22/06/2010 Author: Shannon Hawthorne

HFMWeek Daily Snapshot - 22 June

NEWSPAPERS AND WIRES
Steven Eisman, the hedge fund manager whose bet against the housing market was chronicled in a best-selling book, will testify before the US Senate after saying for-profit colleges are pushing students to take on government loans they can’t repay, Bloomberg reports. Eisman will be a witness in a 24 June hearing on the industry, according to a list released today by the Senate Health, Education, Labor and Pensions Committee. Eisman is shorting shares of higher-education companies because of parallels he sees to subprime borrowers in the housing market. In both mortgages and educational loans, customers take on debts they can’t repay, Eisman said in a presentation at a May 26 investment conference.

Federal regulators on Monday filed civil fraud charges against an investment adviser and his firm in connection with complex securities tied to mortgages during the housing market bust, according to the Associated Press. The US Securities and Exchange Commission (SEC) accused Thomas Priore and ICP Asset Management of fraudulently managing the securities in a way that cost investors tens of millions of dollars. The SEC also said Priore and the New York firm he owns and heads as president improperly reaped millions in fees and undisclosed profits at the expense of clients. The SEC is seeking injunctions, and unspecified restitution and fines.

Man Group was a gainer yesterday in a London market otherwise dominated by Chinese growth hopes, according to the FT. The hedge fund rallied 2.4% to 254½p after Merrill Lynch, its joint house broker, defended its $1.7bn deal to buy GLG. Investors have worried that Man was depleting its cash pile for a risky deal that will not boost earnings before 2012. "One needs to believe in the industrial logic of the deal to make the numbers appealing, but the industrial logic seems compelling," said Philip Middleton, Merrill analyst. He argued that, rather than judging the deal on earnings enhancement, investors should weigh it against the lesser returns available if Man bought back its own shares. With the aid of cross-selling, the union could deliver a "sensible" return on capital employed of about 12% in 12-18 months, he said. "This seems a good trade-off for the strategic benefits."

A former hedge fund trader faces jail today after he admitted insider dealing, the Independent reports. Anjam Ahmad was the first person to plead guilty to a criminal charge of insider dealing filed by the UK’s Financial Services Authority. Judge Geoffrey Rivlin QC, the honorary recorder of Westminster, told Ahmad, who worked at AKO Capital until last September: "I can make no promises as to sentence.” The charge related to transactions involving 22 different companies between June and August last year, Southwark Crown Court in central London was told. Ahmad, of Wandsworth, south London, admitted one count of conspiracy to commit insider dealing and is on bail.

The rally in natural-gas prices has caught many hedge funds flatfooted, sparking a string of unexpected losses for top-name players, reports the Wall Street Journal. Morgan Stanley Smith Barney clients invested in a $640m group of funds that have emerged as some of the biggest losers in the turmoil. Hedge funds known as "trend followers"—which chase market movements, rather than making fundamental investment decisions —also appear to have been hurt on bad trades. Earlier this year, traders and portfolio managers across the Street rushed into natural-gas trades, with the "consensus opinion" that prices would continue to languish.

A US judge has ruled that Goldman Sachs will have longer to respond to the high-profile lawsuit by the Securities and Exchange Commission over disclosures regarding a collateralised debt obligation tied to subprime mortgages, the Wall Street Journal reports. US District Judge Barbara Jones signed off on an extension until 19 July for the investment bank to answer the SEC's allegations. The deadline to respond had been Monday, but the SEC agreed last week to give Goldman more time to answer the complaint. The SEC has alleged that Goldman didn't tell investors in a collateralised debt obligation that hedge fund Paulson & Co. helped select the underlying portfolio of mortgages backing the financial product and had bet against its performance .

Landry's Restaurants has said that hedge fund Pershing Square Capital Management has agreed to vote in favour of a buyout by chief executive Tilman Fertitta, after Fertitta further raised his offer to take the company private, according to the Wall Street Journal. Fertitta, who owns about 55% of the seafood operator's outstanding shares, sweetened his bid by 50 cents to $24.50 a share, the company said in a statement. Pershing Square, headed by activist investor William Ackman, has been resisting Fertitta's takeover of the restaurant chain saying the offer price was low. Fertitta, who had offered to take the company private for $14.75 per share in November, raised it to $21 per share in April and $24 per share in May. Ackman and his affiliates collectively own about 9.9% of company's outstanding shares, Landry's said.

LAUNCHES
Northern Ireland’s first hedge fund has been launched in County Down by a new financial services group, reports the Belfast Telegraph. Blackcube Group, which currently employs five people, will manage assets for a number of private investors on the capital side of the business, while the trading end will allow clients to trade intra-day, from any location in the world. The fund will also run an intensive two-month trader training programme or individuals who want to learn about the markets. BJ Eastwood, founder of Blackcube Group said: “Blackcube was created with the aim of developing the next generation of professional traders and to establish Belfast’s first trading floor. Blackcube Trading provides individuals with the platform and infrastructure to experience the financial markets.”

PEOPLE MOVES
HSBC has hired the former head of sales to London-based hedge funds and long-only institutions at Icap's cash equities business, as top talent from the now-defunct unit continues to re-emerge at investment banks. Michael Broome joined HSBC earlier this month, according to the Financial Service Authority register of authorised persons – a spokesman for HSBC confirmed the hire. He will work in European hedge fund sales, and reports to Nigel Grinyer, head of European cash equity sales. At Icap, he had been head of sales to London-based hedge funds and long only institutions. Before joining the inter-dealer broker, he spent five years at research firm Sanford Bernstein.