Energy Trading Hedge Funds

Energy Trading Hedge Funds Hope for Rise in Demand

Hedge-fund manager Energy Capital Management BV's CEO predicts that the sagging energy demand and drop in German electricity prices may be over. CEO Marcel Melis optimistically forecasted “The forward prices are at lows, the spot prices are at lows. One thing is for sure -- energy consumption will not decrease anymore.” European demand for energy commodities from power and oil have fallen dramatically during the recession. Mr. Melis is hoping to see a reverse in the German energy market which has had particularly low demand lately leading prices to slide. Nearly 60 percent of Energy Capital Management’s MMT Energy Fund is in German power.

“I don’t believe it’s a good moment to be short anymore” in German power, Melis said.
The Paris-based International Energy Agency forecasts oil demand will pick up in 2010, while the drop in European power demand may have reached a floor, Lars Josefsson, head of the Nordic region’s biggest utility, Vattenfall AB, said in July. German power use slid 6 percent to 262 terawatt hours in the first half, according to data from utility group BDEW.

Melis, 41, worked as an energy trader at BP Plc, Statkraft SF, Reliant Energy Inc. and Delta Energy NV before starting the MMT Energy Fund in October 2006. It has returned 0.2 percent this year through August, according to data compiled by Bloomberg. The fund also trades in other European power markets, natural gas, coal and emissions. Source

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Hedge Funds Loan Losses

Hedge Funds Suffering after Racking up Losses from Loans

Hedge funds are struggling to make up big losses after the US financial sector's losses on large loans exploded in 2009. Many lenders were hedge funds and at least "one in three dollars lent by non-bank institutions such as hedge funds, securitisation vehicles and pension funds went sour" which is much more than the 11.5% in the traditional banking sector.

The results will increase fears that, in spite of a recovery in the shares and balance sheets of many banks, the epicentre of the crisis has moved to the hedge funds and investors that gorged on cheap credit in the run-up to the turmoil.

The importance of these non-bank institutions was underlined by the review's finding that they held 47 per cent of problem loans in spite of accounting for only 21.2 per cent of the total loan pool. Overall, the US financial sector's losses on loans in early 2009 reached a record of $53bn, nearly triple the previous high in 2002.

The number of loans edging into the danger zone has also surged. Some 15 per cent of the $2,900bn SNC portfolio was classified as "substandard" - the second of the four categories used by regulators - and worse, up from 5.8 per cent in 2008. Read more..

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Number of New Hedge Funds Rises

Number of New Hedge Fund Launches Increases

With 2,100 hedge funds closed during the credit crisis, few expected a rise in new hedge fund launches this year. But if new hedge funds continue to launch at this year's pace, the industry may see the first year since 2005 of annual growth in new fund formations. Hedge funds appear to be back with renewed investor confidence and new and experienced hedge fund managers ready to try it again. Hedge fund launches have been consistently falling from 2073 in 2005 to 659 last year but this trend appears to be reversing.

It might also be that funds that had posted huge losses closed down so that the managers could start with fresh records, resetting high-water marks so that they can collect performance bonuses without making up the money lost in 2008.

When Hedge Fund Research unveiled its second-quarter data earlier this month, all eyes were focused on the slowing number of hedge fund liquidations. What was little noticed were the hedge fund launches. Since 2005, they have been falling steadily from a peak of 2073 in 2005 to 659 last year. The slide appeared to be continuing in the first quarter when 148 new hedge funds were launched. But, in the second quarter, 182 new hedge funds were launched, just as the equities markets bottomed.

The rising launches are a "constructive development," says Ken Heinz president of Chicago-based Hedge Fund Research. "You are continuing to see risk tolerance and risk appetite improving from the historical lows at the end of 2008. " To be sure, there are still more hedge funds shuttering their doors than opening them, with 292 going out of business in the second quarter alone, according to Hedge Fund Research. But there have been some notable launches. Source

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"Jesus Would Not Invest in Hedge Funds"

Jesus and Hedge Fund Managers

Below is the ever-controversial Michael Moore, he was on Larry King Live recently talking about the evils of capitalism and hedge funds.

