Friday, December 17, 2010
HFR Market Microstructure Hedge Fund Industry Report for Q3 2010
HEDGE FUND LAUNCHES ACCELERATE AS MANAGERS EMBRACE TRANSPARENCY, UCITS III
Liquidations decline by over 30 percent as risk tolerance returns; Incentive fees continue to decline
Strong capital inflows and a return of investor risk tolerance contributed to an increase in new hedge fund launches in the third quarter of 2010, while investors continued to exhibit a clear preference for transparency, liquidity and UCITS III compliance in their allocations, according to data released today by Hedge Fund Research, Inc. (HFR), the leading provider of hedge fund industry data. New hedge funds launches increased to 260 in 3Q 2010, up from 201 launches in the prior quarter. For the trailing 12 month period, 945 funds have launched, the highest 12 month total since the period ending 2Q 08.
Hedge fund liquidations continued to decline, falling to 168 in the quarter, slightly below the 177 liquidations of the prior quarter. Through 3Q, 585 funds have liquidated in 2010, representing a decline of 31.8 percent over the same period in 2009. The third quarter of 2010 marks the fifth consecutive quarter in which hedge fund launches have exceeded liquidations.
Equity Hedge, Macro strategies see most launches; UCITS III compliance gains traction
New launches are more consistently conforming to investor preference for liquidity and lower costs. The largest number of new launches occurred in Equity Hedge and Macro strategies, while the fewest occurred in Event Driven and Fund of Hedge Funds. In addition, nearly a quarter of new launches comply with UCITS III guidelines, which incorporate liquidity requirements, restrictions on instruments and leverage, and emphasize the role of the local market regulator. The average incentive fee fell by 11 basis points to 19.0 percent, the second largest quarterly decline in incentive fees since 2008, while the average management fees remained at 1.58 percent. Both management and incentives fees charged by fund of hedge funds declined for the quarter.
“The trends in new hedge fund launches clearly reflect powerful dynamics currently reshaping the landscape of the industry and redefining the relationship between investors and managers,” said Kenneth J. Heinz, President of Hedge Fund Research Inc. “These trends are likely to continue as the hedge fund industry appeals to an increasingly wider, more global and more institutional investor base.”
Details: HFR Market Microstructure Hedge Fund Industry Report - Q3 2010
Monday, December 13, 2010
SEC proposes regulations under Dodd-Frank affecting hedge funds
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During October and November 2010, the U.S. Securities and Exchange Commission proposed several key regulations called for by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which Congress passed and President Obama signed into law in July 2010. Now, through its rulemaking proposals in October and November 2010 (the Proposed Regulations) which are summarized below, the SEC has begun to fill in a number of important details left unspecified by Congress in the original legislation.
The Proposed Regulations affect all private funds which claim exemption from the Investment Company Act of 1940 under Section 3(c)(1) or 3(c)(7) of that statute. This includes practically all hedge, leveraged-buyout, venture-capital, real-estate, mezzanine-debt, and distressed-debt funds, as well as funds-of-funds. As they relate specifically to private funds, the Proposed Regulations do three major things:
* First, they propose definitions and details regarding certain exemptions from registration with the SEC under the Investment Advisers Act of 1940 (the Advisers Act). (Dodd-Frank eliminated, effective in July 2011, the exemption which most private funds had been relying on until now, replacing it with new exemption criteria.)
* Second, the Proposed Regulations would require every firm that serves as an investment adviser to any 3(c)(1) or 3(c)(7) fund to file with the SEC and update annually a Form ADV. This requirement would apply even to smaller advisory firms which will remain exempt from registration because their assets under management are below Dodd-Frank's registration threshold.
* Third, the Proposed Regulations would impose new recordkeeping and reporting requirements on registered investment advisers.
Key definitions and details included in the Proposed Regulations
Advisers whose only clients are private funds and whose assets under management (AUM) are less than $150 million will generally remain exempt from registration under the Advisers Act when Dodd-Frank becomes effective in July 2011. (For advisers who have at least some non-fund clients, the applicable AUM threshold is $100 million.) The Proposed Regulations give guidance on how AUM is to be measured for this purpose.
Advisers whose only clients are venture capital funds will remain exempt from registration, regardless of the amount of their AUM. The Proposed Regulations would define the term "venture capital fund" for this purpose.
Advisers who qualify as "family offices" will also remain exempt from registration under the Advisers Act, regardless of the amount of their AUM. The Proposed Regulations would define the term "family office" for this purpose.
Exemption for advisers to private funds with cumulative AUM less than $150 million
The Advisers Act defines the term "assets under management" by reference to the "securities portfolios" with respect to which an investment adviser provides "continuous and regular supervisory or management services." The Proposed Regulations provide guidance on the calculation of AUM for private funds, as follows:
* An adviser to a private fund must include the fund's unfunded capital commitments in its AUM.
* An adviser to a private fund must include the value of proprietary assets, assets which the adviser manages on an uncompensated basis, and assets of foreign clients in its AUM.
* Advisers must use a fair-value methodology when measuring AUM, and cannot simply rely on cost basis.
Exemption for advisers to venture capital funds
Dodd-Frank exempts advisers solely to venture capital funds from registration under the Advisers Act. The Proposed Regulations define the term "venture capital fund" to include only private funds which satisfy all of the following criteria:
* The private fund invests only in equity securities of qualifying portfolio companies to provide them with business expansion and operating capital. At least 80% of the private fund's interest in the issuing company must be acquired directly from the company and not from the issuer's existing equity holders. An issuer can be a qualifying portfolio company if no more than 20% of the private fund's interest was acquired from founders or other preexisting investors.
* The private fund controls, or provides significant managerial services to, the qualifying portfolio companies.
* The private fund does not incur leverage at the private fund level, other than certain permitted short-term borrowings.
* The private fund is a closed-end fund, i.e., it does not offer routine redemption rights to investors.
* The private fund holds itself out as a venture capital fund to investors.
To be a "venture capital fund" a private fund may invest only in "qualifying portfolio companies." The Proposed Regulations define that term to include only an entity which satisfies all of the following criteria:
* is not publicly traded at the time of the venture capital fund's investment,
* does not incur leverage in connection with the investment by the venture capital fund,
* uses the capital provided by the venture capital fund for business expansion or operating purposes, and
* is not itself a fund.
Exemption for Family Offices
Dodd-Frank exempts family offices from registration under the Advisers Act. The Proposed Regulations define "family office" as an adviser whose clients include only persons who are family members. A "family member" includes a spouse, a spousal equivalent, a subsequent spouse, a parent, a sibling, a child (including children by adoption and stepchildren), and a spouse or spousal equivalent of the foregoing.
In the event of an involuntary transfer from a family member, the Proposed Regulations would afford the adviser a four-month transition period in which to register under the Advisers Act or transfer the management of the assets. In case of a divorce, a former spouse could continue to receive advice for the assets already being managed by the family office, but could not make additional investments with such adviser.
The clients of a family office may include any charitable organization that is funded solely by a family member, and any trust or estate existing for the sole benefit of a family client, or any investment vehicle wholly-controlled by a family client and operated for the sole benefit of family clients. Clients may also include non-family members who are executive officers, directors, trustees or general partners of the adviser, or other persons who have participated in the investment activities of the family office for at least 12 months.
New filing requirements for advisers exempt from registration
Under the Proposed Regulations, all investment advisers which are exempt from registration under the Advisers Act, but whose clients include any 3(c)(1) or 3(c)(7) private fund, would nevertheless be required to comply with certain limited reporting obligations. These exempt advisers would be required to file a limited Form ADV with the SEC and provide certain information about their activities to the SEC. The information required to be reported would include, among other things, the adviser's form of organization, a description of its other business activities, its financial industry affiliations, the identity of its control persons and owners, and any disciplinary history for the adviser and its employees.
The Proposed Regulations would require exempt advisers to file their first limited Form ADV by August 20, 2011, and to update their Form ADV filings annually.
Additional Reporting for Advisers to Private Funds
The Proposed Regulations amend Form ADV for a registered adviser to a private fund (exempt advisers will also be required to provide certain of this information in its limited Form ADV) in order to require reporting of the following information:
* The amount of AUM.
* Information regarding its private funds, including: (1) names and jurisdictions of such funds (though a code can be used to preserve anonymity); (2) general partners and directors; (3) names and jurisdictions of any foreign financial regulatory authorities are subject; (4) status as a master/feeder.
* Whether private fund is a fund of funds.
* The fund's investment strategy. The fund's gross and net asset value, minimum investment and number of beneficial owners.
* Whether clients of the adviser are solicited to in the fund, and the percentage of the adviser's clients invested in the fund.
* The number and types of investors in the fund.
* The name of the adviser's auditor, whether it is independent and registered with the PCAOB and whether audited financials are distributed to investors.
* The name of the adviser's prime broker and whether it is SEC-registered and acts as a fund's custodian.
* The name and role of the fund's administrator.
* The name of each marketer, whether it is a related person of the adviser, its SEC file number and URL for any website used to market the fund.
* Information regarding employees, including the number employees registered as representatives of a broker-dealer.
* Information regarding the adviser's clients, including disclosure as to whether any are business development companies, insurance companies or other investment advisers and whether any are subject to ERISA.
* Disclosure about participation in client transactions: The Proposed Regulations require advisers with discretionary authority to determine whether brokers or dealers used in client transactions would be required to report whether any such brokers or dealers are related persons.
* Information about the adviser's non-advisory activities.
* Advisers with $1 billion in AUM may be subject to future rules regarding certain incentive-based compensation arrangements.
During October and November 2010, the U.S. Securities and Exchange Commission proposed several key regulations called for by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which Congress passed and President Obama signed into law in July 2010. Now, through its rulemaking proposals in October and November 2010 (the Proposed Regulations) which are summarized below, the SEC has begun to fill in a number of important details left unspecified by Congress in the original legislation.
The Proposed Regulations affect all private funds which claim exemption from the Investment Company Act of 1940 under Section 3(c)(1) or 3(c)(7) of that statute. This includes practically all hedge, leveraged-buyout, venture-capital, real-estate, mezzanine-debt, and distressed-debt funds, as well as funds-of-funds. As they relate specifically to private funds, the Proposed Regulations do three major things:
* First, they propose definitions and details regarding certain exemptions from registration with the SEC under the Investment Advisers Act of 1940 (the Advisers Act). (Dodd-Frank eliminated, effective in July 2011, the exemption which most private funds had been relying on until now, replacing it with new exemption criteria.)
* Second, the Proposed Regulations would require every firm that serves as an investment adviser to any 3(c)(1) or 3(c)(7) fund to file with the SEC and update annually a Form ADV. This requirement would apply even to smaller advisory firms which will remain exempt from registration because their assets under management are below Dodd-Frank's registration threshold.
* Third, the Proposed Regulations would impose new recordkeeping and reporting requirements on registered investment advisers.
Key definitions and details included in the Proposed Regulations
Advisers whose only clients are private funds and whose assets under management (AUM) are less than $150 million will generally remain exempt from registration under the Advisers Act when Dodd-Frank becomes effective in July 2011. (For advisers who have at least some non-fund clients, the applicable AUM threshold is $100 million.) The Proposed Regulations give guidance on how AUM is to be measured for this purpose.
Advisers whose only clients are venture capital funds will remain exempt from registration, regardless of the amount of their AUM. The Proposed Regulations would define the term "venture capital fund" for this purpose.
Advisers who qualify as "family offices" will also remain exempt from registration under the Advisers Act, regardless of the amount of their AUM. The Proposed Regulations would define the term "family office" for this purpose.
Exemption for advisers to private funds with cumulative AUM less than $150 million
The Advisers Act defines the term "assets under management" by reference to the "securities portfolios" with respect to which an investment adviser provides "continuous and regular supervisory or management services." The Proposed Regulations provide guidance on the calculation of AUM for private funds, as follows:
* An adviser to a private fund must include the fund's unfunded capital commitments in its AUM.
* An adviser to a private fund must include the value of proprietary assets, assets which the adviser manages on an uncompensated basis, and assets of foreign clients in its AUM.
* Advisers must use a fair-value methodology when measuring AUM, and cannot simply rely on cost basis.
Exemption for advisers to venture capital funds
Dodd-Frank exempts advisers solely to venture capital funds from registration under the Advisers Act. The Proposed Regulations define the term "venture capital fund" to include only private funds which satisfy all of the following criteria:
* The private fund invests only in equity securities of qualifying portfolio companies to provide them with business expansion and operating capital. At least 80% of the private fund's interest in the issuing company must be acquired directly from the company and not from the issuer's existing equity holders. An issuer can be a qualifying portfolio company if no more than 20% of the private fund's interest was acquired from founders or other preexisting investors.
