21/11/2008

Expert hedge fund panel expects credit turmoil to repair over time

After debating on what ignited the global financial crisis, a hedge fund panel predicted that the current global turmoil will repair itself, but that it may take time. At a Connecticut Hedge Fund Association event held last week, over 300 hedge fund managers and investors listened to six panelists debate the credit crash of 2008, the implications for a new world order and potential investment opportunities going forward.

Opening remarks were made by Bruce McGuire, president, Connecticut Hedge Fund Association, and Dr. Norm Solomon, dean of Fairfield University School of Business. The panellists included Duncan Niederauer, CEO, NYSE Euronext; J Tomilson Hill, president of the fund of hedge funds group, Blackstone; Steven Zamsky, managing director, Pequot Capital Management; Blythe Masters, managing director, JP Morgan Securities; Andrew White, portfolio manager, Southridge LLC; and Brian Ruane, head of financial institutions, the Bank of New York Mellon.

After the symposium, White, who manages one of Southridge’s market neutral funds, shared some of his thoughts with HFMWeek about what he believed caused the credit crash.

He said the long-term cheap-money credit bubble that ultimately pushed leveraged house prices too high with equally leveraged funding was coming to an end. While technical market valuation was also still unattractive in late September, according to White, the two catalysts that ignited the October turmoil were the Lehman Brothers bankruptcy in 15 September and the Securities and Exchange Commission’s ban on short-selling of financial stocks on 18 September.

“It’s going to be a case of 2008’s survivors turning into 2009’s thrivers,” White predicted. He also said that hedge funds which depend on leverage to generate returns most likely won’t survive compared to the ones that don’t. He added that market neutral strategies are expected to make a comeback next year.

“People should be selling their long positions and buy into market-neutral and absolute return strategies that ideally do not employ leverage and generated profits even in 2008,” he said.

White manages one of Southridge’s market neutral strategies; the other is Double Alpha Group, which employs a statistical arbitrage strategy. HFMWeek previously reported that White’s fund, the Southridge Market Neutral US LP fund, launched in July after seeding internally as a managed trading account in mid-February. The offering, a trend-following objective strategy that doesn't use leverage, is up 16% net YTD.