© The Financial Times Ltd 2013 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
Posts tagged 'Hedge Funds'
To regulators, naysayers and haters, the hedge fund industry has had one trump card to play for years: hey, we didn’t cause the financial crisis.
Cause the crisis? Maybe not. But a staff report lands from the New York Fed which suggests hedge funds did at least make it worse, adding to disruption in the credit markets that helped to seize up funding for US companies after Lehman Brothers collapsed. Read more
Hackles were raised across the managed futures industry this month by a Bloomberg exposé of high fees and poor performance. (One we used to riff on diversification as the asset management bait and switch).
Attain Capital has taken to its blog to respond. You can read their extensive and detailed response, including rebuffs from the editors of Op-Ed pages here, but we thought we would summarise the main points and then add a few of our own below. Read more
Fresh from having made $1bn impeccably timing the putative US recovery in the first half of this year (and Japan, natch), Andrew Law of Caxton Associates – one of the world’s most successful macro traders – has now turned bearish, and in quite a big way.
We have been expecting the US economy to reach escape velocity led by housing and corporate capital expenditure… but for whatever reason that just hasn’t happened…tapering is off the table for the foreseeable future.
Caxton is long across the US yield curve (the debt debacle has been a good buying opportunity, if nothing else). Mr Law has spoken extensively with us about his view on the global economy and the state of the hedge fund industry. Tree-based publishing issues mean those thoughts came in truncated form. Below are some extended excerpts from him. Read more
Common Sense Investment Management has not joined the ranks of the walking dead, quite yet.
However, the fund of hedge funds — which until August managed $3.2bn — has seen investors pull 90 per cent of assets since the firm’s founder was arrested in connection to a prostitution sting, according to CNBC. Read more
We’ve been looking recently at the false promises of a zombie hedge fund industry. Now let’s widen the lens a little to take in asset management more broadly, and the self-interested warping of a concept at the heart of investing.
Start with this terrific piece from Bloomberg, about how investors have been gulled by the supposedly respectable brokers of Wall Street selling investment products known as managed futures. Read more
The latest monthly performance figures for the hedge fund industry are out — and those funds still breathing had a good-ish month, up 1.6 per cent on average in September, according to HFR.
September performance was led by Equity Hedge strategies, with the HFRI Equity Hedge Index gaining +2.6 per cent, also the strongest month since January and bringing performance for the first three quarters of 2013 to a gain of +9.2 per cent, leading all hedge fund strategy indices.
But performance ain’t so hot as that put out by the industry’s legions of undead predecessors. Those cautious equity hedge funds have put up less than half the return for the S&P 500 this year. Read more
We interrupt this blog to announce a zombie apocalypse has occurred. Please remain calm and do not adjust your allocations, many hedge funds remain open and fee structures are intact.
And enjoy sub-par returns for the next 12 months.
No, this is not FT Alphaville’s marketing department shooting itself in the foot. This is the conclusion of a recent paper examining the effect of advertising on hedge funds’ inflows and returns. Read more
Clive Capital, the commodities hedge fund founded by Chris Levett, is no more.
Read and weep (for the super-cycle):
We hear that this year’s exodus from the US muni bond market by retail investors, nervous about the coming bond pain (from higher rates and Detroit nerves rather than predictions of default and disaster), has fixed income hedge funds dipping into the $4tn market.
Hence positive momentum for muni’s last week, which Citi declared was “swimming against the bond fund tide”. Read more
The financial crisis was tough for hedge funds: some collapsed, some merely lost half of their investors’ carefully managed capital, while others swallowed the key to the safe and said no one would get their money back until the panic was over. Winners were few and lucky.
But here’s the thing that we don’t think many people have noticed yet: since the start of 2009 the US stock market has returned eight times as much as the average hedge fund.
As bad as the crisis was, its passing into memory will make hedge funds look far worse than when the industry had the excuse of Lehman’s failure to hide behind. Read more
Before anything, go read Josh Brown and come back.
