Since January 2005, a total of 2,622 new hedge funds have been launched, according to a report by Hedge Fund Research Inc., released on wednesday. But figures also show that 1,071 hedge funds have shut in the past two years, as competition has squeezed profits.
Even some veteran managers, in a bid to boost returns, have made concentrated bets that have backfired, two funds set up by Hans van Hoof, the former Europe chief of Soros Fund Management and another fund run by Thierry Serero, a former manager at Fidelity Investments’ Fidelity Europe mutual fund. All this has set up the $1.23 trillion industry for its first meaningful consolidation, Wall Street executives say.
In just the past few weeks, Amaranth Advisors LLC lost $6 billion, and Narragansett Management LP in New York said it will return $800 million to investors, two European based hedge funds recently have told investors they are shutting down one or all of their funds, also the Vega Select Opportunities fund, which manages about $1.4 billion, lost about 11.5% of its value in September.
The fund closures, which stem from a variety of reasons, underscore a numbing fact about the hedge fund business: Even though new hedge funds seem to be popping up every day, almost half as many funds have been closing their doors since 2005.
About 300 hedge funds manage more than $1 billion each and represent roughly 90 percent of the assets in the industry today. “In the older days, raising $100 million was great,” says Richard Portogallo, head of U.S. stocks at Morgan Stanley. “Now it is not going to be good enough.”
HFR said a record $42.1 billion was added in the second quarter after $24 billion flowed in during the first quarter.
Hedge Fund Research Inc. is a firm specializing in the aggregation, dissemination and analysis of alternative investment information. The company produces HFR Database, the industry’s most widely used commercial database of hedge fund performance, as well as other research products for the alternative investment industry.
5 Oct 2006
Hedge Funds and Australia
UBS hosted a Melbourne conference last week, attended by hedge funds FrontPoint Partners, Highbridge, Och-Ziff Capital Management, Pequot Capital and York Capital.
Finance Minister Nick Minchin said at the conference. “We have a very strong financial services industry,....and hedge funds add an extra dimension to that industry…..The critical thing with all investments is that people understand the risks….In terms of the investment marketplace, hedge funds have a critical role to play.”
In a report published in The Australian, Robert Clow writes, “Given the immense amounts of money that hedge funds have been able to raise and invest in the US and Europe, it is not surprising that they have mostly concentrated on those markets until now. But hedge funds now have so much money to put to work and the developed markets are so well-mined that they have turned increasingly to the Asia Pacific region.”
Hedge funds Fortress Investments and Tudor Investments already have Australian operations running. But more often the foreign firms parachute in, taking positions remotely from their external offices. One attraction in the market for merger is 45% of Australian takeover deals attract increased bids, according to the presentation at the UBS conference, compared with 5 to 10% of US deals.
The Australian industry manages $35 billion in hedge fund investment, according to a study compiled earlier this year by Axiss Australia. Another study completed in April by the University of NSW forecast that Australian investors would increase their hedge fund investment by 41% over the next 2 to 5 years.
Finance Minister Nick Minchin said at the conference. “We have a very strong financial services industry,....and hedge funds add an extra dimension to that industry…..The critical thing with all investments is that people understand the risks….In terms of the investment marketplace, hedge funds have a critical role to play.”
In a report published in The Australian, Robert Clow writes, “Given the immense amounts of money that hedge funds have been able to raise and invest in the US and Europe, it is not surprising that they have mostly concentrated on those markets until now. But hedge funds now have so much money to put to work and the developed markets are so well-mined that they have turned increasingly to the Asia Pacific region.”
Hedge funds Fortress Investments and Tudor Investments already have Australian operations running. But more often the foreign firms parachute in, taking positions remotely from their external offices. One attraction in the market for merger is 45% of Australian takeover deals attract increased bids, according to the presentation at the UBS conference, compared with 5 to 10% of US deals.
The Australian industry manages $35 billion in hedge fund investment, according to a study compiled earlier this year by Axiss Australia. Another study completed in April by the University of NSW forecast that Australian investors would increase their hedge fund investment by 41% over the next 2 to 5 years.
4 Oct 2006
Morgan Stanley offers Hedge Fund Options as Incentive to Employees
Morgan Stanley, the largest securities firm in the world market, has offered its staff millions of dollars in incentives to keep and retain new employees, as Lehman Brothers and Goldman Sachs present tough competition and pay 10 to 20% more
Under the new incentive structure, employees who earn at least $500,000 will be able to invest part of their annual bonus in Morgan Stanley funds of hedge funds and private equity funds.
Morgan Stanley will also lend qualified employees $2 for every $1 invested in the funds. The loans are forgivable if the investments decline to the point where employees would have no equity remaining after paying the money back.
Employees can begin taking part in the scheme starting with bonuses to be paid later this year. Anyone who leaves before three years forfeits the investments and any gains.
Morgan Stanley will offer low-interest loans so employees can triple the size of their investments in hedge funds and buyout funds. The new pay scheme comes after executives Vikam Pandit, John Havens and Guru Ramakrishnan left to launch their own hedge fund and merger bankers Joseph Perella and Terry Meguid departed to start a boutique bank.
Under the new incentive structure, employees who earn at least $500,000 will be able to invest part of their annual bonus in Morgan Stanley funds of hedge funds and private equity funds.
Morgan Stanley will also lend qualified employees $2 for every $1 invested in the funds. The loans are forgivable if the investments decline to the point where employees would have no equity remaining after paying the money back.
Employees can begin taking part in the scheme starting with bonuses to be paid later this year. Anyone who leaves before three years forfeits the investments and any gains.
Morgan Stanley will offer low-interest loans so employees can triple the size of their investments in hedge funds and buyout funds. The new pay scheme comes after executives Vikam Pandit, John Havens and Guru Ramakrishnan left to launch their own hedge fund and merger bankers Joseph Perella and Terry Meguid departed to start a boutique bank.
3 Oct 2006
Hedge Funds Care Gala
Hedge Funds Care Cayman will be hosting its second annual black tie dinner, Open Your Heart to the Children Benefit, at the Ritz Carlton on 16 November.
Hedge Funds Care (HFC), established in 1998, is a group of hedge fund money managers, investors, prime brokers, attorneys, accountants, and information providers. Funds are raised through annual Open Your Heart to the Children Benefits in New York, San Francisco, Chicago, Atlanta, Boston, Denver, Toronto, London and the Cayman Islands. To date they have raised almost $18 million dollars and awarded more than 250 grants to organisations and professionals committed to protecting children from abuse and neglect.
