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

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

Bank of China (Suisse)-managed Heritage Fund up +3.45% in June, +39.19% YTD, seeks to focus on China related securities

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From Komfie Manalo, Opalesque Asia:
The Heritage Fund-China Absolute Return was up 3.45% in June, and returned +39.19% YTD. In the fund’s June monthly report, the managers of HF China said they wanted to focus on long-term capital appreciation by investing primarily in China related securities (Hong Kong, H-shares, A-shares, B-shares, Taiwan, U.S., Singapore, and other listings) and in securities with significant exposure to economic developments in China.
The fund is managed by Bank of China (Suisse) Fund Management SA located in Geneva, Switzerland.
According to HF China’s managers, the fund fared well in June compared with the MSCI Golden Dragon Index which was down 1.1% for the month, and was up 34.5% YTD. By maintaining a high cash exposure in recent months (around 30% on average) to reduce volatility, HF China managed to keep its performance in line with the HSCEI Index and MSCI Golden Dragon Index. This shows that HF China’s stock-picking has been able to generate enough alpha to compensate for the 30% cash drag. As a stand alone equity portion, the fund’s stock-pick has substantially outperformed those indices.
China’s market reviewChinese economic fundamentals continue to steadily improve, as strong domestic demand offsets weak external demand. Industrial-output growth accelerated to 8.9% YoY in the first five months of the year compared with a collapse in output growth at 3.8% in January and February combined. Urban fixed-asset investment climbed +32.9% YoY in May, the highest surge in five years.

For full story: http://www.opalesque.com/53842/Bank_of_China_Heritage_Fund_up842.html

Hong Kong Securities and Futures Commission’s half yearly review of the securities market shows economic recovery is emerging

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From Komfie Manalo, Opalesque Asia:
The Hong Kong Securities and Futures Commissioner has just released its latest research paper entitled: “Half Yearly review of the Hong Kong Securities Market” which shows that despite the recent strong rebound of the global stock markets, fundamental support to the surge in the stock markets has not been broad-based. Signs of economic recovery are emerging at best. The recent rally in the stock market seems to be underpinned by a strong capital inflow, but it should be noted that capital movements are known to be volatile and subject to sudden reversals.
According to the paper, since the trough in early March this year, major stock markets have rebounded some 30% – 60% until the end of June. However, it is worth noting that such strong rebound might not be uncommon following a crisis.
The report says that Hong Kong stocks fell at the start of the year on uncertainties over the global economic performance and concerns about financial institutions in the U.S. The Hang Seng Index (HSI) and Hang Seng China Enterprise Index (HSCEI) dropped to this year’s trough in early March. Later, markets rebounded strongly on optimism over global economic recovery amid signs of stabilization in economies. In addition, strong capital inflow to the Hong Kong banking system and stock market also lifted the markets. During the first half of 2009, the HSI and the HSCEI rose 27.7% and 38.9% respectively from their end-2008 levels.
Full story: http://www.opalesque.com/53590/Hong_Kong_Securities_and_Futures_half590.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

Rallying commodities drove Morningstar Emerging Market Hedge Fund Index 13.5% gains in May,but some indecision has returned in the first half of June

The Morningstar 1000 Hedge Fund Index posted its largest monthly increase in May since its January 2003 inception, rising 6.7 per cent for the month and 9.7 per cent for the first five months of the year.
May was a strong month for the asset-weighted, currency-hedged Morningstar MSCI Hedge Fund Index, which also posted its largest one-month increase since January 2003, rising 3.7 per cent in May and 5.5 per cent for the first five months of the year.
European and developed Asian equity markets outpaced the US in May, but the real surge came from the rebound of emerging market equities. The unhedged Morningstar Emerging Market Hedge Fund Index increased 13.5 per cent, while the currency-hedged Morningstar MSCI Emerging Markets Hedge Fund Index rose 9.8 per cent. These indexes rose 25.2 per cent and 17.6 per cent, respectively, over the last five months.
The US dollar declined against many currencies in May, including those of emerging market countries, triggered by fears of a US government debt downgrade. Potential International Monetary Fund funding also whetted investors' appetite for risk in emerging market countries. The strongest performance was in India, Russia, Eastern Europe, and Brazil, driven largely by their financial and energy sectors.
"Emerging markets saw a large run-up in May, fuelled by US inflation expectations and commodity supply concerns. Hedge fund managers trading in these markets remained cautious, though, believing that the emerging world is still very risky, and sharp corrections are possible," says Nadia Papagiannis, Morningstar hedge fund analyst.

Full Story: http://www.opalesque.com/52946/Rallying_commodities_drove_Morningstar_Emerging_Market_Hedge946.html

Opalesque Exclusive: Small cap stocks may be indicator of economic recovery notes long/short manager Midwood Capital (fund +29% YTD)

From Kirsten Bischoff, Opalesque New York:
While ways to verify the much discussed “green shoots” are debated, one indicator may be the performance of small caps, which Chuck Royce CIO and Portfolio manager at Legg Mason recently said “should lead in the early phase of a prolonged recovery in stocks…”
In fact, while small caps leading recovery may be a historic rule of thumb, the Midwood team led by portfolio managers David Cohen and Ross DeMont has seen few industries where meaningful signs of economic recovery are evident. In its frequent discussions with public companies the team has been hearing comments such as, “Things are somewhat less bad,” or “We think we are near the bottom”.

Full Story: http://www.opalesque.com/52543/Small_cap_stocks_may_be_indicator543.html

From Kirsten Bischoff, Opalesque New York

Financial market turmoil sees activist investors holding positions longer, as proxy regulations change in their favor will investors have the required stamina?

From Kirsten Bischoff, Opalesque New York
It seems the point has been reached when the feeling of helplessness against market forces has shifted to a feeling of anger, sparking a new wave of investor activism. However, this trend (seen this past weekend with CalPERS/Bank of America, US Government/Auto Industry) does not indicate investors are specifically looking for opportunities in which to invest as activists, but reacting to the poor performance of companies they have already invested in.
The question then for activist hedge funds is, do investors have the interest, the patience and the stamina required to allocate to a strategy with a much longer view than has been required before?
The strategy overall has not fared as well as others during this crisis, and fell more than 30% in 2008 (according to Hedge Fund Research).
» Full Story http://www.opalesque.com/51897/Financial_market_turmoil_sees_activist_investors937.html
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