Hedge Funds 01 (Aug 08 - Nov 15)

[kennynah]

The equities mkt remains one of the very few avenues for anyone to become very rich. I hv no doubt that hedge funds n funds houses in general will continue to prosper when the fear in this mkt subsides. Money will return, 100% guaranteed!!!

[winston]

Hedge funds shrink by US$64b: Eurekahedge

The global hedge-fund industry lost US$64 billion (HK$499 billion) of assets in November, with an index tracking its performance declining for a sixth month as economies in Asia and Europe joined the US in recession, Eurekahedge said.

Market declines contributed to US$18 billion in net losses, while investor redemptions made up US$46 billion, Singapore-based Eurekahedge said, based on preliminary figures taken from 41 percent of the funds it surveys.

It said hedge-fund assets shrank by US$110 billion to US$1.65 trillion in October.

The slump takes declines to 13 percent this year as hedge funds accelerate job cuts and brace for the biggest annual losses and investor withdrawals since at least 2000, according to Eurekahedge data.

BLOOMBERG

[millionairemind]

Citadel Suspends Withdrawals in Two Hedge Funds After 50% Drop
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By Saijel Kishan and Katherine Burton

Dec. 12 (Bloomberg) -- Citadel Investment Group LLC, the Chicago-based hedge-fund firm run by Kenneth Griffin, halted year- end withdrawals from its two biggest funds after investors sought to take out $1.2 billion, according to a letter sent to clients.

The Kensington and Wellington funds, which together manage about $10 billion, have lost 49.5 percent of their value this year through Dec. 5. Withdrawals may resume as early as March 31, said the letter, signed by Griffin and sent to investors today.

“We have not made this decision lightly,” Griffin wrote. “We recognize how a suspension impacts our investors, especially those with current financial obligations of their own to meet.”

Citadel joins hedge funds including Fortress Investment Group LLC and Tudor Investment Corp. in limiting withdrawals as hedge funds head for their biggest annual losses since at least 1990. Hedge funds have declined 18 percent, on average, this year through Nov. 30, according to Chicago-based Hedge Fund Research Inc.

As of October, 18 percent of hedge-fund assets, or about $300 billion, managed by 5 percent of hedge funds, were subject to some sort of restriction on withdrawals, according to Peter Douglas, principal of Singapore-based hedge-fund consulting firm GFIA Pte.
Citadel normally allows clients to withdraw up to 1/16th of their assets quarterly. If total withdrawals exceed 3 percent of the fund, investors must pay a fee back into the fund ranging from 5 percent to 9 percent. Redemptions have never before surpassed the limit.

Citadel will also absorb “a substantial portion” of the funds’ expenses this year, the letter said. Citadel clients usually pay these charges, which have traditionally amounted to about 3 percent to 4 percent of assets.

The fund is holding between 25 percent and 30 percent of its assets in cash.

Katie Spring, a spokeswoman for Chicago-based Citadel, declined to comment.

Before 2008, Citadel had posted just one losing year since Griffin started the firm in 1990, dropping 4 percent in 1994. Three Citadel funds, whose returns are tied to the firm’s market- making business, have climbed about 40 percent this year. Those funds manage about $3 billion.

[kennynah]

actually, i am always very puzzled as to why any investor cannot freely choose to redeem their investments without any penalties? it is not as if such investments are Fixed Deposits...and even in FD, the most one loses is the Interests foregone...and never on the principal amount deposited.

???? blur....

[millionairemind]

This piece of news will no doubt accelerate the redemptions of hedge funds. Although I am upside bias for the US markets, I believe once the redemption window is open again, a lot of kan cheong RICH spiders will be withdrawing their money, possibly causing another round of selling.

Madoff Told Sons of $50 Billion Fraud Before Telling FBI Agents
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By David Voreacos and David Glovin

Dec. 13 (Bloomberg) -- Bernard Madoff, before two FBI agents showed up at his Manhattan apartment this week, confessed to two sons that his investment advisory business was “a giant Ponzi scheme” that cost clients $50 billion.

“We’re here to find out if there’s an innocent explanation,” Agent Theodore Cacioppi told Madoff, who founded Bernard L. Madoff Investment Securities LLC and was once chairman of the Nasdaq Stock Market.

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

[millionairemind]

Fleeing Investors Put a Strain on Funds
By GERALDINE FABRIKANT
Published: December 14, 2008

The game ended for Bernard L. Madoff when some of his investors finally asked for their money back. He did not have it, and his suspected Ponzi scheme collapsed.

But many other money managers — ones who, unlike Mr. Madoff, have not been accused of wrongdoing — confront a similar problem. Their investors are racing for the exits too, and the managers are struggling to cope with the rush.

A growing number of hedge funds are trying to slow the exodus, because that could force them to dump investments into already shaky markets. They are temporarily preventing clients from withdrawing a lot of money at once, a practice known as gating.

But investors are not merely fleeing funds that have done poorly. Many are exiting funds that have done well in order to cover losses on their other investments.

