18 months,
particularly if the dollar weakens further against certain undervalued
emerging market currencies," said Blanch.
-- The BofA Merrill Lynch Research U.S. Interest Rate Committee expects
returns on long-term Treasuries and municipals to be modestly negative
and forecasts 10-year Treasury yield to be 4.25 percent, while the
30-year Treasury yield is predicted to be 4.95 percent.
-- Jeff Rosenberg, chief global credit strategist, expects to see
normalized returns as corporate credit outperforms both government
bonds and cash. "We expect high-yield returns to reach 10 percent,
outperforming the high-grade sector, which we forecast as providing
returns in the 2 percent to 3 percent range," said Rosenberg. "The
returns delivered by the credit markets over the past year are
impressive, but unsustainable. Going forward, investors will need to
adjust their expectations for price appreciation to more normalized
levels for the entire asset class."
-- Steven Pearson, head of G10 currency strategy, forecasts the U.S.
dollar to strengthen against G10 currencies next year, primarily
against the euro. However, over the first half of 2010, he expects the
Japanese yen to rise further against both the USD and EUR.
"Despite reassuring market strength, 2009 ultimately played out as a year of contradictions," said Hartnett. "While credit markets, commodities and stocks surged, many investors stayed on the sidelines, awaiting surer signs of recovery. The coming months will reveal whether investors can move forward with confidence or whether a policy misstep will interrupt the slow and steady recovery we think is possible."
"We believe the global economy will gather momentum in 2010," said Ethan Harris, head of North America economics and coordinator of global economics. "We think that the unprecedented mix of near-zero interest rates and high budget deficits will engineer an economic recovery that is real and sustainable. We aren't forecasting a swift return to robust growth. In fact, the recovery will likely lag behind those of previous recessions - but we believe that the world economy will perform far better than the economic consensus would indicate."
2010 Forecast Highlights
-- The BofA Merrill Lynch Global Economics Research team forecasts global
GDP growth to be 4.4 percent in 2010, well above the 3.1 percent
predicted by the International Monetary Fund. The team projects growth
will be led by China at 10.1 percent, while projecting U.S. GDP growth
to be 3.2 percent.
-- Harris expects a further fall in core inflation and projects that the
U.S. Consumer Price Index will be 2.5 percent. He feels that the
transmission process whereby monetary easing leads to rising prices is
currently "stuck in neutral" as banks are rebuilding there balance
sheets. He also believes that central banks will have plenty of time
to sop up liquidity before inflation becomes a real issue.
-- Michael Hartnett, chief global equity strategist and chairman of the
BofA Merrill Lynch Research Investment Committee, is targeting the
MSCI All-Country World Index at 350, roughly a 20 percent upside and
is bullish on European equities, Asia and emerging markets.
-- David Bianco, head of U.S. equity strategy, expects the S&P 500 to
appreciate about 15 percent by 2010 year end to 1275. Bianco expects
this appreciation to be driven by S&P 500 sales growth in four "global
cyclical" sectors of Technology, Energy, Industrials and Materials.
"These four sectors have high direct foreign sales and benefit from
high commodity prices and U.S. exports," said Bianco. "We also expect
Financials to outperform as a result of steepening yield curves and
underestimated normalized earnings power."
-- Francisco Blanch, head of commodities strategy, expects that
commodities will be driven by strong demand in emerging markets.
"Crude oil could break $100 per barrel by late 2010 and we're
forecasting gold to top $1,500 per ounce in the next 18 months,
particularly if the dollar weakens further against certain undervalued
emerging market currencies," said Blanch.
-- The BofA Merrill Lynch Research U.S. Interest Rate Committee expects
returns on long-term Treasuries and municipals to be modestly negative
and forecasts 10-year Treasury yield to be 4.25 percent, while the
30-year Treasury yield is predicted to be 4.95 percent.