* The private fund controls, or provides significant managerial services to, the qualifying portfolio companies.
* The private fund does not incur leverage at the private fund level, other than certain permitted short-term borrowings.
* The private fund is a closed-end fund, i.e., it does not offer routine redemption rights to investors.
* The private fund holds itself out as a venture capital fund to investors.
To be a "venture capital fund" a private fund may invest only in "qualifying portfolio companies." The Proposed Regulations define that term to include only an entity which satisfies all of the following criteria:
* is not publicly traded at the time of the venture capital fund's investment,
* does not incur leverage in connection with the investment by the venture capital fund,
* uses the capital provided by the venture capital fund for business expansion or operating purposes, and
* is not itself a fund.
Exemption for Family Offices
Dodd-Frank exempts family offices from registration under the Advisers Act. The Proposed Regulations define "family office" as an adviser whose clients include only persons who are family members. A "family member" includes a spouse, a spousal equivalent, a subsequent spouse, a parent, a sibling, a child (including children by adoption and stepchildren), and a spouse or spousal equivalent of the foregoing.
In the event of an involuntary transfer from a family member, the Proposed Regulations would afford the adviser a four-month transition period in which to register under the Advisers Act or transfer the management of the assets. In case of a divorce, a former spouse could continue to receive advice for the assets already being managed by the family office, but could not make additional investments with such adviser.
The clients of a family office may include any charitable organization that is funded solely by a family member, and any trust or estate existing for the sole benefit of a family client, or any investment vehicle wholly-controlled by a family client and operated for the sole benefit of family clients. Clients may also include non-family members who are executive officers, directors, trustees or general partners of the adviser, or other persons who have participated in the investment activities of the family office for at least 12 months.
New filing requirements for advisers exempt from registration
Under the Proposed Regulations, all investment advisers which are exempt from registration under the Advisers Act, but whose clients include any 3(c)(1) or 3(c)(7) private fund, would nevertheless be required to comply with certain limited reporting obligations. These exempt advisers would be required to file a limited Form ADV with the SEC and provide certain information about their activities to the SEC. The information required to be reported would include, among other things, the adviser's form of organization, a description of its other business activities, its financial industry affiliations, the identity of its control persons and owners, and any disciplinary history for the adviser and its employees.
The Proposed Regulations would require exempt advisers to file their first limited Form ADV by August 20, 2011, and to update their Form ADV filings annually.
Additional Reporting for Advisers to Private Funds
The Proposed Regulations amend Form ADV for a registered adviser to a private fund (exempt advisers will also be required to provide certain of this information in its limited Form ADV) in order to require reporting of the following information:
* The amount of AUM.
* Information regarding its private funds, including: (1) names and jurisdictions of such funds (though a code can be used to preserve anonymity); (2) general partners and directors; (3) names and jurisdictions of any foreign financial regulatory authorities are subject; (4) status as a master/feeder.
* Whether private fund is a fund of funds.
* The fund's investment strategy. The fund's gross and net asset value, minimum investment and number of beneficial owners.
* Whether clients of the adviser are solicited to in the fund, and the percentage of the adviser's clients invested in the fund.
* The number and types of investors in the fund.
* The name of the adviser's auditor, whether it is independent and registered with the PCAOB and whether audited financials are distributed to investors.
* The name of the adviser's prime broker and whether it is SEC-registered and acts as a fund's custodian.
* The name and role of the fund's administrator.
* The name of each marketer, whether it is a related person of the adviser, its SEC file number and URL for any website used to market the fund.
* Information regarding employees, including the number employees registered as representatives of a broker-dealer.
* Information regarding the adviser's clients, including disclosure as to whether any are business development companies, insurance companies or other investment advisers and whether any are subject to ERISA.
* Disclosure about participation in client transactions: The Proposed Regulations require advisers with discretionary authority to determine whether brokers or dealers used in client transactions would be required to report whether any such brokers or dealers are related persons.
* Information about the adviser's non-advisory activities.
* Advisers with $1 billion in AUM may be subject to future rules regarding certain incentive-based compensation arrangements.
Friday, December 10, 2010
Hedge Funds Post Inflow of $16.0 Billion (1.0% of Assets) in October 2010
Fourth Straight Inflow as Well as Heaviest since November 2009
Hedge Fund Investors Warming to Risk: Distressed Securities Funds Post Heaviest Inflow since February, while Fixed Income Funds Post Lightest Inflow in Six Months
TrimTabs Investment Research and BarclayHedge reported that the hedge fund industry posted an estimated inflow of $16.0 billion (1.0% of assets) in October 2010, the fourth straight inflow as well as the heaviest since November 2009.
“Flows are doubtless following performance,” said Sol Waksman, founder and President of BarclayHedge. “Hedge funds returned 1.95% in October and 7.10% in the four months following the May-June skid. Also, our preliminary data shows that hedge funds are outperforming the S&P 500 by about 21 basis points through November.
Distressed securities funds hauled in $3.8 billion (3.3% of assets) in October, the heaviest inflow of any hedge fund strategy, while emerging markets funds posted an inflow of $2.2 billion (1.0% of assets). Meanwhile, fixed income funds received only $506 million (0.3% of assets), the lightest inflow since April.
“Hedge fund investors are exhibiting a healthier appetite for risk,” noted Waksman. “They are finally venturing into areas like distressed securities after embracing conservative strategies for most of the year.”
Commodity trading advisors (CTAs) received $7.9 billion (2.8% of assets) in October, the eighth straight inflow, while funds of hedge funds took in $3.3 billion (0.6% of assets), the fourth straight inflow. Meanwhile, hedge fund managers are capitalizing on kind conditions heading into 2011.
“Borrowing money to buy assets is virtually costless, investors handed hedge fund managers $32.1 billion in the past four months, and margin debt is soaring,” explained Vincent Deluard, Executive Vice President of Research at TrimTabs. “At the same time, the rolling 12-month beta of hedge fund returns sits below the long-term average, and that of equity long-short funds is dipping below zero. Managers should be especially eager to book fat profits through year-end, but they remain very reluctant to make directional bets on equities.”
Managers are also extremely bearish on the 10-year Treasury note, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers. Bearish sentiment soared to 49% in November from 28% in October, while bullish sentiment sank to 13%, the lowest level since the inception of the survey in May.
“Retail investors and pension funds have been pouring money into high-flying fixed income for nearly two years,” noted Deluard. “But now hedge fund as well as retail bond inflows have ground to a halt, and mom and pop are ditching munis and junk. The more the infatuation with bond funds fades the more we fear the fallout will prove particularly ugly.”
Hedge Fund Investors Warming to Risk: Distressed Securities Funds Post Heaviest Inflow since February, while Fixed Income Funds Post Lightest Inflow in Six Months
TrimTabs Investment Research and BarclayHedge reported that the hedge fund industry posted an estimated inflow of $16.0 billion (1.0% of assets) in October 2010, the fourth straight inflow as well as the heaviest since November 2009.
“Flows are doubtless following performance,” said Sol Waksman, founder and President of BarclayHedge. “Hedge funds returned 1.95% in October and 7.10% in the four months following the May-June skid. Also, our preliminary data shows that hedge funds are outperforming the S&P 500 by about 21 basis points through November.
Distressed securities funds hauled in $3.8 billion (3.3% of assets) in October, the heaviest inflow of any hedge fund strategy, while emerging markets funds posted an inflow of $2.2 billion (1.0% of assets). Meanwhile, fixed income funds received only $506 million (0.3% of assets), the lightest inflow since April.
“Hedge fund investors are exhibiting a healthier appetite for risk,” noted Waksman. “They are finally venturing into areas like distressed securities after embracing conservative strategies for most of the year.”
Commodity trading advisors (CTAs) received $7.9 billion (2.8% of assets) in October, the eighth straight inflow, while funds of hedge funds took in $3.3 billion (0.6% of assets), the fourth straight inflow. Meanwhile, hedge fund managers are capitalizing on kind conditions heading into 2011.
“Borrowing money to buy assets is virtually costless, investors handed hedge fund managers $32.1 billion in the past four months, and margin debt is soaring,” explained Vincent Deluard, Executive Vice President of Research at TrimTabs. “At the same time, the rolling 12-month beta of hedge fund returns sits below the long-term average, and that of equity long-short funds is dipping below zero. Managers should be especially eager to book fat profits through year-end, but they remain very reluctant to make directional bets on equities.”
Managers are also extremely bearish on the 10-year Treasury note, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers. Bearish sentiment soared to 49% in November from 28% in October, while bullish sentiment sank to 13%, the lowest level since the inception of the survey in May.
“Retail investors and pension funds have been pouring money into high-flying fixed income for nearly two years,” noted Deluard. “But now hedge fund as well as retail bond inflows have ground to a halt, and mom and pop are ditching munis and junk. The more the infatuation with bond funds fades the more we fear the fallout will prove particularly ugly.”
Hedge Fund Managers Remain Predominantly Downbeat on U.S. Equities, According to TrimTabs/BarclayHedge Survey
Bearish Sentiment on 10-Year Treasury and U.S. Dollar Index Surges.
Hedge Fund Managers Nonetheless View QE2 as Gift Horse, Some Lever Up Accordingly.
Hedge fund managers remain predominantly downbeat on U.S. equities, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for November. About 39% of the 83 hedge fund managers the firms surveyed in the past two weeks are bearish on the S&P 500, and bullish sentiment sank to 31% from 36% in October.
“Moods are still somewhat sour, but hedge funds returned 7.0% in the four months ended October following a rough patch in May and June,” said Sol Waksman, CEO of BarclayHedge. “About 80% of the funds that reported returns for the January-October period are profitable in 2010.”
Almost half of hedge fund managers believe QE2 will have a positive impact on asset prices, although four in 10 feel it will ultimately have a negative impact on the economy. Meanwhile, only 9% of managers plan to decrease leverage in the coming weeks, the smallest share since May, while 16% are inclined to increase it.
“It is telling that some managers aim to lever up even though they are predominantly downbeat on stocks,” explained Vincent Deluard, Executive Vice President at TrimTabs. “The Fed is begging firms, consumers, and market participants to take risks, and hedge fund managers are capitalizing on kind conditions. They view QE as an asset-price gift horse—one they are not looking in the mouth—and hedge fund investors have handed them $33 billion in recent months. Also, it certainly doesn’t hurt that managers can borrow to buy assets for virtually nothing courtesy of historically low short rates.”
Bearish sentiment on the U.S. Dollar Index surged to 44% in November, the highest level in six months, from 30% in October. Meanwhile, bond sentiment has been hammered as long-term interest rates have spiked. Bearish sentiment on the 10-year Treasury note vaulted to 49%, the highest level since May, while bullish sentiment dove to 13%, the lowest level in six months.
“Market participants have no interest in fighting the Fed in the belly of the curve, where its Treasury purchases are concentrated,” noted Deluard. “But hedge fund managers are very bearish on the 10-year, and futures traders have been dumping the 30-year bond contract. Also, mom and pop ditched bond mutual funds in the past fortnight after pouring money into them for 100 straight weeks, and TIPS funds have raked in assets in 2010. The more the market feels the Fed’s reflation strategy will succeed, the more powerless policymakers become to prevent long yields from grinding higher.”
The TrimTabs/BarclayHedge database tracks hedge fund flows on a monthly basis. The Survey of Hedge Fund Managers appears monthly in the TrimTabs/BarclayHedge Hedge Fund Flow Report, which provides detailed analysis of hedge fund flows, assets, and returns alongside topical studies. For further information, please visit http://www.barclayhedge.com/products/trimtabs-hedge-fund-flow-report.html.
Hedge Fund Managers Nonetheless View QE2 as Gift Horse, Some Lever Up Accordingly.
Hedge fund managers remain predominantly downbeat on U.S. equities, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for November. About 39% of the 83 hedge fund managers the firms surveyed in the past two weeks are bearish on the S&P 500, and bullish sentiment sank to 31% from 36% in October.
“Moods are still somewhat sour, but hedge funds returned 7.0% in the four months ended October following a rough patch in May and June,” said Sol Waksman, CEO of BarclayHedge. “About 80% of the funds that reported returns for the January-October period are profitable in 2010.”
