Hedge Funds 01 (Aug 08 - Nov 15)

[LenaHuat]

A variance swap is an over-the-counter derivative that allows users to speculate on, or hedge risks associated with, the size of movements in the price of an underlying product such as a commodity or equity index.

The hedge funds will not go away soon. How else can those large numbers of MBAholders earn a living for the next 5 years How else can those large numbers of cropped bankers eke a livelihood

The problem is with their speculative methods. All of us knew that oil was heavily speculated upon and now this unregulated baloney.

[millionairemind]

http://www.bloomberg.com/apps/news?pid= ... UlaRfevaA4

Hedge Funds May Sell $200 Billion More of Assets, Survey Finds

By Saijel Kishan

Nov. 24 (Bloomberg) -- Hedge funds are about halfway done selling securities to reduce their use of borrowed money and may unload $200 billion more to complete the process, according to managers surveyed by Sanford C. Bernstein & Co.

The survey found that 63 percent of hedge-fund managers said the sale of assets to cut leverage was at least half completed. Twenty-three percent said the process was three- quarters finished, New York-based Bernstein said.

Hedge funds, which borrow money in an effort to increase trading profits, have been forced to unload assets to meet client withdrawals and tighter lending requirements. That has amplified losses in the stock and bond markets. The Standard & Poor’s Index 500 Index fell 38 percent this year through October, while hedge funds lost an average of 16 percent, according to data compiled by Hedge Fund Research Inc.

“We estimate that roughly $200 billion will be additionally unwound,” Adam Parker, an analyst at Bernstein wrote in a Nov. 21 report to clients. The survey was based on interviews in the first two weeks of November with managers of more than 65 hedge funds overseeing a combined $100 billion.

The amount of gross leverage used by hedge funds fell to 142 percent of assets from 175 percent in 2006 and 2007, the report said.

Some respondents said they expect deleveraging to continue as long as the Chicago Board Options Exchange Volatility Index, known as the VIX, remains elevated, Parker said.

The benchmark for U.S. stock options closed at 72.67 on Nov. 21. The day before, the index set a record of 80.86 when the Standard & Poor’s 500 Index of the U.S. largest companies slumped to its lowest level in 11 years. Before trading opened today, the S&P 500 dropped 46 percent this year.

Investor Withdrawals

Investors pulled $40 billion from the $1.5 trillion hedge fund industry last month and market losses cut industry assets by $115 billion, Hedge Fund Research said.

Fifty-two percent of managers surveyed said the process of investor withdrawals is complete and transfers of money to clients to be done by the end of the first quarter, while 41 percent said they think half of redemptions are yet to come.

Clients putting in 30-day notices to withdraw their money for the end of December may be a catalyst for further deleveraging, “a possible explanation for the recent steep selloff,” Parker said.

Hedge funds, private and largely unregulated pools of capital, have raised their cash holdings to an average of 31 percent of assets from 7 percent in the previous two years, according to the survey.

“Our conclusion is that increasing cash on the sidelines and quality, liquid stocks used as sources of funds will likely remain a significant issue in the near term,” Parker said.

Forty-two percent of hedge funds follow equity-market strategies, while 25 percent use an approach that seeks to profit from companies going through events such as mergers and spinoffs, Bernstein said.

About 16 percent of funds invest in emerging markets, 10 percent in fixed-income strategies and 8 percent is in macro, which trades everything from stocks to commodities, the survey said.

[millionairemind]

Satellite Halts Hedge Fund Withdrawals, Fires 30 After Losses
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By Saijel Kishan

Nov. 27 (Bloomberg) -- Satellite Asset Management LP, founded by former employees of billionaire George Soros, stopped client withdrawals from its three largest hedge funds and eliminated more than 30 jobs after losses reduced the firm’s assets to about $4 billion this year.
Satellite Overseas Fund Ltd., Satellite Fund II LP and Satellite Credit Opportunities Ltd. have declined as much as 35 percent in 2008, said a person with knowledge of the funds’ performance. Simon Rayler, Satellite’s general counsel, declined to comment and wouldn’t disclose how many people remain at the firm’s New York headquarters or London offices. Satellite oversaw about $7 billion for clients at the end of last year.

More than 75 hedge funds have liquidated or restricted investor redemptions since the start of the year as they cope with fallout from the global financial crisis. Investors pulled $40 billion from hedge funds last month, while market losses cut industry assets by $115 billion to $1.56 trillion, according to data compiled by Hedge Fund Research Inc. in Chicago.

“Barring volatility in the markets, I expect that by the end of the year, we would’ve seen the bulk of these redemption suspensions done,” said Ron Geffner, who represents hedge funds at the New York-based law firm Sadis & Goldberg LLP.

