Coluna Buttonwood do The Economist falando ampliação das atividades dos hedge funds.
Buttonwood
Identity crisis
Jun 28th 2007
From The Economist print edition
As the line blurs between hedge funds and banks, a bit of mystique goes missing
PEOPLE have trouble defining the term hedge fund. For some it simply conveys an aura of big money tinged with a dashing hint of menace. But within a few years the term may be even more meaningless than it is now, because hedge funds are rapidly becoming indistinguishable from the rest of the financial-services industry.
D.E. Shaw, an American group, is a case in point. It started as a “quantitative” manager, using sophisticated computer models to pick stocks and, with $26 billion under management at the end of 2006, was ranked as one of the four largest fund groups in the world.
But hedge funds were only the beginning; there is barely a financial activity in which D.E. Shaw is not now involved. In early June it announced a bid for James River, an insurance firm. The group already has an arm, Laminar Direct Capital, that makes direct loans to firms. It has considered moving into private equity and owns FAO Schwarz, a big toy store. As well as running hedge funds, it operates a “long-only” business, which buys assets in the hope they rise in price.
As hedge funds like D.E. Shaw move in one direction, investment banks and conventional fund managers are shifting in the other. Many have bought hedge-fund groups outright (such as JPMorgan Chase's purchase of Highbridge Capital Management) or have taken minority stakes in them (Lehman Brothers bought 20% of D.E. Shaw in March). Others either operate funds-of-hedge-funds (Goldman Sachs) or have set up separate hedge-fund arms (Gartmore and—less successfully of late—Bear Stearns).
There also seems to be a growing belief that there is more to investment than long-only management. The latest fashion is 130/30 funds, which use borrowed money to combine 130% long positions with 30% short (betting on falling prices). According to this philosophy, stopping fund managers from shorting stocks is like preventing Tiger Woods from using all the clubs in his bag; smart investors should be able to spot overpriced stocks as well as underpriced stocks. Such products, which have been dubbed “hedge funds lite”, allow investors such as pension funds to take their first steps into the world of “absolute return” investing.
It is not too difficult to work out why banks and traditional fund-management firms should want to be more like hedge funds. For a start, the annual management fees are a lot higher. Second, as the flotations of Fortress and Blackstone, two large and varied alternative-investment firms, have shown, the stockmarket is willing to pay a very high multiple for companies that earn performance fees.
But why do hedge-fund groups want to move the other way? Part of the reason is the Darwinian environment in which they operate. They are constantly on the lookout for markets that are inefficient or areas that offer excess returns. In banking and insurance, for example, hedge funds may benefit because they lack either the costly infrastructure or regulatory burdens that impede the traditional operators; borrowers say hedge funds are much quicker than banks at deciding whether to make a loan.
For the individual hedge-fund manager, diversifying makes sense. Some strategies may be profitable for a while, but then have bad years, as convertible-arbitrage managers found out in 2005. If returns are bad enough, the business can disappear overnight. But that is far less likely to happen with a range of strategies.
There is a further level of protection if the manager raises “permanent capital” by issuing shares. Hedge-fund investors have the right to withdraw their capital, subject to lengthy notice periods. But if the manager is running a listed fund, investors can redeem their holdings only by selling them on the open market; the annual management fee is unaffected.
Permanent capital can also be raised in a different way if the hedge fund issues bonds (as Citadel did last year) or floats shares of the management company (this week London-based GLG Partners became the latest to aim for a New York listing). Such capital-raising exercises allow founders to cash in their holdings and also give the hedge funds some independence from their prime brokers, on whom they depend heavily when borrowing money.
But flotations also force hedge-fund managers to be more transparent, diluting the mystique on which their high fees partly depend. And they accelerate the process by which boutiques turn into broadly based financial groups, with all the bureaucracy that implies (bureaucracy that many managers went into the business to escape). Hedge funds may be gaining fame and fortune as they expand, but they may be losing part of their soul.
Friday, June 29, 2007
Wednesday, June 27, 2007
Independência
Artigo sobre a tentativa de hedge funds de se tornarem menos dependentes do crédito de prime brokers.
London, London
Artigo sobre a primazia de Londres sobre outros centros financeiros quando o assunto é hedge funds.
Tuesday, June 26, 2007
BlackRock compra Quellos
BlackRock to Buy Quellos Unit for Up to $1.7 Billion (Update2)
By Andrei Postelnicu
June 26 (Bloomberg) -- BlackRock Inc., the largest publicly
traded U.S. asset manager, agreed to buy a fund unit of Quellos
Group LLC for as much as $1.7 billion to expand in one of the
fastest growing parts of the money management business.
BlackRock, which oversees about $1.15 trillion, will pay $562
million in cash and $188 million in stock for Quellos's funds that
invest in other funds, the companies said in a statement today.
New York-based BlackRock will also pay as much as $970 million
over the next 3 1/2 years if unspecified conditions are met.
``We are extremely excited to welcome the Quellos team to
BlackRock,'' Chief Executive Officer Laurence D. Fink said in the
statement. ``We will combine our hedge and private equity fund of
funds activities on a unified platform.''
The combined business will be one of the largest fund of
funds managers in the world, with more than $25.4 billion in
assets, BlackRock said. Funds of funds typically invest in a range
of different hedge or private equity funds to diversify risk and
provide more predictable returns.
Quellos, based in Seattle, looks after more than $20 billion
in assets. Jeffrey Greenstein, Quellos's CEO, will step down from
his post after the completion of the transaction. He will remain
as an adviser to help with the transition, BlackRock said.
Adding Money
Bryan White, chief investment officer at Quellos, will become
BlackRock's global head of funds of funds, to be renamed BlackRock
Alternative Advisors.
Quellos has been investigated for tax-advisory activities it
has discontinued and which are not part of the transaction with
BlackRock, the companies' statement said.
BlackRock was advised in the transaction by New York-based
Citigroup Inc. and law firm Skadden, Arps, Slate, Meagher & Flom
LLC. Quellos was advised by UBS AG and the law firm Paul Weiss
Rifkind Wharton & Garrison LLP.
The transaction is expected to close around Oct. 1, pending
regulatory approvals, the companies said.
Hedge funds attracted $60 billion in new money in the first
quarter, bringing industry assets to $1.57 trillion, according to
Chicago-based Hedge Fund Research Inc.
--Editor: Connelly
By Andrei Postelnicu
June 26 (Bloomberg) -- BlackRock Inc., the largest publicly
traded U.S. asset manager, agreed to buy a fund unit of Quellos
Group LLC for as much as $1.7 billion to expand in one of the
fastest growing parts of the money management business.
BlackRock, which oversees about $1.15 trillion, will pay $562
million in cash and $188 million in stock for Quellos's funds that
invest in other funds, the companies said in a statement today.
New York-based BlackRock will also pay as much as $970 million
over the next 3 1/2 years if unspecified conditions are met.
``We are extremely excited to welcome the Quellos team to
BlackRock,'' Chief Executive Officer Laurence D. Fink said in the
statement. ``We will combine our hedge and private equity fund of
funds activities on a unified platform.''
The combined business will be one of the largest fund of
funds managers in the world, with more than $25.4 billion in
assets, BlackRock said. Funds of funds typically invest in a range
of different hedge or private equity funds to diversify risk and
provide more predictable returns.
Quellos, based in Seattle, looks after more than $20 billion
in assets. Jeffrey Greenstein, Quellos's CEO, will step down from
his post after the completion of the transaction. He will remain
as an adviser to help with the transition, BlackRock said.
Adding Money
Bryan White, chief investment officer at Quellos, will become
BlackRock's global head of funds of funds, to be renamed BlackRock
Alternative Advisors.
Quellos has been investigated for tax-advisory activities it
has discontinued and which are not part of the transaction with
BlackRock, the companies' statement said.
BlackRock was advised in the transaction by New York-based
Citigroup Inc. and law firm Skadden, Arps, Slate, Meagher & Flom
LLC. Quellos was advised by UBS AG and the law firm Paul Weiss
Rifkind Wharton & Garrison LLP.
The transaction is expected to close around Oct. 1, pending
regulatory approvals, the companies said.
Hedge funds attracted $60 billion in new money in the first
quarter, bringing industry assets to $1.57 trillion, according to
Chicago-based Hedge Fund Research Inc.
--Editor: Connelly
Monday, June 25, 2007
Outro IPO: Man
Man IPO Pricing Values U.S. Arm at up to $5 Billion
By Reuters | Thursday, June 21, 2007
LONDON (Reuters)—Man Group, the world's biggest listed hedge fund firm, has set the indicative price range for the flotation of its U.S. brokerage arm, MF Global, valuing the unit between $4.6 billion and $5 billion.
Man, which unveiled plans in March to de-merge the unit, said on Thursday that it had set the range for the initial public offering at $36 to $39 a share.
Michael Long, an analyst at Keefe, Bruyette & Woods, told Reuters the valuation was slightly above his expectations.
The pricing comes as Blackstone Group, one of the world's biggest private equity investment firms, prepares to float in an IPO as large as $4.75 billion, making it the U.S.'s biggest so far this year.
In September, Man will list the Man Dual Absolute Return Fund, a hedge fund, in New York.
Net proceeds from the flotation of MF Global, which is subject to shareholder approval, will be returned to investors later this year.
In March Peter Clarke, who took over as Man's chief executive from Stanley Fink, told Reuters the business had started to have "a separate, stand-alone identity of its own."
Man said last month that Citigroup, JPMorgan, Lehman Brothers, Merrill Lynch and UBS Investment Bank were underwriting the IPO, and that MF Global had applied to list its shares on the New York Stock Exchange under the ticker symbol "MF."
Man Group's shares were up 0.7% at 630 pence at 10:00 GMT in a falling London market, having risen 2.2% on Wednesday after reporting a weekly 3.55% rise in the net asset value of its flagship AHL fund.
By Laurence Fletcher
By Reuters | Thursday, June 21, 2007
LONDON (Reuters)—Man Group, the world's biggest listed hedge fund firm, has set the indicative price range for the flotation of its U.S. brokerage arm, MF Global, valuing the unit between $4.6 billion and $5 billion.
Man, which unveiled plans in March to de-merge the unit, said on Thursday that it had set the range for the initial public offering at $36 to $39 a share.
Michael Long, an analyst at Keefe, Bruyette & Woods, told Reuters the valuation was slightly above his expectations.
The pricing comes as Blackstone Group, one of the world's biggest private equity investment firms, prepares to float in an IPO as large as $4.75 billion, making it the U.S.'s biggest so far this year.
In September, Man will list the Man Dual Absolute Return Fund, a hedge fund, in New York.
Net proceeds from the flotation of MF Global, which is subject to shareholder approval, will be returned to investors later this year.
In March Peter Clarke, who took over as Man's chief executive from Stanley Fink, told Reuters the business had started to have "a separate, stand-alone identity of its own."
Man said last month that Citigroup, JPMorgan, Lehman Brothers, Merrill Lynch and UBS Investment Bank were underwriting the IPO, and that MF Global had applied to list its shares on the New York Stock Exchange under the ticker symbol "MF."
Man Group's shares were up 0.7% at 630 pence at 10:00 GMT in a falling London market, having risen 2.2% on Wednesday after reporting a weekly 3.55% rise in the net asset value of its flagship AHL fund.
By Laurence Fletcher
Outro artigo sobre o Bear Stearns
Why the Bear Stearns Mess Will Be Contained
(From TheStreet.com, provided by LexisNexis) | June 22, 2007 Friday 17:37 PM EST
Lever up and mismark, a toxic combination. That's my understanding of what happened at Bear Stearns'(BSC:NYSE) hedge funds. And I believe there will be no fallout whatsoever beyond the funds, despite the innate desire by so many people to rumor and panic the marketplace.
It's driving me crazy that there is such unsophisticated reportage of this subprime issue.
First, most of the subprime blowups do not involve credit defaults. In fact, other than New Century Financial, which had to restate all its financials because of defaults, most of the problems have been a lack of liquidity caused by the fear of defaults.
I say that because there is tons of demand for this paper from the likes of sophisticated hedge funds at Lone Star and Farallon Partners. I don't know the Lone Star guys, but the people at Farallon are just about the best in the game and there is no way they'd be buying up these loans if they weren't confident that there would be a payoff well in excess of what they are putting up. Lone Star seeks a similar return. These are the buyers of this kind of paper, and they have done amazingly with it.
That's because they have cash. Which brings me to what these crises are really about: liquidity.
When banks loan to these subprime lenders -- and they can't lend without that capacity -- the subprime lenders become hostage to the credit committees of the big outfits, outfits like Merrill(MER:NYSE) and JPMorgan Chase(JPM:NYSE).
If the credit committees of these big banks smell trouble, they cut off the credit. That's the real worry for the subprime outfits, liquidity, not creditworthiness. Any hint of problems and the liquidity dries up even if there will turn out not to be much of a credit problem with the actual loans. I say that because the Farallons and the Lone Stars are buying these loans fairly close to par. They wouldn't if there was a real risk of credit defaults on subprime.
Not everyone has been that careful. These Bear funds weren't. They borrowed a huge amount of money from the likes of JPMorgan and Merrill, and now those guys are squeezing Bear. And believe me, this is a competitive world and they like to squeeze Bear.
It was quite a business to do what the Bear hedge funds did, which was to borrow a lot of money and buy high-yielding debt at, say, 10 times the capital they had under management. But the same credit committees that were worried about the credit of the subprime loans -- and again, I am saying that there is an overreaction by these credit committees but they are overreactors from way back because their whole job is pretty much to say no because one error can wipe out a year of profits -- are now worried about the lack of liquidity at the Bear fund, most likely because of redemptions.
The problem will go away with liquidity, which is why Bear Stearns is ponying up the money. The credit committees at the various other brokers will stop squawking and you will see an end to all of this.
But you have to understand that at no time was the credit of the actual paper really questioned. These firms just didn't want to lend to a hedge fund that had borrowed massive amounts of money to lever up in subprime and then suffered a hiccup when investors saw the true net worth of the portfolio marked to market.
I believe that had everyone had patience and had the credit committees not been so aggressive, this crisis would have been avoided. Again, it is not the subprime loans that are in question, it is the stewardship of the hedge funds themselves and the investors in those hedge funds that should be questioned.
Which is why I am saying that this problem will be contained. I don't want to be Bear; it will have to take a short-term hit on this stuff; but it is mostly a public relations issue. The vast and profitable organization of Bear can absorb any hit while the paper that the funds had comes back to life.
But you must understand that it is liquidity or the lack of it, not credit (as the rumor and panic players want to force on you), that is driving this. One is just a fact of life, the other would be a true crisis. We don't have one.
Blame some bad managers, not the subprime mortgage business. I am not dismissing the problems of subprime. Lots of people bought homes, watched them appreciate and then took out home equity loans against them. Those people are in trouble. And there are a lot of them -- but that won't be more than a blip for the financial markets.
If people understood this enough, if they were sophisticated about the differences between credit and liquidity, you'd simply be saying, "Those guys had a bad strategy and who can blame people for pulling out before the leverage wiped out their assets? And who can blame the credit committees for worrying?"
Random musings: I worry about Blackstone -- it chews up a lot of capital and we don't want supply here, especially with KKR behind it. Why do these firms need to do these deals? Why bother with the public? Just to get richer, I guess. I don't want to own this paper. ... UBS finally raises MasterCard(MA:NYSE) to my price target of $190. ... Enough people get there and I am out of here! Will Friday's charms -- it always seems to go up Fridays -- be able to offset morning weakness based on the bogus reporting on the Bear Stearns stuff above? I think so. ... Did GE(GE:NYSE) ever seriously consider buying Dow Jones(DJ:NYSE)? Just asking.
(From TheStreet.com, provided by LexisNexis) | June 22, 2007 Friday 17:37 PM EST
Lever up and mismark, a toxic combination. That's my understanding of what happened at Bear Stearns'(BSC:NYSE) hedge funds. And I believe there will be no fallout whatsoever beyond the funds, despite the innate desire by so many people to rumor and panic the marketplace.
It's driving me crazy that there is such unsophisticated reportage of this subprime issue.
First, most of the subprime blowups do not involve credit defaults. In fact, other than New Century Financial, which had to restate all its financials because of defaults, most of the problems have been a lack of liquidity caused by the fear of defaults.
I say that because there is tons of demand for this paper from the likes of sophisticated hedge funds at Lone Star and Farallon Partners. I don't know the Lone Star guys, but the people at Farallon are just about the best in the game and there is no way they'd be buying up these loans if they weren't confident that there would be a payoff well in excess of what they are putting up. Lone Star seeks a similar return. These are the buyers of this kind of paper, and they have done amazingly with it.
That's because they have cash. Which brings me to what these crises are really about: liquidity.
When banks loan to these subprime lenders -- and they can't lend without that capacity -- the subprime lenders become hostage to the credit committees of the big outfits, outfits like Merrill(MER:NYSE) and JPMorgan Chase(JPM:NYSE).
