February 08, 2007

Longer Lives for Hedge Funds

-- Pushpa Sathish, Staff Writer

We’ve read and heard a lot about the relatively short lifespan of hedge funds – they average three years in existence before closing up shop. But that trend is slowly fading away, says hedge fund consultant and index provider Hennessee Group. The attrition rate for hedge funds, that is, the rate at which they are liquidated, is an average of 5.2 percent since 1999. The last two years have seen a significant decrease in the number of hedge funds that wound up due to poor performance or an exodus of staff and managers – 6.2 percent in 2004, 5.4 in 2005, and 5.1 in 2006.

Hedge funds are opening their doors to institutional money, a move that will generate larger funds with more expensive infrastructure. The very existence of these influential funds will make it difficult for startup and smaller funds to survive, which means that fewer people will be rushing to launch their own funds without the necessary clout to endure the stiff competition, according to Hennessee.

Conclusion – The attrition statistics do not mean that the failure rate in the hedge fund world is much higher than that in other industries – Hennessee’s managing principal Charles Gradante sums up the situation.

January 24, 2007

The Rich Shy Away from Hedge Funds

-- Pushpa Sathish, Staff Writer

A record amount of money may have flowed into hedge funds in 2006, but it certainly did not come from the pockets of the rich and famous in America. A survey conducted by consulting services provider Spectrem Group showed that only 27 percent of families with a net worth higher than $25 million (without taking primary residence into consideration) chose hedge funds as an investment vehicle in 2006, a considerable decrease from the 38 percent in 2005. Reuters Today reports:

"Hedge fund investing appears to have lost some of its luster for the very richest Americans," Catherine McBreen, Spectrem Group managing director, said in a statement. "A nearly one-third decline in the percentage of those households investing in hedge funds suggests the difficulties of 2006 have made their mark."

Canada’s Hedge Fund Industry

-- Pushpa Sathish, Staff Writer

An NBCN Prime Brokerage Services study offers a comparison between the Canadian hedge fund industry and its counterparts across the world:

  • It’s pretty small – 30 percent have between $10 and $49 million (US) in assets under management. Only 4 percent have assets exceeding $5 billion. On the global scene, 21 percent manage assets higher than $5 billion, but only 10 percent have assets between $10 and $49 million.
  • It’s new – only 17 percent of Canadian funds have been around for 10 or more years. At least 33 percent of hedge funds across the world have been in existence for a decade or more.
  • As much as 25 percent of funding for Canadian funds comes from partners and employees, as compared to only 8 percent at the global level. A little more than 10 percent of global hedge fund assets come from banks and insurance companies.
  • Nearly 80 percent of Canadian managers plan to raise more capital in the next 12 months using futures/commodities strategies as compared to only 22 percent that favored these strategies on a global level. Nearly half the respondents were inclined to use synthetic structures like swaps, forwards and options. Long/short equity emerged as the largest strategy used by Canadian managers.
  • Canada’s hedge fund industry has grown 25 percent between 2005 and 2006, with assets under management rising by 40 percent in the same period to touch $25 billion.

So it follows that there’s ample scope for growth in the industry - because of strong regulations, a resource boom, and adequate returns. Not surprising, when 40 percent of Canadian hedge funds are active in Western Europe, 20 percent in Japan, 15 percent in the rest of Asia, and 15 percent in central Europe.

The survey covered 35 hedge fund managers in Canada, and compared their responses with those of 2,451 funds from all over the globe.

December 31, 2006

The Devil or the Deep Sea? Multi-Strategy Funds or Fund of Funds?

-- By Pushpa Sathish, Staff Writer

Fund of hedge funds or multi-strategy hedge funds? Are the two similar or do they have their own advantages and disadvantages? Corbin Capital Partners, a New York-based hedge fund which runs a fund of funds but is owned by founders of one of the world’s biggest multi-strategy hedge funds, Highbridge Capital Management, offers an insight into these two investment strategies:

  • Both move in and out of various markets to maximize the returns and minimize the losses in each.
  • Multi-strategy funds returned more that fund of funds over the past few years because of lower fees and better strategic skills. But since the latter are less volatile, their performance has been better.
  • If multi-strategy funds are supposed to diversify and minimize risk, then why did Amaranth collapse? Because these funds use a technique known as cross-collateralization, where leverage is used across the whole firm and assets of all strategies are used to offset the risk. So if one strategy fails, it pulls down the rest like a house of cards.
  • Multi-strategy hedge funds tend to put more money on markets that are doing very well. This backfires when the trader handling the strategy demands more money – the fund faces a dilemma to accede or not, because it may be damned if it does and damned if it doesn’t. If it does shell out more money and the strategy backfires, well, you have another Amaranth on your hands. And if it doesn’t, the trader may very well walk out and start his own hedge fund.

December 13, 2006

$ 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.

December 12, 2006

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.

December 05, 2006

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.”

December 02, 2006

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.”

November 26, 2006

Invest in Hedge Funds Now – Citigroup PB

-- By Pushpa Sathish, Staff Writer

The recent losses at Amaranth notwithstanding, Citigroup Private Bank is urging its clients with greenbacks to spare to invest NOW in hedge funds. According to a study of hedge fund return patterns through 16 years, the bank has discerned that hedge funds perform best in the months of December and January. With the average monthly return standing at 0.92 percent, December has pulled in 1.5 percent, and January 1.1 percent.

Not all hedge funds strategies perform equally well, though, says Citigroup PB. The best investment bets would be equity non hedge and macro strategies that bring in twice the average returns in the last and first months of the year. So what should investors stay away from? Well, the bank advocates not touching funds that sell short, even with a bargepole, as these shine only in September. Reuters reports:

A macro strategy generally involves taking leveraged bets on a top down basis in stocks, interest rates, foreign exchange and physical commodities.An equity non hedge strategy allows for long stock positions without necessarily hedging the bet by making short sales of stocks and/or stock index options.

November 03, 2006

Don’t Let Those Hedge Funds in Your Corporate Door

-- By Pushpa Sathish, Staff Writer

It’s not good news for an organization when a hedge fund sets its sights on it, as many in the industry will attest. Once the target has been identified, (usually a company that has not been doing well lately), the hedge fund honchos buy large stakes in it, and bulldoze their way through to the board, often ousting the current CEO.

Shareholders are pretty gung-ho though; the stock price of the firm is pushed up, and the hedge fund biggies push management to give them a larger share of the profits. But this utopian scenario will not last forever, warns a study conducted by researchers April Klein and Emanuel Zur of the New York University (NYU). The accounting professor at NYU’s Leonard N. Stern School of Business and the doctoral student together compiled data from as many as 155 activism cases between 2003 and 2005, and reported the following findings:

  • Hedge funds always succeed in their attempts to overthrow CEOs.
  • They get on the board of the company concerned 73 percent of the time.
  • They prevented 56 percent of mergers.
  • Shares of the targeted company rose an average of 16.5 percent a year after the initial investment. Shares of similar companies gained only 7 percent in the same time span.
  • Dividend payment per share nearly doubled.
  • The earnings per share fell by more than 50 percent.
  • Assets remained the same, registering no significant decline in the period.
  • R&D work came to a standstill.
  • More money was spent and long-term debt increased to support the payment of higher dividends and buy back large quantities of stock in an effort to boost returns.

The conclusion reached? That the rise in share prices will not be sustained unless corporate basics are addressed and improved on a parallel track.

October 29, 2006

Managing Without Managers

-- By Pushpa Sathish, Staff Writer

Passive investing – that’s the new term being bandied about in the hedge fund industry. And it’s bound to get fund managers in a tizzy as it relates to removing them as the middlemen between the funds and their investors. The benefits are manifold in this initiative – managers’ exorbitant fees are removed, and investors’ portfolios are not fiddled with on a daily basis.

According to Ryan Tagal, director of hedge fund research at the Chicago-based Morningstar Inc., this scenario is academically possible, and can be implemented at a low cost. The picture painted looks increasingly good in the face of the fact that active managers are finding it very difficult to perform at a level that justifies their high fees. Courant reports:

Index mutual funds, as envisioned for hedge funds, tend to be somewhat different than mutual funds. The focus is not on replicating an index, such as the Standard & Poor's 500, but it can be on identifying the special elements that power various types of hedge funds, then building those mechanically into a portfolio.

October 08, 2006

The European Hedge Scenario

We’ve heard time and again that the hedge fund industry is worth a whopping $1.3 trillion, but do you know just how much of that amount comes from institutional investors in Europe? Not much apparently, as a recent study revealed.

  • European institutions have contributed only 690 billion pounds to the total value of hedge fund assets.
  • Insurers and pension funds in Germany have invested only 2 percent of their total portfolio with hedge and private equity funds.
  • Investors across continental Europe have put only 50 billion euros of their total investment of 2.5 trillion euros into hedge and private equity funds.

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. 

September 08, 2006

Moody's Rating on Hedge Funds

Moody's Investors Service has published its first public rating of an individual hedge fund's risk. In the wake of some public scanadals at hedge fund firm like Bayou Management LLC and Wood River Capital Management LLC, Moody's new rating serves to shine some light on an industry that has been loosely regulated by the government despite its rapid growth in recent years.

New York-based Sorin Capital Management LLC became the first hedge fund to receive a rating under Moody's newly developed system. The fund received a rating just one notch short of Moody's highest "operational quality" rating based on the fund's back office administration.

My previous post titled "Tax Crackdown on Hedge Fund Activities" provides in-depth information on tax crackdown on hedge fund activities.

August 29, 2006

Questions You Should Answer

When you consider investing in hedge funds, you should have some general risk questions that will determine the course of your action. The following are good general risk questions to start a hedge fund:

How do you insure the separation of front and back office?
Do you have written policies and procedures?
How do you manage risks?
Do you have a designated risk manager?
Do you include risk limits in your guidelines?
What are your backup and recovery plans?
How do you define leverage?
What is the type of your borrowing - long term or short term?
What is your attitude towards transparency?

Read our previous post titled "Risk Arbitrage on Hedge Funds" for information about Risk Arbitrage.

Leveraged Loan Market

The dearth of high return opportunities in the stagnant stock market has compelled many hedge funds to rethink their investment strategies and rebalance their portfolios. One area that has attracted numerous hedge fund investors over the last few years has been the leveraged loan market. It has delivered satisfying returns at lower risks.

In addition to private equity and hedge funds, numerous commercial financial companies and regional banks have entered the leveraged loan market. The influx of aggressive lenders and investors has fueled an unprecedented merger and acquisition boom. Although hedge funds have been short-term oriented investors, over the years they have extended their time frame for return to participate in these types of leveraged buyouts.

Read my previous post titled "Is Hedge Fund Valuation Necessary?" to know about hedge fund valuation.

August 28, 2006

Hedge Fund Investors Warned of Energy Risks

The Energy Hedge Fund Center recently observed an increasing investor risk, due to the collapse of at least one energy commodity trading hedge fund. The Energy Hedge Fund Center LLC provides analysis and consulting services in energy and environment. Energy has become a major risk factor for investors.

Although many energy hedge funds continue to perform better than other hedge funds of asset classes, experts continue to warn investors about the additional and poorly understood risks involved in energy. The Energy Hedge Funds Center is set up to provide basic information on hedge funds that are active in the hedge fund industry and trading energy commodities.

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

August 12, 2006

Investors' Dilemma in Hungary

For a long time, investors have been ignoring Hungary's fiscal recklessness. However, now they have turned the screw on the country. Recently, the investors have taken some tough decisions that would inflict heavy punishment on the country's equities, bond and currency markets. In the past six weeks, the Hungarian stock market fell by nearly 30 percent. At the same time, the Hungarian currency, forint lost more than 12 percent against the euro.

The government will submit a new euro convergence plan to the European Union and the European Central Bank. That might help the investors in getting a clear direction. Investors seek further direction from the United States, as most hedge fund operations are regulated by the US Federal Reserve.

Even though foreign investors struggled because of a deficit, they managed to triple their holdings in the government debt. They also increased their ownership on the booming Budapest Stock Exchange. There have been mixed signs over the investment prospects in Hungary. However, the current trend indicates that the investment market in that country will grow further.

Hedge Funds Are Here to Stay

Recent hedge fund industry developments suggest that fixed income arbitrage is increasing at a faster rate. That will augur well for the growing hedge fund industry. Hedge funds are no longer considered as alternative portfolio strategies. They are now preferred over the traditional mutual funds. A large number of hedge fund company registrations have been reported in the first half of 2006. According to a research group, Cayman Island is the hot spot for the global hedge fund industry with 80 percent of the world's hedge funds are registered with the Cayman Island Monetary Authority.

The hedge fund industry is regulated, but without any stricter guidelines. The US Securities and Exchange Commission applied a rule that required most US hedge fund advisers to register with it. They are also required to provide information on clients and submit to SEC regulated audit. Although some people oppose such regulations, there is no doubt that it will reduce the market risk by keeping fraudsters at bay.

August 08, 2006

Real Benefits of Hedge Funds

Many hedge fund strategies have the ability to generate positive returns in both rising and falling equity and bond markets. Inclusion of hedge funds in a balanced portfolio reduces overall portfolio risk and volatility and increases returns. Huge variety of hedge fund investment styles are not correlated with each other. They provide investors with a wide choice of hedge fund strategies to meet their investment objectives. Hedge funds always have higher returns and lower overall risk than traditional investment funds. Hedge funds provide an ideal long-term investment solution, thus eliminating the need to correctly time entry and exit from markets.

July 27, 2006

Hedge Fund Risk Management

The increased focus on hedge fund risk transparency is part of the natural evolution towards institutionalization that occurred in the hedge fund world in the past few months. The investors’ base for hedge funds expanded beyond its traditional core of individuals. It now covers pension plan sponsors and foundations among others. Institutional investors are having 100 percent access to the securities used by their traditional managers. Here the question is does an institutional investor really need position level transparency? Risk management plays an important role in addressing these concerns of investors.

With risk tools, position level transparency allows institutional investors to create their own independent risk analysis of the funds in which they invest. They can also aggregate risks and exposures across their hedge funds and fund of funds portfolios. In reality, the institutional investors need position level risk transparency from the hedge funds and funds of funds. However, only few are equipped to effectively deal with this type of transparency. You will definitely acknowledge that risk management is crucial to the success of hedge fund operations.

Hedge Fund Industry Moves into Distressed Debt Trading

You may be curious to know what exactly distressed debt trading is. Distressed debt trading establishes common standards of practice for trading, clearance and settlement of distressed bonds. The common procedures associated with distressed debt trading cover various terms and situations that arise in distressed debt trading. Interestingly, it has been noticed that big hedge fund management companies are now looking at ways to move into distressed debt trading. These big fund management firms are likely to add distressed debt trading to their product lines through acquisitions.

Such hedge fund investors are known as vulture funds. They buy bonds of ailing or bankrupt companies and expect to extract maximum benefits by taking control of a company through a debt-for-equity swap. This market is primarily dominated by hedge funds or investment bank traders who have perfect trading skills to make a profit. Is it really safe for hedge funds to move into distressed debt trading? Only the time will tell.

July 16, 2006

Italian Hedge Fund Market

The Italian hedge fund industry has not clarified its terms and relaxed its regulations yet. To achieve a steady growth, it is very much necessary to relax the regulations. Still there is no clear distinction between funds of hedge funds and single manager hedge funds. The biggest challenge will be facilitating the growth of the market, as single hedge funds represent a mere 3% of the market, while hedge funds account for the remaining 97%.

There are a number of reasons for this imbalance. Lack of expertise in this area and a volatile market are responsible for this. The Italian market has been constrained by a lack of competition. Around 80% of the asset management industry in Italy is controlled by the banks. According to Italian industry experts, the industry is keen to encourage foreign investment into Italian hedge funds and there are huge opportunities for those investors.

Fears over Hedge Fund Operations

While hedge fund business is gaining momentum in the United States and elsewhere in the world, some experts have expressed their concern over it. Recently, John Duffield, founder Chairman of New Star Asset Management, has raised serious concerns about the issue of fund managers front running the unit trusts or investment trusts with hedge funds. Front running is generally a practice of fund managers buying a security for their hedge fund before buying the same stock for their unit trust.

According to Mr. Duffield, when a fund manager is running a long-only fund alongside a hedge fund, there is an obvious reason to be worried. He is against giving fund managers dual roles, which has become a trend now. There are some agencies that monitor such operations. When managers are handed hedge funds to run alongside their conventional business, more emphasis is going to be given on the hedge fund.