Satellite was started in 1999 by Lief Rosenblatt, Gabe Nechamkin and Mark Sonnino, who worked together for 11 years at Soros Fund Management LP in New York. The firm is retaining teams that trade bonds and loans and invest in companies going through events such as takeovers, said the person, who asked not to be identified because the information is private.

21% Redemption Rate

The company has received withdrawal notices, which are effective through June, for 21 percent of the $2 billion Satellite Overseas Fund Ltd., its largest fund, the person said.

Satellite has cash to meet current redemptions and will continue to run the funds and sell securities over a period of years to avoid unloading them quickly in slumping markets, the person said.

Hedge funds, private, largely unregulated pools of capital whose managers can buy or sell any assets, declined by an average 16 percent this year through October, according to Hedge Fund Research. Millennium Global Investments Ltd., Platinum Grove Asset Management LP and Autonomy Capital Research LLP are among the firms to halt redemptions in the past month.

[winston]

Next wave of redemptions may hit Asian hedge funds
Benjamin Scent

Financial deleveraging in the West could easily exceed US$12 trillion (HK$93.6 trillion), analysts said, and the phenomenon could spread to Asia as hedge funds are forced to unwind their trades and dump their holdings on the market to quickly raise cash.
With the markets so volatile, it is "too late to sell, too early to buy," analysts at Nomura wrote in a trading note. "Just hang in there until year-end," they said. "Nothing to do in equities. Remain cash, remain defensive."

The massive deleveraging in progress could overwhelm the effects of all central bank interventions up until now, which have only totaled US$2 trillion, Nomura analyst Paul Schulte said.

"Fundamentals continue to deteriorate and deflationary expectations are slowly infecting the US, UK and Japan. Could Asia be next?" Schulte asked.

Morgan Stanley analyst Huw van Steenis warned that US$800 billion of money may disappear from the hedge fund industry, which could shrink by 45 percent to US$1.1 trillion, from its June peak of US$1.9 trillion.

In October alone the size of the hedge-fund industry shrank by a total of US$110 billion, bringing hedge fund assets to US$1.65 trillion at the end of October, according to Singapore-based data provider Eurekahedge.

The value of hedge funds' investments declined 2.7 percent in dollar terms, or US$47.2 billion, during the month, while investors pulled out a net US$62.7 billion of their money from hedge funds in October.

Although the lion's share of redemptions to date have been in the West, Asian hedge funds' investments have suffered worse performance than their Western counterparts, which may mean the next wave of redemptions is coming in Asia.

The Eurekahedge Asian Hedge Fund Index, which tracks the performance of 424 hedge funds based in the region, has lost 22.2 percent of its value since the start of the year. By comparison, the Eurekahedge Hedge Fund Index, which tracks 2,408 funds across all regions, has fallen 12.2 percent through the end of October.

Morgan Stanley's Van Steenis said Asian hedge funds may lose 25 to 30 percent of their assets from redemptions by the end of the year. Managers of European hedge funds may see clients pull out 30 percent of fund assets by year- end, while US hedge funds may lose 20 percent of client funds, he said.

[iam802]

Tudor’s BVI Suspends Withdrawals, Plans Split Into Two Funds

http://www.bloomberg.com/apps/news?pid= ... refer=home

Dec. 1 (Bloomberg) -- Tudor Investment Corp., the firm run by Paul Tudor Jones, temporarily suspended redemptions from the $10 billion BVI Global Fund Ltd. as it splits the hedge fund into two, according to a person familiar with the matter.

Tudor is planning to put hard-to-sell investments, mostly corporate bonds and loans from emerging markets, into a new fund called Legacy, said the person, who asked not to be identified because the information is private. BVI Global, which started in 1986, would focus on easier-to-trade stocks, bonds, commodities and currencies.

More than 80 firms have liquidated funds, restricted redemptions or segregated assets following stock-market declines and a credit freeze that started with rising defaults on U.S. subprime mortgages. Emerging-markets securities have fallen as commodity prices plunged and investors shunned riskier assets on concern the global economy is entering a recession. The MSCI Emerging Markets Index has dropped 58 percent this year.

“Creating a separate fund will give the original fund the opportunity to generate better returns minus the toxic assets that have acted like a sea anchor,” said James Chirnside, chief investment officer at Sydney-based Asia Pacific Asset Management Pty Ltd., which invests in hedge funds.

Steve Bruce, a Tudor spokesman, declined to comment.