Guests will be entertained with a colourful performance by modern circus artists Cirque Le Masque, involving acrobatic dancing and special effects. Last November, the inaugural benefit dinner raised a net total of $143,000 for the Cayman charity.
Other upcoming events are being held in New York on October 4th in Tenjune; Chicago, October 5th, at the Carnivale; London on October 12th, at the Cafe de Paris; and in Atlanta, October 20th at the Georgia Aquarium. For more information see; http://www.hedgefundscare.org/events/
Hedge Funds Care provide training for community members such as teachers, social workers, hospital/medical staff, lawyers, judges, and religious leaders on recognition of abuse and reporting of abuse, as well as prevention services to at-risk children and families, treatment for children who have been abused, training to enhance awareness and understanding of abuse and neglect for children, parents and community members, research on best practices in child welfare and legal advocacy to children in crisis among other things.
These funds are put to work locally through the following institutions: Children and Youth Services Foundation, National Council of Voluntary Organisations, Cayman Islands Crisis Centre, the Department of Children and Family Services and the National Gallery.
Glen Wigney, Chairman of HFCC, commented: “It is incredible to see not only these worthy projects in action with the money raised from Hedge Funds Care, but to see the organisations who had previously worked remotely, now working together. It is encouraging to see this development and, it has sparked our desire to raise even more money this year for future programmes.”
Hedge Funds Care (HFC), established in 1998, is a group of hedge fund money managers, investors, prime brokers, attorneys, accountants, and information providers. Funds are raised through annual Open Your Heart to the Children Benefits in New York, San Francisco, Chicago, Atlanta, Boston, Denver, Toronto, London and the Cayman Islands. To date they have raised almost $18 million dollars and awarded more than 250 grants to organisations and professionals committed to protecting children from abuse and neglect.
Guests will be entertained with a colourful performance by modern circus artists Cirque Le Masque, involving acrobatic dancing and special effects. Last November, the inaugural benefit dinner raised a net total of $143,000 for the Cayman charity.
Other upcoming events are being held in New York on October 4th in Tenjune; Chicago, October 5th, at the Carnivale; London on October 12th, at the Cafe de Paris; and in Atlanta, October 20th at the Georgia Aquarium. For more information see; http://www.hedgefundscare.org/events/
Hedge Funds Care provide training for community members such as teachers, social workers, hospital/medical staff, lawyers, judges, and religious leaders on recognition of abuse and reporting of abuse, as well as prevention services to at-risk children and families, treatment for children who have been abused, training to enhance awareness and understanding of abuse and neglect for children, parents and community members, research on best practices in child welfare and legal advocacy to children in crisis among other things.
These funds are put to work locally through the following institutions: Children and Youth Services Foundation, National Council of Voluntary Organisations, Cayman Islands Crisis Centre, the Department of Children and Family Services and the National Gallery.
Glen Wigney, Chairman of HFCC, commented: “It is incredible to see not only these worthy projects in action with the money raised from Hedge Funds Care, but to see the organisations who had previously worked remotely, now working together. It is encouraging to see this development and, it has sparked our desire to raise even more money this year for future programmes.”
House Debates Hedge Fund Regulation
According to the SEC, hedge funds represent 5% of all US assets under management, and about 30% of all US equity trading volume. So concern over hedge fund oversight and regulation is on the agenda of the US House of Representatives. Lawmakers debated a bill on the the floor last Thursday, requiring a White House body to come up with recommendations on hedge fund disclosure requirements.
Hedge fund regulation has remained a priority since a US court in July overturned a SEC rule requiring hedge fund managers to register with the regulator. The bill would require the President’s Working Group to study the growth of pension funds investing in hedge funds and “whether hedge fund investors are able to protect themselves adequately from risk associated with their investments”.
The current light regulation enables the funds to raise and deploy capital very quickly and to use very sophisticated financial strategies. Today there are more than 8,000 such funds with more than $1 trillion of capital under management.
The bill debated by the Presidents Working Group, was seen likely to pass in a “voice vote” on the House floor, was tabled by congressman Mike Castle, a Delaware Republican. The President’s Working Group is made up of the heads of the Treasury, the SEC and the Commodity Futures Trading Commission, the US futures industry regulator and other agencies.
Timothy Geithner, president of the New York Fed, said supervision of core banks and investment banks had encouraged the transfer of risk to unregulated institutions such as hedge funds.
However, hedge funds are not as “unregulated,” as they seem. The anti-fraud provisions of the 1933 and 1934 acts apply to the activities of the funds and state laws against investor fraud apply as well. Banking laws also restrict the activities of hedge fund lenders.
The SEC has also set new registration requirements to take effect in February of 2006, in effect narrowing the traditional exemption under the Investment Advisors Act of 1940, they will require funds to register their name and location, the professional history of the funds’ managers, and a brief statement of the funds’ investment strategy. The SEC will have the option of auditing the accounts of selected funds.
Hedge fund regulation has remained a priority since a US court in July overturned a SEC rule requiring hedge fund managers to register with the regulator. The bill would require the President’s Working Group to study the growth of pension funds investing in hedge funds and “whether hedge fund investors are able to protect themselves adequately from risk associated with their investments”.
The current light regulation enables the funds to raise and deploy capital very quickly and to use very sophisticated financial strategies. Today there are more than 8,000 such funds with more than $1 trillion of capital under management.
The bill debated by the Presidents Working Group, was seen likely to pass in a “voice vote” on the House floor, was tabled by congressman Mike Castle, a Delaware Republican. The President’s Working Group is made up of the heads of the Treasury, the SEC and the Commodity Futures Trading Commission, the US futures industry regulator and other agencies.
Timothy Geithner, president of the New York Fed, said supervision of core banks and investment banks had encouraged the transfer of risk to unregulated institutions such as hedge funds.
However, hedge funds are not as “unregulated,” as they seem. The anti-fraud provisions of the 1933 and 1934 acts apply to the activities of the funds and state laws against investor fraud apply as well. Banking laws also restrict the activities of hedge fund lenders.
The SEC has also set new registration requirements to take effect in February of 2006, in effect narrowing the traditional exemption under the Investment Advisors Act of 1940, they will require funds to register their name and location, the professional history of the funds’ managers, and a brief statement of the funds’ investment strategy. The SEC will have the option of auditing the accounts of selected funds.
