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.

The Last Frontier for Hedge Funds – Mongolia?

-- By Pushpa Sathish, Staff Writer

Untapped natural resources, tourism and telecommunications are driving hedge funds to the edge of civilization – to Mongolia to be more specific. The reserves of copper and gold are luring investors in spite of problems like rampant bribery and meddling from politicians.

Hong Kong hedge fund Lim Advisors is providing short-term debt and trade finance for projects in Mongolia that are expected to return 12 to 20 percent. With the real estate sector set to boom, Lee Cashell, managing partner at the private equity firm Asia Pacific Investment Partners in Hong Kong, is raising a $25 million property fund based in the nation.

While Tom Ashworth, the director of the China-based Sniper Management Capital, says that investing in Mongolia is similar to investing in China in the 1980s, Novatera Capital fund manager Robert Lewis feels that Mongolia is a gold mine waiting to be tapped with a large landmass, small population, and vast natural resources, and that the right partners have to be chosen in order to succeed.

Record Amount Raised By Single-Strategy Fund

-- By Pushpa Sathish, Staff Writer

A listed, single-strategy hedge fund vehicle has succeeded in raising €440 million, a record for any listed fund. The Sark Fund, the flagship of hedge fund firm Boussard and Gavaudan (B&G), is the first single-strategy listed hedge fund vehicle in the world which deals in arbitrage in the equities and credit markets. Set up in 2002 by former executives of Goldman Sachs, Emmanuel Gavaudan and Emmanuel Boussard, the fund has a CAG rate of 8 percent. The amount raised exceeded expectations by over €300 million because of the strong demand from private banks, family offices and institutional investors. The UK Times Online reports:

B&G, with offices in Paris and London, has €1.27 billion under management invested in Sark and other funds. The two co-founders own about 80 per cent of the equity. It can borrow up to 100 per cent of net assets to spice up returns. The fund’s partners and staff have put in €28 million of their own money and are locked in for 18 months.

Indian Hedge Funds Look Up

-- By Pushpa Sathish, Staff Writer

India is not known as a country celebrated for its hedge funds, but there are two in the nation that have made the top five among Asia’s best. India Capital Fund and Atyant Capital India Fund stood second and fourth in the list of best Asian performers with returns of 9.2 percent and 8.27 percent respectively, in the month of September.

These statistics are a result of research by global hedge fund tracking company Eureka Hedge, which claimed that Asian funds performed better than their American and European counterparts in September. Prodigal Absolute Return Fund, an Asian hedge fund, registered returns of 11.25 percent to take top spot in the list. Business Standard reports:

Traditionally, returns of hedge funds focusing on Asia tend to have greater market correlation than their counterparts in Europe and America. This is due to strong presence of long/short equity funds in Asia, most Of which tend to hold net-long positions, said the hedge fund tracking firm.

The New Belmont Dynamic growth fund into the Canadian Market

By Priya Venkatesh, Staff Writer

Are you aware of the new Belmont Dynamic growth fund, which has entered the Canadian Market? Would you like to know further details of the fund? Just continue reading to know more on this fund!

Harcourt has joined hands with Royal Bank of Canada and has initiated the Belmont Dynamic Growth Fund in the first week of August, this year! Especially designed for Canadian investors, it is reported to offer shares in CAD & USD denominations.

Hedgeweek.com reports that this fund would be a high risk fund which is expected to bring high returns by investing with the existing Belmont fund managers who are believed to have inexplicable long-term expertise in this field! Hedgeweek.com reports:

Presently, the portfolio is tactically positioned having exposure to Asia, Europe, US Long/Short Equity, Fixed Income and Market Neutral strategies.

Bird’s Eye View of Investment in Continental Europe

-- By Pushpa Sathish, Staff Writer

Hedge funds are gaining attention by the day, both for their high potential to generate returns and for the headlines they make when bad bets bring down the whole house of cards. Greenwich Associates’ 2006 Continental European Investment Management Research Study reveals an insight into institutional investors in Continental Europe.

• Institutional hedge fund investors (pension funds, banks, insurance companies) jumped up from 26 percent in 2005 to 36 percent this year, with another 10 percent planning to invest in hedge funds over the next few months.   
• Institutional assets grew by 7 percent, driven by the equity and money markets and fixed income.
• Allocations to private equity and hedge funds form 2 percent of total assets, the figure remaining the same in 2004 and 2005.
• Real estate allocations have decreased from 6 to 5 percent over the course of a year.
• As much as 41 percent of Continental institutions expect allocations in equity and hedge funds to increase by 2009, while only 1 percent expect them to decline. 
• The average institutional investor in hedge funds has EUR 200 million invested in the asset class.
• More than 33 percent of institutional assets are managed by external investment management firms.
• Each continental institution raised the number of asset managers it uses from less than 10 in 2005 to nearly 11 a year later.
• Total assets under management by external firms rose to 34 percent from 31.

Banking on Hedge Funds

The big banks are turning eagle eyes on hedge funds as an avenue to earn bigger bucks. This shouldn’t be a surprise to those who closely monitor the growth of the hedge fund industry and the rewards associated with the management of funds.

Though the risks associated with hedge funds are enormous, the profits and management fees, when the funds do well, are worth it. Which is why, despite the Amaranth debacle, the banking sector is hoping to get involved in the management of hedge fund assets. 

Already worth a cool $1.3 trillion and growing rapidly each year, the hedge fund industry has added appeal for banks because of the spectacular success enjoyed by Goldman Sachs and JPMorgan which are the two largest hedge fund firms in the United States with assets worth $29.5 billion and $28.8 respectively, according to industry magazine Absolute Return. Barclays is in sixth position with $17 billion in assets.

The latest to line up for a share of the pie is Morgan Stanley, if one were to go by the news on the industry grapevine. CEO John Mack is looking to acquire the hedge fund FrontPoint,to expand the firms investment business.

But its not a bed of roses for all the banks in the business - Citigroup is struggling to show profits with Tribeca Global Management. There is also the fear of consolidation, that after the spectacular growth over the past years, the industry will stabilize just when banks enter the fray. Also, the number of new funds launched has come down from last year’s figure.

The news is not all that bad though; while there is a decrease in quantity, there is certainly no paucity of quality, going by the stupendous performance of funds in existence. The inflows for the first half of this year touched $66.1 billion after a record $42.1 billion coming in during the second quarter. With stats like these, is it any wonder that banks can’t wait to dig in?

Hedge Funds – skeptical about its investment in India

What is the plan for Hedge Funds regarding their futuristic Indian Investments? Are the Hedge Funds clear about the on-going Indian Market? Do they foretell what’s going to happen next? Read on to answer these queries!

As per the Reports from Rediff, James Breiding of Naissance Capital articulates that they are dubious about the future of the current Indian Market. He emphasizes that he would like to sit and observe the ongoing trend of sensex in India. From his perspective, he still wants to understand the stability of the current Indian market before they could make further investments. On asked us to whether the FII would improve in the Indian Market, he states that his psychological feeling towards this aspect is positive and major decisions with reference to this would still take time.

Click here to know more on how Hedge Funds view the Indian market.

Cayman Island Now Have 8,000 Hedge Funds

The Cayman Island Monetary Authority revealed that it has now 8,000 registered hedge funds. It can be recalled that in the beginning of 2005, it had 6,000 hedge funds. More than 1,000 new hedge funds were authorized in the first half of 2006 alone. This is a record for any six-month reporting period in the Cayman Islands.

This surge in hedge funds has been attributed to several factors including non-traditional applications of hedge funds and increased interest in emerging markets. Hedge fund managers are now finding new ways to apply their skills and strategies. However, the recent US Pension Protection Act 2006 may reduce the number of investment funds that need to operate in compliance with ERISA regulations.

My previous post titled "Pension Fund Paid Millions" will shed light on the pension fund related issues.

ACMH Launches German Hedge Fund Product

Absolute Capital Management Holdings (ACMH) Limited has launched a German retail hedge fund product for both private and institutional investors. The company's move into the retail space will enable investors to access the funds at a reasonable entry level. There is significant scope to develop the company's presence in this market and it is actively considering similar retail products for other markets.

The product is known as the Absolute Diversified Certificate, which was launched on 28 August. It is designed to enable private investors to participate in the absolute return funds managed by ACMH with a minimum investment level of EURO 5,000. The fund is also open to institutional investors with a minimum investment level of EURO 250,000.

Read my previous post titled "Hedge Funds Liberalization in Germany", which will provide information on hedge funds in Germany.

AmericaVest Launches 10/10 Hedge Fund

AmericaVest Capital Management LLC has announced the launching of its new hedge fund, the AmericaVest 10/10 Fund. The company has over 70 years of collective experience in financial services, wealth management and asset backed investing. The hedge fund offers investors the opportunity for a fixed priority annual return of 10%.

The strategy is designed to target absolute returns and surpass traditional equity and bond markets. The hedge fund believes that diversification, low correlation and consistent capital appreciation can be achieved through active portfolio management.

Read my previous post titled "Hedge Funds Can Protect Savings" to know how hedge funds can protect your savings.

Hedge fund Trading of Bonds, Derivatives Doubled

Hedge fund trading of bonds and derivatives in the United States more than doubled in the past year. It has given the funds so much influence that some markets can't operate efficiently without them. Hedge funds accounted for 45 percent of annual trading in emerging market bonds and 47 percent of distressed debt. They also accounted for 55 percent of credit derivatives in the past 12 months.

In the same period, overall trading in bonds and derivatives rose 25 percent. Hedge funds have encouraged brokers to develop new products, such as collateralized debt obligations or securities backed by pools of loans or bonds.

Read my previous post titled "Key Hedge Funds Strategies" to know about important hedge fund strategies.

US Hedge Funds Boost Global Investment

U.S. hedge funds are expected to raise their investment in overseas markets in coming years, as domestic markets get more crowded and returns diminish. The biggest percentage investment increases are expected to in Asia-Pacific markets. The U.S. hedge fund assets nearly double to $107 billion from 2006 to 2008. European markets are expected to be the biggest beneficiaries of US hedge fund investment. Hedge fund industry assets are variously estimated to be anywhere from $1.2 trillion to $1.5 trillion.

If you want to know more about main characteristics of hedge funds, you should read my previous post titled "Main Characteristics of Hedge Funds".

GAM Expands Hedge Fund Range

GAM is building its presence in the hedge fund world with the launch of two products. The products are focused on china and global emerging markets. Greater China Equity Hedge is managed by Hong Kong-based Michael Lai and targets returns of 20% to 25% per annum. Domiciled in the British Virgin Islands, the fund invests in securities issued by companies with either assets in, or revenues derived from China and Hong Kong. The portfolio has a minimum investment level of £15,000, with an initial fee of up to 5% and an annual charge of 1.525%. A performance fee of 20% on all returns will also be levied.

Read my previous post titled "Hedge Fund Assets Rising" to know more about hedge fund assets.

Hedge Funds: China's Main Source of Hot Money

Recently, I had written a post titled "Hedge Fund Boom in Asia" on the hedge fund boom in Asia. China is leading the hedge market in Asia. According to the report from International Centre of National Bureau of Statistics of China, the hot money betting on RMB appreciation has been rising since February this year.

The total scale of hot money inflows during the period from February to May reached to USD 23.28 billion. The calculation used by the Bureau is based on the difference between the regular increase of foreign exchange and the combination of FDI and current account surplus. Based on the calculation, the size of hot money was stood at USD 1.02 billion, USD4.45 billion, USD 5.31 billion and USD 12.5 billion at February, March, April and May respectively.

Hedge Funds Contribute to Revenue Rise

Money management companies are consolidating declining revenues by turning to high-fee investments such as hedge funds. Henderson Group Plc announced that its first-half profit increased by as much as 30 percent ever since the money manager turned its focus to high-margin specialist products. The London-based company’s net income touched 35.4 million pounds, a substantial increase from the figure of 27.2 million pounds a year earlier. Bloomberg reports:

The company will return 200 million pounds of capital to shareholders later this year. It also plans to give between 150 million pounds and 200 million pounds back to investors in 2007, Chief Executive Officer Roger Yates said.

Hedge Fund Set for September Debut

Come September, fund of funds Henderson is all set to launch Henderson Total Return, a fund that will invest in its own hedge funds. Bill McQuaker, Director of Multi-Manager Funds, will manage the new fund which will be based in the Cayman Islands but listed on the Irish Stock Exchange. With a minimum investment of $100,000, Henderson Total Return is targeting institutional investors, clients with a high net worth, private banks and family offices. Reuters Italy reports:

The new fund will invest in nine Henderson-run hedge funds that employ long-short directional equity, multi-strategy equity market neutral, fixed income and equity style rotational strategies. The portfolio will target a return of 12-15 percent and aim to maintain volatility at an "acceptably low" level.

Will Hurricanes Rain on the Hedge Fund Parade?

Hedge funds are proving that they play for high risks by staking their dollars on Mother Nature. Following the catastrophic destruction wreaked by hurricanes in 2005, these funds have rushed to grab a piece of the action and a bigger slice of the profits.

Hedge funds are raising capital for both current and new reinsurers besides setting up “sidecars” or special-purpose entities that allow funds to pass capital to existing reinsurers. This is an all-or-nothing ploy; what with insurance premiums sky-rocketing post Katrina and Rita, the hedge funds who have invested in the insurance industry are set to make a killing if the skies are peaceful. On the other hand, they are likely to run up billions of dollars in losses if nature strikes with all its fury as it did a year ago.

The Reinsurance Association of America reports that of the $23 billion capital raised for new and existing reinsurers since the hurricanes hit in 2005, $13.9 billion has come from hedge funds, with $7.3 billion going into start-up companies and $3.6 billion to sidecars. Ten reinsurance companies and ten sidecars have emerged since Katrina.

