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March 12, 2010 Posted by | Hedge Funds | Leave a comment

A meeting of minds between investors and hedge funds?

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March 12, 2010 Posted by | Hedge Funds | Leave a comment

FT: DE Shaw and other hedgies look to Asia

Posted by Gwen Robinson on Mar 09 12:06.

While hedge funds have been virtually stampeding out of Japan for the last few years, DE Shaw, the $24bn hedge fund founded by Shaw, is set to open offices in Tokyo as well as Shanghai, as part of a concerted push to expand its Asian operations.

The group’s Shanghai office, according to the FT, will mark its first expansion into mainland China, with a team of private equity analysts focusing on acquisition opportunities in the country. The Tokyo office, meanwhile, will deal with such functions as marketing and account management.

The two new Asian offices come several years after DE Shaw opened a Hong Kong office in 2007 to focus on Chinese private equity opportunities, and set up in India. If the group’s earlier Asian moves are anything to go by – DE Shaw’s Indian operations are now its largest base outside the US, employing about 700 people in the country – the China and Japan offices have a rosy future.

Indeed, several other large hedge funds are now looking to beef up their regional presence, including GLG, Moore Capital and Soros Fund Management which are all planning to open Asian offices, adds the FT.

China, Singapore, and Hong Kong maybe. But Japan stands as a counter-intuitive proposition. Having spent the last few years pulling back from Japan, few big funds are bothering to set up shop in Tokyo, where regulations are onerous, taxes are high and margins on equities bets are often depressingly slim.

Just to reinforce that view, here, courtesy of EurekaHedge, is a rather striking snapshot of hedge fund presence – both in terms of assets under management and numbers of hedge funds – in the main Asian centres.

(Note that apart from assets under management, the actual number of hedge funds operating in Japan is omitted as many hedge fund groups offering Japan-focused funds are based outside the country – largely due to regulations and taxes that deter funds from putting people on the ground in Tokyo)


In the eyes of some Japan watchers, DE Shaw’s Tokyo move reflects a view that, amid investor pessimism about the country’s uncertain economic outlook , Japan has been oversold.

As Richard Armstrong of hedge fund consultancy Eureka Capital Partners told us on Tuesday:

There has been increasing interest in Japan lately because it has been so out of favour for the last four to five years

Of course, he notes, there is also a seasonal factor, with a general uptick of investor interest in Japan inthe first quarter of the year, which tends to dissipate over the second quarter.

Right now, says Armstrong, there is a “huge surge of start-up interest” driving a crop of new hedge funds in Asia – but most of these are setting up in Singapore and Hong Kong.

Meanwhile, EurekaHedge in a preliminary report issued on Tuesday found that hedge funds overall returned to positive territory in February, up 0.52 per cent after being marginally down in January.

Geographically speaking, hedge fund returns across most regions were marginally positive for February, although early reports showed that North American managers, who make up 65 per cent of all hedge funds globally, posted gains of 1.41 per cent, adds EurekaHedge, explaining:

Regional managers capitalised on the marked improvements in market sentiment on the back of some strong earnings reports, positive movements in the US dollar and commodities as well as improved manufacturing data and the Fed’s decision to maintain low interest rates.

As for emerging markets and even Japan: Latin American funds were also positive with a 0.48 per cent returns in February while Asia ex-Japan and Japan funds returned nominally positive performances. Not surprisingly, problems in the eurozone led to negative results by the region’s managers, who were down 0.66 per cent in February as the euro weakened amid speculation of Greece’s sovereign debt default.

Asia, in that context, is looking like a safe – and potentially lucrative – haven. A quality that is clearly not lost on David Shaw and his peers.

March 10, 2010 Posted by | Hedge Funds | Leave a comment

Not Quite So Exotic

Hedge funds are hitting middle age.

Read full text here (By Barton Biggs | NEWSWEEK, Feb 26, 2010).

March 2, 2010 Posted by | Hedge Funds | Leave a comment

Economist: Scarcity in Asian Sovereign Debt

Read full text here (Feb 25th 2010 | HONG KONG | From The Economist print edition).

March 2, 2010 Posted by | Hedge Funds | Leave a comment

Cohen Trades Secrecy for Golf With Investors Lured by 30% Gains

Read full text here (Bloomberg 26th Feb, 2010).

March 2, 2010 Posted by | Hedge Funds | Leave a comment

A Glimpse Into the Heart of SAC Capital

Read full text here (The New York Times | 26th Feb, 2010).