-- Jeff Rosenberg, chief global credit strategist, expects to see
normalized returns as corporate credit outperforms both government
bonds and cash. "We expect high-yield returns to reach 10 percent,
outperforming the high-grade sector, which we forecast as providing
returns in the 2 percent to 3 percent range," said Rosenberg. "The
returns delivered by the credit markets over the past year are
impressive, but unsustainable. Going forward, investors will need to
adjust their expectations for price appreciation to more normalized
levels for the entire asset class."
-- Steven Pearson, head of G10 currency strategy, forecasts the U.S.
dollar to strengthen against G10 currencies next year, primarily
against the euro. However, over the first half of 2010, he expects the
Japanese yen to rise further against both the USD and EUR.
"Despite reassuring market strength, 2009 ultimately played out as a year of contradictions," said Hartnett. "While credit markets, commodities and stocks surged, many investors stayed on the sidelines, awaiting surer signs of recovery. The coming months will reveal whether investors can move forward with confidence or whether a policy misstep will interrupt the slow and steady recovery we think is possible."
14 Dec 2009
BNY Launches Independant Hedge Fund Validation Service
Hedge fund administrator BNY Mellon Alternative Investment Services has launched a service that independently validates a hedge fund's position records to third-parties - prime brokers, custodians, trustees and agent banks - and independently verifies the pricing of that fund's securities. The new service provides fund managers and their investors with greater transparency and additional assurance that fund assets are independently priced and validated.
"Hedge fund clients are telling us their investors are demanding an independent validation of their holdings. The price verification/asset validation service helps address this need, which in turn helps hedge funds retain and grow their investor base," said Brian Ruane, chief executive officer of BNY Mellon Alternative Investment Services. "While our broad network of pricing vendors and counterparties are the power behind this new offering, greater transparency is clearly the motivation."
Currently, the price verification/asset validation service reconciles more than 27,000 client investment positions, with a total market value in excess of $24 billion. Client coverage rates (assets validated as a percentage of total portfolio scope and value) are in the range of 95-99%. Clients can elect the service on a monthly or quarterly basis.
BNY Mellon Alternative Investment Services is a leading hedge fund administrator with more than $225 billion in assets under administration and an extensive global presence, including locations in Bermuda, Cayman Islands, Hong Kong, Ireland, Luxembourg, Singapore and the United Kingdom, as well as U.S. offices in California, Florida, Massachusetts, New Jersey, New York, Pennsylvania and Texas. In addition to administration the company offers a wide range of accounting, cash management, collateral management, custody, corporate trust, asset management and wealth management services to the hedge fund industry.
10 Dec 2009
Cyprus as a Hedge Fund Epicenter - Interview With The Cyprus Trade Commissioner
HedgeCo.net Exclusive Interview – There has been a recent focus on financial services and the hedge fund space in Cyprus, the UN went so far as to declare Cyprus the forerunner for the new Luxembourg UCITS model. The government, working closely with a US based consultancy is planning a program geared specifically to hedge funds and financial services sectors in the US market. The program is slated to begin February 2010.
Editor for HedgeCo.net
The effort to transform Cyprus into a global hedge fund and asset management epicenter has been in the works for over 5 years, with the aim of providing access to key markets such as the Middle East, the Eastern European region, Asia and Russia. Some of the top hedge funds globally have already established a footprint in Cyprus in an effort to adapt to international standards. As an accesspoint to the EU, Cyprus works for the Pan/European hedge fund model, with worldwide offices and execution from the island.
In an exclusive interview with the Cyprus Trade Commissioner, Aristos Constantine of the Ministry of Commerce, Industry and Tourism, I learned that Cyprus has the lowest corporate tax regime in the whole of the EU, at 10%. Cyprus also has some of the EU’s strongest double taxation treaties (DTT), with more than 40 countries worldwide.
“It has been a primary mandate in the past five years to transform the financial system into a favored conduit for International investment.” Trade Commissioner Aristos Constantine said in the interview, “The close private-public sector cooperation that characterizes Cyprus’ approach to forming its regulatory policy is a key factor in our ability and aim for continually reviewing and reforming our regulatory framework to provide greater flexibility, efficiency and transparency within the financial services and asset management sub-sector, whilst taking into account international compliance mechanisms with due consideration to recent changes in the industry.”
