Hedge Funds 01 (Aug 08 - Nov 15)

[millionairemind]

Published October 17, 2008

Less leverage shielding Asian hedge funds from distress: UBS
They could see redemptions of 10% to 40%, it says

ASIAN hedge funds are relatively shielded from the distress that their counterparts in developed markets are weathering, thanks to their use of 'far less' leverage, said UBS head of prime services (Asia Pacific) David Gray.

Mr Gray: 'Our clients have been far more constrained in their use of illiquids'
'Our clients have been extremely sensible in the way they use gearing . . . and far more constrained in their use of illiquids.'

Still, Asian hedge funds could see redemptions of between 10 and 40 per cent. A clearer picture of the redemption rate is expected to emerge in early November.

Funds' cash levels vary between 20 per cent and more than 50 per cent, 'far higher than we have seen previously'. A year ago, cash levels were between 5 per cent and 10 per cent.

UBS yesterday hosted its third pan-Asian hedge fund conference. The bank's prime brokerage is the third largest in Asia after Goldman Sachs and Morgan Stanley, with a market share estimated at about 15-17 per cent. Prime brokerage continues to generate strong results for the group.

Speaking to reporters, Mr Gray said that the dispersion of returns among hedge funds has been enormous, with those invested in China doing relatively poorly and global macro and volatility players faring very well. He expects that some 20 per cent of the firm's clients have made money this year.

UBS has seen asset inflows to its prime brokerage of 'tens of billions of dollars globally and regionally in the billions', said Mr Gray. Since Lehman's bankruptcy, hedge funds have scrambled to widen their prime brokerage arrangements.

Lehman's collapse sent shock waves through the hedge-fund world, when those that used its prime brokerage found the assets they had put up as collateral for facilities have been frozen.

This is because in such contracts, brokers such as Lehman could use the assets for their businesses, including lending them out, in a process called 'rehypothecation'.

This would reclassify the assets as unsecured, raising the prospect of big losses in a bankruptcy. It is estimated that hedge funds have US$70 billion in Lehman prime brokerage accounts, of which US$22 billion were rehypothecated non-cash assets.

Mr Gray said that the firm has taken pains to explain to clients the segregation of client assets from house assets. 'We have one of the most rebust platforms. . . In the case of bankruptcy or insolvency, the liquidator can identify client assets very quickly.'

He adds: 'Every service provider is looking at the ways to hold assets, and how the model works in terms of revenues. Does it become non-commercial if everything is in custody; do we charge fees; or do we go for a hybrid of the two?'

Meanwhile, two hedge fund managers at the conference illustrate the disparity in returns and strategies. Komodo Capital, a macro directional fund, has seen year-to-date returns of 8 per cent. The fund, with US$80 million in assets, has not seen redemptions.

'Our investors are nervous,' said Komodo chief investment officer Angus Cameron. 'Our objective is to compound the fund's value in a sustainable way over a number of years. . . We're not going to have a 55 per cent return like a China fund, but over 10 years, we hope to compound at a rate of 15 per cent a year.'

The economic slump, he adds, could be 'fairly long drawn', lasting two to three years. 'The probability of a V-shaped recovery is quite low.'

Novatera Capital, a long/short small cap Asia ex-Japan fund, aims to find the 'hidden jewels', or stocks that offer compelling value. In the current year-to-date, the fund has suffered a 36 per cent loss, said managing director Robert Lewis. That is after strong returns of 34-36 per cent a year in the previous two years.

'We're seeing a flight to liquidity and safety. The perception is that if you are going to be in equities, be in the biggest and most liquid equities. Our strategy is to find creditworthy companies that are cash-generative.'

He adds: 'These are quite difficult times with high volatility. None of that favours small-cap investors. . . But the dynamism of Asia hasn't waned at all. No one is giving up on building businesses.'

[millionairemind]

Hedge fund manager slams ‘idiot’ bankers
By James Mackintosh in London

Published: October 17 2008 21:13 | Last updated: October 17 2008 21:13

Oct-16A hedge fund manager who made what is thought to be one of the biggest percentage profits of all time bowed out of the business on Friday with a fierce attack on the “idiots” running big banks who were willing to take the other side of his bets.

Andrew Lahde, founder of California’s Lahde Capital, used his farewell letter to investors to round on the US “aristocracy” able to pay for their children to gain a top-class education.
Mr Lahde, who has made tens of millions of dollars from his highly successful bets against the financial and property sectors during the past two years, also called for the legalisation of cannabis and said he was now dropping out to spend time with his money.

