It may not have been a massive surprise, but ECB President Jean-Claude Trichet had an unwelcome message for hedge fund managers today.

The current crisis is, apparently, "a loud and clear call" to roll out regulation to all important market players, "notably hedge funds and credit rating agencies".

For those hedge fund managers who felt, perhaps with a degree of justification, that their industry had been relatively blameless in precipitating the current crisis, that call may have been somewhat quieter and more muffled.

But the drumbeat of those calling for greater hedge fund regulation is growing and it seems increasingly likely that hedge funds will face a new raft of rules in the not too distant future.

Hedge funds have attempted to justify the slow take up of volunatry codes aimed at staving off heavy-handed regulation, but day-by-day the industry looks like it may have missed the chance of a quiet life... well, relatively speaking.

It was always unlikely that a letter of advice was going to change the mind of maverick hedge fund manager Hugh Hendry.

And in his latest letter to investors, Hendry has smartly rebuffed any attempt to 'save' him from his bond investments.

The letter in question -- Gregor.us's monthly note, entitled "Saving Hugh Hendry" -- praises the Eclectica co-founder and CIO as a "brilliant and colourful" hedge fund manager who saw the coming storm and took cover well in advance.

But it goes on to argue that the 27-year bull market in government debt, in which Hendry is a big investor, is probably coming to an end:

    "Far be it from me to instruct Hugh Hendry but in the last few weeks I’ve started wondering if Hugh is selling his bonds. And frankly, I hope for him he is indeed selling. Over the past eight weeks with a 30 Year Treasury bond auction here, a German Bund auction there, we’ve started to see the flashes of a very extended market. I think we’re seeing the end-game of a 27 year bull market, in government debt. And it comes, apparently, as the world tips over into stealth beggar-thy-neighbor policies, and as questions about solvency are rampant, thus affecting the credit quality of sovereign debt. If this is true it’s time to save Hugh Hendry, and get him out of all his bonds."

The response from Hendry, one of the few hedge fund managers to come out of 2008 in good shape, is typically emphatic.

"Thanks but no thanks," he writes.

Quoting Milton Friedman, Robert Prechter, Winston Churchill and the Rolling Stones, plus a quick mention for Toy Story's Buzz Lightyear, Hendry argues the government bear market is some way off yet.

He believes that the inflation many investors fear may already have come through the system and that a deflationary slump looks more likely, increasing the attractiveness of government debt.

And Hugh's investment response to the advice?

His net government bond holding has risen from 54 percent at the end of last year to 81 percent.

There seems to be an endless wave of bad news hitting the hedge fund industry at the moment -- gates and suspensions, record poor performance, the Bernard Madoff scandal and so forth -- but there are still one or two reasons to be positive.

According to a survey of institutional investors by alternative assets data group Preqin, conducted in January (and therefore after the alleged Madoff fraud came to light), only 8 percent said they were no longer confident about hedge funds and would reduce investments.

By contrast, 26 percent said they would be increasing their allocations this year.

This appears to be a more positive picture than for high net worth individuals, who, according to some anecdotal evidence, have become more cautious on hedge funds.

Institutions such as pension funds, in contrast, tend to have time horizons running into decades, so a year of bad performance is not necessarily the be all and end all.

They have also seen equities, which constitute a far greater portion of their portfolios, plummet last year, leaving hedge funds, relatively speaking at least, looking quite good.

Having followed wealthy individuals into hedge funds and helped fuel the industry's massive growth of recent years, they could end up supporting it through the difficult times.

But the survey also highlights some less appealing trends for hedge fund managers.

The industry's lucrative 2 and 20 fee structure looks more and more under threat, with around 35 percent of institutional investors saying they felt more confident to negotiate fees.

And some investors in the survey said they would no longer invest in funds of funds because they didn't think they were value for money.

For a section of the industry already under pressure -- for performing even worse than single-manager funds, after a huge rise in the dollar hit cash reserves and because some fund selectors failed to spot Madoff -- this is yet another ominous sign.

The latest update on funds of hedge funds (FoHFs) performance arrives from Fitch Ratings -- and it makes for an unsurprisingly sober read.

