Hedge Fund Managers Predictions

Hedge Fund Managers Offer Their Predictions for 2011

As it is New Year's Eve, we'll continue with Finalternatives' feature where hedge fund managers place their predictions for the new year. Managers from Liongate Capital Management, FPP Asset Management, and Agecroft Partners weigh in on what the future holds for the hedge fund industry.

Here, is the third installment of responses from hedge fund industry experts, with more to come in the following days.

Jeff Holland, Managing Director, Liongate Capital Management

“Just as with 2010, 2011 will require an adaptive approach to capital investment. There are recent signs of optimism: ISM, retail and employment data have all picked up. Growing markets (it is time to do away with the phrase ‘emerging markets’) are proving resilient, driving global growth. These are though paired with some significant uncertainties. Sovereign debt problems (most notably in Europe) and fiscal austerity measures hang over developed markets. Inflation in growing markets and the sustainability of capital inflows are also causes for concern. In capital markets, there are opportunities nevertheless. Developed equity markets, particularly the U.S., look attractively valued, and with corporates holding some $2.5 trillion, deployment of these cash holdings will likely prove supportive. Commodity fundamentals are strong and global liquidity continues to provide opportunities for those who can exploit them. Precious metals are likely to continue to benefit from macro uncertainty and competitive currency devaluation pressures. Source

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Asian Hedge Funds Size

Asia Hedge Funds Size

Smaller Asian Hedge Funds Shunned Despite Big Gains

Size does matter, when it comes to Asian hedge funds looking to raise capital. Investors continue to give overwhelming preference to larger hedge funds over small hedge funds. But many small hedge funds like The Thai Focused Equity (Class A) and Albizia ASEAN Opportunities funds have made impressive returns only to be rewarded with meager inflows.

The fight for assets is likely to extend to 2011 as investors continue to shun smaller funds. Rising compliance costs will also crimp their ability to turn a profit and make it tougher for start-ups in Singapore and Hong Kong to grow.

The reluctance of institutional investors to park assets in smaller players could stymie the development of the $125 billion Asian hedge fund industry since small hedge funds have often been the source of innovative ideas in the West.

"It's been very difficult to raise money," said Jeep Chatikavanij, chief investment officer of Hunters Investments, whose $70 million Ton Poh Thailand Fund was up nearly 70 percent up to November in 2010, putting it in the third spot among the 11 Asia-themed funds on Lipper world's top-100 hedge funds.

"Largely big hedge funds have been attracting money." Source

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Hedge Fund Analysts Insider Trading

Hedge Fund Analysts Talk to Insider Trading Investigators

A new hedge fund analyst has started collaborating with the insider trading investigation. The Journal explains that hedge funds may have a new concern when hiring. With the insider trading probe and the lawsuits this year, hedge funds may be concerned that analysts will talk to investigators.

The new insider trading charges announced by federal prosecutors Wednesday are certain to fuel more speculation — and anxiety – in the hedge fund world about which fund employees are singing to law enforcement.

The criminal complaint against Winifred Jiau, a Fremont, Calif. technology expert, described in the WSJ story here, alleges she provided inside information on public companies.

The complaint says Jiau spoke with two hedge fund portfolio managers, identified as CC-1, from Hedge Fund A, and CC-2, from Hedge Funds B and C. CC-1, the founder and principal portfolio manager at Hedge Fund A, allegedly employed CW-1, a research analyst now cooperating with the government, starting in March 2008. Source

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Hedge Funds Emerging Markets Gold

Hedge Funds Make Gains Off Emerging Markets & Gold

Trading in metals--especially gold--helped produce better returns for hedge funds in 2010. Investing in emerging markets also helped salvage many hedge funds' portfolios from the turmoil in the stock markets. Gold and emerging markets have allowed hedge funds to make enough gains to drive more investors to the industry.

After two years of client withdrawals and pressure from regulators, hedge funds returned strong performances this year, fuelled by successful bets on metals and emerging markets.

The hedge fund industry, heavily criticised for gambling on the collapse of some banks in 2008, will end up the year with $2.4tn (£1.54tn) of assets under management, after adding a net $79.5bn during the past 11 months, according to HFN, a trade publication.

