Hedge Fund Reader

SLI CEO Slams Hedge Fund Strategies

-- Pushpa Sathish, Staff Writer

Fund managers have come in for criticism from Keith Skeoch, CEO at Standard Life Investment (SLI), one of the biggest fund managers in the United Kingdom, for their increased usage of shorting and other hedge fund strategies. Skeoch warned of the dangers lurking around the corner when fund managers bet on the company’s stock falling even as the board was constructively talking of succession. Shorting can bring down the price of a company’s stock, an occurrence that is not good for long-term investors.

The censure comes following other large fund management houses like Barclays Global Investors, Henderson Global Investors, Gartmore, Morley Fund Management, Legal & General Investment Management, and Threadneedle Investments increasing their use of long-short strategies that are typical of hedge funds. Business Times Online reports:

Mr Skeoch said that increased use of shorting could cause conflicts within a business, particularly a large one that conducted hundreds of trades each day. “If you have one fund manager making a decision to short and one deciding to go long, which trade takes precedence?”

Teachers and Hedge Funds – The Pension Connection

-- Pushpa Sathish, Staff Writer

Oh how quickly we forget! The ashes of Amaranth are not yet cold, and the San Diego County public employees’ pension has not yet healed fingers burnt in the collapse. But that has not deterred another state-run pension from throwing its lot with the hedge fund industry. Rising benefits and miserly funding from the state have pushed the $39 billion Teachers’ Retirement System in Illinois to seek high returns from the high risk world of hedge funds.

Teachers’ is not learning from the misfortunes of the $7.5 billion pension for the public employees of San Diego County – the fund invested $175 million in Amaranth and lost more than $85 million in under a month. It has recouped half the amount since then, but the fact remains that hedge funds are probably the riskiest investment vehicles in the financial world, especially for a bunch of school teachers.

Teachers’ may have been forced to jump on the hedge fund bandwagon tempted by the promised high returns, because it holds just 62 percent of the money needed to meet its obligations. But does it know that its choices are limited? Hedge funds are extremely secretive about their operations, and taking on public pensions as clients will force them to reveal information as per the Freedom of Information Act. They are also bound by state laws that restrict the scope of their investments – for example, an Illinois statute bans investments in Sudan.

The pension is not worried though – It understands and is well-equipped to monitor the risks involved, and is going in with “eyes wide open,” according to spokeswoman Eva Goltermann.

TCI Reduces Stake in Euronext

-- Pushpa Sathish, Staff Writer

British hedge fund The Children’s Investment Fund (TCI) has sold a substantial part of its shares in the European exchange operator Euronext, reports the French market monitoring firm AMF. Even as TCI refused to comment, the gossip mill is rife with rumors that the move has something to do with the fact that plans are afoot for the merger of Euronext and the New York Stock Exchange (NYSE) to form the first transatlantic trading house. Apparently, TCI was in favor of Euronext tying up with its German equivalent, Deutsche Boerse.

Following the divestment of four blocks of shares by Witchfield Holdings, a subsidiary of TCI, shares of Euronext decreased by 1 percent. A further decrease is expected as the hedge fund prepares to shed more of its stake in the exchange operator. TCI is currently the second-largest shareholder in Euronext, next only to Atticus, the New York-based hedge fund.

From Hedge Funds to Investment Management

-- Pushpa Sathish, Staff Writer

In what can be called a move against the flow of the stream, a hedge fund executive has been hired to boost the sagging fortunes of the investment arm of Legal & General Investment Management (L&G). Not so surprising perhaps, when you consider the poor showing of most hedge funds last year. Ian King, earlier associated with the equity hedge fund KDR Europe, has been roped in by L&G to help rebuild its team of equity managers following an exodus of its staff in August 2006. King brings with him more than 10 years of experience in the asset management field, having worked for American Express Asset Management International for a decade or so. L&G, with assets of 218 billion pounds, is one of the larger asset firms in the United Kingdom. Reuters reports:

Active equity managers look to make money by buying and selling stocks rather than holding equities because they are in an index like the FTSE 100. Index-tracking funds typically charge lower fees than active funds and there is debate over which technique is better value over the long run.

Pirate Pushes Brink’s to the Brink

-- By Pushpa Sathish,  Staff Writer

It looks like things are back to normal at Pirate Capital! The hedge fund was in the news not so long ago for losing half its investment team and subsequently being investigated by the SEC for failing to provide information relating to its stock sales. Following a dismal showing by its flagship fund Jolly Roger, Pirate’s founder decided not to accept new investors, and instead, focus on delivering more returns.

Six months on, and Pirate is back in the media spotlight, this time for forcing Brink’s Company to hire an investment bank, with the tentative plan of selling it sometime in the future. The fund is the largest shareholder of Brink’s, which provides armored truck and security services, with 8.5 percent of the total stake. Pirate is also pushing to get its founder and one of its executives on Brink’s board.

The $1.7 billion worth Pirate is not alone in its persuasive tactics; another major shareholder in Brink’s, MMI Investments, has also moved the SEC with the same request.

BGI Sets Sights on $1 Billion

-- By Pushpa Sathish, Staff Writer

Barclays Global Investors (BGI) is using AlpEx as a vehicle to raise money this year, an ambitious amount of $1 billion. AlpEx is the fund of hedge funds set up by BGI in the fag end of 2006. Managed by Stan Beckers, AlpEx has a research team led by Jonathan Morgan who was lured away from his position as CEO of alternative investment at Julius Baer by BGI. According to data from Hedge Fund Research, Barclay’s is the world’s sixth-largest hedge fund manager.

Hedge Funds and Municipal Bonds

-- By Pushpa Sathish, Staff Writer

Following a miserable year that hasn’t exactly seen spectacular returns pouring in, hedge funds are looking to municipal funds to help revive their fortunes. These funds are investments in state and federal government projects, and allow investors to skip on federal, state and local income taxes on interest earned on them.

According to Bloomberg, recent interest in “munis” have pushed them to perform better than U.S. Treasuries and corporate bonds over the past three years. Hedge funds are not just profiting on the interest from these bonds.   

Rather, they are employing various arbitrage strategies to profit from the difference between the yields paid by longer-dated muni bonds and other, shorter-dated securities. One such strategy involves using the bonds as collateral in trusts that issue variable-rate notes.

Delphi in Tussle Between Funds

-- By Pushpa Sathish, Staff Writer

It could well heat up to become the battle of the hedge funds, with Delphi being the spoils, and it could well have an outcome that even an oracle couldn’t predict with accuracy. The auto parts manufacturer which formerly belonged to General Motors is in the middle of a tug of war between Highland Capital Management and a group comprising Appaloosa Management, Cerberus Capital Management, Harbinger Capital Partners Master Fund I, Merrill Lynch and UBS Securities.

Highland, which is the second-largest shareholder in the ailing company, is protesting the $3.4 billion deal struck with the consortium, on the grounds that it will allow the group an advantage over current equity holders in stocks and convertible preferred securities. In addition to this, the Appaloosa-Cerberus group would gain control over the board through its right to nominate six of the total twelve directors, including the chairman.

The hedge fund is countering the offer with one of its own – a $4.7 billion pact that will allow it to buy any unsubscribed shares for a fee of 2.5 percent. Highland will accordingly file a petition against the consortium’s deal on Jan 2, three days ahead of the Delphi hearing at the U.S. bankruptcy court of the Southern District of New York and the Securities and Exchange Commission.

We’re Full, Don’t Need Any More Investors

-- By Pushpa Sathish, Staff Writer

House Full – That’s the notice posted on the doors of Renaissance Technologies Corp. The hedge fund, which had a sterling year after increasing its assets by four times to reach the $16 billion mark, is refusing to accept new investors and their money. Why? Because it wants to manage better the hoard it already has!

An investigation into the poor performance of its Institutional Equities Fund, Renaissance found that returns were more forthcoming when it remained a relatively small fund. Too much money in equity strategies is obviously not a good thing, as Ted Aronson will confirm. A main player in the $30 million Aronson+Johnson+Ortiz quantitative hedge fund that closed shop last year under similar circumstances, he says that there is certain evidence that there are capacity constraints on even the best products.

It’s a known fact that hedge funds zealously guard their trading secrets; with the quantitative, mathematical strategies that Renaissance leverages, keeping operations under wraps becomes harder as the money invested in trades increases.

Quant funds such as Renaissance make heavy use of algorithmic trading, or timed trades in small quantities through multiple brokers to hide their intentions. But while algorithmic trading can hide trades in large-cap stocks, big execution orders are hard to mask in smaller stocks. Furthermore, rival hedge funds frequently look to profit from trading against competitors by observing "footprints" -- moves that drive down returns for those looking to hide such trades.

Small wonder then that Renaissance is turning away those knocking on its doors!

Major private debt offering from Citadel that hopes to sell almost $2 billion worth of debt

Citadel Investment Group LLC is trying to capitalize on wider investor interest in its line of business. It plans to sell $2 billion in debt to investors. Though the company has not given a formal comment on this development, industry pundits feel that the same is being done in order to increase the hedge fund’s liquidity and financial standing thereby giving it more investment flexibility. Citadel Investment Group LLC is a Chicago based Hedge Fund with over $12 billion in assets under management. Since Citadel is selling the debt directly to a limited number of investors, it is not required to register with the SEC.

While Citadel is one of the newer hedge funds indulging in the ball game, there are others who have already walked on this path. Take the case of Fortress Investment Group LLC that filed for an initial public offering of its stock with the Securities and Exchange Commission. Fortress is a New York based hedge fund that was founded in 1988 and currently has $26 billion in assets under management. Chicago Tribune reports:

“Their design is to reduce their reliance on Wall Street firms for funding, which would eventually provide them with a competitive advantage because they won't be forced into liquidation during periods of stress," Eileen Fahey, managing director for Fitch Ratings, told Bloomberg News.”

New product from Man Group aimed at deficit-laden pensions

Now deficit laden pension plans can have a sigh of relief with the launch of a new product from the Man group. The group has recently launched a product that they affectionately call a ‘deficit buster’. This product promises to help those pension funds that are struggling to earn some returns on their investments. The new product is called AHL Inflation Plus and utilizes derivatives like inflation swaps. The product launch is part of the new hedge fund strategy where they try to win business from deficit laden pension funds that are quite eager to earn some returns.

AHL Inflation Plus has three inbuilt components. The first two (zero coupon bond and an inflation swap agreement) are of critical importance since they provide the fund with a much needed guaranteed inflation-adjusted income. The third component is a lump-sum that is invested in AHL's managed futures program. This component gives the pension fund an exposure to market gains in order to cut their deficit. Reuters reports:

Hedge fund company Man Group has launched a product aimed at pension funds trying to earn investment returns that can help close deficits and minimize risk of losses…. Man Group rolled out the product in consultation with Ros Altmann, a prominent commentator and consultant on the UK pension industry.”

More Liquidity, More Transparency?

-- By Pushpa Sathish, Staff Writer

While regulatory bodies like the U.S. Securities and Exchange Commission (SEC) are struggling to get hedge funds to bring about transparency in their operations, there’s another option emerging as the fastest way to get them to open up – the fear of liquidity crises like those at Amaranth and Long-Term Capital Management.

Following the IPO by Fortress Investment Group, the first NYSE listing by a hedge fund, Citadel Finance, a unit of the  $12 billion Citadel Investment Group, is now offering to sell its bonds and raise at least $2 million, another first in the hedge fund industry. Citadel recently made news when it lost its head of global stocks.

Citadel seeks to boost its liquidity with this move, but it will also have to make public details regarding how much money it makes and how it rakes in the dollars.

Hedge Funds Seek to Boost Ahold Value

-- By Pushpa Sathish, Staff Writer

More on the Ahold saga – it looks like the pressure applied on Ahold by hedge funds Paulson & Co. Inc. and Centaurus Capital has borne fruit of some sort. The funds were pushing for the Dutch retailer to sell its US operations and concentrate on its European interests. The biggest supermarket chain in the Netherlands has refused to toe the entire line; though it has agreed to sell its catering supplies unit on US soil, it has stood firm on retaining its retail outlets.

The hedge funds, which together control 6.4 percent of the retailer, are now soliciting support from other shareholders in pushing up Ahold’s shareholder value. Randel Freeman, the managing director of Centaurus, said that their aim was to “support management in their efforts to enhance shareholder value and build a strong and competitive business.”

Ahold’s current market value is 12 billion euros; Paulson and Centaurus believe that by selling its US operations, the retail chain can push its value up to 14 billion euros.

Funds of funds become hot favorite with hedge fund investors

Funds of Hedge funds have become a hot favorite with hedge fund invertors the world over. Investors now prefer the relatively safer Funds of Hedge Funds to single manager driven funds. This is essentially because of the potential risk that single manager funds face due to mismanagement or probably just due to bad judgment.  Which ever way its is, investors are moving in doves to invest in the Funds of Hedge Funds just so that their risk is spread across the various comprising hedge funds.

Their returns definitely have a chance of being somewhat subdued if one of the comprising hedge fund is doing well and the other is not. But this is the cut they are willing to take. Also noteworthy is the choice of the type of fund of hedge funds. Multi-strategy funds of hedge funds seem to be more popular among investors rather than single strategy driven funds of hedge funds. Hedge Media reports:

However, this remains some way off, and for now more than 80 per cent of demand at GAM is for global or regional multi-strategy funds. A continuing conundrum for the UK investment sector is that since nearly all hedge funds are domiciled offshore, and therefore fall into the non-distributor fund category, there is an active tax disincentive for investors in the UK, who are required to pay income tax on capital gains achieved by the fund.”

Hedge Fund Lists on NYSE

-- By Pushpa Sathish, Staff Writer

Fortress Investment became the first hedge fund to find a listing on the New York Stock Exchange (NYSE) when it announced an initial public offering (IPO) of $750 million. The fund, which manages around $26 billion worth of assets, and trades in public equities, hedge funds, and public alternative investment vehicles, filed an IPO prospectus with the US Securities and Exchange Commission (SEC).

Through the IPO, which will be underwritten by Goldman Sachs, Banc of America Securities, Citigroup, Deutsche Bank Securities and Lehman Brothers, Fortress hopes to provide its employees with financial incentives, create new investment products, generate capital to expand through acquisitions, and gain the credibility that comes with being listed. Independent News reports:

The New York-based firm is seeking a listing under the symbol "FIG". Fortress said the offering would comprise class A shares, but said the firm's five principals would hold about 90 per cent of the voting power of the outstanding shares through their control of class B shares.

22 Reasons Why Hedge Funds Stink For the Average Investor

Making positive or negative headlines, hedge funds are doing it with a splash, creating mighty waves rather than tiny ripples. On one hand you have success stories like George Soros and his macro fund, Soros Fund Management, who earned not only a billion dollars with his shrewd currency speculation, but also the envy of all and sundry in the industry. On the other end of the spectrum are the colossal disasters like Long-Term Capital Management and Amaranth Advisors LLC that were, and still are, the talk of the town for the massive losses they suffered because of poor investment calls.

No matter which way its fortunes swing, the $1.34 trillion industry is continuing to grow and flourish. Investors are being baited with promises of profound profits, even as the funds themselves shroud their activities in a cloak of secrecy. For those who find themselves oscillating between “should I” and “shouldn’t I” on the investment scale, here’s a list of 22 reasons why hedge funds are not the average investor’s cup of tea!

1. Risks – not to life and limb but to cash and currency: Hedge funds are prone to both investment and operational risks. The choice of strategy, the money earmarked for each plan, and the instruments chosen for investment – all contribute to investment risk. Operational risk rests with the fund’s policies, business methods, and accounting and reporting methods.

2. Possible strategic upheaval: Hedge funds use irregular trading strategies like derivatives, options, and short selling in their bid to generate absolute returns (positive returns irrespective of a bull or bear market). As a result, volatility is very high. Returns do not follow the natural normal distribution; they are skewed in what is called a fat-tail distribution, which in plain English means that there are small probabilities of large losses.

3. Promises made but hardly kept: Hedge funds promise spectacular returns on your investment. The catch here is that if something is too good to be true, it generally is. The returns are not as projected most of the time.

4. Long arm of the law not long enough: Hedge funds are not required to be registered with any regulatory body such as the U.S. Securities and Exchange Commission (SEC) unless they have over 99 investors. The absence of regulations and the uncertainty of offshore investments make hedge funds a doubly dangerous investment vehicle.

5. Special keys needed to enter portals: Investors have to be “accredited”, which means that they meet certain minimum requirements – a net worth of $1 million, or an individual annual income of $200,000, or a joint annual income of $300,000 (two years minimum), or being a general partner, executive officer, or director for the issuer of an offered security.

6. No see-through walls here: The lack of transparency is one of the biggest disadvantages of hedge funds. Transactions, strategies, and operational tactics are generally kept under wraps for fear of a competitor gaining a financial edge. This works out adversely for the investor who is unable to see how his/her funds are being used to generate returns.

7. Hedge funds - haven for crooks: Fraud, scandals, allegations of insider trading, meltdowns – these are run-of-the-mill occurrences for hedge funds. The lack of sufficient regulations facilitates moral and financial wrongdoings, which, at the end of the day, are not advertisements for the industry.

8. You’re putting all your eggs in one basket: The success or downfall of a hedge fund is largely dependent on the manager’s financial acumen and savvy in picking the right investments. Most investors pick hedge funds based on the manager’s reputation in the financial markets. If he/she retires, steps down, dies, or is otherwise indisposed to carry out his/her duties, investors may find themselves in a quandary. Managers who stick to a single strategy even when it is not right for present market conditions also pose risks for investors.

9. Managers skimming the cream: Managers of hedge funds have their cake and eat it too. Besides taking 1 to 2 percent of assets annually, they retain 20 percent of returns, both realized and unrealized. This proves to be very costly for investors. The 20 percent is usually allowed only if returns exceed a certain amount called the high-water mark. Failure to meet this minimum requirement may see managers closing up shop, only to open it elsewhere with a new base high-water mark. Investors end up holding the losses incurred.

10. Liquidity and its lack thereof: If you are looking to redeem your investment midway, bear in mind that hedge funds manage assets that are largely illiquid. The problem of liquidity is seen both on the assets – the quick liquidation of assets translates into huge transaction costs – and on the liabilities side – possible investor redemptions and high leverage - of the balance sheet.

11. There’s no passing the buck: Unlike mutual funds and stocks, there are no secondary markets for hedge funds. You cannot transfer or sell your interests in a fund.

12. Taxing troubles: Hedge fund transactions are often complicated and give rise to tricky income and capital gains tax issues. The choice of certain strategies may result in tax information being sent out late to investors, thus causing them tax problems.

13. Can’t get out while the going is good: Ok, your fund is doing spectacularly well, and you wish to gather up your windfall and leave. More often than not, this is not a possible option because of what’s call the lock-up period, where investors are not allowed redemption options for a minimum period. A typical lock-up period is between one and three years. Closure or failure of the fund brings more woes – you may get only a part of your investment back.

14. Hedge funds - the fireflies of the financial family: Long term investments are not feasible when the average life of a hedge fund is only three years. In spite of all the new funds mushrooming over the world, an estimated 10 percent of funds wind up operations every year.

15. Manager’s pet, it better be you: Some investors find favor over others through the use of side letters. They are offered more transparency of the fund’s actions, lower fees, and shorter lock-up periods. This could end up affecting the positions of other investors.

16. Too crowded for comfort: With the implosive growth of the industry, there are more managers trying to jump on the strategy bandwagon that is currently in vogue. This could lead to returns diminishing over a period of time.

17. Hypothetical (hyped up?) performance: Hedge funds generally tend to state pro forma performance, as a result of which reported performance is considerably different from actual trading results. At times, excellent performance is based on one good trade, which may be the result of a stroke of luck rather than judicious decision-making.

18. To each his own does not work here: A conflict of interest between investors and the manager can cause strategies being changed mid-stream, especially if the investor has sufficient clout and knows the right strings to pull. Strategies that have a high probability of success in the long run may be abandoned because of investors railroading managers when there is a performance reversal.

19. History may not repeat itself: Past performance cannot be used as an indicator of a hedge fund’s current or future performance. Stellar returns are not a guarantee just because a fund has done well so far.

20. Molehills may be called mountains: Hedge funds tend to overstate their net assets under management to hype up performance details. Transaction values on trades conducted during the course of a month may be used instead of end-of-the-month numbers.

21. Reading between investment lines is an art: Accredited investors who earn pots of money are not necessarily shrewd and canny when it comes to assessing the right investment portfolios. Which means that being “accredited” is not protection enough to invest in hedge funds.

22. Fractional gains, whole losses: Managers and general partners share in the profits when a hedge fund generates large returns. But when the tide turns and the losses start pouring in, the fund is taken out of circulation, and a new one germinates, most often in an overseas location. The ultimate losers are the hapless investors.

The reasons provided above are just a nutshell view and do not detail all that’s wrong with the hedge fund industry, but they should suffice to deter those who are averse to high risk and volatility from putting their trust and money into such investment vehicles. For those who decide to go ahead in spite of all the pitfalls, they would be wise to follow experienced counsel and get satisfactory answers to certain questions before getting their toes wet.

Henderson Launches Special Hedge Fund

Henderson Global Investors has launched the Henderson Special Situation hedge fund on 01 September 2006. Henderson Global Investors is an independent asset manager with over USD 116 billion assets under management. The fund will be managed by Adam Tyrrell and Will Ballard.

It will invest in situations where it is perceived value can be realized through corporate restructuring. These situations can be takeover and mergers. The fund invests on a global basis and follows the 'Event-Driven' strategy of the multi-strategy equities team at Henderson.

Do you want to know how to find the right hedge fund? You can read my previous post titled "Finding the Right Hedge Fund" to get that information.

Citigroup's Alternative Investment Hedge Fund Initiative

Citigroup has launched an administration business hedge fund in Asia Pacific. The service will benefit hedge fund managers by easing their administration burden. Clients will be outsourcing their administration requirements to Citigroup. Hedge fund managers increasingly want an integrated service provider.

The combination of prime brokerage and alternative investment administration services means Citigroup is able to offer clients the complete transaction banking service. From fund administration to global custody and cash management to prime brokerage, Citigroup can now offer the full service to clients in Asia Pacific.

Read my previous post titled “Hedge Fund Collapse May Trigger Financial Debacle” to get interesting information about hedge fund.

Hedge Fund Money in Political Campaign

Top hedge fund managers are pouring money into US political campaigns ahead of November's congressional elections. Campaign finance records show that 20 of the most successful hedge fund managers have pumped more than $3.1 million into campaigns so far. The biggest donor is George Soros of Soros Fund Management. He has given more than $2.3 million in this cycle to Democratic candidates or groups. Fifteen of the 20 top managers, including Soros, have increased their giving in this cycle.

Read my previous post titled "UK Hedge Fund Targets Stork" to know more about hedge fund happenings.

Barclay's Move to Increase Hedge Fund Database

Barclay Group has acquired the Alternative Asset Center (AAC) database to create the world's largest hedge fund database. Barclay compiles performance data about the hedge fund industry. The company currently tracks performance for more than 5,500 hedge funds and managed futures investment programs.

Read my previous post titled "Most Hedge Funds to Stay Registered ", which was about the registration of hedge funds.

The addition of AAC database will enable the company to track 7,000 hedge funds with more than $1.4 trillion in assets. According to Barclay president, Sol Waksman, the dramatic growth in hedge funds in recent years, sophisticated investors need up-to-date and reliable tools to evaluate this sector in a proper way.

Pension Fund Paid Millions

A few weeks ago, I had written a post titled "Will the Pension Bill Benefit Hedge Funds?" about how the pension bill will benefit hedge funds. The current post is somehow linked to that post. The N.C. pension fund paid $6 million fees last fiscal year to an investment firm under scrutiny for its involvement in promoting tax shelters. The N.C. Retirement Systems said it had invested about $400 million invested with Seattle-based Quellos Group LLC.

Quellos was named in a Congressional report detailing offshore tax havens. It can be recalled that the pension fund earlier said it was reviewing the investment. In the fiscal year that ended June 30, the $70 billion pension fund for state and local public employees paid Quellos a base fee of 0.5 percent of total assets, plus a performance fee.

Islamic Hedge Fund Is Rising

Recently, I had written a post on Islamic hedge fund. The post was titled "Will There be an Islamic Hedge Fund?". Now it seems that Islamic hedge fund is becoming a reality. Hedge fund Shariah Capital is looking for strategic partners in the Middle East among the local banks with international funds and major investment institutions.

Muslim investors in the Gulf Arab region and Asia have traditionally frowned on hedge funds because they adopt strategies that are considered forbidden by Shariah. Several managers have been trying to develop Shariah compliant strategies that will emulate the strong returns of hedge funds.

Hedge Fund Hurricane

Hedge funds are embracing the risk of catastrophe bonds, as insurers sell more of the securities to protect themselves from increasingly unstable weather triggered by global warming. After seeing yields of 40 percentage points more than investment grade debt, investors predicted that sales of catastrophe bonds might triple to $4 billion this year.

Hurricane Katrina produced record claims of more than $90 billion last year. A catastrophe bond is high yield debt instrument that usually pays higher yields because investors may lose their entire stake in the event of a disaster. It is usually insurance linked and can raise money in case of a catastrophe such as a hurricane or earthquake.

Read my previous post titled “Hedge Funds Can Protect Savings” to know more about hedge fund benefits.

UK Hedge Fund Targets Stork

Centaurus Capital, a London-based hedge fund, has launched a shareholder campaign to force the Dutch engineering group Stork to break itself up. It called an extraordinary meeting for next month at Stork. Centarurus has a tie-up with fellow hedge fund Paulson & Co. Both the investors own 32.9 per cent of the voting rights in Stork. Stork has operations ranging from supplying the aerospace industry, to manufacturing poultry processes machines.