If the credit committees of these big banks smell trouble, they cut off the credit. That's the real worry for the subprime outfits, liquidity, not creditworthiness. Any hint of problems and the liquidity dries up even if there will turn out not to be much of a credit problem with the actual loans. I say that because the Farallons and the Lone Stars are buying these loans fairly close to par. They wouldn't if there was a real risk of credit defaults on subprime.
Not everyone has been that careful. These Bear funds weren't. They borrowed a huge amount of money from the likes of JPMorgan and Merrill, and now those guys are squeezing Bear. And believe me, this is a competitive world and they like to squeeze Bear.
It was quite a business to do what the Bear hedge funds did, which was to borrow a lot of money and buy high-yielding debt at, say, 10 times the capital they had under management. But the same credit committees that were worried about the credit of the subprime loans -- and again, I am saying that there is an overreaction by these credit committees but they are overreactors from way back because their whole job is pretty much to say no because one error can wipe out a year of profits -- are now worried about the lack of liquidity at the Bear fund, most likely because of redemptions.
The problem will go away with liquidity, which is why Bear Stearns is ponying up the money. The credit committees at the various other brokers will stop squawking and you will see an end to all of this.
But you have to understand that at no time was the credit of the actual paper really questioned. These firms just didn't want to lend to a hedge fund that had borrowed massive amounts of money to lever up in subprime and then suffered a hiccup when investors saw the true net worth of the portfolio marked to market.
I believe that had everyone had patience and had the credit committees not been so aggressive, this crisis would have been avoided. Again, it is not the subprime loans that are in question, it is the stewardship of the hedge funds themselves and the investors in those hedge funds that should be questioned.
Which is why I am saying that this problem will be contained. I don't want to be Bear; it will have to take a short-term hit on this stuff; but it is mostly a public relations issue. The vast and profitable organization of Bear can absorb any hit while the paper that the funds had comes back to life.
But you must understand that it is liquidity or the lack of it, not credit (as the rumor and panic players want to force on you), that is driving this. One is just a fact of life, the other would be a true crisis. We don't have one.
Blame some bad managers, not the subprime mortgage business. I am not dismissing the problems of subprime. Lots of people bought homes, watched them appreciate and then took out home equity loans against them. Those people are in trouble. And there are a lot of them -- but that won't be more than a blip for the financial markets.
If people understood this enough, if they were sophisticated about the differences between credit and liquidity, you'd simply be saying, "Those guys had a bad strategy and who can blame people for pulling out before the leverage wiped out their assets? And who can blame the credit committees for worrying?"
Random musings: I worry about Blackstone -- it chews up a lot of capital and we don't want supply here, especially with KKR behind it. Why do these firms need to do these deals? Why bother with the public? Just to get richer, I guess. I don't want to own this paper. ... UBS finally raises MasterCard(MA:NYSE) to my price target of $190. ... Enough people get there and I am out of here! Will Friday's charms -- it always seems to go up Fridays -- be able to offset morning weakness based on the bogus reporting on the Bear Stearns stuff above? I think so. ... Did GE(GE:NYSE) ever seriously consider buying Dow Jones(DJ:NYSE)? Just asking.
IPO Blackstone
Blackstone IPO Nets $4.13 Billion
By Emma Trincal, Senior Financial Correspondent | Friday, June 22, 2007
NEW YORK (HedgeWorld.com)—In the Blackstone vs. Washington saga, Blackstone is winning, so far.
Despite being under intense scrutiny on Capitol Hill, Blackstone Group LP, the behemoth private equity firm, priced its Initial Public Offering at $31 per common unit, at the high end of its expected price range, yesterday [June 21]. It is the second time a U.S. private equity firm has gone public after Fortress Investment Group listed its shares in February Previous HedgeWorld Story. With 133.33 million units placed as part of the offering, Blackstone's IPO proceeds amount to $4.13 billion. The units will trade this morning [June 22] on the New York Stock Exchange.
At such price, Blackstone ranks among the largest IPOs in the United States. "The IPO is a huge success", said Francis Gaskins, an IPO analyst at Los Angeles-based IPODesktop.com, a research group. The deal, Mr. Gaskins noted, is 50% bigger than the high-profile IPO of Google, the Internet search engine, in 2004.
"It's a good time to be in the deal industry," said Jim Abbott, a lawyer who heads up the business transactions group at law firm Seward & Kissel. "Smart people don't pick their timing wrong. If they go public, it's because it's a good time to do it."
So much for speculation that Blackstone's IPO was in jeopardy when the Senate Finance Committee introduced a bill last week proposing to tax private equity firms and hedge funds as corporations, hiking their tax rate to 35% from 15% Previous HedgeWorld Story. The proposed legislation and its timing were perceived on the Street as a direct attack against Blackstone's Chief Executive, Stephen Schwarzman. In a matter of days, the bill was quickly nicknamed the "Blackstone bill."
Since then, Mr. Schwarzman and his partners came under intensified pressure from Congress. Rep. Charles Rangel (D-N.Y.), chairman of the House Ways and Means Committee, applauded the Senate's bill. On Wednesday [June 20], Rep. Peter Welch (D-Vt.) introduced its own harsher version of the bill, eliminating the five-year grace period provided by the initial Senate proposal. "There is absolutely no reason some of the richest partnerships in the world should be able to rip off American taxpayers because of a gaping loophole," Mr. Welch said in a statement prior to Blackstone's IPO. Max Baucus (D-Mont.), chairman of the Senate Finance Committee and co-author of the Senate tax bill, said in a statement that he was open to discussing the idea of shortening his proposed five-year transition period.
Even yesterday [June 21], a few hours before Blackstone priced its offering, two representatives, Domestic Policy Subcommittee Chairman Dennis Kucinich (D-Ohio) and Oversight and Government Reform Committee Chairman Henry Waxman (D-Calif.) joined the fray and released a letter to the Securities and Exchange Commission urging the commission to postpone the offering.
For some, the sudden emergence of such negative sentiment from Washington was dazzling.
"This is a witch-hunt. It's Blackstone vs. Washington," said David Menlow, founder of IPO Financial Network, a Millburn, N.J.-based IPO research firm.
By disclosing their hefty compensation, Mr. Schwarzman and his colleagues may have unwillingly started a controversy. Seeking a public listing, they had no choice of course but to disclose such information to the public through SEC filings, which is why many hedge funds and private equity firms are simply ruling out the IPO option. The press took note of Blackstone's S-1 filing last week, in which the firm revealed that Mr. Schwarzman stood to be worth $7.5 billion after the listing Previous HedgeWorld Story.
While it's hard to say whether this public disclosure of wealth triggered some reactions in Washington, it certainly helped fuel a negative sentiment on private equity riches and contributed to make the IPO even more controversial.
"Politicians all like to spend money and you've got to have money to spend money," Mr. Abbott said. "But you don't want to be seen as raising taxes. Politically, being able to say: ‘We didn't raise taxes, we fixed a loophole' is a freebie."
By introducing the tax bills, lawmakers led some analysts to believe that Blackstone might have to discount its offering price. The firm itself in a recent filing had acknowledged that the newly created tax risk would decrease the company's valuation.
The speculation continued into this week with some reports suggesting that the Senate Finance Committee might go so far as to revise the taxation of the carried interest—the 20% performance fee—which is the bread and butter of hedge fund and private equity managers.
Ernst & Young published a note this week cautioning its clients on the public listing of private equity and hedge funds. "In light of this proposed legislation, private equity and hedge fund managers that are considering public issuances of their interests may want to reconsider their economic analysis given the potential increased tax burden," wrote Howard Leventhal, partner in Ernst & Young's global hedge fund practice along with his colleague David Racich, senior manager.
Other factors besides politics clouded Blackstone's IPO, as well. One of them was simply the market picture in the United States. "We aren't recommending that our clients buy shares at the Blackstone IPO. In addition to the usual concerns about possible corporate taxation and lack of experience being a public company, we think the bloom is off the rose for mega buyouts and are very substantially underweighting that sector of the private equity market," said Gregory Curtis, chairman of Greycourt & Co., Inc., a Pittsburgh-based family office, in an email. With interest rates moving up and credit spreads as tight as they are, the financial conditions to secure loans and finance those deals have indeed worsened.
Finally another negative was one key structural aspect of the transaction itself. Blackstone, in issuing common units instead of shares, was not offering voting rights to its investors, a difference that might put off many potential buyers.
Despite all those hurdles, the pricing was still successful. Indeed, on top of the $4.13 billion in proceeds from the IPO, Blackstone is also getting $3 billion from the Chinese government, which bought a stake in the company last month Previous HedgeWorld Story. "It's not a $4 billion IPO. Overall, Blackstone is getting $7 billion off the table," said Mr. Gaskins. The deal was between seven and 12 times oversubscribed, according to IPO analysts.
A few simple facts explain why the deal was so popular. Blackstone, with $88 billion under management, is a powerhouse that completed some record-breaking deals, such as the acquisition last November of Equity Office Properties Trust for $36 billion including debt.
Blackstone's corporate private equity funds have generated a 22% annual return since inception in 1987, according to pre-IPO filings. The real estate funds have yielded 31% annually since 1992. That kind of performance in the alternative investment universe is hard to match.
"The very real possibility of these [private equity] groups paying tax at the corporate level has not dampened investor interest because they are such fundamentally sound investments. On an apples-for-apples comparison (i.e., against other public companies,) Blackstone is still a great investment," said Jay Gould, a San Francisco-based partner with law firm Pillsbury Winthrop Shaw Pittman LLP.
And there is also the Asian factor. According to some IPO research analysts, a lot of the demand for the units came from overseas. The Blackstone deal offers something unique: a door to Asia. "The U.S. private equity market is negative as there are too many deals. But the Asian markets for leveraged buyouts and real estate are untapped compared to the mature U.S. market," said Mr. Gaskins.
Blackstone succeeded in doing what many private equity firms would certainly like to do as well: Partner with the Chinese government. "I wouldn't be surprised if the Government of China ended up giving Blackstone money to manage," Mr. Gaskins said. "China could easily give them $50 billion. It makes a lot of sense. They're partners now. They might as well let Blackstone manage their money in China doing what Blackstone has been successfully doing in the US."
If his prediction turns out to be true, the value of the Blackstone shares would be enhanced through the additional management fees and carried interests.
"The Chinese Government has bought itself a window in the private equity business. I don't know any other private equity player whose partner is the Chinese government," Mr. Gaskins said.
Another advantage for Blackstone: The proposed legislations may never make it through Congress, and many potential investors know that.
"I don't think those bills will pass. They would have a chilling effect on other partnerships in sectors such as energy or real estate and people know that it would drive business offshore and that tax revenues would decline," said Mr. Menlow.
"Without the support from [Democrats Charles] Schumer and [Hillary] Clinton, two powerful senators, this tax bill will have a hard time passing. Schumer and Clinton get a lot of money from Wall Street and they have been obvious by their silence: They don't want to bite the hands that feed them," Mr. Gaskins said. "The two big groups that give a lot of campaign contribution money to Washington, the oil and gas industry and Wall Street, will fight this tax bill."
Some investors who attended the roadshow and won't participate in the Blackstone IPO may be interested in buying later.
"One of our analysts met with Mr. Schwarzman Wednesday [June 20] and was very impressed. We're not going to go to the IPO because it's seven times oversubscribed. But we're seriously considering it for the future," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. He added that the lack of voting rights creates issues because Harris requires equal voting rights when investing in a company. But he is hopeful those internal compliance obstacles will be resolved down the road.
While Blackstone succeeded in pricing its deal on the high-end of the range due to strong demand, success is not a guarantee until the stock actually trades in the market. "What's important is Friday's trading," said Mr. Menlow. "You don't want to see what happened with Fortress Investment Group LLC." Fortress, which went public in February was priced at $18 and opened at $35. Since the IPO, it has traded as low as $23. It closed at $25.88 yesterday [June 21]. "You don't want the stock price to jump up at the opening. I'd like to see it open at a 10-20% premium and close higher than the opening," said Mr. Menlow.
Morgan Stanley and Citi are the lead underwriters of the deal. Merrill Lynch & Co., Credit Suisse, Lehman Brothers and Deutsche Bank Securities are joint book-running managers of the offering.
By Emma Trincal, Senior Financial Correspondent | Friday, June 22, 2007
NEW YORK (HedgeWorld.com)—In the Blackstone vs. Washington saga, Blackstone is winning, so far.
Despite being under intense scrutiny on Capitol Hill, Blackstone Group LP, the behemoth private equity firm, priced its Initial Public Offering at $31 per common unit, at the high end of its expected price range, yesterday [June 21]. It is the second time a U.S. private equity firm has gone public after Fortress Investment Group listed its shares in February Previous HedgeWorld Story. With 133.33 million units placed as part of the offering, Blackstone's IPO proceeds amount to $4.13 billion. The units will trade this morning [June 22] on the New York Stock Exchange.
At such price, Blackstone ranks among the largest IPOs in the United States. "The IPO is a huge success", said Francis Gaskins, an IPO analyst at Los Angeles-based IPODesktop.com, a research group. The deal, Mr. Gaskins noted, is 50% bigger than the high-profile IPO of Google, the Internet search engine, in 2004.
"It's a good time to be in the deal industry," said Jim Abbott, a lawyer who heads up the business transactions group at law firm Seward & Kissel. "Smart people don't pick their timing wrong. If they go public, it's because it's a good time to do it."
So much for speculation that Blackstone's IPO was in jeopardy when the Senate Finance Committee introduced a bill last week proposing to tax private equity firms and hedge funds as corporations, hiking their tax rate to 35% from 15% Previous HedgeWorld Story. The proposed legislation and its timing were perceived on the Street as a direct attack against Blackstone's Chief Executive, Stephen Schwarzman. In a matter of days, the bill was quickly nicknamed the "Blackstone bill."
Since then, Mr. Schwarzman and his partners came under intensified pressure from Congress. Rep. Charles Rangel (D-N.Y.), chairman of the House Ways and Means Committee, applauded the Senate's bill. On Wednesday [June 20], Rep. Peter Welch (D-Vt.) introduced its own harsher version of the bill, eliminating the five-year grace period provided by the initial Senate proposal. "There is absolutely no reason some of the richest partnerships in the world should be able to rip off American taxpayers because of a gaping loophole," Mr. Welch said in a statement prior to Blackstone's IPO. Max Baucus (D-Mont.), chairman of the Senate Finance Committee and co-author of the Senate tax bill, said in a statement that he was open to discussing the idea of shortening his proposed five-year transition period.
Even yesterday [June 21], a few hours before Blackstone priced its offering, two representatives, Domestic Policy Subcommittee Chairman Dennis Kucinich (D-Ohio) and Oversight and Government Reform Committee Chairman Henry Waxman (D-Calif.) joined the fray and released a letter to the Securities and Exchange Commission urging the commission to postpone the offering.
For some, the sudden emergence of such negative sentiment from Washington was dazzling.
"This is a witch-hunt. It's Blackstone vs. Washington," said David Menlow, founder of IPO Financial Network, a Millburn, N.J.-based IPO research firm.
By disclosing their hefty compensation, Mr. Schwarzman and his colleagues may have unwillingly started a controversy. Seeking a public listing, they had no choice of course but to disclose such information to the public through SEC filings, which is why many hedge funds and private equity firms are simply ruling out the IPO option. The press took note of Blackstone's S-1 filing last week, in which the firm revealed that Mr. Schwarzman stood to be worth $7.5 billion after the listing Previous HedgeWorld Story.
While it's hard to say whether this public disclosure of wealth triggered some reactions in Washington, it certainly helped fuel a negative sentiment on private equity riches and contributed to make the IPO even more controversial.
"Politicians all like to spend money and you've got to have money to spend money," Mr. Abbott said. "But you don't want to be seen as raising taxes. Politically, being able to say: ‘We didn't raise taxes, we fixed a loophole' is a freebie."
By introducing the tax bills, lawmakers led some analysts to believe that Blackstone might have to discount its offering price. The firm itself in a recent filing had acknowledged that the newly created tax risk would decrease the company's valuation.
The speculation continued into this week with some reports suggesting that the Senate Finance Committee might go so far as to revise the taxation of the carried interest—the 20% performance fee—which is the bread and butter of hedge fund and private equity managers.
Ernst & Young published a note this week cautioning its clients on the public listing of private equity and hedge funds. "In light of this proposed legislation, private equity and hedge fund managers that are considering public issuances of their interests may want to reconsider their economic analysis given the potential increased tax burden," wrote Howard Leventhal, partner in Ernst & Young's global hedge fund practice along with his colleague David Racich, senior manager.
Other factors besides politics clouded Blackstone's IPO, as well. One of them was simply the market picture in the United States. "We aren't recommending that our clients buy shares at the Blackstone IPO. In addition to the usual concerns about possible corporate taxation and lack of experience being a public company, we think the bloom is off the rose for mega buyouts and are very substantially underweighting that sector of the private equity market," said Gregory Curtis, chairman of Greycourt & Co., Inc., a Pittsburgh-based family office, in an email. With interest rates moving up and credit spreads as tight as they are, the financial conditions to secure loans and finance those deals have indeed worsened.