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Secondary Hedge Fund Market

Secondary Hedge Fund Market Activity Increases

The secondary hedge fund market has grown while other areas of the hedge fund industry have contracted during the financial crisis. The secondary hedge fund market gives investors the opportunity to sell stakes in funds with long lockup periods or limits for redemptions as well as providing access to funds not currently accepting new investors. The increase in secondary market activity is a result of managers trying to keep investors with long lock up periods and limiting redemptions. Investors responded by turning to the secondary market to sell their stakes, usually at a heavy loss.

Hedgebay, a leading secondary market player that's been in the business for a decade, helped investors buy and sell stakes representing roughly $1 billion in assets under management last year. The firm has completed more deals so far in 2009 than in all of last year.

Citco, a large banking and custody firm, has offered similar services for many years, while Swiss bank Credit Suisse (CS) and NYPPEX are also active in the market. But a slew of new rivals have entered this year, including CogentMarkets, SecondMarket, 2n20.com and the largest interdealer brokers ICAP and Tullett Prebon PLC (TLPR.LN).

So many firms have got into the nascent business that there may not be enough action for everyone to survive. "A lot of players will show up when there's money to be made," said Bradley Alford, head of Atlanta-based Alpha Capital Management LLC. "There are all kinds of secondary hedge fund players now and not enough supply out there." Source

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Hedge Fund Marketing Rules

What Are the Rules for Marketing a Fund to Investors

Our team is currently re-writing this article, please check back soon for more information.

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Fund Administration Q & A

What Goals Fund Administration Can Achieve

A couple months ago I sat down with Eric Warshal of Fund Associates in Atlanta to talk about the fund administration business and the hedge fund industry. Here is one question I asked him and his response:

Question: I know that many hedge fund managers are focused on three things, keeping costs relatively low, raising capital and performing well. Can the services your firm offers or that fund administration firms in general offer help funds achieve any of these three goals?

Answer: Yes, our firm can certainly assist the managers with all of those items that are of value to them. From a “keeping costs low” perspective, because Fund Associates focuses on the needs of the emerging manger, we are keenly aware of their cost sensitivity with respect to expenses. As such, we typically price our services based on flat monthly fees as opposed to basis points of AUM pricing. We also offer discounted tired pricing schedules based on AUM when funds are just starting to help with expenses. We’ve found that this helps the manager by having a “fixed” cost structure, coupled with a “reasonable” overall cost for administration services. Fund administration firms as whole tend to lower overall costs by allowing the fund manager to outsource what could otherwise be a costly endeavor for the manager to accomplish on his own. Raising capital is inherently, after the trading itself, what most fund managers tend to focus on. In today’s environment, the chances of funds being able to successfully raise money from sophisticated investors if they self-administer is nearly zero. Almost all of the largest hedge fund frauds have been committed by groups that self-administer.

Although fund administration firms do not, typically, serve as third party marketing (TPM) firms they typically are associated with or have strategic alliances with TPMs who can help raise the capital that fund managers are often seeking.

By virtue of the fact that when the entire administrative component of the fund is not resting on the fund manager’s shoulders and those efforts and stresses are removed from his plate, the manager fundamentally is able to perform more effectively for his investors.

Eric Warshal will be answering more of my questions on fund administration in the future.

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Pittsburgh Steelers Hedge Fund

Hedge Fund Manager Minority Owner of Pittsburgh Steelers

Hedge fund managers have tried to own the Pittsburgh Steelers unsuccessfully, but now David Tepper of Appaloosa Management has become a minority owner of the team. The family owners of the team have resisted prior attempts but perhaps the fact that Tepper is a Pittsburgh neighbor made a difference. Tepper's proposal to own a part of the Super Bowl champions was also less invasive than the other attempt by Stanley Druckenmiller of Duquense Capital Management.

That, apparently, wasn’t a problem for another hedge fund manager with ties to the Steel City. David Tepper, a Pittsburgh native and founder of Appaloosa Management, is officially a minority owner of the team, after the team’s ownership restructuring was finalized yesterday. He and three others joined team President Art Rooney II and chairman emeritus Daniel Rooney in buying up the shares owned by several other members of the Rooney family and their relatives, the McGinleys.