In my previous post titled "Importance of Selecting a Fund Administrator, I had mentioned about the importance of selecting a hedge fund administrator. Don’t forget to read that post.

Possibility of Hedge Fund Invasion Ruled Out

Recently, I had written a post titled "China Must Modify Policies on Foreign Investment" about how China must make changes to its foreign investment policies. Today, I am going to write a post on hedge fund, which is relevant to that post.

Despite the recent fluctuations in the exchange rate of the Renminbi (RMB), China's currency, international hedge funds are unable to flood the country and profit from the future appreciation of the RMB. Strict management of capital account inflows and outflows prevents hedge fund and other speculative money from invading China to bet on the RMB's value. Although overseas hedge fund managers want to buy more RMB, they can't do it because the country does not provide corresponding financial derivatives.

Selecting a Hedge Fund Manager

Selecting a hedge fund manager is not an easy task, as it requires careful planning and screening. It may be easy to compare their performance against a "benchmark". However, the variation between funds within an index and the index itself vary enormously. Process transparency is as much important as risk transparency. Institutional investors need to be able to satisfy themselves and their ultimate beneficiaries that their investment decisions meet the practical standard.

Read my previous post titled "Hedge Fund Activism Pushes the Firms Up", which is an interesting one.

Hedge fund managers must have a clear understanding of what the hedge fund manager can and cannot do. They should know that there is a rigorous process within the fund for measuring and evaluating both risk and reward. Select a hedge fund manager who understands what the manager's strategy is and what the responsibilities of a hedge fund manager are.

Key Hedge Funds Strategies

Hedge fund strategies vary on several counts. Most investors hedge against market downturns. The primary aim of most hedge funds is to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions. The popular misconception is that all hedge funds are volatile and they use global macro strategies and place large directional bets on stocks, currencies, bonds, commodities or gold. However, this is far from truth. In reality, less than 5% of hedge funds are global macro funds. Most hedge funds use derivatives only for hedging or don't use them at all. My previous post titled "Facts About Hedge Funds" provides important information about hedge funds.

Finding the Right Hedge Fund

Hedge funds used to woo investors by providing great annual returns of 10% to 15%. However, hedge funds' returns have not lived up to expectations in recent years. Huge inflows of money have hampered investment returns, as fund managers struggle to find innovative ideas for the large amounts of money entrusted to them for investment. Hedge funds should not be considered a separate asset class because they invest in the same equity and fixed-interest securities as traditional fund managers.

Since there are many different hedge funds available, you may find it tough to select the right hedge fund. Always think of hedge funds as small businesses. Do not limit yourself to hedge funds that use an equity long/short investment strategy. Always keep in mind that many equity long/short hedge funds are really long funds in disguise, which will fluctuate with equity markets. You should invest in hedge funds that operate in "positive alpha" pools. That will maximize your profits.

Read our previous post titled "Main Characteristics of Hedge Funds" to know more about hedge funds.

Activist Fund Contemplates Sale

The shares of apparel concern Warnaco Group Inc. rose following whispers that the hedge fund that owns a stake in the company is contemplating its sale. Barington Capital Group LP is hoping to improve value for shareholders, and is considering options like cutting costs, meeting financial goals, reducing option grants, and selling either the company or its assets. The investment management firm is taking these steps after accounting problems at Warnaco’s Chaps division and swimwear segment resulted in an informal inquiry by the U.S. Securities and Exchange Commission. Reuters reports:

Barington has worked for change at other retail companies including auto parts company Pep Boys-Manny, Moe & Jack and shoe company Stride Rite. Pep Boys said it agreed to appoint four new Barington-proposed board members and make some changes to its shareholder rights agreement. Stride Rite said it had agreed to add a board member after discussions with Barington.

Can Mutual Fund Dealers Sell Hedge Funds?

This is a big question before the investors. If you have been into the hedge fund business for a long time, then you should know the answer. Due to the volatile nature of hedge funds, it is important to understand all the basics associated with hedge fund operations. People are often concerned that mutual fund dealers and their salespersons may recommend investments in hedge funds to their clients without fully understanding the nature and risks of these products.

Let me clarify that mutual fund dealers can sell hedge funds if the hedge fund meets the definition of mutual fund in the Securities Act. There are no additional proficiency requirements for registered salespersons beyond those required for registration as a mutual fund salesperson. Dealers must be aware of the greater complexity and risks of hedge funds, compared to many other types of mutual funds. Before offering a hedge fund to its clients, the dealer is responsible for conducting sufficient due diligence to ensure that it understands the merits and risks of the hedge fund.

You must read my older post titled “Hedge Fund Transparency” to know more about hedge fund transparency.

Hedge Funds: Alternative Investment Strategy

The low correlation between hedge funds' performance and the market's fluctuating trends are the main reasons why such funds are valued as alternative investment vehicles. They exploit market inefficiencies, using long or short positions to offset market risks.

Hedge funds' traditional way of functioning has been changed to a great extent. Now they focus on global, macro-economic trends and represent just one possible strategy.

Hedge funds are private investment vehicles, set up as partnerships. They have more freedom and flexibility than mutual funds, which represent the more common form of pooled investment. By dealing with wealthy individuals through word-of mouth, instead of soliciting business from the public, hedge funds are exempt from various registration and disclosure requirements in the US securities laws.

However, you must remember in mind that this greater freedom may amount to a greater risk of fraud. To know more whether hedge funds are secure or not, read my previous post titled "Are Hedge Funds Secure Enough?".

Importance of Selecting a Fund Administrator

The selection of a fund administrator is often considered an important decision made by a hedge fund manager. A full service administrator will play a key role in the pre-launch process. The administrator will employ a team of in-house legal counsel that can offer advice on the fund structure, equalization methodology and incentive fee calculations. The administrator's in-house counsel will also review all of the fund's legal documents and coordinate with the fund's counsel to ensure that the fund is ready for launch.

The administrator will maintain the shareholder register, review all subscription, redemption and transfer requests, respond to shareholder enquiries and distribute shareholder statements. Once the completed partnership agreements are received, the administrator will review them to ensure that they are completed accurately. These functions increase the importance of a fund administrator in hedge fund operation. Read our previous post titled "Investors Must Be Alert in Hedge Fund Operations" to know more about hedge fund operations.

Hedge Funds Can Protect Savings

So far, we have discussed how hedge funds generate huge revenues through investments. However, there is another aspect of investing in hedge funds. Retirement funds should include hedge funds in their investment plans to ensure that they protect people's limited savings. There are many concerns about the lack of a clear regulatory and taxation regime for hedge funds. However, I strongly believe that having a cautious approach is the safest and most meaningful way for trustees to consider all of their investment opportunities, including hedge funds.

Experts say that the unregulated nature of the hedge fund industry contributes negatively to its risk profile. The best way of addressing these risks was through a fund of hedge funds. It will definitely protect people's savings that are being invested. If you want to know more about hedge fund regulation, read my previous post titled "US Government planning more Regulation for Hedge Funds".

Nobel Prize Winner Closes Hedge Fund

Nobel-prize winning economist Robert Merton has closed his latest hedge fund, IFL Continuum Fund just after three months. Merton failed to raise enough money to keep the fund afloat. The fund could collect $30 million since the beginning of March to invest in credit securities.

IFL Continuum Fund was to be a unit of Merton's Integrated Finance Ltd, which advises clients on pension issues and corporate strategies. It also runs an $80 million emerging-market hedge fund that started in October 2005. Merton is one of the three founders of the Long Term Capital Management in 1993, which created a global economic crisis in 1998 after collapsing down.

Read my previous post titled "Mittal Hedge Fund Aims for $500 Million" to get information about Mittal Hedge Fund.

Possibility of Hedge Fund Invasion Ruled Out

Despite the recent fluctuations in the exchange rate of Chinese currency, international hedge funds are unable to flood the country and profit from the future appreciation of the currency. Strict management of capital account inflows and outflows prevent hedge fund and other speculative money from invading Chinese market.

Experts have ruled out this possibility. Although overseas hedge fund managers wish to buy more currency, they can't do so because China does not provide corresponding financial derivatives. If these hedge funds want to bet on an appreciating currency, they will have to choose nearby markets in Singapore and South Korea.

Read an interesting post titled "The Debate: Will Hedge Funds Destroy the World?". You will get to know about the impact of hedge funds on market economy.

Tax Crackdown on Hedge Fund Activities

Hedge funds are facing a tax crackdown as financial watchdogs take a greater interest in their activities and geographical locations. The rapid development of new investment strategies devised by hedge funds has attracted the interest of tax authorities. The focus is now on taxation because of the complex arrangements employed by the industry. It could be risky for hedge funds to establish a taxable presence in European jurisdictions where tax policies remained uncertain.

Hedge fund experts believe that the lack of consistency in taxation policy towards hedge funds in Europe is limiting the opportunities for the funds to distribute their products throughout the continent and fragmenting the market. Regulators have taken a close look at the way funds are run, while the funds themselves have sought financial backing from mainstream institutional investors. I believe that tax crackdown on hedge fund activities will at least reduce the chance of fraud cases.

Read our previous post titled “Hedge Fund Risk Management” to know about hedge fund risk management.

Hedge Fund Collapse May Trigger Financial Debacle

If a hedge fund collapses, the banks that lend money to it, may collapse too. That might cause a chain reaction through the financial system. As a precaution, the banks can limit their exposure to hedge funds by monitoring the risks associated with hedge funds. Regulatory restrictions have encouraged the banks to become smarter. In some cases, the rules permit hedge funds to borrow more if they want to take extra risk.

Regulating hedge funds will prevent the insider trading and other sort of illegal manipulation. In the recent months, cases of fraud involving hedge funds have come into sight. The regulations might be able to tighten their control on all hedge fund activities. The law already allows regulators to go after hedge fund managers who commit financial frauds. It is yet to be seen whether the new regulations would be more helpful or not. Investor protection is the prime concern today. The failure of hedge funds may result in a huge financial debacle. If hedge funds are registered and inspected, it will prevent the loss of money for the investors.

Main Characteristics of Hedge Funds

Hedge fund business is growing day by day. If you are planning to invest in a hedge fund, you must know its key characteristics. The following characteristics of hedge funds make them popular in adaptable:

• Hedge funds utilize a variety of financial instruments to reduce risk and enhance returns.
• The also minimize the correlation with equity and bond markets.
• Many hedge funds are flexible in their investment options.
• Many hedge funds have the ability to deliver non-market correlated returns.
• Most hedge funds are managed by experienced investment professionals who are generally disciplined and diligent.
• Pension funds, insurance companies and private banks invest in hedge funds to minimize overall portfolio volatility.
• Majority of hedge funds are highly specialized and trade only within their area of expertise and competitive advantage.

Bond Exchange to Launch Hedge Fund Index

The investors in South Africa have reasons to smile. The Bond Exchange of South Africa (BESA) and Clade Investment Management announced that they were launching a hedge fund index to improve transparency in the fast-growing investment sector. Both companies have identified 20 funds that meet their criteria to join the South African Hedge Fund Index. The index will be BESA's first move into equity markets. It will be officially launched on August 15, 2006.

In the recent years, the number of hedge funds in South Africa has been growing rapidly. However, the hedge fund industry still has limited transparency. There is a growing feeling that hedge funds should be administered by an independent third party to ensure that its assets are properly evaluated.

Hedge Funds Offer Protection against Market Risk

Whenever you make some investments, obviously you look for some sort of protection against market risk, given the volatile nature of your market. Do you really get the protection? This question remains complex for many investors like you. Most mutual funds cannot take short positions or use put options. However, hedge funds can do this and more with the flexibility to become responsive and opportunistic in the investment.

Hedge funds are completely different from the conventional funds. They are not limited to a single asset class such as stocks. Within the hedge funds, there are a wide variety of funds with strategies and styles. Some may invest in asset classes such as currencies or distressed securities. They also utilize return-enhancing tools such as leverage, derivatives, arbitrage and highly concentrated positions that are generally beyond the reach of mutual funds. Hence, they are always in a better position to reduce market risk.

Citigroup Gives a Face-lift to Hedge Fund Platform

Citigroup Corporate and Investment Banking has developed a new end-to-end hedge fund platform. The new platform will allow hedge fund managers to perform multi-strategy, multi-asset class and multi-currency investing under one umbrella. The hedge fund platform was already there. Now the company gave a face-lift to the platform in order to make it more user-friendly and effective.

The revamped platform is backed by UK Company Linedata's Beauchamp technology and Citigroup's existing support and fund administration services. The platform will allow hedge fund managers to manage complex portfolios and meet both investor and regulatory requirements. Citigroup believes that the upgraded platform will help it launch and grow the business as well facilitate the transition to multiple prime brokers in a timely, cost-effective manner.

Hedge Fund Activism Pushes the Firms Up

Shareholder activism usually involves one or more hedge funds buying large stakes in a public company and demanding change. Surprisingly, it is having success in pushing up the firms. A recent study found that more than one-third companies have been successful in meeting their strategic direction because of hedge fund activism.

Activism has the potential to affect the course of hundreds of companies over the next few years. Today's fund activists attempt to force changes without buying the company outright. As activist funds continue to enjoy success and healthy profits compared to other hedge fund investment strategies, their ranks will expand.

Hedge Fund Vetoes Marconi Sale

You must have heard about vetoes used by the political parties and the UN organizations. Now people can be seen using their veto power in hedge fund industry. Activist hedge fund Polygon has demonstrated the power in hedge fund business. It vetoed telecommunication company Marconi's plans to sell part of its business. Marconi had initially agreed to sell its Telenet unit to the Fortress Investment Group, which is a US-based private equity firm. However, Polygon opted to vote against the sale. Polygon has 23.9 percent stake in Telnet.

According to Bobsguide -

Under the conditions of the deal, a total 75 per cent of shareholders would have to be in favor of the acquisition to allow it – a feature that effectively gave Polygon the right to veto the decision if it chose to.

Will There be an Islamic Hedge Fund?

It is strange, but true. Hedge fund business is now all set to get a religious color. The Arab media reported that Islamic equity investments are growing at an unprecedented level. It made analysts believe that Islamic hedge funds may soon become a reality. Despite the stricter regulations in the Muslim world, Islamic finance companies are optimistic that they can manage hedge fund businesses efficiently.

Islamic law forbids short selling because it involves the sale of something that is not owned by somebody. However, hedge fund managers can still adopt some of the accepted Islamic finance practices that are similar to conventional hedge fund strategies.

Khaleej Times reports that -

A further development of the hedge fund principle is the 'Salam Sale', where one sells a commodity to a buyer against full up-front payment for delivery at a future date. An investor can hedge downside risk by selling stocks as a Salam Sale, with the same economic result as short-selling, but without the involvement of a borrowing element.

Benefits of Hedge Funds

If you invest in a fund of funds rather than a single hedge fund, you will get more diversification. Risk levels decline as diversification increases. It depends on investors as to whether they want a low risk product or not. Some funds of funds offer consistent absolute returns. They could offer better transparency and liquidity than some other single funds.

You will also be benefited from going with funds of funds in terms of the due diligence process that they can deliver. Individual investors may not have the expertise, but they have the systems in place to do the necessary research and due diligence on these hedge funds to extract maximum benefits.

Facts About Hedge Funds

Hedge fund market is now estimated at $1.1 trillion. It is growing at a faster pace. Hedge fund includes a variety of investment strategies. Some of the hedge funds use leverage and derivatives while others are more conservative in their approach. They use limited or no leverage. Most of the hedge fund strategies aim at reducing market risk by shorting equities. They are highly specialized and relying on the specific expertise of the manager or management team.

Performance of many hedge fund strategies is not dependant on the direction of the bond or equity markets. However, conventional equity or mutual funds were exposed to market risk. Hedge fund strategies are limited and can successfully employ before returns diminish. Hedge fund managers are always in an advantageous position to limit the amount of capital. Investing in hedge funds tend to be favored by investors that are more sophisticated. They fully understand the consequences of major stock market corrections.

The Debate: Will Hedge Funds Destroy the World?

Recently, the US Federal Reserve raised rates and hinted that it might do so again in the near future. That resulted in a great shock for the stock markets across the globe. Besides the Wall Street, stock markets of Colombia, Turkey, Pakistan, Egypt, India and Czech Republic witnessed a major slump. The tumble of major stock markets generated a debate on hedge funds. Experts believe that the fall of the markets was due to the changes in the US policy towards hedge fund business. The US economy is still the largest in the world and changes in US interest rates affect the entire global economy.

There is an apprehension that the hedge funds will one day destroy the economies of the world. This fear is not unwarranted. Hedge funds are private investment funds that are primarily organized as limited partnerships. The $1 trillion hedge fund industry is so big that it has greater control over the financial system of the world. The recent frauds involved with hedge funds have become a major concern for the United States and other countries in the world.

Although hedge funds generate huge returns for the investors, they are risky and unpredictable. There is no doubt that hedge funds poured money into emerging markets. However, they tumbled when cost of borrowing increased. That put extra pressure on the developing economies of the world. It is difficult to predict the impact hedge funds are going to have on the global economy in future. The debate over the reliability of hedge fund industry still continues.

Battle of the Funds

Pendragon Capital LLP,  Leonardo Capital Fund Ltd., Sandell Asset Management Corporation, and Atticus Capital LP – these are the major hedge funds that stand to make millions in the battle for the reins of McCarthy & Stone PLC, the UK-based retirement homebuilder. The funds, which bought shares of the builder at 872 pence, are hoping to rake in huge profits when McCarthy & Stone sell out at more than 1,000 pence a share.

In the bidding fray are two consortiums; private equity firms Barclay Capital PIA and Permira Advisers LLP on one side, and the Bank of Scotland Corporate, Aldersgate Investments Limited and West Coast Capital at the opposite corner. While Barclays and Permira are offering 1,000 pence per share, the second cartel is upping the ante by offering 1,030 pence for each share.

The shares of McCarthy & Stone have risen 32 percent as of June 2, from the time the whispers about the takeover started circulating. Buyers are lapping up the shares even at 1,045 pence in the hope that they can cash out when the bidding intensifies.

MorningStar’s Plans for Hedge Fund Transparency

InvestorForce Inc. is selling out to MorningStar Inc., for the sum of $10 million. The Chicago-based mutual fund ranking firm will acquire the institutional hedge fund and a separate account database division from InvestorForce Inc. by the end of August.

MorningStar, which manages an impressive database that tracks the performances of nearly 3,000 hedge funds, is looking to infuse transparency into the operations of hedge funds, according to its CEO Joe Manueto. The firm hopes to help investors pick and choose from the 8,500 hedge funds worldwide through published reports that detail how hedge funds make money and list the assets they hold. Reuters Today reports:

As part of the deal, Wayne, Pennsylvania-based InvestorForce will also license Morningstar's hedge fund, mutual fund and separate account data for a Web-based platform, which is used by pension consultants to manage the positions, transactions, analysis and reporting for their plan sponsor clients.

Are Hedge Funds Secure Enough?

The only similarity between the hedge funds is that they come in the form of a limited partnership. They start out with a pool of money, put the money at risk and turn it into either profit or loss. Most hedge fund partnerships are highly illiquid. In those hedge fund partnerships, profits will be sent to a quarterly basis or semi-annual basis. Liquidating events vary from partnership to partnership.

A large number of hedge funds have ongoing management fees of two percent plus a share of the profit. Hedge funds are sold to people who are deemed "accredited investors," with a net worth of more than $1 million. These accredited investors are wealthy enough that the SEC hardly bothers about their investments. Due to lack of accountability and transparency, hedge funds are gaining notoriety. Now the SEC has stepped in to prevent any wrongdoings.

Hedge Fund Strategies

The hedge fund operation ensures that the institutional money targets an industry that defies simple definition. Hedge fund managers expect absolute returns in excess of those provided by passive exposure to the market. However, verifying the achievement of true alpha in a rising market is difficult. Rather than looking for brightest managers, investors can think of hedge fund strategies as offering exposures to types of risk.

They can analyze their associated returns. Most hedge fund managers do not feel threatened by theoretical models. In the true hedge fund strategies, an absolute return is more important and even-driven. Hedge fund strategies differ from each other. However, their common objective is to provide the full return to the investors.

Morningstar to Acquire Hedge Fund Database

Investment research provider Morningstar is all set to take over the institutional hedge fund database of the US-based financial software company, InvestorForce. The deal will turn the database into the largest and most comprehensive investment database in the market. Morningstar will pay up to $10 million for the new database. It is used by pension consultants among others. The transaction will help Morningstar to rope in more than 450 customers in the form of institutional consultants, private investors and asset managers.

According to bobsguide -

Commenting on the agreement, Chairman and CEO of Morningstar Joe Mansueto said: "This acquisition will strengthen our institutional presence by increasing our global client base, significantly expanding our hedge fund and separate account databases, and enhancing our software tools.

Investcorp Wins International Hedge Funds Award

Awards and Honors are meant to recognize the efforts of individuals and organization and motivate them to perform better. Awards in hedge funds are indicative of this. Recently, Investcorp has won the Hedge Fund of Funds Leader of the Year Award at the Alternative Investment News hedge fund industry awards organized by the international publication Institutional Investor. Investcorp is the asset manager specializing in alternative investments. The award ceremony was held in New York. It celebrated the achievements of the hedge fund industry. A panel of experts from leading institutions such as JP Morgan and Glodman Sachs selected the winners of the awards.

According to AME Info -

Ibrahim Gharghour added: 'This award also recognizes our substantial recent progress in the United States, where we have attracted substantial US institutional money into our programme. In addition, last year, we set up a single manager platform and have already partnered with two high profile groups, Interlachen Capital Group and Cura Capital Management, in order to provide our investors greater variety and access to leading specialist funds.

Hedge Funds target Topps

The Topps Company Inc. has decided to hold a proxy battle with dissident shareholders Pembridge Capital Management LLC and Crescendo Partners who have waged a battle against the company. Topps is a New York-based confectionary and trading card company. The two hedge funds refer to themselves as the "Topps Full Value Committee". They are in favor of a change in the management of Topps that has been in place for more than 50 years. They want to split up the company or sell it outright. In a letter to the US Securities and Exchange Commission, the hedge funds complained about the salaries and bonuses paid to Topps senior staff. They also said that if the company does not improve the profitability of Topps and choose alternatives to enhance stockholder value, they would be forced to take this matter to highest level.

According to National Post -

What's at stake is the fate of an American icon. Topps is the offspring of Morris Shorin's American Leaf Tobacco Co., founded in the late 19th century. In 1938, Mr. Shorin's sons turned away from tobacco and the company was renamed Topps Chewing Gum. The company's gum was called Bazooka, after the musical instrument, and comics with the character Bazooka Joe, complete with eye patch, came on the scene in the early 1950s.

European Hedge Funds Rejects US Regulations

European hedge funds have refused to comply with the US regulation in their operations. Since Europe does not have any regulation for hedge fund operations, the hedge fund business is gaining momentum across the continent. As European hedge funds have operations worldwide, they are required to comply with the US regulations while getting investment from that country. That do not go well with the European hedge funds and they want to be out of the purview of American compliance demands. When the Securities and Exchange Commission enacted its registration rule earlier this year, many European hedge funds stopped attracting investors from the US. Their main objective was to avoid stringent regulation.

According to BankNet 360 -

An appeals court recently struck down the rule, but Congress has already reacted with legislative proposals that are similar to the former regulation. The issue speaks to the larger concern regarding the overall regulation of hedge funds, many of which operate globally.

European Commission on Hedge Funds

Recently, the European Commission has recommended that the European Union should allow only large investors to put money directly into hedge funds. This move will avoid the need to introduce specific regulations for these firms. At present, there is no specific EU-level regulation for hedge funds. Interestingly, hedge funds now account for about $1.2 Trillion worldwide. Hedge funds in Europe are valued at $325 billion. The study conducted by the European commission also recommended a minimum threshold of 50,000 euros for investing in hedge funds. That would prevent small investors from having direct access to funds.

According to Gulf Times -

The Commission wants to make EU fund industry rules more efficient for investors so they can put their money in a wider range of assets and countries. This would offer more choice to help solve the bloc’s under-funded pensions and make the sector more competitive.

RAB Capital Launches Attack on Retail Investment

RAB Capital, the hedge fund manager, has launched a fresh attack on the retail investment market by floating a new £150 million fund. The RAB group is working on plans to list a closed-end investment vehicle that would allow private investors to gain exposure to the RAB Multi-Strategy Fund for the first time. The plans will be implemented in the third quarter of 2006. The fund-raising will be targeted at private-client brokers. There have been similar moves by hedge fund managers in the past in order to give retain investors exposures to their funds.

According to Telegraph UK -

Capital Management Advisors, the hedge fund manager founded by Angelos Metaxa of the Greek drinks dynasty, confirmed yesterday that it is to press ahead with a $500m (£270m) listing of CMA Global Hedge, a similar closed-end investment vehicle.

Investors Must Be Alert in Hedge Fund Operations

When the advisers, consultants or brokers recommend a hedge fund, they may not be pitching he best investment for individuals because of their commission structure. Although the hedge fund industry is growing at a fast pace, there are several question that remain unanswered. According to a report, of more than 8,000 funds, only 2.456 have registered with the US Securities and Exchange Commission. This indicates that the majority of the industry is not properly regulated. The regulations have both pros and cons. When there is a tight regulation, conflicts of interest may lead to losses.

The free flow of money into hedge funds has slowed down in the recent months. The industry has grown almost 3,000 percent in 16 years. It is expected to reach $6 trillion in nine years. The year 2005 alone marked the opening of over 2,000 new funds. Hedge funds are investment partnerships that manage money for institutions and qualified investors with more than $1 million in net asset. Because of the money and speed, hedge funds have become powerful forces in financial markets.