Cyprus maintains a fluid regulatory system which means that the Government will have the ability to anticipate potential issues and reconcile policy to meet private sector needs, ensuring a modern and transparent regulatory framework conducive to investment funds, including a favourable tax regime.
Over the past 10 years, specifically since its accession to the EU in 2004, Cyprus has moved from being an offshore to an onshore jurisdiction. It has completed a program of reforming finance sector legislation with international best practice.
“The Cypriot Government has put a simplified, effective and transparent tax system in place that is fully compliant with the EU, the Financial Action Task Force on Money Laundering (FATF), the Organization for Economic Co-operation and Development (OECD) and the Financial Stability Forum,” Commissioner Aristos Constantine, said.
Cyprus is actively involved with the OECD and part of its “white list”. It closely works with the EU and the Commonwealth in modelling global regulatory policy.
“Within the context of the prevailing global economic climate, the need to better function within the perspective of an ever increasing global environment has never been more profound. Cyprus, as a dynamic, flexible and adaptive economy, has seriously taken up this challenge and has worked extensively to ensure we function with clarity and transparency among both our EU neighbors and partners abroad.” Trade Commissioner Aristos Constantine stated in closing.
Alex AkessonEditor for HedgeCo.net
9 Dec 2009
Added Focus on Sovereign Wealth Funds Illuminates Interconnectivity of ‘The New Normal’ of Capital Markets
RiskMetrics Group’s recent report on ten of the world’s Sovereign Wealth Funds and their disclosure practices significantly illuminates the interconnectivity – connecting the dots – of ESG and Sustainability, Corporate Responsibility, Investor Responsibility and other aspects of the ”new normal” of the capital markets and the corporate environment, according to the Governance & Accountability Institute.
The G&A Institute tracks the major players in Sovereign Wealth Funds and ESG/Sustainable investing (environmental, social and governance Key Performance Indicators), and select US Public Sector Employee Investment Funds.
In a “Perspectives & Insights” communiqué to its clients, the G&A Institute detailed RiskMetrics’ rise and ever-expanding presence as a third party advisor beyond its already formidable role as a major player worldwide in corporate proxy season activities, including advising on corporate governance issues and assisting asset owners and managers in voting their proxies.
According to G&A Institute Chairman Hank Boerner: “We see this as part of the trend of accelerating the embrace of ESG and Sustainability among many more asset owners – which will have profound effects on corporate issuers. Stay tuned to ESG and RiskMetrics’ actions – in the company’s traditional spheres of influence, and now, with the recent moves, in the areas of ESG / Sustainability Investment and the activities of a powerful group of investors – the Sovereign Wealth Funds!
Noted the G&A Institute: “RiskMetrics is a major player worldwide in corporate proxy season activities, including advising on corporate governance issues and assisting asset owners and managers in voting their proxies. In 2009 the company bought the business of Innovest Strategic Investment Advisors and in November, the business of KLD Research and Analytics, Inc. Both moves move RiskMetrics firmly into the pantheon of global ESG / Sustainability research organizations.”
Recently RiskMetrics established its presence in the emerging (and increasingly more important) universe of sovereign investors, and especially Sovereign Wealth Funds. RiskMetrics and its affiliated Investors Responsibility Research Center (IRRC) are examining the transparency and disclosure practices of these investors.
As the sovereign investors (nation-states, city-states, regional coalitions, public sector pension funds, and related institutions) direct their strategic investments in other countries – by definition, SWFs are public sector monies invested outside of the home country – questions are raised about these investments, and whether the investors are transparent enough (most are not is the general opinion).
The RiskMetrics/IRRC Institute study found the following:
- Half of the top 10 largest SWFs have achieved a relatively high level of disclosure;
- Other funds have yet to adopt meaningful initiatives to improve compliance with the voluntary code of conduct;
- While the aggregate size of the top 10 SWFS is USD$2.2 trillion, the actual impact on international markets has been smaller at USD$1 trillion.
