Hedge Funds 01 (Aug 08 - Nov 15)

[winston]

DJ MARKET TALK: Pair Trade Probably Out In HK During Recent Mkt Mayhem

1530 [Dow Jones] One of the hedge funds' bread-and-butter strategies -- pair trade, under which they would long one particular sector or stock while simultaneously short others -- is likely facing a tough time having much success during the recent market turbulence;

This is because during the market's stomach-churning moves since August, one strong trading characteristic, has been that all sectors or stocks within the same sector would rise or fall in tandem, as investors' buying and selling were mostly driven by macro events such as newsflow coming out of Europe.

This may have implication for small-potato investors as well, and that is: Controlling one's exposure and retain a reasonable amount of cash in one's portfolio most likely will work better rather than employing hedge strategy aiming to protect portfolio losses.

The HSI lost 28% at Oct. 4's trough of 16,170 vs its July 29 close of 22,440, then rebounded 17% to Monday's intraday high of 18,908.

Source: Dow Jones Newswire

[winston]

Do you see the pattern ?

Perry Cap to shut HK office, Asia head to start hedge fund-sources

HONG KONG, Oct 21 (Reuters) - New York-based hedge fund Perry Capital, which manages about $8 billion, is shutting down its Hong Kong office and will cut 30 jobs globally, a source with direct knowledge of the matter said on Friday.

The job cuts include the entire 16-member staff in the firm's Hong Kong office, including Alp Ercil, a partner and the head of the firm's Asia operations, who declined an offer from Perry to relocate to its other offices in London and New York.

Ercil had resigned and planned to start his own hedge fund next year with some Perry Capital staff, another source with direct knowledge of the matter told Reuters.

New York-based Michael Neus, a managing partner and general counsel for Perry Capital, declined comment.

Ercil declined comment when contacted by Reuters.

Source: Reuters

[winston]

ONG KONG, Oct 18 (Reuters) - Asia-focused hedge funds recorded a net outflow of $1.9 billion in September, their first monthly outflow in 17 months, as global markets tumbled on concern over the global economy and European debt crisis, new data showed on Tuesday.

Source: Reuters

[winston]

More Than 80 Percent of Hedge Funds Underwater

"But even the 19.3 percent figure could be overstating how the average investor in those funds is faring in general.

While those invested in these underwater funds for many years before the current slide could still be in the black, many hedge funds with good long-term records traditionally gather the biggest chunk of their assets after their big run-up."

http://www.institutionalinvestor.com/Ar ... ist_TMNews

[winston]

Buy the Dips

Hedge funds, among the equity market's power players, are on average sitting on losses of 8 percent for the year according to Hedge Fund Research.

Meanwhile, the S&P 500 is up for the year, if only a bit more than 2 percent.

That's more than the 8 percent gain, hedge funds would need to come out of the red for the year.

"If you're a hedge fund manager and you want to put money to work it feels like it has to be on the long side: buying stocks, buying risky assets," said Nicholas Colas, chief market strategist at the ConvergEx Group in New York.

Source: Reuters

[profittaker]

Let’s Just Change the Rules

I’ve always had a soft spot for Bunker Hunt. Yes, I know, he was a voracious manipulator who tried (and did) corner the silver market back in 1980, but boys will be boys. Maybe it’s a fellow-Texan thing.

He went bankrupt because they changed the rules on him. Lesson for all of us: Never assumes the rules are what you think they are just because they are written down, if someone else can change them. You can only push so far and then the peasants revolt.

And that is the final thing that happened at the summit. The banks “voluntarily” took a 50% haircut. Voluntary in that Merkel, Sarkozy, et al. told them that the alternative was a 100% haircut. “That’s the offer, guys. Take it or leave it.” Cue the theme from The Godfather.

And because the write-off was voluntary, there would be no triggering of credit default swaps clauses. Because if it’s voluntary it’s not a default – capiche?

And that smooth move, dear reader, triggered a rather significant unintended consequence, which resulted in the market “melt-up.”

Let me see if I can walk you through this rather bizarre world of derivative exposure without exposing too much of my own ignorance.

Let’s say you bought credit default swaps on a certain bank’s debt (let’s use JPMorgan, but it could be any bank) because you think that Morgan is exposed to too much credit default swap risk. Just in case.

Now, if (say) Goldman sold you the CDS, they could and would in turn hedge their risk by shorting some quantity of Morgan stock, or perhaps if the risk was sizeable enough, the S&P as a whole. It would depend on what their risk models suggested.

But as of yesterday, the risk evaporated: there would be no CDS event. So why buy CDS? Time to cover. And then the shorts get covered.

Further, the risk to financials was cut by a large, somewhat murky amount. But it was definitely cut, so buy some risk assets. Which puts any long/short hedge fund in a squeeze, especially those with an anti-financial-sector bias.