“We have become the A.T.M. machines for people that need cash,” said George Weiss, who heads a $3 billion hedge fund. Mr. Weiss, who has been a hedge fund manager for 20 years, said that his fund was down about 7.5 percent so far this year — far less than the broad stock market. Even so, his investors have withdrawn about 35 percent of their money.

The Citadel Investment Group said in a letter sent on Friday that it was halting redemptions at its two largest hedge funds through March 31.

Mr. Madoff, whose suspected $50 billion fraud sent shock waves through the financial world last week, apparently did not put up gates. If he had, the scheme portrayed by the authorities might have gone on for even longer.

But money is also pouring out of other funds that have not imposed gates.

“The managers that had the most investor-friendly provisions, regardless of performance, but the more flexible you were, got the most redemptions,” said Katie Hall, whose firm, Hall Capital Management, acts as an investment adviser for about $20 billion in assets.

Wealthy individuals, endowments and funds that invest in hedge funds have struggled to raise cash and stay liquid this year given the tumult in the markets. Many hedge funds require clients to give notice of 90 days or more before withdrawing money. And some funds permit investors to take out only a percentage of their holdings at one time.

Gates can create friction between money managers and their investors. “The idea is, in theory, that gates protect ongoing investors from too much liquidation,” said Robert Rosenkranz, the founder of Acorn Partners, a fund of hedge funds that is more than two decades old. But gates also enable managers to collect lucrative fees for longer periods of time.

Investors, particularly funds of funds, have been scrambling to exit whatever hedge funds they can.

There are several explanations, Ms. Hall said. The withdrawals have been gathering steam for months as the markets have collapsed. But then many funds whose returns supposedly are not correlated to the stock market, or so-called market neutral funds, ended up sinking, too.

“So investors wanted to reduce their exposure,” she said.

In other cases, investors sold to realign their portfolios. When a fund does well, investors often sell a portion of their investment to avoid having too much of their portfolios exposed to a single fund.

But funds and funds of funds that use high levels of leverage, or borrowed money, have come under the greatest pressure. Leverage can fuel returns on the way up, but it can be devastating on the way down.

As these funds started to plummet, the borrowers “blew through margin requirements,” as one money manager put it. In order to pay off the debt, investors sold funds that were the most liquid.

“The deleveraging has been going on for more than a year,” said Charles J. Gradante, the co-founder of Hennessee Group, which advises investors about hedge funds. “Many investors were using leverage, and as the market started to drop in price, the leverage they were using went against them. They had to generate cash. Much of the cash came out of their stock portfolios, but some of it came from liquid hedge funds,” he said.

Private equity funds were another problem, particularly among endowments. As buyout funds called on investors to provide cash for new investments, at a time when returns from older investments were minimal, endowments and foundations too sought to raise cash. In some cases that came from hedge funds.

[winston]

Long Article. The link is below..

Madoff May Give Us a Sell-Off by John Mauldin

Much of the selling pressure that has come in the stock and credit markets has been rightly attributed to forced selling by hedge funds in an effort to meet redemptions for January 1. I wrote a few weeks ago that this could be the kicker for a powerful rally in the first quarter. Most of those redemptions will show up in the last two weeks of January, with the rest by the middle of February. Institutions, which are the bulk of redemptions, are going to have to put that money to work. Do you put it into bonds at 2%? That is not going to get you to the target returns that you need for the future if you are a pension or insurance company.

Much of that money is going to go back into either the stock market or into other hedge funds. This could be the fuel for a real rally. However, that was before Madoff. I have no hard evidence, but I know a lot of funds of funds had exposure to Madoff. Those funds are likely to see further redemption requests and face the need to further liquidate underlying hedge fund positions. Also, a lot of people who did have investments with Madoff are now going to need to get their liquidity somewhere else.

This all has the potential to put more selling pressure into the market. Enough to overcome the tsunami of money that is coming back into the market? I don't know, but I think it could put a damper on the rally I was predicting. The actual redemptions for most funds of funds will be next April 1, as only a few offer monthly liquidity, but the selling will have to be in the months before. This will need to be closely watched in March.

http://www.investorsinsight.com/blogs/t ... -that.aspx

[winston]

Record Number of Hedge Funds Liquidated

Hedge fund liquidations accelerated to a new record in the third quarter and outpaced the launches of new funds, according to a report released Thursday.

Hedge Fund Research, a source of hedge fund information and performance data, said that 344 funds closed during the third quarter, topping the previous record of 267 set in the fourth quarter of 2006. Liquidation totals for the year-to-date were up 70% compared with the same three-quarter period a year ago, when 409 funds were closed out.

On an annualized basis, Hedge Fund Research said the current year is on pace for more than 920 fund liquidations, easily exceeding the 2005 record of 848 and far surpassing last year's liquidation total of 563.

The firm also said that 117 new funds launched in the third quarter, pushing the total to 603 for the year. Hedge Fund Research said that number represents 90 fewer funds than were liquidated during the same nine-month period. The third quarter is the first period in which the industry experienced more liquidations than launches since the firm started tracking hedge fund data in 1996.