March 2, 2010 Posted by | Hedge Funds | Leave a comment

Hedge Funds Try ‘Career Trade’ Against Euro

Read full text here (The Wall Street Journal | 26th Feb, 2010).

March 2, 2010 Posted by | Hedge Funds | Leave a comment

China’s 71% Small-Cap Stock Premium Signals Peak

Feb. 26 (Bloomberg)

The rally in China’s small-cap stocks that lifted valuations to a record premium above the largest companies’ shares is a signal to sell, according to three of the country’s biggest money managers.

China’s CSI 500 Index of companies with a median market value of $841 million trades at valuations 71 percent above the CSI 300 Index, up from 31 percent a year ago and near the all- time high of 77 percent in December, based on estimated price- to-earnings ratios compiled by Bloomberg yesterday. Shanghai- listed Guizhou Guihang Automotive Components Co. trades at a record 61 times profit forecasts, triple the multiple for PetroChina Co., the world’s biggest company.

“Small caps are now at the top of their valuations,” said Zhao Zifeng, who helps oversee about $10.2 billion at China International Fund Management in Shanghai. “Big caps have enough safety margin and are likely to outperform.”

Zhao and money managers at JF Asset Management and HSBC Jintrust Fund Management Co., which oversee more than $60 billion, say Chinese small-cap stocks are expensive after fourth-quarter profits trailed analyst estimates by an average 38 percent and the People’s Bank of China raised banks’ reserve requirements to slow the fastest-growing major economy.

The CSI 500 climbed 0.1 percent today to 4,634.67, while the CSI 300 fell 0.3 percent.

The valuation premium on small Chinese companies over their larger peers is wider than in any of the 10 biggest equity markets. Small-caps are valued at a discount to larger stocks in Hong Kong and India, according to data compiled by Bloomberg.

Double Brazil

China stocks surged as investors bet record-low interest rates, a $586 billion stimulus program and $1.6 trillion of state-directed lending would boost profits at the fastest- growing companies. The world’s third-largest economy expanded at a 10.7 percent annual rate in the fourth quarter, up from a revised 6.2 percent in the first three months of last year, the slowest pace in almost a decade.

Property prices climbed 9.5 percent in the year to January, according to the National Development and Reform Commission in Beijing, a rally James Chanos, the founder of New York-based hedge fund Kynikos Associates Ltd., said is a “bubble” poised to burst.

The CSI 500 trades at 29 times profit estimates after an 80 percent jump in the past year that beat the 50 percent advance in the CSI 300 index, according to Bloomberg data. The valuation is more than double the 12 times estimated earnings multiple for the MSCI India Small Cap Index and 13 times for Brazil’s Bovespa Small Cap Index. The Russell 2000 Index of U.S. companies trades at 23 times, Bloomberg data show.

Options Trading

“Big caps look like better value than small caps,” said Howard Wang, head of the Greater China team at JF Asset Management, which oversees about $50 billion. Excluding the risk of a sovereign debt crisis, “we think China big-cap equities are cheap,” Wang said.

Prices are increasing to protect against a tumble in large- cap stocks. Options profiting from a decline in the iShares FTSE/Xinhua China 25 Index Fund are trading near the biggest premium in 11 months compared with contracts that benefit from a gain, Bloomberg data show.

BNP Paribas SA’s Hong Kong-based strategist Erwin Sanft predicts small-caps will be the best-performing segment of the Chinese market this year because of faster earnings growth. Analysts expect profits for companies in the CSI 500 will rise 41 percent this year, topping the 23 percent increase for CSI 300 companies, Bloomberg data show.

Too Optimistic

Estimates for fourth-quarter small-cap profits proved too optimistic, with results reported so far from companies in the CSI 500 index trailing projections by 38 percent, according to Bloomberg data.

Earnings missed forecasts as the government took steps to restrain stock and property gains and consumer inflation. The People’s Bank of China signaled a “gradual” exit on Feb. 11 from monetary stimulus including record loans that were introduced amid the first global recession since the 1940s. The central bank raised reserve requirements 50 basis points to 16.5 percent for the biggest lenders yesterday, the second increase this year. A basis point equals 0.01 percentage point.

“There’s very limited room for small-cap stock valuations to rise further,” said Ally Wang, who helps oversee about $1.2 billion at HSBC Jintrust in Shanghai. “Earnings growth prospects have been priced in.”

