Hedge Funds Betting on Commodities

With gold, copper and other precious metals reaching all or near-term highs, hedge funds are making their biggest bet in years that commodities will continue to rally.  According to Commodity Futures Trading Commission data, speculative bets on commodities reached the highest level since at least February 2006.

And, according to Barclay Capital, about 75 percent of respondents surveyed  last week in New York predicted a bigger inflow into direct commodity investments next year.

Fund of Funds to Trade Publicly

London Stock Exchange

A London based hedge fund company with a  fund of funds product  is planning to list on the London Stock Exchange. The fund, the CQS Diversified Fund will invest its asserts in the Segregate Portfolio Alpha (DVA) a fund of funds.  CQS has over $8 billion in assets under management.

CEO of CQS, Michael Hintze, believes the multi-fund approach is appropriate for investors in the listed funds sector.


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GS to Withdraw $120 Million from Major Hedge Fund

Goldman Sachs is withdrawing more than $120 million from Harbinger Capital Partners' most prominent hedge fund, the $3.4 billion Harbinger Capital Partners Fund. Harbinger has approximately $20 billion in assets under management. Goldman's withdrawal comes after revelations that Harbinger's CEO, Philip Falcone, borrowed hundreds of millions from the firm's other funds to pay personal taxes as well as the relatively poor performance of the fund.


Because redemption agreements with Harbinger limit quarterly redemptions to 25% it will take 12 months for Goldman to receive its entire investment. It is reported that Goldman had as much as $1 billion invested with Harbinger.

Philip Falcone, who grew up in Minnesota and was a star hockey player in college, helped Harbinger funds return more than 100% in 2007 with timely bets that the U.S. housing market would collapse.

Hedge Funds Have Strong October

Hedge funds had a relatively strong October led by Global Macro and Emerging Market hedge funds. Overall, the hedge fund sector posted returns of 2.35% for the month (a 32% annual rate), according to HFRI Fund Weighted Composite Index. Overall, the index is up just over 7% on the year. By comparison, the S&P 500 was up just over 8% YTD.

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Hedge Fund Manager Provides GOP Strategy

Though hedge fund managers have been characterized recently as leaning democratic, the head of a major hedge fund held a strategy session this week to discuss how the Republican Party can better position itself to win the mid-term elections.

Steven Cohen, CEO of SAC Capital Advisors held the GOP event with other hedge fund managers in attendance including Paul Singer of Elliot Management ($16B AUM) and Bruce Kovner from Caxton Associates. Paul Singer is one of the hedge fund industry's largest contributors to the Republican Party. Singer has also been dissaproving over Ben Bernanke and Alan Greenspan.

SAC gave 93% of its 2010 election-cycle donations to Republicans through Aug. 1

Hedge Funds Scaling Back Risk

With the US economy and the major stock indexes taking a step back, hedge funds are putting their money into more defensive sectors such as utilities and other high dividend stocks.

Some hedge fund manages say that a lot of risk is being taken off the table.

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Duquesne Capital Management to Shut Down

Stanley Druckenmiller of Duquense Capital Management

Dozens of hedge funds have closed already in 2010, and now you can add Duquesne Capital Management to that list. The $12 billion hedge fund run by billionaire Stanley F. Druckenmiller has not had a losing year and has averaged 30 % annually (though the fund is down 5% this year).

Duquesne returned about 11 percent in 2008, when hedge funds on average lost a record 19 percent. It rose about 10 percent in 2009, when the average return was 20 percent.



Druckenmiller is quitting the fund to pursue philanthropic goals.

Metals Hedge Fund to Close

Apollo Management LP, a New York based hedge fund and private equity firm  closed its metals hedge fund in London.

The $40 million into the Apollo Metals Trading Fund started in March 2009, according to a U.S. Securities and Exchange Commission filing. An outside spokeswoman for the firm declined today to say why Apollo shut the fund or to give the number of fund employees.

Commodity hedge funds fell in the first half of 2010 amid sliding commodity prices.

Hedge Funds Off to Poor Start in 2010

Hedge funds had their fourth worst first half in more than 20 years according to the Hennessee Group. Though hedge funds outperformed the major stock averages in the first half of 2010, .2% vs -7%, it still ranked among the worst first half performances. In 2009, the Hennessee Hedge Fund Index was up over 11% January through June. In 2008, one of the worst years for hedge funds given the broad market declines, hedge funds were down over 2% through June and finished the year down 19.9%.

The best performing hedge fund sectors in 2010 have been the debt categories with Fixed Income up 5.69%, High Yield up 4.42%, and Distressed up 3.87%. This comes amid tightening spreads between high yield debt and government securities.

The worst performing hedge fund strategies in 2010 are, somewhat unsurprisingly, Europe funds down 6.46%, Health Care down 2.85%, and Growth down 1.95%.

Alphabet Management Hedge Fund Attracting Top Talent

New York based hedge fund Alphabet Management landed Nelson Saiers, a managing director of derivatives trading with Deutsche Bank. Saiers will lead a group that trades derivatives including volatility options. The departure comes amid Deutsche Bank's decision to close down its proprietary trading operations.

