Hedge Fund Exchange

Germany, France Mull Tougher Regulation for Hedge Funds, Swaps

By Rainer Buergin and Mark Deen for Business Week, February 22, 2010

Germany and France may tighten rules for hedge funds and credit-default swaps as Greece’s debt crisis roils markets and causes the euro to slump to a nine-month low.

“We can draw some lessons from this crisis,” French Finance Minister Christine Lagarde told lawmakers in Paris on Feb. 17, according to the minutes of the closed-door meeting published today. “We should examine the suitability of CDSs” used for sovereign states because their movements have become “disconnected from the underlying” economic situation.

Germany’s Finance Ministry said it couldn’t confirm a report in Handelsblatt newspaper that Chancellor Angela Merkel’s government plans to clamp down on hedge funds to curtail speculation against the euro.

Germany and France, the euro area’s two biggest economies, are already working on an overhaul of banking laws as part of a regulatory push agreed by Group of 20 governments after they were forced to bail out banks worldwide. German Finance Minister Wolfgang Schaeuble and Lagarde are both scheduled to attend G-20 meetings in April and will gather again in Korea in early June.

France is leading the push on credit-default swaps, a form of insurance that can result in profits for holders if a borrower cannot repay debts.

‘Economically Sensible’

Germany may press for new controls on hedge funds, which have used credit-default swaps to speculate on the creditworthiness of southern European countries, Handelsblatt reported today. Action may include limiting derivatives trading to transactions that serve an “economically sensible hedging purpose,” Handelsblatt cited Schaeuble as saying.

The cost of insuring Greek government bonds has more than tripled since July amid investor concern about its ability to meet payments. Greece, struggling to narrow the European Union’s biggest budget deficit, needs to raise 53 billion euros ($72 billion) this year, the equivalent of about 20 percent of its gross domestic product, and faces bond redemptions of about 8 billion euros on both April 20 and May 19.

Officials in Athens have committed to reduce the budget gap from 12.7 percent of gross domestic product in 2009 to 8.7 percent by the end of this year. Greek Prime Minister George Papandreou told this week’s edition of Der Spiegel magazine that he needs EU support to finance the country’s debt at “normal conditions.”

Greece ‘Can Refinance’

“We continue to assume that Greece, on the basis of its stability program, can refinance in the market as planned in April,” Finance Ministry spokesman Martin Kreienbaum told a regular government briefing in Berlin today. No decisions have yet been taken on financial aid to help Greece over its debt crisis, he said.

“No commitment has been made regarding specific instruments of aid,” Kreienbaum said, responding to a question whether a joint bond to aid Greece is being considered. “No prior commitment has been made in any direction.”

Germany wants euro-area governments to provide Greece with loans and guarantees worth 20 billion euros to 25 billion euros, conditional on steps by the government to cut the deficit, Der Spiegel magazine reported Feb. 20. Germany would finance almost 20 percent of the aid, the magazine said, without saying how it got the information.

“Germany prepares to help bankrupt Greeks with up to 5 billion euros!” Bild, Germany’s biggest-selling newspaper, said on its front page today, citing Spiegel figures.

European finance ministers meeting in Brussels on Feb. 16 told Greek authorities to ready more deficit measures by March 16 in case the government fails to show sufficient progress reining in the budget deficit. They refused to specify potential aid measures.

Lagarde said the other 15 countries in the euro area intend to stand behind Greece as it tries to trim its budget deficit and raise new financing, though she emphasized that Greece must improve its public finances to qualify for aid.

“Our Greek partners know we’ll be there,” Lagarde said. “Greece is us. We’re in a monetary union in which solidarity must prevail.”

Trikona Advisers Limited Confirms Claim Against Trikona Trinity Capital (TRC) for GBP112,000,000

 By Trikona Advisers Limited for PRNweswire, February 23, 2010

Brief:

Trikona Advisers Limited ("TAL") today confirms that it will lodge a claim with the London Court of International Arbitration for GBP112,000,000 for the unlawful attempt by Trikona Trinity Capital Plc (Code "TRC" on AIM) to terminate its management agreement with the Fund six years early. The agreement was for ten years from 16 April 2006.