Finally another negative was one key structural aspect of the transaction itself. Blackstone, in issuing common units instead of shares, was not offering voting rights to its investors, a difference that might put off many potential buyers.
Despite all those hurdles, the pricing was still successful. Indeed, on top of the $4.13 billion in proceeds from the IPO, Blackstone is also getting $3 billion from the Chinese government, which bought a stake in the company last month Previous HedgeWorld Story. "It's not a $4 billion IPO. Overall, Blackstone is getting $7 billion off the table," said Mr. Gaskins. The deal was between seven and 12 times oversubscribed, according to IPO analysts.
A few simple facts explain why the deal was so popular. Blackstone, with $88 billion under management, is a powerhouse that completed some record-breaking deals, such as the acquisition last November of Equity Office Properties Trust for $36 billion including debt.
Blackstone's corporate private equity funds have generated a 22% annual return since inception in 1987, according to pre-IPO filings. The real estate funds have yielded 31% annually since 1992. That kind of performance in the alternative investment universe is hard to match.
"The very real possibility of these [private equity] groups paying tax at the corporate level has not dampened investor interest because they are such fundamentally sound investments. On an apples-for-apples comparison (i.e., against other public companies,) Blackstone is still a great investment," said Jay Gould, a San Francisco-based partner with law firm Pillsbury Winthrop Shaw Pittman LLP.
And there is also the Asian factor. According to some IPO research analysts, a lot of the demand for the units came from overseas. The Blackstone deal offers something unique: a door to Asia. "The U.S. private equity market is negative as there are too many deals. But the Asian markets for leveraged buyouts and real estate are untapped compared to the mature U.S. market," said Mr. Gaskins.
Blackstone succeeded in doing what many private equity firms would certainly like to do as well: Partner with the Chinese government. "I wouldn't be surprised if the Government of China ended up giving Blackstone money to manage," Mr. Gaskins said. "China could easily give them $50 billion. It makes a lot of sense. They're partners now. They might as well let Blackstone manage their money in China doing what Blackstone has been successfully doing in the US."
If his prediction turns out to be true, the value of the Blackstone shares would be enhanced through the additional management fees and carried interests.
"The Chinese Government has bought itself a window in the private equity business. I don't know any other private equity player whose partner is the Chinese government," Mr. Gaskins said.
Another advantage for Blackstone: The proposed legislations may never make it through Congress, and many potential investors know that.
"I don't think those bills will pass. They would have a chilling effect on other partnerships in sectors such as energy or real estate and people know that it would drive business offshore and that tax revenues would decline," said Mr. Menlow.
"Without the support from [Democrats Charles] Schumer and [Hillary] Clinton, two powerful senators, this tax bill will have a hard time passing. Schumer and Clinton get a lot of money from Wall Street and they have been obvious by their silence: They don't want to bite the hands that feed them," Mr. Gaskins said. "The two big groups that give a lot of campaign contribution money to Washington, the oil and gas industry and Wall Street, will fight this tax bill."
Some investors who attended the roadshow and won't participate in the Blackstone IPO may be interested in buying later.
"One of our analysts met with Mr. Schwarzman Wednesday [June 20] and was very impressed. We're not going to go to the IPO because it's seven times oversubscribed. But we're seriously considering it for the future," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. He added that the lack of voting rights creates issues because Harris requires equal voting rights when investing in a company. But he is hopeful those internal compliance obstacles will be resolved down the road.
While Blackstone succeeded in pricing its deal on the high-end of the range due to strong demand, success is not a guarantee until the stock actually trades in the market. "What's important is Friday's trading," said Mr. Menlow. "You don't want to see what happened with Fortress Investment Group LLC." Fortress, which went public in February was priced at $18 and opened at $35. Since the IPO, it has traded as low as $23. It closed at $25.88 yesterday [June 21]. "You don't want the stock price to jump up at the opening. I'd like to see it open at a 10-20% premium and close higher than the opening," said Mr. Menlow.
Morgan Stanley and Citi are the lead underwriters of the deal. Merrill Lynch & Co., Credit Suisse, Lehman Brothers and Deutsche Bank Securities are joint book-running managers of the offering.
Flight to Quality
Artigo da Bloomberg sobre a inclinação na curva dos Treasuries, que teria sido afetada pela preocupação dos investidores em fugir de fundos com problemas, como o Bear Stearns.
GLG - público, pelo menos nos EUA
Matéria do NY Times sobre o GLG, que deve se tornar público depois de uma fusão com o Freedom Acquisition Holdings.
Hedge Fund Based in London to Go Public in United States
By MICHAEL J. de la MERCED
Published: June 25, 2007
GLG Partners, one of Europe’s largest hedge funds, will go public in the United States through a $3.4 billion merger with an investment company, Freedom Acquisition Holdings, according to people briefed on the transaction.
The unusual deal, which is expected to be announced today, would give GLG, based in London, a footprint in the United States and access to public markets at a time when investors still seem eager for the enormous returns that hedge funds have generated in recent years. GLG, which was founded in 1995 as a division of Lehman Brothers and became independent in 2000, is widely known in Europe but relatively unknown in the United States.
Though GLG had been considering going public for some time and started preparations in April, an approach by one of Freedom’s co-founders, Nicolas Berggruen, helped solidify its plans, a person close to the hedge fund said.
Freedom is a so-called special-purpose acquisition company — a publicly held company that has no operations of its own but is designed to take over other companies. It was founded last year by Mr. Berggruen and Martin E. Franklin, chief executive of a consumer products conglomerate, Jarden.
Freedom will pay GLG $1 billion in cash and 240 million shares, according to people briefed on the transaction. The hedge fund’s management company — as opposed to one of its multibillion-dollar funds — will then be listed on the New York Stock Exchange under the ticker GLG, in place of Freedom, which is listed as FRH on the American Stock Exchange.
GLG’s principals will hold about a 45 percent stake in the new company, while other top-level executives of the hedge fund will own about 11 percent.
The transaction is scheduled to close in the fourth quarter of the year, these people said. After the deal closes, GLG’s investors are expected to reinvest about half their after-tax profits into the company’s more than 40 funds.
Shares in Freedom closed at $10.45 on Friday, giving the company a market value of $677 million.
GLG’s deal makes it the latest alternative investment company that has sought to go public in the United States through unusual means. The Fortress Investment Group undertook a conventional initial public offering in February, but Oaktree Capital Management sold $700 million in shares through a private market run by Goldman Sachs. And on Friday, the Blackstone Group made its debut as a master limited partnership, a structure devised to require minimal disclosure and to give public investors limited say in the company’s governance.
GLG will go public as a corporation, rather than as a partnership like Fortress and Blackstone, and will pay taxes at the corporate rate, people with knowledge of the transaction said. Furthermore, it will describe its earnings as fee income, rather than as capital gains, as many hedge funds and private equity firms do.
This means that at a time when some in Congress have advocated doubling the taxes paid by hedge and private equity funds, GLG would already be paying taxes at a level proposed by a bill introduced Friday by 14 House Democrats.
Also yesterday, Istithmar, an investment company run by the Dubai government, and Sal. Oppenheim, a German private bank, announced that they would each take 3 percent stakes in GLG and would invest in several of the company’s funds.
Noam Gottesman, a founder and co-chief executive of GLG, will become chairman and co-chief of the newly public company. Emmanuel Roman, GLG’s other co-chief executive, will retain that position in the new company.
As part of the deal, Mr. Berggruen and Mr. Franklin of Freedom will join GLG’s board. Also joining the board will be Paul Myners, chairman of the Guardian Media Group of London, and Peter Weinberg, co-founder of Perella Weinberg Partners, the investment bank that advised GLG on the deal.
Hedge Fund Based in London to Go Public in United States
By MICHAEL J. de la MERCED
Published: June 25, 2007
GLG Partners, one of Europe’s largest hedge funds, will go public in the United States through a $3.4 billion merger with an investment company, Freedom Acquisition Holdings, according to people briefed on the transaction.
The unusual deal, which is expected to be announced today, would give GLG, based in London, a footprint in the United States and access to public markets at a time when investors still seem eager for the enormous returns that hedge funds have generated in recent years. GLG, which was founded in 1995 as a division of Lehman Brothers and became independent in 2000, is widely known in Europe but relatively unknown in the United States.
Though GLG had been considering going public for some time and started preparations in April, an approach by one of Freedom’s co-founders, Nicolas Berggruen, helped solidify its plans, a person close to the hedge fund said.
Freedom is a so-called special-purpose acquisition company — a publicly held company that has no operations of its own but is designed to take over other companies. It was founded last year by Mr. Berggruen and Martin E. Franklin, chief executive of a consumer products conglomerate, Jarden.
Freedom will pay GLG $1 billion in cash and 240 million shares, according to people briefed on the transaction. The hedge fund’s management company — as opposed to one of its multibillion-dollar funds — will then be listed on the New York Stock Exchange under the ticker GLG, in place of Freedom, which is listed as FRH on the American Stock Exchange.
GLG’s principals will hold about a 45 percent stake in the new company, while other top-level executives of the hedge fund will own about 11 percent.
The transaction is scheduled to close in the fourth quarter of the year, these people said. After the deal closes, GLG’s investors are expected to reinvest about half their after-tax profits into the company’s more than 40 funds.
Shares in Freedom closed at $10.45 on Friday, giving the company a market value of $677 million.
GLG’s deal makes it the latest alternative investment company that has sought to go public in the United States through unusual means. The Fortress Investment Group undertook a conventional initial public offering in February, but Oaktree Capital Management sold $700 million in shares through a private market run by Goldman Sachs. And on Friday, the Blackstone Group made its debut as a master limited partnership, a structure devised to require minimal disclosure and to give public investors limited say in the company’s governance.
GLG will go public as a corporation, rather than as a partnership like Fortress and Blackstone, and will pay taxes at the corporate rate, people with knowledge of the transaction said. Furthermore, it will describe its earnings as fee income, rather than as capital gains, as many hedge funds and private equity firms do.
This means that at a time when some in Congress have advocated doubling the taxes paid by hedge and private equity funds, GLG would already be paying taxes at a level proposed by a bill introduced Friday by 14 House Democrats.
Also yesterday, Istithmar, an investment company run by the Dubai government, and Sal. Oppenheim, a German private bank, announced that they would each take 3 percent stakes in GLG and would invest in several of the company’s funds.
Noam Gottesman, a founder and co-chief executive of GLG, will become chairman and co-chief of the newly public company. Emmanuel Roman, GLG’s other co-chief executive, will retain that position in the new company.
As part of the deal, Mr. Berggruen and Mr. Franklin of Freedom will join GLG’s board. Also joining the board will be Paul Myners, chairman of the Guardian Media Group of London, and Peter Weinberg, co-founder of Perella Weinberg Partners, the investment bank that advised GLG on the deal.
Thursday, June 21, 2007
Entrevista - Auto-regulação de Hedge Funds
Segue entrevista com Sir Andrew Large, o principal executivo do grupo de hedge funds ingleses que propõe uma auto-regulação para o setor. Segundo ele, a pressão exercida pelo G8 não teve um papel decisivo para o grupo.
Wednesday, June 20, 2007
Blackstone Slava-Vidas
O Blackstone recentemente fez uma proposta para salvar o fundo do Bear Stearns High Grade Structured Credit Strategies Enhanced Leverage Fund.
Regulação Voluntária
Algo impensável por aqui: hedge funds ingleses propondo uma auto-regulação. Será que pega?
Hedge fund firms to consider voluntary standards
Tue Jun 19, 2007 6:48PM EDT
LONDON (Reuters) - A group of leading hedge fund executives is to consider adopting voluntary standards for the fast-growing and much criticized industry.
The group, to be headed by Sir Andrew Large, former deputy governor of the Bank of England, will consult hedge fund managers, prime brokers, administrators and investors among others and present its findings in six months' time.
It will consider greater disclosure of the way hedge fund performance is measured, fees are charged and risk is managed.
The move comes at a time when the $2 trillion hedge fund industry is coming under pressure from some commentators and politicians who favor regulation or supervision and say risky trades could endanger the financial system.
"The industry recognizes it needs doing anyway. It's quite an important step as it's the first time a group of leading hedge fund managers has deliberately got together to look at gaps and improvements (in disclosure)," Large, former head of the Securities and Investments Board, the forerunner of regulatory body the Financial Services Authority, told Reuters.
"It's a recognition of the responsibilities they have as the industry matures and becomes mainstream ... The issue has been germinating for some time. (But) there has been an added impetus for the last four to five months."
The working group comprises 13 hedge fund managers, including Brevan Howard, Centaurus Capital, GLG, Gartmore and Man Group (EMG.L: Quote, Profile, Research), the world's largest listed hedge fund firm, while a number of other hedge fund firms are supporting it.
Large said the group, which also has the support of industry body the Alternative Investment Management Association (AIMA), will not become a voluntary regulator for the industry, however.
"There will be peer group pressure. If leading firms say they intend to comply or explain why not -- this has its own dynamic ... As best practice is articulated it will be seen to be common sense. A number of market-related processes will make sure it happens," Large said.
"It's not about divulging positions. It's about how do firms think about the way they manage risk, how they disclose the way fees are charged, and disclosure in the way performance is measured."
Hedge fund firms to consider voluntary standards
Tue Jun 19, 2007 6:48PM EDT
LONDON (Reuters) - A group of leading hedge fund executives is to consider adopting voluntary standards for the fast-growing and much criticized industry.
The group, to be headed by Sir Andrew Large, former deputy governor of the Bank of England, will consult hedge fund managers, prime brokers, administrators and investors among others and present its findings in six months' time.
It will consider greater disclosure of the way hedge fund performance is measured, fees are charged and risk is managed.
The move comes at a time when the $2 trillion hedge fund industry is coming under pressure from some commentators and politicians who favor regulation or supervision and say risky trades could endanger the financial system.
"The industry recognizes it needs doing anyway. It's quite an important step as it's the first time a group of leading hedge fund managers has deliberately got together to look at gaps and improvements (in disclosure)," Large, former head of the Securities and Investments Board, the forerunner of regulatory body the Financial Services Authority, told Reuters.
"It's a recognition of the responsibilities they have as the industry matures and becomes mainstream ... The issue has been germinating for some time. (But) there has been an added impetus for the last four to five months."
The working group comprises 13 hedge fund managers, including Brevan Howard, Centaurus Capital, GLG, Gartmore and Man Group (EMG.L: Quote, Profile, Research), the world's largest listed hedge fund firm, while a number of other hedge fund firms are supporting it.
Large said the group, which also has the support of industry body the Alternative Investment Management Association (AIMA), will not become a voluntary regulator for the industry, however.
"There will be peer group pressure. If leading firms say they intend to comply or explain why not -- this has its own dynamic ... As best practice is articulated it will be seen to be common sense. A number of market-related processes will make sure it happens," Large said.
"It's not about divulging positions. It's about how do firms think about the way they manage risk, how they disclose the way fees are charged, and disclosure in the way performance is measured."
Monday, June 18, 2007
Lehman Strikes Again...
A Lehman compra mais uma participação em uma asset especializada em hedge funds.
Lehman Buys Piece of FoF IAM
by Christopher Glynn, Reporter June 18, 2007
Lehman Bros. has bought a stake in Integrated Asset Management, according to a report.
The investment bank is now a 9.4% owner of IAM, a fund-of-funds company traded on the Alternative Investment Market, a segment of the London Stock Exchange.
Lehman Bros. paid $9.3 million for its stake in IAM, the report said.
London-based IAM in May had revealed it was in discussion with an unnamed investment bank about selling a stake in itself.
Since 2005, Lehman Bros. has been buying minority-ownership in several hedge fund businesses. In March, it bought a 20% stake in D.E. Shaw & Co. Lehman is also part-owner in GLG, Marble Bar Asset Management, Ospraie Management and Spinnaker Capital.
Lehman Buys Piece of FoF IAM
by Christopher Glynn, Reporter June 18, 2007
Lehman Bros. has bought a stake in Integrated Asset Management, according to a report.
The investment bank is now a 9.4% owner of IAM, a fund-of-funds company traded on the Alternative Investment Market, a segment of the London Stock Exchange.
Lehman Bros. paid $9.3 million for its stake in IAM, the report said.
London-based IAM in May had revealed it was in discussion with an unnamed investment bank about selling a stake in itself.
Since 2005, Lehman Bros. has been buying minority-ownership in several hedge fund businesses. In March, it bought a 20% stake in D.E. Shaw & Co. Lehman is also part-owner in GLG, Marble Bar Asset Management, Ospraie Management and Spinnaker Capital.
Singapura
Singapura tem se despontado como centro financeiro no Sudeste Asiático, ao lado de Hong Kong, como comprova o crescente interesse de hedge funds por este país.
Singapore's Chinatown new home for hedge funds
By Saeed Azhar | June 17, 2007
SINGAPORE (Reuters) - Hedge fund managers around the world have clustered in locations with character, such as leafy Greenwich, Connecticut in the U.S. and the stately Mayfair neighborhood in London.