According to The Seattle Times -

With a fund of funds, which combines multiple managers, there are two levels of fees. Managers of individual funds take as much as 2 percent of annual money under management plus 20 percent of profits. Then the packager of multiple funds also receives a fee of 1 to 2 percent of assets under management, plus 10 percent of any annual gain exceeding 8 percent.

London Hedge Fund Issues Global Shares

The CMA Global Hedge PCC Ltd in London has issues 3 classes of shares in their new hedge fund IPO. These shares are priced at $10, E10 and £10. Founders of CMA's global hedge fund manager, Sabby Mionis and Angelos Metaxa will manage the global shares worth £20 million or more. CMA has been delivering stable returns for more than eight years. The highly experienced management team at CMA has a track record of proven fund performance. It has also attracted blue-chip institutional funds. CMA Global Hedge Fund is based in New Guernsey.

According to HedgeCo Net -

CMA is a closed-ended, investment protected cell company structured to attract investors seeking risk-adjusted returns through the active management of a global portfolio of hedge funds. CMA Global Hedge is to be managed by CMA, a Bermuda-based exempt investment management company to funds of hedge funds.

S&P; Suspends Hedge Fund Index

Standard & Poor's said that it would no longer publish its managed account-based Hedge Fund Index from July 1, 2006. The decision may come as a surprise for the industry watchers. However, there are several factors attached to S&P;'s decision. In the recent moths, there have been diminishing numbers of managed accounts and their distribution in the index. That forced S&P; HFI not to become representative of the broad range of strategies employed by hedge funds. It finally took the decision of not publishing the index. The fallout from the meltdown of commodity broker Refco Inc. has also been cited as one of the reasons behind the unprecedented decision.

According to CNN Money -

The Hedge Fund Index, which launched in October 2002, tracked the daily performance of nine different hedging strategies, measured by results from about 40 hedge funds. The index has seen more than a dozen deletions of constituent funds since the start of this year, according to the paper.

Interest in Energy Funds

If you’re looking to invest your money profitably, the new handbook from Peter C. Fusaro and Gary M. Vasey should help you with a few useful tips. “Energy and Environmental Hedge Funds: The New Investment Paradigm” is for those who are seriously contemplating investing in the energy industry, which Fusaro and Vasey call “the world's largest business with over $4 trillion in annual trade.” With over 450 hedge funds trading in energy-related companies that deal in coal and solar power, the authors explain that the interest in oil, gas, coal and power is due to the imbalance between consumption of energy and the lack of exploration to find new sources of energy. Energy funds have “between $400 million and $1 billion in assets under management, say the writers. The book is priced at $120, for those interested. 

Follow this link to read more articles by Fusaro and Vasey.

FSA increases Focus on Hedge Fund Activity

The Financial Services Authority (FSA) has increased the amount of data collected from hedge fund managers. FSA now focuses on various aspects of hedge fund activity. The determination of market values of complex and illiquid financial instruments come under the important hedge fund activities. Side letters give certain investors potential terms such as cheaper fees to investment in the funds. There is no doubt that side letters are legal. However, there is a debate whether they are properly disclosed to all the funds' investors or not.

According to Life Style Extra -

This, the FSA argued further, will firstly allow the creation of funds of hedge funds products, and ultimately the creation of hedge fund-related products inside the regulated 'regime' for authorized collective investment schemes.

Goldman Sachs Listed as Top Hedge Fund

Goldman Sachs Group has become the world's largest hedge fund manager after its assets surged more than 85 percent for the past couple of years. The assets reached to $21 billion. Goldman Sachs dislodged Farallon Capital Management from the top slot. The 2006 ranking is based on assets managed as of the end of 2005. Hedge fund firms never crossed the $21 billion threshold since 1998, when Julian Robertson's Tiger Management and George Soros's Soros Fund Management peaked at about $22 billion. The hedge fund industry’s average return was 9 percent.

According to International Herald Tribune :

In August 1998, Russia's debt default and ruble devaluation sent stock and bond markets reeling, causing hedge funds to lose money or trail the overall markets. Less than two years later, the Internet bubble burst, and Tiger and Soros jettisoned all or most of their outside investors after tumultuous losses.

Ferguson Sets Up a Hedge Fund

Craig Ferguson, a former senior foreign-exchange strategist at Australia & New Zealand Banking Group Ltd., has set up a hedge fund. The hedge fund was set up based on a betting that the Australian dollar will surge to a 22-year high in the next 12 months. Ferguson's Antipodean Capital Management aims to tap pension funds and wealthy individuals for funds to bet on the currency. He is hoping for a rise in growth and gains in interest rates. He believes that the economy is growing and interest rates are set to rise further as the Australian dollar is undervalued.

Ferguson has teamed up with Simon Ho, a former currency options trader at Deutsche Bank AG in Sydney to form Antipodean. Antipodean began trading in February 2006. They have distributed the capital equally between a fund targeted at the Australian dollar's performance against the US dollar and another fund invested in other major currencies. Bloomberg has published an article on the Same Topic.

The local currency portion has risen between 3 percent to 4 percent since trading began, while overall performance has been dragged down by bets going the wrong way on major currencies, he said.

US Hedge Fund's bid for Hall's Newcastle Stake

Sir John Hall, a leading hedge fund manager in the United States, has received a proposal for his 28.8% stake in Newcastle United from a US hedge fund called Polygon Investment Partners. Although Polygon has not fixed a bid amount, the possibility of Hall selling out has created some sort of turbulence in hedge fund market. As Polygon has billions at its disposal, it would not find any difficulty in buying out Hall's stake. Polygon is a secretive American financier that had no interest in English football earlier. Now it aims to expand its business in different areas. The Guardian has published an article on the Same Topic.

Newcastle would appeal because in a fragile stock market the television deal struck by the Premiership guarantees short-term stability. Newcastle are also an underachieving stock in City terms, their valuation yesterday of £80m is a tenth of Manchester United's despite Newcastle's phenomenally loyal fan base.

Hedge Fund Transparency

Investors across the globe have expressed concern over the poor transparency at hedge funds. They believe that there is an immediate need for better transparency in a hedge fund manager's operations so that more investors are encouraged to allocate hedge fund strategies in future. Most people feel that the failure to address this concern may hinder the growth of the hedge fund sector. According to hedge fund analysts, the increased participation of institutional investors in hedge funds will bring additional regulatory burdens and require more standardization of managing assets. Global Investor has published an article on the Same Topic.

These results point to a division emerging between those managers with a business model firmly founded on serving the private wealth sector, and those focused on the institutional market. Those managers who have already developed an infrastructure to support the institutional market place have a head start in serving that investor type.

New Macro Hedge Fund by Polar Capital

Polar Capital has launched a global macro hedge fund, which is called the Polar Capital Discovery Absolute Return Fund. It covers the developed and developing markets and aims at delivering returns from a medium-term fundamental investment approach. Polar has set a capacity limit of $1 billion (£530 million) on the fund. It is domiciled in the Cayman Islands and will run between eight and fifteen positions. The primary focus of the fund will be the currency markets. It will make a strategy that will account for 70% of the fund's assets with the balance spread across rates, equity and commodity markets. CityWire has published an article on the Same Topic.

Mark Kary, chief executive at Polar, said: 'I am delighted with Polar's diversification into the macro arena. This is another important step to further enhance our growth. The focus of this fund will fit neatly alongside Polar's existing long-only and equity long/short business.'

EIS Launches New Hedge Fund Initiative

Enhanced Investment Strategies LLC, a quantitative investment manager, has launched its new fund, the PNM Capital Preservation Fund. The fund has the safety characteristics of a fixed income fund and the return potential of a hedge fund. It would be attractive for institutional investors who want to protect their money and generate moderate returns. Foundations are looking for returns in the 7% to 10% range. But they are concerned about protecting their capital. They do not find the traditional hedge fund strategies appropriate because of the volatility in the returns stream. This fund eliminates this volatility and provides the required returns while preserving capital.

The fund's capital would be invested in the short-term government securities. That provides the security and capital preservations in the fund. The return comes from various strategies that have been developed by the EIS staff. One of the key objectives of the strategies is to eliminate risk in the investment process. The fund does not have a fixed monthly management fee. It charges only a quarterly performance-based fee. Hedge Week has published an article on the Same Topic.

Ospraie Closes $250 Million Hedge Fund

According to reports, Ospraie Management LLC has decided to close a $250 million hedge fund specializing in commodity trading. The Ospraie Point Fund lost 29 percent in the five months of the year. It also incurred heavy losses on the betting on copper and other commodities. The Ospraie Point Fund is a small companion fund to the flagship $2.5 billion Ospraie Fund. It also focuses on commodities. According to anonymous sources, the hedge fund's losses stemmed from a combination of bad bets in commodities that fell sharply in recent weeks. The closure of the hedge fund is not good news for investors who always relied on Ospraie. Baker Library provides detailed information on Hedge Fund.

Hedge Fund Investment Boosts Mills Stake

According to reports, a major hedge fund investor in Mills Corp. has increased its stake in the embattled mall developer. The hedge fund investor, Stark Investments has purchased 720,000 shares in the company since March. Now it controls 4.95 million shares, which is 8.7% of Mills' stock. Stark sources revealed that they were buying shares for investment purposes. However, they may seek to control management in the future.

There are some other investors that have expressed interest in Mills. Simon Property Group, Vornado Realty Trust and Westfield are said to have contemplating plans to invest in Mills. Mills has been exploring a sale of the company or assets as it deals with shareholder lawsuits and SEC investigation related to financial restatement. Mills has set a deadline for June 13 for letters of interest from prospective buyers. Recently, the company has entered into customary confidentiality agreements with potential buyers and investors. It has been reported that some of these potential buyers have expressed interest in some of the company's assets.

More Information: Read Here

In a research note, Bank of America analyst Ross Nussbaum provided additional color on his conversations with Mills' management this week at the annual International Council of Shopping Centers conference in Las Vegas.

Man Group Heightens Hedge Fund Concerns

There are some concerns in the market over hedge fund. The fear was fuelled by the world's largest hedge fund manager, Man Group. Man Group disclosed that some of its smaller competitors might be in serious trouble, as its future funds have made substantial losses this month. The disclosure made by Man Group raised serious concern that some smaller hedge funds may suffer greater losses and they might result in a decline in share prices. The news already had its impact as the FTSE 100 dropped 91.6 points, by reversing most of the gains made earlier.

Man Group confirmed that its flagship Man AHL Diversified Futures fund lost 3.7 per cent last week. In total, it has dropped 4.5 per cent so far this month. Despite of the losses, it has shown a net gain of 31.9 per cent in the first five months of the year. According to experts, Man Group's poor performance is a short-term movement due to volatile equity markets. The AHL fund has seen such fluctuations before. Hence, it is expected that the market will be able to handle this news efficiently.

More Information: Read Here

Many hedge funds have been betting huge sums on a complex commodity and currency strategy, involving short selling the dollar while at the same time buying gold and platinum using borrowed yen. Any funds in these positions in the last two weeks will have sustained heavy losses as commodity prices have tumbled and the dollar strengthened.

A new approach for the small investors...

That's what Brian Hlidek, a former investment adviser and Jay Compson from Hingham, have worked out while starting their hedge fund called Absolute Strategies Fund. The idea began as a way to bring out a mutual fund that would allow investors to benefit from a hege fund style of investing.

Their mutual fund is one of the few that works as a hedge fund of funds. It is a hedge fund that reduces risk by investing in many other hedge funds. But unlike the normal hedge fund, this does not force the investors to lock up their money for an extended period of time. And it's more transparent.

Though Absolute's Fund may not be the best fund when the stock markets rise rapidly, but it's quite a beneficial bet when the markets are down.

According to Bill Noonan, vice president at Contravisory, "What they're trying to do is bring alternatives to the broader market. They have a lot of unique managers in there that the general public could not invest in directly, mainly because of the minimum required to access these managers."

For further details Read

What Is Selling Short?

A strategy that is used by hedge funds quite often is selling short. Now, what exactly is selling short?

Selling short implies when you trade something that you do not own. Usually this is done when prices of a particular share are expected to fall in the future. Managers prefix a date for selling shares that they do no own, at a particular price. When the price for those shares fall, they purchase them and then deliver them to the buyer. As a result, they end up making money on this. In order to profit from this technique, managers need to have a very good understanding of the market and trends.

Basic Hedge Fund Techniques

When you invest in hedge funds, in most cases the manager would inform you about the techniques that would be used. For a basic understanding of the techniques, read on…

In case of absolute return funds, arbitrage techniques are used. These include the simultaneous sale and purchase of similar types of security. These usually assure returns of 6-8 per cent. These are usually independent of the stock market.

On the other hand, event-driven funds derive returns from temporary mis-pricing of bonds, shares or other assets.

If you are looking at investing in macro funds, it is imperative to understand that these exploit major economic or financial developments around the world. These developments can lead to big swings in asset prices.

Also, a lot of opportunities emerge during takeover bids, if you are looking at taking advantage of these, then you should invest in merger-arbitrage funds.

Delphi's restructuring plan gets stuck by a hedge fund

Billionaire investor David Tepper, whose hedge fund, Appaloosa Management LP, is also one of Delphi's biggest shareholder has stalled the company's restructuring plan. They have approached the judge to bar the company from getting into the money-losing contract with its biggest customer, General Motors Corp. And also have appealed to protect the labor contracts.

Filing papers with the U.S. Bankruptcy Court in Manhattan, Appaloosa Management LP has accused GM of using its influence to get a big payoff in Delphi's bankruptcy reorganization plan. They also maintain that Delphi has so far not provided any evidence that these proposals are going to benefit the company.

Read similar stories here

Nobel Foundation Invests In Hedge Funds

The Nobel Foundation, that funds the Nobel Prize, would now be investing in hedge funds. The amount of the investment has not been disclosed, but according to sources, the group has invested in Corbin Capital Partners, Rock Creek Potomac fund and the Carnegie Worldwide Long/Short fund.
MSNBC reports:

Although the size of the investments was not disclosed, industry officials said winning an investment mandate of any size from Nobel would be seen a seal of approval for the three funds. For Nobel, the foray into hedge funds offers the foundation greater diversification and more flexibility when it comes to investment styles.

Short changed on short selling - watchout!

Hedge funds are planning a class action lawsuit against brokers who they feel short changed them in short selling operations. That's a real irony because we often hear of complaints about how hedge funds spread negative stories about companies to bring down their share prices - something that is absolutely necessary for hedge funds to make money out of short selling. Now it is the hedge funds who seem to be on the receiving end. The problem is: hedge funds say that several brokers despite being paid to borrow stocks to cover their, that is, the hedge funds', short sales did not do so forcing the hedge funds to go 'naked' in their short sales. This has often led to market distortions leaving the hedge funds out of pocket. While details are still not available as to who will be sued and by whom - just watch out on this front - a storm is brewing and big names such as Goldman Sachs and Morgan Stanley are likely to face the heat.

Well, in my view a strong enough legal action can create quite a flutter in the market and most importantly it can lead to what investors don't like at all - a high degree of uncertainty ! Be warned and watchout!

Read more: US hedge funds set to sue in short-selling row

Global macro hedge funds facing dearth of talent

Even as investors are raising their exposure to global macro hedge funds because of their potential to make money in volatile markets, a dearth of talent in the sector means returns could disappoint. Global macro hedge funds take directional bets in stock, bond, currency and commodity markets using economic trends. 

For these funds, opportunities to make money should be many and varied given expectations of a liquidity withdrawal, which could create volatility and trigger new trends. Volatility in commodity and emerging markets, forecasts of a declining dollar and rising U.S. Treasury bond yields are all potential opportunities for these money managers.

The problem, however, seems to be that many of the people managing global macro hedge funds seem to have a poor understanding of  the US Treasury bond market and this can hurt returns.

Read more:  Dearth of talent may hit global macro hedge funds

Increase In Copper Prices Beneficial For Hedge Funds

The steady increase in copper prices in the past few years has been extremely beneficial for hedge funds. A number of hedge funds have capitalized on this trend. FT.com reports:

US hedge fund Touradji Capital is believed to hold a sizeable copper bet, along with Armajaro Holdings in the UK. Geologic, a smaller US hedge fund with a copper bet, climbed 12.3 per cent in March alone. In recent months, other funds that have made winning bets on copper include Ospraie Management, Moore Capital and Vega Asset Management in the US and Winton Capital and Red Kite Management in the UK.

Fund Of Hedge Funds

A Fund of Hedge Funds is an investment portfolio that is made up of a number of hedge funds. These hedge funds employ different strategies and as a result the risk is lower than that in the case of independent hedge funds. Also, in most case these deliver more consistent and steady returns than individual hedge funds or mutual funds. For investors looking at diversifying their investment portfolio, these serve as the best possible investment tool.

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.

Stabilize returns with merger arbitrage

Hedge funds by their inherent nature involve risks. If you are dealing in the market, you are expected to make a few profits and losses. However, there is one tool that is designed to ensure profits regardless of the direction the equity market takes. Sounds intriguing? Called merger arbitrage, this strategy takes advantage of the expected price movements or arbitrage opportunities that occur after the announcement of a merger or acquisition offer.

Now that you know what a merger arbitrage is, let’s examine how it works. Once a company makes an announcement of its intent to acquire another firm, the price of the target company's stock will go up. If you notice carefully, it does rise but usually not to the full offering price. And since there is a risk of the deal not closing on time or at all, the target company's stock may sell at a discount to its value at the merger's closing. This discount usually increases with the expected length of time until closing and the perceived risk of the deal. Now if you want to use the merger arbitrage strategy, you will try to lock in this spread. If the merger involves a cash offer, you will only have to buy the stock of the target company. But if the deal involves a trade of securities, you may also have to hedge against the possibility of the acquirer's stock falling. To do this, you can sell the acquirer's stock short.

You will notice that when compared to the uncertainty of playing the volatile equity markets, merger arbitrage investments can give you quite consistent returns. There is of course the risk of a merger or acquisition falling through. However, a good fund manager is expected to foresee such circumstances since they are quite predictable.

Hedge fund investors get aggressive

Tired of sluggish fund managers, an increasing number of wealthy Americans are now taking bigger risks with hedge funds. They put up their hedge fund stakes as collateral for loans and use the proceeds to expand their portfolios. Forbes.com reports:

It's all about the returns: A few years ago, most hedge fund investors were realizing returns of 15% or better without extensive borrowing. But a flooded marketplace that now includes an estimated 9,000 funds with more than $1 trillion in assets—from $25 billion in 1990—has slowed down the pace. Hedge funds returned 8% last year, according to industry consultant Hennessee Group. That's actually a tad below the average mutual fund performance.

Read more: Borrowed Time?

SEC commissioner unhappy with new hedge fund rule

Paul S. Atkins a Securities and Exchange Commission commissioner recently criticized the new hedge fund registration rule. According to the commissioner, the new rule has created extra burdens for the Securities and Exchange Commission without protecting investors. Boston.com reports:

Atkins said the rule carries too many costs, such as making it too burdensome for some hedge funds to do business or forcing them not to use technologies such as instant messaging because of bookkeeping requirements. The agency would do better to rely on its traditional sources of spotting fraud, such as suspicious employees or business partners of crooked funds, he said.

Read more: SEC commissioner criticizes hedge fund rule

Hedge Fund Insurance

The hedge fund industry was quite unregulated till a while back, but things are undergoing a changeover now. The recent past has seen a number of regulations being imposed to ensure that there is more transparency and answerability as far as the sector is concerned.

With this, another trend that has kicked off is hedge fund insurance. A number of hedge fund managers are now purchasing insurance as a risk management strategy. This is basically because now, with the regulations, hedge funds are more vulnerable to lawsuits.

Now, before an insurance company agrees to sell a policy to hedge funds there is certain basic information that would be taken into consideration. This would include the business plan of the hedge fund, the investment strategies and information about the hedge fund manager including past records of the manager.

It has been noticed that insurers usually refuse to or are reluctant to offer coverage to start-up funds with less than $150 million in assets. So if your hedge fund falls into this category, you would need to have a very promising business plan in place to get insurance coverage. Also, if an insurer does not get the requisite information about the hedge fund or if the hedge fund manager does not have a good record, it might be difficult to get insurance coverage. Also, to negate their own risk, insurance companies might offer limited coverage.

So, when you look at getting an insurance policy for your hedge fund, make sure that all the required documents are in place. Also, study the policy and clarify any doubts that you have before taking a final decision.

Getting The Ideal Hedge Fund Index

Are you looking for the ideal hedge fund index? Well, you can call a hedge fund index complete only if it meets certain basic criteria. First and foremost, the index should be comprehensive and should include details of all major fund strategies. Further, it should offer an analytical comparison of the different strategies. It should provide an insight into funds that can be invested in.

Advantages of Funds of Hedge Funds

Most investors abstain from investing in hedge funds because of the high risk involved. Now, to deal with this situation, as an investor, you can turn to Funds of Hedge Funds. These help to more or less negate the risks that are associated with individual hedge funds.

Funds of Hedge Funds basically diversify your investment portfolio by investing in a number of hedge funds. This implies that your portfolio would constitute of different hedge funds with different managers and varied strategies. The job of the administrator of the hedge fund of fund is to keep a close watch on the performance of these funds.

Now, funds of hedge funds offer numerous advantages in comparison to hedge funds. The first and the foremost being that the risk in the case of these is much lower than that in case of individual hedge funds. These involve greater transparency as the administrator keeps a close watch on the performance of each of the hedge funds. Further, timely reports are made that ensure that you are in the loop of things. The administrator also selects hedge funds after researching the background of the hedge fund manager and being a part of the industry, can take a more informed and favorable decision.

Also, with fund of hedge funds you can gain access to a wider range of hedge funds that might not be possible if you are looking at investing in individual hedge funds. In case of these, the portfolio is made up of different hedge funds that employ varied strategies and this significantly lowers the volatility. And also, a fund of hedge funds usually require lower minimum investment amount than individual hedge funds.

Hedge Funds Might Affect Micron-Lexar Deal

Hedge fund activists might make it difficult for Micron Technology Inc. to take over Lexar Media Inc., as has been indicated by the latter. Micron recently indicated plans to buy Lexar in a stock deal worth about $680 million. Reuters reports:

But since the deal was announced, five multi-billion dollar hedge funds disclosed in regulatory filings that they hold more than 5 percent of Lexar, with one -- Elliott Associates LP -- flatly stating it opposes Micron's offer price, although it supports a sale of Lexar. Lexar shares are now trading significantly above the offer price, indicating that some investors are betting the offer will rise.

Hedge funds Get Aggressive on New Sectors

To satiate the growing hunger of higher returns among investors, hedge funds are increasingly concocting new strategies to be one up on this front. Hedge funds are now looking aggressively at new avenues such as loans, oil derivatives and agricultural futures markets. It is being reported that a large number of players in traditional markets such as stocks and bonds have reduced average industry returns in recent years. This is perhaps the root reason why hedge funds are reinventing themselves with a vengeance.Reuters reports:

"Hedge funds have barely scratched the surface of global financial assets ... They can trade anything ... As long as you've got the right guys in the right strategies in the right spaces, they will make money," he said. "The doomsayers who are talking about falling hedge fund returns have a blinkered view of what the industry can do." Hedge fund returns last year averaged around 7.5 percent, compared with around 9.5 percent in 2004 and more than 15 percent in 2003, according to industry estimates.

Limitations in redeeming shares

Investing in hedge funds? Remember that even though most hedge funds promise hefty returns, there are certain limitations as well. An important fact is that in the case of most of the hedge funds, there are certain limitations on your right to redeem your shares. A lot of times there is a basic lock-in period that can extend to over a year, wherein you cannot redeem your shares. So think twice and take into consideration a long term perspective before investing money.

Fortis aims at strengthening position through acquiring HFS

In a recent move, Fortis Merchant Banking acquired Hedge Fund Services, in order to strengthen its position in the hedge funds industry. Through this move, the company is essentially looking at catalyzing its growth in niche markets. Banking Business Review Online reports:

HFS is the British Virgin Islands' largest independent full-service fund administrator. At the end of 2005 it had approximately E2 billion in assets under administration in 104 funds from 53 different fund managers, 90% of which are based in the US.

Caledonia Investments to acquire Liberty Groups fund of hedge funds business

According to recent reports, Liberty Group, a South African insurer has indicated that it would be selling its fund of hedge funds business to Caledonia Investments plc. The deal has been struck at close to 41 million pounds. Reuters South Africa reports:

Liberty said the potential acquisition price for Liberty Ermitage Jersey Limited, one of Europe's biggest offshore hedge fund management groups, would constitute an initial 35.1 million pound payment and up to a further 6 million payable over the next 3 years. Sources from Calendonia have indicated that the company would own 60 per cent of Liberty Ermitage Jersey Ltd, while Ermitage's management and its new Chairman Paul Myners would own the rest.

Hedge Funds Financing Exposures

Mainly there are two types of hedge financing exposures for banks, especially in case of banks in the European Union region. The two forms of financing can be broadly distinguished as bridge (liquidity) financing and normal cash or security lending for gearing.

The first type of exposure, bridge, is designed to allow hedge funds to:

•manage unexpected liquidity shortages of various origins;

•remain fully invested (minimizing cash drag);

•iron out timing mismatches of proceeds related to investor subscriptions and  redemptions; and

•not miss attractive investment opportunities when all available funds are fully invested

The last option from the list enlisted above is of critical important for funds of hedge funds, as the opportunity to invest in otherwise closed funds must be accepted at short notice. Research studies outline that some banks clearly prohibit outright credit to hedge funds. This is because lending to hedge funds is a balance-sheet-intensive activity; it was not surprising that smaller banks or banks that were not prime brokers usually had minor financing exposures.

