Unstructured Finance

Hedge funds against Obama

By Jennifer Ablan and Matthew Goldstein

Class warfare has been the topic du jour this year and is likely to be a major theme of the 2012 election. In a speech two weeks ago, President Barack Obama blasted his Republican foes and Wall Street as he portrayed himself as a champion of the middle class.

In a speech meant to echo a historic address given by former President Theodore Roosevelt in the same Kansas town more than 100 years ago, Obama railed against “gaping” economic inequality and pressed the case for policies he insisted would help ordinary Americans get through hard times.

Not surprisingly, some hedge fund managers were none too pleased.

In fact, hedge-fund industry titan Leon Cooperman “front-ran” Obama’s populist speech by widely circulating an “open letter” to Obama, arguing that “the divisive, polarizing tone of your rhetoric is cleaving a widening gulf, at this point as much visceral as philosophical, between the downtrodden and those best positioned to help them.”

The Omega Advisors founder went on to say, “To frame the debate as one of rich-and-entitled versus poor-and-dispossessed is to both miss the point and further inflame an already incendiary environment.”

Cooperman is not alone in his positing Obama as an enemy of Wall Street’s elite. Other hedge fund managers who have either publicly criticized Obama or raising money to defeat him include John Paulson, Dan Loeb, Cliff Asness and Paul Singer. Many hedge fund managers are lining-up to raise money for Mitt Romney, who made his fortune working at private equity firm Bain Capital.

The confession season

By Matthew Goldstein and Jennifer Ablan

The year is not yet over and already the confessions are starting to roll in from some of the biggest U.S. money managers.

Bill Gross, manager of the world’s biggest bond fund, sent out a “mea culpa” letter late Friday to his many mom-and-pop investors, saying he’s sorry for putting up such bad numbers this year. Mea culpas from Pimco’s guiding light and the self-styled “bond king” are rare, largely because his Total Return Fund has long been one of the industry’s top performers.

But this year has been a tough one for Gross, who guessed wrong by betting heavily against U.S. Treasuries, which have turned out to be one of the biggest out-performers of 2011. The fixed income guru, who helps manage more than $1.2 trillion at Pimco, wasn’t farsighted enough to foresee a flight to Treasuries prompted by events like the European debt crisis, the battle over the U.S. debt ceiling and the general anemic state of the global economy.

Welcome to Paulson-mart

By Matthew Goldstein

It’s been an ugly summer for hedge fund king John Paulson with two of his biggest funds down more than 25 percent. But what makes that poor performance all the more painful is how widespread it is being felt by wealthy individual investors around the globe.

Paulson’s flagship Advantage funds would appear to be exclusive terrain with a $10 million investment requirement. But that hefty entrance fee is something of a veneer because many of Paulson’s investors have gained entrance to his kingdom by plunking down as little as $100,000. That’s because Paulson’s Advantage funds are some of the most widely sold hedge fund portfolios on distribution platforms maintained by Wall Street firms, European banks and small investment advisory firms around the globe.

Paulson has built a powerful internal marketing force to make sure there is a steady stream of money from wealthy individual investors trying to get into his funds. This was one of the more surprising things my colleagues Jennifer Ablan, Svea Herbst-Bayliss and I found when we began taking a close look at Paulson’s problems this year.

Deals wrap: The perils of Paulson

Hedge fund manager John Paulson became an overnight sensation in 2007, in part, by betting big and early on the collapse of the U.S. housing market. But he is now emerging as one of this year’s big losers in the $2 trillion hedge fund industry.

New China Life, the third-largest life insurer in China, has filed an application to list in a dual Hong Kong and Shanghai IPO, sources said, braving volatile markets to raise up to $4 billion.

Bank of America has held exploratory talks with the principal investment funds of Kuwait and Qatar about selling part of its $17 billion stake in China Construction Bank, three sources with direct knowledge of the talks told Reuters.

A choice between risk and return?

By Dunny P. Moonesawmy. Head of Fund Research for Lipper in Western Europe/Middle East and Africa. The views expressed are his own.

