Libyan Investment Authority

Libyan Investment Authority Sought to Trim Hedge Funds

The Libyan Investment Authority, the sovereign wealth fund for the country that is currently in civil war and under frequent NATO airstrikes, has cut its hedge fund holdings. According to a document disseminated by a human rights group, the $64 billion sovereign wealth fund sought to reduce its hedge fund holdings after weak returns and high fees. The Libyan Investment Authority had invested $4.5 billion in alternative investments but has since cut that number after a number of bets did not pan out.

The Libyan Investment Authority, or LIA, invested $4.5 billion in so-called alternative assets, according to an LIA “Management Information Report” dated Sept. 30. KPMG LLP, which was advising the fund, recommended reducing the holdings by $2.4 billion amid high fees and sluggish performance, the document shows.

The world’s 11th-biggest sovereign wealth fund turned to financial firms from Goldman Sachs Group Inc. (GS), the fifth-biggest U.S. bank by assets, to HSBC Holdings Plc, Europe’s largest bank, to achieve its goal of 8 percent annual returns. The bets didn’t always work out, raising concern among the fund’s managers that capital would be eroded, the LIA document shows.

“By liquidating the funds we can guarantee capital preservation and ensure reduction in expenses,” the 42-page document said.

Libya established the investment authority to find outlets for its rapidly growing oil wealth. The fund never disclosed detailed information about its holdings or returns. Source

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President Obama Hedge Funds

Obama Looks to End Tax Breaks for Hedge Fund Managers

President Obama has again called for Congress to close the tax loophole that allows carried interest to be taxed at a lower rate than ordinary income. This is a sensitive issue for hedge funds and private equity managers who are compensated largely by carried interest and have benefited from the preferential tax treatment.

In yesterday's press conference, the President referred specifically ending tax breaks for hedge fund managers as one of the ways to raise revenue as part of the government's efforts to reduce the federal deficit and avoid a government shutdown by August 2, the date that Treasury Secretary Timothy Geithner has said that the government will default on its debt. Hedge fund managers were not the only targets of the President's speech, he also spoke of corporate jet owners (which, admittedly, could be hedge fund managers) and CEOs.

During a press conference lasting more than an hour, the president blasted congressional Republicans for refusing to compromise on revenue-generating measures to offset deep spending cuts. "Everybody else has been willing to move off their maximalist position," the president said. "They need to do the same."

Democrats, who agreed to as much as $2 trillion in spending cuts during negotiations that were broken off last week by Republicans, are calling for an end to several tax breaks and loopholes. One, the so-called carried-interest loophole, allows hedge and private equity fund managers to pay the much lower capital gains rate on the performance fees they earn.

Obama and congressional Democrats have tabled an end to that loophole, which could more than double the amount of taxes hedge fund managers pay, as well as an end to or reduction in tax breaks on oil and gas companies and corporate jets.

"You'll still be able to ride on your corporate jet," Obama said in one of six mentions of the issue. "You'll just have to pay a little more."

The president added that CEOs and hedge fund managers are paying the lowest tax rates in almost 60 years. Source

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Houston Municipal Employees Pension System Hedge Fund

Houston Municipal Employees Pension

Houston Municipal Employees to Add More Hedge Funds

The Houston Municipal Employees Pension System has a plan in the works to allocate a lot of capital toward hedge funds. The public pension fund has $2.1 billion and has allocated $31 million to four hedge funds and is looking to allocate as much as $80 million to up to 15 hedge funds.

The Houston Municipal Employees Pension System is well on its way towards making its new hedge fund allocation plan a reality.

The $2.1 billion public pension fund has allocated $31 million to the four hedge funds making up the first "tranche" of its "absolute return implementation plan," approved last year. Now, Houston has begun talks about the second tranche of the three-part plan, which could add 15 hedge fund managers and spend $80 million this year.

The first four hires, made earlier this year, are Anchorage Advisors, Davidson Kempner Capital Management, Oz Management and Paulson & Co., HFMWeek reports.

