Thursday, May 31, 2007
Man Group
Matéria do Financial Times sobre as recentes aberturas de capital de hedge funds e private equity funds, em espcial o Man Group.
Goldman Global Alpha Hedge Fund
Matéria da Bloomberb sobre os retornos decepcionantes do Global Alpha Hedge da Goldman.
Friday, May 25, 2007
Hedge Fund IPOs
More Hedge-Fund IPOs Likely This Year - Forbes.com
Matéria da Forbes sobre IPOs de hedge funds.
More Hedge-Fund IPOs Likely This Year
Associated Press 05.24.07, 6:00 PM ET
In the wake of Fortress Investment Group LLC's successful initial public offering, more hedge funds are likely to go public this year, according to investment bankers speaking at an industry conference Thursday.
The desire for equity-based rewards to attract and retain talent in a competitive industry environment is a key force behind the increased interest in IPOs. Bankers say that many of their hedge-fund clients are looking at the possibility of going public.
Souren Ouzounian, managing director in investment bank at Merrill Lynch & Co., said he has about six hedge-fund clients that are mulling IPOs. Michael Rees, a Lehman Brothers Holdings Inc. investment banker, said four of his clients are positioned to file in "the fairly near term."
"They're big firms," Rees said at the Hedge Fund Leadership Forum in New York.
The interest in going public comes after New York-based Fortress' stock debut drew strong interest from investors. Another hedge-fund firm, Oaktree Capital Management LLC, sold shares in its management company in a private placement this week. The IPO of Blackstone Group, a New York private-equity firm, is also expected to attract heavy investor interest this summer.
In addition to wanting to use equity to lure talent, hedge funds also hope to be able to use capital raised in their IPOs for deal making. There's also a fear of being left behind as rivals go public.
"They don't want to wake up in 12 to 18 months and have 75 percent of their competitors have access to a public currency to retain and attract talent that they don't have," Rees said.
But skeptics contend that the IPO trend largely reflects some fund managers' desire to cash out at the top of the market.
"There's no clear use for the money," said Harry Krensky, principal at Atlas Discovery Capital, in White Plains. "The only use of the money I can see is to cash out management."
Aside from traditional IPOs, an increasing number of hedge funds are looking to sell minority stakes in themselves to other investors. Bankers said that institutions ranging from overseas governments to insurance companies to private-equity firms are all in the market to buy positions in hedge funds.
"We're seeing a lot more activity, a lot more tires being kicked," Rees said.
Bankers also said that hedge funds are likely to increasingly turn to debt as well as equity markets in coming months.
Copyright 2007 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed
Matéria da Forbes sobre IPOs de hedge funds.
More Hedge-Fund IPOs Likely This Year
Associated Press 05.24.07, 6:00 PM ET
In the wake of Fortress Investment Group LLC's successful initial public offering, more hedge funds are likely to go public this year, according to investment bankers speaking at an industry conference Thursday.
The desire for equity-based rewards to attract and retain talent in a competitive industry environment is a key force behind the increased interest in IPOs. Bankers say that many of their hedge-fund clients are looking at the possibility of going public.
Souren Ouzounian, managing director in investment bank at Merrill Lynch & Co., said he has about six hedge-fund clients that are mulling IPOs. Michael Rees, a Lehman Brothers Holdings Inc. investment banker, said four of his clients are positioned to file in "the fairly near term."
"They're big firms," Rees said at the Hedge Fund Leadership Forum in New York.
The interest in going public comes after New York-based Fortress' stock debut drew strong interest from investors. Another hedge-fund firm, Oaktree Capital Management LLC, sold shares in its management company in a private placement this week. The IPO of Blackstone Group, a New York private-equity firm, is also expected to attract heavy investor interest this summer.
In addition to wanting to use equity to lure talent, hedge funds also hope to be able to use capital raised in their IPOs for deal making. There's also a fear of being left behind as rivals go public.
"They don't want to wake up in 12 to 18 months and have 75 percent of their competitors have access to a public currency to retain and attract talent that they don't have," Rees said.
But skeptics contend that the IPO trend largely reflects some fund managers' desire to cash out at the top of the market.
"There's no clear use for the money," said Harry Krensky, principal at Atlas Discovery Capital, in White Plains. "The only use of the money I can see is to cash out management."
Aside from traditional IPOs, an increasing number of hedge funds are looking to sell minority stakes in themselves to other investors. Bankers said that institutions ranging from overseas governments to insurance companies to private-equity firms are all in the market to buy positions in hedge funds.
"We're seeing a lot more activity, a lot more tires being kicked," Rees said.
Bankers also said that hedge funds are likely to increasingly turn to debt as well as equity markets in coming months.
Copyright 2007 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed
Friday, May 18, 2007
Lonely Battle
Matéria do Herald Tribune
Germany fights lonely battle to rein in hedge funds
By G. Thomas Sims
Published: May 17, 2007
FRANKFURT: Germany will make a last-ditch effort Friday to persuade the world's top economic powers to tighten their grip on hedge funds and private equity firms.
But even before these countries' finance ministers convened at a Group of 8 meeting, the push was being written off as futile - illustrating Germany's isolation in its desire to rein in the booming industry.