Cars to Chemicals

Guizhou Guihang Automotive, which makes auto parts from radiators to air filters, posted third-quarter earnings that trailed analysts’ estimates by 53 percent, according to Bloomberg data. The company, which doubled in Shanghai trading over the past year, is scheduled to report fourth-quarter earnings on March 29, Bloomberg data show.

Xinjiang Qingsong Building Materials & Chemicals Group Co., a producer of cement and fertilizers, has rallied 11 percent since reporting fourth-quarter earnings that missed analyst forecasts by 45 percent on Feb. 5. The company, based in the Xinjiang province, is valued at 39 times earnings, compared with a monthly average of 25 times, based on Bloomberg data since 2004.

Companies in the CSI 300 Index, which have a median market value of $3 billion, have topped analysts’ forecasts for fourth- quarter earnings by an average 5.2 percent, Bloomberg data show. Guangzhou-based developer Poly Real Estate Group Co., which beat fourth-quarter projections by 29 percent, is valued at 15 times profit estimates, near the lowest level in 11 months.

“Valuations of small-caps look too stretched,” said Wu Kan, a Shanghai-based money manager at Dazhong Insurance Co., which oversees about $285 million and plans to reduce holdings of the shares. “Large caps stand a big chance of shining.”

Zhang Shidong, Michael Patterson and Allen Wan. Editors: Gavin Serkin, Stephen Kirkland

March 2, 2010 Posted by | Case Study | Leave a comment

One Biz Model?

Wealth guy like Dell can use his own money as anchor money to attract new investors, and make money out of the process in addition to managing his own money.

MSD Capital, the manager of Michael Dell’s $10bn fortune, recently launched a new distressed debt fund open to outside investors that carries a three-year lock-up but with the promise that fees are reinvested over that period as well.

(FT) Hedge funds cling to fees

Posted by Gwen Robinson on Feb 26 04:46.

Only 10% of hedge fund managers expect to see their fees fall, despite recent underperformance that has sharply reduced income, according to a Credit Suisse survey. The industry suffered record outflows in 2008-09 but hedge funds still balk at the idea of cutting the standard “two and 20” fee structure, 2% of assets and 20% of returns, the poll found. However, the survey, which covered nearly a third of the $1,700bn global hedge fund industry, found that managers are open to negotiation.

Hedge funds shy away from lowering fees

By Sam Jones in London (Published: February 25 2010 )

Just one in 10 hedge fund managers expects to see the fees they charge investors fall in spite of recent underperformance that has seen income sharply reduced, according to a Credit Suisse survey.

The industry suffered its heaviest outflows ever in 2008-09 but hedge funds still balk at the idea of cutting the standard “two and 20” fee structure, 2 per cent of assets and 20 per cent of returns, that they charge clients, the poll found.

But the survey, which took in responses from nearly a third of the $1,700bn global hedge fund industry, found that managers are open to negotiation.

Two-thirds of respondents said that they were willing to bargain on fees if investors consented to longer lock-up periods and such deals have already begun to take place.

MSD Capital, the manager of Michael Dell’s $10bn fortune, recently  launched a new distressed debt fund open to outside investors that carries a three-year lock-up but with the promise that fees are reinvested over that period as well.

Theleme Partners,  launched his year by Patrick Degorce, a former partner at activist fund TCI, charges a proportional management fee that decreases as assets under management grow.

For institutional investors in particular, such structures are likely to be particularly attractive.

Calpers, the largest pension fund in the world, which has more than $5.9bn allocated to hedge funds, announced a review of its hedge fund relationships last year and has been placing pressure on managers to reform the way they charge, according to the funds with which it invests.

Meanwhile in the UK, Hermes BPK, which manages hedge fund investments on behalf of the BT pension scheme, has also been pushing for change and is itself to allow its own clients to claw back the fees it charges in the event of underperformance.

Such fee negotiations are all part of a longer due diligence period in which investors research hedge funds, according to Credit Suisse.

The bank’s survey also found that the average time spent by investors conducting due diligence has risen from 5.8 to 7.5 months.

While 41 per cent of funds of funds – the largest single class of hedge fund investor – previously spent three months or less conducting their due diligence, now just 9 per cent do, highlighting the particular pressure they have come under to demonstrate greater rigour in the wake of the Madoff scandal.

Hedge funds are also looking to meet the needs of investors keen for so-called managed accounts, which are segregated portfolios tailored to the specific needs of the account holder.

The survey found that 47 per cent of respondents already ran one or more managed accounts with a further 39 per cent saying they were investigating how to do so.

March 2, 2010 Posted by | Hedge Funds | Leave a comment