They’ve not stopped there; the funds are busy snapping up catastrophe bonds too. These bonds are issued by insurance or reinsurance companies, pay 5 to 15 percent on the coupons, and return on the principal if the bonds mature without the occurrence of natural disasters. Around $1.8 billion has been invested in catastrophe bonds in 2005, with an additional $2.5 billion so far this year.

Some of the big names that have forayed into reinsurance territory are Citadel, Magnetar, Highfields Capital Management, XL Capital, and Eton Park Capital Management. Will smaller fry join the predators of the high heavens? This year’s hurricane season holds the answers.

Hedge Funds Liberalization in Germany

How many times have you heard about the liberalization in Germany? When hedge fund business gained importance in the US and Europe, Germany liberalized its rules governing hedge funds and taxation of their income at the beginning of 2004. The initiative was haled in many quarters as a new dawn for the growing hedge fund sector. Here is an interesting point that arises before the world. If a conservative country like Germany could embrace hedge funds, why the rest of Europe and other markets are still lagging behind?

The German Investment Act and the Investment Tax Act help the authorities in encouraging the growth of a domestic hedge fund industry. At the same time, these legislations made it easier for funds to attract customers and retail investors. This is definitely a good sign for the emerging hedge fund industry in Germany. Now, we should wait to watch the real impact of these legislations on the hedge fund industry in Germany. Who knows, they might set a precedent for others.

India and China: Rivals in Investment Market

India and China are two vast countries that have opened their market to the global investors. Their markets are filled with full opportunities for private equity investors. Their rising economic fortunes left the investors confused over the decision of selecting one of these two great nations. In order to woo more investors to their soil, both countries have become rivals in true sense.

India might not be a safer bet for investors because of its poor infrastructure and poverty. Despite of these negative pitfalls, India may be hopeful to attract investors because of a liberal economy that is pursued by successive democratic governments. Other advantages held by India are a strong education system, skilled English speaking professionals and a deep pool of expatriates experienced in Western businesses.

On the other hand, cheap labor and foreign direct investment have made China the world's manufacturing powerhouse. Although China has a Communist form of government, it has embraced Western-style capitalism. In recent years, china has provided spectacular private-equity returns. However, loopholes in China's legal system and the fear of political instability may work against its prospects.

Indian Hedge Funds to Seek Outside Financing

The investment market in India has witnessed a sharp increase over the last two years. Hedge funds have provided an opportunity for India to attract large amounts of foreign capital. They lead the investment flows into emerging markets. Experts believe that there is a need for more hedge fund participation in India. However, the negative attitude of monetary authorities and other regulators towards hedge funds often play spoilsport. These issues have forced Indian hedge funds to seek outside financing.

It is true that there are some negative aspects of hedge funds. However, they can be sorted out without stopping the flow of funds. The monetary authorities need to acknowledge that hedge funds played an important role in improving market economy. In my opinion, Indian hedge funds must get adequate financing in the country so that they don't have to ask for outside financing.

Hedge Funds Look to Luxembourg

Luxembourg is slowly but steadily edging out Dublin as the favored location for servicing hedge funds. The Luxembourg Funds Industry Association (Alfi) reports that there were 363 hedge funds domiciled and/or administered in Luxembourg, with assets totaling $90.7 billion, at the end of 2005. There are various reasons attributed to this development:

• Changes in legal rules and regulations have contributed to the growth of the hedge fund sector in Luxembourg.
• The Financial Sector Supervisory Commission (CSSF), the financial services regulator in Luxembourg, and a ministerial decree authorized the Luxembourg Stock Exchange to list foreign funds including those established in the Cayman Islands and the British Virgin Islands.
• Various major institutions are already well established in Luxembourg as investors, fund promoters and service providers.
• The country has a good reputation for investment funds because of its willingness to comply with European regulations and directives.
• Service providers in Luxembourg are offering quality services within a stable political environment.
• Luxembourg is located in a central location in Europe when compared to Dublin, which is further north.
• The country is multilingual; Dublin mainly speaks English.
• It is easier to get good quality staff in Luxembourg to handle alternative products and the growth of assets.

Hedge Fund Assets Rising

The 2006 hedge fund asset flow report released by Tremont Capital Management Inc. revealed that hedge fund assets increased by 4.19% in the second quarter of 2006. It clearly suggests that the hedge fund industry is attracting more assets at a remarkable pace. The current hedge fund asset base is approximately $954 billion. It is important to note that last year, the total hedge fund asset was $705.4 billion. The current trend indicates that hedge fund assets will rise further by giving the investments a tremendous boost.

Ospraie Announces New Investor

Ospraie Management, the New-York based hedge fund which manages around $4 billion of assets spread across four funds, announced that Energy Income Partners is investing in its Ospraie Wingspan fund which is worth $900 million. Ospraie Wingspan trades in energy-related stocks. The other three funds under Ospraie’s wings are Ospraie Fund, the Ospraie Real Return Fund and the Special Opportunities Fund. Reuters reports:

The team of new managers, who all once worked at industry giant Pequot Capital, will focus on energy industry sub-sectors related to pipelines, storage and other infrastructure plus fee-based service providers such as Master Limited Partnerships (MLPs) and Income Trusts, a spokesman for the fund said.

New Hedge Fund Launched

Resolution Hexam Eastern Europe, Middle East and Africa Absolute Return Fund, the first hedge fund in the markets boutique of Resolution Asset Management, was launched last week. This portfolio is registered in Dublin, Ireland, and will be managed by Marina Akopian who was lured away from Baring Asset Management. The boutique, Hexam Capital Partners, has planned the launch of three more offshore funds, including a global resources long/short fund, within the next couple of months. Reuters Italy reports:

Other members of the Hexam team are Grant Shotter and Wilfred Willwong, Bryan Collings, John Payne and Stuart Richards. "We are determined to continue broadening the range and diversity of funds offered through our village of joint venture boutiques," said Jonathan Polin, sales and marketing director at Resolution Asset Management.

The Hedge Fund Services in Isle of Man

The hedge fund services industry in the Isle of Man has been active for more than a decade. However, it has been overshadowed by other industries such as financial services. Over the past few years, the government's financial promotion body, Isle of Man Finance has undertaken a series of initiatives in collaboration with the industry. The initiatives were taken through the Fund Managers Association. The association worked to raise the industry's profile for global funds business among the London law firms.

Competition for alternative fund administration business has become intense as the hedge fund industry is witnessing a sharp rise in the past few years. The growth of the global funds industry is providing increased opportunities for new business. The current trend suggests that the hedge fund industry in the Isle of Man will reach a new high over the next few years.

Resolution Asset Management Launches Hedge Fund

Resolution Asset Management has launched a hedge fund, which is the first product of its newly minted emerging markets boutique, Hexam Capital Partners. The portfolio is called the Resolution Hexam Eastern Europe, Middle East and Africa Absolute Return Fund. It is registered in Dublin, Ireland. The fund will be managed by Marina Akopian, who is a member of fund managers recently hired from Baring Asset Management. According to Resolution Asset Management sources, three more offshore funds will be launched in the next few months.

Hedge Funds Flood European Market

This year, quantity wins above quality. What am I talking about? Why, it’s the debut of hedge funds in the European market, of course. Trade paper EuroHedge reports that a record 170 hedge funds were launched this year, that raised a $11.4 billion volume of assets. Though the number is impressive when compared to last year’s 150, the volume of assets raised slipped from $13 billion in 2005.

The reason for this dip in the assets graph? EuroHedge attributes it to the fact that there were less number of high profile hedge funds being unleashed on the market. Last year, Gandhara Capital, Peloton Capital and the European TOPS funds created splashes with their entrances into the hedge fund industry. They were among the five funds that raised $1 billion  or more in assets.

The big names to hit the market in 2006 will do so in the latter half of the year. Among them are the SRM fund and Montrica with ambitious plans to rake in $5 billion and $1.5 respectively. 

SRM Global Ready for Debut

The hedge fund industry is waiting with bated breath for the launch of the SRM Global Fund, simply because its founder Jon Wood has carved a niche for himself in the market by bringing in more than $2.4 billion over a period of six years for UBS AG, the bank based in Zurich, Switzerland. Wood is setting up his fund in Monaco with the help of four former colleagues, and is concentrating on US and European equities.

SRM Global is expected to be one of the biggest hedge fund debuts this year. UBS AG is investing $500 million in the fund for at least five years, a move which shows the confidence Wood’s erstwhile employers have in him. With hedge funds not registering remarkable results in the recent past, investors are rating the pedigree of funds high on their reasons to invest.

The fund will focus on trading shares of organizations that are merging, capital structure arbitrage which takes advantage of the price difference between related corporate securities, and investment in industries that are not doing so well or are in trouble.

Investors in SRM Global can choose from two fee structures – a 1 percent management fee to invest for a period of five years and 1.5 percent for three years. SRM Global will retain 25 percent of its profits.

Hedge Fund Boom in Asia

The top 25 Asia-based hedge funds managed to generate $22.6 billion in assets. It signals a shift in the hedge fund industry towards the emerging Asian markets. Although the size of the Asian hedge fund market is small in comparison with the US and European market, the current trend suggests that it will give tough competition to the rival markets soon.

Japan and China are among the few countries that lead the hedge fund market in Asia. The largest Asian hedge fund is Tokyo-based Sparx Asset Management with an asset of $US5.2 billion. The rise of the Asian hedge fund industry is significant, as Asia was dubbed as a poor investment destination for a long time in the past.

London Leads Europe Hedge Fund Market

It is well known that Europe has emerged as a strong competitor to the United States in terms of hedge fund operation. Hedge fund growth in Europe is spearheading by London. London has become a major center for hedge funds with the value of assets invested in City hedge funds grew by more than 25 per cent in 2005.

The UK is the world's third largest asset management center. The value of funds managed in the City shot up by 7 per cent to £3,450 billion in 2005. The rise was fuelled by the investors' growing interest in hedge fund activities. Do you think that London can leave major US cities behind in terms of hedge fund business? Only the time will tell.

According to Times Online -

Alternative investments, including hedge and property funds, accounted for about £374 billion, or 11 per cent, of the funds under management. This figure takes into account only retail investments in hedge funds, to avoid double counting of institutional assets.

Luxembourg: The New Center for Hedge Fund Investments

Luxembourg always competed with its rival Ireland to become the main European center for hedge fund operations. However, it failed to match Ireland's investment fund services. Now Luxembourg has launched fresh efforts to restore its competitiveness in a market in which Ireland has properly established itself.

The growth of the hedge fund industry in Luxembourg is a clear indication that it is all set to become a key center for hedge fund investments. One of Luxembourg's key challenges has been to provide an alternative to competitive approach adopted by other countries. It also needs to generate interest among investors and promoters of funds of hedge funds. Although is still trailing behind Ireland in terms of hedge fund business, industry experts agree that Luxembourg has been successful in putting itself on the hedge fund map and may become a serious competitor to Ireland in the coming months or years.

Some Facts About the Hedge Fund Industry

hedge fund industry is estimated at $1 trillion and growing at 20% per year with approximately 8350 active hedge funds. Hedge fund industry includes a variety of investment strategies. Some of these strategies use leverage and derivatives while others are more conservative and employ little or no leverage. Most hedge fund strategies reduce market risk by shorting equities. Hedge funds rely on the specific expertise of the manager or management team.

Performance of many hedge fund strategies is not dependent on the direction of the bond or equity markets. It is different from the conventional equity or mutual funds. There are a large number of hedge funds that are limited as to how much capital they can successfully employ before returns decline. Hedge fund returns over a sustained period outperform standard equity and bond indexes with less volatility.

Mittal Hedge Fund Aims for $500 Million

Kenneth Jeyaretnam, a key player in the widely known Mittal takeover of Arcelor, will launch his own hedge fund. The fund will perform global operations with the primary focus on Europe, Asia and the US. The fund will be based on merger arbitrage and distressed debt trading. It is aiming to scoop up an initial $500 million of investment funds. The new hedge fund will be known as the Stamford global Event Driven Fund. It will look to Japanese investors for funding. Its FSA authorization has been obtained through Noble Asset Management (NAM). Stamford will apply for authorization in six months after the launch.

According to HedgeCo Net -

Jeyaretnam commented “We are delighted to be working with N.A.M. The Principals and employees of N.A.M. have great integrity and have shown real commitment to building a highly successful asset management business. Their network within the industry and relationships with potential investors to include strategic investors is unrivalled.”

Hedge Fund Returns in 2006

Hedge funds have seen a decline in their expected returns following heavy losses in May and June on stock market. It is expected that the average hedge fund returns will be little more than 9.5 percent in 2006. Until April, hedge fund industry was expecting 12 - 15 percent returns following the positive signs in the first quarter of 2006. The year 2005 also witnessed a slump, as the average return was around 7.5 percent. Concerns over rising inflation, higher interest rates and global economic slowdown made the stock prices fall. Since then the market has remained volatile.

Reuters reported that -

Long/short equity hedge funds buy stocks they see as cheap and short sell those they think are expensive. Overall, they normally have more long positions than short and between 30 and 40 percent of their returns come from stock prices trending higher.

Exile’s Son To Float Hedge Fund

The father underwent a prison sentence for the crime of opposing the government of Singapore, endured bankruptcy, and is now in a forced state of exile. But that hasn’t deterred the son from dreaming of launching his own hedge fund.

Kenneth Jeyaretnam, a City derivatives trader, and son of JB Jeyaretnam, the infamous leader of Singapore’s socialist opposition, is getting ready to float Stamford Global, a hedge fund with an initial investment of $500 million.

The fund is targeting the Asian and Australasian markets, but is not ruling out a foray into North America. However, Jeyaretnam says he will steer clear of the “crowded” United States space. For now, the fund has obtained its FSA authorization through Noble Asset Management, but will apply for authorization in another six months. The UK Guardian reports:

The fund will invest in situations sparked by corporate events, such as a merger or a bankruptcy. According to a source close to the fund, “Stamford will wait for the announcement before analyzing and then making an investment. The fund has a structured framework. Its managers are not making a guess.”

