21/07/2010 Author: Shannon Hawthorne

HFMWeek Daily Snapshot - 21 July

NEWSPAPERS AND WIRES
Investments in hedge funds slowed by 30% in the second quarter, according to Hedge Fund Research, as stock markets fell on concerns about Europe’s debt crisis and the possible slowing of global economic growth, reports Bloomberg. Investors added a net $9.5bn to hedge funds in the three months ended June, the Chicago-based research firm said today in a statement, down from $13.7bn in the prior period, and the industry’s assets declined 1.2% to $1.65trn in the second quarter. Hedge funds posted an average decline of 2.5% in the three months ended June as the Standard & Poor’s 500 Index of the largest US-listed companies slumped 12%, the first quarterly drop in a year. The index declined more than 1% on 30 June, when Moody’s Investors Service said it may downgrade Spain’s credit rating.

Goldman Sach's profits fell 82% in the second quarter as the UK bonus tax cost it $600m (£392m) and it paid $550m to settle US mis-selling charges, reports the Telegraph. The Wall Street investment bank was also hit by a slump in client activity, as companies and investors chose to stay away from the markets amid concerns about the economic and regulatory climate. As a result, Goldman, which still managed to set aside a $3.8bn pay and bonus pot, produced a profit after tax of $813m in the three months to June, down from $3.44bn in the same period last year. The downturn hit all of Goldman's major businesses, with group revenue down 36pc to $8.8bn, from $13.76bn in the same quarter last year.

Federal regulators may find it difficult to determine whether hedge funds pose risks that could threaten the US economy and what the government should do to rein in industry trading practices, Securities and Exchange Commission Chairman Mary Schapiro told lawmakers today.“It’s really not clear” whether the hedge-fund industry presents “systemic risks,” Schapiro said at a House Financial Services subcommittee hearing. “It will be very important” for regulators “to decide where the lines are drawn. “Legislation approved by Congress last week establishes the Financial Stability Oversight Council, a super-regulator including officials from the SEC, Federal Reserve and Treasury Department that will monitor market participants with potential to roil the economy.

After famously winding down his hedge fund at Tiger Management a decade ago amid losses, 78-year-old Julian Robertson is considering reopening the fund, a launching pad for young money managers, to the outside world, according to the Wall Street Journal. Robertson has beefed up Tiger's management ranks as part of a potential expansion that could involve creating a "seeding" fund or a fund of hedge funds for outside investors. In a seeding fund, Tiger would allow outside clients to come in alongside Robertson and his team to help fund new or early-stage hedge-fund managers in exchange for a slice of their business. A more-common fund of funds would collect outside investors' money and dole it out to Tiger-seeded managers, who would in turn invest it. Details and timing are uncertain, as Robertson said in an interview that he still is exploring options.

All but five of Edhec’s 12 hedge fund strategy indices took a dive last month, says FINalternatives. Long/short equity funds, in particular, wilted in the summer heat, dropping 1.69% followed closely by event-driven funds, which dropped 1.29%. Distressed securities funds shed 1.01% equity market-neutral funds 0.47% emerging markets funds 0.4% global macro funds 0.27% and relative value funds 0.26% Funds of hedge funds dropped 0.82% and are down 1.3% through the first half. The leaner bright side featured short-selling funds, which soared 4.05% last month fixed-income arbitrage funds, which gained 0.9%, merger arbitrage funds, which added 0.37% convertible arbitrage funds, which rose 0.29% and CTA global funds, which edged up 0.2%.

A London-based hedge fund boutique is in talks to sell part of its business or team up with another firm after struggling to raise assets, reflecting the fortunes of many smaller managers as investors return to the biggest names in the sector. VCM Fund Management, a firm that works with emerging hedge fund managers, has had difficulty raising assets and is looking for a partner to help it grow the business, after seed investor Robeco Group sold back its minority stake in late 2008, according to three people familiar with the situation. Simon Clowes who co-founded the firm with Roderick Wurfbain, confirmed that VCM is in talks with several parties, and said that it is considering various options, including a distribution joint venture, or selling a minority or a controlling stake in the company.

Hedge fund firm Churchill Capital has settled with two former analysts it accused of stealing client data and poaching staff in violation of their noncompete agreements, reports FINalternatives. The Bermuda-based hedge fund and brokerage ended the lawsuit, filed in Singapore, where Jonathan Foster and Charles Nave worked, last week. Churchill said that the two downloaded several files, including client data, after they had resigned but before they left the firm at the end of last year. The firm also accused them being in contact with another ex-Churchill employee who had also joined Aviate Global, which was not named in the suit. According to Churchill, Foster’s and Nave’s allegedly duplicity was revealed because Foster had left his Skype account open on his office computer.

PEOPLE MOVES
Cheyne Capital partner Cem Habib, one of London's most high-profile hedge fund managers, has left the firm to work in a private equity role with a Kazakhstani investment bank, reports Reuters. Turkish-born Habib, who joined Cheyne last year through its acquisition of fund of hedge funds firm Altedge Capital, left at the end of last month, he told Reuters, although he declined to name the bank he will be working with."I'll be looking at investments in the financial space in Kazakhstan," Habib told Reuters, adding he would be looking at private equity deals."I'll spend 10 days a month there," he said, although he does not plan to relocate. Habib, who headed Cheyne's fund of hedge funds business, is part of London's hedge fund glitterati, a profile helped by his wife Caroline Stanbury, a former girlfriend of Prince Andrew, according to media reports.

Polygon Investment Partners, one of the most high-profile hedge fund casualties of the credit crisis, is in talks to bring in Morgan Stanley’s former head of real estate investments to advise it on its property holdings, reports Financial News. John Carrafiell, who was global co-head of Morgan Stanley Real Estate, the US bank's principal investing and investment banking property arm, is in talks with Polygon to advise it on its German commercial property holdings, according to a source familiar with the situation. Polygon's property holdings are small, worth around $30m (€23.3m), and are held in its flagship fund. It is turning to Carrafiell to maximise the return on its those investments, which have fallen in value since since the end of 2008.