In the run-up to a two-day meeting near Berlin that will begin Friday, the United States, Japan, Britain, and Canada - where the bulk of hedge funds and private equity firms are based - have signaled their desire for a hands-off approach toward regulation.
"Central banks and other regulators should resist the temptation to devise ad hoc rules for each new type of financial instrument or institution," Ben Bernanke, chairman of the U.S. Federal Reserve, said in a speech this week.
Henry Paulson Jr., the U.S. Treasury Secretary, has said he would skip the meeting this weekend altogether because of a heavy workload.
Other members of the club - France, Italy and Russia - have given little or no public support to Germany's effort.
Their stance is an embarrassment to Germany, which has made increased transparency of the industry a top priority in its role as the current president of the G-8.
Germany is particularly sensitized to the issue because an intricate system of corporate cross-shareholdings since World War II has long helped shield companies from outside predators. That cozy system is widely credited with helping Germany rise from the rubble to become the world's third largest economy after the United States and Japan.
Now, companies are gradually unwinding their intertwined shareholdings as they restructure amid the pressures of globalization. Although the country has recently recovered from an extended bout as the "sick man of Europe," unemployment still hovers close to 10 percent, and Germans are feeling especially vulnerable to an industry with its roots firmly in U.S.-British business culture.
The German government also has historically played a larger role in intervening in the economy than countries like the United States and Britain.
The rift within the G-8 illustrates the fierce emotions surrounding an industry that is increasingly in the news for buying publicly traded companies, and then sometimes sharply reducing the work force in an effort to increase profit.
In one prominent example, TCI, a hedge fund that invests in ABN AMRO, has called for a breakup of the Dutch bank, which within months rushed to merge with Barclays, a British bank. If successful, the merged bank would be one of the world's largest by assets, but the move has also caused angst among thousands of workers as they fear for their jobs.
On Thursday, funds that invest in Prudential PLC called for the breakup of the company, a British insurer, but the company's management said that it would pursue its current strategy. (Page 12)
Proponents of the role that hedge funds and private equity firms play say that they foster employment and innovation. Many such firms are focused on long-term growth and bring new capital and expertise into a company. At the same time they limit the power of self-serving managers and shareholders to the benefit of efficiency and the most sensible allocation of resources.
Opponents argue that these investors are only concerned with maximizing short-term profit and overburden takeover targets with debt. They also say they put jobs at risk, resulting in a lower tax intake by governments.
Germany, with its tradition of consensus politics and co-determination between labor and management, has come to symbolize this critical side. During the most recent federal election, politicians began to refer to such investors as "locusts" - for swarming in from great distances, like the United States or Britain, and stripping German companies of assets, costing jobs.
Last year, Blackstone, one of the largest private equity companies, bought a stake of nearly 5 percent in Deutsche Telekom and has been pressing for change ever since. During the past week, employees have been on strike because management of the former telephone monopoly wants to increase working hours and cut pay for 50,000 workers.
On Wednesday, Michael Frenzel, the chief executive of TUI, the German travel company, tried to soothe employee fears that the company was in "danger" of being taken over by a hedge fund after it posted steep losses.
Speculation is mounting that Siemens, the vast engineering and electronics company, is also ripe for a breakup bid by an activist investor. The company is suffering from a power vacuum after its top two executives stepped aside last month over a widening corruption scandal. Siemens has warned that it could face steep fines stemming from investigations like the one under way at the U.S. Securities and Exchange Commission.
On the other hand, there was little complaint from Germany this week when DaimlerChrysler announced that it would sell its Chrysler unit to Cerberus Capital Management, a private equity firm.
Peer Steinbrück, who as German finance minister has led the drive to rein in such investors, has argued that hedge funds and private equity firms need monitoring because of the risk they pose to the financial system. He often refers to Long-Term Capital Management, the New York hedge fund that nearly went belly up in 1998 and prompted the intervention of the Federal Reserve to control fallout in financial markets.
Steinbrück had hoped that this weekend he would persuade G-8 finance ministers to get hedge funds to agree to a voluntary code of conduct. Such a code could call on funds to disclose qualifications of staff and their methods for managing risk.
The United States and other opponents favor indirectly monitoring hedge funds through their dealings with banks, insurance companies and other lenders that are already subject to regulation.
The United States tried to play down differences Wednesday. Clay Lowery, the assistant Treasury secretary for international affairs, said that "there probably is not as much disagreement as people have made it out to be." But he also said that Germany's desire for a code of conduct for hedge funds was not necessary.
Last week, Steinbrück failed to get his counterparts in the European Union - which includes Britain - to back him in his effort ahead of the G-8 meeting. At that time Steinbrück began lowering expectations for striking a deal this weekend, though he vowed to try, and said he would try again at a later summit meeting of G-8 leaders.
Meanwhile, Germany is going it alone.
Last week, the government announced that it would soon propose a law to require investors who build up a stake of 10 percent in a German company to make their intentions clear. Steinbrück fears that some German companies might be vulnerable to a takeover or breakup if they do not know who their shareholders are.
As of earlier this year, investors with more than a 3 percent stake in a company are bound to announce their holding. But the government still fears that many investors conceal their identities behind a bank buying the shares on their behalf, and that numerous investors can band together to build up a common stake and hide in the cloak of anonymity.
Switzerland is in the process of closing legal loopholes that have allowed the raiders to sneak up on one Swiss company after another. Yet even the Swiss are not rallying to Germany's side.