The full report is “An Analysis of Proxy Voting and Engagement Policies of the SWFs,” available at: www.irrcinstitute.org and www.riskmetrics.com
The SWFs covered in the report: the funds of Abu Dhabi, Australia, China (2), Singapore (2), Kuwait, Libya, Russia, and Qatar.
About Governance & Accountability Institute
Governance & Accountability Institute, Inc. (www.ga-institute.com) provides timely news, actionable research and information, perspectives and opinion, reliable data, and customized advisory services to organizations, institutions and individuals seeking to do the right thing for the right reasons. INSIGHTS-edge is the Institute’s Web-based platform, available to subscribers and clients to identify, understand, track and engage with third party organizations that are shaping the capital markets and the corporate environment through their focus on key sustainability factors.
8 Dec 2009
People Moves: Infonic Expands Fund of Hedge Fund Team
Swiss fund of hedge fund(FoHF) provider, Infonic AG, Infonic AG, has added Ian Morley to its Board of Directors. Morley, a UK-based alternative investment management industry veteran joins new Chair of the Board and US-based Managing Partner of Azimuth Partners LLC, Virginia Gambale; and non-company executive Director, Alexander Aebi, the Swiss-based CEO of Abiba Consulting AG. The board is completed by Infonic company executive Directors Tom Furrer, CEO, and Roman Bargezi, Head of Engineering.
"I’m delighted to welcome Ian Morley to our Board and to have Virginia Gambale take its Chair. Virginia is an exceptionally well experienced Director of fast growing companies and I look forward to making great strides under her leadership. Ian Morley brings a wealth of experience across the global asset management industry, and Infonic is privileged to be benefiting from his insight and expertise,” said Tom Furrer, CEO of Infonic AG. “As founding Chairman of the Alternative Investment Management Association (AIMA) and advisor to central banks and regulatory authorities, Ian is a true industry leader who understands the business, regulatory, and operational issues that the hedge fund industry faces. We look forward to leveraging the combined talents of this amazing team to become the global operational backbone of the hedge fund industry.”
Morley has had an extensive career in financial services, and the alternative asset management industry in particular. He holds chairmanships and directorships at several firms, including Corazon Capital, Allenbridge Hedge, and Wentworth Hall, a consulting and private equity company. During his career, Morley served as CEO of DDO, a fund of hedge fund, and as Head of Derivatives and Quantitative Fund Management at AIB Govett. Earlier, he was Managing Director of Rudolf Wolff Fund Management and European Director of Managed Futures at Lehman Brothers.
Ms. Gambale is Managing Partner of Azimuth Partners LLC, an investment and advisory firm she founded in 2003. She has served on over 20 public and private boards as well as several Advisory Boards in the finance and technology industry. Today, she holds public company board seats on Jet Blue and Piper Jaffray. Prior to 2003, she held senior management positions, including CIO, at global corporations including: Merrill Lynch, Marsh & McLennan, Bankers Trust Alex Brown and Deutsche Bank. Additionally, she headed DB Strategic Ventures, was General Partner in ABS Ventures, and was subsequently a partner at DB Capital Partners.
"I’m delighted to welcome Ian Morley to our Board and to have Virginia Gambale take its Chair. Virginia is an exceptionally well experienced Director of fast growing companies and I look forward to making great strides under her leadership. Ian Morley brings a wealth of experience across the global asset management industry, and Infonic is privileged to be benefiting from his insight and expertise,” said Tom Furrer, CEO of Infonic AG. “As founding Chairman of the Alternative Investment Management Association (AIMA) and advisor to central banks and regulatory authorities, Ian is a true industry leader who understands the business, regulatory, and operational issues that the hedge fund industry faces. We look forward to leveraging the combined talents of this amazing team to become the global operational backbone of the hedge fund industry.”
