Bear Stearns bails out hedge fund

NF Reporter · 06-22-2007, 08:14 PM

Reuters - Bear Stearns Cos. Inc. on Friday said it would provide up to $3.2 billion in financing for a struggling hedge fund it manages, raising concern about other funds that invested in bonds linked to subprime mortgages.

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waltky · 10-31-2008, 04:15 AM

Hedge funds makin' it hard to get yer money...

Hedge funds working to limit redemptions
Thu Oct 30, 2008 - Dozens of hedge funds have told investors they cannot get their money back right now as managers try to limit a wave of redemptions to safeguard all their clients' investments -- as well as their own futures.

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Only a few months ago, hundreds of the world's estimated 9,000 hedge fund managers made it tough for wealthy investors to put money into their funds by requiring high investment minimums of $1 million or more and charging heavy fees. Now managers are making it hard for investors to get out. "Everyone is looking at their gate provisions (mechanisms that limit redemptions) and what rights they have to close their gates," said Timothy Mungovan, a partner who advises hedge funds at law firm Nixon Peabody LLP. "It is a phenomenon that has been occurring for some time and is picking up pace now."

On Thursday, Knight Capital Group's Deephaven Capital Management halted redemptions at two of its hedge funds. Recently, hedge fund firm Basso Capital told investors it was postponing redemptions. Hedge fund firm Ore Hill Partners imposed a gate in late August. Before that Drake Capital Management and Pardus Capital Management began restricting clients' departures and Ellington Capital Management stopped allowing investors to exit one of its portfolios last year.

Blocking investors' exits, even if only briefly, was once a highly unusual move that often signaled a hedge fund was on the verge of collapse, managers and investors acknowledged. That is changing now as ever-more managers and investors engage in a tug of war over who can receive money right now. "Hedge funds are trying to act as the ultimate fiduciary to their investors and the way they are doing that is by restricting the capital that can leave," said Perrie Weiner, a partner and international co-chair of law firm DLA Piper's securities litigation practice.

FIRE SALES

waltky · 11-13-2008, 08:17 AM

Hedge funds take a big hit...

Hedge funds lose $100 billion in assets
November 12, 2008: About $60 billion of the losses during October were the result of investors pulling their funds out of investments as Wall Street got pounded.

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Hedge fund assets fell by $100 billion in October as investors withdrew their money and funds were forced to sell stock, exacerbating the severe volatility that pounded global markets during the month. About $60 billion of the $100 billion in asset losses during the month came from investor redemptions, according to a report Wednesday released by Eurekahedge, a data and research provider. Hedge funds' assets totaled $2.497 trillion at the end of the third quarter, according to HedgeFund.net, a hedge fund data provider. Hedge fund selling has been widely cited as one of the reasons for the increase in volatility in equity and bond markets during October. The Dow Jones industrial average fell 14% during the month, while the Standard & Poor's 500 index declined 17%.

"It's pretty clear that hedge fund redemption has had an impact," said Donn Vickrey, co-founder and chief analyst at independent research firm Gradient Analytics. Financing requirements also forced hedge funds to sell, said Ted Berenblum, head of alternative investments at BNY Mellon Wealth Management. As the credit crisis worsened, banks tightened lending requirements for nearly all customers from retail borrowers to large corporations. That forced hedge funds to deleverage their balance sheets, which meant more selling, he said. Vickrey said reducing leverage likely forced some funds to sell positions they might have wanted to hold.

Despite the massive amount of selling in October, hedge funds overall still outperformed markets. Eurekahedge's broad Hedge Fund Index fell 3.3% in October. Its North American Hedge Fund Index declined 4%. About 56% of hedge funds in Eurekahedge's database posted losses in October. Moving forward, Berenblum said redemptions and sales are still likely to continue as hedge funds look to increase liquidity and investors pull money. But, Berenblum thinks most of the deleveraging by the funds is done. "I'd like to think we're more than halfway, but there's still more to come," he said.

Hedge fund redemptions total $100B in October - Nov. 12, 2008

See also:

Billionaires Row: Hedge Fund Managers Face Congress
November 12, 2008 - Lawmakers Interested in Whether Hedge Funds Contributed to Financial Crisis

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A Capitol Hill witness table will become Billionaire's Row on Thursday, when five of the nation's top hedge fund managers appear to answer lawmakers' questions. Among other topics, the five investment chiefs slated to appear before the House Oversight and Government Reform committee can expect to be asked about their regal remuneration – each reportedly earned over $1 billion last year. Collectively, the five men -- John Alfred Paulson of Paulson & Co., George Soros of Soros Fund Management, James Simons of Renaissance Technologies, Philip A. Falcone of Harbinger Capital Partners, or Kenneth C. Griffin of Citadel Investment Group – reportedly manage roughly $120 billion. None could be reached for comment.

In recent years, being a hedge fund manager has been just about the most lucrative career in the world. The mavens of a secretive, high-stakes industry, they commanded from their investors fees and commissions that sent their incomes soaring into the hundreds of millions, even billions. Hedge fund managers typically pay a tax rate on that income well below what most Americans pay, because the tax code treats a manager's commissions and a worker's salary differently. In the past, managers have waged successful multi-million-dollar lobbying efforts to fend off congressional efforts to increase their income tax burden.

Another likely area of interest for lawmakers Thursday is whether hedge funds played a role in the current crisis. Some hedge fund managers – though not necessarily those before the committee -- bet big on mortgage-backed securities in recent years, inflating demand for the poisonous products whose collapse sparked the current meltdown. Witnesses at the hearing, which will also include academics, are expected to differ on the issue.

More ABC News: Billionaires Row: Hedge Fund Managers Face Congress