Both sides now
More mutual funds are using strategies such as short selling once allowed only in hedge funds
(From The Denver Post, provided by LexisNexis) April 17, 2007 Tuesday
The line between hedge funds and mutual funds is becoming increasingly blurred as a growing number of money managers introduce mutual funds that use strategies once limited to hedge funds.
What's more, some hedge-fund managers, who historically catered only to the most wealthy, are now offering their services through mutual funds, which are accessible to a wider group of investors.
The trend is providing average investors with a low-cost way of diversifying their portfolios through the use of hedging strategies - a category of investing techniques often too complex or risky for most small-
time investors.
Since 2003, the number of hedge-fund-like mutual funds, also called "long-short" funds, has more than doubled, increasing from 25 to 53 funds, according to investment researcher Morningstar. Long-short funds allow asset managers to buy stocks as well as sell stocks short, a technique used to profit from the falling price of a stock.
Denver-based Janus Capital Group, for instance, rolled out a long-short fund last August. The fund has attracted $50 million in investment since then.
Jerry Paul, head of Greenwood Village-based Quixote Capital Management, ran a hedge fund for years before introducing a mutual fund in 2005.
"It moved me into a whole new market," Paul said, who uses a hedging strategy in which he simultaneously buys into both sides of a merger-and-acquisition deal.
Paul's hedge fund has a $1 million minimum. Investors can get into his mutual fund for as little as $2,500.
The number of portfolio managers simultaneously operating mutual funds and hedge funds has increased from 80 three years ago to 124 today, according to Morningstar. In 2000, just 31 portfolio managers used such a side-by-side approach.
Hedge funds, or private investment partnerships lightly regulated by the U.S. Securities and Exchange Commission, are typically used by the wealthy. The funds are open only to accredited investors - those with at least $1 million in net worth or $200,000 in annual income.
Running mutual funds alongside hedge funds is attractive to money managers for several reasons, Paul and others said.
Hedge funds offer stock pickers greater compensation than mutual funds. Most hedge funds charge a base fee of 1 percent and then take 20 percent of profits. By comparison, mutual funds have an average expense ratio of 1.41 percent, according to researcher Lipper Inc.
The lucrative pay structure has allowed hedge funds to lure talented money managers away from mutual funds. In response, some mutual-fund companies are launching hedge funds as a means to retain top talent, said Ryan Tagal, a director with Morningstar. However, Tagal said small-time investors are potentially shortchanged if fund managers spend more time managing their hedge fund compared to their mutual funds.
"There are potential conflicts of interest," Tagal said. "Perhaps they will buy stocks for the hedge fund before they buy it for the mutual fund."
The interest in hedge funds and hedge-fund-like mutual funds boomed after the bear market of 2002-03, said Todd Trubey, a senior analyst with Morningstar.
Trubey said hedge funds outperformed mutual funds during that time, largely because the hedge funds were able to sell stocks short - a tactic that most mutual funds can't use.
"The reason the funds have appeal is that they do well in a rising market and in a falling market," Trubey said. But, he noted, long-short funds tend to lag most stock funds during bull markets.
Long-short funds have posted an average annual return of 6.5 percent since 2003. By comparison, the Standard & Poor's 500 has gained 14 percent per year during that span.
"Unfortunately, asset managers oftentimes show up at the party just as it's ending," Trubey said.
Staff writer Will Shanley can be reached at 303-954-1260 or .
Wednesday, April 18, 2007
Tuesday, April 17, 2007
Market Wizard
Artigo do Telegraph (UK) de 06 de Abril
Hedge fund guru prepares for London float Business Money Telegraph
Hedge fund guru prepares for London floatBy James Quinn, Business Correspondent
Last Updated: 10:19pm BST 06/04/2007
One of the founding fathers of the hedge fund industry is to float his fund of hedge funds in London with a market value of up to £275m.
Jack Schwager, who wrote the best selling Market Wizards series of investment tomes, is to list his Market Wizards Fund on the main market of the London Stock Exchange later this month.
Mr Schwager, who works for Fortune Asset Management, is to raise £200m as part of the float, with existing assets in the region of £75m.
Fundraising for the listing is due to begin next week, led by financial adviser Fox-Pitt Kelton. The fund has been running for seven years, and is incorporated in Guernsey as a closed-ended investment company.
Mr Schwager is an industry veteran of more than 30 years' experience, and is known for being the first to spot some of the big hedge fund managers of today, such as Michael Steinhardt and Paul Tudor Jones, founder of the Tudor Group.
