Money managers under the microscope
Hedge funds’ awful performance figures have been splashed all over the media for some time, but the effect this is having on the funds themselves could potentially be of deeper concern to investors.
According to a report by Moody’s, entitled “Market turmoil increases stress on hedge fund operations”, there are a multitude of potential dangers to watch out for as fund performance deteriorates and cost pressures grow.
For example — some hedge funds keen to save the pennies have combined previously independent jobs such as fund manager and portfolio valuer, affecting the quality of its operations, says the report.
The higher likelihood of legal action by investors disappointed by poor returns, meanwhile, could take management’s eye off the ball and affect a fund’s operations.
Henderson’s purchase of struggling New Star looks a good way of quickly beefing up its falling hedge fund assets — at a time when the industry is seeing investors pull out their cash left, right and centre.
Henderson saw 400 million pounds in hedge fund outflows in the second half of 2008 — 100 million pounds in Q3 and 300 million pounds in Q4 — helping push assets down to 800 million pounds at the year-end.
Tuesday’s Treasury Select Committee grilling of the hedge fund industry proved a lively affair (if somewhat hot in a crammed Westminster room), but you have to wonder how well diversified their choice of witnesses is.
As well as Chris Hohn, co-founder of TCI, the Committee picked BlackRock’s head of alternatives Douglas Shaw — a previous employee of TCI.
Tuesday’s grilling of UK hedge fund executives is likely to create plenty of noise but produce little in the way of new rules.
While media-shy TCI founder Chris Hohn and others will face tough questions from the Treasury Select Committee on financial stability, short-selling and other issues, it nevertheless seems that the pro-legislation lobby’s position may be weaker than it has been in recent years.
The due diligence, or lack of it, undertaken by investors has been one of the big talking points following the alleged fraud by U.S. financier Bernard Madoff.
But according to risk management firm Riskdata, the scandal could potentially have been spotted by (fairly complicated) statistical analysis.
It’s been a tough 2008 for RAB.
As the industry faces its biggest-ever crisis, RAB’s own assets have slumped to just over a quarter of what it ran a year ago, while fees have inevitably fallen too.
Meanwhile it has also taken charges after making acquisitions, only to see their assets fall, and for losses on investing in its own funds.
Back when the hedge fund industry was barely into its 20s, numbered just 150 funds and managed all of $1 billion, you might have thought times were simpler; untroubled by the kinds of questions and concerns that now dominate after a turbulent year.
Browsing through a 1969 article in Fortune magazine by Carol J Loomis you could be forgiven for concluding the industry has barely moved on. If the last year has seen the painful payback from a frantic pursuit of returns, then so it was 1969.
Victor Haghani, a co-founder of LTCM later involved in its liquidation and now a private investor, was opining at a LSE conference on Monday that simply cutting back funds’ borrowing after the carnage of last year may not be a strong enough lesson for the industry to learn.
Welcome to the launch of Hedge Hub, the new Reuters Hedge Fund Blog.
Our aim is to provide insight into, and encourage debate about, the rapid changes in the hedge fund industry as it faces its biggest challenge ever.
We‘re going to offer a wealth of interesting news, points of view and discussion topics based on a wide variety of hedge fund news sources, from Reuters to other blogs and websites, and we’ll also be hearing from guest contributors from within the industry.