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.

Man Investments: Hedge funds back on track as risk appetite comes back strongly, funds retain assets even after removing gates

From Matthias Knab, Opalesque Europe: Man Investment's Research and Analysis Group has published its Q2 Quarterly Review, which can be downloaded at the Source link below. We highlight some of relevant findings from report:
Hedge funds had their best quarter in nine years as risk appetite came back strongly. All styles except for managed futures made profits. Last year's laggards such as convertible bond arbitrage have been this year's biggest gainers and vice versa.
Overall, hedge funds are back on track. The liquidity situation has improved considerably and many gated or suspended funds could liquidate their holdings in an orderly fashion and, in some cases, lift redemption restrictions earlier than expected.
For a variety of reasons, many hedge funds are now less constrained by the de-leveraging process and are able to redeploy risk. When gating was in full swing the consensus was that gated money would melt away quickly when the gates were removed. In fact, this seems not to have happened.Hedge funds are back on track. Broad hedge fund indices enjoyed its best quarterly returns since Q1 2000 in the wake of much improved liquidity, higher risk appetite and tailwinds from credit, equity and commodity markets.
In Q2, the HFRX Global Hedge Fund Index gained 4.85% (YTD 5.56%). Strong performance was recorded across all styles and strategies except for managed futures. Convertible bond arbitrage was the best performing strategy again, benefiting from further credit spread tightening and more normal liquidity. CTAs lagged due to frequent trend reversals in currencies and fixed income markets. Interestingly, the gains were led by strategies that have struggled in the recent past and vice versa.

For full story go here: http://www.opalesque.com/53896/Man_Investments_Hedge_funds_back_on896.html

Volatile markets redefine trade component of hedge fund strategies, "position calibration" becomes source of alpha

From Kirsten Bischoff, Opalesque New York:

The markets have changed. Levels of volatility have greatly increased, and the uncertainty that the financial crisis has unleashed on investors is likely to remain for the foreseeable future. These factors make it much more likely that the markets will continue to move from one extreme to the next and strengthen the need for investors to understand and analyze the trade methods of hedge fund managers during the due diligence process.
Specific to the hedge fund industry, it has been determined that investors reallocating to hedge funds are favoring the simplest and the most liquid strategies, which can include strategies that utilize frequent trading.
"The one issue that hedge fund investors must realize is that hedge fund strategies are much more about 'trading' than 'investment'", points out Rene Levesque, Founder of hedge fund due diligence and research firm Mountjoy Capital (www.MountJoyCapital.com).
Levesque, who's background includes overseeing research for a $2bln Canadian based FoHF, positions in back and middle offices, and time as an equity derivatives prop trader, concentrates on the analysis of 14 different factors when providing his clients with fund evaluations

Full story: http://www.opalesque.com/53821/Volatile_markets_redefine_trade_component_of821.html

Volatile markets redefine trade component of hedge fund strategies, "position calibration" becomes source of alpha

From Kirsten Bischoff, Opalesque New York:

The markets have changed. Levels of volatility have greatly increased, and the uncertainty that the financial crisis has unleashed on investors is likely to remain for the foreseeable future. These factors make it much more likely that the markets will continue to move from one extreme to the next and strengthen the need for investors to understand and analyze the trade methods of hedge fund managers during the due diligence process.
Specific to the hedge fund industry, it has been determined that investors reallocating to hedge funds are favoring the simplest and the most liquid strategies, which can include strategies that utilize frequent trading.
"The one issue that hedge fund investors must realize is that hedge fund strategies are much more about 'trading' than 'investment'", points out Rene Levesque, Founder of hedge fund due diligence and research firm Mountjoy Capital (www.MountJoyCapital.com).
Levesque, who's background includes overseeing research for a $2bln Canadian based FoHF, positions in back and middle offices, and time as an equity derivatives prop trader, concentrates on the analysis of 14 different factors when providing his clients with fund evaluations

Full story: http://www.opalesque.com/53821/Volatile_markets_redefine_trade_component_of821.html

Byron Wien’s Farewell Commentary as Pequot shuts

Byron R. Wien, who joined Pequot in December 2005 as chief investment strategist after two decades as Morgan Stanley’s chief strategist, writes in an investor communication obtained by Opalesque that "What has happened to Art and the firm is sad. I have been in the investment business for close to half a century and I have never worked with a group of finer professionals. We will all go on to other challenges...."
Here is the full text: "Back in the 1970s, Art Samberg, the founder of Pequot, and I were partners at a small Wall Street money management firm. We were both analysts and portfolio managers, but Art had a special talent for technology stocks and special situations. He also managed something called “The ‘57’ Account”, named after Heinz’ 57 varieties because its holdings leant new meaning to the concept of diversification. I left the firm in the mid-1980s to go on to two decades as a strategist at Morgan Stanley and Art left a year later to become an investment management entrepreneur.
When Art started his hedge fund in 1986 I was a charter investor because I wanted to benefit from what I knew by then was his special talent for stock picking. Over the years I referred many friends to Pequot because I believed that Art not only had the ability to manage money well, but also could attract other able investment professionals and guide them as the firm grew.

For full story : http://www.opalesque.com/53374/Byron_Farewell_Commentary_as_Pequot_shuts374.html