A spokesman for TAL today said "For over two years now TRC has been under attack from two hedge funds. They took a position in the Fund because of the successful performance and returns created under the management of TAL, but are now seeking an exit. These hedge funds have a track record of activism and for closing down Funds early in the cycle to realize cash for short term gains, and this is what it is happening to TRC. Other recent examples of their activism involve Treveria plc (AIM:TRV) the German retail focused real estate investment company, which had been under pressure to remove four directors including the Chairman. These funds have also targeted others such as South African Property Opportunities (AIM:SAPO) and Hirco plc, (AIM:HRCO).

Our management contract stands in the way of their strategy, because it lasts for ten years, so we are being unfairly treated publicly and falling victim to their strategy. This has included TRC making public announcements about alleged breaches under the contract, all of which are denied. We sent a long, detailed letter to TRC explaining this, and setting out our claims. TAL will invoke its contractual rights in the strongest terms. TAL will also look beyond TRC if necessary to recover all of its losses. In the next two weeks, TAL will commence the process of seeking and obtaining relevant orders from the London Court of International Arbitration for all due remuneration under our management contract, which totals approximately GBP112,000,000. "

TAL has instructed a number of law firms to invoke its contractual rights, including London law firm SJ Berwin LLP to pursue TRC through the London Court of International Arbitration.

Under the Portfolio Management Agreement with TRC, TAL is engaged to carry out management services to TRC for a period of ten years from 16 April 2006. The claim comprises management fees and estimated Profit Share payments due to TAL for the remainder of the term and for opportunities and projects already introduced and managed by TAL on behalf by the Fund.

ABOUT TRIKONA ADVISERS LIMITED's Performance:

TAL is a leading investment adviser for real estate and infrastructure assets in India. Preqin analysed private equity real estate returns to 31st March 2009 in order to provide an independent and unbiased description of the industry's performance in a period of unprecedented global turmoil. To quote 'Industry Returns are deep in the red over the 12-month period to March 2009. The asset class only performed marginally worse than the public markets, however, with returns of -40.5% compared with -38.1% for Standard & Poor's 500 index'.

TAL has advised in realizing returns of approximately GBP86 million with an internal rate of return of 97% for TRC.

TAL has also enabled the release of approximately GBP20.9 million of cash by renegotiating and reworking certain contractual commitments per the instructions of Trikona Trinity.

In addition, in the past nine months TAL has enabled through its advice on investments by TRC in two companies a gain of over 109.47 million pounds of potential liquidity by way of IPO's of PSL and DBR. TRC invested GBP 39.9 million in the two transactions, representing a return of over 2.74 times and an IRR of 41.2%.

PSL is the largest diversified shipyard in India with capabilities to tap the potential in Offshore and Defense applications. TRC holds 45.9 million shares representing a 6.9% interest in PSL. The shareholding is subject to a one year lock-in under Indian securities regulations. TRC acquired the shares at a price of INR 25 per share in January 2007. TRC invested GBP13.5 million in PSL in January 2007. The INR 54.50 opening price per share on 22 February 2010 implies a market value of approximately GBP 35.07 million at current exchange rates(GBP 1 = INR 71.3329)

DB Realty is one of the premier Real Estate developer primarily focused on Redevelopment Projects in and around Mumbai. DB Realty is scheduled to list on the 24 February 2010. The DB Realty IPO has been subscribed 2.95 times. TRC, holds 11.34 million shares representing about 4.66% interest in the equity share capital of DB Realty. TRC acquired the shares at a price of INR 190 per share in April 2007 by investing GBP 26.4 million. At the lower price band of INR 468 per share, it implies a market value of GBP 74.40 million at current exchange rates and an IRR of 44.1% with multiple of 2.82x on an original investment. With this DB Realty has become one of the most profitable deals for TRC as an Investment in the Indian Real Estate Market.

A third investment viz., ITNL has announced its IPO which is scheduled for next month. IL&FS Transportation Networks Ltd. (ITNL) is an established ISO 9000:2001 surface transportation infrastructure company, and is one of the largest private sector BOT road operators in India. ITNL is a developer, operator and facilitator of surface transportation infrastructure projects, taking projects from conceptualization through commissioning to operations and maintenance. ITNL was incorporated in 2000 by IL&FS, an infrastructure development and finance company, in order to consolidate their existing road infrastructure projects and to pursue various new project initiatives in the area of surface transportation infrastructure. TRC holds 4.28 million shares representing about 2.50% interest in the equity share capital of ITNL. TRC acquired the shares at a price of INR 100 per share in October 2006 by investing GBP 5.10 million. At the Pre-IPO placement price of INR 242 per share, it implies a market value of GBP 14.52 million at current exchange rates and an IRR of 36.20% with multiple of 2.85x on an original investment.

