Hedge Fund Street

Auto Manufacturer Shares Controlled by Hedge Funds

Hedge funds still control nearly 15 percent of its shares, according to DaimlerChrysler, the U.S.-German car maker. Bodo Uebber, the Chief Financial Officer of the auto giant, said that he believed that the figure had not changed since the previous year. Reuters reports:

In an interview with the Stuttgarter Zeitung on May 20, 2005, Uebber was quoted as saying: "Based on our analyses, we estimate hedge funds hold some 10 to 15 percent of our shares." Nevertheless he added he didn't believe that they would be able to acquire majority control or force out management.

European Hedge Funds Do Well

European hedge funds are doing well this quarter, making robust returns that have not been seen since the end of 1999. Their performance in April has been stellar, especially those that are energy and commodity-oriented and have made the right bets. The trade publication EuroHedge reports that European hedge funds returned an average of 4.65 percent during the first quarter of 2006.

Oil Prices and Hedge Funds

With rumors being rife that hedge fund managers were responsible for the spike in the price of oil, there is widespread speculation if there is a proportional link between the trading activities in hedge funds and the crude oil and natural gas futures markets. Hedge funds, which are private investment pools that allow rich individual and institutional investors to trade in various assets, including commodity futures, have been seen to increase their trading of oil futures, according to data from the New York Mercantile Exchange on the trading volume of crude oil futures contracts and natural gas contracts. A futures contract is an agreement to buy or sell a commodity or financial instrument at some future time. Money CNN reports:

"On any given day, the speculatives can make the price move higher or lower than it probably ought to, and I'm sure you could say hedge fund buying has helped push the prices higher," said Peter Beutel, president of energy risk management firm CameronHanover. But he added that not all hedge funds are holding long positions, and in the natural gas futures markets, hedge funds are actually holding more short positions - when investments are sold before they are bought in a bet that prices will fall - than long.

Young Hedge Funds Do Better

Hedge funds are being examined with a finer microscope following the continuous drop in average returns over the past two years. Though the past few months have seen them stage a recovery, clients have to keep in mind the fact that hedge funds that hedge funds tend to generate higher returns within their first two years, according to senior industry experts. Hedge Fund Research (HFR) has tracked the performance of hedge funds that are less than two years old, and found that they delivered an annualized return over 10 years of 16.91 percent. Reuters Italy reports:

Young funds tend to perform better, because their managers are keen to make money and establish a brand, are more nimble and able to hunt for market opportunities, and can be more flexible in adopting new ideas, said Stephen Oxley, managing director of Pacific Alternative Asset Management Co., at an IQPC conference.

‘Hedge funds’ long term returns poor’

Hedge funds don’t generally play on a market; they play the difference or arbitrage between markets or individual securities. And this strategy seems to have paid off well for the funds since in recent years, up to $1 trillion has flowed into the sector. Finfacts.com reports:

Research by Burton G. Malkiel, a professor at Princeton, and Atanu Saha, a principal at the US Analysis Group, shows that over long periods, hedge funds significantly underperform index funds, like those based on the Standard & Poor's 500-stock index.

Read more: Research shows that hedge funds produce poor returns in long-term; Performance data subject to manipulation

Boston leads in hedge funds: SEC

New federal findings may have put to rest the debate on which state is leading in the management of hedge funds. According to the findings, Massachusetts financial firms help manage more than $150 billion in hedge funds and other private investments. According to Securities and Exchange Commission estimates, this figure is about 10 percent of the $1.5 trillion held in private funds nationwide. Boston.com reports:

''Boston has historically been one of the largest players in the hedge-fund industry, because the city has a tremendous pool of talented managers in the financial-services sector," said Richard A. Goldman, coleader of the hedge fund practice group at law firm Bingham McCutchen.

Read more: SEC filings show Boston is a leader in hedge funds

Hedge fund wants to block Delphi restructuring plans

Appaloosa Management LP, a hedge fund run by billionaire investor David Tepper recently launched a new bid to slow Delphi Corp.'s restructuring plans. In papers it filed with the US Bankruptcy Court, Appaloosa said that Delphi hasn't yet provided evidence that its proposals are likely to benefit the company. Appaloosa has asked a judge to bar Delphi from jettisoning its labor union agreements and its money-losing contracts with General Motors Corp. Appaloosa owns about 9 percent of Delphi stock and is one of the company's biggest shareholders and a leading opponent of GM's role in Delphi's bankruptcy reorganization.

According to Appaloosa, GM, which is Delphi's biggest customer, is using its influence over the company to set itself up for a big payoff. Delphi is one of the largest of the auto-parts companies that have been forced into bankruptcy recently amid production cutbacks by big U.S. vehicle manufacturers.

‘Hedge funds are dangerous investments’

Hedge funds have suddenly become the rage all over. What was considered a risky adventure fit for those moneyed few has suddenly become one of the best methods of making money. And this has led to an explosive growth of this once reviled method of investment. Today the mounting integration of hedge funds into the world financial system has made most industry experts and even central bank policy-makers wary. They believe that hedge funds have increased the risks in the industry and need to be minutely scrutinized.

Sounds more like a doomsday warning. While on the one hand, the Nobel Foundation granted this industry a lot of credibility by investing some of its funds into the hedge fund market, there are others who believe that the growth of hedge funds could have serious implications. At a recent conference hosted by the Federal Reserve Bank of Atlanta on systemic risk, senior policy-makers believed that the unregulated activities of hedge funds could lead to serious problems. What is it that is worrying these financial gurus?

