http://www.hfalert.com Hedge Fund Alert en-us Copyright 2000-2007 Harrison Scott Publications. All Rights Reserved. Tue, 09 Mar 2010 18:35:13 -0700 60 http://www.hfalert.com/headlines.php?hid=68766 Neil Chriss, a former SAC Capital portfolio manager who launched a hedge fund in 2008 with backing from Renaissance Technologies, will soon open the door to outside investors. Chriss' Hutchin Hill Capital Master Fund will begin accepting subscriptions sometime in the second quarter, but the opening could be brief: The $400 million vehicle is expected to raise another $600 million-plus within 12 months, then close to new investments. If Chriss had chosen not to cap the fund, market players said, he easily could have raised $2 billion overall. The multi-strategy fund is expected to generate strong demand in part because Chriss has never had a down year as a portfolio manager. The Hutchin Capital fund, which began trading in July 2008, gained 13 through yearend 2008 and 17 in 2009. Chriss' investment strategies include hedged credit and equities, arbitrage, global macro, event-driven and one-off opportunistic plays. The vehicle was launched with $300 million of seed capital from James Simons' Renaissance, a $20 billion manager in East Setauket, N.Y. The seed investment came from the $7 billion Meritage Fund, which runs money exclusively for Renaissance partners, including Simons. The vehicle is headed by Simons' son, Nathaniel Simons. Chriss worked at Steve Cohen's SAC from 2003 to 2007. He managed two of the five subfunds, including both quantitative and non-quantitative strategies, that comprise the multi-billion-dollar SAC Multi-Strategy Fund. Chriss' portfolios represented... http://www.hfalert.com/headlines.php?hid=68744 A legal dispute between the founding partners of Camulos Capital is becoming increasingly ugly. In court papers filed earlier this month, Camulos co-founders Richard Brennan and Richard Holahan allege that their former partner, William Seibold, cost the Stamford, Conn., firm millions of dollars in unnecessary expenditures before he left in 2007. Seibold turned a dozen European quot;fact-finding tripsquot; into lavish vacations, attending the 2006 Olympics and purchasing expensive wines for his personal cellar, according to Brennan and Holahan. Along the way, they said, Seibold laid plans for a competing hedge fund. Their allegations were in response to a lawsuit Seibold filed in December, in which he accused Brennan and Holahan of refusing to pay him $67 million of accumulated compensation, investment gains and equity in the firm. Seibold followed up the complaint by filing court papers on Christmas Eve attempting to seize the assets of Camulos and his former partners. Brennan, Holahan and Seibold all worked together at Soros Fund Management before setting up Camulos in 2005. At the time Seibold left in June 2007, the firm had about $2 billion under management. Seibold claims he was improperly forced out by his partners, then was rebuffed when he tried to collect his compensation and withdraw his investments. Brennan and Holahan say Seibold received $5 million in salary, bonuses and benefits before he quit the firm. quot;The notion that there was any sort of impropriety or unlawful or illegal conduct is frivolou... http://www.hfalert.com/headlines.php?hid=68294 King Street Capital is on the verge of closing its flagship fund to new investments after taking in more than $3 billion of fresh capital over the past 12 months. At a time when most hedge fund managers were struggling with a mountain of redemption requests, King Street's overall assets under management jumped from $15.8 billion in January 2009 to $19.2 billion last month. Perhaps it's no wonder, considering that the King Street Capital fund has never had a down year since launching in 1995. In 2008, when hedge funds lost an average of 18, the King Street vehicle gained 2.5. Last year, it returned 20.1. In a Feb. 5 letter to investors, the New York firm said it wants to quot;moderate the future growth of the fund's capital subject to developing market conditions.quot; One investor said he was told that King Street doesn't want to see overall assets under management exceed about $20 billion - suggesting the flagship fund could close to new investments any day. At the same time, the firm told investors it was tweaking the fund's liquidity terms. Previously, the fund permitted withdrawals of up to 25 of overall assets per quarter. Now, King Street is switching to an investor-level limit of 25 per quarter. That means investors can withdraw up to 25 of their capital every three months - regardless of the total volume of redemptions for that period. quot;This is about them managing their liquidity,quot; one investor said, quot;but there are probably those who got stuck in 2008 who will like the