L'iceberg dei derivati... sta cominciando a mostrare la sua ombra... ;)

[FaGal]

Maurizio Blondet
07/02/2006

Attenti, ingenui risparmiatori: le banche ci si stanno già truffando, perché per questi nuovi «prodotti finanziari» possono caricare commissioni più grasse che mai (1).
Presto ve li proporranno e consiglieranno: comprateli, sono meglio di Parmalat e dei bond argentini, vi diranno.
Gli ultimi OGM finanziari distillati dagli alchimisti dell'usura si chiamano «ibridi», perché sono un incrocio contro natura tra azioni e obbligazioni.
Un'impresa che debba raccogliere capitale lo può fare in due modi: indebitandosi emettendo obbligazioni, o cedendo una parte della proprietà emettendo azioni.
Emettere obbligazioni ha vari vantaggi per l'azienda: politici (perché non cede proprietà), tributari, perché essendo le obbligazioni un debito le emissioni godono di deduzioni fiscali, e di costo (l'indebitato paga al creditore un interesse fisso).
Ma una compagnia che s'indebita «troppo», diffondendo troppe obbligazioni, mina la propria reputazione come debitrice: e le agenzie di «rating» sono lì a declassare il loro debito, obbligandole a rialzare gli interessi che devono corrispondere ai creditori, detentori della loro carta.
Per questo le aziende prendono capitale un po' emettendo debito, un po' risolvendosi a vendere azioni ossia quote di proprietà.

L'emissione di azioni però è costosa, sul 12% fra tasse e altri costi.
Nell'insieme, una ditta che raccolga liquidità per 100 milioni di euro, metà in azioni e metà in obbligazioni, paga su questo mix costi attorno all'8 %.
Con gli ibridi, il costo per la compagnia è la metà: sul 4%.
Inoltre gli ibridi possono essere «scolpiti» su misura per le esigenze del debitore.
Gli ibridi consentono dunque alle aziende di indebitarsi più della misura consentita.
Da una parte, hanno i caratteri di obbligazioni (pagano qualcosa di simile ad «interessi» fissi), dall'altra hanno i vantaggi delle azioni: non vengono mai a scadenza (maturity) e non devono essere rimborsati; e i cosiddetti «interessi» possono essere, come i dividendi azionari, differiti o non pagati per anni.
In sé non sono una novità.
A certi fortunati privilegiati vengono distribuite azioni «privilegiate» appunto perché pagano un dividendo prefissato, prima che i comuni azionisti vedano un solo centesimo in dividendi.

Da un decennio la finanza creativa ha messo in circolazione certe «trust preferred securities» (Trups) che sono azioni privilegiate, ma confezionate in modo da lucrare la deducibilità fiscale per le aziende che le emettono.
Lo scopo è illusionistico, come dice il Financial Times: creare strumenti finanziari che «sembrano» un debito per chi li emette, per chi li compra e (soprattutto) al Fisco, ma che «appaiono» come azioni, ossia non come debito, alle agenzie di rating.
E infatti sono proprio le agenzie di rating ad avere insufflato una vita insperata agli ibridi.
Mesi fa Moody's, rovesciando una sua politica tradizionale, ha cominciato a considerare gli ibridi «più» come azioni e «meno» come obbligazioni, sancendo che ogni ibrido è al 75% azione e al 25% obbligazione.
Le aziende che emettono ibridi per 100 si indebitano, ai fini del rating, come se emettessero obbligazioni per 25.
E' un modo nuovo per indebitarsi eccessivamente, senza farlo sapere ai creditori.
E per evadere le tasse.
Standard & Poor's e Merrill Lynch hanno ovviamente seguito Moody's, come per ordine ricevuto dai salotti buoni dell'alta finanza in difficoltà.

Così opportunamente cambiate le regole del gioco, le banche d'affari e speculative hanno cominciato a salivare, prevedendo profitti enormi per sé.
Gli ibridi, con i loro vantaggi per i creditori, si delineano come l'affare del secolo per i banchieri che li confezioneranno su misura per le aziende, perché su queste operazioni possono chiedere («sono difficili da fare», è la scusa) un rincaro della commissione superiore all'1 %.
Per dire quanto è gigantesco l'affare, Citigroup ha calcolato con l'acquolina in bocca che se le prime 500 aziende USA sostituissero solo il 5% del loro capitale con gli ibridi, il loro «valore» (in realtà la loro capacità di indebitamento aggiuntivo) crescerebbe di 100 miliardi di dollari: un valore su cui le banche d'affari ritaglieranno le loro commissioni maggiorate.
Solo quest'anno l'emissione di ibridi ha raggiunto i 30 miliardi di dollari (erano 4 miliardi l'anno scorso), e si apprestano a soffiare il primato alle emissioni di obbligazioni-spazzatura ad alto tasso d'interesse (e ad alto rischio d'insolvenza), che è sui 90 miliardi.
In Europa la febbre degli ibridi infuria addirittura più che negli Stati Uniti.

Facile capire che questo gioco che tanto piace alla speculazione ha degli ovvi perdenti.
Il primo perdente è l'erario di tutti gli Stati, costretti ad accettare dal «nuovo legislatore globale» (Moody's & Co.) come «debito» deducibile ciò che è «azione» al 75%.
Ma i sicuri perdenti saranno i risparmiatori.
A cui queste creature sintetiche saranno presentate «sicure come obbligazioni» (si è visto com'erano sicuri i bond Parmalat e Argentina) e «lucrose come azioni» (perché gli interessi o semi-dividendi sono più alti), ma prive dei rischi del capitale di rischio.
Non si dirà al risparmiatore che questi ibridi sono, dal punto di vista legale, equiparati al «credito subordinato a lungo termine»: il che significa che se l'azienda che li ha emessi fallisce, il detentore di questi titoli «sicurissimi» starà in coda all'ultimo posto nella fila dei creditori.
E che il piccolo interesse in più corrisponde ad un rischio ignoto, essendo questi prodotti ancora sconosciuti, e il loro comportamento inesplorato, per esempio, in un clima di credito debole.
Persino il Financial Times (ma in caratteri microscopici nell'ultima pagina) ha scritto: «è difficile sfuggire alla sensazione sgradevole che questi prodotti-camaleonte abbiano in serbo alcune (amare) sorprese per gli investitori quando chi li emette affronterà difficoltà finanziarie nel mondo reale» (2).
Non dite poi che non vi avevano avvisato.

Maurizio Blondet

Note
1) Richard Beales, «Banks hope to cash in on rush into hybrid securities», Financial Times, 6 febbraio 2006.
2) «Centaurs or minotaurs», Financial Times, 6 febbraio 2006.

http://www.effedieffe.com/interventizeta.php?id=937&parametro=economia

 

[FaGal]

Quei derivati talmente complicati da mettere in crisi i capi di Deutsche bank
Sono l' ultimo scandalo della City. Costato oltre 40 milioni di euro
FINANZA E INVESTIMENTI. Che cosa si nasconde dentro i collateralized debt obbligation
Oltre 40 milioni di euro di profitti inventati in due mesi di trading. Scoperto per caso, il 26enne Anshul Rustagi che li aveva dichiarati ha dovuto lasciare l' ufficio londinese della Deutsche bank dove lavorava. "È solo la punta dell' iceberg", commenta Janet Tavakoli, consulente indipendente esperta di derivati finanziari. Sotto l' ultimo scandalo che ha scosso la City c' è una montagna di nuovi sofisticatissimi prodotti, i cdo (collateralized debt obligation), ultraredditizi per le banche che li confezionano e vendono, richiestissimi dagli investitori ansiosi di guadagnare sempre di più. È un mercato cresciuto soprattutto in Europa, dove si stima che solo i cdo sintetici valgano 12 mila miliardi di dollari. Sono il terreno di gioco di giovanissimi geni matematici, molti indiani come Rustagi e il suo capo, Anshu Jain, 43 anni, il re degli Euromercati di Deutsche bank, una delle banche più attive nel business. Complesse formule matematiche infatti sono necessarie per valutare prezzi e rendimenti dei cdo. Talmente complesse da risultare incomprensibili agli stessi responsabili delle banche d' affari, come è accaduto in Deutsche bank. E sono formule dove i trader hanno una discreta libertà nel decidere quali ipotesi inserire come variabili, sottolinea Tavakoli, e così è difficile per i loro supervisori controllare se i calcoli sono corretti e se "il prezzo è giusto". Ma cerchiamo di capire di che cosa si tratta. Un cdo è un pacchetto di titoli di debito, per esempio cento diverse obbligazioni aziendali, che una banca mette insieme e poi divide in tranche o fette, diversificate per il rischio rendimento che offrono: l' investitore che sottoscrive la tranche più redditizia accetta di subire la quota maggiore di perdite, nel caso uno o più bond vadano in default, cioè l' emittente non possa pagare cedole e capitale. Un cdo sintetico è invece un pacchetto di derivati costruiti sui bond: dentro ci sono i credit default swap, ovvero delle specie di polizze assicurative contro il rischio di default. Chi investe in un cdo sintetico assume l' impegno di ripagare il valore nominale dei bond sottostanti se vanno in default, e in cambio incassa subito un premio per il rischio che si assume. Cruciale è calcolare non solo la probabilità di default dei singoli bond sottostanti un cdo, ma soprattutto quella che un default contagi gli altri titoli, cioè il livello di correlazione fra i diversi bond. Se per esempio, i titoli sono emessi da aziende dello stesso settore e questo va in crisi, il fallimento di una realtà può provocare un effetto domino catastrofico. "Le ripercussioni di un default non sono lineari e per stimare le sue probabilità di contagio si usano funzioni matematiche a n dimensioni dette copule", spiega John Blin, ex docente di matematica finanziaria all' università di Chicago, titolare della società di analisi rischi Apt. L' idea era venuta alla fine degli anni ' 70 a un giovane cinese, David Li, laureato in statistica e impiegato a Wall Street (ora è alla Barclays capital). Per calcolare la correlazione tra default, secondo Li, si può usare il concetto attuariale del cuore spezzato: una persona tende a morire più in fretta dopo la scomparsa del suo amato consorte, un fenomeno studiato dalle assicurazioni che vendono polizze e fissano il costo dei premi proprio usando le copule. Il modello messo a punto da Li è in particolare quello della copula gaussiana (grafico in alto): banchieri e trader ci mettono dentro tutti i dati sulle probabilità di default futuri per ogni bond del cdo e ne esce il livello di correlazione di tutti i default, sul quale si fissa il rischio rendimento prezzo del cdo. Ma lo stesso Li ammette che la formula ha inconvenienti, per esempio non tiene conto dei cambiamenti negli anni del livello rischio, ed è preoccupato che in pochi capiscano davvero l' essenza del modello. Di fatto non lo afferrano nemmeno i manager delle banche che ci speculano. Così lasciano fare ai ragazzini come Rustagi. Fino a quando qualcuno scopre un buco nero. La formula per capire la copula Ecco la formula del teorema di Sklar usato per calcolare i prezzi dei cdo (collateralized debt obligation, ovvero pacchetti di obbligazioni aziendali ristrutturate per rivenderle a fette, con vari livelli di rischio e rendimento): F(y1,y2,....,yn)ugualeC(F1(y1),....Fn(yn)) dove C rappresenta la copula, funzione matematica, mentre F è una funzione distributiva n dimensionale. Le variabili in F sono le probabilità di default nei prossimi anni di ognuno dei bond messi nel cdo. C calcola la probabilità che il default di uno o più bond causi quello degli altri: così si stima il livello di rischio del cdo, il rendimento e il prezzo. Ecco la copula gaussiana, utilizzata per valutare il cdo 3 febbraio il mondo