2 Oct 2006
Hedge Fund Amaranth forwarned by NYMEX
Hedge fund Amaranth Advisers made a disastrous bet on natural gas prices that produced losses of $4 to $6 billion, once among the nation’s largest and hottest hedge funds, the hedge fund scrambled in an effort last week “aggressively reducing” their natural gas positions, the hedge fund said in a letter to investors.
Amarath did have due warning though; according to sources, the New York Mercantile Exchange warned the hedge fund a month before its extreme losses that its natural gas bets were too big.
U.S. lawmakers say Amaranth’s loss is the biggest ever by a hedge fund and is a good example a problem they are facing. Lawmakers complained that speculators were raising energy prices and avoiding oversight with trades that were not conducted on exchanges.
Amaranth, based in Greenwich, Connecticut, with $7.5bn under management, has warned investors that its main funds are down 35% or more this year. Nicholas Maounis, Amaranth’s founder, said in a letter to investors,
“We are in discussions with our prime brokers and are working to protect our investors while meeting the obligations of our creditors,”
Traders said Amaranth could cause some volatility by moving quickly to liquidate holdings to meet margin calls and possible investor redemptions. Amaranth, which employs more than 115 traders, analysts and fund managers, describes itself as a multi strategy hedge fund which invests in a “highly disciplined, risk controlled manner.”
Amarath did have due warning though; according to sources, the New York Mercantile Exchange warned the hedge fund a month before its extreme losses that its natural gas bets were too big.
U.S. lawmakers say Amaranth’s loss is the biggest ever by a hedge fund and is a good example a problem they are facing. Lawmakers complained that speculators were raising energy prices and avoiding oversight with trades that were not conducted on exchanges.
Amaranth, based in Greenwich, Connecticut, with $7.5bn under management, has warned investors that its main funds are down 35% or more this year. Nicholas Maounis, Amaranth’s founder, said in a letter to investors,
“We are in discussions with our prime brokers and are working to protect our investors while meeting the obligations of our creditors,”
Traders said Amaranth could cause some volatility by moving quickly to liquidate holdings to meet margin calls and possible investor redemptions. Amaranth, which employs more than 115 traders, analysts and fund managers, describes itself as a multi strategy hedge fund which invests in a “highly disciplined, risk controlled manner.”
Sears and Controversial Hedge Fund Managers
Sears and Controversial Hedge Fund Managers
Sears Holdings Corp, headed by hedge fund billionaire Edward Lampert, is trying to offer a controversial $908-million privatization bid for its subsidiary Sears Canada Inc.
Sears is planning “seek leave to appeal” the Ontario court decision that blocked the offer. Sears Holdings Corp. has also extended until Oct. 31 its $802 million offer to buy the 46 percent of Sears Canada Inc. it doesn’t already own, leaving the door open to more extensions.
Last month the Ontario Securities Commission found the Chicago based retailer violated provincial securities law by failing to disclose support agreements with the Bank of Nova Scotia and the Royal Bank of Canada.
Edward Lampert, is set to become chairman of the combined companies, Kmart and Sears. As Kmart’s chairman, he owns nearly 53 percent of its stock through his ESL Investments hedge fund. He is also the largest shareholder in Sears. ESL holds a 15 percent stake in the retailer.
Besides stakes in Kmart and Sears, Lampert’s fund also owns large positions in car dealer AutoNation and auto parts retailer AutoZone. He has built a reputation as a one of Wall Street’s most successful and renowned hedge fund managers.
Early last year he was kidnapped at gunpoint from a parking garage at ESL’s Greenwich, Conn., offices. Four captors held him for ransom, keeping him bound and blindfolded for some 30 hours before he negotiated his own release.
Sears Holdings Corp, headed by hedge fund billionaire Edward Lampert, is trying to offer a controversial $908-million privatization bid for its subsidiary Sears Canada Inc.
Sears is planning “seek leave to appeal” the Ontario court decision that blocked the offer. Sears Holdings Corp. has also extended until Oct. 31 its $802 million offer to buy the 46 percent of Sears Canada Inc. it doesn’t already own, leaving the door open to more extensions.
Last month the Ontario Securities Commission found the Chicago based retailer violated provincial securities law by failing to disclose support agreements with the Bank of Nova Scotia and the Royal Bank of Canada.
Edward Lampert, is set to become chairman of the combined companies, Kmart and Sears. As Kmart’s chairman, he owns nearly 53 percent of its stock through his ESL Investments hedge fund. He is also the largest shareholder in Sears. ESL holds a 15 percent stake in the retailer.
Besides stakes in Kmart and Sears, Lampert’s fund also owns large positions in car dealer AutoNation and auto parts retailer AutoZone. He has built a reputation as a one of Wall Street’s most successful and renowned hedge fund managers.
Early last year he was kidnapped at gunpoint from a parking garage at ESL’s Greenwich, Conn., offices. Four captors held him for ransom, keeping him bound and blindfolded for some 30 hours before he negotiated his own release.
China's Banking Chairman warns of Hedge Fund risks.
At the end of April 2006, there were altogether over 28,000 banking institutions in Mainland China. The total assets of the banking industry registered nearly RMB40 trillion, accounting for more than 90 per cent of the total financial assets in the Mainland.
In 2005, 72 foreign banks from 21 countries have established 254 operational entities in the Mainland. Their total assets amounted to $88 billion. In addition, hedge funds and non banking financial institutions, including finance companies affiliated to enterprise groups, trust & investment companies and financial leasing companies are now organizing business re-engineering by actively drawing experiences from their counterparts in Hong Kong.
In short, the Mainland banking industry as a whole has been moving forward on the right track.
But China’s banking regulatory head said steps are being taken to regulate the increasingly powerful $1.2 trillion hedge fund industry,
“Regulators in all countries should strengthen the monitoring of hedge funds and be on alert against any counterparty and liquidity risks they introduce,” Liu Mingkang, head of China Banking Regulatory Commission, said in a statement.
The notice followed meetings that Liu held with his counterparts from Singapore, Italy, Germany, Thailand and Hong Kong from September 16 to 26. Liu suggested that regulators should exchange information about hedge funds promptly to make sure their trading does not cause regional or global economic instability.
Liu noted the increasing activity of hedge funds in Asian countries including China, India, Singapore, Hong Kong and Thailand.
His suggestion comes days after U.S. hedge fund Amaranth Advisors disclosed the biggest hedge fund loss ever, about $6 billion, on wrong-way natural gas market trades.
In 2005, 72 foreign banks from 21 countries have established 254 operational entities in the Mainland. Their total assets amounted to $88 billion. In addition, hedge funds and non banking financial institutions, including finance companies affiliated to enterprise groups, trust & investment companies and financial leasing companies are now organizing business re-engineering by actively drawing experiences from their counterparts in Hong Kong.