Requirements to form a hedge fund

Are you planning to form your own hedge fund? Well there are some basic requirements that you would need to take care of.  You will need to have your Private Offering Memorandum, Limited Partnership Agreement, and Subscription Documents, in place. Following that, you will also need to prepare your Form D and file it with the Securities and Exchange Commission. Another important requirement is to ensure that you comply with the filing requirements of the states where your investors are located. Also, it is important to remember that you cannot advertise your hedge fund. With these facts and requirements in place, you can go ahead and form your own hedge fund.

Hedge fund fees

When you plan to invest in hedge funds, you would have to pay a fee to the manager. This is known as an Incentive Allocation or Performance Fee. Usually this fee ranges from 20 per cent to 40 per cent. It is dependent on the strategy employed by the Hedge Fund Manager.

Categories of hedge funds

Hedge funds usually fall into two categories. The first is determined on the basis of the managers who are usually well known entities. The second category includes small boutique-styled Hedge Funds. These are associated with a particular segment or investment strategy. In the case of the latter, the fund manager's expertise in recognizing the investment opportunity determines the funds strategy.

Why hedge funds?

Investors basically look at investing in hedge funds to get higher net returns or to diversify their investment portfolio.

As an investor you need to understand that hedge funds don't necessarily guarantee higher returns. Most hedge funds invest in the same securities that are available to mutual funds. So the returns are more or less similar.  High returns are possible only if you pick a superior manager or a timely strategy.

In term of diversification, hedge funds help in reducing the total portfolio risk as these are uncorrelated with broad stock market indices. As a result, it actually becomes a matter of personal choice when selecting the ideal investment tool.

Mutual funds to employ hedge fund strategies

The recent times have seen mutual funds employing the strategies that are usually employed by hedge funds. This largely stems from the pressure exerted by weak stock-market returns and the increasing competition in mutual funds.

A number of companies are seeking the permission of fund shareholders to diversify the strategies that have been used so far. For those mutual funds that already have the permission to use these strategies, hedging techniques are now being employed.

This trend has basically picked up as hedge funds have been giving good returns in comparison to the conventional investment tools. In fact, certain mutual funds are being launched that would only use the techniques that are employed by hedge funds.

The techniques that might prove beneficial for mutual funds have been identified as making complex derivative trades, investing with borrowed money and short selling.

Europe's hedge funds on a high

According to recent research the hedge fund market in Europe is currently riding a high wave. It has been reported that European hedge- fund managers are introducing more funds. Post the fall in the market in the beginning of 2005, this comes as good news for all those associated with the industry.

The fall in the market in early 2005 has been largely attributed to automakers like General Motors and Ford.

The returns from hedge funds improved in the latter part of the year 2005 and the beginning of 2006 has also been good so far. Hedge fund managers are now making much more money than they did in the recent past. International Herald Tribune reports:

European fund managers started a record 330 new funds in 2005, almost a third more than the 250 new funds started in 2004. Thursday. Assets raised in the new funds increased 22 percent, to $27.8 billion, from $22.8 billion.

New hedge fund of funds to be launched

Sources have revealed that Saggezza Investment Management, LLC (SIM) is planning to launch its first fund of hedge funds. This launch is scheduled for June 2006. HedgeWeek reports:

SIM will manage a unique and nimble long/short biased fund of hedge funds for high net worth and institutional clients. The fund is targeting a return of between 10% and 15% net of fees, and an annual standard deviation of 6% to 8%.

Schroders decides to buy NewFinance Capital

As the investors are recognizing the advantages of hedge funds, the demand is burgeoning. This has led to a scramble by banks and asset managers to acquire hedge funds. As a result, banks and managers looking at capitalizing on the growing demand are now acquiring a number of these.

According to recent reports, Schroders PLC has decided to pay approximately $101 million for NewFinance Capital. It has also been indicated that an additional $41 million will be paid out if the unit meets certain revenue targets over the next four years. NewFinance Capital has $2.5 billion in fund-of-hedge-fund assets under management. MarketWatch.com reports:

At least seven similar deals have been struck since 2005 as private banks and asset managers expand their range of alternative investment products to keep up with demand from clients, particularly institutional investors such as pension funds and corporations.
Funds of hedge funds - which research, select and monitor hedge-fund managers to create diversified portfolios of hedge funds - are usually the first stop for these types of clients interested in hedge funds.

Scion Funds acquires Livedoor shares

According to recent reports, Scion Funds, a California-based hedge fund, has bought out more than 5 per cent of shares in Livedoor. This makes Scion the first major buyer of Livedoor since the companys shares dropped. United Press International reports:

Scion Capital's Scion Funds is the first major buyer in the Internet portal group since the company's shares tumbled to less than one-tenth of its peak value. This fall in the value followed the arrest of the companys chief executive and other key members on accounting fraud charges.

Information anytime, anywhere – Pyxis launches mDashboard

With the growing market for hedge funds, there is also a need for proper reporting tools. Keeping that in view, Pyxis Mobile, has launched mDashboard. This tool is a real-time reporting tool for hedge fund managers.

This tool can be used with any BlackBerry from Research In Motion (RIM). In fact, this is a mobile extension of the sophisticated systems that users rely on while in the office.

Through this tool, managers can access the latest available information including news updates, any user defined alerts, sales reports, and so on. This invariably enhances the efficiency of managers as they can take informed decisions at anytime, no matter where they are.

Pyxis is a leading provider of wireless applications for the financial services industry. Finextra.com reports:

mDashboard allows managers to access disparate data sources including industry-specific news, order management systems, and sales analysis from their handheld. By extending these enterprise and market data sources, users obtain immediate access to all of their critical data.

Glen C Dailey joins Jefferies & Company

To further expand its overall commitment to provide brokerage services to hedge funds, Jefferies & Company, Inc, recently hired a six-person team of industry veterans that would be led by Glen C. Dailey. Jefferies is a global investment bank and an institutional securities firm. Business Wire reports:

Mr Dailey will serve as Head of Prime Brokerage Services. Before joining Jefferies, Mr. Dailey was a Managing Director and the Chief Operating Officer of Prime Brokerage Services at Banc of America Securities.

CMA to be bought by EFG International

Sources from EFG International recently indicated that the group intends to buy Capital Management Advisors, a hedge-fund firm. This comes in wake of the increasing demands of consumers for alternative investment options. MarketWatch reports:

Before the CMA acquisition, EFG had about 5 billion Swiss francs of client assets in hedge funds and related investments. CMA, brings another 2.1 billion Swiss francs in hedge-fund assets to EFG, plus research on about 2,500 managers and experience structuring different types of hedge-fund products.

Loopholes work to the advantage of hedge funds

In spite of the growing popularity of hedge funds, there are certain loopholes that exist in the disclosure rules in Hong Kong. As a result, hedge funds in Hong Kong are in a position to disguise their voting intentions. Business times reports:

Investors don't have to reveal any such "short" positions as long as they hold less than 5 per cent of a company's stock. Minority shareholders of Henderson Investment Ltd vetoed a privatisation plan by its parent on January 20. The move triggered the biggest one-day drop in Henderson's shares in eight years, benefiting hedge funds and other investors that had sold borrowed stock in the expectation the shares would fall and they could buy it back at a lower price.

Hedge Funds: Myths and Realities

Dispelling the common notion that all hedge funds strategies are adept to hedge against market downturns, we are trying to spread the right word around. In fact many, but not all, hedge fund strategies ‘hedge’ against downturns in the markets being traded.

The idea is to draw in attention to the different strategies that hedge funds often use or are capable of using. These funds are flexible in their investment options as they can use short selling, leverage, and derivatives such as puts, calls, options and futures. Hedge funds are known to benefit from heavily weighting hedge fund managers’ remuneration towards performance incentives, thus attracting the best brains in the investment sector.

The fledging industry, which is growing at a rate of over 20% per year, has over 8350 active hedge funds. To draw outline of what hedge funds are all about and how they go about their business, we have listed some key indicators that you might find worth looking at:
    
•Hedge funds include a variety of investment strategies, some of which use leverage and derivatives while others are more conservative and employ little or no leverage.
•Some hedge fund strategies seek to reduce market risk specifically by shorting equities or derivatives. 
•These are specialized, relying on the specific expertise of the manager or management team.
•Performance of some of the funds, particularly relative value strategies, does not dependent on the direction of the bond or equity markets.
•Hedge fund strategies such as arbitrage strategies are limited as to how much capital they can successfully employ before returns diminish.
•Some of the truly outstanding performers have clearly outperformed the average.

Investments into hedge funds tend to be favored by more sophisticated of investors, which includes many Swiss and private banks. The reason why it is favored by the top end investors is that they have understood the consequences of, major stock market corrections.

What are Hedge Funds?

Are you new to the baffling world of hedge funds? Or just starting / planning to invest into one? First get a basic feel of what hedge funds are all about. A hedge fund is a pool of invested capital, used mainly by wealthy/financially experienced individuals and institutions. The capital pool is allowed to be traded through aggressive investment strategies that are unavailable to mutual funds and unit trusts, including selling short, leverage, program trading, swaps, arbitrage, and derivatives.

In usual cases, hedge funds are restricted by law to just about 50-100 investors per fund. This is in sharp contrast to the hugely popular mutual funds or unit trusts, which don’t have any such restrictions. Therefore, most hedge funds set extremely high minimum investment amounts to make up for the limited number of investors. The minimum entry amount could range anywhere from US$ 250,000 to over US$ 1 million.

Arcelor draws attention of hedge funds

Mittal Steels €18.6bn offer for Arcelor has drawn intense interest from UK hedge funds such as Marshall Wace and GLG Partners and US hedge funds such as Och-Ziff, Duquesne and Perry Capital. In fact, it has been reported that some funds bought Arcelor shares before the bid. MSNBC reports:

Mittal's bid is worth €28.21 per share. But some deal-watchers believe Arcelor could fetch €35 a share. Largely on these hopes, the stock has risen to €30.53.

AIGFP buys stake in Aspect Capital

AIG Financial Products Corp. (AIGFP) recently announced that it has purchased 4.3 per cent of Aspect capital Ltd., a London based hedge fund firm. AIGFP is the derivatives unit of American International Group. The group might also consider buying an addition stake of up to 8 per cent in the firm. The terms of the acquisition have not been disclosed so far. Sources have indicated that this acquisition move might be followed by the company buying a stake in other firms as well.  This stems from the fact that AIGFP has a strong stand in the hedge fund sector and can be a strategic partner for alternative investment firms. Investors.com reports:

The division indicated that it has invested $75 million in Aspect funds. It could allocate another $125 million in seed capital for Aspect programs in future.

Should a hedge fund administrator be appointed?

Should a hedge fund manager administer the fund himself or should the administration be outsourced? The decision is tough, yet it has to be taken. With an administrator in place, the manager would be relieved of the basic administrative tasks and can concentrate on the actual investment of the assets. If a manager decides not to have an administrator, then he would be keeping the partnership accounts, reports and statements. This would add to the workload, but is definitely a model that has been quite successful in the past years.

An administrator also carries out the calculation of the net asset value independently and this can add to the comfort and the convenience of investors. At times it has been seen that the appointment of an administrator can help in retaining existing investors and even in attracting new investors. In case of a new fund manager, this can definitely be the key to making it big. At the same time for an existing and seasoned manager, who so far handled the administrative tasks himself, the appointment of an administrator would entail increasing the cost of day to day operation.

This decision might have to be taken by a manger due to investor pressure. The decision to outsource the process would imply that whatever investment that the manager has made so far for administering the funds would be wasted. Added to this he would have to bear the burden of paying administrative fees. In this case, usually hedge fund managers continue carrying out the administrative tasks themselves, including keeping the funds accounts and calculating the NAVs, and they appoint an administrator at a nominal cost to verify the figures. As a result, this saves money while at the same time satisfies investors.

EC Appoints Hedge Funds Expert Group

The European Commission has reportedly appointed several hedge fund experts to a group which is to look at potentially improving the EU framework for alternative investment funds. The Expert Group on Alternative Investment Funds will look at analyzing the current organization of the alternative investments business.

The expert panes shall be examining whether operators in these asset classes are confronted with significant difficulties in organizing and driving their activities in the European marketplace. Further, these panels would explore the possibility of these issues requiring attention of EU policy-makers.  Hedgeweek reports:

The hedge fund experts on this group include Segun Aganga (Goldman Sachs), Antonio Ary dos Santos Freire (Santander), Odette Cesari (Axa-IM), Neil Donnely (Pioneer), Alain Dubois (Lyxor), Horst Eich (Allianz),  Paul Feeny (Gartmore), Holger Hartenfels (Deutsche Bank), Gay Huey Evans (Citigroup-Tribeca), Alain Reinhold (ADI), Rupert Rossander (Man Group), Lindsay Tomlinson (Barclays Global Investors), Jack Tracy (Morgan Stanley), Luc de Vet (Citco Luxembourg), Neil Warrender (RAB Capital).

Meyer to launch his own hedge fund

Jack Meyer, the founder of Convexity Capital , Boston, would be launching his own hedge fund in the near future with approximately $5 billion in assets. Meyer was previously working with Ivy League university's in house money management arm Harvard Management Co. and had helped to quadruple Harvard University's endowment to $26 billion. Reuters reports:

According to investors, the fund has already caused a stir in the industry and might become the biggest ever launched in the $1.1 trillion industry. Meyer has been known so far for his low key style and superlative returns.

Protect yourself from hedge fund frauds

What can you do to protect yourself from hedge fund frauds? Well, quite a lot as long as you are willing to make the effort. A number of options are available for finding out the requisite information to ensure that your investment is safe. Armed with this information, you can truly make a ‘safe and profitable’ investment.

You can hire a sleuth who would find out the background of the hedge funds that you plan to invest in alongside with the history of the manager. These sleuths can save you from investing in the wrong hedge funds or trusting the wrong manager. In case you do not want to hire the services of a sleuth, you can even conduct a search on the internet as a lot of useful information is now accessible online. It is essential to verify the manager's credentials and the fund's claims.

Most investors feel that an investment in fund of funds is safe. In my opinion, nothing is safe any more. So don’t rest in peace, take the necessary measures to ensure that your money is safe. In fact even a hedge fund adviser could be giving you wrong information. It is imperative to research their background before you decide to trust them. Also, you should make an attempt to understand the strategy that they use to select safe and profitable investments.

New hedge-funds businesses at Citigroup

Citigroup has reportedly hired Steven Ciampi as managing director for its hedge funds and managed futures businesses in Europe and the Middle East. This is in line with the bank’s drive for product growth in those regions. Reuters reports:

Ciampi's role at Citigroup Alternative Investments also includes being head of product development and strategic initiatives for the hedge funds and managed futures division in Europe and the Mideast. Since 2001, Ciampi oversaw Citigroup's equity finance and prime brokerage unit in London, a unit that serves hedge funds.

Ciampi takes over as MD Citigroup

Steven Ciampi would be taking over as managing director, Citigroup for its hedge funds and managed futures businesses in Europe and the Middle East. This decision is a strategic move as the group is currently looking at increasing product growth in these regions. Reuters reports:

Since 2001, Ciampi oversaw Citigroup's equity finance and prime brokerage unit in London, a unit that serves hedge funds. Ciampi's role at Citigroup Alternative Investments also includes being head of product development and strategic initiatives for the hedge funds and managed futures division in Europe and the Mideast.

State-employee pension fund, NJ, to invest in hedge funds

The biggest advantage that hedge funds have is that they bring steady returns though these are not as high as those in the case of mutual funds. To leverage on the advantage of steady returns, state-employee pension fund, New Jersey, has reported that it would be investing in hedge funds. This would be the first investment ever into hedge funds by the state-employee pension fund.

This decision can be largely attributed to the attempt being made to improve returns and offset a deficit. According to sources from the organization, the deficit would be close to $30 billion.

The State Investment Council headed by Orin Kramer, would oversee the hedge fund assets. Consulting firms, Cliffwater L.L.C. and CRA RogersCasey, would assist the state in evaluating the choices available for hedge funds. The Philadelphia Inquirer reports:

State documents show that the pension fund will give a total of $300 million to four hedge-fund firms - Archipelago Partners L.P., AG Super Fund L.P., BGI Multi-Strategy Fund, and OZ Domestic Partners. New Jersey's $72 billion public pension fund, the eighth-largest in the United States, invested only in stocks and bonds until last year.

Complex financial instruments used for hedge funds can lead to trouble

Hedge funds investors, in the United Kingdom, are increasingly using complex financial instruments to diversify asset portfolios. On the basis of this trend, a warning was issued to banks and hedge funds over the dangers that come along with these financial instruments. Ft.com reports:

It has been repeatedly observed that esoteric products such as derivatives were creating fraud opportunities. This is further raising the risk of legal disputes and can lead to an increase in the number of mis-selling complaints.

Walter Capital and Newton Investment acquire stake in Alitalia

In the hedge fund industry, it is a trend to buy airlines that are considered cheap in a bull market. In a recent move, Walter Capital Management and Newton Investment Management acquired a 12.4 per cent stake in Alitalia, Italy's biggest airline inspite of reports of strikes and chances of the airline declaring bankruptcy. Reuters UK reports:

Walter Capital, known in the hedge fund industry as a value investor with around $2 billion (1.1 billion pounds) under management, holds around 8.19 percent of Alitalia's stock and is the biggest shareholder after the Italian government, which holds 49.9 percent. Alitalia has posted a profit just once in the last decade.

Novartis head asks regulators to keep a watch on hedge funds

Daniel Vasella, chairman and chief executive of Novartis, Europe's second-largest pharmaceuticals group, has asked regulators to keep a watch on hedge funds and the media. This direction stems from the growing concerns about the role that these can play during the speculation over the takeover plans of the company. MSN Money reports:

The apprehensions arise from the extreme volatility in the shares of Serono, the Swiss biotechnology group that is currently in play. There are two parties that can potentially take advantage of the situation, that is, the agents for the vendor, who can try to ramp up a share price by spreading rumors and the hedge funds.

ABN Amro Asset Management to Acquire IAM

ABN Amro Holding NV has reportedly agreed to acquire International Asset Management (IAM), a London and New York-based fund of hedge funds manager with around US $ 2.6 billion of assets under management. The deal is subject to regulatory approvals and is scheduled to close during the first quarter. Forbes reports:

ABN Amro Asset Management's existing fund of hedge funds operations, which have 1.4 bln usd of assets under management, will be combined with IAM. The combined business will have over 4.0 bln usd of assets under management.

Hedge funds go bust, investors look at that as a healthy sign

A large number of hedge funds busted last year and the failure rate is expected to increase in the coming year. In spite of the facts in place, investors see this as a sign of health in the growing market.

Hedge Fund Research data estimated that approximately 5.7 per cent out of the existing 8,500 hedge funds closed in 2005. This number was estimated at 3.6 per cent of 7,500 in 2004. It has been further estimated, that this rate could rise to 10 per cent or higher in the next five years. This can also be attributed to the entry of more hedge funds in the market to meet the growing demand. The demand for these funds basically comes from institutional investors such as pension funds and insurance companies. Business Times reports:

Institutions looking for a way to preserve their capital and diversify away from traditional assets such as stocks and bonds, have piled into hedge funds since the 2000 equity bubble burst. Hedge funds are estimated to manage more than $1 trillion and analysts expect that number to double to $2 trillion within five years.

Playing it safe with hedge funds

If you are investing in hedge funds for the first time and do not have an understanding of the market, I would advise you to make use of the services of a consultant or else invest in fund of funds. A fund of funds distributes your investment over a larger portfolio of funds, thus minimizing the risk. Undoubtedly, we all make investments to make our money grow, not to lose it all. So why not play safe from the very beginning?

ABN AMRO and IAM join hands to capitalize on the increasing demand for hedge funds

ABN AMRO is buying the fund of hedge funds manager International Asset management(IAM). The move has been made to strengthen the formers own fund of hedge funds offering. IPE International reports:

The reason that spurred the decision is the increasing demand for hedge funds. Sources from ABN AMRO indicated that the best structure to run this operation and capitalize on the existing demand is by having a dedicated team. In terms of this, both the organizations have a similar approach.

Extensive Technology Usage by Hedge Funds

With Hedge Funds growing at a break neck pace, the fund houses have ensured that they maintained relatively lean administrative structures as compared to other financial investment houses. This has been achieved mainly on the basis of the extensive usage of third party technology, which has been deployed to make fund management, operational and administrative processes more efficient.

In the hedge funds sector, technology has been extensively deployed in order to connect Hedge Fund managers with Prime Brokers and other Brokers through whom transactions are executed and services for the management of the transaction’s life cycle are offered.

The key role in such extensive utilization of technology in the sector has been played by the Prime Brokers, who have ensured that technology has not been used for technology’s sake by Hedge Funds. Prime Brokers are known to extend use of their own technology to the Hedge Funds in order to provide the scale, connectivity and range of access to the Prime Brokerage Unit’s services.

To define what Prime Brokers are, it can be said that these are business units of major investment banks that source transaction flow. Prime Brokerage Units are projected to generate about US$ 5 billion in revenues for their investment banking groups during 2006. And Hedge Funds are forecast to account for an average of 35% of daily transactions volumes through the major exchanges in Europe.

It is being reported that many of the hedge funds are reaching the scale of growth and complexity, which would eventually warrant that they consider recruiting their own Chief Technology Officer. But still a lot of the momentum would depend on whether the Prime Brokers will continue to supply much of the technology.

Refco comes under the hammer, Man Financial bids for acquisition

According to a declaration made to the London Stock Exchange, Man Financial, the brokerage arm of the Britain-based hedge fund company Man Group, has made a bid to acquire a part of the brokerage firm Refco, which has declared itself bankrupt following charges of fraud against its CEO Phillip Bennett.

According to a report published by Today Online, Bennet was also charged with withholding information of debts amounting to at least $430 million. Man Financial has placed a bid to acquire parts of Refco that are being auctioned according to the US bankruptcy procedure. Prior to its closure, Refco was the largest independent futures intermediary in the US.       

Thames River strengthens multi-manager hedge fund management

Nic Karageorgis has joined the multi-manager team at Thames River Capital, which has been in business since 1998. Karageorgis will assume the responsibility of assistant fund manager and manage investment risk. Hedge Week reports:

Charlie Porter, President of TRC, adds: "Nic joining our well established multi-manager team increases the skill set of an already strong group. It also reflects our investment in people and their individual skill sets to ensure our fast growing multi-manager division has sufficient talent to pursue superior performance.”

Investors skeptical about Funds of Hedge Funds

The average performances of Hedge Funds-of-funds have been quite improved in the third compared to 5.38%, which is up from 1.12% in the previous quarter, as per Hedge Fund Research. And, Standard & Poor’s 500 clocking returns of 3.61% and the MSCI World posting returns of 6.58% for during the same period. However, there is a mix bag of emotions in the minds of the investors, throughout the quarter, where the outflows were more than $1.2bn (€1bn) in assets in the third quarter. And the net inflows to hedge funds, which slowed to $9.4bn in the quarter, down from $10.9bn in the second quarter, and $16.9bn a year ago. There is a strong ground fact, where investors believe that markets are quite volatile due to large influx of returns would deteriorate returns in the industry. IPE Reports:

The HFRI Composite index is up more than 7% for the year, with total hedge fund assets standing at $1.1trn. “It’s no secret that hedge fund returns have been mixed for the first half of the year, and that has almost certainly kept some investors on the sidelines,” said HFR president Joshua Rosenberg.

The FSA gives Hedge Funds a wider target audience, but with a hidden catch

The debate on the regulation aspect of the hedge funds industry never seems to cease. Since, the cynicism amongst the supporters of any such regulations on these funds does not seem to be in the near future. The Financial Services Authority (FSA), the UK financial watchdog, has played really very on this sticky wicket. The FSA announced that hedge funds as an investment option will now be open to institutions or rich individuals through their high-street bank and to have hedge fund holdings through their ISAs or Sipps. This would open up the lucrative market to a wider base of potential investors towards the hedge funds industry. However, this would come with a catch; the FSA has created a specialist unit that will monitor the hedge-fund managers trading behavior more closely. This would be quite a surreptitious step for the FSA towards regulation of the hedge funds industry. The Business Online.com Reports:

Currently, hedge funds, which are estimated to manage about $1 trillion (£560bn, E830bn), are regarded as an investment option open to institutions or rich individuals. Such a move could allow individuals to invest in hedge funds through their high-street bank and to have hedge fund holdings through their ISAs or Sipps.

Legal and General to head into the hedge funds business

Legal and General, a leading European financial outfit, sets its eyes on the hedge fund business with the help of its money managers who run its existing funds. The leading insurer is also the biggest shareholder in the FTSE 100, aims to expand its index tracking and fixed interest businesses. The company presently has only one hedge fund, which focuses on Japanese equities and managed by Mr. Andrew Nagele. Mr. Peter Chambers, its new investment chief plans to retain talent by transferring its star managers from the fund business to the hedge fund business. Mr Chambers previously worked with Framlington, where he quit when its majority owner HSBC, the banking group, sold it to the French insurer Axa. Legal and General has jumped in the bandwagon, however it is yet to be seen if it can garner much of interest in them with competition stiffening. Business.Telegraph Reports:

Mr Breedon said: "The fund managers will need to have the right processes and they will need to be good enough. They will need to be up for it because it is tremendously hard work but Andrew Nagele has been very successful for us and Peter is familiar with the concept from Gartmore." Allowing fund managers to run hedge funds has become a key way for companies to retain star managers. Legal & General has become the biggest shareholder on the FTSE 100 due to the success of its index tracking business.