Almost half of hedge fund managers believe QE2 will have a positive impact on asset prices, although four in 10 feel it will ultimately have a negative impact on the economy. Meanwhile, only 9% of managers plan to decrease leverage in the coming weeks, the smallest share since May, while 16% are inclined to increase it.
“It is telling that some managers aim to lever up even though they are predominantly downbeat on stocks,” explained Vincent Deluard, Executive Vice President at TrimTabs. “The Fed is begging firms, consumers, and market participants to take risks, and hedge fund managers are capitalizing on kind conditions. They view QE as an asset-price gift horse—one they are not looking in the mouth—and hedge fund investors have handed them $33 billion in recent months. Also, it certainly doesn’t hurt that managers can borrow to buy assets for virtually nothing courtesy of historically low short rates.”
Bearish sentiment on the U.S. Dollar Index surged to 44% in November, the highest level in six months, from 30% in October. Meanwhile, bond sentiment has been hammered as long-term interest rates have spiked. Bearish sentiment on the 10-year Treasury note vaulted to 49%, the highest level since May, while bullish sentiment dove to 13%, the lowest level in six months.
“Market participants have no interest in fighting the Fed in the belly of the curve, where its Treasury purchases are concentrated,” noted Deluard. “But hedge fund managers are very bearish on the 10-year, and futures traders have been dumping the 30-year bond contract. Also, mom and pop ditched bond mutual funds in the past fortnight after pouring money into them for 100 straight weeks, and TIPS funds have raked in assets in 2010. The more the market feels the Fed’s reflation strategy will succeed, the more powerless policymakers become to prevent long yields from grinding higher.”
The TrimTabs/BarclayHedge database tracks hedge fund flows on a monthly basis. The Survey of Hedge Fund Managers appears monthly in the TrimTabs/BarclayHedge Hedge Fund Flow Report, which provides detailed analysis of hedge fund flows, assets, and returns alongside topical studies. For further information, please visit http://www.barclayhedge.com/products/trimtabs-hedge-fund-flow-report.html.
Wednesday, December 8, 2010
The Carlyle Group to Acquire Majority Stake in Hedge Fund Claren Road Asset Management
Long-Short Strategy Reflects Carlyle’s Long-Term View on Credit Opportunities
New York, NY – Global alternative asset manager The Carlyle Group and hedge fund Claren Road Asset Management today announced that Carlyle has agreed to purchase a 55 percent stake in Claren Road, a long-short credit hedge fund with $4.5 billion in assets under management, in exchange for cash, an ownership interest in Carlyle and performance-based contingent payments. Claren Road founders will reinvest substantially all of the initial cash proceeds from the transaction back into Claren Road funds. Terms of the transaction, which is expected to close by year end, were not disclosed.
Mitch Petrick, Managing Director and head of Carlyle’s Global Credit Alternatives business, said, “Claren Road has a track record of consistent, low-volatility, uncorrelated performance across varying market conditions during the last five years. This new partnership is an important addition to our expanding stable of credit product offerings. Claren Road’s long-short approach to investing in the credit markets globally is consistent with Carlyle’s views on the optimal strategy to exploit investment opportunities in credit over the long term.”
Brian Riano, Claren Road Chief Executive Officer and Co-founder, commented, “We believe this partnership will benefit our investors, strengthen Claren Road and position us well for the future. We have an ability to recognize and identify under- and over-valued securities in the credit markets through fundamental research, combined with a broad understanding of pricing, technicals and liquidity. This partnership should benefit Claren Road by accessing Carlyle’s global network and industry expertise as well as its strong regulatory, compliance, legal and investor services capabilities.”
William E. Conway, Jr., Carlyle Co-founder and Managing Director, said, “Carlyle has significant scale in our corporate private equity and real estate businesses, as well as a clear leadership position in emerging markets. This investment further expands our credit platform under Mitch Petrick’s leadership and adds to the variety of investment options by strategy and region for our investors.”
Citigroup, which seeded Claren Road in 2006, and the Goldman Sachs Petershill Fund, which bought a minority stake in Claren Road in 2008, will both monetize their economic interests in Claren Road as a part of this transaction. Brian Riano noted, “We thank Citigroup and the Goldman Sachs Petershill Fund for being vital partners of our firm over the past few years.”
Claren Road was established in 2005 by four former senior members of Citigroup’s Credit Trading Department – Brian Riano, John Eckerson, Sean Fahey and Albert Marino – who will continue to manage the day-to-day operations (including all investment decisions) and, together with Carlyle, affect broader strategic decisions.
Carlyle’s global credit alternatives business comprises an array of structured credit, mezzanine and distressed products – 34 funds with $14.7 billion in assets managed by 54 investment professionals in New York and London as of September 30, 2010.
* * * * *
About Claren Road Asset Management
Claren Road Asset Management, LLC is a long/short credit manager founded in 2005 by senior members of Citigroup’s Credit Trading Department. The Investment Manager primarily manages two funds comprising approximately $4.5 billion of assets under management. Claren Road employs 48 people with offices in New York, London and Hong Kong.
Monday, December 6, 2010
Asset Allocation Changes May Add More Value than Stock Selection in Hedge Funds, According to Mellon Capital Management
BNY Mellon Boutique Points to Timely Changes as Most Valuable Part of Investment Process
Skill in adjusting exposures to various asset classes over time could be the most valuable part of the investment process for hedge funds and is likely to add more value than either selecting securities or maintaining a static equity exposure. That is the key finding from a recent white paper from Mellon Capital Management Corporation, part of BNY Mellon Asset Management.
"Of the three components, adept asset allocation can be the most important," said Eric S. Goodbar, hedge fund strategist for Mellon Capital, who co-authored the paper with Karsten Jeske, Ph.D., a senior quantitative analyst at Mellon Capital. "Well-timed asset allocation decisions can lower the correlation of the hedge fund's performance to stocks or bonds. Unfortunately, many hedge fund portfolios have a sizeable static allocation to equities, which increases the correlation of the hedge fund portfolio with the performance of equities."
Hedge fund managers who lower the correlation of their investment portfolio to the performance of traditional equity investments are more likely to avoid worse performance in down markets than those maintaining a static equity exposure, according to the paper.
Jeske said, "We believe raising the impact of asset allocation and lowering the static exposures to stocks and bonds can reduce the risk in the portfolio and position it so it better reflects the skills of the portfolio manager instead of mirroring the moves of the markets."
Founded in 1983 by innovators in the investment management field, Mellon Capital Management Corporation applies a disciplined and analytical approach to global investment management strategies. As of September 30, 2010, the firm had $191 billion in assets under management, including assets managed by dual officers of Mellon Capital Management Corporation, The Bank of New York Mellon and The Dreyfus Corporation, and $9.2 billion in overlay strategies. It is part of BNY Mellon Asset Management, one of the world's largest asset managers.
BNY Mellon Asset Management is the umbrella organization for BNY Mellon's affiliated investment management firms and global distribution companies.
Skill in adjusting exposures to various asset classes over time could be the most valuable part of the investment process for hedge funds and is likely to add more value than either selecting securities or maintaining a static equity exposure. That is the key finding from a recent white paper from Mellon Capital Management Corporation, part of BNY Mellon Asset Management.
"Of the three components, adept asset allocation can be the most important," said Eric S. Goodbar, hedge fund strategist for Mellon Capital, who co-authored the paper with Karsten Jeske, Ph.D., a senior quantitative analyst at Mellon Capital. "Well-timed asset allocation decisions can lower the correlation of the hedge fund's performance to stocks or bonds. Unfortunately, many hedge fund portfolios have a sizeable static allocation to equities, which increases the correlation of the hedge fund portfolio with the performance of equities."
Hedge fund managers who lower the correlation of their investment portfolio to the performance of traditional equity investments are more likely to avoid worse performance in down markets than those maintaining a static equity exposure, according to the paper.
Jeske said, "We believe raising the impact of asset allocation and lowering the static exposures to stocks and bonds can reduce the risk in the portfolio and position it so it better reflects the skills of the portfolio manager instead of mirroring the moves of the markets."
Founded in 1983 by innovators in the investment management field, Mellon Capital Management Corporation applies a disciplined and analytical approach to global investment management strategies. As of September 30, 2010, the firm had $191 billion in assets under management, including assets managed by dual officers of Mellon Capital Management Corporation, The Bank of New York Mellon and The Dreyfus Corporation, and $9.2 billion in overlay strategies. It is part of BNY Mellon Asset Management, one of the world's largest asset managers.
BNY Mellon Asset Management is the umbrella organization for BNY Mellon's affiliated investment management firms and global distribution companies.
Private Equity Combines With Hedge Funds
Apollo Global Management, LLC (together with its affiliates, "Apollo"),
a leading global alternative asset manager, and Lighthouse Investment
Partners LLC ("Lighthouse"), a leading fund of hedge funds manager with
$4.5 billion of assets under management, today announced a strategic
alliance between the two firms and Lighthouse's parent company, HFA
Holdings Limited (ASX: HFA). Through this new alliance, Apollo further
diversifies its product offering by adding Lighthouse's expertise in
hedge fund and managed account products to its existing suite of
investment strategies. Lighthouse's proprietary managed accounts program
now has approximately 90 distinct managed account investments across the
full range of hedge fund strategies.
"Lighthouse, throughout its long history, has proven to add significant
value to institutional portfolios, most recently with the development of
its proprietary managed account program, which we view as a clear
differentiator in the marketplace," said Leon Black, Founder, Chairman
and Chief Executive Officer of Apollo. "We are extremely impressed with
Lighthouse's management team and its unique business model, which we
believe is highly complementary to our current product offering and
broadens our comprehensive range of investment solutions for our
clients."
"We believe that Apollo's distinguished institutional brand name, long
track record and scale among global institutional investors are
unmatched," said Sean McGould, Founder, President and Co-Chief
Investment Officer of Lighthouse. "This alliance represents a major
milestone for our firm and will open new avenues for institutional
investors to consider our differentiated approach to hedge fund
investing. It also validates our longstanding and aggressive pursuit of
managed accounts for our portfolios."
Long known as a contrarian, value-oriented investor in private equity,
credit and real estate, Apollo adds a new product line for its investors
through this alliance with Lighthouse. As of June 30, 2010 Apollo
managed $33.5 billion in private equity, $18.9 billion in
credit-oriented capital markets strategies and $2.1 billion in real
estate. With more than $54 billion in assets under management from
predominantly institutional investors including leading pension funds
and endowments, Apollo brings additional scale to Lighthouse's business
at a time when numerous opportunities exist in the hedge fund industry,
particularly from large, sophisticated investors seeking full service
solutions for their hedge fund allocations. Currently, Lighthouse offers
distinct products in multi-strategy, equities, credit, managed futures
and Asian region investments, most of which are exclusively funds of
managed accounts.
As part of the transaction, Apollo will make a $75 million convertible
note investment into HFA Holdings, the parent company of Lighthouse. The
proposed investment in HFA is a strategic position for Apollo, being
undertaken at the parent company level, outside of Apollo's investment
funds. Both firms will continue to operate and be managed independently.
About Apollo Global Management
Apollo is a leading global alternative asset manager with offices in New
York, Los Angeles, London, Frankfurt, Luxembourg, Singapore, Mumbai and
Hong Kong. Apollo had assets under management of more than $54 billion
as of June 30, 2010, in private equity, credit-oriented capital markets
and real estate funds invested across a core group of nine industries
where Apollo has considerable knowledge and resources. For more
information about Apollo, please visit www.agm.com.
About Lighthouse Partners
Lighthouse Investment Partners, LLC is a fund of hedge funds and managed
account investment adviser managing approximately $4.5 billion for
institutional and private investors with offices in Florida, Chicago,
New York, London and Hong Kong. The proprietary managed account program
is a hallmark of Lighthouse's investment process. For more information: http://www.lighthousepartners.com
The information provided herein does not constitute an offer to sell or
a solicitation of an offer to buy interests in any Lighthouse-managed
investment fund. Such an offer shall only be made to accredited
investors and qualified purchasers through a private offering memorandum
and related subscription documents. Investing in hedge funds is intended
for experienced and sophisticated investors only who are willing to bear
the high economic risks of the investment.
Euro Pessimism at the Bloomberg Hedge Funds 2010 conference
The Times writes Monday, reporting from the Bloomberg Hedge Funds 2010 conference, about "deep pessimism among hedge fund managers over the investment outlook for the eurozone".
