Hedge Funds

Can hedge funds really time the market?

Jim Kim — Fri, 10 Oct 2008 13:16:24 -0400

By all accounts, hedge funds are having a terrible month, among the worst since the industry started keeping score. So it might surprise people to hear that some researchers have concluded that hedge funds have a statistically significant ability to time the market--historically speaking. AllAboutAlpha.com notes that researchers from Citigroup and Athens University of Economics & Business found that there was a "significant correlation between hedge fund market beta and market performance itself." In other words, some hedge funds became slightly more correlated with the market before the market rose. But this correlation apparently does not hold for short sellers. Indeed, the big funds do not seem to have timed the recent downturn very well. A horrible August and September probably ensures a had year, but the effect on longer-term performance is still unclear.

For more:
- here's the article

Citadel among funds getting hit by crisis

Jim Kim — Wed, 08 Oct 2008 19:44:01 -0400

In many ways, Kenneth Griffin would appear to be type-cast as a hedge fund manager. He's made billions. He bought a Cezanne for $60 million. He was married at Versailles. But there is nothing ordinary about the way he built Citadel into a hedge fund power. Now, even Griffin is getting walloped by the credit crisis. His firm's two main investment funds are down 20 percent this year, reports the New York Times. The past few weeks have been especially hard." Now, the clock is ticking...If his funds close down for the year, Citadel will not earn its 20 percent profit fee," according to the article. Griffin's hopes of taking his company public seem distant. As did his claim that his firm might someday rival Goldman Sachs. Certainly, the firm is not alone in its pain. But that is cold comfort right now. By the way, he's scheduled to testify in Congress next week, which should be interesting.

For more:
- here's the article

Ackman tries a new tack

Jim Kim — Tue, 07 Oct 2008 13:38:46 -0400

The world knows William Ackman as one of several big-name fund managers who bet against top financial institutions. He's got some new long investments now, notably Wachovia and AIG, reports TheDeal.com. He discussed both in a recent conference. He's now the 12th largest shareholder of AIG. And he owns a 7 percent stake in Wachovia. We'll see how these bets end up for him. All in all, he's not having that bad a year. Other hedge fund managers who took big stakes against financial services firms are faring much worse, notably David Einhorn at Greenlight Capital. Ackman's Pershing Square is actually up 2 percent for the year. Here's a list of top hedge funds and their performance this year.

For more:
- here's an article from TheDeal.com on Ackman

Hedge fund losses continue in September

Jim Kim — Tue, 07 Oct 2008 13:28:19 -0400

The news is uniformly bad for many hedge funds right now. Sure, there are exceptions, like John Paulson's fund, which has been on a tear. But for most, the combination of short selling restrictions, a severe cutback in leverage ability, consternation about prime brokers, and newly empowered investors has made for a rough month. Oh yeah, performance has been awful. In fact, it's been the worst month in a decade, according to FINalternatives. A great example noted by the Financial Times: Citadel's main fund, which fell 15 percent in September, its worst month since 1994. But there are many others. In some ways, shifting trading rules are merely a convenient excuse. Hedge funds were supposed to do well in volatile conditions. For whatever reason, that's not happening now.

For more:
- here's the FT article
- here's the FINalternatives article

Related Articles:
Navigating the Hedge Fund Maze - September 2008

David Einhorn taking some hard lumps

Jim Kim — Mon, 06 Oct 2008 11:33:57 -0400

David Einhorn's stature soared when he laid a spectacularly winning short bet on Lehman Brothers--in full view of the world. But that glow has faded. Fortune notes that Einhorn's firm, Greenlight Capital, lost 11.5 percent in an offshore fund. Another of its funds is faring equally as bad. He's certainly not the only hedge fund manager to take some lumps in this credit crunch. The fact is that, despite his reputation, Greenlight is not a short fund. It longs a whole lot of stuff that has apparently soured as of late. What really matters here is how fund investors react. You can bet Einhorn and others are working their clients hard right now. This is a time when all your investment in relationships can pay off. The worst thing that can happen is that they head for the doors at once.