The pension is focusing on single-manager hedge funds, although Houston told HFM last year that it may hire some non-hedge fund multi-strategy managers.Source

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Managed Funds Association Lobbying

Hedge Fund Group Spends Nearly $1 Million Lobbying in Q1

Hedge funds spent an impressive sum lobbying the government in Q1 of 2011. The Managed Funds Association, a hedge fund trade association, spent nearly $950,000 lobbying federal officials overseeing the implementation of the financial regulation signed into law almost a year ago. The nearly $1 million spent is actually a drop from the first quarter of 2010.

The sum the Managed Funds Association spent was down from the $1.37 million it spent a year earlier but up from the $670,000 spent in last year's fourth quarter.

The Managed Funds Association represents hedge funds, lightly regulated investment pools whose investors primarily include wealthy individuals, and institutional clients such as pension funds and endowments.

It lobbied on implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which tightened restrictions on banks and Wall Street and created the Consumer Financial Protection Bureau. The Managed Funds Association also lobbied on a mortgage relief program and registration requirements for private equity fund advisers, according to an April 20 filing with the House clerk's office.

In addition to Senators and members of the House, the association lobbied the Securities and Exchange Commission, the Department of Treasury and the Commodity Futures Trading Commission. source

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Hedge Funds Japan Pension Funds

Hedge Funds Look to Japan Pensions Following Quake

Several global hedge funds are looking to get a piece of Japanese pension funds following the disastrous earthquake that rocked the country in March. Pension funds in Japan are looking for ways to offset losses from the world's lowest bond yield and a declining birth rate that has pushed down contributions to the funds. Global hedge funds are looking to fill that need and get a slice of the pension funds.

Global hedge funds are vying for allocations from Japan’s corporate pension fund managers, who oversee about $740 billion and are seeking alternatives to stocks following the March earthquake.

Prosperity Capital Management, the largest manager of Russia-focused funds with about $5 billion in assets, plans to open an office in Tokyo in August. Van Biema Value Partners LLC, a New York-based fund of hedge funds with about $800 million in assets, is targeting Japanese pensions by offering funds that buy securities seen as inexpensive relative to the market.

Japanese pension funds are redoubling their quest to offset the world’s lowest bond yield and a falling birthrate, which have curbed contributions, after the March 11 temblor sent the benchmark Nikkei 225 (NKY) Stock Average to its biggest intraday drop since 1987. Thirty-one percent of 135 retirement funds plan to increase alternative investments such as hedge funds from this fiscal year starting April 1, according to a JPMorgan Asset Management (Japan) Ltd. survey in May.

“After the earthquake, there has been strong emphasis on gaining exposure to investments outside Japan, both for pure diversification reasons and to try to achieve higher returns,” said Michael van Biema, a former Columbia Business School professor and the founder of van Biema Value Partners. “The big problem is that most of the large pensions still have about 60 percent of their money in Japanese government bonds. You just can’t earn a reasonable rate of return doing that.” Source

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Mid-Sized Hedge Funds

Mid-Sized Hedge Funds Grew the Fastest in 2010

According to a recent Citigroup survey, mid-sized hedge funds grew the fastest during 2010. Hedge funds in the "sweet spot" ranging between $1 billion and $5 billion had the greatest share of investor inflows. This undermines the belief that the biggest hedge funds enjoy the greatest flood of investor money.

A Citigroup survey of global hedge funds with more than $1bn under management shows that managers in the “sweet spot” of between $1bn and $5bn experienced the largest percentage increase in assets under management last year, at 37 per cent. Assets under management across managers in that range rose by $85bn in 2010, versus a net increase of $30bn among managers with an AUM of between $5bn and $10bn, and a net increase of $72bn for funds with more than $10bn under management.

Pension funds and sovereign wealth funds are increasing their exposure to smaller funds as the industry has matured, according to Citi.

“By getting in early, pensions and sovereign wealth funds are positioned to grow with the manager as they build towards the $10bn AUM point and above,” said Nick Roe, head of global prime finance at the US bank.

