Exclusive outtakes from industry leaders
Some of the world’s leading names in the hedge funds and private equity industries are visiting the Reuters bureaus in New York, London and Hong Kong this week to discuss the outlook for the sector in a series of exclusives interviews as part of the 2010 Reuters Hedge Funds and Private Equity Summit.
Private equity is still struggling with the triple problem of raising funds, exiting investments and striking deals — although the last has become a little easier of late. M&A has picked up and there have been a few single-digit billion LBO deals struck in recent months. Still, volatile markets have been making for an uphill struggle to exit investments, and raising money for new funds is uphill. On top of that, executives are facing the possibility of higher tax and tougher scrutiny on their firms.
Investors whose portfolios were decimated during the financial crisis are searching for better returns and are now ready to send new money into hedge funds. However despite the industry’s strong returns in 2009, investors are still asking managers for greater insight and transparency at a time regulators and legislators are also putting the industry under a new spotlight.
Will the industry continue to post high returns? Have expectations for performance changed?
The financial industry has been turned on its head, and that includes hedge funds. Hedge funds now face questions about structure and regulation as scandal casts a long shadow over the industry.
Investors like Adrian Biondo say they don’t know when they can trust again. Diane King reports from New York. Speakers: AJ Mediratta, Senior Managing Director, Greylock Capital Management; Adriane Biondo, Madoff Former Investor
The once-booming $1.4 trillion hedge fund industry faces its toughest challenge ever, in the form of record poor performance last year and heavy client outflows.
And the $2.5 trillion private equity industry is licking its wounds after a year in which it made headlines more for bankrupt portfolio companies and collapsed deals than for the kind of mega-takeovers it was famous for just two years ago. Adding insult to injury, many investors are looking for ways to dump their once-coveted investments in private equity firms as they look to shed risk and the industry’s tax treatment is in the sights of the Obama administration.
There are deep-seated concerns over the health of the industry and the leveraged buyout model itself. With high levels of debt now pushing many private equity-owned companies into breach of their banking covenants, how many portfolio companies will fail and how many of their private equity backers will vanish?
Speakers at the Reuters Private Equity and Hedge Funds Summit taking place in New York, London and Hong Kong will address these questions, and discuss who will be the winners and losers out of the crisis, how much worse conditions will get and how much further the industry could shrink. Regulation, a widely-debated topic in both the U.S. and Europe, will also be a key discussion point.
The Summit will generate exclusive interviews and articles, as well as regular blog postings and online video.
“Well insulated” China, though suffering from sharp drops in its own equities markets, doesn’t have the sense of crisis that exists in the U.S., says Philip Partnow, managing director of UBS Securities Ltd in Beijing. UBS, the first Western bank to assume management control of a domestic mainland brokerage, points out the fact that what’s hitting companies is not subprime-related securities gone bad.
“I think there’s nothing here we feel is toxid,” he told Reuters on Wednesday at the Reuters China Summit in Beijing. He goes on:
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.
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.
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.
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.
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.”