Mercantile Launches New Hedge Fund Investments

The Baltimore-based Mercantile bank has created a new fund comprised of funds of hedge funds. Mercantile's new offerings are a relative-value fund of hedge funds. Fund managers are employing value strategy to evaluate potential investments. It will be done with the comparison between their current value and benchmarks. Mercantile is also planning to deploy two long/short equity fund-of-hedge-fund offerings, one of which will focus on global equity. The other will focus on small-cap investments. Funds of hedge funs are growing at a faster pace. Hedge funds have posted high returns in recent years. Now many small investors are looking for ways to benefit from hedging strategies.

According to Baltimore Business Journal -

The new Mercantile funds of hedge funds will be managed by Mercantile Capital Advisors, the bank's money-management subsidiary. Mercantile will use independent firms as sub-advisors to help select fund managers and allocate assets for its new fund-of-hedge fund offerings, officials said.

Growth of Hedge Fund Operations in Europe

Hedge funds are no longer taboo for retail investors. They pose little or no risk to financial stability and should have limited regulation, as said industry experts. Like other European markets, hedge fund business in Belgium has made a positive contribution to the smooth functioning of financial markets without receiving intensive scrutiny from regulators. Similarly, hedge fund operations in Germany and the UK are gaining momentum and investors are being encouraged to invest more. The absence of any stringent regulation has a positive impact on the European hedge fund industry. Of 1,250 hedge funds in Europe, two-thirds are in the UK. They manage 20% of global fund assets.

Schwarzenegger Collaborates with Hedge Funds to Invest in California Solar Power

California's governor Arnold Schwarzenegger is working to realize his goal of establishing a million solar roofs. Schwarzenegger is pouring $3.2 billion into solar energy. Because of his initiative, investors are snapping up shares of solar-equipment companies. Hedge funds SAC Capital Advisors LLC and GLG Partners LP have solar investments in the state. Still, solar energy forms only 0.2 percent of California's electricity. The state had fewer than 20,000 roofs at the end of March. Schwarzenegger says that he wants peak solar capacity to reach 3,000 megawatts, which will give the state's panels the power of three new gas-powered plants.

According to Bloomberg -

Investors, too, see a brighter future for solar. SAC Capital Advisors, an $8.5 billion hedge fund in Stamford, Connecticut, founded by Steven Cohen, and GLG Partners, an $11.2 billion fund in London, last month joined a group that invested $75 million in Nanosolar Inc., a Palo Alto, California-based company that is developing flexible solar strips.

Fast Growing Hedge Fund Industry

The support-service industry for hedge funds is expanding to meet the needs of the growing hedge fund industry. This industry is generally known as prime brokerage. It is expected to double in size over the next two to three years. The prime brokerage operation will provide fixed income hedge funds with front-end IT systems and support, credit enhancement, risk management, securities lending and settlement services. Many hedge funds provide services that allow themselves to concentrate on performance. Prime brokerage is one of the fastest-growing businesses for major investment banks. Internationally, prime brokerage is one of the fastest-growing businesses for major investment banks.

Hedge Funds Foray Into New Territories

Hedge funds are banking on their vast resources and immense wealth to bring them profits as they venture into the banking and finance sectors. Infrastructure financing, private equity, real estate, insurance, trading freight, and agriculture are just a few of the sectors that hedge funds have diversified into. Cerberus Capital Management and Canyon Capital Advisors are two funds that have taken to offering banking services such as loans that do not involve as much bureaucracy as bank loans. Funds that follow multiple strategies and invest in markets that have the potential to generate high returns are the most sought after by investors these days. Reuters reports:

"Some of the large multistrategy funds are definitely being more active in the insurance market," said Magnus Olsson, head of hedge funds at London & Capital. "It's fair to say some hedge funds are turning into small banks, more active in the financing area, providing finance to small and even mid-cap companies in the PIPE space." PIPE, or private investment in public equity, is a means by which public companies get financing quickly by issuing unregistered stock at a discount to the market price.

Decline in Hedge Fund Returns Due to Market Turmoil

The recent market turmoil has negative impact on a number of hedge funds. Most of them have had their gains wiped out in the past few weeks. Although almost all the hedge funds worldwide suffered due to the market turmoil, Japan-focused hedge funds have been worst affected due to the fall in the Nikkei. Seven of the 10 worst-affected hedge funds belong to Japan. Emerging markets and European funds are also affected. The month of June witnessed heavy losses for many hedge funds, as managers were overly bullish and took on too much advantage. Some British hedge funds also registered net losses in the past couple of months.

According to The Australian -

Big hedge fund investors cautioned against reading too much into a poor month or two. Some participants surveyed blamed the weakness on excessive bullishness and complacency about risks in a volatile period. US market indices have fallen more than 2 per cent in June, European stocks are off between 3 per cent and 6 per cent, and Japanese indices are down 7 per cent.

British Hedge Fund TCI is the Largest Donor in the UK

The Children's Investment Fund (TCI), a leading hedge fund is the largest donor in the country. It has undertaken charity work to tackle child poverty in the developing world. TCI gave £50.4 million to its charitable arm in 2005. The hedge fund hands over up to 1% of its assets towards charitable purpose. The hedge fund was founded by Chris Honn, a 39-year old graduate of Southampton University. The market experts believe that TCI has £3.8 billion of funds under its management. TCI also works with children who have been orphaned by AIDS in developing countries such as Kenya, Uganda, Malawi, Ethiopia and India.

According to BBC News -

TCI's main challenger for the title of the UK's most generous philanthropist is Sir Tom Hunter, the retail entrepreneur, who is said to have invested £100m in charitable causes over the past decade.

Farallon Hedge Fund Boosts Mills Stake

Farallon Capital Management has boosted its stake in troubled mall owner Mills Corp. Farallon is one of the world's largest hedge funds. It disclosed in a SEC filing that now it owns 4.39 million shares, which is 7.7 percent of the real estate investment trust's outstanding stock. Farallon is following a number of strategies that include credit investments, restructurings, value investing and direct debt payments. Mills Corp. is currently restating its financials and exploring a sale of the company.

According to The Street :

Mills shares closed Thursday at $28.17, down 1.3%. The stock has plummeted since reaching a 52-week high of $66.44 last summer, though it has recovered somewhat from a 52-week low of $26.30 on April 7.

Advent Software Launches Global Hedge Fund Solution

Advent Software has announced that it would launch the Advent Global Hedge Fund Solution, powered by Geneva. Advent is the leading provider of software and services to the investment management industry. The announcement was made at the SIA Technology Management Conference. Geneva meets the demands of large asset managers and service providers that require high volume processing for a broad range of investments. Clients of Geneva have embraced these platform advancements. Most clients have either upgraded or implemented the release of Geneva 6.0.

Advent's Global Hedge Fund Solution provides a fully integrated suite for trading, investment and partnership accounting. It also enables clients to minimize risk, streamline their operations, and reduce costs. Geneva delivers a full-proof database system that offers fast, accurate and flexible reporting. It also eliminates time-consuming error corrections. PR Newswire has published an article on the Same Topic.

Among the chief advancements offered by the latest edition of Geneva(R) are a lower total cost of ownership, ease of integration, and improved scalability. Geneva(R) has lowered ownership costs by utilizing a distributed processing model, which enables the platform to be implemented on multiple, significantly less expensive x86 UNIX servers.

Hedge Fund Managers Look to India

The steep fall in the Indian stock market over the past month not withstanding, hedge fund managers are expressing interest in the stocks of Indian small and medium businesses (SMBs) in the consumer, technology, and infrastructure sectors that have the potential to become blue-chip firms. India’s growing economy, proposed government spending on infrastructure, strong local demand, and the ability of Indian companies to generate high returns -  all these factors turned the spotlight on India as a possible investment haven, at the Indian hedge fund event organized by Jetfin Events earlier this week in Geneva. Hindustan Times reports:

India is expected to account for around 15 per cent of world gross domestic product by 2025 from around 2 per cent now. A recent McKinsey report said India's growing market for consumer goods could reach $400 billion by 2010 from around $250 billion in 2003. That would make it one of the world's five biggest retail markets.

Shanghai Hedge Fund Ball

Morgan Stanley is throwing a hedge fund ball, which is Asia-specific. The Shanghai hosted event is exclusive only to Oriental Morgan Stanley's prime hedge fund brokerage clients. Prime brokers such as Morgan Stanley have brought investors and hedge fund managers together under one roof. Such events can be expensive to organize with prices running into millions. Morgan Stanley wants to encourage investors and hedge funds to make the long trip. Organizers have chosen Shanghai as a city that represents a metaphor for Asia and is one of the favorite destinations for the investors and managers. HedgeCo.Net has published an article on the Same Topic.

This Shanghai conference is in its second year. Morgan Stanley runs its US version, "Breakers" Conference for managers in Palm Beach Florida, in addition to an emerging managers’ conference. It also runs an event in Europe.

All Eyes on Canadian Hedge Funds

It’s happening quietly, but it’s taking place all the same – the Canadian hedge fund industry is becoming the cynosure of US investors and Wall Street banks. While overseas investors are looking at the hedge fund firms’ know-how in oil and mining, Wall Street hopes to expand its brokerage business by either starting new outfits or by tying up with existent hedge fund managers. Although Canada is a relative newcomer to the world of hedge funds, the Canadian chapter of the Alternative Investment Management Association estimates the value of the Canadian hedge fund industry to be C$ 35 billion, and growing at a healthy clip.  Reuters Canada reports:

"There's some very good investment talent here that is, just now, starting to get recognized internationally," said James McGovern, chief executive of Toronto-based Arrow Hedge Partners Inc., which manages more than C$650 million ($585.6 million). "I think we're going to see a lot of the growth in these managers come via international allocations over domestic allocations (of assets)."

London Lures US Hedge Fund Managers

The United States has been the main breeding place for hedge fund managers for years. Now it seems that other cities in the world are luring the leading US hedge fund managers to shift their base. Three leading American hedge funds are planning to open offices in London in order to gain access to European investors and increase their trading in that region. These three leading hedge funds are Paulson Partners, Touradji Capital and Canyon Capital. Hedge fund managers in the US believe that there are big investment opportunities in Europe and particularly in London city. The steady growth of Euro against the US dollar has boosted their confidence further.

According to reports, London has steadily captured America's share of global hedge fund assets. London's share in global hedge fund operations has doubled in the past couple of years. On the contrary, the US share in global hedge fund operations has dropped to 62 percent from 86 percent. American hedge funds find it easier to operate from London as they get easy access to investment banks, accountants and lawyers in the city. TIMES ONLINE has published an article on the Same Topic.

US hedge funds that opened in London recently: DE Shaw, Cyrus Capital, Highland Capital Management, GoldenTree Asset Management, Oak Hill Advisors, King Street Capital Management and Blue Mountain Capital Partners. US hedge funds that have long been present: Citadel Investment, Tudor Investment, Moore Capital and SAC Capital.

Asia: Next Destination for Hedge Fund Managers

Hedge Fund operations began in the United States, as the market potential is high there. In the recent years, hedge funds have created more opportunities for the investors and market players. Hedge Fund managers oversee the operations in the country and elsewhere from their locations in the United States. If the latest trend is to be believed, the Asian markets are all set to be the major performers within the global economy. The opportunity in hedge funds is greater in Asia than other countries in the world. India and China are the two major Asian countries that will allow more hedge fund operations in their territory.

More Information: Read Here

Jerry Wang, CEO of Vision Investment Management, said that several large global hedge funds were setting up in Asia. They are not as nimble, but they bring different dimensions of sophistication.

Is hedge fund risk for real?

Yes, whenever a hedge fund collapses, it is bad news for all. You cannot ignore it, as it has the potential to shake the financial stability of the market depending on the kind of investments made. The recent turmoil in the stock market is further discouraging hedging in emerging markets.

Especially the emerging markets, as they have the tendency to develop cold feet in the face of crisis with liquidity problems. This could pose a major risk for the hedge funds as the derivatives market is not well developed. But things are changing and looking at the returns, it's worth taking the risk.

Hopefully, hedge funds in these markets have done their homework and have strategies in place. Including the key players namely, the hedge fund counterparties, i.e., the brokers and bank's prime brokerage division who are supposed to be the custodians are extra cautious of their dealings.

So unless something drastic like a natural calamity destroying the economy happens, which will inevitably result in the fleeing of investors, the hedge funds are treading safe pathways in the emerging markets.

Hedge Fund Investments

According to industry experts, the trend of hedge funds investing in distressed funds has grown significantly over the past coupe of years. The trend is due to the simultaneous increase in the capital managed by hedge funds. The industry already witnessed a sizeable upswing in this trend. With so much money and fewer traditional investment opportunities, hedge funds readily accept these types of unconventional high-risk, high-payoff ventures.

Prior to the investment boom, there were few options for distressed funds. Traditional banks are not keen to lend money to fund liquidations. Banks generally only lend when there is an assurance that the borrower can repay the loan. Hedge funds are willing to finance such liquidations because of the potential for high returns.

Typically, a hedge fund will buy out as much of the original investment in a distressed fund as it can. The intention is to become the sole or the largest investor. It also helps the investors to recover other assets. The funds recovered in the process are distributed to all the investors including the investing hedge fund.

Great Wall of China is no hurdle for hedge funds...

Hedge funds are leading the charge as far as investment in China is concerned. No doubt, there are great opportunities, at the same time, corruption can also prove to be dampener. You just have to careful about where and when you want to invest. Sometimes even under researched, undervalued opportunities can offer good long-term returns. In fact, China-based hedge funds gained 16.8 percent this year according to research firm, Hedge Fund Intelligence (HFI).

Coming to it, what are the things you should look out for? Mainly, the company's future cash flows, future earnings, potential re-ratings and management. Some of the attractive areas for investment are Chinese financials followed by consumer stocks. They are preferred due to the strong GDP growth in China, which is bound to grow further with the government taking active steps to promote domestic consumption.

