Hedge Fund Reader

Funds of Hedge Funds Head to London

-- Pushpa Sathish, Staff Writer

It’s a reversal of sorts – while the rich and famous are steering clear of hedge funds following Amaranth’s collapse, pension funds are flocking to invest their millions in funds of hedge funds, an option associated with a lower risk than hedge funds. The new brand of investors has pushed London to the top of the fund of hedge funds destination list – the British capital has overtaken Zurich as the favorite listing ground for these investment vehicles.

According to data from ABN AMRO, London went past Zurich in January, and as of December 2006, had £3 billion in listed funds of hedge funds, a figure that is more than twice that of Zurich. Mark James, director of alternative investments at ABN, attributes London’s surging lead to two factors - the decline in the support offered by local Swiss banks to funds listed in Zurich, and the innovative systems in London that manage the discount at which the shares trade to the value of the fund’s assets. FT reports:

Funds of hedge funds are closed-end companies similar to investment trusts, which issue shares then invest the proceeds in a portfolio of hedge funds. They appeal to investors looking to diversify the risk of owning a single hedge fund and offer regulatory and tax advantages to some investors, such as private individuals and life assurers.

Hedge Funds Bow to Islamic Laws

-- Pushpa Sathish, Staff Writer

Selling short is not allowed according to the Islamic Sharia law, which is why many wealthy Arab institutions have steered clear from floating hedge funds. But there’s no more reason to stay away from this intriguing world anymore, not with the new system developed by the London prime broking arm of the French bank Societe Generale (SocGen) that allows short selling even while complying with Sharia rules.

So we see the birth of three new funds – Stark Al-Noor from Stark Investments, Wisconsin, Al Raed Emerging Markets from North of South Capital, London, and another from an unnamed London-based manager - launched with $60 million from a large Middle Eastern bank. Fimat, a subsidiary of SocGen is partnering the launch of these funds and a fourth from Old Mutual Asset Management. The funds will create investments that weigh risks and returns between equity and Sharia-compliant bonds called “sukuks,” said Philippe Teilhard, head of prime brokerage at Fimat.

Meanwhile, a Sharia-compliant fund of hedge funds is also in the pipeline, courtesy the Middle Eastern bank responsible for the funding. The Sharia-compliant investment market is apparently worth $500 billion.

Hedge Funds in Australia

-- By Pushpa Sathish, Staff Writer

I’ve always considered Australia as one of the most laid-back nations in the world – the people there never seem to be in a hurry to do anything; even their speech is a drawl. The same goes for the country’s attitude towards hedge funds. While the rest of the world is trying to regulate the $1.5 trillion industry, the folks down under are happy to just let things stay as they are.

This carefree attitude is an anomaly, because the country has the largest percentage of individual investors, 66 percent when compared to the 44 percent worldwide. But this is because even a minimum of $785 (A$1000) can get you in the doors of a hedge fund.

So are they not at risk just because they stand upside down? No, the Aussie hedge fund industry is fraught with the same risks that come from dealing in short selling and illiquid securities. But the country feels that a disclosure of risks and fees in sales documents is regulation enough.

The driving force behind Australian hedge funds is the Reserve Bank of Australia (RBA), which reports that the industry has experienced a significant growth over the past few years. But will the controls be tightened if there is one big collapse? We’ll just have to wait and watch.

Nomura Seeks Larger Share of Global Pie

-- By Pushpa Sathish, Staff Writer

As part of its global expansion plan, Nomura Holdings has acquired 15 percent of the US hedge fund and private equity manager, the Fortress Investment Group, for the princely sum of $888 million. With this sale, Fortress has been offered an entry into the Asian fund market, and can ride on Nomura’s shoulders to offer its products in the world’s largest continent.

The biggest securities firm in Japan is consolidating its attempts to catch up with other global players such as Goldman Sachs and Morgan Stanley, as seen by the move to buy the American electronic brokerage firm Instinet last month. The purchase offered Nomura access to 700 hedge fund clients. But is the Japanese firm paying too high a price as it seeks to compete with bigger fish than itself, as rumors in the industry suggest? NY Times reports:

Still, Nomura may be overpaying as it seeks to match the profitability of Wall Street giants like Goldman and Morgan Stanley. Nomura’s stake in Fortress comes at a higher price, compared with assets, than the $300 million Morgan Stanley paid in October for a 19 percent stake in Lansdowne Partners, a London hedge fund with $12 billion in assets.

Nick Cavalla moves from man group to Cambridge fund

For universities today Hedge Funds are not only for class room teaching anymore. They are getting quite aggressive even where growth of their investments is concerned. Take the case of The University of Cambridge endowment fund in Britain that has recently hired the chief investment officer of the world’s largest listed hedge fund company. They have appointed Nick Cavalla as their chief investment officer. Nick has made this move from being the chief investment officer with Man Global Strategies (MGS), a division of Man Group.

Despite his move, Cavalla will continue to be associated with the hedge fund company in advisory capacity. He is expected to take up his new job by April 2007. Assets under management under the Cambridge endowment are around 1.2 billion pounds. Reuters reports:

One of the world's largest university funds, that of Yale University in the United States, has become famous for its high exposure to hedge funds and other alternative assets, led by its chief investment officer, David Swensen. Swenson is also a member of Cambridge University's own investment board.”