Most policy makers believe that these unregulated funds could, at some point in the future, cause a crisis, which could spill over into the real economy and damage its goals of low inflation and sustainable growth. According to them, the problem with hedge funds is that they use strategies, such as short selling and derivatives trading. This differs vastly from the strategies used by traditional equity and bond funds. To be honest, I don’t see a problem with being different.

Another problem according to experts is the increasing involvement of pension funds in this industry. According to statistics, the volume of investment made in hedge funds by pension funds has more than tripled. Pension funds have traditionally relied on much safer, and lower yielding, investments. All this noise about their lack of reliability has made the U.S. Treasury watch the hedge fund industry closely. And one of the outcomes of this close watch is that now, many hedge funds are required to register with the Securities and Exchange Commission.

Nobel to invest in hedge funds

Most people still believe that hedge funds are an indulgence of a few rich people. Now here’s a bit of news that will force them to change their opinions about hedge funds. The media recently reported that the organization that funds the Nobel Prizes has decided to invest in hedge funds for the first time. It will tap three firms for its maiden investments.

The Nobel Foundation has more than $450m in managed capital, and has invested in Corbin Capital Partners, Rock Creek Potomac fund and the Carnegie Worldwide Long/Short fund. The organizations involved have refused to divulge the size of the investments. Industry officials believe that winning an investment mandate of any size from Nobel would be seen a seal of approval for the three funds. Msnbc.msn.com reports:

Ake Alteus, the deputy executive director of the Nobel Foundation who led the process, said: "Before March of last year we could not invest in alternatives due to investment rules requiring a high degree of liquidity" in its investments.

Read more: Nobel to invest in hedge funds for first time

Connecticut becomes hedge fund hub

A bill was recently introduced in the Connecticut state legislature to set up a unit within the state Department of Banking to investigate fraud in hedge funds. Now the news is out that this bill is unlikely to make it out of the Appropriations Committee. Rep-am.com reports:

Proximity to New York, a highly skilled work force, a growing network of leading hedge fund professionals and a large pool of wealthy individuals looking to invest has led to Connecticut becoming the premier domicile for the hedge fund industry's elite.

Read more: THE STATE OF HEDGE FUNDS

US hedge funds buy into LSE

At least two US hedge funds are supposed to have followed Nasdaq and buying London Stock Exchange shares. This move has helped the LSE’s stock rise another 1 per cent today to £12.12. News.ft.com reports:

Halcyon Asset Management bought derivatives over nearly 2m LSE shares at £11.86, higher than the £11.75 Nasdaq paid. Chesapeake Partners says it bought CFDs over almost 1m shares at the same price. The bloggers are beginning, slowly, to warm to the LSE-takeover theme.

Read more: Charles Pretzlik: US hedge funds buy into LSE

Understanding Hedge Funds

Those who are in the industry don’t need any introduction to hedge funds and their functioning. But if you are an outsider trying to understand the industry, the whole thing may seem very confusing and difficult. So, here’s a quick crash course for those who want to understand the market and hedge funds. You tend to hear a lot of talk about using hedge funds when the stock market is doing poorly. This makes people mistake hedge funds for mutual funds. This is a big mistake and must be remedied immediately. Firstly, let us examine the name. The word ‘hedge’ suggests defensive management or an insurance against bad times. But in reality, hedge funds come in hundreds of varieties and often use leverage.

So, how does one differentiate between hedge and mutual funds? You probably have a slight understanding of mutual funds. So, let understand hedge funds by examining the differences between these two types of funds. One of the first things you will notice is that while mutual funds are regulation SEC registered investment vehicles, hedge funds are not regulated and are private investment vehicles. Investments in mutual funds need not be very high – they can be reasonable. However, with hedge funds, large minimum investments of around $1 million are required.

Another thing is that hedge funds form exclusive clubs. In other words, while mutual funds are available to the public, to deal in hedge funds, you must be an accredited investor. To become an accredited investor, your net worth must exceed $1 million or your individual income must have been in excess of $200,000 in the past two years. You must also expect the same level of income in the current year.

In case you consider yourself a potential hedge fund investor, here’s a word of caution. Information on hedge funds is still not easy to come by, and there is quite a bit of misinformation floating around. So, it is important that you study the market first before taking the plunge.

Hedge funds on a roll, post strong first quarter

The continued boom in energy and hefty gains in the metal markets have helped hedge funds post a strong first quarter. The major hedge-fund indexes, which track aggregate returns for all strategies, showed gains ranging from 3.26 percent to 5.87 percent in the first quarter. Money.cnn.com reports:

The boom in corporate takeovers has propelled a select group of funds to bigger profits in early 2006 than they made all of last year.

Read more: Hedge funds post strong first quarter

Cool hedge funds

Here’s something that will instill a bit of fun into the straitjacketed world of hedge funds. Something that’ll make you rock ‘n’ roll! Sounds intriguing doesn’t it? Hedge funds are being jazzed up to make them more interesting and fun. And guess who’s behind this move – British companies. Yes, you heard me right – probably they thought the industry could do with a bit of loosening up.

One is tempted to ask the motive behind this move. Is the industry, which has always been associated with the uber-rich, attempting to remodel itself into a fun thing? It seems the hedge fund industry is no longer satisfied with hobnobbing with billionaire financiers and wants to move out into the world. And it has done this in style. So, you have Hedgestock 2006, a rollicking fun event that will kick off the metamorphosis of the industry. Sponsors hope to make the event, which will be held soon, the premier hedge-fund-industry trade show of Europe. Guess it won’t be long before we have our own cool hedge fund event.