Investors have asked to pull 14 percent of their money from BVI Global as it lost 5 percent this year through November, said the person. That compared with a 2.25 percent gain through Nov. 24 by an index of similarly managed funds compiled by Hedge Fund Research Inc.

Investors to Vote

Tudor, which oversees $17 billion, is asking BVI Global investors to approve the plan to split the fund in the next two months. Clients would have their money allocated between BVI Global and Legacy based on the division of assets, said the person. Tudor wouldn’t be able to charge investors a performance fee until the Legacy assets regained their high watermark, or peak value. The firm would sell off the assets in Legacy next year and return money to clients.

Jones, 54, told clients in August that Jim Pallotta, head of equities, is leaving to start his own firm. Pallotta will keep the Raptor Global Fund that he runs out of Boston from January. The fund lost 16.5 percent this year through Nov. 19, according to investors.

22% Annual Gains

BVI Global, which has posted average annual returns of as much as 22 percent since inception, will focus on macro investing, a strategy that seeks to profit from broad economic trends by trading stocks, bonds and other securities, the person said. As of Oct. 31, the fund had 62 percent of assets in macro investments, while 30 percent was in equity strategies and 8 percent was in credit, event-driven and fixed-income arbitrage trades, according to an October client letter.

The firm’s Tensor Fund Ltd., which manages about $1 billion, returned about 34 percent this year through Nov. 19, while Tudor Futures, managed by Jones, gained 21 percent, the person said.

The hedge fund industry may shrink as much as 45 percent by the end of this month to $1.1 trillion from its peak of $1.9 trillion in June because of investor redemptions and market losses, Morgan Stanley analyst Huw van Steenis said in a Nov. 24 report.

Hedge funds have posted losses averaging 22 percent this year through Nov. 24, according to Chicago-based Hedge Fund Research’s HFRX Global Hedge Fund Index. Investors such as pension funds and university endowments are pulling their holdings from hedge funds after they “over-committed” to private equity investments, van Steenis said.

Hedge funds are private, largely unregulated pools of money whose managers can buy or sell any assets and participate substantially in profits from investments.

[millionairemind]

Hedge fund redemptions force a rethink
With fewer than 30 days remaining in 2008, investors’ last opportunity to pull money out of hedge funds this year is now past. Fund managers can take stock of the damage. Even Paul Tudor Jones, an industry veteran, is rethinking the way he does business.

By Jeff Segal, breakingviews.com
Last Updated: 11:38AM GMT 02 Dec 2008

The average hedge fund is on track for the worst performance on record. With losses running above 20pc this year, the average fund has still done less badly than stock or commodity markets. Some individual funds have done much better than this. But fearful and cash-strapped investors still want to take money out, perhaps on average a quarter or more of their holdings.

The fallout has left hedge fund managers shaken. The latest in the spotlight is Tudor Jones, whose Tudor Investment has been around since 1980. With investors asking to take 14pc out of his firm’s $10bn BVI Global fund, he plans to suspend redemptions and restructure the fund, dividing it into pools of liquid and illiquid assets, with reduced fees on the latter.

That would limit damage for those who stay invested in BVI. They could suffer if the fund sells liquid assets or uses cash to meet redemption requests, leaving them with a greater relative exposure to assets Jones says "have ceased to be tradeable". Such moves aren’t popular, but they are permitted under hedge fund investing agreements.

Tudor’s case, however, highlights the depth of the industry’s difficulties. First, BVI was down, but not terribly so – it had lost about 5pc for this year at the end of November – and the level of redemption requests is lower than many funds are experiencing. Second, allowing investors to redeem every quarter was one of Jones’ long-standing tenets. He’s now abandoning that, at least temporarily.

Other fund groups that have performed better than their peers have had to restructure, too. One, credit specialist Blue Mountain, divided one fund into four classes – one for redemptions, which ended up at about 20pc of the assets, and three that locked investors in for various longer periods in return for fee reductions.

If funds like these are resorting to drastic measures, the picture is even uglier for rivals that have performed really badly or face bigger percentage redemptions. Their very existence is at stake. Hedge fund survivors that don’t already lock investors in for years rather than months will soon be doing so.

[kennynah]

so.....hedge funds dead already?

[winston]

Hedge fund Avenue Capital says good time to buy

HONG KONG, Dec 3 (Reuters) - Financial assets have become so cheap that now is a good time to buy them, the head of one of the world's biggest hedge funds, Avenue Capital, said on Wednesday.

"Now is a phenomenal time to buy, assuming you think we're not in a Depression," said Marc Lasry, chairman and CEO of Avenue Capital, speaking at the 2008 Clinton Global Initiative meeting in Hong Kong.