Insurance companies, pension funds and other institutional investors are again pouring money into the secretive industry, which is mostly based in London and New York. Source

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Hedge Funds Gas Price

Hedge Funds Raise Bearish Gas Bets for Warm New Year

Hedge funds are wagering that the price of gas will fall in an unusually warm new year. Hedge funds raised bets that the price will decline to the highest level since October on the hopes that the coming months will be warmer than usual and lower the use of gas for heating.

The funds and other large speculators cut net-long positions, or wagers on rising prices, by 35 percent in the seven days ended Dec. 21, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the largest drop since Oct. 12.

Natural gas has declined 24 percent this year as stockpiles reached record levels for the second straight November. Warmer- than-normal weather forecast for early next month may reduce the demand needed to erode surplus inventories.

“The first two weeks of January, you’re going to see the market turn around from December cold,” said Dave Melita, president and chief meteorologist of Melita Weather Associates in Durango, Colorado. “The snow cover will be melting fast. It will be 20 degrees above average on some days.” Source

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Cara Goldenberg

Transition from Analyst to Hedge Fund Founder in 6 Years

The path from analyst to executive at a hedge fund firm can be a frustratingly long road lasting many years. But Cara Goldenberg was able to transition from analyst to hedge fund founder in just six years. Goldenberg is now just 30 years old and is the founder and managing director of Permian Investment Partners.

At just 30 years old, Cara Goldenberg is at the top of her game. She is the founder and managing partner of Permian Investment Partners, a New York City-based hedge fund she launched in 2008.

Goldenberg began her career at Morgan Stanley (MS, Fortune 500) as an analyst in the investment banking division. Her strong quant skills quickly funneled her into the private equity group, a move that allowed her to circumvent the traditional analyst-associate-business school route that many of her peers would follow.

Less than two years into her stint at Morgan Stanley, Goldenberg was one of the first young investment bankers to be picked off by the hedge fund industry. She left to work for Highbridge Capital Management. Brahman Capital's management team was so impressed with Goldenberg's questions during an investor meeting, that they recruited her away from Highbridge. Source

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Coadum Capital Fraud

Utah Based Hedge Fund Indicted on Multiple Charges

This year has been a mixed one for hedge funds with mostly positive gains but also some problems. As more regulation was introduced aimed at hedge funds and more regulators targeted hedge funds with investigations and indictments. Now, a Utah based hedge fund has been accused of multiple counts of mail fraud, wire fraud and conspiracy.

Thomas Repke was indicted on December 15, 2010, along with an alleged accomplice, James Jeffrey.

“This indictment alleges a major international investment fraud scheme that defrauded over 100 victims around the country out of tens of millions of dollars, most of which has been transferred to overseas accounts.” Attorney Sally Quillian Yates said, “Those who prey on the investing public in this way will continue to find themselves facing federal felony charges.”

Coadum Capital attracted over 100 investors and over $30 million in investments in 2006 and 2007. Coadum offered shares in hedge funds and advertised monthly returns of 5 percent. The indictment in this case alleges that money placed in escrow was transferred to accounts in Switzerland and the Mediterranean island of Malta, from where the money then disappeared. Source

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Flash Crash Lawsuit

Dallas Hedge Fund Sues Over Losses During Flash Crash

A small-size hedge fund based in Dallas is suing three Chicago financial trading firms including Citadel hedge fund firm. The lawsuit brought by NorCap involves the "flash crash" that occurred earlier this year and the losses incurred by Norcap's GovPlus Master Fund LP and GovPlus Fund AI LP funds. The suit claims that the Chicago firms should pay back GovPlus's losses off put options that day because the losses were allegedly a result of a computer glitch.

The prices the GovPlus funds paid were probably based on "some form of computer glitch" that led to erroneous prices, the lawsuit said. The suit was filed this week in state court in Illinois against Citadel, Wolverine Trading LLC and Chicago Trading Co.

"Under Illinois law, where a plaintiff has conferred a benefit upon a defendant, and the defendant's retention of that benefit would violate equity and good conscience, the defendant must return the benefit," the lawsuit said, accusing the defendants of "unjust enrichment."