According to Allan MacLeod, Head of Sales for Martin Currie,

The markets are less well researched than other markets, so we have a very heavy emphasis on company visits. You need to know what to look for, and you need to know your way around Chinese accounting. Experience is extremely important.

For further details...read

The lure of Cayman Islands...

If you are in the hedge fund industry, Cayman Islands would be a very familiar destination. Why is Cayman Islands in the Caribbean such a favorite with investors? Over the years, it has become world's largest offshore hedge fund center, mainly due to its tax-haven status.

It is also supported by excellent infrastructure facilities like banks, law firms, accounting firms and fund administrators that are essential for the smooth functioning of the industry. Presently, Cayman Islands boasts of more than 7000 hedge funds that are being registered here and this includes U.S. pension funds that are looking to hedge funds to increase returns.

Recently AIMA, the Alternative Investment Management Association, formed its seventh global chapter in Cayman Islands to formulate industry standards in issues like asset valuation in hedge funds.

According to Gary Linford, Head of the Investment and Securities division of the Cayman Islands Monetary Authority,"The new AIMA chapter will provide the ideal platform for the Cayman hedge fund industry to make a more public contribution to the global hedge fund debate."

Read more on investment in Cayman Islands...here

The hedge fund that seeks the most promising banks...

Yes...the hedge fund is Blue Planet Global Financials Fund that was launched on 31 March 2006 and is listed in the Irish Stock Exchange. Its portfolio exclusively focuses on banks quoted on the world's stock market. And its client base includes institutional and retail investors.

This hedge fund specializes in the financial sector, as they are able to generate returns in excess of those generated by broad based market indices.

According to Ken Murray, Chief Executive, Blue Planet Investment Management,"We have selected the banking sector after careful consideration, as historically, it is one of the best performing sectors in the stock market."

Read an interesting interview with Ken Murray...here

Ever thought of investing in Latin America?

Investing in bonds and equity markets in Latin America can bring in good returns. Agreed...right now, the stock markets are in turmoil. But that hasn't stopped hedge fund firm, Emergent Asset Management and Argentina's MBA Banco de Inversiones from launching a new hedge fund that aims to tap the regional opportunities.

Well...the strength of Latin American countries lies in its rich resources of oil and precious and base metals that are currently reaching record prices.

According to Susan Payne, Emergent's chief executive,"Current account and fiscal surpluses, as well as flexible exchange rates are also contributing to the region's outperformance."

So if you are interested in investing, you can join the party by shelling out at least $100,000 and better hurry before May 30th. The annual management fees are around 2 percent and performance fees are 20 percent.

Interested in knowing more...Read

Hedge funds widen their horizon...

No doubt...the hedge fund market is getting crowded. This is evident with the emerging trend where the funds are exploring investing in non-traditional areas like life sciences. Well, this is certainly not out of love for research, but the economics that is pulling the investors to take the risk.

Taking the lead here is...TPG-Axon Capital Management, a $5.8 billion hedge fund and its partner, Quintiles Transnational, who are planning to invest in drugs during their final stage of testing.

According to Ron Wooten, executive vice president at Quintiles, "Investments in drug development produced annual returns of 18 percent to 22 percent during the past 10 years."

Read more here

Creativity Required In Funds Of Hedge Funds

The competition in the hedge fund and funds of hedge funds market is increasing. As a result, fund of hedge fund firms need to be more creative in terms of the products that they offer. At the same time, these firms need to revamp their services so as to offer the best to the investors.

Also, most of the firms charge high fees and with the increasing competition, they need to justify this high fee in order to hold on to their current investors and to get new investors. The management fees in most cases are between 1 and 2 per cent of the assets. The performance fee stands at about 5 to 20 per cent over the returns that are above the promised target. At the same time the returns have been declining over the years.

So, as a result, it becomes even more important to relook at the offerings in terms of the products as well as the service.  Reuters UK reports:

Funds of hedge funds invest in diversified portfolios of hedge funds to reduce the chances of losing money, do due diligence and monitor business and investment risks. Analysts estimate there are around 800 firms offering more than 1,700 funds of hedge funds.

Multi Strategy Hedge Funds Attract Attention

In the recent times, a growing trend has been to invest in multi-strategy hedge funds. These combine the benefits of diversification that are extended by funds-of-hedge funds and that too at a lower fee.
Euro Today reports:

Funds-of-funds still represent a big chunk of the market. But the advent of multi-strategies, especially when backed by the marketing might of a large financial institution, puts extra pressure on funds-of-funds to prove how they add value.

Hedge funds posing a threat to buyout firms in Asia

Increased activity by hedge funds in Asia is posing a threat to buyout firms operating in that continent. Assets in Asia managed by hedge funds grew 38 per cent to US$101 billion (US$1 = RM3.67) last year, according to Eurekahedge, a Singapore-based research company. The region also attracted US$17.2 billion of buyout funds, almost three times the 2004 level, the Centre for Asia Private Equity Research said. Chris Gradel, a managing partner at Pacific Alliance, which manages about US$700 million of Asian buyout investments, however, feels that while some transactions will see hedge funds competing with buyout firms, in other transactions hedge fund activity may be complimentary to private equity firms. In any case, Gradel feels, hedge fund activity will increase in Asia. Business Times Online quoting Gradel reports:

Whether private equity funds like it or not, hedge funds will be more active, particularly in Asia.

Simulated financial meltdown in the US

Europe seems to be a hotbed of activity when it comes to hedge funds. Strange how hedge funds have swept the collective conscience of Europe and now consumes even its financial regulators. These regulators, who simulate a continent-wide financial crisis, fear that they are ill prepared to stop a problem.

So what does this simulation involve and why does it make these doomsday predictions? In the exercise, a collapse is simulated in a big bank with operations in several large countries. This was done to check if the European Central Bank, national central banks and finance ministries could work together to contain the crisis. According to experts, this exercise can be equated with checking if a nuclear power plant can survive a plane crashing into it.

Heavy hedge fund buying pushes up bullion prices

Bullion prices are all set to hit the roof thanks to heavy buying by hedge funds. Traders are looking at gold prices hitting the $600 an ounce mark while silver prices may top $12 an ounce very soon. While hedge fund investors have nothing to worry about with bullion investments being always a 'safe haven', gold and silver traders across the world, especially those in India are making hay while the sun shines. While gold prices rose by 20 per cent last week, silver too posted massive gains, rising almost 14 per cent. business-standard.com reports:

Traders said hedge funds are attracted to precious metals largely because they offer higher rates of return compared with other forms of investment – such as currency or bonds.

Cool’s the word for hedge funds

I never thought I’d say this, but the British could actually give us a few tips on how to make something as stodgy as hedge funds cool. Yes, you heard me right. Hedge funds have suddenly decided to jazz themselves up. And the British companies seem to be the guiding light here.

One is tempted to ask was it that drove this industry, which was associated with the uber-rich to remodel itself into a fun thing? It seems the industry is no longer satisfied with hobnobbing with billionaire financiers and wants to move out into the world. And it has done this in style. So, you have Hedgestock 2006, a rollicking fun event that will kick off the metamorphosis of the industry. Sponsors hope to make the event, which will be held soon, the premier hedge-fund-industry trade show of Europe. Guess it won’t be long before we have our own cool hedge fund event.

Loans From Hedge Funds

Are you looking for funds to bail your company out of trouble? Try turning to hedge funds as now this sector is offering loans for all sizes and scales of companies including small operators, like payday lenders and technology firms, to large automotive companies, retailers, and so on.
US News reports:

With banks shedding some of their corporate loans and becoming tighter in their lending, yield-hungry hedge funds have rushed in to exploit other areas of the debt market. Hedge funds are attracted to such loans because they help diversify their investments, have had low default rates, and offer double digit yields.

Emerging Market Hedge Funds Hot

It has been observed as a growing trend that wealthy pension funds, endowments and other institutional investors are scouting for opportunities to invest into regions they earlier avoided. The focus for investment is found to be emerging-market hedge funds. In December 2005, the California Public Employees’ Retirement System, or Calpers, reportedly set aside US $100 million of its $206 billion, while Vision Investment Management of Hong Kong invests in hedge funds specializing in Asian emerging markets. theroyalgazette reports:

“Just about any institution you talk to wants some emerging-market hedge-fund exposure,” says Gary Kleiman of Kleiman International Consultants, a New York researcher of emerging markets.While the investments are a fraction of the funds and endowments’ overall assets, the pace of cash flowing into emerging markets is quickening. So far in 2006, investors have put more than $20 billion into a basket of emerging-market stock funds – ten percent of which are hedge funds – tracked by Emerging Portfolio Fund Research, a Boston outfit. About $20.3 billion flowed into the basket in all of 2005. Roughly 70 percent of the money it tracks comes from institutional investors, says Brad Durham, a managing director.

Hedge funds Industry Dynamics

Till sometime back the estimated number of hedge funds was reported at over 8,000 active hedge funds. Add to this the trend of the marketplace – where more and more hedge funds managers are setting up their shop each day. And this brings the potential number of hedge funds in the market in the future simply to a staggering proportion.

Well you might ask – what is the big deal about the growing numbers? Or how is going to affect the markets? Or how is going to be a challenge?

Well to come to the point directly, all that can be said that although this growth in the number of hedge funds seems to augur well for the industry – there is an inherent challenge for the managers of fund of funds. The biggest challenge is to pick the best performers and promise holders out of such a huge and rapidly growing universe of hedge funds. To fight this issue, most fund of funds managers are increasingly turning to new talent, who they say provide better returns than their more established counterparts.

The trend witnessed recently in the heating up hedge funds scenario is that coup on the energy sector. The leading investment banks and financial services giants such as Goldman Sachs and Morgan Stanley are reportedly making a killing on energy investments. And it happens to be no surprise that aggressive hedge fund managers have been getting in on the action, and more are likely to do so in the coming months at the energy front.

As they say in the capital markets – the market is back! This time it is back driven by interest into the energy commodity driven investment and the exiting of the previous fixation of electric utilities.

New Ways to Make Money

When you invest your money, what you want is the highest possible returns. And to satiate this desire, hedge fund managers are getting more innovative with the strategies that they employ. They are introducing new strategies for loans, oil derivatives and agricultural futures markets.

According to reports, last year hedge fund returns averaged around 7.5 percent, compared with around 9.5 percent in the year 2004. This clearly suggests a downward trend, thus giving birth to the need to reinvent strategies.

In the drive to improve returns and exploit new hedge fund strategies, PSolve plans to list a new fund of hedge funds, PSolve Niche Opportunities, on the London Stock Exchange. In fact this is just the beginning, and the market is expected to see a lot of new funds and strategies in the coming future.

What are hedge funds?

Well if you have had some interest in the financial market, then you sure must have come across the term “hedge fund”. This term is most commonly used to describe a variety of investment vehicles that share similar characteristics. Even though the term is not statutorily defined, it mainly encompasses any pooled investment vehicle that is privately organized, administered by professional investment managers, and not really open to the public at large – or so to say not usually available for retail small time investors.

Thus the next question that we expect from you while reading this piece is that if it is not open to retail investors – then for whom is it open. Well the answer to this query is that hedge funds as a class of investment vehicles are primary open to wealthy individuals and institutional investors. Also, hedge fund managers frequently have a stake in the funds they manage. In reference to hedge funds’ structure, entities are organized as limited partnerships or limited liability companies, and in many cases are domiciled outside the United States.

Hedge funds in Asia attracting investors

The Asian Hedge Fund industry is currently sailing on a high wave with global investors increasing their allocation to these funds. In fact, the industry has seen significant growth in terms of assets in the last year.

At the same time, experts are predicting that the industry would continue to flourish in the coming year. This growth can largely be attributed to the increasing interest of investors that stems from a healthy economic and financial scenario.

At the same time, it is a well established fact that Asian hedge funds are much smaller than those in the US and the Europe, but at the same time, these are now finding favor amongst seasoned as well as new investors. Investors are investing in these funds with the hope of higher returns than what are assured by other hedge funds. And the favorable conditions in the industry are supporting this hope.

Pension Schemes Role Could Beckon Hedge Funds

In a potentially industry altering discussion, the possibility of allowing Investment banks, asset managers and hedge funds to take over pension schemes of financially strapped companies under plans are being discussed. The discussion is driven by the Pensions Regulator and the City watchdog. It is being reported that this move will offer hope to pensioners of failing companies in form of a higher retirement income than that guaranteed by the Pension Protection Fund, the government-sponsored safety net. This move will also have a positive impact on companies, particularly in traditional industries where the core business has shrunk and pension liabilities have mounted. Ft reports:

Investment banks have been clamoring for the right to acquire the assets and liabilities of closed pension schemes at competitive prices, arguing they could make a profit. Other investors are understood to be seeking a role. These include Mark Wood, the former head of Prudential’s UK life assurance business. The Pensions Regulator was initially worried that such deals posed grave risks to scheme members. But it has now begun exploratory talks with potential investors and the FSA.

UAE to host Hedge Funds World Middle East Conference

The UAE will be hosting the seventh annual Hedge Funds World Middle East Conference in March. The exact dates are 7-8 March. Over 600 investors and financial services experts are expected to be part of meet. Tradearabia reports:

"The past year has been an important one for the hedge funds industry in the Arab region due to the positive development in the regional financial landscape. The set up of DIFC and the measures taken by the regional capital markets to cope with their international counterparts has had a significant impact on the industry," says Antoine Massad, head of Middle East and Asia.