Hedge funds have delivered decent risk-return results over the past ten years. And as transparency and liquidity increased post-credit crisis, they have regained their appeal as providers of absolute return opportunities for investors. In addition, an increasing lack of market visibility globally has played to hedge funds’ supposed strengths, with total industry assets under management now exceeding the $2 trillion, according to Hedge Fund Research.

There is a divide, however, with the industry split between single hedge funds — totaling more than 11,000 in the Lipper database — and some 867 funds of hedge funds (FoHFs). The general perception is that single-manager hedge funds are the more risky investment and to cushion that risk, some investors prefer to diversify their portfolio by investing in FoHFs instead. But is it worth it?

Deals wrap: Capital One beefs up credit card portfolio

HSBC is nearing a deal to sell its $30 billion-plus U.S. credit card business to Capital One, sources familiar with the situation said.

Investors who bet big money on the outcome of merger and acquisition deals are scurrying as a plunging stock market jeopardizes many transactions.

Even hedge fund superstars who outsmarted the housing collapse and battered financial sector might soon be telling their investors that they suffered double-digit losses during the last few days, managers and investors forecast.

John Paulson’s lost advantage

By Matthew Goldstein

Hedge fund titan John Paulson has a shrinkage problem.

The billionaire manager’s flagship Paulson Advantage funds are quickly losing altitude after peaking with $19.1 billion in assets under management in March. As of the other day, the combined AUM of the Paulson Advantage and Advantage Plus funds had fallen to $15.7 billion, according to investor sources.

The Advantage funds account for roughly 44 percent of the $35. 2 billon in assets under management at Paulson. The two so-called event driven funds  long have been the manager’s largest.

And the July performance numbers for the Advantage funds should be ugly. A source tells us the Advantage Plus fund, which is a leveraged version of the plain vanilla flagship fund, was down 4.63 percent in July. With that decline, the Advantage Plus fund is down a little over 21.6 percent for the year. The plain vanilla Advantage fund is believed to be down around 15 percent for the year.

Hedge fund leaders duck for cover

By Matthew Goldstein

Top hedge fund managers are great at enriching themselves through savvy trades that presumably come from a keen insight into the markets and economic trends. But all too often these titans of Wall Street come up small when asked for their opinions on the pressing economic questions of the day.

That’s what happened when three Reuters reporters recently asked 30 of the top U.S. hedge fund managers to respond to a quick email survey about the political morass in Washington and the potential for a double dip recession. Less than a handful of  managers offered any thoughts on the subject. The overwhelming majority either didn’t respond, or had a representative reply that the manager was either too busy to comment, or didn’t want to participate.

I’m not going to embarrass any one by calling them out for not responding but it’s hard to fathom how some of the wealthiest people on the planet couldn’t find the time to have someone on their staff take 5 to 10 minutes out to respond to a three question survey. (We were trying to make it real easy to get some responses).

Deals wrap: News Corp in play?

Reuters’ blogger Felix Salmon asks the question: “Could News Corp end up in play?

British group Aegis, one of the last independent advertising agencies, could fall prey to a larger rival if it sells its Synovate unit, with major shareholder Vincent Bollore in the role of kingmaker.

American International Group is looking to sell part of its airplane-leasing business through an initial public offering, the Wall Street Journal reported, citing people familiar with the matter.

Deals wrap: Zynga files for IPO

Zynga Inc filed paperwork for an initial public offering on Friday, the latest in a series of hot social media companies to seek capital in the U.S. public markets. The company, which is behind a series of popular games on Facebook, said it hoped to raise up to $1 billion. It did not specify the number of shares it plans to sell or give an expected price range.

A group including Apple, Research In Motion and Microsoft will pay $4.5 billion to snatch Nortel Networks’ patents from under the noses of Google and Intel, stealing a march on their rivals in a litigious market. Bankrupt Nortel had put up for sale 6,000 patents and patent applications in the largest public sale of its kind, a potential treasure trove for latecomers to the market such as Apple, Google and Intel.

Belgium’s KBC Group  is expecting around eight to 10 first-round offers for its private banking arm KBL, people familiar with the matter said, after attempts to sell the business for $1.9 billion failed in March. Bidders are expected to include corporate suitors and private equity firms from across the globe, the person said, and a shortlist for the next round will be drawn up in about a week.

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