Funds Hub
Money managers under the microscope
Morning line-up
Hedge fund stories from the past 24 hours from Reuters and elsewhere:
How hedge funds are managing risk – Seeking Alpha
Citadel to meet all 2008 redemptions this year – Reuters
Penthouse of indicted Hedgie sells for $3.3mln – Palm Beach Daily News
Morning line-up
Hedge fund stories from the past 24 hours from Reuters and elsewhere:
Hedge fund investor goal: An exit plan -WSJ
Hedge fund compensation; New funds, new tricks – Seeking Alpha
Hedge funds gain in August – Reuters
Alpha advertising - FT Alphaville
From the ashes: Can listed hedge funds rise again? – CityWire
Morning Line-Up
Hedge fund stories from the past 24 hours from Reuters and elsewhere:
Some hedgies still feel effects of 2008 redemptions – Dow Jones
HSBC seeks to fill Lehman void as hedge fund broker – Bloomberg
What investors want from hedge funds now- Business Week
Guard dog shows teeth
You’ve got to hand it to Cerberus.
While we dutifully write stories about a new beginning for the hedge fund industry, marked by transparency at levels never seen before and fund structures designed to satisfy those burned by the credit crisis, the firm named after the guard dog at the gates of Hades comes up with its own tactic — lock up investor money for three years.
You might think that this is the last thing investors want, but it has a curious logic.
The biggest complaint about the widespread lock-ups in the hedge fund industry over the last 12 months was the arbitrary nature of them. Just when clients thought ‘phew, at least I can pull my money out of XX fund’, they found the gate slammed shut on them.
With Cerberus’s new model though, investors will have comforting certainty about the status of their money at the firm’s hedge funds, and know that they’ll need to plunder other sources for cash should the need arise again. We’ll have to wait and see if others follow suit, but a widespread adoption of three-year lock-ups could give investors pause for thought and slow the recovery of the industry’s asset building.
As an aside, I’ve just glanced at tonight’s copy of the doomed London Paper and spotted some heartwarming fixed-income news to lighten anyone’s mood. In the ‘Lovestruck’ column designed to allow the resurrection of brief encounters in the streets we find the following tortured appeal:
“You work at Bloomberg. Fancy discussing things other than bonds?” – Investment Banker.
GLG pulls in punters
GLG Partners has confirmed positive client money flows are back on the agenda, reporting net sales of $2.2 billion in the second quarter in a trading statement which sparked a rise in the share price. The company also reckons strong performance among its funds has set the scene for more to come.
Barclays Capital last month predicted net inflows could reach as much as $50 billion in 2009, and GLG shows the numbers are starting to come through to support that theory. Of about 300 investors, BarCap found that some 80 percent were expecting to move back out of cash and into hedge funds this year.
The argument goes that investors burned by 2008 will get greedy again, and aggressively seek out the quickest route they can see to recoup the losses. If that theory proves true then perhaps investors were not as spooked as some have thought by the imposition of gates to redemptions when the crisis was at its height.
Longer term, it will be interesting to see if flows can recover enough to send total assets back to pre-crisis levels, because the revived love affair with hedgies is hugely vulnerable to fresh market wobbles, and is not universal. Trustees of the $40 billion Massachusetts’ state pension fund on Wednesday voted to scrap its portable alpha strategy and slash absolute return fund allocations by a quarter.
Brighter times ahead?
Funds of hedge funds have had a tough time recently.
Losses of 21.37 percent last year helped persuade clients to withdraw a net $50 bln in the fourth quarter and a further $85 billion in the first quarter of this year, according to HFR.
Funds of funds weren’t helped either by the speed with which private clients — who often hold these portfolios rather than the underlying fund – pulled out of the asset class.
But perhaps the hammer blow was Madoff — ironically not a hedge fund but nevertheless not spotted by some of the big funds of hedge fund firms, including RMF and UBP.
However, according to S&P Fund Services’ Randal Goldsmith, funds of hedge funds are once again seeing net client inflows, helped by this year’s pick-up in performance.
And he reckons GAM, Julius Baer’s troubled hedge fund unit, is also probably seeing net new money too after a period of redemptions.
It all adds to the growing impression that, while still a long, long way from its heyday, hedge fund land is ever so slowly starting to see an improvement in its fortunes.
GAIM 2009: Troublesome teens
Growing up can be a painful experience for teeangers with many battles and excesses along the way.
The once young and spritely hedge fund industry is now entering its problematic adolescent years and starting to face up to issues that once seemed fairly unimportant.
The good news, according to Jefferies International’s Kevin Pakenham, speaking at this week’s GAIM hedge fund conference in Monaco, is that while its list of problems may be long, they can be overcome.
Investors won’t forget
It seems that investors will have long memories of how hedge funds behaved in the bad times when it finally comes to putting money back into the industry again.
The wipeout of 50, 60 or 70 percent of the industry that was predicted by some commentators last year hasn’t quite happened, partly because redemptions have slowed dramatically of late, partly because some smaller firms are still limping along in the hope that conditions will improve soon, and partly because many funds imposed gates last year, limiting investors’ ability to get their money out.
However, according to Stuart McLaren, financial services partner at Deloitte, some will feel the wrath of investors further down the track.
“Investors will avoid managers who’ve imposed unreasonable gates and side pockets primarily to protect their income stream,” he told me today.
Meanwhile, funds “where it has now become apparent that they have been investing in illiquid areas without previous disclosure to investors,” will also be avoided.
For some funds it seems that gates have provided a tempting route to short-term survival but have sealed their fate in the long term.
You learn who to trust in times of need, those funds failed the test, now its payback time.
No tragic ending at Toscafund
Puccini’s tragic opera Tosca ends with the heroine, realising she has been tricked by the evil Baron Scarpia and that her lover has been executed, hurling herself to her death from a castle parapet in despair.
However, despite last year’s tragic performance — an approximately 60 percent plunge in the flagship fund after holdings such as Redrow and Taylor Wimpey fell sharply — it would seem Martin Hughes has sidestepped such an unhappy ending at Toscafund, where redemptions have tailed off and fund performance is strong once again.
Today the activist hedge fund firm said it saw profits fall 83 percent last year, while the highest-paid member — likely to be owner Martin Hughes — saw pay drop to 14.9 million pounds from 75 million pounds.
However, fund performance is up this year. The flagship fund is up around 25 percent year-to-date, while the Opportunities fund is up about 60 percent, the small-cap fund 58 percent and the Asia fund just under 10 percent.
Meanwhile, it told Reuters there were now “no significant redemptions”, while some clients have even cancelled redemption requests. And despite the drop in profits, Toscafund felt generous enough to more than double its charity contributions to over half a million pounds.
Toscafund’s apparent revival is the latest sign that, after a wave of outflows, conditions are beginning to stabilise in the hedge fund industry.
Despite the welter of negative headlines over the past year and the numerous fund closures, tragic demises remain the stuff of opera rather than the fate of the hedge fund industry as a whole.
