By Peter Urbani, CIO, Infiniti Capital (peter.urbani@infiniti-capital.com)
Emerging Managers, defined as those hedge funds with less than 36 Months of history and less than $300m in AUM, are continuing to deliver on their promise of generating returns 300 – 400bp per annum over and above the returns of older, more established hedge funds.
This is reflected by both the performance of the Infiniti Capital Emerging Manager Indices relative to wider industry fund of funds benchmarks and Infiniti’s own emerging manager funds over the past 12 months to end June 2008 (see chart in PDF available on Source link).
The approximately 300bp of relative outperformance of the two Infiniti Emerging Manager fund of funds to wider fund of funds benchmarks such as the HFRI Fund of Funds and HFRX Equally Weighted Strategies Index is in line with earlier research conducted by Infiniti Capital on the likely out-performance of ‘Emerging Managers’ as well as that of numerous academic studies.
The updated Infiniti Capital Emerging Managers Indices show that ‘Emerging Managers’ continue to deliver excess returns of up to 500bp per annum over and above the returns of older more established funds. (see table in PDF available on Source link).
This finding is in line with that of various other studies. However, Infiniti is one of the few fund of fund managers to actually run ‘Emerging Manager’ fund of funds. Infiniti offers two ‘Emerging Manager’ fund of funds - one a pure emerging manager fund and the other a 50:50 blend of established and emerging managers.
Over the past 5 years to end June the Infiniti Emerging Managers Index ( <>
Over the same time period (past 5 years), on a back-tested basis, Infiniti’s own pure Emerging Managers fund of funds would have genera......................
Source:
http://www.opalesque.com/AMB2008/46178Statistics_on_emerging_manager_launches_confirm_outperformance.html
Friday, August 8, 2008
Aurarian Capital prepares alternative energy fund...
Hedge Fund News recently had a chance to learn more about the alternative energy fund US-based Aurarian Capital Founder Jason Gold (whom Opalesque previously interviewed Source ), plans on launching in Q4 2008.
Aurarian Capital prepares alternative energy fund
Today's Top Stories
The alternative energy sector might officially be awarded “flavor-of-the-month” status within the financial markets. However, the general opinion seems to be that hedge funds will be confined to “playing the value chain” while venture capital firms will have a first shot at many of the “next success” firms.
Rather than being simply relegated to identifying secondary industries for equity investing Aurarian is looking to exploit a different strategy in this arena by entering the alternative energy marketplace with a fund that looks to use a “project financing” model whereby, “instead of raising capital through venture or private equity funds at the corporate level, which is the traditional path, funds are raised at the individual project level.”
Aurarian’s flagship fund, The Aurarian Fund, is a research driven fund focused on small cap firms with ownership of intellectual property migrating in evolution from late development stage to early stage commercial adoption. Gold’s depth of experience within the small cap space is what has given his firm the necessary edge with equity investing in the small cap sector, and to secure the same depth of kn......................
Source:Aurarian Capital prepares alternative energy fund
Today's Top Stories
Tuesday, August 5, 2008
Cash management trends and the shift to preserving capital
From Kirsten Bischoff, Opalesque New York: A Merrill Lynch and Capgemini survey reported one effect of the current market environment is investors redeeming funds from floundering strategies in a flight to cash (Source). Additionally, according to another study by Greenwich Associates and Global Custodian, “hedge fund managers around the world responded to last year's difficult market conditions by lowering leverage ratios and moving a significant share of their assets into cash.” (Source)
In addition to deleveraging during market turmoil, the trend to increase cash assets can also be seen as single strategy managers gather cash assets in order to pounce on anticipated opportunities (perhaps the perceived imminent opportunities in distressed debt, or the eventual rebound of financials). Indeed fund of funds have also begun to grow their cash assets whether they are newly formed joint venture seeder funds with the resources to wait for the next “phenom” manager, or a team requiring a cash buffer so new opportunities don’t hinge on redemptions from other investments. Whatever the reason, it seems as though quite suddenly cash has become a larger, strategic portion of many hedge fund portfolios.