For more:
- here's the Fortune article

At least one hedge fund is thriving

Jim Kim — Mon, 06 Oct 2008 11:33:17 -0400

John Paulson rocketed to hedge fund fame and glory last year, when his prescient bets against anything subprime-related paid off in spades. He's having another good year, though it's doubtful he'll make another $3 billion. Through the end of August, Paulson's $7.4 billion Paulson Advantage Plus fund returned 19.43 percent, according to Reuters. He stands apart in several respects. For one thing, his big-name hedge fund manager peers are suffering through a really bad year. For another, he's one of the few big winners (most of whom won on credit-related bets) from last year to extend that into 2008. His latest surge seems to be the result of some short bets again British banks.

For more:
- here's the Reuters article

Hedge funds target tottering funds

Jim Kim — Sun, 05 Oct 2008 09:45:07 -0400

Hedge funds have hit upon a new strategy: targeting competitors that may be facing a surge in redemptions. The Financial Times notes some hedge funds have been shorting securities known to be widely held by rivals. The bet is that redemptions will force some selling. It's unclear how this strategy has fared given the temporary ban on many stocks. You can't blame funds for wanting to better capture gains from bearish markets. The big knock on them these days is that they herd and feel like long-only vehicles. The current market meltdown has been a rank disaster that has raise questions about the very rationale behind a lot of funds.

For more:
- here's the article

Hedge funds scrambling to control situation

Jim Kim — Thu, 02 Oct 2008 12:57:14 -0400

From antsy customers to creaking prime brokers to emboldened regulators and critics, the hedge fund industry is in scramble mode right now. We can expect more to follow the esteemed Guy Wyser-Pratte, who has blocked redemptions from his hedge fund, warning of "calamitous" market conditions, according to the Financial Times. This is going on in some form across the industry. And we're going to see a lot more small firms shut down. Rotten performances have made the hedge fund problems ever worse. As of now, the industry is heading to its worst performance since the records began. So behind the scenes, we're seeing a lot of cajoling and hand holding, not to mention anger. Investors have the upper hand these days. You can bet they are asking the tough questions they should have been asking all along.

For more:
- here's the article on Wyser-Pratte

Related Articles:
Navigating the hedge fund maze

Lehman Brothers prime brokerage customers left high and dry

Jim Kim — Wed, 01 Oct 2008 15:01:56 -0400

We may be witnessing a historic shift in the prime brokerage industry. Morgan Stanley's prime brokerage operation has certainly been hit hard. The bank reportedly lost more than one-third of its assets in one week, back when it was perceived--rightly or not--to be on the ropes. Lehman Brothers' prime brokerage operation is now back in the news. Bloomberg reports that some hedge fund clients have had extreme difficulty in getting their funds out. One hedge fund, Oak Group, tells the news service that it will probably have to shutter operations because funds are tied up. One has to wonder how Goldman Sachs' prime brokerage operations are holding up. One also has to wonder if the business model of the big boys, built on leverage, will have to be adjusted. If so, how? It's fair to say that prime brokerage, a bright spot just a few quarters ago, may not be the earnings driver some had hoped.

For more:
- here's the Bloomberg article

Erin Callan explained

Jim Kim — Tue, 30 Sep 2008 12:39:33 -0400

Erin Callan runs Credit Suisse's hedge fund business, but she will be remembered for a long time as the sacrificial lamb at Lehman Brothers. She spoke, at times emotionally, about those stormy days with Fortune. A lot of people think that then-CEO Richard Fuld, who has certainly taken his lumps, forced her out. But she says the decision to leave was hers. "In retrospect I was lucky to get out, but I was so sad. It wasn't a relief at the time. I never thought I would leave that firm. It had such a strong culture. People really lived their lives there. I think Dick felt personally horrible about it because I was his protégé. During this difficult conversation with me, he cried." Strong stuff. This sort of emotionalism may have hurt when it came to the commercial real estate portfolio. The bank could not bring itself to cut its losses, she says.

For more:
- here's the article