Even Successful Hedge Funds Face Withdrawals

Even the most successful hedge funds can face withdrawals. This was illustrated in June as giant hedge fund Paulson & Co. lost more than $2 billion in assets under management. Although, about the thirds of that amount can be accounted for by market losses, Paulson & Co. likely paid out about $600 million in investor withdrawal requests. In June, Paulson & Co.'s financial services Recovery Fund, lost more than 12%. Paulson's best performing fund was its gold fund, up more than 7% in June.

On the other hand, hedge funds actually did quite well in May in terms of investor flows, taking in more than $4 billion in new assets, even while the industry lost $30 billion in trading the same month.

Source: Market Watch

Hedge Funds No Longer Bullish on Oil

Hedge funds are no longer bullish on oil. In July, hedge funds have been taking bullish oil bets off the table. Net-long positions on the NY Mercantile Exchange fell to 15 month lows in the first week of July. This as oil prices rose more than 5% to over $76 / barrel. Additionally, oil contract volatility has been rising of late.

With Financial Bill Looming, What is Impact for Hedge Funds?

The largest financial reform bill in more than 70 years is expected to pass this week and many are asking what impact the bill will have on hedge funds. The impact of the Dodd-Frank bill—named on the hedge fund industry, remains an open question. The legislation is more than 2300 pages, and even a thorough reading won't reveal the ultimate impact of such a bill on hedge funds.

As the current bill reads, hedge funds would face some greater oversight. Hedge funds with more than $150 million in AUM would have to register with the SEC, though more than half of hedge funds are already registered.

One also has to wonder how the SEC, which so miserably failed to oversee the hedge funds and financial institutions it already regulates, will be able to provide competent oversight of even more firms. If the SEC couldn't devote the resources to police banks with trillions in assets, how can we expect them to competently oversee $200 million hedge funds?

The new bill would also introduce a water-down Volker rule which will permit bank holding companies to invest up to 3% of their assets in hedge funds and other alternative investments.

Hedge Funds Hiring...Former Regulators

The good news is that hedge funds are finally hiring again. The iffy news, depending on your perspective, is that they are hiring a number of former SEC officials. And they aren't hiring mid-level guys for their risk management experience. Hedge funds are hiring top-level former regulators, possibly revealing their concerns about greater hedge fund regulation, oversight, and taxation. Surely hedge fund manager John Paulson's recent decision to hire Harvey Pitt, a former SEC Chairman, as an outside director was intended to get him some lobbying clout. Earlier in 2010, hedge fund Millennium Management hired two former SEC Commissioners.

The recent hires of high-profile former regulators raises a host of questions. Is Capitol Hill prepared to take on the financial industry or are they waiting for that chance at a cushy job crusading for multi-billion dollar funds? Are hedge funds hiring these experienced regulators for their ability to guide the firm as new regulations are enacted or are they being hired for their ability to influence the outcome of regulations themselves? Should the SEC, as suggested by Senator Ted Kaufman (D-Delaware), ban senior officials from taking jobs at companies they recently oversaw?

25 Largest Fund of Hedge Funds 2010

List of the 25 Largest Fund of Funds (June, 2010)

Below is a list of the world's larges fund of hedge funds (fund of funds) as of June 2010 including assets under management and website:

Fund of Fund	Location	AUM	Website
1. UBS Alternative Investments	Zurich, Switzerland	27.6	www.ubs.com
2. Credit Suisse Funds	Zurich, Switzerland	26.4	www.credit-suisse.com
3. GAM	Dublin, Ireland	23.2	www.gam.com
4. Blackstone Group	New York, NY	22.4	www.blackstone.com
5. Man Investments	London, UK	22.1	www.mangroupplc.com
6. BlackRock	New York, NY	21	www.blackrock.com
7. Grosvenor Capital Management	Chicago, IL	20.4	www.grosvenorcapitalmanagement.com
8. Permal Asset Management	New York, NY	20.2	www.permal.com
9. HSBC Alternative Inverstments	London, UK	19.2	www.hsbc.com
10. Goldman Sachs Hedge Fund Strategies	New York, NY	19.1	www.goldmansachs.com
11. Lyxor Asset Management	Paris, France	17.4	www.lyxor.com
12. Morgan Stanley Alternative Investment Partners	New York, NY	17.2	www.morganstanley.com
13. Bank of New York Mellon	New York, NY	16.2	www.bnymellon.com
14. Pacific Alternative Asset Management	Irvine, CA	15.7	www.paamco.com
15. Arden Asset Management	New York, NY	10.4	www.ardenasset.com
16. Mesirow Advanced Strategies	Chicago, IL	10.1	www.mesirowfinancial.com
17. Union Bancaire Privee	Geneva, Switzerland	9.6	www.ubpbank.com
18. Silver Creek Asset Management	Seattle, WA	9.1	www.silvercreekcapital.com
19. FRM Americas	London, UK	8.5	www.frmhedge.com
20. Aurora Investment Management	Chicago, IL	8.5	www.aurorallc.com
21. Lighthouse Partners	Palm Beach, FL	8.2	www.lighthousepartners.com
22. Gottex Fund Management	Lausanne, Switzerland	8.1	www.gottexfunds.com
23. EIM Group	Geneva, Switzerland	7.8	www.eimgroup.com
24. JPMorgan Asset Management	New York, NY	7.5	www.jpmorgan.com
25. Cadogan Management	New York, NY	7.4	www.cadoganmanagement.com

Source: HedgeLists,com, Institutional Investor