Last week, Thomas Jordan, a member of the board of Swiss central bank, gave a speech in Berlin at an event sponsored by the Swiss embassy and Switzerland's influential banking organization.
While there might be individual cases in which private equity involvement might not be in the best interest of a specific company, "it would be premature and risky on the basis of individual cases to introduce disproportional regulation," he said.
Jordan warned that regulations in the name of transparency must not stifle investment.
Germany fights lonely battle to rein in hedge funds
By G. Thomas Sims
Published: May 17, 2007
FRANKFURT: Germany will make a last-ditch effort Friday to persuade the world's top economic powers to tighten their grip on hedge funds and private equity firms.
But even before these countries' finance ministers convened at a Group of 8 meeting, the push was being written off as futile - illustrating Germany's isolation in its desire to rein in the booming industry.
In the run-up to a two-day meeting near Berlin that will begin Friday, the United States, Japan, Britain, and Canada - where the bulk of hedge funds and private equity firms are based - have signaled their desire for a hands-off approach toward regulation.
"Central banks and other regulators should resist the temptation to devise ad hoc rules for each new type of financial instrument or institution," Ben Bernanke, chairman of the U.S. Federal Reserve, said in a speech this week.
Henry Paulson Jr., the U.S. Treasury Secretary, has said he would skip the meeting this weekend altogether because of a heavy workload.
Other members of the club - France, Italy and Russia - have given little or no public support to Germany's effort.
Their stance is an embarrassment to Germany, which has made increased transparency of the industry a top priority in its role as the current president of the G-8.
Germany is particularly sensitized to the issue because an intricate system of corporate cross-shareholdings since World War II has long helped shield companies from outside predators. That cozy system is widely credited with helping Germany rise from the rubble to become the world's third largest economy after the United States and Japan.
Now, companies are gradually unwinding their intertwined shareholdings as they restructure amid the pressures of globalization. Although the country has recently recovered from an extended bout as the "sick man of Europe," unemployment still hovers close to 10 percent, and Germans are feeling especially vulnerable to an industry with its roots firmly in U.S.-British business culture.
The German government also has historically played a larger role in intervening in the economy than countries like the United States and Britain.
The rift within the G-8 illustrates the fierce emotions surrounding an industry that is increasingly in the news for buying publicly traded companies, and then sometimes sharply reducing the work force in an effort to increase profit.
In one prominent example, TCI, a hedge fund that invests in ABN AMRO, has called for a breakup of the Dutch bank, which within months rushed to merge with Barclays, a British bank. If successful, the merged bank would be one of the world's largest by assets, but the move has also caused angst among thousands of workers as they fear for their jobs.
On Thursday, funds that invest in Prudential PLC called for the breakup of the company, a British insurer, but the company's management said that it would pursue its current strategy. (Page 12)
Proponents of the role that hedge funds and private equity firms play say that they foster employment and innovation. Many such firms are focused on long-term growth and bring new capital and expertise into a company. At the same time they limit the power of self-serving managers and shareholders to the benefit of efficiency and the most sensible allocation of resources.
Opponents argue that these investors are only concerned with maximizing short-term profit and overburden takeover targets with debt. They also say they put jobs at risk, resulting in a lower tax intake by governments.
Germany, with its tradition of consensus politics and co-determination between labor and management, has come to symbolize this critical side. During the most recent federal election, politicians began to refer to such investors as "locusts" - for swarming in from great distances, like the United States or Britain, and stripping German companies of assets, costing jobs.
Last year, Blackstone, one of the largest private equity companies, bought a stake of nearly 5 percent in Deutsche Telekom and has been pressing for change ever since. During the past week, employees have been on strike because management of the former telephone monopoly wants to increase working hours and cut pay for 50,000 workers.
On Wednesday, Michael Frenzel, the chief executive of TUI, the German travel company, tried to soothe employee fears that the company was in "danger" of being taken over by a hedge fund after it posted steep losses.
Speculation is mounting that Siemens, the vast engineering and electronics company, is also ripe for a breakup bid by an activist investor. The company is suffering from a power vacuum after its top two executives stepped aside last month over a widening corruption scandal. Siemens has warned that it could face steep fines stemming from investigations like the one under way at the U.S. Securities and Exchange Commission.
On the other hand, there was little complaint from Germany this week when DaimlerChrysler announced that it would sell its Chrysler unit to Cerberus Capital Management, a private equity firm.
Peer Steinbrück, who as German finance minister has led the drive to rein in such investors, has argued that hedge funds and private equity firms need monitoring because of the risk they pose to the financial system. He often refers to Long-Term Capital Management, the New York hedge fund that nearly went belly up in 1998 and prompted the intervention of the Federal Reserve to control fallout in financial markets.
Steinbrück had hoped that this weekend he would persuade G-8 finance ministers to get hedge funds to agree to a voluntary code of conduct. Such a code could call on funds to disclose qualifications of staff and their methods for managing risk.
The United States and other opponents favor indirectly monitoring hedge funds through their dealings with banks, insurance companies and other lenders that are already subject to regulation.
The United States tried to play down differences Wednesday. Clay Lowery, the assistant Treasury secretary for international affairs, said that "there probably is not as much disagreement as people have made it out to be." But he also said that Germany's desire for a code of conduct for hedge funds was not necessary.
