Funds Hub

No “Inshallah” for hedge funds

Islamic funds may well be ”the most dynamic part of the Sharia-compliant sector”, supported by with increasing interest from  deep pocketed investors,  but if you are a hedge fund manager,  Banque Sarasin reckons you have no hope of getting a slice of this Sharia pie.

The Sarasin Islamic Wealth Management Report 2010 says many Islamic investors cannot be persuaded hedge funds are linked to the real economy (one of the tenets of Islamic finance), plus investors are discouraged by short selling which, strictly speaking, is also prohibited.

And before you hedgies say you know a Sharia scholar or two who is comfortable with signing off a fatwa, the necessary backing to any Islamic product,  Sarasin says the “forbidden” label still sticks to hedge funds — “effectively stopping the development of this sector”.

“Despite efforts since 1997, the sector remains small. To date, there does not appear to be an Islamic hedge fund which has substantial assets under management.

“Due to this, and the uncertainty regarding hedge funds in general, substantial investment in this field is not expected in the short term,” the report says. Period.

Islamic investors are currently going long-only instead. For the time being  at least there is little “inshallah” for hedge funds.

Morning line-up

Hedge fund stories from the past 24 hours from Reuters and elsewhere:

SAC invests in star trader’s fund – FT Alphavile

Massachusetts court rules against hedge fund manager – Reuters

3A launches Ucits III fund of hedge funds – Opalesque

SilkInvest launches fixed income frontier fund - HedgeCo.Net

Bearish funds set for redemptions, Cramer predicts – NYT DealBook

Isabella of Castile – the hedge fund manager

Isabella of Castile was a controversial woman.  A woman who made history for herself and her country. She has been called saint and a tyrant, but never before a hedge fund manager.

Fred Fruitman, managing director of Loeb Partners Corp.,  the family office that oversees the Loeb family fortune, took care to bridge that gap.

He told delegates of the Asset Allocation Summit Europe 2009  this week that Isabella, a Renaissance woman, could have taught XXI century hedge funds a thing or two. An eye for opportunity, drive for returns, and a controversial reputation were also a trade-mark for both Isabella and hedge fund managers.

Take Isabella; a woman of self-belief and vision. Or, a fanatic who did not rest until she chased all the Moors out of Spain, took their riches and created the framework for the Spanish Inquisition.

That’s Isabella, depending who you are talking to.

Despite being described by some as parasites, hedge funds have been also credited for exploiting the inefficiencies of the financial system and — in so doing helping it tick along.

Unlike Isabella they did not discover continents or invade countries, but some say some countries have been left wobbly after hedge funds had finished with their currencies.

Jabre upbeat (but not quite bullish) on stocks

High-profile hedge fund manager Philippe Jabre has lent his voice to the view that equity investors have more to play for.

The former GLG trader, probably better known for a record FSA fine of 750,000 pounds for market abuse than for his strong track record, thinks there is “money to be made”in bombed-out stocks in sectors such as financials, energy and industrials.

While not quite subscribing to the idea of a “bull market” — put forwarded notably by Crispin Odey — he does think there are plenty of cheap stocks around and that investors are getting paid “very well” to hold equities.

He notes equity markets have rebounded to where they were six months ago, but could rise as investors currently sitting in cash buy into the market to avoid missing out on further rises.

However, he does share one thing in common with Odey in that he has done well out of Barclays’s astronomical rebound — for equity investors probably one of the trades of the year.

(See also Make hay while the sun shines and Odey’s Barclays boost)

from Global Investing:

Falling on deaf ears

The European private equity industry today published its response to the proposed Alternative Investment Fund Managers directive that seeks to place controls on the industry.

In what it must hope will be seen as a carefully considered and constructed response to the European Commission's hastily drafted and ill-thought-out proposed directive, the European Private Equity and Venture Capital Association -- the voice for private equity in Europe -- calls for the threshold for reporting on its companies' activities to be lifted to 1 billion euros assets under management from 500 million.

It argues that private equity firms smaller than that specialise in managing small and medium-sized companies and should be subject to national legislation.

EVCA also wants a grandfathering clause introduced so firms existing funds that use no leverage and have no redemption rights (the vast majority of all unlisted private equity funds) would be exempt from the directive. It argues that failing to do this could result in termination of these funds "with disastrous consequences for the industry and its portfolio companies".

