Hedge Funds 01 (Aug 08 - Nov 15)

[winston]

Investments in Asia hedge funds 'halved'

Investors almost halved the money they put into Asia-focused hedge funds in the second quarter compared to the first three months of the year as a selloff in stocks hurt appetite for risky assets, data showed.

Asia-focused hedge funds received a net US$530 million (HK$4.13 billion) from investors in the April-June quarter, down from US$1 billion in the first quarter, Chicago-based Hedge Fund Research said.

Asian hedge funds grew by approximately US$200 million to US$100.48 billion, up just 0.25 percent from the first quarter, as inflows were mostly offset by a decline of nearly US$320 million due to poor performance.

REUTERS

[winston]

t's D-Day for hedge funds as redemptions roll in
By Svea Herbst-Bayliss and Jeffrey Hodgson

BOSTON/HONG KONG, Sept 30 (Reuters) - Hedge fund managers are facing D-day as investors demand back billions of dollars from ailing and healthy funds alike.

Funds managers around the world said they are sitting on record levels of cash to meet an expected flood of "I want my money back" notices on Sept. 30 -- the end of another month of horrible industry performance and the deadline for most funds offering monthly and quarterly redemptions.

"This is not like flicking a light switch," said Timothy Mungovan, a partner who advises hedge funds at law firm Nixon Peabody LLP. "It is more like a bowling ball careening down an alley where we don't know if it will go down the gutter or be a strike and take out several big funds."

The issue goes beyond well-paid hedge fund managers losing lucrative asset management fees: Global markets could be jolted if hedge funds are forced to dump stocks, bonds and other securities to meet redemptions.

Even industry stars such as Kenneth Griffin of Citadel Investment Group are nursing losses and the average hedge fund is down roughly 10 percent so far this year -- the worst performance in more than a decade.

September was especially brutal, with the average fund losing roughly 5 percent, Hedge Fund Research (HFR) data show. And funds specializing in Asia ex-Japan are hardest hit: They were already down almost a fifth by the end of August, HFR data show.

Some managers said they will have to conduct fire sales to return money to pension funds, endowments and wealthy clients, who put in so much money that industry assets doubled to $1.9 trillion in three years. Others are prepared. Merrill Lynch said in a research note on Sept. 29 that hedge funds have been cutting leverage and held a record cash balance of $184 billion in August.

Some fund managers will likely put up restrictions, including so-called gate provisions, to keep investors from leaving a fund all at once, investors and lawyers warned.

Asian funds are especially vulnerable given steeper losses than their U.S. and European counterparts and the flight to safety by big global investors.

"The European and Japanese investors, in tough times, always take away money from the periphery ... Many will leave the region, many will leave emerging markets," said Jim Walker, managing director of Asianomics, an economics consultancy.

They are not alone in racing for the exits at hundreds of the world's roughly 10,000 loosely regulated funds that long wooed clients with promises of strong returns in all markets. In return, managers routinely keep clients' money for months, if not years, and often require 45 days notice to get it back. That is happening now.

"The perception is that people need cash and that they will ask for their money back even from hedge funds that are doing well," said Laurel FitzPatrick, a partner in charge of the hedge fund practice at law firm Ropes & Gray.

Redemption is the talk of the industry, even overshadowing griping about worldwide bans on short-selling that have paralyzed common trading strategies such as arbitrage.

"I heard a figure, 10 percent, but I'll be honest. That feels a little light considering the action we're seeing," said one Hong Kong based prime broker with a major bank, who requested anonymity to speak more freely.

"It will get magnified in Asia a bit because we've got the country specific, China, Korea, type of funds that have not done well. Talking to some of the Greater China funds, they're resigned to fairly hefty redemptions."

Funds are scrambling to hold on to their investors, with some cutting fees in return for loyalty.

Investors in RAB Capital's flagship Special Situations fund, for example, agreed to tie up their money for three years as part of a restructuring plan that saw management fees cut in half.

Not all investors are jumping ship. Analysts said some major investors like pension funds, which allocate just a small portion of their portfolios to hedge funds in a bid to diversify risk, are less inclined to redeem.

