03/08/2010 Author: Ben Haidari

HFMWeek Daily Snapshot - 3 August

NEWSPAPERS AND WIRES
New York-based TPG-Axon, one of the world’s biggest hedge funds, has agreed a deal to merge with UK-based Montrica Investment Management, one of London’s largest hedge funds specialising in trading on events such as takeovers, reports the FT. The deal will reunite the former leading lights of Goldman Sachs’ Principal Strategies group – once the bank’s biggest and most lucrative in-house trading team. TPG-Axon, which manages more than $9bn in assets, was founded in 2005 by Dinakar Singh, the former chief executive of GSPS Group. Montrica, which manages $1.1bn in assets, was spun out of GSPS a year later, managing $3bn at its peak.

London-based hedge fund Noster Capital is betting against five major European banks, including Barclays in the UK, Spain's BBVA and Switzerland's UBS, says the Telegraph. Pedro Noronha, chief executive of Noster Capital, said he thought many people still failed to understand the extent of the problems facing many banks and were "complacent" about the risks the industry faces. "Two months ago everybody was in a panic about the sovereign debt crisis, and now it's like everybody is going on holiday and everything is fine," he said. However, he claims the biggest danger remains the US housing market, where he said there was the potential for a new shock as more Americans default on home loans as mortgages come up for refinancing. 

A UK Court of Appeal ruled in favour of hedge funds that maintained their client money, held in the main European arm of Lehman Brothers, wasn't properly protected when the investment bank collapsed, reports the Wall Street Journal. The development is the latest aspect of the complex effort to return cash and other assets to Lehman's clients after the bank failed in September 2008. Lehman's bankruptcy, with more than $600bn in total assets, ranks as the largest US corporate failure. The European arm had segregated, or ring-fenced, a pool of as much as about $2.1bn of money for some hedge-fund clients, thus providing protection in the event of bankruptcy – but, for various reasons, the bank failed to ring-fence potentially billions of dollars of additional money for other clients who also believed their money was segregated. 

More hedge funds will create exchange traded funds (ETFs) to provide investors with low-cost access to their funds while broadening their distribution capabilities, according to a report by BlackRock, reports IFAonline. The firm's ETF Landscape says hedge funds, which have typically been difficult for many investors to access due to high minimum subscription levels, are now seeing the appeal of ETFs as accessible vehicles with powerful distribution networks. “[We] expect to see more hedge funds looking to create ETFs with their own funds as the underlying exposure, in an effort to broaden their distribution capabilities,” says the report. The daily liquidity offered by ETFs also enhances investor access to hedge funds.

Milwaukee’s $4bn public pension plan is to consider investing in funds of hedge funds (FoHFs) according to FINalternatives. Two years ago, Mercer, the investment consultant to the Milwaukee City Employees, recommended that the pension move some of its money into alternative investments – and for two years, the plan sat on that recommendation, making its first foray into the space with a pair of private equity commitments totally $80m in April. The pension fund is now considering its first hedge fund investment to be made at the end of the year at the earliest, after first investing in infrastructure and commodities. Mercer has recommended a 2% allocation, which would match the pension’s current private equity allocation. 

In the span of seven months, hedge fund manager Philip Falcone has gone from being one of the industry's better performers to one of its worst, according to new industry data, Reuters reports. The market tumult of May and June put a dent in the performance of many hedge funds, but Falcone's flagship fund, which focuses on distressed debt, may have been one of the biggest losers, according to new numbers from HSBC Private Bank. As of 15 July, Falcone's Harbinger Capital Partners Offshore Fund I was down 10.7%, ranking the New York-based fund manager one of the industry's 20 worst performers, according to HSBC. Harbinger began the year with the fund registering a 4.4% gain as of 15 January, and the fund was in positive territory up until a few weeks ago. Over the course of the year, the portfolio's assets under management have been nearly cut in half, falling from $6.7bn to $3.8bn as of mid-July.