For a closer look at industry trends in cash holdings Opalesque recently spoke with Pauline Modjeski, President and Executive Managing Partner at Chicago-based Horizon Cash Management. Modjeski, a recipient of Institutional Investor’s “20 Rising Stars in Hedge Funds” Award in 2008, has been with Horizon since its inception in 1991 and was appointed President in January of this year. This spot in the industry has allowed her a bird’s eye view of manager reactions to everything from the credit crisis to the prime brokerage fallout of Bear Stearns....
Source:
http://www.opalesque.com/AMB2008/46101Cash_management_trends_and_the_shift.html
Today's Top Stories:
In addition to deleveraging during market turmoil, the trend to increase cash assets can also be seen as single strategy managers gather cash assets in order to pounce on anticipated opportunities (perhaps the perceived imminent opportunities in distressed debt, or the eventual rebound of financials). Indeed fund of funds have also begun to grow their cash assets whether they are newly formed joint venture seeder funds with the resources to wait for the next “phenom” manager, or a team requiring a cash buffer so new opportunities don’t hinge on redemptions from other investments. Whatever the reason, it seems as though quite suddenly cash has become a larger, strategic portion of many hedge fund portfolios.
For a closer look at industry trends in cash holdings Opalesque recently spoke with Pauline Modjeski, President and Executive Managing Partner at Chicago-based Horizon Cash Management. Modjeski, a recipient of Institutional Investor’s “20 Rising Stars in Hedge Funds” Award in 2008, has been with Horizon since its inception in 1991 and was appointed President in January of this year. This spot in the industry has allowed her a bird’s eye view of manager reactions to everything from the credit crisis to the prime brokerage fallout of Bear Stearns....
Source:
http://www.opalesque.com/AMB2008/46101Cash_management_trends_and_the_shift.html
Today's Top Stories:
The three stages of the current stress pattern.....
Louis Gargour, one of LNG’s two principals, and manager of the LNG Special Situations Fund, explains why we are currently in the first stage of a three-stage cycle.
From the monitoring of credit cycle dynamics, LNG identifies stressed debt, and believes that banking leverage will become more greatly restricted as the year progresses, that this will lead to rising bankruptcy levels and the emergence of highly lucrative distressed debt opportunities. The manager continues to maintain a cautious approach as history tells that bear markets can and do have multiple sharp rallies.
Distressed is becoming interesting
Louis Gargour is currently seeing an increase in client inquiry in distressed (debt and equity) in the special situations fund. This asset class is beginning to produce interesting opportunities as a result of market distortions and overleveraged balance sheets.
He has been running similar strategies for a long time and has been in this sort of situation in the last market cycle (he made a lot of money in 2003.) He found that the stress pattern has three stages. Here is how he described them to Opalesque.
1. Macro-economic downturn
“The first stage (which we are currently in) is where macro-economic outlook is negative,” he said. “Expectations of consumer spending patterns makes us think retailing, consumer discretionary, automobiles, luxury goods, hotels, airlines are sectors that are going to suffer. I think most of the market shares in that view. I would call this particular stage of the cycle ‘stressed’ (as opposed to ‘distressed’). We are now seeing the market revaluing equity prices significantly downwards in the expectation that earnings and especially margins are under pressure.”
Since we are now at stage 1 and near stage 2, what needs to be done is to maintain a short to neutral exposure to the market.
2. Increased borrowing costs and decreased margins
“The second stage of the distressed cycle is where lending doesn’t exist. Banks will not refinance and so will not let companies who have lower credit ratings borrow money at any cost.”
“We have a market neutral approach so we care about whether a short goes down or a long goes up relative to them. That is stage 2 trade.”
3. Capitulation and default
“The third stage is when companies decide to restructure their balance sheet – which might mean file for bankruptcy. Most companies think bankruptcy is forced upon companies; that is not true. In the 2001-2002 credit cycles, a number of large telecom companies in Europe......................