"For our clients, they're not looking to pull money out of the hedge funds at the moment. For them, it really is a long term investment," said Anthony Chan, principal investment consultant with Watson Wyatt Worldwide. "This current time is definitely testing their beliefs."

[winston]

Asia Hedge Funds, Among Worst Performers, Close at Faster Rate
By Netty Ismail

Sept. 30 (Bloomberg) -- Asia hedge-fund closures jumped 19 percent this year, with the industry set to shrink for the first time as clients withdraw more money after funds in the region underperformed rivals in the U.S. and Europe.

``It is likely that we'll see a net reduction in the number of Asian hedge funds through this current year,'' Peter Douglas, principal of Singapore-based hedge fund consulting firm GFIA Pte, said in an interview yesterday. ``Almost without exception, the managers that we talk to in Asia are seeing capital outflows, some of it is minor, some of it major.''

About 70 hedge funds in Asia have shut down as of August, an increase from 59 in the first eight months of last year, according to Eurekahedge. There are 618 Asia-focused managers managing 1,199 hedge funds, compared with 1,196 funds in December. Assets under management fell to $168 billion in August, from $176 billion at the end of 2007, according to the Singapore-based hedge fund research and publishing company.

Asia's hedge-fund managers -- more than half of whom trade only equities -- have underperformed their U.S. and European counterparts whose more diverse strategies allowed them to profit from turmoil in financial markets. Asia's hedge-fund average returns fell 12.6 percent this year, compared with declines of 0.1 percent in North America and 5.8 percent in Europe, Eurekahedge said. Asia gained 18 percent in 2007, outperforming both regions.

More Redemptions

Investors may pull more money out of funds after U.S. lawmakers rejected a $700 billion financial-rescue plan aimed at preventing the world's largest economy from slipping into a recession. The Standard & Poor's 500 Index had its biggest drop since 1987 after the package was voted down.

The legislation would have given Treasury Secretary Henry Paulson broad authority to buy troubled assets from financial companies to help ease a lending crunch triggered by the decline of the housing market.

``There will be more redemptions going forward,'' said Melvyn Teo, a director at the BNP Paribas Hedge Fund Centre at Singapore Management University who researches the industry. ``A lot of the investors in funds in Asia are from the West; with a U.S. recession, liquidity will dry up and they will have to redeem their hedge fund investments, even if those investments are doing okay because they need funds urgently.''

Attrition Rate Rising

Asian hedge funds have done better in preserving capital in the credit crisis than other regional investments such as mutual funds, which have lost 33 percent in the last 12 months, Douglas said. The stock market meltdown helped push Lehman Brothers Holdings Inc. into bankruptcy and Merrill Lynch & Co. into a takeover by Bank of America Corp.

``Up to now, attrition in the Asian industry has been low compared with global norms because it's a young industry,'' said Douglas, who is also Asia's representative to the Alternative Investment Management Association, the $1.9 trillion hedge fund industry's largest trade group. ``That's changed and the attrition rate in Asia has been accelerating towards developed- market standards, and may even overshoot.''

Unigestion Holding SA, which invests $3.5 billion in hedge funds worldwide, hasn't pulled money out of Asia because most of its investments are in managers that trade futures, and those who seek to profit from broad economic trends by trading stocks, bonds, currencies and commodities, said Stefano Pizzo, a Singapore-based managing director at the firm. These strategies have outperformed managers who bet on gains in stock prices, which Unigestion has had little ``exposure'' to, he said.

`Increasing Our Investments'

``Net-net, we're probably increasing our investments,'' Pizzo said in an interview yesterday. ``Redemptions are going to be selective, having a larger impact on the long-bias hedge funds than other strategies.''

Pizzo moved to Singapore last year from Geneva, where Unigestion is based, as the asset manager seeks to boost its investments in hedge funds in the region, beyond just Japan. The firm has increased its investments in Asia-focused hedge funds to 5 percent of its global portfolio in the last two years.

``The industry is going to mature,'' Pizzo said. ``You're going to see the difference between the long-bias strategies and more sophisticated propositions, between those who are really good and those who have been riding the wave and shouldn't be where they are.''

Hedge-fund assets in Asia have increased by more than three times and the number of funds more than doubled since December 2003 as share prices surged, until a year ago.