 

MOVES-Peak Ridge, Bank of Singapore, HedgeMark

By Abhiram Nandakumar for Reuters, February 23, 2010

Feb 23 (Reuters) - The following financial services industry appointments were announced on Tuesday. To inform us of other job changes, send an email to moves@thomsonreuters.com.

PEAK RIDGE CAPITAL GROUP

The asset management company appointed Gary King, previously with Dubai Mercantile Exchange, as senior strategic advisor. He will work in the Middle East and North Africa region.

BANK OF SINGAPORE

The subsidiary of OCBC Bank named Robin Heng as Managing Director, South East Asia, effective March 1, 2010. Heng has previously worked with Citibank NA Singapore (C.N) and UBS AG Hong Kong and Singapore (UBS.N).

HEDGEMARK INTERNATIONAL LLC

The hedge fund manager named Anthony Lombardi as Head of Managed Account Operations, Prime Brokerage and Trading Relationships. Lombardi, who was previously with Rose & Sky Investments, will divide his time between HedgeMark's offices in Los Angeles and New York. 

Conn. Considering Hedge Fund Bill

By Associated Press for Hartford Courant, February 21, 2010 

HARTFORD, Conn. - Some Connecticut lawmakers are resurrecting efforts to pass new state regulations on the hedge fund industry, frustrated by what they see as inaction in Washington. 

Sen. Robert Duff, D-Norwalk, co-chairman of the General Assembly's Banks Committee, says last year's failed bill that required hedge funds and private equity funds to disclose conflicts of interest between an investor and a fund manager, will be "a starting point" for new legislation this year aimed at making the industry more transparent for investors. 

"I've had a lot of people inside the industry tell me that I was right on with this bill," Duff said. "Even in their opinion, we could go further." 

The bill passed the Senate on a 24-12 party-line vote, but died in the House of Representatives because of inaction. 

Opponents said they worried the legislation could become a burden for the hedge fund industry in Connecticut, one of the top locations in the country for these private partnerships that are typically open to a limited number of investors and require a large initial minimum investment. The state is home to about 200 hedge funds. 

Last year, Attorney General Richard Blumenthal testified that wealthy and sophisticated investors were no longer the only people with a stake in hedge funds because pensions, charitable endowments and school endowments invest in them. 

While Blumenthal acknowledged federal reforms were preferable, he testified about "a regulatory black hole" and said "states must act." 

John Burnjes, a partner with Bracewell & Giuliani LLP, an international law firm with offices in Hartford, and a member of the Connecticut Hedge Fund Association Board of Directors, said the legislation was unnecessary last year and still is. 

He said a Connecticut law requiring disclosure of conflicts of interest would duplicate federal securities requirements and could become a financial burden for hedge fund managers -- an important source of personal income tax revenue to the state. 

"In this economic climate, it is simply bad policy," Burnjes said. 

Andrew Schneider, founder and owner of Hedgeco Networks, a hedge fund research and services firm, said his company has helped set up more than 400 hedge funds. He said conflicts of interest were disclosed in documents, such as the prospectus. 

The legislature's Banks Committee has scheduled a public hearing for Thursday on the latest version of the hedge fund legislation. 

It comes just months after U.S. Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, unveiled a financial services bill that includes new regulations for hedge funds. For example, hedge funds worth more than $100 million would be required to register with the federal Securities and Exchange Commission as investment advisers and disclose financial data needed to protect investors. 

Some hedge funds have already registered voluntarily with the SEC. 

While the U.S. House of Representatives passed its financial overhaul bill in December, the Senate version has stalled amid attempts to broker a bipartisan agreement. 

Burnjes said that instead of enacting a new state law, Connecticut legislators could make sure the existing securities division of the state Department of Banking has the ability to oversee more hedge funds. He said the North American Securities Administrators Association, an organization that focuses on investor protection issues, is working to raise the threshold for when state regulators have certain authority over hedge funds. 