Last week, Steinbrück failed to get his counterparts in the European Union - which includes Britain - to back him in his effort ahead of the G-8 meeting. At that time Steinbrück began lowering expectations for striking a deal this weekend, though he vowed to try, and said he would try again at a later summit meeting of G-8 leaders.
Meanwhile, Germany is going it alone.
Last week, the government announced that it would soon propose a law to require investors who build up a stake of 10 percent in a German company to make their intentions clear. Steinbrück fears that some German companies might be vulnerable to a takeover or breakup if they do not know who their shareholders are.
As of earlier this year, investors with more than a 3 percent stake in a company are bound to announce their holding. But the government still fears that many investors conceal their identities behind a bank buying the shares on their behalf, and that numerous investors can band together to build up a common stake and hide in the cloak of anonymity.
Switzerland is in the process of closing legal loopholes that have allowed the raiders to sneak up on one Swiss company after another. Yet even the Swiss are not rallying to Germany's side.
Last week, Thomas Jordan, a member of the board of Swiss central bank, gave a speech in Berlin at an event sponsored by the Swiss embassy and Switzerland's influential banking organization.
While there might be individual cases in which private equity involvement might not be in the best interest of a specific company, "it would be premature and risky on the basis of individual cases to introduce disproportional regulation," he said.
Jordan warned that regulations in the name of transparency must not stifle investment.
Hedge funds step up challenge to SEC
Hedge funds step up challenge to SEC
By Dane Hamilton
NEW YORK (Reuters) - Hedge funds and other investment firms have been busily filing quarterly public reports to regulators in recent weeks, offering rivals a window into top manager holdings that sometimes moves shares.
But don't look for any information from Bulldog Investors or Wynnefield Capital -- their so-called 13-F filings are largely blank.
The two funds are leading a charge to overturn the rules that require them to file quarterly holdings information, maintaining that such disclosures are trade secrets. Both have applied to keep their holdings confidential, but expect regulators to turn them down, forcing a court battle.
"We filed but it was blank," said Phillip Goldstein, a veteran investor who heads the $300 million-plus hedge fund group Bulldog Investors and affiliate Full Value Advisors. "We haven't heard back from the SEC."
Goldstein is no stranger to tangling with regulators. Last year he successfully challenged SEC rules requiring hedge funds to register as investment advisers. The U.S. Court of Appeals in June agreed, forcing the SEC to abandon the rule.
"Frankly I think we will win," said Goldstein of his latest effort. But he said "I suspect it will take a long time." Last year Full Value Advisors also asked for an exemption, but got no response from the SEC, he said.
If Goldstein succeeds and funds stop filing quarterly 13-F reports, investors could be denied an important investment tool: a quarterly window into what the world's best investors are holding, at least as of a particular quarter's end. And evidence shows that information is closely followed.
Hedge funds step up challenge to SEC News Regulatory News Reuters
By Dane Hamilton
NEW YORK (Reuters) - Hedge funds and other investment firms have been busily filing quarterly public reports to regulators in recent weeks, offering rivals a window into top manager holdings that sometimes moves shares.
But don't look for any information from Bulldog Investors or Wynnefield Capital -- their so-called 13-F filings are largely blank.
The two funds are leading a charge to overturn the rules that require them to file quarterly holdings information, maintaining that such disclosures are trade secrets. Both have applied to keep their holdings confidential, but expect regulators to turn them down, forcing a court battle.
"We filed but it was blank," said Phillip Goldstein, a veteran investor who heads the $300 million-plus hedge fund group Bulldog Investors and affiliate Full Value Advisors. "We haven't heard back from the SEC."
Goldstein is no stranger to tangling with regulators. Last year he successfully challenged SEC rules requiring hedge funds to register as investment advisers. The U.S. Court of Appeals in June agreed, forcing the SEC to abandon the rule.
"Frankly I think we will win," said Goldstein of his latest effort. But he said "I suspect it will take a long time." Last year Full Value Advisors also asked for an exemption, but got no response from the SEC, he said.
If Goldstein succeeds and funds stop filing quarterly 13-F reports, investors could be denied an important investment tool: a quarterly window into what the world's best investors are holding, at least as of a particular quarter's end. And evidence shows that information is closely followed.
Hedge funds step up challenge to SEC News Regulatory News Reuters
Saturday, May 12, 2007
Managers celebrate surging prices
Managers celebrate surging prices
Ian Kerr
07 May 2007
High-flying hedge funds make millions for founding partners thanks to favourable market conditions
Oh, to be a high-flying hedge fund manager with assets of at least $5bn. It isn’t simply the standard 2% management fee but the fact that in these market conditions the performance fees that usually start at 20% will generate earnings of tens of millions of dollars more for each of the founding shareholders.
How can the hedgies go wrong in these markets? Only with difficulty. The long-short strategies, which are mainly long on closer examination, have been helped by surging share prices. Convertible arbitrage, which was considered dead two years ago, has come storming back.
Commodities are flying high. Merger arbitrage has been helped by merger mania. Distressed debt is yielding rich pickings for the vulture hedgies, Credit trading and derivatives are providing the same high returns that the big investment banks have enjoyed.
