Hedge funds have continued to do well through August, surprising some analysts. The following video is an update of the industry and how hedge fund assets have risen in August. Kenneth Heinz of Hedge Fund Research talks about the success of various strategies, how fees may be lowering and where hedge funds are investing. Newsletter subscribers can watch this video here.
Tags: hedge funds assets, assets, investing, hedge funds, hedge fund news, Kenneth Heinz of Hedge Fund Research, hedge fund assets under management, aum
Hedge Funds Suffering after Racking up Losses from Loans
Hedge funds are struggling to make up big losses after the US financial sector’s losses on large loans exploded in 2009. Many lenders were hedge funds and at least “one in three dollars lent by non-bank institutions such as hedge funds, securitisation vehicles and pension funds went sour” which is much more than the 11.5% in the traditional banking sector.
The results will increase fears that, in spite of a recovery in the shares and balance sheets of many banks, the epicentre of the crisis has moved to the hedge funds and investors that gorged on cheap credit in the run-up to the turmoil.
The importance of these non-bank institutions was underlined by the review’s finding that they held 47 per cent of problem loans in spite of accounting for only 21.2 per cent of the total loan pool. Overall, the US financial sector’s losses on loans in early 2009 reached a record of $53bn, nearly triple the previous high in 2002.
The number of loans edging into the danger zone has also surged. Some 15 per cent of the $2,900bn SNC portfolio was classified as “substandard” – the second of the four categories used by regulators – and worse, up from 5.8 per cent in 2008. Read more..
The number of new hedge funds is increasing finally and that’s great news for the third party marketing industry as more potential clients enter the industry. With 2,100 hedge funds closed during the credit crisis, few expected a rise in new hedge fund launches this year. But if new hedge funds continue to launch at this year’s pace, the industry may see the first year since 2005 of annual growth in new fund formations. Hedge funds appear to be back with renewed investor confidence and new and experienced hedge fund managers ready to try it again. Hedge fund launches have been consistently falling from 2073 in 2005 to 659 last year but this trend appears to be reversing.
It might also be that funds that had posted huge losses closed down so that the managers could start with fresh records, resetting high-water marks so that they can collect performance bonuses without making up the money lost in 2008.
When Hedge Fund Research unveiled its second-quarter data earlier this month, all eyes were focused on the slowing number of hedge fund liquidations. What was little noticed were the hedge fund launches. Since 2005, they have been falling steadily from a peak of 2073 in 2005 to 659 last year. The slide appeared to be continuing in the first quarter when 148 new hedge funds were launched. But, in the second quarter, 182 new hedge funds were launched, just as the equities markets bottomed.
The rising launches are a “constructive development,” says Ken Heinz president of Chicago-based Hedge Fund Research. “You are continuing to see risk tolerance and risk appetite improving from the historical lows at the end of 2008. ” To be sure, there are still more hedge funds shuttering their doors than opening them, with 292 going out of business in the second quarter alone, according to Hedge Fund Research. But there have been some notable launches. Source
Tags: hedge funds, new hedge fund launches, hedge fund startups, hedge fund industry, new clients, finding hedge funds, finding new clients, hedge fund startup, hedge funds in 2009
What Are the Rules for Marketing a Fund to Investors
Brent Gillett, a partner at the Investment Law Group, has contributed a question and answer series covering the establishment of a hedge fund and laws related to hedge funds.
Question:What are the rules regarding marketing the fund to potential investors?
Answers: Interests in a hedge fund are generally sold pursuant to a private placement exemption and should be marketed very carefully without using any general advertising or solicitation. Generally speaking, the manager should have a pre-existing relationship with everyone who is offered interests in the fund. Furthermore, to remain exempt from registration as an investment advisor at the state or federal level, a manager cannot hold himself out “publicly” as an investment advisor. Promotional activities involving the use of websites and providing information to organizations that track hedge funds should not be engaged in without the advice of counsel.
Guest author: Brent S. Gillett, partner at the Investment Law Group. To find more information about the Investment Law Group follow this link.
Related to: What are the Rules for Marketing a Hedge Fund to Potential Investors?
Tags: What are the rules for marketing, hedge funds, hedge fund marketing, laws for marketing a hedge fund, hedge fund marketing, hedge funds legal questions, legal q and a, investment law marketing
A couple months ago I sat down with Eric Warshal of Fund Associates in Atlanta to talk about the fund administration business and the hedge fund industry. Here is one question I asked him and his response: Question: I know that many hedge fund managers are focused on three things, keeping costs relatively low, raising capital and performing well. Can the services your firm offers or that fund administration firms in general offer help funds achieve any of these three goals?