Unlike Druckenmiller’s proposal, the new deal leaves the Rooney’s firmly in charge, giving them the minimum 30% stake in the team to remain principal owners. “I am very happy for the family,” Druckenmiller, a Steelers season ticket holder, told the Pittsburgh Tribune-Review. “When they came to me a year-and-a-half ago, it is hard to describe the anxiety the brothers were having to endure given the difficult situation. The fact that they have been able to pull together resulting in an outcome that is satisfactory to all parties is a tremendous achievement and a testament to the strength of the family.” Source

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Australian Hedge Fund of the Year

Fortitude Capital Australian Hedge Fund of the Year

The financial crisis kept most hedge funds from posting positive returns but Fortitude Capital managed to have a positive return every month in 2008, earning the award of Australian Hedge Fund of this year. The following video highlights Fortitude Capital's achievements:

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Directive on Alternative Fund Managers

Costs of EU's Directive on Alternative Fund Managers

European hedge funds are facing tough regulation and stiff taxes from the UK and European Union. Last month, the UK announced that it will begin taxing individuals earning more £150,000 (about $247,000) a year at a rate of 51%. This decision led many hedge funds to leave the UK for more business-friendly countries, namely Switzerland.

Now, the European Union is considering a law that will effect not only private equity and hedge funds but also EU tax revenues. The proposed rules are estimated to cost almost $3 billion in its first year and about $1.5 billion each following year. The Directive on Alternative Investment Fund Managers seeks to regulate and impose capital requirements on funds managing more than 100 million euros.

A significant cost may fall on the hedge funds and private equity firms which will shoulder a major burden in compliance costs. A recent survey estimates that compliance expenses will rise by about a third from the directive.

London, home to at least 80 percent of Europe’s estimated $400 billion in hedge-fund assets and about 60 percent of Europe’s private-equity firms, may suffer as funds decide that leaving is easier than complying with new regulations, the survey authors said.

“Thousands of jobs and millions of pounds in tax revenues could be at stake,” according to a report by Mats Persson, research director at Open Europe. “There would be little incentive for fund managers to remain in the EU at all.” The survey showed 2 percent of investors in the funds support the proposal, while 46 percent oppose it.

Britain’s Financial Services Authority last week organized a one-day conference in London about the costs and consequences of the directive, which Paul Myners, the U.K. treasury minister called “flawed.” Poul Nyrup Rasmussen, the Danish former prime minister whose Socialist Party president introduced the legislation, said this month that the proposal may need “tightening.” source

Read about the UK Hedge Funds Tax

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Pay to Play Pension Funds

4 More Firms Settle in Placement Agent Pay to Play Probe

The following comes from our friends at Private Equity Blogger and relates to the use of placement agents to get access to capital from pension funds. This is a wide-spread practice although private equity funds are primarily being targeted by the investigation in New York.

The use of placement agents has come under fire following a public investigation into the practice and investigations into whether a pay-to-play scheme is used in attracting capital from pension funds. The most recent development is that New York Attorney General Anthony Cuomo's investigation into pay-to-play arrangements between the state's pension fund and placement agents for investment funds has forced four more firms to settle. Reforming the current system has been met with some resistance especially from firms who argue that outlawing the use of placement agents puts smaller and new private equity firms and funds at a significant disadvantage in raising capital.

The four firms are: Access Capital Partners, Falconhead Capital, HM Capital Partners and Levine Leichtman Capital Partners. Each has agreed to adopt the rules proposed by Mr. Cuomo barring the use of placement agents to attract funding from pension funds. Additionally, each firm will pay a total $4.5 million in damages. Carlyle Group and Riverstone Holdings already settled with the Attorney General.

“With seven firms now having signed our code of conduct, momentum is building in the industry to make our code the national standard to eliminate pay-to-play in public pension funds across the country,” Cuomo said.

Six people have been indicted so far in the scandal at the New York State Common Retirement Fund. Two have pleaded guilty for their role in the scheme which paid kickbacks to a pair of top aides to former New York Comptroller Alan Hevesi, whose office oversees the Common Retirement Fund.

