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September 30, 2006

Federal Study on Hedge Funds

In an effort to understand the hedge fund industry, the U.S. House of Representatives passed a bill earlier this week to seek a federal study of hedge funds. The President’s Working Group on Financial Markets, a multi-agency committee, is required to undertake the study of hedge funds, including their risks and regulation.

The bill was written by Delaware Republican Rep. Michael Castle. The U.S. Securities and Exchange Commission had earlier tried to gain some control over the $1.2 trillion industry by mandating that funds register with it and allow occasional inspection of their books. The ruling was thrown out by a court in June this year. 

Pirate in a Sea of Troubles

When it rains, it pours! And what a downpour Pirate Capital’s having. Close on the heels of the Connecticut-based hedge fund losing half its investment team comes the bad news that it is being investigated by the U.S. Securities and Exchange Commission (SEC) on suspicion of failing to alert the commission when it was selling stock.

In an attempt to recoup losses, founder and portfolio manager Thomas Hudson stated in a letter that the fund would not accept new investors and would rather concentrate on delivering returns than on garnering more money.

The activist fund has not a stellar year with its main fund, the Jolly Roger up by only 3.3 percent and its activist fund up 2.86 percent – both figures well below the norm for activist funds, according to Hedge Fund Research in Chicago.

Banks to Play Big Brother Role?

Banks are ensuring that they keep an eagle eye on the volatile $1.2 trillion hedge fund industry. With trading having the potential to cause regional or global economic instability, financial regulators over the globe should join hands in watching over the activities of hedge funds, said Liu Mingkang, head of the China Banking Regulatory Commission in a statement on the commission’s website.

With the anxieties caused by the collapse of Amaranth Advisors, there seems to be enough reason for regulators to feel that the hedge fund industry needs supervision. Liu issued the statement after meetings held with counterparts from Singapore, Italy, Germany, Thailand and Hong Kong from September 16 to 26.

Fund Managers Sitting Not So Pretty

The fat bonuses that line their pockets will soon become a thing of the past if hedge fund managers are unable to bring about a change in the fortunes of the funds they are responsible for. The headmen in the immediate line of fire are those at Peloton Partners and Vega.

Peloton is down 0.18 percent for the year after losing 1.64 percent in September. The fund has been adversely affected by the irregular handling of accounts by the founder’s wife’s secretary and by the exodus of various senior staff members. Peloton made waves when it debuted with an initial investment of $1 billion a year ago.

The manager at Vega stands to lose more as the fear of demands for redemptions from investors looms large after all its funds registered a significant drop in performance. Vega Select lost 8.24 percent this month while the $348 million Vega Diversified dropped by 6.54 percent. Industry gossip has it that the losses were incurred after a series of bad bets on bond prices and the Japanese yen. Vega lost half of its $13 billion assets in 2005 to lose its position as the largest hedge fund in Europe.

Hedge fund managers routinely appropriate 20 to 30 percent of the profits under the guise of performance fees.

Amaranth to Shut Down

Investors in Amaranth Advisors LLC are not going to get any of their funds back right now following the hedge fund’s decision to suspend redemptions in a bid to sell its remaining assets as it plans to shut down operations. The Connecticut-based hedge fund manager hit the headlines recently for its injudicious decisions in the natural gas industry.

In what has been termed the biggest hedge fund meltdown, the company has lost more than $6.5 billion of its $9.5 billion assets. Redemption requests that were scheduled for the end of September and October will not take place, which means that investors cannot withdraw money for the next month.

A letter from Nicholas Maounis stated that redemptions were suspended so that liquidity could be  generated in an orderly fashion for investors.

September 15, 2006

Cayman Island Now Have 8,000 Hedge Funds

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

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

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

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.

ACMH Launches German Hedge Fund Product

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

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

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

RBA Warns of Hedge Fund Risk

The Reserve Bank of Australia (RBA) warned the investors to be aware of the risks involved with hedge funds. RBA sources said that lower macroeconomic volatility had been one factor encouraging a marked increase in the debt that households were content to carry in many countries, including Australia.

Financial innovation and competition have been at work on the supply side of the capital market. However, macroeconomic backdrop is critical. RBA said that a long period of low and stable interest rates could prompt people to engage in more risky behavior. In Australia, regulatory authorities draw no distinction between hedge funds and other investment managers. They are concerned with what the entity does.

Read my previous post titled "Most Hedge Funds to Stay Registered" to know more about the future of hedge funds.

AmericaVest Launches 10/10 Hedge Fund

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

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

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