July 2006
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July 28, 2006
FSA offers backing for hedge funds
Britain'S financial regulator yesterday said hedge funds could be suitable vehicles for private investors, but that the risks could be lessened by not putting all their eggs in one basket.
John Tiner, chief executive of the Financial Services Authority, said: "We think it's reasonable for retail investors to get exposure to the hedge-fund sector, but without the concentrated risk of investing in a single-strategy hedge fund."
Tiner, speaking after the annual meeting of the FSA, said one way around the issue was for private investors to put their money in a "fund of hedge funds" to spread the risk. Despite his relative relaxed stance on London's 300 hedge funds, 30 of which the regulator has picked out for special monitoring, Tiner said in his speech to the meeting that vigilance on complex products was more necessary than ever.
He said that although the year to March 2006 had been a strong one for financial markets, this was just the time for investors and financial practitioners to be vigilant.
He said that "the historical problems we have had to deal with in bear markets - splits, precipice bonds, endowment mortgages - have their genesis in strong markets".
Tiner added: "We have been alert, in particular, to products, especially complex products, where the downside risks that may crystallise in weakened market or economic conditions may not have been made clear to customers."
He cited the risks associated with venture capital trusts and on the insurance side to "the risk that costly payment protection insurance may contain exclusions which cause the cover not to perform if the consumer falls on hard times".
Tiner also said there were "signs that the environment for regulated firms may become more challenging in the short and medium term". There was evidence of sharp corrections in various asset classes, he added.
-Scotsman.com-
Posted by su at 5:15 PM | Comments (0)
July 21, 2006
Pennsylvania pours another $2 billion in hedge funds
Portable alpha strategies have paid off for the Pennsylvania State Employees' Retirement System, adding $780 million in net earnings from its January 2002 inception date. So it should come as no surprise that the program will essentially grow by roughly $2.2 billion.
Trustees approved this week the expansion of its $6.7 billion portable alpha strategy in hiring two funds of hedge funds with an international focus along with a domestic fund of funds, followed by add-on investments among three existing fund of funds firms. Also, under the domestic equity mandate, the pension fund invested with an additional global macro hedge fund manager.
Portable alpha has gained interest in recent years for its promise of empowering large institutional investors to separate the sources of alpha and beta returns. Public equity exposure through indexing provides market returns (beta), and then alpha is strategically added through hedge funds. PennSERS was one of the early players in this realm, adopting a program in January 2002 Previous HedgeWorld Story. Since that time, the portfolio has earned 4.5% more than if the fund had invested only in the S&P 500, officials said in a statement.
"That success led the Investment Office to recommend, and the Board to approve, greater exposure to portable alpha," said Nicholas J. Maiale, chairman of the $30 billion public pension fund's board, in a statement.
This time alpha will pack its bags and move into the pension fund's international equity portfolio. Arden Asset Management LLC and The Rock Creek Group each will manage $650 million in low-volatility non-directional funds that will be in addition to exposure to international stock markets, done through EAFE index swaps.
On the U.S. equity side, an additional $650 million will be split between a new fund of funds and three existing firms. Robeco Sage Capital will manage $25 million. The remaining $625 million will be equally divided between Mesirow Financial, Morgan Stanley Alternative Investment Partners and PAAMCO.
Trustees also interviewed a fourth fund of funds—Guggenheim Capital LLC.
In the global macro area, single fund manager First Quadrant LP will handle $200 million in a separate global macro portable alpha program that's also within the domestic equity asset class. The U.S. equity program maintains a large-cap equity market exposure through S&P 500 contracts.
First Quadrant was one of three global macro finalists interviewed by trustees last October. The board chose AQR Capital Management and Bridgewater Associates Inc. to split a $750 million mandate at the end of October.
A spokesman for PennSERS said that it will likely take a month or more to get all the contracts finalized. Pension fund staff also work closely with the investment consultant Rocaton Investment Advisers, Norwalk, Conn., in structuring the portable alpha program.
-HedgeWorld.com-
Posted by su at 10:44 AM | Comments (0)
July 17, 2006
Italian hedge fund industry lacks special skills – AIMA
The absence of specialist on-shore knowledge in Italy’s hedge fund industry has dampened down the market for competition, according to a report by global hedge fund trade association AIMA and international law firm Simmons and Simmons.
There is a “need for specialist skills across the range of strategies”, said the report, which highlights some of the problems of the domestic Italian market and suggests how the industry can plan for the future, said AIMA (the Alternative Investment Management Association).
According to the survey, “Companies note the lack of ‘quality’ newcomers to the Italian marketplace in terms of expertise. This inevitably limits competition in the market.