``Within the global hedge fund industry in the last two to three years, the hot place to be has been in Asia,'' said Douglas, who started GFIA a decade ago. ``It's inevitable that some of that froth comes off a bit.''

[sidney]

No shorting + Tight credit lines to draw upon + capital flight = end of hedge funds?

[winston]

Singapore's Tantallon shuts small-cap hedge fund -sources

SINGAPORE, Oct 6 (Reuters) - Singapore-based Tantallon Capital, which manages around $1 billion in assets, has liquidated an $18 million hedge fund after it suffered losses this year, sources told Reuters on Monday.

"They have liquidated the fund," one source who was briefed on the closure of the Tantallon Smaller Companies Fund told Reuters.

The long/short equity fund was down almost 26 percent year-to-date to July, hit by the volatile market, according to a person with knowledge of its performance. At that point, it was worth about $18 million.

The firm's bigger fund Tantallon Fund, which was managing $877 million at the end of August, is also down 25 percent.

Tantallon was co-founded by Nick Harbinson, who has over 20 years sales and management experience in investment banking in Asia, including at Merrill Lynch where he worked as head of Asian sales and trading, according to the fund's website.

Harbinson co-founded Tantallon in October 2003.

Neither Harbinson nor other company executives were willing to comment on the closure.

Tantallon Capital is based in Singapore and is the advisory company to hedge funds such as the Tantallon Fund, Tantallon BRIC Fund and Tantallon Japan Fund.

Asian hedge funds are having a tough time this year amid the global financial turmoil after five straight years of gains. Many analysts have expected the closure of some hedge funds globally but few have been publicly announced.

The Eurekahedge Asian Hedge Fund Index is down 14.3 percent up to September, and its Japanese index is off 9.2 percent, according to the data provider's latest estimates.

This compares with a 3.2 percent loss for its North American Index.

The benchmark MSCI Asia ex-Japan index <.MIAPJ0000PUS>, which hit the lowest since December 2005 on Monday, is down 43 percent so far this year.

[winston]

Hedge Funds Concede Errors, Profess Optimism After Worst Losses By Saijel Kishan and Katherine Burton

Oct. 14 (Bloomberg) -- Hedge fund managers, after enduring the industry's worst month in a decade, are seeking to explain to investors what went wrong and what they are doing about it.

``We clearly underestimated several things, most importantly the tsunami of redemptions that are being delivered to hedge funds as investors line up to get out of these funds as well as record outflows from equity mutual funds,'' Jeffrey Gendell, who runs Greenwich, Connecticut-based Tontine Associates LLC, wrote in an Oct. 1 letter to clients.

``I am not a nervous person by nature, but should have been under the circumstances,'' wrote Gendell, whose Tontine Partners LP fund plunged 59 percent in September, leaving it down 67 percent for the year, according to investors. Gendell, 49, had expected shares of steel, engineering, airline and chemical companies to appreciate because of falling oil prices. Instead they plummeted.

Hedge funds, which endeavor to make money whether markets rise or fall, lost an average of 4.7 percent in September, the biggest monthly decline since August 1998, according to data compiled by Hedge Fund Research Inc. Funds fell 17 percent this year through Oct. 9, compared with the 38 percent decline by the MSCI World Index of stocks. It was the worst performance by the lightly regulated private pools of capital since the Chicago- based firm began collecting data.

Failure Rate

As much as almost a third of hedge funds may close in the next two years, according to a Sept. 29 report by Zurich-based analysts at Credit Suisse Group AG. There were about 3,100 hedge funds that managed a combined $1.9 trillion as of June 30, according to Hedge Fund Research. This year's investment losses mean many funds won't be able to collect performance fees, usually 20 percent of gains, while management fees, usually 2 percent of assets, will shrink.

Managers have been selling assets, both to raise cash for what they expect to be a surge in year-end redemption requests and to preserve capital as market volatility has risen to record levels. The Standard & Poor's 500 Index yesterday rebounded from its worst week in 75 years with an 11.6 percent advance.

David Slager, manager of the Atticus European Fund, told investors that more than 50 percent of his fund is now in cash or U.S. Treasuries after he lost 43.5 percent so far this year.

