Global Investing

from Funds Hub:

The new wrong

Most hedge funds agree that the credit crisis has thrown up some interesting assets at bargain-basement prices, particularly in credit markets.

rtr23v8sThe problem? When you have to report net asset value performance to jittery investors and prices of these cheap assets are getting even cheaper, when do you buy?

That's the dilemma facing many fund managers, some of whom have got burned by snapping up asset-backed securities and other assets too quickly.

After all, a security that has fallen 90 percent is one that has dropped 80 percent and then halved.

Chris Woods, chief investment officer at Man Global Strategies, speaking at Wednesday's Euromoney bond conference in Westminster, helps us out.

from Funds Hub:

Great expectations

It was the outcome most commentators were expecting.

rtx9j4vEven Roger Lawson of the UK Shareholders' Association, which represented 150,000 small investors, admitted it was "not totally unexpected".

But the defeat for hedge funds RAB Capital and SRM Global and other former shareholders claiming damages for the loss of their holdings in Northern Rock when it was nationalised last year is nevertheless a hard blow to bear.

The former shareholders may appeal, but a valuation of the equity at zero or close to zero is now looking entirely possible.

For better or worse?

Wealth managers at Citi Private Bank are telling their clients to stay neutral in their exposure to hedge funds at the moment, whether the strategy be event driven, equity long/short or macro. The main reason is that capital markets are still stressed and many hedge funds still need to deleverage.

The firm points out, however, that hedge funds had a good news-bad news kind of year in 2008. Based on the HFRX Global Hedge Fund Index, it was the worst performance on record. The index lost 23.3 percent. Its next worst performance was 2002 — and that was only a 1.5 percent decline.

Losses were widespread across all kinds of strategies. Only merger arbitrage and systematic macro gained anything. 

A dish best served cold

Alain Grisay, the softly spoken CEO of F&C Investments, was in a wry humour at F&C’s annual press seminar for European journalists on Thursday.

Fresh from his bout with the UK’s Treasury Select Committee on the causes of the banking crisis, and enjoying a respectable set of fourth quarter figures, Grisay is in the rare position of having come through the storm with his house intact. “We have just gone through an unrequested market stress test that confirms our model works,” he said. “We were able to report resilient results for the year and took the market by surprise.”

His company has been viewed as boring in the past by market commentators, but Grisay observed drily that in some quarters F&C is now viewed as a “must have”.

End of carry trade unwind?

Merrill Lynch’s monthly poll of fund managers around the world has a bit of a surprise in the small print. More investors now reckon the Japanese yen is overvalued than see it as undervalued. This is the first time this has been the case since Merrill began asking the question, said by staff to be about eight years ago.

It clearly reflects a 13 percent dive in dollar/yen this year and a 24 percent plunge in euro/yen. But does the new view of value suggest that the unwinding of the carry trade is over? Another question from the Merrill poll shows hedge fund deleveraging levelling off.

How low will hedge funds go?

How bad will hedge funds’ year-end performance figures look?

According to Credit Suisse/Tremont, funds fell 6.30 percent in October after a 6.55 percent drop in September, taking losses for the first ten months to 15.54 percent.

Seven strategies are now nursing double-digit losses, with only two — managed futures and dedicated short bias — in positive territory.

Even global macro, which bets on the likes of global equity markets, world currencies, sovereign debt and commodities, is now back in the red. These funds are down 7.10 percent after substantial losses in September and October.

Star Coffey decides not to go it alone

So star hedge fund manager Greg Coffey has opted to join established firm Moore Capital.

In April, when high-performing, high-earning Coffey resigned from GLG, the market was awash with rumours that he wanted to start up his own firm, pulling in billions from investors.

However, times have changed in the hedge fund industry.

The average fund is down nearly 20 percent so far this year, according to Hedge Fund Research’s HFRX index, while emerging markets funds have taken a particular battering as markets such as Russia and China have fallen.

Cocktail shaker

We’re hearing a lot about a major shake-out in the hedge fund industry.

George Soros is predicting two thirds of funds could go to the wall as the credit crisis fallout settles on the industry and Q3 data from HFR has shown the more immediate impact as assets shrank by 11 percent in the period.

Now the Aima hedge fund industry association calls in with some sad news. Cocktail dresses are being slung back in the closet as the trade body’s annual reception in London is put on ice.

The Grosvenor House Hotel bash was to take place on Tuesday next week, bringing together the press, hedge fund managers and Aima committee members in the kind of informal setting that could have offered an intriguing glimpse of the tumultuous state of the industry. A spokeswoman tells us though that “things are just too hectic… they can’t afford to take a night off.”

Once Bitten

Nobody knows quite what the landscape for financial services will be after the mayhem of the last three weeks. There is much talk of the investment banking model being dead in the water and swingeing regulation aimed at firmly bolting the door of a horseless stable, butrtrow4b.jpg few are ready to hazard at the details.

One aspect on which we have seen almost universal agreement, however, is that investors have cottoned onto the immense risk of bankrolling investments they don’t quite understand. The trend for increasing pension fund investments in alternative strategies starts to look like a busted flush, and you have to question whether demand for the UK’s planned retail funds of hedge funds will sustain the new industry.

Schroders CIO Alan Brown told us this week: “People will be taking a long hard look at complex financial products.”

Hedge funds and commodities find interest cooling

rtr1w493.jpgIt was not so long ago that hedge funds and commodities were the two red hot areas to invest in.

The credit crisis has shown that investor interest can quickly cool.

Many hedge funds betting on a so-called “super-cycle” have been caught out by a sharp pullback in commodities after a five-year bull market and are now facing the task of soothing anxious investors.

One of those to have suffered – hedge fund firm RAB Capital - is trying to strike a bargain with investors in its flagship Special Situations strategy, which has plunged 48 percent year-to-date after some bad bets on mining stocks plus a high-profile mistake at Northern Rock.