 

[FaGal]

Of scorpions and Starfighters
Jan 31st 2006 | FRANKFURT
From The Economist Global Agenda


Are exotic credit derivatives achieving much more than pushing the envelope to its limits?


IN “JARHEAD”, Sam Mendes’s recent film about the 1991 Gulf war, some bored American marines arrange a fight between two scorpions. The money wagered and the attendant pandemonium, indexed to the fortunes of one protagonist or the other, are hugely disproportionate to the contest. Something similar happened when Delphi, a supplier of car parts, went bankrupt in October. It wasn’t just lenders and bondholders who suffered. Their exposure was a mere $5.2 billion. Market participants had another $28 billion of notional exposure to Delphi embedded in scores of credit derivatives. That triggered pandemonium too, as the market tried to assess the residual value of those derivatives.

Delphi was a popular name among the corporate entities bundled together in securities known as collateralised debt obligations (CDOs). Some CDOs are synthetic: that is, they don’t contain actual loans or bonds but are simply indexed to the fortunes of around 100 selected companies. If most of them stay solvent, the CDO pays good money. If more than a handful default, then investors begin to take a hit on the coupon payments and sometimes their capital too. The precise mixture of risks and payouts depends on how the CDO is constructed.

Moreover, the value of a CDO depends not just on expected rates of default, but also on what might be recovered from defaulting companies’ assets. Some pools are static: that is, their composition does not change during the life of the security (usually five or seven years). Others are dynamic: they are in the hands of a manager who can weed out the exposure to companies before they default, or trade credit risk with the aim of improving the portfolio.

CDOs can contain a single “tranche” of credit risk; or the exposure is sliced into tranches of differing risk. Thus in theory investors can pick the collection of risks that suits them. They are helped by the existence of credit ratings, at least for the safer tranches (the riskiest “equity” tranches, which bear the first loss in the event of default, usually have no rating). But they must also consider the likely market price of the tranche they invest in, both for accounting reasons and in case they want to sell before maturity.

CDOs are not that actively traded, and riskier tranches hardly at all. So it is often near impossible to establish a “market” price for them. Accountants have a horrible time when auditing books of illiquid CDOs, being forced to use numbers that they know are nearly meaningless.

Risk controllers have a hard task too. They rely heavily on the integrity of their traders, who are closest to the market, to price their own exposures conservatively. Anshul Rustagi, a CDO trader at Deutsche Bank, was fired in January after being found to have overstated the value of his trading book by around £30m ($50m). Which just goes to show how uncertain pricing becomes at the frontiers of finance. Investors are seeking to exploit areas where return might outweigh the perceived risk; arrangers are looking for ways to skew that return, trying to ensure that they won’t be on the losing side; while the rating agencies are hired as referees, to ensure that the investors at least start with a fair chance.

All three groups of actors are sophisticated. Yet the market is constantly learning from its own mistakes to produce better documentation, clearer definitions of default and loss, and better analysis of riskiness and of other factors that affect prices. Many of the Delphi claims, for example, are being settled for cash, since there are so few debt instruments available for delivery.

Rocket science squared

Developments in the CDO business often stretch the limits of understanding. They certainly seem to breach the limits of usefulness to actual borrowers and lenders. After the synthetic CDO, came the CDO-squared, a CDO comprised of other CDOs, which increases the likelihood of its value being impaired. In practice, though, rating agencies argue, CDO-squareds have suffered no more ratings downgrades than normal CDOs, perhaps because they carry a bigger cushion of collateral in the first place.

Products in this market become fashionable in waves. In the middle of last year the “leveraged super-senior tranche” was all the rage. Imagine a slice of exposure to 100 or so names well above triple-A, ie “super-senior”, because there is a very high loss threshold before it takes a hit. The likelihood of loss is minimal, but not zero. If you think the risk sufficiently remote, why not leverage your investment by, say, 15 times? That was the bet last summer, though like Mr Mendes’s scorpions, it has a sting in the tail: a sufficient move in credit spreads can trigger a wind-up of the CDO at market prices and eat into the investor’s capital. What’s next? Investors, notably hedge funds, have an appetite for highly risky single tranches of exposure, linked for example to the performance of funds of hedge funds, or private-equity funds.

Meanwhile, there is little attempt to relate this frenetic activity to the economy as a whole. Corporate borrowing spreads are thin; stockmarkets are buoyant. This means there should not be much margin left for intermediaries between borrowers and lenders. The intermediaries, in the arena of structured finance, have responded by creating debt instruments with equity-like characteristics. You might wonder whether this is really necessary, when private-equity funds have full coffers and plenty of targets in the corporate world.

In closing, Buttonwood is drawn to another military analogy. Who remembers the Lockheed F-104 “Starfighter”? Introduced in the late 1950s as NATO’s most advanced jet plane, with stubby wings and a huge single engine, it was a triumph of “rocket science” but difficult to control. The Starfighter shot to fame as a flying deathbed. Of the 916 bought in 1960 by the West German armed forces, 269 crashed over the next quarter-century; 110 pilots died. Surely, at some stage during those 25 years it would have been sensible to shelve the programme. But no: huge investments were involved, and the pilots who might have led a protest loved the challenge.

It is too soon to tell whether some strands of CDO may turn out to be financial Starfighters (although with merely pecuniary consequences). Meanwhile, a word of praise for Swiss Re, which last month used CDO technology to securitise €252m of credit-insurance risk on trade receivables. That seems a little closer to oiling the wheels of commerce than, say, synthetic CDO-squareds.

 

[FaGal]

Hedge funds

Growing pains
Mar 2nd 2006
From The Economist print edition



As institutional investors move in, hedge funds are losing some of their rough edges—and their spectacular returns

IN QUIET moments veteran hedge-fund managers sound a little wistful these days. Being a “hedgie”, they reflect, isn't as much fun as it used to be. This may seem hard to believe, since many hedge-fund managers are very rich indeed. Steven Cohen, a hedge-fund star in Greenwich, Connecticut (the industry's main cluster in America) took home more than $500m last year. Plenty of others have pocketed $100m or more.

Much of the nostalgia is for an era of spectacular returns. Last year, overall returns in hedge funds were modest at best (although 2006 is off to a stronger start). But something more profound is going on: hedge funds are growing up. What once was a cottage industry is being institutionalised. The mix of investors has changed dramatically in the past five years, and that has led to big shifts in everything from fund size to competition, risk profiles, transparency and—horrors!—regulation.

That has raised a paradox: can the industry be big and yet retain the innovative, risk-taking culture that produced the returns which, in turn, encouraged more conservative investors to invest in it? There are signs that some leading fund managers are limiting the size of their funds because they think big money is incompatible with their way of doing business. Meanwhile, hedge funds face other pressures. New investors are more demanding and, curiously, risk-averse, which is forcing some hedge funds to change their investment style. And competition is growing, as more traditional fund managers introduce products that mimic hedge funds and crowd the market, making it harder to distinguish a genuine hedge fund from a souped-up traditional fund.

Amid all the change, regulators are looking more closely at the sector than in the past. This week Britain's Financial Services Authority (FSA) levied a £1.5m ($2.6m) fine against GLG Partners, a hedge fund based in London, and one of its traders, for improper securities trading. French regulators are reportedly also investigating GLG and its co-founder Pierre Lagrange, along with other big London-based hedge funds, for alleged insider trading. Such scrutiny is yet another restraint on hedge funds' buccaneering culture.