“The increase of onshore ability and skills would, in fact, enable the increase in interest from foreign markets which in turn would promote the entry of new independent managers.”
Italy’s hedge fund industry is also suffering an “imbalance” with hedge funds occupying just 3% of the market and funds of hedge funds, which have 97% of the market, the survey stated.
Other key finding include:
- The need for the domestic hedge fund industry to become more focused on international markets;
- The risk-averse local market and some legal difficulties act as a brake on the entrepreneurial business;
- The need to change the general description of funds from ‘Fondi Speculativi’ (speculative funds) to one, which reflects the risk management nature of hedge funds.
However, the report also stated that Italy’s hedge fund market was well regulated and stable, and that it makes up 5% of the European total.
Commenting on the report, AIMA director Emma Mugridge said: “Italy has been one of the pioneers of the European hedge fund industry and it has created a structure that meets investor transparency and regulatory need.
“This survey has identified some of the issues that it now needs to address before it can move on with its market development. None of these findings are impossible to address and we hope this survey will act as a stimulus for renewed dialogue and, ultimately, change and future development.”
-IPE.com-
Posted by su at 10:37 AM | Comments (0)
Hedge fund indexes fall again in June
Hedge fund indexes fell for a second straight month in June and underperformed the Standard & Poor's 500 equity benchmark after some managers were caught out by sharp stock-market gyrations.
Hedge Fund Research's index dropped 0.20% last month after losing more than 1% in May. The Hennessee Hedge Fund Index, which tracks the performance of roughly 1,000 managers, shed 0.23% in June, after shedding 1.15% in May.
Hedge fund indexes run by The Barclay Group and HedgeFund.net dropped 0.32% and 0.14% respectively in June.
Hedge funds, private investment partnerships for wealthy individuals and institutional investors, are designed to generate positive returns irrespective of the direction of securities markets. However, many managers failed to beat the S&P 500 during a more volatile month for stock markets in June.
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DJIA10,739.35, -106.94, -1.0%) declined 0.16%. The technology heavy Nasdaq Composite index lost 1.51%.
"Hedge funds underperformed in June as they were slow to react to shifts in volatility," E. Lee Hennessee, managing principal of Hennessee Group LLC, said in a statement.
Equity hedge fund managers lost 0.35% on average in June. Most equity managers shifted portfolios to a more defensive position as stock markets declined early in the month. Then the market rallied in late June, Hennessee said.
Still, hedge fund returns remained clearly in positive territory during the first half of 2006. HFR's index is up more than 6%, while Hennessee's has climbed 5.65%. The Barclay Group's index rose 5.72% and HedgeFund.net's is up 5.92%.
Emerging market hedge funds, still among the top-performing strategies in 2006, lost the most in June. Managers shed more than 1%, according to Hennessee, HFR and HedgeFund.net.
Global macro hedge funds, which are free to take bets on broad economic trends anywhere in the world, also performed poorly in June as currency, metals and oil markets turned against them, Hennessee noted.
"Many macro managers bet on a 50 basis-point rate hike and were long the dollar as a trade in June only to lose money and were forced to reverse their position," said Charles Gradante, managing principal of Hennessee. "Metal markets were bearish during June while oil futures approached $75. Both of these markets were inconsistent with most macro portfolio bets."
Hedge funds that use arbitrage strategies - ironing out price anomalies between related securities -- thrive on volatility and that showed up in June.
Arbitrage managers tracked by Hennessee were up 0.3% in June and have returned more than 7% so far this year.
Merger arbitrage managers, who bet on the outcome of mergers and acquisitions, were the best performers during the first half of 2006, returning 7.92%, according to the Barclay Group's index.
-MarketWatch.com-
Posted by su at 10:34 AM | Comments (0)
July 6, 2006
Minimal damage In June
Early results indicate that hedge funds suffered less damage in June than originally predicted. Of the six strategies in the Dow Jones Hedge Fund Strategy Benchmarks Index, only equity long/short suffered a relatively severe fall, down 1.6% on the month, while convertible arbitrage was off by a paltry 0.1%. Distressed securities was flat, but the other three all inched up following May’s fall, with merger arbitrage up 1.1, event driven up 0.3%, and equity market neutral up 0.8%. The strategies made something of a comeback at the tail end of June, but the past month has taken a toll on the 52-week returns, with equity long/short falling from 8.9% at the end of May to 6.3% at the end of June. Four other strategies recorded 52-week drops, except for merger arbitrage which rose 0.8% for the period. Hit hardest in the 52-week returns are convertible arbitrage (down 2.1%), event driven (down 1.2%) and distressed securities (down 1.5%). Meanwhile, Merrill Lynch says hedge funds lost an average of 0.65% in June – about half the May losses, but HFs are still well ahead of the S&P 500 index year to date, 3.8% to 1.8%.
