Hedge Fund Reader

$ 150 million raised by New Star Asset Management for a London listed daily tradable security

Hedge ETS, a London-listed daily tradable security from New Star Asset Management has raised an initial USD 150 million. The fund will help its investors to have access to the RBC Hedge 250 Index through its offering. The hedge fund index has extensive diversification across over 250 hedge funds and boasts of using at least nine distinct strategies. And as on 1st September 2006, total assets under management of the hedge funds in the index was around $ 192 billion. As per the RBC Capital Markets report, this amount represents at least 20% of the total industry’s hedge fund assets under management.

The new fund will obtain exposure to the RBC Hedge 250 Index through a contract with Royal Bank of Canada. The new fund from New Star Asset Management offers daily liquidity making it an even more appealing investment tool. Hedge Media reports:

Shares were issued under a global placing (outside US) and a public offer in the UK. UBS Investment Bank are acting as sponsor to Hedge ETS. Royal Bank of Canada Investment Management (UK) Ltd and UBS Investment Bank acted as placing agents.  Additional tranches of shares are expected to be issued in the future.

Jersey Finance appoints Robert Kirkby as its new Technical Director

Robert Kirkby succeeds David Wild as new Technical Director of Jersey Finance Limited. This appointment was made public by the board of Jersey Finance Limited. Robert Kirkby is currently working at PricewaterhouseCoopers in Jersey as a Senior Manager. He is all of 32 years old and started his career in 1995 at KPMG. While at KPMG, he worked for the firm at their New Zealand and London offices. After working there for five years, he moved to PricewaterhouseCoopers.

Kirkby is an MA honors graduate from Cambridge University and a qualified accountant. He worked in the Mergers and Acquisitions Tax Department of PricewaterhouseCoopers in London. Jersey Finance is quite excited with the appointment since they feel that he has an existing knowledge and understanding of many of the opportunities and challenges of the finance industry of the island. Hedge Media reports:

“Aside from our role as the official promotional body, the consultation process that is instigated by Jersey Finance and its role as a forum for discussion on the issues affecting the Industry are two of the organisation's most important tasks.

Hedge-Fund Profit from two funds of Citadel increased by five fold in 2006

Kenneth Griffin, of Citadel Investment Group LLC informed in a press release that the earnings of its funds have increased over five fold on the gains from debt and energy investments. These gains were made by two of its largest funds. He mentioned that in the first eight months of last year, Citadel Kensington Global Strategies Fund Ltd. had posted net income of $148.4 million. However in the similar time frame in 2006 the income rose to $795.6 million.

This information was revealed in the 363 page prospectus for the company’s first bond sale. Figures also indicate that the third quarter of 2006 returned 7% while in the third quarter of last year the return was only 3.1%. This dismal performance in the mentioned quarter last year was chiefly attributed to the fund’s corporate-debt and energy bets losing money.  It may also be noted that the Kensington fund from Citadel returned 17 % this year as on 30th September. This is much higher than the average returns of similar hedge funds in the same time frame - 8.8%. Bloomberg reports:

The 363-page prospectus, a copy of which was obtained by Bloomberg News, details the finances of the closely held firm, which oversees almost $13 billion for wealthy investors and institutions. Hedge funds, private pools of capital that allow managers to participate substantially in their investment gains, oversee $1.3 trillion, more than double what the industry's assets were five years ago.

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.”

December January good for investing in Hedge Funds: Citigroup

If one is to go by the advice of Citigroup Private Bank, the turn of the year may be the best time in the year to actually invest in hedge funds. December and January have been showing a familiar trend of higher than usual net average return year after year. This trend has been observed by the bank which is advising its clients to invest in the instrument. Their research also indicates that barring ‘short selling’ all other strategies seem to be working well during the mentioned two month period. Short Selling has generally been spotted doing relatively well in the month of September. This revelation is the result of careful analysis of data from the last 16 years or so.

Citigroup indicated that eight out of twelve specific hedge fund strategies had been observed to have dished out their highest returns in December and three had done best in January. Of all the 12 strategies studied two stood out together in their trend. Reuters reports:

Average hedge fund returns during the turn of the year (December and January) are almost 1.5 times ... average returns during the rest of the year," the private bank's investment analysis and advice group said in a recent presentation.”

Nick Cavalla moves from man group to Cambridge fund

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

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

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

Gottex test markets its flagship fund of hedge funds in the UK

Gottex Fund Management has recently started test marketing of its flagship fund of hedge funds in the UK. The test marketing of the fund if successful, will pave the way for a formal launch of the fund of hedge funds in the first quarter of 2007. Gottex, as one may know is a hedge fund giant in the US. The planned hedge fund is expected to comprise a minimum of 50 market neutral hedge funds. And the company expects all the comprising hedge funds to have a global focus.

It is therefore evident that the fund of hedge funds is going to be following Market Neutral investment strategies. The fund has already collected $ 3.7 billion. The prospects are high considering the assets already in hand despite the minimum investment requirement of $ 25,000. The ultimate aim of the fund is to generate consistent absolute returns with a low annualized standard deviation. Reuters reports:

The fund uses relative value, event driven and hedged equity styles in a bid to ensure the fund remains neutral to the market. The group combines a top-down asset allocation with a bottom-up manager selection to identify investments.”

Citadel to Buy Hedge Fund Database

-- By Pushpa Sathish, Staff Writer

Citadel is in the news again, this time, for its attempt to purchase information on trading strategies of rival hedge funds from the bankrupt hedge fund operator PlusFunds Group Inc. PlusFunds was the chief data supplier for the Standard & Poor’s Hedge Fund Index that wound up operations in June this year citing the decrease in the number of managed funds.

S&P said that it had closed shop because PlusFunds was not providing it with adequate data. The downfall of PlusFunds was caused by its close ties with commodity brokerage firm Refco Inc. which collapsed because its CEO Phillip Bennett hid a $430 million personal loan from the company’s coffers. Events that make me reiterate my stand on the domino effects that hedge funds have.

Ok, back to Citadel. The $12 billion hedge fund firm is awaiting the court’s nod of approval to get its hands on the database from PlusFunds which holds a treasure trove of information relating to the trading history of hedge fund groups such as Westport, Bridgewater Associates Inc, GLG Partners LP, and Vega Asset Management LLC.

Property Securities Fund of Funds

-- By Pushpa Sathish, Staff Writer

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

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