The total number of extant hedge funds is again above 10,000 and industry assets also continue to reach new highs, though in recent years it’s been overwhelmingly driven by market returns rather than investor net inflows. (To a greater or lesser extent than is usual for multiple consecutive years of robust risk-asset performance, I don’t know.) Read more
Grant Capital Partners is being shut down. This hedge-fund manager wind-down is brought to you by Geoff Grant, one of the same gentlemen behind Peloton Partners’ enormous fall.
Fun fact from the FT’s Sam Jones:
Grant Capital eschewed the asset-backed securities and heavy leverage that led to the downfall of Peloton and focused on highly liquid instruments such as currencies, bonds and interest rate derivatives.
While funds that specialise in trading mortgages have enjoyed some of their best returns in the past two years, global macro funds have floundered.
Oops. Read more
… or something. You can’t make these people up:
[Anthony] Scaramucci, the organizer of the dinner, told me the next day that the guests had witnessed the “activation” of a “sleeper cell” of hedge-fund managers against Obama. “That’s what you see happening in the hedge-fund community, because they now have the power, because of Citizens United, to aggregate capital into political-action committees and to influence the debate,” he said. “The President has a philosophy of disdain toward wealth creation. That’s just obvious, O.K.? We talked about it all night.” He later said, “If there’s a pope of this movement, it’s Lee Cooperman.” Read more
At around 8.20am this morning, there was some news from the Theatre-Casino in Zug.
Xstrata had adjourned EGM for the $80bn merger following a “development”. Read more
It’s an indirect path from one to the other.
Gawker on Thursday unloaded some 950 pages of filings from Bain Capital-affiliated offshore funds in which Mitt Romney has invested his fortunes over the years. We’re still reading through the docs, though Dan Primack (who’s already read through them) thinks there’s not much to the issue. Read more
From the New York Times, a Gretchen Morgenson report into an apparently widespread practice of Wall Street analysts giving private equity clients and hedge funds a heads up into their thinking, via the hedgies’ monthly or quarterly “questionnaires”:
The funds say they ask only for public information, but in at least four cases, documents from Barclays Global Investors, now a unit of BlackRock, state the goal is to receive nonpublic information. Two documents state that the surveys allow for front-running analyst recommendations. Read more
From an engaging speech by Robert Jenkins — former F&C chairman, now a member of the Bank of England’s interim Financial Policy Committee — to the “trillion dollar generation” of hedgies at the Gaim conference in Monaco…
My third and final observation is that the days of instant market pricing and limitless liquidity may be fading. The “great moderation” conditioned many to underestimate credit risk. It also bred a generation of traders, money managers, bankers and risk officers to presume an unfettered flow of capital and instant access to narrow bid/offer spreads. Those of you who operate in less liquid instruments do not need reminding. You deal with it daily. Those of you who traded asset backed securities in 2008 can testify to the speed with which liquidity can disappear. Yet despite these examples, many continue to assume that at the currently liquid end of the trading security spectrum “liquidity” is free and will be freely available. Short term traders count on it; algo-trading depends on it. Long/short strategies presume you can short. Stop-loss disciplines demand you can cover – and cover quickly. Read more
One other thing from Wednesday’s SocGen Hedge Fund Watch that’s worth noting, especially given the ECB’s decision to hold rates steady earlier today:
Three Alphavillans are running around Canary Wharf in East London this evening in support of the British Heart Foundation.
Left to right: Lisa Pollack, David Keohane and Masa Serdarevic Read more
Five months in and it’s been a pretty good year for hedge funds with the HFRI fund weighted composite index up 4.4 per cent year to date, following its strongest first quarter performance since 2006. The index fell 5.25 per cent last year.
