Marathon Asset Management, an $11 billion hedge fund and private equity group, is snapping up banks’ assets “across the spectrum” at a big discount, from residential mortgages to commercial real estate loans to leveraged loans, Chief Executive Bruce Richards tells the Reuters Hedge Funds and Private Equity Summit.

Richards seems to have a keen sense of how badly the banks want to unload such distressed assets, giving him a strong negotiating position to push for the lowest possible price.

“They’re sitting behind closed doors and figuring out right now with regulators and with their own internal risk committees and treasury departments how they fund themselves in today’s market environment and how they get risk down,” he says.

Going forward — and given the generous funding terms the Federal Reserve is now offering them – banks actually have a great opportunity to make money on new loans, he says.

But to do that, it’s crucial that they free up space on their balance sheets. That’s why Citigroup’s agreement to sell $12 billion in loans is likely to be just one of many such deals by a variety of banks.

“Right now, they have to get through the problem assets that are on their balance sheet to get that more manageable and get their leverage down,” Richards says. 

Amazon.com’s Kindle “wireless reading device” is an example of both the threat and opportunity that new media platforms pose for the newspaper industry, according to Quadrangle Group’s Josh Steiner.

Steiner owns one of the hard-to-find devices, which have been consistently sold-out on Amazon . He said its wireless features are particularly promising — you don’t have to plug into a PC or look for a WiFi hotspot. It’s also searchable and allows you to customize the type of news you want to read.

“That’s the threat and the opportunity because it’s not just the question now of (newspaper) content being divided and repackaged,” he told the Reuters Global Hedge Fund and Private Equity Summit. Quadrangle, the private equity firm founded by former reporter Steve Rattner, is an advisor to the New York Times Co.

He admitted that the Kindle is very far from a complete package, but said it’s still worth a close look “if you want a sense of where I think the world is going…where technological evolution has the ability to disrupt existing business models and in some cases enhance them.”

The hedge fund industry has moved away from its roots and lost its “crazy” spirit, says Eclectica Asset Management’s chief investment officer Hugh Hendry.

Whereas hedge funds used to be freewheeling vehicles able to exploit excellent opportunities with small pots of assets, many have now become large institutions or are far too correlated to equity markets, he says.

He believes the returns in the hedge fund industry will fall and could even be negative this year.

Richard Baker, who recently resigned his House seat to become president and CEO of the hedge fund industry’s main lobbying group, the Managed Funds Association, says he’ll be making a big push for fund companies to bolster the election year campaign kitties of influential legislators.

“I am going to be aggressive in asking our members to make contributions,” the former Louisiana congressman says, claiming that the MFA actually punches below its economic weight compared with other big lobby groups.

A major effort by the Treasury to overhaul financial regulations make it all the more crucial for the industry to try to wield influence in the way that tends to get the most traction in Washington, he says.

Baker says it would practically be a dereliction of hedge funds’ duty not to write big checks to their congressmen “given the political environment which we’re in going into a competitive election cycle.”

Markets are still anxious following the financial implosion of Bear Stearns but the situation has vastly improved since the Fed stepped in, Pacific Alternative Asset Management CEO Jane Buchan told the Reuters Hedge Fund and Private Equity Summit on Tuesday.

“Two weeks ago, it was clear people were trying to take Lehman down,” she said, which was one of the main reasons the Fed got heavily involved in arranging for JPMorgan to buy Bear Stearns, and lending directly to Lehman Brothers and other Wall Street brokerages.
“Everyone was talking about Bear Stearns, but I think the bigger issue is, who was next,” said Buchan, whose company runs a $10 billion hedge fund of funds. But the Fed’s moves at the time “really calmed the market.”

“I think the market’s come to the conclusion that the Fed’s going to backstop this and no one else is going down,” she concluded.

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.

Massachussets State Pension Fund Executive Director Michael Travaglini says the Bay State’s pension fund, one of the nation’s largest, won’t be following the lead of New Jersey’s anytime soon — at least not in terms of direct investments in banks. He thinks that New Jersey — like some prominent sovereign wealth funds — viewed its recent investments in Citigroup and Merrill Lynch “almost as a necessity” to help prop up the financial system.
But even if he understands their motives, Travaglini isn’t sure rescuing troubled investment banks from Merrill Lynch to Bear Stearns is the right thing to do.
“If there’s always a net, whether it’s the Fed, whether it’s New Jersey, whether it’s Abu Dhabi, to me there’s a risk that there’s nothing learned,” he said. “I don’t want people to repeat the same mistakes. I think reasonably people could argue this whole subprime mess is a mistake that has been repeated two or three times throughout history.”
To Travaglini, the danger of lessons not getting learned reminds him of his own kids and why they must learn the consequences of mistakes.
“Why would they avoid getting in the same predicament if they had known they were going to get taken off the hook,” he said, speaking at the New York segment of the Reuters Hedge Funds and Private Equity Summit.

Michael Travaglini, executive director of the Massachusetts’ Pension Reserves Investment Management Board, spoke out against divestment legislation that restrains investment based on political causes.

“Genocide in Sudan is going to stop because it’s abhorrent,” he told the Reuters Hedge Funds and Private Equity Summit in New York.

“If I sell these securities, do you think they are going to stay sold? No. There are investors loving these laws because they say ‘I could care less about people getting killed in Sudan, this is an arbitrage opportunity.’” … My point is, it doesn’t work.”

Click below to listen to Travaglini’s comments.

(Photo: REUTERS/Zohra Bensemra)

2008 is shaping up to be a challenging year for hedge funds and private equity but there are opportunities if you know where to look.

From London to Tokyo to New York the turbulence in the stock market is driving hedge funds and private equity firms to look beyond equities.

Despite opportunities in other investments, hedge funds are still folding at a fairly rapid clip.

Funds which oversaw nearly $4 billion dollars in assets have already closed their doors in the first quarter of 2008.

Ruben Ramirez reports.

Many thought that with a sick neighbor, Mexico should have caught the blues already, right? Wrong. The Mexican economy looks like it is still growing at a good pace while its No. 1 trade partner, the United States, sails through choppy waters. 
   Central Bank Gov. Guillermo Ortiz told Reuters in an interview during the Third Latin America Summit that recent consumption, investment, industrial output and export data showed Mexico’s economic health appears sound, but inflation remains a concern.
   With Mexico’s average consumer prices currently hovering above the central bank’s comfort zone, Ortiz maintained expectations that inflation could range between 4 and 4.50 percent in the second quarter of this year.