"Hedge fund managers like to be in a slightly more alternative environment. It's understandable that if you've worked in an investment bank for a long time, you would seek to escape the glass-walled environment," said Kate Colchester, a director at Singapore-based hedge fund research firm Eurekahedge.
With registered hedge fund assets of about $10 billion according to Eurekahedge, the hedge fund industry in Singapore is smaller than in Hong Kong, which has about $33.5 billion in hedge fund assets, according to official data.
But adding Singapore-registered hedge funds to global hedge fund assets managed here, Merrill Lynch estimates that hedge fund assets managed in Singapore total up to $25 billion and could rise to $100 billion in three years.
While several smaller hedge funds rent space in between the restaurants and tea houses of Telok Ayer Street and Amoy Street, the centre of much of the hedge fund action is One George Street, a gleaming 23-storey office block.
Like One Curzon Street in Mayfair, the building has attracted a string of hedge fund tenants, including Tudor Capital, Man Investments and Alphadyne Asset Management.
One George Street's proximity to the city's downtown has also sucked in some of the biggest names in the traditional asset management industry as well, including Fidelity, Legg Mason and Singapore's leading fund manager Lion Capital.
The latest arrival was Swiss-based RMF, which has $23 billion of hedge fund assets globally.
In January, RMF moved its Asia headquarter to Singapore from Tokyo in January, largely because of the attractive regulatory climate, international environment, and better lifestyle for its employees.
"We made a review of all the major financial centres in Asia and after that Singapore came out at the top," said Adrian Gmuer, business manager at RMF - which is part of Man Investments.
Last year 102 Asian-focused hedge funds had their decision-making centres in Singapore, compared to 152 in Hong Kong, 122 in Australia, 80 in Tokyo and over 250 in London, Eurekahedge said.
Industry watchers say that low taxes, flexible regulation and a vast pool of money are the main attraction for hedge funds, along with Singapore's clean air and English-speaking workforce.
DRAWCARD
One major draw is the presence of two big state-backed investment firms; Temasek Holdings and Government of Singapore Investment Corp. (GIC), which manages Singapore's reserves.
Temasek and the GIC have assets of $84 billion and $100 billion respectively, and many of the fund managers who flock to Singapore compete for the mandates to invest the portion that is placed with independent investment firms.
The GIC, which has 20 percent of its portfolio in hedge funds, private equity, real estate and commodities, may increase its investments in hedge funds and private equity, executives said last year.
Last month, two former executives from Goldman Sachs launched Broad Peak Management, a hedge fund firm with more than $1 billion in assets -- including money managed for Temasek, according to industry sources. State-owned Temasek invests in hedge funds through its Fullerton Fund Management unit.
Hedge fund managers say there are several other advantages of being based in Singapore, even for funds which invest in Southeast Asia, Japan or India, including tax breaks, and an attractive legal and regulatory environment.
"From a regulatory perspective, Singapore is actually more flexible as compared to Hong Kong," said Justin Ong, wealth management specialist at PricewaterhouseCoopers Singapore.
He said that fund managers who meet the Singapore regulatory requirements for exemption from licensing are up and running in two weeks, while "start-ups in Hong Kong need to be registered and licensed with the Hong Kong regulator, including sitting for and passing exams before they can commence operations - which will take them up to three to four months."
RMF's Gmuer said the buzz in Singapore reminds him of the time he spent in New York between 2000 and 2003, when the hedge fund industry exploded into the mainstream in the United States.
"At all those cocktail parties in New York, you would bump into all kinds of people from the hedge fund industry. The exact thing is happening here," he said.
© Copyright 2007 Reuters. Reuters content is the intellectual property of Reuters or its third-party content providers. Any copying, republication, or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters.
Singapore's Chinatown new home for hedge funds
By Saeed Azhar | June 17, 2007
SINGAPORE (Reuters) - Hedge fund managers around the world have clustered in locations with character, such as leafy Greenwich, Connecticut in the U.S. and the stately Mayfair neighborhood in London.
"Hedge fund managers like to be in a slightly more alternative environment. It's understandable that if you've worked in an investment bank for a long time, you would seek to escape the glass-walled environment," said Kate Colchester, a director at Singapore-based hedge fund research firm Eurekahedge.
With registered hedge fund assets of about $10 billion according to Eurekahedge, the hedge fund industry in Singapore is smaller than in Hong Kong, which has about $33.5 billion in hedge fund assets, according to official data.
But adding Singapore-registered hedge funds to global hedge fund assets managed here, Merrill Lynch estimates that hedge fund assets managed in Singapore total up to $25 billion and could rise to $100 billion in three years.
While several smaller hedge funds rent space in between the restaurants and tea houses of Telok Ayer Street and Amoy Street, the centre of much of the hedge fund action is One George Street, a gleaming 23-storey office block.
Like One Curzon Street in Mayfair, the building has attracted a string of hedge fund tenants, including Tudor Capital, Man Investments and Alphadyne Asset Management.
One George Street's proximity to the city's downtown has also sucked in some of the biggest names in the traditional asset management industry as well, including Fidelity, Legg Mason and Singapore's leading fund manager Lion Capital.
The latest arrival was Swiss-based RMF, which has $23 billion of hedge fund assets globally.
In January, RMF moved its Asia headquarter to Singapore from Tokyo in January, largely because of the attractive regulatory climate, international environment, and better lifestyle for its employees.
"We made a review of all the major financial centres in Asia and after that Singapore came out at the top," said Adrian Gmuer, business manager at RMF - which is part of Man Investments.
Last year 102 Asian-focused hedge funds had their decision-making centres in Singapore, compared to 152 in Hong Kong, 122 in Australia, 80 in Tokyo and over 250 in London, Eurekahedge said.
Industry watchers say that low taxes, flexible regulation and a vast pool of money are the main attraction for hedge funds, along with Singapore's clean air and English-speaking workforce.
DRAWCARD
One major draw is the presence of two big state-backed investment firms; Temasek Holdings and Government of Singapore Investment Corp. (GIC), which manages Singapore's reserves.
Temasek and the GIC have assets of $84 billion and $100 billion respectively, and many of the fund managers who flock to Singapore compete for the mandates to invest the portion that is placed with independent investment firms.
The GIC, which has 20 percent of its portfolio in hedge funds, private equity, real estate and commodities, may increase its investments in hedge funds and private equity, executives said last year.
Last month, two former executives from Goldman Sachs launched Broad Peak Management, a hedge fund firm with more than $1 billion in assets -- including money managed for Temasek, according to industry sources. State-owned Temasek invests in hedge funds through its Fullerton Fund Management unit.
Hedge fund managers say there are several other advantages of being based in Singapore, even for funds which invest in Southeast Asia, Japan or India, including tax breaks, and an attractive legal and regulatory environment.
"From a regulatory perspective, Singapore is actually more flexible as compared to Hong Kong," said Justin Ong, wealth management specialist at PricewaterhouseCoopers Singapore.
He said that fund managers who meet the Singapore regulatory requirements for exemption from licensing are up and running in two weeks, while "start-ups in Hong Kong need to be registered and licensed with the Hong Kong regulator, including sitting for and passing exams before they can commence operations - which will take them up to three to four months."
RMF's Gmuer said the buzz in Singapore reminds him of the time he spent in New York between 2000 and 2003, when the hedge fund industry exploded into the mainstream in the United States.
"At all those cocktail parties in New York, you would bump into all kinds of people from the hedge fund industry. The exact thing is happening here," he said.
© Copyright 2007 Reuters. Reuters content is the intellectual property of Reuters or its third-party content providers. Any copying, republication, or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters.
Blackstone X Fisco
Uma nova regra para os impostos com ganhos de capital é a mais nova ameaça ao IPO do Blackstone.
Will Blackstone Have the Honor of Its Own Tax Law?
By ANDREW ROSS SORKIN
Published: June 17, 2007
LAST week, Uncle Sam made his first foray into possibly raising taxes on the private equity and hedge fund industry with what Wall Street has dubbed “the Blackstone bill.”
After suggesting for months that a new tax regime might be imposed on the two booming sectors, Senator Max Baucus, the Montana Democrat who leads the Senate Finance Committee, and Senator Charles E. Grassley of Iowa, the ranking Republican member, introduced a bill on Thursday paving the way for an increase on any publicly traded funds.
In practice, however, the bill hardly casts a wide net. It appears to be seeking only one big fish: Stephen A. Schwarzman, the chief executive of the Blackstone Group. Mr. Schwarzman has spent the last week on a road show drumming up interest from investors for his firm’s initial public offering of stock, which had been scheduled for as early as next week.
The offering is already laboring under the impact that escalating interest rates would have on Blackstone’s finances and deal making. The addition of a possible tax increase could mean that the offering’s valuation could be reduced — possibly as much as 20 percent — or delayed. Blackstone, citing the “quiet period” for stock offerings, declined to comment.
An aide for the Senate Finance Committee, who requested anonymity, scoffed at the idea that the tax proposal was specifically aimed at Mr. Schwarzman. “I wouldn’t say that,” the aide said, adding that Blackstone has been pummeled enough and its “ears are already bleeding.” Senator Baucus and Senator Grassley would not comment beyond the statement they made Thursday.
The bill would increase the tax rate to 35 percent from 15 percent on publicly traded partnerships that derive most of their income from asset management and financial services, effectively treating such firms — Blackstone is one of the most prominent — as ordinary corporations.
But the bill hardly touches the private equity and hedge fund industry as a whole because it goes after only publicly traded firms — and virtually all private equity firms and hedge funds are private. Only about a handful of publicly traded firms would be affected by the bill. The biggest is the Fortress Investment Group. Even then, those firms would not have to pay the increased tax rate until 2012, and by then some new senator might come along and seek to repeal the measure. Despite the time lag, Fortress lost 7.7 percent of its stock market value last week.
Of course, the bill would indirectly affect all the other private equity firms and hedge funds that have been chomping at the bit to go public. A virtual traffic jam had been forming on the initial-public-offering runway behind Blackstone. Now, those firms are likely to reconsider.
Mr. Schwarzman agrees; he said Thursday that he believes that the government is “going to try and stop future offerings from happening.”
If other private equity firms, like the Carlyle Group and Apollo Management, decide against going public — or decide to do so instead in Europe, where they can avoid the tax increase — the greater transparency that regulators, analysts and investors have been avidly seeking from funds will probably not happen.
From a purely economic perspective, the proposed law would be unlikely to raise more than a modicum of money for the Treasury, but then again, legislators are not pursuing this matter just to fill government coffers. Even so, there is a possibility that publicly traded fund companies would fork over far more in taxes to Uncle Sam than they now do as privately held firms.
Mr. Schwarzman has courted controversy with his audacious displays of wealth — his glowingly chronicled 60th birthday party has been cited — and that may be one reason legislators have taken greater notice of how he and his private equity colleagues operate. But Blackstone also just sold a major stake in the firm to the Chinese government. That makes Mr. Schwarzman a tricky target for federal legislators because they may have to contend with White House officials, who lauded the transaction.
Other unresolved issues surround the tax bill. Chief among them, perhaps, is that it does not address how to tax “carried interest,” the euphemism for the hefty performance fees that fund managers haul in. Private equity executives now pay only capital gains rates on those fees instead of ordinary income taxes like virtually every other corporate executive in the nation.
If private equity firms remain private — and the two senators don’t propose another bill that seeks to prevent private equity executives from counting carried interest at capital gains rates — they will be back to where they started. The Blackstone bill will have been simply an exercise in political headline writing.
Whether Senator Baucus and Senator Grassley consider the bill to be a prelude to a larger effort that goes after carried interest remains unclear; the Senate aide said, “I wouldn’t call this a first step — we continue to look at the issues.”
So, at least for now, Uncle Sam is not showing his hand.
Will Blackstone Have the Honor of Its Own Tax Law?
By ANDREW ROSS SORKIN
Published: June 17, 2007
LAST week, Uncle Sam made his first foray into possibly raising taxes on the private equity and hedge fund industry with what Wall Street has dubbed “the Blackstone bill.”
After suggesting for months that a new tax regime might be imposed on the two booming sectors, Senator Max Baucus, the Montana Democrat who leads the Senate Finance Committee, and Senator Charles E. Grassley of Iowa, the ranking Republican member, introduced a bill on Thursday paving the way for an increase on any publicly traded funds.
In practice, however, the bill hardly casts a wide net. It appears to be seeking only one big fish: Stephen A. Schwarzman, the chief executive of the Blackstone Group. Mr. Schwarzman has spent the last week on a road show drumming up interest from investors for his firm’s initial public offering of stock, which had been scheduled for as early as next week.
The offering is already laboring under the impact that escalating interest rates would have on Blackstone’s finances and deal making. The addition of a possible tax increase could mean that the offering’s valuation could be reduced — possibly as much as 20 percent — or delayed. Blackstone, citing the “quiet period” for stock offerings, declined to comment.
An aide for the Senate Finance Committee, who requested anonymity, scoffed at the idea that the tax proposal was specifically aimed at Mr. Schwarzman. “I wouldn’t say that,” the aide said, adding that Blackstone has been pummeled enough and its “ears are already bleeding.” Senator Baucus and Senator Grassley would not comment beyond the statement they made Thursday.
The bill would increase the tax rate to 35 percent from 15 percent on publicly traded partnerships that derive most of their income from asset management and financial services, effectively treating such firms — Blackstone is one of the most prominent — as ordinary corporations.
But the bill hardly touches the private equity and hedge fund industry as a whole because it goes after only publicly traded firms — and virtually all private equity firms and hedge funds are private. Only about a handful of publicly traded firms would be affected by the bill. The biggest is the Fortress Investment Group. Even then, those firms would not have to pay the increased tax rate until 2012, and by then some new senator might come along and seek to repeal the measure. Despite the time lag, Fortress lost 7.7 percent of its stock market value last week.
Of course, the bill would indirectly affect all the other private equity firms and hedge funds that have been chomping at the bit to go public. A virtual traffic jam had been forming on the initial-public-offering runway behind Blackstone. Now, those firms are likely to reconsider.
Mr. Schwarzman agrees; he said Thursday that he believes that the government is “going to try and stop future offerings from happening.”
If other private equity firms, like the Carlyle Group and Apollo Management, decide against going public — or decide to do so instead in Europe, where they can avoid the tax increase — the greater transparency that regulators, analysts and investors have been avidly seeking from funds will probably not happen.
From a purely economic perspective, the proposed law would be unlikely to raise more than a modicum of money for the Treasury, but then again, legislators are not pursuing this matter just to fill government coffers. Even so, there is a possibility that publicly traded fund companies would fork over far more in taxes to Uncle Sam than they now do as privately held firms.
Mr. Schwarzman has courted controversy with his audacious displays of wealth — his glowingly chronicled 60th birthday party has been cited — and that may be one reason legislators have taken greater notice of how he and his private equity colleagues operate. But Blackstone also just sold a major stake in the firm to the Chinese government. That makes Mr. Schwarzman a tricky target for federal legislators because they may have to contend with White House officials, who lauded the transaction.
Other unresolved issues surround the tax bill. Chief among them, perhaps, is that it does not address how to tax “carried interest,” the euphemism for the hefty performance fees that fund managers haul in. Private equity executives now pay only capital gains rates on those fees instead of ordinary income taxes like virtually every other corporate executive in the nation.
If private equity firms remain private — and the two senators don’t propose another bill that seeks to prevent private equity executives from counting carried interest at capital gains rates — they will be back to where they started. The Blackstone bill will have been simply an exercise in political headline writing.
Whether Senator Baucus and Senator Grassley consider the bill to be a prelude to a larger effort that goes after carried interest remains unclear; the Senate aide said, “I wouldn’t call this a first step — we continue to look at the issues.”
So, at least for now, Uncle Sam is not showing his hand.
Friday, June 15, 2007
Efeito no crédito
Este artigo do Financial Times fala sobre o efeito negativo dos hedge funds sobre o crédito, após um alerta da Fitch.
Fitch warns of negative 'hedge fund effect' on credit
By Stacy-Marie Ishmael
Published: June 7 2007 03:00 | Last updated: June 7 2007 03:00
Hedge funds are helping to fuel a global credit boom, but their growing influence on credit markets is likely to have negative consequences, a new report by Fitch Ratings has found.
Such funds now account for almost 60 per cent of trading volumes in credit default swaps - derivatives that provide a kind of insurance against non-payment on corporate debt. The CDS market has more than doubled in the past four years, according to Markit, the data group.
"Hedge funds' willingness to trade frequently, employ leverage, and invest in the more leveraged, risky areas of the credit markets magnifies their importance as a source of liquidity," the Fitch report said.
Credit-oriented strategies were one of the fastest areas of growth for hedge funds. They now have between $15,000bn and $18,000bn of assets deployed in the credit markets.
These numbers reflect high leverage multiples: hedge funds regularly borrow up to five and six times the value of their assets under management.
But the rising power of hedge funds in the credit markets has come at a cost, Fitch warned.