Morley has had an extensive career in financial services, and the alternative asset management industry in particular. He holds chairmanships and directorships at several firms, including Corazon Capital, Allenbridge Hedge, and Wentworth Hall, a consulting and private equity company. During his career, Morley served as CEO of DDO, a fund of hedge fund, and as Head of Derivatives and Quantitative Fund Management at AIB Govett. Earlier, he was Managing Director of Rudolf Wolff Fund Management and European Director of Managed Futures at Lehman Brothers.
Ms. Gambale is Managing Partner of Azimuth Partners LLC, an investment and advisory firm she founded in 2003. She has served on over 20 public and private boards as well as several Advisory Boards in the finance and technology industry. Today, she holds public company board seats on Jet Blue and Piper Jaffray. Prior to 2003, she held senior management positions, including CIO, at global corporations including: Merrill Lynch, Marsh & McLennan, Bankers Trust Alex Brown and Deutsche Bank. Additionally, she headed DB Strategic Ventures, was General Partner in ABS Ventures, and was subsequently a partner at DB Capital Partners.
Hedge Funds Up +1.70% In November 2009
Hedge fund adviser Hennessee Group LLC said that the Hennessee Hedge Fund Index advanced +1.70% in November (+22.40% YTD), while the S&P 500 rose +5.34% (+20.84% YTD), the Dow Jones Industrial Average increased +6.51% (+17.87% YTD), and the NASDAQ Composite Index advanced +4.86% (+35.99% YTD). The Barclays Aggregate Bond Index advanced +1.29% (+7.61% YTD).
“While hedge funds have generated strong returns this year and kept pace with the majority of the equity benchmarks, they have not been without their challenges,” said Lee Hennessee, Managing Principal of Hennessee Group. “The rally that commenced in March has been very broad based. Stock specific fundamentals have not mattered much to investors. This has resulted in consistent losses in the short portfolios of many hedge funds and has served as a drag on performance. That said, we are beginning to see the environment for shorting improve.”
The Hennessee Long/Short Equity Index advanced +1.76% in November (+18.98% YTD). The equity markets rebounded in November due to encouraging economic data and better than expected earnings reports. Large cap stocks outperformed with the S&P 500 Index gaining +5.3% and reaching new highs for 2009. All ten sectors experienced gains during the month led by materials (+11.3%), industrials (+8.7%) and healthcare (+9.0%). Long/short equity funds generated gains in November, however lagged their traditional counterparts due to their defensive posturing and reduced exposures. Long/short equity managers remain cautious as they measure the strength and depth of the economic recovery and question current market multiples. In addition, some managers appear content maintaining reduced risk exposures through the end of the year.
The Hennessee Arbitrage/Event Driven Index gained +1.85% in November (+28.25% YTD). The spread on the Merrill Lynch High Yield Index widened slightly from 760 basis points to 765 basis points in November, hitting a low of 751 basis points mid-month. Bonds were again positive, however high yield bonds underperformed high grade and treasuries for the first time in a year. High yield and high grade primary markets remain open with significant investor interest. The Hennessee Distressed Index advanced +3.13% in November (+36.78% YTD). Distressed funds continue to benefit from their directional bias. Many managers are now focusing on post-reorganization equities as several companies emerge from bankruptcy, including Delphi and CIT. Managers are also starting to look at the 2005 to 2007 leverage buyout vintages and expect these deals to be the next large set of defaults. The Hennessee Convertible Arbitrage Index advanced +0.75% (+40.57% YTD). Despite a slight widening of spreads and decline in volatility, managers were able to generate gains due to strong secondary market performance and lower interest rates. New issuance remains disappointing, while redemptions remained high. The Hennessee Merger Arbitrage Index advanced +0.74% in November (+7.84% YTD). Many managers saw allocations to merger arbitrage decline significantly after closure of the big pharmaceutical deals. However, many feel that M&A activity is going to continue and anticipate increasing allocations as new deals emerge. Many are encouraged by the pick up in bidding situations, such as Hershey and Kraft bidding for Cadbury.