Pension funds and institutional investors had about $1,100bn in hedge funds in the first quarter of this year – close to half of all the money invested globally in hedge funds. This is against $125bn in 2002 which represented about a fifth of the hedge fund industry. Source

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Family Offices Definition

SEC Approves New Rule Defining Family Offices

Hedge funds aren't the only ones having to deal with new rules made by the Secuirties and Exchange Commission. The Securities and Exchange Commission today approved a new rule to define “family offices” that are to be excluded from the Investment Advisers Act of 1940. The new definition will take effect in 60 days. If you're interested in a free report on family offices or other resources on family offices, visit FamilyOffices.com

The rulemaking stems from the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“Family offices” are entities established by wealthy families to manage their wealth and provide other services to family members, such as tax and estate planning services. Historically, family offices have not been required to register with the SEC under the Advisers Act because of an exemption provided to investment advisers with fewer than 15 clients.

The Dodd-Frank Act removed that exemption so the SEC can regulate hedge fund and other private fund advisers. However, Dodd-Frank also included a new provision requiring the SEC to define family offices in order to exempt them from regulation under the Advisers Act.

The new rule adopted by the SEC enables those managing their own family’s financial portfolios to determine whether their “family offices” can continue to be excluded from the Investment Advisers Act.

The rule is effective 60 days after its publication in the Federal Register.

FACT SHEET

Defining A Family Office

How are family offices impacted by the Dodd-Frank Act?

Family offices typically are considered to be investment advisers under the Advisers Act because of the investment advisory services that they provide. As such, they are subject to the registration requirements set forth in that Act. Historically, however, most family offices have been structured to take advantage of an exemption from registration for firms that advise less than fifteen clients and meet certain other conditions.

The Dodd-Frank Act repeals the 15-client exemption to enable the SEC to regulate hedge fund and other private fund advisers. But, the Dodd-Frank Act includes a new provision requiring the SEC to define family offices in order to exempt them from regulation under the Advisers Act.

Today, the Commission is considering adopting a final rule defining family offices that will be excluded from regulation under the Advisers Act.

Which family offices will be excluded from Advisers Act regulation under the rule?

Any company that:

Provides investment advice only to “family clients,” as defined by the rule.

Is wholly owned by family clients and is exclusively controlled by family members and/or family entities, as defined by the rule.

Does not hold itself out to the public as an investment adviser.

Which family members and employees can the family office advise under the exclusion?

Family members. Family members include all lineal descendants ( including by adoption, stepchildren, foster children, and, in some cases, by legal guardianship ) of a common ancestor ( who is no more than 10 generations removed from the youngest generation of family members ), and such lineal descendants’ spouses or spousal equivalents.

Key employees. Key employees include:

Executive officers, directors, trustees, general partners, or persons serving in a similar capacity for the family office or its affiliated family office.

Any other employee of the family office or its affiliated family office ( other than a clerical or secretarial employee ) who, in connection with his or her regular duties, has participated in the investment activities of the family office or affiliated family office, or similar functions or duties for another company, for at least 12 months.

Other family clients. Other family clients generally include:

Any non-profit or charitable organization funded exclusively by family clients.

Any estate of a family member, former family member, key employee, or subject to certain conditions a former key employee.

Certain family client trusts.

Any company wholly-owned by and operated for the sole benefit of family clients.

When will family offices have to register with the Commission under the Advisers Act or with applicable state securities authorities if they do not meet the terms of the exclusion?

By March 30, 2012.

Will existing family office exemptive orders be rescinded?

No. Family offices that obtained exemptive orders from the Commission will be able to continue operating under their existing exemptive orders or they may operate under the new rule.

When will family offices have to register with the Commission under the Advisers Act or with applicable state securities authorities if they do not meet the terms of the exclusion?

That family office will have to obtain a Commission exemptive order or register as an investment adviser.

Grandfathering Provision

The Dodd-Frank Act requires that the Commission not preclude certain family offices from meeting the new exclusion solely because they provide investment advice to certain clients ( and provided that advice prior to January 1, 2010 ). The adopted rule incorporates this grandfathering provision.

If you're interested in a free report on family offices or other resources on family offices, visit FamilyOffices.com

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Hedge Fund Risk Management

Hedge Fund Checklist

Hedge Fund Managers Fear Institutional Investor Checklist

One theme reported in the media is the growing fear among hedge fund managers that the entrepreneurial spirit that has encouraged the massive growth of the hedge fund industry is being stifled. Reportedly, hedge funds are worried that with the wealth management scandal of Bernard Madoff and other high-profile frauds, investors will make stricter demands of hedge fund managers and harm the industry as a result.

