redemptions

Mutual funds battle redemptions too

Jim Kim — Tue, 25 Nov 2008 08:28:34 -0500

Hedge funds aren't the only ones grappling with a rush to the exits. Equity mutual funds are likewise grappling with nervous investors who may want to cash out soon, reports Business Week. According to TrimTabs, redemptions as a percentage of all fund assets was 3.3 percent as of Nov. 17. The all time high were 4.3 percent in the bear market of 2002-2003. Is that a big deal? Look at it this way: If redemptions were to hit the same record level, that would amount to an additional $38 billion leaving funds. That might entail some big-time selling. Obviously, liquidity management is big issue right now. Many have raised cash.

For more:
- here's the article

Hedge fund guide released

Jim Kim — Fri, 07 Nov 2008 13:10:34 -0500

There's a lot of angst in the hedge fund industry right now, and for good reason. The headlines are certainly negative: "Massive redemptions," "Margin calls," "Lawsuits" and most recently, the "Worst Month Ever for Hedge Funds." But for all that, institutional investors are not likely to give up on hedge funds. And it's worth pointing out that hedge funds have fared well over time. Consider that a $100 in the S&P 500 Total Return Index at the beginning of this decade would equal at $92.1 by September 2008. A $100 in the HFRI Fund Weighted Hedge Fund Index would equal $172. The Alternative Investment Management Association (AIMA) points this out in its just released "Roadmap to Hedge Funds," a lengthy resource that intends to debunk myths and explain how these oft-misunderstood vehicles work. Best of all: It's free.

For more:
- here's the guide

Och-Ziff: Proxy for industry

Jim Kim — Tue, 04 Nov 2008 19:12:14 -0500

One nice thing about the fact that Och-Ziff trades publicly is that we have a rough proxy for the entire industry. So, the good news is that the alternative investment firm beat analysts' expectations for the third quarter by a penny. (It posted a loss but its "distributable" earnings were positive).

The news wasn't all good. MarketWatch notes that the firm's largest fund, OZ Master, fell 6.63 percent in October and is down 12 percent for the year. Its OZ Europe Master Fund is down 13 percent for this year. And the OZ Asia Master Fund is down a whopping 27 percent. Unsurprisingly, some investors have fled. Redemptions were $719 million in September and $220 million in October. As staying profitable becomes harder for some firms, costs take on more importance, and you have to think that many funds are below the high water mark.

For more:
- here's the article

Goldman, Morgan causing the contraction in hedge funds?

Jim Kim — Tue, 28 Oct 2008 08:46:01 -0400

There's been a lot of bad news for hedge funds as of late. More continue to shut down. Lawmakers seem bent on more regulation. And investors are getting even more antsy. The threat of redemptions hangs over all. Which brings us to the prime brokers, who are as nervous as ever these days. The Financial Times reports they are increasingly scaling back on providing leverage. The issue is why: Some have suggested that the decision by Morgan Stanley and Goldman Sachs--the two biggest prime brokers--to convert to commercial banks essentially forced them to drastically scale back their prime brokerage businesses. Commercial banks can't lend like that. And that has forced hedge funds to contract.

For more:
- here's the FT article
- here's a Portfolio item on Goldman and Morgan

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

Hedge funds fret about investors

Jim Kim — Mon, 29 Sep 2008 12:07:13 -0400

It has been a tough year for hedge funds. Returns are way down, and people are exceedingly nervous about the climate, financially and politically. So far, the public anger has been directed more toward the big Wall Street firms that cratered, sparing hedge funds, who are no stranger to public disdain. There is a lot to worry about right now. The New York Times notes that the average fund is down about 10 percent for the year. This could be one of the worst years ever. Closures have picked up, though this is largely a small fund trend. One danger sign: Credit raters are starting to downgrade collateralized fund obligations, which were created by funds of funds. These are basically hedge fund-backed securities, each including stakes in a diverse array of funds. If concerns over redemptions mount, they may get hit harder.

For more:
- here's the article

Related Articles:
Navigating the hedge fund maze

Another blow to Lehman: Ospraie to shutter hedge fund

Jim Kim — Tue, 02 Sep 2008 21:12:32 -0400

Ospraie Management, a hedge fund firm part owned by Lehman Brothers, suffered a 27 percent loss for August. For the year, it's down 39 percent, according to the Financial Times. That has prompted the fund to inform investors that it will shut down and return funds. The fund has suspended redemptions in favor of an orderly wind down. There are plenty of assets that must be sold to return funds, Ospraie told clients. It may take as many as three years for all assets to be sold. Other Ospraie funds are not faring as poorly. Still, some potential suitors for Lehman's asset management business were said to have reservations about various funds. So this could complicate matters.

For more:
- here's the Financial Times article

Ex-Citi hedge fund manager blames firm

Jim Kim — Wed, 30 Jul 2008 09:41:03 -0400

John Pickett, who ran a Citigroup hedge fund from 1999 until his resignation in December, has filed a sealed arbitration-like complaint in London. In it, he has some choice accusations against his former employer, notes FINalternatives. Pickett claims Citi's John Havens, who now runs Citi's alternative investment units, overruled him when he attempted to back out of a bid for $730 million in leveraged loans last summer. Pickett's move reflected what he saw at Morgan Stanley and the other banks changed the terms. But after Morgan Stanley complained, Havens ordered Pickett not to sue the banks. A settlement was reached that cost the hedge fund dearly, and helped secure a large loss for the year, according to Pickett (who says the firm put its own interests ahead of customers). Citi says the complaint is without merit. It halted redemptions at the fund in question in February.

For more:
- here's the FINalternatives article

Pandit's hedge fund not faring well

Fri, 16 May 2008 06:59:58 -0400

The news that Citigroup will essentially wind down Old Lane, the hedge fund firm that Citigroup bought for $800 million, may stand as an omen. The fund--which was started by Vikram Pandit, who now heads the bank--has been a turkey for investors. Forbes notes that the fund fell 4 percent. In 2007, it was up only 2.8 percent, net of fees. Citigroup now is allowing investors to exit the fund. Most will take them up on the offer. But employees must stay invested until 2011. The article calls the fund an "odd stew" of investments. Its ultimate downfall seems to be the result of the credit crunch. Its big bet on collateralized debt obligations did not fare well. Certainly, Old Lane added to the hedge fund woes at Citigroup. You can't help but think that these grapes will sour even more if Pandit cannot turn the company around.

For more:
- here's the Forbes article