He is Fortune's investment director, and plays a key part in all investment decisions. The Fortune team is led by London-based chief executive Simon Hopkins, who co-founded Fortune with investment director Rick Tarvin, while Nancy Curtin, the former head of global mutual funds at Schroders, is chief investment officer.
Fortune was bought last year by Close Brothers as part of its wish to move into the hedge fund sector.
The Market Wizards Fund has produced an annualised return of 12.44pc over the last seven years.
It has a great mixture of diversification across strategies, with the largest, options trading, accounting for only 18.2pc of the fund's total assets.
Its raison d'etre is that it invests in managed accounts of hedge funds, meaning that rather than just ploughing its money into a hedge fund's general money pot, its money is placed into specific managed accounts.
This allows Fortune to track the success - or failure - on a daily basis, allowing greater liquidity, more transparency, and the ability to mitigate the major drawbacks of investing in hedge funds. Typically, funds of hedge funds have to wait for monthly updates to know how their investments were going.
Hedge fund guru prepares for London float Business Money Telegraph
Hedge fund guru prepares for London floatBy James Quinn, Business Correspondent
Last Updated: 10:19pm BST 06/04/2007
One of the founding fathers of the hedge fund industry is to float his fund of hedge funds in London with a market value of up to £275m.
Jack Schwager, who wrote the best selling Market Wizards series of investment tomes, is to list his Market Wizards Fund on the main market of the London Stock Exchange later this month.
Mr Schwager, who works for Fortune Asset Management, is to raise £200m as part of the float, with existing assets in the region of £75m.
Fundraising for the listing is due to begin next week, led by financial adviser Fox-Pitt Kelton. The fund has been running for seven years, and is incorporated in Guernsey as a closed-ended investment company.
Mr Schwager is an industry veteran of more than 30 years' experience, and is known for being the first to spot some of the big hedge fund managers of today, such as Michael Steinhardt and Paul Tudor Jones, founder of the Tudor Group.
He is Fortune's investment director, and plays a key part in all investment decisions. The Fortune team is led by London-based chief executive Simon Hopkins, who co-founded Fortune with investment director Rick Tarvin, while Nancy Curtin, the former head of global mutual funds at Schroders, is chief investment officer.
Fortune was bought last year by Close Brothers as part of its wish to move into the hedge fund sector.
The Market Wizards Fund has produced an annualised return of 12.44pc over the last seven years.
It has a great mixture of diversification across strategies, with the largest, options trading, accounting for only 18.2pc of the fund's total assets.
Its raison d'etre is that it invests in managed accounts of hedge funds, meaning that rather than just ploughing its money into a hedge fund's general money pot, its money is placed into specific managed accounts.
This allows Fortune to track the success - or failure - on a daily basis, allowing greater liquidity, more transparency, and the ability to mitigate the major drawbacks of investing in hedge funds. Typically, funds of hedge funds have to wait for monthly updates to know how their investments were going.
Wednesday, April 11, 2007
Bankruptcy
Artigo da Financial News.
Funds take equity stakes in bankruptcies
Heidi Moore
11 Apr 2007
Shareholders could have more say over assets
Hedge funds like having control almost as much as they like making money. They are trying to achieve both in the US by using their power to influence the outcome of corporate collapses.
Firms such as Cerberus Capital Management, Fortress Investment Group and DE Shaw are becoming more active in steering the fate of bankrupt companies, including power plant operator Calpine, Northwest Airlines and car parts group Delphi Automotive.
The funds are building their roles as shareholders in collapsed companies into a powerbase from which they force acquisitions, pressure unions, create capital structures and control restructurings.
If the hedge funds succeed, they will have created a revolution in bankruptcy law under which equity holders would have nearly as much negotiating power as the debt holders. In most cases there is usually nothing left for shareholders.
Robert Stark, a partner in the bankruptcy practice of law firm Brown Rudnick Berlack Israels, said: “Distressed fund managers are extremely intelligent problem solvers and will often propose alternative restructuring ideas that can yield value to equity, if that is where they are invested.”
Hedge funds are organising themselves into equity committees and pooling resources. “In bankruptcy proceedings, there’s an inclination against value going to stockholders. You need power, advocacy and stamina to get the ball rolling,” said Stark.
Martin Bienenstock, head of bankruptcy at law firm Weil, Gotshal & Manges, said of the hedge fund committees: “It helps them maximise their investment. They’re present at all the hearings, they see what’s going on in the case, they get a seat at the negotiating table and they get their opportunities to try their solutions.”
But it is not easy. Hedge funds are fighting an image problem in such cases. In at least one instance – that of Northwest Airlines – a bankruptcy judge raised questions about whether a group of 10 funds were trying to help fellow equity holders or seeking ways to use the bankruptcy code to ensure their profit at the expense of others.