Investors now will pay to save them from capital erosion by hedge funds

Hedge funds are going on a rocky road, with constant falling returns, flat markets, and reoccurring blow-ups in the industry, has made investors cynical about the future of the industry. So in order to regain the faith of the investors, Chapwood Capital, Investment firm, has launched services to investors to cut the business risks involved with hedge funds, covering operations, technology, legal and compliance duties, accounting and reporting and risk management. For this infrastructure, Chapwood will work on a fee-sharing arrangement with the hedge funds that choose its umbrella to work under. Chapwood’s CFO would work for the hedge fund and serve as a third-party risk monitor or outside reviewer, and focusing to cater to pension funds and wealthy individuals. Reuters Reports:

The company will provide a raft of services for hedge funds, covering operations, technology, legal and compliance duties, accounting and reporting and risk management. This ready-made infrastructure is reassuring for investors, Chapwood's chief executive Craig Pollak said. "It's investors' money that is of tantamount importance ... Business risks should not be understated."

Hedge Funds give Indian Equity Markets a major jolt

Indian market seems to be losing its sheen, and hedge funds, which account for estimated that 20-25% of the foreign funds that are flowing into the Indian market are retreating from their turf. With the rising interest rates in the US and falling local currency have taken the wind out of hedge funds which are accustomed to taking leveraged positions in emerging markets such as India. These hedge funds use to borrow cheap in the US and invest in emerging market, however, the rupee depreciation against the dollar has proved a double whammy for these aggressive investors. The rupee has depreciated by about 3% over the past few months has touched a low of Rs 45.18. The current spate of selling in the domestic market is largely attributed to these hedge funds who have been hit by rising cost of funds and depreciation of the rupee. And for the icing on the cake the Indian equity markets, are in their correction mode. Since, the gap between the cost of funds and returns have narrowed down, these hedge funds are now pulling out money on a massive scale. Economic Times.com Reports:

This, coupled with the rupee depreciation, have hit them badly. Since these are leveraged funds, they don’t have the staying power as the market is getting into a correction mode,” said KR Bharat of Advent Advisory Service. The dollar has been appreciating against almost all the currencies, including the rupee. The rupee has depreciated by about 3% over the past few months to touched a low of Rs 45.18 on Wednesday.

One man's meat is another man's poison

This phrase truly reflects the actions in the hedge fund hires. After a raid on Bryan Cave, a New York-based Hedge Fund, its city rival-Bingham McCutchen, had no better than ever time for launching its nine-strong hedge funds. It has hired a team of nine lawyers, including former partners Mr. Robert Leonard and Mr. Michael Mavrides, at Bryan Cave’s New York office. Bingham McCutchen’s hires almost double its global hedge fund expertise to 19 lawyers, and follow the hires of partners Richard Goldman and Steven Giordano for its Boston office last year. Recently it had hired, John Clark, a corporate finance specialist from Jones Day and litigation expert Mr. Peter Bibby from DLA Piper Rudnick Gray Cary for its London office. Its great guns for Bingham McCutchen, which has believed strongly in lateral recruitments; however, it is to be seen if this can actually generate revenues. The Lawyer.com Reports:

A team of nine lawyers, including partners Robert Leonard and Michael Mavrides, have moved across from Bryan Cave’s New York office to launch Bingham’s local hedge fund practice. The team will support Bingham’s existing hedge fund practices in London and Boston.

CME target CTA & Hedge Funds to generate volumes in FX trades

The Chicago Mercantile Exchange is all set to woo new players to generate commissions through increased volume of trades. So they have chalked out an incentive programme set to attract commodity trading advisors (CTA) and hedge funds, which are active in FX markets. CTA or hedge fund manager with a minimum of $50 million in assets under management, and more than 125,000 trades per month in FX products on CME Globex, meeting the monthly volume threshold, their total transaction fees, including CME Globex charges and clearing fees, will be reduced to $0.60 per side versus the current $1.60 per side. This programme will be implemented Nov. 1, this year; it is followed by a similar lasted by the CME on Aug. 1, where it reduced the transaction fees to $0.60 per side with no minimum monthly volume threshold, for CTAs and hedge funds with a minimum of  $2 billion in assets under management. HedgeWeek.com Reports:

The Chicago Mercantile Exchange is launching an incentive programme for commodity trading advisors and hedge funds that are active in FX markets. The nine-month reduced pricing incentive programme, designed for a broad universe of CTAs and hedge funds, will become effective Tuesday, 1 November 2005.

Hedge funds spot Movie Exhibitors as the next big thing for the moment

Experts since long have suggested that there is an observance of the downward trends in the movie screen’s business. However, the US movie exhibitors have survived the ride from booms to busts. Currently the movie-ticket sales have slumped and the movie exhibitors are facing a tough time. This can be attributed to the popularity of home entertainment which is going through a blockbuster patch. But there are hopes building on the story of the emergence of cinema halls in the country. There has been quite some buzz around the counter of Carmike Cinemas, Inc., a Columbus, Georgia-based theater chain, and the nation's third-largest film distributor by the number of movie screens. Three hedge funds are on the forefront to grab a share of the pie, Bend, Ore.-based Stadium Capital Management has bought up 6.7 per cent, New York-based Fine Capital Partners grabbed 6.1 per cent and San Francisco-based Watershed Asset Management acquired 5.2 per cent. The shares of Carmike are at quite an attractive price, as compared to its peers Regal Entertainment Group. And with the great turnaround story in the cinema halls business in the country, the future seems rosy for the investors to rake in moolah. Reuters Reports:

In Friday trading on the Nasdaq Stock Market, Carmike shares were down 10 cents at $22.25, not far from a recent two-year low. In recent weeks, the shares have been much cheaper than those of peers such as Regal Entertainment Group <RGC.N>, the country's largest exhibitor, the paper said.

Mutual funds cash in, by adopting hedge fund strategy funds

Greed to earn higher profits is a prime motive for an investor to take risk. The wealthy investors had turned to hedge funds to capitalize on their investments, but hedge funds with their minimum network requirements, were always far away from the reach of the middle class American investors. So mutual funds wanted to cash in on the opportunity focused on delivering absolute performance, where the mutual fund clock steady gains irrespective to the stock and bond markets go down. So to cater to such investors, needs Rydex Investments launched its Rydex Absolute Return Strategies Fund in late September, while UBS AG, launched its UBS Global Asset Management and Absolute Investment Advisers, in January, this year. Federated Investors, Inc. also has Federated Absolute Advantage Fund on the launching pad. Like hedge funds, these new absolute-return funds and other hedge-like mutual funds invest in stocks, bonds, foreign currencies, commodities and option strategies. They buy some stocks while wagering that other stocks will fall in price by shorting them by replacing them later with cheaper shares.  So whenever the market outlook is grim, they have the flexibility to position their portfolios to do better if stock and bond prices fall, rather than rise. To date the new comers have made good money so far, but it is yet to be seen how far they can survive till the competition creeps in to eat in their profits. Post-Gazette.com Reports:

The fund has attracted more than $1.1 billion in assets since its late-January launch. Through Wednesday, the fund gained 5.7 percent, while the S&P 500 returned 3.2 percent. The fund's goal is to return five percentage points above the inflation rate -- so 8 percent a year if inflation is 3 percent. A related fixed-income fund, UBS Absolute Return Bond Fund, opened in April.

Hedge Funds plan to “Own the Casino’s”

Hedge Funds are trying to explore one of the most unique sectors for opportunities. They are trying to acquire stake in the one of the most unconventional forms of investments – Stock Exchanges. Atticus Capital, LLC, a fund led by Mr. Timothy Barakett, acquire 20 percent stake in Archipelago Holdings, Inc. since June, this year, and became the third largest investor in Archipelago which is due to be acquired by New York Stock Exchange (NYSE) and expectes to cash in on this opportunity. Atticus Capital also owns shares in Europe's biggest stock exchange, Deutsche Boerse AG, and shot to limelight when it blocked the bid this year for the London Stock Exchange. However, Atticus Capital is not the only one to expect to rake in profits from such deals, Mr. Andreas Halvorsen's Viking Global Investors, LP, another hedge fund is planning to increase its shareholding from being the eighth-largest holder of Nasdaq by buying Instinet Group, Inc., holdings. On the same lines, Citadel Investments Group LLC, a hedge-fund operator partnered with Citigroup on the Philadelphia exchange agreement, to become partners of the exchange. Other participants in Nasdaq or Archipelago shares include, Daniel Loeb's Third Point Management Co., Highbridge Capital Management, LLC, which is partly owned by JPMorgan Chase & Co., and Mr. George Soros's firm, Soros Fund Management LLC, which reportedly bought 160,000 shares of Nasdaq. Bloomberg.com Reports:

The acquisitions by the NYSE and Nasdaq, the two largest U.S. stock markets, will solidify their position as investors increasingly bypassing brokers and route orders themselves. Money- management firms will execute about a quarter of trades directly by 2007, up from about 20 percent this year, according to Tabb Group, a Westborough, Massachusetts-based consultant.

Ariel Way takes Hedge Fund manager on board

Hedge funds seem to be in news for one reason or the other, after a lot of factors marring the industry’s reputation. There is some good news for some hedge funds managers, either by their deeds or just blame it on their luck. Ariel Way, Inc. has taken aboard Mr. Victor Halpert, a New York-based hedge fund manager of Halpert Capital LLC, which runs the Halpert Capital Fund, LP as an independent director.As a part of the arrangement, Mr. Halpert, will also receive warrants, entitling him to purchase up to 1 million common shares of the company, at $0.03 cents per share. The company expects to benefit from his excellent experience in debt and equity investment banking, and his strong working relationships with major technology and emerging markets institutional investors. He currently serves on the boards of Top Image Systems, Unity Wireless, and Israel Technology Acquisition. Lipper HedgeWorld Reports:

On the board, Mr. Halpert will serve as chairman of the audit and finance committees, according to a news release from Ariel Way. Mr. Halpert is the managing member of Halpert Capital LLC, which runs the Halpert Capital Fund LP. Previously he was a director of equity research, focusing on technology companies, at Salomon Smith Barney from 1999 until 2003.

Hedge Funds operations stalled due to Refco’s illness

Refco’s current instability could spell dooms day for the hedge funds in executing trades through the trade futures giant. A substantial portion of revenues of Refco are earned through the trade execution of securities and commodities are executed through Refco Capital. The news of the halt Refco Securities – group’s bread winning business, was leaked out from Refco's clearing bank, Depositary Trust Company, which stated that it is winding down its business. Following on the embattled group has begun winding down Refco Securities, a regulated brokerage which accounts for more than half of the group's gross revenues. In order to safeguard its interests, they have sent its CEO, Mr. Phillip Bennett, on paid vacation to search for audit trails, and frozen customer accounts for 15 days in another US subsidiary, Refco Capital Markets. Refco Securities is being closely monitored by the Securities and Exchange Commission (SEC) and the Financial Services Authority (FSA) for the company’s actions. Former SEC Chairman, Mr. Arthur Levitt will act as an adviser to help stabilise Refco, while, Goldman Sachs will assist on the rescue mission on an advisory basis. Black Enterprise.com Reports:

Refco Securities is regulated by US financial watchdog the Securities and Exchange Commission. It said today that the unit could not withdraw equity capital for 20 days. The aim is to try to protect money held by Refco from leaking out to any company investors or employees.

Loans recklessly disbursed by large banks to hedge funds

There seems to be a bubble build-up in the lending made by banks to hedge funds. As per some conservative estimates, a small group of big banks including JP Morgan Chase, Deutsche Bank, UBS and Credit Suisse have over $500bn at risk in hedge funds where the amount has been recklessly invested. It is believed that this has been borrowed by funds keen to "leverage" their investments, raising concerns over the level of lending, from the US Securities and Exchange Commission (SEC) and the Financial Services Authority (FSA) in London. Such lending’s by banks have garnered interest since, there are hedge funds going bust every month, Bayou to Wood River. Even Refco, a futures trader may soon file for bankruptcy, for funneling of funds by its CEO into his holding banks. The situation seems dreary for the hedge funds and banks, which may have to face tighter norms and regulations in the future. Independent Online Reports:

It has calculated that a small group of big banks have over $500bn at risk in hedge funds. These are believed to include JP Morgan Chase, Deutsche Bank, UBS and Credit Suisse. These companies refute suggestions that the exposure could be a problem. "All of our lending is secured," said a spokeswoman for a leading European bank.

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.

Mizuho Financial, the first bank to launch hedge funds in the US and the UK

Mizuho Corporate Bank, a unit of Japan's second-biggest lender Mizuho Financial Group, Inc, is believed to be the first Japanese bank to set up two hedge fund companies in the US and the UK. Mizuho wants to ride the wave of hedge funds and through its two firms in the US and the UK, its aims to increase assets under their management to a combined ¥ 100 billion in three to four years and 12-15 per cent in annual returns. Mizuho’s US entity will be a wholly-owned unit of Mizuho Corporate Bank based in New York. While it’s London-based entity will not receive any capital but will have a share a portion of profits from the operations. Mizuho will commence its operations and start targeting large clients like wealthy individuals as well as institutional investors, including pension funds and insurance companies. Forbes Reports:

Mizuho is believed to be the first Japanese bank to set up its own hedge fund, the business daily said. The two firms aim to increase assets under their management to a combined 100 bln yen in three to four years with annual returns at 12-15 pct, the report 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.

Another hedge fund convicted by the SEC for improper investments

A hedge fund scandal has rocked the hedge fund industry, the new hedge fund to be convicted by the Securities and Exchange Commission (SEC) for false promises and its defrauding investors. The SEC announced the civil lawsuit against Mr. John Whittier, a former media and telecommunications analyst for investment firm Donaldson, Lufkin & Jenrette, and now the current hedge fund manager of Wood River Partners LP and Wood River Partners Offshore Ltd., based in San Francisco and Ketchum, Idaho. The court has appointed a receiver for the two funds seeking unspecified civil fines and restitution from Mr. Whittier and the funds. This episode has been a latest in the series of enforcement actions by the SEC in recent months against largely regulated hedge funds. The SEC has accused the company on its non-appointment of a genuine auditor to track the investments, and no such audit trails have been found. The most shocking aspect in this scandal was that the fund had invested about 65 per cent of its portfolio in a company by the name Endwave Corp., to acquire 45 per cent stake in it. The fund had invested in Endwave from 2002 through 2004 where the company’s stock had spiraled down from high of $55 in July, this to the recent low of $12.69 Oct 13, this year. The Mercury News Reports:

The Wood River funds were founded by Whittier, a former media and telecommunications analyst for investment firm Donaldson, Lufkin & Jenrette. The SEC said in its suit that from February 2003 to the present, investors put tens of millions of dollars in the funds based on promises of a broad diversity of investments and strict oversight by an auditor. But Whittier had no audits done and invested heavily in the stock of one small company, Endwave Corp., the agency alleged.

Finding a hedge fund manager has become like finding a needle in a haystack

The hedge funds market has been quite claustrophobic due to a increased competition between hedge funds. Even the returns delivered by them are jaded and unimpressive from what they were in the last decade. This is due to the fact that with the influx of more money to be managed there has to be a larger work force handling the kind of corpus. The returns delivered by hedge funds are skewed, since new managers are mediocre and the process to identify an apple from an orange is difficult. It has been difficult for investors to choose the right destination to identify the most appropriate hedge fund manager to assign under him a large chunk of money on his face value. However, the times for hedge funds are quite strenuous due to declining returns so the times lined up ahead for them is tough with decline in the quality of people. Reuters Reports:

"It's not easy to find talent," said Peter Fletcher, management director of Swiss-based Parly Company, which invests in hedge funds. "We think of hedge funds as predators in the jungle, except these days the prey has been eaten."  Too-much money chasing too-few profit opportunities has left many hedge funds nursing negative or flat returns over the last couple of years. Part of the problem has been a lack of volatility which creates mispriced assets.

FSA pulls up Hedge Funds for their role in insider information through a loan syndicate

The Financial Services Authority (FSA) the UK equivalent of SEC stated that it is reviewing to develop a link between hedge funds' ability to manage price-sensitive information and to keep this behind so-called Chinese walls. The onus of responsibility has been handled to Mr. Tom Huertas head of wholesale bank regulation. The exercise was launched by the FSA in June to focus on the dangers of insider trading and market manipulation. The FSA determined one area - the price-sensitive information obtained by hedge funds from the buying of non-public bank loans, and use of any such information illegally to trade public securities such as bonds and shares. The FSA wanted to check the link between non-public information in connection with a loan syndicate for personal gains. However, the FSA discovered that hedge funds had obtained price-sensitive information from MyTravel and Jarvis, when both companies had flirted with bankruptcy without signing confidentiality agreements, which eventually prompted lenders to sell their loans to traders and hedge funds. Reuters Reports:

But to get that information and continue to trade in public share and bond markets they must have "Chinese walls" separating their public and loan traders. The suspicion among some market participants is that some hedge funds are physically too small to achieve this, sometimes operating out of a single room.

New terror flag raised bar in London

There is a different terror situation which organizations in London which they are getting scared of. Though, this time its not the human bombs or the terrorists which rock the city, they are the infamous, hedge funds. They have been wrecking havoc in the financial world and have become the new terror raiders in the corporate world. This new industry has been racking up trade volumes on the London Stock exchange and now 40% of the share trades on the exchange. They are the new corporate raiders now. The hedge funds are now trying to make hostile bids for Marks & Spencer by backing Mr. Philip Green. Mr. Paul Myners, the Marks & Spencer chairman is now trying to put up a strong defense against the outsiders, when the company’s own board of directors changed tactics and sold of its financial services arm to HSBC to return £2.3 billion of cash to shareholders. The cash rich hedge funds rule the roost now; they are the new pirates of the millennium after the private equity buyout firms ruled in the 1980’s -90’s. Sunday Herald Online Reports:

Public markets such as the London Stock Exchange (LSE) should be as transparent a place as possible in which to do business. To ensure this, listed companies report their various ventures and dealings, and institutional funds do the same with their major holdings and transactions. The idea is that this gives investors enough information to make fairly educated decisions.

Provider of Hedgelets takes Marketing VP, Product Consultant on board

It is quite a known fact that the Hedge funds hire the best from the best of the finance pros on the industry. However, a shift from another industry to this one has not quite a famed reckoning past. This might be one of the very few inter industry high profile transfer. HedgeStreet Inc., better known as a service provider of Hedgelets, which provides inexpensive online contracts for energy prices, interest rates and employment numbers, recently announced that it has hired two gems for the company a vice president of marketing and has brought on board a consultant for its financial instruments group. The company signed up Mr. Bill McIntosh, as vice president of marketing for its Hedgelet services. He was a former executive director of new products for America Online Inc., and helped develop advertising revenue efforts for AOL Personal Finance and Netscape. Also to join the company's board is Mr. Robert Dubil, currently associate professor of finance at the University of Utah. He has to his past credentials as being a director in the past as risk analytics technology analyst and a senior strategy consultant for Merrill Lynch, and a director of U.S. fixed-income options trading and quantitative analysis at UBS. This seems like an impressive breakthrough for the HedgeStreet, and it is to been seen what it can turn out of it by taking two of the brightest people in the industry. Lipper HedgeWorld Reports:

HedgeStreet Inc., provider of Hedgelets, inexpensive online contracts that let everyday folks bet on energy prices, interest rates and even employment numbers, has hired a vice president of marketing and has brought on board a consultant for its financial instruments group.  "Our goal is to hire the best and brightest talent," said John Nafeh, founder and chief executive of HedgeStreet, in a statement. "Bill comes to us with an impressive history of developing and marketing high-profile Internet sites."

Hedge Funds provide VC funding

It might be quite of the hook idea to go to hedge funds to raise money for funding. However, Pay By Touch Solutions, Inc. San Francisco-based fingerprint scanning company reported that it has secured $130 million in debt financing from hedge funds. The company reported that two large hedge funds, Och-Ziff Capital Management of New York and Farallon Capital Management of San Francisco provided $75 million in senior secured notes and $55 million in convertible promissory notes. Pay By Touch which recently bought the assets of ATM Direct, software solutions provider for online shopping, will use the proceeds for further acquisition of companies. Silicon Valley/San Jose Business Journal Reports:

Fingerprint scanner company Pay By Touch Inc. went to hedge funds to raise $130 million in debt financing, rather than turn to venture capital firms, the company said Wednesday.

Alan Greenspan believes U.S. has become more matured

Federal Reserve Chairman Mr. Alan Greenspan said via satellite to the National Association of Business Economics annual meeting in Chicago, that advanced pricing options and other complex financial products have lowered the cost of hedging risks. The new risk dispersal instruments have enabled banks to bypass credit risk to insurance companies, re-insurers, pension funds, and hedge funds who are willing, at a price, to supply credit protection. The said that the economy has become more flexible, efficient, and a resilient financial system which that can mitigate most significant shocks like higher prices in oil and natural gas, and a near bubble burst which could happen in the near future like the housing industry. He also states that automatic market adjustments correct imbalances faster than administrative or policy actions so drastic regulators curbs need not be so effective. Lipper HedgeWorld Reports:

If we have attained a degree of flexibility that can mitigate most significant shocks—a proposition as yet not fully tested—the performance of the economy will be improved and the job of macroeconomic policymakers will be made much simpler," Mr. Greenspan said.

Read More: Greenspan: Economy More Flexible Partly Because of Hedge Funds

CalPERS’ launch it’s second Manager Development Program

California Public Employees' Retirement System (CalPERS), one of the largest pension trusts across the world is launching the second round of its emerging manager program called the CalPERS' Manager Development Program II. The program will allow a pool of advisors to allocate assets to specific funds and then negotiate an additional equity stake in the underlying management firm. The committee will include funds of hedge funds alongside long-only investments. The list of advisors selected - Bear Stearns Asset Management, New York; Strategic Investment Management, Arlington, Va.; Progress Colchester Ventures LLC,  San Francisco; The Rock Creek Group, Washington, D.C.; and Legato Capital Management, San Francisco. Each adviser will bring its unique level of expertise to enhance CalPERS' returns through the program, which will be an estimated $2 billion in hedge funds alone. The combination of the advisors seems to be deadly, and if the right synergies are brought, then CalPERS' can sit tight and enjoy the returns. Lipper HedgeWorld Reports:

As part of CalPERS' Manager Development Program II, the pension fund's investment committee decided to include funds of hedge funds alongside long-only investments. The emerging manager program lets a pool of advisors allocate assets to specific funds and then negotiate an additional equity stake in the underlying management firm.

Read More: CalPERS Ready to Up Ante in Hedge Funds

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

UK-based Man Group accused of having a hand in the collapse of Philadelphia Management

There are stains marked on Man Group’s, subsidiary Man Financial, London’s top Hedge Fund. Man which is managed by the CEO, Mr. Stanley Fink, a well-known personality has agreed to co-operate in any investigation. Man Financial has been accused by the Pennsylvania court for wrong dealing and a party to the collapse of Philadelphia Alternative Asset Management Company in June this year. The fund was managed by Mr. Paul Eustace, a well known icon in the hedge funds industry and had raised about $300m from international investors last year. Man Financial is accused by the receiver to the collapsed fund, Mr. Clark Hodgson of helping Mr. Eustace bloat his true investment performance through a secret account through UBS in Cayman Islands to hide losses. Mr. Thomas Gilmartin, a senior vice-president at Man Financial in New York, however named in the documents as Mr. Eustace's chief point of contact. It is to be seen the alleged role of Man Financial in the transaction, if they are charged it could give a strong blow to the reputation of Man Group. Guardian Unlimited Reports:

Documents filed in a Pennsylvania court this week accuse Man, the company that sponsors the Booker literary prize, of allowing losses of $175m (£100m) to be hidden from investors in a third-party hedge fund. The mechanism is claimed to be a secret and unauthorised account in the Cayman Islands known as the "50 account".

Read More: City firm faces £100m rogue trader action

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

Analyst now suggest a break-up of monolith-Citigroup

After similar plans to break-up Morgan Stanley to derive value wrecked by the company’s top management, the heat is now turned to Citigroup. Previously only discussed in the media, Mr. Tom Brown, a manager of New York based-hedge fund Second Curve Capital, in a commentary on his Web site mentions that Citigroup, values more in parts than as a whole. Currently he points out that trades at miniscule 11 P/E and has a M-Cap of approximately $233 billion which has been on a constant decline since the past 7 years. He estimates that Citibank, its North American operations could trade at 11 to 12 times earnings and have a market cap of $120 billion. CitiGlobal, international operations unit could trade at 15 to 16 times earnings with a m-cap of $60 billion. Smith Barney, the brokerage unit could trade at 12 times forward earnings and have a market cap of $20 billion. While the fourth unit, Salomon Brothers would trade at 2 times having an estimated market cap of $60 billion. However, it seems too good to be true on paper, and whether or not Citigroup would ever consider pull off such a mega-deal. Forbes.com Reports:

The criticism of Citi, not just from Brown, has been that it has become too large, and too sprawling, to grow and manage effectively. Punishing headlines in the last two years after major scandals in Europe Japan forced Prince to institute a company-wide ethics program, an acknowledgment of the complexity of managing a company with nearly 300,000 employees in more than 100 countries.

Read More: Carving Up Citi?