The report says "while many managers appear to have respect for the European Central Bank, and, in particular, the way in which its president Jean-Claude Trichet blindsided markets last week with an aggressive intervention in bond markets, the general sense is that the euro is doomed."
Complete article
The report says "while many managers appear to have respect for the European Central Bank, and, in particular, the way in which its president Jean-Claude Trichet blindsided markets last week with an aggressive intervention in bond markets, the general sense is that the euro is doomed."
Complete article
ASIAN HEDGE FUNDS SOAR IN THIRD QUARTER
HFRX China Index outperforms Shanghai Composite by nearly 25% YTD 2010 as correlation declines; Funds increase exposure to equities and activist strategies
Asian hedge funds continued their strong performance in the third quarter, with the HFRX China Index gaining 10.5 percent for the quarter according to data released by Hedge Fund Research, Inc. (HFR), the leading provider of hedge fund industry data. Strong Q3 returns have brought YTD performance of the HFRX China Index to +5.5 percent, outperforming the benchmark Shanghai Composite by nearly 25 percent. As a result of the strong performance and indicative of the growing global investor interest in exposure to Asian markets, assets invested in Asian hedge funds increased by nearly $4 B to $78 B, inclusive of over $300 M in net new investor inflows.
The Asian hedge fund industry maintains significantly different strategic dynamics from the overall hedge fund industry, recently experiencing increases in Activist funds and strategies maintaining high sensitivities to equity markets. In the last 12 months, the number of Asian hedge funds which focus on Event Driven strategies increased to nearly 8% of the Asian hedge fund industry; over half of which specialize in Activist and Distressed strategies. Nearly two- thirds of capital invested in Asian-focused hedge funds in allocated to Equity Hedge strategies; this represents a significant contrast to the overall hedge fund industry, of which Equity Hedge represents less than one third. Geographically, new funds continue to locate in China; nearly twenty-five percent of all Asian hedge fund firms are now located in China.
““Macro developments in Asian financial markets have become catalysts for global markets, including currency, equity, commodity and inflation exposures,” said Ken Heinz, President of Hedge Fund Research. “Nearly every aspect of the global economy, from trade, energy, financial stability and production is increasingly influenced by Asian economies, and the Asian hedge fund industry has evolved to provide global investors with access to these influential market dynamics.”
EMERGING MARKETS HEDGE FUNDS TOP INDUSTRY PERFORMANCE, FAIL TO ATTRACT NEW INVESTOR CAPITAL IN 3Q10
Middle East, Emerging Asia lead EM gains; Risks from sovereign debt contagion, inflation and currencies deter allocations
Hedge funds investing in the high-growth emerging markets of Russia, Latin America, Emerging Asia and the Middle East have produced the strongest YTD gains across the hedge fund industry, according to the latest data from Hedge Fund Research, Inc., which today released the HFR 3Q Emerging Markets Industry Report. The HFRI Emerging Markets (Total) Index has gained +9.3 percent through October, outpacing the +6.8 percent gain of the broad-based HFRI Fund Weighted Composite Index.
Despite the gains, investors remained cautious on new allocations to Emerging Markets hedge funds, allocating only $10 Million of net new capital to EM funds in 3Q10. In comparison, investors allocated over $19 Billion of new capital to hedge funds focused primarily on developed markets over the same period. Performance based gains resulted in an asset increase of over $10 Billion to EM hedge funds, bringing total AUM in these to nearly $105 Billion, the highest AUM level since 2Q08.
Regionally, funds investing in the Middle East and Emerging Asia have posted the strongest gains, trailed by Russia and Latin America. The HFRX MENA Index has gained +13.3 percent and HFRI EM: Asia ex-Japan Index returned +9.5 percent through October, while the HFRI EM: Russia/Eastern Index and the HFRI EM: Latin America Index have returned +9.5 and +6.7 percent, respectively.
Trends toward localization, secular growth and UCITS III pervasive in EM
The trend of Emerging Market-focused funds locating in the markets in which they invest also continued, with increases in the number of firms locating to Singapore, China and Brazil. At the same time, the percentage of EM firms located in the U.S. and UK continued to decline, falling to less than half of all EM funds.
More than two-thirds of all Emerging Markets funds are Equity Hedge strategies, more than double the overall industry average of thirty percent. Fewer EM funds offer Relative Value Arbitrage or Event Driven exposure, while the percentage of EM funds focusing on Macro strategies is only slightly lower than the overall industry.
EM fund managers have expanded the number of funds compliant with UCITS III guidelines; in total, more than 120 Emerging Market hedge funds are presently UCITS III compliant.
“As global investors continue to focus on sovereign credit and currency risks, performance gains in Emerging Market hedge funds have failed to attract net new investment capital,” said Kenneth Heinz, president of Hedge Fund Research, Inc. “However, emerging markets hedge funds offering more strategic exposure, UCITS III conformity and local-market specialization are likely to appeal to investors as the EU sovereign credit crisis continues.”
About HFR
Hedge Fund Research, Inc. (HFR) is the global leader in the alternative investment industry. Established in 1992, HFR specializes in the areas of indexation and analysis of hedge funds. HFR Database, the most comprehensive resource available for hedge fund investors, includes fund-level detail on historical performance and assets, as well as firm characteristics on both the broadest and most influential hedge fund managers. HFR has developed the industry’s most detailed fund classification system, enabling granular and specific queries for relative performance measurement, peer group analysis and benchmarking. HFR produces over 100 indices of hedge fund performance ranging from industry-aggregate levels down to specific, niche areas of sub-strategy and regional investment focus. With performance dating back to 1990, the HFRI Fund Weighted Composite Index is the industry’s most widely used standard benchmark of hedge fund performance globally. The HFR suite of Analysis Products leverages the HFR Database to provide detailed, current, comprehensive and relevant aggregate reference points on all facets of the hedge fund industry. HFR also offers consulting services for clients seeking customized top-level or more nuanced analysis.
Hedge funds investing in the high-growth emerging markets of Russia, Latin America, Emerging Asia and the Middle East have produced the strongest YTD gains across the hedge fund industry, according to the latest data from Hedge Fund Research, Inc., which today released the HFR 3Q Emerging Markets Industry Report. The HFRI Emerging Markets (Total) Index has gained +9.3 percent through October, outpacing the +6.8 percent gain of the broad-based HFRI Fund Weighted Composite Index.
Despite the gains, investors remained cautious on new allocations to Emerging Markets hedge funds, allocating only $10 Million of net new capital to EM funds in 3Q10. In comparison, investors allocated over $19 Billion of new capital to hedge funds focused primarily on developed markets over the same period. Performance based gains resulted in an asset increase of over $10 Billion to EM hedge funds, bringing total AUM in these to nearly $105 Billion, the highest AUM level since 2Q08.
Regionally, funds investing in the Middle East and Emerging Asia have posted the strongest gains, trailed by Russia and Latin America. The HFRX MENA Index has gained +13.3 percent and HFRI EM: Asia ex-Japan Index returned +9.5 percent through October, while the HFRI EM: Russia/Eastern Index and the HFRI EM: Latin America Index have returned +9.5 and +6.7 percent, respectively.
Trends toward localization, secular growth and UCITS III pervasive in EM
The trend of Emerging Market-focused funds locating in the markets in which they invest also continued, with increases in the number of firms locating to Singapore, China and Brazil. At the same time, the percentage of EM firms located in the U.S. and UK continued to decline, falling to less than half of all EM funds.
More than two-thirds of all Emerging Markets funds are Equity Hedge strategies, more than double the overall industry average of thirty percent. Fewer EM funds offer Relative Value Arbitrage or Event Driven exposure, while the percentage of EM funds focusing on Macro strategies is only slightly lower than the overall industry.
EM fund managers have expanded the number of funds compliant with UCITS III guidelines; in total, more than 120 Emerging Market hedge funds are presently UCITS III compliant.
“As global investors continue to focus on sovereign credit and currency risks, performance gains in Emerging Market hedge funds have failed to attract net new investment capital,” said Kenneth Heinz, president of Hedge Fund Research, Inc. “However, emerging markets hedge funds offering more strategic exposure, UCITS III conformity and local-market specialization are likely to appeal to investors as the EU sovereign credit crisis continues.”
About HFR
Hedge Fund Research, Inc. (HFR) is the global leader in the alternative investment industry. Established in 1992, HFR specializes in the areas of indexation and analysis of hedge funds. HFR Database, the most comprehensive resource available for hedge fund investors, includes fund-level detail on historical performance and assets, as well as firm characteristics on both the broadest and most influential hedge fund managers. HFR has developed the industry’s most detailed fund classification system, enabling granular and specific queries for relative performance measurement, peer group analysis and benchmarking. HFR produces over 100 indices of hedge fund performance ranging from industry-aggregate levels down to specific, niche areas of sub-strategy and regional investment focus. With performance dating back to 1990, the HFRI Fund Weighted Composite Index is the industry’s most widely used standard benchmark of hedge fund performance globally. The HFR suite of Analysis Products leverages the HFR Database to provide detailed, current, comprehensive and relevant aggregate reference points on all facets of the hedge fund industry. HFR also offers consulting services for clients seeking customized top-level or more nuanced analysis.
Another example of consolidation in the hedge fund industry
New York Life Investments has signed an agreement to acquire a majority stake in Private Advisors, LLC, a fund of hedge funds manager based in Richmond, Virginia with $3.9 billion in assets.
Private Advisors is led by founder and managing partner Louis Moelchert, Jr, who prior to the creation of the firm managed the endowment for the University of Richmond for over 25 years. The endowment first put money to work into alternative investments in the early 1980s.
The deal is yet another example of consolidation in the hedge fund industry as the very largest firms continue to attract the bulk of new money. Industry observers say pension funds and endowments feel more comfortable investing alongside their peers in firms backed by large financial institutions.
In the second quarter, nearly all of the $23 billion of new money that entered the industry went to firms with more than $5 billion of assets under management, according to data from Hedge Fund Research. These firms now control about 60% of the total industry capital
Private Advisors is led by founder and managing partner Louis Moelchert, Jr, who prior to the creation of the firm managed the endowment for the University of Richmond for over 25 years. The endowment first put money to work into alternative investments in the early 1980s.
The deal is yet another example of consolidation in the hedge fund industry as the very largest firms continue to attract the bulk of new money. Industry observers say pension funds and endowments feel more comfortable investing alongside their peers in firms backed by large financial institutions.
In the second quarter, nearly all of the $23 billion of new money that entered the industry went to firms with more than $5 billion of assets under management, according to data from Hedge Fund Research. These firms now control about 60% of the total industry capital
Thursday, December 2, 2010
Hedge Fund Compensation Up Again in '10, But Only Slightly
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Hedge fund compensation increased again in 2010, although by less than it did in 2009, and industry payouts are still below the peaks reached in 2007, according to analysis by Glocap Search LLC and Hedge Fund Research.
While 2010 base salaries for investment professionals and traders were essentially flat from 2009 levels, regardless of fund size or performance, year-end bonuses are expected to climb 5% on average. By comparison, 2009 bonuses rose about 15%, on average, above the depressed levels of 2008.
Hiring by hedge funds has increased and performance has been stable. Fund marketers and compliance professionals remain in particularly high demand and their compensation experienced the largest percentage increase in 2010.
Complete article
Hedge fund compensation increased again in 2010, although by less than it did in 2009, and industry payouts are still below the peaks reached in 2007, according to analysis by Glocap Search LLC and Hedge Fund Research.
While 2010 base salaries for investment professionals and traders were essentially flat from 2009 levels, regardless of fund size or performance, year-end bonuses are expected to climb 5% on average. By comparison, 2009 bonuses rose about 15%, on average, above the depressed levels of 2008.
Hiring by hedge funds has increased and performance has been stable. Fund marketers and compliance professionals remain in particularly high demand and their compensation experienced the largest percentage increase in 2010.
Complete article
FrontPoint Partners closes $1.5 billion health-care fund
FrontPoint Partners, a $7 billion hedge fund firm owned by Morgan Stanley, is shuttering its once-prosperous $1.5 billion health-care fund after it got ensnared in an insider-trading probe. The Greenwich, Conn.-based firm told investors that it's aiming to return their capital before the end of the month, according to a person familiar with the announcement, which was first reported by Bloomberg News. FrontPoint's investors have been swarming the health-care fund's redemption window following news that Chip Skowron, a top portfolio manager for the fund, received confidential information from Yves Benhamou, a French doctor, about drug trials at Human Genome Sciences.
