Hedge Funds

BEATING the S&P 500 index over one year could be put down to luck. But doing so 15 times in a row is about as likely as Elvis Presley landing a spaceship in the grounds of Buckingham Palace. So the success of Bill Miller, a fund manager at the Baltimore-based Legg Mason, has been a conundrum for those who believe in efficient markets.The good news for the doubters is that his streak is set to come to an end this year. With a month to go, his Value fund had made a return of just 3.5%, well behind the S&P's ... [full story]

THERE is an old Wall Street story that can be adapted for the modern world of hedge funds. A young hedge-fund trainee is taken to the harbour. Here, says his boss, are the partners' yachts. And over there are the yachts of the bankers who lend to us. The naive youth replies: But where are the customers' yachts?Recent weeks have shown how alluring a berth on that bounteous marina is. Morgan Stanley, a big investment bank, has bought stakes in three groups, Avenue Capital, FrontPoint Partners and Lansdowne, at a total cost believed to be more than $1 billion. Two ... [full story]

HEDGE funds profit handsomely from their mystique. The typical client imagines they generate lots of money, doesn't know quite how they do it, and is willing to pay their high fees as a result. But some academics now think it is possible to make cheap, knock-off versions of these expensive originals. Perhaps you can get Saks Fifth Avenue products at street-market prices.Such a product would certainly be popular. Many investors would like to hedge their portfolios. They may have bet too much money on shares, but feel that buying bonds would lock them into low returns. Hedge funds seem to ... [full story]

THERE is a bit of the frontier spirit about hedge funds albeit one of algorithms rather than Apaches. Until recently, they have kept their heads down at any talk of regulation. But as pressure mounts for more external oversight of a $1.2 trillion industry that is taking a growing share of the world's pension investments, some funds are muttering, through gritted teeth, of the need for self-policing.The demand for more light to be shed on hedge funds has reached a level not seen since the near- collapse in 1998 of Long-Term Capital Management (LTCM), a vast hedge fund. The $6.5 ... [full story]

EVEN tarnished stars shine brightly in the world of hedge funds. So it was no shock to fund managers when news broke this week that Philippe Jabre, a high flier who was fined by Britain's financial regulator just months ago for market abuse, has reinvented himself in Switzerland and found some deep-pocketed investors to back him. Indeed, many had eagerly awaited his return.Born in Lebanon, Mr Jabre has lit up the London hedge-fund orbit for two decades. He is known for a keen intellect, a willingness to take risks, and years of impressive returns in convertible-bond arbitrage. One of his ... [full story]

EIGHT years ago, when Long-Term Capital Management (LTCM), a fabulously well-connected Connecticut hedge fund, was holed by an explosive mix of bad bets and borrowed money, the Federal Reserve was forced to bail it out. Its brokers, who had virtually written it a blank cheque, were in a panic: of LTCM's $125 billion in investments, $120 billion was backed by borrowing.In September, news that Amaranth, another Connecticut hedge fund, lost $6 billion, 65% of its value, in less than a month caused barely a ripple in financial markets. Whether due to good luck or judgment, its brokers managed to recoup ... [full story]

CALGARY, Alberta and Greenwich, Connecticut might be expected to mix about as well as oil and(sparkling) water. Calgary, which has boomed in recent years on the back of oil money, in its soul remains a cow town. Greenwich, a leafy suburb of New York, is anything but. The only herding done there recently is by the hedge funds that call it home following the latest investment fad.It was one of those fashions the seductive commodities boom that rocked Calgary, Greenwich and the wider financial world this week. A young, though by no means junior, energy trader in Calgary made some ... [full story]

IT HAS never been easier to pay less to invest. No fewer than 136 exchange-traded funds (ETFs) were launched in the first half of 2006, more than in the whole of 2005. For those who believe in efficient markets, this represents a triumph. ETFs are quoted securities that track a particular index, for a fee that is normally just a fraction of a percentage point. They enable investors to assemble a low-cost portfolio covering a wide range of assets from international equities, through government and corporate bonds, to commodities. Morgan Stanley estimates that ETFs control some $487 billion of assets, ... [full story]

FIND a table at Nobu on a Friday night (if you can) and you will notice the sleek, Michelin-starred restaurant buzzing with a snazzy crowd. The cocktail lounge is overflowing and the sushi bar is packed. Often, those dining on yellowtail tuna with jalapeño or black cod with miso include young hedge-fund managers acting as if they are at the top of their game. Which side of the Atlantic are you on? Both.Whether in the New York area, or London's Mayfair, it is hard to miss the stamp of the hedge-fund manager, or hedgies as they like to be known ... [full story]

LOVE them or hate them, hedge funds tend to elicit strong emotions. At the same time as they are being hounded by British tabloids and American congressmen, the funds are being courted more actively than ever by financial exchanges and investment banks seeking a share of their hyperactive trading.Thus, there is more than passing interest in the news that Man Group one of the world's largest hedge- fund managers and biggest non-bank futures brokers has agreed to buy control of a stumbling American futures exchange with the aim of creating new products for hedge funds. On July 27th London- based ... [full story]

THIS is not an easy time for hedge funds. Although their managers still enjoy fantastic salaries, many are finding it harder to justify them. After years of spectacular returns, 2005 was unexceptional. This year has been mixed: they had a strong first quarter, but saw more than half their gains vanish in May. Worse, Congress has its sights on the industry.On June 28th the Senate Judiciary Committee held hearings on hedge funds spurred by a series of lawsuits alleging that some funds were involved in rigging markets. The hearings came less than a week after a federal appeals court struck ... [full story]