Representatives of Citadel and Wolverine said their firms had no comment on the lawsuit. A representative of CTC could not be reached.

Before markets opened on May 6, the GovPlus funds had sold some Standard & Poor's 500 index put options on the Chicago Board Options Exchange. When markets plummeted the afternoon of May 6, the funds were on the hook for potentially huge losses. Source

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Goldman Sachs Mount Lucas

Goldman Sachs Buys Minority Stake in Mount Lucas

A Goldman Sachs (GS) fund has decided to buy a minority stake in a Pennsylvania-based hedge fund. Goldman Sachs’ Petershill Fund bought shares of the hedge fund Mount Lucas which has an estimated $1.8 billion in assets under management.

In a statement, Mount Lucas said it would retain control over their management, operations and investment strategies. The terms of the deal were not disclosed.

Mount Lucas, which was founded in 1986, employs three strategies — one that focuses on a broad range of global investments, including stocks, commodities and currencies; another that invests in future indexes; and a third that buys stocks in the S&P 500 index and holds them on average for a year.

Goldman’s Petershill was set up to invest in an array of hedge funds, and in April took a stake in Level Global Investors, a New York firm that was raided last month by federal agents as part of a widening probe into insider trading. The firm sent a letter to investors saying they were not the focus of the investigation. Source

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Connecticut Hedge Fund Hub

How Connecticut Has Become a Hub For Hedge Fund Execs

Connecticut has developed a huge concentration of wealth as more and more hedge fund and investment managers have moved to the state. For example, eleven nutmeggers were included in the Forbes list of the 400 wealthiest magazine--all of these Connecticut residents are billionaires. I recently talked about this trend for a recent article in Connecticut Magazine titled "The Billionaire's Club".

“Greenwich has taken on this image of being a hedge-fund hot spot, and that alone has fueled the growth and interest in being located there—for networking and for prestige,” explains Richard Wilson, who heads the Hedge Fund Group and the Certified Hedge Fund Professional (CHP) Designation, an industry certification program.

In a town like this, being named to the Forbes 400—the financial equivalent, perhaps, of receiving an invitation to Truman Capote’s 1966 Black & White Ball or a locker at the Augusta National Golf Club—separates the big-money men from the small-change (read “multimillionaire”) boys.

At the head of the billionaires’ table in Connecticut is Steven A. Cohen, 54, founder of the hedge fund SAC Capital Advisors, and a very serious art collector. Cohen credits playing poker in high school with teaching him the art of risk taking—a skill that’s paid off rather well for him as a hedge-fund manager. His 2010 net worth, according to Forbes, is $7.3 billion, enough to place him No. 32 on the national list (three spots ahead of Facebook founder—or co-co-founder, according to lawsuits and the film Social Network—Mark Zuckerberg, who, at 26 and at last count, is worth an estimated $6.9 billion). Source

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Twitter Absolute Return Fund

Firm Launching Hedge Fund Trading Based on Twitter

This may be a sign of the times or a sign of the apocalypse: a new Twitter-based hedge fund is launching. Derwent Capital Markets says that it can predict shifts in the Dow Jones Industrial Average 2-6 before they occur based on words used in "tweets". Derwent claims that this method has achieved an incredible 87.6% accuracy. Now, the firm is planning to use this discovery to launch the first Twitter-based hedge fund. Derwent’s Absolute Return Fund will reportedly debut in February with £25 million.

Derwent’s Absolute Return Fund will debut in February with £25 million. The firm has engaged a University of Manchester computer science professor to build the trading models. That professor, Xioa-Jun Zeng, worked on a paper published in October about using Twitter to predict movements in the Dow.

The hedge fund is in talks with the other two authors, Indiana University’s Johan Bollen and Huina Mao, about coming on board.