"We're looking at valuations we think are extremely low. Unless the unthinkable happens, you'll be fine," he said, referring to the investment environment.

Lasry said the fund is holding around $7 billion in cash.

Six months ago, Avenue Capital, a $20.5 billion hedge fund firm that specialises in credit strategies, posted its largest monthly losses in six years.

[winston]

Ramius Capital to close four funds - WSJ

Dec 3 (Reuters) - Ramius Capital, an activist hedge fund, is informing its investors that it will close four funds with a combined $550 million in assets, the Wall Street Journal said, citing people familiar with the fund.

The assets of the four funds are focussed in convertible bonds, distressed credit and securities of merging companies, the paper said.

Ramius' biggest fund, the $2.1 billion multistrategy Ramius Fund, could shrink by about $500 million or more if investors stick with plans to pull out money, the paper said citing people familiar with the fund.

"Going forward, these strategies will continue to be important allocations in our multistrategy funds and will continue to be managed by the same portfolio teams," a spokesman for Ramius told the paper.

Recently the company cut its Hong Kong investing staff and offered its main hedge-fund investors lower fees and other enticements to keep money with the firm, the paper said.

Some of the money in Ramius's smaller, soon-to-be-closed funds could migrate to the multistrategy fund, the paper said.

Dozens of hedge funds have recently told investors they cannot get their money back right now as managers try to limit a wave of redemptions to safeguard all their clients' investments.

Ramius Capital could not be immediately reached for comment.

[iam802]

Even hedge funds with gains face redemptions

http://www.reuters.com/article/hedgeFun ... 2J20081208

By Svea Herbst-Bayliss

BOSTON (Reuters) - Even hedge-fund managers with portfolio gains are in trouble this year.

Dozens of managers who are outperforming the market and their troubled rivals with gains of as little as a few percent or as much as nearly 100 percent are facing a surge of withdrawals as investors try to exit during the worst bear market since the Great Depression.

Connective Capital, a Palo Alto, California-based hedge fund, treated investors in its short strategy to an eye-popping 85 percent gain this year as its benchmark Nasdaq Index slumped 42 percent. Still, clients asked manager Robert Romero to return roughly 20 percent of their capital.

"I ask my investors 'why are you taking money out when we are doing so well?'" Romero said.

But he acknowledges the pressures these funds of hedge- funds face as their own clients demand to get their money out.

Other hedge-fund managers who are doing well report similar stories. They complain of being punished unfairly for bad bets their rivals took with borrowed money in illiquid markets.

Since January, the average hedge-fund, which courted investors with promises of big returns in all markets, has shed about 18 percent, according to data from Hedge Fund Research, a Chicago firm that tracks industry performance and asset flows.

Some big names such as Kenneth Griffin's Citadel Investment Group are suffering even steeper declines.

"Sometimes the madness of crowds take hold," said hedge- fund manager William Fleckenstein, who runs Seattle-based Fleckenstein Capital. "And that is what is happening now as people are redeeming wherever they can."

The pace of redemptions quickened in the second half of the year, building steam after Lehman Brothers failed in September, the credit markets seized up, growth stalled and job losses mounted.

In October, hedge-fund assets shrivelled 9 percent to $1.5 trillion (1.01 trillion pounds), their lowest in two years, as stock markets tumbled and investors withdrew a record $40 billion, Hedge Fund Research data show.

Since a November 15 deadline to file redemption requests, some fund managers have been asked to return as much as 40 percent of capital, investors say. J.P. Morgan Chase & Co's (JPM.N: Quote, Profile, Research, Stock Buzz) Highbridge Capital Management unit, for example, has been asked to return roughly 35 percent of assets from its flagship fund to investors, several investors said.

"People have set their weapons to fire automatically. And they will keep firing until they are out of bullets," said Philippe Bonnefoy who invests in hedge-funds as chairman of the asset allocation committee at Geneva-based Cedar Partners, referring to the steady stream of redemption notices.

Numbers like these suggest the industry will shrink further in November and December, even as many fund managers try to bar the exits, if only temporarily.

Paul Tudor Jones, one of the world's most successful fund managers, last week told clients they may not get their money out just yet after they asked to remove 14 percent from his $10 billion BVI Global Fund.

Similarly, Fortress Investment Group's Wesley Edens suspended redemptions following a surge of requests.

For small funds doing well, the growing trend of suspended redemptions may make life even tougher.

"For us the problem is two-fold," Connective Capital's Romero said, noting that investors are pulling money out to meet their own obligations and as they rebalance to reflect an unexpected rise in assets due to strong returns.

"But I will be patient and expect some of that money will come back next year," he added.

(Editing by Jason Szep and Andre Grenon)