Money managers under the microscope
For many money managers who bet exclusively that securities will fall, July may go down in history as their personal Waterloo — .
When performance data is announced in the next few days, the numbers will show high single-digit or even double-digit losses at so-called dedicated short-sellers, industry analysts and investors forecast.
“Every few years short-sellers have their day in the sun,” said Brad Alford, founder of Alpha Capital Management, an advisory firm that invests in hedge funds. “Then things revert to normal where the markets rise and life becomes so difficult for them that many just go out of business,” he added.
Short-sellers began having a bad year as soon as the stock market began to turn around when fears about the global downturn eased. In the first six months of 2009 they lost 9.38 percent, compared with the 9.55 percent that other hedge funds gained.
UBP — which had exposure of about 1 billion Swiss francs to Madoff’s firm — on Wednesday said hedge fund assets had slumped by 20 billion Swiss francs in the first half and are now more than half the level achieved at the peak in June 2008. To be fair, the private bank isn’t giving up easily and has hired in new managers to liven up its offering.
It may look like an unlikely scenario on paper, but Europe’s elderly masses could be about to provide the killer blow to draft EU rules to regulate the alternative investment industry.
Hedge fund associations, private equity lobbyists, the British government and even the United States Treasury have waded into the debate over the proposed legislation, seeking to soften an approach which has been labelled an exercise in post-financial crisis political grandstanding, rather than a measured look at how to better regulate the sector.
Insight director of UK equities Andy Cawker, manager of a long-short Ucits III fund, tells me he has been changing the way his fund hedges its market exposure as market conditions change.
His Absolute Insight UK Equity Market Neutral fund, which uses pairs trades to produce a largely market neutral portfolio, has shifted from hedging mostly against the index two years ago to now hedging predominantly against individual stocks.
Bill Maldonado, head of alternative investments at HSBC’s Halbis unit, talks to Hedge Hub about how market neutral hedge funds have fared in 2008 and 2009.
As Barclays auctioned off its Barclays Global Investors unit this year, Goldman was widely seen as a likely acquirer. That is until Blackrock In under Larry Fink emerged as the buyer with a $13.5 billion deal.
There has been no shortage of people lining up to lambast the EU’s draft directive on hedge funds and private equity.
But today the UK’s Financial Services Secretary Lord Myners stepped up the attack, criticizing the draft rules on leverage caps and where funds can be sold and promising a blitzkrieg of lobbying.
As you’ve probably noticed, there’s no shortage of regulation in the wake of the biggest financial crisis in 80 years.
IOSCO has been fleshing out pledges made by G20 leaders while the European Commission has put forward its highly-controversial draft law on hedge funds and private equity. Meanwhile the EU is formally reviewing MiFID next year.
Rating agency Moody’s has updated its hedge fund ratings process in the wake of the Madoff fraud and the collapse of Lehman Brothers.
Hedge funds and other investors are shorting stocks laden with the biggest debts, according to stock lending research group DataExplorers, betting they may struggle to refinance themselves.