The changing investor mix is one reason why regulators are watching the sector more closely. Until recently, hedge funds were the exclusive preserve of rich Texans, Arab sheikhs and family offices of the super-wealthy. These investors put their millions in the hands of entrepreneurial fund managers who promised—and often delivered—stellar returns whilst offering almost no explanation of how they did it.

Today's hedge funds are increasingly monitored by professional managers at pension funds, endowments, foundations and even central banks—a much less colourful and vastly more demanding bunch. This new group of investors controls sums huge enough to make the assets of most hedge funds look like rounding errors. In short, they are investors with clout.

Today 50-60% of hedge-fund assets come from institutions, reckons Oliver Schupp, president of the Credit Suisse/Tremont Index, an indicator of fund performance. This trend is most pronounced in Japan and, to a lesser extent, pockets of continental Europe. In America, where the bulk of hedge funds are based, endowments and foundations embraced the sector early on, whereas other institutions were more tentative. Britain has the smallest take-up by institutional investors, although London is a big base for hedge-fund managers. “There's been much more cynicism among UK investors, due to the lack of transparency,” says Dominic Rossi of Threadneedle Asset Management, an investment firm that manages traditional as well as hedge funds.

Institutional money has helped the sector to balloon. There are more than 8,000 hedge funds today, with more than $1 trillion of assets under management. Institutions are increasingly attracted to two sorts of hedge-fund providers, says William Wechsler of Greenwich Associates, a consultancy: firms with multiple hedging strategies on offer and research to back up their claims, such as Bridgewater Associates; or traditional fund managers such as Barclays Global Investors (BGI) and State Street Global Advisors that have added hedge-fund products in recent years. In America, he notes, there has been a net outflow of institutional money recently from so-called “funds of funds”, which offer a mix of hedge-fund investments in one product to diversify risk, but also add another layer of fees.

Although there is a stronger institutional feel to the hedge-fund business today, that is not to say the cult of personality has disappeared. Most funds are clustered near a few places, such as Connecticut and London, and there is a steady buzz about the latest manager to jump ship and start his own firm. Even university-endowment managers are getting in on the act: Jack Meyer, formerly head of Harvard University's endowment fund, recently raised a record $6 billion for his start-up hedge fund. Paul Allen, a co-founder of Microsoft, has reportedly put $1 billion of his own money into a new firm being launched by Mike McCaffrey, who as chief investment officer at Stanford University helped that entity's $14.3 billion endowment to earn double-digit annual returns for a decade. Other hedge funds have launched with “star” power from investment banks. Eton Park Capital is run by Eric Mindich, formerly of Goldman Sachs, and Cantillon Capital was started by William von Mueffling, previously a successful portfolio manager at Lazard.

Indeed, the industry is still largely driven by personalities and reputations. Investors are backing the managers they believe can find and exploit inefficiencies or wrinkles in the market better than anyone else. How to reconcile the reality of this large and increasingly conservative sector with its swash-buckling and secretive image? “Perception always takes a while to catch up with reality,” says Stanley Fink, chief executive of Man Group, a global asset-management firm with a big stable of hedge funds. “The days of 30%-plus returns for hedge funds are long gone,” he says. “The Wild West is over.”

Expectations of annual returns have certainly changed: ten or 15 years ago, investors “wanted 30-50% returns and could handle the down years,” says Jerry del Missier of Barclays Capital, an investment bank. Now pension funds will settle for 8-10% returns, but want less volatility. In general, he says, “people have stopped looking for the drama.”

That is not to suggest things are dull. Hedge funds are popping up everywhere, using their muscle in takeover battles and shareholder revolts. Secrecy and limited regulation remain hallmarks of the sector. But some industry observers suggest the activism and other high-profile tactics—admittedly, still practised by only a small fraction of hedge funds—are evidence that the industry has become more mainstream. For some, activism can be very profitable: the Children's Investment Fund Management, a London-based fund that led a successful shareholder revolt against incumbent managers at Deutsche Börse in 2004, had net returns of 43% that year and 50% in 2005.

Overall, though, hedge-fund returns have been far from stellar in recent years. The Credit Suisse/Tremont Hedge Fund Index rose a mere 7.61% in 2005, on the heels of a relatively lacklustre 2004. A recent study by Harry Kat and Helder Palaro of Cass Business School in London says that in recent years fewer than one in five hedge funds gave investors returns above what they could have made themselves trading the S&P 500 stock index, Treasury bonds and Eurodollar futures. The pace has picked up at the start of 2006—the index was up 3.23% in January, the strongest monthly performance since August 2000—but overall returns are unlikely to be stunning.

Surprisingly, given the hype surrounding the sector, there was probably a modest net outflow of money from hedge funds in 2005. Exactly how much left is unclear, because the industry lacks a central database. Attempts to generalise are complicated further by the fact that hedge funds are actually a collection of different investment strategies (see article) rather than a coherent asset class.

Nevertheless, much of the money that came into the industry was from institutions. The $200 billion CalPERS Retirement system, one of America's biggest investors, recently doubled the size of its hedge-fund investments to $2 billion. Also in California, the San Diego County employees' retirement association, America's top-performing big public-retirement fund over the past decade, has about one-fifth of its total assets ($1.3 billion) in various hedge funds, roughly the same share as in the big university endowments.

Given the mediocre returns, why are institutions investing? Partly because of poor returns in other asset classes and the herd's sense that others have made a lot of money from hedge funds. But their belated arrival also signals slow decision-making processes—changing the strategy of a big institutional investor takes time.

According to a recent report on European investors by the Centre for Risk and Asset Management at EDHEC, a French business school, diversification is another powerful reason why institutions think they should invest in hedge funds. The study found that hedge funds had low correlations with other investments. Other advantages cited by institutions included hedge funds' low volatility, lack of correlation with economic cycles, and the extreme risks they can afford—presumably in the hope of making big returns.

Well matched

Pension funds have been particularly keen to diversify as they struggle to address a longstanding mismatch between their assets and long-duration liabilities. Mark Tapley, a pension-fund adviser and administrator at the hedge-fund centre run by London Business School (LBS), notes that consulting actuaries are searching for liability-matching strategies. He says there is a more intense search for what is known as “alpha” (returns above those of the relevant market index).

Some investors remain sceptical. “We're very nervous whether we have the skills to identify the hedge-fund managers with the right strategies, as opposed to those who are lucky or have a good story to tell,” Penny Green, a trustee with a British university employees' pension scheme, told an industry conference recently. Other institutional investors complain about a lack of understanding about investment techniques, a shortage of staff to investigate alternatives and worries about corporate governance (including potential lawsuits). “People want to know exactly how you're making your money,” says Fred Dopfel of BGI. He says institutional investors need to know exactly how hedge-fund strategies fit with the rest of their portfolios. They also seek a clear separation of returns: “Market exposures are cheap,” he says. “Alpha is expensive.” In other words, hedge-fund managers charge a lot to beat the market average.

A typical fund's compensation structure involves a 1% or 2% management fee (a few have stretched the limits with 3%, but investors balked), plus fees paying out 20% of performance. In Europe an estimated 75% of institutional investors with hedge-fund assets are in funds of funds. Increasingly, though, multi-strategy funds are attracting more interest.

The size of individual hedge funds is a growing concern for fund managers. “Once you become large it starts hurting, for a variety of reasons,” says Narayan Naik, director of the hedge fund centre at the LBS: “No market is anonymous when you need quantity.” Automated trading programs have proliferated, as funds increasingly flood exchanges with multiple small orders, in order to camouflage their trading strategies.

Several studies last year were pessimistic about the industry's ability to generate long-term returns as it grows larger. More and more retail investment funds are capping their sizes in an effort to protect their agility and performance. Mr Meyer's fund, Convexity Capital Management, has reportedly decided to accept no more than $1 billion per year in new investments over the next three years.

As hedge funds get bigger, the worry is that managers will also become more cautious. For a growing number of managers, the main goal is “not to make mistakes,” says Matthew Ridley of Consulta, a family office and investment firm. He notes that managers of large funds can live nicely on management fees alone. For retail investors and those institutions seeking edgier strategies or a personalised approach, he recommends smaller funds.

Mr Fink says he, too, worries about managers becoming too risk-averse. A shift into “asset-retention mode”, he says, is “the kiss of death”. Man Group has dealt with the difficulty by offering two sorts of hedge funds, he says: those that provide more transparency and lower returns, and those that are more opaque, focused and likely to give higher returns—for example Man Group's AHL Fund, a managed-futures fund that uses automated “black box” trading to invest in more than 100 futures markets across the world. It returned 14.3% in 2005, and has had average returns of 18.1% since it started.

Time to trim

Regulatory oversight of hedge funds remains relatively light, but there are signs that it, too, may grow more burdensome. Although hedge funds can set up almost anywhere, fund managers still like the marketing value of the imprimatur of America's Securities and Exchange Commission (SEC) or Britain's FSA. The SEC's fund-registration deadline on February 1st, which also affected large foreign funds with numerous American investors, was resisted by the industry, but stricter regulations are probably inevitable when retail investors' money is at stake.