HM Capital and Falconhead both employed a firm run by a key Hevesi aide indicted in the scandal, Hank Morris, while Access and Levine Leichtman unknowingly hired firms that split fees with Morris. Access had hired Barrett Wissman, who has pleaded guilty for his role in the pay-to-play scheme, who in turn allegedly paid off Morris to win the firm business. Source

Meanwhile, the SEC's proposed guidelines that aim to clean up the pay-to-play system may have a very damaging effect on new and smaller private equity firms. The current system (ethical, or not) enables small and newly launched private equity firms to net capital from investors that it otherwise probably would not have access to. The big buyout shops are able to use name recognition and a proven track record to entice investors without the need of placement agents, although some big firms use them anyway.

Without using such agents, small and new funds will have a tougher time raising money, critics say. While large, established firms are well known enough to simply contact a pension fund directly, smaller funds without a brand or history have a far tougher job getting heard. "I think the proposal's a bit draconian, particularly on banning placement agents," said Steven Kaplan, a professor of finance at the University of Chicago.

Supporters of the placement agent industry -- which includes brand name firms such as Credit Suisse's (CSGN.VX) placement agent unit and Blackstone Group's (BX.N) Park Hill Group -- argue that their role has no similarity with political fixers, and they should not be tarred with the same brush. Source

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How Do I Raise Capital

How Do I Raise Capital?

How Do I Raise Capital to Launch a Hedge Fund?

Our team is currently re-writing this article, please check back soon for more information.

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New York Event: Fundraising for Hedge Funds & Private Equity Funds

Fundraising for Hedge Funds: Event

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Hedge Funds Terms and Fees

Hedge Funds Resist Push to Change Terms and Fees

Hedge funds were expected to cave on demands by investors to lower fees and make it easier for investors to redeem their investment, but it seems that hedge funds have resisted the push. As hedge funds have performed very well so far in 2009 managers feel less pressure than they once did to keep investors.

Research from Olympia Capital Management found that only a small portion of 2,659 funds reduced the time between redemption dates or reduced the lock-up period on investors' capital. Also, hedge fund fees have not changed significantly, despite predictions of lowered fees. Performance has been far better than last year and the hedge funds that survived 2008 are larger and were able to perform well even in the financial crisis so they have greater leverage in negotiating terms.

Funds may also be holding back on offering features that can become a double-edged sword in a crisis. Investors like buying funds that give them the option to redeem at frequent intervals. But it can also make them the first port of call for investors that can't get their money out elsewhere, even when a fund is posting strong returns.

Dozens, if not hundreds, of hedge funds slammed down "gates" last year to prevent investors from pulling money. On top of liquidity terms that can range from one month to three years, hedge funds nearly always have a right in their contracts with investors to put a gate down on part or all of their capital to avoid being forced to sell assets at inopportune times.

Long periods between redemption dealing dates can make sense for funds that invest in illiquid assets such as distressed debt, corporate loans, private equity or penny stocks. But even funds purportedly investing only in widely-traded stocks regularly lock up investors' money for a year or more and then only offer to return it on a quarterly basis. Source

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Hedge Fund Investors Becoming More Institutional

More Institutional Investments in Funds

While I believe long-term this may shift back to a more 50/50 split institutional fund investors now make up over 60% of all hedge fund assets, while more retail individual HNW investors make up around 40% of the capital now within hedge funds. Here is the article discussing this development:

Hedge fund managers’ client base has become more institutional than retail over the past year – leading to an “insitutionalisation” of the industry, International Asset Management said.
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In an interview with Global Pensions, the chief executive of the fund of hedge fund firm, Morten Spenner, said around 55% of assets are now managed by institutions - up from about 40% before the crisis.

He said the tilt in assets was triggered by an exodus by retail and high-net-worth clients from the industry post-Madoff, and a need for liquidity.

Spenner said: "Consequently, there will be less appetite for leverage, structured products and Madoff club-type deals."Source

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Presuppositions: How to Use a Presupposition

Today we are going to talk about presupposition, this is something tha may be used to help write a newsletter, email, or elevator pitch...and it is from the world of Neural Linguistic Programming (NLP) and it is very applicable to day to day business marketing and sales activities.

