Funds have been watching for signs of weakness in the Aussie
dollar, which was one of the most in-demand developed world
currencies after the credit crisis due to Australia’s rapid
economic growth, attractive yields and healthy financial system.

While some funds have been short for some time – a costly
trade as the Aussie has strengthened – more managers have joined
them in recent weeks, enticed by signs of domestic economic
weakness and the likelihood of a further interest rate cut after
rates hit a record low this month.

The downside of a strong currency was highlighted when Ford
said it would shut its two auto plants in Australia. The dollar
has also hit government revenues and the central bank’s growth
outlook.

“We think the Australian dollar will come down and come down
hard,” said Stanley Druckenmiller, founder of former hedge fund
Duquesne Capital, at the Sohn Investment Conference in New York
this month.

“We’re betting … this is the end of the big supercycle in
commodities that started 10 years ago,” he said. “I would avoid
all commodity currencies, such as Brazil, South Africa and
Canada and I would short the Australian dollar.”

Funds have mainly shorted the Aussie against the U.S.
dollar, which has gained as the U.S. economy has recovered. But
some have shorted it against non-commodity emerging market
currencies, said Anthony Lawler, portfolio manager at GAM.

The Aussie soared from less than 65 cents in late
2008 to $1.10 in summer 2011, as investors sought refuge from
the credit crisis in a country that has now racked up 21 years
continuous of growth.

The currency has largely range-traded since then, but since
April 11 it has lost around 8 percent.

Funds point to falling commodity prices driven by a slowdown
in China – Australia’s biggest export market – while mining
service firms have been hit by profit warnings.

There are also signs consumer confidence is falling, while
some see issues with Australia’s banks, which are more reliant
than international peers on wholesale funding.

“In the short term Australian banks are a danger zone,” said
Toscafund founder Martin Hughes, one of the UK’s top investors.
“Things are not as benign as the market is implying.”

Andy Seaman, partner at Stratton Street Capital, which has
$2 billion under management and advice, said he is short the
Australian dollar in his hedge fund.

Seaman uses ‘net foreign assets’ – total assets a country
owns abroad minus domestic assets owned by foreigners – to
assess a country’s debt level. He thinks AAA-rated Australia,
whose current account balance widened in the fourth quarter on a
year ago, could be downgraded.

“BANDWAGON”

Industry executives say bets against the Aussie have been
increasing this year, although they are not of the same
magnitude as hedge funds’ bets on Japan.

According to U.S. Commodity Futures Trading Commission data,
short bets by leveraged funds against the Aussie rose by more
than 17,300 to nearly 69,000 contracts over the week to May 14,
while long positions rose by nearly 2,000 to close to 73,500.

“(It’s) a way of playing a number of ideas – the weakening
commodity trade, the China slowing growth story and Australia
joining the interest rate cutting party. It’s become quite a
rapidly populated trade by the macro players,” said Aberdeen’s
global head of hedge funds Andrew McCaffery.

“Now it is showing signs of momentum it is likely to entice
more people in. However, if it doesn’t break through key support
in the mid-90s (cents), given there is a cost of carry … you
might see some profit taking…”

Some see dangers of overcrowding. Bob Jolly, head of global
macro at Schroders, has been shorting the Aussie dollar,
initially against Asian currencies and then against the U.S.
dollar, but covered the position in recent days.

“I think a fair amount of people have been jumping on the
bandwagon,” he told Reuters. “We were nervous about how crowded
the trade was becoming.” He said he took a small long position
on the Aussie against the yen on Thursday.

Toscafund, with $1.3 billion of funds open to investment, made its bullish predictions amid signs the UK economy is starting to recover from five years of torpor brought on by the financial crisis, while the euro zone is mired in recession.

“No-one ever gets how good it’s going to be until it (the stock market) moves,” founder Martin Hughes told Reuters.

Hughes, ranked 7th in this year’s Sunday Times Hedge Fund Rich List with a 375-million-pound fortune, cited Britain’s rising population as a driving force for growth.

As a result, he warned the economy could be harmed if Britain voted to leave the European Union and restricted immigration. Prime Minister David Cameron has pledged to hold a referendum on EU membership by 2017, if re-elected.

