Hedge Fund Street

Sihpol Maintains Not Guilty

Theodore C. Sihpol, the former Bank of America securities broker who allegedly participated in illegal activity regarding hedge funds, is claiming that without proper proof that he intended to steal millions of dollars he should not be found guilty. His lawyer, Paul Shechtman, is also claiming that Sihpol began working at Bank of America after the illegal activity began. Sihpol, who allegedly was selling and buying funds after 4p.m., is facing 33 counts of illegal misconduct. According to Newsday.com:

Sihpol is on trial in Manhattan's State Supreme Court charged with grand larceny, scheme to defraud and falsifying business records. He faces up to 25 years in prison if convicted on a first-degree grand larceny count

Read more: Defense: Broker had no criminal intent in mutual fund late-trading

Hedge Fund Fear in Asia Not Unfounded

In Asia, the amount of money being put into hedge funds is growing, and with that, concern is also growing. The growing concern, according to David Walter, director of KBC Alpha Asset Management, is the people, more specifically hedge fund managers. The competitive nature of the hedge fund industry has caused some hedge fund managers to push money into risky trades. According to Thestandard.com:

Long Term Capital, the poster child for what can and does go wrong in the industry, was run by two Nobel Prize winners and a well-respected economist and still managed to sink under titanic losses derived from the Russian government debt default in 1998.

Read more:
Fears rise at hedge fund boom

Hedge Fund Manager Sees Billion Dollar Pay Check

With a record-breaking personal income $1.02 billion, hedge fund manager, Edward Lampert is Wall Street's highest earner in 2004. Lampert, who started the hedge fund ESL Investments took control of Kmart last year as well as overseeing purchases of Sears. As investors have become better educated when it comes to hedge funds, the amount of money held by the funds has skyrocketed, thus increasing the potential for hedge fund managers to make a mint. According to Timesonline.uk.co:

John Godden, of Hedge Fund Research, said: “The amount of money held by hedge funds has rocketed in recent years, from $400 billion in 2000 to more than $1 trillion in January (this year) as investors become better educated about hedge funds and disillusioned with other asset classes.”

Read more: Hedge fund manager is biggest earner on Wall Street at $1bn

Man Group Emerges From Bleak Predictions Unscathed

Man Group escaped the dark predictions for the hedge fund industry unscathed. Man produced almost $100 million ahead of city forecasts. Stanley Fink, chief executive, acknowledged the fear surrounding hedge funds and said that contrary to popular belief, he didn't think that hedge funds had too much leverage, rather not enough. Thus, hedge funds could not be responsible for a major accident in the financial industry. Man, the world's largest hedge fund manager, had pretax profits of $784 million. According to Guardian.co.uk:

"At the end of 1987 [when Long Term Capital Management had to be bailed out by Wall Street], leverage within hedge funds was in high single digits, about nine times," Mr Fink said.

Read more: Man defies hedge fund gloom

Pension Funds Under Investigation In Hedge Fund Rumor Aftermath

Yesterday, two of California's largest pension funds were requested by The California First Amendment Coalition to disclose specific information regarding hedge fund investments. The 182.9 billion California Public Employees' Retirement System and the $63 billion University of California Pension and Endowment Fund are being asked to submit details because of the recent rumors surrounding hedge fund losses. The coalition is hoping to find out how much actual damage, if any, was caused by the hedge funds. In their request, the coalition is also hoping to obtain information on management fees and type of hedge funds in the portfolios. According to Businessweek.com:

CalPERS and the university endowment, which provides pensions to university retirees, said they were complying with much of the coalition's request and are committed to being open about their investments.

Read more: Details sought on pension hedge fund data

Mark Sellers Dispenses Investment Information

Mark Sellers, current hedge fund manager and former editor of Morningstar Stock Investor, is a proponent of investing in Wal-Mart Stores, Inc. Sellers, currently managing Sellers Capital Management in Chicago, believes that in the future when investors look back, they will think it was very smart to have bought at this point. Seller also dispensed other interesting investment information on such companies as American International Group, Chevron Corp., and Exxon Mobile Corp. According to Marketwatch.com:

Sellers was lukewarm on the energy industry, noting that giants like Exxon Mobil Corp. (XOM: news, chart, profile) and Chevron Corp. (CVX: news, chart, profile) were good, healthy stable long-term companies, but not necessarily at a good point to buy.

Read more: Hedge fund manager Sellers bullish on Wal-Mart

Hedge Funds Assume Activist Role Causing Concern

Hedge funds have been recently trying to influence corporate managers. A distinct problem exists with this attempt because what is inherently positive for hedge funds, could ultimately have a negative affect on a particular company and its shareholders. Insiders are questioning this hedge fund activism and are concerned that too much influence will have a negative affect.

In the past, hedge funds have been involved in corporate politics, but recently they are being regarded as somewhat of a force in corporate dealings. Hedge funds seemingly are involved in everything from merger decisions to executive compensation. The inflow of money into hedge funds has largely influenced the degree of power that hedge funds have been able to exert. According to Washingtonpost.com:

"Hedge funds have clearly started thinking outside of the usual box," said B. Espen Eckbo, the founding director of the Center for Corporate Governance at the Tuck School of Business at Dartmouth College. "They see that you can do something to change the shareholder value by picking on the governance side of a company."