Although the mood was overall better than last year's Monaco summit, several managers seem distressed by the demands made especially by institutional investors and the checklist of various requirements for a hedge fund before they will invest in it.

Managers left the GAIM conference, the annual get-together for the European industry, in more upbeat mood than last June after a year of client inflows, but they warned rigid demands by institutional investors threatened hedge funds' reputation as maverick investors.

"Institutions now are looking more for risk managers than investors, and that's a bad trend," said Oscar Schafer, managing partner of O S S Capital Management.

Executives said many big institutions, which helped hedge funds recover from the crisis of 2008, are now focusing their attentions on a checklist of attributes a hedge fund must have, such as a chief risk officer, a certain level of disclosure or a demonstrable investment process.

Not only can such demands distract managers from the task of managing money, but they may still not pinpoint the real risks and may mean that genuinely talented managers get starved of capital, managers warned. Source

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Hedge Fund Fees Prime Brokers

Hedge Fund Fees to Prime Brokers Fall From Previous Years

Prime brokerage businesses aren't bringing in the high revenue that they used to from hedge funds, according to a recent survey. Global Custodian, the magazine that conducted the survey, found that investment banks and broker-dealers gathered about $10 million from hedge funds, about a third below historical norms.

"Assets under management have risen substantially in the last year, yet both investment returns and the appetite for risk--as measured by leverage and appetite to borrow stock to cover short sales --remain suppressed by comparison with the years prior to the financial crisis of 2007-09," said Global Custodian, a magazine.

The magazine's annual survey, based on more than 3,100 hedge funds, assumed that hedge funds in total manage $2 trillion in assets globally. The survey also made the assumption that financial conditions led to a narrowing of the fees on prime brokers' sources of income, such as margin finance and stock loans, to 40 basis points from 50.

May was brutal for hedge funds, with wild swings in the currency and commodities markets during the month. The average fund lost 1.2% during the month, according to Hedge Fund Research.

"Macro uncertainties have kept leverage fairly low" for hedge funds, said Barry Bausano, Deutsche Bank AG's (DB, DBK.XE) co-head of global prime finance and head of equities for the Americas. "Hedge funds have had a bad six weeks in performance, and that will likely cause them to be cautious during the summer," but Bausano expected strong third-quarter earnings would revive the market. Source

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Hedge Funds SEC Registration

Hedge Funds $150m+ Will Now Have to Register with SEC

Hedge funds with more than $150 million in assets under management will be under the oversight of the Securities and Exchange Commission. The top U.S. financial regulator voted to pass the long-anticipated legislation that brings private equity funds and hedge funds managing more than $150 million under its purview. Hedge funds and private equity funds of that size will have to register with the SEC, an estimated 750 funds will now face new regulations. For a related article, see Asking If Hedge Funds Are Prepared for SEC Registration

Securities and Exchange Commission members adopted a proposal they introduced in November that requires hedge-fund and private-equity managers with more than $150 million in assets, or with 15 or more clients in the United States, to register with the agency. Roughly 750 big funds will now be subject to the new regulations.

The SEC also will conduct surprise examinations of these managers, who will be required to file reports about their funds and on any conflicts of interest starting in 2012.

The commission’s two Republican officials opposed a provision that requires some venture-capital managers to report information about their funds. They said that even though the rule exempts fund managers from registering with the agency, the costs of new reporting requirements will hamper capital formation and innovation.

“Congress gave us the authority to require certain reporting and record-keeping. But the release provides no substantial justification on public-interest or investor-protection grounds for the decision to impose these reporting requirements,” commented Commissioner Kathleen Casey. “Every dollar that is spent by a venture capital fund to satisfy the commission’s newly imposed regulatory requirement is a dollar that cannot be invested in the next Google, Apple or Amazon.” Source

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Hedge Funds Monaco Summit

Hedge Fund Managers "Cautious" As Monaco Summit Begins

Building up to the big hedge fund summit in Monaco, hedge fund managers are reportedly "cautious." 2011 would have been a really solid year for hedge funds if it weren't for the big losses suffered in May, but the industry could still make this year a great one by continuing the strong performance and steady inflows. The GAIM International hedge fund summit begins today and continues through the 23rd. I am acting as the opening day Chairman and a speaker on capital raising, for more information on this event see this previous post.