“Sentiment and mood dramatically change the impact of positive and negative new stories,” Derwent’s Paul Hawtin told Bloomberg News. “If the market’s in a very positive and bullish mood, it can shrug off bad news—bad news comes out and you expect the Dow to fall, and it doesn’t.” Source

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Harbinger Spectrum Brands Stock Swap

Harbinger Spectrum Brands Stock

Falcone, Harbinger Sued Over Stock Swap with Spectrum

Philip Falcone was probably hoping that he could escape this year without another problem, but the hedge fund manager is now being sued by Harbinger Group investor Alan Kahn. The suit alleges that Falcone illegally took advantage of his position in the firm to put together a stock swap between his hedge fund Harbinger Capital and a small public firm that he also runs. The swap would allow Falcone to boost his stake in Harbinger Group from just above 50% to 94%.

Now he is planning to increase his stake to 94 percent from 51.6 percent by swapping 120 million newly issued shares of Harbinger for about 27.8 million shares of Spectrum Brands, a large holding in his hedge funds.

Falcone's hedge fund firm Harbinger Capital Partners oversees roughly $7 billion.

"HGI is vastly overpaying for the acquisition of assets from its majority and controlling shareholder," according to the suit, which was filed by Harbinger Group investor Alan Kahn in Delaware Chancery Court on Tuesday. Kahn sued Falcone, other directors and Harbinger Group itself. Source

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Hedge Funds Side Pocket

Firm Trying To Price Hedge Fund Side Pockets

Side pockets are estimated to account for 10% of the $1.8 trillion in total hedge fund assets. Now, a firm that specializes in creating secondary markets for hedge fund shares is trying to create a market to open up these side pockets.

Hedge fund investors stuck in side pockets, those opaque segregated accounts, may be able to buy some clarity.

A new service started by Hedgebay, an outfit that makes secondary markets for hedge fund stakes, is trying to put a price tag on those hard-to-value side pockets. By creating a system, the financial firm hopes to bolster trading in these types of assets.

“There’s a lack of information and transparency for this type of illiquid asset,” says Elias Tueta, a co-founder at Hedgebay. “More informed investors will be more willing to trade.”

Side pockets aren’t new. Hedge fund managers typically use them to set aside thinly traded investments they think will appreciate over time — say, shares in the privately held Facebook. Source

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Hedge Fund Predictions

Hedge Fund Managers Offer Predictions for the Next Year

Finalternatives has put together a great collection of forecasts from three hedge fund managers. Rory Hills, Michael DeJarnette and Basil Williams contribute their thoughts on the coming year and how the hedge fund industry will fare.

Rory Hills, Founding Partner, Hilltop Fund Management

“Part of our approach and philosophy is to generally avoid making macro calls and especially of the ‘what will do well next year?’ variety. That said, one issue we will watch for is to see if the level of inter-stock correlation in equity markets continues to be as high in 2011 as it has been for long periods of 2010.

“This has been driven by a binary 'risk on/risk off' approach by many investors which has often resulted in equities moving likes shoals of fish. This, combined with generally poor liquidity has created a difficult environment for many shorter-term equity trades, whether fundamental or systematic.

“In respect of fund of hedge funds, I would say this: We believe too many FoHFs continue to provide returns which are too correlated to equity markets (is it any surprise that in 2010, the worst month in terms of performance was May and the best September?) and this is not what investors want. We have no idea what 2011 holds but we do believe our portfolio will deliver solid positive returns regardless.” Source

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Hedge Funds 2011 Opportunities

Hedge Funds Will Have Lots of Opportunities in 2011

The number of hedge funds was significantly reduced by the recession which was, of course, unfortunate for the industry and those firms who had to close shop. But a new report finds that 2011 will be full of opportunities for those hedge funds that managed to survive the recession.

In addition, says the financial services firm in its latest Global Investment Overview, other market participants (whether banks or individuals) have cut back their risk exposure, reducing competition in the sector further. Assets under management in the hedge fund space have substantially recovered, but borrowing is down dramatically. The result, according to the report, is “an attractive environment for ‘alpha’ generation.”

Other factors affecting the hedge fund space in 2011 will include the slow recovery in the credit markets; increased risk-taking by hedge fund managers; increasing dispersion of manager results; “dislocation benefits” arising from persisting macroeconomic uncertainty in some parts of the globe; and the ongoing regulation of the space (in particular, the fall-out from the current insider-trading investigation in the U.S.). Source

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San Francisco Hedge Funds Fraud

Two San Francisco Hedge Funds Charged with Fraud

As the insider trading investigation develops on the East Coast, two San Francisco hedge funds have been charged in a different case. The Securities and Exchange Commission has charged American Pegasus and American Pegasus Investment Management with defrauding investors.