Answer: Yes, our firm can certainly assist the managers with all of those items that are of value to them. From a “keeping costs low” perspective, because Fund Associates focuses on the needs of the emerging manger, we are keenly aware of their cost sensitivity with respect to expenses. As such, we typically price our services based on flat monthly fees as opposed to basis points of AUM pricing. We also offer discounted tired pricing schedules based on AUM when funds are just starting to help with expenses. We’ve found that this helps the manager by having a “fixed” cost structure, coupled with a “reasonable” overall cost for administration services. Fund administration firms as whole tend to lower overall costs by allowing the fund manager to outsource what could otherwise be a costly endeavor for the manager to accomplish on his own. Raising capital is inherently, after the trading itself, what most fund managers tend to focus on. In today’s environment, the chances of funds being able to successfully raise money from sophisticated investors if they self-administer is nearly zero. Almost all of the largest hedge fund frauds have been committed by groups that self-administer.
Although fund administration firms do not, typically, serve as third party marketing (TPM) firms they typically are associated with or have strategic alliances with TPMs who can help raise the capital that fund managers are often seeking.
By virtue of the fact that when the entire administrative component of the fund is not resting on the fund manager’s shoulders and those efforts and stresses are removed from his plate, the manager fundamentally is able to perform more effectively for his investors.
Eric Warshal will be answering more of my questions on fund administration in the future.
Tags: fund administration, fund administration question and answer, fund admin, fund administrator, administration, hedge fund administration, hedge funds, administrate
Fortitude Capital Australian Hedge Fund of the Year
The financial crisis kept most hedge funds from posting positive returns but Fortitude Capital managed to have a positive return every month in 2008, earning the award of Australian Hedge Fund of this year. The following video highlights Fortitude Capital’s achievements:
Costs of EU’s Directive on Alternative Fund Managers
European hedge funds are facing tough regulation and stiff taxes from the UK and European Union. Last month, the UK announced that it will begin taxing individuals earning more £150,000 (about $247,000) a year at a rate of 51%. This decision led many hedge funds to leave the UK for more business-friendly countries, namely Switzerland.
Now, the European Union is considering a law that will effect not only private equity and hedge funds but also EU tax revenues. The proposed rules are estimated to cost almost $3 billion in its first year and about $1.5 billion each following year. The Directive on Alternative Investment Fund Managers seeks to regulate and impose capital requirements on funds managing more than 100 million euros.
A significant cost may fall on the hedge funds and private equity firms which will shoulder a major burden in compliance costs. A recent survey estimates that compliance expenses will rise by about a third from the directive.
London, home to at least 80 percent of Europe’s estimated $400 billion in hedge-fund assets and about 60 percent of Europe’s private-equity firms, may suffer as funds decide that leaving is easier than complying with new regulations, the survey authors said.
“Thousands of jobs and millions of pounds in tax revenues could be at stake,” according to a report by Mats Persson, research director at Open Europe. “There would be little incentive for fund managers to remain in the EU at all.” The survey showed 2 percent of investors in the funds support the proposal, while 46 percent oppose it.
Britain’s Financial Services Authority last week organized a one-day conference in London about the costs and consequences of the directive, which Paul Myners, the U.K. treasury minister called “flawed.” Poul Nyrup Rasmussen, the Danish former prime minister whose Socialist Party president introduced the legislation, said this month that the proposal may need “tightening.” source
Tags: Directive on Alternative Fund Managers, Directive on Alternative investment Fund Managers, eu hedge fund regulation, european union, hedge funds, private equity, uk tax laws, investments
Tags: Hedge Fund Marketing Event, Capital Introduction Event, Fund Marketing, Investment fund marketing, alternative investments marketing, capital introduction events, cap intro, hedge fund, hedge funds
Below is a short excerpt about Tony Chedraoui starting a new hedge fund this year. The Telegraph was nice enough to say that Tony is starting a $500M hedge fund, but as Fintag pointed out this morning typically these types of announcements mean that the fund hopes to launch soon and hopes to attract something near $500M. This may seem like a small detail to professionals outside of the industry but those who have raised capital for new funds know how challenging this is process can be.
Tony Chedraoui, who used to run the The Deephaven European Event Fund, has started up Tyrus Capital, a global hedge fund that will focus on trading events, such as merger deals.