Bosses such as Man Group (EMG.L) CEO Peter Clarke, whose firm is finally enjoying clients inflows, Centaurus chairman Bernard Oppetit and commodity manager Armajaro's co-founder Anthony Ward will discuss how to get the industry back on track.

Hedge funds lost 1.2 percent in last month's commodities rout with big-name funds such as Aspect Capital's Diversified fund and Crispin Odey's European fund losing more while many funds, wary of further losses, are keeping their bets small.

"The last couple of months have been difficult. May wasn't a catastrophe, but it was a difficult month," Chris Barrow, global head of sales for prime services at HSBC, told Reuters.

"From the hedge fund managers we talk to, many have low levels of conviction. There's still a lot of uncertainty about where and how to make money."

Barrow says leverage, a key measure of risk-taking, is between 1 and 1.3 times -- below levels seen recent years for equity long-short funds.

While hedge funds posted double-digit returns in 2009 and 2010, many are still scarred by 2008's losses of nearly 20 percent and the memory of investors pulling out nearly $300 billion (185 billion pounds) during the crisis, according to Hedge Fund Research. Source

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Single Family Offices Report

Report: Single Family Offices Planning to Boost Allocation

This headline is music to hedge fund managers' ears, who are almost always looking to raise AUM. A report by Rothstein Kass estimates that 90% of single family offices will increase allocation to hedge funds. This is a strong vote of confidence in the hedge fund industry from single family offices and could mark a big boost in capital raising for hedge funds.

Of the 151 single family offices who responded, the most popular hedge fund strategies are long / short equity (53%), distressed (49%), arbitrage (33%), managed futures (25%), and global macro (25%). If you're interested in a free report on family offices or other resources on family offices, visit FamilyOffices.com

According to the results of a survey of 151 executive directors at single family office operations carried out during the first quarter of 2011, the most popular strategies are long / short equity (53 per cent), distressed (49 per cent), arbitrage (33 per cent), managed futures (25 per cent), and global macro (25 per cent).

"Raising Capital from Single-Family Offices – Considerations for Financial Firms," which was co-authored by Forbes Insights and private wealth expert Russ Alan Prince, also states that almost 70 percent of survey participants plan to increase allocations to the private equity sector in 2011. Investment preferences are likely to include established companies (59 per cent), mezzanine financing (39 per cent) and second-round financing (32 per cent).

Approximately 85 percent of single-family offices surveyed currently invest in hedge funds, with roughly half reporting active private equity sector investments.
Mean investable assets of single-family offices stands at roughly USD416 million in 2011, up from approximately USD236 million reported in 2010. Source

If you're interested in a free report on family offices or other resources on family offices, visit FamilyOffices.com

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Paulson Hedge Fund Losses

Paulson's $9 Billion Fund Falls 20% from China, Banks

Hedge fund billionaire John Paulson established a reputation for predicting trends after he made a hugely profitable bet against the housing market. Now, it appears he has slipped up with his $9 billion hedge fund, which has lost nearly 20% on the year. The biggest losses seem to be from a Chinese lumber company that has seen shares fall remarkably and from bets on American banks.

Losses have swept through billionaire John Paulson's hedge funds like a forest fire as big bets on a Chinese lumber firm and US banks backfire.

The investment guru, who made a fortune betting against the American sub-prime mortgage market, has lost hundreds of millions of dollars following the collapse in the share price of Sino-Forest, a Chinese forestry company.

Investors have told the Wall Street Journal that Paulson's $9bn Advantage Plus fund lost more than 13% in the early part of this month. This comes on top of a fall in May, when the flagship fund reportedly lost another 6%, leaving it down 19.65% for the year.