According to The Telegraph -

Recent volatility in share prices is in no small part due to the flip-flopping of new Federal Reserve boss Ben Bernanke, Ann Hall, manager of Old Mutual Fund Managers' US Select equity fund, claims.

July 10, 2006

Losses for Hedge Funds in June

Hedge funds suffered significant losses in June, according to the data released by Barclay Group. The Barclay Hedge Fund Index shows that the average hedge fund slipped 0.30 last month. The biggest concern is that hedge funds have been witnessing losses for two consecutive months. Managers, who are specialized in emerging markets, have pulled down the index with the month's biggest loss. Interestingly, short sellers had gains of nearly 1 percent. The Barclay data has clearly shown how managers in the $1.3 trillion hedge fund industry fared in June. Hedge funds distinguish themselves from mutual funds by using trading techniques. They include selling stocks short and using borrowed money that is off-limits at traditional funds.

According to Reuters -

The Barclay Group also puts together data on so-called managed futures where traders rely on computer programs to make bets on commodities, interest rates and currencies. The Barclay CTA Index showed a decline of 0.62 percent in June after a decline of 0.73 percent in May.

July 08, 2006

Managed Futures Funds

Managed futures funds are those that use professional mangers known as commodity trading advisors (CTAs). These managers control your money by investing in global currencies and the metal, energy, equity, and agricultural markets based on futures, forwards and options. A few salient facts about managed futures funds:

  • They are usually speculative and volatile.
  • They are generally associated with a considerable amount of risk.
  • They do not have a secondary market.
  • The transfer of such funds comes with certain restrictions.
  • They are not governed by the regulations that cover mutual funds.
  • Investors are offered no guarantees for returns of any kind; the chance that they will lose a part or all of their investment is very high.
  • Investments use considerable leverage which in turn increases the risk of losses.
  • Most trades involving managed futures funds take place in foreign exchange markets.
  • The exorbitant fees and expenses associated with managed futures funds negate the returns and profits made on trades.

Global Macro Funds

Global macro funds are a type of hedge funds that deal with the changes in global macroeconomics. They constitute 9 percent of the hedge fund world and have high risks associated with them. They consider the impact of currencies, interest rates, commodities, and stocks all over the world. There are two types:

  • Discretionary or Trend-Predictive: These funds depend on the ability of fund managers to predict and analyze events such as the rise and fall in currency exchange or interest rates that affect the markets one way or the other.
  • Systematic or Trend-Predictive: These funds follow the course of events before taking investment decisions.

Cost Factor with Hedge Funds

There is no doubt that investors are looking at hedge funds to make a huge profit from their operations. However, small investors who lack money for their minimum investments and management fees are not upbeat about the hedge funds. Hedge funds have been in news several times in the recent past. This is because of the money and risk associated with hedge fund operations. They remain outside the watchful eye of Securities and Exchange Commission regulators. The funds remain basically unregulated and their reporting standards are loose. In general, hedge funds are pool investors' money. However, they are different from mutual fund, as they do not have liquidity requirements. They can place unlimited dollars in one investment.

July 04, 2006

Hedge Funds Down in June

The $1.2 trillion hedge fund industry has not done too well in June, says a research report from industry tracker Merrill Lynch. Though the losses are not as high as they were in May, the average returns over the first three weeks of June were minus 0.65 percent. While Merrill Lynch reported that hedge funds were up an average of 3.79 for the year, the S&P 500 Index is up by 1.76 percent, and the Lehman U.S. Aggregate bond index is down 1.05 percent. Global macro funds and managed futures funds posted losses for the month of June while convertible arbitrage funds and merger arbitrage funds posted slight gains. Money CNN reports:

All but three of the strategies Merrill Lynch tracks were down for the first three weeks of June. U.S. long/short equity funds, which take both long and short positions in stocks and equivalent securities, were down 2.88 percent for the same period, according to the Merrill Lynch Hedge Fund Composite index. These funds are roughly flat for the year, according to the index.

June 28, 2006

Players Sue NFL over Hedge Fund

Seven current and former NFL players have sued the league and its union to recover $20 million they lost in a fraud scheme. They claim that the union endorsed the services of an investment firm that had run illegal business. The players have filed a lawsuit in the US District Court. According to them, the league and the NFL Players Association are liable for the losses because of investments with hedge fund manager Kirk Wright. The lawsuit says that the union recommended Wright through registration in a union investment program even though he and his partner had active state and federal tax liens against them.

According to Washington Post -

The players also say that the union failed to certify that Wright was properly insured as required by the program, and failed to notify the plaintiffs about those matters. NFL spokesperson Greg Aiello said on Tuesday that the league regards the lawsuit as unfounded and without merit.

South Africa's Hedge Fund Industry

According to reports, South Africa's hedge fund industry is booming. The assets under management have more than doubled in the last 18 months. It is expected to rise further as investment firms are taking positive interest in hedge funds. Generally, hedge funds produce stable returns regardless of the progress of the markets. It has attracted more companies and individuals although some still express concern over the volatility of the market. Many South African hedge fund companies were forced to become competitive when the South African currency strengthened.

According to MoneyWeb -

Lizelle Steyn, manager of alternative investments at Nedgroup Investments, said she has not seen a marked increase in flows to funds covered in the Nedgroup Hedge Fund Review. However, there has been a growing interest from individuals in investing in hedge funds since about April.

June 23, 2006

IPO Completed by Hedge Fund

Goodman & Company, Investment Counsel Ltd. has announced that it has completed its first initial public offering. Goodman & Company is a Canadian investment firm that operates as a hedge fund. The firm issued 3,500,000 units at $10 per unit. It also granted the agents an over-allotment option to acquire up to 525 additional units. It is exercisable at any time during the next 30 days. The Fund's units commenced trading on the Toronto Stock Exchange. The offering was made through a syndicate company led by RBC Capital Markets.

According to HedgeCo.net -

Goodman & Company is a Canadian investment firm tracing its portfolio management roots back nearly 50 years, with approximately $20 billion in assets under management, Goodman & Company, Investment Counsel Ltd. is a subsidiary of Dundee Wealth Management Inc.

June 22, 2006

Hedge Funds Still a Threat to Global Financial System

Hedge funds, though a $1.5 trillion industry worldwide, have come to be associated with the following negative aspects:

  • They pose substantial threats to the global financial system.
  • They result in heavy losses for investors.
  • They are largely unregulated.
  • They use complicated stress tests and scenario planning techniques to compensate the fact that they may be forced to liquidate positions in an unplanned and sudden manner.
  • They risk disrupting the market and causing a structural collapse in the event of a multiple funds offloading positions simultaneously, triggered by the occurrence of a market event.

The high risks linked with hedge funds arise largely due to the fact that these funds invest in a wide variety of asset classes in businesses that are often supported by leverage, derivatives, or debt. A study of this rapidly evolving industry conducted by consultants Mercer Oliver Wyman (MOW) has revealed that though hedge fund managers and banks that service these funds have improved their risk-management practices, there is still a long way to go before they can keep pace with market innovations. Though stress tests and scenario planning reduce the risks to a certain extent, they are still qualitative methods, and so, not very reliable. The survey also found that hedge funds are increasing their transparency so that investors and pension funds can calculate their risk more effectively.

June 20, 2006

Barclays Global Investors on Hedge fund Managers

Barclays Global Investors believe that hedge fund managers do not deserve their high fees more often. The statement is based on a recent research report prepared by the organization. Hedge funds do have some structural advantages. However, traditional investment firms also attract talented managers and provide their own set of advantages to institutional clients. BGI report says that the current hedge fund boom has not increased the overall supply of investment.

According to BGI, the high pay structure for hedge funds is based on the perception that it helps the hedge fund managers in attracting more investments. Hedge funds have always seen large asset inflows. The hedge fund industry witnessed an increase in the number of hedge funds and the flow of investment managers into hedge funds has also risen. BGI report reveals that there has been a significant rise in average hedge fund fees. The report also says that while hedge funds avoid constraints and have greater flexibility to invest in many non-traditional assets, they also fail more quickly than institutional funds.

May 28, 2006

Hedge Fund Manager - The Most Attractive Profession?

Who wouldn't want to be in the shoes of the fellow who takes home a salary of $1.5billion? According to reports, with pay scales becoming more tempting, "hedge fund manager" seems to be the latest hot favorite, most coveted profession. According to Alpha (published by Institutional Investor), we are going through a golden era of hedge funds. And so, hedge fund managers are making more money today than ever before.

And the golden man who is leading the troupe is James Simons of Renaissance Technologies Corp. This veteran fund manager's Medallion hedge fund returned 29.5 percent net. And he was given a remarkable 5 percent management fee. That's not all, he also earned a 44 percent performance fee! Congratulations, Mr. Simons!

For further details...read

May 26, 2006

Hedge Fund and Financial Stability

There is no ambiguity that investors are looking for huge success for hedge fund business. However, the recent rout in financial markets has sparked talk of possible hedge fund failures. It might pose threat to financial stability. In the past fortnight, European stocks have tumbled more than 10 percent. In the Asian market, Indian shares have taken a downward turn with the BSE Sensex losing 1100 points in a day's trading.

Emerging market currencies are also encountering the same problem. The most important that is doing round is could a hedge fund collapse? There is also a suspicion whether the financial market could withstand the hedge fund collapse or not. Experts did not rule out this possibility. They believe that the biggest risk lies with the hedge fund counterparties.

What are Counterparties?

Counterparties include brokers and bank's prime brokerage divisions. They act as custodians and offer settlement services. They also lend money to hedge funds so that they can leverage up their investments. If hedge funds lose the money, the primary broker also loses money.

Emerging Markets

Emerging markets can be liquid at times of turmoil. Most emerging market hedge funds usually buy, sell and leverage to make bigger investments. If the derivatives markets are not well developed, they might pose problems for hedge funds, but they will not pose any problem for financial stability.

May 23, 2006

European hedge funds gain the trust of Pension Funds

In a recent survey by Mercer Investment Consulting, it was found that nearly 13% of continental European and Irish pension funds invest in hedge funds. They have identified the biggest growth areas to be the liability-driven investment strategies and interest rate hedging strategies.

The current trend in Europe acts a pointer towards the increasing investment in alternative assets, mainly hedge funds and active currency management rather than traditional alternatives like private equity.

According to Andy Green, European Director of Consulting Policy at Mercer IC,"The proportion of funds investing in hedge funds has the potential to rise even further, by up to 5 percentage points across Europe, as pension funds become more comfortable with this asset class."

For complete details...read

JP Morgan Plans Hedge Fund Deal

JP Morgan is finalizing a deal with a UK-based hedge fund manager, which is priced at £2 billion. According to JP Morgan sources, the transaction would be along similar lines to the recent Paloma deal. It is important to remember that JP Morgan had decided to buy the middle and back office operations of Connecticut-based fund management group Paloma earlier this year.

Details of the new deal are yet to be known. According to a spokesperson of JP Morgan group, the bank is in the process of expanding its hedge fund servicing business. It is looking for similar deals in near future.

More Information: Read Here

"An increasing number of our hedge fund customers are interested in finding a trusted third party to run their operations for them," Malde said at the time.

April 23, 2006

Massachusetts leading in hedge funds

According to new federal filings it has been determined that financial firms in Massachusetts manage approximately $150 billion in hedge funds and other private investments. This estimate implies that they manage about 10 per cent of the total amount of $1.5 trillion that is held in private funds across the nation, according to estimates made by the Securities and Exchange Commission.
Boston.com reports:

While regulators couldn't provide figures showing where Massachusetts ranks compared to other states, the filings show that Boston is a major center of private investment.

Much of the money is tied to traditional financial-services companies including Bank of America, mutual-fund giant Fidelity Investments, and money-manager Wellington Management Co.

Hedge Funds See a Bright Beginning

According to a recent study conducted by Hedge Fund Research, Inc., hedge funds have seen an inflow of $24.04 billion, or 2.17 percent, in the first quarter of the year. This follows a fall in the inflow towards the end of last year. HedgeCo.Net reports:

Total industry assets stood at $1.182 trillion dollars at the end of the period. Funds of Funds (FOFs), which had also experienced negative flows in 4Q 2005, saw inflows of $6.4 billion in 1Q 2006. Hedge funds performed well, with the average fund up 5.85 percent in the quarter, according to the HFRI Composite Index, which represents the best quarterly returns since 2Q 2003.

April 22, 2006

Are hedge funds worth the risk?

If you see the records of hedge funds, you will certainly not be impressed. Mainly due to the fact that over long periods, hedge funds tend to significantly underperform index funds. But then maybe it is not fair to judge them so, as they are not meant to be like the index funds.They are called hedge funds - because they can hedge, or sell short.

But still one should be aware of the risks it carries. To begin with, hedge funds tend to attract more tax liabilities because they trade so often and hence have a considerable short-term taxable income. And of course, one cannot overlook its high fees.

According to a study, even if hedge funds earned almost 50 percent more than other market returns, still after all the cuts, the net return to investors would be probably 20 percent less than the much safer index funds.

So when it's so risky, why is it still in demand? Because some of them do incredibly well. But if you ask me, one should take calculated risks and has to be really market savvy, for rarely do any of them do that well for a long stretch of time.

April 21, 2006

Hedge Funds bag over $24 billion

According to Hedge Fund Research (HFR), the first quarter of 2006 has seen an inflow of $24.04 billion through hedge funds. Contrary to last quarter, thay have performed well with an average fund up by 5.85 percent. And as of now the total industry assets stood at $1.182 trillion dollars.

The largest categories include Equity Hedge which has $359 billion in assets and has seen $8.1billion in new inflows. And Event-Driven with $163 billion in assets, has seen $2.1 billion in new flows. Apart from this, sector wise, Energy funds have been doing well with an average fund returning 8.52 percent in the quarter.

Another growing sector is the Healthcare/Biotechnology sector funds, though a small category with over $8.70 billion in assets, has been growing at a steady rate and has seen a gain of 8.49 percent.

According to Joshua Rosenberg, President of HFR,

The strength of the global equity markets along with dynamic movements in commodities, energy and related securities have created a favorable trading environment for a majority of hedge funds.

For further details Read

April 13, 2006

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

April 12, 2006

Hedge funds post strong first quarter

Hedge_fund_returns_2 Hedge funds posted a strong first quarter, thanks to the continued boom in energy and hefty gains in the metals markets. The major hedge-fund indexes, which track aggregate returns for all strategies, showed gains ranging from 3.26 percent to 5.87 percent in the first quarter. By comparison, the S&P 500 returned 3.73 percent in the quarter. Increases in January and March offset the flattish results hedge funds saw in February.

If the first quarter is any indication, investors can expect hedge funds to do very well this year!

Read more: Hedge funds post strong first quarter

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

April 10, 2006

EU Financial Stability Dependent On Hedge Funds

In a recent report, the Economic and Financial Committee of deputy finance ministers and central bankers indicated that the financial stability of the European Union is becoming increasingly dependent on hedge funds. At the same time, it expressed a dire need for regulators to make extra efforts to understand the risks that this creates.

In the recent years, the investment in hedge funds has steadily increased. The figure now stands at 8,000 or more funds now with more than $1 trillion under management. This increases the concerns as the increased exposure of banks to the risk posed by hedge funds can lead to a major collapse in the eventuality of a disaster.

According to the report, special attention is required to monitor hedge funds in order to ensure financial stability. And this need is felt more strongly for hedge funds that are located in offshore centers as these are usually difficult to monitor. Reuters Italia reports:

According to the report, hedge funds can contribute to market efficiency and sharing of risks but can also be a source of systemic risks. Action should be targeted to ensure efficient monitoring of hedge fund risks by banks... and the prudence... and transparency of regulated financial institutions' involvement in hedge fund activities.

April 01, 2006

Minimum Investment Required For Hedge Funds

What is the minimum investment required to invest in hedge funds? Well, the minimum investment varies from one fund to the other and is determined by the General Partner.

In case of hedge funds, the general partner overlooks the day to day functioning of the fund and is responsible for the investment activities of the fund.

Most new hedge funds have a minimum investment of $250,000 or $500,000. In case of established funds, the investment is usually higher. This could even be $10,000,000. Also, the general has the authority to negotiate and reduce the minimum investment if he feels the need.

March 31, 2006

Hedge Fund Performances

It has been indicated by recent studies in the field of hedge funds, that hedge funds as a class of investment vehicles offer far greater return than their cousins ‘mutual funds’. However, this offering of a greater return comes bundled up with yet greater risk, than investment benchmarks such as Standard and Poor’s S&P 500 stock index.