``I believe it is prudent to maintain our critical focus on capital preservation and liquidity,'' he wrote in a letter sent Oct. 1.

Slager, 36, who is vice chairman of New York-based Atticus Capital LP, told investors that his holdings are now skewed toward stocks that will fall, while in July, his bets were mostly bullish because he had anticipated only a mild economic slowdown in the U.S.

Glad It's Done

``While in hindsight I wish I had made the decision to sell sooner, I am glad that it is now done,'' he wrote. He said he would start buying again only after a ``climactic selloff'' or when he deems that credit markets have stabilized.

Slager declined to comment.

David Einhorn, who runs New York-based Greenlight Capital LLC, said external forces were partly to blame for the 17 percent drop in his three funds in September.

While he and his team made mistakes, ``we believe that our portfolio management has been reasonable,'' Einhorn wrote in an Oct. 1 letter to clients.

Einhorn, 39, pointed to the U.S. Securities and Exchange Commission's Sept. 18 ban on short sales of financial stocks for some of the losses in the month. The ban, which expired Oct. 9, eventually included about 15 percent of the companies in the Standard & Poor's 500 Index.

Caught Short

In a short sale, investors sell borrowed stock in hopes of repurchasing it later at a lower price and pocketing the difference. A long position is one that an investor holds in expectation it will rise.

After the ban went into place, the shorts recovered much more than the longs, he wrote, ``especially the financial shorts abundant in our portfolio.''

Einhorn, who earlier this year was vocal in this view that shares of now-bankrupt Lehman Brothers Holdings Inc. would tumble, said he planned to hold onto the short positions in financial companies ``for a good deal of time (providing there aren't additional extraordinary legal changes) until they begin to trade in a normal market environment again.''

In the third quarter, Einhorn's three funds lost about 15 percent, one percentage point of which came from stocks he had shorted. Nine companies Einhorn held long, including French chemical-maker Arkema SA, French bank Natixis SA and Houston- based oil and gas producer Helix Energy Solutions Group Inc., each contributed more than one percentage point to the quarterly drop.

Playing Defense

Einhorn told investors his funds are more conservatively invested than ever. While almost three-quarters of assets, including leverage, are long, he has offset those holdings with short sales that bring the net to 9 percent. Einhorn declined to comment.

Gendell, who also runs a stock fund that buys and sells banks an other financial-services shares, said he's expanding investments in regional banks, ``which we think will have a remarkable period of earnings growth over the next two to three years.'' His Tontine Financial Partners LP fund was up in September, he told investors in his letter, without providing details.

Tontine is allowing investors to add to their investments, without adding to the length of time their money must remain with the funds, ``for those who seek to take advantage of this decline.'' Gendell declined to comment.

Greenlight is also opening its funds to a limited amount of new investments on Nov. 1 ``in order to take advantage of the investment opportunities we believe will be available in the coming year.''

[winston]

About 20% of Asia hedge funds profitable this yr: UBS

SINGAPORE - About 20 per cent of Asian hedge funds have managed to make a profit so far this year with the industry's performance ranging from minus 40 per cent to plus 20 per cent, the head of UBS Asian prime brokerage said on Thursday.

David Gray, UBS's head of prime services for Asia Pacific, told reporters that most hedge funds faced redemptions, including those that had performed well, as investors sought to raise their cash holdings.

The redemptions had been orderly, however, as most funds stayed liquid in anticipation of investors asking to withdraw their money.

'For sometime, many funds have been in capital preservation rather than any profit-driven mode,' Mr Gray said. 'We've seen that globally and regionally that clients de-risk quite substantially and their leverage rates are down.'

'Hedge funds here (in Asia) have used less leverage and have invested less in illiquids,' he added.

UBS's Asian prime brokerage, which employs 68 people across the region, says it is the third largest prime brokerage in Asia after Goldman Sachs and Morgan Stanley. -- REUTERS

[millionairemind]

Hedge funds being squeezed left right and center.. that is Y you see all this volatility and selling

Gradient close to collapse as hedge funds feel heat
One of London’s best known hedge funds, Gradient Capital Partners, is on the brink of collapse after dropping nearly 42pc in value last month.