Paulson's funds are among the biggest investors in Sino-Forest, a Chinese and Canadian timber firm that has seen its shares fall more than 80% since a report surfaced in June accusing it of exaggerating the size of its assets. This month short seller Carson Block's Muddy Waters firm called Sino-Forest a "pump and dump" scheme and accused it of committing fraud. Block's firm challenged the amount of land Sino-Forest said it bought in Lincang City in China's Yunnan province, saying that it does not match city records. Muddy Waters' claims are being fiercely disputed by the company. Source

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Family Offices Alternative Investments

Family Offices Heavily Invested in Hedge Funds, Private Equity

Rothstein Kass Family Office Group surveyed 151 executive directors of single-family offices and found that they are warming up to alternative investment groups. The family offices showed a preference for hedge funds over private equity with 85% of those surveyed responding that they were currently invested in hedge funds and about 50% invested in private equity. If you're interested in a free report on family offices or other resources on family offices, visit FamilyOffices.com

The company polled 151 executive directors of single-family office operations and found 85% are currently invested in hedge funds while roughly half report active private equity sector investments.

According to Rothstein Kass, the mean investable assets of single-family offices stand at roughly $416 million in 2011, up from about $236 million in 2010.

Almost all the single-family offices polled in early Q1 2011 relied on external money managers, while roughly 22% also had in-house capacity.

A full 90% of the directors polled were considering additional investments in hedge funds this year. The most popular strategies, according to Rothstein Kass, were long/short equity (53%), distressed (49%), arbitrage (33%), managed futures (25%), and global macro (25%).

On the private equity side, the survey showed 70% of respondents planned increased allocations in 2011. In terms of investment preferences, 59% are likely to target established companies, 39% mezzanine financing, and 32% second-round financing. Source

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8. Family Office List | List of Single & Multi Family Offices
9. Family Offices | Protecting the Wealth of the Super Rich

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Madrid, Spain Hedge Funds & Family Offices

Madrid, Spain Hedge Funds and Family Offices

I am in Madrid, Spain right now recording video content for our finance related training programs on hedge funds, family offices, and capital raising.

If you are running a family office, hedge fund, or seed capital platform and you are based in Madrid please let me know and we can meet up while I am in town. I'm staying in city center so we should be able to easily meet up at your offices or for an afternoon coffee one day. Not sure if you want to meet? Here is my bio for more information on who I am and what our team is trying to do.

Email me to find a time to meet up at Richard@HedgeFundGroup.org

If you are not based in Madrid but would like to explore what we do please check out our Certified Hedge Fund Professional (CHP) designation, our hedge fund startup e-book, our hedge fund e-book, and our Family Offices.com website.

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Hedge Fund Mutual Fund Fees

Fees from Hedge Fund-Like Mutual Funds Hurt Returns

Several mutual funds thought they had finally found a way to compete with the big gains produced by hedge funds and the allure that the industry has for investors. Now, however, the mutual funds that sought to replicate hedge funds have made good returns but most of that that performance has been sapped up by the fees that the funds charge their investors.

The foray is not over, to be certain, but this puts a damper on excitement from non-accredited investors at getting the chance to place their money with hedge fund traders and traders using hedge fund-like strategies.

Altegris Managed Futures Strategy Fund, a mutual fund that allows less affluent clients to invest with some of the best-known hedge-fund commodities traders, has attracted $707 million since its start less than a year ago.

Investors in the fund lost 6 percent this year, and plummeting gold, silver and oil prices weren’t the only reason. The losses also reflect fees of as much as 2 percent of assets paid to the underlying traders in addition to the fund’s 2 percent management fee and 5.75 percent in upfront charges. If the fund had made a profit, as much as 35 percent of that would also have gone to the underlying managers.

Investors in U.S. mutual funds, by contrast, paid 0.8 percent in average fees last year, according to data from Morningstar.

“The fees are far higher than for less specialized strategies,” said Nadia Papagiannis, an analyst with Chicago- based Morningstar Inc. (MORN) “They’re promising the performance of hedge-fund managers, but what we’ve seen with funds of funds is that the performance is mediocre.” Source

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Multi-Family Office Marketing Help

If you are running a multi-family office and you would like help gaining new clients and putting more marketing assets in place to help you attract clients please contact me. I'm looking to partner with 1-2 family offices based both within and outside the United States to help them grow their client base.