Currently, the cutoff for state regulation is a hedge fund valued at $25 million. Burnjes said there's been suggestions of raising that level to $100 million. 

Rep. John Stripp, R-Weston, ranking House Republican on the legislature's Banks Committee, said he believes more transparency for investors is needed when it comes to hedge funds. But he said if state lawmakers try to tackle the matter, they'll have to be careful not to create more problems. 

He said a fund manager would be concerned about certain sensitive information about investments making its way to competitive funds or other investors. 

"It's something that has to be thought through very carefully," he said. "While transparency is a laudable goal, it's like with the doctors -- do no harm." 

Sheer Size Requires a Degree of Discretion

By Spencer Anderson for Financial Times, February 21, 2010

China’s sovereign wealth funds are in a position the entire world should envy. In spite of the crisis they still have hundreds of billions of dollars in highly liquid assets and, unlike the plethora of institutions that are treading water, they are looking for opportunities amid the wreckage. There are plenty around.

This could be the year in which the Chinese funds truly flex their muscles and make some important acquisitions abroad. However, it is just as likely that they will carry on with their staid, conservative strategies.

EDITOR’S CHOICE

Editorial Comment: China’s two trillion dollar question - Sep-11

Cautious reformer with her hand on forex tiller - Sep-11

Beijing uses forex reserves to target Taiwan - Sep-12

Lack of transparency aids foreign policy aims - Sep-11

Beijing’s shadowy fund for buying assets - Sep-11

Fierce battle for diplomatic supremacy - Sep-11

The two funds that have seen the most significant activity for foreign fund managers are the $200bn (£128bn) China Investment Corporation and the $88bn National Social Security Fund. Managers who have worked with the SWFs expect the CIC and NSSF will continue on a trend of gradual diversification.

Established in 2007, the CIC’s objective is to diversify and expand China’s enormous foreign exchange reserves. The NSSF was created in 2000 as a way to handle the demographic problem of the country’s ageing population. Some call it a pension fund of last resort.

Bob Parker, vice-chairman of Credit Suisse Asset Management, has been working with Chinese funds for years, although he will not say which ones. He believes that, despite the highly sophisticated internal management of these SWFs, they will keep their portfolios conservative, with a slow trickle of new assets.

He says: “They will make moves this year, but they are going to continue to move in an intelligent and cautious way.”

While the NSSF’s investment activity began earlier than the CIC, the latter has been the more dynamic and less risk-averse investor, though that is not to say that CIC is not conservative. According to its most recent report, at the end of 2008 it had 87.4 per cent of its assets in cash, 3.2 per cent in equities, 9 per cent in fixed income and 0.4 per cent in alternatives. In 2008 the fund lost only 2.1 per cent on its investments.

Like most institutions, CIC considers itself a long-term investor. While its current asset allocation is unknown, according to its website the fund invests in foreign and domestic equities and bonds and alternatives which include hedge funds, private equity, commodities and real estate. In principle, it does not have limits on how it invests.

Michael McCormack is executive director at Shanghai-based research firm Z-Ben Advisors, which has been tracking the Chinese SWFs for years. It frequently advises fund managers on the strategies the SWFs are interested in and how they can get a piece of the action.

He says: “CIC has already invested most of its money. There is not much more to be put to work until they get more capital. They are likely to receive another $250bn in a few weeks, but that is uncertain.”

If CIC obtains this cash, Mr. McCormack believes the majority of it will go into investment funds as opposed to a direct move into equities or bonds. CIC’s thinking is that funds are more predictable and less volatile.

For the NSSF, it is a different story. Its investment regulations are far stricter, with it permitted to directly invest only in bank deposits or government bonds. For other asset classes, it must use fund managers approved by the ministry of human resources and social security. It must hold at least 50 per cent of its assets in bank deposits and government bonds with ceilings of 10 per cent on corporate debt and 40 per cent on equities and equity funds. Overseas investments cannot exceed 20 per cent of its portfolio.

Regarding the NSSF, Mr. McCormack says: “They are going to increase their allocation to foreign markets over time but it will be incremental. No one should think of the NSSF as a body where trends will shift dramatically. There is a sense that they want more overseas equity exposure and there is a goal to reduce the cash allocation. They know that so much cash will not give them the returns they need.”

