21/12/2011 Author: David Beattie

HFMWeek Daily Snapshot - 21 December

Newspapers and wires

Hedge funds betting against China have earned outsized returns this year by shorting mainly property and auto stocks and positioning their portfolios to benefit from a feared hard-landing by the world's second-biggest economy, writes Reuters. The winners include the $1.7 billion Dragon Billion China Fund, which returned 13.5% up to end-October, and the $60 million Ariose China Growth Fund, which gained 35%, according to sources familiar with the funds' performance. Zeal China Fund, managed by former Value Partners fund manager Jacky Choi, is up 7.2%, according to data compiled by Reuters, while China bear Hugh Hendry's 'China short' fund has gained more than 52% so far this year, according to a Financial Times report. That contrasts with a near 25% slump in Hong Kong-listed Chinese shares up to the end of November and a 12.5% drop in the Eurekahedge Greater China index which is heading for its second-worst year on record.

Talks over restructuring part of Greece's massive public debt ran into trouble on Tuesday as one fund walked away from negotiations, fuelling growing doubts about whether a deal that is crucial to a new bailout agreement can be reached this year, reports Reuters. Vega Asset Management, a Madrid-based fund, resigned from the steering committee representing private creditors negotiating a voluntary restructuring of Greek government bonds, two sources familiar with the situation said. They said the disagreement stemmed from differences over how to proceed with a voluntary bond swap, although there were no more precise details. Vega, the only fund represented on the steering committee, declined to comment.

More clients asked for their money back from hedge funds in December than in the rest of 2011, in line with the traditional year-end evaluation of funds' performance after a year marked by high volatility and erratic returns, data shows, says Reuters. The GlobeOp Forward Redemption Indicator, a monthly snapshot of clients giving notice to withdraw their cash as a percentage of GlobeOp's assets under administration, measured 4.58% this month, up from 3.44% in November. "The month-on-month increase is within the normal range of a seasonal pattern, as investors prepare to rebalance their portfolios at year end," said Hans Hufschmid, chief executive officer of GlobeOp Financial Services, in a statement.

Hedge funds are closing a year in which they have largely failed to deliver impressive returns, with volatile markets making it difficult to time their bets or hold onto gains. The average hedge fund is down 4.45% in the year to December 15, according to Hedge Fund Research. Investors gave notice to withdraw 4.59% of assets under administration in December 2010, almost the same as this year. The previous high for redemptions in 2011 was in June, at 4.01%. Forward redemptions as a percentage of GlobeOp assets under administration have dropped significantly since hitting a high of over 19% in November 2008, shortly after the collapse of US investment bank Lehman Brothers.

According to data from EDHEC-Risk Institute, short-selling has been the best hedge fund strategy in 2011, up 6.3% in the first 11 months, while world stocks were up 0.7% year-to-date and European stocks down 13%. The second-best strategy has been fixed-income arbitrage, up 3.5% in the first 11 months, while all other strategies struggled although none posted double-digit losses, EDHEC data showed, reports Reuters.

And finaly, US federal probation officials have recommended a sentence of up to six months in jail and other penalties for former Denver hedge- fund manager Drew "Bo" Brownstein, who pleaded guilty to illegal insider trading, his attorneys said in a court filing, according to the Denver Post. Prosecutors charged Brownstein with one count of securities fraud, alleging he netted nearly $2.5 million in April 2010 on the sale of shares of Mariner Energy that he bought after receiving an inside tip about a pending acquisition. He is the son of prominent Denver attorney and lobbyist Norm Brownstein, was head of Big 5 Asset Management, a Denver hedge fund, and is a former banker at Credit Suisse in New York. His sentencing in federal district court in New York was scheduled for Tuesday but was pushed back to January 4.