Read more: Hedge-Fund Activism Sparking Concerns

Hedge Fund Loss Aftermath

In the aftermath of the shocking hedge fund losses, Wall Street executives are taking the defensive and claiming that the disappointing hedge fund activity will not have a large effect on major financial companies. With rumors running rampant on Wall Street regarding hedge funds losses though, the blame is being put on trading strategies involving corporate bonds as well as other securities. Executives at Bear Stearns and JPMorgan Chase Co. continue to downplay last week's events despite the fact that junk bonds are declining which are driving yields higher. According to Latimes.com:

Bond traders said it appeared that some hedge funds were selling securities in a preemptive move, to raise cash that could be used to repay their investors who may want to exit after recent losses. Many funds allow investor redemptions only at quarter end, which could mean an outflow of money at the end of June.

Read more: Hedge Fund Woes Downplayed

Joint Venture Results In New Hedge Fund Approach

Pequot Capital Management Inc., the United States based hedge fund, teamed with the Singapore based Pangaea capital Management which is a new company that was started by former executives of the Los Angeles based real-estate firm Colony Capital Inc. Heading the new joint venture is former chief executive of Colony, Robert Zulkoski. Pequot's emphasis will be on distressed assets rather than publicly traded stocks. According to Forbes.com:

Pequot's Asian venture will focus on distressed assets rather than publicly traded stocks, despite its traditional role as an equity investor in the US.

Read more: US hedge fund Pequot Capital in venture with Singapore's Pangaea Capital

Hedge Funds in the Australian Market

Dropping by more than one percent, the Australian share-market is trouble due to weak hedge funds. Mining stocks also contributed to the lowering of the Australian Market. Last week, the local market seemed to be forming a base, aided by the fact that there has been a positive effect to the federal budget. There is a minor bump in the road though; "a global retreat by hedge funds from commodities and risky assets. According to Afr.com:

"This appears to be driving a climate of risk reduction, with investors looking to exit the consensus trades that are perceived to be the darlings of the hedge funds or even put on the reverse trade on the prospect of forced hedge fund unwinding."

Read more: Miners hit as hedge funds unwind

Edward Stern to Testify in Trial regarding Hedge Fund Scandal

Edward Stern, the former hedge fund manager of the now infamous Canary Capital hedge fund was supposedly going to testify at the trial of the former Bank of America broker Theodore Sihpol on Wednesday. Sources say now that Stern will not be testifying before Friday. The trial for Sihpol, the first person facing trial for the mutual fund trading scandal, has been postponed.

Prosecutors are arguing that Sihpol's trades that were made for Canary were taken after the 4 p.m. deadline. If Sihpol aided Canary in evading the deadline he will severely pay for it. Canary, nor anyone affiliated with the hedge fund, has been criminally charged. According to Thestreet.com:

The time stamped on the mutual fund tickets is critical to the prosecution's case, which alleges that Sihpol helped Canary evade the 4 p.m. trading cutoff and engage in late trading, which is illegal.

Read more: Mutual Fund Trial Is Ready for Eddie

Will Fed Crack Down on Hedge Funds?

Despite the fact that hedge fund losses have taken their toll on the financial markets this week, the likelihood of the funds being further examined is slim. Amid rumors of credit downgrades of Ford and GM, the Unites States and European corporate bonds weakened. The rumors were never proven to be true or otherwise, but the damage was done.

While in San Francisco today, Federal Reserve Vice Chairman Roger Furguson attempted to ease investors' minds by minimizing the hedge fund "crisis." There are not a stringent set of rules that hedge funds must adhere to, nor are the funds kept under a constant microscope, but Ferguson said that hedge funds are indeed monitored by banks and the United States as well as other industrial countries. According to Reuters.com:

"There is a self-reinforcing character to this pattern, with past stability seemingly increasing confidence in future stability, and this dynamic itself can magnify the risk of a more damaging reversal,"

Read more: Fed cautious on hedge fund regulation despite risk

Wolfgang Clement Calls for Review of Hedge Funds

The German Economics Minister, Wolfgang Clement, called for a thorough examination of hedge fund activities. After some serious management shifting at Deutsche Boarse, Clement stated that it was imperative that hedge funds be put under the microscope. The supervisory chairman of Deutsche Boarse, Rolf Brewer, also favored the thorough review, and said that it would benefit long term investors. According to Forbes.com:

HONG KONG (AFX) - Wolfgang Clement, the German economics minister, yesterday called for a thorough review of hedge fund activities in the wake of a management coup this week at Deutsche Bourse, the Financial Times reported in it's online edition.

