Decomposing FoHF returns
Where and when funds of hedge funds add and lose value
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14/03/2010
Editor's View: 11 March 2010
Greece’s debt woes are still being psychologically transferred to the hedge fund sector, with shadowy ‘speculators’ bearing the brunt of criticism. Last week, we witnessed a scramble of managers pledging a total lack of interest in the space, with ‘plausible deniability’ seeming to be the best method of defence.
This standoffishness – in the face of a real regulatory threat – has now been replaced by a swathe of portfolios making the most of the sovereign debt crisis, including Paulson. It’s a long way from Brevan Howard’s hypothesis – spelt out in a rushed letter to investors – that the shorting of eurozone government bonds was “extended” and “crowded”.
Neither position is necessarily wrong. Despite the fear that huge bets on the euro will unleash a regulatory maelstrom, funds are apparently still raising their bets. Yet, with last week’s
Greek-bond issue a success – and certainly not hampered by shorting – it seems that threats to ban speculation via CDSs, at least in Europe, will fade.
However, there is no guarantee that what started in Greece will not reach a tipping point further down the line, perhaps even in the US, where the dollar has been pushed artificially high by
investors seeking a safer harbour from stormy euro-waters. With Volker definitely in the mood for regulation, woe betide any future large-scale shorting of US bonds. While sovereign debt concerns
last, hedge funds will have to continue a difficult balancing act for some time to come.
Twelve months ago, it was hedge fund investors that were performing a similar high-wire act, as they pondered the safety of their alternative investments. Post-Madoff, in particular, the transparency of managed accounts proved an increasing draw.
With a number of new entrants poised to break into the managed accounts space, this week we can present, for the first time, the current top ten, complete with information on AuM, growth plans, numbers of funds and fees. With the universe expected to grow further in 2010, it’s a genuinely useful snapshot of a sector in transition.
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What's in a name? Petra Capital Management
Formed in 2005, New York-based Petra Capital Management soon forged itself a reputation as one of the hedge fund industry’s best-known investors in the commercial mortgage-backed securities (CMBS) market.
Founder Andy Stone, an expert in real-estate debt from his time at Solomon Brothers and Credit Suisse First Boston, would even go on to be described as a ‘rock star’ in the field. His choice of moniker for his hedge fund project certainly lends itself to Stone’s background – and more than just in name and reputation.
Petra is, of course, a historically and archaeologically significant city in Jordan, renowned for its architecture cut into the rock face of its central valley. The rock-carved collection of tombs, temples and waterways is one of Jordan’s most famous symbols and tourist attractions, not to mention a regular in popular culture – featuring in films such as Indiana Jones and the Last Crusade. Unesco, which made the city a World Heritage Site in 1985, described it as “one of the most precious cultural properties of man’s cultural heritage”. Most pertinently though, Petra actually means ‘stone’ in Arabic.
Not quite the force he once was, Stone suffered a…
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