“If we do leave, the lights will stay on, but we mustn’t use it as an excuse to raise the drawbridge. Inflation and interest rates to a certain extent are low because of immigration,” said Toscafund chief economist Savvas Savouri.

Toscafund’s optimism is also based on Britain’s “strong” labour market, while “property is robust and car manufacturing is healthy”, added Savouri.

“Looking at all three metrics, not many other places in the world have that. Debt servicing is not a concern because most household debt is secured on property whose value is trending higher.”

Savouri, who was correct in his prediction last May that Greece would not exit the euro zone, said Britain’s “dynamic, open” economy would enjoy GDP growth above Germany’s in the coming years, rising close to 4 percent by 2020.

He is working on the basis that Britain’s population will exceed Germany’s within a generation, even though it is currently 20 million lower. Britain’s fertility rate in 2010 was the highest since the early 1970s, according to official data.

“Where there’s population growth, there’s GDP growth,” Hughes said, adding he favoured domestically-focused stocks such as housebuilders, as well as commercial property.

Toscafund owns more than 14 percent of housebuilder Redrow (RDW.L: Quote, Profile, Research, Stock Buzz), nearly 27 percent of Daisy Group (DAY.L: Quote, Profile, Research, Stock Buzz), a provider of telecoms to small and mid-sized businesses, and 8.5 percent of online dating firm Cupid (CUP.L: Quote, Profile, Research, Stock Buzz), according to regulatory data.

STOCK MARKET STRENGTH

With a bullish view on Britain’s economic prospects, Toscafund predicts its stock market, already at around 5-1/2 year highs, could rise much further.

Hughes pointed to the UK equity market’s earnings yield – earnings per share divided by market price – which is above that of many bonds. German 10-year yields are 1.38 percent, for instance.

“The UK stock market’s p/e (price to earnings ratio) of 11 is generally good value. If it’s got a 5 percent earnings yield, why can’t it be a 20 times p/e? The UK offers emerging market growth dynamics at valuations of a declining developed economy.”

The UK FTSE Mid 250 midcap index .FTMC has rallied around 40 percent since June, as central banks have tried to prop up Europe’s stuttering economies. According to Reuters data its p/e ratio is 9.7 times, meaning that a p/e of 20 times would see the index at roughly double current levels.

“Mid-cap UK corporate valuations are exactly the same as for European equities but Europe is shrinking and the UK is growing. The UK stock market is on a 35 percent discount to the U.S.” said Hughes.

He is also taking advantage of an “unbelievable opportunity” to buy UK industrial, mixed use and shopping centre properties particularly outside London, from capital-hungry banks who are selling them off at a discount.

Such sales, driven by banks trying to meet regulatory capital targets, are triggered by a property’s loan-to-value ratio rather than income earned on the property, said Hughes.

“Banks are repossessing it on the basis of loan-to-values, due to capital regulations, so you can pick up an income earning asset in double digits.”

Savouri added that real estate investment trusts (REITs) may be better value than first appears because net asset values may be too low. “With REITs I am convinced surveyed asset values are conservative, and so premiums to NAV over(stated) and discounts understated.”

(Additional reporting by Tommy Wilkes; Editing by Mark Potter)

Man, which recently unlocked $550 million (354 million pounds) in capital when its regulatory status was changed, will use up to $470 million of cash to buy back the debt, saving up to $78 million a year in interest and coupons from next year, it said on Friday.

At 8:40 a.m. Man’s (EMG.L: Quote, Profile, Research, Stock Buzz) shares, which are down by more than 60 percent since the start of 2011, were up 8.5 percent.

The former FTSE 100 firm, which holds its annual general meeting later in the day, said clients withdrew a net $3.7 billion during the first quarter, slightly better than analysts had forecast.

“Whilst these savings (from the buyback) are clearly beneficial to earnings in the short term, they do nothing to address fundamental top line problems caused by poor performance, weak flows and margin pressures,” said Numis analyst David McCann, who has a sell rating on the shares.

In spite of a stronger recent performance from $14.1 billion computer-driven flagship fund AHL – which has gained 10.4 percent so far this year thanks to the re-emergence of the market trends it can profit from – assets fell to $54.8 billion from $57 billion in December.

The firm said AHL open-ended funds are around 4.5 percent away from high-water mark, the point above which the firm can earn lucrative performance fees.