Well, it is not really surprising to note that certain classes of hedge funds have at times outperformed their benchmark measures on a risk-adjusted basis, while other classes have at times underperformed. The fact to note about hedge fund performance in general is that there has not been a high correlation, historically, between overall market performance and hedge fund returns. This unique factor has resulted in hedge funds finding place in the portfolios of wealthy individuals and institutional investors who seek a broad diversification of their investments. This flexibility and robustness could be one of the reasons behind the spectacular rise of hedge funds world over.

Longer Lock-ins in Hedge Funds

With each passing day, the hedge funds industry is getting around investors by exerting their
requirements. The distinguishing factor or as you would say the typical boundary that existed between 'private equity' and hedge funds is now slowly but surely getting eroded and blurred by the new developments in the whole hedge funds scenario. Industry experts take is that each and every day brings about a sublime change that further blurs the boundaries between private equity and hedge funds.

The fact is that hedge funds are pressing on for more illiquid terms on investors and also seeking returns in the non-public universe. Also the fact is that the conventional and traditional private equity behemoths such as Kohlberg Kravis Roberts & Co. and Blackstone are rolling up hedge funds.

Some are already in the process of dedicating a small, segregated portion of their multi-strategy hedge fund in to private equity or illiquid investments. Well this might not be entirely true but the
buzz sure is in the peg's favour. A growing trend nowadays seems to be the plans around allocation of a portion of hedge fund capital to private equity investments. By imposing longer lock-up terms on investors in order to invest in illiquid assets reflects the same trend.

However, not all hedge funds operating under the sun can expect to exert such kind of pressure on its investors, who by the way are typically large and wealthy investors or even institutional investors. Thus it is only the group of elite hedge funds who can afford to pull something like this.

As a thumb rule, if and when hedge funds want to lock up money for a longish tenure, it is better to do it at the launch stage. As changes in the management agreement of any nature are viewed with lots of unease by the investor community.

March 29, 2006

Hedge Fund Performances

It has been indicated by recent studies in the field of hedge funds, that hedge funds as a class of investment vehicles offer far greater return than their cousins ‘mutual funds’. However, this offering of a greater return comes bundled up with yet greater risk, than investment benchmarks such as Standard and Poor’s S&P; 500 stock index. Well, it is not really surprising to note that certain classes of hedge funds have at times outperformed their benchmark measures on a risk-adjusted basis, while other classes have at times underperformed. The fact to note about hedge fund performance in general is that there has not been a high correlation, historically, between overall market performance and hedge fund returns. This unique factor has resulted in hedge funds finding place in the portfolios of wealthy individuals and institutional investors who seek a broad diversification of their investments. This flexibility and robustness could be one of the reasons behind the spectacular rise of hedge funds world over.

Hedge Fund Performances

It has been indicated by recent studies in the field of hedge funds, that hedge funds as a class of investment vehicles offer far greater return than their cousins ‘mutual funds’. However, this offering of a greater return comes bundled up with yet greater risk, than investment benchmarks such as Standard and Poor’s S&P; 500 stock index. Well, it is not really surprising to note that certain classes of hedge funds have at times outperformed their benchmark measures on a risk-adjusted basis, while other classes have at times underperformed. The fact to note about hedge fund performance in general is that there has not been a high correlation, historically, between overall market performance and hedge fund returns. This unique factor has resulted in hedge funds finding place in the portfolios of wealthy individuals and institutional investors who seek a broad diversification of their investments. This flexibility and robustness could be one of the reasons behind the spectacular rise of hedge funds world over.

March 28, 2006

Hedge Funds investment to grow

According to a recent survey by a leading investment bank, investors are likely to invest up to 28 percent more money into hedge funds in 2006. Also, they seem to be ready to put up with longer lock-in periods. reuters reports:

Investors are willing to accept longer lock-ups, sometimes two years or more, to gain exposure to less-liquid instruments in credit and emerging markets and private equity as a way of diversifying. These include growing institutional participation, the dominance of equity-based strategies and the flow of assets towards Europe and Asia.

March 27, 2006

Hedge Fund Survey By Goldman Sachs

A recent survey carried out by Goldman Sachs indicates that investors plan to put 28 percent more money into hedge funds in the current year. The investment stood at 28 percent last year, 31 percent in 2004 and 22 percent in 2003.

Further, investors are now also warming up to longer lock-in periods that could extend to upto two years or more. These periods are gaining acceptance as investors are looking at gaining exposure to less-liquid instruments in credit and emerging markets. This is being taken as a means to diversify their investment portfolio. 

March 20, 2006

S&P; Hedge Funds Index Outperforms S&P; 500 for 2006

In February 2006, the S&P's overall hedge fund index returned 0.8 percent, bringing the total for 2006 till now to 2.83 percent. That compares with 0.05 percent and 2.59 percent for the S&P 500 index. Reuters reports:

Arbitrage hedge funds buy and sell securities against each other and include convertible bond managers. S&P's arbitrage hedge fund index returned 1.24 percent in February and 2.63 percent for the year to date. A dearth of new issues and low volatility has over the past two years squeezed returns in the convertible bond sector to around zero.

March 19, 2006

Know More About Hedge Funds at Gathering on Wealth Management

The annual gathering on Islamic wealth management scheduled at Hôtel du Rhône in Geneva in the end of March is attracting a lot of attention and most of the seats are already booked. The meet would address a variety of investment issues including the growing demand for hedge funds and would include speeches by speakers from Citigroup and Deutsche Bank.

There is an increasing demand for spreading awareness on investment options for Islamic investors, especially keeping in view the increasing interest in hedge funds, and the meet addresses this requirement.

Besides spreading knowledge, the meet would also provide the perfect platform for strategic networking. A number of optional workshops on Islamic Finance, Shariah compliant asset management and Family Offices, are also being offered for those interested.

For those of you who are interested in being a part of this interesting and informative interaction, register before it is too late. PR Web reports:

The seminar covers the most pressing needs of the high net worth Muslim investor, which are the replacement of bonds, the new trend for Islamic hedge funds, how to alleviate poverty with rewarding investments, and new methods for addressing issues of family offices. Alternatives that can be used to create an efficient portfolio would be the subject for a dedicated session.

March 17, 2006

Know your hedge fund manager

When you select the hedge fund that you would be investing in, make it a point to also find out details about the hedge fund managers. At the end of it, what happens with your money is in the hands of these hedge fund managers. It is important to find out if the managers are qualified to manage your money. So don’t get intimidated by the hedge fund manager, make it a point to go a little further and find out the facts before taking a decision.

March 14, 2006

Flat February for Hedge funds

There has been a lull after the storm in the hedge funds sector. As after the strong results reported by the hedge funds in January 2006, the sector report flat results for February 2006. The flat performance was attributed to pompous month for the equity markets. It was reported that most of the major hedge fund indices gave average returns of between zero and one percent, with Chicago-based hedge fund tracker Hedge Fund Research showing a gain of 0.35 percent for the month. The S&P 500 finished February up just 0.05 percent. CNN reports:

Some of the larger long/short equity funds posted big gains, such as Mark Kingdon's M. Kingdon Offshore fund, which returned 2.1 percent in February and is up 4.9 percent this year. Noted value investor David Einhorn's Greenlight Capital Offshore fund gained 2.4 percent in February, bringing it up to 4.5 percent for the year. But most managers struggled to post gains in what was a tough month for the broader markets as a whole. Art Samberg's Pequot International fund was down about a percent but is still up about 6.2 percent on the year following a strong January.

AP7 to Monitor Its Hedge Funds Companies

The Seventh Swedish Pension Fund (AP7), the first of Sweden's public pension funds that invested in hedge funds, has reportedly placed its two hedge fund companies on observation due to performance and administrative issues. Blackenterprise reports:

AP7's executive vice president and chief investment officer, Richard Grottheim, explained that AP7 has clearly defined performance criteria, and that the hedge funds had not fully met their 2005 performance targets. He also cited administrative reasons for the funds' "on watch" status, saying that AP7 had not been satisfied by "certain delays in information flow."

Women emerging in the hedge funds sector

Till now the whole hedge fund domain has been all about aggressive fund managers, but more so about men. However, women did manage money at just a tiny fraction of the nearly 9,000 hedge funds. This surely is breaking the conventional barrier, and it augurs well for the hedge funds sector at large. Seattlepi reports:

Not only is it a business dominated by men, but it is also known for its aggressive testosterone-driven trading. So it may not be surprising that women in the hedge fund business have been active in forming connections among themselves, primarily on behalf of philanthropic endeavors.

The basics that you need to know before investing in hedge funds

Are you investing in hedge funds for the first time? Well, make sure that you garner the basic information that is necessary and can affect the future of your investment, before you select the hedge funds.

In case of most hedge funds there is a proper prospectus or a memorandum, go through these in detail. Understand the investment strategies of the fund that you are planning to invest in and the risks that arise from these strategies. These strategies and risks should be in tune with your personal investing goals.

Also, remember that like all other investment tools, even in the case of hedge funds, the potential returns are proportional to the risk factor. In simpler terms, the higher the potential returns, the higher is the risk factor.

Next, you would have to make an effort to understand how the funds assets are valued. It might pose a problem to value the securities that the funds of hedge funds and hedge funds invest in, but at the same time you cannot ignore this.

Make it a point to clearly ask the manager the fee structure for the hedge fund. The fees can have a significant impact on your returns. In case of most hedge funds, you would need to pay an asset management fee of 1-2 per cent of assets, along with a performance fee. The performance fee is usually 20 per cent of the profits that arise from the hedge fund.

A hedge fund might also have certain limitations in terms of redeeming your shares, make it a point to clarify any doubts about this in the very beginning.

Last but not the least, research the background of your hedge fund manager before investing your money. With these points taken care off, your basic research is more or less in place. Just remember that it pays to be careful.

March 08, 2006

Rating agencies now looking at hedge funds

The interest of investors in the highly unregulated hedge fund industry is rising continuously. This has also led to a rising interest of rating agencies that are eying the industry to increase their scope.

Amongst the agencies that are expanding operations is Moody's Investors Service, New York is one. The agency is currently developing a methodology for rating hedge fund operations. It plans to release its first rating by the end of next month.

These ratings would be focused on hedge funds in the US. These ratings would actually be an assessment of the quality of the operations of the fund. As a result, it would make t easier for investors to select the hedge funds that they would want to invest in. Globe and Mail reports:

The move comes as global interest has soared in Canada's $30-billion hedge fund industry, lured by its exposure to commodities prices. However, the industry has been plagued recently by several high-profile scandals, such as the collapse of Portus Alternative Asset Management Inc. and Norshield Financial Group.

Ratings agencies now looking at hedge funds
The interest of investors in the highly unregulated hedge fund industry is rising continuously. This has also led to a rising interest of ratings agencies that are eying the industry to increase their scope. Amongst the agencies that are expanding operations is Moody's Investors Service, New York is one. The agency is currently developing a methodology for rating hedge fund operations. It plans to release its first rating by the end of next month. These ratings would be focused on hedge funds in the US. These ratings would actually be an assessment of the quality of the operations of the fund. As a result, it would make t easier for investors to select the hedge funds that they would want to invest in. Globe and Mail reports:

The move comes as global interest has soared in Canada's $30-billion hedge fund industry, lured by its exposure to commodities prices. However, the industry has been plagued recently by several high-profile scandals, such as the collapse of Portus Alternative Asset Management Inc. and Norshield Financial Group.

March 06, 2006

Hedge Funds Capitalize on Share Speculations

Increasingly Hedge funds are capitalizing on share speculation, as European hostile or unsolicited M&A bids reach a six-year high. The unsolicited bids augur well for share-speculation. The initial bid is generally rebuffed, increasing the chances of a second or rival offer and resulting share price jump. Reuters reports:

In a recent textbook case, shares at ports firm P&O (PO.L: Quotazione, Profilo) rocketed 65 percent during a three-month bidding war between Dubai Ports and PSA International, ending in Dubai Port's second, 520 pence offer. Its shares were trading near 315 pence per share before the first offer at 443 pence.

February 28, 2006

What is an accredited investor?

We keep hearing that hedge funds sell their interests only to accredited investors. Now the question is, what is the meaning of an accredited investor?

An accredited investor can be a bank or savings and loans association, any broker or dealer, an insurance company, or an investment company registered under the Investment Company Act, and so on.

Hedge funds can also be offered to non-accredited investors but in that case they have to have certain financial statements that are not required otherwise.

February 27, 2006

Hedge Funds Impact Stock Movements

It is being reported that some speculative stock funds known as hedge funds are trying to push up the stock prices and boost corporate efficiency rather than takeover underperforming companies. Earlier, activists fought corporations at annual meetings, but now the attempt is to force corporations to take steps to improve their performance. Ncpa reports

Their tactics include using the media to bolster shareholder support, win Wall Street allies and follow through on threats. Furthermore, the wealth of the hedge funds helps them endure long battles with managers. As a result, the intimidated companies now surrender faster.

Transparency a key issue in the hedge funds sector

Transparency is a key issue when it comes to hedge funds. The same concern has been doing rounds even in the European Union. Although with regard to the transparency of hedge funds, some banks seemed to be quite satisfied with the information provided to them. This is despite reporting lags and the variation in existing practices.

The regular flow of information typically included net asset value and performance figures (changes in net asset value per share). This was coupled with risk management reports including some “Value at Risk” numbers in some cases. Most transparency related questions were part of the due diligence process and credit rating or scoring models. However, the relation between credit terms and transparency could probably be stronger.

Research shows that there are areas of improvements when it comes to information sharing and transparency issue:
The counterparty discipline applied by banks, was found to be under pressure due to the aggressive and highly competitive market conditions. Especially, the larger hedge funds were able to negotiate less comparatively rigorous credit terms.

The stress tests done by the Banks’ typically only include historical scenarios. Also, these were often only applied to individual hedge funds. Industry experts opine that stress testing of collateral can be made much stronger.

One more area that needs attention is the aggregation by banks of their hedge fund exposures across the entire financial group and/ or different business areas/geographical regions.

Also the reporting on hedge fund disclosures and information on leverage still needs much to be desired. Although this aspect has made some progress in the last few years, it is yet adequate. In many cases, hedge funds still provided banks with relatively crude measures of leverage.

February 26, 2006

Seventh Hedge Funds World Middle East Conference to be held at UAE

The seventh annual Hedge Funds World Middle East Conference is being hosted at UAE on 7-8 March. The event would see the presence of more than 600 investors and financial services experts. The event is scheduled at the Madinat Jumeirah resort hotel, UAE. 

More than 40 speakers from all parts of the industry would address the attendees and will present their views and share information regarding the hedge fund industry. The keynote would be presented by Stanley Fink, Chief Executive, Man Group. Other speakers at the event include David Knott, Chief Executive, Dubai Financial Services Authority; David Mullins, former vice-Chairman, US Federal Reserve and Chief Executive, Vega Institutional Advisers LLP, and Antoine Massad, head of Man Investments Middle East and Asian operations.

The principal sponsor of the event is Man Investments, one of the world's leading providers of alternative investments. The company has been closely associated with the even since its incubation in 1999. AME Info reports:

This year's conference will cover a range of core themes, including: Long term investments and hot money; the global economy and world markets; portable alpha and multiple alphas; sourcing and evaluating hedge funds; the best investment styles and strategies; emerging and star managers and hedge fund indices. The event also features a one-day pre-conference event, which Man Investments will host on 6 March.

February 22, 2006

Seminar for hedge fund manages by HedgeOp Compliance and Backstop Solutions Group

A number of new regulations and technological innovations have revolutionized the hedge fund industry. To provide hedge fund mangers with information on how to deal with these and at the same time leverage the advantages, HedgeOp Compliance, LLC and Backstop Solutions Group, LLC (BSG) are jointly hosting a series of seminars.

The seminars would aim at spreading awareness regarding the tools that can be used to streamline operations and support regulatory compliance. HedgeCo.net reports:

The series will begin from March 13th, at the New York offices of HedgeOp Compliance, with additional dates and cities to be announced soon. It would cover the key issues surrounding the new regulatory framework, followed by a Q&A session to enable participants to ask specific questions regarding these issues.

February 21, 2006

Hedge Funds’ EU-Banks Connections

In wake of the rapidly expanding role of hedge funds as key elements in financial markets and counterparties to financial institutions, monitoring their activities and assessing the implications for financial stability has become increasingly relevant.

In a study carried out some time ago by the Banking Supervision Committee (BSC) of the European System of Central Banks (ESCB), with the help and assistance of its Working Group on Macro- Prudential Analysis, investigations were carried out into the links between large EU banks and hedge funds. This was particularly crucial, knowing the fact that the former played an important role in hedge fund operations.