Analysts say hedge funds hold copper prices at nadir

The copper price for a three-month delivery peaked at $3,812 a tonne on the London Metal Exchange (LME) and closed at $3,780, 1 per cent above its previous $3,775 close. Copper prices have risen 20 per cent this year and 64 per cent since the beginning of 2004. The demand for copper fell by 2 per cent in the first half of 2005. Copper stocks on the LME had slumped to a 31-year low in July this year. However, it jumped 229 per cent to an 11-month high of 83,295 tonnes as the smelters return to full capacity after closures for maintenance. One wonders why do the copper prices keep rising, and keep setting newer and newer high each day, and haven’t the prices overshot the fundamentals. The answer to same lies with hedge funds which are major buyers in the metal and are going to try to hold up the price. They are creating the momentum and trying to run along with it while they are pushing the market to test the previous high. It although seems gloomy days ahead for the hedge funds since there is a clear dislocation of demand and supply with the current price levels. FT.com Reports:

Mr Moore thinks the crunch may come during “LME Week”, from October 31, when traders gather in London to negotiate future supply contracts. Copper prices fell sharply during this event last year. “Once that is out of the way, the gloves are off,” he said. Natexis sees scope for profit taking as the quarter ends, paving the way for prices to slide to about $3,200 a tonne by the year’s end.

Read More: Copper peak ‘due to hedge funds’

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

Another Asset Management Company in Scotland to launch a Hedge Fund

Aberdeen Asset Management Plc (AAM) is the new entrant in setting up a hedge fund operations. AAM follows a herd mentality where Asset Management companies are in a mad rush to start of hedge fund operations to grab a share of the ever booming $1 trillion industry. Legg Mason Inc. bought Permal Group, a hedge fund for as much as $1.39 billion in June this year, followed AAM’s Scottish rival Britannic Asset Management hired two managers last week to commence hedge funds operations. AAM is now in a better position after the acquisition of Deutsche Asset Management's U.K. operations along with a majority of its analysts for approximately £265 million. AAM has also manages Aberdeen Far East Emerging Economies fund which was launched 13 years back and have clocked a return of 28 per cent for the year. However, AAM has had a chequered past. In April 2003 it faced the Financial Services Authority investigation into the sale of split-capital trusts and had to reimburse small investors as much as £78.3 million ($138.5 million) and sold its mutual fund business, since they were selling products that people don't understand and were not suitable for the real market economy. Bloomberg.com Reports:

Aberdeen Asset Management Plc is considering selling hedge funds after taking on more clients and doubling assets with the purchase of Deutsche Asset Management's U.K. business, Chief Executive Officer Martin Gilbert said. For Aberdeen, the investments would complete a shift to institutions and wealthier clients and away from U.K. individual investors. Hedge funds, which tend to be more risky than mutual funds because they bet on falling as well as rising securities, target people with at least $1 million to invest.

Read More: Aberdeen Asset Management May Sell Hedge Funds, Gilbert Says

Hedge funds to pump life into Intermet

U.S. Bankruptcy Judge Ms. Marci McIvor approved the reorganization plan for Intermet Corp., a manufacturer of castings for the auto industry. Two hedge funds, Stanfield Capital Partners and R2 Investments hold $58 million in debt in the company. While other bondholders hold the remaining out of the $175 bond debt. Under the terms, the two hedge funds committed $75 million for their stake in the company, and select 5 board members for the company’s board. As a result, the company will turn private. Goldman Sachs is leading the $260 million exit financing deal under Chapter 11 bankruptcy. Secured lenders are paid in full, while unsecured creditors have an option to elect cash only or a combination of cash, stock and rights. This seems as positive news for the ailing company to see the light of the day. Crains Detroit.Com Reports:

Two hedge funds, Stanfield Capital Partners and R2 Investments, wound up with control of Troy-based Intermet. Other bondholders also have a stake. Stanfield and R2 owned about $58 million of Intermet’s $175 million in bond debt. U.S. Bankruptcy Judge Marci McIvor approved the plan at a hearing today.

Read More: Intermet reorganization plan approved; hedge funds to control supplier after emergence from bankruptcy

Pilkington seem to be a takeover target, run by hedge funds

Numerous events have been seen shaping in the industry which is bustling with activities. There are rumors floating around Pilkington, Britain's biggest glassmaker where it lost about 6% of its value with more than 34 million shares changing hand in a single day. It is believed that it was the handiwork of Harry Hedge Funds. It is also believed that the stupendous rise in the share price of Pilkington from 108p to 152 ½p from its low this year may have come to full stop. But the story behind it still shows a different picture, this volatility in the stock price is due to the rumor of being a take over target for an asking price of £2 billion. This has been double the bid price which was about two years back. Pilkington has been a target since the company is facing increased competition and rising costs. Although it seams uncertain when the stock price would be streamlined, but surely there is a lot of action one can expect at this counter for a couple of months. Black Enterprise.com Reports:

Pilkington has been buoyed by talk of a Pounds 2 billion bid. The group is probably one of the stock market's longest-running bid targets, having been tipped by City speculators every year for the past decade. The company's value has doubled in the past two years.

Read More: Hedge Funds in Frame As Pilks is Hit By Big Sell-Off

Hedge funds post huge losses on automaker’s junk ratings

The hedge funds industry has gone through a rough patch this year. The always admired hedge funds strategies have gone awry. This can be blamed when the stock price of GM & Ford spiraled down when their credit rating sinked to the Junk Bond status. The hedge funds had bet heavily on the two auto giant’s stocks and bonds leading hedge funds to take big hits on complex trades. The bonds plunged in value, leaving bondholders and other investors with big losses to be reported in their quarterly earnings statement for the investor. As if this wasn’t enough of hells world broken loose, the news came that Mr. Kirk Kerkorian would buy in GM stock driving the shares sharply higher. Thereby having forcing hedge funds to take double hits by being on the wrong side of both trades by holding the bonds and selling the stock short. But this is life of risk for the hedge funds it is yet to be seen for the path ahead if such misfortune reoccurs in the future, or it would be time to reworks the hedge funds strategies ahead. CNN Money Reports:

This summer, two bond-rating agencies cut General Motors' corporate bonds to junk status, leading some hedge funds and Wall Street trading desks to take big hits on complex trades involving the automaker's stocks and bonds. The bonds plunged in value, leaving bondholders and other investors with big losses, at least on paper.

Read More: All eyes on hedge funds

Walt Disney secures funding from Hedge Funds

Walt Disney is going through a bad run, once an evergreen strong entertainment giant has to resort to hedge funds for funding for its films where it has raised $505 million from investors to reduce the risk of financing movies. The deal with the fund will ensure of pumping about 40% of Disney’s production and distribution costs for about 32 films over the next four years. The fund will also have a similar share of the profits, including box office, video, and DVD sales. The deal will therefore guarantee Disney distribution fees and 60% share of the profits. This is much of a savior after it posted a fourth-quarter loss of as much as $300 million. Followed by a statement of issued by the company that it will lose money in its fourth quarter. It is still to be seen whether any such funding can ever help if Disney would keep loosing money in it movie production business. Financial Express Reports:

The venture will provide 40% of production and distribution costs for about 32 films over the next four years, said Natacha Rafalski, VP of corporate finance at Burbank, California-based Disney. The partnership will share 40% of the profits, including box office and video sales.

Read More: Walt Disney taps hedge funds, investors to share film funding risk

Funds of Hedge Funds – a different breed

The funds of Hedge Funds seem to be surprisingly a shy lot when it comes to listing the security on the financial markets, even though they control more than half of the hedge fund investing. The explanation attributed for such an observation is because such funds of hedge funds claim that they would not receive a decent valuation. Currently there are just two funds of hedge funds are listed in Europe on the London Stock Exchange, namely- Man Group and RAB Capital. The funds of hedge funds have been the market favorite since they club cash generators under them. Although, they do not garner much of interest from the pension funds who need a direct overview on the working of the hedge funds and do away with dual layer of fee payments. The trend also shown in Europe that institutional preference for funds of hedge funds had slipped to 57.5 per cent this quarter from 76 per cent in the previous quarter of 2005. Reuters Reports:

European financial institutions shifted away from using fund of hedge funds in the second quarter of this year, possibly due to disappointing performance, UK-based research group Investor Source said earlier this month. The survey of 160 investors across Europe found that institutional preference for funds of hedge funds had slipped to 57.5 percent in the second quarter of 2005 from 76 percent in the previous quarter.

Read More: Fund of hedge funds shy of floating

Mutual Fund now comes with an add-on feature of Hedge Funds

Hedge Funds now coming in the reach of individual investors with minimum investment limits falling below $1 million mark. There is no more a lure towards mutual funds investing. Therefore Rydex Investments just in order to recreate a revolution in mutual fund investments have launched two funds based on the strategy applied by hedge funds. The Rydex Hedged Equity Fund which uses strategies such as a portfolio consisting of long positions in value and growth stocks combined with short positions in non-value and non-growth stocks and also includes merger arbitrage and covered call options strategies. And, the Absolute Return Strategy Fund which uses the market neutral value and growth strategies and others such commodities or fixed income. Even, depending on the share class and the type of account, the smallest minimum investment for such funds is $1,000. Therefore undertaking such investments make it quite affordable for individual investors. Reuters Reports:

Rydex officials said the new funds offer investors tools that can make money when traditional stock and bond fund products deliver small returns or losses because of down or range-bound markets. With traditional fund products investors had "limited tools to mitigate down markets" and "didn't have anything to address it head on," David Reilly, director of portfolio strategy for Rydex, said at a briefing in New York.

Read More: Rydex launches two "hedge fund-like" mutual funds

Some win some but others lose most

Hurricane Katrina has wrecked havoc for the people and property in the states of areas around Louisiana. However, there were a majority of the hedge funds, which minted money due to the sell strategies adopted by them in the anticipation of the rise in the crude oil prices due to this devastating event. But there were Hedge players like Citadel Investment Group LLC and Ritchie Capital Management LLC, who lost an estimated $150 million each in the bargain. The losses thus occurred were a directly attributed to the hurricane in the region, which disrupted natural gas production in the region, thereby and bloating the natural gas prices. Due to this event, Citadel Investment Group sacked the head of its energy trading unit and Ritchie Capital Management sacked two managers of its energy traders. However, the exact reason and the quantified loss incurred is not confirmed and the duration of such an impact cannot be gauged at, but is certain that these Hedge Funds would have wait till they deliver decent returns. HedgeCo.Net Reports:

The second hedge fund, Ritchie Capital Management LLC, lost an estimated $150 million. According to the report, Hurricane Katrina may have been partially responsible for the losses on energy installations in the Gulf of Mexico. The losses were a direct consequence of the hurricane, which disrupted natural gas production in the region, thereby giving rise to high natural gas prices.

Read More: Two Chicago area Hedge Funds suffer big losses from energy trades

Short-selling hedge fund strategies top performers in August

A study as per French business school Edhec concluded that Short-selling hedge fund strategies were gainers in the month of August. They made returns of around 2.68 per cent in this lackluster month for stock markets. Short-selling hedge fund strategies clocked a return of 6.4 per cent for the year to date. Other top performers in August included hedge funds focusing on futures funds. Such bet on the trends indicated from computer models which are used to buy and sell in stock, bond, currency and commodity markets. They clocked a return of 2.01 per cent in August, but were down by 1.4 per cent in the year to date. This strong result was mainly due to a leap in commodity prices and rising levels of implied volatility on the stock market, favourable conditions on the bond market, and low volatility of the broad bond market. Other performers included distressed securities funds which doled out returns of 1.29 per cent in August and were up 6 per cent for the year to date. Reuters Reports:

Short-selling hedge fund strategies made the best returns in August in generally weak stock markets as overall industry returns continued to improve, French business school Edhec said on Tuesday. Hedge funds that short sell, betting on a lower price for a security in the future, were up 2.68 percent in August and so far this year have returned 6.4 percent.

Read More: Short-selling hedge funds top Edhec's survey

Industry experts give Hedge Funds future a Thumbs Up!

Reuters Hedge Fund Conference which was one of the largest platform to throw light on the hedge funds under one roof. The conference breathed positiveness and vibrancy on the future of the hedge funds. Investment banks report that the percentage volume of trade is increasing and hedge funds are becoming quite serious volume builders. According to published reports, investment banks earned about $25 billion representing about 12.5 per cent of their total revenues from hedge fund activities in 2004. Speakers threw the idea of the hedge funds doom day out of the window stating that the techniques and strategies implemented by hedge funds have been proven reliable. Experts also quoted that hedge funds have recorded a double digit returns for its investors during the past 17 years on the average. Hedge funds do have a far way to go but it still to be seen how smooth the ride would turn out to be. HedgeCo.net Reports:

Many of the speakers believe that hedge fund strategies have been proven to be reliable during the nearly 20 years since the hedge fund industry began tracking such performance. According to Hennessee Group, hedge funds have delivered double digit returns to its investors during the past 17 years on the average.

Read More: Hedge Funds to continue attracting businesses for years to come - Industry leaders think

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

Hedge Funds want to join the rain dance with the Peacock

After lending £800 million to the US tycoon Mr. Malcolm Glazer for his increasing his stake from being a minority share holder of Manchester United to its controversial takeover. Och-Ziff Capital along with a consortium of six specialist funds in assistance with investment bank Goldman Sachs, the new target sought is Peacock, a UK based enterprise. The consortium has offered £400 million to take the company from public to private. The hedge funds are replicating the US prevalent trend of taking companies from public to private in the UK. However their involvement in British takeovers has thus far been restricted to providing debt in such cases. The times are getting tougher for the hedge funds to churn out returns as in the past and therefore have to be on the constant lookout for new avenues to drive up results. Thisismoney.co.uk Reports:

Investment bankers, however, are predicting that more public-to-private deals in the UK could be hedge fund-backed, simply because more deals are being done that way in the US. It is thought many hedge funds are also looking increasingly to find other ways of using the cash piles they have built up to sustain the high returns promised to their investors.

Read More: Peacock approach a first for hedge funds

Lackluster performance drags down an Australian investment company’s share down

The hedge funds are feeling the heat on account of negative returns posted by them. Pengana Managers, an Australian based listed investment vehicle, saw their share price drop to a “double digit percentage discount” on account of posting a net loss after tax of approximately Aus $1.105 million for the 2004-05 financial year. The company stated that it recorded overall returns for the financial year a negative of 1.3 per cent compared to the last year. The company invests its money through its four units - Percon Managed Futures Unit Trust, the Cape Leeuwin Capital Australian Long Short Equities Fund, and the Stanley Global Resources Market Neutral Fund, where it owns 100 per cent ownership in each of the 3 units and the Camelotfund Global Macro Unit Trust where it owns 77 per cent. Cape Leeuwin Capital was the only manager which posted a positive annual return of around 9.5 per cent. Although, Mr. Roger Davis, Chairman of Pengana Managers, said that its board has approved a portfolio restructure of its hedge funds. HFRX Global Hedge Fund Index, a leading Hedge Funds index gauges industry performance reported only a small positive return of 1.1 per cent in the industry throughout. Money Management.com Reports:

Share holders of Pengana Managers were given the bad news at the company’s annual general meeting in Sydney this morning by chairman Roger Davis. Davis said Pengana Managers had recorded a net loss after tax of $1.105 million for the 2004-05 financial year. The poor results have contributed to the company’s share price dropping to a “double digit percentage discount”, said Davis.

Read More: Hedge funds drag Pengana down

Hedge Funds look to newer and newer opportunities for deriving returns

A few days back Independent International Investment Research (IIIR), which is listed on London’s Aim, the stock exchange for smaller companies, announced an infringement of right by Google on the use of the name “Gmail” for its free web-based email service which was launched its beta version in April 2004. This beta version has been created a great furor with MSN & Yahoo since it offered large storage capacity for its new e-mail service, which they eventually followed suit. As per Mr. Shane Smith, chief executive officer and chairman of IIIR reported that a “Gmail” was a service branded which is offered by Pronet, a subsidiary of IIIR, since May 2002. IIIR’s Gmail service is part of a suite of financial research products, which allows clients to forward on research to their own customers. And soon after Google's launch of Gmail the company had approached the Google and the matters are still upheld to date and the companies have still not come to a settlement. Mr. Smith confirmed that in return of a share of trademark sales, he has received three offers of financial backing for litigation against the US search engine. Not mentioning the details of the applications for such backing he stated the interested parties were - a British hedge fund and a US specialist legal funding company that is affiliated with a hedge fund, as well as a British boutique investment company. Although no decision has yet been made, it is seems as a long drawn battle to be fought. FT.com Reports:

A small listed UK company that plans to launch legal action against Google says it has received three offers of funding, including two hedge funds, for its litigation against the leading web search company. Independent International Investment Research (IIIR), which is listed on London’s Aim, the stock exchange for smaller companies, has claimed Google’s use of the name “Gmail” for its free web-based email service infringes its use of the term.

Read More: Hedge funds offer backing for Google legal challenge

Hedge Funds become real estate lenders to derive returns

The hedge funds have been known for its varied areas of investments making use of unusual trading opportunities in everything from commodities to foreign exchange, as well as stocks. They often increase their returns by borrowing, or leverage. So, since the returns have been quite a lackluster in the past quarters of investing in companies, stocks, commodities and foreign exchange. Hedge Funds have being trying to ride on the current real estate boom in the US. Although it is not the first time they have entered in the commercial real estate market. They were a dominant force in commercial property finance until the collapse of the infamous hedge fund Long Term Capital Management in 1998. Traditionally in the world of real estate finance, lenders underwriting mortgages for purchase of commercial real estate repackage their loans into mortgage-backed securities. These mortgage-backed securities are then bought by insurance companies, mutual funds and banks. But now, hedge funds not only being satisfied by purchasing some of these securities have actually teamed up with banks to finance such purchase of a commercial property in a bid to boost returns for their investors. But the lenders seem to be in a state of astonishment where the lending rates seem to go down to ever new levels and also introduction of interest-free mortgage, to woo the customer who is buying in bulk. However, the risk of default always looms on ones head. Although the competition in the commercial real estate seams to be stiffening and the returns evening out. Philly.com Reports:

Fewer opportunities in the stock market have prompted some hedge funds to bolster returns by making loans for commercial real estate such as office buildings. The arrival of the funds, lightly regulated groups of investors that cater to wealthy individuals, comes at a time when there are plenty of U.S. and non-U.S. investors willing to finance purchases, construction and refinances of mortgages for office buildings and malls. The hedge funds are also getting into the market at a time when lenders are making increasingly risky loans such as interest-only mortgages, a trend already evident in the residential market.

Read More: Hedge funds turn to commercial real estate loans

Hedge Funds change their returns measuring techniques to save their skin

The so good to be true Hedge Funds returns are a thing of the past. The returns delivered by them have been nothing but a lackluster over the last few quarters. Therefore at the Reuters Hedge Fund Summit, the hedge funds have tried to devise a strategy by abandoning the idea of gauging funds performance against real or absolute returns moving to a new method of benchmarking against relative returns, against stock or bond market indices. This move will enable an investor to identify a hedge fund which provides real excess returns versus those who can only offer market returns. However, relative value strategies have a deficiency, in cases where the funds try their hand on undervalued or overvalued stocks to gain from such mispricing, the opportunity is evened out because this opportunity is seen by many. And since such stocks also do not have market volatility, and when too much money chases too few opportunities you end piling up losses. The hedge funds have changed their focus to targeting of institutions (other than pension funds since they are keen on returns) as against the wealthy individuals. Since such individuals would shift if the promised returns are not delivered. But the institutions may pull out only if they fear any major deviations in returns against that promised. Although the current shift towards relative returns is likely to put downward pressure on performance and management fees, whereas market returns can be earned by investing in indices which cost a fraction of the amount hedge funds charge. It is yet to been seen its effect in reality. Reuters Reports:

Weak or negative returns from many hedge fund trading strategies over the past 18 months have meant that many managers have been unable to beat targets -- and so have not been able to collect performance fees of around 20 percent. With severely reduced incomes, many hedge funds have opted to concentrate on attracting institutional money, which regardless of performance, can earn between 1 and 2 percent in management fees.

Read More: Hedge funds U-turn on real return promises

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

Investors debate over exorbitant fees charged by Hedge Funds

The recent Reuters Hedge Fund Summit raised an issue which the world needs an answer to. The issue revolved around the performance and the management fees charged by the Hedge Funds. Investors from one school of thought believe that it is no longer justified to charge around 1 per cent management fee and around 20 per cent performance fee linked directly to the returns, when the returns delivered by the hedge funds mangers now hover in single-digit figures. However, investors from the other school of thought suggest that the hedge fund managers deserve their large paychecks because they apply complex models to derive returns unlike an average mutual fund manager who gets paid only a fraction for buying and holding securities. Hedge funds managers also claim that they can deliver returns in any investment environment by employing complicated techniques like selling stocks short which are mostly off limits to traditional funds. The justification over the exorbitant fees charged by these highly prolific hedge fund managers can only be warranted if consistently higher returns are delivered by them is tougher market conditions. Reuters Reports:

"I believe there is a (positive) correlation between fees and performance," said Mark Yusko, president and chief investment officer of Morgan Creek Capital Management, which invests $1.5 billion in hedge funds. Comparing hedge fund investing to any other business, Yusko said it is normal that the most skilled worker commands a higher price tag than the least skilled employee and that people want the best person for the job.

Read More: Reuters Summit-Hedge funds shrug off gripes on high fees

Hedge Funds rise while indices fall after the hurricane

The Katrina Hurricane was the talk of the town, in the entire August. The financial markets felt blows on account of high oil price pressure. The Standard & Poor's 500 index, the Dow Jones Industrial Average, and the Nasdaq Composite Index all fell almost 1.5 per cent. However, on the contrary, the $1 trillion Hedge Funds, industry rose over 1.01 per cent this month on an average, and an estimated 5.45 per cent for the entire year, reports Barclay Group, a leading Hedge Funds tracking company. Also, 87 per cent of the 881 Hedge Funds who are out with their results have outperformed the S&P 500 index. Experts say that Hedge funds in August are expected to deliver positive results. CNN Money Reports:

Hedge funds have now returned 5.45 percent this year, the group said. While this is less than the double-digit returns that made the industry famous, industry executives said returns are better in this asset class than in most others. "More than 87 percent of the 881 hedge funds that have thus far reported an August return have outperformed the S&P 500," said Sol Waksman, president of the Barclay Group.

Read More: Hedge funds best stocks in August

Hedge funds may ride on the Canadian Income Trust buzz

There is a new wave in the Canadian financial market these days. The hedge funds have started creating the buzz around the Income Trusts. Unlike a company's stock price which is nothing more than a market's estimate of its total of future cash flows discounted to today. Income trusts get higher multiples because the taxman gets less and the investor more. Although the Canadian Finance Minister, Mr. Ralph Goodale has agreed that trusts costs the government in the country’s tax revenue, no decision has been made so far. But experts believe Hedge Funds managers are the only ones who can take full advantage of the current income trust wave, since the current hedge funds operating in the country it is quite difficult to get in and out of stocks quickly. And these Hedge funds get their motivation and driving force from their performance fees. GlobeAndMail.com Reports:

The week's big story was Ottawa's timid response to income trusts, which have been multiplying like fungi. Finance Minister Ralph Goodale is a master of the art of using a thousand words where 10 would do, and this charming trait has apparently rubbed off on his mandarins. The Finance Department's discussion paper, page upon page of statistics and commentary, could be boiled down to this: Trusts cost us tax revenue, but we've no clue whether we should do something about it, so -- we'll ask you. One executive called it "fluff," and he could not have been more accurate.

Read More: Hedge funds poised to be the 800-pound gorilla on the income trust curcuit

Leading shareholder want Sonoco Products’ buyback offer

Sonoco Products' (NYSE: SON), a leading packing industry player, has proposed for a one-time $10 million stock buyback of its shares. The company’s second largest shareholder, Atlantic Investment's Mr. Alexander Roepers, Manager at Atlantic Investment owning approximately 5.6% of Sonoco's outstanding shares, has asked for it. The investor alternatively has suggested either a Dutch tender offer or an accelerated share-repurchase plan for the company and wants them carried it out quickly. A back of the envelope working suggests that Dutch auction would cost $280 million at current trading price of $28 a share, when the company had about $117 million of cash and equivalents on its balance sheet and expected to rise to about $187 million in free cash flow by the end 2005. This is to counter the Sonoco’s recent acquisition spree where it stuck a JV for for tube and coreboards with Helsinki-based Ahlstrom Corp., where the will buy the share by the end of 3 ½ years. Sonoco also bought CorrFlex for $250 million followed by the acquisition of Demolli Industria Cartaria, an Italian-based manufacturer of paperboard and engineered carriers last year. Currently the company has a healthy ratio of 44 per cent debt-to-capital ratio against the industry average of 60per cent to 80 per cent, and the buy back might drastically alter the ratio. The Street.com Reports:

More importantly, Key Banc analyst Christopher Manuel says, the company has been able to offer a generous 3.4% dividend yield while maintaining an investment grade single-A rating. This balance is likely to be compromised if the company increases its leverage. Sonoco has a 44% debt-to-capital ratio, a good level compared with some of its peers in the packaging business with 60%-80% ratios.

Read More: Hedge Fund Wants Sonoco Buyback

William Eigen leaves Fidelity to join Highbridge Capital Management

Fidelity has recently lost a few bright stars from its team. Earlier it was a two member team that had managed more than $2.2 billion for Fidelity and its overseas unit, Fidelity International. The duo, David Baverez and Krishnan Sadasivam have moved to London's TCI Fund Management Earlier in August, Fidelity lost one more of its star performers - William Eigen. Eigen had worked with the firm for over a decade when he put in his papers. He has now joined Highbridge Capital Management in New York. Eigen joins the firm as Managing Director and will oversee fixed-income and absolute return products. Highbridge is a $8 billion hedge fund company and was formed way back in 1992. Last year the firm reached a strategic agreement with JPMorgan Asset Management. Highbridge has offices in New York, London, Hong Kong and Boston.  Boston.bizjournals.com reports:

“Also this month, Fidelity lost David Baverez and Krishnan Sadasivam to London's TCI Fund Management. The pair had managed more than $2.2 billion in for Fidelity and its overseas unit, Fidelity International.”