Read more:
Read more:
Wednesday, December 1, 2010
Hedge Funds and Insider Trading
A recent insider trading case against a doctor who was involved in clinical trials of a drug to treat hepatitis and allegedly tipped material, non-public information relating to those trials to a hedge fund manager, is another example of the government's renewed focus on insider trading and hedge funds.1 This case is noteworthy because it highlights the potential areas of abuse of sensitive clinical trial information in the pharmaceutical and life sciences areas. Given the recent government inquiries issued to pharmaceutical and life sciences companies relating to the Foreign Corrupt Practices Act, this action highlights another area of concern for public companies in those industries. Further, it brings into focus the potential areas of abuse in hedge fund relationships with consultants who have known connections with the publicly traded pharmaceutical and life sciences companies they trade.
Complete article
Complete article
NY ruling is a boon for hedge funds, who have bought billions of dollars in life settlement policies in recent years
On Nov. 17, the New York State Court of Appeals ruled that state law allows people to buy a life insurance policy with the intent of immediately selling it to an investor who stands to make money when the insured person dies.
The closely watched case centered on Alice Kramer, a widow who sued for $56 million in coverage on behalf of the estate of her late husband. Before his death in 2008, Arthur Kramer, an attorney, bought seven insurance policies and placed them in trusts in the names of his three children. At his request, the interests were sold to hedge fund investors in exchange for cash.
The court's decision breaks the life settlement issue into two parts. It found that New York's insurance laws bar people from wagering on others by directly buying insurance on them and making the beneficiary someone who doesn't have insurable interest. However, the court ruled that state law does permit insurance contracts to be “immediately transferred” to another entity if the insured person is acting on his or her own initiative...
The ruling is a boon for hedge funds, who have bought billions of dollars in life settlement policies in recent years — and will likely influence the outcomes of similar cases in other states...
The closely watched case centered on Alice Kramer, a widow who sued for $56 million in coverage on behalf of the estate of her late husband. Before his death in 2008, Arthur Kramer, an attorney, bought seven insurance policies and placed them in trusts in the names of his three children. At his request, the interests were sold to hedge fund investors in exchange for cash.
The court's decision breaks the life settlement issue into two parts. It found that New York's insurance laws bar people from wagering on others by directly buying insurance on them and making the beneficiary someone who doesn't have insurable interest. However, the court ruled that state law does permit insurance contracts to be “immediately transferred” to another entity if the insured person is acting on his or her own initiative...
The ruling is a boon for hedge funds, who have bought billions of dollars in life settlement policies in recent years — and will likely influence the outcomes of similar cases in other states...
Monday, November 29, 2010
Mid-Sized Hedge Funds at Crossroads; Must Reassess Business Models, According to McGladrey Survey
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Mid-sized hedge funds must determine commitment to building infrastructure necessary for winning institutional clients.
New research released by RSM McGladrey, a leading professional services firm providing tax and consulting services under the McGladrey brand, reveals that mid-sized hedge funds with $100-$500 million in assets are facing a “reality gap.” While nearly 95 percent of the hedge funds surveyed by Greenwich Associates believe they can meet institutional investors’ demands, only 22 percent have more than one full-time employee responsible for client service, and only 9 percent have highly automated reporting systems.
“Attracting institutional assets will require new ongoing personnel expenses for the majority of mid-sized hedge funds, as well as significant up-front investments in technology to increase reporting capabilities,” said Alan Alzfan, a managing director in the Financial Services Group at RSM McGladrey, Inc. “Mid-sized hedge funds must understand that implementing best practices for a truly institutional platform is not an overnight process — it can take more than a year in many cases.”
More than 90 percent of the 52 U.S. hedge funds surveyed have an unfocused business model, targeting all investors: institutional, fund of funds and High Net Worth individuals (HNW)/family office. Nearly one quarter of respondents (23 percent) have seen an increase in institutional clients over the past two years, with 17 percent reporting a decrease. While there has been a net gain in institutional investment in mid-sized hedge funds, the diverging responses highlight the significance of having an institutional infrastructure: nearly half (47 percent) of funds for whom institutional investors represent a majority of clients say having a dedicated client service team is “critically important” in winning assignments, with less than one-quarter (24 percent) of funds with primarily HNW investors saying the same. On average, funds with two or more full-time sales professionals won more than 10 mandates in the past year; funds with fewer salespeople won seven.
Additionally, 37 percent of mid-sized hedge funds report more burdensome reporting requirements regarding performance and risk. Almost 85 percent believe that their current infrastructure is sufficiently scalable to handle client reporting needs for the next five years, yet 26 percent report having either “manual” or “highly manual” reporting systems.
“Mid-sized funds represent a significant segment of the hedge fund market, and they are facing unprecedented pressures,” said Alzfan. “These funds need to analyze the necessary steps for developing best practices at their organizations if they want to attract institutional assets.”
Such steps include increasing staff to levels that are at least competitive with the current average of 1.5 to 2 full-time employees devoted to marketing among hedge funds that target institutional investors, and creating separation among internal functions to demonstrate that appropriate checks and controls are in place.
The Risks and Rewards of Institutional Investors
Nearly two thirds (64 percent) of hedge fund managers state that institutional clients are “more burdensome” than HNW/family office clients, often providing questionnaires of 30-40 pages in length during the due diligence process and calling provided references.
There is also a new emphasis on liquidity, with one-third of funds planning to allow liquidity on a more frequent basis and reducing their lock-up periods as a means of attracting investors.
“Institutional clients tend to be more demanding about liquidity,” says Alzfan. “But during the financial crisis, the funds with the loosest terms suffered the most redemptions.”
Forty-one percent of funds that experienced terminations over the past two years attributed clients’ decisions to liquidity needs.
“Some managers will choose to limit or even cease activity in the institutional space given the changes that are necessary to the funds’ business model to compete for institutional assets,” said Alzfan. “But managers who want to gain consistent access to institutions’ large allocations of capital and the resulting fees – both management and incentive – will have little choice but to take on at least some of the risks involved in investing in their funds’ infrastructure and adjusting their liquidity terms.”
Research Methodology
McGladrey’s 2010 Hedge Fund Survey was conducted from June to July 2010. In conducting the study, Greenwich Associates interviewed 52 U.S. hedge fund executives by telephone. All the funds had AUMs between $100 million and $500 million, with an average AUM of $300 million.
View the complete 2010 McGladrey Hedge Fund Survey Whitepaper in full.
About Greenwich Associates
Greenwich Associates provides research-based strategy management services for financial professionals. Greenwich Associates’ studies provide benefits to the buyers and sellers of financial services in the form of benchmark information on best practices and market intelligence on overall trends. Based in Stamford, Connecticut, with additional offices in London, Toronto, Tokyo, and Singapore, the firm offers over 100 research-based consulting programs to more than 250 global financial services companies. Follow them: http://twitter.com/greenwichassoc.
About McGladrey
McGladrey is the brand under which RSM McGladrey, Inc., and McGladrey & Pullen, LLP, serve clients’ business needs. Together, they rank as the fifth largest U.S. provider of assurance, tax and consulting services, with 7,000 professionals and associates in nearly 90 offices. The two firms operate as separate legal entities in an alternative practice structure. McGladrey & Pullen is a licensed CPA firm that provides assurance services. RSM McGladrey is a leading professional services firm providing tax and consulting services. Both firms are members of RSM International, the sixth largest global network of independent accounting, tax and consulting firms.
Mid-sized hedge funds must determine commitment to building infrastructure necessary for winning institutional clients.
New research released by RSM McGladrey, a leading professional services firm providing tax and consulting services under the McGladrey brand, reveals that mid-sized hedge funds with $100-$500 million in assets are facing a “reality gap.” While nearly 95 percent of the hedge funds surveyed by Greenwich Associates believe they can meet institutional investors’ demands, only 22 percent have more than one full-time employee responsible for client service, and only 9 percent have highly automated reporting systems.
“Attracting institutional assets will require new ongoing personnel expenses for the majority of mid-sized hedge funds, as well as significant up-front investments in technology to increase reporting capabilities,” said Alan Alzfan, a managing director in the Financial Services Group at RSM McGladrey, Inc. “Mid-sized hedge funds must understand that implementing best practices for a truly institutional platform is not an overnight process — it can take more than a year in many cases.”
More than 90 percent of the 52 U.S. hedge funds surveyed have an unfocused business model, targeting all investors: institutional, fund of funds and High Net Worth individuals (HNW)/family office. Nearly one quarter of respondents (23 percent) have seen an increase in institutional clients over the past two years, with 17 percent reporting a decrease. While there has been a net gain in institutional investment in mid-sized hedge funds, the diverging responses highlight the significance of having an institutional infrastructure: nearly half (47 percent) of funds for whom institutional investors represent a majority of clients say having a dedicated client service team is “critically important” in winning assignments, with less than one-quarter (24 percent) of funds with primarily HNW investors saying the same. On average, funds with two or more full-time sales professionals won more than 10 mandates in the past year; funds with fewer salespeople won seven.
Additionally, 37 percent of mid-sized hedge funds report more burdensome reporting requirements regarding performance and risk. Almost 85 percent believe that their current infrastructure is sufficiently scalable to handle client reporting needs for the next five years, yet 26 percent report having either “manual” or “highly manual” reporting systems.
“Mid-sized funds represent a significant segment of the hedge fund market, and they are facing unprecedented pressures,” said Alzfan. “These funds need to analyze the necessary steps for developing best practices at their organizations if they want to attract institutional assets.”
Such steps include increasing staff to levels that are at least competitive with the current average of 1.5 to 2 full-time employees devoted to marketing among hedge funds that target institutional investors, and creating separation among internal functions to demonstrate that appropriate checks and controls are in place.
The Risks and Rewards of Institutional Investors
Nearly two thirds (64 percent) of hedge fund managers state that institutional clients are “more burdensome” than HNW/family office clients, often providing questionnaires of 30-40 pages in length during the due diligence process and calling provided references.
There is also a new emphasis on liquidity, with one-third of funds planning to allow liquidity on a more frequent basis and reducing their lock-up periods as a means of attracting investors.
“Institutional clients tend to be more demanding about liquidity,” says Alzfan. “But during the financial crisis, the funds with the loosest terms suffered the most redemptions.”
Forty-one percent of funds that experienced terminations over the past two years attributed clients’ decisions to liquidity needs.
“Some managers will choose to limit or even cease activity in the institutional space given the changes that are necessary to the funds’ business model to compete for institutional assets,” said Alzfan. “But managers who want to gain consistent access to institutions’ large allocations of capital and the resulting fees – both management and incentive – will have little choice but to take on at least some of the risks involved in investing in their funds’ infrastructure and adjusting their liquidity terms.”
Research Methodology
McGladrey’s 2010 Hedge Fund Survey was conducted from June to July 2010. In conducting the study, Greenwich Associates interviewed 52 U.S. hedge fund executives by telephone. All the funds had AUMs between $100 million and $500 million, with an average AUM of $300 million.
View the complete 2010 McGladrey Hedge Fund Survey Whitepaper in full.
About Greenwich Associates
Greenwich Associates provides research-based strategy management services for financial professionals. Greenwich Associates’ studies provide benefits to the buyers and sellers of financial services in the form of benchmark information on best practices and market intelligence on overall trends. Based in Stamford, Connecticut, with additional offices in London, Toronto, Tokyo, and Singapore, the firm offers over 100 research-based consulting programs to more than 250 global financial services companies. Follow them: http://twitter.com/greenwichassoc.
About McGladrey
McGladrey is the brand under which RSM McGladrey, Inc., and McGladrey & Pullen, LLP, serve clients’ business needs. Together, they rank as the fifth largest U.S. provider of assurance, tax and consulting services, with 7,000 professionals and associates in nearly 90 offices. The two firms operate as separate legal entities in an alternative practice structure. McGladrey & Pullen is a licensed CPA firm that provides assurance services. RSM McGladrey is a leading professional services firm providing tax and consulting services. Both firms are members of RSM International, the sixth largest global network of independent accounting, tax and consulting firms.
Thursday, October 21, 2010
Deloitte’s Launches Hedge Fund Emerging Manager Platform
Deloitte's asset management services practice has launched a global full-service hedge fund emerging manager platform offering a unique mix of traditional and non-traditional professional services across audit, tax, financial advisory and consulting. The program represents the latest development in an aggressive two-year build out of the hedge fund practice.