But because of the nature of the hedge, the whole market moves. It involves rather arcane concepts that traders call delta and gamma. (Remember that the recent rogue traders had been at delta trading desks?) Guys at those desks can calculate that risk in a nanosecond. You and I take a day just to wrap our head around the concepts.

And it just cascades. The high-frequency-trading algo computers notice the movement and jump in, followed quickly by momentum traders, and the market melts up. Because a significant risk was removed. But not without cost.

Let’s go back to where I noted that Italian interest rates are rising even as the ECB is supposedly buying. What gives? It is clearly the lack of private buyers, and a lot of selling.

Because now you can’t hedge your sovereign debt. If you ever need that insurance, they will just change the rules on you, so why take the risk?

Destroying the credit default swap market will make it harder to sell sovereign debt, not easier. Those “shorts” were not the cause of Greek financial problems; the Greeks did it all to themselves. As did the Portuguese, and on and on.

Now admittedly, rising CDS spreads called attention to the problem, much as rising rates did in eras long past. And that did annoy politicians. And clearly, banks that had exposure to that market got the “fix” in to make their problems go away.

(OK, this is just my conjecture; but I have speculated before – with reason – that a major writer of sovereign CDS were German Landesbanks. Think Merkel didn’t have that report? As did Sarkozy, on French exposure? It was a very high-stakes poker game they were playing this week. But one side of the table could rewrite the rules.)

Now, I know I am greatly oversimplifying the CDS situation. Even so, a great deal of the volatility of recent times can be laid at the feet of the CDS market, because it is so opaque.

There is no way to prove or disprove my speculations, because there is no source that can really plumb the true depths of the situation. And that is the problem.

I am not against CDS. We need more of them. But they should all be moved to a very transparent exchange. If I buy an S&P derivative (or gold or oil or orange juice), I know that my counterparty risk is the exchange. I don’t have to hedge counterparty risk.

The exchange tells whoever is on the other side of the trade that they need to put up more money, as the trade warrants. Or tells me if the trade goes against me.

The banks lobbied to keep CDS “over the counter.” The commissions are huge that way. If they are on an exchange the commissions are small. This was a huge failure of Dodd-Frank. And we all pay for it in ways that no one really sees. As the Bastiat quote at the beginning said, there is what you see and what you don’t see.

Equity markets are supposed to help companies raise capital for business purposes, not be casinos. Investors want to and should be able to buy and sell stocks with a long view to the future.

And increasingly there is the feeling that this is not the case. When I talk to institutional investors and managers, it is clear that they are very frustrated.

I am not arguing against hedge funds here. There is a need for short sellers in a true market. But that selling should be transparent. In a regulated exchange, you can see the amount of short interest. Everyone knows the rules.

But without an exchange, things happen for reasons that are not apparent. An event like the Eurozone summit changes an obscure rule with some vague clauses about triggering a credit event – and the market reacts. This time it was a melt-up. Next time it could be a meltdown, as it was in 2008.

CDS markets should be moved to an open regulated exchange. And while we are at it, high-frequency trading should be stemmed. This could be done easily by requiring all bids or offers to last for at least one second, instead of a few microseconds.

You make the offer, you have to honor it for a whole second. What a concept. That would not hurt liquidity, but it would cut into the profits of the exchanges (especially the NYSE) – but I thought these were public markets and not the playground of the privileged few.

If it weren’t so cold here in New York, I might just wander down and join Occupy Wall Street and see if I could enlighten a few minds. If those kids only knew what they really should be protesting.

SOurce: JohnMauldin.com

[winston]

RSR Capital returning money after Asia hedge fund losses
By Nishant Kumar

(Reuters) - Singapore-based hedge fund RSR Capital is returning money to external investors and plans to change the fund's strategy for a possible relaunch next year, said Chief Operating Officer and Founding Partner Christophe Delorme.

RSR Capital's other partners are Remi Colinmaire, former head of index volatility trading in London and Tokyo at Goldman Sachs Group Inc (GS.N), Serge Handjian, former head of equity derivatives in Tokyo at Barclays Capital and Robert Webb, who ran Asian index option trading for Morgan Stanley (MS.N).

"We are still here. We will trade only for ourselves for few months and resume with the fund once ready," Delorme, a former head of Japanese over-the-counter multi-products at Newedge Group, told Reuters in an e-mail on Wednesday.

RSR Capital's volatility hedge fund, Caerus Arbitrage Asia, started trading with $4 million in August last year and managed about $60 million (39 million pounds) in May 2011.

The fund was down 7.72 percent in the first ten months of 2011, including its biggest monthly drop of 5.13 percent in September, according to a letter to investors seen by Reuters.

"We will experiment our new strategy from January to June 2012, and if we like the performance, we will accept money from external investors again," Delorme said.

RSR Capital lengthens the list of hedge funds who have returned external money or closed as investors shy away from allocating fresh capital to the region, given nagging concerns about the global economy and the European debt crisis.