Read More: Fidelity's Eigen to join N.Y. hedge fund Highbridge Capital

Mutual Funds find Hedge Funds to be costly investments

The debate over expenses and returns pertaining to hedge funds has been a long drawn one. Mutual Funds Managers such as Tom Muldowney, the managing director at Savant Capital Management in Rockford are of the opinion that Hedge Funds are expensive. They are expensive when you take into account the average management fees and part of profits that the investor has to shell out.

Even while double-digit returns have been witnessed in the past, the ability to have a repeat performance is questionable. Especially so in market condition which is currently witnessing low volatility. Investors are drawn towards the instrument in search of high absolute returns. On the contrary, Mutual Fund managers feel that the investors should aim at moderate returns, which come with moderate risk. High risk is not for every one and they stand to loose some or all of their savings by going the hedge fund route. Hedgeco.net reports:

"Muldowney compared hedge funds with promising new drugs, arguing that investors pay
expensive cost to invest in such instruments and that investors don't know much about
them."

Read More: Mutual Fund Director criticizes Hedge Funds

Hedge Funds bet on Germany’s positive sentiments

Unlike emerging markets, which are conventionally the targets for hedge funds in their high risk-return game. The new territory under their purview now, is the former industrial horse of the world – Germany. This developed market has now been the hot favorite of the hedge funds who have racked up their stake from an estimated 5 per cent of the German-based enterprises last year to around 20-25 per cent the current year. These funds were drawn by the allure of positiveness in the German economy from it stagnated growth in its GDP. And one can look forward for some real action happening in this economy with hedge funds having a stake in enterprises like Deutsche Börse, DaimlerChrysler just to name a few. This is definitely keeping German regulators on their toes. International Herald Tribune Reports:

German companies are increasingly feeling the influence of shareholders like hedge funds. Werner Seifert was removed as chief executive of Deutsche Börse in May in part because of a campaign by hedge funds against his plan to buy the London Stock Exchange. And Fresenius Medical Care, a provider of dialysis products, last month amended a plan to convert preferred shares into common stock after Citadel Equity Fund and Och-Ziff Capital Management lobbied for the change.

Read More: A boon for hedge funds

Katrina, a beauty for the Hedge Funds and a beast for the people

Hurricane Katrina touched down in Louisiana wrecking havoc in the city of New Orleans, where at least 120 people lost their life and an estimated damage to property has been put up to approximately $16 million. But Trend-following hedge funds, which trade systematically based on mathematical models, are the ones who rejoiced since they cashed on from the spike in oil. Many of these funds had been betting on long positions in oil before the hurricane hit the U.S. coastline. Post-hurricane, crude oil prices shot up about $3 a barrel or $3,000 per futures contract, and supposedly a fund with 10,000 long contracts would have netted about $15 million from the $3 upsurge in the oil. While the NYMEX exchange limits funds to 20,000 contracts, most funds hold between 5,000 to 10,000 contracts. A fund with 10,000 contracts would have netted a cool $15 million from the $3 spike. The price shot up on the fear that the hurricane had hit the heart of the oil and gas industry and damaged refineries. This implies that even if the oil could be imported from other countries it could not be refined in the U.S. But these trend followers-hedge funds who had been short on cotton and grains have posted huge losses when those commodities shot up after the hurricane. CNN Money.com Reports:

Katrina forced the closure of more than a tenth of the United States' refining capacity and a quarter of its crude oil output, spurring a spike in gasoline and heating oil prices, according to a Reuters report. Over 1.4 million barrels per day of crude production, or about seven percent of domestic demand, were still shut the day after Katrina tore through the Gulf, the report said.

Read More: Katrina sends some hedge funds soaring

Third Point asks Western Gas to change business strategy

One more goes the Carl Icahn, the ‘Corporate Raider’ way. This time it is Third Point LLC which is the predator and Western Gas Resources Inc. an independent gas producer which is the victim. The former has acquired 8.6% of outstanding shares in the company and now forcing the company to change its business strategy. Daniel Loeb, chief executive of hedge fund Third Point LLC is urging Western Gas Resources Inc to buy back 10 to 15% of its shares from the market by spending $300 million to $500 million. This they feel will increase the shareholder value. The gas company however begs to differ. Its long time strategy is to use excess cash to increase natural gas production and pay dividends.

The hedge fund is also urging Western Gas to consider splitting its business after a share buyback and put a portion of its assets into a master limited partnership. Apart from this they have also offered to serve on Western Gas's board and fill a seat recently vacated by retiring director. All in all this attempt is being seen as another one where in the hedge fund first acquires a substantial stake in the company and then demands that the company dance to its tune. Today.reuters.com reports:

“In response, Peter Dea, Western Gas's chief executive, said the company would consider initiating a share buyback program -- but it is more inclined to use excess cash to increase natural gas production and pay dividends.”

Read More: UPDATE 1-Hedge fund presses Western Gas to buy back shares

Connecticut Hedge Fund Association launched at Greenwich

Connecticut Hedge Fund Association was recently launched with a cocktail party at the Indian Harbor Yacht Club in Greenwich. Connecticut is soon becoming the heart of hedge fund industry with over 100 hedge funds operating out of Greenwich alone. The county is a preferred home for numerous known celebrities and high net worth individuals and with somewhat relaxed tax structures has attracted a lot of hedge funds from all across to open or completely shift offices to this rich pool. Hence the need for an association which brings together the fund managers led to the foundation of the association. The fund managers are quite happy about the development and admitted that a need for such a platform was never greater than now.

The Association provides a conducive environment for constant networking amongst likeminded fund managers. Apart from this, the association will provide a forum to managers to address common issues and collectively work towards resolving them. This, especially in the wake of norms being created by the SEC which are likely to get stronger with the passage of time if there is no harmony between fund managers. Other chapters of the Association are likely to come up in due course.  Hedgeco.net reports:

“One of the attendees of the ceremony, Brett Dougherty who manages a hedge fund in Norwalk told news correspondents, “We are in a business where we are not allowed to advertise.”

Read More: State Hedge Fund group launches Connecticut Hedge Fund Association

Pro-Hedge Funds launches first Canadian Energy Fund of Funds

Pro-Hedge Funds, a leading Canadian-based Hedge Fund providing Canadian investor’s access to money managers and absolute return investments has Pro-Hedge Multi-Manager Energy Fund, a fund focusing on the North American Energy and Utility sectors. This fund is widely diversified and employs various strategies, within sectors and security types, and is designed to take advantage of the current top performing energy sector while significantly lowering portfolio volatility. At the funds’ inception there are 7 managers allocated utilizing 6 strategies aimed at optimizing portfolio’s performance and reducing volatility. The fund has also tapped in Mr. John Stephenson from Second Street Capital, who for a track record of approximately 19 years in domestic and international finance industry, oil, gas and utility sectors. His reputation in the industry could be a big drawing for investors towards this fund. The team believes that the volatility in crude oil and energy shares will rise as oil prices reach levels potentially disrupting economic balance of the global economy. And state that the energy sector has reached a point where volatility in price will increase regardless of the future direction of energy prices. This is first such energy-based fund of funds to be launched in the Canadian market. Canadian NewsWire Reports:

One of the featured managers for this energy fund of funds is Second Street Capital's John Stephenson, who for 19 years has been a recognized and respected name in the domestic and international finance industry, and has spent much of his tenure building expertise in the oil, gas and utility sectors. Stephenson is as excited about his relationship with Pro-Hedge, as they are with him, saying "Energy is front page news - and with good reason.

Read More: Pro-Hedge Funds Launches Energy Fund of Funds

Pension Funds succumb to the allure of Hedge Funds

The new wave of investing in Hedge Funds has hit a new high. The new to join the bandwagon are the State Pension Funds from Baltimore. Both Baltimore City Fire & Police Employees' Retirement System and Baltimore Employees' Retirement System have pumped in $80 million and $55 million respectively. Although in both the funds, the investments amount to 5 percent or less of the assets in the pension systems. The other state authorities who are already invested into hedge funds are California Public Employees' Retirement System, Massachusetts state pension, and Virginia Retirement System to name a few. However there are state pension funds who do not want to burn their fingers by investing into them and paying exorbitant fees like Maryland State Retirement and Pension System But the stakes are high and the returns are higher, but human greed should not take over and calculated risk be taken, since its never bad to give higher return to the public. BaltimoreSun.com Reports:

"We have some discomfort with the amount of money that's flowing in, and we have questions as to whether historical returns can be replicated going forward," said Steven Huber, the state's chief investment officer, who said he has been "keeping an eye" on hedge funds. "Until we're comfortable, we won't begin to look into the details of it."

Read More: City pension funds turning to edgier investing

Bayou Fund bites the dust

Bayou Group, a Stamford, Connecticut-based hedge fund has shut shop and is presumed to be absconding. Bayou, founded by Mr. Samuel Israel III, ran four hedge funds Bayou Superfund LLC, Bayou No Leverage Fund LLC, Bayou Affiliates Fund LLC and Bayou Accredited Fund LLC. Mr. Israel was a short-term stock trader and claimed to have garnered a return of approximately 200 per cent a month. He earned a commission of an estimated 1 per cent to 3 per cent a month on the dealings. The adopted a strategy whereby he would be wagering approximately 50 per cent of the portfolio on falling stocks and the remaining on shares he expected to rise, the presentation said. The U.S. Securities and Exchange Commission, Connecticut Department of Banking, and the state regulators are on a look out for any possible wrongdoing. However here have been various reports about the absence of Mr. Israel, the funds newsletter mentions that it has not invested since June due to rising stock prices and may start afresh in July, while articles do mention about a disruption in his personal life and wanted a break. Although the Fund released a statement on August 11 promised to refund investors money, but Mr. Israel has vanished since then. Newsday.com Reports:

"This potential fraud, now under active investigation by the state and other authorities, may indicate the need for stronger oversight and active regulation of the hedge fund industry," Richard Blumenthal, Connecticut attorney general, said in a statement. The SEC has initiated its own inquiry, said a person familiar with the matter.

Read More: Blue news for Bayou

Commerzbank becomes a target of Hedge Funds

Germany’s corporate kingdom have been attacked and seams to been brought at its knees by the new-age corporate raiders-the Hedge Funds. The latest victim has been the Commerzbank AG, Germany’s third largest bank which has witnessed quite some activity at the counter of late. Toscafund and Lansdowne Partners, London-based hedge funds seam to be making aggressive moves into Commerzbank’s counter. Although, the company states they are among a number of hedge funds and mainstream investors to have acquired stakes of up to 2 per cent and does not even disclose them as investors in the company. However this is not the first time it has had to encounter such an issue, Commerzbank territory in 2001 had been infringed upon, by a hedge fund called Cobra a privately-owned corporate raider who had made attempts to engineer the banks sale. Hedge funds have laid their bets to be acquired by European banks like BNP-Paribas, Royal Bank of Scotland or some Spanish banks. After, the rumored deal of the acquisition of HVB, the Germany’s second largest bank by Italy's UniCredito. Of late the hedge funds have been making aggressive inroads in the German Stock Exchange Deutsche Börse's and DaimlerChrysler, the carmaker. MSN Money Reports:

Since announcing solid second-quarter results on August 3, Commerzbank's popularity with investors has surged, with up to 20m shares – four times the normal volume – changing hands on several days. The shares have been the best performer of all 30 stocks on the Dax blue-chip index this month.

Read More: Hedge funds build up Commerzbank stakes

Hedge Funds tend to loose its sheen but touch the $1 trillion mark

The term Hedge Fund resounds of a type on investment supposedly for the rich and the wealthy and giving them phenomenal return on their investments. But scenario has changed, now the minimum amount required to invest in a hedge fund has been reduced to just $25,000, or less investments in shares that invests in multiple hedge funds. As per Hedge Fund Research Inc., there existed about 600 hedge funds with and estimated $38 billion in assets in 1990 and has seen a phenomenal to around 8,000 hedge funds, with more than $1 trillion in assets. But the investment in hedge funds has dropped sharply from $24.6 billion in net new assets in to $11.6 billion in the second quarter this year. The returns are also a lackluster and are way of the mark. But his has not dejected investors and newer financial institutions like pension and endowment funds have been the part of the current hedge fund investment spree. Virginia Retirement System has invested approximately $1.6 billion accounting for nearly 4 per cent of its assets; Baltimore City Fire & Police Employees Retirement System has put an estimated $80 million into hedge funds last year, while the City of Baltimore Employee Retirement System has invested around $55 million representing nearly 5 percent of its assets. But there are new players like Maryland State Retirement and Pension System who do not prefer to take the risk considering the uncertainty involved by investing in them, since the 1998 horror stories of Long Term Capital Management’s collapse do not die soon.SFGate.com

Spencer acknowledged that the Baltimore pension is getting into hedge funds at a time when returns are flat. The average hedge fund is up about 4.1 percent so far this year, according to Hedge Fund Research, far below the 15- year average of around 15 percent. "We are hoping that it can't get worse," Spencer said of recent hedge fund performance.

Read More: Hedge funds' returns falling Main St. investors moving in may be disappointed

Hedge Funds give way to C&W;’s acquisition of Energis

It might not sound quite unreal at the thought of hedge funds succumbing to the company management’s pressure. Cable & Wireless Plc (C&W) has been facing quite some difficulties going ahead with its planned acquisition of Energis Plc for an estimated £780 million. C&W has not had easy road to thread reaching this juncture and had already increased the offer price by £200 million. First the bond holders who owned approximately 25 per cent of Energis were reluctant to succumb to the pressure and did not reach their 75 per cent quota of bids. Then the hedge funds which had substantial in Energis had put their foot down and did not co-operate to the proposal made by C&W. Although C&W’s management were defiant and decided to move ahead with planned acquisition. Then on the fear of loosing grounds, that if the deal goes through their share would get diluted. And on account of no other bidder the acquisition would go ahead as planned. Forbes Reports:

The Sunday Telegraph cited an Energis banker as saying a number of hedge funds which initially opposed the takeover have now pledged support, as they realise that if C&W walks away the value of their stakes will collapse.

Read More: C&W to win Energis as hedge funds cave in - report 

Doug York, Executive Vice President retires from Campbell & Company after a 13 year stint

Doug York, Head Trader and Executive Vice President of Campbell & Company has decided to retire from the company by 31st August. Mr York has spent over 13 years in the company and has a cumulative trading experience of over 25 years. He now wants to lay back, relax and spend some time with his family. Doug York has been described as a tireless advocate of new and better ways to transact. He has set up a kind of example for others to follow. The announcement of his retirement was made by Bruce Cleland, president, Campbell & Company.

Mr Bruce also announced that Michael Harris who is deputy manager – trading, will continue to supervise the day-to-day operations of the trading room. Mr Harris will in turn report to Kevin Heerdt, Chief Operating Officer and a member of executive committee. Founded in 1972, Campbell & Company is one of the oldest and largest alternative investment management firms in the world. Hedgeco.net reports:

“After 25 years in trading, the last 13 of which have been spent at Campbell & Company, Mr. York plans to spend more time with his family and pursue other interests outside the company.”

Read More: Campbell & Company Announces Retirement of EVP, Doug York

Commerzbank’s share prices zoom after hedge funds increase stake

There has been an increased interest in the shares of Commerzbank off late. More and more hedge funds seem to be buying into the company. Two noteworthy hedge funds who have increased their stake recently are Toscafund and Lansdowne Partners. Both these hedge funds are based in UK and have increased their stake by at least 2% each. This was revealed by Commerzbank recently. This activity has pushed up the share prices by nearly 17%.

Another major stake holder is an insurance company which holds nearly 9.1% stake in the company. This heightened interest in the market seems to be an aftermath of rumors of Commerzbank likely to be acquired by BNP Paribas. BNP Paribas along with some other strong contenders like Royal Bank of Scotland are likely to bid for the company shortly. Hedgeco.net reports:

“Commerzbank's shares have already gained about 17 percent as a result of the rumors that the French firm BNP Paribas or other firms may be interested in offering a bid for the company.”

Read More: Hedge Funds boost stakes in Commerzbank

Hedge Funds excited about management changes in DaimlerChrysler

Hedge Funds have become a force that no one can afford to ignore. They are beginning to control companies in such a way so as to literally bulldoze them to bow down to their demands. Recent estimates indicate that hedge funds control over 20% stake in DaimlerChrysler, the auto giant. Apparently the stake increased after there was a change in the top management. Juergen Schrempp Chief Executive of DaimlerChrysler, will be stepping down by the end of the year.

His place will be taken by Dieter Zetsche, who is the Division Chief for DaimlerChrysler. Apart from management change, it is known that a major stake holder Deutsche Bank has also reportedly decreased it’s stake in the company. Hedge Funds are apparently happy about the change at the top level and are determined to make it happen, hence the unusual interest in the company. Hedgeco.net reports:

“More hedge fund interest in the firm resulted from surprise news that Juergen Schrempp is stepping down as the Chief Executive of DaimlerChrysler effective at the end of the year.”

Read More: Management Changes in DaimlerChrysler Lure More Hedge Fund Interest

Thames River Capital’s two ‘core’ funds of hedge funds awarded an A Rating by Standard and Poor's

Thames River Capital is on cloud nine with two of its funds of hedge funds getting A rating by Standard & Poor’s. The two funds are quite different from one another in their investment strategies. Thames River Sentinel Fund invests in a diversified portfolio of non-directional hedge funds. It seeks to provide absolute returns in low volatility with minimum risk. On the other hand, Thames River Warrior Fund invests in focussed range of directional or opportunistic hedge funds.

The fund operates with modest volatility and aims to achieve double digit returns over a cycle. Both the funds are managed by Ken Kinsey-Quick who is also head of Multi-Manager Investments at Thames River Capital. He has over ten years of experience in the industry. The company collectively manages over $ 500 million of assets. Charlie Porter, CEO Thames River Capital is a very happy man these days having accomplished such a feat.  Hedgeco.net reports:

“Thames River Sentinel Fund seeks to achieve consistent, low volatility absolute returns in excess of risk free rates by investing in a well diversified portfolio of non-directional hedge funds.”

Read More: Standard and Poor's awards Thames River's Sentinel Fund and Warrior Fund A ratings

Northern Trust to provide custody and fund administration services to Swiss Capital Group

Northern Trust has been recently selected by Swiss Capital Group to provide custody and fund management services. Northern Trust provides global custody, asset administration and investment management services. Swiss Capital Group’s entire fund-of-funds range (some 15 funds) with a combined value of $1.2 billion will now be handled by Northern Trust. The phenomenal growth of hedge funds market and the complexities arising out of it has heightened the need for a full service administrator with the required experience. Hence the appointment of Northern Trust by Swiss Capital is being seen as a concrete step towards managing high level operational risk professionally. Marcel Schindler, who is the Chief Operating Officer and Partner at Swiss Capital Group, said that the selection of Northern Trust was done after in-depth scanning of all the options available. Northern Trust was selected due to their expertise in hedge funds, the superior technology adopted by them and also due to their complete professional attitude towards the business. Northern Trust is a multibank holding company based in Chicago with a network of 84 offices world wide and has assets custody of $2.7 trillion.  Prnewswire.com reports:

“We see our selection by Swiss Capital as a strong endorsement of our capabilities and we look forward to working with them," said Jonathan Quigley, Director of Technical Sales for alternative asset administration at Northern Trust in Dublin.”

Read More: Northern Trust Wins US$1.2bn Fund of Hedge Funds Custody & Fund Administration Mandate

Icahn buys 2.6% stake in Time Warner along with three other hedge funds

‘Corporate Raider’ Carl Icahn recently joined hands with three hedge funds to buy 2.6% stake in Time Warner Inc. The net stake of 120 million shares is valued at $2.2 billion. The group comprises Icahn Partners, Icahn Partners Master Fund, Franklin Mutual Advisors, JANA Partners and SAC Capital Advisors.  Icahn entered hedge funds last year by raising $1.6 billion from investors like financier Leon Black. He is known to be a tough and tactful financial negotiator as well as an ace identifier of opportunities. He had been pressurizing Time Warner Inc to enlarge a stock-buyback plan and to spin off its cable systems and publishing operations. He wants the company to buy back $20 billion of its own stock. Time Warner has however decided to buy back $5 billion shares over the next two years. For the moment, Icahn has agreed not to sell the shares, but this arrangement is to last only till February 2007, or the date of the next annual meeting, whichever comes first. Mediaweek.com reports:

“Icahn said the hedge fund group has agreed not to sell its Time Warner holdings until February 2007, or the date of the next annual meeting, whichever comes first.”

Read More: Icahn, Hedge Funds Buy $2.2 Bil. Stake in Time Warner

Icahn enters hedge fund arena

Carl Icahn is a name which is associated with shrewd financial transaction, labeling him as a ‘corporate raider’. He entered hedge funds last year by raising $1.6 billion from investors like financier Leon Black. He is known to be a tough and tactful financial negotiator as well as an ace identifier of opportunities. His style of investing or corporate re-structuring and making profit is similar to what is adopted by hedge funds. As such, the industry and Icahn are a perfect match. His aggressiveness helped him to become a board member of Bolckbuster Inc and also managed to convince Kerr-McGee Corp. to shed assets that he wished that they sold off. He is currently pressurizing Time Warner Inc to enlarge a stock-buyback plan and to spin off its cable systems and publishing operations. Way back in 1990’s when he had not entered the hedge fund market, he was instrumental in RJR Nabisco shedding its tobacco and food businesses and selling it to Philip Morris in 2000. He reportedly made a cool profit of $900 million on a $ 1.3 billion investment. Post-gazette.com reports:

“Best known as a 1980s corporate raider and for his tumultuous tenure as Trans World Airlines' chairman, Carl Icahn last year entered the hedge-fund fray, raising $1.6 billion from investors such as financier Leon Black.”

Read More: Once a lone wolf, Icahn goes hedge-fund route

Morley planning to launch of new hedge funds and other high-octane products

Morley Fund Management is planning to launch hedge funds in order to provide strong-performance funds to the investors. Morley Fund Management is a part of Aviva, an insurance company. Current market demands for market-beating 'high Alpha' portfolios has led the fund to think about launching hedge funds and other high potential investment products. The firm has a total asset pool of 134.9 billion pounds out of which hedge funds account for only 367.8 million pounds. The fund feels that they would like to provide more absolute returns to the investors and hedge funds is the best way to do it. They plan to stress on private equity and property. The company feels that there is a variety of fund management styles existing today and fund managers have to be very clear about their approach. A mid way non directional approach will certainly not do in today's market. Today.reuters.co.uk reports:

"Morley has launched a G7 fixed income hedge fund product, a Central European long/short product and a hedge fund investing in equities screened by a Socially Responsible Investment SRI process."

Read More: Morley looks to boost hedge fund offerings

Schroeder adopts a softer approach towards regulating hedge funds

German Chancellor Gerhard Schroeder has softened his stand on regulating the hedge fund industry. Though he is still advocating some regulation, he is showing a lenient approach towards it. He wants the European market to adopt something like the US style regulation which is not too strict but at the same time good enough to keep a tab on the industry at large. He said in an interview recently that some amount of transparency needs to creep into the business. This is primarily in order to ensure that foreign hedge funds do not exploit the German companies and make profits while the latter is stripped of its assets. What Hedged funds normally do is, find a slow performing or underperforming company at the brink of closure and then do a major restructuring. After this the company is sold at a profit. This obviously leads to major job losses, but then analysts feel that is the only way to ensure that the company becomes strong again. Today.reuters.co.uk reports:

“Schroeder has asked the Finance Ministry to examine how best to oversee hedge fund activity with possible regulations obliging funds to disclose their ownership structure.”

Read More: Germany's Schroeder slams hedge fund strategy

Mutual Funds Vs Hedge Funds : Facts

Here is a list of key differences between mutual funds and hedge funds to mull over. In a mutual fund, investors put in their money for the fund manager to manage it whereas in a hedge fund, the investors get into a partnership with the fund managers to generate returns. Mutual Fund managers have to stick to sector allocation as defined in the charter of the fund. Hedge Funds manager on the other hand has complete freedom of not only selecting sectors or the percentage of assets allocated to them but also changing over to a completely unrelated or unwritten area in search of hidden opportunities to make profits. The returns posted by Mutual funds are relative to a bench mark, thereby implying that they will be happy if they outperform the benchmark index even while the investor has actually lost money. Hedge funds on the other hand do not follow any benchmark and as such strive to generate absolute profits for the investor. Remuneration is also a key differentiator between the two. Whereas the hedge fund manager gets a 20% share of the profit that he has earned for the investor, the mutual funds manager has no such privilege. They just get a percentage of the total assets under management irrespective of the returns generated by them. Chronicle-Journal.com reports:

“The purpose of a hedge fund is to earn a positive return, which is totally different from beating a benchmark. If the hedge fund manager is successful in delivering this objective, then that manager, like Sir Thomas More, will be a man for all seasons.”

Read More: Hedge, mutual funds differ in important ways

Three new hedge funds on the anvil by Geronimo Partners

Geronimo Partners Asset Management LLC recently filed its intent of launching three hedge funds with SEC. The company stated that through these funds the firm will attempt to achieve investment returns in excess of the three-month Treasury bill across full market cycles and most market conditions. The three funds which will be launched shortly are - Geronimo Enhanced Hedge Fund Index Fund, the Geronimo Sector Opportunity Fund and the Geronimo Option & Dividend Income Fund. These funds will be a part of the Unified Series Trust group of funds. The funds will follow the investable HFRX Equal Weighted Strategies Index published by Hedge Fund Research Inc and invest their assets in a variety of investment instruments. The index constitutes 72 separate accounts which are managed by different hedge funds. All put together total assets under management exceeds $800 million. Different investment styles and strategies will be employed for investing in select attractive sectors through out the world by means of The Geronimo Sector Opportunity Fund. Hedgeco.net reports:

“The funds will be actively investing in a broad range of investment instruments according to the firm, as part of the investable HFRX Equal Weighted Strategies Index published by Hedge Fund Research Inc.”