SGAM AI opens hedge funds platform in Asia

SGAM Alternative Investments is reportedly establishing a dedicated team of hedge funds specialists in Hong Kong. This set up will be alongside its existing structured products group. Christophe Lalo, who has been relocated from Paris, will be taking on the role of Regional Head of Sales & Marketing, Hedge Funds, in Asia Pacific. Prior to this, he was Head of Sales & Marketing in Paris, looking after the development of hedge funds in Asia Pacific. There will also be other senior officials who would provide support to Lalo at this front. Hedgeweek reports:

“Asia is a growing part of our structured products and hedge funds businesses. These initial recruitments are the very first step to creating a strong franchise in Asia,” said Philippe Brosse, CEO of Paris-based SGAM AI. Société Générale Asset Management (SGAM) Group is also expanding its operations in the region, recruiting two Chief Marketing Officers, based respectively in Hong Kong and Singapore.

Perception of Hedge Funds in the EU

Well how banks in the European Union define hedge funds is very critical to understanding how they view this sector. Research suggests that EU banks define hedge funds as an unregulated vehicle of investment partnership. A vehicle that uses leverage, derivative instruments, short-selling, arbitrage and other high-risk strategies to achieve targeted levels of risk and return.

The tag ‘unregulated’ is attached since hedge funds only have to fulfill weak disclosure and regulatory requirements, especially regarding capital requirements. Also, most hedge funds are based in offshore locations. While in comparison with standard investment funds, they have longer contractual liquidation, redemption or withdrawal periods of associated certificates/shares.

Most of the EU banks have their own internal definition of a (fund of) hedge fund, which is usually formulated in their internal policy documents. Such definitions are, in general, mostly in line with the working definition floating in the EU region, which contain elements such as “loosely regulated, few restrictions etc.

Efforts being made to spread information about hedge funds in Korea

Currently, according to the regulations in Korea, companies are allowed to sell hedge funds only to a select group of institutional investors. These funds cannot be sold to individual investors.

Keeping this in view and with the hope that the market would soon open up to hedge funds, a number of companies are making an effort to spread information regarding hedge funds. The need of the hour is to also remove the misconceptions that exist in the market in respect to hedge funds so as to ensure that investors recognize their benefits.   

Mayibentsha Fund now available for international investors

The international market for hedge funds is growing and investors world over are looking at the emerging opportunities. Keeping this in view, a hedge fund of funds that was initially launched only for South African investors, would soon be available for international investors.

Fortune Funds Ltd, a Cayman Islands-registered entity, introduced the fund, Mayibentsha Opportunities Fund. This fund was launched in April 2003 and will be available internationally from March 2006. It would offer three different classes, that would be USD Series, Euro Series and GBP Series.

Mayibentsha Fund GBP series, in the period beginning 1 April 2003 and ending on 31 December 2005, would have returned 15.24 per cent per annum. This would be with a volatility of 3.77 per cent per annum. It has also been reported that over this period the maximum drawdown was 1.15 per cent.

The decision to make the fund available internationally also stems from the on-going joint-venture between Fortune and Novare Investments. Novare is a leading investment advisor and investment manager. The group is part owned by Mvelaphanda Holdings.

The joint venture is aimed at creating a proper base for the development of investment solutions. So far, the joint venture has led to required and beneficial personnel exchanges and cross marketing initiatives, that work to the advantage of both the groups.

At the moment, Novare manages approximately USD 1 billion of assets including the Mayibentsha Fund.

The South African economy has developed over the years and offers a lot of scope for further growth. This acts as a great incentive for investors looking at expanding their portfolios in the right markets.

Scotia Capital intends to host an event to discuss new hedge fund opportunity

With new markets emerging in respect to hedge funds, the latest opportunity that would now be available for investors is Canadian hedge funds. Scotia Capital Inc, is hosting an event in early March where the new opportunity would be discussed in detail.

The invitees would include about 75 European pension plan chiefs, private bankers and other institutional investors who would gather at the Park Hyatt hotel in Zurich, Switzerland.

Canadian hedge funds are attracting investors basically because this market is less saturated than the US and the European hedge fund market. Also Canadian managers are experts in commodities. So far this market was more or less untapped.

At the same time, there was hardly any information available regarding the exact size of hedge fund holdings or how they've performed. Keeping this in view, Scotia Capital will also unveil a measure that would help in tracking the performance of Canadian hedge funds.

Latitude Capital launches new hedge funds

Latitude Capital Management recently launched two onshore single strategy hedge funds. The new hedge funds specialize in Japanese equities. These are Latitude Alpha and Latitude Japon.

Launched by the French asset manager, Latitude Alpha is a long/short market neutral fund. On the other hand, Latitude Japon is a long only fund. In case of the former, the investment portfolio consists of the 430 largest and most liquid stocks in Japan. Also, the fund is not sector neutral and has a management fee of 2 per cent.

The latter, that is, Latitude Japon can be traded weekly with no lock up and a two-day notice. The management fees for this are as low as 0.25 per cent.
Hedgeweek reports:

Onshore hedge funds are new products in France. The French market authority (Autorité des Marchés Financiers - AMF) issued a new legal framework in 2005, which allows the creation and marketing of single strategy hedge funds in France under very strict conditions.

New fund of hedge funds launched by Permal

To tap the advantages offered by the recent economic growth in India, Permal Group has launched a fund of hedge funds. Permal is a unit of US-based investment company Legg Mason Inc.

The Indian economy has seen a substantial growth in the recent past. It is also  expected that there would be further growth of up to 8 per cent by the end of this financial year.

To capitalize on this, the group has indicated that it would invest in 20 hedge funds. A range of strategies would be adopted, including long-short funds, long-biased, special situations and macro trading funds.

It has also been reported that a number of foreign investors have moved substantial funds into Indian equities and even the mutual funds have seen substantial growth. The Financial Express reports:

The Permal fund was launched with in-house money last month. The group expects to raise around $200 million for the fund. The minimum investment is $100,000.

Average return of hedge funds touches new high

The performance of hedge funds has been drawing the interest of investors, and not so without a valid reason. In fact, according to a recent report by EuroHedge, the average return of hedge funds based in Europe rose to its highest level in nearly six years in January.
Reuters reports:

The EuroHedge Composite Index rose 2.42 percent in January, according to figures released by the group. This was the biggest monthly gain since February 2000, the peak of the dotcom boom in equity markets, and coincided with further gains in global stock markets.

Jersey open to hedge funds

With the introduction of the Expert Funds regime, Jersey is all set for a new era in the hedge fund business. In fact, this has served as a clear signal to the industry that Jersey is open to hedge fund business.

The past year has also seen substantial changes in the way that business is conducted here and has therefore increased the attractiveness of the island. So far, setting up a hedge fund in Jersey was a struggle, with the increased flexibility and the new regime, the process has become much easier. Also, there are no restrictions on borrowing or investment anymore. So far, non institutional fund managers were discouraged in Jersey, again the new regime has changed this.

A number of other changes introduced in the regime have remodeled the entire market and created a better platform for hedge funds. Hedge Week reports:

The new regime, which took around a year to draw up from conception to implementation and which involved extensive discussions between industry practitioners, the regulator and the island’s political authorities, represents a big change for Jersey in terms of regulatory mindset. Also, till now it was required that funds use a Jersey custodian, whereas the Expert Funds rules have removed that stipulation provided that the fund has appointed a prime broker.

First Gulf Bank Launches Hedge Fund

Abu Dhabi-based First Gulf Bank has reportedly launched its first open-ended, macro-strategy hedge fund today - Al Saqer (The Falcon). The aim is to offer investors absolute return generation that too with low volatility and a low correlation to traditional asset classes, such as equities and bonds. The Hedge fund is not restricted to any one asset class, as the investment will include a variety of assets and use many different strategies. The focus will be consistent, absolute return, regardless of the direction of the local stock market. Ameinfo reports:

'We believe this Fund to be unique,' said Andre Sayegh, 'whereby we will reserve the right to invest in the booming property markets of Abu Dhabi and Dubai, and elsewhere for that matter.' 'We will invest according to available opportunities in all kinds of geographic locations, focusing primarily on the Gulf Co-operation Council states of the United Arab Emirates, Kuwait, Qatar, Bahrain, Oman and Saudi Arabia. Furthermore, because Al Saqer is a macro fund, we will apply whichever strategy we see fit as and when opportunities present themselves.'

China considering opening the market to hedge funds

It was recently announced by the Banking Regulatory Commission, China, that a special committee would be formed to look into hedge funds. This committee would determine how difficult would it be to regulate these funds if the country allowed them.

It has been indicated by sources that a number of signs were visible that the country would soon allow hedge funds. So far, the reason for hedge funds being a taboo in the country could be largely attributed to the belief that these were responsible for the Asian financial crisis a decade ago. Another misconception that investors in China had was that these funds ensure high returns because of the high risk factor.

It is now being recognized that hedge funds add liquidity and increase market efficiency. This move is also aimed to provide an impetus to the governments move towards greater market liberalization.

Hedge funds are a lucrative alternative

Today hedge funds are a lucrative investment tool. This can be largely attributed to the fact that stock markets across the globe have reached excessive valuations. At this stage, experts predict future corrections. In this case, hedge funds are a viable alternative for investors as these assure consistency of returns rather than just magnitude of returns.

As an investor, you need to take your pick, is it just size that matters?

Fortis Prime Funds Solutions plans to launch hedge funds

As a part of their expansion plans for the year, Fortis Prime Funds Solutions plans to launch hedge funds across the globe. These would be essentially launched in Asia, excluding Japan, Europe and in the US. Hedgeweek reports:

These hedge funds are being typically run by people such as former proprietary traders. The company also plans to increase hedge fund launches in newer regions like Australia.

Hedge Funds in China

China is expected to witness much more of a favorable business environment, which includes more openness, liquidity and interest from the investing public. This is going to be boon for the development of hedge funds over the next three years, according to a US expert. As of today, investing in hedge funds is forbidden due to concerns of its high risk and volatile nature. At the China Banking Regulatory Commission's annual meeting held in December 2005, Chairman Liu Mingkang reiterated the government's perception of hedge funds being one of the major forces behind the 1997-1998 Asian Financial Crisis.  Xinhuanet reports:

"Having discussed with the Chinese authorities, I believe that the consensus already seems to be developing that it is only a matter of time before hedge fund investing becomes a reality in China," said Jeffrey H Tucker, founding partner of the Fairfield Greenwich Group (FGG), a leading developer and investor in hedge funds.

Hedge funds: Treading the Retail Road

Hedge funds are now reportedly opening up to the not-so-rich of Europe. In Germany, investors can buy into a hedge fund from Deutsche Bank for as little as EUR 124 (HK$1,163), while in the UK, individuals are able to avoid restrictions on such investing by buying shares of funds that track hedge funds. The standard reports:

"There is going to be a gradual acceptance of hedge funds by the retail investor," said Marc Denogent, a vice president at Hedge Fund Research's investment management arm in Zurich, which oversees about US$4 billion in funds of hedge funds. "The regulatory difference between hedge funds and traditional funds is diminishing too."

Hedge funds accessible for medium income investors in Europe

According to recent reports, hedge funds in Europe would now be available for people falling in the medium income strata as well. In Germany, investors can purchase hedge funds from Deutsche Bank AG for as little as 124 euros, that is $150. Regulators in UK and Spain are also considering opening the industry to more individual investment.

Investors need to know that hedge funds usually tend to take larger bets than conventional funds and aim to make money even in falling markets. According to Chicago based Hedge Fund Research Inc., hedge funds worldwide have more than doubled their assets since 2000 to about $1.1 trillion. Also, for Europeans, hedge fund investments may lift returns. Over a period of five years, ending last November, the CSFB Tremont Hedge Fund Index advanced 48 per cent, compared with a 2.4 per cent return for the MSCI World Index during the same period.

At the same time, investors need to exercise caution as these funds can be risky. The Bailey Coates Cromwell Fund, London, that had about $1.3 billion at its peak, closed in June after losing 20 per cent of its value.

It is advisable for new investors to study the market in detail before capitalizing on the opportunity now available to invest in hedge funds. New investors

At the same time, caution has to be exercised, as these funds can also be risky. The London-based Bailey Coates Cromwell fund, which had about $1.3 billion at its peak, closed in June after losing 20 percent of its value.

BOC to Offer Hedge Funds

Bank of China (BOC) has reportedly outlined plans to introduce hedge funds into the market in order to speed up its forthcoming Hong Kong listing. The Chinese bank is yet to submit its Initial Public Offering (IPO) application to the Stock Exchange of Hong Kong. Tmcnet reports:

Although the third-largest Chinese lender once refused to talk with hedge funds, it has recently nodded Oaktree Capital Management and Och-Ziff Capital Management, said an insider familiar with the affair. BOC have required the two hedge funds not to sell the stake bought within three years, said local reports.

Hedge Funds Era: Emerging Horizons

The last few years, or at least the last year, could be termed as the year of hedge funds in context of the investments. Hedge funds – the largely unregulated brackets of private capital, which were once generally available only to institutions and the super-duper rich, proliferated into at least the segment of large retail investors. Well at least a portion of this statement can be deemed to be correct, if not all. The increasing popularity of the hedge funds as investments was only rivaled by the scandal articles published about it.

Traditionally, the hedge-fund managers were known to be wary of media attention and avoided disclosure of any sort to the prying media eyes. These Garbos of the asset management world preferred to be left alone by all and sundry, including the media, the public, and above all, by the Securities and Exchange Commission.

However, in recent years, especially in 2005, these very hedge fund managers have thrown their weight around and claimed their stake as the brains behind one of the most mesmerizing investment strategies. Some of the aggressive hedge-fund managers are shaking-up management and pushing restructurings at leading blue-chip companies such as Time Warner and McDonald's.

While other hedge funds managers did something totally different - not content with manipulating with the stocks and investments, went on to leading positions at well-known companies. A good example is Edward S. Lampert who has done it at Sears.

By some estimates, the hedge-fund industry has nearly doubled in the last four years; there are now an estimated US $ 1 trillion in assets across 8,000 funds. Leading institutions such as university endowment funds and state employee pension funds are dumping money into hedge funds. Further as a tip off for the future, hedge funds are going retail big time - with investment banks having rolled out funds, which let big retail investors taste the once unaffordable investment option.