Saying he was “in this game for the money”, Mr Lahde went on to mock those who traded with him.

“The low-hanging fruit, ie idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking.”

These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government.

“All of this behaviour supporting the aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.”

Mr Lahde is one of the few hedge fund managers to have correctly predicted the subprime crisis. One of his funds made a return of 870 per cent last year. Money is now being returned to investors as the remaining business is shut down.

On Friday, Mr Lahde said he would no longer run other people’s money, preferring to concentrate on managing his own, and urged wealthy hedge fund managers and corporate chieftains to “throw the Blackberry away and enjoy life”.

“I will let others try to amass nine, 10 or 11 figure net worths,” he said.

“Meanwhile, their lives suck . . . What is the point? They will all be forgotten in 50 years anyway. Steve Ballmer [Microsoft chief executive], Steven Cohen [founder of hedge fund SAC Capital] and Larry Ellison [chief executive of Oracle] will all be forgotten.”

Mr Lahde did not immediately return calls.
Copyright The Financial Times Limited 2008

[millionairemind]

Hedge Fund Withdrawals Stress Market; Citadel Reassures Clients

By Saijel Kishan and Katherine Burton

Oct. 25 (Bloomberg) -- Hedge funds are aggravating the worst market selloff in 50 years as they dump assets to meet investor redemptions and keep lenders at bay.

U.S. hedge-fund managers may lose 15 percent of assets to withdrawals by year-end while their European rivals shed as much as 25 percent, Huw van Steenis, a Morgan Stanley analyst in London, wrote yesterday in a report to clients. Combined with investment losses, industry assets may shrink to $1.3 trillion, a 32 percent drop from the peak in June.

With the average hedge fund down 18 percent this year, as measured by the HFRX Global Index, managers are selling assets to repay departing investors and meet demands from lenders for more collateral. Others including Paulson & Co. and Winton Capital Management LLC are hoarding cash to soothe nervous clients and wait for signs the worst is over. When stocks rally, hedge funds take advantage to unload what they can.

``I have never seen a market as full of panic as I've seen in the last seven or eight weeks,'' Kenneth Griffin, founder of Citadel Investment Group LLC, a Chicago-based hedge-fund firm, said yesterday.

Citadel, addressing investor concerns that its funds may be forced to liquidate, said yesterday it has $8 billion in untapped bank credit, 30 percent of its assets in cash and ``modest'' client redemptions.

The firm had no material losses from trading partners as its main Wellington and Kensington funds fell about 35 percent this year through Oct. 17, Chief Operating Officer Gerald Beeson said on a conference call with bondholders. Year-end redemptions will be a ``few percent'' of assets.

Worst Year
Griffin, 40, who started Citadel in 1990, has posted the biggest losses of his career in 2008 after increasing wagers on loans and bonds before the markets plunged.

Most of the funds' declines occurred in the four weeks after Lehman Brothers Holdings Inc. went bankrupt, Beeson, 36, said. Kensington and Wellington lost money holding convertible bonds, high-yield bonds and bank loans, and investment-grade bonds, which were hedged with credit default swaps that protect the buyer in the event of a default.

Citadel was betting that the gap between the default swaps and the bonds would narrow. Instead, they widened as lenders left the market and investors bet that more companies would default.

``Even the healthy hedge funds are being forced to sell,'' Mohamed El-Erian, co-chief executive officer of Pacific Investment Management Co. of Newport Beach, California, said in an interview yesterday with cable-television network CNBC.

Shake-Out

John Paulson, whose New York-based Paulson Advantage Plus Fund climbed about 25 percent this year through September, was about 70 percent in cash at the end of last month, according to investors. David Harding, founder of London-based Winton Capital, said he is holding about 95 percent of assets in U.S. Treasury bills and cash or cash equivalents.

``What we're seeing now is an acceleration of the shake- out that should have happened a long time ago,'' said Peter Rup, chief investment officer at New York-based Orion Capital Management LLC, which invests in hedge funds.

The HFRX Global Index fell 7.76 percent this month through Oct. 22, according to Hedge Fund Research Inc. in Chicago. Hedge funds lost 5.4 percent last month, the most since the implosion of hedge fund Long-Term Capital Management LP a decade ago.

Passport Management LLC's Global Strategy fund fell 27 percent this month through Oct. 15, and 34 percent for the year, as investments in commodity stocks slumped, according to an investor letter. The $4.5 billion hedge-fund firm is run by John Burbank III in San Francisco.