The Securities and Exchange Commission said it has settled fraud charges with two San Francisco investment-adviser firms and three people, imposing sanctions and requiring more than $1 million in penalties and repayments.

The firms--American Pegasus LDG and American Pegasus Investment Management--as well as Chief Executive Benjamin Chui, former portfolio manager Triffany Mok and former general counsel Charles E. Hall Jr., engaged in improper self-dealing, misused client assets and failed to disclose conflicts of interest, the SEC said.

With the settlement, the respondents didn't admit or deny the SEC's findings.

"Chui, Hall, and Mok created a tangled financial web, using investor funds for their personal benefit and then attempting to paper over the misconduct by inflating the value of fund assets," said Marc Fagel, director of the SEC's San Francisco office. Source

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Taiwan Insider Trading

Taiwan Chip Producers at Center of Insider Trading Probe

Several hedge funds and investment firms have been ensnared in the insider trading investigation and it appears that much of the disputed tips and inside knowledge originated in Taiwan. Bloomberg reports that Taiwan--home to many producers of chips used in major products like Dell computers and the iPhone--is a veritable hotbed of underground research and insider data and is being considered a big source for some of these technology investments under scrutiny. But this does not seem to be a new issue, as complaints about insider tips from Taiwan have been filed since at least 2004.

The U.S. insider-trading investigation that began last year with the arrest of the head of Galleon Group LLC is shedding new light on this nexus of underground research and offshore manufacturing. Last week, a U.S.-based employee of Taiwan’s biggest chipmaker, moonlighting as a consultant for Primary Global Research LLC, was charged with providing material, nonpublic information to investors. Last month, a Primary Global employee with ties to Taiwan was arrested in the probe.

While the Taiwan connection is just emerging in complaints filed by the U.S. Attorney in Manhattan, the nation’s black market for business intelligence and its appeal to hedge funds looking for an advantage are well-established. Since at least 2004, incidents of analysts dealing in confidential chip- production data have occurred at the Taipei offices of banks including JPMorgan Chase & Co. and Lehman Brothers Holdings Inc., said six people in the finance industry with knowledge of the events, who asked not to be identified to protect their business relationships. Source

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Hedge Funds Systematically Important

Hedge Funds May Avoid Direct Supervision by the Fed

The Financial Stability Oversight Council, a new financial watchdog composed of the Treasury Secretary and 14 U.S. supervisors including the Federal reserve, has set its sights on firms that could potentially harm the financial system. The Fed will directly scrutinize these firms deemed "systematically important" but the hedge fund industry may get a pass on the added layer of supervision. This is because the Council does not believe that any one hedge fund can topple the financial system. If that is true then hedge funds will have overcome at least one regulatory hurdle in a year of increased regulation activity worldwide.

The indication that hedge funds might escape this designation is sure to send a huge sigh of relief through the $1.7 trillion industry, which has long avoided the tighter controls imposed on mutual funds, for example.

In exchange for looser regulations, hedge fund firms promise to allow only wealthy and sophisticated investors like pension funds and endowments into their portfolios.
The Fed's view will carry considerable weight among the Financial Stability Oversight Council, which was created by the Dodd-Frank legislation to monitor risks to the financial system in the aftermath of the 2007-2009 credit crisis.

The source said the Fed does not think any one hedge fund can be "systemically important" but believes that information about the funds' positions could give the council insight into potential risks. The source requested anonymity while discussing talks held with the Fed. Source

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UBS ETF

UBS and HFR Link Up To Launch Exchange Traded Fund

The Swiss investment bank, UBS (UBS.N)(UBSN.VX) has teamed up with Hedge Fund Research (HFR) to launch a new investment product. The new exchange traded fund gives investors access to many hedge funds consolidates in a single, listed investment.