Its Evolution fund – another computer fund built by AHL – is up more than 11 percent in April, while its GLG Japan Core Alpha fund gained 24 percent in the first quarter, as Japan’s stock market rallied sharply on hopes its aggressive economic policies would kick-start the economy.

“Business conditions remain challenging for Man,” said CEO Manny Roman. “We remain cautious in our outlook as we will need a more sustained period of performance, particularly from AHL, before we see an improvement in net flows.”

The outflows were predominantly driven by the loss of three large, low-margin mandates, Roman said.

The withdrawals mean Man, which in February appointed Roman in place of Peter Clarke to try to win back clients and turn around fund performance, has posted outflows in each of the past seven quarters.

The firm will also hope that recent moves to cap short-term annual cash bonuses and pay no bonuses to top executives for 2012 will head off some of the criticism from small shareholders at last year’s AGM, particularly over Clarke’s nearly $7 million package.

(Editing by Mark Potter)

Man, which recently unlocked $550 million in capital when
its regulatory status was changed, will use up to $470 million
of cash to buy back the debt, saving up to $78 million a year in
interest and coupons from next year, it said on Friday.

At 0740 GMT Man’s shares, which are down by more than 60
percent since the start of 2011, were up 8.5 percent.

The former FTSE 100 firm, which holds its annual general
meeting later in the day, said clients withdrew a net $3.7
billion during the first quarter, slightly better than analysts
had forecast.

“Whilst these savings (from the buyback) are clearly
beneficial to earnings in the short term, they do nothing to
address fundamental top line problems caused by poor
performance, weak flows and margin pressures,” said Numis
analyst David McCann, who has a sell rating on the shares.

In spite of a stronger recent performance from $14.1 billion
computer-driven flagship fund AHL – which has gained 10.4
percent so far this year thanks to the re-emergence of the
market trends it can profit from – assets fell to $54.8 billion
from $57 billion in December.

The firm said AHL open-ended funds are around 4.5 percent
away from high-water mark, the point above which the firm can
earn lucrative performance fees.

Its Evolution fund – another computer fund built by AHL – is
up more than 11 percent in April, while its GLG Japan Core Alpha
fund gained 24 percent in the first quarter, as Japan’s stock
market rallied sharply on hopes its aggressive economic policies
would kick-start the economy.

“Business conditions remain challenging for Man,” said CEO
Manny Roman. “We remain cautious in our outlook as we will need
a more sustained period of performance, particularly from AHL,
before we see an improvement in net flows.”

The outflows were predominantly driven by the loss of three
large, low-margin mandates, Roman said.

The withdrawals mean Man, which in February appointed Roman
in place of Peter Clarke to try to win back clients and turn
around fund performance, has posted outflows in each of the past
seven quarters.

The firm will also hope that recent moves to cap short-term
annual cash bonuses and pay no bonuses to top executives for
2012 will head off some of the criticism from small shareholders
at last year’s AGM, particularly over Clarke’s nearly $7 million
package.

(Editing by Mark Potter)

The former FTSE-100 firm, whose shares are down by almost two-thirds since the start of 2011, could post its highest level of net outflows since the credit crisis and above levels seen under ex-CEO Peter Clarke when it updates investors on first-quarter trading.

Broker RBC Capital Markets, for instance, forecasts $3.8 billion of net outflows in the first quarter, with withdrawals across every product line, and says it doesn’t expect net inflows until the final quarter of next year. Morgan Stanley, meanwhile, expects $4 billion of withdrawals.

Such outflows would mark a tough start for Roman, who succeeded Clarke at the end of February – the first quarter reporting period is therefore shared between Clarke and Roman – and who has already made sweeping changes in an effort to turn around a firm dating back to the 18th century.

These include appointing Sandy Rattray as head of $14.4 billion computer-driven fund AHL and Luke Ellis as Man’s president. The firm has also changed AHL’s corporate structure.

Man’s problems stem in part from poor returns, particularly at AHL, on which it is heavily reliant and which lost money in 2011 and 2012.

However, an upturn in performance this year – AHL is up 9.9 percent since January 1 – has helped.

Some investors are betting on a recovery. Last week Odey Asset Management raised its stake to more than 6 percent, having already profited from a rebound in the shares.