The report was aimed at continuing the efforts to gain a better understanding of the implications of such rapid expansion of hedge fund activities for the European financial system.

It is well known in the financial sector that hedge funds by virtue of their active risk-taking, provision of liquidity, elimination of market inefficiencies and potential enhancements to investment diversification are in a vital position to contribute to the efficiency, integration and even stability of the global financial system.

Furthermore, hedge funds have changed the asset management industry and, according to one scenario, over time the differences between them and traditional funds may become blurred. However, the recent explosive growth of the sector has also raised concerns about possible negatives in regards to financial stability.

Hedge funds can in fact affect financial stability through their influence on financial markets or thru their largest creditors and counterparties. The two channels are pretty closely linked and a hedge fund-related triggering event associated with either could potentially snowball further with reinforced pace and cause volatile and unstable changes in the market.

February 20, 2006

Are Hedge Funds taking a hit?

The hedge funds sector, a US $1.1 trillion domain that had doubled since 2000, is reportedly undergoing a market correction phase. Well at least it seems so from the December 2005 performance of the hedge funds. Net money flows into hedge funds, which are essentially the investment pools available mainly to institutional and wealthy individual investors, were reportedly down 44% in the third quarter on a year-on-year basis, according to industry statistics. And according to industry observers and trackers, the fourth quarter growth almost stagnated.

As the money flows dried up, so did many of the hedge funds. Chicago's Hedge Fund Research reported in December 2005 that through September 30 2005, a record number of hedge funds 484, more than 6% of the total hedge funds had shut down in 2005. The situation could somewhat be termed as a recession for hedge funds sector. And a lot would depend on how the hedge fund performance picks up.

Hedge Funds' Jan Gains Highest Since Feb 2000

The average return of Europe-based hedge funds increased to its highest level in say about six years in January 2006, according to trade publication EuroHedge. The EuroHedge Composite Index increased 2.42 percent in January 2006. This was reportedly the biggest month-on-month gain ever since February 2000, the peak of the dotcom boom in equity markets, and coincided with further gains in global stock markets. The month of January was also the third consecutive month of gains, with the index gaining 1.48 percent in December 2005 and 1.28 percent in November 2005. Reuters reports:

Over the course of 2005, the EuroHedge Composite Index rose 8.86 percent. That was in spite of a 1.17 percent fall in October -- the worst month for hedge fund performance since August 1998 -- which coincided with a correction in equity markets. Hedge funds that trade global equities were the top performers in January, with returns of 4.83 percent, measured in dollars. They were also the best performers over the whole of 2005, with returns of 15.71 percent. The worst performers in January, and the only category to deliver negative returns, were currency funds, which fell 0.32 percent. They made just 2.82 percent over the whole of 2005.

Brief History of Hedge Funds

The origin of the term "hedge fund" dates back to the first such fund founded by Alfred Winslow Jones in 1949. Jones followed his instinct and came up with the innovation to sell short some stocks while buying others, thus some of the market risk was hedged.  Currently, there are over 7,000 hedge funds in the United States, with an estimated US $750 billion in assets with a strong role play in the financial market. They are believed to account for as much as 20% of all US stock trading. Hindustan Times Reports:

While most of today's hedge funds still trade stocks both long and short, many do not trade stocks at all and the term hedge fund has come to mean a relatively unregulated investment fund, often a partnership rather than a corporation in form, and characterized by unconventional strategies (ie, strategies other than investing long only in bonds, equities or money markets).

February 19, 2006

Commodities becoming popular amongst investors

According to a recent research by Credit Suisse, commodities could become more popular than hedge funds among institutional investors. This basically stems from the fact that commodities are usually cheaper than hedge funds. In fact, so far, most schemes are allocating roughly 5 per cent to commodities. As a result, the allocation to equities is usually lower. Commodities in most cases are considered as a good tool for long-term strategic diversification. Also, these are considered advantageous as they demonstrate a low correlation with financial assets in markets around the world. These act as a natural inflation hedge, and perform quite well even when conventional assets are at a low.

February 18, 2006

UK Institutional Investors Favor Hedge Funds

In the United Kingdom, a trend worth analyzing is rolling on. Leading institutional investors such as the large pension funds, local authorities and charities are showing keen interest in alternative investment vehicles.

Many studies done to track this trend outlines that following a steady yet slow start about two to three years ago, the interest in alternative investments such as hedge funds is picking up. The pension funds in the United Kingdom are reportedly allocating a certain portion of their investment to funds of hedge funds.

Through this piece we are trying to review the developments in the UK institutional investment market, with the focus on investments into hedge funds over the last two years. The attempt is to highlight the role played by funds of hedge funds within pension funds’ asset allocation mix. According to a report by a leading investment bank, about one in six continental European pension plans reportedly invests in the hedge funds. Compared to this, the figure pertaining to the UK market seems nascent at about one in 50.

However, the dynamics are changing at a frantic pace, with a number of key pension schemes in the UK recently starting allocation to hedge funds, primarily through the fund of hedge funds route. A good example is of Railpen Investments, which includes the British Railways and the British Transport Police superannuation funds. It is planning to invest over GBP 600 million or 5% of its assets in funds of hedge funds.

Further, various local authorities are investing into hedge funds. Dorset County Council is reportedly allocating about GBP 45 million ‘or’ 5% of its scheme - to two funds of hedge funds. Such examples are a clear display of the risk appetite and the proactive approach, with overture of aggression. This trend should make the pension funds dynamics more competitive and aggressive.

February 14, 2006

Equity Driven Hedge Funds Rally

It is being reported that hedge funds, which trade stocks and those that bet on financial market trends have started the year with strong returns. The average returns have been in the range of about 4 percent, over the gains witnessed on equity markets.

Long/short equity hedge funds, those that buy and short sell usually bet on a lower price for a security in the futures. These funds returned on average 3.93 percent in January compared with 3.16 percent for the MSCI index of world stocks. Hedge funds reportedly did better because they picked the right ones to be in and managed to beat the average stock market rise. Reuters reports:

"Some of that was in currencies, but most of that return was probably in commodities," the analyst said. Equity market neutral strategies, which should not have any exposure to overall market trends returned 2.25 percent and event driven strategies which include trading the shares of firms involved in takeover battles returned 2.21 percent. The worst performers with returns of 1.7 percent were hedge funds which trade the different components of convertible bonds -- equity, debt and volatility -- against each other.

February 07, 2006

Debunk hedge fund myths

While the interest of investors in hedge funds is growing with the changing times, there are still certain myths that are dampening the spirit.

The most commonly heard myth states that these funds are unethical and speculative. This arises basically from the fact that in case of certain hedge funds, the strategies employed are speculative. Yet, what investors need to take into consideration is that not all hedge funds are speculative, in fact there is a large number of hedge funds that employ extremely conservative strategies. At the end of it, labeling all hedge funds as speculative would be wrong.

Another myth that might turn away investors is that hedge funds are risky. Once again, this is just a myth, if you know what you are doing, you cannot call it risky. Now the point it, if an investor holds a single stock portfolio, then this could be considered risky. Then again, that is hardly ever the case. So while planning your portfolio, you should ideally insure that the role of volatile assets is limited. This would largely negate the risk factor and would ensure positive returns.

So as an investor, if you were looking at adding hedge funds to your portfolio, but decided not to because of these myths, it is time to think again. In fact, hedge funds can be a good investment tool as long as you undertake proper planning that is well researched and is based on a well founded analysis of the market.

February 06, 2006

New Hedge Funds Rule to Alter Dynamics

The long awaited new rule has finally become a reality for United States hedge funds sector. It is reported that many leading players in the once loosely regulated US $1 trillion industry would face scrutiny from US financial regulators. Reuters reports:

But Feb. 1, the day the new rule becomes effective, will likely not go down in history as the date when everything changed, according to managers, investors, consultants and lawyers. Instead the shifts will likely be felt more gradually in the weeks ahead by investors as many fund managers have already completed their adjustments in the last months.

February 01, 2006

Investment in hedge funds saw a decline in 2005

The interest of investors in hedge funds over the past few years has been increasing. Yet according to a recent study, the pace of investment in hedge funds slowed dramatically last year as compared to the past few years. Newyorkbusiness.com reports:

Net inflows into hedge funds grew by only 4 per cent in 2005 as compared to 19 per cent in 2004. Approximately $1.12 trillion is invested in the hedge funds, which are private investment companies that the Securities and Exchange Commission will begin regulating more closely soon.

January 31, 2006

Key Strategy of Hedge Funds

Most of you guys who have been interested in the hedge funds industry and have tracked the sector would surely be mesmerized by the secrecy with which these funds operate. After witnessing the market return rather meager gains during 2005, there has been an increased caution and watchfulness resulting in close scrutiny of the current environment for new trading strategies.

According to our research and other market studies, one classic hedge fund strategy, which is known as the "paired trade," is gaining popularity among the pros. This strategy reportedly offers tremendous profit potential for professional traders. And this strategy is worth looking in this current hedge funds sector business environment.

According to industry analysts and experts, this strategy is gaining more prominence off late, because hedge funds have been struggling to generate the glamorous returns they need to justify charging their investors 20% of profit and a 2% management fee, as they commonly do.

There is an increased pressure on these funds to generate the sky high returns – otherwise there could be a sharp downturn in investor confidence in the investment vehicles. Specifically, since hedge funds mainly cater to the super rich segment, who only invest in this strategy to derive heightened returns despite risks. 

A paired trade is exactly what it means, "a pair of trades." An investor buys shares of a company that is doing well, while short selling another company - usually in the same sector or industry - that is struggling. By purchasing shares in one company, and selling borrowed shares short in another, hedge funds can make a greater return than if they just entered a single trade. This strategy or concept of "pairs trading" is one that long/short hedge funds have been employing for a while now.

January 30, 2006

The birth of hedge funds

The beginning of hedge funds traces back to the year 1948 when Alfred Jones, a graduated from Harvard while writing an article about current investment trends for was inspired to try his hand at managing money. He raised $100,000 and made an effort to try to minimize the risk in holding long-term stock positions. He did so by short selling other stocks. Jones further employed leverage in an effort to enhance the returns.

In the year 1966 another article in Fortune magazine highlighted an investment that had  outperformed the mutual funds saw the birth of the hedge fund industry. In a span of two years, there were close to 140 hedge funds in operation. The strategy to increase returns saw a changeover at this point. But unfortunately, this led to heavy losses in the year 1969-70, and was followed by a number of hedge fund closures in the following years.

The industry came alive again in 1986 when another hedge fund captured the interest of investor because of its outstanding performance. Soon investors started turning to hedge funds instead of mutual funds. Keeping in tune with the highs and the impeding lows of the industry, the late 1990s and early 2000s again saw a crash in the industry.

Today, inspite of the trouble seen in the last few years, the hedge fund industry is thriving. Currently there has been an increasing move towards regulating the functioning of the industry.

January 29, 2006

Study on hedge funds by Edhec

Investors are gradually recognizing the benefits offered by hedge funds. This has further spurred the need for research and study in the field. Keeping this in view, a study has been carried out by Lionel Martellini and Volker Ziemann of the Edhec Risk and Asset Management Research Centre.

The study is titled, ‘The Benefits of Hedge Funds in Asset Liability Management’. This would be presented at the Edhec Hedge Fund Days in London from 14-16 February.

The study specifies that Hedge funds do not fall into a strategic asset class. This is because hedge funds are heterogeneous and cannot be modeled. Further, it also reports that an allocation of 20 per cent to hedge funds can reduce a fund’s probability of extreme loss by 50 per cent. Hedgeweek reports:

This study allows for the identification of hedge fund styles that enable the risk parameters of the stock and bond classes to be improved over the long-term.
Rather than identifying a hedge fund class, this approach therefore involves including hedge funds in fixed-income and equity management.

January 26, 2006

What are Prime Brokerage Units?

If you are interested in the hedge funds industry and have been tracking it at some level, surely you must have come across the term ‘prime brokers’ or ‘prime brokerage units’. However, do you actually understand what these prime brokers are? What they do?

Well to draw out broad definition, we can say that prime brokers are possibly the most important short-term source of transaction flow for investment banks. A Prime Brokerage Unit is pivotal to the investments bank’s access to this transaction flow - A kind of a central node that facilitates hassle free transaction stream.

In their traditional role these Prime Brokerage Units have been known to offer a package of services in the securities transaction services. The bouquet of services offered by these broking units includes research, secured lending, trade execution, risk management, transaction processing, clearing, settlement and custody services to its ‘prime clients’ on structured fee basis. Historically, many of the services offered by the prime brokers were customized to the client and delivered manually by people within the units.

January 23, 2006

China Looks at Hedge Funds

China's Banking Regulatory Commission has recently announced plans to form a special committee to find out how difficult will it be to regulate hedge funds. Based on it, it might be determined whether to allow hedge funds in the country or not. Oascentral reports:

Now, Jeffrey Tucker, founding partner of Fairfield Greenwich Group says it's just "a matter of time" before the Mainland welcomes the hedge funds, as there are signs China may be shattering its HF taboo, born of the belief that hedge funds were largely responsible for the Asian financial crisis a decade ago.

Understanding hedge funds

'Hedge funds', the term is being increasingly used by investors. Investing in hedge funds is favored by sophisticated investors and a number of Swiss banks and other private banks. These investors understand the consequences of major stock corrections. An increasing number of pension funds and endowments allocate assets to hedge funds. 

In fact, the hedge fund industry is estimated to be a $1 trillion industry and it is growing at a rate of about 20 per cent per year. There are currently 8350 active hedge funds. These include a variety of investment strategies. A number of these strategies use leverage and derivatives while others are more conservative and employ little or no average.

Most hedge funds are highly specialized and their performance relys on the expertise of the manager or the management team. Hedge fund managers are usually highly professional, disciplined and diligent.

The returns from hedge funds are usually consistent and have over a period of time outperformed standard equity and bond indexes. These have a much lower risk factor as compared to equities. Conventional equity or mutual funds are generally 100 per cent exposed to market risk and are affected by the direction of the bond or equity market. The performance of most hedge fund strategies, in particular relative value strategies, is not dependent on these. 

With a clear understanding of the advantages of hedge funds, most investors are seeking to capitalize on the benefits offered by these.

January 21, 2006

Understanding the demarcation between fund of funds and hedge funds

Any investment fund that is not a conventional investment fund, is termed as a hedge fund. Essentially, hedge funds use a strategy or a set of strategies other than investing long in bonds, equities, mutual funds, and money markets. On the other hand, a fund of funds is a combination of successful hedge funds and other pooled investment vehicles. As a result, in case of fund of funds, the investment is spread across different funds or investment vehicles. 

Hedge fund strategies are quite complicated and the returns and risk are varied. The returns and risks also depend on individual managers. In case of fund of funds, the process of selecting hedge funds is simplified as a number of funds are blended together to meet diverse needs of investors in terms of risks and returns. This makes the returns more consistent than in the case of individual funds.

January 19, 2006

What in the Heck are Hedge Fund Indexes?!?

While reading about the hedge fund industry, you might have come across the term ‘Hedge Fund Index’ many a times. Well to give you a brief idea about these, what we can say is that Indexes are just a compilation or averaging of all the Hedge Funds in a particular sector (much like an Energy Fund is for all the energy stocks)  Hedge Fund Indexes are often used as hedge fund performance measurement and benchmarking tools, which are useful as summary statistics for the universe of managers. These indexes offer a benchmark for strategy performance to the extent that they are investable, and to the extent that funds within a given strategy classification are also comparable.

Usually the indexes encompass all the funds in the FRM database and are equally weighted and rebalanced annually. The most important observation about indexes of hedge funds is that they exhibit considerably lower risk than traditional active managers and passive benchmarks. These indexes are a good way to track hedge fund sector as a whole and also compare a particular fund against the benchmark index.

Evolving Hedge Fund Industry

The hedge fund industry has underwent tremendous growth in the last decade, expanding by some estimates from about 300 funds in 1990 to over 3000 today. This segment has attained high visibility in the markets and also in the press, and is reported to command up to US $400 billion in capital before leverage.

Hedge funds, like other investments including real estate, commodities, venture capital, and private equity, are known to offer access to returns that are uncorrelated with traditional investments, and superior risk adjusted returns as well.

Also a growing trend among fund management companies is to introduce hedge fund like investment vehicle to large asset owners – so these asset owners can make strategic allocations to hedge funds. Capital markets analysts world over have outlined favorable outlook for hedge funds going forward, as hedge funds have the potential to attract investors who want to enhance strategic asset allocation for both pension funds and endowments funds.