Mr Chedraoui is expected to attract strong interest from backers and investors, said investment advisers. This is because the Deephaven European Event Fund, which last year won the EuroHedge award for best performance in 2008, managed to weather the financial crisis to rise by around 17.31pc. The average event-driven fund was down 14.91pc in 2008, according to the HSBC index. Source
Related to Tony Chedraoui Hedge Fund: Event Driven
Tags: Tony Chedraoui, Hedge Fund Event Driven, Hedge Fund, Hedge Funds, Tony Chedraoui Hedge Fund Startup, New Hedge Fund being launched by Tony Chedraoui
Tags: Hedge Fund Networking Events, Hedge Funds, Hedge Fund, Hedge Fund Premium Events, Alternative investment networking events, associations and events in the investment industry
Tags: Jim Chanos, Kynikos Associates, James Chanos Kynikos Associates, Hedge Fund Manager Kynikos Associates, James Chanos Hedge Funds, Hedge Funds, Hedge Fund
Hedge fund merger arbitrage activity is picking up after a dry spell. Hedge funds focused on merger arbitrage gained 8%, that is below the average hedge fund gains but an improvement still. As executives are able to complete deals more confidently, arbitrage traders are expected to make more significant gains.
Times are good for arbitragers because there is less competition in the merger game. Proprietary trading desks of many brokerage firms have been shrunk or eliminated, and some multistrategy hedge funds have switched from merger investing. That is why the spread between an acquisition target’s share price and a deal price has expanded.
Today, target companies typically trade about 12% below an offer price. That is down from about 15% earlier this year, but higher than the 10% or so for most of this decade.
In past years, acquisitions were sometimes announced by parties still hoping to secure sufficient financing. Sometimes that wouldn’t materialize. Now, only those with pretty secure financing are launching offers. And fewer deals are being undertaken by private-equity firms, which have proved more likely than strategic buyers to get cold feet and walk away from a deal. Source
The International Organization of Securities Commissions just released a new report providing additional hedge fund standards related to both liquidity risk and due diligence processes. Here is a quote which FinAlternatives took out of the report this morning:
Liquidity Risk
In dealing with liquidity risk the fund of hedge funds’ manager should:
make reasonable enquiries in order to be in a position to consider if the fund of hedge funds’ liquidity is consistent with that of the underlying hedge funds, particularly in order to meet redemptions;
prior to investing, and during the investments’ lifetime, consider the liquidity of the types of the financial instruments held by the underlying hedge funds;
if introducing limited redemption arrangements, consider whether these are consistent with the fund of hedge funds’ aims and objectives. Moreover, their operation should comply with the conditions defined in the proposals; and
before and during any investment, consider whether conflicts of interest may arise between any underlying hedge fund and any other relevant parties.
Due Diligence Processes
These should be carried out prior to any investment being entered into and on a continuous basis following the commitment. They can be divided up into the following areas:
Elements requiring constant monitoring and analysis by the funds of hedge funds’ managers:
establishing and implementing appropriate due diligence procedures for the purpose of investment into hedge funds, which are reviewed regularly;
assessing the specific legal and regulatory requirements applicable in the hedge fund’s jurisdiction; and
carrying out appropriate due diligence on the underlying hedge fund whenever it is considered necessary.
Adequate resources, procedures and organizational structures necessary for the purpose of carrying out a proper and robust due diligence:
documented and traceable procedure for selecting hedge funds;
appropriately skilled staff and adequate technical resources to implement the due diligence procedures;
the resources, procedures and organizational structure to deal with any anomalies identified by due diligence system, to take the necessary corrective action and confirm that all procedures are traceable and have been catalogued;
Regularly assess if selection procedures for eligible underlying hedge funds have been properly met, or not met, and to explain any deviations; and
Outsourcing Due Diligence If a fund of hedge funds’ manager wishes to authorize the outsourcing of any aspect of its due diligence it should: determine that any conflicts of interest are adequately addressed; and consider the extent that outsourcing of due diligence is consistent with the IOSCO Principles on Outsourcing of Financial Services for Market Intermediaries.
Tags: IOSCO Hedge Fund Standards, Hedge Fund Report by IOSCO, Hedge Fund Best Practices, Hedge Fund Regulations, proposed regulations on hedge fund managers, hedge fund, hedge funds
Just saw this interesting article on the level of foreign exchange reserves China now has in hand, interesting…
“In a world of systemic instability, reserves mean power. Reserves mean you can defend your currency, stabilise your banking system and boost your economy without resorting to yet more borrowing – or, worse still, the printing press.
More than half of China’s reserves are denominated in dollars. So when the dollar falls, China loses serious money. When you’re talking about a dollar-reserve number involving 12 zeros, even a modest weakening of the greenback sees China’s wealth takes a mighty hit.” source
Related to Chinese Foreign Exchange Reserves – $2 Trillion
We are writing the rest of our hedge fund training book over the next two months, this book will cover hedge fund case studies, institutionalizing your hedge fund, raising capital, starting a hedge fund, best practices of large hedge funds and more.
