5.30.2010

New Way to Prevent Hedge Fund Redemptions

Over the years hedge funds have come up with various redemption policies. Most allow quarterly redemptions of some sort, but some funds, especially those taking positions in hard to price illiquid securities, prevent redemptions for two years or more. One of those funds, Polygon Investment Partners in London, has a novel way to satisfy investors that are demanding liquidity - allow them to redeem their investments at a 25% discount to NAV. The hedge fund in question, Polygon's $3.7 billion Global Opportunities fund, lost 48% in 2008 and would otherwise not allow redemptions until 2012.

With regard to Polygon's offer of redemptions at a 25% discount, Founder Paddy Dear said “We are pleased to have been able to offer this opportunity to those of our investors that had an immediate need for some liquidity."

Polygon Investment Partners has $5.3 billion in Assets Under Management (AUM).

5.28.2010

Hedge Fund Inflows to Asia to Increase

According to Barclays Plc, inflows to Asia-based hedge fund managers may increase by $8 billion this year. Many hedge fund managers believe the best growth opportunities still exist in Asia. The threat of added regulation in the US and EU may give hedge fund managers in Asia an additional advantage over their western counterparts.

Overall, assets under management in Asia-Focused funds are expected to increase to $71 billion by the end of the year. Only a third of that amount would be managed by hedge funds based in Asian countries.

Most hedge funds in Asia are located in Singapore, Hong Kong, China, and Japan.

5.27.2010

Hedge Fund Manager Rips Education Stocks

Steve Eisman, the hedge fund manager made famous by his starring role in Michael Lewis' The Big Short, is criticizing for-profit education companies. Eisman was probably the biggest winner from the subprime mortgage crisis. Eisman had bet billions on the fall of subprime mortgages - what he saw as a unsustainable industry taking advantage of its customers.

Now Eisman is lashing out against the stocks of for-profit schools saying, "Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong. The for-profit education industry has proven equal to the task."

Stocks of education companies like Corinthian Colleges Inc and Education Management Corp were off on the announcement.

5.12.2010

US Proposal to Regulate Private Equity and VC, Not Just Hedge Funds


Senator Jack Reed (D) is proposing an amendment targeting virtually all private investment pools to a proposed Wall Street reform bill. While the current senate bill would require hedge funds with assets under management in excess of $100 million to register and report to the SEC, it doesn't cover Private Equity and Venture Capital, nor funds with less than $100 million AUM. Senator Reed's amendment would target all pooled investment vehicles, including PE and VC funds, with lighter restrictions on smaller funds on $100 million.

According to Reed, "The financial crisis is a stark reminder that transparency and disclosure are essential in today’s marketplace. Improving oversight of hedge funds and other private funds is vital to their sustainability and to our economy’s stability."

It remains to be seen how effective US hedge fund regulation will be at preventing systemic risks. Insiders widely believe $100 million hedge funds may pose a risk to their investors and some counter parties, but do not threaten the entire system like some multi-billion dollar funds.


5.11.2010

EU Delays Vote on Offshore Hedge Fund Rules

On Monday, European Lawmakers chose to delay voting on new hedge fund rules that would prevent investors from investing with offshore hedge funds in tax havens. The vote will now be held May 17, 2010

Last year, The Group of 20 Nations developed the Alternative Investment Fund Managers Directive which forces hedge funds outside of the EU to comply with certain guidelines before gaining access to European investors.

According to Clifford Chance LLP's Simon Gleeson, the new rules could force hedge funds out of the UK and "to the U.S., although some to Switzerland and a few to real offshore centers."


5.10.2010

John Paulson Finally Bullish on Housing?

John Paulson, whose multi-billion dollar hedge fund Paulson & Co. famously profited from the meltdown in the subprime market is now bullish on the housing market. Yes, this is the same Paulson & Co. hedge fund which keeps coming up in the Goldman Sachs investigation as the hedge fund which was not revealed to other parties to be the firm shorting these CDOs.

Paulson believes housing prices will rise 3-5% in 2010 and 8-12% in 2011. Of course, given the recent price stabilization across the national markets, this is not that grandiose of a prediction. It certainly doesn't rival his brazen decision in the middle of the decade to heavily short the mortgage market while 99% of other investors were still clueless. In any case, investors might do well to listen to Paulson. He has been bullish on gold in 2010. So far gold is up about 10% so far in 2010.

Volatility Hedge Funds Profit from Recent Market Swings

Some long-volatility hedge funds have made a substantial profit from the recent market turmoil, including last Thursday's still unexplained trading "glitches". While many retail investors had their stop-losses hit, or sold for other reasons, long volatility hedge funds require drastic market movements to generate profits.

Volatility funds invest mostly in the options market, typically taking long positions in calls, puts, or both. When implied volatility increases (typically high volatility accompanies downward swings), the value of these long option positions increases as well. In fact, even if the price of the underlying security is the same, increases in implied volatility can increase the value of put and call options.

Who runs these volatility hedge funds? One is run by Tim Gascoigne of HSBC Alternative Investments. That fund gained 10% last week and 4% on Thursday alone.

Meanwhile, the unexpected market action left many other hedge funds on the sideline as they tried to sort out what exactly had just happened.



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