Property Securities Fund of Funds

-- By Pushpa Sathish, Staff Writer

Nomura International is turning to the properties securities sector in its efforts to offer its investors an alternative to direct property and provide them with a more flexible form of global real estate investment. The financial services group is planning to establish an open-ended global fund of funds that will invest in property securities. The Global Property 80 percent Protected Fund, which will be based in Ireland, will be protected by a underwriting by Nomura for 80 percent of its highest-ever value, said Nomura director Gary Topp. Investors will have to fork out 1.5 percent as annual management fees. Reuters reports:

Nomura said its Global Property 80 percent Protected Fund would initially be spread across six funds run by Morgan Stanley, Henderson, and Credit Suisse, with each focusing on European, U.S. or Asian securities such as property company shares and real estate investment trusts (REITs). Topp said the fund was primarily aimed at the high-net-worth and the sophisticated end of the retail investment market.

Hedge Funds and Commodities Trading

-- By Pushpa Sathish, Staff Writer

Hedge funds are showing more interest in the commodities markets, information that is proved true by the sharp increase in the global worth of assets in this sector – up to $22.5 billion from $12 billion only a year ago. Sugar, coffee and cocoa have found favor with former sugar trader at ED&F Man Holdings Ltd. and current founder of the hedge fund Tropix Capital LLC, Sean Diffley.

Investors in the fund revealed on the condition of anonymity that come the new year, Tropix would start trading in these commodities. Initial capital appears to be pouring in from Ospraie Wingspan LP, the investment fund launched last year by the $4.5 billion hedge fund, Ospraie Management LLC, which has around $900 million of its money invested in other commodity funds.

With sugar prices slumping 22 percent in New York following good sugarcane harvests in both India and Brazil, cocoa in London sliding down by 11 percent, and coffee being the only commodity to gain 21 percent, it remains to be seen if Tropix will be successful in its strategies.

The Asian Hedge Fund Scenario

-- By Pushpa Sathish, Staff Writer

Be prepared for the explosive growth of hedge funds in Asia, says Jean Pierre Bernard, the regional head of BNP Paribas for Southeast Asia and India. He predicts, that at the present annual growth rate of 35 percent, they will double over the next three years from their current value of $130 billion.

Amidst all the controversy and confusion regarding the impact of hedge funds on the financial markets, Bernard says they are not detrimental, and that they add liquidity to the market, IF they are regulated properly. Singapore follows a different path from the United States and regulates its hedge funds, he adds. Bernard is the chief architect of the (Singapore)$1.4  million Hedge Fund Center at the Singapore Management University, set up jointly with the London Business School in an attempt to boost the standing of hedge funds in the region.

The Asian hedge fund scene is still in the fledgling state when compared to the worldwide markets, but there is potential for growth as the Asian markets deregulate, according to Ong Chong Tee, the deputy director of the Monetary Authority of Singapore.

Contradictory statements indeed! Should the Asian hedge fund industry grow because of deregulation or should the financial markets be stabilized by regulating the funds that do set up shop in the world’s largest continent?

Hedge Funds Hope for Hollywood Hits

-- By Pushpa Sathish, Staff Writer

Box office hits are pulling hedge funds deeper into Hollywood – Dune Capital Management is all set to produce at least 15 new films according to a $520 million agreement with 20th Century Fox. George Soros’ erstwhile hedge fund has already tasted screen success with two hits this year – Borat and The Devil Wears Prada. Die Hard IV and Fantastic Four: Rise of the Silver Surfer are two movies that are in the pipeline, thanks to this partnership.

20th Century Fox is not the only Hollywood studio to seek backing from hedge funds; Sony Pictures Entertainment and Universal Pictures have done it too, with funds Relativity Media and Gun Hill Road II, both managed by Ryan Kavanaugh, having raised more than $1 billion for the studios. But it's not all smooth sailing, as Warner Bros. realized. The studio suffered a setback to its $530 million, six-picture deal with Virtual Studios because of the major losses suffered by the motion picture Poseidon.

New Fund on the Energy Horizon

-- By Pushpa Sathish, Staff Writer

A new hedge fund that will trade in the energy market, specifically in natural gas and crude and refined oil, is sure to raise some eyebrows coming as it does on the heels of Amaranth’s loss of more than $6 billion due to bad calls in the energy space. But Jeff Shankman and Andy Weathers are going ahead with their plans for Trident Asset Management, a hedge fund registered in the Cayman Islands.

Shankman was the CEO at Enron Corporation, the world’s largest energy-trading company, before it filed for bankruptcy in 2001, while Weathers is an erstwhile employee of both the Duke Energy Corporation and Houston’s electricity distributor CenterPoint. With their combined expertise in the energy field, the duo hope to raise $250 million over the next six months, said word-of-mouth reports from two anonymous investors who cited marketing documents from Trident. Bloomberg reports:

A four-year rally in prices for raw materials has spurred investment in commodity-trading hedge funds, which oversee $22.5 billion globally, up from $12 billion a year ago, according to London-based NewFinance Capital LLP, which invests in such funds.