Does it all sound too good to be true? Perhaps, but don’t spoil the party. Don’t mention Amaranth Advisors, Vega or the soggy performance of Gavyn Davies’ Semper Macro fund. These were minor hiccups. Amaranth might have been a knockout blow but the episode is barely mentioned today and Brian Hunter, the trader whose bets backfired, has started a new fund.
Because the hedge fund industry has been so successful and has created large personal wealth for a small number of individuals, it hasn’t been easy to attract favourable publicity. Even when the managers give away tens of millions or even hundreds of millions to worthy charitable causes, the reaction is: “So how much did they keep for themselves?”
There should, therefore, be a small word of praise for the activist funds, which have been attracting considerable attention this year.
The term “activist” might have been considered user-friendly five years ago but the chief financial officer of a FTSE 100 company said: “These funds do little more than place a gun to the heads of management in the hope of maximising the value of the shares they have bought.
"At best they are irritating. At worse they are a nuisance and a waste of valuable management time.”
We have been following the Conrad Black court case but only limited credit has been given to Tweedy, Browne, the New York-based activist hedge fund, which first blew the whistle on Black’s Hollinger International.
In the case of ABN Amro, it wasn’t Christopher Hohn’s The Children’s Investment Fund that first started buying ABN Amro shares and call options. However, TCI was sufficiently influential to cause the value of the shares to rise 6% in one day when it said it had taken a more than 1% stake in the Dutch bank.
What TCI accomplished was to underline the incompetence of ABN Amro’s management and the need for change. Did TCI have the desired effect or was this an idle threat?
Within days, Barclays made a bid for ABN Amro and Royal Bank of Scotland made a counter-offer. The outcome is in the balance but the one certainty is that TCI will keep snapping at the heels of ABN Amro’s management to ensure fair play – the highest price for ABN Amro shareholders and for itself.
Why should hedge funds have become the new supremos in distressed debt and the restructuring of ailing or collapsed companies? These are businesses to which they should be attracted. Many traders at the best- performing funds specialised in high-yield or junk bonds and their bankers saw failing companies as an opportunity to acquire assets.
Michael Milken of Drexel Burnham (very RIP) had pointed the way in junk bonds but the distressed debt opportunities were then exploited by groups including Goldman Sachs, Lone Star and other US vulture funds.
Better still, the hedge funds found they possessed superior restructuring skills to the commercial bankers, who had been the traditional lenders and only wanted to recoup a part of those loans as quickly as possible.
As a former Goldman Sachs partner said: “It used to be that if you had a restructuring meeting for a distressed company, the process was driven by the main relationship banks. Now, if you go to a distressed company meeting, often there are no banks at all – just hedge funds.”
While the hedge fund sector basks in sunny market conditions, have you noticed there are fewer criticisms of the industry’s fee structure? The standard 2% and 20% suddenly doesn’t seem so greedy or onerous when the hedge funds are reporting a steady rise in net values.
There is also evidence that high fees do not detract from performance or cause penny-pinching investors to withdraw their funds. What better example is there than Renaissance Technologies, run by former maths professor James Simons, who charges no less than a 5% standard and a 44% performance fee. Some market observers would suggest those numbers are outrageous.
“Not at all”, according to Simons’ loyalists, who correctly said that Renaissance Technologies is one of the best performing and most consistent hedge funds in the world and that Renaissance continually has to turn away new investors. Did the loyalists object when Simons earned $1.7bn last year? I suspect that there was not a murmur of dissent.
Renaissance Technologies is a pure quantatitive fund which even Simons admits “is really a black box”. Don’t black boxes make you nervous? They were first exploited by Salomon Brothers for its global macro trading strategies.
The results were often brilliant but when the black box gave the wrong signals, the losses ran into hundreds of millions of dollars. Then John Meriwether took some of Salomon’s black boxes, its best quant traders and a pair of Nobel Prize winners to start Long-Term Capital Management.
However, the combination of extraordinary intellect with extraordinary computer power didn’t prevent the collapse of LTCM in 1998.
Simons’ computers have not let him down and he is described as the most successful hedge fund manager in history. Are quant-driven trading models superior to stock-picking or directional trading strategies?
Simons would back the quants and so would Ken Griffin of Citadel and Steve Cohen of SAC Capital, whose huge daily trading volumes, mainly computer driven, make them among Wall Street’s best customers.
In Simons’ world there are no clouds on the horizon but more conventional funds have proved to be vulnerable, even in a modest equity downturn. In Simons’ case, he also proves good hedge fund managers can improve with age. Simons is 69.
The legendary George Soros is 76 and former oil man turned hedge fund manager T Boone Pickens will be 80 at his next birthday. What do they have in common? Each earned close to $1bn or more last year.
• Ian Kerr is a freelance writer and consultant to the investment banking industry
Ian Kerr
07 May 2007
High-flying hedge funds make millions for founding partners thanks to favourable market conditions
Oh, to be a high-flying hedge fund manager with assets of at least $5bn. It isn’t simply the standard 2% management fee but the fact that in these market conditions the performance fees that usually start at 20% will generate earnings of tens of millions of dollars more for each of the founding shareholders.
How can the hedgies go wrong in these markets? Only with difficulty. The long-short strategies, which are mainly long on closer examination, have been helped by surging share prices. Convertible arbitrage, which was considered dead two years ago, has come storming back.