The big question is who in Europe is listening?

Having already gained a surprise concession in the published draft, which lifted the reporting threshold to 500 million euros from an expected level of 250 million euros, private equity may be seen as pushing its luck by asking for further leeway.

While the Socialists lost ground to the Conservative right in the recent European Parliament elections, it would be a mistake to think that the left wing coalition leader Poul Nyrup Rasmussen will be any less strident in his call for stringent legislation on private equity and hedge funds alike. The right wing Governments in France and Germany have been just as loud in their demands for legislating of the industries.

You can’t win ‘em all

 Ah well, even superstar hedge fund managers can’t always get their timing spot on.

U.S. hedge fund boss John Paulson had been sitting on a 300 million pound profit on his bet against British bank Barclays just three months ago, but by holding on for too long has seen most of that gain wiped out.

Paulson held a 1.2 percent short position in Barclays last September when new disclosure rules came in, but on Tuesday he cut it to less than 0.25 percent. His entry price is not known, but the shares were at 350p in September and crashed to 55p in March, before soaring to 316p by Monday’s close.

New York-based Paulson, who has made billions betting against U.S. banks and some European lenders including RBS, looks to have still made at least 50 million pounds on the Barclays bet. But he may be further aggrieved after the stock fell sharply after he closed out, following a massive share placing.

(See also Odey’s Barclays boost)

No defence

Sheltering from the credit crisis in so-called defensive stocks could prove a disappointment to investors and a great opportunity for short-sellers, according to Liontrust hedge fund manager James Inglis-Jones.

Inglis-Jones, who runs a hedge fund for Liontrust and who recently took on the First Income fund after the departure of star manager Jeremy Lang, has short positions in sectors such as tobacco and pharmaceuticals and has recently added more.

“It’s an interesting opportunity when something is seen as safe,” he told me. “When the company delivers a disappointment the payoff can be pretty good.”

In February Hedge Hub reported Crispin Odey saying defensives were becoming “interesting shorts” and that he “certainly wouldn’t own them”.

However, with markets having bounced so much recently – the FTSE 100 is up by a quarter since March — and many defensives having missed out on most of the rally, are defensives still expensive or do they offer better relative value now?

Much of that depends on whether the rally has legs or is a dead cat bounce. Barclays Wealth came out today saying it is ”shifting to the tactical offensive”, adding, “The big question now is whether the pick-up is temporary or the real thing. We suspect the latter.” Several big names have already pointed to a new bull market, but after a 25 percent rally where do we go from here?

Odey spies ‘the death of safety’

By Simon Falush

So you thought safe-haven pharmaceuticals and food producers were a safe place to shelter your assets?

Think again, says Crispin Odey, the well-known hedge fund manager who thrives on a contrarian approach to equity investing. He tells Reuters that defensives could be the next target for short sellers.

“I certainly wouldn’t own them and they look like they’re becoming interesting shorts. It’s an interesting bit of the market that people aren’t looking at.”

A loud and clear call

It may not have been a massive surprise, but ECB President Jean-Claude Trichet had an unwelcome message for hedge fund managers today.

The current crisis is, apparently, “a loud and clear call” to roll out regulation to all important market players, “notably hedge funds and credit rating agencies”.

For those hedge fund managers who felt, perhaps with a degree of justification, that their industry had been relatively blameless in precipitating the current crisis, that call may have been somewhat quieter and more muffled.

But the drumbeat of those calling for greater hedge fund regulation is growing and it seems increasingly likely that hedge funds will face a new raft of rules in the not too distant future.

Hedge funds have attempted to justify the slow take up of volunatry codes aimed at staving off heavy-handed regulation, but day-by-day the industry looks like it may have missed the chance of a quiet life… well, relatively speaking.

Saving Hendry? Thanks but no thanks, says Hugh

It was always unlikely that a letter of advice was going to change the mind of maverick hedge fund manager Hugh Hendry.

And in his latest letter to investors, Hendry has smartly rebuffed any attempt to ‘save’ him from his bond investments.

The letter in question – Gregor.us’s monthly note, entitled “Saving Hugh Hendry” – praises the Eclectica co-founder and CIO as a “brilliant and colourful” hedge fund manager who saw the coming storm and took cover well in advance.

But it goes on to argue that the 27-year bull market in government debt, in which Hendry is a big investor, is probably coming to an end: