The evolution of due diligence, Part 6 – MountJoy: institutionalization of hedge funds will allow for even stronger DD

Kirsten Bischoff, Opalesque New York: Some funds of hedge funds (FoHFs) and due diligence (DD) providers have had to review their methodology since the beginning of the credit crunch and the subsequent uncovering of frauds such as Madoff’s. Opalesque spoke to several industry players about their approach. Our conversations are presented in a Q&A format – as are DD forms.

The events of 2008 and 2009 served to bolster the risks that many due diligence firms have warned about in the past. Many of the due diligence managers we spoke with cited investor concern over fraud as one of the drivers behind new business. However, they also cautioned investors not to lose sight of many other......................

For full article : http://www.opalesque.com/56049/The_evolution_of_due_diligence_Part_6049.html

The reshaping of the prime brokerage industry

Last summer, Global Custodian published its annual survey of the prime brokerage industry which provides interesting insight on the impact of the crisis on their business and the perspective of the industry going forward, says Gabriel Kurland from Geneva-based firm Hedge Fund Appraisal in his current newsletter. Global Custodian estimates that the revenue generated by the prime brokerage has ranged from $25 billion a year to more than twice that figure.
Following last year events, one fund in three had experienced the termination of a relationship with a prime broker during the 12 month preceding the publication of the survey. This number rose to more than one in two among the larger hedge funds.
As explained by respondents of the survey, the main reasons why prime broker relationships were terminated were as follows: counterparty credit risk concern, reduced need for service and those contractual terms were modified by prime brokers. Another reason is directly linked to the run to the gate in the last two quarters of last year by investors in hedge funds was induced, in part, by the fall of Lehman Brother, one of the six leading providers of prime brokerage services.
Hedge Funds had learned in August 2007 and again during the Bear Stearns rescue that even contractually guaranteed margin terms were not sacred to prime brokers. However, in fall 2008, the leading prime brokers abandoned any pretense that anything mattered but the survival of their firm. Prime brokers effectively assumed powers of life and death over hedge funds, determining which they would support and which they would not.
For full article go here: http://www.opalesque.com/54675/The_reshaping_of_the_prime_brokerage_industry675.html

Review of hedge fund launches, closures, trends, regulatory, and legal events - week 35

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By Benedicte Gravrand, Opalesque London: A roundup of last week’s hedge fund launches, closures, index performance, trends, regulatory, legal and financial events pertaining to the alternative investments world.
Last week, we heard of fund launches or possible launches from Desert Shores (momentum trading); Allianz (European Ucits III); 613 Capital (global L/S); Aviva (UK Absolute Return); Noctua (global macro); and Spruce Point Capital (L/S value).
The HFN Hedge Fund Aggregate Average Index was up 2.56% in July, +12.03%YTD; and HFR reported that emerging markets hedge funds had gained 19% for the quarter, and that assets were up by $10bln, to $77bn.
It is not the smoothest time for funds of hedge funds; it was found that investors had pulled $200bn from Europe’s largest FoHFs since Sept-08; UBP confirmed it would reduce its staff by 10%; and Gottex cut fees for investors in its listed products.
Some ranking lists from Alpha had Sparx, Value Partners, Artradis, ADM on top of the Asia list and Brevan Howard, Man, BGI, BlueBay on top of the Europe list.
Some of the fund managers who hit the headlines last week were: Einhorn, who said that Greenlight had “no net long exposure to equities;” short-seller Jim Chanos, who was said to be looking at pharmaceuticals, accused the UK prime minister of ignoring the credit crunch alarm bell; and John Paulson, who is pushing into gold, bought a stake in Citigroup.
TCI's Chris Hohn is to let investors withdraw cash from its fund and introduce a more liquid share class; clients of Cerberus Capital Management's core hedge funds opted to withdraw the majority of money from the funds; and Goldman Sachs Asset Management became the latest manager to announce a levy on investors coming and going from its funds.