Many observers predict consolidation among hedge funds in years to come. The liquidation rate of funds surged last year. Others have been bought out in whole or part by bigger businesses: Legg Mason, a big mutual-fund firm, bought Permal Group, a hedge-fund firm, for about $1 billion last year; ABN Amro, the banking group, bought out International Asset Management, one of London's oldest fund-of-fund managers, in January; and the derivatives unit of American International Group, an insurance giant that already has a fund-of-funds unit, bought a 4.3% stake in Aspect Capital earlier this month. The trend makes sense to those who watch the industry closely. “There are too many managers chasing too few opportunities,” says Mr Naik. “Everyone is using the same models.”

 

[FaGal]

Asset management

The long and the short of it
Feb 23rd 2006
From The Economist print edition


Mutual funds are borrowing hedge funds' techniques—and their fees

FOR many asset-management firms, hedge funds have long been like a maddening little brother: small, cocky, subject to fewer rules and, yes, the apple of everyone's eye. Family resemblances, however, will out. Mutual funds, while more tightly regulated than their boisterous siblings, are acquiring hedge funds and adopting some of their behaviour, such as the use of leverage, short-selling (betting on a price falling) and derivatives.

Ironically, they are doing this after a period in which hedge funds have struggled to beat pedestrian index-trackers. And lately some index-fund managers have been fighting a fee-cutting war. So is the aping of hedge funds just a wheeze to justify higher fees, or will clients, such as pension funds, benefit?

This week, Schroders, a British institution born in the era of Admiral Nelson, became the latest old-style fund manager to embrace the saucier end of the investment market. It agreed to buy NewFinance Capital, a London fund of hedge funds founded just four years ago, for up to $142m. The price was not considered steep by the market. Indeed, it was on a par with last year's acquisition by America's Legg Mason of Permal, a French fund of hedge funds: with a downpayment of $800m, that was the largest such takeover so far.

Next week Morningstar, an American company that tracks the performance of mutual funds, will create a new category for regulated institutions that invest in both long and short positions, a favourite hedge-fund style. Dan McNeela, an analyst with the firm, says that at first it will consist of two dozen funds with $7.6 billion under management. “It's a very small percentage of mutual funds that do any shorting at all, but it's definitely becoming more common.”

Other big fund managers, including State Street Global Advisors and Goldman Sachs Asset Management, have also devised ways to spice up the returns of even their most passive-sounding funds, by overlaying short-selling techniques on long-only portfolios. The idea baffles many pension-fund trustees, brought up on simpler choices such as equities versus bonds. But its champions claim it can raise their chances of beating their benchmarks, without much increasing risk.

Although it can still give regulators the willies, especially when combined with derivatives and gearing, short-selling is steadily gaining respectability. In America, mutual funds can sell short with some restrictions, for instance on leverage. In the European Union, recent changes in regulation allow fund managers to take short positions by using derivative instruments, such as contracts for difference and credit default swaps, rather than through underlying shares or bonds.

State Street and Goldman Sachs are developing funds that will enable them to short-sell exposure to companies they do not like in an index, rather than just underweighting them, as they do now. It is a common complaint of long-only funds that they can only underweight shares by at most their share of the benchmark. At the end of last year, only 49 stocks in the S&P 500 accounted for more than 0.5% of the index's total capitalisation and therefore could be underweighted by more than half a percentage point (see chart). Bigger stocks tend to be underweighted more often than smaller ones. This breeds inefficiency and concentrates risk.

State Street says it is trying to “loosen the handcuffs”. But neither it nor Goldman Sachs is planning a short-selling spree. Both institutions would limit short-selling to around 30% of a global portfolio, while keeping 130% long-only. They say the strategy offers a slice of outperformance, or “alpha” in hedge-fund-speak, on top of a benchmark or “beta” product. “Currently, if we really don't like a stock we can't do much about it, and we regard that as leaving alpha on the table,” says Lloyd Reynolds of Goldman Sachs Asset Management. “With the addition of shorting, we can underweight it more.”

Results have been unspectacular. A State Street fund that started using the technique in Australia last year has beaten its benchmark, but by less than it had hoped. Mr McNeela at Morningstar says the funds it will include in its “long/short” category have performed disappointingly. He puts this down to their higher fees and to the difficulties of beating a rising market.

Some traditional asset managers seem to believe they are entitled to charge hedge fund-like fees to manage hedge fund-like products. Others, such as State Street and Goldman Sachs, are developing more nuanced fee structures. They charge like a hedge fund only when they beat their benchmarks. That is generating interest among pension-fund clients, some of whom are eager for innovative and lucrative ideas. Only once the fund managers have proved their worth can they charge what they like.

 

[FaGal]

March 13, 2006
Funds back dealers in credit derivatives clean-up
By FT.COM

Leading credit derivatives dealers have committed to take steps that could lead to a "dramatic improvement" in market practices and to cut further the backlog of outstanding trades that has plagued the fast-growing market.

The pledges come amid continuing scrutiny from the New York Federal Reserve and other US and European regulators, and represent a continuation of industry efforts that began last October after the New York Fed had summoned 14 dealers to discuss the problems in the market.

In contrast to last year, when some hedge funds initially criticised the dealers' proposed actions, the latest commitments were quickly supported by the Managed Funds Association, a hedge fund industry group.

"We applaud the major dealers for reaching out to our members for their support in achieving the 2006 targeted objectives," said John Gaine, president of the MFA.

"We firmly believe that we can achieve broad market support and a dramatic improvement in credit derivative market practices," the MFA added.

In a letter dated Friday and sent to regulators, the dealers, including US and European institutions such as JPMorgan and Deutsche Bank, said they were committed to achieving "a stronger steady state" for the industry by increasing the level of automation in the industry and upgrading other practices.

The dealers said that by October all standard trades with active customers would be processed electronically and fully confirmed within five days. They also proposed mechanisms for confirming non-standard trades more quickly than at present, and endorsed the idea of a central database of credit derivative transactions, unveiled last month by the Depository Trust & Clearing Corporation.

Among other commitments, the dealers said they would continue to cut the number of trades still outstanding after more than a month and share more information with their customers and regulators.

Credit derivatives act as insurance against default on corporate debt. They can be used to hedge bond or loan portfolios, or to speculate on credit trends. The failure of back office processes to keep up with the explosive growth in the popularity of the instruments has led regulators to worry about potential risks to the stability of the financial system, especially given the heavy involvement of hedge funds in the market.

The New York Fed on Monday welcomed the dealers' further commitments. But regulatory interest is unlikely to subside soon. The US Treasury said last week that it, too, was studying hedge funds and the derivatives industry. While noting the risk transfer benefits of derivatives and "heartening" developments such as those in the credit derivatives market, Emil Henry, assistant secretary of the Treasury, also highlighted the need to pay attention.

"We are not expecting or responding to a particular crisis, but trying to prevent one from occurring," he said.

 

[FaGal]

Offshore: The long arm of the law
www.legalweek.com - March 16, 2006


The US Treasury’s recent rule for offshore hedge fund advisers bears a striking resemblance to its proposed anti-money laundering rule. But is greater disclosure based on Patriot Act requirements a rational way to prevent fraud, or is it simply another manifestation of the extra-territorial reach of US regulation? Martin Livingston reports

Offshore practitioners trying to maintain a faint grasp on the dynamo that is US regulation may be forgiven for thinking the recent rule requiring hedge fund advisers to register with the Securities and Exchange Commission’s (SEC’s) Rule 203(b)(3)-2 bears a striking resemblance to an anti-money laundering rule proposed by the department of Treasury’s Financial Crimes Enforcement Network (FinCEN) in April 2003. Broadly speaking, both rules required investment advisers to set up compliance programmes (including mandatory periods for record retention), designate compliance officers and utilise similar carve-outs from regulation.

The Treasury’s proposed rule 68 FR 23646 (which has not yet been finalised), distinguished the two types of investment advisers requiring anti-money laundering programmes; SEC-registered advisers and unregistered advisers — that is, US-based advisers with more than $30m (£17.2m) of assets under management who are exempt from SEC registration (under the Advisers Act) by having less than 15 clients and not holding themselves out as investment advisers. In a show of bi-partisanship, the Treasury proposed allowing the SEC jurisdiction to inspect the programmes of unregistered advisers.

The definition of an ‘unregistered investment adviser’ under the Treasury’s proposed rule covered most US-based general partners of venture capital and private equity partnership funds. The rule also proposed that where a fund, created and administered by an investment adviser, was not itself subject to anti-money laundering requirements, the adviser would need to consider the investors as clients and perform due diligence on them, in addition to the fund.

The Treasury had previously issued a similar proposed rule (67 FR 60617) for unregistered investment companies (which also has not yet been finalised). This rule applied the same anti-money laundering programme requirements to hedge funds with a lock-in period of less than two years and assets of more than $1m (£576,000) that were organised, operated or sponsored by, or sold to, a US person; that is, essentially any open-ended fund with a US nexus. Funds not meeting the above criteria were exempted.

The net effect of the proposed rule on investment advisers meant that, by virtue of these criteria, where a partnership fund may be exempt from anti-money laundering requirements, the general partner of such a fund might still be required to establish a money-laundering programme. In other words, the general partner would still have to perform due diligence on investors of funds which were themselves exempted from conducting any due diligence. This was one of the main disconnects raised during the public consultation process.

Although advisers located offshore would not be subject to the proposed rule for investment advisers, the proposed rule for unregistered investment companies has extra-territorial reach. It was evident to industry associations representing foreign interests that the proposed rule for unregistered investment companies was of great concern to offshore administrators, as well as controllers and non-US investors of offshore funds, who wished to protect the confidentiality of their records from onshore regulatory authorities.