The Hennessee Global/Macro Index advanced +1.46% in November (+22.34% YTD). Global equities increased, though underperformed U.S. markets, as the MSCI EAFE Index advanced +1.75% (+26.03% YTD). The Hennessee International Index advanced +2.67% (+20.78% YTD). Emerging markets were strong, led by Latin America . Managers lost money in India due to Dubai World’s announcement of restructuring and request of a standstill agreement from providers of financing. The Hennessee Macro Index advanced +1.00% in November (+9.73% YTD). One of the most common macro themes, long gold, was profitable in November as the S&P GSCI gold spot index increased +13.64% during the month, its largest monthly advance in 2009. The dollar short continues to be a profitable trade as the US dollar index continued to decline in November. One of the key detractors for the month was the short treasury trade. Treasures rallied as the 2-year Treasury yield dropped from 0.85% to 0.65%, and the 10-year Treasury yield fell from 3.39% to 3.20%. At the same time, the 30-year Treasury yield eased from 4.23% to 4.19%.
“The gold trade continued to snow ball in November as Central Banks have become net buyers along with major hedge funds,” commented Charles Gradante, Co-Founder of Hennessee Group. “Never in my 38 year investment career have I seen so many respected investors focused on a single strategy.”
“While hedge funds have generated strong returns this year and kept pace with the majority of the equity benchmarks, they have not been without their challenges,” said Lee Hennessee, Managing Principal of Hennessee Group. “The rally that commenced in March has been very broad based. Stock specific fundamentals have not mattered much to investors. This has resulted in consistent losses in the short portfolios of many hedge funds and has served as a drag on performance. That said, we are beginning to see the environment for shorting improve.”
The Hennessee Long/Short Equity Index advanced +1.76% in November (+18.98% YTD). The equity markets rebounded in November due to encouraging economic data and better than expected earnings reports. Large cap stocks outperformed with the S&P 500 Index gaining +5.3% and reaching new highs for 2009. All ten sectors experienced gains during the month led by materials (+11.3%), industrials (+8.7%) and healthcare (+9.0%). Long/short equity funds generated gains in November, however lagged their traditional counterparts due to their defensive posturing and reduced exposures. Long/short equity managers remain cautious as they measure the strength and depth of the economic recovery and question current market multiples. In addition, some managers appear content maintaining reduced risk exposures through the end of the year.
The Hennessee Arbitrage/Event Driven Index gained +1.85% in November (+28.25% YTD). The spread on the Merrill Lynch High Yield Index widened slightly from 760 basis points to 765 basis points in November, hitting a low of 751 basis points mid-month. Bonds were again positive, however high yield bonds underperformed high grade and treasuries for the first time in a year. High yield and high grade primary markets remain open with significant investor interest. The Hennessee Distressed Index advanced +3.13% in November (+36.78% YTD). Distressed funds continue to benefit from their directional bias. Many managers are now focusing on post-reorganization equities as several companies emerge from bankruptcy, including Delphi and CIT. Managers are also starting to look at the 2005 to 2007 leverage buyout vintages and expect these deals to be the next large set of defaults. The Hennessee Convertible Arbitrage Index advanced +0.75% (+40.57% YTD). Despite a slight widening of spreads and decline in volatility, managers were able to generate gains due to strong secondary market performance and lower interest rates. New issuance remains disappointing, while redemptions remained high. The Hennessee Merger Arbitrage Index advanced +0.74% in November (+7.84% YTD). Many managers saw allocations to merger arbitrage decline significantly after closure of the big pharmaceutical deals. However, many feel that M&A activity is going to continue and anticipate increasing allocations as new deals emerge. Many are encouraged by the pick up in bidding situations, such as Hershey and Kraft bidding for Cadbury.