Corinne Ball, a partner with law firm Jones Day, said: “Northwest is a case where equity holders are trying to stick a crowbar in the door and make sure they’re not eliminated until they ensure there’s no hidden value that’s deferred.”
The failure of Northwest Airlines is one that specialists are watching closely to see how far hedge funds will be allowed to wield power. Two groups of equity holding hedge funds are pushing Northwest to be taken over while in bankruptcy proceedings.
One, calling itself the “ad hoc committee of certain claims holders”, holds $949.3m (€712m) in claims and includes 120 hedge funds. A second group has an additional nine firms.
Judge Allan Gropper threw down the gauntlet to one group by forcing it to disclose the extent of its holdings, which it argued could create a “chilling effect” on hedge funds since they want to avoid revealing their holdings to the competition and because hedge funds argue that creditors do not have to reveal their stakes.
The ad hoc committee of equity security holders caved in and disclosed their holdings.
The strategy appears to have worked. By agreeing to lose the battle over disclosure, the hedge funds could be winning the war for the merger: Gropper last week helped the funds by appointing an examiner to evaluate whether Northwest had held secret discussions about a post-bankruptcy sale.
Such a transaction would rob equity holders of the value of their shares, the hedge funds argued.
Their push for Northwest to be taken over while in bankruptcy means an acquirer would provide a capital infusion that could pay off creditors and leave enough for shareholders.
Delphi Automotive and building materials company US Gypsum are other examples where hedge funds have pushed for the outcome they wanted. At Delphi, Cerberus Capital Management and Appaloosa Management organised equity committees and made a successful bet that Delphi’s connection to General Motors – its primary customer – would guarantee a rich payout.
Appaloosa also holds subordinated debt in the company and plans to invest in return for a substantial ownership stake when then group emerges from bankruptcy.
In the US Gypsum case, which concluded last year, an equity committee forged by hedge funds worked with the company and its lawyers to fend off lawsuits alleging that it was responsible for asbestos injuries among former workers, who were forced to submit X-rays. This led the judge to rule there was no recognisable disease and the lawsuits were thrown out as a factor in the case.
Cerberus has been the most active hedge fund, often buying automotive companies out of bankruptcy. Last week it bought Tower Automotive out of Chapter 11 bankruptcy protection in a $1bn deal.
The plan was for Cerberus to pay Tower’s debt, including a $725m debtor-in-possession loan, its second-lien debts and its pensions. It is using its power to force rival bidders to offer $5m above its price.
Funds take equity stakes in bankruptcies
Heidi Moore
11 Apr 2007
Shareholders could have more say over assets
Hedge funds like having control almost as much as they like making money. They are trying to achieve both in the US by using their power to influence the outcome of corporate collapses.
Firms such as Cerberus Capital Management, Fortress Investment Group and DE Shaw are becoming more active in steering the fate of bankrupt companies, including power plant operator Calpine, Northwest Airlines and car parts group Delphi Automotive.
The funds are building their roles as shareholders in collapsed companies into a powerbase from which they force acquisitions, pressure unions, create capital structures and control restructurings.
If the hedge funds succeed, they will have created a revolution in bankruptcy law under which equity holders would have nearly as much negotiating power as the debt holders. In most cases there is usually nothing left for shareholders.
Robert Stark, a partner in the bankruptcy practice of law firm Brown Rudnick Berlack Israels, said: “Distressed fund managers are extremely intelligent problem solvers and will often propose alternative restructuring ideas that can yield value to equity, if that is where they are invested.”
Hedge funds are organising themselves into equity committees and pooling resources. “In bankruptcy proceedings, there’s an inclination against value going to stockholders. You need power, advocacy and stamina to get the ball rolling,” said Stark.
Martin Bienenstock, head of bankruptcy at law firm Weil, Gotshal & Manges, said of the hedge fund committees: “It helps them maximise their investment. They’re present at all the hearings, they see what’s going on in the case, they get a seat at the negotiating table and they get their opportunities to try their solutions.”
But it is not easy. Hedge funds are fighting an image problem in such cases. In at least one instance – that of Northwest Airlines – a bankruptcy judge raised questions about whether a group of 10 funds were trying to help fellow equity holders or seeking ways to use the bankruptcy code to ensure their profit at the expense of others.
Corinne Ball, a partner with law firm Jones Day, said: “Northwest is a case where equity holders are trying to stick a crowbar in the door and make sure they’re not eliminated until they ensure there’s no hidden value that’s deferred.”