As noted above, for these reasons and more, the Treasury proposed rules introduced in 2002 for ‘unregistered investment companies’ and those introduced in 2003 for ‘unregistered advisers’ have effectively been shelved.

Fast-forward three years to the introduction of the SEC rule requiring the registration of private hedge fund advisers. The rule was promulgated largely on account of the perceived increased incidence of hedge fund-related fraud (the basis for which may be somewhat misleading in proportion to the growth of the industry). At the time the rule was proposed, the SEC estimated that 40%-50% of all hedge fund advisers were registered with the SEC. The rule would bring into question the need for registration of those US based advisers who had hitherto relied on the ‘private adviser’ exemption under the Investment Advisers Act 1940.

Using similar criteria to that imposed by the Treasury, US advisers having more than $30m of assets under management, 15 or more clients (in a 12-month period) and who either hold themselves out as investment advisers or advise registered investment companies will now need to be registered. Historically, advisers were allowed to regard the hedge funds themselves as their ‘clients’. The rule now includes as clients the investors of private funds, which are essentially defined as any unregistered investment companies with less than a two-year lock-up period. Reinvested dividends and redemptions for extraordinary circumstances were excepted when determining eligibility for the two-year lock-up period.

A broad range of regulatory compliance controls will be imposed upon registrants, including periodic reporting to the SEC (Form ADV) and investors alike, key employees of the adviser being subject to SEC fitness screens, as well as advisers establishing programmes to prevent violation of federal securities laws.

Technically, SEC registration does not yet make an investment adviser a financial institution, as defined under the Bank Secrecy Act for the purposes of the Patriot Act. But it does bring them one step closer to being subject to the US anti-money laundering regime, under the mandate of a federal functional regulator (as is the case for securities brokers and dealers or commodity trading advisers). The writing appears to be on the wall, as most investment advisers now choose to adopt anti-money laundering programmes based on Patriot Act requirements regardless.

Much like the Treasury rules, the registration requirements extend to offshore advisers (that is, those having a principal office or place of business outside of the US) where the adviser has more than 15 US resident clients. The SEC has ignored the need for offshore advisers to have managed assets over $30m.

When calculating US resident clients, the offshore adviser will need to count US-based hedge funds (determined at the time of investment by principal office and place of business for corporations and part-nerships) and must still look through offshore private funds for US resident investors. The compromise is that, if the offshore adviser needs to register, they can then treat the offshore private fund as their client (and not drill down to the investors) for the purposes of the application of the regulations.

In theory, therefore, an offshore adviser that provides services to an offshore private fund or funds with more than 15 US resident investors will need to register, notwithstanding the amount of foreign investors or the domicile of the fund.

So, how does the new rule sit with onshore or offshore investment advisers?

Fortunately, the scope of the private fund criteria meant that many venture capital, real estate investment and private equity funds automatically fall out-side the ambit. As the lock-up period applied only to investments made on or after 1 February (the registration deadline), it is understood that some advisers restructured their funds to impose a lock-in period exceeding two years. This is more easily said than done, as hedge funds with continuous offerings will have revised their offering memoranda and may have had to re-negotiate subscription terms for investors pre-existing 1 February.

Although some of the regulatory compliance requirements are relaxed, registration still has the effect of subjecting offshore advisers to US jurisdiction and SEC examination. Aside from the costs of compliance, many offshore advisers will be rankled by the thought that their records and those of their clients will be accessible to the SEC.

In conclusion, although there may be some rationality to requiring greater disclosure in the hope of preventing fraud, you have to wonder whether the scope of the rule, as it applies to offshore advisers with only tenuous US connections, is yet another manifestation of the extra-territorial reach of US regulation.

Martin Livingston is an associate at Maples & Calder in Grand Cayman.

 

[FaGal]

Gli hedge fund rallentano con le Borse troppo brillanti


VITTORIA PULEDDA

Blanditi, corteggiati ma anche temuti dai risparmiatori e in parte dalle autorità di vigilanza, che non a caso hanno dettato regole più stringenti per questi prodotti a difesa dell’investitore potenzialmente poco consapevole: gli hedge fund rappresentano negli ultimi anni la novità più articolata e di successo nel mondo del risparmio gestito.
In Italia sono soggetti a limiti particolarmente "punitivi": l’investimento minimo deve essere di 500 mila euro, con un tetto massimo di 200 sottoscrittori, proprio per evitare che un singolo fondo diventi troppo grande e che un eventuale errore del gestore si riveli troppo nefasto per molti. Tuttavia un po’ tutti i paesi hanno dettato condizioni e restrizioni all’operatività di questi prodotti, considerati in una qualche misura rischiosi, perché possono operare "a leva", cioè investendo cifre superiori a quelle di cui si ha la disponibilità in portafoglio lavorando con i prodotti derivati; in altre parole, andando "corti" sul mercato se si ritiene che sia il momento giusto.
Eppure, alla prudenza delle autorità di vigilanza per lungo tempo ha fatto da contraltare il gradimento dei risparmiatori. Che, almeno nel nostro paese, non accenna a tramontare: da gennaio del 2005 la raccolta netta di questi prodotti è sempre stata positiva cosa che non può certo dirsi per il complesso dei fondi comuni sebbene il "bottino" abbia dimensioni variabili: il massimo di periodo è stato toccato nel maggio scorso, con un più 995 milioni di euro, il minimo in settembre, con un più 50 mentre l’ultimo dato disponibile, al febbraio 2006, segnala una raccolta netta pari a 360 milioni di euro contro il dato complessivo dell’universo fondi in rosso per 919 milioni di euro. Il fenomeno ha dimensioni di tutto rispetto anche in termini assoluti: lo stock complessivo degli hedge fund, secondo i dati Assogestioni, era pari a 20,56 miliardi di euro a fine febbraio scorso. A livello mondiale, tuttavia, gli hedge fund cominciano a dare qualche segno di stanchezza: secondo le statistiche citate dalla Ubs investment bank, per la prima volta da dieci anni il settore ha perso denaro. Più in particolare, nel terzo trimestre del 2005 (ultimi dati disponibili) ci sono stati deflussi netti per 824 milioni di dollari, contro sottoscrizioni al netto dei riscatti per 11 miliardi di dollari nel corrispondente periodo 2004. Per l’intero 2005, invece, i flussi netti a livello globale si sono dimezzati: 40 miliardi di dollari contro i 75 del 2004. Insomma, le cose vanno ancora bene, ma si avvertono i primi segnali di stanchezza da parte dei risparmiatori. La spiegazione tutto sommato è semplice: negli ultimi tempi le performance di questi prodotti non sono state più clamorose, a fronte di rischi che tutto sommato non sono trascurabili. Nella maggior parte dei casi, infatti, questi prodotti hanno uno stile di investimento "long/short equity", insomma investono sul mercato azionario ma mediando il rischio. Ciò significa che nei periodi di mercato Toro, decisamente rialzista come quello attuale (a Piazza Affari ma un po’ ovunque nel mondo) questi prodotti offrono rendimenti non particolarmente brillanti. L’obiettivo di dare una performance sempre e comunque, tutti i mesi, porta infatti ad adottare una politica di investimento che utilizza le tecniche di copertura; se il mercato ha una sola direzione, specie al rialzo, i rendimenti un po’ ne soffrono. Senza contare che questi prodotti specie nella versione fondi di fondi, meno rischiosi ma più onerosi per i sottoscrittori hanno costi mediamente più alti degli altri, quindi prima di cominciare a guadagnare devono ripagarsi di costi non indifferenti. «Tuttavia, in un portafoglio ben strutturato di un risparmiatore benestante, una quota di fondi alternativi deve esserci spiega Pietro Giuliani, amministratore delegato di Azimut, una delle pochissime sgr insieme a Ersel, Kairos e Unifortune, che hanno "in casa" un fondo hedge puro, mentre molto più numerosa è la pattuglia di quanti vendono i fondi di fondi hedge perché garantiscono o quanto meno dovrebbero garantire un rendimento sempre e comunque; dunque, offrendo una buona copertura alla volatilità dei mercati e ai periodi di Borsa Orso».
Tuttavia, come si vede dal grafico, negli ultimi tempi le performance di questi prodotti non sono proprio esaltanti: con l’eccezione dei nove mesi, ad un anno e a due anni le performance dei fondi hedge sono più o meno allineate a quelle dell’indice generale dei fondi comuni e sono decisamente più basse di quelle dei flessibili (che dovrebbero avere una logica analoga all’hedge ma senza poter usare la leva finanziaria andando "corti" sul mercato). La "colpa" spiegano gli esperti del settore è dell’andamento troppo brillante delle Borse. Ma, come è ovvio, le quotazioni non vanno mai in una sola direzione: «In uno scenario "normalizzato", gli hedge fund sono lo strumento ideale. Certo, occorre avere un orizzonte temporale non troppo limitato, in media almeno a cinque anni», conferma Fabrizio Carlini, responsabile insieme a Francesco Zantoni del Kairos hedge fund gestito a Milano.


affari&finanza

 

[FaGal]