Research shows that when structured as portfolios, hedge funds have the potential to provide a substantial improvement in the risk-reward matrix for the investor community.
To define hedge funds broadly it can be said that these are unregulated investment pools, generally with under 100 investors. These funds invest in any asset class as well as derivative securities and use long and short positions, as well as leverage.

What distinguishes hedge funds from other investment vehicles is their routine use of long or short positions to offset “market” risks and isolate arbitrage opportunities. Although, there are riders to these strategies as these are not without their specific risks.

January 10, 2006

Hedge Funds Moved Up 9.2% in 2005

During 2005, Hedge funds, the loosely regulated partnerships that generally cater to the wealthy investors and institutions, moved by 9.2 percent on average. The performance was helped by the stock-market rally in the second half, according to Hedge Fund Research Inc. Bloomberg reports:

Performance had been mixed early in the year, but they finished on par with last year after a strong second half,'' said Josh Rosenberg, president of Hedge Fund Research, in an interview yesterday. The Standard & Poor's 500 Index rose 5.8 percent, including dividends, during the last six months of 2005.

January 09, 2006

Hedge funds drive Bullion to higher levels

With hedge funds investing heavily into the premium metal ‘Gold’ – the bullion prices have skyrocketed for the fifth consecutive year. Industry experts opine that this trend of bullion buying by hedge funds is expected to continue through 2006 as well. And led by this trend is the forecast of bullion prices reaching further north. For a sixth year in a row in 2006, the loosely regulated hedge funds are all set to buy the metal to diversify from stocks, bonds and currencies. According to median forecast of 29 analysts (including traders and investors surveyed by Bloomberg News), the price of bullion is likely to shoot up by about 18 percent, to average about US $525 an ounce, up from US $445 last year. Chicago Tribune reports:

Hedge funds and other speculators more than tripled their net long positions, or bets prices will rise, in New York gold futures in the past five months. Inflation, the U.S. budget and current account deficits, and the dollar led investors to buy gold. Investors are buying gold because it's outperforming stocks and bonds. Gold rose 90 percent in five years, while the Standard & Poor's 500 index returned 2.7 percent with dividends reinvested.

January 04, 2006

Hedge Funds Slowing Down

According to latest figures, the high ride and allure of hedge funds has somewhat faded. The is shown by figures that indicate that the amount of money invested in them halved over the past year as returns fell below 7 percent. The year of 2004 was a record year, with never seen before figures, but investors got 4- 5 percent after performance fees and put the brakes on. telegraph  reports:

Oliver Schupp, the head of investment bank Credit Suisse's hedge fund index, said around $60billion-$65billion had been invested internationally in hedge funds during the past year, compared with more than $120billion in 2004.

Hedge Funds Index Posts Meager Gains

If you have been nurturing the notion that hedge funds world over are minting money, then you need a reality check. A look at the Standard & Poor's hedge fund index figures will surely prove to be an eye opener. The index posted gains of just over 2.4 percent in 2005. This is not the only year when the actual performance of the hedge funds was far below the mythical levels. Even in 2004, the hedge funds index posted lackluster figures, with meager gains of 3.6 percent. A comparison with the S&P 500 index reveals that the hedge funds index performance was about half of the S&P 500. usnews reports:

That track record hasn't hurt the earnings of the average hedge fund manager, who took home about $1.2 million in 2004. But with the number of hedge funds--thinly regulated investment pools for the well-to-do--having mushroomed from a few hundred to more than 8,000 worldwide, with combined assets now around the $1 trillion mark, many investors are finding that storied hedge fund edge elusive.

December 19, 2005

Hedge Funds Reviewed

In the latest Lonsec’s hedge fund sector review, four funds have been recommended as upgrades and moreover there have been no downgrades in the review. Both long/short equity funds are excluded from the review.

According to a senior investment analyst at Lonsec, the market was strongly skewed in favor of higher ratings in the hedge fund sector compared with other asset classes the researcher reviews due to the small size of the market. 

Lonsec reportedly upgraded the ratings on the CFS Global Diversified Strategies Fund to ‘recommended’, while the HFA Diversified Investments Fund, Rubicon M&A Fund, and the GSJBWere Global Alpha Fund were also rated in the review. The review also rated some of the first time rated funds such as GSJBWere Multi Strategy Fund, the UBS Global Alpha Strategies Fund, and the Select Gottex Market Neutral Fund. These aforesaid funds were marked at ‘recommended’ ratings. One more fund to make its rating debut was the Challenger FM Global Hedge Fund. The fund got an ‘investment grade’ rating.

The only hedge fund of funds to be rated as ‘highly recommended’ was the HFA Diversified Investments Fund. While all the four fund in the single manager hedge fund segment, which include the BGI Global Markets Fund, the Basis Aust-Rim Opportunity Fund, the Rubicon M&A Fund, and the GSJBWere Global Alpha Fund – achieved ‘highly recommended’ ratings. Meanwhile, five other funds received ‘recommended’ ratings, while two received ‘investment grade’ ratings.

According to analysts, numerous industry patterns and trends had been observed through the review process. The emerging trends include huge growth in hedge fund assets, which are driven by institutional demand and the institutionalization of various hedge funds of funds managers. This is potentially driven by the motive to attract institutional money. 
Read More: Hedge Funds Upgraded Despite Slowing Market

December 14, 2005

Hedge Funds Bounce Back in November

In November, Hedge funds have bounced back after a lackluster October run, due to a strong upswing on the stock market. Although, leading hedge fund indexes are still calculating final performance indicators for the month of November, investors and industry trackers have reported that many funds are back in the black, a turnaround on October status.

The investor interest in hedge funds has rapidly grown in recent years, as investors were almost disappointed with traditional funds, which offered low returns due to the sluggish stock market. During the last itself, the hedge fund industry had infusion of about $123 billion in fresh capital, up from $72 billion in 2003. atdmt reports:

Hedge funds, the private investment pools catering to wealthy investors and, increasingly, pension funds, have posted lackluster returns this year, though some types of funds have fared better than others. In November, a surge in the S&P 500 boosted long/short equity hedge funds, which take long positions in some stocks and hedge those positions by going short other stocks or sectors.

December 09, 2005

InteDelta Launches Risk Check Tool

InteDelta, a risk management and financial consultancy, has reportedly launched "Risk Health Check for Hedge Funds". The supposed Health Check is likely to covers risk governance, measurement, policies and systems in the areas of market, liquidity, operational and counterparty risk. bobsguide.com reports:

Michael Bryant, Managing Director of InteDelta, said "Risk controls within hedge funds are coming under the increased scrutiny of both investors and regulators. Yet many funds do not have dedicated risk sources or a formalized risk framework."

Hedge Funds Bullish on Gold

It is being reported that hedge funds are increasing their investments into gold. With the prices of gold peaking at $500 per ounce, the market sentiment favors a further rise in the gold prices. The positive market sentiment for gold is driven by fundamental factors, which are favoring gold and other metals. For a long time central banks for many countries have been offloading their gold reserves in order to keep the bullion prices under control.

But, the trend has somewhat reversed. Even though the gold prices have doubled in comparison to 2001 price levels, foreign banks are stocking up their bullion reserve. The idea is to diversify their currency reserves risks out of dollars and into gold as a hedge against a falling dollar. Globally, many countries including Russia, Argentina, and South Africa have outlined plans to commence purchasing of gold reserves. Freemarketnews reports:

Hedge fund managers believe that the current trend of gold buying is just beginning. Asian central banks now hold over $2.6 trillion in foreign currency reserves, and if even a small portion of that is earmarked for gold it could send gold prices much higher.

December 01, 2005

Project Finance Driving Hedge Fund growth

Project finance and funding has picked up, during 2005, largely from smaller companies.  Hedge funds are becoming increasingly active, particularly through convertible bonds, which are especially amenable to smaller companies. The main reason being that there is no need for covenants or hedging requirements, nor do they require a credit rating. Read More: Time to hedge and raise funds?

A number of single asset or single product companies, in keeping with investor presences, are likely to be looking to diversify, especially as the new breed of investors, unused to the cyclicality of the sector will continue to demand steady wealth creation.

November 24, 2005

Academics against Hedge Funds

The most high end academic study conducted into the fledging hedge fund industry suggests that individual investors should keep away from them or minimize their exposure. The study by US economists reportedly found out that there were over 8000 funds in the industry and the total investment amounted to about $1 trillion. theaustralian reports:

The study also outlined that the hedge fund sector had high fees, inconsistent data and hard-to-understand risks. According to the academics, the hedge fund sector requires standard measures of performance and risk to allow investors to make informed decisions.

Lipper Hedge World comes out with Industry Guide

Lipper Hedge World has come out with an annual guide to the hedge fund industry. The guide is titled The Lipper HedgeWorld Annual Guide (2005/2006 edition) and it has qualitative information and quantitative performance data on 650 US and non- US hedge funds. Hedgeworld reports:

The Annual Guide totals over 750-pages of information, and is available to accredited investors and advisers only. It has fund profiles on 500 single manager funds and 150 funds of funds across all style categories.

November 09, 2005

Hedge Funds and their impact in the Investment Sector

Since the first hedge fund was started in New York in January 1949, the concept has had an upward growth graph and has amply demonstrated through the decades that it is a potent force in the investment sector. In recent times, hedge funds have helped several brokerage firms to remain operational, and have become an integral part of institutional equity trading.

Experts feel that brokerage firms prefer hedge funds because the traditional money mangers are increasingly succumbing to regulatory and board pressures and are thus forced to cut their commission rates. According to Seth Merrin, CEO of Liquidnet, the last five years have seen a sharp decline in the long-only volume from traditional money managers. This decline has been precipitated by the fact that hedge funds offer higher margins to full-service brokers, are able to short stocks, and have recorded a rapid annual growth rate of 17 percent in recent years. In terms of numbers, there are about 7,000 hedge funds operating in the market today.

Rob Hegarty, who oversees the securities and investments practice at the Tower Group, feels that hedge funds are taking charge of the industry by introducing fresh technology and market strategies. 

Initiatives by leading companies show the influence of hedge funds in their business processes. For example, Fidelity Investments opted for hedge fund executive Brian Conroy to manage the company's equity trading department; Janus Funds declared intentions of adapting the hedge funds functionality of performance-based management fees; and Goldman Sachs and Morgan Stanley have been influenced by hedge funds to expand trading tools and functionality on their front ends. Trading events have shown that hedge funds have influenced brokers and even traditional money managers. In effect, hedge funds perform a role similar to that of Nasdaq wholesalers in the 1990s.

October 22, 2005

Hedge Funds going through a rough patch

These are some testing times for the hedge funds, the tide is against them. Standard & Poor’s Fund Services in its quarterly report, stated that the Fund-of-hedge-fund managers have been facing the toughest times in the second quarter of 2005 since the third quarter of 1998. Fixed income and convertible arbitrage topped the list as the worst performing sectors, followed by equity long/short and managed futures. Last fortnight, Mr. Klaus Diederichs, head of European investment banking, J.P. Morgan stated at the Reuters Corporate Finance Summit, that hedge funds are not prominent players in the European Mergers Market. And finally applying salt on the wounds, a senior official at the International Monetary Fund stated that the Dutch financial market regulator AFM might bring about restrictions to bring transparency in hedge funds operations. Investments & Pensions Europe Reports:

“The second quarter of 2005 saw some of the toughest conditions experienced since the third quarter of 1998 for fund-of-hedge-fund managers,” S&P Fund Services said in a quarterly report. "During April through to mid-May, fixed income and convertible arbitrage were the worst performing sectors. Equity long/short and managed futures also had a tough time," said analyst Randal Goldsmith.

October 16, 2005

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.

October 13, 2005

BIS states hedge funds need may require strict regulation in the future

There is a rising concern around the regulation of hedge funds. Although, hedge funds do not pose a systemic risk to the world's financial system but there is a need to look into the way in which they are sold to smaller investors. Since there exposure has been increasing towards the banks credit, there is a need for better transparency measure for a gaining a better control over them. Basel- based Bank for International Settlement's (BIS), General Manager, Mr. Malcolm Knight stated that hedge funds which is the least regulated industry in the financial system do not pose a threat as such, however, a there should be a regulation be in place when the hedge funds target smaller asset holders  Reuters Reports:

Until recently, hedge funds had been available only to very wealthy investors but are now able to attract smaller investors after lowering of minimum investment requirements. The Basel-based BIS, which is a forum for the world's central bankers, called for more transparency in hedge funds earlier this year, saying banks' exposure to them was rising.

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.

Barclays’ states hedge funds are no bubble about to be burst

There has been a lot of uncertainty looming over the future of hedge funds. The primary factors to the same could be attributed to declining returns due to increase in competition and lack of straight run-away investment opportunities. Although there has been skepticism in the minds of investors for investing into hedge funds who typically have high management fees and charges. Again due to declining returns, hedge funds no longer benchmark their returns with the market indices and now compare their returns on absolute basis. There has been fear in the market that with declining returns, there could be a stage where hedge funds would accumulate more assets under its portfolio and diversify returns. This may remind people of the collapse of Long Term Capital Management (LTCM) in August 1998, and instill fears in the minds of the investors. Although, Barclays Capital reassures that the hedge funds are not bubble build-up about to burst, they are here to stay and generate returns efficiently. Reuters Reports:

"There is a lot of hype about them being a cyclical bubble...That they are going to blow up and are going to be a systemic risk," Diamond said, adding that hedge funds were here to stay. "It's as clear as night follows day." He said hedge funds were a growing part of Barclays Capital's business and that they were changing the face of the asset management industry. "We're in the throes of a secular shift," he said.

Hedge Funds don’t see much hope at the end of the tunnel

There is a lot of bad publicity about news related to hedge funds with a special focus its lack luster performance, unjustifiable higher fees and charges, and its declining influx of investors. Hedge Funds gained 2.29 per cent in July, August, and September compared to its small surge of 0.13 per cent in the first six months of the year, as per Standard & Poor's. While S&P 500 clocked 3.15 per cent in the third quarter after losing 1.70 per cent, whereas the US stock market 4.65 per cent in this quarter. However, mutual funds gave quick surprise by posting 4.4 per cent as per Lipper, Inc., a unit of Reuters. The future looks quite bleak for new money infusion in the sector, justifying from a study by Deutsche Bank, which showed that hedge funds are likely to take in only $40 billion in the next year, down from $123 billion in 2004. Reuters Reports:

For an investment of $1 million, a hedge fund can charge a $10,000 management fee plus a 20 percent performance of whatever gains the manager makes. And because hedge fund investing can be risky, clients often employ a consultant or fund of funds to help select the right investments, adding anywhere between $10,000 and $50,000 to the annual bill.

KPMG predict Hedge Funds downturn

KPMG International conducted survey with a focus on New Zealand inputs on Hedge Funds. The study stated that performance of the hedge funds is highly variable. They are incapable of generating the high double digit returns due to which they have lured the investors into investing into them. The trend has changed drastically, they carry a big risk of generating poor returns; are incompetent at the administration end, and there exists mis-pricing of complex products. The survey also forecasts that the next growth phase of hedge funds will be fuelled by pension funds. They are the major perpetrators of hedge funds; they would be the one who would bring down the high charges and fees charged by these funds. The study also points out that the hedge funds industry will consolidate over the next three years because of a wide margin of under-utilized capacity, at the manufacturing, distribution, and administration end. The study finally concludes that till 2020, the hedge funds will be lucrative enough for investors, although the fund managers have to constantly keep re-inventing themselves, to keep the industry at a top investment destination stop. The National Business Review Reports:

Indeed, the study found that hedge fund managers and mainstream fund managers are already diversifying into one another’s product areas, using similar investment strategies and boutique structures that overtly separate high and low return products. Hedge funds are, thus, no longer the only means of achieving high absolute returns in today’s low volatility environment.

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.

October 01, 2005

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

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

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

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

The Return of Macro Hedge Funds

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

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

Read More: Macro hedge funds get more popular

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

Death Knell sounded on the number of Hedge Funds

Tribeca Global Management, a proprietary hedge fund unit managed by Citigroup said the number of hedge funds will decline from the current number of 8000 operating hedge funds to a reduced estimate of 5000 operating hedge funds in the next five years. This decrease in the number is due to stiff competition and rise in operating costs. The markets are changing dynamically, and it is being difficult for hedge funds to cope up with them. The market trend three years ago lasted for approximately four weeks, but now there are at least 10-20 trends running in the market and they normally do not last for more that 72 hours. This trend is particularly observed in focus areas - equities, debt, commodities or foreign exchange markets, and statistical arbitrage. The stakes are high and one cannot afford to miss this bus or go bust. The past performance of hedge funds can no longer be considered as a yardstick to future expectations due to the dynamism of asset products. Reuters Reports:

Styblo Beder said boutique hedge funds would specialise in areas such as trades linked to catastrophic events, insurance derivatives and credit arbitrage. Very large funds would focus on multi-investment strategies.