In 2008, the NSSF was given permission to invest up to 10 per cent of its portfolio in domestic private equity funds. So far it has reportedly invested less than $300m. CIC, on the other hand, last week agreed to invest $1.5bn in the private equity secondary market. It gave mandates to three Western investment houses for segregated accounts assumed to be on favourable terms for the investor.

Transparency is also likely to become a more important issue in the future; without it managers will have a far more difficult time trying to win mandates. In 2008 China’s SWFs signed the Santiago Principles, a set of non-binding recommendations on transparency. To date, most of the world’s other SWFs have made a complete mockery of the agreement, but some think the Chinese are embracing greater transparency.

Mr. Parker, who played a role in drafting the Santiago Principles, says: “I think the principles are being treated much more seriously than a lot of the cynics think. The natural reaction is that they sign up and ignore it, but there is a change going on with the SWFs towards more transparency.”

Mr. McCormack believes that, in a few years, they will be as transparent as Calpers, the Californian teachers’ pension scheme, or the Norwegian oil fund. He says: “The CIC is already fairly public and the reporting is reasonably timely. The funds aren’t like Calpers or Norway’s, but they will be in a couple of years. The CIC and NSSF have stated it as a goal. They want to be world leaders and the chairmen of both organizations have said they hope and plan within a few years to be within the same level of transparency.”

Yet the matter is not as cut and dried as it seems, mostly because of the sheer size of the funds. With so many billions in assets under management, they have the ability to move markets. One manager says that if SWFs even suggest they are interested in an asset class, the market will price in their intentions. This is the main reason their approach will continue to be below the radar despite an increasing interest in transparency.

Strikes Expand in Greece; Hedge Funds Bet on Debt Default

By REUTERS for The New York Times, February 19, 2010

ATHENS — Taxi drivers parked their cabs and walked off the job for 24 hours on Friday in the latest protest against the Greek government’s austerity program, which protesters said would hurt only the poor.

Some Athens gas stations began to run out of fuel as another strike by customs officials, which began on Tuesday, was extended until at least the middle of next week. Long queues formed at filling stations that still had fuel.

The country has been in turmoil since a new Socialist government revealed in October that the 2009 budget deficit would hit 12.7 percent of gross domestic product — three times the European Union’s limit and twice as big as previously expected.

Concern over Athens’ ability to repay its debt mountain has shaken confidence in the euro and prompted E.U. leaders to issue a vague pledge that they would take coordinated action, if needed, to preserve the stability of the single currency.

The government has vowed to cut the gap to 3 percent of G.D.P. by 2012 with tough steps, like freezing public sector salaries and raising taxes. Despite the strikes, opinion polls show most Greeks support the measures.

Greece has until March 16 to convince E.U. finance ministers and the executive European Commission that the steps it has already announced are enough.

It also must convince the markets. Greece needs to borrow or refinance €53 billion, or $72 billion, this year, more than €20 billion of it in April and May. Investors are charging a risk premium of about 330 basis points to buy Greek 10-year debt rather than benchmark German bonds.

Hedge funds have increased their bets this month on Greece’s economic woes by shorting its bonds or buying default protection, although anecdotal evidence suggests some have cashed in after recent gains.

Even hedge funds without direct exposure to Greece have been insulating their portfolios against collateral damage in the currency or credit markets, as concerns over Greece’s ability to service its heavy debt have grown.

Figures from Data Explorers this past week show rising short positions on Greek sovereign bonds, indicating funds have either been directly shorting bonds or buying credit default swaps (which pay out in the event of default) from banks, who usually hedge their exposure by shorting the bond themselves.

To short sell, a fund or other buyer will borrow a security for a fee and sell it on the open market, hoping to later buy it at a lower price and pocket the difference after returning the original security to the lender.

Short positions — as measured by the proportion of bonds available for lending that have actually been borrowed — have risen to 9.82 percent from 9.58 percent at the end of January, and 8.24 percent at the end of December.

Many hedge funds have also acted to hedge exposure to the euro, which sank to a nine-month low against the dollar earlier this week.

“Risk has been taken off the books in January,” and “quite aggressively,” said Hans Hufschmid, chief executive of GlobeOp, a hedge fund services firm, and a former partner at Long Term Capital Management. “It’s very unusual.”