Il mercato dei derivati sul credito raddoppia

l’allarme


Il mercato mondiale dei derivati sul credito ha chiuso il 2005 con volumi più che raddoppiati, nonostante il rallentamento della crescita, che ha inciso sul secondo semestre. Questo proprio mentre le autorità di vigilanza esprimono preoccupazione per un’espansione troppo veloce, che sfugge al controllo delle banche. Il mercato è cresciuto del 39%, a 17.300 miliardi di dollari nel secondo semestre, con un incremento del 105% per l’intero 2005. L’espansione dei derivati sul credito, strumenti usati per tutelarsi dal rischio d’insolvenza sul debito o per puntare sulla qualità del credito, è rallentata l’anno scorso rispetto al 123 percento del 2004, come ha indicato la International Swaps and Derivatives Association a Singapore nella sua riunione annuale. Gli swap sulle insolvenze, che pagano gli investitori nel caso che in cui un debitore non onori i propri impegni, hanno guidato la crescita dell’intero settore dei derivati. La Federal Reserve Bank di New York ha chiesto alle società di brokeraggio di risolvere il problema dell’accumulo di contratti rimasti inevasi per settimane e a volte mesi. Le authority di settore temono che non vi siano titoli sufficienti in circolazione per liquidare i contratti, nei casi di effettiva insolvenza delle aziende, minacciando la stabilità dell’intero sistema finanziario. Secondo il presidente della New York Fed, Timothy Geithner, le 10 maggiori holding finanziarie degli Usa sono esposte a un potenziale rischio di credito per 600 miliardi di dollari derivante dalla loro posizione nei derivati.
affari&finanza

 

[giusy44]

molto interessante

 

[ramirez]

io opero in derivati (mercato idem) e trovo che sia
un mercato con opportunità fantastiche dallo
speculatore assatanato a chi vuole semplicemente
pararsi il cu-lo su eccessive perdite...
Se poi pensiamo che il denaro sia lo ster-co del diavolo
vabbè compriamo bot

 

[FaGal]

Hedge Fund Chief Can't Get to Russia
www.theledger.com - By ANDREW E. KRAMER - New York Times - March 18, 2006


MOSCOW - Russia has been holding up an entry visa to William F. Browder, who controls a $4 billion hedge fund in Moscow and is the largest foreign investor in the country's stock market.

Mr. Browder has been living in London for the last four months waiting for a visa.

While minor delays are common, a delay of four months would suggest an intentional refusal on the part of the Russian government to allow Mr. Browder to travel to Russia.

The delay was also unusual for such a high-profile investor. Authorities have often meddled with permits, or more aggressively, staged tax police raids on Russian businesses, but foreign investors have largely been spared direct government pressure.

Still, the Kremlin is seeking foreign investment in several large energy companies and would seemingly have no incentive to expel a hedge fund manager helping to channel capital into Russia.

A spokesman for the foreign ministry, which processes visa requests, declined to comment after working hours on Friday, asking that questions be faxed to a more senior press official.

Mr. Browder, the chief executive of Hermitage Capital Management, said he could not immediately discuss the details of the delay, but would later explain what happened.

"We've received a very sympathetic response from very senior officials in Russia and expect the situation to be resolved shortly," Mr. Browder said.

Hermitage Capital Management said the delay had no effect on investment returns, which soared this year, along with the Russian stock market.

The fund was up 43 percent in the months that Mr. Browder was absent from Russia, the company said. "All aspects of the business have continued to run normally," it said.








UK investor barred by Russia
www.telegraph.co.uk - By Christopher Hope, Industry Editor - March 18, 2006


Bill Browder, British chief executive of the largest foreign investor in Russia, Hermitage Capital Management, has been banned from entering the country for the past four months.

Mr Browder has developed a reputation as a campaigner for shareholder rights in Russia, particularly by targeting corporate governance issues at the state-controlled gas giant Gazprom.

Yesterday, Hermitage, which runs Russia's largest equity fund with more than $4bn under management, confirmed Mr Browder had been barred from the country since mid-November.

Hermitage stressed the exclusion had not affected the operations of its fund, which serves over 6,000 institutional and individual investors from 30 countries.

A spokesman said: "The fund is up over 43pc since this incident took place.

"Hermitage has been working constructively with senior Russian government officials to resolve this situation and has received full support of the British Government in these discussions."

The British embassy said the Russian authorities had given no reason for barring Mr Browder, who holds a British passport. Tony Brenton, the British ambassador, said: "British ministers have raised the matter with their Russian counterparts.

"Decisions of this sort are a matter for the Russian authorities, but we have asked them to reconsider and understand Mr Browder's concern that he has not been informed of the reasons for this decision." Russia's Foreign Ministry declined to comment.

Other investors rallied to Mr Browder's defence. James Fenkner, partner at Red Star Asset Management, a $100m hedge fund, said: "It's hard to find any other investors who have done more to bring money into Russia than Bill."








Ex-Putin aide says G8 summit will be a triumph for dictators as Russia delays issuing visa for leading foreign investor
www.finfacts.com - By Finfacts Team - March 19, 2006

William Browder is the founder and CEO of Hermitage Capital Management, the international hedge fund firm specializing in Russian equities.


The Russian Federation has been holding up an entry visa for US born British citizen William F. Browder, who controls a $4 billion hedge fund in Moscow and is the biggest foreign investor in the country's stock market.

Browder has been living in London for the last four months waiting for a visa. He is the chief executive of Hermitage Capital Management and is reported to have said he could not immediately discuss the details of the delay, but would later explain what happened.

"We've received a very sympathetic response from very senior officials in Russia and expect the situation to be resolved shortly," Browder said.

Browder has in the past spoken positively of President Putin but his advocacy of improved corporate governance, at large companies such as Gazprom, the state-controlled natural gas giant, has made him powerful enemies.

The hedge fund has gained 43 percent in the months that Browder was absent from Russia, the company said.

Meanwhile, Andrei Illarionov, a former economics adviser to President Vladimir Putin, has said that Western countries have adopted a policy of appeasement towards Russia by endorsing it as president of the Group of Eight (G8) industrialised countries.

The Financial Times says that Illarionov said that by attending a G8 summit in St Petersburg this July, Group of Seven members would endorse fully Moscow’s policy of “nationalisation of private property, destruction of the rule of law, violation of human rights and liquidation of democracy”.

Illarionov, who was a critic of Putin's policies before he quit the Kremlin last year, said Russia did not qualify as a G8 member on either economic or political grounds.

The FT says that Russia’s gross domestic product per capita was less than one third that of the G7 and last year it was downgraded by the US-based Freedom House from a partially free country to a status of not-free country. “The St Petersburg summit will be a triumph for dictators around the world and a signal to them that what they do to their people and neighbours does not matter,” Mr Illarionov said at a recent meeting with journalists.





Cloud over G8 summit as Russia bars entry to fund boss
www.business.timesonline.co.uk - By Carl Mortished - March 22, 2006

The exclusion of Bill Browder has shone the spotlight again on the conflicts between business and corruption in Moscow


Preparation for the global leaders’ summit in Moscow in July are being overshadowed by the visa troubles of Bill Browder, the manager of Hermitage Management, Russia’s leading foreign investor fund, who has been barred from the country under a law that excludes foreigners who threaten national security.

The American-born Briton, who was refused entry at Moscow’s Sheremetyevo airport last November, has been given no explanation for his exclusion.

His case has been taken up by Jack Straw, the Foreign Secretary, and sources close to Downing Street indicate that Tony Blair’s advisers to the G8 summit are pushing the fund manager’s immigration difficulties on to the agenda.

Mr Browder is an unlikely target of Kremlin displeasure. A highly successful but maverick fund manager, who campaigns aggressively for better governance in Russian companies, he is also an outspoken supporter of President Putin, frequently defending the the Russian leader and his policies in speeches and articles in the Western press.

His case has been put to several leading Russian officials, including Alexei Kudrin, the Finance Minister, German Gref, the Economy Minister, and Sergei Lavrov, the Foreign Minister.

Mr Browder told The Times that he remained hopeful of being able to return to Moscow: “We are working closely with a number of Russian government officials who have given us indication that they are optimistic that this matter will eventually be resolved.”

However, petty corruption is rife within Russia’s security services and entry refusals frequently are used as a lever in business disputes. Russian ministries sympathetic to foreign investment and the reform process have no influence over the FSB, the successor organisation to the Soviet-era KGB.

The Moscow investment community is baffled by the decision to ban Mr Browder. His case is unusually protracted, according to Roland Nash, head of research at Renaissance Capital. “There appears to be no end in sight,” he said.

Hermitage is the leading foreign portfolio investor in Russia with $4.1 billion (£2.3 billion) in assets, a quarter of which is managed for American funds. Mr Browder’s success is linked closely to his combative approach, pointing the finger at corruption and campaigning for minority shareholder rights. His vocal campaigns may, some believe, provide a clue to his exclusion.

Hermitage’s biggest stakeholding, which the fund has not quantified, is in Gazprom. Mr Browder and his colleagues have subjected the gas giant to an unofficial annual audit, accusing former managers of fraud and asset-stripping. Campaigns have also been waged against Surgutneftegaz, an energy company, Sberbank, the national savings bank, and UES, the power company. In the case of Gazprom, the guerrilla tactics were successful, leading to the removal of its former chairman and the recovery of some of the stolen assets.

The Hermitage chief’s rebellious streak may be inherited. He is the grandson of Earl Browder, general secretary of the US Communist Party during the 1930s.

However, Mr Browder is also a vociferous critic of — and sometimes litigant against — Russia’s tycoon capitalists, the oligarchs, including Mikhail Khodorkovsky, the former Yukos chief executive, who is serving a jail sentence for tax evasion.

