26/07/2010 Author: Shannon Hawthorne

HFMWeek Daily Snapshot - 26 July

NEWSPAPERS AND WIRES
Investors are rushing to put money into merger arbitrage funds ahead of an expected recovery in deal-making in spite of growing fears for the health of western economies, reports the FT. After a dearth of M&A for much of the past two years, the first half of 2010 has seen a series of start-ups of hedge funds looking to profit from higher levels of takeover activity. Europe’s two biggest launches since 2008 – Tyrus Capital, which raised $800m for its fund and Burren Capital, which raised $500m – are “event-driven” funds that aim to trade on potential deals. Merger arbitrage specialists, which aim to profit from the spread between a target group’s share price after a takeover announcement and the closing price at completion of the deal, have seen $841m in net inflows since January, according to Hedge Fund Research. 

New York Governor David Paterson has backpedalled on a controversial proposal for an extra tax on hedge-fund managers that do business in New York but live elsewhere, his press secretary said Friday, the Wall Street Journal reports. In an email, Morgan Hook said: "That provision was removed and will be removed again when the governor submits a proclamation for special session for Wednesday when he calls the legislature back." The proclamation aims to call for a special session of the state legislature to consider measures required to complete the state budget. The proposal to tax non-resident hedge-fund managers, which would raise an estimated $50m a year to help bridge New York's $9.2bn current-year deficit, has sparked concerns that managers would relocate their funds to neighbouring Connecticut. Its governor, Jodi Rell, said she would welcome the funds with open arms.

Beazley Plc, a Lloyd’s of London insurer, plans to increase its hedge-fund holdings as record-low interest rates squeeze investment returns, according to Bloomberg. Beazley will raise the proportion of its assets invested in hedge funds to as much as 13% in the next six months from about 10% now, finance director Martin Bride said in a telephone interview today. The insurer may then increase the holding to 20% depending on market movements, he said. “The prospects for investment yields going forward are very linked to how interest rates move, and we don’t expect any sudden and sharp increases in interest rates,” Bride said. “We don’t want to generate investment losses.” The chief executive officer and finance director of fellow Lloyd’s of London insurer Chaucer Holdings Plc were forced to step down last year after the firm’s hedge-fund holdings plunged in 2008. 

US hedge fund Glenview Capital is rebuilding its interest in Punch Taverns, raising its stake in the pub group twice in a week. The fund, led by Larry Robbins, increased its voting rights to 13%, comprised of 2% in shares and 11% in financial instruments. Glenview raised its interest above 10% last Friday. The hedge fund acquired 17% of the voting rights in June 2009, when Punch's shares were trading at around 155p. The company then reduced its interest to 8%by December 2009, when the shares were down at 65p. Glenview has gradually raised its stake during 2010. Another large hedge fund, GLG, has also raised its stake in Punch above 3%. It is thought that investors are attracted to Punch's shares as a proxy for backing rising UK consumer confidence. Figures showed the economy grew at twice the pace predicted by economists in the past three months, with GDP rising 1.1%. Services and construction drove growth. 

SKS Microfinance, the Indian lender backed by Sequoia Capital and George Soros, raised its initial public offering to as much as 16.3 billion rupees ($347m) after six quarters of gains by the key equity index, reports Bloomberg. Shares in the Hyderabad-based company will be offered from July 28 for 850 rupees to 985 rupees each, with a 50 rupees discount for retail buyers, according to an advertisement in the Financial Express newspaper today. Kotak Mahindra Capital Co, Citigroup and Credit Suisse are managing the IPO. The company in March had said it would seek $250m. SKS, India’s largest microfinance company, has lured investors including Soros and billionaire N.R. Naravana Murthy on expectation credit to the nation’s poorest may surge by more than 40 percent in a market where about 120 million households don’t have access to banking and financial services. 

LAUNCHES
The former heads of Mellon Global Alternative Investments, a fund of hedge funds boutique owned by Bank of New York Mellon, are starting a new company together just months after leaving the firm following a restructuring of the business, says Financial News. Derek Stewart and Scott MacDonald, who joined BNY Mellon in 2001, have formed Carduus Capital and plan to raise money for a fund of funds later this year, according to a person familiar with the situation. The new firm also plans to work with investors on advisory mandates, offering help with manager selection and strategy allocation on an ad-hoc basis, as well as formally running the fund of funds. In January, BNY Mellon announced plans to restructure its fund of funds business, in a move that involved its three boutiques, MGAI, EACM Advisors and Ivy Asset Management becoming more closely aligned.