Decomposing FoHF returns
Where and when funds of hedge funds add and lose value
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28/07/2010
Investors sit tight on impaired assets
Playing the ‘what if’ game can be fun but, depending on the number of variables in question, it can get a little out of control. Apply this conceit to the hedge fund sector's performance during the financial crisis and the possible permutations become legion.
last week, the game was further complicated with new figures published by Credit Suisse. The bank claims the amount of impaired assets outstanding in the industry has plateaued since Q1 2010, and was already slowing at Q4 2009, holding steady around $56bn. The numbers are unlikely to come down very soon, with hedge funds, and investors, prepared to sit it out until such time as the assets regain their true value.
Secondary markets have been of very little significance during this period, moving around 5% of the original $175bn impaired. In fact, the patience on display reveals a hedge fund investor base that sits at odds with the fleeing hoards of late 2008.
Yet just how much would impaired assets have contributed to outflows had they not been gated or suspended? It’s a ‘what if’ scenario with at least two answers. While a white paper back in February suggested not that much, as the ‘impaired’ investors were those happiest to stick around, the liquid and non-gated managers, used as ATMs at the height of the crisis, would provide a very different perspective indeed
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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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