Presupposition can be defined as the way of marketing in which you assume that the audience is going to be buying into your ideas. For example we are coming out with a Capital Raising DVD Training program next year which we haven’t named yet, below is a marketing pitch for this using the presupposition approach”

Example: The Capital Raising DVD product consists of 6 DVDs, a workbook, a cheat sheet, 2 audio CDs and flash cards. After you have purchased the product we will email you your membership details and you may begin using our training materials online. It will then take approximately 6 days to receive your box of training materials in the mail. Once these materials are received you will have the option of using the hard copy materials or the digital copies available online.

Note: Many times in the paragraph I referred to actions the person “would take,” I did not refer to actions that the person might take or “might take if they decide to purchase.” The importance here is assuming they will be purchasing your product, if you have something truly valuable then you will be speaking directly to individuals who will in fact buy your product. The power of this thinking is that it helps build momentum towards making the sale, it moves them closer to completing the order form.

Warning: If you do not have a good relationship with your list or are you brand new to the industry the over-use of this tactic can come off as cheap and look like hucksterism, use it lightly. Also, this tactic is not a magic bullet which when used means you can ignore standard copywriting, risk removal, product samples, and testimonials. This is one of 20-30 tactics which when all used together raises the response you may receive from traffic on a website or mailings sent to a list.

I hope this post helped, we will be writing many more like this over the next few months.

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Raise More Capital: 80 Unique Resources, Tools & Tips

Raise More Capital

We now host over 3,600 resources on HedgeFundBlogger.com, and we are publishing new articles every day. While our hedge fund startup, hedge fund career, and hedge fund tracker related posts have been popular over the past 6 months our most popular area of content has been our capital raising advice.

We are not trying to build a capital raising consulting firm, instead we provide free consulting in a way by providing valuable advice through our blog posts. In return we hope to build strong relationships with many fund managers who may want to come to our events, purchase an Investor Database, complete the CHP Designation, or change prime brokers.

To access an additional set of capital raising resources not found on our blog please enter your name and email address below.

Below please find links to many of our capital raising resources which are freely open to the general public. I hope these help your firm raise more capital.

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Hedge Fund Transparency Regulation

SEC Hints at Regulation Increasing Hedge Fund Transparency

U.S. regulators are hesitant to impose any drastic rules on the hedge fund industry, as hedge funds post impressive results in 2009 signaling the beginnings of a recovery. Security and Exchange Commission Chairman Mary Shapiro did say that she hopes to bring in a bit more transparency to the industry but it is far from the worst-case scenario some hedge funds have been bracing for.

If Congress, as is expected, requires hedge funds to register with the agency, the SEC will in turn require “some level of public reporting,” Schapiro told a conference at Georgetown University on Friday. But the public shouldn’t expect to get the same peek at what hedge funds are doing as regulators will.

Schapiro said she is “very aware of the tension” hedge funds feel about greater disclosure, fearing that it will give their competitors a leg up. So instead of demanding detailed public disclosures, she said the SEC will seek “fairly detailed reporting to regulators and some level of public reporting to investors.” Source

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Tony Chedraoui Hedge Fund: Event Driven

Tony Chedraoui Fund

Below is a short excerpt about Tony Chedraoui starting a new hedge fund this year. The Telegraph was nice enough to say that Tony is starting a $500M hedge fund, but as Fintag pointed out this morning typically these types of announcements mean that the fund hopes to launch soon and hopes to attract something near $500M. This may seem like a small detail to professionals outside of the industry but those who have raised capital for new funds know how challenging this is process can be.

Tony Chedraoui, who used to run the The Deephaven European Event Fund, has started up Tyrus Capital, a global hedge fund that will focus on trading events, such as merger deals.

Mr Chedraoui is expected to attract strong interest from backers and investors, said investment advisers. This is because the Deephaven European Event Fund, which last year won the EuroHedge award for best performance in 2008, managed to weather the financial crisis to rise by around 17.31pc. The average event-driven fund was down 14.91pc in 2008, according to the HSBC index. Source

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