We perhaps know already that 2008 was the worst year ever for FoHFs, and that cumulative losses reached an all-time high as the year ended with a Madoff-shaped bang. Fitch also raises a fear that managers have shared after imposing redemption restrictions on clients wanting to stash their cash under the proverbial mattress:

The year has witnessed a wave of managers implementing restraints on clients’ access to their assets, thus putting again into question the business and sales model of the industry

More gloomy prose measures the impact from Bernard Madoff's alleged Ponzi scheme; itself not technically a hedge fund, of course, but those FoHFs that were caught out will force the wider industry to navel gaze its way to a new set of standards:

The whole chain of parties involved in HF management, administration and distribution need to rethink the monitoring of conflicts of interest, governance, independence of third-party service providers and ethics.

Fitch though does not deny itself a glimpse of the brave new world beyond the sackcloth and ashes. We're urged to consider convertible bonds (CBs) as the cherry pick for 2009; canny managers and fund of funds with the capacity and skills to pick the good from the bad should make hay among the "obvious opportunities."

The ratings agency makes a strong case: hedge funds now dominate the CB market following the demise of Lehman and the exit from the scene of main market makers and institututional investors; valuations meanwhile have been laid low by a credit crisis which overwhelmed the entire industry of CBs, whether long only or arbitrage.

But this strikes a familiar chord.

Much has been made of crowded trades in the hedge fund industry which slimmed down returns and allowed correlation to bleed into unexpected areas. Some are already calling for caution as the "hype" builds around corporate bonds, and while value calls remain tough, wholehearted endorsements like the above from Fitch highlight the potential for the crowds to gather again and draw breath to blow another bubble.

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.

For one thing, many hedge funds simply do not have the financial clout -- and therefore carry the associated risks seen by some politicians -- that they once did.

At the start of 2007 hedge funds were booming and assets had swelled to more than $2 trillion, according to HedgeFund Intelligence. Coupled with the substantial leverage employed by some strategies, hedge funds were a significant force in many markets.

Today, leverage has been cut back, investors are pulling out assets, and many funds are playing it safe and sitting on cash.

While never to be dismissed, a repeat of LTCM, where one huge fund dominated a market and many players mimicked its movements, looks less of an threat now.

Activists funds, meanwhile, whose tactic of buying into firms and calling loudly for "shareholder value" has caused much controversy, have less to work with in a bear market where firms are unwilling or unable to do deals or take on debt.

Meanwhile, the UK's temporary ban on short-selling financials has drawn plenty of criticism from hedge fund managers and analysts, who point to bank shares underperforming the market by more when the ban came into force than before.

Finally, the Hedge Fund Standards Board's best practices are helping address issues of transparency and governance among others.

The situation is different in the U.S., where Treasury Secretary nominee Timothy Geithner has pledged to pursue hedge fund registration.

But those politicians and others in the UK hoping for a new set of rules for the hedge fund industry are likely to find a very different, and less influential, target to the one they saw two years ago.

Jay Sidhu is back.

The former chief of Sovereign Bancorp has a tentative deal to invest $30 million in Federal Trust Corp and take control of the small Florida-based savings and loan. Federal Trust Bank operates 11 full-service offices and had total assets of $639.8 million as of June 30.

About two decades ago, Sidhu started down a similar path, when he took over as chief executive of Sovereign. By the time he left had transformed a $400 million Pennsylvania thrift into a regional bank with some $89 billion in assets and 800 branches, stretching from Maryland to Boston. Under Sindhu, Sovereign acquired more than two dozen banks and branch networks divested by bigger banks.

But Sidhu, who stepped down from the bank in 2006, was also a magnet for criticism. Disgruntled investors complained about Sovereign’s stagnant share price, and his agreement to sell a minority stake to Spain’s Santander and simultaneously buy Brooklyn, New York’s Independence Community Bank Corp.

Critics also decried Sovereign’s corporate governance, accusing Sidhu of controlling his board by granting directors exorbitant pay and lucrative inside deals.

The New Delhi native has apparently been planning a comeback. He controls Sidhu Advisors, an investment vehicle. And in March, he filed with regulators for an IPO of Sidhu Special Purpose Capital Corp, blank-check company, to raise up to $150 million.

If past is prologue, he’ll use Federal Trust as a platform for acquiring more banks. And along the way, he’ll no doubt attract some pointed criticism.