By Louise Armitstead
Last Updated: 10:00PM BST 16 Oct 2008

The City-based European equity fund, which had $2.5bn under management at its peak, is now down over 63pc so far this year, leaving investors fearful it will be forced to close.

The “blow-up” is a mighty fall for the founders, Ivor Farman and Scott Pagel, who famously paid themselves £100m each over two years after producing stellar returns to their investors.

The pay deals placed the pair in the ranks of the UK’s 800 wealthiest people and among the 30 wealthiest hedge fund managers in the country.

Gradient made a net investment return for its investors of 56pc in 2005 and 47pc in 2006. In 2007 the founders paid themselves £109m, and £94m the year before that, according to accounts filed at Companies House.

Yesterday, sources close to the fund insisted that Mr Farman and Mr Pagel are determined not to close Gradient but are instead working on ways to resuscitate the business.

Experts have predicted that as many as one in four hedge funds could be forced to close in the next few months. The chaos in the markets has hit funds hard in recent months as the movements have been exaggerated by the high levels of leverage in the sector. The problems have been compounded by the ongoing difficulties in the prime brokerage departments of investment banks, leading to investors taking fright and scrambling to withdraw their money.

Observers have pointed to Gradient’s unusually low-cost structure – it employs just four people – as being key to its survival.

One said: “The fund has been badly hit by poor performance and big redemptions. But it has been sensible to keep its cost base down so it will probably tough it out and re-emerge at the other end.”

Mr Farman, 44, previously worked at Schroder Securities, BNP Capital Markets and Goldman Sachs before he joined Adelphi Capital Management, a London-based hedge fund. He set up Gradient in 2001 with Mr Pagel, a 35-year-old American who worked as European stock analyst at Goldman Sachs before moving to Adelphi.

The pair nearly closed the fund after six months due to lack of investor interest but soon caught the wave of the hedge fund boom.

[millionairemind]

Hedge fund squeeze wreaks havoc in equity markets
Prime brokers have this week hiked up the cost of trading for hedge funds.
By Louise Armitstead
Last Updated: 8:36PM BST 16 Oct 2008

The move has pushed some funds closer to the brink and triggered yet more havoc in global stock markets.

The bankers say that the wild swings in stock prices across the globe has radically increased their risk, forcing them to demand as much as five times more collateral from the hedge funds.

The extra demand has left funds scrambling to find the extra cash or collateral, forcing many to sell other positions to fund their more important ones.

One hedge fund said: "One of our positions is a blue chip firm for which we have normally put up just 5pc cash [while the bank funds the remaining position]. Yesterday we got a call saying we had to put up 50pc margin. We're already tight on the line and had to quickly sell stock to fund it. And this was just one position."

A prime broker said: "The volatility in the market over the past few days has been extraordinary. Huge stocks have been swinging by 40pc a day – Morgan Stanley went down 85pc in one day. We can't handle this sort of risk without passing it on, even though we know it's causing more volatility."

Another prime broker said: "We've had to hike the margins in times of stress before so this shouldn't have come as a surprise. The clever ones are already in cash so it hasn't affected them. The problem has been caused by those holding illiquid assets that they can't sell. This means their having to sell their better positions to get the cash together."

The expense had added to the mounting squeeze being felt across the high-rolling hedge fund sector. Over the past month many hundreds of hedge funds have been caught up in the collapse of Lehman Brothers, one of the biggest prime brokers. The freezing of the assets and failure of trades at Lehman has forced many funds to cover their exposures elsewhere.

A group of the largest US hedge funds has called on the Bank of England to intervene to free an estimated $65bn (£38bn) of Lehman's assets that are frozen in London.

The funds, through the Managed Funds Association, said the scale of the problem was so great that it could undermine bank rescue plans as tens of billions of dollars would be kept out of the market and other funds would fail.

The warnings come as hedge funds have been quietly shifting billions of dollars of assets out of London to the US, claiming that the US legal system provides greater protection.

[winston]

Hedge Funds needs 45 days for redemption.

Nov 15 is the last day for redemption as of Dec 31, 2008.

If there is alot of redemptions, markets may be choppy during the first week of November. Having said that, a lot of hedge funds are sitting on a lot of cash anticipating those redemptions.