Man also holds its annual general meeting on Friday. At last year’s meeting small shareholders criticized boardroom pay, particularly Clarke’s nearly $7 million package.

However, Roman has moved to cap short-term annual cash bonuses, while the group is also paying no bonuses to top executives for 2012.

(Editing by Mark Potter)

Funds have already been burnt on the trade. Last year, the
European Central Bank’s promise to buy government bonds to
restore confidence in the euro zone sent yields on French
10-year bonds tumbling by more than a third.

But that is not putting some off from trying again.

With President Hollande’s approval ratings at the lowest of
any modern French leader and March jobless claims at an all-time
high, some funds think the country’s bond yields should trade
closer to those of Italy and Spain than Germany.

“The most interesting bet to make in Europe is in France. I
still feel in France that the risks are really underpriced,”
said Philippe Gougenheim, CEO of Swiss-based Gougenheim
Investments, who has recently gone long German bunds and short
French bonds using futures.

According to data group Markit, the volume of French bonds
out on loan has risen 17 percent from an October low to more
than $54 billion last week. This can indicate short-selling -
borrowing a security to sell it with the aim of buying it back
at a lower price – although the bonds can also be borrowed by
institutions wanting to hold sovereign debt as collateral.

While still some way short of spring 2012 levels, the trades
are being closely watched as hedge funds are sometimes seen as
harbingers of bigger market moves.

The volume of German bonds out on loan has fallen 0.4
percent since October, while in Spain it is down 2.7 percent. In
Italy, another country that may be in hedge funds’ sights, the
amount is up 55 percent.

THE NEXT PROBLEM AREA?

Hedge fund interest in shorting France has ebbed and flowed
over the past year as markets weigh up the success of the
Socialist government’s drive to boost growth by raising public
spending, against European peers that have slashed theirs.

The recent signs have not augured well for the French way.

Economists polled by Reuters expect the French economy
shrank 0.2 percent in the first quarter, compared with forecast
growth of 0.3 percent in Germany. Meanwhile, France’s budget
deficit was 4.8 percent of GDP last year, whereas Germany had a
small surplus.

Funds have also been offered a better entry point for the
trade than last year, with French bond spreads over bunds down
by one-quarter over the past six months, while the lower yield
means funds have to pay out less now when they borrow the bonds.

Other managers shorting France include Pedro de Noronha,
managing partner at Noster Capital, who last month went short
French 10-year bonds and long on the German equivalent.

“France may well be the next problem area in the EU,” he
wrote in a note to clients.

“We believe that France’s public finances are under pressure
with a President who understands very little of economics …
Sooner or later, the market will re-price French bonds more in
line with their southern counterparts.”

Meanwhile, Patrick Armstrong, CIO at Armstrong Investment
Managers, has held onto a short bet on 10-year French bonds and
thinks yields could go to 4 percent. “It doesn’t seem to be on
the horizon, but credit concerns will come up again,” he said.

And while smaller boutique managers have been quick to bet
on further French economic decline, the potential to cash in on
new problems has not gone unnoticed by larger hedge fund firms.

“I think it (France) is (a short). I’ve thought it for a
long time,” said a manager at a multi-billion-dollar hedge fund
firm, who did not want to be named.

The ARK Gala Dinner, which started in 2002, cost as much as 10,000 pounds ($15,500) a ticket, with entertainment over the years ranging from singers Elton John and Prince to a giant mechanical elephant.

The dinner will not take place this year as the charity it supports looks at other fundraising events, a spokeswoman for ARK (Absolute Return for Kids) said.

She said that the charity instead hosted a champagne reception in January attended by London Mayor Boris Johnson.

“We think we should have a variety of means of communicating (with donors),” she said. “More and more of the donors are coming to us interested in particular programs … At the dinner, conversations (about projects) are not as detailed.”

The spokeswoman said no decision had been taken about whether the event would take place in the future.

The amount raised by the dinner – which funds projects ranging from training health workers in rural Zimbabwe to running British schools – has almost halved since its 2007 peak, when 1,200 guests helped to raise 26.6 million pounds.

Last year’s dinner raised 14.5 million pounds, with the charity citing “an extraordinary show of generosity at any time, but especially so given the challenges of fundraising in this climate.”