(Photo credit: Federal Trust logo from PR Newswire)

GRANVILLE, Mass. — Hedge fund managers are known for having a taste for the world’s glamorous vacation spots. But for his time on the lam, fugitive and one-time millionaire Samuel Israel hid out in a place that typically caters to people of more modest means – a campground in rural Granville, Massachusetts, according to some of the camp’s current guests.

“It’s different, that’s for sure,” said Ken Cudworth, 37, as he moved his family into a site at the campground. Cudworth had been waiting for an opening at the wooded camp for a few days and got a call on Wednesday morning that one had opened up – the site that Israel, who was convicted of a scheme that defrauded investors of $450 million, vacated when he turned himself in at a local police station.

“I’ll be digging some holes to see if he left anything,” Cudworth said.

Jim Cooley, 63, also staying at the camp, said he’d seen a man who matched Israel’s description pull out of the site on a motorscooter. That was the vehicle Israel rode to Southwick police station where he turned himself in after a four-week nationwide manhunt for the person who committed the longest-running fraud in the $2 trillion hedge-fund industry.

None of the campground visitors interviewed had talked with Israel during his stay or realized who he was prior to news of his surrender. But Cooley had a theory as to why Israel turned himself in.

“I think he got bored here and said, ‘Heck, they’re never going to find me here. I’m going to turn myself in,’” Cooley said.

As he rode out Prospect Mountain camp ground for the last time, Israel would have passed the children’s play area, where among the climbing toys is a pen with a sign that reads “Campground Jail.”

(Photos by Brian Snyder)

BOSTON - It’s no Maserati. The fuel-hungry, possibly damaged 2007 Coach Freelander Recreational Vehicle is the antithesis to the flashy, often glamorous stereotype of powerful hedge fund managers.

But it appears to be the getaway vehicle of choice for fugitive former hedge fund manager Samuel Israel III.

And unlike the larger than life returns Israel promised investors, the vehicle is big. Really big.

“Everything about the Coachmen Freelander Class C motorhome shouts out ‘big’, more storage, big tanks, large doors, tall ceilings, and big beds,” the company said in a press release.

The U.S. Marshals Service, which tracks fugitives, issued a release describing the nearly 30 ft, white Freelander. It has a blue 2005 Yamaha scooter attached to the back, possible damage to the rear passenger side, a New York license plate (EEN-5973) and sporty swoosh stripes — the kind that convey family fun.

And where would he go in such a vehicle?

RV Parks? Camp grounds? Highway rest stops, perhaps? Yes to all three places, say the Marshals.

Working in his favor is the time of year. It’s summer. And on U.S. highways that means one thing: it’s RV time.

Nearly 8 million U.S. households own at least one RV, according to the Recreational Vehicle Industry Association, and summer is the time when many are dusted off and hit the road — even as gas prices soar.

So RV campers beware. The balding 48-year-old man parked nearby could be the engineer of the $2 trillion hedge fund industry’s biggest and most brazen fraud.

Where do you think the co-founder of the Bayou Group is? We welcome your thoughts.

Online humor site McSweeney’s has compiled a tongue-in-cheek list of math and logic problems:

Your middle-class parents have a combined household income of $115,000. You receive an allowance of $20 per week. If you save all your allowance for two years, how much debt will you have to finance to hostilely take over your family? How will you structure the debt?

PequotVentures, the venture capital arm of hedge fund Pequot Capital Management, has shut down its Silicon Valley office and now operates only out of New York. Managing general partner Lawrence Lenihan said the contrarian move made sense because the plethora of venture capital operators in Silicon Valley forced PequotVentures to compete on price.

That's not so true in New York, where there's less competition on the fund side but lots of promising media and finance businesses, he told the Reuters Hedge Fund and Private Equity Summit on Tuesday.

New York is also looking like increasingly fertile ground relative to Boston's once booming Route 128 corridor. Lenihan, who admits that as a New Yorker he may carry a certain bias, said that shuttle flights which once were packed with New York investors going to Boston to check out companies are now carrying many more Boston investors in the opposite direction.

"If you look at the deal flow and you look at the amount of companies that are being built, I think there's been a noticeable slowdown in technology innovation in the Route 128 corridor," he said.