Last week, we heard of fund launches from Temujin, APS, Security Global Investors, DWS and Aquila, GAM, Frontier Capital, WERU, Eidesis, DynamiteF3, Marshall Wace, Creststreet, New Stream Capital, F&C and SZTIC in China. Merriman put off plans to launch cleantech hedge fund. Man Group veterans, including ex-chairman Harvey McGrath, launched Revere Capital Advisors, which will invest in hedge fund start-ups.
Toscafund and Henderson sought to restructure their fund after poor performance led to heavy withdrawals. Those, and other restructuring endeavours in the past weeks, led to some speculations as to whether hedge funds should stick to the 2 and 20 fee structure. Meanwhile, it was noted that some hedge investors had asked for longer lock-ups to avoid closures.
Most indices agreed September was the worst month in a decade. The EurekaHedge Hedge Fund Index was down 3% (est.), (-6.21% YTD); the BarclayHedge Fund Index -5.96% (est.), (-11.31% YTD); the HFRI Index -4.68% (-9.41%YTD); the Hennessee HF index -6.34% (-10.28% YTD); the Greenwich Index GGHFI -4.85% (-8.85% YTD) and the GI2 -5.87% (-8.82% YTD); all Dow Jones Hedge Fund indices posted losses and the Barclay CTA Index gained 0.68% (7.86% YTD). The Hedgegate Swiss FoHF Index was down 2% in August.
Hedge fund closures are expected to soar: Tantallon Capital closed its Smaller Companies after bad bets on Asian stocks, Close Man’s hedge fund was shut due to a fall in AUM and redemptions were suspended, Drake completed the closure of three hedge funds (but planned new funds) and Julius Baer`s GAM unit shut its equities fund after its assets shrunk.
Despite the gloomy picture which hedge funds had to deal with, it was said that market conditions could pay for those who bet on rising volatility, some saw a potential for alpha creation in financials and other saw a need for a hedge fund 'reinvention' or a time to bury the hedge fund label.
Formerly closed, top hedge funds have started to reopen to new investors, following heavy redemptions and Geneva banks that run hedge funds have been seeing heavy redemptions (8 to 20%). Some said that FoHFs would need to pull over $100bln before year-end, and that hedge fund redemptions could trigger more turmoil in the markets. Notably, Lansdowne’s HF manager Banerji quit to focus on his garden products company, and its EM fund`s AUM went down from $500m to $50m.
Banks continued battling for prime brokerage market share, and it was said that 25% to 50% of hedge fund assets could switch prime brokers this year.
On the M&A scene, ARCH Financial Products took a stake in the Asia and Middle East retail market with Financial Partners Group; Liability Solutions and MIT Associates merged to become a hedge fund placement firm; British HF Capula sold a passive stake to Mitsubishi; SocGen merged its internal fund management arms Lyxor and SGAM A.I.; Sampo Bank completed its acquisition of 3C Asset Management and Silvercrest A.M. acquired Boston’s Marathon Capital Group. A Jeffries report said that asset management’s M&A for 3Q-08 had climbed.
As the U.S. House passed the bailout plan bill (on Friday 3rd October), Asian stocks and US index futures tumbled the following Monday while the euro slumped. By Tuesday, US financials had slumped to lowest level since 1997. Asian stocks plunged again on Friday, with Japan's Nikkei down more than 10%, while the yen and U.S. Treasury debt prices rose. The MSCI index of Asia-Pacific stocks excluding Japan fell 21%. The all-country world stocks index fell to the lowest since November 2003.
The U.S. Federal Reserve worked with the Treasury to move into unsecured loans; it created a facility to buy commercial paper, to bolster liquidity in credit and commercial paper markets; it was said it would provide as much as $900bln in loans to banks; it called a Friday meeting for CDS players to focus on which clearing house the market would support and reached out to Canadian institutions for participation in the rescue. The US Treasury issued RFPs for the rescue program, considered buying bank stakes, and Treasury Secretary Henry Paulson warned that more firms would fail despite the bailout bill. Pimco and BlackRock submitted bids to manage the treasury bailout assets. And the FDIC worked to bolster fund for more bank failures.
The financial crisis raged on: the credit derivatives market priced $500bln in bad deals related to Fannie Mae and Freddie Mac; Morgan Stanley sought to buoy confidence as shares fell 25%, even though the capital raising from Mitsubishi UFJ was ‘still on track’; Citi shrunk its U.S. mortgage broker business, planned to cut 500 jobs and slash independent brokers by 90%; BofA raised $10bln by selling shares at a lower price, as shares fell 26%, and it agreed to a $4.7b auction-rate securities settlement. It was commented that the credit market rout was making this the best year for options traders....
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Review of hedge fund launches, closures, trends, and regulatory....
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