“In today’s environment, emerging managers need recognized industry heavyweights for professional services. Deloitte has launched the hedge fund emerging manager platform to provide emerging managers with a solution that offers access to our global network, and customized, creative and responsive service,” said Cary Stier, vice chairman and Deloitte’s U.S. asset management services leader. “If you launch with Deloitte, you stay with Deloitte. A client cannot outgrow our services. Deloitte delivers results that matter.”
The emerging manager platform offers traditional services like audit, tax compliance and fund structuring bundled with non-traditional services including general partner and international tax planning, regulatory and compliance, and technology and operations on a sliding fee scale that keeps pace with the manager’s growth. The emerging manager platform is led by 23 partners, principals and directors and more than 250 specialists internationally through the Deloitte Touche Tohmatsu Limited (DTTL) member firms with operations in the United States, Dublin, London, Hong Kong, Luxembourg, Bermuda, Cyprus, Mauritius and the Cayman Islands.
“Today emerging managers face the pressure of having to operate like a mature fund before they can fully absorb the associated costs, which is why we have designed this global program to offer full service at a sliding cost. It will be difficult for emerging managers to succeed without access to the right services; we understand that and are committed to meeting that need,” said Ray Iler, director, Deloitte & Touche LLP and leader of the hedge fund emerging manager platform in the U.S. “From the investor perspective, a new manager’s choice of Deloitte provides instant creditability and confidence. And, for institutions seeding emerging managers, we can offer consistent tax and financial reporting and standardized service offerings regardless of geography.”
Deloitte’s hedge fund practice offers access to a global bench of talent in audit and tax, valuation, anti-fraud, governance and oversight, regulatory and compliance, risk management, technology and operations, structuring, and assessment of third party administrator/prime brokerage relationships. With a DTTL member firm network of more than 3,500 specialists in more than 40 countries, the practice serves 70 percent of U.S. hedge funds with more than $20 billion in assets under management, and 75 percent of global hedge funds with more than $20 billion in assets under management.
“In today’s environment, emerging managers need recognized industry heavyweights for professional services. Deloitte has launched the hedge fund emerging manager platform to provide emerging managers with a solution that offers access to our global network, and customized, creative and responsive service,” said Cary Stier, vice chairman and Deloitte’s U.S. asset management services leader. “If you launch with Deloitte, you stay with Deloitte. A client cannot outgrow our services. Deloitte delivers results that matter.”
The emerging manager platform offers traditional services like audit, tax compliance and fund structuring bundled with non-traditional services including general partner and international tax planning, regulatory and compliance, and technology and operations on a sliding fee scale that keeps pace with the manager’s growth. The emerging manager platform is led by 23 partners, principals and directors and more than 250 specialists internationally through the Deloitte Touche Tohmatsu Limited (DTTL) member firms with operations in the United States, Dublin, London, Hong Kong, Luxembourg, Bermuda, Cyprus, Mauritius and the Cayman Islands.
“Today emerging managers face the pressure of having to operate like a mature fund before they can fully absorb the associated costs, which is why we have designed this global program to offer full service at a sliding cost. It will be difficult for emerging managers to succeed without access to the right services; we understand that and are committed to meeting that need,” said Ray Iler, director, Deloitte & Touche LLP and leader of the hedge fund emerging manager platform in the U.S. “From the investor perspective, a new manager’s choice of Deloitte provides instant creditability and confidence. And, for institutions seeding emerging managers, we can offer consistent tax and financial reporting and standardized service offerings regardless of geography.”
Deloitte’s hedge fund practice offers access to a global bench of talent in audit and tax, valuation, anti-fraud, governance and oversight, regulatory and compliance, risk management, technology and operations, structuring, and assessment of third party administrator/prime brokerage relationships. With a DTTL member firm network of more than 3,500 specialists in more than 40 countries, the practice serves 70 percent of U.S. hedge funds with more than $20 billion in assets under management, and 75 percent of global hedge funds with more than $20 billion in assets under management.
BlackRock Reports Assets Under Management of $3.446 Trillion at September 30, 2010
BlackRock, Inc. today reported third quarter 2010 net income(1) of $551 million, up $234 million from a year ago and up $119 million compared to second quarter 2010. Operating income was $707 million and non-operating income, net of non-controlling interests, was $45 million. The operating margin was 33.8%, which included the effect of $17 million of costs related to the successful launch of the $1.2 billion Build America Bond Trust and $6 million of integration costs associated with the December 1, 2009 acquisition of Barclays Global Investors ("BGI").
Third quarter net income, as adjusted(2), was $2.75 per diluted common share, or $537 million, up 31% compared to third quarter 2009 diluted EPS, as adjusted(2), of $2.10 and up $0.38 compared to second quarter 2010. Third quarter 2010 included operating income, as adjusted(2), of $2.61 per diluted share and net non-operating income, as adjusted(2), of $0.14 per diluted share. Third quarter net income includes a tax rate benefit ($0.11 per diluted share related to first half of 2010) reflecting favorable tax rulings and resolution of certain tax positions. Operating income, as adjusted(2), of $737 million, which included $17 million of closed-end fund launch costs, improved $337 million, or 84%, compared to third quarter 2009 and declined $4 million, or 1%, compared to second quarter 2010. Compared to a year ago, operating results reflect the benefits of the BGI acquisition and improved markets. The operating margin, as adjusted(2), for year-to-date September 2010 was 38.7%, an expansion as compared to 37.4% in 2009. Third quarter income and year-to-date margin reflect positive business momentum, the benefits of our diversified business model and continued investment in the business. Non-operating income, net of non-controlling interests, as adjusted(2), in the third quarter 2010 included gains of approximately $66 million as a result of higher valuations on co-investments including private equity, distressed opportunistic funds as well as real estate equity products.
Assets under management ("AUM") totaled $3.446 trillion at September 30, 2010, up $295.5 billion or 9% during the quarter and $2.011 trillion or 140% year-over-year, including $1.756 trillion of acquired AUM net of outflows due to manager concentration considerations and active quantitative performance ("merger-related outflows"). As discussed under "Third Quarter Business Highlights," net new business during the quarter totaled $50.1 billion, including $52.6 billion in long-term products and $1.8 billion in cash management, partially offset by $4.3 billion of net distributions in advisory AUM. BlackRock Solutions(R) added 4 net new assignments during the quarter, bringing the total for the year to 34 net new mandates. Investment performance remained competitive across much of the platform, supporting new business efforts in all regions. At October 15, 2010, the pipeline of net wins funded or to be funded totaled $46.1 billion, including $40.7 billion in long-term products and $5.4 billion in cash management.
Third quarter net income, as adjusted(2), was $2.75 per diluted common share, or $537 million, up 31% compared to third quarter 2009 diluted EPS, as adjusted(2), of $2.10 and up $0.38 compared to second quarter 2010. Third quarter 2010 included operating income, as adjusted(2), of $2.61 per diluted share and net non-operating income, as adjusted(2), of $0.14 per diluted share. Third quarter net income includes a tax rate benefit ($0.11 per diluted share related to first half of 2010) reflecting favorable tax rulings and resolution of certain tax positions. Operating income, as adjusted(2), of $737 million, which included $17 million of closed-end fund launch costs, improved $337 million, or 84%, compared to third quarter 2009 and declined $4 million, or 1%, compared to second quarter 2010. Compared to a year ago, operating results reflect the benefits of the BGI acquisition and improved markets. The operating margin, as adjusted(2), for year-to-date September 2010 was 38.7%, an expansion as compared to 37.4% in 2009. Third quarter income and year-to-date margin reflect positive business momentum, the benefits of our diversified business model and continued investment in the business. Non-operating income, net of non-controlling interests, as adjusted(2), in the third quarter 2010 included gains of approximately $66 million as a result of higher valuations on co-investments including private equity, distressed opportunistic funds as well as real estate equity products.
Assets under management ("AUM") totaled $3.446 trillion at September 30, 2010, up $295.5 billion or 9% during the quarter and $2.011 trillion or 140% year-over-year, including $1.756 trillion of acquired AUM net of outflows due to manager concentration considerations and active quantitative performance ("merger-related outflows"). As discussed under "Third Quarter Business Highlights," net new business during the quarter totaled $50.1 billion, including $52.6 billion in long-term products and $1.8 billion in cash management, partially offset by $4.3 billion of net distributions in advisory AUM. BlackRock Solutions(R) added 4 net new assignments during the quarter, bringing the total for the year to 34 net new mandates. Investment performance remained competitive across much of the platform, supporting new business efforts in all regions. At October 15, 2010, the pipeline of net wins funded or to be funded totaled $46.1 billion, including $40.7 billion in long-term products and $5.4 billion in cash management.
Hedge funds recorded the largest quarterly asset jump in over three year
Hedge funds recorded the largest quarterly asset jump in over three years, with total industry capital increasing by $120 billion in 3Q10 according to data released today by Hedge Fund Research, Inc. (HFR). The capital increase reflects a combination of both performance-based gains and new capital inflows, bringing total assets invested in the hedge fund industry to $1.77 trillion as of 3Q10.
The HFRI Fund Weighted Composite Index posted a gain of +5.17 percent in the third quarter, bringing the cumulative Net Asset Value (NAV) of the broad-based index to exceed the previous record level set in October 2007. After three years, the industry has emerged from the worst cumulative performance drawdown in its history, which had exceeded -21.4 percent through the volatility of the financial crisis.
The HFRI Fund Weighted Composite Index posted a gain of +5.17 percent in the third quarter, bringing the cumulative Net Asset Value (NAV) of the broad-based index to exceed the previous record level set in October 2007. After three years, the industry has emerged from the worst cumulative performance drawdown in its history, which had exceeded -21.4 percent through the volatility of the financial crisis.
Monday, October 18, 2010
RBC HEDGE 250 INDEX® RETURNED 2.20 PERCENT IN SEPTEMBER 2010
The RBC Hedge 250 Index® had a net return of 2.20 percent for the month of September 2010. This brings the year-to-date return of the Index to 2.54 percent. These returns are estimated and will be finalized by the middle of next month. The return for August 2010 has been finalized at 0.12 percent.
The RBC Hedge 250 Index is a non-investable benchmark of the performance of the hedge fund industry. The Index operates in accordance with a unique construction methodology. The Universe on which the Index is based currently consists of 3,791 hedge funds (excludes funds of hedge funds) with aggregate assets under management of $892 billion.
_____Index Level Sep-10 Aug-10 YTD ITD
Hedge 250 122.19 2.20% 0.12% 2.54% 22.19%
Relative Value
Convertible Arbitrage 0.42% 0.62% -1.45% 17.16%
Equity Market Neutral 1.92% -0.73% -0.72% 7.96%
Fixed Income Arbitrage 1.44% 1.40% 12.52% 26.11%
Tactical
Equity Long/Short 3.45% -0.77% 1.12% 46.70%
Macro 1.21% 1.35% 1.58% 14.20%
Managed Futures 2.13% 3.39% 3.77% 63.81%
Event Driven
Credit 1.81% -0.36% 6.50% 7.83%
Mergers & Special Situations 3.54% -0.79% 5.27% 37.38%
Multi-Strategy
Multi-Strategy 1.01% 0.30% 3.64% 3.69%
Table contains estimated returns, except for the August returns, which are final.
Inception Date is July 1, 2005. Index Level at inception was 100.00.
The RBC Hedge 250 Index is a non-investable benchmark of the performance of the hedge fund industry. The Index operates in accordance with a unique construction methodology. The Universe on which the Index is based currently consists of 3,791 hedge funds (excludes funds of hedge funds) with aggregate assets under management of $892 billion.
_____Index Level Sep-10 Aug-10 YTD ITD
Hedge 250 122.19 2.20% 0.12% 2.54% 22.19%
Relative Value
Convertible Arbitrage 0.42% 0.62% -1.45% 17.16%
Equity Market Neutral 1.92% -0.73% -0.72% 7.96%
Fixed Income Arbitrage 1.44% 1.40% 12.52% 26.11%
Tactical
Equity Long/Short 3.45% -0.77% 1.12% 46.70%
Macro 1.21% 1.35% 1.58% 14.20%
Managed Futures 2.13% 3.39% 3.77% 63.81%
Event Driven
Credit 1.81% -0.36% 6.50% 7.83%
Mergers & Special Situations 3.54% -0.79% 5.27% 37.38%
Multi-Strategy
Multi-Strategy 1.01% 0.30% 3.64% 3.69%
Table contains estimated returns, except for the August returns, which are final.
Inception Date is July 1, 2005. Index Level at inception was 100.00.