My background includes providing marketing training to private banks and family offices in Russia, Europe and the United States, running the #1 most popular website on family offices, raising capital from family offices, and providing advertising-based exposure for family offices. I'm looking to leverage my position in the space through a long-term partnership with multi-family office positioned to grow.

If you are interested please contact me at Richard@FamilyOffices.com

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Harbinger Capital Partners Investors

Harbinger Capital Investors Seek to Withdraw $1 Billion

Philip Falcone's hedge fund Harbinger Capital Partners is reportedly losing one sixth of its assets under management. Investors have asked to withdraw $1 billion from the $6 billion hedge fund. This is one bump in a string of setbacks for Harbinger from regulatory scrutiny over a personal loan and charges of "market manipulation."

Last year, prominent investors Blackstone Group and Goldman Sachs Group Inc. made redemption requests. Harbinger has faced regulatory scrutiny over a personal loan made to Mr. Falcone from Harbinger, which has been repaid. Harbinger has also told investors that regulators are investigating whether his firm has engaged in "market manipulation" in connection with debt trading from several years ago. Harbinger said it is cooperating with the investigations.

Separately, a satellite-wireless network project Mr. Falcone is pursuing has faced some headwinds lately.

Harbinger's main fund was up 2.17% this year through the end of May, according to a person familiar with the matter. That is less than the S&P 500 stock index over the same period but better than a hedge-fund performance index maintained by Hedge Fund Research Inc. that is up 1.92% for the period. Source

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Hedge Fund Lenders

Hedge Funds Step in for Banks Making Loans to Businesses

In the lending void that has developed after the financial crisis, an unlikely lender has emerged: the hedge fund. While local banks have refused to make loans, some hedge funds have stepped in to provide start-ups and businesses with money. In the unlikely chain of events, hedge funds have emerged as the loan providers those hoping for economic stimulation and aid to cash-strapped small and medium-sized businesses.

With traditional lenders still avoiding risky borrowers in the wake of the financial crisis, hedge funds and other opportunistic investors are stepping into the void. They are going after midsize businesses that cannot easily raise money in the bond markets like their bigger brethren.

With traditional lenders still avoiding risky borrowers in the wake of the financial crisis, hedge funds and other opportunistic investors are stepping into the void. They are going after midsize businesses that cannot easily raise money in the bond markets like their bigger brethren.

The support is critical in a recovery characterized by high unemployment and anemic growth. These middle-market companies, which generate $6 trillion in revenue a year and employ 32 million people in the United States, are borrowing billions of dollars from the hedge funds for product development, strategic acquisitions and even day-to-day operations like payroll and utilities. Source

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Hedge Fund Seeding terms

Hedge Fund Seeding Terms

Yesterday I hosted an 8 hour workshop on capital raising at the Buckhead Club in Atlanta and during the event the topic of hedge fund seeding terms and hedge fund seed capital sources came up. Right now there are some hedge fund seed capital allocators and platforms that are active but not as many as there were 4-5 years ago.

Whenever you are taking on seed capital the investor providing the capital is going to see this as taking extra risk because your business is less institutional and less "proven" than an institutional $100M+ in Assets Under Management (AUM) group. To balance this risk, perceived or real, the investor is going to ask for something you wouldn't normally give a normal investor. For example they will ask for you to put up risk capital so first losses in the portfolio are out of your own capital, or they may ask for an equity share in your fund or company. Some managers are taken back by offers they get, don't be. Expect something creative and aggressive to come with an early offer of a large injection of capital.

Even so most hedge fund managers should seriously consider seed capital sources to help them get to a respectable level of AUM, if they can do so without compromising the resources and loyalty of those who started the fund in the first place.

I wanted to share comments on this topic to help out those emerging managers and traders who are starting hedge funds who may feel a bit lost while exploring these ideas. Take care and perhaps we can meet in person at one of our future workshops or through the CHP designation.

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Hedge Funds Yen

Some Hedge Funds Are Less Bearish on Yen

Hedge funds are more optimistic on Yen, even though there is a looming possibility of an intervention by the Japanese government. Comments made by Japan's finance minister, Yoshihiko Noda, have made it seem more likely that the government will intervene to curb the currency's strength. Still, some big hedge funds are less bearish about the currency.