Source:
http://www.opalesque.com/AMB2008/46102The_three_stages_of_the_current_stress.html
Today's Top Stories:
From the monitoring of credit cycle dynamics, LNG identifies stressed debt, and believes that banking leverage will become more greatly restricted as the year progresses, that this will lead to rising bankruptcy levels and the emergence of highly lucrative distressed debt opportunities. The manager continues to maintain a cautious approach as history tells that bear markets can and do have multiple sharp rallies.
Distressed is becoming interesting
Louis Gargour is currently seeing an increase in client inquiry in distressed (debt and equity) in the special situations fund. This asset class is beginning to produce interesting opportunities as a result of market distortions and overleveraged balance sheets.
He has been running similar strategies for a long time and has been in this sort of situation in the last market cycle (he made a lot of money in 2003.) He found that the stress pattern has three stages. Here is how he described them to Opalesque.
1. Macro-economic downturn
“The first stage (which we are currently in) is where macro-economic outlook is negative,” he said. “Expectations of consumer spending patterns makes us think retailing, consumer discretionary, automobiles, luxury goods, hotels, airlines are sectors that are going to suffer. I think most of the market shares in that view. I would call this particular stage of the cycle ‘stressed’ (as opposed to ‘distressed’). We are now seeing the market revaluing equity prices significantly downwards in the expectation that earnings and especially margins are under pressure.”
Since we are now at stage 1 and near stage 2, what needs to be done is to maintain a short to neutral exposure to the market.
2. Increased borrowing costs and decreased margins
“The second stage of the distressed cycle is where lending doesn’t exist. Banks will not refinance and so will not let companies who have lower credit ratings borrow money at any cost.”
“We have a market neutral approach so we care about whether a short goes down or a long goes up relative to them. That is stage 2 trade.”
3. Capitulation and default
“The third stage is when companies decide to restructure their balance sheet – which might mean file for bankruptcy. Most companies think bankruptcy is forced upon companies; that is not true. In the 2001-2002 credit cycles, a number of large telecom companies in Europe......................
Source:
http://www.opalesque.com/AMB2008/46102The_three_stages_of_the_current_stress.html
Today's Top Stories:
- http://www.opalesque.com/AMB2008/46107People_Lee_Hetfield_joins_ARE_Asset.html
- http://www.opalesque.com/AMB2008/46101Cash_management_trends_and_the_shift.html
Friday, August 1, 2008
Sprott posts net income of C$11.4m ($11.1m), sticks to resource stocks
From Bloomberg.com: Sprott Inc., the Canadian hedge-fund manager that posted a profit in its first quarter since becoming a publicly traded company, is sticking to its bets on resource stocks, founder Eric Sprott said.
Sprott, which raised C$200 million ($195 million) when it went public in May, said it will continue to own resource and mining stocks, while betting on declines in financial stocks. Sprott's four main funds have posted returns of between 13 percent and 28 percent this year, he said.
… Net income in the second quarter was C$11.4 million, or 8 cents a share, compared with a year-earlier loss of C$7.7 million, Toronto-based Sprott said today in a statement.
Soros successors Thiel (up 47% YTD), Howard prove global bears rule markets
From Bloomberg.com: Hedge-fund managers following the path of George Soros, who made a fortune by exploiting financial turmoil, are beating their peers for the first time since 2003 on wagers the global economy won't improve anytime soon.
Clarium LP, the San Francisco-based hedge fund run by Peter Thiel, gained 47 percent this year as of July 25 on trades that paid off when stocks and the U.S. dollar fell, according to two of his investors. Alan Howard's Brevan Howard ......................
SYW`s combination L/S macro fund launches offshore as fund
Barrons Hedge Fund tracking showed June 2008 to be another banner month for SYW LP’s long/short fund with Barrons reporting SYW at a +18.4% gain for the month, a+93.4% gain for YTD, and a+203.5% gain year over year. The New York-based fund, led by Principals Chris Wang and Andrew Lee was established in September 2006 and currently manages approximately $50m in assets. Opalesque recently had an opportunity to speak with Lee about the fund’s combination strategy and the team’s outlook for the future of two industries in the markets.