Innovations in the credit market, which has become a veritable alphabet soup of complex and illiquid structured products, have been largely driven by hedge funds' demand for products that generate higher returns. Funds have also been pressuring their prime brokers to continually relax credit terms, andprovide secured financing for their less liquid positions.
Consequently, investors face increased liquidity risk, since the next downturn could involve sudden and correlated declines in asset prices as funds and prime brokers try to unwind their positions.
"The potential for a more synchronous, forced unwind of credit assets cannot be discounted," Fitch said.
"During a period of market stress, any such forced selling of assets would be magnified by the effects of leverage."
Moreover, hedge funds have introduced a new and untested behavioural element into the markets. "Even if hedge funds retain the financial wherewithal to hold credit assets in a downturn, it is not clear whether they will have the willingness," Fitch said.
In short, hedge funds have made it even more difficult predict how credit markets would behave if prevailing benign conditions end.
This uncertainty is significant because, according to Fitch, even a temporary dislocation in the credit markets could lead to a rash of defaults, particularly among more marginal names with upcoming debt maturities.
Investors should therefore proceed with caution.
"Of concern would be an ill-timed event that led to a sudden reversal of this liquidity across multiple segments of the credit markets," Fitch said.
Fitch warns of negative 'hedge fund effect' on credit
By Stacy-Marie Ishmael
Published: June 7 2007 03:00 | Last updated: June 7 2007 03:00
Hedge funds are helping to fuel a global credit boom, but their growing influence on credit markets is likely to have negative consequences, a new report by Fitch Ratings has found.
Such funds now account for almost 60 per cent of trading volumes in credit default swaps - derivatives that provide a kind of insurance against non-payment on corporate debt. The CDS market has more than doubled in the past four years, according to Markit, the data group.
"Hedge funds' willingness to trade frequently, employ leverage, and invest in the more leveraged, risky areas of the credit markets magnifies their importance as a source of liquidity," the Fitch report said.
Credit-oriented strategies were one of the fastest areas of growth for hedge funds. They now have between $15,000bn and $18,000bn of assets deployed in the credit markets.
These numbers reflect high leverage multiples: hedge funds regularly borrow up to five and six times the value of their assets under management.
But the rising power of hedge funds in the credit markets has come at a cost, Fitch warned.
Innovations in the credit market, which has become a veritable alphabet soup of complex and illiquid structured products, have been largely driven by hedge funds' demand for products that generate higher returns. Funds have also been pressuring their prime brokers to continually relax credit terms, andprovide secured financing for their less liquid positions.
Consequently, investors face increased liquidity risk, since the next downturn could involve sudden and correlated declines in asset prices as funds and prime brokers try to unwind their positions.
"The potential for a more synchronous, forced unwind of credit assets cannot be discounted," Fitch said.
"During a period of market stress, any such forced selling of assets would be magnified by the effects of leverage."
Moreover, hedge funds have introduced a new and untested behavioural element into the markets. "Even if hedge funds retain the financial wherewithal to hold credit assets in a downturn, it is not clear whether they will have the willingness," Fitch said.
In short, hedge funds have made it even more difficult predict how credit markets would behave if prevailing benign conditions end.
This uncertainty is significant because, according to Fitch, even a temporary dislocation in the credit markets could lead to a rash of defaults, particularly among more marginal names with upcoming debt maturities.
Investors should therefore proceed with caution.
"Of concern would be an ill-timed event that led to a sudden reversal of this liquidity across multiple segments of the credit markets," Fitch said.
Distressed funds
Restructuring plans get scrutiny from investors
From Chicago Tribune, provided by LexisNexis)Publication: Chicago Tribune
Dow Jones Newswires
At a time when a historically low default rate is making distressed investments more scarce, investors are becoming more specialized, and litigious, in their quest for returns.
While such investors are accustomed to navigating their way through complex restructurings and bankruptcy court proceedings, some are increasingly inclined to dabble specifically in pending litigation against companies in distress or default, a tactic known as legal arbitrage.
These distressed-debt specialists are looking more than ever for new ways to squeeze as much as they can out of a market parched by a low default rate. One outgrowth has been a burgeoning market for company debt that carries with it rights to potential litigation claims in particularly thorny restructurings, experts say.
Investors accustomed to valuing distressed securities are now arming themselves with teams of restructuring lawyers and other specialists, trying to factor in the economics of litigation risk.
"There are different styles within distressed investing that can range from passive to very active and that vary case by case," said Martin Fridson, publisher of the Distressed Debt Investor research service. "Legal arbitrage is very hands-on and specialized."
Distressed debt generally refers to bonds of companies that have either defaulted or appear to be at a heightened risk of doing so. Bonds that trade at distressed prices can make attractive investments for investors with a strong stomach for risk.
This has tended to make such instruments the territory of hedge funds, vulture investors and private equity, who often amass large stakes in such credits to wield greater influence in restructuring proceedings.
In recent months, however, the distress ratio, as measured as the percentage of high-yield securities trading at spreads of more than 1,000 basis points above Treasuries, has fallen below 1 percent, according to Standard & Poor's. A basis point is 0.01 percent.
As spreads have compressed and defaults have dried up, investors accustomed to trafficking in distressed-debt instruments are finding them in short supply and are being forced to get creative.
One such play has involved cases where fraud has become a key theme in bankruptcy proceedings. Lately, hedge funds have gone into such litigious situations and tried to make a market in affiliated claims.
"You're seeing investors come in with a higher appetite for taking on risk," said Andrew Scruton, a senior managing director at FTI Consulting. "It's becoming a very efficient marketplace. Investors are bringing in more money or more expertise, and the scrutiny into each situation is becoming much more intense."
Scruton said funds have stepped up their research into distressed names, searching filings, press clippings and court dockets for references to fraud or other irregularities. After targeting a particular company, funds will often buy a small piece of that company's debt, which then affords them access to information available to existing holders of that debt.
Issues relating to what information is public versus private can make it tricky for the parties in a transaction to trade with the same level of information, but Scruton said the process continues to grow more efficient.
"There's a lot of market chatter," Scruton said. "Often the sell-side guys at big-name banks might make a market in the debt and alert the funds they know that have an interest in these types of situations."
From Chicago Tribune, provided by LexisNexis)Publication: Chicago Tribune
Dow Jones Newswires
At a time when a historically low default rate is making distressed investments more scarce, investors are becoming more specialized, and litigious, in their quest for returns.
While such investors are accustomed to navigating their way through complex restructurings and bankruptcy court proceedings, some are increasingly inclined to dabble specifically in pending litigation against companies in distress or default, a tactic known as legal arbitrage.
These distressed-debt specialists are looking more than ever for new ways to squeeze as much as they can out of a market parched by a low default rate. One outgrowth has been a burgeoning market for company debt that carries with it rights to potential litigation claims in particularly thorny restructurings, experts say.
Investors accustomed to valuing distressed securities are now arming themselves with teams of restructuring lawyers and other specialists, trying to factor in the economics of litigation risk.
"There are different styles within distressed investing that can range from passive to very active and that vary case by case," said Martin Fridson, publisher of the Distressed Debt Investor research service. "Legal arbitrage is very hands-on and specialized."
Distressed debt generally refers to bonds of companies that have either defaulted or appear to be at a heightened risk of doing so. Bonds that trade at distressed prices can make attractive investments for investors with a strong stomach for risk.
This has tended to make such instruments the territory of hedge funds, vulture investors and private equity, who often amass large stakes in such credits to wield greater influence in restructuring proceedings.
In recent months, however, the distress ratio, as measured as the percentage of high-yield securities trading at spreads of more than 1,000 basis points above Treasuries, has fallen below 1 percent, according to Standard & Poor's. A basis point is 0.01 percent.
As spreads have compressed and defaults have dried up, investors accustomed to trafficking in distressed-debt instruments are finding them in short supply and are being forced to get creative.
One such play has involved cases where fraud has become a key theme in bankruptcy proceedings. Lately, hedge funds have gone into such litigious situations and tried to make a market in affiliated claims.
"You're seeing investors come in with a higher appetite for taking on risk," said Andrew Scruton, a senior managing director at FTI Consulting. "It's becoming a very efficient marketplace. Investors are bringing in more money or more expertise, and the scrutiny into each situation is becoming much more intense."
Scruton said funds have stepped up their research into distressed names, searching filings, press clippings and court dockets for references to fraud or other irregularities. After targeting a particular company, funds will often buy a small piece of that company's debt, which then affords them access to information available to existing holders of that debt.
Issues relating to what information is public versus private can make it tricky for the parties in a transaction to trade with the same level of information, but Scruton said the process continues to grow more efficient.
"There's a lot of market chatter," Scruton said. "Often the sell-side guys at big-name banks might make a market in the debt and alert the funds they know that have an interest in these types of situations."
Thursday, June 14, 2007
Hard Assets
Artigo do Wall Street Journal
Buying Protection: How to Use Hard Assets To Hedge Your Bets
The world's natural resources are limited -- but apparently there's no limit to investor enthusiasm.
Commodity, precious-metals and natural-resources funds now boast $112 billion in assets, up from $8 billion at year-end 2001, according to Morningstar Inc. No doubt many buyers are simply chasing the funds' mostly dazzling performance of the past eight years.
Yet that isn't the reason to buy them. Instead, as yesterday's market drop reminds us, it's good to own something that goes up when stocks and bonds get battered. But which hard-asset funds offer the best bear-market protection?
Natural resources. In the past, investors have often turned to natural-resources stocks.
For instance, the late Thomas Rowe Price Jr., founder of the fund company that bears his name, launched T. Rowe Price New Era in 1969. Mr. Price reckoned rapid inflation lay ahead, and he figured natural-resources companies would be a good hedge. Sure enough, the fund gained a cumulative 142% during the high-inflation 1970s, versus 77% for the Standard & Poor's 500-stock index and inflation's 104%.
Sound appealing? Natural-resources funds ought to generate long-term returns similar to the broad market, and they should fare well when oil prices climb, because many of the funds focus largely or entirely on energy companies. But if we get rough markets that aren't driven by escalating oil prices, the funds may not offer much portfolio protection.
"You basically get stock-market risk when you invest in natural-resources stocks," argues Mark Willoughby, a financial planner in Old Tappan, N.J. "If you want the diversification benefits, you've got to own the commodities."
Commodities. Indeed, much of today's buzz is about funds that own commodity futures or other derivatives, plus bonds or Treasury bills.
Historically, that mix has generated a pattern of returns totally unlike stocks and bonds, while delivering long-term results that rival those of the S&P 500, according to a study by academics Gary Gorton and K. Geert Rouwenhorst in the Financial Analysts Journal.
What's driven that impressive performance? Futures buyers allow producers to hedge their commodity exposure -- for which they have been handsomely rewarded. "The question is, with all the money flowing into commodity futures over the past five years, will that historical premium disappear?" Mr. Willoughby wonders.
Commodity funds can be tax-inefficient, and some involve tax-reporting hassles. Barclays Global Investors believes its three commodity iPath Exchange Traded Notes, which trade on the New York Stock Exchange, solve this problem, with investors getting tax-deferred growth. But the Internal Revenue Service may not accept Barclays' tax interpretation.
"Put your commodity fund in a retirement account," Mr. Willoughby advises. "That's the safest route to go." He recommends Pimco CommodityRealReturn and Oppenheimer Commodity.
Precious metals. Not comfortable with these newfangled funds? William Bernstein, author of "The Four Pillars of Investing," contends the best bet is an old-fashioned gold-stock fund, such as American Century Global Gold.
He figures a gold fund might, over the long run, clock one or two percentage points a year above inflation. But there's an additional gain to be had: Because gold-stock funds perform so differently from other investments, you can earn a rebalancing bonus by earmarking maybe 3% of your portfolio for gold and then occasionally buying and selling shares to get back to this 3% target.
Instead of a precious-metals stock fund, you could invest in the actual metal through exchange-traded funds like iShares Silver and streetTracks Gold.
Mr. Bernstein isn't impressed. "The metal itself has a zero real expected return," he notes. "It's a weak diversifier. You would need to commit far more to get the same diversification benefit you can get with a small position in a gold-stock fund."
Buying Protection: How to Use Hard Assets To Hedge Your Bets
The world's natural resources are limited -- but apparently there's no limit to investor enthusiasm.
Commodity, precious-metals and natural-resources funds now boast $112 billion in assets, up from $8 billion at year-end 2001, according to Morningstar Inc. No doubt many buyers are simply chasing the funds' mostly dazzling performance of the past eight years.
Yet that isn't the reason to buy them. Instead, as yesterday's market drop reminds us, it's good to own something that goes up when stocks and bonds get battered. But which hard-asset funds offer the best bear-market protection?
Natural resources. In the past, investors have often turned to natural-resources stocks.
For instance, the late Thomas Rowe Price Jr., founder of the fund company that bears his name, launched T. Rowe Price New Era in 1969. Mr. Price reckoned rapid inflation lay ahead, and he figured natural-resources companies would be a good hedge. Sure enough, the fund gained a cumulative 142% during the high-inflation 1970s, versus 77% for the Standard & Poor's 500-stock index and inflation's 104%.
Sound appealing? Natural-resources funds ought to generate long-term returns similar to the broad market, and they should fare well when oil prices climb, because many of the funds focus largely or entirely on energy companies. But if we get rough markets that aren't driven by escalating oil prices, the funds may not offer much portfolio protection.
"You basically get stock-market risk when you invest in natural-resources stocks," argues Mark Willoughby, a financial planner in Old Tappan, N.J. "If you want the diversification benefits, you've got to own the commodities."
Commodities. Indeed, much of today's buzz is about funds that own commodity futures or other derivatives, plus bonds or Treasury bills.
Historically, that mix has generated a pattern of returns totally unlike stocks and bonds, while delivering long-term results that rival those of the S&P 500, according to a study by academics Gary Gorton and K. Geert Rouwenhorst in the Financial Analysts Journal.
What's driven that impressive performance? Futures buyers allow producers to hedge their commodity exposure -- for which they have been handsomely rewarded. "The question is, with all the money flowing into commodity futures over the past five years, will that historical premium disappear?" Mr. Willoughby wonders.
Commodity funds can be tax-inefficient, and some involve tax-reporting hassles. Barclays Global Investors believes its three commodity iPath Exchange Traded Notes, which trade on the New York Stock Exchange, solve this problem, with investors getting tax-deferred growth. But the Internal Revenue Service may not accept Barclays' tax interpretation.
"Put your commodity fund in a retirement account," Mr. Willoughby advises. "That's the safest route to go." He recommends Pimco CommodityRealReturn and Oppenheimer Commodity.
Precious metals. Not comfortable with these newfangled funds? William Bernstein, author of "The Four Pillars of Investing," contends the best bet is an old-fashioned gold-stock fund, such as American Century Global Gold.
He figures a gold fund might, over the long run, clock one or two percentage points a year above inflation. But there's an additional gain to be had: Because gold-stock funds perform so differently from other investments, you can earn a rebalancing bonus by earmarking maybe 3% of your portfolio for gold and then occasionally buying and selling shares to get back to this 3% target.
Instead of a precious-metals stock fund, you could invest in the actual metal through exchange-traded funds like iShares Silver and streetTracks Gold.
Mr. Bernstein isn't impressed. "The metal itself has a zero real expected return," he notes. "It's a weak diversifier. You would need to commit far more to get the same diversification benefit you can get with a small position in a gold-stock fund."
Wednesday, June 13, 2007
Hedge Funds & Bolsa
Artigo que compara o desempenho dos hedge funds e o desempenho das Bolsas de Valores.
As go equity markets, so go hedge funds?; Suspiciously strong link examined
(From The International Herald Tribune, provided by LexisNexis)
June 12, 2007 Tuesday
We are early in the game in the growth of assets invested in alternative strategies, says Todd Builione, a managing partner at Highbridge Capital Management, a $34 billion hedge fund that is majority owned by JPMorgan Chase.
Indeed. According to Douglas Wurth, global head of alternative investments at JPMorgan Private Bank, $1 billion a month is flowing into hedge funds on JPMorgan's platform, where wealth managers are now recommending that very rich individuals ($25 million or more) and institutions put 35 percent of their portfolios in alternatives, and 20 percent of that into hedge funds.
Wurth and Builione were both speaking on a panel with other senior executives from the private bank at a briefing in New York. It was clear that alternatives continue to be the rage for a number of reasons, including the low correlations that hedge funds have historically had with major equity and bond markets.
In other words, when those markets tank, hedge funds, in general, do not.
Then there's Ray Dalio.
Dalio, the founder of Bridgewater Associates, a hedge fund with about $30 billion under assets, has some different thoughts on his industry, including some tough questions on why hedge fund returns look so much like stock market returns when they are not supposed to be correlated.
In a private research letter sent out this month, he and a colleague examined the correlation of hedge fund returns to the returns of certain market indexes.
In general, hedge fund returns should not replicate stock market returns. If they did, investors would be smarter to buy index funds and not pay the steep fees of hedge funds.
