Hedge Fund News Wrap: Week Ending 7/19/13

Hedge Fund Overview: A Slow Recovery

Hedge funds are slowly recovering much of their June declines, as most have posted gains through mid-July. The Investable Hedge Fund Composite Index was up 0.67% as of July 10th.

In addition, the HFRX Global Hedge Fund Index gained 0.98%, while the HRFX Market Directional Index gained 1.91% as of July 16th.

Equity and event driven funds were the best performers with gains of 2.18% and 1.64% respectively.  In contrast, commodities funds slid an average of 3.58% in the first six months of the year, according to a Newedge Commodity Index.

Hedge funds continue to under-perform the broader S&P, which rose 0.3% (index value: 1,680.91) as of July 17th.

See detailed coverage from:

Hedge Fund Research

FINalternatives

MarketWatch

 

Commodity Funds Continue to Suffer

Commodity funds are continuing to struggle this year, after posting significant losses in June. Many commodity funds from firms like Renaissance, Man and BlueCrest are posting negative gains for the first half of the year.  According to Reuters, funds betting on commodity have lost money every month since January, which is leading several individual funds into their third straight year of losses.

Funds trading gold are dealing with some of the heaviest losses, as gold’s price continues to tumble on the expectation that the Fed will cut back on its “easy money” policies.

In particular, hedge-fund billionaire John Paulson has seen his gold fund plunge 23% in June and 65% over the entire year.

Even with the precious metal having a bad year, Paulson remains optimistic about its long-term performance. At the Institutional Investor Delivering Alpha Conference, Paulson told investors that the consequences of printing money over time will be inflation and “it’s just difficult to predict when.”

Paulson also believes that investors who are looking for a hedge against potential inflation should have gold in their portfolios.

Commodity prices, which are down 22% from a 2011 peak, have entered bear market territory. Coupled with falling volatility, managers are having a hard time gaining profit.

See detailed coverage from:

Reuters

Forbes

Institutional Investor’s Alpha

 

Highbridge CEO, Glenn Dubin, Steps Down

 Glenn Dubin, the CEO of Highbridge Capital, has decided to step down from his post. However, Dubin will remain as chairman of the firm, as he has no plans of retiring anytime soon.

Dubin told The Wall Street Journal, “In no way am I leaving the firm, and in no way am I retiring or semi-retiring. My day job has teeth … I’m going to go to the office every day; I’ve got a big bulk of my personal capital invested in Highbridge Funds.”

Scott Kapnick, a former Goldman Sachs Group Inc. executive, will be replacing Glenn Dubin as CEO. Kapnick, who joined Highbridge in 2007, has built up the firm’s successful private equity unit into a $14 billion business.

The change comes amid underwhelming performance from the firm’s flagship fund, which is now owned by JP Morgan Chase. Some feel that this change of power will ultimately give the firm the boost it needs.

See detailed coverage from:

The Wall Street Journal

Bloomberg

FINalternatives

 

Mutual Funds Worry about Hedge Funds’ Ads

Last week, the SEC lifted an 80-year-old ban on advertisements by hedge funds, and many took to twitter to express their support or criticism (see #hedgefundslogans). However, mutual funds are starting to express their reservations about the new ruling, as hedge funds could potentially steal market shares with their new advertising powers.

Howard Groedel, a partner at Ulmer & Berne, told Financial Times that mutual funds are the “big losers of this ruling” as “hedge funds will now be able to compete for investors.”

According to Don Steinbrugge, a managing partner at Agecroft Partners, the mutual fund industry fought hard to prevent the passing of these new advertising rules due to concerns over increased competition.

However, these sentiments won’t deter hedge funds from advertising. Ken Heinz, the president of Hedge Fund Research, believes that hedge funds will most likely engage in “significant global advertising campaigns” within the next twelve months.

See detailed coverage from:

Financial Times  (subscription required)

Gulf News

 

Goldman Sach’s “Fabulous Fab” Goes on Trial

Fabrice Tourre, the ex-Goldman Sachs Group Inc. vice president, went to federal court earlier this week to face allegations of trading fraud. Tourre, who is referred to as “Fabulous Fab,” is accused of intentionally misleading pension funds about “Abacus,” one of many mortgage-backed securities that were packaged on Wall Street and contributed to the financial crisis of 2008.

U.S. District Judge Katherine Forrest says that Tourre “handed Little Red Riding Hood an invitation to grandmother’s house while concealing the fact that it was written by the Big Bad Wolf.”

The “Big Bad Wolf” in this case would be John Paulson, a hedge fund titan whose bet against the subprime mortgage market resulted in a $1 billion profit while investors of “Abacus” lost that same amount.

The lawsuit is one of many enforcement actions the SEC has taken against big financial firms and individuals involved in putting together toxic products on the market. While the SEC has managed to reach ample settlements with big banks, it has failed to prosecute individuals from Wall Street.

Many news outlets are characterizing the trial as a circus show, as prosecutors are focusing on Tourre’s self-incriminating e-mails filled with an abundance of exclamation marks.

Meanwhile, former Paulson & Co. exec Paolo Pelligrini is having a hard time defining “CDO” to the jurors, who are already falling asleep during the trial.

See detailed coverage from:

Reuters

BusinessWeek

FINalternatives