-dailyii.com-
Posted by su at 10:50 AM | Comments (0)
Hedge funds poised for clean bill of health in Brussels
Hedge funds should no longer be taboo for retail investors, pose little or no risk to financial stability and should receive only "light-touch" regulation, the European commission is likely to rule this year.
The commission yesterday published a report from hedge fund practioners including Gartmore, RAB Capital and Goldman Sachs in the UK, which makes a "strong" case, according to Brussels, that the industry has made "a positive contribution to sound functioning of financial markets without receiving intensive scrutiny/oversight from regulators."
The majority of a group of hedge fund managers, representing an industry worth $325bn in the EU and $1.3trillion globally, told the commission it should enable small investors with at least €50,000 assets to put their money into their high-yield funds and encourage the growth of a pan-European sector. A sizeable minority opted for a higher income threshold.
The initially favourable response from within the commission contrasts with the recent dire warning from the European Central Bank that hedge funds were a "major risk" for financial stability as they tended to invest along similar lines.
But the report, which aims to demystify their role, insists that hedge funds provide markets with liquidity and spread risks across a range of investors.
"Concerns have been expressed that hedge funds can magnify [market] "herding" and, so, contribute to asset bubbles in some markets. However, herding behaviour has not been proven to be inherent to hedge funds," the report says.
Hedge funds were demonised as "locusts" by Franz Münterfering, now Germany's deputy chancellor, after London-based TCI and New York's Atticus forced Deutsche Börse to abandon its bid for the London Stock Exchange and sack its chief executive and chairman.
But the report said the funds - 1,250 in Europe, of which two thirds are in the UK managing 20% of global fund assets - have become "more active investors in corporate equity and active shareholders of the companies in which they invest."
It also pointed out that high net worth individuals - traditionally the main investors in hedge funds - now account for just 44% of hedge fund assets, compared with 62% in 1996, while professional and institutional investors, such as pension funds, now account for 56%.
Charlie McCreevy, internal market commissioner, who is to publish a white paper on investment funds in November, said his aim was to "keep the fund industry growing" and create a single, pan-European market.
-Guardian-
Posted by su at 10:41 AM | Comments (0)
July 5, 2006
Hedge fund career allure is still strong
Fund management companies face a tough fight to hold onto talented employees against the lure of hedge funds, a research executive said on Tuesday.
With many managers defecting to hedge fund start-ups and other small companies to enjoy the freedoms of working for themselves, the labour market for large firms is likely to remain difficult, Amin Rajan, chief executive of research firm Create, told a conference.
"There is a war for talent...hedge funds are vacuuming skills from the long-only houses," he said, referring to an exodus of professionals from traditional asset managers.
His comments come at a time when the $1.5 trillion (810 billion pound) hedge fund industry has been continuing to draw in recruits, although the sector has experienced headwinds in investment performance in recent weeks.
In the past few years, there has been a steady move of financial professionals from investment banks and fund management companies to hedge funds, attracted by the possibilities of making a fortune, avoiding the bureaucracy of a large firm and the aggravations of working in a large financial centre such as London.
An analyst with four years' experience can earn between 50,000 and 70,000 pounds in a larger fund management business but in a hedge fund, an exceptional individual could earn up to 120,000 pounds, according to British recruiter Michael Page City earlier this year.
For much of this year, fund management firms have been on a hiring spree, paying higher bonuses to attract and retain staff, galvanised by the rise in stocks since March 2003.
Among the hedge funds moves cited in a recent report by financial news service Citywire is that of Simon Roberts, formerly Tony Willis' top-rated co-manager on the Lazard UK Alpha fund. He is currently the director of BlueCrest Equity Master Fund.
Some companies have the ability to set up in-house hedge fund operations while others find it a distraction, Robert Sargent, head of asset management, Europe and Asia, at Lehman Brothers, said at the same conference.
In certain cases, it may be difficult to value a traditional fund management business with a hedge fund operation in-house unless the unit is clearly separated from the rest of the company, Robert Jenkins, non-executive chairman of F&C Asset Management, said.
"If you do have that (hedge fund unit) I would strongly recommend that you segregate the business within the business."
-Reuters-
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July 4, 2006
Regulation - a benefit as well a burden
An increasingly vital issue for the hedge fund servicing sector in Ireland and indeed the global industry is the impact of new types of investment strategy and innovative investment instruments such as credit derivative swaps. Investment managers and administrators are starting to recognise the importance of obtaining independent pricing for these instruments and, in turn, of developing the right processes and models to price the underlying investments.