Because hedge funds can hedge their bets, borrow to increase their bets, tread where others fear to tread and seek out nontraditional assets, they should generate excess returns (alpha), not just reflect market returns (beta).
According to Dalio's analysis, over the last 24 months hedge funds were 60 percent correlated to the Standard & Poor's 500 stock index, 67 percent correlated to the Morgan Stanley Capital International EAFE (for Europe, Australia and the Far East) index of foreign shares, and 87 percent correlated to emerging market equities (unhedged).
They were 41 percent correlated to the Goldman Sachs Commodity Index, 52 percent correlated to high-yield, or junk, bonds, and 42 percent correlated to mortgage-backed securities.
The letter also parsed the correlations by strategy, which is a more precise way to think about hedge funds, since different types of funds take different kinds of risks.
Short-biased hedge funds have a negative 70 percent correlation to the S&P index, while equity long-short, the description applied to what most people think of as a hedge fund strategy (betting that some stocks might go up and others might fall, usually with leverage) had a huge correlation of 84 percent.
Then Dalio looked at data back to 1994, which showed that historical correlations were in the range of 49 to 54 percent - high, but not as high.
So as equity markets have done well, hedge funds have done well - not necessarily because of their genius but because they have the wind of the stock markets at their back and because a lot of them use leverage to magnify their bets. (Dalio did not return calls for comment.)
In a period when volatility is low and credit spreads are tight, it should be difficult for hedge funds to make a lot of money. But many funds appear to be taking the easy way out.
Still, no one cares about correlations, or anything else really, until the markets head down. But a lot of investors like Bridgewater as a part of a diversified group of hedge funds because Dalio has a contrarian view, and if and when the markets tank, he should - and he had better - trounce his more correlated peers.
As go equity markets, so go hedge funds?; Suspiciously strong link examined
(From The International Herald Tribune, provided by LexisNexis)
June 12, 2007 Tuesday
We are early in the game in the growth of assets invested in alternative strategies, says Todd Builione, a managing partner at Highbridge Capital Management, a $34 billion hedge fund that is majority owned by JPMorgan Chase.
Indeed. According to Douglas Wurth, global head of alternative investments at JPMorgan Private Bank, $1 billion a month is flowing into hedge funds on JPMorgan's platform, where wealth managers are now recommending that very rich individuals ($25 million or more) and institutions put 35 percent of their portfolios in alternatives, and 20 percent of that into hedge funds.
Wurth and Builione were both speaking on a panel with other senior executives from the private bank at a briefing in New York. It was clear that alternatives continue to be the rage for a number of reasons, including the low correlations that hedge funds have historically had with major equity and bond markets.
In other words, when those markets tank, hedge funds, in general, do not.
Then there's Ray Dalio.
Dalio, the founder of Bridgewater Associates, a hedge fund with about $30 billion under assets, has some different thoughts on his industry, including some tough questions on why hedge fund returns look so much like stock market returns when they are not supposed to be correlated.
In a private research letter sent out this month, he and a colleague examined the correlation of hedge fund returns to the returns of certain market indexes.
In general, hedge fund returns should not replicate stock market returns. If they did, investors would be smarter to buy index funds and not pay the steep fees of hedge funds.
Because hedge funds can hedge their bets, borrow to increase their bets, tread where others fear to tread and seek out nontraditional assets, they should generate excess returns (alpha), not just reflect market returns (beta).
According to Dalio's analysis, over the last 24 months hedge funds were 60 percent correlated to the Standard & Poor's 500 stock index, 67 percent correlated to the Morgan Stanley Capital International EAFE (for Europe, Australia and the Far East) index of foreign shares, and 87 percent correlated to emerging market equities (unhedged).
They were 41 percent correlated to the Goldman Sachs Commodity Index, 52 percent correlated to high-yield, or junk, bonds, and 42 percent correlated to mortgage-backed securities.
The letter also parsed the correlations by strategy, which is a more precise way to think about hedge funds, since different types of funds take different kinds of risks.
Short-biased hedge funds have a negative 70 percent correlation to the S&P index, while equity long-short, the description applied to what most people think of as a hedge fund strategy (betting that some stocks might go up and others might fall, usually with leverage) had a huge correlation of 84 percent.
Then Dalio looked at data back to 1994, which showed that historical correlations were in the range of 49 to 54 percent - high, but not as high.
So as equity markets have done well, hedge funds have done well - not necessarily because of their genius but because they have the wind of the stock markets at their back and because a lot of them use leverage to magnify their bets. (Dalio did not return calls for comment.)
In a period when volatility is low and credit spreads are tight, it should be difficult for hedge funds to make a lot of money. But many funds appear to be taking the easy way out.
Still, no one cares about correlations, or anything else really, until the markets head down. But a lot of investors like Bridgewater as a part of a diversified group of hedge funds because Dalio has a contrarian view, and if and when the markets tank, he should - and he had better - trounce his more correlated peers.
Tuesday, June 12, 2007
O conceito de "Overlay"
Artigo do HedgeWorld explicando o conceito de overlay.
An Overview of the Overlay's Many Uses
By Emma Trincal, Senior Financial Correspondent | Monday, June 11, 2007
NEW YORK (HedgeWorld.com)—Separation of alpha and beta is the mantra du jour in portfolio management, though the concept is hardly a new one. Portable alpha and hedge fund replication indexes are some common applications of the idea. One investment tool at the heart of those variable applications is the overlay. Known mostly for its protection against downside risk, the overlay is also used to actively manage a portfolio and can be applied to portable alpha portfolios or asset allocation rebalancing.
An overlay is often defined as a hedge. For instance, a manager with a market exposure to the Standard and Poor's 500 stock index will need to protect his portfolio against a stock market decline. One way to do that is by buying a put option on the index as puts are bets on a price decline. In such case, if the S&P drops, the put will offset the losses in the portfolio. In this example, the put option is the derivative overlay.
"Overlay is derived from the same concept as portable alpha. But with an overlay, you neutralize the market exposure; you use it as a hedge," said Olivier Le Marois, chief executive of Riskdata S.A., a Paris-based provider of risk management solutions. "Investors add derivatives overlay to their portfolios in order to actively manage market risk."
His firm recently implemented an overlay instrument with the upgrade of its flagship risk management system FOFiX Previous HedgeWorld Story.
An overlay may be used to avoid redemptions. If the market turns the wrong way, a manager can protect himself from redemptions by limiting market exposure and hedging the risk. In a similar fashion, an overlay can be used to manage liquidity risk. "If a portfolio is illiquid and turns sour, don't liquidate it, just hedge it." said Mr. Le Marois.
Finally for risk managers, an overlay is useful as a tool to compare two managers. Mr. Le Marois gave the example of two different portfolios. How does one compare a market neutral portfolio generating a flat return with another portfolio, highly correlated to the market, using options on the Nasdaq composite index and generating double-digit performance? The only way to do that is to hedge both portfolios. The first one does not need an overlay since the style is market neutral. Riskdata applied an overlay on the second portfolio in order to hedge it and to compare apples to apples. The firm found that the second portfolio continued to perform better than the first one, on a risk-adjusted basis, even if the performance gap between the two was now reduced. The result is interesting because although the market neutral portfolio had flat performance, it generated alpha, while the second used a strategy that was based on pure market exposure.
But an overlay is not just used as a hedge for downside protection or as a risk measurement tool. Many find it applicable for active management purposes as well.
"The uses of overlay are almost endless," said Robert Kulperger, vice president of marketing at Northwater Capital Management Inc., a $9.2 billion asset management firm that specializes in portable alpha and overlay strategies.
An overlay can be used in the implementation of portable alpha programs.
"Portable alpha typically combines an alpha exposure obtained through an alternative investment such as a fund of hedge funds, direct hedge funds, private equity or real estate and beta exposure through a derivative instrument, such as a futures contract or swap. People often refer to the beta exposure as a type of overlay," said Mr. Kulperger.
Another important application, Mr. Kulperger said, is as a tool to rebalance a portfolio. When an institutional investor's allocation to a particular asset class is off-target, the use of an overlay trade may allow that investor to fill the gap in the interim, Mr. Kulperger said. For instance, an investor may have a 30% equity target allocation but may currently have only 25% in the class because a manager was terminated or because of underperformance of the asset class. By using derivatives, the institutional investor may be able to quickly add the extra 5% exposure. The same type of trade may be employed at the end of the year to quickly rebalance a portfolio back to its strategic allocation, he said.
An Overview of the Overlay's Many Uses
By Emma Trincal, Senior Financial Correspondent | Monday, June 11, 2007
NEW YORK (HedgeWorld.com)—Separation of alpha and beta is the mantra du jour in portfolio management, though the concept is hardly a new one. Portable alpha and hedge fund replication indexes are some common applications of the idea. One investment tool at the heart of those variable applications is the overlay. Known mostly for its protection against downside risk, the overlay is also used to actively manage a portfolio and can be applied to portable alpha portfolios or asset allocation rebalancing.
An overlay is often defined as a hedge. For instance, a manager with a market exposure to the Standard and Poor's 500 stock index will need to protect his portfolio against a stock market decline. One way to do that is by buying a put option on the index as puts are bets on a price decline. In such case, if the S&P drops, the put will offset the losses in the portfolio. In this example, the put option is the derivative overlay.
"Overlay is derived from the same concept as portable alpha. But with an overlay, you neutralize the market exposure; you use it as a hedge," said Olivier Le Marois, chief executive of Riskdata S.A., a Paris-based provider of risk management solutions. "Investors add derivatives overlay to their portfolios in order to actively manage market risk."
His firm recently implemented an overlay instrument with the upgrade of its flagship risk management system FOFiX Previous HedgeWorld Story.
An overlay may be used to avoid redemptions. If the market turns the wrong way, a manager can protect himself from redemptions by limiting market exposure and hedging the risk. In a similar fashion, an overlay can be used to manage liquidity risk. "If a portfolio is illiquid and turns sour, don't liquidate it, just hedge it." said Mr. Le Marois.
Finally for risk managers, an overlay is useful as a tool to compare two managers. Mr. Le Marois gave the example of two different portfolios. How does one compare a market neutral portfolio generating a flat return with another portfolio, highly correlated to the market, using options on the Nasdaq composite index and generating double-digit performance? The only way to do that is to hedge both portfolios. The first one does not need an overlay since the style is market neutral. Riskdata applied an overlay on the second portfolio in order to hedge it and to compare apples to apples. The firm found that the second portfolio continued to perform better than the first one, on a risk-adjusted basis, even if the performance gap between the two was now reduced. The result is interesting because although the market neutral portfolio had flat performance, it generated alpha, while the second used a strategy that was based on pure market exposure.
But an overlay is not just used as a hedge for downside protection or as a risk measurement tool. Many find it applicable for active management purposes as well.
"The uses of overlay are almost endless," said Robert Kulperger, vice president of marketing at Northwater Capital Management Inc., a $9.2 billion asset management firm that specializes in portable alpha and overlay strategies.
An overlay can be used in the implementation of portable alpha programs.
"Portable alpha typically combines an alpha exposure obtained through an alternative investment such as a fund of hedge funds, direct hedge funds, private equity or real estate and beta exposure through a derivative instrument, such as a futures contract or swap. People often refer to the beta exposure as a type of overlay," said Mr. Kulperger.
Another important application, Mr. Kulperger said, is as a tool to rebalance a portfolio. When an institutional investor's allocation to a particular asset class is off-target, the use of an overlay trade may allow that investor to fill the gap in the interim, Mr. Kulperger said. For instance, an investor may have a 30% equity target allocation but may currently have only 25% in the class because a manager was terminated or because of underperformance of the asset class. By using derivatives, the institutional investor may be able to quickly add the extra 5% exposure. The same type of trade may be employed at the end of the year to quickly rebalance a portfolio back to its strategic allocation, he said.
Yale & Swensen
Ótimo artigo sobre a performance de Swensen na administração da fundação de Yale.
Long View: Yale puts academic theory of investment into practice
(From FT.com, provided by LexisNexis) | 9 June 2007 Saturday 1:45 AM GMT
Yale University is a privileged institution. Its graduates go on to great power. George W. Bush was educated there, as were his predecessor Bill Clinton, his father George H.W. Bush, vice-president Dick Cheney and the man he beat in 2004, Senator John Kerry.
An Ivy League institution, it has long been one of the world's most prestigious universities. But maybe its greatest privilege is to have David Swensen as the manager of its endowment fund.
When he took over the endowment in 1985, it was worth slightly more than $1bn. By June 30 last year it had reached $18bn. The best-performing US endowment in that time, it has easily beaten the S&P 500, with staggeringly low volatility.
During the bear market of 2001-02, Peter Bernstein reports in his recently published book Capital Ideas Evolving, Yale rose 10 per cent while the S&P dropped 30 per cent.
The way Swensen made his returns is revolutionising the fund management industry. Only 4 per cent is in fixed income. And only 27 per cent is in public equities.
All the rest is in alternative assets, which are not readily marketable: 25 per cent is in "absolute return" hedge funds, which attempt to generate returns uncorrelated to the market; 17 per cent is in private equity; and 27 per cent in "real assets" property, oil fields and forestry.
This apparently bizarre mixture, which Swensen calls an "uninstitutional portfolio", inspired the booms in private equity and hedge funds, and the rush to offer hedge fund-like products to retail investors.
Nobody bar Warren Buffett commands more attention from the fund management industry. So I was glad to hear him speak on home turf last weekend, when I accompanied my wife, a Yale graduate, to her 20th anniversary reunion.
The returning students, who graduated just as Swensen was taking over, were stunned by the dramatic improvements to what had been a threadbare campus. He gave a brief, very modest speech to explain to them how it was done.
"Investment management is a simple business," he said. It came down to two principles. First, equities are best for the long run (as proved by many surveys). "With a portfolio like Yale's, with a time horizon measured in centuries, everyone would come to the same conclusion: it's far better to have equities in your portfolio than bonds or cash." By equity, he means any asset where there is a potential upside that can be taken by the investor.
His second principle is simpler: "Diversification is important."
The economist James Tobin, who once taught Swensen at Yale, summed up the idea that won him a Nobel prize with the words: "Don't put all your eggs in one basket." Swensen has aggressively applied the diversification concepts of the capital asset pricing model (CAPM) that Tobin helped to develop.
In 1985 the endowment Swensen inherited had 40 per cent in bonds and 10 per cent in a smattering of alternatives. "That made no sense," he told alumni.
When rebuilding the portfolio, he said, three tools were open to him asset allocation, market timing and security selection.
The first, as the model told him, was most important. CAPM also led him to deride attempts to time the market. If asset prices go on a "random walk", the theory says, then market timing is impossible.
But some experts regard his asset allocation as a form of market timing. He adjusts regularly to keep in line with his target allocation. If equities have risen, he sells enough to bring them down to the target percentage.
This led him to buy equities to the discomfort of his trustees after the Black Monday crash of 1987, when most endowments were selling. That turned out to be great timing.
What of security selection? CAPM suggests this is a mug's game. If prices adjust to include all known information, good stock-picking can be done only by luck.
His solution was to buy assets outside the public markets that are not so efficient. Assets such as private equity and timber have the added advantage that they are uncorrelated.
Is this something you should try at home? Swensen thinks not. "I know it's necessary to be humble," he told the gathered alumni, "but I think Yale is set up to make high-quality active management decisions." It has a staff of 20, and its time horizon means it can buy illiquid investments such as forestry.
Alternatively, he says, "you are in the category in which most investors find themselves, where they aren't set up to make quality active asset allocation decisions. They should manage their portfolio passively, through low-cost index funds."
This is the logic of CAPM. By the same logic that led him to forests and hedge funds, most of us should buy index funds.
Endowments can all learn from Yale's experience. Swensen is on Cambridge University's investment committee. Many others should follow his example.
As for my wife and her fellow alumni, they were suitably impressed. Too bad Swensen's wealth came too late for them.
Long View: Yale puts academic theory of investment into practice
(From FT.com, provided by LexisNexis) | 9 June 2007 Saturday 1:45 AM GMT
Yale University is a privileged institution. Its graduates go on to great power. George W. Bush was educated there, as were his predecessor Bill Clinton, his father George H.W. Bush, vice-president Dick Cheney and the man he beat in 2004, Senator John Kerry.
An Ivy League institution, it has long been one of the world's most prestigious universities. But maybe its greatest privilege is to have David Swensen as the manager of its endowment fund.
When he took over the endowment in 1985, it was worth slightly more than $1bn. By June 30 last year it had reached $18bn. The best-performing US endowment in that time, it has easily beaten the S&P 500, with staggeringly low volatility.
During the bear market of 2001-02, Peter Bernstein reports in his recently published book Capital Ideas Evolving, Yale rose 10 per cent while the S&P dropped 30 per cent.
The way Swensen made his returns is revolutionising the fund management industry. Only 4 per cent is in fixed income. And only 27 per cent is in public equities.
All the rest is in alternative assets, which are not readily marketable: 25 per cent is in "absolute return" hedge funds, which attempt to generate returns uncorrelated to the market; 17 per cent is in private equity; and 27 per cent in "real assets" property, oil fields and forestry.