Diversity In Hedge Fund Industry

For most retail investors, the whole hedge fund industry is just the same - Just out of their reach. However, a closer look at the hedge fund sector reveals many variations within it. There is diversity within the Hedge Fund Industry. For the starters, let’s just discuss the three broad classifications of hedge funds.

The first class of hedge funds is the Macro Funds, which are known to take large un-hedged positions in national markets based on top-down analysis of macroeconomic and financial scenario. One of the most important attribute of such funds is the care with which they are positioned. These funds usually take position in either mature or key emerging markets. Also, there investment pattern is quite diversified. They are known to spread their holdings across equities, bonds and currencies. This gives them enough risk cover, with strong earning potential. Most of the long-established macro funds find it strategic to use conventional forwards and futures to take positions ahead of the market moves they foresee. However, some of the newer macro funds exhibit specialized trading strategies, with use of complex derivative securities.

The second class of hedge funds is the Global Funds. These funds are known to take their positions worldwide. Further, such funds follow and employ a bottom-up analysis, which translates into picking stocks on the basis of individual companies' prospects. This is a more micro approach to asset selection.

The third class of hedge funds is the Relative Value Funds. These funds are known to take bets on the relative prices of closely related securities, which include treasury bills and bonds. One of the key identifiers of these funds is their investment pattern. They are known to limit their asset investment to only mature markets. This is because their core expertise is limited to mature markets. And another element is that relative value funds are inclined to use derivatives.

Return of the Macro Hedge Funds

According to hedge funds industry experts, these funds, which bet on market trends using economic analysis, are expected to be popular among investors and likely to dominate the industry within the next three years. More and more investors are getting attracted towards higher potential return offered by this risky strategy, which is also known as global macro.

The potential of the fund is highlighted as stock, bond, currency and commodity markets are likely to be more volatile due to economic uncertainties. In the recent times, the most high-end macro fund was one run by George Soros, who in 1992 bet against sterling staying within Europe's Exchange Rate Mechanism.

A study of the market reveals that global macro funds account for less than 10 percent of the total assets under the industry’s umbrella. This is comparatively less than equity hedge funds, which are estimated at 40 percent. Equity hedge funds are popular with institutional investors. However, in the early 1990s macro funds used to control more than 70 percent of the total assets of the hedge funds industry.

According to industry experts, eventually money shall flow back to macro funds. Analysts are projecting that up to 30 percent of the total hedge fund assets are likely to be in parked in directional strategy within two or three years time. Current estimate of the market outline that hedge funds manage more than $1 trillion in assets. This is double of the asset figure in 2000. Further, if projections are to be believed, then, within 5 years the assets should be to the tune of $2 trillion.

The main pull away from macro funds in recent times has been due to the emergence of institutional investors such as pension funds, which have generally avoided macro funds due to the high risk nature.

Institutional Investors a Major Force in Hedge Funds

Large institutional investors are increasingly seen as the dominant force in the hedge fund industry, muscling out the traditional super-rich hedge fund investors. Investments from pension funds, endowments and companies are rising quickly, thus sideling the private investors to a minority. dnaindia.com reports:

The industry is currently estimated at $1 trillion in assets. Just five years ago, the overwhelming majority of the then $500 million of assets managed by hedge funds were from wealthy individuals, said Tanya Styblo Beder, who runs a hedge fund called Tribeca Global Management LLC.

Fund of Funds: A Possibility for Retail Investors

For years, deep-pocketed investors have done well for themselves by parking a certain portion of their spare money into Hedge funds. A classic case is the Yale University endowment which invested heavily into hedge funds during the last two decades. The Yale University endowment bagged an annual return of over 16 percent per annum.

However, when it comes to retail investors, Hedge funds seem a distant dream. But if you are still tempted to try to earn such high returns then there is a way out. One possible solution is to invest in a fund of hedge funds. A typical fund of hedge funds contains investments in at least several individual hedge funds.

Such funds not only offer strong diversification, but they also generally require a much lower initial investment than individual hedge funds. And what differentiates such funds from individual hedge funds is the fact that even investors with less than mammoth bank balances can invest into them. Nowadays, various funds of funds are registered with the S.E.C., thus, offering more transparency and oversight than unregistered funds.

Pension Funds Investing Heavily in Hedge Funds

Driven by the growing numbers of retirees, pension funds and plans are investing billions of dollars into hedge funds. Hedge funds, which once upon time were known to be the domain of the super rich, are nowadays the preferred choice of many a pension funds.

According to a recent study, by 2008, the pension plans and other such large institutions are expected to invest as much as $300 billion in these secretive and lightly regulated investment partnerships. This is up from an estimated investment of $5 billion into hedge funds a decade ago. This is a huge shift and the effect of such a trend could be phenomenal, as pension funds account for close to 40 percent of all institutional money.

The investment council, which oversees the New Jersey state employees’ pension fund, outlined its intention to invest about $600 million into hedge funds over the next several months. Well, this is council’s first investment into hedge funds.

Just an overview of the pension funds market would reveal that many pension plans have modest stakes in hedge funds, while others have invested over 20 percent of their assets. For instance, Weyerhaeuser, a paper company, has 39 percent of its pension fund's assets into hedge funds. There has been strong lobbying for amendments that would make it easier for hedge funds to manage even more pension money, without having to comply with the federal law that governs company pensions.

Although, pension plan officials are moving towards hedge funds to avoid the market downturns and persistent deficits, there needs to some method to this madness. With risks that are hard to measure, hedge funds are an appropriate choice of investment for pension funds, whose sole purpose, by law, is to pay out predetermined benefits to retired workers. This requirement is something that none of the pension funds can afford to skip.

Hedge Funds Score over Conventional Funds

It is interesting to note that most mutual funds, the preferred vehicle of investment, cannot take short positions or use put options. However, Hedge funds, on the other hand, can do this and more. Hedge funds not only have the flexibility to be defensive but it can also be quite responsive to the market and drive strong returns.

The reason is quite clear and evident. Hedge funds as a class of investments aren’t limited to a single category of assets such as stocks, while, conventional funds such as mutual funds are. This essentially means that within the classification of hedge funds there are a wide range of funds with varied strategies and styles.

There are some hedge fund managers who invest in asset classes such as currencies or distressed securities and in one or more regions throughout the world. While, there are those funds that utilize return-enhancing tools such as leverage, derivatives, arbitrage, and highly concentrated positions that are generally beyond the reach of mutual funds.

Hedge Funds Going Mainstream

In an effort to bring the concept of hedge funds to the mainstream, J. P. Morgan Chase is marketing a new mutual fund, the Highbridge Statistical Market Neutral fund. The new fund is to be managed by Highbridge Capital Management, the $9bn hedge fund house that J. P. Morgan Chase acquired in 2004.

J.P. Morgan Chase expects the fund to have its appeal among less wealthy investors who could not otherwise invest in a hedge fund. This goes on to show that how hedge funds, which were exclusively the domain of the filthy rich, have now started to gain footing among the affluent investor segment. Assets in hedge fund partnerships have increased drastically in recent years, reaching up to $1.1 trillion.

Further, the acceptability and accessibility to hedge funds is increasing, with investment banks offering the less wealthy a back-door entry. This is done by lowering the minimum investment required to invest in funds that in turn invest in pools of hedge funds, known as funds of funds. Nytimes reports:

More and more investors - from individuals to huge pension funds - have been persuaded that hedge funds can be an alternative to a lackluster stock market. For as little as $10,000, you, too, can invest in a hedge fund - or, to be precise, in a mutual fund run by a hedge fund manager.

Hedge Funds: Catching up but still a long way to go

A large section of the investor community believes that hedge funds are a riskier proposition as compared with mutual funds. Most mutual fund managers seek insights into the performance of hedge funds prior to allocating assets to hedge fund strategies.

However, it is to be noted that the investment portfolio managers are set to expand their scope of operation. As reflected by the robust growth in investments into hedge funds over last three years, it is clear that even mutual funds managers are studying the proposition of allocating a portion of the funds they manage to the hedge fund pool.

Many pension funds and endowments scheme managers are boosting their exposure to hedge funds. In the US, hedge funds are increasingly being considered in the portfolio selection of many local county and state employee funds.

Despite a favorable trend, investors are extra cautious after the multi million-dollar debacle involving Bayou fund. Investors prefer mutual funds over hedge funds, due to lack of transparency into the working of hedge funds. In an attempt to improve investor confidence in hedge funds, a comprehensive report was drafted tracking performance of various hedge funds against benchmark index such as S&P 500, and NASDAQ.

The report offers in-depth information on individual hedge fund strategies. What came out was the potential portfolio diversification, which could be achieved for a mutual fund portfolio by allocation of optimal weights to hedge funds strategies. The report also listed some of the best performing hedge funds of last five years. Majority of the hedge fund strategies carry a negative correlation with the S&P 500 and the NASDAQ 100. Thus, diversifying the portfolio by allocating assets to hedge fund strategies is likely to reduce the volatility of a mutual fund benchmarked to the two indexes. Overall, for a retail investor, hedge funds are far from a popular investment destination. But the scene is changing with increasing exposure towards hedge funds.

High Opportunity Hedge Fund: The new offshore fund from Dreman Value Management

Following up his experience of over three decades dealing with mutual funds, David Dreman established an onshore hedge fund in 2003. Two years later, Dreman has opened the High Opportunity Hedge Fund, which is an offshore fund that will be operational alongside the onshore fund.

As fund manager, Dreman has discovered through the years that the best approach is a contrarian value approach towards investments. This approach makes use of the quantitative screening methodology, which involves the application of value screens such as low P/E, low price-to-cash flow, low price-to-book value, and high yield to a universe of stocks. The hedge fund is expected to enable Dreman to employ for a hedge fund vehicle for his strategy. Hedge Week reports:

Since its inception in October, 2003 through the third quarter of 2005 the fund has returned 28.6 per cent versus the S&P return of 27.8 per cent. Having established a two-year track record, the fund is now open to investors and will soft close at USD 1 billion.

Pi Capital Inc. to open new offshore equity hedge fund

Pi Capital Inc., an SEC-registered investment adviser based in Beverly Hills, California, has announced that it will initiate a new offshore equity hedge fund called Pi Cap U.S. Equity Long/Short Growth Fund, Ltd. There will be three components in the investment plan, and all these components will be an integral part of the fund's portfolio. Business Wire reports:

The first component is to establish long positions in high quality companies exhibiting strong organic growth. Second, to manage risk, the fund seeks to take short positions on a selective and opportunistic basis. The third component is to hedge risk with a mix of financial and commodity futures.

Hedge fund started targeting the Middle East

The world economy going haywire due to rising prices across countries due to its linkages with the rising oil prices, however, one region in the world is not complaining, i.e. the Middle East and North Africa. And since many of these regions are oil producers they have benefited tremendously with the price rise of over 300 per cent in the last few quarters, where the price of oil on the NYMEX exchange has soared around $70 of per barrel. The nature of the business which was secretive and undisclosed in nature in now following international norms and practices prescribed in the developed countries. And in order to ride on the trend and attract westerners a new fund has commenced operations in the region. Mr. Khaled Abdel Majeed, founder of Mena Capital, which is based in London and Istanbul, has set up a hedge fund - Mena Admiral Fund, to trade stocks in the Middle Eastand North African regions. The Fund’s decision making process will surround across prevailing economic trends of the region, however it will buy or short sell stocks on its individual merit. The minimum investment required will be of $100,000, and will charge annual management fees of 2 per cent and performance fees of 20 per cent. Reuters Reports:

Many of the countries in the Middle East and North Africa are major producers of oil, the price of which has jumped nearly 300 percent since the September 9, 2001 attacks on U.S. cities. On Thursday it was trading around $61 a barrel. "There has been pressure from the United States on some of the region's countries to reform since 9/11," Abdel Majeed said.

Asia allures hedge funds

Emerging markets like Asia is once again becoming a top investment destination for hedge funds. Asian hedge fund industry is estimated to be an $85 billion industry. In the first nine months of 2005 alone, there are 60 hedge funds set up, mostly in Hong Kong, which is four times of that set up in 2004 which was 15 funds, and double from that number in 2003. Asia has done quite well this year, Morgan Stanley Capital International’s Asia Pacific Index is up 8.3 per cent this year, compared to the 2.8 per cent drop of the US benchmark Standard & Poor’s 500 Index and the 14.2 per cent advance of Europe’s Dow Jones Stoxx 600 Index. Asian tigers seem to have regained their stronghold, its hedge fund industry now account for 6.5 per cent of the world’s total, while its equity markets make up for around 15 per cent of the global market value. Business Times Reports:

“Asian markets are the fastest growing in the world. The economies are the most robust and the need for capital is great,” said Donald Sussman, founder of Paloma Partners Management Co, a Greenwich, Connecticut-based hedge fund with US$3.5 billion of assets and a trading team in Hong Kong.

Arlington Group and Eurekahedge ink pact to commence Hedge Fund operations in Asia

Arlington Group Limited (LSE: ARL) is an investment company has joined hands with Eurekahedge, an alternative investment consultancy to start-off hedge funds operations in Asia. Under the terms, Arlington Group will supply seed capital, while Eurekahedge will provide origination, analytical support and resources into the venture. Arlington's Asia-focused investment manager, Mr. Joseph McCarthy and Eurekahedge founding partner Mr. Richard Armstrong and will be jointly responsible for developing and managing the new seeding platform. Eurekahedge believes that Asian hedge funds have delivered pheneomenal returns of around 46 per cent over the last three years. The hedge investments in the region are estimated at $70 billion which is approximately 6% of the total assets invested in hedge funds globally. The joint venture will aid its existing services in start-up advisory and capital raising services. Eurekahedge however has a presence with over $40 million assets invested in Asia through a joint venture with ABN-Amro in 2002. HedgeWorld.com Reports:

From the Eurekahedge perspective, Arlington Group made a good partner for the venture as the firm has been allocating to Asian hedge funds for the last 24 months and has a management team in place made up of experienced Asian investors. Mr. Mearns also noted that the firm has a "strong balance sheet" and the ability to execute deals quickly.