The Dow Jones Credit Suisse Hedge Fund Index rose 3.43% in September
The Dow Jones Credit Suisse Hedge Fund Index rose 3.43% in September, with nine out of ten sectors posting positive performance for the month. Among the top performing sectors were Long/Short Equity (+5.09%) and Emerging Markets (+4.77%), which benefited from long directional exposure to the global equity market rally in September. The Event Driven sector finished up 3.20% as managers continued to capitalize on increasing activity in the M&A and distressed debt space.
Performance for the Broad Index and its ten sub-strategies is calculated monthly. September, August, and year-to-date performance numbers are listed below and are available at www.hedgeindex.com.
No funds were added to the Broad Index in September.
The following funds are no longer reporting to the Broad Index: Compass Income Master Fund, Inc., Amber Master Fund SPC, Iridian Opportunity Fund.
The Broad Index is constructed using the Credit Suisse database of more than 8,000 hedge funds. It includes both open and closed funds located in the U.S. and offshore, but does not include fund of funds. In order to qualify for inclusion in the index selection universe, a fund must have a minimum of USD 50 million under management, a 12-month track record, and audited financial statements. Index funds are selected using a formula based on assets under management, which ensures that the Index represents at least 85% of total assets in each of ten strategy-based sectors in the selection universe. In order to minimize survivorship bias, funds are not excluded until they liquidate or fail to meet the reporting requirements. The Broad Index is calculated as a total return index on a monthly basis, adjusted for asset in- and outflows, including a reselection according to the procedure outlined above, on a quarterly basis.
The Dow Jones Credit Suisse family of hedge fund indexes includes four separate indexes:
- The Dow Jones Credit Suisse Hedge Fund Index (formerly known as the Credit Suisse/Tremont Hedge Fund Index) is an asset-weighted benchmark that measures hedge fund performance and seeks to provide the most accurate representation of the hedge fund universe.
- The Dow Jones Credit Suisse AllHedge Index (formerly known as the Credit Suisse/Tremont AllHedge Index) is an investable index comprised of all 10 Dow Jones Credit Suisse AllHedge Strategy Indexes weighted according to the sector weights of the Broad Index.
- The Dow Jones Credit Suisse Blue Chip Hedge Fund Index (formerly known as the Credit Suisse/Tremont Investable Hedge Fund Index) is an investable index comprised of 60 of the largest funds across the ten style-based sectors in the Broad Index.
- The Dow Jones Credit Suisse LEA Hedge Fund Index (formerly known as the Credit Suisse/Tremont LEA Hedge Fund Index) is an asset-weighted, composite index which provides insight in to three specific regions of the emerging markets hedge fund universe (Latin America, EEMEA (Emerging Europe, Middle East and Africa) and Asia).
In accordance with the Dow Jones Credit Suisse Blue Chip Hedge Fund Index Rules and the Dow Jones Credit Suisse AllHedge Strategy Index Rules, Credit Suisse Hedge Index LLC is publishing the following notice:
The following funds are in a Special Rebalancing Situation: Alexandra Global Investment Fund I Ltd., Amber Fund (Cayman) Ltd., Arpeggio Fund, Basso Investors Ltd., Bennelong Asia Pacific Multi Strategy Equity Master Fund Ltd., BlueTrend Fund Ltd., Bridgewater Pure Alpha Fund II Ltd., Canyon Value Realization Fund (Cayman) Ltd., Castlerigg International Limited, Centaur Classic Convertible Arbitrage Fund Ltd., Compass Holdings Ltd., Contrarian Fund I Offshore Ltd., Deephaven Global Multi-Strategy Fund, Drawbridge Global Macro Fund Ltd. - SPV Assets, Firebird Avrora Fund Ltd, GLG European Long Short Fund Ltd., GLG Market Neutral Fund Ltd., Global GT Ltd., Gramercy Offshore Fund (SPV) SPC, JANA Offshore Partners Ltd., Jayhawk China Fund (Cayman) Ltd., Longacre International Ltd., Owl Creek Overseas Fund Ltd., Plexus Fund Ltd., Ramius Multi-Strategy Fund Ltd., Seneca Capital International, Ltd., Shepherd Select Asset Ltd., Thales International Fund Ltd., and WGTC Ltd.
Performance for the Broad Index and its ten sub-strategies is calculated monthly. September, August, and year-to-date performance numbers are listed below and are available at www.hedgeindex.com.
Index | September 2010 | August 2010 | YTD | |
Broad Index | 3.43% | 0.23% | 5.98% | |
Convertible Arbitrage | 1.11% | 1.35% | 7.51% | |
Dedicated Short Bias | -11.28% | 5.15% | -12.49% | |
Emerging Markets | 4.77% | 0.12% | 7.72% | |
Equity Market Neutral | 3.66% | -1.55% | -0.96% | |
Event Driven | 3.20% | -0.40% | 6.31% | |
Distressed | 2.07% | -0.64% | 5.58% | |
Event Driven Multi-Strategy | 4.03% | -0.24% | 6.78% | |
Risk Arbitrage | 2.31% | 0.31% | 4.14% | |
Fixed Income Arbitrage | 1.55% | 1.24% | 9.79% | |
Global Macro | 2.72% | 1.48% | 9.33% | |
Long/Short Equity | 5.09% | -1.12% | 3.12% | |
Managed Futures | 2.77% | 4.87% | 6.44% | |
Multi-Strategy | 2.79% | 0.01% | 5.01% | |
Dow Jones Industrial Average* | 7.85% | -3.91% | 5.57% | |
Dow Jones World Index | 9.54% | -3.62% | 2.89% | |
*Total Return Index | ||||
No funds were added to the Broad Index in September.
The following funds are no longer reporting to the Broad Index: Compass Income Master Fund, Inc., Amber Master Fund SPC, Iridian Opportunity Fund.
The Broad Index is constructed using the Credit Suisse database of more than 8,000 hedge funds. It includes both open and closed funds located in the U.S. and offshore, but does not include fund of funds. In order to qualify for inclusion in the index selection universe, a fund must have a minimum of USD 50 million under management, a 12-month track record, and audited financial statements. Index funds are selected using a formula based on assets under management, which ensures that the Index represents at least 85% of total assets in each of ten strategy-based sectors in the selection universe. In order to minimize survivorship bias, funds are not excluded until they liquidate or fail to meet the reporting requirements. The Broad Index is calculated as a total return index on a monthly basis, adjusted for asset in- and outflows, including a reselection according to the procedure outlined above, on a quarterly basis.
The Dow Jones Credit Suisse family of hedge fund indexes includes four separate indexes:
- The Dow Jones Credit Suisse Hedge Fund Index (formerly known as the Credit Suisse/Tremont Hedge Fund Index) is an asset-weighted benchmark that measures hedge fund performance and seeks to provide the most accurate representation of the hedge fund universe.
- The Dow Jones Credit Suisse AllHedge Index (formerly known as the Credit Suisse/Tremont AllHedge Index) is an investable index comprised of all 10 Dow Jones Credit Suisse AllHedge Strategy Indexes weighted according to the sector weights of the Broad Index.
- The Dow Jones Credit Suisse Blue Chip Hedge Fund Index (formerly known as the Credit Suisse/Tremont Investable Hedge Fund Index) is an investable index comprised of 60 of the largest funds across the ten style-based sectors in the Broad Index.
- The Dow Jones Credit Suisse LEA Hedge Fund Index (formerly known as the Credit Suisse/Tremont LEA Hedge Fund Index) is an asset-weighted, composite index which provides insight in to three specific regions of the emerging markets hedge fund universe (Latin America, EEMEA (Emerging Europe, Middle East and Africa) and Asia).
In accordance with the Dow Jones Credit Suisse Blue Chip Hedge Fund Index Rules and the Dow Jones Credit Suisse AllHedge Strategy Index Rules, Credit Suisse Hedge Index LLC is publishing the following notice:
The following funds are in a Special Rebalancing Situation: Alexandra Global Investment Fund I Ltd., Amber Fund (Cayman) Ltd., Arpeggio Fund, Basso Investors Ltd., Bennelong Asia Pacific Multi Strategy Equity Master Fund Ltd., BlueTrend Fund Ltd., Bridgewater Pure Alpha Fund II Ltd., Canyon Value Realization Fund (Cayman) Ltd., Castlerigg International Limited, Centaur Classic Convertible Arbitrage Fund Ltd., Compass Holdings Ltd., Contrarian Fund I Offshore Ltd., Deephaven Global Multi-Strategy Fund, Drawbridge Global Macro Fund Ltd. - SPV Assets, Firebird Avrora Fund Ltd, GLG European Long Short Fund Ltd., GLG Market Neutral Fund Ltd., Global GT Ltd., Gramercy Offshore Fund (SPV) SPC, JANA Offshore Partners Ltd., Jayhawk China Fund (Cayman) Ltd., Longacre International Ltd., Owl Creek Overseas Fund Ltd., Plexus Fund Ltd., Ramius Multi-Strategy Fund Ltd., Seneca Capital International, Ltd., Shepherd Select Asset Ltd., Thales International Fund Ltd., and WGTC Ltd.
Investors Say Performance Rules in Grading U.S. Hedge Funds
York Takes Top Grade in AR Magazine's Investor Survey of U.S. Hedge Funds; Major Shift in Lineup of Top-Scoring Firms Since Last Survey
Hedge fund investors have not forgotten the carnage of 2008, and the managers who learned its lessons -- as well as those who produced stellar returns -- garnered the top marks in the latest "Hedge Fund Report Card" survey in the September issue of AR Magazine.
York Capital Management, the New York hedge fund founded by Jamie Dinan that manages $11.35 billion in assets, topped the survey, with investors praising Dinan for his integrity and the firm's investment performance. York edged Bridgewater Associates out of the lead and jumped nine notches from its tenth-place ranking in last year's survey.
The Hedge Fund Report Card is a survey of hedge fund investors--including pension funds, foundations and endowments--who collectively oversee more than $250 billion in assets. For the survey, these investors scored the top 50 firms in the AR Billion Dollar Club on six factors: alignment of interests, alpha generation, independent oversight, infrastructure, transparency and liquidity terms.
Investors have changed the way they look at many of the industry's largest hedge fund firms, as evidenced by the major shift in the lineup of the top-scoring firms since last year's survey.
They have also changed their priorities about what factors they deem to be most important. Investors say their main concern now is performance, jumping into second place of the six factors that investors took into consideration when scoring the funds.
Bridgewater, headed by Ray Dalio and managing $50.9 billion, finished a close second place in this year's survey. Investors cited the firm's client service, creativity and innovation in giving the firm high marks. Rounding out the top 10 are Bain Capital/Brookside Capital Partners, Adage Capital Management, Canyon Capital Advisors and Baupost Group (tied for fifth place), King Street Capital Management, Taconic Capital Advisors and Angelo, Gordon & Co. (tied for eighth place) and Fortress Investment Group.
Fortress gained the most over the past year, climbing to 10th place from 30th last year. Another firm that jumped significantly this year is Angelo Gordon, which tied for eighth place with Taconic, up from its 24th-place ranking last year. Not surprisingly, strong performance is the reason most of these funds gained in the rankings, according to investors.
On the flip side, several prominent and highly regarded firms plummeted in this year's rankings. Tudor Investment Corp., Paulson & Co. and Highbridge Capital Management -- in second, third, and fourth place, respectively, last year -- fell significantly.
Global Custodian Hedge Fund Administration Survey 2010
The 15th Global Custodian Hedge Fund Administration Survey provides a snapshot of an industry which, unlike other parts of the securities services industry, has continued to fragment even as it has consolidated.
Responses were received this year on behalf of 81 administrators, 2 more than a year ago, when the hedge fund industry was still struggling with the immediate aftermath of the financial markets crisis. They range in size from the smallest, administering less than $500 million, to Citco, with assets under administration of $570 billion.
The chief cause of fragmentation is, ironically, consolidation. Larger administrators prefer larger clients, creating a niche for smaller administrators to service small to medium sized funds. This trend is reinforced by the increasing volume of institutional money invested in larger hedge funds. Institutional investors demand institutional quality administrators.
The principal reason for that is memories of the collapse of Lehman Brothers and the Bernard Madoff fraud. Institutional investors want to be sure the administrators to the funds they invest in are genuinely independent, and can offer independently fund accounting, greater transparency, more frequent and detailed reporting, and SAS-70 certified operational processes.
