We heard of new launches from Front Street, Samena Capital, Credit Agricole A.M., Crystal Ocean, Tai Tam Capital, Pappajohn, Thames River, DragonBack Capital, Harvest Volatility, Shen Yi Financial Advisors, ARCH Africa and Land & Buildings.
Lehman`s LibertyView closed its master fund and Toronto’s Lionhart froze redemptions on two ailing hedge funds. HFR reported that the first half of 2008 saw 350 hedge fund liquidations (up 15%) and that the second quarter of 2008 saw 180 liquidations and 240 launches. Risk Analytics’ VP commented: “We are going to see five hedge funds fail for every bank.”
The Credit Suisse/Tremont, Eurekahedge, Barclay, Scotia, EDHEC hedge fund indices posted negative performances for August but the Barclay CTA Index was up 0.11%.
The press reported on the following trends: Desperate companies were turning to ‘usurious’ hedge funds; hedge funds were growing more wary of short financials bet; their cash holdings might be at all-time high (at 30%). Kass commented that this was a time to watch and not a time to play. And universal banks were set to dominate investment banking following the mergers.
On the M&A scene, global asset manager Rock Creek Group took strategic stakes in alternatives manager Evolution Capital Management.
Hedge funds were knee-deep in the credit crisis last week as they were dealt another blow by the financial institutions’ failures, although many published press releases saying they had no exposure either to Lehman or to AIG. Some targeted UK’s Halifax and HBOS as shares crashed. Many reassessed their prime broker risk (and shifted from Lehman and Morgan Stanley to operations housed in large commercial banks) as those that stayed with Lehman faced possible losses. It was said that the Lehman / Merrill woe would be great news for big hedge funds but not so good for small hedge funds and that PE and hedge funds groups may end up taking Wall Street’s place. The hedge fund market was put in doubt as they were going through the vicious circle of rarefied funding, less leverage, safer strategies, and high cash positions. A commentator asked: “Why aren’t hedge funds failing as fast as banks?”
Things settled at Frannie and Freddie; the ISDA said it would compile a list of their deliverable obligations to facilitate a smooth settlement.
It was one of the worst weeks in years for the biggest financial institutions, as the credit crisis continued its ravages: Stocks plunged on Monday, so much it was claimed to be the biggest one-day decline since 9/11. The U.S. Fed announced several initiatives to provide additional support to financial markets; left the rates unchanged, and finally announced a $180bln cash flood to fight the crisis.
A group of banks set up a $70bln liquidity fund as lending among banks froze and central banks put more cash into market. Banks borrowed an average of $48bln from the Fed and we heard of a possible agreement to create giant a U.S. government-sponsored vehicle to take on toxic assets in financial system. “Just Resolution Trust Corporation (RTC) in 1989,” said an industry insider to Opalesque. “And that turned out to be a good plan, as it helped the market and eventually made profit.”
Washington Mutual`s rating was cut to junk and the shares went down 27%. Five banks explored its records, and Citigroup said it was unlikely to proceed with the WaMu deal.
Bank of America announced a stake into Merrill Lynch to gain the brokerage arm for $50bln and Lloyds rescued HBOS in $22bln deal sanctioned by UK PM Brown. Moody`s increased its projections for mortgage losses to 22%.
The “last men standing”, Goldman Sachs and Morgan Stanley faced questions; their profits fell but beat expectations. Early in the week, Morgan Stanley was in talks with Wachovia for a $44bln merger, and then in talks to sell a CIC stake. Reports suggested HSBC might buy Morgan Stanley. So this week, we might know who will buy what.
Lehman filed for bankruptcy on Monday. H. Paulson confirmed there would be no government funds for Lehman. Credit-default risk soared after that. Lehman`s ou......................
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