This apparently bizarre mixture, which Swensen calls an "uninstitutional portfolio", inspired the booms in private equity and hedge funds, and the rush to offer hedge fund-like products to retail investors.
Nobody bar Warren Buffett commands more attention from the fund management industry. So I was glad to hear him speak on home turf last weekend, when I accompanied my wife, a Yale graduate, to her 20th anniversary reunion.
The returning students, who graduated just as Swensen was taking over, were stunned by the dramatic improvements to what had been a threadbare campus. He gave a brief, very modest speech to explain to them how it was done.
"Investment management is a simple business," he said. It came down to two principles. First, equities are best for the long run (as proved by many surveys). "With a portfolio like Yale's, with a time horizon measured in centuries, everyone would come to the same conclusion: it's far better to have equities in your portfolio than bonds or cash." By equity, he means any asset where there is a potential upside that can be taken by the investor.
His second principle is simpler: "Diversification is important."
The economist James Tobin, who once taught Swensen at Yale, summed up the idea that won him a Nobel prize with the words: "Don't put all your eggs in one basket." Swensen has aggressively applied the diversification concepts of the capital asset pricing model (CAPM) that Tobin helped to develop.
In 1985 the endowment Swensen inherited had 40 per cent in bonds and 10 per cent in a smattering of alternatives. "That made no sense," he told alumni.
When rebuilding the portfolio, he said, three tools were open to him asset allocation, market timing and security selection.
The first, as the model told him, was most important. CAPM also led him to deride attempts to time the market. If asset prices go on a "random walk", the theory says, then market timing is impossible.
But some experts regard his asset allocation as a form of market timing. He adjusts regularly to keep in line with his target allocation. If equities have risen, he sells enough to bring them down to the target percentage.
This led him to buy equities to the discomfort of his trustees after the Black Monday crash of 1987, when most endowments were selling. That turned out to be great timing.
What of security selection? CAPM suggests this is a mug's game. If prices adjust to include all known information, good stock-picking can be done only by luck.
His solution was to buy assets outside the public markets that are not so efficient. Assets such as private equity and timber have the added advantage that they are uncorrelated.
Is this something you should try at home? Swensen thinks not. "I know it's necessary to be humble," he told the gathered alumni, "but I think Yale is set up to make high-quality active management decisions." It has a staff of 20, and its time horizon means it can buy illiquid investments such as forestry.
Alternatively, he says, "you are in the category in which most investors find themselves, where they aren't set up to make quality active asset allocation decisions. They should manage their portfolio passively, through low-cost index funds."
This is the logic of CAPM. By the same logic that led him to forests and hedge funds, most of us should buy index funds.
Endowments can all learn from Yale's experience. Swensen is on Cambridge University's investment committee. Many others should follow his example.
As for my wife and her fellow alumni, they were suitably impressed. Too bad Swensen's wealth came too late for them.
Crie seu próprio Hedge Fund
Build Your Own Hedge Fund
(From Forbes, provided by LexisNexis) | June 18, 2007
One way around obscene fees charged by hedge funds: ProShares' new ETFs. With them you can design your own simple--and cheap--hedges.
How do hedge funds justify their sky-high fees? One reason individual investors might be persuaded to part with 2% of assets annually, plus 20% of profits, is that it's hard for them to hedge on their own. Shorting shares of stock is a risky business--the potential loss is unlimited--and terms are not too good (see "Shortchanged," Dec. 11, 2006). But salvation is at hand. New tools are cropping up to make bearish stock positions much more accessible to the retail customer. Result: You can create your own hedge fund, at low cost.
The mechanism is exchange-traded funds. In the last 12 months ProShares has launched 29 ETFs that short the broad market (like the S&P 500 and Russell 2000 indexes) and its subsectors (like technology and health care). To pair against these bearish vehicles you can own either stocks and mutual funds of a conventional sort or else one of the 23 bullish ETFs offered by ProShares.
Say you are agnostic on which way the overall market will go but are convinced that the technology-heavy Nasdaq will do worse. A neutral strategy is to go long a broad-market ETF from ProShares or another vendor, then also buy the bearish Short QQQ ProShares, which shorts 100 of the largest Nasdaq stocks. Annual expenses on the ProShares bearish instruments are not so bad, less than 1%. The hedge fund industry's fee structure goes by the name "2 and 20." This one you could call "one and none."
The bearish ETFs are the brainchild of Michael Sapir, 49, a securities lawyer. It took him seven arduous years to gain Securities & Exchange Commission approval to issue them. Sapir helped launch the Rydex fund family in 1993. Rydex, owned by the family of founder A.P. (Skip) Viragh and rumored to be on the block, sells bullish and bearish funds and long ETFs to individual investors.
In 1997 Sapir cofounded (with Louis Mayberg) ProFunds, a Bethesda, Md. index-fund provider whose products were initially pitched to professional investors (money managers and financial planners). In 2006 he created ProShares, a sister corporation devoted to operating ETFs. Between the two there is $13.7 billion under management--$7.8 billion at ProFunds in 60 long and short index funds, and $5.9 billion at ProShares in 52 short and long index ETFs.
ProShares' bullish ETFs are for the most part nothing special--its broad-market fund is outsold by cheaper offerings from Vanguard and Barclays. But the bearish ETFs, accounting for 80% of ProShares' assets, have no competition (ProShares has the only short ETFs approved by the sec).
ProShares offers standard ETFs (with no leverage) and, for investors interested in faster action, ultras (with 2-to-1 leverage). Say you put $5,000 into the UltraShort Dow30. You would control $10,000 worth of the Dow Jones 30 index. If that index does go down, your gains are doubled--but if it goes up, your losses are doubled. The standard Short Dow30 makes (before expenses) the same daily percentage moves as the Dow.
With an ETF your risk is limited to your initial investment, and you have no margin calls. With a stock the risk can be infinite. "Say you short Google at $500, and it starts climbing. You have to pay in incremental margin calls to cover your position. As the price increases to $1,000, $2,000, $5,000--you are liable all the way up," says Sapir.
ProShares funds are convenient for various market-neutral bets. Perhaps you think a particular large-cap stock or fund will outperform the large-cap market but fear a general market downdraft will drag down its performance. Purchase that stock or fund, but also buy ProShares Short S&P 500. You could use ProShares to go short a basket of stocks in real estate and go long in oil and gas. You can find a pair to play growth stocks against value stocks. Or you could make an indirect bet on a fundamental economic indicator like interest rates. Do you think a rate rise is inevitable and it will hurt banks more than utilities? Buy equal amounts of ProShares Ultra Utility and UltraShort Financials.
What if you believe small caps are headed for a decline and want to protect gains in your small-cap holdings without selling them? Perhaps you want to avoid capital gains taxes or your long position consists of restricted stock. You can partially hedge by buying the Short Russell 2000, designed to provide the inverse of the Russell 2000's performance. To save a bit on expenses, buy half the quantity of the double-action ProShares fund. A $100,000 position in a standard ProShares will run you $1,000 a year in overhead; an equivalent in the form of a $50,000 Ultra position coupled with a $50,000 Treasury bill would cost only $500 a year.
Tax rules favor ProShares, at least if you make money on them. Hold an ETF for more than a year and your gain is long term, taxed federally at a maximum 15%. So if your bearish ETF is a winner, hang on to it for at least a year and a day. If it stinks, sell sooner to claim a short-term capital loss (which is, generally, more desirable at tax time than a long-term loss). Contrast the tax treatment of short-selling. Those bets (generally speaking) give rise to short-term gains and losses, even if you hold a position open for a long time. Short-term gains are taxed at up to 35%.
Sapir says there is a patent pending on part of his process. That may or may not inhibit a competitor like Barclays (or his old firm, Rydex) from moving into this business. ProShares offers no bearish ETFs covering bonds or international stocks yet, but it's looking to add them. For some of ProShares' most popular short ETFs, see the table, at left.
Needless to say, hedging doesn't mean eliminating risk. With any paired bet, you could lose on both sides. Either way, Sapir will do pretty well. He owns between 25% and 50% of the company, which appears to be quite profitable. It should rake in management fees of roughly $170 million this year, with a staff of only 90 people.
(From Forbes, provided by LexisNexis) | June 18, 2007
One way around obscene fees charged by hedge funds: ProShares' new ETFs. With them you can design your own simple--and cheap--hedges.
How do hedge funds justify their sky-high fees? One reason individual investors might be persuaded to part with 2% of assets annually, plus 20% of profits, is that it's hard for them to hedge on their own. Shorting shares of stock is a risky business--the potential loss is unlimited--and terms are not too good (see "Shortchanged," Dec. 11, 2006). But salvation is at hand. New tools are cropping up to make bearish stock positions much more accessible to the retail customer. Result: You can create your own hedge fund, at low cost.
The mechanism is exchange-traded funds. In the last 12 months ProShares has launched 29 ETFs that short the broad market (like the S&P 500 and Russell 2000 indexes) and its subsectors (like technology and health care). To pair against these bearish vehicles you can own either stocks and mutual funds of a conventional sort or else one of the 23 bullish ETFs offered by ProShares.
Say you are agnostic on which way the overall market will go but are convinced that the technology-heavy Nasdaq will do worse. A neutral strategy is to go long a broad-market ETF from ProShares or another vendor, then also buy the bearish Short QQQ ProShares, which shorts 100 of the largest Nasdaq stocks. Annual expenses on the ProShares bearish instruments are not so bad, less than 1%. The hedge fund industry's fee structure goes by the name "2 and 20." This one you could call "one and none."
The bearish ETFs are the brainchild of Michael Sapir, 49, a securities lawyer. It took him seven arduous years to gain Securities & Exchange Commission approval to issue them. Sapir helped launch the Rydex fund family in 1993. Rydex, owned by the family of founder A.P. (Skip) Viragh and rumored to be on the block, sells bullish and bearish funds and long ETFs to individual investors.
In 1997 Sapir cofounded (with Louis Mayberg) ProFunds, a Bethesda, Md. index-fund provider whose products were initially pitched to professional investors (money managers and financial planners). In 2006 he created ProShares, a sister corporation devoted to operating ETFs. Between the two there is $13.7 billion under management--$7.8 billion at ProFunds in 60 long and short index funds, and $5.9 billion at ProShares in 52 short and long index ETFs.
ProShares' bullish ETFs are for the most part nothing special--its broad-market fund is outsold by cheaper offerings from Vanguard and Barclays. But the bearish ETFs, accounting for 80% of ProShares' assets, have no competition (ProShares has the only short ETFs approved by the sec).
ProShares offers standard ETFs (with no leverage) and, for investors interested in faster action, ultras (with 2-to-1 leverage). Say you put $5,000 into the UltraShort Dow30. You would control $10,000 worth of the Dow Jones 30 index. If that index does go down, your gains are doubled--but if it goes up, your losses are doubled. The standard Short Dow30 makes (before expenses) the same daily percentage moves as the Dow.
With an ETF your risk is limited to your initial investment, and you have no margin calls. With a stock the risk can be infinite. "Say you short Google at $500, and it starts climbing. You have to pay in incremental margin calls to cover your position. As the price increases to $1,000, $2,000, $5,000--you are liable all the way up," says Sapir.
ProShares funds are convenient for various market-neutral bets. Perhaps you think a particular large-cap stock or fund will outperform the large-cap market but fear a general market downdraft will drag down its performance. Purchase that stock or fund, but also buy ProShares Short S&P 500. You could use ProShares to go short a basket of stocks in real estate and go long in oil and gas. You can find a pair to play growth stocks against value stocks. Or you could make an indirect bet on a fundamental economic indicator like interest rates. Do you think a rate rise is inevitable and it will hurt banks more than utilities? Buy equal amounts of ProShares Ultra Utility and UltraShort Financials.
What if you believe small caps are headed for a decline and want to protect gains in your small-cap holdings without selling them? Perhaps you want to avoid capital gains taxes or your long position consists of restricted stock. You can partially hedge by buying the Short Russell 2000, designed to provide the inverse of the Russell 2000's performance. To save a bit on expenses, buy half the quantity of the double-action ProShares fund. A $100,000 position in a standard ProShares will run you $1,000 a year in overhead; an equivalent in the form of a $50,000 Ultra position coupled with a $50,000 Treasury bill would cost only $500 a year.
Tax rules favor ProShares, at least if you make money on them. Hold an ETF for more than a year and your gain is long term, taxed federally at a maximum 15%. So if your bearish ETF is a winner, hang on to it for at least a year and a day. If it stinks, sell sooner to claim a short-term capital loss (which is, generally, more desirable at tax time than a long-term loss). Contrast the tax treatment of short-selling. Those bets (generally speaking) give rise to short-term gains and losses, even if you hold a position open for a long time. Short-term gains are taxed at up to 35%.
Sapir says there is a patent pending on part of his process. That may or may not inhibit a competitor like Barclays (or his old firm, Rydex) from moving into this business. ProShares offers no bearish ETFs covering bonds or international stocks yet, but it's looking to add them. For some of ProShares' most popular short ETFs, see the table, at left.
Needless to say, hedging doesn't mean eliminating risk. With any paired bet, you could lose on both sides. Either way, Sapir will do pretty well. He owns between 25% and 50% of the company, which appears to be quite profitable. It should rake in management fees of roughly $170 million this year, with a staff of only 90 people.
Monday, June 11, 2007
Quant School
Lá fora os grandes hedge funds bancam pesquisas quantitativas em Universidades. Por aqui não há nada parecido, nem mesmo estratégias quantitativas são levadas à sério...
Man Group, Oxford University Launch Institute for Quantitative Finance
By Bill McIntosh, Senior Financial Corresponden
Wednesday, June 06, 2007
LONDON (HedgeWorld.com)—Man Group plc has joined the battle with industry peers to secure the best and the brightest of the next generation of applied mathematics and science scholars by agreeing to fund the University of Oxford with £13.75 million ($27 million) to launch the Oxford-Man Institute of Quantitative Finance.
The institute, which opens in the autumn, will draw on funding of £10.45 million over five years to secure a site in Oxford as well as provide infrastructure and support staff. An additional £3.3 million is being donated to fund an endowed chair, to be called the Man Professor of Quantitative Finance.
“We expect the Oxford-Man Institute will play a leading part in the education of the next generation of scholars,” Peter Clarke, chief executive of Man Group said at a briefing announcing the launch. “It will be the leading institution for quantitative research in the world, with a focus on alternative investment.”
“This will raise Man’s profile and we will certainly hope to leverage off this for recruitment,” said Michael Robinson, head of human resources at Man Investments. He added that Man aims to initially recruit about five doctoral graduates annually.
The linkup comes as some of the biggest hedge fund groups spend ever greater sums on recruiting and employing armies of highly trained quant specialists in areas as diverse as astrophysics, computer science, mathematics, statistics and operational research. Renaissance Technologies Corp. and Citadel Group in the United States along with Winton Capital Management in the United Kingdom and others have led a spending spree costing tens of millions of dollars to snap up dozens of the top quant doctoral graduates. Far removed from the trading desk, they work in campus-like settings doing research into statistical arbitrage and algorithmic trading strategies that may take years to take form in a firm’s investment allocations.
Man has the right of first refusal to negotiate to buy any intellectual property the institute produces. The institute will carry out open access commissioned research and private research for Man. The open access research will be disseminated freely through working papers, presentations and academic journals. The institute will initially house about 20 members divided between 10 full-time researchers and staff, with a further 10 senior faculty members spending substantial time there.
“This initiative is about the world leaders in their respective fields coming together,” said Neil Shephard, professor of economics at the university, who will exercise management oversight of the institute’s activities as research director. “Nothing like this has been done before, and we are excited to see how it all plays out.”
Dr. Tim Hoggard, head of algorithmic trading research at managed futures fund AHL, will run the program for Man. He and Dr. Anthony Ledford, head of quantitative research at AHL, will relocate to the new facility to run the Man Research Laboratory which will share the facility with the institute. Man will review its commitment to the institute every three years but will provide funding in five-year tranches.
One research area for the institute is high-frequency finance, which aims to use statistics to improve risk management and shed light on statistical arbitrage techniques. Another research aim will be to use financial econometrics to measure fund of funds risk and develop an economic analysis of hedge fund performance. Further areas of scrutiny will be the fast expanding derivatives sector and the use of modeling via, for example, Monte Carlo simulators and probability theory.
“The whole concept behind the institute is that it could produce new things to do,” Mr. Clarke said. “It is not just about AHL,” he said.
The institute’s web site is www.oxford-man.ox.ac.uk.
Man Group, Oxford University Launch Institute for Quantitative Finance
By Bill McIntosh, Senior Financial Corresponden
Wednesday, June 06, 2007
LONDON (HedgeWorld.com)—Man Group plc has joined the battle with industry peers to secure the best and the brightest of the next generation of applied mathematics and science scholars by agreeing to fund the University of Oxford with £13.75 million ($27 million) to launch the Oxford-Man Institute of Quantitative Finance.
