Conservative investors start using hedge funds as a hedge, completely without irony. U.S. pension funds, charitable groups, endowments and other investment vehicles known for highly conservative investment approaches are now piling into non-traditional investments, including hedge funds, as a hedge against what they see as a highly unstable market, according to multiple reports. Despite the fact that hedge funds have under-performed the S&P 500 significantly this year, non-conservative investments are seen as a relatively safe haven because of their lack of correlation with the broader market, and their flexibility to move between strategies and securities in a market decline.
Governments around the world focus on containment policy for US-Style HFT. Germany is the latest in a string of countries pushing for increased regulation of high-frequency trading. The move comes following the highly visible implosion of Knight Capital, and the botched IPO of BAT Global Markets following trading glitches, with foreign governments using the USA as “the model for what they don’t want to look like” according to New York Times reporter Nathaniel Popper. To be sure, even our own Securities and Exchange Commission is taking a closer look at high frequency trading to see how they can contain the damage of software glitches.
It’s good times for large Asian hedge funds. For smaller funds, not so much. There was coverage this week about HK based Sharp Peak Capital shutting down its hedge fund after double digit losses. The fund, which was less than a year old, is part of a trend in Asia with as many as 73 smaller funds closing their doors this year. Apparently, these funds had a high equity concentration, and returns were lackluster despite strong earnings at Asian companies, because of Europe and the US’s debt woes. At the same time, the total number of assets under management at Asia-based hedge funds have risen to $144 Billion, up 2.5% from last year, with the majority of these funds going into the larger, better branded funds in the region. Finally, the number of applications for India-based hedge funds has risen to 20, after these types of investment vehicles were approved two months ago.
- Reuters (Sharp Peak shutting down)
- Bloomberg (Asia GDP growth not helping hedge returns)
- FinAlternatives (Hedge fund asset growth)
- HedgeCo (Hedge fund asset growth)
- AsiaInvestor (How big fund managers in Asia are getting even bigger)
- FinAlternatives (India reviewing new fund applications)
Everyman hedge fund founders nailed for fraud. Ex-“hedge fund” CEO Michael J. Spak, pled guilty to $4 million fraud – I have “hedge fund” in quotes, because the money, gathered from Mom and Pop investors and destined for the erstwhile hedge fund, the Osiris fund, were actually improperly routed to things like Mr. Spak’s fishing boat. Osiris as you’ll recall, is the Egyptian God of financial fraud; all you University of Chicago undergrads and those with strong classical educations really shouldn’t have been taken in by Mr. Spak. So, while this is, in fact, a fraud story, not a hedge fund story, the news comes at an interesting time, as opponents of the Jobs Act say that marketing of hedge funds create the potential for more widespread fraud of this type, where hedge funds take funds from non-qualified investors.
Mason Capital embroiled in legal battle with Telus Corporation. A very interesting story on Mason Capital Management currently in a legal battle with Telus Corporation over its plan to consolidate voting and non-voting shares on a one-for-one basis. At issue is a fairly complex strategy by Mason to short non-voting stock and going long on the voting stock, betting that the Telus proposal would fail. Mason’s strategy worked initially, but it may now be in a deal it cannot get out of. Definitely worth a read when you have time.
Justice is served smoking hot in the case of the so-called “hedge fund madam.” You might recall one Anna Gristina, who was arrested in February and charged with promoting prostitution. Ms. Gristina claimed on a wiretap to have connections to some of the wealthiest hedge fund managers in the city and “friends in high places” who would protect her if arrested. However, these friends couldn’t save her when she plead guilty this week to a single count of promoting prostitution, which resulted in her serving time… well, serving time served, actually. But it included a strongly worded rebuke from the judge. Take THAT potential lawbreakers catering to the New York elite!
Photo credits in order of appearance: Images_of_Money and Alaskan Dude