In short, the Mainland banking industry as a whole has been moving forward on the right track.
But China’s banking regulatory head said steps are being taken to regulate the increasingly powerful $1.2 trillion hedge fund industry,
“Regulators in all countries should strengthen the monitoring of hedge funds and be on alert against any counterparty and liquidity risks they introduce,” Liu Mingkang, head of China Banking Regulatory Commission, said in a statement.
The notice followed meetings that Liu held with his counterparts from Singapore, Italy, Germany, Thailand and Hong Kong from September 16 to 26. Liu suggested that regulators should exchange information about hedge funds promptly to make sure their trading does not cause regional or global economic instability.
Liu noted the increasing activity of hedge funds in Asian countries including China, India, Singapore, Hong Kong and Thailand.
His suggestion comes days after U.S. hedge fund Amaranth Advisors disclosed the biggest hedge fund loss ever, about $6 billion, on wrong-way natural gas market trades.
SEC worried about Hedge Funds
In an article by Marketwatch it was reported that Securities and Exchange Commission enforcement director Linda Thomsen, told a Senate panel that insider trading by hedge funds is “an area of significant concern” to the SEC and to lawmakers.
In the prepared testimony to the Senate Judiciary Committee, Thomsen told the panel the SEC has brought five insider-trading cases this fiscal year involving hedge funds, out of 44 total insider trading cases.
The SEC is developing new ways to monitor hedge funds following a court’s voiding of its authority to register hedge fund advisers.
The enforcement director recently said the agency is going to focus on how hedge funds and broker-dealers interact, and that broker-dealers should report insider trading by the funds.
Federal securities regulators are planning to meet with organizations like the NASD and the New York Stock Exchange to discuss ways to possibly beef up their joint fight against insider-trading, the Securities and Exchange Commission official said.
In the prepared testimony to the Senate Judiciary Committee, Thomsen told the panel the SEC has brought five insider-trading cases this fiscal year involving hedge funds, out of 44 total insider trading cases.
The SEC is developing new ways to monitor hedge funds following a court’s voiding of its authority to register hedge fund advisers.
The enforcement director recently said the agency is going to focus on how hedge funds and broker-dealers interact, and that broker-dealers should report insider trading by the funds.
Federal securities regulators are planning to meet with organizations like the NASD and the New York Stock Exchange to discuss ways to possibly beef up their joint fight against insider-trading, the Securities and Exchange Commission official said.
Ex-Hedge Fund manager pleads Not Guilty
The Securities and Exchange Commission filed a complaint against Hilary L. Shane in the United States District Court for New York this May, alleging that Shane committed insider trading and registration violations by short selling 122,900 shares of Compudyne in October 2001, prior to the public announcement, but the ex-hedge fund manager has plead not guilty to the charges of insider trading.
Shane, 39, former hedge fund manager at First New York Securities, appeared in U.S. District Court in Manhattan and was released on her own recognizance. She has been charged with five counts of securities fraud and each count holds a maximum sentence of 20 years.
According to the press release, it is stated that usually in a PIPE offering, investors commit to purchase a certain number of restricted shares from a company at a specified price and the company agrees, in turn, to file a resale registration statement so that the investors can resell the shares to the public.
But the Commission’s complaint alleges that on Oct. 8, 2001, the hedge fund manager agreed to purchase shares in the PIPE offering for her personal account and for one of the hedge fund accounts she managed. Shane agreed both orally and in writing to keep the information confidential. The following morning, before the public announcement, Shane began short selling CompuDyne securities in both her personal account and the hedge fund’s account. Shane continued short selling CompuDyne shares, selling the same number of shares, covering all the short sales with the shares obtained in the offering making substantial profits for both accounts.
The total illegal profit from the exchange was $315,000 and the hearing on the criminal charges before Judge Naomi Reice Buchwald is scheduled for Oct. 10. She has also been permanently barred from associating with any NASD registered firm and will pay more than $1.45 million to settle NASD and Securities and Exchange Commission (SEC)
Shane, 39, former hedge fund manager at First New York Securities, appeared in U.S. District Court in Manhattan and was released on her own recognizance. She has been charged with five counts of securities fraud and each count holds a maximum sentence of 20 years.
According to the press release, it is stated that usually in a PIPE offering, investors commit to purchase a certain number of restricted shares from a company at a specified price and the company agrees, in turn, to file a resale registration statement so that the investors can resell the shares to the public.
But the Commission’s complaint alleges that on Oct. 8, 2001, the hedge fund manager agreed to purchase shares in the PIPE offering for her personal account and for one of the hedge fund accounts she managed. Shane agreed both orally and in writing to keep the information confidential. The following morning, before the public announcement, Shane began short selling CompuDyne securities in both her personal account and the hedge fund’s account. Shane continued short selling CompuDyne shares, selling the same number of shares, covering all the short sales with the shares obtained in the offering making substantial profits for both accounts.
The total illegal profit from the exchange was $315,000 and the hearing on the criminal charges before Judge Naomi Reice Buchwald is scheduled for Oct. 10. She has also been permanently barred from associating with any NASD registered firm and will pay more than $1.45 million to settle NASD and Securities and Exchange Commission (SEC)
28 Sept 2006
Hedge Funds and Wine
Robert Lyster, co-founder of hedge fund Lyster Watson Management Inc. has found a new investment for his hedge fund millions, the land rich, cash poor, winemaking lifestyle.
Wall Street wine mavens interested in purchasing a Burgundy vineyard or expanding their investments, have the opportunity to invest in the some 105 million bottles of chardonnay white wines and 75 million bottles of pinot noir reds produced annually. There are about 4,000 “domaines” and 59 types of soil beneath the Cote d’Or’s 50-kilometer (31-mile) stretch.
The draw for wannabe wine landowners is investing in the legacy of 2,000 years of Cote d’Or winemaking that goes back to Roman times, but the lure of being part of that legacy can can be a fatal attraction, according to a Bloomberg report.
“Owning a domaine is a venture capitalist’s dream, high in risk and if the weather is good and you’re really lucky, you might make a 4 percent return. But owning a domaine is the greatest lifestyle imaginable.” Says Wasserman, a vinyard owner in his own right.