One CEO of a hedge fund administrator recently told Global Custodian that his firm experienced a 40% increase in due diligence queries from investors in 2009. Another says "managers are now required to provide potential investors with detail on their internal infrastructure and control environment as well as information on all of the external service providers they have selected. As an administrator, we have been asked by our clients to provide much more detail to both current and prospective investors on topics ranging from our industry leading technology, our SAS-70 and the firm's business continuity plan to our AML policies and procedures."
But the core of the business remains fund accounting. The speed and accuracy of NAVs are the measure of quality mentioned most often by respondents to the 2010 survey, and those that performed well in this area almost always performed well overall. Reporting matters too. With hedge fund investors becoming ever more demanding in terms of information, the ability of hedge funds to keep their investors happy depends increasingly on their administrators.
Another important change from 2009 is the presentation of the survey results. A new category of rating, from Leading Clients, is introduced this year. It aims to measure the ability of an administrator to attract and satisfy the most sophisticated and knowledgeable types of client, and especially those familiar with more than one provider. Surveys editor Allison Cayse says that Leading Clients, which are familiar ion other Global Custodian surveys, "provide the sternest and truest test of the capabilities of a hedge fund administrator."
Goldman Sachs claimed the top spot in the new category, closely followed by State Street AIS, the second largest administrator by AuA. BNY Mellon, which will from 2011 incorporate the client base of the separately rated PNC GIS, was third.
More details here.
Responses were received this year on behalf of 81 administrators, 2 more than a year ago, when the hedge fund industry was still struggling with the immediate aftermath of the financial markets crisis. They range in size from the smallest, administering less than $500 million, to Citco, with assets under administration of $570 billion.
The chief cause of fragmentation is, ironically, consolidation. Larger administrators prefer larger clients, creating a niche for smaller administrators to service small to medium sized funds. This trend is reinforced by the increasing volume of institutional money invested in larger hedge funds. Institutional investors demand institutional quality administrators.
The principal reason for that is memories of the collapse of Lehman Brothers and the Bernard Madoff fraud. Institutional investors want to be sure the administrators to the funds they invest in are genuinely independent, and can offer independently fund accounting, greater transparency, more frequent and detailed reporting, and SAS-70 certified operational processes.
One CEO of a hedge fund administrator recently told Global Custodian that his firm experienced a 40% increase in due diligence queries from investors in 2009. Another says "managers are now required to provide potential investors with detail on their internal infrastructure and control environment as well as information on all of the external service providers they have selected. As an administrator, we have been asked by our clients to provide much more detail to both current and prospective investors on topics ranging from our industry leading technology, our SAS-70 and the firm's business continuity plan to our AML policies and procedures."
But the core of the business remains fund accounting. The speed and accuracy of NAVs are the measure of quality mentioned most often by respondents to the 2010 survey, and those that performed well in this area almost always performed well overall. Reporting matters too. With hedge fund investors becoming ever more demanding in terms of information, the ability of hedge funds to keep their investors happy depends increasingly on their administrators.
Another important change from 2009 is the presentation of the survey results. A new category of rating, from Leading Clients, is introduced this year. It aims to measure the ability of an administrator to attract and satisfy the most sophisticated and knowledgeable types of client, and especially those familiar with more than one provider. Surveys editor Allison Cayse says that Leading Clients, which are familiar ion other Global Custodian surveys, "provide the sternest and truest test of the capabilities of a hedge fund administrator."
Goldman Sachs claimed the top spot in the new category, closely followed by State Street AIS, the second largest administrator by AuA. BNY Mellon, which will from 2011 incorporate the client base of the separately rated PNC GIS, was third.
More details here.
Valuation Disputes Related to Hedge Fund Breakups Can Be Avoided
Donald M. May, Ph.D, a Director in the Litigation and Corporate Financial Advisory Services Group at Marks Paneth & Shron LLP, has published an article in the "Hedge Fund Law Report" (HFLR) that details strategies for preventing valuation disputes when hedge fund general partnerships (GPs) are dissolved.
The dissolution of a hedge fund can be dizzyingly complex, more so than in the breakup of most other types of businesses. A proper valuation of the fund's current assets and an accurate estimate of its future performance are required in order to redeem the holdings of GP limited partners and estimate the impact on investors. This is no mean feat.
In the HFLR article, Dr. May discusses ways to approach the process efficiently -- and in a way that avoids debilitating valuation disputes. He also addresses:
The process by which hedge fund GP interests and hedge fund assets should be valued.
The valuation implications of the departure of a GP limited partner. (Note: Sometimes hedge fund's general partner itself is a limited partnership. Hence the phrase "GP limited partners.")
Three specific alternative valuation methods for valuing GP limited partnership interests.
The consequences of ambiguously drafted or nonexistent distribution agreements.
Specific guidelines for drafting valuation guidelines in hedge fund general partnership agreements.
The dissolution of a hedge fund can be dizzyingly complex, more so than in the breakup of most other types of businesses. A proper valuation of the fund's current assets and an accurate estimate of its future performance are required in order to redeem the holdings of GP limited partners and estimate the impact on investors. This is no mean feat.
In the HFLR article, Dr. May discusses ways to approach the process efficiently -- and in a way that avoids debilitating valuation disputes. He also addresses:
The process by which hedge fund GP interests and hedge fund assets should be valued.
The valuation implications of the departure of a GP limited partner. (Note: Sometimes hedge fund's general partner itself is a limited partnership. Hence the phrase "GP limited partners.")
Three specific alternative valuation methods for valuing GP limited partnership interests.
The consequences of ambiguously drafted or nonexistent distribution agreements.
Specific guidelines for drafting valuation guidelines in hedge fund general partnership agreements.
Combined Assets of Billion-Dollar Hedge Funds Nearly Flat in First Half of 2010, AR Magazine Survey Finds
With hedge funds turning out small profits in 2010, it's no surprise that the amount they manage has stagnated. Hedge funds operating in the Americas hold a combined $1.202 trillion, 1.7% more than these funds managed at the beginning of the year, according to latest Billion Dollar Club, AR Magazine's survey of American hedge funds managing $1 billion or more.
Globally, hedge fund assets amount to $1.9 trillion, up slightly from the $1.82 trillion managed at the beginning of the year. Global hedge fund assets totaled $1.72 trillion on July 1, 2009.
Full results are available online at www.absolutereturn-alpha.com.
As of July 1, there were 217 hedge fund firms with assets of $1 billion or more. That's compared with 213 funds holding a combined total of $1.182 trillion at the beginning of the year, according to the survey, which appears in the October issue of AR.
Despite last year's recovery, hedge fund assets are down 28% from their market peak in July 2008, when the biggest 268 American firms managed $1.675 trillion.
Asset growth has been hampered by this year's lackluster performance as well as investor redemptions. U.S. hedge funds gained just 2.7% in 2010 through the month of August, according to the AR Composite Index. That result is due largely to a tough second quarter; in May alone, three-quarters of all hedge funds posted losses.
"The broader market's erratic behavior has challenged hedge funds, as many managers are having a tough time posting substantial returns," said Amanda Cantrell, managing editor of AR. "Though many hedge funds lost money and suffered redemptions in the first half of the year, the biggest firms in the industry still managed to increase assets, if only slightly."
Nearly half (46%) of the $1 billion-plus hedge funds in the Americas either lost assets or stayed flat in this year's first half, according to the survey. The bulk of this year's growth in assets was experienced by the biggest firms. Assets managed by firms with more than $5 billion have increased by 1%, to $851 billion, since the beginning of the year. These largest firms, which number 72, control 71% of the assets in the Billion Dollar Club, a percentage that has not changed in the past year.
Bridgewater Associates emerges as this year's biggest winner. With $50.9 billion as of July 1, Bridgewater is not only the largest American hedge fund firm but also notched the biggest gain in assets, adding $7.3 billion -- or 16.74% -- since January. The strong performance of Bridgewater's Pure Alpha Fund II powered much of this growth.
The number two spot goes to JPMorgan Asset Management, which had $41.1 billion as of July 1. That's $2.7 billion more than the firm managed on January 1, with growth attributed to inflows into JPMorgan's fund business. JPMorgan's Highbridge Capital Management unit lost assets, falling to $16.46 billion from the $17.9 billion in managed in January.
Paulson & Co. takes number three with $31 billion, $1 billion less than in January 2010.
In dollar terms, the assets of D.E. Shaw Group fell more than any other firm this year. D.E. Shaw managed $17.8 billion as of July 1, down $5.8 billion from its January 1 total. D.E. Shaw has lost more than one third of its total hedge fund assets under management in the past year. Most of that loss occurred in the second half of 2009, when the firm paid out redemptions after having suspended investor withdrawal requests in 2008.
American hedge funds control the bulk of industry assets worldwide. By far, New York remains the central hub, accounting for $714.77 billion, or 59% of assets managed by the Billion Dollar Club.
TOP TEN HEDGE FUNDS IN THE AMERICAS
Firm /AUM ($ billions)
Bridgewater Associates 50.9
JPMorgan 41.1
Paulson & Co. 31
Soros Fund Management 27
Och-Ziff Capital Management Group 25.3
BlackRock 22.83
Angelo, Gordon & Co. 22.68
Baupost Group 22
Farallon Capital Management 20
King Street Capital Management 19.3
Source: AR Magazine
Globally, hedge fund assets amount to $1.9 trillion, up slightly from the $1.82 trillion managed at the beginning of the year. Global hedge fund assets totaled $1.72 trillion on July 1, 2009.
Full results are available online at www.absolutereturn-alpha.com.
As of July 1, there were 217 hedge fund firms with assets of $1 billion or more. That's compared with 213 funds holding a combined total of $1.182 trillion at the beginning of the year, according to the survey, which appears in the October issue of AR.
Despite last year's recovery, hedge fund assets are down 28% from their market peak in July 2008, when the biggest 268 American firms managed $1.675 trillion.
Asset growth has been hampered by this year's lackluster performance as well as investor redemptions. U.S. hedge funds gained just 2.7% in 2010 through the month of August, according to the AR Composite Index. That result is due largely to a tough second quarter; in May alone, three-quarters of all hedge funds posted losses.
"The broader market's erratic behavior has challenged hedge funds, as many managers are having a tough time posting substantial returns," said Amanda Cantrell, managing editor of AR. "Though many hedge funds lost money and suffered redemptions in the first half of the year, the biggest firms in the industry still managed to increase assets, if only slightly."
Nearly half (46%) of the $1 billion-plus hedge funds in the Americas either lost assets or stayed flat in this year's first half, according to the survey. The bulk of this year's growth in assets was experienced by the biggest firms. Assets managed by firms with more than $5 billion have increased by 1%, to $851 billion, since the beginning of the year. These largest firms, which number 72, control 71% of the assets in the Billion Dollar Club, a percentage that has not changed in the past year.
Bridgewater Associates emerges as this year's biggest winner. With $50.9 billion as of July 1, Bridgewater is not only the largest American hedge fund firm but also notched the biggest gain in assets, adding $7.3 billion -- or 16.74% -- since January. The strong performance of Bridgewater's Pure Alpha Fund II powered much of this growth.
The number two spot goes to JPMorgan Asset Management, which had $41.1 billion as of July 1. That's $2.7 billion more than the firm managed on January 1, with growth attributed to inflows into JPMorgan's fund business. JPMorgan's Highbridge Capital Management unit lost assets, falling to $16.46 billion from the $17.9 billion in managed in January.
Paulson & Co. takes number three with $31 billion, $1 billion less than in January 2010.
In dollar terms, the assets of D.E. Shaw Group fell more than any other firm this year. D.E. Shaw managed $17.8 billion as of July 1, down $5.8 billion from its January 1 total. D.E. Shaw has lost more than one third of its total hedge fund assets under management in the past year. Most of that loss occurred in the second half of 2009, when the firm paid out redemptions after having suspended investor withdrawal requests in 2008.
American hedge funds control the bulk of industry assets worldwide. By far, New York remains the central hub, accounting for $714.77 billion, or 59% of assets managed by the Billion Dollar Club.
TOP TEN HEDGE FUNDS IN THE AMERICAS
Firm /AUM ($ billions)
Bridgewater Associates 50.9
JPMorgan 41.1
Paulson & Co. 31
Soros Fund Management 27
Och-Ziff Capital Management Group 25.3
BlackRock 22.83
Angelo, Gordon & Co. 22.68
Baupost Group 22
Farallon Capital Management 20
King Street Capital Management 19.3
Source: AR Magazine
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