Protests in Greece so far have been largely symbolic and lacked widespread public support, although the two biggest unions, representing half of Greece’s five million-strong workforce, plan a one-day general strike for Wednesday.

On Friday, traffic in central Athens was disrupted as hundreds of taxi drivers marched behind a vanguard of yellow cabs to the Finance Ministry chanting “Hands off taxis.”

“Our income is falling. Our families are hurt,” said Yannis Papadopoulos, 60, a taxi owner. “We can’t cover our needs with these measures, especially the tax bill.”

The government raised taxes on fuel earlier this month and has announced a series of further measures, including making Greeks collect receipts for goods and services, like taxi rides, in an effort to fight tax evasion.

Greece has replaced the head of its debt management agency as worries grow in financial markets that the country could default on its load of public debt.

Petros Christodoulou, former head of asset management at the National Bank of Greece, will take over from Spyros Papanicolaou, the Finance Ministry said late Thursday. The ministry did not give a reason for the appointment, but agency heads often change after a new government comes to power.

BlackRock Said to Plan Asia Credit Hedge Fund to Start in March

By Netty Ismail for Business Week, February 21, 2010

BlackRock Inc., the world’s biggest asset manager, plans to start a hedge fund to trade corporate bonds in Asia, two people with knowledge of the matter said.

The New York-based manager will launch the BlackRock Asian Credit Hedge Fund in March, the people said, asking not to be identified because the information is private. Neeraj Seth, the Singapore-based head of Asian corporate credit, will oversee the fund, they said. Seth declined to comment.

BlackRock’s new fund will add to the increased number of Asian credit offerings by managers including Guan Ong, previously chief investment officer of South Korea’s sovereign wealth fund, and former Lehman Brothers Holdings Inc. credit trader Assan Din. Fixed-income funds accounted for 2 percent of the region’s hedge-fund strategies as of December, with long- short equities making up 60 percent, according to GFIA Pte.

“Gradually the proportion of Asian capital markets represented by fixed income is growing,” said Peter Douglas, the principal of GFIA, a Singapore-based hedge-fund consultancy firm. “It is an opportunity set that’s getting bigger and there are more people trying to profit from it.”

Still, investors may be “nervous” about putting their money into Asian credit hedge funds amid concern whether managers will be able to sustain last year’s returns, Douglas said. Asian fixed-income managers lost 6.7 percent in January, after returning almost 22 percent in 2009, according to Singapore-based data provider Eurekahedge Pte.

A BlackRock spokeswoman who declined to be identified declined to comment on the new fund.

Rising Bond Yields

“The next big cycle is probably rising bond yields, although the pitch book will say: this is a hedge fund, we can make money in a rising yield environment,” Douglas said. “It’s always easier to make money with the wind at your back rather than your face; we have some not insignificant concerns as to whether this is going to be the best-performing space to be in over the next three-to-five years.”

BlackRock’s fund will trade Asian corporate bonds, including investment grade and high-yield securities as well as options, the people said. It will also use equities markets to hedge, they said.

Seth was previously with R3 Capital Management LLC, a fixed-income hedge-fund firm which was taken over by BlackRock in April last year, the people said.

Ex-chief of Man Group plans tie-up with Hite

By Sam Jones for Financial Times, February 22, 2010

Stanley Fink, the former chief executive of Man Group who is known as the godfather of the UK hedge fund community, is set to return to its forefront in a tie-up with one of the industry's biggest names.

Mr. Fink's hedge fund management company ISAM, established after leaving Man three years ago, will this week announce plans for a "strategic partnership" with Hite Capital Management - the hedge fund run by Larry Hite, the creator of so-called systematic trading and one of Wall Street's most revered money makers.

The partnership will see ISAM launch a new fund, ISAM Systematic, in April, according to people familiar with the situation.

The fund, which will be run by Mr. Hite, is expected eventually to raise up to $6bn (£4bn). Under the agreement with ISAM, Mr. Hite will become a director and shareholder in the fund manager.

Until now, the London-based asset manager, which alongside Mr. Fink counts amid its quartet of founders Lord Levy, the Labour party's former fundraising supremo, has kept a low profile.

The project will also raise eyebrows not least because it throws down an apparent challenge to Mr. Fink's former employer.