It takes three years after the first harvest for the wine to be ready for market,” says Wasserman, who has been a Burgundy wine trader for 40 of his 62 years. “You’re not making a cent for three years, and then your buyers must wait a minimum of three to four years after that before they can drink it. Perfection wouldn’t appear until the wine is six to eight years old…..The land will cost you $6 million, and that will produce 90 casks of approximately 25,000 bottles of wine.”
Wasserman says it would cost an additional $4 million to revamp the domaine and keep it running for three years with workers, equipment and a new winemaker.
Wholesale, the wine would fetch between 15 euros and 30 euros a bottle, the price more dependent on media hype than quality. On the shelf, the wine would probably retail for $50 to $55 a bottle.
“Your first sale on a $10 million investment at best would net less than $500,000 after three years,....And you’re not going to sell all 25,000 bottles.”
As founding partner of his hedge fund Robert C. Lyster conducts in depth research on the strategies and results of more than 2,400 hedge funds representing all investment styles, hedge funds are not only more complex, but because they are also influenced by market factors in different ways than traditional investments, hedge fund analysis calls for specialization and focus. Lyster Watson has focused exclusively on hedge funds for the last 13 years.
Wall Street wine mavens interested in purchasing a Burgundy vineyard or expanding their investments, have the opportunity to invest in the some 105 million bottles of chardonnay white wines and 75 million bottles of pinot noir reds produced annually. There are about 4,000 “domaines” and 59 types of soil beneath the Cote d’Or’s 50-kilometer (31-mile) stretch.
The draw for wannabe wine landowners is investing in the legacy of 2,000 years of Cote d’Or winemaking that goes back to Roman times, but the lure of being part of that legacy can can be a fatal attraction, according to a Bloomberg report.
“Owning a domaine is a venture capitalist’s dream, high in risk and if the weather is good and you’re really lucky, you might make a 4 percent return. But owning a domaine is the greatest lifestyle imaginable.” Says Wasserman, a vinyard owner in his own right.
It takes three years after the first harvest for the wine to be ready for market,” says Wasserman, who has been a Burgundy wine trader for 40 of his 62 years. “You’re not making a cent for three years, and then your buyers must wait a minimum of three to four years after that before they can drink it. Perfection wouldn’t appear until the wine is six to eight years old…..The land will cost you $6 million, and that will produce 90 casks of approximately 25,000 bottles of wine.”
Wasserman says it would cost an additional $4 million to revamp the domaine and keep it running for three years with workers, equipment and a new winemaker.
Wholesale, the wine would fetch between 15 euros and 30 euros a bottle, the price more dependent on media hype than quality. On the shelf, the wine would probably retail for $50 to $55 a bottle.
“Your first sale on a $10 million investment at best would net less than $500,000 after three years,....And you’re not going to sell all 25,000 bottles.”
As founding partner of his hedge fund Robert C. Lyster conducts in depth research on the strategies and results of more than 2,400 hedge funds representing all investment styles, hedge funds are not only more complex, but because they are also influenced by market factors in different ways than traditional investments, hedge fund analysis calls for specialization and focus. Lyster Watson has focused exclusively on hedge funds for the last 13 years.
26 Sept 2006
Hedge Funds Cash out on Good weather
So far this year hurricanes are few and far between, but the intensity of last years storms caused hedge funds to bet billions of dollars on reinsurance.
The hedge funds that put these billion dollar bets on another Hurricane Katrina not hitting the U.S. coastline now have high expectations due to the forecasters prediction of a a mild hurricane season. There could be massive returns on their investment in CAT bonds.
A big storm can disrupt energy supplies, causing a major fluctuation in the price of gasoline that sends shock waves through the economy. If a big enough storm hits, the investors could lose everything.
Hedge funds “will have made a bomb”, according to one reinsurance broker. But it is difficult to calculate precisely the returns that hedge funds will make from reinsurance, given that most catastrophe bonds will have been bought and sold in private transactions.
Hedge funds piled into the reinsurance market after last year’s record hurricane season, which inflicted huge losses on the global insurance and reinsurance industries. Sales of catastrophe bonds may triple to $4 billion this year. Hurricane Katrina produced record claims of more than $90 billion last year. Cat bonds emerged after Hurricane Andrew devastated the Florida coast in 1992, triggering record losses of $20 billion.
Hedge funds bought the highest risk bonds, those securities carry the highest reward because they cover multiple perils: North Atlantic hurricanes, European windstorms, terrorist related threats, and earthquakes in California and Japan.
The hedge funds that put these billion dollar bets on another Hurricane Katrina not hitting the U.S. coastline now have high expectations due to the forecasters prediction of a a mild hurricane season. There could be massive returns on their investment in CAT bonds.
A big storm can disrupt energy supplies, causing a major fluctuation in the price of gasoline that sends shock waves through the economy. If a big enough storm hits, the investors could lose everything.
Hedge funds “will have made a bomb”, according to one reinsurance broker. But it is difficult to calculate precisely the returns that hedge funds will make from reinsurance, given that most catastrophe bonds will have been bought and sold in private transactions.
Hedge funds piled into the reinsurance market after last year’s record hurricane season, which inflicted huge losses on the global insurance and reinsurance industries. Sales of catastrophe bonds may triple to $4 billion this year. Hurricane Katrina produced record claims of more than $90 billion last year. Cat bonds emerged after Hurricane Andrew devastated the Florida coast in 1992, triggering record losses of $20 billion.
Hedge funds bought the highest risk bonds, those securities carry the highest reward because they cover multiple perils: North Atlantic hurricanes, European windstorms, terrorist related threats, and earthquakes in California and Japan.
25 Sept 2006
Oil Slump and Hedge funds
Traders said today that the precious metals market is under pressure because of a sharp drop in oil in the recent past. Prices fell more than 3% this week, taking it almost $17 below a record-high of $78.40 in July. Oil prices then spiked on Sept 20, bringing US light crude up 10 cents at $61.76.
Some traders speculate that the volatile surges may be linked to billion dollar losses at prominent hedge funds. “As the market seems to fear that further hedge funds could liquidate long positions, we expect energy prices to test even lower levels during the next days,” Dresdner Kleinwort said in a daily market report. Dresdner Kleinwort is the investment bank of Dresdner Bank AG and a member of Allianz, headquartered in London and Frankfurt
US crude stocks were forecast to fall 1.6 million barrels, which would still leave them in the upper end of the average range for this time of the year, a Reuters poll showed. Gasoline stocks were expected to rise by 100,000 barrels.
Private US weather forecaster AccuWeather said on Sept 19 it expected colder than normal temperatures in the US Northeast, home to 80% of US heating oil demand, and in the Midwest, where gas is the home heating fuel of choice.