Drawback of following in grandfather’s steps

Bill Browder is an unabashed cheerleader for Vladimir Putin. In fact, he is so enthusiastic that the Russian President apparently ordered that copies of a speech that the fund manager delivered, praising Russia’s prospects, be copied and distributed in Russian embassies around the world.

Why, then, has Mr Putin’s biggest fan been refused a visa for entry into Russia? The Hermitage fund manager seems not to know, but he could draw a few lessons from his grandfather, Earl Browder, who, with John Reed, helped to found the American Communist Party. Earl Browder became general secretary and twice ran for election as US President.

Like his grandson, he was a rebel who enjoyed upsetting the rich and powerful. He went to prison twice, the second time for passport irregularities, and in the 1950s was hauled before Senator Joe McCarthy’s hearings on communist influence. He fell out with his party in 1944 and later was expelled, after the Kremlin criticised him for arguing that capitalism and communism could co-exist.

Earl Browder said later that American communists thrived when they campaigned for reform but failed when they championed the Soviet Union.

With his campaigns against crookery in state enterprises, Bill Browder has been banging a similar drum in Russia today. Some in the Kremlin may think his music too loud.

 

[FaGal]

SEC registration filings expose market abuse allegations
French regulator Autorité des Marches Financiers (AMF) is investigating five hedge funds for insider trading
French regulator Autorité des Marches Financiers (AMF) is investigating five hedge funds for insider trading involving French telecommunications company Alcatel. GLG Partners, Ferox, Meditor, UBS O’Connor, and Marshall Wace are the five hedge funds under scrutiny and face allegations that they traded shares of Alcatel and Vivendi Universal before the companies announced a convertible bond sale back in 2002.

The allegations and subsequent investigations have come to light following the US Securities and Exchange Commission (SEC) new registration disclosure requirements.

Marshall Wace, in its filing “strongly disputes the claim [made by the AMF] and has provided irrefutable evidence that the trades in question happened after the announcement of the convertible bond transaction.” According to information provided by Marshall Wace in its SEC filing document, the allegation is a result of an error on the part of JPMorgan, who has mistakenly recoded the time of the order as one minute before the convertible bond sale was announced. JPMorgan has informed the AMF of the mistake, the filing shows.

GLG Partners faces its second allegation after the UK’s Financial Services Authority (FSA) fined the manager $1.32 million last month for trading on privileged information before a Sumitomo Mitsui Financial Group convertible bond sale in 2003. GLG Partners declined to comment on the second allegation as did Meditor.

According to the filing document produced by Ferox Capital Management, an investigation into alleged insider trading began in December 2004. But a response to the allegation was not forthcoming in the filing document and Ferox declined to offer a comment to HFMWeek.

UBS O’Connor, which manages $1.8 billion and is being investigated for insider trading involving Vivendi shares, is waiting to receive the final investigation report from the AMF before submitting a response, its SEC filing document shows.

The new SEC registration requirements, which came into effect on February 1, makes sensitive information such as market abuse allegations, open to the public. But according to one hedge fund manager, “the additional disclosure is ok. It should not be a deterrent to managers and is a natural step [towards greater transparency].”

HFM Week

 

[FaGal]

International Monetary hedge fund?
$500bn in excess foreign exchange reserves could be invested on behalf of poor
Larry Summers, former US Treasury secretary and outgoing president of Harvard University, suggested the International Monetary Fund (IMF) should become the world’s largest hedge fund. He made his remarks in an address to a conference entitled Reflections on Global Account Imbalances and Emerging Market Reserve Accumulation in Mumbai last week.

Summers called upon the IMF and the World Bank to create a “poor people’s hedge fund” to alleviate poverty by using developing nations’ excess foreign exchange reserves. “Perhaps it is time for the IMF and World Bank to think about how they can contribute to deploying the funds of major emerging markets, rather than lending to major emerging markets,” he said.

In the third quarter of 2005, developing countries had foreign exchange reserves that exceeded their short-term overseas borrowings by as much as $1.5trn, which is probably earning zero in terms of real return, Summers noted. He said: “A $500bn hedge fund producing returns of 6% would not be an overly ambitious estimate to start with, and what better way to counter misplaced apprehensions about hedge funds than to employ the IMF and World Bank as legitimate monitors of a hedge fund.”

HFMweek

 

[FaGal]

La clamorosa resa dei conti con i fondi in un libro dell’ex manager della Borsa tedesca Seifert, atto d’accusa per le «locuste»
FRANCOFORTE - È un duro attacco, quello che l’ex presidente di Deutsche Börse Werner Seifert sferra con il suo libro «Invasione delle cavallette» ai nuovi signori del denaro, gli hedge funds anglosassoni. Gli stessi che approfittando dell’uscita delle banche tedesche dal capitale della borsa di Francoforte si erano impadroniti, nella primavera del 2005, di una forte maggioranza, per scalzare Seifert dalla posizione, bloccando l’acquisizione ostile della Lse londinese. E provocando un terremoto ai vertici del colosso borsistico. Il libro sarà presentato lunedì a Francoforte dallo stesso Seifert, tornato dall’Irlanda, dove si è rifugiato con la sua buonuscita di 10 milioni di euro. Si tratta di una «resa dei conti» intrisa di veleno, che mette in luce il paradosso del quale Seifert si è trovato prigioniero nella sua aspirazione di grandezza: ha trasformato in 12 anni una piccola borsa delle grida nella più potente d’Europa continentale per poi collocarla con successo, aprendola al capitale internazionale. Poi è rimasto vittima delle regole della grande finanza, che chiede di partecipare alle decisioni del consiglio di amministrazione. È qui quello che Seifert descrive come un «dramma»: quello che ha trasformato il top manager da aspirante conquistatore in preda.
Un dramma anche per Rolf Breuer, ex presidente di Deutsche Bank (tuttora alla guida dell’organo di sorveglianza) e insieme a Seifert co-artefice dell’espansione di Deutsche Börse. Il «gentleman di ghiaccio», perennemente abbronzato, era tornato «frustrato» da un incontro a Londra nell’aprile 2005 con l’«aggressivo» e «arrogante» Chris Mohn, capo dello hedge fund Tci e ispiratore della rivolta degli azionisti. Questi a sorpresa gli aveva annunciato di aver rastrellato, insieme a Rothschild, Och-Ziff, Perry Capital, Fidelity e Merrill Lynch, fra il 60 e l’80% del capitale di Deutsche Börse. Poi gli ha chiesto di farsi da parte, lui e Seifert, perché il suo gruppo era «così forte da poter insediare anche Topolino o Paperino nel consiglio di sorveglianza». Una chiara «azione di concerto», secondo Seifert. Ma la Bafin (la Consob tedesca) non è stata in grado di provarlo. Sintomatico poi che della partita fosse Jacob Rothschild, discendente di quella famiglia di banchieri ebrei che aveva guidato la modernizzazione delle banche tedesche.
Marika de Feo corriere

 

[FaGal]

Thorns in the foliage
Mar 30th 2006 | GREENWICH, CONNECTICUT
From The Economist print edition


Financial watchdogs are making life less comfortable for hedge funds

LIFE looks pretty good in hedge-fund country. The mansions are sprawling; luxury-car dealerships—Mercedes, BMW, Maserati, Ferrari—sit cheek by jowl; and there are lots of fancy shops and cafés with faux-French names. In Greenwich, home to more than a few investment boutiques, even the local library oozes money: rows of pricey Aeron chairs cushion the posteriors of well-dressed patrons as they browse the internet on flat-screen monitors.

Nevertheless, these days it is becoming harder for hedge-fund managers to make money. Those who invest the wealth of rich individuals, family offices and institutions using fiendishly complicated investment strategies face greater competition. New funds are set up almost every day: across the world there are now more than 8,000. More dollars are pursuing the same strategies, reducing returns for many. The costs of both fund-management talent and office space are climbing.

Since February 1st, new rules have added a layer of cost and compliance for many funds. The Securities and Exchange Commission (SEC) now requires most hedge-fund managers to register if they have 15 American investors or more. The idea is to keep a closer eye on those with lots of investors than on those with a few rich ones, who are presumed to be better able to look after themselves. More than 2,100 hedge-fund managers had registered by the deadline, the SEC says, including many abroad with American clients. Industry lobbying won exemption from the regulation for American (though not foreign) funds with less than $25m under management and investment “lock-up” periods of less than two years.

The new rule, says David Matteson, who heads the hedge-fund practice at Gardner, Carton and Douglas, a law firm, will mean extra costs and a potential “chilling effect on creating new investment strategies.” He is not even convinced that the rule will protect investors. The SEC, he says, lacks the resources to watch over so many funds; and minimum investment requirements in effect bar small investors from hedge funds anyway.

The industry's sheer size—it now manages more than $1.5 trillion, according to HedgeFund Intelligence, a specialised information firm—has prompted regulators around the world to take a much closer look. Recently, the financial regulators in Dublin shut down three hedge funds operated by Broadstone Fund Management, an investment firm. Meanwhile in Britain, where more than three-quarters of Europe's hedge-fund assets are managed, the Financial Services Authority (FSA) has been looking into potential conflicts of interest among fund managers and the unfair treatment of investors.

However, not all the regulatory attention is unwelcome. The FSA has also said that it may allow retail investors, not just institutions or rich individuals, to invest in funds of hedge funds, which spread money across individual funds using a single investment product. Other European countries, including France, Germany and Ireland, have already moved towards regulatory structures that permit retail investment in hedge funds, says Florence Lombard, of the Alternative Investment Management Association, an industry group in London. The European Union has also set up an “expert group” to study harmonisation of member states' rules and taxation on funds.