On Tuesday, Japan's finance minister, Yoshihiko Noda, fueled concerns about intervention by saying he is watching the currency markets closely, as the dollar hit one-month lows near Y80, a key test of Japanese authorities' tolerance.

Yet Daniel J. Arbess, who manages the $3 billion Xerion strategy at Perella Weinberg Partners, recently dumped his bet against the yen. For months, the New York-based fund had sold the yen and bought currencies of stronger, less indebted economies like Canada and Norway.

While Arbess remains bearish on Japan, he says there is too much uncertainty and volatility in markets right now to make that yen trade appealing.

"I don't think there's a tremendously compelling opportunity right now," he says, adding that "we're in a no-man's land" when it comes to the chances of Japanese authorities intervening to curb the strong currency, which is hurting the ability of Japanese firms to sell their goods abroad.

Other hedge funds also seem to be cutting back on bearish yen trades, though most speculative investors remain positioned to profit from future yen weakness. "People are giving up," says Morgan Stanley foreign-exchange analyst Ron Leven. Source

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Brazil Hedge Funds

Hedge Funds in Brazil Invest in Bonds, Beat Out U.S. Funds

Hedge funds in Brazil have repeatedly beat out their American competitors by betting big on bonds. A story in Bloomberg highlights how Brazilian hedge funds, although largely similar to U.S. hedge funds, still managed to beat their competition by putting most of their money into stocks and bonds. As a side, I go to Brazil every few months and I have observed first-hand this rapidly growing economy and its booming financial sector.

The irony is that trading strategies by most Brazilian hedge funds are similar to those of indexed mutual funds. Brazilian managers put almost all of their money into bonds and stocks. Brazilian regulators call hedge funds multimercado, or multistrategy, firms to differentiate them from mutual funds.

Unlike the unregulated pools of capital in the U.S., hedge funds in Brazil report their asset values daily to regulators. They also have to disclose their holdings and typically must be able to meet redemptions within days of when investors ask for their money, inhibiting them from making many risky bets.

That means Brazilian hedge funds are relatively easy to manage, says Simon Nocera, co-founder of San Francisco-based hedge fund Lumen Advisors LLC and a former economist at the International Monetary Fund.

“All you have to do is buy the Bovespa stock index and government bonds,” he says. “It’s not like you have to be superactive or a great trader.”

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What is an Institutional Investment Consultant? | Definition

Video Definition

What is an Institutional Investment Consultant?

If you are starting a hedge fund, working in the hedge fund industry, or trying to raise capital it is critical that you know exactly what an institutional investment consultant is and what their role is in the industry. Here is a short video definition of institutional investment consulting firms that I recorded last week while speaking at a hedge fund conference in Japan.

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Hedge Funds Domiciliation

Study Finds that Hedge Funds Prefer Co-Domiciliation

Hedge funds managers are looking to establish EU-domiciled funds to complement their offshore hedge funds, according to the latest research of hedge fund re-domiciliation trends. The majority of the hedge funds in the study appear to prefer co-domiciliation to strictly onshore or offshore. 24% of hedge funds have re-domiciled from offshore to the European Union.

Hedge funds managers are looking to create EU-domiciled hedge funds to complement their offshore funds, according to new research.

Only a quarter (24%) of hedge fund managers have already re-domiciled offshore hedge funds to an EU domicile while 27% are considering to do so in the future, according to a report by RBC Dexia Investor Services and KPMG.

Meanwhile, almost half of the 49 hedge managers surveyed had not re-domiciled any funds and had no plans to do so.

The purpose of the study, entitled Alternative options: hedge fund re-domiciliation trends in evolving markets, was to adopt a better understanding of the factors contributing to the re-domiciliation of hedge funds into the EU.

The study predicts that co-domiciliation - where hedge funds would offer both offshore and onshore options – is the best solution for hedge fund managers. Source

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Hedge Fund Due Diligence Questionnaire

Below is a video on what a hedge fund due diligence questionnaire is. I just recorded this video in Singapore while in town to meet with hedge fund managers and speak at an industry conference in Asia.

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