We are including bonuses within the back of the book such as a glossary, frequently asked questions, and discounts on conferences, subscriptions, and resources in the industry. The book will be priced between $44 and $75, but what could we include as a bonus within the book to make it worth well over $100 to you personally?
Tags: Hedge Fund, Hedge Funds, Hedge Fund Book, Hedge Fund Training Book, Training manual for hedge funds, training materials for hedge fund certification program, hedge fund trainings
Our team is putting together a few networking events in Sao Paulo, Brazil and probably Rio as well in late 2009 and early 2010. If you are a CTA fund manager, hedge fund manager or trader which is planning to launch a fund and you are based in Brazil please let us know. We would like to hear from you so we can choose an appropriate networking event location and add you to our networking event email list for Brazil.
If you would like to attend Brazil-based events for fund managers attend please complete the form below and select “Brazil 1.29.10″ as the networking event choice:
Related to Brazilian CTA Fund & Hedge Fund Networking Event
Tags: Hedge Funds, Hedge Fund, Brazilian Hedge Funds, Networking events for Brazilian fund managers, fund managers in Brazil, Sao Paulo Hedge Funds, Networking events in Sao Paulo Brazil for hedge funds
Below is a quick update on the Lehman Brothers frozen assets situation:
Despite a legal setback, the administrators of Lehman Brothers’ European arm still hopes to expedite the return of billions in frozen prime brokerage assets to the collapsed investment bank’s former clients.
Steven Pearson and Tony Lomas of PricewaterhouseCoopers told The Wall Street Journal that they plan to meet with Lehman’s clients, including hedge funds, today in an effort to find a way to speed the return of their money. If no deal can be reached, PwC has warned it could take years to unfreeze the assets at Lehman Brothers International Europe. source
Below is a quick update on the Lehman Brothers frozen assets situation:
Despite a legal setback, the administrators of Lehman Brothers’ European arm still hopes to expedite the return of billions in frozen prime brokerage assets to the collapsed investment bank’s former clients.
Steven Pearson and Tony Lomas of PricewaterhouseCoopers told The Wall Street Journal that they plan to meet with Lehman’s clients, including hedge funds, today in an effort to find a way to speed the return of their money. If no deal can be reached, PwC has warned it could take years to unfreeze the assets at Lehman Brothers International Europe. source
Tags: Lehman Brothers, Hedge fund, Hedge Funds, Frozen assets at Lehman brothers, prime brokerage frozen assets, how my assets can be frozen, how a bank can freeze my assets
Brent Gillett, a partner at the Investment Law Group, has contributed a question and answer series covering the establishment of a hedge fund and laws related to hedge funds.
Question: What is the typical fee structure for a hedge fund?
Answer: Typically investors in a hedge fund will pay the manager a management fee and a performance fee. The management fee, paid either quarterly or monthly, will range from 1–2% of AUM. The performance fee is generally assessed annually (although some managers will asses the fee quarterly) and typically is 20% of the fund’s profits (subject to a “high water mark”). Read more about hedge funds and fees in Hedge Fund Fees
Tags: hedge fund fees, hedge funds fee structure, hedge funds, hedge fund fee, charges, management fee, performance fee, how much do hedge funds charge, what is typical fee for hedge funds
Below is a short article on how Madoff avoided detection for so long:
A newly-released transcript of a phone call between Bernard Madoff and a feeder hedge fund offers new details of how the arch-fraudster escaped detection for so long.
“You know, you don’t have to be too brilliant with these guys because you don’t have to be,” Madoff told the FFG employee, warning him that, “obviously, first of all, this call never took place.”
“You’re not supposed to have that knowledge and, you know, you wind up saying something which is either wrong, or, you know, it’s just not something you have to do.” source
Tags: Madoff detection, SEC Inspections, What to expect in a SEC inspection, SEC investigations, past sec investigations, process of an SEC investigation, hedge fund, hedge funds
I was making my way through some marketing training materials last night from Mr. Frank Kern and came across a marketing process which may seem somewhat like common sense, but helps to think about to ensure that you are presenting a complete marketing message to your potential fund investors. Within the marketing training program Kern suggests you follow this process while moving your prospects through different phases of engaging your firm:
Interest and Desire: Provide a white paper, speech, update your perspective of the markets which catches the attention of your potential investor
Trust: Develop a relationship with the potential investor, build trust by providing client quotes, industry recommendations, and comparison analytics between your fund and others.
Proof: Show proof that your fund has a high degree team, detailed consistent investment processes in place, and an advantage of some type which can be tangibly displayed or confirmed.
