Review of hedge fund launches....

Hedge Fund News London: A roundup of last week�s hedge fund launches, closures, index performance, trends, regulatory, legal and financial events pertaining the alternative investments world.

Last week, we heard of fund and platform launches from Permal Investment Management Services, SteelTeam, KMK, Compass, Minuteman, Valens Capital and Laurus, Galena, ARCH Financial, Informed Portfolio Management, La Fayette, Russell Investments, Finvest A.M., Arcoda, Swiss-Asia, and CopperTree. Nick Roditi set up Belvedere Investment Partners, an asset manager in London that will focus on Asian investments.

Gartmore stopped its L/S hedge fund launch over the shorting ban and YouGov abandoned its hedge fund plans due to lack of funds.

Threadneedle was said to plan new hedge fund despite collapse of its long/short credit fund; Absolute Capital decided to close two of its hedge funds; Highland Capital also shut two of its funds, and rumors said Tontine Partners was under liquidation. Many funds announced negative results, notably Citadel�s which fell 30%. Watson Wyatt reported that top fund managers had posted the slowest asset growth in five years.

Morningstar Hedge Fund Index dropped 7.87% in September, -13.17% in 3Q, the RBC Hedge 250 Index went down 7.67% (est.), -13.17% YTD, the Credit Suisse/Tremont Hedge Fund Index was down 6.55%, -9.87%YTD, the HFRI Fund Weighted Composite Index collapsed 5.42%, -10.11% YTD, the Scotia Capital Canadian Hedge Fund Index -11.17%, and all Canadian Hedge Watch indices were negative.

While some said that the number of hedge funds could halve in 2009, TABB Group reported that H2-2008 would see 700 to 1,000 funds (15% of the industry) closing, and Morgan Stanley�s CEO John Mack claimed that 30% of hedge funds might disappear. Time Magazine reported that hedge funds had already lost nearly $300bln YTD.

General panic selling saw the share prices of listed hedge fundsfall drastically in recent weeks; as a result, investors in Marshall Wace�s London-listed MW Tops hedge fund were offered the chance to withdraw from the fund at close to its underlying NAV. Another phenomenon was observed in the equity market: hedge funds forced to sell off equities had driven the collapse in equity markets in recent months, with the stocks in which hedge funds held the largest stakes had massively underperformed. It was also noted that hedge funds were under pressure to liquidate positions as banks asked for more collateral, and that they targeted corporate lending as banks were drying up.

Some FoHF houses reweighted their hedge fund exposures, some hedge fund managers moved to cash to ride out the storm while others still saw a great opportunity to invest in affected banks, or in the life insurance settlement industry. It was reported that hedge funds had cut OTC derivative contracts by almost half, and that London funds were shifting billions of dollars to New York banks because of worries about the British bankruptcy regime.

Da Vinci hedge fund suspended redemptions and Mark Sellers locked redemptions on his energy fund with plans to liquidate later. It was observed that funds of funds were facing unprecedented withdrawals; J.P. Morgan estimated $100bln in redemption requests for FoHFs in the fourth quarter; TrimTabs reported that U.S. hedge fund withdrawals had hit $43bln in September; and Eurekahedge said that the total industry had lost $80bln in Sep 08 (and was down to US$1.8tln).

As hedge funds are pulling their accounts from securities firms, Conifer Securities launched prime brokerage services in response to the migration trends, JPMorgan prime-brokerage reported that hedge fund assets rose by 25%, and Fidelity�s by 40% in the last 12 months.

Despite the financial crisis, Wells Fargo, JPMorgan Chase, State Street reported $2.6bln in profits but Merrill posted a $7.5bln loss and Citigroup posted a 4th straight loss on write-downs. Lending rates between banks in the U.S. and Europe continued to fall, and this was seen as �evidence that credit markets were thawing gradually as central banks pumped more liquidity into the financial system and relaxed rules for banks to obtain credit.�

Morgan Stanley was forced to renegotiate the terms of a planned $9bn cash injection (and 21% stake) from Japan�s Mitsubishi UFG, following a fall in share price. The deal went ahead and the bank� shares subsequently soared. It was said that it would start buying banks.

Investigators revealed that top officials at AIG had known of potential problems in valuing derivative contracts long before these transactions caused the insurer's shareholders severe pain. And New York Attorney General Andrew Cuomo probed the `outrageous` AIG spending. Congressional critics suggested that the former Goldman Sachs CEO Henry Paulson (now Treasury secretary) had been biased in his decision to bail out AIG. Meanwhile, Ambac and other bond insurers worked on a plan to sell troubled assets to the US government, and UK insurers Prudential and Legal & General showed signs of trouble.

Hong Kong legislators blamed regulators of failing to monitor banks that sold billions of dollars worth of Lehman Brothers-backed bonds to more than 40,000 Hong Kongers. Lehman�s hedge fund clients were facing margin calls on frozen assets; the UK FSA allowed trading companies to cancel unsettled Lehman transactions. A judge approved Lehman�s sale of Neuberger and of a stake in R3 Capital Partners; Lehman was said to be looking to unwind derivatives trades.

The U.S. administration, following similar moves by European governments that sent global stock.....

Source:
http://www.opalesque.com/AMB2008/47780Review_of_hedge_fund_launches_closures_trends.html