The failure of Northwest Airlines is one that specialists are watching closely to see how far hedge funds will be allowed to wield power. Two groups of equity holding hedge funds are pushing Northwest to be taken over while in bankruptcy proceedings.
One, calling itself the “ad hoc committee of certain claims holders”, holds $949.3m (€712m) in claims and includes 120 hedge funds. A second group has an additional nine firms.
Judge Allan Gropper threw down the gauntlet to one group by forcing it to disclose the extent of its holdings, which it argued could create a “chilling effect” on hedge funds since they want to avoid revealing their holdings to the competition and because hedge funds argue that creditors do not have to reveal their stakes.
The ad hoc committee of equity security holders caved in and disclosed their holdings.
The strategy appears to have worked. By agreeing to lose the battle over disclosure, the hedge funds could be winning the war for the merger: Gropper last week helped the funds by appointing an examiner to evaluate whether Northwest had held secret discussions about a post-bankruptcy sale.
Such a transaction would rob equity holders of the value of their shares, the hedge funds argued.
Their push for Northwest to be taken over while in bankruptcy means an acquirer would provide a capital infusion that could pay off creditors and leave enough for shareholders.
Delphi Automotive and building materials company US Gypsum are other examples where hedge funds have pushed for the outcome they wanted. At Delphi, Cerberus Capital Management and Appaloosa Management organised equity committees and made a successful bet that Delphi’s connection to General Motors – its primary customer – would guarantee a rich payout.
Appaloosa also holds subordinated debt in the company and plans to invest in return for a substantial ownership stake when then group emerges from bankruptcy.
In the US Gypsum case, which concluded last year, an equity committee forged by hedge funds worked with the company and its lawyers to fend off lawsuits alleging that it was responsible for asbestos injuries among former workers, who were forced to submit X-rays. This led the judge to rule there was no recognisable disease and the lawsuits were thrown out as a factor in the case.
Cerberus has been the most active hedge fund, often buying automotive companies out of bankruptcy. Last week it bought Tower Automotive out of Chapter 11 bankruptcy protection in a $1bn deal.
The plan was for Cerberus to pay Tower’s debt, including a $725m debtor-in-possession loan, its second-lien debts and its pensions. It is using its power to force rival bidders to offer $5m above its price.
NY X London
Matéria do The Independent
New York is the leader but London is catching up fast
By James Moore
Published: 11 April 2007
New York still dominates the hedge fund industry but London is beginning to snap at the heels of its rival.
Hedge funds were, of course, an American invention but - despite what was widely seen as a crackdown last year - the less prescriptive style of "risk based" UK regulation is increasingly helping Britain's capital to bridge the gap.
One only needs to take a drink in one of more exclusive bars in Mayfair after a look around the district's luxuriously appointed office space to see that these are boom times for the industry.
According to the Alternative Investment Management Association (AIMA), Europe accounts for around 20 per cent of the $1.5 trillion hedge fund industry, and the UK has four- fifths of that. London is also now growing faster than its transatlantic rival. "London has been growing faster than New York for some time now," said Florence Lombard, executive director at AIMA. "We believe this is because it is a professional and efficiently regulated environment that both managers and investors are comfortable with."
Perhaps the most prominent hedge fund manager in the City in recent months has been Christopher Hohn, the founder of TCI. That is thanks to the Southampton University graduate's ability to force sweeping changes at some of Europe's most high profile companies.
Hohn last year had to deal with a rare setback after the stock exchange operator Euronext resisted his attempt to force a merger with Deutsche Börse in favour of an alternative deal with the New York Stock Exchange.
But shareholders (including TCI) hardly suffered as a result of this and Mr Hohn moved on to bigger fish - he was responsible for putting the Dutch bank ABN Amro into play.
His intervention has already had the desired effect on the lumbering Dutch bank's share price and his name is beginning to strike fear into company boards all over the Continent. Mr Hohn is ranked at 22 in the Trader Monthly 100 list of top earning traders with an income estimated at $275m.
However, the top earners in London are Pierre Lagrange and Noam Gottesman, whom the list says earned $450m each.
Their GLG Partners appears to have been little scathed by the loss of the star trader Philippe Jabre and a hefty fine from the Financial Services Authority in the midst of last year's crackdown.
That is perhaps because it has been phenomenally successful; ask anyone in the business to name the top five hedge funds in Britain and GLG will be in there. With $9 billion under management it is second only to the granddaddy of them all - the London-listed Man Group, which is the biggest independently quoted hedge fund group.
No discussion of London's most prominent hedge fund managers should leave its former boss, Stanley Fink, off the list. Mr Fink may have stepped down as chief executive, but his legacy lives on. Starting out as an obscure commodity trading company, under Fink, Man Group shot into the FTSE 100, and then the FTSE 50 list of Britain's biggest companies and still just keeps on growing. Between 2003 and the beginning of this year its market value had nearly quadrupled.