Sample: Allow the investor to start with a small minimum investment, provide examples of what other investors like them have done in the past, or present case studies on three different types of typical investors that you serve so they can imagine then being in that position.
The descriptions next to each bold word above is less important than the process itself. If you can grab the attention of the investor, build a relationship with them, provide proof of your abilities and performance, and then combine that with a sample you will be several steps ahead of much of your competition.
Tags: Hedge Fund Investor Sources, new Hedge fund investors, investor pipeline development, investor relationship management, developing a pipeline of investors, hedge fund, hedge funds
I was making my way through some marketing training materials last night from Mr. Frank Kern and came across a marketing process which may seem somewhat like common sense, but helps to think about to ensure that you are presenting a complete marketing message to your potential fund investors. Within the marketing training program Kern suggests you follow this process while moving your prospects through different phases of engaging your firm:
Interest and Desire: Provide a white paper, speech, update your perspective of the markets which catches the attention of your potential investor
Trust: Develop a relationship with the potential investor, build trust by providing client quotes, industry recommendations, and comparison analytics between your fund and others.
Proof: Show proof that your fund has a high degree team, detailed consistent investment processes in place, and an advantage of some type which can be tangibly displayed or confirmed.
Sample: Allow the investor to start with a small minimum investment, provide examples of what other investors like them have done in the past, or present case studies on three different types of typical investors that you serve so they can imagine then being in that position.
The descriptions next to each bold word above is less important than the process itself. If you can grab the attention of the investor, build a relationship with them, provide proof of your abilities and performance, and then combine that with a sample you will be several steps ahead of much of your competition.
Tags: Fund Investor Sources, new fund investors, investor pipeline development, investor relationship management, developing a pipeline of investors, investment fund, investments, hedge funds, third party marketing
Below is a paragraph excerpt from a book I am writing on hedge funds, which will be published through Wiley in 2010. It shares some advice on targeting different types of investors. While other consultants in the industry charge $250-$400/hr to provide this advice to hedge fund managers I give it away here on my blog for free and soon in my book because my business is based on being a source of genuine education and valuable resources instead of just press releases and news re-runs. If you are looking for more free advice on capital raising please see our Hedge Fund Marketing & Sales Guide or ThirdPartyMarketing.com.
The method by which Tassini Capital Management was raising capital was not effective. In addition to not using an Investor Relationship Management System the team had somewhat randomly been approaching many different types of investors from large European banks to small seed capital providers. The third party marketing firm consulted Chris and Brian Tassini and found that they were both un-willing to part with equity ownership in the management company of the fund in exchange for capital. They also reviewed past notes and confirmed that all efforts to work through institutional investment consultants had been stalled due to sub $100M AUM levels.
The result was a much more focused method of systematically approaching a mix of investors which included 10% institutional investment consultants, 50% wealth management firms, 20% multi-family offices, and 20% high net worth individuals. While institutional investment consultants were not going to invest any time soon they were kept in the mix so that the team could continue to receive valuable institutionalization feedback from the consultants.
Tags: Hedge Fund, Hedge Funds, Alternative Investment Marketing, CTA Marketing, Capital raising methods, hedge fund investors, types of hedge fund investors, how to raise capital from investors or hedge funds
Hello, This is Richard Wilson, below is a paragraph excerpt from a book I am writing on hedge funds, which will be published through Wiley in 2010. It shares some advice on targeting different types of investors. While other consultants in the industry charge $250-$400/hr to provide this advice to hedge fund managers I give it away here on my blog for free and soon in my book because my business is based on being a source of genuine education and valuable resources instead of just press releases and news re-runs.
The method by which Tassini Capital Management was raising capital was not effective. In addition to not using an Investor Relationship Management System the team had somewhat randomly been approaching many different types of investors from large European banks to small seed capital providers. The third party marketing firm consulted Chris and Brian Tassini and found that they were both un-willing to part with equity ownership in the management company of the fund in exchange for capital. They also reviewed past notes and confirmed that all efforts to work through institutional investment consultants had been stalled due to sub $100M AUM levels.
The result was a much more focused method of systematically approaching a mix of investors which included 10% institutional investment consultants, 50% wealth management firms, 20% multi-family offices, and 20% high net worth individuals. While institutional investment consultants were not going to invest any time soon they were kept in the mix so that the team could continue to receive valuable institutionalization feedback from the consultants.
Tags: Hedge Fund, Hedge Funds, Alternative Investment Marketing, CTA Marketing, Capital raising methods, hedge fund investors, types of hedge fund investors, how to raise capital from investors or hedge funds