There was a small 0.36 per cent fall last month, but it’s unlikely to deter investors who have been scrambling to take advantage of the strong start to the year. Total hedge fund capital reached a dizzying record $2.13tn at the end of last quarter on a mix of performance and net inflows, according to Hedge Fund Research estimates. Read more
Greece has moved a step closer to completing its debt restructuring after a raft of bondholders agreed to participate in its upcoming debt restructuring swap, likely enabling the troubled nation to force the deal through, the Wall Street Journal reports. As of late Wednesday, about 52 per cent of the €206bn in bonds up for restructuring had been pledged. Reuters reports that major banks and pension funds have now also thrown their weight behind Greece’s bond swap offer to private investors, making it increasingly likely that the deal will pass, averting an immediate default. “The pace of responses to the bond offer is good, the percentage of bondholders tendering voluntarily is very high,” a government official, who spoke on condition of anonymity, told Reuters. “It is going well, we are optimistic,” he said. Some hedge funds and several Greek pension funds are still holding out, however, reports the FT. Shares in Europe, nevertheless, were still lifted by the progress.
Two of the biggest US stock exchanges are set to impose penalties on high-frequency traders who clog the markets’ data pipes with unnecessary messages that do not result in trades, the FT reports. This move comes as Mary Schapiro, head of the Securities and Exchange Commission, recently expressed worries that such activity might be disruptive to markets. Nasdaq and Direct Edge on Wednesday announced schemes designed to promote more efficient trading by automated traders using sophisticated algorithms. Such “algos” send bursts of quotes that are then cancelled or replaced with new quotes in milliseconds once they figure out the market’s direction. This follows similar moves earlier this month by European stock exchange groups Deutsche Börseand Borsa Italiana. The other big US exchanges, New York Stock Exchange and BATS, have incentives in place for efficient trading in stocks listed on their markets, but do not yet have similar penalties.
Ray Dalio has overtaken George Soros as the world’s most successful hedge fund manager after his Bridgewater Pure Alpha fund made $13.8bn for investors last year, says the FT. The profits made by the Connecticut-based Pure Alpha – already the world’s biggest hedge fund, with $72bn under management using its trading strategy – beat its own record for the largest one-year dollar gain last year. However, the ranking by LCH Investments, part of the Edmund de Rothschild group, also showed last year the biggest-ever loss by a hedge fund. John Paulson’s New York-based Paulson & Co lost investors $9.6bn last year, more than was lost in the collapse of Long Term Capital Management in 1998. But Mr Paulson is still ranked third for the best overall returns for investors, at $22.6bn.
Michael Douglas is playing a new and unlikely role as spokesman for the US Federal Bureau of Investigation in its war against corruption on Wall Street, the FT reports. The Hollywood actor – famous for his line “greed is good” in the 1987 film Wall Street – is sending a new message in a public service announcement, telling traders and brokers that insider trading is a serious crime. The FBI’s New York office, which prioritises white-collar crime, hopes the 60-second segment will reach traders and hedge fund portfolio managers who might be tempted to cross the line between trading on legal stock research and trading illegally on secretive non-public information. The WSJ reports that federal authorities are currently pursuing insider trading cases against 120 individuals. Since late 2009, prosecutors have won 57 convictions or guilty pleas out of the 66 individuals that have had cases bought against them.
President Barack Obama and Mitt Romney, his most likely Republican rival in this year’s election, battled for the mantle of tax reformer as they released competing visions for comprehensive reform, the FT reports. Mr Obama set out a plan that could change where global companies choose to invest by cutting the US corporate tax rate from 35 to 28 per cent, imposing a minimum tax on profits US companies earn in offshore tax havens, and eliminating tax breaks except for manufacturing and research. He also wants to raise billions of dollars via a “Buffett rule” that would mean people making more than $1m a year have to pay a minimum of 30 per cent of their income in tax, but he has not set out a detailed plan for personal tax reform. In a move that may increase his appeal to conservative Republican primary voters, Mr Romney proposed aggressive cuts to personal income tax rates, calling for a one-fifth reduction in each of today’s marginal rates. The new rates would range from 8 to 28 per cent.