America's hedge-fund market, though, remains the world's largest and most important. The regulatory tightening there is being watched by hedge-fund managers in other countries too. But they, you suspect, will not be watching as nervously as the good citizens of Greenwich.
economist

 

[FaGal]

FOCUS
Un «hedge fund» chiamato Fmi Ma funzionerà?
La buona salute dell’economia mondiale sta costando cara al Fondo monetario internazionale. Le richieste di sostegno dai paesi in crisi sono calo, e con lei lo è la capacità del Fondo di finanziarsi grazie agli interessi sui prestiti. Grandi clienti come l’Argentina, il Brasile e la Russia hanno ripagato i debiti in anticipo. E ormai l’Fmi ha un portafoglio di prestiti (35 miliardi di dollari)troppo ridotto per coprire i propri costi. Il suo modello di business è in panne, nei prossimi anni il Fondo potrebbe subire perdite da centinaia di milioni. Una bella nemesi per chi si occupa - e vive - dei deficit altrui. Per scongiurarla il direttore generale del Fmi Rodrigo de Rato pensa sì a ridurre le spese. Ma non basta: occorre trovare altre fonti di reddito. Di qui l’ipotesi, discussa agli incontri di primavera degli 184 Stati azionisti, di creare un «conto d’investimento» del Fondo stesso. Si tratterebbe di far fruttare meglio sui mercati finanziari almeno parte delle riserve di liquidità da 9 miliardi di dollari del Fmi. Resta giusto un dubbio: per la sua attività di vigilanza sulle economie e la finanza globali, per definizione l’Fmi dispone di informazioni privilegiate rispetto al resto del mercato. Gli stessi pronunciamenti del Fondo influenzano i prezzi delle valute e dei titoli con regolarità. Insomma, i sospetti di insider trading e conflitto d’interesse possono essere dietro l’angolo. Come si crede di poterli dissipare? (f. fub.)

 

[FaGal]

Market Analysis
Curing the world’s ills − or salving consciences?
THE IDEA of socially responsible investment (SRI) might seem to run contrary to the hedge fund industry mentality.

Hedge funds have traditionally been about making the best returns by whatever means. They’re the place where investors go to take risks and make high returns. SRI funds are the place they go to ease their social conscience. The two do not mix well together.

But what if falling under the SRI tag could in fact be a way to tap into a large pool of assets, while taking a sensible bet on changes in the modern world?

A total of $2.3trn, around 10% of all monies invested, is in SRI funds, according to studies by the Social Investment Forum, a US-based organisation that promotes socially responsible investing. It’s a pool that few hedge funds have yet to go after, and it is growing faster than non-SRI investment. The Social Investment Forum recorded US assets in SRI funds at the close of 2004 of $179bn, up $28bn in two years.

Pensions and endowments are increasingly obliged to invest via SRI funds, according to Lisa Vioni, founder of Hedge Connection, a capital introduction firm serving the hedge funds industry. Mutual funds are now latching on to the idea that there are assets to be tapped. According to Todd Larsen, media director for the Social Investment Forum, in 1995 there were 55 SRI funds in the US and there are now around 200. But there are still probably no more than five SRI hedge funds operating in the US, he says.

SRI refers to funds that have any kind of socially responsible screening on where they invest. The most common are negative screens against tobacco and arms. But they can also operate positive screens where they look for industries or companies within an industry that are operating in the most socially responsible manner.

In reality, the majority of SRI funds are in fact 95% correlated to the S&P500, according to Philip Matyi, chief financial officer of Civic Capital Group, one of the few US SRI hedge funds.

The area where they differ is “oil and smokestack” versus “high-tech and newer industries” he says, so whether they beat the S&P500 or underperform it largely depends on these areas. Many SRI funds had a bad year in 2005 because energy was a good place to be and they weren’t invested there.

Hedge funds could be in a unique position to tap into the growing appetite for SRI investment by operating the same old-versus-new play, but using their flexibility to produce better returns while remaining uncorrelated to indices.

Matyi’s fund is a good example of how a hedge fund does this. For long positions it takes specific social factors such as pollution or obesity and looks for companies that are successfully addressing them. Then it uses short positions to take away market risk in order to isolate the social factors that it is exposed to on its long book.

“We ask what are the problems that are facing society that have inertia − like education, environmental needs and obesity,” says Matyi.

Then the fund’s management team looks for companies that are successful in addressing that particular issue.

One long position the fund took was in a biotech firm called Senomyx. Senomyx was producing food flavouring that could fool the human body into believing it was sugar or salt. Taking a position in Senomyx played on the growing trend for more nutritious food.

“There is a move for eating healthier foods and supermarkets know this and are devoting more shelf space to them,” says Matyi. “They are taking shelf space away from less nutritious foods. So we take long positions in good companies offering nutritious foods and short those offering non-nutritious.”

The mandate of Civic Capital may show there is space for profit and a conscience. In the increasingly crowded hedge fund space, more managers are likely to look at taking on the SRI tag as a means of attracting investors, especially if its growth continues to outstrip non-SRI investment.

HFManager

 

[claudio_rome]

La clamorosa resa dei conti con i fondi in un libro dell’ex manager della Borsa tedesca Seifert, atto d’accusa per le «locuste»
FRANCOFORTE - È un duro attacco, quello che l’ex presidente di Deutsche Börse Werner Seifert sferra con il suo libro «Invasione delle cavallette» ai nuovi signori del denaro, gli hedge funds anglosassoni. Gli stessi che approfittando dell’uscita delle banche tedesche dal capitale della borsa di Francoforte si erano impadroniti, nella primavera del 2005, di una forte maggioranza, per scalzare Seifert dalla posizione, bloccando l’acquisizione ostile della Lse londinese. E provocando un terremoto ai vertici del colosso borsistico. Il libro sarà presentato lunedì a Francoforte dallo stesso Seifert, tornato dall’Irlanda, dove si è rifugiato con la sua buonuscita di 10 milioni di euro. Si tratta di una «resa dei conti» intrisa di veleno, che mette in luce il paradosso del quale Seifert si è trovato prigioniero nella sua aspirazione di grandezza: ha trasformato in 12 anni una piccola borsa delle grida nella più potente d’Europa continentale per poi collocarla con successo, aprendola al capitale internazionale. Poi è rimasto vittima delle regole della grande finanza, che chiede di partecipare alle decisioni del consiglio di amministrazione. È qui quello che Seifert descrive come un «dramma»: quello che ha trasformato il top manager da aspirante conquistatore in preda.
Un dramma anche per Rolf Breuer, ex presidente di Deutsche Bank (tuttora alla guida dell’organo di sorveglianza) e insieme a Seifert co-artefice dell’espansione di Deutsche Börse. Il «gentleman di ghiaccio», perennemente abbronzato, era tornato «frustrato» da un incontro a Londra nell’aprile 2005 con l’«aggressivo» e «arrogante» Chris Mohn, capo dello hedge fund Tci e ispiratore della rivolta degli azionisti. Questi a sorpresa gli aveva annunciato di aver rastrellato, insieme a Rothschild, Och-Ziff, Perry Capital, Fidelity e Merrill Lynch, fra il 60 e l’80% del capitale di Deutsche Börse. Poi gli ha chiesto di farsi da parte, lui e Seifert, perché il suo gruppo era «così forte da poter insediare anche Topolino o Paperino nel consiglio di sorveglianza». Una chiara «azione di concerto», secondo Seifert. Ma la Bafin (la Consob tedesca) non è stata in grado di provarlo. Sintomatico poi che della partita fosse Jacob Rothschild, discendente di quella famiglia di banchieri ebrei che aveva guidato la modernizzazione delle banche tedesche.
Marika de Feo corriere

In Germania sono piu' socialcomunisti che in Italia. Altro che libero mercato ..... da noi almeno c'e' il nero che elimina un po' di inefficienze stataliste ... li' non hanno nemmeno quello (comunque molto meno che da noi) ...

Mi ricordano tanto gli anni 30, quando un certo Hitler addossava la colpa della crisi economica tedesca ai banchieri ebrei (Rothschild), al capitalismo inglese e alle democrazie occidentali.

Per fortuna dopo 70 anni almeno una cosa hanno capito: che si sta' meglio con la democrazia. Quanto ci metteranno a capire che si sta' meglio con il libero mercato e il capitalismo (quello vero, non quello mezzo finto socialdemocratico), 140 anni?

 

[FaGal]

In Germania sono piu' socialcomunisti che in Italia. Altro che libero mercato ..... da noi almeno c'e' il nero che elimina un po' di inefficienze stataliste ... li' non hanno nemmeno quello (comunque molto meno che da noi) ...

Mi ricordano tanto gli anni 30, quando un certo Hitler addossava la colpa della crisi economica tedesca ai banchieri ebrei (Rothschild), al capitalismo inglese e alle democrazie occidentali.

Per fortuna dopo 70 anni almeno una cosa hanno capito: che si sta' meglio con la democrazia. Quanto ci metteranno a capire che si sta' meglio con il libero mercato e il capitalismo (quello vero, non quello mezzo finto socialdemocratico), 140 anni?

Pensa che chi fa nero consistente io lo iscriverei alla stessa banca dati dei cattivi pagatori (non vedo perchè non pagare delle rate sia meno grave che evadere qualche decina di migliaia di euro) e farei provvedimenti interdittivi...come la pensiamo diversamente...