Money managers under the microscope
Yesterday I optimistically predicted hedge funds would learn a lot more about their regulatory fate as the G20 drew to a close.
That wasn’t exactly incorrect — the industry did find out for example that regulation and oversight will be extended to “systemically important hedge funds”.
But, as with many political statements, the devil is in the detail — or in this case, the lack of it.
“The G20 communiqué is unclear as to whether their aim is to have further regulation and oversight of the funds themselves or of the managers who manage the funds,” says Robert Mellor, UK hedge fund leader at PricewaterhouseCoopers.
After months of rhetoric by political leaders and behind-the-scenes manoeuvring by trade bodies, the hedge fund industry is finally set to learn its regulatory fate today.
Embattled Cerberus Capital Management, a private-equity firm named for the mythological three-headed dog that guards the gates of Hades, has been overwhelmed by clients seeking to withdraw money from its $2 billion hedge fund, Cerberus Partners.
Website FINAlternatives said that fund investors representing 17 percent of the assets wanted to withdraw their money in December, the most recent month for which statistics are available. Now, with Cerberus’s investments in Chrysler and GMAC going bad and unemployed investors needing to tap more funds, that figure may be heading higher.
Hedge funds may be sniffing around the growing mountain of troubled European companies, picking out those they see as most likely candidates to undertake bond exchanges as a way to make money, according to market talk.
Debt-laden Dutch NXP Semiconductors NXP this week managed to cut its debt by about $465 million in an example of a debt-swap restructuring deal that has been more common in the United States up until now.
The worst financial crisis in 80 years has tarnished many previously sparkling reputations.
In fund management, as in banking, many managers who previously looked like the shrewdest around were left looking like investors who could profit well enough in a bull market, or even during the dotcom bust, but just couldn’t deliver the goods when times got really tough.
It is still a moot point whether institutional investors are putting more money into hedge funds or taking money out.
Yesterday Antonio Borges, chairman of the Hedge Fund Standards Board, told Reuters that there had been a “dramatic reversal” since December and that institutions were “returning to the hedge fund industry in a very serious, well thought-through process”.
There has been no shortage of calls from continental European leaders such as Angela Merkel and Nicolas Sarkozy for regulation of the hedge fund industry to limit potential systemic risks to the global financial system.
But it’s little surprise that some executives in London, where the vast majority of European hedge funds are actually based, have privately suggested the calls stem from motives rather more mixed than simply wanting better regulation.
Four of the world's top hedge fund managers took home 10-figure paychecks last year, even as the loosely regulated industry delivered its worst returns and hundreds of firms were forced out of business.
The industry's 25 best-paid managers collected a total of $11.6 billion, which marked the third-best year on record, according to an annual survey released by Institutional Investor's Alpha magazine. Top on the list was James Simons, a former mathematics professor who runs hedge fund group Renaissance Technologies, with estimated earnings of 2.5 billion.
Giampaolo was speaking today at the London leg of the Reuters Hedge Fund and Private Equity Summit.
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