Read More: Hedge fund numbers to shrink greatly - Citigroup

September 24, 2005

Rosy Future predicted for Hedge Funds

TowerGroup released a study that the Hedge funds and fund of funds will grow at an annualized rated of 15 per cent between 2005 and 2008. Which implies that the hedge funds total managed assets will increase by additional 75 per cent nearing the $2 billion mark by 2008. And when this is achieved the spending on administrative services would be over $2.5 billion. The study stated that there would be a substantial rise from the current levels for institutional investor’s inflow of funds in the hedge funds. It is also anticipates that hedge funds will lower their minimum investment requirements in order to draw a large chunk of retail investors into hedge fund investments. Thereby leading to broad network of multiple prime brokers, increased regulation and transparency coupled with usage of better technology. HedgeCo.Net Reports:

Such predictions have taken into consideration the growing interest of institutional investors in hedge fund managed portfolios. Secondly, it is also anticipated that as hedge funds continue to lower their investment minimums, particularly fund of funds managers, more retail investors will be drawn into hedge fund investments.

Read More: Hedge Fund assets projected to grow at an annual rate of 15 percent through 2008

September 17, 2005

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

September 02, 2005

Christopher S. Fox moves from Cramer Rosenthal McGlynn to FrontPoint Partners

Christopher S. Fox is moving from Cramer Rosenthal McGlynn LLC to FrontPoint Partners LLC effective January 1st 2006. He will be the Managing Partner at FrontPoint along with the founder Curtis Macguyen and will be based out of New York City. Mr Fox has years of buy-side experience, including a decade as a hedge fund principal. Management at FrontPoint is understandably quite excited about his appointment and feels that it will have a direct positive impact on the morale and performance on the team. Phil Duff, FrontPoint’s chief executive officer indicated that the appointment reflects the commitment of the company to attract seasoned industry veterans to FrontPoint. Mr Fox is a veteran in the field with a proven track record and is being entrusted with the responsibility of motivating and guiding the investment team at FrontPoint.

He is as exuberant about the appointment, and feels that he would be very happy to contribute to the firm’s objective of creating constant value for investors. He feels that the company indeed has an impressive array of managers, capable of pushing the company to newer heights. Mr. Fox’s last assignment was as a long/short equity portfolio manager at Cramer Rosenthal McGlynn LLC prior to which he co-founded Schaenen Fox Capital Management way back in 1995. Hedgeco.net reports:

“Each strategy aims to deliver risk-adjusted absolute returns uncorrelated to broad market indices and is managed by a FrontPoint investment team that specializes in a focused sector or security class.”

Read More: Christopher S. Fox to Join Ivory Capital

August 26, 2005

Comprehensive Hedge Fund Report by VAN Hedge Fund Advisors

A new report on the hedge fund industry was unveiled by Van Hedge Fund Advisors International, LLC. The report titled ‘Hedge Fund Demand and Capacity 2005-2015’ presents a comprehensive view of the current state of the hedge fund industry. The report evaluates in-depth the demand capacity issues. It also makes certain forecasts regarding the size of the industry in the coming years. According to the report, the quantum of assets under management of hedge funds has already crossed $1 trillion.

It goes on to predict that by 2009 this figure will be at least double the current amount and by 2013 one can expect the hedge funds to be managing over $4 trillion. Chairman of VAN international claims that these are conservative figures and that the actual numbers can be higher. He has made a particular comparison with the mutual industry which took over 66 years to reach the $1 trillion mark which is over six times the time taken by hedge funds to accomplish a similar feat.  Hedgeco.net reports:

“George Van, Chairman of VAN International LLC said, "We believe that these projections are conservative, demand for hedge funds is at unprecedented levels and the worldwide capacity for hedge funds is growing.”

Read More: VAN Hedge Fund Advisors unveil comprehensive hedge fund report 2005-2015

August 23, 2005

The Hong Kong group KGR to introduce fund of hedge funds

KGR Capital is planning to launch a multi-manager, multi-strategy fund of Asian Hedge Funds on 1st September. The fund named KGR Capital Asian Dynamic Absolute Return Fund will have a portfolio of 27 hedge funds following 11 strategies. The fund managers are optimistic about the returns the investors can expect. They feel that with a market volatility of 7-10% they can expect returns in the range of 15-20% over a complete cycle.  They have allocated 40% of assets for investment in Japanese hedge funds and the balance to be divided between China, India and Korea. This fund is aimed at investors with higher appetite for risk who stand to benefit due to KGR’s established research and risk management expertise. The fund will be domiciled in the Cayman Islands and will have monthly subscriptions and redemptions, and the minimum investment of $100,000. KGR Capital is a specialist in Asian hedge funds and its earlier fund-of-funds, KGR Capital Asia Pacific Absolute Return Fund, gave the initial investors a 9.9% annualized return with a volatility of 4.12%
Financeasia.com reports:

“KGR Capital launched its first specialist Asian fund of funds, the KGR Capital Asia Pacific Absolute Return Fund, in August 2003. Since then it has given initial investors a 9.9% annualized return, with a volatility of 4.12%.”

Read More: KGR announces fund of hedge funds

August 22, 2005

Jovian Asset Management Inc. acquires Horizons Funds Inc.

Jovian Capital Corporation has entered into an agreement with Horizons Funds Inc. to acquire the latter trough its Jovian Asset Management Inc. Horizons is a leading-edge developer and distributor of investment fund products and specializes in innovative investing strategies. Within 90 days the agreement is likely to be formal if due-diligence and regulatory approvals are obtained by then. Horizons currently manages assets to the tune of $150 million through 3 open-ended, Full Prospectus Hedge Funds. The funds for which Horizons acts as trustee as well as manages and distributes are - Horizons Mondiale Hedge Fund; Horizons Tactical Hedge Fund; Horizons Phoenix Hedge Fund and Horizons Diversified Fund. The largest amongst these is Horizons Mondiale Hedge Fund which was formed in 1997 and is managed by using systematic, trend following strategies with strong risk controls. The fund has given 8.3% annualized return since inception. The Jovian group of companies manages more than $8 billion of client assets and operates from over 87 locations. Newswire.ca reports:

“Horizons Mondiale Hedge Fund, the largest fund, has been in existence since 1997 and is managed using systematic, trend following strategies with strong risk controls.”

Read More: Jovian Subsidiary to Acquire Control of Horizons Funds Inc.

Capri Capital Advisors acquires Trilogy Capital Advisors

Capri Capital Advisors LLC recently acquired Trilogy Capital Advisors LLC, a Kansas City-based hedge fund. Trilogy invests in public real estate securities and manages an $80 million fund. The price at which Capri Capital Advisors, a Chicago investment fund bought Trilogy is not known. Capri’s strategic alliance partner, CharterMac financed the deal trough its subsidiary. CharterMac is a full-service real estate finance company. Capri has about $2.3 billion under its management chiefly for pension funds and some institutional clients and invests in privately held commercial real estate portfolios. Capri has capitalized on the need for convergence between the private and the public markets and therefore offers its clients a full range of services in the real estate market. Trilogy will now be called Capri Real Estate Securities LLC and operate from Country Club Plaza and will also open an office in New York. Capri hedge fund is reportedly  among the first nationally to manage a long/short, or hedged, investment strategy focused solely on public real estate securities. Kansascity.bizjournals.com reports:

“What's happened over the last several years is there's been a convergence between the private and the public in order to provide clients with a full range of services in the real estate market"

Read More: Chicago firm buys KC hedge fund

August 21, 2005

Fidelity looses two more fund managers to hedge funds

Fidelity investments had a major setback recently with two more fund managers leaving the company and joining a hedge fund. David Baverez and Krishnan Sadasivam have joined join London-based TCI Fund Management. Most mutual funds are today battling with the exodus of fund managers to hedge funds. They are unable to give them what hedge funds are able to – more freedom, more money and equity stake. The first casualty of Fidelity loosing its best fund managers to hedge funds dates back to 1996 when Jeffrey Vinik left the company to pursue a career in hedge funds. Baverez, a star performer, had been handling the fund since January 2003. During his time, the mutual fund almost doubled. This is commendable especially in the context of FTSE Europe index which rose only 60 percent in the same period. Fidelity has hit a rough patch off late. It is also battling embarrassing revelations in the gifts-for-commissions scandal. The group’s broker Kevin Quinn reportedly spent $1.6 million on expenses wooing Fidelity traders between 2002 and 2004 – according to The Wall Street Journal. Business.bostonherald.com reports:

“Fidelity, like all mutual fund companies, is battling to keep good managers. Hedge funds usually offer the best of them more freedom, more money and an equity stake.”

Read More: Two Fidelity fund chiefs depart firm for hedge jobs

August 20, 2005

Oil Price hike is being seen very likely by hedge funds.

Global demand supply gap is experiencing a historic low. The ever increasing demand for oil is chasing the oil prices to go up around the world with current oil prices hovering around $66 per barrel and moving upwards. This upwards movement is being hastened by the hedge funds who feel that the oil prices are way out of sync from their fundamentals. This provides ample opportunities to the fund managers to invest and make profits from the market discrepancies. Analysts feel that the fundamental driver of the oil price is demand determined by strong global growth. Some estimates reveal that if the global economic growth of 4% persists, the demand for crude oil would increase by 2-3 million barrels per day. The current excess capacity is only around 2 million barrels per day. The future global economic growth is being pegged at 4.3% in 2005 and 4.4% in 2006 by The International Monetary Fund (IMF). As such Hedge funds see oil price surge is inevitable. Today.reuters.com reports:

"But Ashok Shah, chief investment officer at London & Capital, expects demand for crude oil to rise by 2 to 3 million barrels per day each year if global economic growth continues at around 4 percent a year."

Read More: Hedge funds see oil price surge inevitable

August 16, 2005

New survey not optimistic of good performance of Hedge Funds

A recent survey by French business school Edhec shows that the future of hedge funds is not quite bright in the next five years. The results were collated after in depth interviews with 183 Hedge Fund Managers. The survey revealed that more than 65% of the fund managers interviewed said that the industry’s assets will grow by a minimum of 10% in the next five years. That will bring the quantum of assets managed to over $1.6 trillion. That is a very big number when you look at it from the point of view of the number of opportunities that are or will arise due to mispricing in the market. The capacity constraints will not allow every one to go back happy and the returns will be no where near those seen a couple of years back or nearly as good as that being seen today. On the flip side some comment that the current slowdown is a result of a cyclical tendency and that the returns will grow amidst the fight. Volatility in the market leads to mispricing and the hedge funds exploit this very phenomenon expecting the values to come to fair value. Today.reuters.co.uk reports:

“Like the recent one in the convertible bond market, mainly populated by hedge funds, which over the last 1-1/2 years have mostly returned flat or negative numbers because of a dearth of new issues and low volatility.”

Read More: Capacity fears emerge in Edhec's hedge fund survey

August 15, 2005

Connecticut is the new home for Hedge Funds.

Hedge Funds are moving out of New York to Connecticut. There are several reasons for this move most important being the fact that Greenwich offers a very friendly tax structure of 5% as compared to 11.3% of New York. Add to this, the fact that many of the very-high net worth individuals reside there makes the move especially lucrative. According to some estimates, The Fairfield County is a house for almost 200 hedge funds with a total asset base of over $49 billion. The county also has support infrastructure such as law firms, technology firms and companies that cater to the hedge fund industry that make it more attractive for funds to settle down. Now over 20% of the entire commercial real estate is occupied by Hedge Funds. Even for fund managers, the county is a comfortable place to both live and work. The place also offers an opportunity to network with other managers and infrastructure service companies, including Cobb & Eisenberg, the only boutique law firm north of Manhattan specializing in the hedge-fund industry. A mass movement to the county was also observed right after 9/11 attack with funds moving there in search of a safe haven. All in all, the Fairfield County is being seen as an epicenter of hedge finds industry. Westchestercbj.com reports:

“Lower Fairfield County also has a few other advantages over Westchester. "Stamford, Conn., is considered more of a financial center than other suburban cities," such as White Plains, said Matthew Eisenberg, a member of the Cobb & Eisenberg law firm in Westport, Conn.”

Read More: Hedge funds bypass county

August 13, 2005

Investors frustrated with low returns ask for more risks!

Low returns on investment are leading hedge fund investors to demanding their fund managers to take more risks. To most investors, high risk means high returns but this is not a wise move. Yes, the returns up to now in 2005 have been anything but encouraging. But what the investors need to know is that like any other industry, there are some cyclical trends in Hedge funds market. Low volatility of the market has let to fewer opportunities to make profits. This is the main factor for the hedge funds scoring returns in the range of 3.5%. This obviously is causing the investors to become frustrated and hence the demand from their end to increase risk taken by fund managers. Hence industry experts feel that the investors should lie low for a while instead of pressuring their fund managers to take unwise risks. Hedgego.net reports:

“A hedge fund professional who spoke on condition of anonymity said, "There is a huge set of investors out there that think that hedge funds' return patterns will skew to the positive, regardless of volatility, and that's just not the case."

Read More: Hedge Fund Investors Pressure Managers for Riskier Investments

August 12, 2005

The Philanthropic side of hedge fund managers

The growth of hedge fund industry has also initiated a wholesome effort towards improving the lives of the underprivileged. Hedge fund industry has grown from $15 billion 15 years before to over $1trilion now. The amounts spent on philanthropic activities by these funds have also grown. The high growth, high return arena has made millions for many including the managers themselves who charge up to 20%of the profits plus a management fee of 1-2%of the total assets. As such the number of charity organizations has increased – to name a few -‘Hedge Fund Care’, ‘Robin Hood Foundation’ and ‘100 Women in Hedge Funds’. Some make a big deal about the donations and see it as an avenue to socialize and hob-nob with the rich and the famous including glamorous movie stars. While some do it for saving taxes. Some donate as a part of ‘social responsibility’ clause of the firm’s charter. And a smaller fraction donates anonymously as a call from the heart. What ever the reason for contributing to towards a altruistic cause, the underprivileged are benefiting. Way to go Hedge Funds! Nytimes.com reports:

“Managers of hedge funds - private pools of managed capital that have historically produced outsize returns while charging unusually high fees - can take home as much as 20 percent of the profits.”

Read More: Fund Managers Raising the Ante in Philanthropy

Hedge Fund Companies pay well

Looking for a high paying job? Hedge Funds companies are the ones you should be working for. A recent survey by the Guardian revealed that Fund management and investment banking are the highest paying jobs. Salaries crossing £ 100,000 have been seen in the industry lately. Man Group tops the list by paying an average of £115,651 to its 2,888 employees. Next in line is venture capital specialist 3i with average pay of £107,471. Salaries at Schroders were almost touching £100,000. The top ten employers list also included Barclays, the property developer Land Securities, BP and the financial information company Reuters. People at the lower end of the ladder however feel that the enticing structures are at the boardroom level and does rarely percolate to the lower strata. Guardian.co.uk reports:

“Tesco, where the board emerged as the second-highest paid in the executive earnings survey behind Sir Martin Sorrell's WPP, paid its 243,000 workers an average of £12,713 - making it seventh from bottom. “

Read More: Pick hedge funds; don't stack shelves

Is it wise for small hedge funds to not register themselves with SEC?

There seems to be absolute contradiction between what the SEC wants to and what it has actually done. SEC under William Donaldson passed a resolution which demanded that any hedge fund with total assets under management of over $25 million has to be registered with SEC. This was done in order to safeguard the interest of investors especially the smaller ones.  But what it did not realize is that the smaller investors are more likely to invest in smaller hedge funds. This is directly proportional to their own comfort with the size of the fund in which they are investing. Now what has happened is that this very investor, who was to be shielded by the SEC, is now more prone to losses when these small hedge funds collapse. The registration rule states that there is no need for hedge funds managing funds lower than $25million to register with SEC. But on the flip side the argument in favor of exemption stems from the fact that the cost of registration itself is quite tiresome as well as expensive and hence it is wise to not force them to register. Money.cnn.com reports:

“Some say the SEC's desire not to place undue burdens on small business is understandable, but when applied to the new hedge fund regulation, the $25 million exemption leaves the smallest funds unregulated – and it is precisely these funds that are more likely to attract individual investors, the group the SEC exists to protect. “

Read More: Hedge funds: A $25 million loophole

August 07, 2005

Some valuable advice from the guru of hedge funds

Now here is some advice from a guru of hedge funds. Michael O'Higgins, author of 1991 best-seller "Beating the Dow" and ace investor gave insights into how the market is likely to perform in the coming months. His track record has been above average even in times of overall market slowdown. His talent of sniffing out future trends is what makes his opinions worthwhile. When he said ‘gold will shine’ it did like several other of his other forecasts. He now feels that Treasuries are fairly valued and long-term rates will not change much. Invest in stocks and bonds of five lowest-priced and highest dividend-yielding stocks available - GM, Verizon, Merck, Pfizer and SBC Communications. U.S. stocks should become attractive in November. Another secret to his success seems to be his selection of customers where he insists on at least $1 million from each client. Overall his fund manages $100 million for these high net worth clients. He also charges an exorbitant fees for his services - a base fee of 1.5 percent plus 20 percent of the profits. Myrtlebeachonline.com reports:

“At lunch in 2004, the depression was still on its way, he said. Deflation, too. After a stock market bubble such as the one that burst in 2000, there never had been a complete reversal until a huge period of falling prices, falling employment and declining economic growth.”

Read More: Hedge fund guru offers advice

SEC issues cease-and-desist orders against two Californian investment advisers

Two Californian investment advisers faced the brunt of Securities and Exchange Commission when it issued a cease-and-desist order and also pay a $20,000 civil penalty. Gerald Klein & Associates and to Klein, Pavlis & Peasley Financial are registered advisers and co-managers of two small hedge funds which go by the names – Invest Talk 1 & Invest Talk 2. SEC charged them with gross violation of regulatory lays and asked them to close operations. The two advisers were accused of having more than 35 non-accredited members in it funds where as the law stipulates that it should remain under the number. Accreditation actually implies that the investor should have an annual income in excess of $ 2000,000 and should have a net worth exceeding $1 million. Apart from this the two were also found guilty on account of advertising the funds through radio programs, seminars and through websites. The two advisers did not deny these allegations but added that they did not know that advertising through these media was not allowed. On the number of un-accredited members, they said that SEC is counting the combined base of the two funds which according to the advisers are two different funds as they employ different strategies. But SEC has different opinion on the same. Thestreet.com reports:

“The SEC found that the two advisers broke the law by selling their hedge funds via radio programs, seminars and Web sites. The SEC also alleged that the funds had more than 35 non-accredited investors, another SEC violation.”

Read More: Radio Silence for Hedge Funds

Greenwich: The capital of hedge Funds!

Greenwich: The 67-square-mile cluster of neighborhoods that began in the 20th century mainly as a beach resort is today almost the capital of Hedge Fund Industry. The city is only 30 miles from Manhattan and has a population of 62,000. Most of the residents are the ‘rich and the richer’ and for years it had been this way. Until now: The city is home to over 100 hedge funds collectively managing more than $100 billion, about a tenth of the total invested in hedge funds world-wide. Today over 65% of the entire commercial space in Greenwich is taken up by Hedge Funds. And there is a waiting list of Hedge Funds who are merely waiting to get some office space in the city, which now runs to a year. Real estate prices have escalated to such an extent that they are costlier than even mid-town Manhattan office space rates. Their presence has spurred the presence and performance of support services such as ‘quick’ eating joints. Transportation from and to Manhattan is also facing overload. Post-gazette.com reports:

“The invasion reflects an escalating race for status and convenience among managers of hedge funds. Greenwich, a town of 62,000 located on the shores of Long Island Sound, is still mainly a residential community, with limited office space.”

Read More: Hedge funds feel right at home in Greenwich, Conn

HFA’s hedge fund of fund strategy gets an ‘Excellent’ from Lonsec

HFA’s Diversified Investment Funds has got a very good report from Lonsec. Lonsec made its Hedge Fund of Funds sector review public recently which rated HFA as ‘most preferred’ in its sector. Lonsec feels that the fund has the ability to outperform its peers and achieve its performance targets over a full economic cycle. HFA has managed to generate positive returns from inception overcoming the obstacles of bear market and other market ups and downs. HFA’s underlying investment adviser is US based hedge fund of funds manager Lighthouse Partners (LHP). LHP has a reputation of being a high quality hedge fund of funds manager. Lonsec feels that they have all the right ingredients for a consistent performance like strong culture that emphasises capital preservation and risk management and transparent investment objectives. The fund is targeting a return of 8 - 12% per annum with a volatility of 4 – 6%. Financialstandard.com reports:

“Lonsec also highlights LHP’s transparent and measurable performance objectives over and above return and volatility as another distinguishing feature for the fund stating that this is not the case amongst all Lonsec assessed peers.”

Read More: Lonsec prefers HFA’s hedge fund of fund strategy

August 03, 2005

Hedge Funds still attracting decent inflow of money

For those who were depressed by the thought of a shakeout in the hedge fund industry, this is some news to cheer about. Trade publication, EuroHedge recently conducted an intensive survey of the hedge fund industry. Findings reveal that despite the ‘unremarkable’ performance of the funds in the first half of 2005, there has been adequate inflow of funds. It stated that in comparison to 128 new funds generating $9.5 billion in the first half of 2004, in 2005, 150 new hedge funds raised over $13 billion in the same period. Therefore although the returns have been lower when compared to that of 2004 (1-2% instead of 3% in 2004), but the funds are still attracting fresh inflow of money. Even the overall projection of a shortfall of 2 to 3 % on returns in comparison to 2004 does not deter the enthusiastic investors. This is primarily because there seems to be a good amount of faith in the funds to generate funds even when the market crashes. Long/short strategy and the flexibility of the funds to merely withdraw the funds from the market and place in deposit (to earn money market interest rates at least) seems to boost this faith. Money.cnn.com reports:

“Traditional fund managers normally track benchmark indices and have to keep most of their assets in the market even when prices are falling, one of the reasons why investors lost large amounts of money during the 2000 equity crash.”

Read Now: Report: Cash still flows to hedge funds

Hong Kong: A Strong Private Equity And Hedge Fund Venue

Walkers, which is global offshore law firm recently made public its detailed analysis of the Hong Kong Marketplace. It said that in the last three years the number of investment companies in Hong Kong has increased by 165%. A majority of these companies are in Cayman Islands. Walkers is a top law firm for hedge funds by total assets of funds and assets of non-U.S. funds. The number of investment companies has shot up from 17 to 28 between 2001 and 2004. Even private equity funds raised in Hong Kong over the last three years has increased by 470% in this duration. Asia is being seen as a promising market for investment with over $60 billion already invested in hedge funds across Asia. Cayman Islands in particular are an attractive jurisdiction for Asia-focused hedge funds primarily because of stringent regulatory and legal framework which mandates transparency and disclosure. The level of regulation is even over and above what US currently requires, thereby making it exciting for institutional investors and high net worth individuals. Home.businesswire.com reports:

“The Walkers analysis also revealed a 470 percent, or $217 billion, increase in private equity funds raised in Hong Kong over the last three years, growing from $58.6 billion raised in 2001 to more than $276 billion in 2004.”

Read More: Hong Kong's Growth as Strong Private Equity And Hedge Fund Venue Continues; 470 Percent Increase in Private Equity Funds Raised Over Last Three Years

Equity based Hedge Funds face difficult times

The reducing volatility in stock market coupled with growing efficiency has led to less number of opportunities for equity based hedge funds. This was noted by U.S. investment bank Merrill Lynch. Merrill indicated that many equity based hedge funds use techniques which rely on the assumption that prices will return to their long-term averages. But what actually happens is that with a large influx of money and sheer drop in volatility makes it difficult for hedge funds to generate returns like before. The fall in volatility can be gauged from the fact that Chicago Board Options Exchange's Market Volatility Index has held below the 20 level mark for the past one year. This is a sharp contrast from the volatility spikes touching 40 several times and volatility generally hovering between 20 and 30 for six years prior to April 2004. The Chicago Board Options Exchange's Market Volatility Index is a benchmark measure of U.S. stock market volatility. When there is less volatility, hedge funds generally have less number of opportunities to make use of any mispricing. And Equity based hedge funds account for nearly 40 % of the total hedge fund industry which according to recent estimates is over $1 trillion. Today.reuters.com reports:

“The Chicago Board Options Exchange's Market Volatility Index -- also known as the fear gauge and a benchmark measure of U.S. stock market volatility -- has mostly held below the 20 level for most of the past 12 months.”

Read more: Equity hedge funds face difficulties –Merrill

Hedge Funds: Miller states that active money management is worth its extra cost

For long investors have felt that hedge fund managers charge an exorbitant amount to manage the funds. They feel it is definitely high when compared to what is charged by mutual funds managers. Well this thinking has been challenged by Ross Miller, professor of finance at the State University of New York at Albany. According to him what you pay to the latter, thinking it is a low fee is in actual sense high. He argues that the 1-2% fund management fee along with the 20% of total profits made by the hedge funds are still less when you see them in the context of ‘alpha’ and ‘beta’. ‘Beta’ is a gain which is almost effortless – it is the pay-off generated by all-stocks-all-the-time managed fund. ‘Alpha’is a result of skill of the fund manager, his ability to select the right stock at the right price. What the Hedge Funds charge the investor is for ‘alpha’ alone where as in the other case the investor is charged for both ‘alpha’ and ‘beta’. Theage.com.au reports:

“The standard image of hedge funds, or private partnerships designed for the wealthiest investors, casts them as high-cost propositions, with the typical manager charging 1-2 per cent of assets per year plus a 20 per cent slice of the profits.”

Read More: Alpha the first and last word in fund debate

American Investors return to Mutual Funds

Spectrem Group recently revealed that according to a survey conducted, more Americans worth at least $5 million doubled their mutual fund investments. The group surveyed about 500 investors during the first three months of 2005. These investors have also been found to be gradually decreasing their share in alternative investments. Investments in hedge funds for instance, have decreased from 9% to 8% of their total assets. This trend relates to the funds allocated by American investors in the past two years. Investors seem to have regained faith in mutual funds and therefore have been increasingly allocating more parts of their funds to the category. Industry observers feel that this move is in response to investors believing that the fallout from the mutual fund scandals and issues about corporate governance are over. According to the study the investors have now increased their portfolios exposure to mutual funds from 6% in 2003 to 12% in 2005. Hedgeco.net reports:

“The study surveyed about 500 investors during the first three months of 2005, and found many of the surveyed group switched back to mutual funds. According to Walper, they are worried about investment returns.”

Read More: Affluent Americans double their mutual fund investments-New Survey

July 31, 2005

Hedge Funds may not perform as well in 2005

Contrary to what the industry analysts feel, the hedge fund industry may not equal the gains of previous years or even of 2004. The first half performance was much below expectations. Average hedge funds have posted returns of 1 to 2 percent in the first half. Compare this with 2.5 to 3.5% gains made by most hedge funds in the same period in 2004. Particularly the period between March and May in 2005 has been exceptionally bad. 2004 had ended with average hedge funds returns of 7 to 9 percentage points. However considering the performance of 2005 till now, the investors can expect a shortfall of 1 to 2 percent from the returns of last year. This is despite the projections that the industry is quite stable now and will definitely grow from here. The market overall has also been relatively stable therefore the industry will be able to makeup some losses made in the first half. Hedgeco.net reports:

“Jaakko Karki, chief investment officer at UK-based Attica Alternative Investments said, "March to May this year was a difficult period for hedge funds resulting in a negative return of 1 percent on average over the period. "

Read More: Hedge Fund returns in 2005 may fall short of expectations – Analysts

Hedge Funds being blamed for Wall Street's inadequacies

Here is one for defending the Hedge Fund industry. Dr. Joe Scifers who is a hedge fund manager and investment newsletter publisher recently made his opinion about the financial industry loud and clear. He said that investors have been repeatedly been made to believe that the returns from market will be low as all the strategies that had to be explored and all the moves that the financial industry had to make have been made. He blamed the Wall Street for creating the mindset of accepting low returns. He says that people often overlook the fact that stock market is still the best investment tool. Elaborating on this, he remarked that from 1986 to 2002, the S&P 500 has averaged 12.2% per year indicating that despite the catastrophes that have shaken the world the stock market still performs. He added that hedge funds have been repeatedly been wrongly blamed for creating chaos in the investment industry.  Coming to the defense of the fund managers, he said that the fund managers work hard for earning. They are suitably rewarded for their performance by way of performance fee. This incentive is however lacking for mutual fund and other investors and therefore the dismal returns that the investors have to live with. Hedgeco.net reports:

“Scifers believe that hedge funds work because their managers have the incentive to perform, and they receive incentive fees because they earned them. On the other hand, well performing traditional investment managers are not compensated in line with their achievements he explained”

Read More: Wall Street is not working, blaming Hedge Funds is not the answer -Hedge Fund executive

FSA gets kudos on a good job done!

After the Financial Services Authority announced regulation of hedge fund mangers, the industry in general has gained more confidence in institutions such as pension funds. This was revealed recently by Anthony Todd, chief executive officer of Aspect Capital. Todd explained that the fact that the funds have to register with FSA has increased confidence of investors in the funds. Referring to the industry before FSA regulation as ‘Wild West’, he said that earlier industry failed to generate a sense of assurance amongst the investors and therefore quite a lot of investors preferred to stay out of it. Commending FSA on its good job, he said that with some regulation in place, the industry has now become more robust and is more palatable to the institutions. After the bloodshed in the stock market in 2000, investors such as pension funds are progressively turning away from the stock market. They are instead looking at hedge funds to help them generate the required results. Just to state a point, the global industry has grown to $1 trillion from $500 billion in just five years. Reuters.co.uk reports:

“Institutions including life insurance firms account for much of the new money that has been invested in hedge funds in recent years. Globally, the industry is now estimated to manage around $1 trillion (0.6 trillion pounds) compared with around $500 billion five years ago.”

Read more: Rules for managers boost appeal of hedge funds

July 29, 2005

Alpha magazine re-tabulates findings of Institutional Investor's 2005 All-Asia Research Team

Alpha Magazine re-tabulated the findings of Institutional Investor's 2005 All-Asia Research Team, in order to ascertain the brokerage firms that provide the best Asian equity research according to Hedge Fund managers. For this they focused only on those votes that were cast by hedge fund managers. The total exposure of these funds in Asian equities is almost $55 billion. The re-tabulated results threw up 17 winners amongst the total considered industry of 29 country and macro research categories in the complete All-Asia Research Team. UBS undoubtedly leads the hedge funds voters list with the greatest number of team positions. Goldman Sachs (Asia) stood second with 11 team positions. Other leading voters comprised CLSA Asia-Pacific Markets, Morgan Stanley and Smith Barney Citigroup. The key to success of hedge funds is a strong research, proper analysis and reliable number-crunching. This formed the basis on which the winners were selected. Biz.yahoo.com reports:

“Among hedge fund voters, UBS takes the greatest number of team positions (13), just as it did in the overall All-Asia Research Team, where it had 28. In second place, with 11 team positions, was Goldman Sachs (Asia), which ranked sixth (with 14 positions) in the All-Asia team.”

Read more: UBS Ranks Highest Among Hedge Funds for Asian Research, Says Institutional Investor's Alpha Magazine

July 27, 2005

Hedge Funds can affect credit market adversely

Fitch Ratings recently raised concerns about the effect that hedge funds are having or are capable of having on the credit market. Though the funds are a major source of capital for the market and can promote liquidity in order to diffuse credit risk, they can spell trouble also. For example if several hedge funds decide to sell their holdings at the same time in order to reduce exposure to the market and meet margin calls, this could have severe implications on the credit markets. Such a scenario did somewhat emerge in May this year when General Motors and Ford Motor were downgraded to junk status. Hedge funds were seen to borrow almost 10 times their cash, using the leverage to control a larger amount of assets. Fitch ratings fear that in an unfavorable market scenario, hedge funds may be forced to sell their holdings in order to repay lenders. This might exaggerate the fall in price of the company credit on which the funds were betting. Also, since hedge funds have more or less narrowed down the distances between unrelated sectors, they might also trigger a cross segmental price decline of credit markets. IHT.com reports:

“Fears over hedge fund losses flooded through the credit markets early in May after the U.S. auto giants General Motors and Ford Motor were downgraded to junk status more quickly than many had expected.”