The Hennessee Global/Macro Index advanced +1.46% in November (+22.34% YTD). Global equities increased, though underperformed U.S. markets, as the MSCI EAFE Index advanced +1.75% (+26.03% YTD). The Hennessee International Index advanced +2.67% (+20.78% YTD). Emerging markets were strong, led by Latin America . Managers lost money in India due to Dubai World’s announcement of restructuring and request of a standstill agreement from providers of financing. The Hennessee Macro Index advanced +1.00% in November (+9.73% YTD). One of the most common macro themes, long gold, was profitable in November as the S&P GSCI gold spot index increased +13.64% during the month, its largest monthly advance in 2009. The dollar short continues to be a profitable trade as the US dollar index continued to decline in November. One of the key detractors for the month was the short treasury trade. Treasures rallied as the 2-year Treasury yield dropped from 0.85% to 0.65%, and the 10-year Treasury yield fell from 3.39% to 3.20%. At the same time, the 30-year Treasury yield eased from 4.23% to 4.19%.
“The gold trade continued to snow ball in November as Central Banks have become net buyers along with major hedge funds,” commented Charles Gradante, Co-Founder of Hennessee Group. “Never in my 38 year investment career have I seen so many respected investors focused on a single strategy.”
5 Dec 2009
Deadlines For 2010 Registration Renewals
It’s that time of year again - firm registration renewals are due by December 11, 2009.
Other important upcoming dates:
* December 24, 2009 - Deadline to submit any form filings for 2009.
* December 25, 2009 to January 3, 2010 - Both the IARD and CRD systems will be unavailable between these dates.
* January 1, 2010 - FINRA’s new fee hikes on the Gross Income Assessment schedule take effect. See Regulatory Notice 09-68
* February 5, 2010 - Deadline to submit any renewal changes or final payments on delinquent accounts.
* March 31, 2010 - Deadline for Form ADV and Form BD amendments.
Other important upcoming dates:
* December 24, 2009 - Deadline to submit any form filings for 2009.
* December 25, 2009 to January 3, 2010 - Both the IARD and CRD systems will be unavailable between these dates.
* January 1, 2010 - FINRA’s new fee hikes on the Gross Income Assessment schedule take effect. See Regulatory Notice 09-68
* February 5, 2010 - Deadline to submit any renewal changes or final payments on delinquent accounts.
* March 31, 2010 - Deadline for Form ADV and Form BD amendments.
AIMA Expresses Concern Over Proposed Threshhold For U.S Systemic Resolution Fund
Blogger - “The Alternative Investment Management Association, as the global hedge fund industry association, supports the efforts of policymakers in the U.S. to tackle systemic risk. We support the reporting of systemically relevant information by larger hedge fund managers to the national authorities in the interests of financial stability.”
“However we do wish to express our concern over a measure contained in the proposed Financial Stability Improvement Act of 2009, which was just approved by the House Committee on Financial Services, whereby the hedge fund industry would be subject to more onerous requirements than other financial institutions.” Under this proposal, the asset threshold for firms required to contribute to the Systemic Resolution Fund – a pool of capital that would be used to rescue firms deemed too big to fail – would be set at $10 billion for hedge funds yet $50 billion for all other financial institutions.
The result of this would be to impose disproportionately high costs on hedge fund managers who do not themselves pose systemic risk. “We hope this proposed measure is reconsidered before it becomes law and look forward to working with policymakers on a proportionate and workable outcome.”
“However we do wish to express our concern over a measure contained in the proposed Financial Stability Improvement Act of 2009, which was just approved by the House Committee on Financial Services, whereby the hedge fund industry would be subject to more onerous requirements than other financial institutions.” Under this proposal, the asset threshold for firms required to contribute to the Systemic Resolution Fund – a pool of capital that would be used to rescue firms deemed too big to fail – would be set at $10 billion for hedge funds yet $50 billion for all other financial institutions.
The result of this would be to impose disproportionately high costs on hedge fund managers who do not themselves pose systemic risk. “We hope this proposed measure is reconsidered before it becomes law and look forward to working with policymakers on a proportionate and workable outcome.”
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