ANY self-respecting sixties rebel would have cringed at the reference. Woodstock, a counter-culture festival held in1969, drew about 450,000 hippies, rockers and hangers-on to upstate New York for several days of sex, drugs and rock 'n' roll. This week a few thousand hedge-fund managers and investors gathered at Knebworth, an estate north of London also famed for rock concerts. This was Hedgestock, a two-day networking event that tried to evoke a similarly alternative spirit. Make money, not war, the lapel badges declared.How crazy were they? Well, not very although a discussion on, say, Multi-strat Versus Fund-of-funds: Strange Bedfellows? may sound ... [full story]

LIFE has been unusually hectic in the past few weeks for brokers rushing to fill buy and sell orders as financial markets toss and turn. Oh, that it were always so. It may seem hard to believe amid the recent rise in market volatility, but for some time brokers have been lamenting a whole range of pressures on their traditional businesses not just the lack of action. With commissions for each trade having been whittled down to a fraction of what they once were and regulators increasing their focus on what clients actually pay for, broking has begun to look ... [full story]

STOCKMARKETS are generous hosts. They almost always leave something potent for latecomers. Just as individual investors have plucked up the courage to return to equities, three years after the rally started, they face an array of new investment opportunities which could barely look more exotic if they came with a cocktail stick and umbrella.Initial public offerings (IPOs) of pools of private-equity investments, eastern European property or the riskiest portions of mortgage-backed securities have gained in popularity recently, as have exchange-traded funds tracking the price of just about anything from gold to newly listed shares. Next week, Kohlberg Kravis Roberts (KKR), ... [full story]

LIFE looks pretty good in hedge-fund country. The mansions are sprawling; luxury-car dealerships Mercedes, BMW, Maserati, Ferrari sit cheek by jowl; and there are lots of fancy shops and cafés with faux-French names. In Greenwich, home to more than a few investment boutiques, even the local library oozes money: rows of pricey Aeron chairs cushion the posteriors of well-dressed patrons as they browse the internet on flat-screen monitors.Nevertheless, these days it is becoming harder for hedge-fund managers to make money. Those who invest the wealth of rich individuals, family offices and institutions using fiendishly complicated investment strategies face greater competition. ... [full story]

OVER the years hedge funds have been blamed for all sorts of financial mayhem, from sparking the East Asian financial crisis in 1997 to driving up oil prices in 2005. Company bosses often complain that hedge funds are out to ruin them or their business for a quick buck. Biovail, a Canadian drugs firm listed in New York and Toronto, is sure of it. It is suing several funds, an equity-research firm and others for allegedly scheming to drive down its share price.Biovail's suit, filed in late February, seeks at least $4.6 billion in damages from SAC Capital Management, a ... [full story]

TINY Luxembourg has long been a hub for international banking. In recent years, the bankers have been joined by another tribe seeking a friendly haven in Europe: international fund-managers. Luxembourg's importance was underscored on March 7th when Clearstream (a subsidiary of Deutsche Börse, a German financial-exchange group) unveiled plans for a new post-trade system to serve funds based in the grand duchy.Luxembourg is now the European Union's largest retail-fund administration centre by assets (see chart). It is not the only fast grower. In the past decade Dublin has shot from almost nowhere to attract an increasing share of international funds. ... [full story]

WHAT exactly is a hedge fund? In essence, it is a managed pool of capital for institutional or wealthy individual investors that employs one of various trading strategies in equities, bonds or derivatives, attempting to gain from market inefficiencies and, to some extent, hedge underlying risks.Hedge funds are often loosely regulated and usually are much less transparent than traditional investment funds. That helps them to trade more stealthily. Funds typically have minimum investment periods, and charge fees based both on funds under management and on performance.Many experts contend it is a mistake to talk about hedge funds as an asset ... [full story]

IN QUIET moments veteran hedge-fund managers sound a little wistful these days. Being a hedgie, they reflect, isn't as much fun as it used to be. This may seem hard to believe, since many hedge-fund managers are very rich indeed. Steven Cohen, a hedge-fund star in Greenwich, Connecticut (the industry's main cluster in America) took home more than $500m last year. Plenty of others have pocketed $100m or more.Much of the nostalgia is for an era of spectacular returns. Last year, overall returns in hedge funds were modest at best (although 2006 is off to a stronger start). But something ... [full story]

BESIDES a shared taste for funny names and fancy fees, it has usually been easy to distinguish hedge funds from private-equity firms. Most hedge funds hunted in liquid markets, where they could jump in and out like cats and there was no need to tie investors in for long periods. By contrast, the strength of private-equity firms lies in corporate surgery. That takes longer, so they expect investors to wait years before they can get money out.Over the past three years, hedge-fund returns have paled against those of buy-out firms and even against stodgier stockmarket benchmarks. According to Huw van ... [full story]

WHAT crisis? That is how some peddlers of Germany's open-ended property funds have responded to reactions, verging on panic, to the closure of two such funds since early December. Admittedly, the closures are only temporary, pending the revaluation or sale of assets. But to investors who had regarded such funds as rock-solid, entrusting them with 88 billion ($104 billion), they were a nasty shock. Now the government is threatening to rewrite the rules under which the funds are sold. The Investment Management Association (BVI) will try to pre- empt that next week by unveiling its own list of self-regulatory measures.The ... [full story]