Some Opec ministers have signalled a price of $50-$60 a barrel should be sustained, but the cartel has avoided setting a formal target. The Opec basket stood at $58.67 on Sept 18.
Some traders speculate that the volatile surges may be linked to billion dollar losses at prominent hedge funds. “As the market seems to fear that further hedge funds could liquidate long positions, we expect energy prices to test even lower levels during the next days,” Dresdner Kleinwort said in a daily market report. Dresdner Kleinwort is the investment bank of Dresdner Bank AG and a member of Allianz, headquartered in London and Frankfurt
US crude stocks were forecast to fall 1.6 million barrels, which would still leave them in the upper end of the average range for this time of the year, a Reuters poll showed. Gasoline stocks were expected to rise by 100,000 barrels.
Private US weather forecaster AccuWeather said on Sept 19 it expected colder than normal temperatures in the US Northeast, home to 80% of US heating oil demand, and in the Midwest, where gas is the home heating fuel of choice.
Some Opec ministers have signalled a price of $50-$60 a barrel should be sustained, but the cartel has avoided setting a formal target. The Opec basket stood at $58.67 on Sept 18.
Harvard Hedge Fund hits 29 billion
The Harvard University investment arm, Harvard Management Co., manages the largest education based endowment in the world. Harvard has a long record of success in beating the market, but this years $29.2 billion rate of returns falls slightly from last years high. Big gains in commodities and foreign stocks were among the endowment’s investment highlights.
Harvard’s hedge fund endowment grew $3.3 billion during the fiscal year ending June 30, reaching an all time high of $29.2 billion, returning 16.7% on its investments.
Harvard Management said its most recent annual performance was particularly strong in emerging markets, included gains of 37.8% in emerging market stocks, which includes industrializing economies such as India, China, Russia, and Brazil.
The report also showed gains of 26.7% in commodities, 26.5% in more developed foreign stock markets, and 22.7% in real estate. It earned 22.7 percent in private equity investments and 15 percent in hedge funds categorized as “absolute return and special situations.”
El Erian, the new head at the Harvard hedge fund, since Jack R. Meyer left in September, said that investors are copying Harvard’s endowment strategies. “The minute something becomes attractive in terms of showing that it results in consistent returns, a lot of people want to do it,” he said.
Harvard’s hedge fund endowment grew $3.3 billion during the fiscal year ending June 30, reaching an all time high of $29.2 billion, returning 16.7% on its investments.
Harvard Management said its most recent annual performance was particularly strong in emerging markets, included gains of 37.8% in emerging market stocks, which includes industrializing economies such as India, China, Russia, and Brazil.
The report also showed gains of 26.7% in commodities, 26.5% in more developed foreign stock markets, and 22.7% in real estate. It earned 22.7 percent in private equity investments and 15 percent in hedge funds categorized as “absolute return and special situations.”
El Erian, the new head at the Harvard hedge fund, since Jack R. Meyer left in September, said that investors are copying Harvard’s endowment strategies. “The minute something becomes attractive in terms of showing that it results in consistent returns, a lot of people want to do it,” he said.
20 Sept 2006
Congressman calls for Hedge Fund Study
Mike Castle, a congressman from Delaware and president of the republican main street partnership, introduced a bill last week requiring regulators to study and make recommendations about hedge funds, Castle’s office said Monday. The study should focus on disclosure of information, the congressman said.
Mike Castle serves on the House Financial Services Committee, which has jurisdiction over banking with the securities and insurance industries. Among Castle’s other priorities are immigration reform, stem cell research and deficit reduction.
“Transparency in our financial system is important for market discipline and investor confidence,” Castle said. Castle’s bill comes as a hedge fund based in Greenwich, Conneticut, Amaranth Advisors LLC is reportedly shutting down and returning investors’ money following heavy losses on natural gas investments. In June, a U.S. court overturned an SEC rule requiring hedge fund advisers to register with the agency.
Mike Castle serves on the House Financial Services Committee, which has jurisdiction over banking with the securities and insurance industries. Among Castle’s other priorities are immigration reform, stem cell research and deficit reduction.
“Transparency in our financial system is important for market discipline and investor confidence,” Castle said. Castle’s bill comes as a hedge fund based in Greenwich, Conneticut, Amaranth Advisors LLC is reportedly shutting down and returning investors’ money following heavy losses on natural gas investments. In June, a U.S. court overturned an SEC rule requiring hedge fund advisers to register with the agency.
Deutsche Bank to open Japan Hedge Fund
Hedge funds are seeking opportunities in Japan after the recent cut backs in corporate debt has improved the chances of companies increasing dividends and buying back shares.
There are about 220 Japan-focused hedge funds overseeing a total of $35 billion assets, up from 100 funds managing $6 billion of investments in 2002, according to Eurekahedge, a Singapore-based research company.
Ed Rogers, who ran Deutsche Bank AG’s Japan hedge fund brokerage unit until May, is raising $500 million to give U.S. money managers access to some of his former clients in the world’s second-largest economy.
In an ivterview with Bloomberg press, he said, “It’s a great time for this product since Japan is finally emerging from a 14-year economic slump.” Rogers set up Rogers Investment Advisors this year in Tokyo and is advising Wolver Hill Asset Management Ltd., a New York-based company, to raise $500 million within a year, mostly from U.S. investors. Rogers also said Wolver Hill also plans to start an Asia-focused fund of funds that may raise another $500 million by February, he said.
Wolver Hill Japan Multi-strategy Fund will be the first fund of hedge funds located in Japan that’s open to investors in the U.S., Rogers said. The Wolver Hill fund will invest in 10 to 20 local hedge funds.
The fund will put half of its assets into equities, including short positions in which investors sell borrowed stock in the anticipation they can buy it back at a lower price. The rest will be committed to strategies that profit from price differences of related corporate securities, or so-called arbitrage funds.
Hedge funds in Japan have faced more difficult conditions this year. The Eurekahedge Japan Hedge Fund Index, which tracks 123 funds, fell 4.18 percent in the eight months through August, preliminary data show. The Eurekahedge Asian Hedge Fund Index is up 5.35 percent. The Nikkei 225 Stock Average, which gained 41.5 percent in 2005, has slipped 1.5 percent this year.
There are about 220 Japan-focused hedge funds overseeing a total of $35 billion assets, up from 100 funds managing $6 billion of investments in 2002, according to Eurekahedge, a Singapore-based research company.