The flagship AHL fund may have suffered some difficulties in recent weeks, but such is Man's diversity that it hardly mattered. The institutional businesses picked up the slack.
The majority of hedge fund groups, however, remain in private hands.
Another star is William Browder from Hermitage Capital Management. The $275m man has made his name with bets on the Russian energy market. Given the volatility shown by those markets, it takes nerves of steel to be involved, something Mr Browder, who splits his time between London and Moscow, obviously possesses.
The former Credit Suisse banker Alan Howard can hardly be said to have had it all his way last year, although his flagship fund still returned a healthy 11.5 per cent and the list has his earnings at $225m (although it notes the firm calls this "grossly over-estimated").
Like many successful hedge fund managers, he founded Brevan Howard Asset Management after leaving an investment bank's proprietary trading desk. Despite the seven-figure bonuses paid by banks, it is a route that many continue to follow.
With these sorts of earnings available, that is no wonder.
New York is the leader but London is catching up fast
By James Moore
Published: 11 April 2007
New York still dominates the hedge fund industry but London is beginning to snap at the heels of its rival.
Hedge funds were, of course, an American invention but - despite what was widely seen as a crackdown last year - the less prescriptive style of "risk based" UK regulation is increasingly helping Britain's capital to bridge the gap.
One only needs to take a drink in one of more exclusive bars in Mayfair after a look around the district's luxuriously appointed office space to see that these are boom times for the industry.
According to the Alternative Investment Management Association (AIMA), Europe accounts for around 20 per cent of the $1.5 trillion hedge fund industry, and the UK has four- fifths of that. London is also now growing faster than its transatlantic rival. "London has been growing faster than New York for some time now," said Florence Lombard, executive director at AIMA. "We believe this is because it is a professional and efficiently regulated environment that both managers and investors are comfortable with."
Perhaps the most prominent hedge fund manager in the City in recent months has been Christopher Hohn, the founder of TCI. That is thanks to the Southampton University graduate's ability to force sweeping changes at some of Europe's most high profile companies.
Hohn last year had to deal with a rare setback after the stock exchange operator Euronext resisted his attempt to force a merger with Deutsche Börse in favour of an alternative deal with the New York Stock Exchange.
But shareholders (including TCI) hardly suffered as a result of this and Mr Hohn moved on to bigger fish - he was responsible for putting the Dutch bank ABN Amro into play.
His intervention has already had the desired effect on the lumbering Dutch bank's share price and his name is beginning to strike fear into company boards all over the Continent. Mr Hohn is ranked at 22 in the Trader Monthly 100 list of top earning traders with an income estimated at $275m.
However, the top earners in London are Pierre Lagrange and Noam Gottesman, whom the list says earned $450m each.
Their GLG Partners appears to have been little scathed by the loss of the star trader Philippe Jabre and a hefty fine from the Financial Services Authority in the midst of last year's crackdown.
That is perhaps because it has been phenomenally successful; ask anyone in the business to name the top five hedge funds in Britain and GLG will be in there. With $9 billion under management it is second only to the granddaddy of them all - the London-listed Man Group, which is the biggest independently quoted hedge fund group.
No discussion of London's most prominent hedge fund managers should leave its former boss, Stanley Fink, off the list. Mr Fink may have stepped down as chief executive, but his legacy lives on. Starting out as an obscure commodity trading company, under Fink, Man Group shot into the FTSE 100, and then the FTSE 50 list of Britain's biggest companies and still just keeps on growing. Between 2003 and the beginning of this year its market value had nearly quadrupled.
The flagship AHL fund may have suffered some difficulties in recent weeks, but such is Man's diversity that it hardly mattered. The institutional businesses picked up the slack.
The majority of hedge fund groups, however, remain in private hands.
Another star is William Browder from Hermitage Capital Management. The $275m man has made his name with bets on the Russian energy market. Given the volatility shown by those markets, it takes nerves of steel to be involved, something Mr Browder, who splits his time between London and Moscow, obviously possesses.
The former Credit Suisse banker Alan Howard can hardly be said to have had it all his way last year, although his flagship fund still returned a healthy 11.5 per cent and the list has his earnings at $225m (although it notes the firm calls this "grossly over-estimated").
Like many successful hedge fund managers, he founded Brevan Howard Asset Management after leaving an investment bank's proprietary trading desk. Despite the seven-figure bonuses paid by banks, it is a route that many continue to follow.
With these sorts of earnings available, that is no wonder.
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