"The hedge fund industry is currently experiencing a structural consolidation that mirrors broader trends across the entire financial industry," said Kenneth Heinz, president of Hedge Fund Research, in a release. "The combination of a sustained increase in asset price volatility with the decrease in liquidity has widened the differentiation between funds and increased the challenges for both funds and investors.

[winston]

New meaning to partying like there is no tomorrow for Wall St financiers
Sebastian Smith

The hedge fund dealers partied at a New York nightclub like there was no tomorrow - which for some was probably true.

Swilling martinis and vodkas, they filled Manhattan's white, tent-themed Nikki Beach to bursting. Waiters, trays of tapas held high in the air, became stranded, wedged into crowds swaying to music under pink lights.

About 650 guests attended the event late on Wednesday, which was a third more than organizers expected.

Yet with hedge funds in freefall, this was more funeral wake than celebration.

"The industry is down 20 percent. It's by far the worst environment we've ever seen and we'll see a lot of funds going out of business," said Evan Rapoport, co-founder of HedgeCo Networks, which services hedge funds and organized the party.

The evening was billed as a networking session. Sometimes that meant angling for a particularly special deal.

"A lot of people are looking for a job," said Nicole Alexander from Ovation Group, a corporate travel company.

"There is no stigma now because so many people have lost jobs," she said. "The joke is that the new status symbol, instead of a Porsche or Ferrari, is having health insurance and a desk."

Job losses across Wall Street are forecast by New York state accountants to hit 48,000 by the end of next year.

Hedge funds, which have long prided themselves on their resilience, are reeling.

A new study by Morgan Stanley predicts assets under hedge fund management globally will drop to US$900 billion (HK$7.02 trillion) by the end of next year, half the peak valuation earlier this year.

And as clients run for the exits, growing numbers of hedge funds have imposed emergency blocks on the ability to withdraw money.

To admirers, hedge fund traders are risk-taking, profit-hauling buccaneers who can afford to bet big because they deal only with big players.

Detractors say hedge funds embody under-regulated, over-leveraged and greed-driven business practices responsible for the US financial crisis.

Either way, the sense is that these masters of the universe, as Tom Wolfe christened traders in the novel Bonfire of the Vanities, won't party much longer.

"They're masking their fear," said a heavy set equities broker at Nikki Beach, who asked not to be identified, as he surveyed his colleagues, drink in hand.

"The gig's over and they're in denial. A lot of people are going to be in shock."

"It's been a tough year," said Mitchel Manoff, CEO of hedge fund Corinthian Partners. "The hedge fund community says they can make money in all markets. This year, though, they haven't."

Of course, there are profits to make, even in hard times.

Nikhil Khandelwal, who raises money at ThornWood Capital, gleefully described his company's ability to charge clients sharply increased interest on loans that banks now refuse.

"It's a sad reality but we make money when others lose it," he said, not sounding sad.

Khandelwal, wearing a pin stripe suit, had no sympathy for those in the mayhem. "You come to a hedge fund to make excessive money, so you know the risks."

AGENCE FRANCE-PRESSE

[millionairemind]

This Madoff scandal will most likely increase redemptions soon...

Falcone’s Partners Master Fund Said to Limit Client Withdrawals
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By Katherine Burton and Saijel Kishan

Dec. 24 (Bloomberg) -- Harbinger Capital Partners, the investment firm run by Philip Falcone, will limit year-end withdrawals from its biggest hedge fund to 60 percent to 70 percent of the $3.5 billion requested by clients, according to people familiar with the matter.

The $10 billion Harbinger Capital Partners Master Fund tumbled 23 percent this year through November, after being up 43 percent as of June 30, said the people, who asked not to be identified because the information is private. New York-based Harbinger will put the fund’s private-equity holdings, about 15 investments, in a side-pocket, or segregated account, so they don’t have to be sold at distressed prices.

“Managers are with greater frequency employing tools, including side-pockets” and the suspension of withdrawals, “as methods of providing for orderly redemptions,” said Ron Geffner, who represents hedge funds at the New York-based law firm Sadis & Goldberg LLP.

Hedge funds, reeling from the worst financial crisis since the 1930s, may face investor withdrawals of as much as $400 billion this year, according to estimates by Morgan Stanley. The industry could start 2009 with about $1.1 trillion in assets, down from $1.9 trillion as recently as June 30.

Charles Zehren, a spokesman for Harbinger, declined to comment.

Funds have been limiting client withdrawals in record numbers. As many as 80 funds have restricted redemptions, known as putting up gates, or segregated assets following stock-market declines and a credit freeze that started with rising defaults on U.S. subprime mortgages.

Hedge-fund firms including Tudor Investment Corp. and Citadel Investment Group LLC have suspended all redemptions.

Falcone, 46, invests in companies going through events like mergers and spinoffs. He started the Capital Partners fund in June 2001, and last year it returned about 115 percent. Until 2008, the fund had never posted a losing year.

The firm will notify investors by Dec. 31 of the exact percentage of redemption requests they will receive. They won’t be charged fees on the side-pocket.