Read More: Arlington Group and Eurekahedge Team to Seed Asian Hedges

The Return of Macro Hedge Funds

There is upswing observed in the global macro hedge funds since they were banished by investors after the collapse on Long Term Capital Management (LTCM) in August 1998. After the fiasco there has been a sharp decline in the allocation of funds from more than 70 per cent of then $39 billion hedge funds market of the1990 to a current bracket of 4.5 per cent to 15 per cent in this year. However, the trend is changing this year these funds have yielded the highest risk-adjusted return ratio of 3.9 this year since 2002, compared with an industry average ratio of 2.5. With tighter regulations and stricter norms enforced by the industry and the regulators, the future seems to brighter for the beleaguered star having a checkered past. Reuters Reports:

But macro hedge funds have yielded the highest risk-adjusted return ratio of 3.9 since 2002, compared with an industry average of 2.5, Bonnefoy said. "If global macro can post another year of good returns, it will become more attractive." "We may see another 2 to 3 percent going to global macro," Bonnefoy said at the conference organised by FinanceIQ.

Read More: Macro hedge funds get more popular

European Pensions Funds stray away from Hedge Funds

The world over, pension funds are shifting their investments into hedge funds for a higher return on their investments. However, as per the report by Greenwich Associates the European pensions funds have chosen to shun the hedge funds. Their allocations to hedge funds and private equity have remained flat at about 1% of assets for each of the past three years. And the ever increasing danger of declining returns from the hedge funds have been point for the European pensions funds to restrain themselves from burning their fingers. The estimates noted that the promising dreams of delivering returns from Continental Europe have been fast eroding due to new accounting rules that seem to penalize risk-taking. Another reason can be attributed to mark-to-market accounting rules which ask European funds to “put on hold plans to shift their assets from government bonds to equities and other potentially higher-yielding investments”. The average European pension fund reported a solvency ratio of 95 cent compared to 105 per cent in 2003. While investments in Government bond were up to 29 per cent at the end of 2004, from 27 percent two years earlier, and investments in cash and equity were flat. IPE.com Reports:

The comments come in Greenwich’s 2005 report on the European investment management industry. It found that solvency ratios at Continental pension funds continued to deteriorate in 2005. This exacerbated the need for improved returns. Greenwich said that the average European pension fund reported a solvency ratio of 95%, compared to 105% in 2003.

Read More: European schemes shun hedge funds – Greenwich

Hedge Funds show a sign of wear-out

These are times of distress for the hedge funds to drive up returns to their investors in this jaded market in August. CSFB/Tremont Hedge Fund Index, an index that studies funds across of 13 strategy categories out of the 412 funds. According the index hedge funds pasted and an aggregate return only 0.88 percent for August, down from the 1.92 per cent for the month of July. Whereas on year-to-date basis, hedge funds in aggregate posted returns of approximately 4.2 per cent, compared to gains made of approximately 1.36 per cent for the S&P 500. While "short bias" funds, which bet on securities that will decline, posted 2.48 per cent in returns in August, compared to 1.66 per cent negative returns in July. Emerging market funds were the most sought after since they performed better than most other strategies, with gains for August posted at 2.29 per cent in tune with the July performance figures. These funds were in positive territory because of rallying equity markets in Russia, China and Argentina. Reuters Reports:

Emerging market funds also performed better than most other strategies, with gains in August at 2.29 percent, virtually matching July performance figures. The worst performers were managed futures funds, which posted declines of 0.87 percent in August, compared to gains of 0.87 percent in July.

Read More: Hedge funds eke out gains in August: CSFB/Tremont

Japanese economy lures Funds of hedge funds

The Funds of hedge funds now see hope building up in Japan with a solid growth forecast for the country. The Reuters survey of 12 funds of hedge funds have bet on a strong forecast of above average returns for its investments in Japanese stocks, due to improving economic growth and the prospect of reforms for over next two quarters. Hedge funds invest in a range of different class of assets and funds of funds spread their money between hedge fund strategies to further minimize risk. The survey pointed out that globally these funds put in around 38 per cent of their money in the next three months to make average positive returns from the long/short strategy, which tries to pick stocks that are going to do better or worse than the overall market. And in Japan, around seven of such funds of funds in the Reuters poll picked long/short as a strategy for the next three to six months. Reportedly, around nine percent of the money will be allocated by these funds towards the long/short strategy to be implemented in Japan for the rest of this year. Experts believe that a victory for Japan's Prime Minister Mr. Junichiro Koizumi in September 11 lower house elections would give him a stronger mandate for reforms making Japanese assets a lucrative investment. Reuters Reports:

"Global macro will continue to experience rich opportunities as a result of the revaluation of the Chinese currency, uncertainties about rising commodity prices, and weather-related issues just to name a few," said Anthony Gibson at Coronation Fund Managers. Current themes include the path of oil prices and the fate of U.S. interest rates, given the impact of last month's Hurricane Katrina on the U.S. economy.

Read More: Funds of hedge funds expect best returns from Japan

Indian Hedge Fund Industry looking attractive

India seems to be a hot favorite with the hedge fund industry these days. China, the other Asian country in fray is also some what liked by the fund managers these days. India, however is being preferred due to more number of opportunities in the region. The market is still quite full of inefficiencies which provide a fertile ground for the hedge fund managers to make profits.  China on the contrary is not providing that many opportunities. And Europe and North America have been experiencing a very stable market with low volatility thereby providing fewer opportunities for fund managers aiming to make profits by identifying market inefficiencies. Recent revaluation of the yuan by china may be seen as an attempt to attract foreigners for investments but the industry is a little guarded in its approach in the country. The development of the derivatives market in India is another reason for the European and American fund managers to look at the market seriously. Hedgeco.com reports:

"But China is also embarking on measures to open up its investment arena to more international asset managers. The recent Yuan currency reevaluation by the Chinese authorities may be a positive step in that direction."

Read More: Indian Hedge Funds Continue to Gain Momentum

Private Equity hedge funds attractive for smaller investors too!

More and more investors seem to be moving towards private equity funds in search of profits. Hedge funds are welcoming this move by lowering their basic minimum entry level amount to as low as $25,000. This is very different from $1 million or $10 million that was generally being asked for by the funds. More and more retail and investment banks today are partnering with private-equity funds to offer lower minimum investment products to smaller investors. Though the smaller investors are being attracted towards these funds because of this, all is not easy go for them. For one, they have to deal with high risks that come with high returns. High fee structure is another dampener with some funds charging 20% of profits apart from asset management fees. And of course there are lock-in period clauses to deal with. None the less a profit range of 15% to 30% yields on a 10-year fund is an attraction that no one is willing to oversee. Financial-planning.com reports:

“Fees can be high and so can the risks, but this summer sale could make private-equity funds this year's alternative investment of choice for wealthy individuals seeking higher returns, The Wall Street Journal reports.”

Read More: Private Equity Could Be This Year's Hedge Fund

New hedge fund from Highpoint Capital Advisors offers a different deal to investors.

A new hedge fund has been launched by Highpoint Capital Advisors, Delaware. The fund which started trading on 1st August goes by the name - Highpoint Domestic Partners LP. The fund started trading with only $1 million. The combined assets of the firm are over $11 million. The new fund employs long/short investment equity strategy. It also depends heavily on in-depth and concrete analysis of the market which provides it with the information about the strength of the fundamentals of the company. In order to invest in the fund, investors have to shell of a minimum of $250,000. The asset management fee charged by the fund is 1% along with a performance fee of 20% of the profits. The firm is committed to long term gains for it’s investors in all types of market conditions ranging from bear to bull and also when similar strategies enter the market and attempt to drive down returns. Add to this there is no lock in periods involved and there is provision of monthly redemptions. Hedgeco.net reports:

“The new fund allows for monthly additions and redemptions, with no lock-up provisions. Bear Stearns will provide prime brokerage services while Spicer Jeffries LLP and CCS Financial, Inc will handle the accounting and administrative functions respectively.”

Read More: Highpoint Capital Advisors unveils new Hedge Fund 

US pension funds find investing in Hedge funds rewarding

Off late more and more pension funds have been seen investing in hedge funds. This is in contrast with the previous trend of investing in long only portfolios. Pension funds had a severe setback when the technology market crashed in the late 1990’s and early 2000’s. From then on their investment in alternative investment vehicles like hedge funds has seen a dramatic increase. In 2001 less than 1% of the pension fund assets were invested in hedge funds. And now this number has grown to over 3%. This is good news for hedge fund managers as they get fresh inflow of money in a sluggish market. However all is not smooth sail for either of the parties involved. Hedge funds are expected to pay the asset management fees along with performance fees to the fund managers of hedge funds as per requirement. This is something they did not have to pay when they were investing in mutual funds. On the other side, hedge funds view the pension funds as a coveted lot and thus have to bow to there wishes to a certain extent. Whichever way the future rolls, this symbiotic relationship is currently looking like a good combination for both the parties involved. Hedgeco.net reports:

“But with rising level of pension fund investments in Hedge Funds also comes other requirements, now pension fund managers have to play by the rules of hedge fund managers, and must pay both management and performance fees to hedge fund managers.”

Read More: US Pension Fund Investments in Hedge Funds Accelerating 
 

Currency Markets are hot favourites of Hedge Funds

Currency markets world wide are the most liquid and as such are the favourite of hedge funds these days. The amount of foreign currency in dollars, Euro, yen etc floating around in the market has crossed the $2 trillion mark and is double of that amount which existed 12 years back. Last three or four years have seen a dramatic increase in the quantum of currencies that change hands daily. The number of people who are looking at currencies as an asset class has also grown exponentially. Bank of International settlements noted that much of the attitude shift and the volumes floating around has been brought about by hedge funds. This is primarily so since the funds are generally unregulated and there is no central clearing house to keep a tab on its activities. The number of hedge funds has increased dramatically and so has its ability to add to the strength of moves that occur because of the nature of these hedge funds. These funds actually have the power to temporarily protect or defend a currency and actually repel the market from being able to move in that direction. Theglobeandmail.com reports:

“Ian Gunner, who heads foreign exchange research for Mellon Bank NA in London, the global hub for currency trading, said there's a broad shift toward short-term plays in currencies, ranging between a few hours to a few months.”

Read More: Hedge funds throwing their weight around in global currency markets

Withers to open a branch in Greenwich

Withers is planning to open its third office in Greenwich, Connecticut. The private client specialist fund already has offices in New York and New Haven. It also plans to be present on the West Coast in near future. Withers already has many clients in Greenwich and sees the prospect of several others. The firm selected Greenwich as it is considered to be the richest town in the US. Withers’ UK managing director Margaret Robertson commented that though the town has potential, there are very few firms in Greenwich. As of now there are no international firms operational in the town – hence the plan to open its branch there. The company has been on an investment spree the whole of last financial year and yet managed to show overall returns of 11%. Thelawyer.com:

“The last financial year has been another year of investment for Withers, which merged with US firm Bergman Horowitz & Reynolds in 2002. As well as opening in Geneva at a cost of around £1m the firm has upgraded its IT with a new Elite accounting system, setting it back some £1.2m.”

Read More: Withers in hedge fund drive with third US arm

Summit Partners & Coast Asset management - convergence of private equity funds and hedge funds

More and more instances of convergence of private equity funds and hedge funds is being witnessed these days. The most recent amongst them is private equity and venture capital firm Summit Partners acquiring minority ownership interest in Coast Asset Management. Coast Asset Management is an alternative investment manager serving institutional and high net worth investors. Boston-based Summit Partners now have one third stake in Coast Asset Management. Summit Partners feel that Coast has a very professional team and they adopt a very disciplines investing strategy. As such Coast is most certainly an asset to their portfolio of leadership companies. They are hopeful of a well coordinated effort towards broadening their investor base and development of additional innovative products in collaboration with Coast. Coast Asset employs four different types of investment strategies namely fixed income arbitrage, diversified credit spread investment opportunities, special situations investments and multi-manager fund of hedge funds. Altassets.com reports:

“Coast's portfolio spans four investment strategies - fixed income arbitrage, diversified credit spread investment opportunities, special situations investments and multi-manager fund of hedge funds.”

Read More: US Summit Partners buys minority ownership interest in hedge fund Coast

Hedge Funds may not find Yuan exciting

China in playing extra safe with the yuan and preventing much speculation which may lead to destabilization of the country’s economy. As such, hedge funds are finding it difficult to make profits by betting on it. China revalued the yuan by 2.1% to becoming 8.11 yuan to a dollar on 21st July and many hedge funds which had long dollar positions against the yen lost a lot of money. Generally Asian currencies move in similar direction and are quite often used as proxies for the yuan. This is done because; yuan can not be bought outright. In the current scenario U S and European fund managers believe that there is going to be another move on part of China and therefore have either bought Asian currencies against the dollar or have bought yuan derivatives which are generally referred to as non-deliverable forwards. But some other hedge funds are not so sure that the move is wise because they feel that China is unlikely to give an opportunity for outsiders to make money at its expense. Which ever was the market goes, divided opinions such as in this case help hedge funds to discover opportunities. Today.reuters.com reports:

“That is why a surprise 2.1 percent revaluation of the yuan to 8.11 per dollar on July 21 caught out many hedge funds, which lost money on their long dollar positions against the yen.”