Commodities are flying high. Merger arbitrage has been helped by merger mania. Distressed debt is yielding rich pickings for the vulture hedgies, Credit trading and derivatives are providing the same high returns that the big investment banks have enjoyed.
Does it all sound too good to be true? Perhaps, but don’t spoil the party. Don’t mention Amaranth Advisors, Vega or the soggy performance of Gavyn Davies’ Semper Macro fund. These were minor hiccups. Amaranth might have been a knockout blow but the episode is barely mentioned today and Brian Hunter, the trader whose bets backfired, has started a new fund.
Because the hedge fund industry has been so successful and has created large personal wealth for a small number of individuals, it hasn’t been easy to attract favourable publicity. Even when the managers give away tens of millions or even hundreds of millions to worthy charitable causes, the reaction is: “So how much did they keep for themselves?”
There should, therefore, be a small word of praise for the activist funds, which have been attracting considerable attention this year.
The term “activist” might have been considered user-friendly five years ago but the chief financial officer of a FTSE 100 company said: “These funds do little more than place a gun to the heads of management in the hope of maximising the value of the shares they have bought.
"At best they are irritating. At worse they are a nuisance and a waste of valuable management time.”
We have been following the Conrad Black court case but only limited credit has been given to Tweedy, Browne, the New York-based activist hedge fund, which first blew the whistle on Black’s Hollinger International.
In the case of ABN Amro, it wasn’t Christopher Hohn’s The Children’s Investment Fund that first started buying ABN Amro shares and call options. However, TCI was sufficiently influential to cause the value of the shares to rise 6% in one day when it said it had taken a more than 1% stake in the Dutch bank.
What TCI accomplished was to underline the incompetence of ABN Amro’s management and the need for change. Did TCI have the desired effect or was this an idle threat?
Within days, Barclays made a bid for ABN Amro and Royal Bank of Scotland made a counter-offer. The outcome is in the balance but the one certainty is that TCI will keep snapping at the heels of ABN Amro’s management to ensure fair play – the highest price for ABN Amro shareholders and for itself.
Why should hedge funds have become the new supremos in distressed debt and the restructuring of ailing or collapsed companies? These are businesses to which they should be attracted. Many traders at the best- performing funds specialised in high-yield or junk bonds and their bankers saw failing companies as an opportunity to acquire assets.
Michael Milken of Drexel Burnham (very RIP) had pointed the way in junk bonds but the distressed debt opportunities were then exploited by groups including Goldman Sachs, Lone Star and other US vulture funds.
Better still, the hedge funds found they possessed superior restructuring skills to the commercial bankers, who had been the traditional lenders and only wanted to recoup a part of those loans as quickly as possible.
As a former Goldman Sachs partner said: “It used to be that if you had a restructuring meeting for a distressed company, the process was driven by the main relationship banks. Now, if you go to a distressed company meeting, often there are no banks at all – just hedge funds.”
While the hedge fund sector basks in sunny market conditions, have you noticed there are fewer criticisms of the industry’s fee structure? The standard 2% and 20% suddenly doesn’t seem so greedy or onerous when the hedge funds are reporting a steady rise in net values.
There is also evidence that high fees do not detract from performance or cause penny-pinching investors to withdraw their funds. What better example is there than Renaissance Technologies, run by former maths professor James Simons, who charges no less than a 5% standard and a 44% performance fee. Some market observers would suggest those numbers are outrageous.
“Not at all”, according to Simons’ loyalists, who correctly said that Renaissance Technologies is one of the best performing and most consistent hedge funds in the world and that Renaissance continually has to turn away new investors. Did the loyalists object when Simons earned $1.7bn last year? I suspect that there was not a murmur of dissent.
Renaissance Technologies is a pure quantatitive fund which even Simons admits “is really a black box”. Don’t black boxes make you nervous? They were first exploited by Salomon Brothers for its global macro trading strategies.
The results were often brilliant but when the black box gave the wrong signals, the losses ran into hundreds of millions of dollars. Then John Meriwether took some of Salomon’s black boxes, its best quant traders and a pair of Nobel Prize winners to start Long-Term Capital Management.
However, the combination of extraordinary intellect with extraordinary computer power didn’t prevent the collapse of LTCM in 1998.
Simons’ computers have not let him down and he is described as the most successful hedge fund manager in history. Are quant-driven trading models superior to stock-picking or directional trading strategies?
Simons would back the quants and so would Ken Griffin of Citadel and Steve Cohen of SAC Capital, whose huge daily trading volumes, mainly computer driven, make them among Wall Street’s best customers.
In Simons’ world there are no clouds on the horizon but more conventional funds have proved to be vulnerable, even in a modest equity downturn. In Simons’ case, he also proves good hedge fund managers can improve with age. Simons is 69.
The legendary George Soros is 76 and former oil man turned hedge fund manager T Boone Pickens will be 80 at his next birthday. What do they have in common? Each earned close to $1bn or more last year.
• Ian Kerr is a freelance writer and consultant to the investment banking industry
Hedge funds may pose huge market risk: Fed
Hedge funds may pose huge market risk: Fed
Could be largest risk since Long-Term Capital Management crisis in 1998 says New York Federal Reserve
May 2 2007: 1:18 PM EDT
NEW YORK (Reuters) -- Hedge funds may now pose the biggest risk of a crisis since 1998, when the implosion of Long-Term Capital Management threatened the global financial system, the New York Federal Reserve said on Wednesday.