The Kinetic Partners Hedge Fund Survey conducted last year found that of various issues affecting the industry, including outsourcing, strengthening of back office and IT infrastructure and diversification of product offerings, a greater focus on independent valuation was most likely to grow in importance for managers in the future. Managers polled for the survey also believed that a perceived lack of skill among administrators in valuation of hedge fund assets posed a growing systemic risk to the industry.
Failure of the industry as a whole to tackle this challenge could impact the attractiveness of alternative funds as mainstream investments in the future. Fortunately, these issues are now high on the discussion agenda for regulators such as the Irish Financial Services Regulatory Authority and the Financial Services Authority in the UK, as well as industry bodies such as the Dublin Funds Industry Association and the Alternative Investment Management Association, and now firms such as Kinetic Partners are taking an active part in the debate.
The public discussion of pricing issues by regulators has drawn attention to the increasing role of regulation in the hedge fund industry, to a degree unimaginable a few years ago. Yet the shift in the investor base of hedge funds toward institutional investors, along with the parallel move to accept access to the sector by retail investors in some form, are only likely to see the level of regulation and scrutiny increase further in the future, in Ireland and across Europe as a whole.
This year has already seen hedge fund managers required to register with the US Securities and Exchange Commission, no matter where they or their funds are based, if they have more than 14 US-resident investors. It's ironic that while many US managers contested the new rules and some evaded a registration requirement by using the loophole of a longer lock-up period, many foreign managers affected by the SEC requirement - especially those based in London - were already subject to regulation at home.
Clearly some managers see regulation as a burden, but there's no doubt that SEC registration is a first step in the US toward a more regulated environment for hedge fund managers. The experience in Europe, however, is that regulation can also be beneficial for managers because it offers an important assurance to the institutional investors that are likely to be the main source of future growth for the industry.
In the UK, which is home to the managers of probably a majority of funds administered in Ireland, FSA regulation is in one sense supportive of the industry - it signifies that a manager has been through a regulatory process, and as a regulated entity is authorised to manage assets. Obviously the industry needs regulators to be sensible in terms of imposing new rules, and regulators need to be aware of the effect that overregulation could have on the industry, but regulation does offer a stamp of approval that US hedge fund managers could well benefit from.
-HedgeWeek.com-
Posted by su at 6:07 PM | Comments (0)
Hedge funds fall flat in June
Hedge funds appeared headed for another negative month, an industry tracker found, though the losses do not appear as significant as they were in May, when a meltdown in global markets and falling prices for metals dealt a tough hand to many funds.
Hedge funds posted an average return of negative 0.65 percent through the first three weeks of June, according to a research note from Merrill Lynch. For the year, these funds are up an average of 3.79 percent, according to the firm.
The S&P 500 Index is up 1.76 percent for the year, while the Lehman U.S. Aggregate bond index is down 1.05 percent for the year.
Hedge funds are private investment partnerships limited to institutional investors and wealthy individuals. Collectively, these funds manage about $1.2 trillion in assets, according to Chicago-based hedge fund tracker Hedge Fund Research.
Hedge funds use a variety of strategies, from betting on or against stocks, currencies or commodities to more esoteric strategies involving "derivative" investments or turning around distressed companies.
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.
Global macro funds, which invest in currencies and other instruments in markets around the world, are down 2.09 percent for the month through June 26 and up about 0.41 percent for the year. These funds also had a tough time last month owing to poor returns in international stock markets, posting losses of about 0.60 percent, according to the Credit Suisse/Tremont Hedge Fund Index.
Managed futures funds, which trade commodity futures contracts, are down 0.79 for the month. That's an improvement over last month, when sharp declines in metals markets dragged these funds down 2.7 percent, according to the Credit Suisse/Tremont Hedge Fund Index. But these funds are still up 5 percent for the year to date, thanks to strong performance for the year prior to May.
Several hedge fund strategies appeared to be flat to slightly negative for the month, though most are in positive territory for the year.
Convertible arbitrage funds, in which managers seek to profit from pricing differences in a convertible bond and the same company's common stock, suffered big losses last year but have rebounded strongly in 2006. These funds are up 0.60 percent for the month and 5 percent for the year to date through June 26.
The spate of mergers in 2006 has boosted event driven funds, which anticipate and seek to profit from corporate events such as mergers or restructurings. Event driven funds are down 0.41 percent through the first three weeks of June but are up nearly 5 percent for the year.
Merger arbitrage hedge funds, which seek to profit from the "spread" between the current market price of a company being acquired and the price once a deal has gone through, have also enjoyed a solid 2006, posting a 0.57 percent gain for the first three weeks of June and netting a 4.95 percent gain for the year.
-CNNMoney.com-
Posted by su at 2:58 PM | Comments (0)