Read More: Yuan may not be so lucrative for hedge funds

Biotech: The new found love of Hedge Funds

Biotech has of late caught the fancy of hedge funds. The sector had been almost inactive for the last one year and has shown some activity in July. Analysts say that this is a normal phenomenon and attribute it to the fact that the biotech companies usually garner funds to help them with their research and trials for the year. Once the funds are nearing their end, they hop back into the market to get some more. Hedge funds have quite timely identified this sector and have jumped into it with enthusiasm. It is believed that this investing will continue following the positive swing of the field. However any negative news or development may drive away the hedge fund investors any time. Hedge fund analysts are still upbeat about the performance of the sector since there has been a lot of activity in the pharmaceutical industry and say that the trend will continue. Along with this M&.A activities in the sector has also gone up. All in all the sector is blooming right now. Business-standard.com reports:

“There was almost no activity in the space for (the preceding) three months and market conditions had been relatively poor for almost a year,” said Cully Davis, director in the Equity Capital Markets group at CSFB in Palto Alto.”

Read More: Hedge funds put biotech in vogue

HFA and Intelysis join hands to educate Hedhe Fund Investors

The Hedge Fund Association (HFA) recently tied up with Intelysis Corp in order to provide customized in-depth background checks on hedge fund managers to it members. HFA, which is a not-for-profit association of hedge fund managers, service providers, and investors aims to increase the overall awareness about hedge funds which is lacking currently. The tie-up with Intelysis will provide the members of HFA with the much needed information about the hedge funds and their managers. Intelysis is a well known international fraud investigation firm. It specializes in corporate investigations, computer forensics and providing de-masking fraud auditing services. The firm’s services are employed by a variety of commercial businesses, governmental bodies, hedge fund of funds, venture capitalists and law firms. The tie up will further the cause of increased transparency of hedge funds and help the investors to become more informed. This education will enable the investors to differentiate between the right and competent hedge funds from the others and thereby help to reduce incidences of frauds. Investorsoffshore.com reports:

“The Hedge Fund Association is an international not-for-profit association of hedge fund managers, service providers, and investors which was formed, in part, to raise the awareness of the advantages and opportunities in hedge funds.”

Read More: HFA Launches Hedge Fund Manager Due Diligence Tool

Qi Capital launches pan-Asian Macro Fund

Qi Capital launched its Asian Macro Fund recently. It currently has $17 million assets under management which has essentially come from fund partners, friends and close associates. Terence Khoo is the CIO and co-founder of Qi Capital, a newly established Hong Kong-based hedge fund. He mentioned that he expects $10 million more from large fund of hedge funds shortly.  Khoo has worked with reputed Asian hedge fund - Sofaer Capital and asset management company - Kerry Asset Management. Commenting on the portfolio spread, Koo said that Qi's pan-Asian fund invests in equities, foreign currencies, fixed income securities and commodities. He added however that individual stock picks and that equity long/short will comprise a major part of the fund. He also said that the flexibility to invest in multiple asset classes is necessary to ensure better returns and it also helps to manage risk better. Financeasia.com reports:

“Khoo describes Qi's pan-Asian fund as a macro strategy that invests in equities, foreign currencies, fixed income securities and commodities. However, he notes that the fund will make individual stock picks and that equity long/short will make up the largest component of the fund in most circumstances.”

Read More: Old Asia hands team up for hedge fund

Insurance underwriting looking good to Hedge Funds

Hedge Funds have discovered a new sector to invest in – The Insurance Sector. Investing in this sector translates into diversification of risk since this is a completely uncorrelated sector. Hedge Funds have recently been seen purchasing ‘Catastrophe Bonds’ from Insurance and re-insurance companies. This way they provide the much needed money to them in times of catastrophes such as hurricanes and earthquakes. Insurance companies also purchase re-insurance policies in order to spread their risks to help them in times like this. According to a report, the hedge funds have been found to be participating in re-insuring companies like - Glacier Reinsurance AG of Switzerland; CIG Reinsurance Ltd. of Bermuda; and Ritchie Risk-Linked Strategies Ltd of Bermuda. It is predicted that more and more hedge funds are likely to invest in this sector due to reduction in trading opportunities in the markets. Hedgeco.net reports:

“New reports show that many hedge fund managers have been active in purchasing “catastrophe bonds” through such transactions money is provided to insurers as well as re-insurers when catastrophic events such as hurricanes and earthquakes occur.”

Read More: Hedge Funds may enter into insurance underwriting

Hedge Funds dominate second-lien loan market

Hedge Funds have entered a somewhat alien arena of ‘lending’ and are thriving well. Their lending rules and strategies are very different from those of traditional lenders like banks and Wall Street firms. They chiefly target those firms that are cash-strapped and who are not getting a loan form the traditional sources. These distressed companies are willing to take a loan at higher rate of interest and therefore benefit the fund. For the hedge funds, these are high risk & high return investments. The funds however ‘hedge’ their loans by shorting the stock or bonds of the distressed company. This strategy is being seen as detrimental to the health of the borrower as it may lead to its bankruptcy. Hedge Funds are seen to be insensitive to the possible downfall and as such is being seen as a villain. Hedge Funds dominate the so-called second-lien loan market which gives the lenders certain rights over some of the borrowing company’s assets. Second-lien loans can be risky since during bankruptcy reorganization other creditors often have superior claims on the borrower's assets. Post-gazette.com reports:

“Hedge funds acting in this market "are dramatically changing the landscape" of bankruptcy filings, says Michael Kramer, a restructuring adviser who recently left Greenhill & Co. "This is the first (lending) cycle where loans from hedge funds have been a factor.”

Read more: Hedge funds shake up lending arena

Traditional Lenders criticize lending practices of Hedge Funds

Traditional lenders such as banks and other Wall Street firms are threatened by the Hedge funds’ lending practices. They accuse the hedge funds of adapting their own rules for lending money to clients, by amending loan agreements. They feel that such changes may look attractive at first glance but companies borrowing money from them may in fact become bankrupt. This lending option is generally taken up by cash-strapped firms who find the lending terms of hedge funds quite enticing. Hedge Funds however defend themselves by saying that their standards help the borrowers to adopt financial discipline and responsibility.  Hedge Funds are also charged with offering loans and hedge against such loans by shorting the stocks and bonds of their borrowing companies. This can lead to a distress situation for the borrowing company. This attitude of the hedge funds seems to denote the callous approach of the hedge funds towards the health of the borrowing companies. Hedgeco.net reports:

“Many hedge funds firms entered into the private equity arena. Critics also charge that some hedge funds offer loans and hedge against such loans by shorting the stocks and bonds of their borrowing companies.”

Read More: Hedge Fund’s lending practice under attack

Investment in Municipal Bonds, spells profit for hedge funds

Municipal bonds have caught the fancy of Hedge Funds lately. Perceived Tax-free gains through investment in municipal bonds seem to be the main pulling factor, considering the more or less flat returns in the first half. This strategy is being dubbed by some as ‘munitrade arbitrage’. Investment in municipal bonds has fetched a return of more than 3% till now and in the whole of last year, the return was over 8%.  There have been reports of hedge funds investing in longer term (20 years) municipal bonds which have given returns of about 4.1%. The strategy is to set up trust structures which will convert the new bond into tax-free short-term municipal tender option bonds. These will then be marketed to investors. President of hedge fund firm Anchor Capital Group, Narayan Prasad who is a veteran trader in municipal bonds said the trade is indeed an attractive one! Hedgefundsworld.com reports:

“Reports are that hedge funds are buying longer-term municipal bonds, which have recently sported yields of about 4.1 percent for 20-year notes. The funds will then set up Trust structures to convert the new bond into tax-free short-term municipal tender option bonds, which will then be marketed to investors.”

Read More: Hedge funds invest in municipal bonds.

Can Mutual Funds perform like Hedge Funds?

Mutual Funds have been traditionally seen to be conservative in their investment techniques. Their returns have also been modest when compared to those of the Hedge Funds. Mutual Funds have been seen creating funds that incorporate hedge funds strategies like long short and ‘market-neutral’ strategies. However very few have actually been successful. According to Bloomberg, only 29 mutual funds that have made this work and it averages a modest 2.4 % annual return over the past three years. Much of their shyness also comes from the gamut of trading scandals and a prolonged stock bear market which makes them more conservative in approach. As such their inherent personalities set the two apart and several cases when mutual funds have attempted to go the hedge funds way have led to disasters. Charles Bath, who helps manage Diamond Hill Focus Long-short fund however finds a lot of similarities between the two and is optimistic about the two treading the same path. Detnews.com reports:

“Amid a stock bear market and trading scandals, it's also been suggested that mutual funds have been wary of trying bold new ventures these past few years. Most mutual fund managers and fund categories that have prospered lately have a distinctly conservative bent.”

Read More: Hedge funds' game may be a loser for mutuals to take on .

Betting on dollar and raising oil prices spell profit for hedge funds

Hennessee Group, New York-based consultants who advise clients on hedge funds and also track performance in the industry, reported that average hedge fund returned 1.5% in the month of June. This was a result of successful bets on the dollar and on the rising oil prices. The return albeit small, was better than that for most stock markets. The figures made public by the group, are similar to the numbers released by other groups in the last few days and hence confirms an industry trend. Dow Jones and Nasdaq Composite Index were both down by 1.84% and 0.54% respectively whereas Standard & Poor's 500 index (with dividends) was up marginally by 0.14% last month. Charles Gradante, a principal at Hennessee  commented that though the hedge funds gained 1.06% in the first half, the funds definitely fell short of the promised double-digit returns. Gradante added that this was due to narrow trading ranges in the stock markets, the flattening yield curve and low volatility. Overall, funds betting on European stocks fared the best with a raised performance of 3.53%. Reuters.com reports:

“Funds that bet on European stocks fared best, rising 3.53 percent last month while funds that bet against the future of the stock market, so-called short biased funds, delivered the month's worst performance, inching up only 0.37 percent.”

Link: Bets on dollar, crude oil help hedge funds-report.

Derivatives of commercial property launched this week

Property derivatives are soon going to become a leading asset class as stated by inter-broker GFI group. Commercial property derivatives for Europe based on indexes run by Britain's Investment Property Data Bank (IPD) were launched by GFI and CB Richard Ellis last week. GFI is a derivative specialist and CB Richard Ellis is world’s largest commercial property firm. Managing Director for Europe at GFI, Ron Levi mentioned that since half of the world’s assets are in property, there is an absolute need to write derivatives. Investors who invest in property can use these derivatives to hedge existing portfolios or even increase exposure to property. This was made clear by Martin Samworth who is the managing director of CB Richard Ellis in the UK. Samworth also mentioned that CB Richard Ellis continuously introduces clients to derivatives market. Hedgefundsworld.com reports:

“Property derivatives comprise a swap under which the investor pays or receives a spread over the London Interbank Offered Rate (LIBOR) in return for the yield on an IPD index. Options are also being considered, Levi said.”

Read more: Property derivatives to become leading asset classe

Software solution for hedge fund management by Cogency

Cogency Software, Inc. launched a software solution aimed at funds of hedge fund market. Called Cogency Insight Manager, the software solution is first of its kind in the industry. Avanish Sahai, CEO of Cogency Software mentioned that the fast growth of hedge funds is too rapid to ignore and thus a positive need to manage this growth and hence the integrated management solution. The software promises to provide fund managers will tools that would provide absolute visibility and controls that are required to run and grow the business. Sahai added that the software solution has been tested on US’s largest funds to prove its functionality and it perfectly suits the workflow requirements. The software works by enabling clients to gain access to data from limitless sources around their businesses, transform the obtained data into useful information. This information can then be put into effective context thereby enabling clients to take prompt action. The Cogency Insight Manager contains three tightly integrated products - FOHF Insight, FOHF Portfolio Insight and FOHF Investor Insight. Biz.yahoo.com reports:

“Cogency Software, Inc., the provider of integrated management solutions for the alternative investment space, today announced the launch of its newest solution, the Cogency Insight Manager for Funds of Hedge Funds, the industry's first software solution target specifically at the funds of hedge funds market.”

Read more: Cogency Launches Solution for Funds of Hedge Funds.

Joji Maki is the new fund manager of Baring's hedge fund

Baring Asset Management has appointed Joji Maki as manager of equity/short hedge fund for the group. The fund which will have a low correlation with the Japanese market is targeted at sophisticated investor and expects to generate a return of 15% per annum. This will be achieved by investing in ‘neglected alpha’ stocks of lower researched small and mid cap sectors. Joji Maki feels that the time is right for investing in Japan as the complete potential of the country has still not been tapped. With a 29 year track record of managing Japanese companies, Baring Asset Management is confident of achieving its goal. The Baring Japan Absolute Return fund will carry an annual management fee of 1.5 percent and a performance fee of 20 percent as is done by most Hedge Funds. Maki has been managing the 35 million pound growth fund since 2000. In the five years of his management the fund has lost 41.2 % (after charges) in comparison to 43.7% loss by Japan Sector Fund. Reuter.co.uk reports:

"Now is the time to invest in Japan," said Maki. "We believe that Japan has not fulfilled its potential in the last year and that there are considerable opportunities for investors on the ground. We have a 29-year track record of researching and managing Japanese companies.”

Link: Baring's Maki to run hedge fund

Hedge Funds returns show an upward swing at the end of first half

In the month of June alone Hedge funds posted a growth of 0.90% as reported by the S&P Hedge Fund Index. This makes the funds returns finishing 0.13% up in the first half. This positive trend is a consequence of the Fund Managers becoming more risk friendly. They have been observed to be investing confidently in higher yielding risk assets to generate target returns. Therefore there has been a shift in focus from liquidity management to security selection in order to maximize returns. Due to the redemption and closure of several large funds recently, capital has been removed from the strategy. This has allowed for firming of prices though with some liquidity. As the next major redemption window is still away (year end), managers are actively searching for value amongst securities which have historically known to be cheap. Yahoo Finance Reports:

"Managers have become less risk averse due to a combination of more predictable monetary policy and contained inflation," says Charles Davidson, Senior Hedge Fund Specialist at Standard & Poor's.”

Read More: Hedge Fund Returns End First Half of Year in Positive Territory, Says S&P.