The statement represented the bank's sternest warning to date over the possible fate of the $1.4 trillion industry.
"Recent high correlations among hedge fund returns could suggest concentrations of risk comparable to those preceding the hedge fund crisis of 1998," according to a paper written by Tobias Adrian, capital markets economist at the central bank.
Back in 1998, the New York Fed helped bring together Wall Street tycoons who eventually cobbled together enough funds for an unprecedented $3.6 billion bailout.
The LTCM crisis was all the more shocking to investors because of the individuals involved, regarded highly for their market savvy and mathematical prowess.
But with the crisis averted, the hedge fund industry bounced back with a vengeance, increasingly rapidly over the last decade in both size and scope to an estimated $1.4 trillion.
Hedge funds, investment pools that are aimed primarily at wealthy investors and institutions, have been very lightly regulated, facing only vague registration requirements.
Their sheer immensity has raised some red flags from policy-makers, with New York Fed President Timothy Geithner among those sounding repeated warnings about the need for cautious lending.
The Fed's latest worry arose from what it described as a rising correlation between the actual returns of hedge funds, which could point to similar trading strategies that excessively concentrate risk on too few market positions.
"Similar trading strategies can heighten risk when funds have to close out comparable positions in response to a common shock," the economist Adrian wrote.
Still, many officials including Geithner have shied away from calling for explicit regulation, arguing instead that the large banks who lend to hedge funds should police themselves to make sure no one lender gets in too deep.
Hedge funds borrow large sums of money in order to take aggressive bets on financial markets. Many operate heavily in the derivatives market, estimated at around $17 trillion, raising fears about possible future shocks.
Could be largest risk since Long-Term Capital Management crisis in 1998 says New York Federal Reserve
May 2 2007: 1:18 PM EDT
NEW YORK (Reuters) -- Hedge funds may now pose the biggest risk of a crisis since 1998, when the implosion of Long-Term Capital Management threatened the global financial system, the New York Federal Reserve said on Wednesday.
The statement represented the bank's sternest warning to date over the possible fate of the $1.4 trillion industry.
"Recent high correlations among hedge fund returns could suggest concentrations of risk comparable to those preceding the hedge fund crisis of 1998," according to a paper written by Tobias Adrian, capital markets economist at the central bank.
Back in 1998, the New York Fed helped bring together Wall Street tycoons who eventually cobbled together enough funds for an unprecedented $3.6 billion bailout.
The LTCM crisis was all the more shocking to investors because of the individuals involved, regarded highly for their market savvy and mathematical prowess.
But with the crisis averted, the hedge fund industry bounced back with a vengeance, increasingly rapidly over the last decade in both size and scope to an estimated $1.4 trillion.
Hedge funds, investment pools that are aimed primarily at wealthy investors and institutions, have been very lightly regulated, facing only vague registration requirements.
Their sheer immensity has raised some red flags from policy-makers, with New York Fed President Timothy Geithner among those sounding repeated warnings about the need for cautious lending.
The Fed's latest worry arose from what it described as a rising correlation between the actual returns of hedge funds, which could point to similar trading strategies that excessively concentrate risk on too few market positions.
"Similar trading strategies can heighten risk when funds have to close out comparable positions in response to a common shock," the economist Adrian wrote.
Still, many officials including Geithner have shied away from calling for explicit regulation, arguing instead that the large banks who lend to hedge funds should police themselves to make sure no one lender gets in too deep.
Hedge funds borrow large sums of money in order to take aggressive bets on financial markets. Many operate heavily in the derivatives market, estimated at around $17 trillion, raising fears about possible future shocks.
Tuesday, May 08, 2007
Greed
Qantas Deal Scuttled by Hedge Fund Greed: Analysts
By Reuters Monday, May 07, 2007
MELBOURNE (Reuters)—Miscalculations by hungry hedge funds in a giant game of brinksmanship appear to be the key reason behind the crash of an A$11 billion (US$9.1 billion) takeover offer for Australia's Qantas Airways Ltd., analysts said.
Local newspapers named U.S. billionaire Samuel Heyman, who holds 11% of Qantas, as the investor who offered a 4.9% stake in the airline five hours after the deadline.
That would have pushed acceptances to 50.6%, and kept the deal alive for another two weeks, allowing hedge funds another two weeks to buy cheap stock. An array of hedge funds had bought more than 40% of the airline over recent months, analysts have said, expecting to make gains on the difference between the company's share price and the A$5.45 a share offer by bidding group Airline Partners Australia.
The stock has never traded up to the offer price as opposition to the bid has created uncertainty about its success, allowing hedge funds to buy from local investors who feared the share price would fall if the bid failed.
The bid group needed to reach 50% of shareholders acceptances by a Friday [May 4] deadline to trigger a two-week extension of the offer, before it reached the 70% level needed to close the bid.
Analysts said hedge funds hoped to engineer an outcome where the offer just edged over 50%, creating another two weeks of uncertainty and providing more opportunity to buy stock below the offer price from nervous retail and institutional investors.
Instead, they miscalculated. The bid group won just 46% of acceptances, scuttling the bid.