More than 80 hedge funds in Asia have closed down this year, according to Singapore-based industry tracker Eurekahedge.

Asian hedge funds saw net outflows of $2.2 billion in September and October, erasing nearly a third of the inflows in the previous eight months, data from Eurekahedge showed.

http://www.reuters.com/article/2011/12/ ... 1P20111214

[winston]

Ex-Lehman exec's hedge fund up 45 pct, eyes asset boost

HONG KONG, Dec 23 (Reuters) - Juggernaut Asia Fund, set-up by former Lehman Brothers' managing director Yashwant Bajaj, has returned 45 percent since its Aug. 1 launch, by mainly betting on equity capital market deals and shorting companies such as scandal-hit Olympus Corp <7733.T>.

In an interview with Reuters, Bajaj said that while the long/short strategy had contributed the least, the short-term trading and event-driven strategy had produced two-thirds of the returns. About a quarter of the return had come from capital market deals.

The hedge fund gained 32 percent in October alone, with gains in six out of the seven initial public offerings and secondary deals in which it participated. Long position on China H shares also helped as the China Enterprises Index <.HSCE> surged 18 percent.

"In Japan, our short positioning and trading around Olympus was a notable contributor, as were our technology long book names," Bajaj said in a letter to investors for October.

Olympus shares plunged almost 50 percent in October on news the 92-year-old maker of endoscopes and cameras had made hundreds of millions of dollars in controversial payments, to acquire British medical equipment maker Gyrus in 2008.

Bajaj said he was currently running his own money worth about $5 million and would start marketing the fund in the first quarter of next year, to former clients and family offices and was in talks with hedge fund seeders, to raise assets.

He said the fundraising climate for hedge funds was tough but he expected to raise $5 million over the next two months and grow the fund assets to $30 million by August 2012. The fund had the capacity to take in a couple of million dollars, he added.

"Most of the money is my own and my family's money. That personal commitment should give people some comfort," he said.

Bajaj, who has 20 years of sell-side experience in Japanese and Asian equities, founded and ran Hachiman Capital Management's Japan-focused hedge fund between 2005 and 2010.

The fund, which produced a 102 percent return including 4 percent in 2008, managed peak assets of $200 million in September 2008.

He shut down the fund with $40 million under management in December last year after the two partners decided to separate and launched Juggernaut Asia Fund in August 2011.

"I have relaunched the same fund structure but have broadened it out to be an Asia fund," Bajaj said.

The fund targets a 20 percent return with a concentrated portfolio of 25 to 35 positions.

Source: Reuters

[winston]

If the "expert" cannot get it right, do u really stand a chance ?

FX Concepts, one of the largest currency hedge funds with $4.3 billion in assets, was down 17.8 percent through October.

Source: Reuters

[winston]

Smart Money Turns Dumb With Wrong Bets, Bad Timing By Frank Byrt

Hedge funds saw inflows of $3.6 billion in November, a turnaround from prior months.

BOSTON (TheStreet) -- Hedge funds, the purported "smart money" of investing, got clobbered in 2011, underperforming the benchmark S&P 500 Index after being whipsawed by virtually all assets classes most of the year.

The funds, which manage money on behalf of wealthy investors and institutions such as pension funds, rose 2% through mid-year, besting the benchmark. But most turned conservative during a tumultuous third quarter due to uncertainties over Europe's debt crisis, the downgrade of the U.S.'s credit rating and political turmoil in some of the biggest oil-producing countries.

That resulted in those funds ending the period down an average of 7.8%. Their conservative bent may have contributed to many missing out on the rally in stocks in October that continued for most of the fourth quarter, when the S&P 500 gained 11.8%.

With many hedge funds still to report their December results, hedge fund tracker eVestment/HFN reports that an early, extrapolated estimate puts its HFN Aggregate Index, which tracks the results of more than 4,000 such funds, at a flat performance for December for all types of hedge funds, resulting in a loss of 5% for 2011, while hedge funds that focused strictly on stocks did even worse, losing 7.2%.

In contrast, the S&P 500 closed out the year little changed.

According to eVestment/HFN data, hedge fund industry assets peaked at $2.04 trillion at the end of the second quarter, before tumbling in the third quarter amid market losses, but it ended the year at about $2 trillion. That statistic is influenced by investor fund flows as well as investment performance.

Despite their dismal performance in 2011, the latest TrimTabs/BarclayHedge Survey of Hedge Fund Managers found that by late December, "a growing numbers of fund managers were becoming more bullish and less bearish on U.S. equities."

Bullish sentiment toward the S&P 500, which was 31% in November, increased to 42% in December, the second-highest level this year, while "bearish sentiment dropped to 30%, the lowest reading since July 2011, from 36% in November, the survey showed.

That same firm reported that hedge funds saw an inflow of an estimated $3.6 billion in November, after redemptions of $9 billion in October and $2.6 billion in September.


http://www.thestreet.com/story/11363517 ... iming.html