16/06/2010 Author: Shannon Hawthorne

HFMWeek Daily Snapshot - 16 June

NEWSPAPERS AND WIRES
The Credit Suisse/Tremont hedge fund index shed 2.76% in May in the biggest drop since November 2008, with dedicated short bias funds being the only strategy that recorded positive returns, reports the Wall Street Journal. Dedicated short bias funds gained 5.84% for the month, benefiting from a negative equity market performance and overall higher volatility, while emerging markets funds lost 4.28% and long/short equity funds dropped by 4.13%.  "Although the industry was negatively impacted by the market sell-offs, hedge funds outperformed equity market indices such as the S&P 500 and MSCI World which fell 7.99% and 9.77% respectively in May," said Oliver Schupp, president of Credit Suisse Index Co. 

European hedge funds are focusing their energies on not losing clients' money, rather than delivering huge gains, as they brace themselves for a potentially volatile summer after May's big losses, says Reuters. Executives at the annual GAIM hedge fund conference forecast last month's spike in market volatility, which saw hedge funds post their biggest losses in 18 months, could roll on into the summer, making capital preservation a key aim for managers. "It's increasingly looking like a world of volatility and uncertainty," said Peter Clarke, chief executive of Man Group who said the firm's "black box" AHL fund could nevertheless perform well in such conditions. "A lot of our investors are giving us money to stay rich, not get rich." 

The Libyan government is backing a new London hedge fund with hundreds of millions of dollars, as the Arab state seeks to diversify its economy away from oil and train a generation of investment professionals in the ways of the financial markets, the Independent reports. FM Capital Partners has been hiring staff at its offices in Knightsbridge, has applied for registration with the Financial Services Authority and plans to launch later in the summer. The hedge fund will be run by the former Merrill Lynch and Bear Stearns trader Frederic Marino, with a board that includes luminaries from Libyan diplomacy and its sovereign wealth funds.

Byron Wien, vice chairman of Blackstone Group’s advisory services division, has said that hedge fund returns may shrink by half as firms seek to protect investors’ capital, reports Bloomberg.  Returns may drop to 10% from 20% as funds lose their “zeal,” Wien told the GAIM International hedge fund conference at Monaco’s Grimaldi Forum yesterday. “I’m worried that by trying to protect capital on the downside they give up too much on the upside,” he said. “The concept of hedge funds was to produce equity-like returns with bond-like volatility. The danger is we get bond-like returns with equity-like volatility.” 

The Securities and Exchange Commission (SEC) has dropped its investigation of hedge fund manager Daniel Loeb's Third Point, according to a letter Third Point sent to its investors, the Wall Street Journal reports. The investigation, initiated in 2008, concerned Third Point's communications with other hedge-fund managers, and the SEC told Third Point "no further action will be taken," the letter said. In 2008, Third Point said in a letter to investors that the SEC was investigating it for its communication with other hedge fund managers, something Third Point believed was "in the best interest of our investors." "Such conversations permit us to test our hypotheses and refine our thinking," the 2008 letter said. 

Hedge fund firm Man Group is not looking for further big acquisitions after its $1.6bn purchase of GLG Partners last month, its chief executive Peter Clarke told Reuters at the GAIM hedge fund conference in Monaco. "We're done for any significant-sized (deals) in liquid trading strategies ... for the foreseeable future,"  adding that Man is targeting a return on capital of at least 10% from year three onwards from the deal, which diversifies Man away from its core focus on so-called "black box" funds. He said the test of whether the deal succeeds would be the amount of client money Man is able to raise through GLG Man would look at smaller buys among Asia Pacific-based hedge fund firms."[You may see] in-fill, smaller investments in Asia Pacific. We'd like a trading presence in Asia Pacific hedge funds," he said. 

Private equity funds and hedge funds would face more oversight under a provision that US lawmakers on Tuesday included in the final version of a financial-regulation bill, reports Reuters. US lawmakers tasked with merging House and Senate versions of the financial regulation bill agreed to require both hedge fund and private equity fund advisers to register with the Securities and Exchange Commission in order to give federal regulators a window into their activities. It also would require more oversight for hedge funds and private equity funds that have more than $150m in assets. Venture capital funds would continue to be exempt.