Switzerland's UBS(UBS.N)(UBSN.VX) said on Friday it had launched an investment product that will give investors access to a broad basket of hedge funds in a single, listed investment.

UBS, Europe's largest wealth manager by assets, teamed up with Chicago-based Hedge Fund Research (HFR) to build the exchange traded fund (ETF) on the U.S. company's widely-watched HFRX Global hedge Fund Index.

"This is a unique opportunity for investors to access the world-leading hedge fund benchmark in a liquid, exchange traded, UCITS compliant form," said Nicolas Samaran, Executive Director in the Fund Derivatives Structuring Group at UBS.

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St. Joe Co. Fairholme Capital Management

St. Joe Co. Elects Two Hedge Fund Execs to Board

The St. Joe Company, a land development company based in Florida, has been the subject of lots of talk lately. At a recent conference, David Einhorn suggested that the firm was pretty overvalued and went through a few problems that he sees at the company. This may have contributed to the stock price falling from $25 to $20 (it's not trading just above $21).

Now, the real estate firm is the subject of takeover rumors and the addition of two hedge fund executives from Fairholme Capital Management to the St. Joe. Co. board has caused the firm to catch even more headlines. January 1, the board will accept two more members, Bruce R. Berkowitz and Charles M. Fernandez.

Berkowitz is the managing member of Fairholme and also holds the title of president and director of Fairholme Funds Inc. He's been the lead manager of the Fairholme portfolio management team since its inception, and recently was named a Morningstar stock picker of the decade.

"St. Joe has uniquely valuable assets and some of the most attractive, concentrated and well-managed real estate in the U.S.," Berkowitz said in a statement. "The value is in its development expertise, communities, infrastructure, entitlements, master plans, timberlands and most importantly the company's long-term vision."

Fernandez is president of Fairholme Capital Management and also holds the title of vice president and director of Fairholme Funds. Fairholme owns about 26.8 million shares of St. Joe, or nearly an 29 percent stake. Source

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Hedge Funds European Equities

Hedge Funds Bought High Volume of Euro Equities in Nov.

UBS has released a report suggesting a trend in the hedge fund industry that could be a boon to equities. According to the Swiss bank, hedge funds bought European equities last month at a pace not matched in the last five years.

UBS, which based its findings on the trading patterns of its clients, saw the highest rate of buying in energy stocks, as oil prices soared above $90 a barrel.

What is striking, construction, among the worst performing sector this year, also experienced huge inflows. But chemicals stocks, which attracted money all year, saw cash flows turn negative.

The UBS data offers a window into the movement of one of the most important players in the market, lightly-regulated investment pools that use copious amounts of debt to amplify the power of their purchases. Though the data lags, the report can often coincide with big moves in the stock market and can signal significant changes in market momentum.

UBS said the purchases of stocks by hedge funds came amid a sharp slowdown in flows of money into United States fixed-income instruments. Money flowing into investment-grade debt has fallen into its lowest level since March 2009, and high-yield bonds are seeing their first outflow since June. Source

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Insider Trading Arrests

Hedge Fund Insider Trading Probe Yields Four Arrests

The hedge fund insider trading probe that erupted in the headlines over the last month has widened to include several technology-based companies. The most recent arrests include three technology executives and a salesman for an undisclosed firm described as an "expert network."

Three technology executives and a salesman for an "expert network" firm were arrested and charged with leaking confidential information about companies including Apple Inc and Advanced Micro Devices Inc in a widening probe of insider trading at hedge funds.

The defendants are accused of illegally passing on tips to at least two unnamed hedge funds.

In one instance, an employee of contract electronics manufacturer Flextronics International Ltd is accused of leaking inside information about the release of the iPad as well as an updated version of the iPhone.

The FBI has arrested the four men, a law enforcement source said. They were charged with wire fraud and conspiracy.

The technology company defendants were identified as Walter Shimoon, who worked at Flextronics; Mark Longoria, 44, employed by AMD as a supply chain manager; and Manosha Karunatilaka, 37, who worked for Taiwan Semiconductor Manufacturing Co Ltd.
Source

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http://richard-wilson.blogspot.com/2010/12/insider-trading-arrests.html

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Wikinvest Wire