The event was well known for its high-profile speakers, such as the Duke of Cambridge, former U.S. President Bill Clinton and Queen Rania of Jordan. Venues have ranged from Waterloo Station to Kensington Palace Gardens.

Prizes up for auction have included a Fiat car decorated by artist Tracey Emin, an invitation to Nelson Mandela’s 90th birthday party and yoga with musician Sting.

The dinner has been put on ice just as the $2.4 trillion hedge fund industry has rebounded strongly from the financial crisis. In this year’s Sunday Times Hedge Fund Rich List, for instance, 13 managers had fortunes of 300 million pounds or more, up from nine the previous year.

A number of hedge fund managers and firms have been making philanthropic donations under their own steam.

Brevan Howard, headed by Alan Howard, who is ranked top of this year’s Sunday Times Hedge Fund Rich List with a 1.5 billion pound fortune, is giving 20.1 million pounds to fund a new research center at Imperial College. Winton Capital’s David Harding has given 20 million pounds to Cambridge University.

Big donors to the arts include CQS founder Michael Hintze and Lansdowne Partners co-founder Paul Ruddock.

One hedge fund industry executive also told Reuters that some clients had been unable to accept invitations to certain events following the UK Bribery Act which came into effect in 2011 and which has made companies cautious about offering or accepting corporate hospitality.

ARK was set up by Arpad Busson, partner of actress Uma Thurman. He founded hedge fund investor EIM in the 1990s and has been mulling a sale of the fund for some time.

(Reporting by Laurence Fletcher. Editing by Jane Merriman)

In a list of wealth in Britain whose top spots are dominated by Russian and Indian billionaires, Mittal drops to fourth after eight years at number one as his fortune tumbled 2.7 billion pounds to 10 billion.

Uzbek-born Usmanov, who is Russia’s richest man and has a major shareholding in British Premier League football club Arsenal, saw his wealth rise by 985 million pounds over the past year, according to the annual survey by the British newspaper.

Ranked second last year, Usmanov owns Sutton Place, the former Surrey home of oil baron J Paul Getty. He made 1.6 billion pounds from sales of Facebook shares after last year’s stock market listing, while he has a large holding in Russian mobile phone operator MegaFon (MFON.MM: Quote, Profile, Research) and controls iron ore miner Metalloinvest MTALIM.UL.

Mittal, the chief executive of the world’s largest steelmaker ArcelorMittal (ISPA.AS: Quote, Profile, Research), has been hit by the fall in the value of its shares from more than 12 euros a year ago to less than 9 euros on Friday.

The number of billionaires has risen to a record 88, in spite of tough economic conditions for many in the UK, from 77 last year. The collective wealth of the richest 1,000 people is up 35 billion pounds to 450 billion pounds.

The biggest riser in wealth terms is Len Blavatnik, who is ranked second after a 3.42 billion pound jump in his fortune, thanks to a rise in his shareholdings, took his wealth to 11 billion pounds.

The Odessa-born businessman, who emerged as a tycoon after the Russian privatisations of the 1990s, owns Warner Music and a house in London’s plush Kensington Palace Gardens – known as ‘billionaires’ row’ – and has been a major donor to Oxford University.

The highest-placed UK-born person is the Duke of Westminster, whose swathes of land in London’s upmarket Mayfair and Belgravia rank him eighth with 7.8 billion pounds.

The Sunday Times also reported that Michael Ashcroft, the former treasurer of Britain’s Conservative party, will next month pledge to give at least half of his 1.2 billion pound fortune to charity.

To be included in the list people must have either a British passport or a strong link to the UK such as being based there or spending a significant amount of time there, a Sunday Times spokesman said.

(Editing by Erica Billingham)

In a list of wealth in Britain whose top spots are dominated by Russian and Indian billionaires, Mittal drops to fourth after eight years at number one as his fortune tumbled 2.7 billion pounds to 10 billion.

Uzbek-born Usmanov, who is Russia’s richest man and has a major shareholding in British Premier League football club Arsenal, saw his wealth rise by 985 million pounds over the past year, according to the annual survey by the British newspaper.