Read more: German economics minister calls for hedge fund review - report

Hennessee Reports Hedge Fund Loss In April

Not since Septmeber 2002 have hedge funds performed so poorly, dropping 1.75 percent this past April. The New York based consulting firm, Hennessee Group LLC reported their findings on hedge funds recently. Yesterday's low stock prices are partly being attributed to Hennessee's report. With the Dow Jones Industrial Average and the S&P 500 index falling one percent, the U.S. Treasuries rose as investors shifted money out of stocks. According to Bloomberg.com:

Hennessee's report, combined with speculation that some hedge funds were selling assets to cover unprofitable trades, helped push stock prices lower yesterday. The Dow Jones Industrial Average and the Standard & Poor's 500 Index each fell 1 percent, following smaller drops in European markets. Japan's Nikkei 225 Stock Average was down 0.6 percent in recent trading.

Read more: Hedge Fund Losses in April Spark Concern in Stock Markets

GM Bond Hedge Fund Rumor

The Dow Jones Industrial Average and Standard & Poor's 500 index both dropped 1 percent today on rumors regarding allegedly large hedge fund losses. The U.S.-listed stock of Deutsche Bank fell 3.3 percent today on speculation that it suffered investment banking losses in connection with a hedge fund. The rumor on Wall Street is that many hedge funds were overinvested in General Motors bonds, which were downgraded to "junk" status by S&P last week. According to Reuters:

"Regardless of what the (hedge fund) rumors are, today highlights the risks inherent in this market where a lot of money was made because of the easy money the Federal Reserve provided," said Peter Boockvar, equity strategist at Miller Tabak & Co.

Read more: Stocks sink on hedge fund rumors

New Hedge Fund Launch

Brendan McCarthy will launch Nyes Ledge Capital, a hedge fund firm that will be located in Boston. McCarthy resigned from Cambridge Associates where he was the director of hedge fund research. Kevin Pirani, who worked with McCarthy at Cambridge in their research department, will join McCarthy in his new endeavor. Specializing in hedge fund consulting and research, Cambridge Associates states that it will not have any special relationship with McCarthy now but adds that Nyes Ledge Capital will be in its data base. According to Institutionalinvestor.com:

"We speeded up our consideration of combining the groups once he left"

Read more: Cambridge Associates Loses Hedge Fund Chief

New Hedge Fund Emerging This Summer

The newly minted partnership of Chapel Hill investment advisor, Morgan Creek Capital Management, and New York hedge fund entrepreneur, Julian H. Robertson, are set to launch a series of new investment funds this summer. Their idea is to develop different investment pools that would put the clients' money in specialized hedge funds, thus reducing the investment risk. The joint venture which has been named, Tiger Select Fund Management, will offer the wealthier investor top-level investment managers. The first fund will be started in July with the financial aid of the Robertson Foundation. Robertson will also be a minority owner in Morgan Creek, but will not be managing any of the funds. According to Newsobserver.com:

"We wanted to do something really unique," said Morgan Creek principal Mark W. Yusko, former chief investment officer for the University of North Carolina at Chapel Hill. He was one of the first university endowment managers to put money in hedge funds.

Read more: Hedge fund pools to start in summer

Greenspan Against Government Regulation of Hedge Funds

To the delight of hedge fund managers and to the dismay of the SEC, Federal Reserve chief, Alan Greenspan, declared that government regulation of hedge funds would not be beneficial. In Greenspan's speech delivered via satellite to the Chicago Fed's annual banking conference, he explained why instituting a set of stringent rules for such a fund that inherently is diversified would be extremely difficult. Greenspan did acknowledge the potential for negative repercussions and high risk due to the absence of government regulation, but still did not waver on his decision.

Hedge funds will not be without any guidelines though. On October, 26, 2004, the Securities and Exchange Commission voted that hedge funds would be required to adhere to a new set of guidelines. Hedge funds must now be responsible for keeping thorough records that will be available for the SEC to review; a procedure that is said to be both difficult and costly. According to Marketwatch.com:

"[I]t would be very difficult to design a set of capital requirements for hedge funds that is appropriately sensitive to the diversity and flexibility of investment strategies that different funds employ and to the lack of diversification in the portfolios of individual funds," Greenspan said in his speech delivered via satellite.

Read more: Greenspan wary of federal regulation of hedge funds

Will Struggling Hedge Fund Stay Afloat?

Currently struggling to stay afloat, The Bailey Coates Management hedge fund, has been suffering due to "wrong bets and tough market conditions." The hedge fund, started by two former colleagues TCI's Chris Hohn, incurred losses of nearly 10% in April which was preceeded by a 5% fall in March. The company has also endured its assets under management drop from $1.3 billion to less then $750 million. Now that Bailey Coates is in a precarious position, the industry is concerned that this could ignite a collapse in the high rolling sector. The mangers of the fund, Jonathan Bailey and Stephen Coates, have been acting hastily by selling big stakes and degearing their portfolio but the damage has been done. According to Timesonline.co.uk:

One hedge-fund manager said: “This month has been brutal. The market has been sliding and big bets have not worked out, such as the non-sale of Woolworths. The real problem is that too many funds have the same bets.

Read more: Hedge fund struggles for survival