The systematic strategy used by AHL, the Man Group's powerhouse fund, was pioneered by Mr. Hite in the 1980s and 1990s in the US.

Mr. Hite's development of complex, algorithmically-driven models that aimed to spot and follow market trends, delivered average annualised returns of more than 30 per cent to his clients, but he retired from active fund management in the mid-1990s.

Man's first foray into systematic trading began with an acquisition of half of Mr. Hite's first hedge fund, Mint Investment Management, in 1983.

Under Mr. Fink's leadership at Man, AHL, the successor to Mr. Hite's trading business, saw assets swell to more than $21bn by 2007.

But since AHL's rise to prominence, new systematic funds have been few and far between, not least because of the black-box strategy - and the ideas that underpin it - remain something of a closed shop. Of the three largest systematic funds currently in operation, two are run by AHL's departed founders. The third, called BlueTrend - a $15bn fund run by BlueCrest - was not set up by AHL alumni.

Amid tumultuous market conditions and a still nervous investor base, ISAM has launched only two funds since its launch three years ago. But further funds are expected after the launch of ISAM Systematic including the ISAM Fusion fund, a fund of managed accounts.

Judge Weighs Delay in Galleon Civil Trial

By REUTERS for The New York Times, February 19, 2010

A federal judge reserved ruling on Friday on requests to suspend the civil trial of Galleon hedge fund founder Raj Rajaratnam and other defendants on insider-trading charges in order to give a criminal trial precedence.

Federal District Judge Jed S. Rakoff, who previously insisted a trial on charges brought by market regulators should go ahead on Aug. 2, did not indicate at a court hearing when he would rule. Prosecutors, lawyers for the Securities and Exchange Commission and defendants are all in favor of the criminal trial going ahead first.

Mr. Rajaratnam, 52, and one co-defendant, Danielle Chiesi, formerly of New Castle Funds, are expected to go to trial on criminal charges on Oct. 25 before a different judge, Richard J. Holwell.

Prosecutors have described the case as the biggest-ever hedge fund insider-trading scandal. More than 20 traders, lawyers, executives and firms have been charged in an investigation that stretched from Wall Street to Silicon Valley.

Usually, when there are parallel cases brought by criminal prosecutors and the S.E.C., the criminal case takes precedence. However, Judge Rakoff quickly set a civil trial date and denied initial requests to wait for resolution of the criminal matter.

Mr. Rajaratnam is accused of making as much as $49 million in illegal profits from 2003 to 2009 on tips he received from business associates and friends on forthcoming mergers and acquisitions.

'Low Cost' ETFs Actually Cost Investors More Than Some Hedge Funds

By Vincent Fernando for Business Insider, Feb. 20, 2010

ETFs bill themselves as low-cost alternatives to standard mutual funds or even hedge funds. The idea is that their management fees are lower and trading costs are low since you can simply buy and sell them easily through a discount online broker.

But here's the problem --  it's only true if ETFs are actually tracking their benchmarks effectively. Unfortunately they aren't.

WSJ:

In 2009, ETFs missed their targets by an average of 1.25 percentage points, a gap more than twice as wide as the 0.52-percentage-point average they posted in 2008, according to a study of ETF returns released this week by Morgan Stanley.

Part of this so-called tracking error stems from the recent proliferation of ETFs targeting exotic investments or areas where trading is less frequent, such as emerging-market stocks and junk bonds.

Last year, 54 ETFs showed tracking errors of more than three percentage points, up from just four funds the prior year. And a handful of the 54 missed by more than 10 percentage points.

1.25% is more than the management expense of some actively managed funds, or some hedge funds even (before performance fees).

We think ETFs are great for tracking broad, liquid benchmarks such as the S&P 500 where they are likely to be worthwhile in terms of cost and trading ease. But ETF products for niche investments are highly suspect. The more illiquid investments the worse off ETF investors will be, especially since savvy traders will likely be able to line up and pick-off trades ahead of the ETF. 

For anything niche, investors are probably better off with old fashioned mutual funds once all of their real expenses are factored in.

Yet we're fully aware of the fact that expenses of an ETF such as the above are near-invisible, especially if someone is been trading in and out of an ETF. So we'll expect investors to keep lapping these products up. In investment management, products with the least visible expenses, and best ability to avoid blame, win.