Calming Investors

Platinum Asset Management LP, a Rye Brook, New York-based firm, lost as much as 29 percent this month through Oct. 15, bringing its year-to-date decline to 38 percent, according to investors.

Investors withdrew a record $43 billion from hedge funds last month, according to TrimTabs Investment Research in Sausalito, California.

``There's a bigger push by hedge funds to mitigate risk,'' said Matt Simon, analyst at New York-based Tabb Group, a financial-services consulting company. ``Funds are trying to keep jittery investors calm.''

[millionairemind]

Unwinding still in progress.. hang on to your handrails..

Hedge funds face collateral pressure
By Chris Hughes and Kate Burgess

Published: October 24 2008 20:42 | Last updated: October 25 2008 01:09

The survival of a raft of hedge funds is being threatened by fresh pressure to stump up more collateral for trades made in a range of illiquid assets.

So-called prime brokers, who provide a range of services to hedge funds, are imposing tougher conditions on their clients and charging more for financing following the collapse of Lehman Brothers in mid-September, raising fears that more funds face collapse.

The more conservative terms mean that a hedge fund would have to put up additional collateral against financing if markets fall further, or sell down its holdings.

The problem for many hedge funds is that they have already sold down their more liquid investments and are grappling with a wave of redemptions from their own investors. Further collateral requests or higher financing costs may push many of them over the edge.

One fund manager said: “Funding is being withdrawn by prime brokers and funding rates have risen sharply in the past week or two. A tough environment is just getting tougher.”

Industry managers are concerned that renewed market turmoil, leading to weaker performance and client redemptions, could lead to a vicious circle of selling by hedge funds.

One prime broker said the situation was “on a knife edge”. “Everyone needs to keep their nerve,” he said. He added that prime brokers were particularly targeting funds that specialised in emerging markets.

Citadel Investment Group held a conference call on Friday to address concerns that its hedge funds would be forced into liquidation.

The firm said that redemptions were “modest’’ and it had $8bn (£5bn) in available credit to support trading. Citadel added that it was “significantly diversified”, with 30 per cent of its assets in cash and US treasuries.

Hedge funds have been selling assets over the past year to reduce their market exposure, but many have first offloaded the most ­liquid, or easy to sell, holdings. This has left them with a higher concentration of illiquid holdings.

Prime broking sources said that where higher requirements were being imposed, this reflected existing policies for times of increased market volatility, or when funds’ assets became less liquid.

“The policies are consistent, the volatility of the market and liquidity of certain portfolios is not,” said Roy Martins, head of international prime services at Credit Suisse.

One prime broker said margin requirements had risen across the board, although some convertible bond funds had been asked to put up more margin than others, and given less time to do it in.
Copyright The Financial Times Limited 2008

[millionairemind]

Well written article on the impact of hedge funds deleveraging on every type of markets world wide (bonds, equity, commodities etc..)

http://www.economist.com/finance/displa ... d=12465372

[millionairemind]

Spooked hedge funds prompt low trading volume
By Anuj Gangahar in New York

Published: October 21 2008 17:51 | Last updated: October 21 2008 17:51

Some of the steepest sell-offs and gains witnessed in an especially volatile few weeks for Wall Street could have been exacerbated by relatively low trading volumes as frightened hedge funds sat on the sidelines.

This decoupling of volume and volatility in equity markets is just another example of the reluctance of traders to speculate against a backdrop of uncertainty over the global banking system and economy, say analysts.

On October 15, for example, when the S&P 500, Wall Street’s benchmark equity index, dropped 9.9 per cent, its largest one-day drop in more than 60 years, volume was only 11.5bn shares. This was the third lowest volume day that month, with only October 1 and 2, when the ban on short-selling financials was still in effect, having lower trading levels.

Indeed volume was only 58 per cent of the record reported on October 10 when the S&P 500 fell just 1.2 per cent.

This suggests that the perceived linear relationship between volume and volatility is being challenged as late day sell-offs and gains have been fuelled by far fewer participants because high volatility has caused many usually active traders to stay their hands.

The absence of some of the largest hedge funds from trading is thought to be behind the low volume seen of late. Hedge funds such as SAC Capital, Paulson & Co and Millennium Partners have been shifting into cash.

Todd Steinberg, head of equity and commodity derivatives at BNP Paribas, Americas, says: “Hedge funds are continuing to sit on the sidelines. While we have seen some return of institutional investors, many of the most active hedge fund traders are still sitting on the large cash balances they built up as part of the deleveraging process that has been occurring in recent months.”