The strategy
A long/short fund, SYW overlays its equities analysis with a top down view in determining developing themes and trends in the market (ie, subprime crisis, commodities demand increases, transportation demands, etc). “We look for industries which we can leverage positively or negatively to these structural changes or trends in the market,” Lee explained.
The Fund, which at $50m in assets is extremely diversified, currently investing in 95 companies in its portfolio. Lee and Wang believe that the strategy, spread across 32 industries in 15 sectors has enormous scalability potential in its current state. The numerous positions give SYW the ability to stay extremely nimble, a strength they project will stay intact even at 15 to 20 times their current size. “We have been able to be early in recognizing many trends including the multiple mini-cycles in the market of the past few years, where we needed to be very flexible in regards to net exposure.”
Source:
SYW`s combination L/S macro fund launches offshore
Moral hazard argument can be hazardous to your health - more investors question governments will never let their largest banks fail
From Shahriar Shahida, Chief Investment Officer, Constellation Capital Management LLC, New York. This article is a reflection on the current dislocation in the credit markets and the danger of moral hazard as the government deals with this crisis.
Emerging markets investors are no strangers to the pitfalls of investment themes that are merely based on Moral Hazard. This is primarily due to the fact that the decisions by the international community to provide bailouts for sovereign nations have been highly erratic and unpredictable. Mexico, South Korea and Turkey made the cut, but Russia did not. The havoc that surrounded these financial crises has been well documented. The good news, at least for the time being, is that as a result of this baptism by fire, investors in the emerging market debt have learned not to blindly base their investment decisions on the song and prayer that sovereign states will always be bailed out by their richer friends.
Unfortunately, this valuable lesson has fallen mostly on deaf ears as it relates to investment in debt obligations of the largest financial institutions in G7 countries. This perceived insulation from the risk of default of a large financial institution, may well be one of the main factors contributing to the current credit crises. This zealous belief in the moral hazard of a large bank failure, led many investors to conclude that the probability of such an event is close to nil, and as such, as early as Spring of 2007, most of the members of the “too big to fail” club were able to feast on the generosity of their respective investors by issuing billions of dollars senior as well as subordinated debt at or close to LIBOR. What’s more fascinating is that investors barely differentiated between senior and subordinated debt. In so doing, they accepted a mere ten basis point spread for buying five year subordinated, as opposed to, senior debt.
Source:
Moral hazard argument can be hazardous to your health
Emerging markets investors are no strangers to the pitfalls of investment themes that are merely based on Moral Hazard. This is primarily due to the fact that the decisions by the international community to provide bailouts for sovereign nations have been highly erratic and unpredictable. Mexico, South Korea and Turkey made the cut, but Russia did not. The havoc that surrounded these financial crises has been well documented. The good news, at least for the time being, is that as a result of this baptism by fire, investors in the emerging market debt have learned not to blindly base their investment decisions on the song and prayer that sovereign states will always be bailed out by their richer friends.
Unfortunately, this valuable lesson has fallen mostly on deaf ears as it relates to investment in debt obligations of the largest financial institutions in G7 countries. This perceived insulation from the risk of default of a large financial institution, may well be one of the main factors contributing to the current credit crises. This zealous belief in the moral hazard of a large bank failure, led many investors to conclude that the probability of such an event is close to nil, and as such, as early as Spring of 2007, most of the members of the “too big to fail” club were able to feast on the generosity of their respective investors by issuing billions of dollars senior as well as subordinated debt at or close to LIBOR. What’s more fascinating is that investors barely differentiated between senior and subordinated debt. In so doing, they accepted a mere ten basis point spread for buying five year subordinated, as opposed to, senior debt.
Source:
Moral hazard argument can be hazardous to your health
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