Read more: Fitch adds voice to concerns over hedge fund risk

Study on Hedge Fund industry unveiled

CREATE, the UK think tank, and KPMG International presented a study titled - Hedge Funds: A Catalyst Reshaping Global Investment. This study presents the views of 550 top executives in 35 countries involved in hedge funds with combined assets worth US$ 23 trillion. The study indicates that prolonged bear market and the inflow of top talent capable of generating high returns are the main reasons for growth of hedge funds the world over. This has led to tremendous increase in the number of start ups in the arena. However, not all of them are able to generate double digit returns as the investors are led to believe. Therefore, poor returns and mis-pricing of complex products is a common fallout. Professor Amin Rajan, the report’s principal author and the CEO of CREATE said that at least 55 % of the funds are ‘wannabes’ who have potential but are not tested. Another 15% are star performers who are making all the numbers. Balance funds are not worth much of mention since they are the ones who face all the brunt of inadequacy and lack of experience. The study also made it clear that in order to make profits in the future, the fund operators will have to be creative and innovative. Caymannetnews.com reports:

“The study predicts that the next wave of new money into hedge funds will come from pension funds that have so far adopted a wait and see attitude. Those in the USA are likely to have bigger allocations than their peers in Europe and Asia Pacific”

Read More: Hedge Funds transform investment landscape

Analysts see cyclical trend in Hedge funds

The lack luster performance of the first half of 2005 has proven that in the investment business, it is not always an upward swing. This year has been particularly bad for funds employing the much battered convertible arbitrage strategy. The difficulties in credit market also seem to have slowed down the overall hedge fund market. In the second quarter in particular the net asset inflow was flay and even negative, implying that more money was going out of the funds than into it. First quarter raked in $25 billion and was better though not as good as the previous two years. However the slowdown is being seen as short-lived and analysts are upbeat about the revival of the funds shortly. They are even equating it to a ‘marathon’, which denotes prolonged performance and not as ‘sprint’ – a short lived spike. They also see a cyclical trend in the over all landscape of performance of hedge funds wherein every 3-4 years there has been a slowdown after a major economic event such as that witnessed in 2001 and 1998. The funds have thereafter picked momentum and performed!! Money.cnn.com reports:

“The strategy has taken a well-documented drubbing, largely due to a vicious cycle that began late last year when investors in these hedge funds, unimpressed with lackluster returns, began asking for their money back.”

Read More: Investors turn on hedge funds

Hedge Funds helped by Credit Market

Improvement in Credit Markets has helped Hedge Funds somewhat after a dismal show in the first half of 2005. Nader Tavakoli, founder of EagleRock Capital Management, a credit hedge fund firm based in New York, commented that while there was trouble for some hedge funds especially convertible funds, some amount of stability has been achieved now.  He added that there have been no major defaults and a conducive credit environment has been set up. Hedge funds are loosely regulated and have been seen as good investment options compared to mutual funds. They are able to employ certain strategies which enable them to make profits both in raising as well as falling markets. However the industry saw a spate of redemptions following the downgrading of bonds of two auto firms. The blow was most severe for convertible arbitrage funds. Despite all this, the funds still managed to outperform equity markets though they did not meet investor expectations. IHT.com reports:

“The CSFB/Tremont hedge fund index, which tracks more than 400 managers, climbed 1.31 percent in June, giving it a gain of 1.34 percent for the first six months of the year, CSFB/Tremont said Friday.”

Read more: Credit markets provide a lift for hedge funds

July 24, 2005

Investors want shorter lockup periods for hedge funds

More and more hedge fund investors are interested in investing for smaller durations. They are looking for investment lockup of one year or less. This trend was more than evident in a survey conducted by Deutsche Bank. The survey interviewed around 1000 investors and the findings suggest that the number of such investors has gone up from 68% last year to 77% this year. Nationality also gives a skew to the figures, with 90% Europeans asking for shorter lockup duration as compared to 68% Europeans. The need for shorter duration lockups also seems to be universal with almost everybody from - fund of funds and high net-worth individuals and family offices to pensions, banks, and corporations to insurance companies – asking for it. Lockup periods are very critical for the fund managers of hedge funds. It offers the much needed stability to the fund especially during rough weather such as that experienced in the first half of 2005.  One would remember how the downgrades of General Motors and Ford Motor earlier this year rocked the bond market leading to a trail of redemptions from many hedge funds. Apart from this investors are also demanding separate accounts within the funds in which they invest, Deutsche Bank survey reveals. Forbes.com reports:

“Deutsche Bank found in its fourth annual survey of alternative investments that the demand for shorter lockups cuts across all investor classes, from fund of funds and high net-worth individuals and family offices to pensions, banks, corporations and insurance companies.”

Read More: Investors Seek Quick Exits .

New asset inflows to continue in 2005 despite low returns of Hedge Funds

Several hedge funds reported losses in the first half of 2005. Most of these losses were made by funds employing convertible arbitrage who suffered redemptions due to the downgrade of bonds of two major auto makers. However, despite the overall dismal performance of the industry, industry analysts feel that this will not prevent the investors from pumping in more money into the funds in the remaining year. Therefore the 3rd and 4th quarter are likely to show improvement. According to data from Tremont Capital Management, 2003 and 2004 has new investor money inflow of $72.2 billion and $123 billion respectively. In 2005 Hedge Funds inflows were to the tune of $24.6 billion. Senior hedge fund specialist for Standard and Poor's, Justin Dew commented that this looks like a slowdown when compared to the previous two years performance. 2003 and 2004 were boom years for the industry anyway. Therefore if you look at the performance in isolation, it is perhaps not phenomenal but is still fine. Hence the industry is stable and can expect a good performance and inflows of money in the remaining part of the year. Hedgeco.net reports:

“While asset inflows into hedge fund portfolios were flat during the second quarter of 2005, hedge fund analysts don’t think such flat return would deter new investors from investing in hedge funds.”

Read More: Low Hedge Fund returns in 2005 unlikely to stop new asset inflows .

Journalists feel that hedge fund managers are smarter than mutual fund managers

Walek & Associates recently published a report on how the journalists feel about the Hedge Fund managers. The last survey was conducted 3 years back and since then the number of articles being written on hedge funds has increases manifold. In fact their number is expected to grow to 200,000 by the end of this year. As such there is tremendous awareness on hedge funds amongst journalists. But at the same time, they are certain that most investors lack clear understanding of the funds. They also feel that the industry is growing very fast and also believe that it might be bubble waiting to burst. Majority of the respondents feel that SECs regulation will offer protection to a certain extent to the investors. And the best for the last – the journalists believe that the Hedge Fund managers are smarter and cleverer than Mutual Fund managers. Hedgefundsworld.com reports:

“But if journalists are more confident in their understanding of hedge funds they remain uncertain about investors’ knowledge, eighty-six percent said they don’t think investors understand hedge funds.”

Read More: Hedge fund managers are smartest.

July 22, 2005

US Securities to take the issue of regulating Euro Hedge Funds lightly

Noting that the hedge fund industry as being vital for the world economies, U.S. Securities and Exchange Commissioner Roel Campos said that there will be light approach towards regulation of Euro Hedge Funds. Campos commented that the regulation put in place is not as burdensome as some people think it is. Most of the offshore hedge funds will have to follow the regulation though. US regulators will be using a risk based approach while overseeing hedge funds. Campos also noted that all this talk about regulation has picked up momentum due to some hedge funds being involved in illegal trading scandals which affected the US Mutual Fund market last year. He also mentioned that the US exams for hedge fund managers will be with the intention of increases interaction and collaboration. In Europe however this exam will be limited to only those who are involved in some sort of fraud. Campos was implying that the country of origin of the hedge fund does have an overseeing role and this will be considered while putting any regulation in place. Hedgeco.net reports:

“Campos is implying that the strength of the home country’s ability to oversee its hedge fund sector would be a factor in such considerations. He however noted that the hedge fund industry is vital to the world economies.”

Read More: U.S. Securities Regulators to take light approach towards regulation of Euro Hedge Funds .

July 18, 2005

Recent movements in dollar may lead to hedge fund redemptions

The Dollar has been seen to be somewhat strong recently. This movement, has unnerved some investors. Fauchier Partners, which is a London based fund of hedge funds, commented that this could spur redemptions in the coming few weeks. It is felt that in the movement in dollar and low bond yields may lead to reallocation of funds by investors. This is expected to affect providers of guaranteed products more as they operate on very strict guidelines on balancing of their assets. An overall 10% loss has been witnessed by European funds of hedge funds in the wake of dollar getting stronger against Euro and Sterling. This may initiate redemptions due to shortfalls irrespective of the performance of the funds. Hedgefundsworld.com reports:

“In particular, funds of hedge funds and providers of guaranteed products, who have strict rules concerning the balance of their assets, may move money out of hedge funds as the recent strength of the dollar may have upset this balance.”

Read more: Stronger dollar may prompt redemptions.

July 15, 2005

Costas to build hedge fund unit for UBS

Some changes, which are part of the restructuring plans, have been announced within UBS recently. John Costas who was previously the chief executive of UBS, is now appointed as head of a new hedge fund unit at the Swiss bank. Huw Jenkins, currently the head of equities, will now be the chief executive. Dillon Read Capital Management which is the new business of UBS will manage a number of hedge funds and will also make proprietary trading available to third-part investors. In the last few years, Costas has been chiefly responsible for taking UBS investment bank to the top. By the end of the year however he will withdraw from the executive board of UBS but will continue as non-executive chairman of the bank. Industry analysts feel that Costas move seems to be of his own will rather than that of the bank. All these changes are part of a total revamp plan to regroup wealth management businesses and bring together the bank's U.S., Swiss and international wealth management business. Apart from this Swiss corporate and retail banking unit will be grouped under global wealth management and business banking. Reuters.co.uk reports:

"The regrouping of the wealth management businesses will bring together the bank's U.S., Swiss and international wealth management busineses. It will also bring its Swiss corporate and retail banking unit into one group called global wealth management and business banking."

Link: UBS names John Costas to build hedge fund unit .

July 14, 2005

AIMA to form working groups to discuss regulations for the hedge fund industry

$1trillion hedge fund industry is facing a credibility crisis due to the recent developments in the market. The need for transparency and regulation code has been brought up in various forums. In view of this, Alternative Investment Management Association (AIMA) is forming working groups which would be conducting discussions on the same in the coming weeks. The hedge fund industry has been growing at a phenomenal pace off late and this has created fears of destabilization of financial markets due to high leverage and risky strategies which may lead to price swings. Hedge funds have been seen to be taking enormous risks to boost returns and often indulging in practices like insider trading and market manipulation. Add to this, the fact that only 5 to 10% of the world’s 6000 hedge fund managers are really skilled to give significant returns makes the situation grave. Meanwhile in US, greater efforts are being made in order to make the system more transparent. Registering with the Securities and Exchange Commission will be mandatory after 2006 for hedge funds and regulator will be having the power to order compliance controls, collect information and increase disclosure. Money.cnn.com reports:

“Recent concern over hedge funds peaked in May, when the downgrade of General Motors debt rating to "junk" status and subsequent market volatility raised the specter of large funds going bust as investors dumped them for safer strategies.”

Read more: Hedge funds mull code of conduct to ease risk concerns.

Alternative investments to be part of HNI investment portfolio

10 to 15% of every HNI (High net worth individual) portfolio will from now on comprise alternative investments such as private equity and hedge funds. This was made public by UBS Global Asset Management (UBS GAM). In order to diversify risk and also for the purpose of having fixes income investments, alternative investments are the best bet according to Gerhard Fusenig, head of investment fund services at UBS GAM. The asset management firm is quite optimistic about inflow of high volumes of funds primarily from institutional investors into hedge funds despite a relatively weak performance this year. Commenting upon the recent bout of redemptions from hedge funds, Mark Wallace said that the development is health as it would take some ‘heat’ out of the market. Mark Wallace is chief operating officer at UBS GAM. He also mentioned that since the time UBS GAM decided to sell third party funds along with its own products, several smaller firms have been affected adversely. Apart from this, the inclusion of third party funds has led to overall better performance of the firms fund managers. Hedgefundsworld.com reports:

“Mark Wallace, chief operating officer at UBS GAM, said the losses of some hedge funds in credit markets and the recent bout of redemptions is a healthy development and would take some heat out of the market.”

Read more: UBS GAM set target for high net worth clients

Hedge Funds expected to grow

Alpha Asset Management expects its R200 million fund to grow by two or three times in the next one year. Till now the firm has been investing only for wealthy individuals directly but due to increased demand of the fund in the market, it is planning to offer its services to third parties as well. James Clinch who is Alpha's business development director made this statement. Hedge fund has been known to be able to deliver absolute returns in all types of market scenarios. As such it is a good tool for investment. James Gilfillan, Alpha's research and analysis director, cited that the reasons for the negative word about the hedge fund industry seems to be stemming from over publicity of some hedge funds in the recent times. This along with the fact that there is paucity of clear understanding about the various strategies employed, resulting in negative word-of-mouth. Commenting on the ongoing debate on regulating the industry, Gilfillan said that regulations will definitely help the industry to get more acceptance from investors. Businessreport.co reports:

"Alpha Asset Management director Kevin Shames estimated that wealthy investors made up about R5.5 billion of the R8.5 billion, while pension funds and proprietary investments made up about R1.5 billion each."

Read more: Alpha expects growth in hedge fund of funds.

July 12, 2005

Hedge Funds Outperform S&P; 500 in 2005

Standard & Poor's reports that hedge funds showed higher overall gains compared to equities both for the month of June and for the first half of 2005. The S&P Hedge Fund Index (S&P HFI) showed gains of 0.9% in June compared to a loss of 0.01% for the S&P 500 stock index. Returns for the first half of 2005 were at 0.13% compared to negative returns of 1.7% for the S&P 500. June's highest gains at 1.62% came from the Directional / Tactical Index, a sub-index of the S&P HFI. The S&P Event-Driven Index followed with strong returns in June at 0.85% positive. Of the three sub indices S&P tracks, S&P's Arbitrage Index posted the lowest return at 0.24% positive. S&P stated that the positive returns on sub-indices indicated that the three investment strategies underlying them all generated positive returns in June. Senior hedge fund specialists attribute the higher returns to higher risk appetite among hedge fund managers and an increasing focus on security selection, as opposed to liquidity management. Hedgeworld.com reports:

"Contained inflation rates and predictable monetary policy have made hedge fund managers less risk-averse said S&P's senior hedge fund specialist, Charles Davidson. [The monetary policy] has encouraged greater confidence in asset allocation toward higher-yielding risk assets and increased leverage to generate target returns."

Read More: Hedge Funds Beat Out Stocks for Month and YTD

Higher Compensation for Hedge Fund Managers

A 2005 Investment Management Compensation Survey conducted jointly by the CFA Institute Russell Reynolds Associates points out that senior investment professionals have seen much higher growth rates in compensation than other US-based professionals. For investment professionals with 10 or more years of experience, compensation has grown 20 per cent to USD 240,000 as compared to 17 per cent for other senior professionals. Among investment professionals, the survey points out, those employed by hedge funds out-earned their peers earning 47 per cent more than overall median compensation. The most significant component of this increase was incentive compensation at hedge funds, accounting for between 30 and 40 per cent of total median compensation. Another important factor that affected compensation was earning the Chartered Financial Analyst (CFA) designation. The highest paid professionals were those with both an MBA and a CFA designation, followed by those with only an MBA and finally those without either designation. Among other factors affecting compensation was job function with operational, international and fixed income functions registering the highest increases in compensation. Chief Operating and Administrative Officers saw incomes in 2005 rising by a whopping 60 percent over 2003 to USD 320,500. Hedgemedia.com reports:

"The compensation findings are consistent with the growing demand for senior investment professionals. Driven by increased regulatory pressures and an industry emphasis on compliance, the quality CAO/COO is on this year's most wanted list, particularly in the hedge fund community."

Read more: 2005 Salary Survey: Hedge funds drive COO salaries to new heights

Hedge Funds out perform stocks in the first half

Analyses of the results of the first quarter suggest good news for Hedge Funds. While the stocks saw a fall (though minor), the hedge funds performed better. As per the data released on Friday, Standard & Poor's 500 stock index fell 1.70 percent while average hedge fund rose 0.13 percent. This phenomenon is a result of the funds betting on fall of stocks, increase in oil prices and minor recovery of dollar. All of which are a result of worries about rising interest rates and overall slower economic growth. In the last half a decade, the assets of hedge funds industry have doubled to $1 trillion thanks to following of trading techniques which are not generally followed by traditional funds. But Hedge Funds also have a market cycle just like the rest of the market and fall backs are inevitable. For example losses incurred by funds that specialize in convertible arbitrage strategies have heavily affected the overall performance of the fund this year.Reuters.com reports:

“Convertible arbitrage funds fared better as prices steadied after several funds went out of business and managers adjusted to redemptions. Now some funds are buying up securities for less…”

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