Ranked second last year, Usmanov owns Sutton Place, the former Surrey home of oil baron J Paul Getty. He made 1.6 billion pounds from sales of Facebook shares after last year’s stock market listing, while he has a large holding in Russian mobile phone operator MegaFon and controls iron ore miner Metalloinvest.

Mittal, the chief executive of the world’s largest steelmaker ArcelorMittal, has been hit by the fall in the value of its shares from more than 12 euros a year ago to less than 9 euros on Friday.

The number of billionaires has risen to a record 88, in spite of tough economic conditions for many in the UK, from 77 last year. The collective wealth of the richest 1,000 people is up 35 billion pounds to 450 billion pounds.

The biggest riser in wealth terms is Len Blavatnik, who is ranked second after a 3.42 billion pound jump in his fortune, thanks to a rise in his shareholdings, took his wealth to 11 billion pounds.

The Odessa-born businessman, who emerged as a tycoon after the Russian privatizations of the 1990s, owns Warner Music and a house in London’s plush Kensington Palace Gardens – known as ‘billionaires’ row’ – and has been a major donor to Oxford University.

The highest-placed UK-born person is the Duke of Westminster, whose swathes of land in London’s upmarket Mayfair and Belgravia rank him eighth with 7.8 billion pounds.

The Sunday Times also reported that Michael Ashcroft, the former treasurer of Britain’s Conservative party, will next month pledge to give at least half of his 1.2 billion pound fortune to charity.

To be included in the list people must have either a British passport or a strong link to the UK such as being based there or spending a significant amount of time there, a Sunday Times spokesman said. ($1 = 0.6554 British pounds)

(Editing by Erica Billingham)

Solaise Capital, set up in late 2010 by former employees of
Winton, Man Group’s flagship AHL fund and Aspect
Capital, told Reuters that inflows from a pension fund client in
December and further inflows this year have lifted its assets to
around $165 million.

That compares with the $86 million it ran at the end of
November.

Meanwhile Man Group has seen assets at its AHL
computer-driven investment fund fall to $14.4 billion at the end
of last year from $21 billion a year before, while Winton
Capital, one of the world’s biggest funds, has also seen
outflows.

In contrast, Cambridge-based Cantab Capital, run by Ewan
Kirk, has seen assets jump to $5.3 billion from $1.6 billion at
the end of 2011.

Solaise’s inflows come in spite of two years of performance
losses both for Solaise and for the wider group of so-called
CTAs (commodity trading advisors) in 2011 and 2012.

Such hedge funds trade a wide variety of global futures
markets, including commodities but also currency, bonds and
equity instruments, but have suffered as financial markets lack
the long-lasting trends they usually profit from.

Chief Operating Officer James Walker said that investors had
been attracted to Solaise’s trading systems and the fact it uses
a variety of strategies to trade markets.

“We launched at probably the worst time you could launch in
a CTA in 20 years,” said Walker, formerly chief financial
officer at Aspect Capital.

“Everyone understands it’s been a truly dreadful run for
CTAs and they appreciate we’ve done pretty well. (But) clearly
we need to deliver absolute performance.”

The average CTA lost 2.5 percent last year, according to
Hedge Fund Research, while Solaise was down 1.1 percent.

Many small managers in the $2.3 trillion hedge fund industry
have struggled to attract clients since the credit crisis as
investors have often opted for the brand names and perceived
safety of multi-billion dollar firms.

But there are signs in the computer-driven sector that
investors are hunting out smaller funds that they believe have
strong teams and risk management.

“People are getting away from the big names because they’re
not getting the transparency,” said Yvonne Barker-Layton,
director at hedge fund research firm Revere Capital Advisors.

“They can get additional benefits (with a small fund) of
lower fees, transparency and calls to the manager whenever you
want. There’s been a definite change in investors’ minds.”

Walker said Solaise, which is based in London’s plush St
James’s Square, differed from rivals by having less of its
assets invested in the traditional strategy of following market
trends. The rest is in strategies betting securities prices will
revert to their mean and in other strategies he declined to
disclose.

CTA performance has improved this year. Broker Newedge’s CTA
index is up 2.9 percent in the first three months of the year,
while Winton is up 7.5 percent so far this year.

Funds also profited on Monday from the record slump in the
price of gold, which by itself added 1.09 percentage points to
fund performance, according a Newedge model portfolio.