27/09/2007

HFMWeek Snapshot – 27 September

NEWSPAPERS AND WIRES: Reuters reports that the Securities and Exchange Commission (SEC) said yesterday it has charged a San Francisco hedge fund manager with “dramatically overstating” the fund’s profitability, and using it for personal expenses such as his ex-wife’s international shopping trips. Reuters says: “The SEC said Alexander James Trabulse sent statements to investors in his Fahey Fund that inflated the fund's returns by as much as 200%...He also used the fund as his personal bank account, using the money to pay for cars and a home theater system, and giving one relative free reign over the fund's bank account for personal use, the SEC said.” The report says that Trabulse founded the Fahey Fund in 1997, and raised about $10m from about 100 investors. The SEC is seeking disgorgement of ill-gotten gains, penalties and other relief from Trabulse.

The Wall Street Journal says that the nation’s financial overseers are asking hedge fund managers and investors to develop voluntary guidelines to help improve disclosure and mitigate the “systemic risk” associated with the lightly regulated pools of capital. The report says: “The President's Working Group on Financial Markets; which earlier this year said current regulations were sufficient to prevent hedge funds from threatening the financial system's stability, is creating two advisory groups to develop ‘best practices’ for investors who place their money in hedge funds and the managers who run the investment vehicles…One group, comprising hedge fund managers, will develop guidelines for such things as valuation and what information should be disclosed to investors. A second group, comprised of investors, will develop guidelines for the type of ‘due diligence’ those investing in hedge funds should undertake, as well as the kind of information investors should receive. Their recommendations are expected by the end of the year.” The WSJ adds that earlier this month, German Chancellor Angela Merkel called for more transparency in the financial markets and French President Nicolas Sarkozy has urged industrialized nations to do a better job of policing their markets.

The Financial Times’ Alphaville says that hedge funds are about to be hit by “several billion dollars of withdrawals as a popular method of gearing up investment in the industry is reversed in the wake of poor performance this summer. Alphaville adds that “Fund-linked derivatives, which have been booming as investors pile cash into hedge funds, are likely to finish their quarterly reviews by the end of next week and, bankers say, many will trigger automatic redemptions.” The report adds that these come at a sensitive time, as investor sentiment is being closely watched for signs of panic selling.

A local paper from the South West of England, The South Devon Herald Express, has reported that a “tatty” beach hut at Teignmouth has gone under the hammer for “a staggering £91,000 at auction,” to a greengrocer and his young millionaire son, Simon Holmes, a 34 year old hedge fund manager at an un-named company. Holmes will spend another £30,000 at least on demolishing the rundown structure and rebuilding on the site. The piece says: "Simon, who has just married his fiance Sarah, went to Knowles Hill School in Newton Abbot before moving to London and making his fortune. He has an estate near Taunton."