Read More: Geronimo Partners to launch three Hedge Funds 

Hedge fund managers become creative

Necessity thy name is discovery!! This seems to be the mantra for hedge fund managers these days. In more than a decade of existence, hedge fund managers have scanned and experimented with each and every strategy and move in the pursuit of big returns for their investors.  So much so, that all the possible ways to generate big returns seen to have been used, overused and abused. The number of hedge funds has grown through the years and some how they have managed to give above average returns to their investors. But now the going seems to be tough. This is reflected in the very fact that the number of new hedge funds launched in 2005 is not any where close to the numbers seen in the previous years.  The ones who exist search every corner with a minifying glass for any turn of market or find a small opportunity hidden away beneath the obvious to give them the returns they seek. Creativity seems to be the middle name of these managers who think ‘out of the box’ and generate returns. For example instances like aircraft leasing, bank loans, financing in the areas of utilities are now amongst the various strategies that fund managers are using these days.  Hedgeco.net reports:

“For many hedge fund managers, creativity is becoming a vital component of delivering alpha to their partners. Many managers are finding alternative ways to achieve positive returns for investors under the prevailing market circumstances.”

Read More: Hedge Fund managers are more creative in search of returns

Acxiom undergoing major transformation – Morgan

Last Wednesday Arkansas data broker, Acxiom organized a shareholder where it attempted to clear several doubts of the shareholders. The CEO, Charles Morgan, stated that the company was undergoing major transformations which would ultimately translate into profits for the company. Recently the firms stocks have seen a decline along with diminishing returns overall. Responding to this a company executive stated that the company has reported a revenue growth of more than $1.2 billion in fiscal 2005 and has deployed a new grid-computer project that is expected to bring in new clients and revenue. He added that although Acxiom's revenues are growing, a cost-cutting plan is underway and more than $255 million in long-term debt has been removed from the books altogether. Another problem that Acxiom faced was with the company's European operation which is a struggling real estate business with more than $6 million of extra expenses from a foiled deal with a major client that was expected to drag down first-quarter profits. The company carried out some structural changes which include slashing of payroll by 4% which are expected to bring down annual expenses by $60 million. All this along with a takeover bid by Acxiom's largest shareholder San Francisco-based ValueAct Capital Partners LLC has brought around a lot of negative publicity for the company. Arkansasnews.com reports:

“Kline said although Acxiom's revenues are growing, a cost-cutting plan is underway and more than $255 million in long-term debt has been removed from the books. The company's profits and stock price have been on the decline.”

Read More: Acxiom CEO says company in transformation; calls hedge fund manager an 'opportunist'

Baring says Asia Equity Hedge Funds have a bright future

Baring Asset Management recently provided enough reasons to show that Asia Equity Hedge Funds have a bright future. This despite the fact that they have not shown much growth in the early part of this year – especially China. Optimistic Baring made it clear that the trend will change as soon as investors realize that the growth prospects are good and that raising rates and interest rates as just temporary. It expects the market to consolidate within a range in the next few months. After this the market will see an upward trend. They also made it clear that the returns from these instruments are going to be positive. But at the same time, Baring cautions investors of the volatility in the Asian Markets which makes it a complicated game. In a volatile market, timing is of utmost importance and the fact that not many have the knack to get it right, makes it a slightly dangerous path to tread. The Asset Management Fund also stated that Asian market offers diverse investment opportunities, high savings rates and growing foreign investment. This is in sharp contrast to the lack luster growth prospects of the United States and Europe. Today.reuters.com reports:

“Many Asian equity markets were trapped in the first half of the year in narrow ranges, with a downward bias on worries about slower economic growth in the region, especially in China.”

Read More: Prospects good for Asia equity hedge funds –Baring

Montgomery’s ‘Mecom’ gets additional funds from American Hedge Fund

David Montgomery launched ‘Mecom’, an alternate investment vehicle after raising £45m earlier this year. Now he has additional funds from an American hedge fund which has pledged up to $100 million. Montgomery has made his intent clear about acquiring major European media assets. He is the former Mirror Group Newspapers chief executive between 1992 and 1999. He now wants to buy out Trinity Mirror which has repeatedly insisted that Daily Mirror and its Sunday sister are not going to be sold. However Montgomery continues to try. Apart from this, he is also being linked with the break-up bid of Scottish Media Group (SMG).  The American hedge fund that backed Malcolm Glazer’s recent takeover of Manchester United, Och-Ziff Capital Management, is providing him with the additional funds in order to co-invest in deals with him. Timesonline reports:

“Och-Ziff Capital Management, the American hedge fund that backed Malcolm Glazer’s recent takeover of Manchester United, has already pledged up to $100m to co-invest in deals with Montgomery”

Read More: US hedge fund backs Montgomery

SAC buys stake in Northwest Airlines, which is at the brink of bankruptcy

Northwest Airlines have a new passive hedge fund investor - SAC Capital Advisors LLC. SAC has bought 5.7% stake in the fourth largest US Carrier. The share prices of Northwest increased by 2.1% as soon as the stake was acquired. SAC however confirmed that this move is not intended to acquire Northwest by filing 13G. The airline has been under tremendous financial pressure of late. Its shares have dropped by about 57% in this year alone. It reported a sixth consecutive quarterly loss at the end of July this year. It also faces a possible strike by its mechanics in August. As such the airline might have to seek bankruptcy protection if it is unable to lower labor costs and delay some pension contributions.  Freep.com reports:

“SAC Capital, a Stamford, Conn.-based fund with $6 billion in assets, said in a filing Friday with the U.S. Securities and Exchange Commission that it bought 4.98 million Northwest shares.”

Read More: Hedge fund buys stake in NWA

Wendy’s agrees to spinoff of Tim Hortons after pressure from hedge funds

Wendy’s has recently agreed to abide by the advice of shareholder activists Highfields Capital & Pershing Square Capital to consolidate it’s flagging business. The two funds control about 17% of Wendy’s stock. Wendy’s will sell up to18% of its Tim Hortons doughnut chain in an initial public offering. The company has made it clear that full spinoff of Tim Hortons will complete within 18 to 24 months. This is being done following the two funds demands for breakup of the chain from Wendy’s since they felt that Tim Hortons was being undervalued in Wendy's corporate structure. Wendy’s will also expand its share-repurchase authorization by $1 billion and raise the annual dividend by 25% to 68 cents a share. This is in addition to selling about 7% of the company owned stock. Following this news, Wendy’s shares jumped to an all-time high by increasing by 12%. Thestreet.com reports:

“JMP Securities analyst Dean Haskell said that Wendy's has a history of reviewing its asset structure every few years, but was forced to act this time due to the pressure from the hedge funds”

Read More: Wendy's Hedge Fund Diet

SS&C; Technologies Inc. to be acquired by the Carlyle Group.

A private equity fund, Carlyle Group is all ready to acquire SS&C Technologies Inc. for a tidy sum of $982 million. SS&C Technologies Inc. is a software development firm which provides software solutions to hedge funds, asset management firms and other financial institution. Carlyle’s affiliate, Sunshine Acquisition Corp will pay a premium of 15.7% over the 30 day average trading price of SS&C Technologies. The acquisition will close in the fourth quarter of 2005. Close on the heels of the announcement of this acquisition, the stock price of SS&C went up. It is predicted that more financial institutions may buy companies like SS&C Technologies in order to have direct access to hedge funds which make use of the software solutions. Carlyle through this take over will get access to a potentially lucrative market for providing software and services to the hedge fund industry. Carlyle has over $30 billion under management and proposes to build its business through internal development and by making acquisitions such as this. Reuters.com reports:

“The acquisition, which SS&C expected to close during the fourth quarter, will give Carlyle access to the potentially lucrative market for providing software and services to the hedge fund industry.”

Read More: UPDATE 2-Carlyle to buy hedge fund software company SS&C

Alpha Strategic raises money through initial public offering to invest in hedge funds.

Through a recent initial public offering, Alpha Strategic has been able to raise 2.95 million pounds. Alpha will invest the money raised by it in hedge funds with minority stakes. The company will start trading on London’s junior AIM market on August 11. However the company’s management has made it clear that it will not invest directly in hedge funds. Colin Barrow, executive chairman at Alpha Strategic mentioned that it is a good way of getting exposure to hedge funds without actually investing in it. What shareholders are doing is buying shares of a company that is regulated and offers lesser risk. Hedge funds are seen by most as being risky propositions as they employ strategies that make them prone to making great losses. Also the fact that the hedge fund industry in itself is quite loosely regulated if at all, leads to the lack of trust on the funds to provide safe returns. Reuters.co.uk reports:

“The fees hedge funds normally charge, annual management fees of between 1 and 2 percent and performance fees of up to 20 percent, are also a strong incentive for investors who want safer exposure to buy into Alpha Strategic.”

Read More: Alpha Strategic to buy stakes in hedge funds

Coronation to be the new custodians of Granite Fixed income hedge fund

Granite Fixed income hedge fund to Coronation Fund Managers (CML) with be the new fund managers of ‘Granite Fixed income hedge fund’ form 1st August 2005. This change comes in effect after Decillion Fund Management which is a division of listed niche financial services group Decillion Ltd (DEC) decided to sell the fund to Coronation. Granite is the first fixed interest hedge fund of South Africa. Along with the fund, Coronation will also take over the team managing the fund. From now on Coronation will be completely responsible for the management of the fund – this was made clear by Decillion last week. Coronation has appointed Fund manager Mark le Roux as head of fixed interest at the firm. From now on Decillion Fund Management will continue to focus on managing equity-based hedge funds. Decillion has been making consistent profit in the business since 1999 when the business started. Louis Stassen, Coronation's chief investment officer is quite upbeat about the performance of the new fund and is confident that Mark le Roux will be the right choice for the job. Finance24.com reports:

“Decillion Fund Management would continue to focus on managing equity-based hedge funds, in which it had been consistently profitable since the business was founded in 1999, the company added.”

Read More: Decillion sells hedge fund

Demand from Institutions, Hedge Funds and Brokers for IT solutions leads Cogent Consulting to hire additional staff

Cogent Consulting recently appointed Tony Seker as Director of Sales and Jennifer Capizzi as Head of Customer Service. Every year mutual, pension and hedge fund managers spend close to $11 billion on commission to brokers in order to sell and buy securities. Their need for a technology solution which will enable them to allocate the money more effectively has lead to Cogent announcing these appointments. Cogent Consulting is a leading provider of broker review and voting systems for Wall Street trading and research (soft dollar) commission allocation. There is also a demand for IT solutions by sellside brokers who would like to track and report the value-added research services they provide to individual buyside customers more effectively. Therefore while enhancing the perfprmance of ‘ResearchTrak’ – a product for buyside institutions and hedge funds; Cogent is also developing tailored products for sellside brokers. Regulatory authorities like SEC and CFA Institute in the U.S and the FSA in the U.K clarify soft dollar standards, practices and requirements on a regular basis. This enhances the need for proper commission allocation. Biz.yahoo.com reports:

“Cogent also is experiencing new demand from sellside brokers for I.T. solutions that will enable them to better track and report the value-added research services they provide to individual buyside customers.”

Read more: Cogent Consulting Expands Staff to Meet Growing Demand from Institutions, Hedge Funds and Brokers

China wary of Hedge Funds

Li Deshui, a member of the central bank's monetary committee, recently stated that China will not make yuan full convertible for at least five years. This, he said, was being done in view of the fact that the yuan was not very strong and as such may fall prey to the hedge funds, thereby causing its decline. China is being cautious also because it has seen precedence when South Korean won and the Thai baht declined during the 1997 Asian financial crisis. Decade long peg to US dollar of yuan was removed last week. This move was further to the pressing of EU, US and Japan who argued that this would provide strength to the yuan. This would also remove the unfair advantage for Chinese exporters that yuan’s peg offered. Li insisted that the current state of the country’s bank was the prime reason for the government not to allow full convertibility of yuan. He also mentioned that the government sees yuan as China’s last economic and financial defense and hence will not allow a policy change so easily. IHT.com reports:

“Nearly a decade ago, Thailand's decision to let the baht drop triggered the start of the Asian financial crisis, and a wave of devaluations of other currencies in the region and in Latin America. “

Read more: Beijing fears attack from hedge funds

New hedge fund launched by veterans of ‘Weather Risk Management’

‘Takara’ is the name of a new Houston based hedge fund recently launched by Weather risk veterans Mark Tawney and Bill Windle. The fund which is seeking to raise $150 to $200 million expects to start trading in August. Takara is going to focus on weather and weather related commodities such as natural gas and heating oil. The fund has tied up with George Zivic of Riverside Capital which helps energy and derivatives managers establish and capatalise new hedge funds. Zivic feels that private investors and funds of funds like these esoteric markets due to high margins and high returns due to volatility in the energy and commodity markets. Both Tawney and Windle were part of weather risk management team at Swiss Re. While Tawney was the managing director, Windle was senior vice president. Albert Selius, managing director for asset-based securities and insurance-linked securities will be heading the weather risk team at Swiss Re. DB.riskwaters.com reports:

“One weather market participant believes Tawney and Windle’s departure may well have been part of a contractual agreement, whereby there was a revenue target or set timescale in place.”

Read more: Former Swiss Re weather experts launch hedge fund

Hedging helps Southwest Airlines to stay afloat

Southwest Airlines has been on an above average performance spree for 57 consecutive quarter. Its second quarter performance surprised even Wall Street. This continued performance is due to effective cost cutting measures and relative insulation form raising fuel prices by hedging about 85% of the year’s fuel needs at crude oil prices of $26 a barrel. The airline is quite bullish about its performance in the next year too. Part of the credit for consistent performance, lies with the employees providing newer ideas to help the airline cut costs. Southwest Airlines is one such company which actively engages and promotes employee participation in a big way. This has helped the company to float and even post profits in ‘high crude oil prices times’ and ‘low occupancy times’ when most of the others are struggling. Gary Kelly, Southwest's CEO, mentioned that Southwest will focus on filling up more seats instead of increasing fares. Thestreet.com reports:

“Southwest is known for encouraging its employees to find ways to boost the airline's efficiency. They appeared to do just that in the second quarter, with unit costs excluding fuel declining 7.7% from a year before.”

Read More: Shrewd Crude Hedge Spares Southwest.

Optima study reveals high quantum of capital being leveraged via structured products

Optima Investments, which is a New York based Hedge Fund Manager recently conducted a study on the Hedge Funds. According to the study, that out of the total money investments made by hedge funds, close to $50 billion has been invested in structured products. It was also found that the managers seldom knew the extent of leverage within the industry. Although not of immediate concern, longer duration of low returns may be in fact be quite damaging for the funds. This is so because, funds invested in structured products are generally invested in derivative trading instruments wherein in sight, the manager might be investing $1 million but may actually have an exposure of four times that amount. As such the hedge can suffer great losses due to redemptions during prolonged periods of substandard returns. Deutsche Bank has also observed a similar trend of increased exposure to structured products and also warns the industry of the trend. In such a situation fund managers who are investing in underlying products may liquidate their positions and if by chance, if they have significant leveraged positions themselves, the situation may really get out of hand. Hedgeco.net reports:

“The use of structured products in trading has grown in magnitude; the survey conducted by Deutsche Bank also supported such conclusions. The fear according to hedge fund experts is that a prolonged period of hedge fund losses could automatically trigger redemptions which have been built into the products.”

Read More: $50 billion of capital in Hedge Fund Industry is leveraged via structured products

Ahmadullah plans to launch own hedge fund

Star European equity manager at Schroders, Zafar Ahmadullah, has decided to start his own hedge fund. He has left Schroder ISF Euro Equity fund, where he worked for five years. At Schroder he was responsible for fund growing from mere €200 million to €5 billion. Ahmadullah is originally from Bombay and therefore plans to add some Asian flavor to the fund which will mainly be investing in Europe. He is confident of his decision of investing in India as he is completely up to date on what is happening there. Zafar Ahmadullah has been nominated as one of the star performers and stans at sixth position in the three-year Citywire fund manager rankings in the Lipper Global Equity Eurozone sector. It is known that while the Lipper Global Equity Eurozone sector reported a loss of 31.4%, Schroders fund lost only 12.6% over the five years which ended in June. Schroders recruited Gartmore to take over the fund. Citiwire-fmi.com reports:

“Ahmadullah’s new fund will concentrate on investing in Europe, but he also wants to bring in some Indian exposure and perhaps, at a later point, some exposure to the rest of Asia - he is originally from Bombay.”

Read More: Schroder star Ahmadullah quits to launch hedge fund

Les Grober to be in-house portfolio manager of Pro-Hedge fund

Stuart McKinnon, President & CEO of Pro-Head has recently announced that Les Grober will be Vice President, portfolio manager of the Pro-Hedge team. This announcement comes after the recent announcement of addition of investment expert John Mauldin. McKinnon said in a statement that Les’s inclusion will be an asset for the team. Grober is expected to play a major role in the construction and monitoring of portfolio line-up of Pro-Hedge funds. He will also focus his energies at due-diligence, risk management and research efforts of the funds. Les Grober has over a decade of experience in the field. His experience includes role of Vice President with Polar Securities and as Portfolio Manager Global Equities. He has also been a member of Elliott & Page U.S. Equity team, where he managed the Manulife Real Estate Securities Fund along with their U.S. and International Equity Index Products. Newswire.ca reports:

“Pro-Hedge Funds will look to Mr. Grober to play an integral role in the construction and monitoring of their growing portfolio line-up; in addition to focusing his significant Portfolio Management experience to their relentless due diligence, risk management and research efforts.”

Read More: Pro-Hedge Funds Announces Addition of In-House Portfolio Manager.

Hedge Funds – a case of limited opportunities and many takers!

A shakeout of the hedge fund industry seems to be underway suggesting that the industry may not attract the kind of funds that it has been in the last few years. Closure of several hedge funds from reputed firms further amplifies the point. Over $ 3 billion has been returned to the investors after three of the famous Hedge fund firms, planned to shut operations of some or all of their hedge funds. American Express Financial Advisors has shut down three of six funds and will operate only three funds from Boston and London. Red Sky which is a hedge fund complex spun out of American Express Financial several years ago, has also reportedly shut down most or all of its operations on June 30. EBF & Associates which is a flagship firm of the Twin Cities hedge fund industry is also known to be shutting down a major part of its business. Lack of regulation and abundance of trading techniques have previously translated into enormous gains for the investors. But now by and by, several hedge funds have mushroomed, totaling over 8000 with over $1trillion under investment, trying to capitalize on limited market opportunities using similar trading techniques thereby leading to overall low returns of the category. Startribune.com reports:

“And hedge fund specialists point to one recent painful situation. Many hedge funds this spring were shorting General Motors -- that is, borrowing the stock in anticipation that it would continue to fall in value and anticipating that they would pay back the stock with cheaper shares bought in the future.”

Read More: Local hedge funds are getting clipped.

John Mauldin joins Pro-Hedge Fund

Pro-Hedge Funds has been in the news recently with the appointment of John Mauldin as part of the team. Mauldin is regarded as an investment authority and has a huge fan following. He is also a renowned New York Times Best-Selling Author.  President and CEO of Pro-Hedge Funds, Stuart McKinnon is reportedly quite excited with this development. He feels that having Mauldin on board will greatly enhance the overall performance of the funds. His inclusion is seen as a strategy to strengthen the organization and also provide proof to the clients that Pro-Hedge is truly conscious of its commitment to bring in the best talent for their betterment. Mauldin will take the lead on the Pro-Hedge Advisory Committee, thereby providing the much needed guidance for the team, which will enable them provide the best service to Canadian Retail Investors. John Mauldin also has the gift of presenting complex financial topics in a way that is easy to understand for both – the common man as well as hardcore industry professional. As such he is continuously dedicated to the effort of raising education within the industry, which is really the need of the hour. Biz.yahoo.com reports:

“Mauldin, a widely recognized expert and leader on investment issues, perhaps best known for his "Bulls Eye Investing" phenomenon (teaching investors how to navigate their way through a secular bear market using absolute return investments), will play a lead role on the Pro-Hedge Investment Advisory Committee…”

Read More: Investment Guru and Best-Selling Author John Mauldin Joins Pro-Hedge Funds.

S&P; warns the hedge fund industry of “Discontinuous Event”

Standard & Poor’s has warned the industry of increased impact of the next ‘discontinuous event’ because of the choice of derivatives by most hedge funds. This warning was made public after the slackening of the stock market post London’s bombing last week. Comparing hedge funds to a surfer riding a wave, the rating agency said that this could lead to a wipe-out in the event of a next discontinuous wave. The agency also accused the industry of having a heard mentality and investing in similar patterns. The market has really been under the influence of the hedge funds lately. So much so that this influence seems to be out of proportion to the assets managed by these funds due to built-in leverage, or borrowing. S&P however mentioned that the hedge funds and the brokers do recognize the risks that they face and try to manage the risks properly. In view of all this, European Central Bank president Jean-Claude Trichet yet again reiterated the need for “transatlantic consensus” on the regulation of hedge funds. IPE.com reports:

"This can create volatility in certain markets that has a destabilising influence when coupled with large amounts of leverage. The systemic risks are real, but this does not necessarily imply a bad ending."

Read more: “Discontinuous event” fears for hedge funds – S&P

HSBC Hires Senior Equity Sales Experts

In a bid to expand its global equities business, HSBC Securities has taken two senior equity sales experts on board its European and hedge funds equity sales team. Andrew Gross, joining as a managing director, will be heading European and hedge fund equity sales. Gross was earlier with investment giant Lehman Brothers. Stephen Matthews joins as a senior vice president and senior hedge fund salesman on Gross' team. Matthews joins from Banc of America Securities. Both Gross and Matthews will be based in New York. HSBC hopes that the high-power duo will expand business by providing customized equity sales services to hedge fund clients.  Another goal at HSBC is to aggressively present investment opportunities in Europe to institutional clients in the US. Hedgemedia.com reports:

"The appointments of Andrew Goss and Stephen Matthews are designed to allow HSBC to further build its global equities business. Gross and Matthews join an experienced team of hedge fund equity sales professionals Don Bateman, Alan Stern and Michelle Mallette."

Read More: HSBC expands European and hedge fund equity sales team

Hedge Funds unlikely to be much affected by the London blasts

Above average equity trading volumes were witnessed after last Thursday’s bomb blasts in London. Despite this upheaval, industry analysts feel that the hedge funds were not gravely affected by it. Though some foresee a fall in coming days, most investors are upbeat about the funds performance. Some Hedge funds may face difficulties if they have liquidity issues but it is unlikely to trigger off a major show down. Andrew McCaffery, chief executive officer at Attica Alternative Investments said that the current market dislocation will create opportunities as much as problems for risk management. Losers in the business will mainly comprise Long/short equity hedge funds as 30 to 40 % of their returns come from rising equity prices. Some hedge funds managed to sell on rumours of the blasts in London, but others still have long positions, which they will have to unwind in coming weeks. Despite this, long term implications of the blasts are seen to be quite unlikely. Reuter.co.uk reports:

"Equity trading volumes on Thursday were higher than recent averages, but even if there were liquidity problems that made it difficult for managers to square or hedge positions, the chances of a blow-up are low, they said.”

Read More: London blasts unlikely to spark hedge fund crisis

Germany sends positive signals to Hedge Fund investors

Germany has been in the limelight this year for the wrong business reasons. Comments from leading German politicians earlier this year displayed the general unease over foreign hedge fund and other financial institution investment in Germany. Germany's Social Democrats Franz Muentefering accused such kind of financial investor to be killing companies for personal benefit. Off late German Chancellor Gerhard Schroeder has also been making attempts to regulate the industry by bringing in transparency. All this has led the foreign investors to stay away from the country. However, some attempts have been made lately to give positive indications to investors. On last Tuesday, Klaus Mangold, a commissioner of the federal agency Invest In Germany, organized a meeting in German Embassy in London and addressed a group of investors there in an attempt to reassure hedge fund and other financial players. Mangold is also executive adviser to the chairman of car giant DaimlerChrysler. Reuters.co.uk reports:

"At a Reuters Hedge Fund Summit in June, at least one speaker said German concerns about hedge funds might be easing, even though the issue would remain a political football.”

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UK PENSION FUNDS PLAY SAFE -

Pension Plans have continued the trend of pulling out of stocks and investing in safer alternatives like hedge funds continued even this year. The holdings in stocks have gone down by 5% over 2003 and by 1% over 2004. Consultants and policymakers have advocated the shift to safer alternatives. This move is primarily to continuously cut risks due to dramatic fluctuations of the stock market. The bear phase of the stock market (2000 2002) has also played a substantial role in bringing about this shift in fund portfolio. Mercer Investment Consulting has recently published a report wherein it has revealed that some 12% of 400 pension funds surveyed have shown their intent of investment in hedge funds.  The data also revealed that the retirement funds cut their exposure to British Stocks in 2005. Instead they increased investment in overseas equities and also used currency hedging to manage their overall foreign exchange exposure. Reuter.uk reports:

“The funds cut their exposure to British stocks in 2005 in favour of overseas equities and increased their use of currency hedging to manage foreign exchange exposures…”

Read more: Pension funds cut equity exposure