Ed Rogers, who ran Deutsche Bank AG’s Japan hedge fund brokerage unit until May, is raising $500 million to give U.S. money managers access to some of his former clients in the world’s second-largest economy.
In an ivterview with Bloomberg press, he said, “It’s a great time for this product since Japan is finally emerging from a 14-year economic slump.” Rogers set up Rogers Investment Advisors this year in Tokyo and is advising Wolver Hill Asset Management Ltd., a New York-based company, to raise $500 million within a year, mostly from U.S. investors. Rogers also said Wolver Hill also plans to start an Asia-focused fund of funds that may raise another $500 million by February, he said.
Wolver Hill Japan Multi-strategy Fund will be the first fund of hedge funds located in Japan that’s open to investors in the U.S., Rogers said. The Wolver Hill fund will invest in 10 to 20 local hedge funds.
The fund will put half of its assets into equities, including short positions in which investors sell borrowed stock in the anticipation they can buy it back at a lower price. The rest will be committed to strategies that profit from price differences of related corporate securities, or so-called arbitrage funds.
Hedge funds in Japan have faced more difficult conditions this year. The Eurekahedge Japan Hedge Fund Index, which tracks 123 funds, fell 4.18 percent in the eight months through August, preliminary data show. The Eurekahedge Asian Hedge Fund Index is up 5.35 percent. The Nikkei 225 Stock Average, which gained 41.5 percent in 2005, has slipped 1.5 percent this year.
Hedge Fund suspect in Stock Manipulation Investigation
Hedge fund Aeneas, and it’s founder Thomas Grossman, are under scrutiny in Malaysia as the Securities Commission is probing allegations of stock manipulation.
The $400 million hedge fund firm specializes in long-short emerging markets strategies. The “investigations relating to the manipulation of certain shares are ongoing and individuals acquainted with the facts of the cases have been called in to assist,” a Securities Commission spokeswoman told Dow Jones Newswires.
Hedge fund Aeneas Capital Management L.P. suffered big losses that reportedly followed investments in Malaysian shares such as smart card maker Iris Corp., poultry producer Farm’s Best Bhd., and Internet related systems provider Mobif Bhd. According to Bursa filings from early 2006, Aeneas bought and sold substantial amounts of shares in these companies.
The official, speaking on condition of anonymity, declined to say if the commission is working with the U.S. Securities and Exchange Commission in its probe.
The $400 million hedge fund firm specializes in long-short emerging markets strategies. The “investigations relating to the manipulation of certain shares are ongoing and individuals acquainted with the facts of the cases have been called in to assist,” a Securities Commission spokeswoman told Dow Jones Newswires.
Hedge fund Aeneas Capital Management L.P. suffered big losses that reportedly followed investments in Malaysian shares such as smart card maker Iris Corp., poultry producer Farm’s Best Bhd., and Internet related systems provider Mobif Bhd. According to Bursa filings from early 2006, Aeneas bought and sold substantial amounts of shares in these companies.
The official, speaking on condition of anonymity, declined to say if the commission is working with the U.S. Securities and Exchange Commission in its probe.
19 Sept 2006
Hedge Funds and US Elections
Hedge funds are proving to be a growing power in the political arena, complicating the issues by pouring funding into the Democratic side of the playing field, giving mostly to candidates and causes that interest them personally, rather than targeting key lawmakers with influence over regulating the industry.
Hedge funds priorities seldom align with those of others in a sector already full of conflict. The rise of hedge fund managers as a political force is expanding the financial sector’s Washington presence.
“The hedge funds have tremendous political clout but they also have significant enemies. The mutual funds hate the hedge funds … The corporate community sees them as destabilizing,” said Columbia University Law School Professor John Coffee in an interview with Reuters.
Campaign finance records show 20 of the most successful U.S. hedge fund managers have pumped more than $3.1 million into campaigns so far in 2005-2006, up from about $1.1 million by the same group in the last mid-term election cycle.
Donors such as George Soros, of Soros Fund Management, has given more than $2.3 million, according to PoliticalMoneyLine, a campaign finance research group. D.E. Shaw & Co. has given $78,600 so far and the Gaine group has donated $122,500 in this cycle.
James Chanos, president of hedge fund Kynikos Associates, set up a group called the Coalition of Private Investment Companies to urge hedge fund managers to be more politically active. Hillary Clinton is also a frequent recipient of hedge fund donations.
Hedge fund giving is still not as strategically targeted as donations made by bankers, insurers and other, older financial interests, which are generally more pro-Republican.
Hedge funds priorities seldom align with those of others in a sector already full of conflict. The rise of hedge fund managers as a political force is expanding the financial sector’s Washington presence.
“The hedge funds have tremendous political clout but they also have significant enemies. The mutual funds hate the hedge funds … The corporate community sees them as destabilizing,” said Columbia University Law School Professor John Coffee in an interview with Reuters.
Campaign finance records show 20 of the most successful U.S. hedge fund managers have pumped more than $3.1 million into campaigns so far in 2005-2006, up from about $1.1 million by the same group in the last mid-term election cycle.
Donors such as George Soros, of Soros Fund Management, has given more than $2.3 million, according to PoliticalMoneyLine, a campaign finance research group. D.E. Shaw & Co. has given $78,600 so far and the Gaine group has donated $122,500 in this cycle.
James Chanos, president of hedge fund Kynikos Associates, set up a group called the Coalition of Private Investment Companies to urge hedge fund managers to be more politically active. Hillary Clinton is also a frequent recipient of hedge fund donations.
Hedge fund giving is still not as strategically targeted as donations made by bankers, insurers and other, older financial interests, which are generally more pro-Republican.
Hedge Fund's double Bond Trading
In a report late last week by Greenwich Associates, 45% of annual trading in emerging market bonds, 47% of distressed debt and 55% of credit derivatives in the 12 months were reported to be hedge fund trading of bonds and derivatives in the US, more than doubling the tolal in the past year, giving the hedge funds so much influence that some markets can’t operate efficiently without them.
The report’s surveyed 1,281 investors, including 174 hedge funds. The investors surveyed accounted for $19.6 trillion in annual trading, according to the report.
Karan Sampson, a Greenwich consultant who cowrote the report said, “Because of the huge portion of the market that they represent, in some respects they (hedge funds) are becoming the market maker…..the broker is going to have to come up with faster and better products to retain the activity of the hedge fund,” Sampson said.
Hedge funds represented 15% of all trading in bonds and derivatives in the 12-month period, attracting $42.1 billion in investment in the second quarter, the most since 2003, and have returned 7% to investors this year through August, according to the Chicago based Hedge Fund Research.
Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates. Of course, speculators may trade with other speculators as well as with hedgers. In most financial derivatives markets, the value of speculative trading is far higher than the value of true hedge trading. As well as outright speculation, derivatives traders may also look for arbitrage opportunities between different derivatives on identical or closely related underlying securities.
Other uses of derivatives are to gain an economic exposure to an underlying security in situations where direct ownership of the underlying is too costly or is prohibited by legal or regulatory restrictions, or to create a synthetic short position.
The increasing influence of hedge funds is causing investors to worry that they are increasing risk, or creating more uncertainty, in financial markets, the report said.
The report’s surveyed 1,281 investors, including 174 hedge funds. The investors surveyed accounted for $19.6 trillion in annual trading, according to the report.
Karan Sampson, a Greenwich consultant who cowrote the report said, “Because of the huge portion of the market that they represent, in some respects they (hedge funds) are becoming the market maker…..the broker is going to have to come up with faster and better products to retain the activity of the hedge fund,” Sampson said.
Hedge funds represented 15% of all trading in bonds and derivatives in the 12-month period, attracting $42.1 billion in investment in the second quarter, the most since 2003, and have returned 7% to investors this year through August, according to the Chicago based Hedge Fund Research.
Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates. Of course, speculators may trade with other speculators as well as with hedgers. In most financial derivatives markets, the value of speculative trading is far higher than the value of true hedge trading. As well as outright speculation, derivatives traders may also look for arbitrage opportunities between different derivatives on identical or closely related underlying securities.
Other uses of derivatives are to gain an economic exposure to an underlying security in situations where direct ownership of the underlying is too costly or is prohibited by legal or regulatory restrictions, or to create a synthetic short position.
The increasing influence of hedge funds is causing investors to worry that they are increasing risk, or creating more uncertainty, in financial markets, the report said.
18 Sept 2006
Banks and Asian Central Hedge Funds
A number of Asian central banks, among the biggest investors in U.S. government debt, are looking at alternative targets for their vast dollar holdings.
Since 1997, currency reserves at Asia’s central banks have risen to about $3 trillion, leaving fewer dollar denominated securities in which hedge funds can trade, putting hedge funds on the defensive.
A report showing the U.S. economy is holding its ground may drive the dollar higher. Central banks such as the People’s Bank of China may see that as a perfect opportunity to sell a chunk of their U.S. holdings, pushing the market in a direction that traders don’t expect.
Central banks often carefully choose the moments when they expect an increase in market liquidity, when Federal Reserve officials speak or Japan releases inflation data, to make adjustments in their holdings. More and more, it’s turning Asia’s central banks into market heavyweights.
In the last couple of years, many speculators bet on a drop in U.S. debt prices. That left plenty of securities for purchases by foreign central banks.
The issue may be high on the list of topics discussed at next week’s IMF meeting in Singapore. It’s not about looking out for hedge funds; it’s about taming volatility in economies. Yet it’s also about exploring the wisdom of central banks amassing ever-growing stockpiles of reserves.
A recent paper from the Bank for International Settlements underlines the urgency. In it, BIS staffers Madhusudan Mohanty and Philip Turner express surprise that the reserve buildup hasn’t caused inflation.
In Taiwan, the current system for managing the nation’s $206.63 billion in reserves, the third-largest in the world, “might not be an efficient use of our resources,” says government minister Hu Sheng-cheng. Taiwan’s central bank has accumulated “too much” foreign exchange from Taiwanese exporters and from inflows to its capital markets, he says. Mr. Hu is heading a task force that will announce in the next few weeks details of a plan to use reserves to help local companies buy machinery and intellectual property rights overseas, he says.
Elsewhere in Asia in recent weeks, however, some governments have begun discussing plans to chip away at their dollar mountains. The initial amounts are small, but taken together they send a clear signal. South Korea’s plans are the most ambitious and could have the biggest impact on the dollar.
The International Monetary Fund’s last meeting in Asia was in 1997 and featured a debate about hedge funds. U.S. Treasury Secretary Robert Rubin argued that hedge funds were a vital source of liquidity when markets dry up. Asian policy makers saw them as predators causing undue volatility and overwhelming central banks. Either way, hedge funds are taking a backseat in Asia to the new Asian central banks.
Since 1997, currency reserves at Asia’s central banks have risen to about $3 trillion, leaving fewer dollar denominated securities in which hedge funds can trade, putting hedge funds on the defensive.
A report showing the U.S. economy is holding its ground may drive the dollar higher. Central banks such as the People’s Bank of China may see that as a perfect opportunity to sell a chunk of their U.S. holdings, pushing the market in a direction that traders don’t expect.
Central banks often carefully choose the moments when they expect an increase in market liquidity, when Federal Reserve officials speak or Japan releases inflation data, to make adjustments in their holdings. More and more, it’s turning Asia’s central banks into market heavyweights.
In the last couple of years, many speculators bet on a drop in U.S. debt prices. That left plenty of securities for purchases by foreign central banks.
The issue may be high on the list of topics discussed at next week’s IMF meeting in Singapore. It’s not about looking out for hedge funds; it’s about taming volatility in economies. Yet it’s also about exploring the wisdom of central banks amassing ever-growing stockpiles of reserves.
A recent paper from the Bank for International Settlements underlines the urgency. In it, BIS staffers Madhusudan Mohanty and Philip Turner express surprise that the reserve buildup hasn’t caused inflation.
In Taiwan, the current system for managing the nation’s $206.63 billion in reserves, the third-largest in the world, “might not be an efficient use of our resources,” says government minister Hu Sheng-cheng. Taiwan’s central bank has accumulated “too much” foreign exchange from Taiwanese exporters and from inflows to its capital markets, he says. Mr. Hu is heading a task force that will announce in the next few weeks details of a plan to use reserves to help local companies buy machinery and intellectual property rights overseas, he says.
Elsewhere in Asia in recent weeks, however, some governments have begun discussing plans to chip away at their dollar mountains. The initial amounts are small, but taken together they send a clear signal. South Korea’s plans are the most ambitious and could have the biggest impact on the dollar.
The International Monetary Fund’s last meeting in Asia was in 1997 and featured a debate about hedge funds. U.S. Treasury Secretary Robert Rubin argued that hedge funds were a vital source of liquidity when markets dry up. Asian policy makers saw them as predators causing undue volatility and overwhelming central banks. Either way, hedge funds are taking a backseat in Asia to the new Asian central banks.
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