Hedge funds stand to lose hundreds of millions if the Qantas share price falls when trade resumes.
Qantas shares were placed on a trading halt on Monday [May 7] awaiting legal clarification about the bid, and analysts said some funds may hold on to their shares as they await APA's plans. APA said on Monday it was considering a fresh offer, again at A$5.45.
The stock closed on Friday at A$5.38.
"The rationale for gambling that APA got 50% and no more was to ensure that the stock continue[d] to trade at a discount, thereby allowing them to continue to pick up a few extra pennies," said an analyst, who asked not to be identified.
Theories abound for the error.
The Australian reported Mr. Heyman had agreed with two other hedge funds, Polygon Investment Partners and Highbridge Capital Management, to each deliver between 45% and 60% of their holdings by the deadline, which would have been enough to edge the deal over the 50% mark.
But Mr. Heyman was secretly determined to hold on to all of his Qantas shareholding, the newspaper reported in an unsourced front-page story.
The Sydney Morning Herald reported that Heyman Investment Associates Chief Investment Officer Jim Hoffman simply didn't believe increasingly hysterical calls from Sydney that the bid would fail without his acceptance.
Mr. Hoffman said only: "While we have consistently indicated to advisers that this has always been a close call for us, we are hopeful that our tender will facilitate the successful completion of the transaction," the paper reported.
Analysts said funds would have played the same game with the 70% level, betting that APA would buy out minority shareholders at a higher price and proceed with its original plan to delist the airline, analysts said.
If APA had won acceptances between 70% and 90%, it would still have been cheaper to pay a higher price of perhaps A$6.50 to minority shareholders than to raise its offer to all shareholders, JP Morgan analyst Matthew Crowe told clients last week.
The buyout group includes Macquarie Bank Ltd. and private equity firm Texas Pacific Group.
By Victoria Thieberger
By Reuters Monday, May 07, 2007
MELBOURNE (Reuters)—Miscalculations by hungry hedge funds in a giant game of brinksmanship appear to be the key reason behind the crash of an A$11 billion (US$9.1 billion) takeover offer for Australia's Qantas Airways Ltd., analysts said.
Local newspapers named U.S. billionaire Samuel Heyman, who holds 11% of Qantas, as the investor who offered a 4.9% stake in the airline five hours after the deadline.
That would have pushed acceptances to 50.6%, and kept the deal alive for another two weeks, allowing hedge funds another two weeks to buy cheap stock. An array of hedge funds had bought more than 40% of the airline over recent months, analysts have said, expecting to make gains on the difference between the company's share price and the A$5.45 a share offer by bidding group Airline Partners Australia.
The stock has never traded up to the offer price as opposition to the bid has created uncertainty about its success, allowing hedge funds to buy from local investors who feared the share price would fall if the bid failed.
The bid group needed to reach 50% of shareholders acceptances by a Friday [May 4] deadline to trigger a two-week extension of the offer, before it reached the 70% level needed to close the bid.
Analysts said hedge funds hoped to engineer an outcome where the offer just edged over 50%, creating another two weeks of uncertainty and providing more opportunity to buy stock below the offer price from nervous retail and institutional investors.
Instead, they miscalculated. The bid group won just 46% of acceptances, scuttling the bid.
Hedge funds stand to lose hundreds of millions if the Qantas share price falls when trade resumes.
Qantas shares were placed on a trading halt on Monday [May 7] awaiting legal clarification about the bid, and analysts said some funds may hold on to their shares as they await APA's plans. APA said on Monday it was considering a fresh offer, again at A$5.45.
The stock closed on Friday at A$5.38.
"The rationale for gambling that APA got 50% and no more was to ensure that the stock continue[d] to trade at a discount, thereby allowing them to continue to pick up a few extra pennies," said an analyst, who asked not to be identified.
Theories abound for the error.
The Australian reported Mr. Heyman had agreed with two other hedge funds, Polygon Investment Partners and Highbridge Capital Management, to each deliver between 45% and 60% of their holdings by the deadline, which would have been enough to edge the deal over the 50% mark.
But Mr. Heyman was secretly determined to hold on to all of his Qantas shareholding, the newspaper reported in an unsourced front-page story.
The Sydney Morning Herald reported that Heyman Investment Associates Chief Investment Officer Jim Hoffman simply didn't believe increasingly hysterical calls from Sydney that the bid would fail without his acceptance.
Mr. Hoffman said only: "While we have consistently indicated to advisers that this has always been a close call for us, we are hopeful that our tender will facilitate the successful completion of the transaction," the paper reported.
Analysts said funds would have played the same game with the 70% level, betting that APA would buy out minority shareholders at a higher price and proceed with its original plan to delist the airline, analysts said.
If APA had won acceptances between 70% and 90%, it would still have been cheaper to pay a higher price of perhaps A$6.50 to minority shareholders than to raise its offer to all shareholders, JP Morgan analyst Matthew Crowe told clients last week.
The buyout group includes Macquarie Bank Ltd. and private equity firm Texas Pacific Group.
By Victoria Thieberger
Sunday, May 06, 2007
Público X Privado
Discussão interessante sobre os hedge funds que abriram o capital no exterior.
It's personal up in the funds stratosphere - International Herald Tribune
It's personal up in the funds stratosphere - International Herald Tribune
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