The institute, which opens in the autumn, will draw on funding of £10.45 million over five years to secure a site in Oxford as well as provide infrastructure and support staff. An additional £3.3 million is being donated to fund an endowed chair, to be called the Man Professor of Quantitative Finance.
“We expect the Oxford-Man Institute will play a leading part in the education of the next generation of scholars,” Peter Clarke, chief executive of Man Group said at a briefing announcing the launch. “It will be the leading institution for quantitative research in the world, with a focus on alternative investment.”
“This will raise Man’s profile and we will certainly hope to leverage off this for recruitment,” said Michael Robinson, head of human resources at Man Investments. He added that Man aims to initially recruit about five doctoral graduates annually.
The linkup comes as some of the biggest hedge fund groups spend ever greater sums on recruiting and employing armies of highly trained quant specialists in areas as diverse as astrophysics, computer science, mathematics, statistics and operational research. Renaissance Technologies Corp. and Citadel Group in the United States along with Winton Capital Management in the United Kingdom and others have led a spending spree costing tens of millions of dollars to snap up dozens of the top quant doctoral graduates. Far removed from the trading desk, they work in campus-like settings doing research into statistical arbitrage and algorithmic trading strategies that may take years to take form in a firm’s investment allocations.
Man has the right of first refusal to negotiate to buy any intellectual property the institute produces. The institute will carry out open access commissioned research and private research for Man. The open access research will be disseminated freely through working papers, presentations and academic journals. The institute will initially house about 20 members divided between 10 full-time researchers and staff, with a further 10 senior faculty members spending substantial time there.
“This initiative is about the world leaders in their respective fields coming together,” said Neil Shephard, professor of economics at the university, who will exercise management oversight of the institute’s activities as research director. “Nothing like this has been done before, and we are excited to see how it all plays out.”
Dr. Tim Hoggard, head of algorithmic trading research at managed futures fund AHL, will run the program for Man. He and Dr. Anthony Ledford, head of quantitative research at AHL, will relocate to the new facility to run the Man Research Laboratory which will share the facility with the institute. Man will review its commitment to the institute every three years but will provide funding in five-year tranches.
One research area for the institute is high-frequency finance, which aims to use statistics to improve risk management and shed light on statistical arbitrage techniques. Another research aim will be to use financial econometrics to measure fund of funds risk and develop an economic analysis of hedge fund performance. Further areas of scrutiny will be the fast expanding derivatives sector and the use of modeling via, for example, Monte Carlo simulators and probability theory.
“The whole concept behind the institute is that it could produce new things to do,” Mr. Clarke said. “It is not just about AHL,” he said.
The institute’s web site is www.oxford-man.ox.ac.uk.
Tudor fecha fundo
É interessante observar que os gestores devolveram os fees acumulados aos investidores. Nunca vi isso por aqui...
Tudor Investment shuts $550m fund
Stephanie Baum
06 Jun 2007
Tudor Investment, the Greenwich based hedge fund run by Paul Tudor Jones, has shut its small company stock fund after it failed to meet expectations, becoming the third hedge fund firm to do so this year.
Investors in the $550m (€371m) Witches Rock Fund will have the option of transferring their money into the firm’s $11.5bn Raptor fund. In a letter to investors, the company said it would also return $25.3m in accrued fees.
The Witches Rock Fund was started in December 2004 and managed by vice chairman James Pallotta.
Tudor's is the latest hedge fund to close and return money. Investment consultants have welcomed hedge fund managers shutting down funds where they consider future investment performance to be unappealing.
In January, Cantillon Capital Management shut down a $1bn technology fund and $350m healthcare fund because it proved too difficult to get an acceptable rate of return without taking a significant market risk. At the time, a spokesman said the company found it increasingly difficult to find technology companies with share prices it did not consider inflated. The firm, which was founded by Lazard hedge fund manager William Von Mueffling, had $9.5bn in assets under management as of December.
In March, UK hedge fund manager Marshall Wace shut down its $600m Eureka interactive fund focusing on technology stocks because of a lack of investment opportunities. It had generated a net return of 10% a year since Eureka’s launch seven years ago, but made a 1% loss in 2006. As of the end of February the firm had $11.5bn assets under management
Paul Tudor Jones ranked among the top 10 highest earning hedge fund managers by Alpha Magazine, moving from fifth place in 2005 to seventh place in 2006, while his earnings increased from $500m to $690m.
As of June 1, Tudor had $17.7bn in assets under management.
Tudor Investment shuts $550m fund
Stephanie Baum
06 Jun 2007
Tudor Investment, the Greenwich based hedge fund run by Paul Tudor Jones, has shut its small company stock fund after it failed to meet expectations, becoming the third hedge fund firm to do so this year.
Investors in the $550m (€371m) Witches Rock Fund will have the option of transferring their money into the firm’s $11.5bn Raptor fund. In a letter to investors, the company said it would also return $25.3m in accrued fees.
The Witches Rock Fund was started in December 2004 and managed by vice chairman James Pallotta.
Tudor's is the latest hedge fund to close and return money. Investment consultants have welcomed hedge fund managers shutting down funds where they consider future investment performance to be unappealing.
In January, Cantillon Capital Management shut down a $1bn technology fund and $350m healthcare fund because it proved too difficult to get an acceptable rate of return without taking a significant market risk. At the time, a spokesman said the company found it increasingly difficult to find technology companies with share prices it did not consider inflated. The firm, which was founded by Lazard hedge fund manager William Von Mueffling, had $9.5bn in assets under management as of December.
In March, UK hedge fund manager Marshall Wace shut down its $600m Eureka interactive fund focusing on technology stocks because of a lack of investment opportunities. It had generated a net return of 10% a year since Eureka’s launch seven years ago, but made a 1% loss in 2006. As of the end of February the firm had $11.5bn assets under management
Paul Tudor Jones ranked among the top 10 highest earning hedge fund managers by Alpha Magazine, moving from fifth place in 2005 to seventh place in 2006, while his earnings increased from $500m to $690m.
As of June 1, Tudor had $17.7bn in assets under management.
FT.com / Lex - Floating hedge funds
Floating hedge funds
Published: May 30 2007 19:24 | Last updated: May 30 2007 19:24
The traditional way of raising capital for hedge funds has worked well over the past few years, and it has tended to avoid the public market for obvious reasons. Floating the funds themselves, as opposed to the management companies, had been viewed as too difficult, because investors would be scared off by the perceived riskiness. The managers, meanwhile, would presumably rather run a mile than subject themselves to the onerous disclosure requirements – a definitional challenge for a sector that many routinely describe as consisting of unregulated pools of capital.
Bit by bit, some of that conventional wisdom has been chipped away. First came a fund listing from a near cousin of the hedge fund, private equity stalwart Kohlberg Kravis Roberts, in Europe. And there has been a handful of hedge fund listings, again in Europe. Now comes news of the first US listing. Man Group will float a vehicle to be managed by its flagship blackbox AHL fund and US manager, Tykhe Capital.
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For Man, the appeal is presumably access to “permanent capital”, which cannot disappear when the going gets tough. Man has hardly been rocked by redemptions, but the added security is nice.
That said, one would have thought the disincentives for Man would weigh even heavier. The floated vehicle would be a closed-end investment company. As such, it would face more regulatory constraints than the average hedge fund, such as added disclosure on trading and strategies. It would also not charge traditional performance fees.
As for potential investors, they might be hoping this is their way of tasting some of the exclusive AHL magic, even if only in tiny portions. But they will have to take into account the possibility of their stock trading below net asset value, which can be galling.
Copyright The Financial Times Limited 2007
Published: May 30 2007 19:24 | Last updated: May 30 2007 19:24
The traditional way of raising capital for hedge funds has worked well over the past few years, and it has tended to avoid the public market for obvious reasons. Floating the funds themselves, as opposed to the management companies, had been viewed as too difficult, because investors would be scared off by the perceived riskiness. The managers, meanwhile, would presumably rather run a mile than subject themselves to the onerous disclosure requirements – a definitional challenge for a sector that many routinely describe as consisting of unregulated pools of capital.
Bit by bit, some of that conventional wisdom has been chipped away. First came a fund listing from a near cousin of the hedge fund, private equity stalwart Kohlberg Kravis Roberts, in Europe. And there has been a handful of hedge fund listings, again in Europe. Now comes news of the first US listing. Man Group will float a vehicle to be managed by its flagship blackbox AHL fund and US manager, Tykhe Capital.
ADVERTISEMENT
For Man, the appeal is presumably access to “permanent capital”, which cannot disappear when the going gets tough. Man has hardly been rocked by redemptions, but the added security is nice.
That said, one would have thought the disincentives for Man would weigh even heavier. The floated vehicle would be a closed-end investment company. As such, it would face more regulatory constraints than the average hedge fund, such as added disclosure on trading and strategies. It would also not charge traditional performance fees.
As for potential investors, they might be hoping this is their way of tasting some of the exclusive AHL magic, even if only in tiny portions. But they will have to take into account the possibility of their stock trading below net asset value, which can be galling.
Copyright The Financial Times Limited 2007
Hedge Funds | HedgeWorld | The Definitive Hedge Fund Community
Figuring where hedge funds fit; Portfolio planning for the very rich
Todd Builione, a managing partner at Highbridge Capital Management, a $15.7 billion hedge fund that is majority-owned by JP Morgan Chase, uses a baseball metaphor to describe the growth of assets involved in alternative investments. ''Somewhere between the third and fifth inning'' of the nine-inning game, he said.
According to Douglas Wurth, global head of alternative investments at JPMorgan's Private Bank, $1 billion a month is flowing into hedge funds on JP Morgan's platform, where wealth managers are now recommending that very rich individuals (worth $25 million or more) and institutions put 35 percent of their portfolios into alternatives and 20 percent of that into hedge funds.
Wurth and Builione were speaking together with a panel of other senior executives from the Private Bank and it was clear that alternatives continued to be the rage for a number of reasons, including the fact that hedge funds have traditionally had low correlations with major equity and bond markets. In other words, when those markets tank, hedge funds, in general, do not.
Then there is Ray Dalio.
Dalio, the founder of Bridgewater Associates, a hedge fund with about $30 billion under assets, has some different thoughts on his industry, including some tough questions on why hedge fund returns look so much like stock market returns when they are not supposed to be correlated.
In a private research letter sent out this month, he and a colleague examined the correlation of hedge fund returns with the market returns of certain market indexes.
In general, hedge fund returns should not replicate stock market returns. If they did, investors would be smarter to buy index funds and not pay the steep fees of hedge funds.
Because hedge funds can hedge their bets, take on leverage, tread where others fear to tread, and seek out nontraditional assets, they should generate excess returns not just reflect market returns.
According to Dalio's analysis, over the past 24 months, hedge funds were 60 percent correlated with the Standard & Poor's 500-stock index, 67 percent correlated with the Morgan Stanley Capital International EAFE (for Europe, Australia and the Far East) index of foreign shares, and 87 percent correlated with emerging market equities (unhedged). They were 41 percent correlated with the Goldman Sachs Commodity Index, 52 percent correlated with high-yield, or junk, bonds, and 42 percent correlated with mortgage-backed securities.
The letter also parsed the correlations by strategy, which is a more precise way to think about hedge funds, since different types of funds take different kinds of risks. Short-biased hedge funds have a negative 70 percent correlation with the S.& P index, while equity long-short, the description applied to what most people think of as a hedge fund (betting on stocks that might go up and others that might fall, usually with leverage) had a huge correlation of 84 percent.
Then Dalio looked at data back to 1994 and showed that historical correlations were in the range of 49 to 54 percent - high, but not as high.
So as equity markets have done well, hedge funds have done well - not necessarily because of their genius but because they have the wind of the stock markets at their back and because a lot of them use leverage to magnify their bets.
Dalio did not return calls asking for comment.
Still, no one cares about correlations, or anything else really, until the markets head down.
But a lot of investors like Bridgewater as a part of a diversified group of hedge funds because Dalio has a contrarian view and because if and when the markets tank, he should - and he had better - trounce his more correlated peers.
And Dalio clearly has more than his powers of prognostication on the line: Bridgewater returned a meager 3.4 percent last year.
Many people in the asset management world think the whole correlation thing is overblown: Of course hedge funds will take advantage of strong markets to make money. The key is that when the markets turn, these managers can do something about it. The question is whether they are smart enough to know to do it.
And maybe they are. But investors would be smart to try to understand how exposed they are to the markets that they might think they are well protected against.
(Private equity firms, another popular place to dump money these days, are buying highly leveraged large-cap companies).
Of course, understanding returns may be hard. Wurth of JP Morgan expressed concern about aspects of hedge fund investing, notably the lack of transparency, which makes it harder to monitor trading by fund managers, and the lack of influence a single client might have on a big fund. That is why clients are limited to 35 percent, even though many want their portfolios to look more like those of foundations and endowments, which can have as much as 60 percent of their assets in alternative investments.
''You do things that foundations don't do,'' Wurth joked. ''You die and you pay taxes. So don't get ahead of yourself.''
Todd Builione, a managing partner at Highbridge Capital Management, a $15.7 billion hedge fund that is majority-owned by JP Morgan Chase, uses a baseball metaphor to describe the growth of assets involved in alternative investments. ''Somewhere between the third and fifth inning'' of the nine-inning game, he said.
According to Douglas Wurth, global head of alternative investments at JPMorgan's Private Bank, $1 billion a month is flowing into hedge funds on JP Morgan's platform, where wealth managers are now recommending that very rich individuals (worth $25 million or more) and institutions put 35 percent of their portfolios into alternatives and 20 percent of that into hedge funds.
Wurth and Builione were speaking together with a panel of other senior executives from the Private Bank and it was clear that alternatives continued to be the rage for a number of reasons, including the fact that hedge funds have traditionally had low correlations with major equity and bond markets. In other words, when those markets tank, hedge funds, in general, do not.
Then there is Ray Dalio.
Dalio, the founder of Bridgewater Associates, a hedge fund with about $30 billion under assets, has some different thoughts on his industry, including some tough questions on why hedge fund returns look so much like stock market returns when they are not supposed to be correlated.
In a private research letter sent out this month, he and a colleague examined the correlation of hedge fund returns with the market returns of certain market indexes.
In general, hedge fund returns should not replicate stock market returns. If they did, investors would be smarter to buy index funds and not pay the steep fees of hedge funds.
Because hedge funds can hedge their bets, take on leverage, tread where others fear to tread, and seek out nontraditional assets, they should generate excess returns not just reflect market returns.
According to Dalio's analysis, over the past 24 months, hedge funds were 60 percent correlated with the Standard & Poor's 500-stock index, 67 percent correlated with the Morgan Stanley Capital International EAFE (for Europe, Australia and the Far East) index of foreign shares, and 87 percent correlated with emerging market equities (unhedged). They were 41 percent correlated with the Goldman Sachs Commodity Index, 52 percent correlated with high-yield, or junk, bonds, and 42 percent correlated with mortgage-backed securities.
The letter also parsed the correlations by strategy, which is a more precise way to think about hedge funds, since different types of funds take different kinds of risks. Short-biased hedge funds have a negative 70 percent correlation with the S.& P index, while equity long-short, the description applied to what most people think of as a hedge fund (betting on stocks that might go up and others that might fall, usually with leverage) had a huge correlation of 84 percent.
Then Dalio looked at data back to 1994 and showed that historical correlations were in the range of 49 to 54 percent - high, but not as high.
So as equity markets have done well, hedge funds have done well - not necessarily because of their genius but because they have the wind of the stock markets at their back and because a lot of them use leverage to magnify their bets.
Dalio did not return calls asking for comment.
Still, no one cares about correlations, or anything else really, until the markets head down.
But a lot of investors like Bridgewater as a part of a diversified group of hedge funds because Dalio has a contrarian view and because if and when the markets tank, he should - and he had better - trounce his more correlated peers.
And Dalio clearly has more than his powers of prognostication on the line: Bridgewater returned a meager 3.4 percent last year.
Many people in the asset management world think the whole correlation thing is overblown: Of course hedge funds will take advantage of strong markets to make money. The key is that when the markets turn, these managers can do something about it. The question is whether they are smart enough to know to do it.
And maybe they are. But investors would be smart to try to understand how exposed they are to the markets that they might think they are well protected against.
(Private equity firms, another popular place to dump money these days, are buying highly leveraged large-cap companies).
Of course, understanding returns may be hard. Wurth of JP Morgan expressed concern about aspects of hedge fund investing, notably the lack of transparency, which makes it harder to monitor trading by fund managers, and the lack of influence a single client might have on a big fund. That is why clients are limited to 35 percent, even though many want their portfolios to look more like those of foundations and endowments, which can have as much as 60 percent of their assets in alternative investments.
''You do things that foundations don't do,'' Wurth joked. ''You die and you pay taxes. So don't get ahead of yourself.''
Wednesday, June 06, 2007
Fundos de Private Equity no Brasil
Matéria de hoje no Valor falando sobre os grandes fundos internacionais de Private Equity e a posssibilidade de entrarem no país.
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