SAC, along with other active traders such as Citadel, was thought to be responsible for a sizeable chunk of daily volume on many of the world’s exchanges before its more recent shift to cash. That means that the record volatility of October has not resulted in meaningfully higher volumes, according to Rich Repetto, analyst at Sandler O’Neill.

Equity trading volumes have historically been correlated with changes to the Chicago Board Option Exchange’s Vix index, a measure of implied volatility, known as Wall Street’s fear gauge.

But normally active traders have been running shy of an environment in which the Vix index hit a high of more than 81 last week. The Vix has fallen back this week on tentative signs of a recovery.

But traders, many of whom have been burned badly by the turmoil of the past 18 months, are reluctant to engage in the bargain-hunting buying spree some have predicted. Evidence of this reticence can be found in the hedge fund sector in which managers have placed $600bn in cash, says Citigroup.

Despite the recent turmoil, some nimble traders will have been able to make money. But for the exchanges and electronic brokers – which are about to report earnings figures – the thin-volume volatility can only be bad news.
Copyright The Financial Times Limited 2008

[winston]

Hong Kong's SFC Chides Hedge Funds for Inaccurate Information
By Bei Hu

Oct. 28 (Bloomberg) -- Some hedge fund managers provided inaccurate information to investors in newsletters and monthly fact sheets, Hong Kong's Securities and Futures Commission said.

In one instance, the hedge fund manager excluded the fund's largest stock holding from its top five investments because of ``oversight,'' the regulator said in a statement issued late yesterday to all licensed hedge fund companies in the city. In other cases, the managers misstated the funds' debt ratios and net asset values ``to a limited extent.''

The findings were results of a SFC inspection of eight small locally established hedge fund managers overseeing $5 million to $800 million and employing three to 30 people.

Regulators worldwide have been increasing oversight over the $1.7 trillion hedge fund industry amid a crisis that has laden the world's largest banks and securities firms with more than $670 billion of losses and led to the failure of Lehman Brothers Holdings Inc.

Hedge funds are bracing for the industry's worst year in almost 20 and trying to stem investor withdrawals.

SFC warned hedge fund managers' so-called side letters with certain investors may result in unfair treatment of others. Side letters are agreements in addition to the standard fund offering document in which preferential redemption rights and additional information disclosure are promised to certain investors.

The regulator urged hedge fund managers to disclose ``material terms to all existing and potential investors'' and highlight to all that side letters have been agreed on with certain investors with significant shareholdings.

The regulator also demanded fund managers improve risk management. Some of the inspected fund managers still use their chief investment officer as risk manager, ``depriving the business of the important check and balance of an independent risk management officer,'' the statement said.

One fund manager hasn't updated the parameters used for its proprietary trading model for many years, the SFC said.

Hedge funds are mostly private pools of capital whose managers participate substantially in profits from their bets on whether the prices of assets will rise or fall.

[iam802]

Nothing can be trusted. Reports, newsletter, forecasts etc etc.

[millionairemind]

Nothing can be trusted. Reports, newsletter, forecasts etc etc.

Not really nothing lah..

Price/Volume action tells you the whole story..

[millionairemind]

When you short, make sure you know the outstanding float.. short squeeze can be bad for health..

Funds lose £24bn as VW shares take off
Hedge funds have lost as much as €30bn (£24bn) short selling carmaker Volkswagen after the shares soared on the revelation that rival Porsche had secured 74pc of the equity and planned to seize control of its rival.

Louise Armitstead and Richard Fletcher
Last Updated: 11:30PM GMT 28 Oct 2008

The €30bn hit is thought to be one of the heaviest losses on a single company's shares ever taken by hedge funds, which have already been hit hard by the turmoil in the markets.

"This is without question the biggest single loss on a single stock in the history of hedge funds. It's a bloodbath," said Laurie Pinto, a broker at North Square Capital, a division of Winterflood.

Porsche's disclosure on Sunday that it held 74pc of the car maker – rather than the previously assumed 42.6pc – prompted a huge scramble to cover short positions in Volkswagen, which had been the most shorted stock in Germany's benchmark DAX index.

With less than 6pc of the shares available to buy, VW soared as high as €1,005 in early trading yesterday, having already tripled in value on Monday. The shares, which closed at €210 on Friday, ended the day at €945.

One hedge fund said: "There have been some dark moments over the past few months but none blacker than this. We couldn't have dreamt a worse scenario."
http://www.telegraph.co.uk/finance/news ... e-off.html