changes.quot; In a... http://www.hfalert.com/headlines.php?hid=68138 Jason Huemer, who helped SAC Capital raise $6 billion as the firm's head of marketing, has joined Visium Asset Management to lead an expansion of the healthcare-focused firm. Visium, a New York fund operator with $1.6 billion under management, named Huemer president last month. One of his first tasks: rolling out a multi-strategy fund on March 1. The vehicle currently runs $100 million for Visium's partners. March 1 also is the date that the firm's flagship Visium Balanced Fund, a $1.5 billion long/short equity vehicle, will stop accepting new investments. The multi-strategy vehicle, Visium Global Fund, has portfolio managers running long/short equity strategies in several sectors. It also makes distressed-company investments and quantitative-equity plays. The fund manager is expected to hire additional portfolio managers in the near future. Visium currently has about 25 investment staffers. The firm also manages a $30 million credit healthcare vehicle, Visium Credit Opportunities Fund, that launched in May 2009. It gained 19.9 through yearend. Huemer joined Steve Cohen's SAC as head of marketing and investor relations in 2005, when the firm was reopening to outside investors after 6-7 years. Under Huemer, SAC's marketing team raised $6 billion for the flagship SAC Capital fund and SAC Multi-Strategy Fund. Today, SAC has about $13 billion under management overall. Huemer also worked for one year as chief operating officer of SAC unit Sigma Capital, even as he continued to oversee SAC's... http://www.hfalert.com/headlines.php?hid=68161 Highbridge Capital co-founder Henry Swieca, who left the hedge fund giant at yearend, is looking to hire a slew of market pros for his newly opened family office. Swieca, who formed Highbridge in 1992 with Glenn Dubin, set up Swieca Holdings in New York to manage his own money. In addition to traders and analysts, Swieca is looking for a chief financial officer - suggesting to some market players that he eventually wants to expand beyond a family office. For starters, Swieca hired a team of event-driven specialists from New York-based One East Partners: brothers Nathaniel Storch and Thomas Storch, along with Michael McNamara and Michael Goldberg. Highbridge, with $21 billion under management, is wholly owned by J.P. Morgan. When the bank bought a controlling stake in the firm in 2004, Swieca and Dubin agreed to stay on for at least five years. Dubin has no plans to leave Highbridge. He and Swieca also run a fund-of-funds business called Corbin Capital. http://www.hfalert.com/headlines.php?hid=67760 A 4-year-old accounting rule is finally catching up to the hedge fund industry. At issue is the Financial Accounting Standards Board's Interpretation No. 48, better known as Fin 48, which provides guidance on accounting for uncertain tax liabilities. Adopted by FASB in 2006, Fin 48 initially applied only to publicly traded companies. But starting with the 2009 tax year, the rule's reach was expanded to limited partnerships and private investment vehicles. As a result, many fund managers and their accountants are just now coming to terms with the complicated provision. What they're discovering is this: Certain investment gains that didn't necessarily constitute taxable events in the past now must be booked as liabilities pending a review by the IRS or other tax authority. That, in turn, is putting a dent in net asset values. quot;Some people believed that Fin 48 adoption would not be a big deal for hedge funds and private equity because they typically are not subject to federal income tax as a partnership,quot; said Craig Eaton, a partner at accounting and consulting boutique Moody, Famiglietti amp; Andronico in Tewksbury, Mass. quot;They're now finding out that Fin 48 is more far-reaching.quot; Fin 48 was introduced to limit the wiggle room companies have in accounting for uncertain tax liabilities - profit or income that may or may not be deemed taxable by the IRS or state tax agency. The rule says that when in doubt, a possible tax obligation should be treated as a liability until the government says otherwise. Many fund... http://www.hfalert.com/headlines.php?hid=67784 The list of former Galleon Group staffers who have resurfaced at other hedge fund operations continues to grow. Three months after Raj Rajaratnam abruptly shut the doors of his firm amid an insider-trading scandal, at least four investment staffers and one marketing specialist are working for other managers, including some big-name firms. Three other Galleon alumni have opened an office with tentative plans to launch a hedge fund. Among the latest to return to the industry: Charles Benziger, who managed a large portfolio of consumer stocks for Rajaratnam, landed this month at Ken Griffin's Citadel Investment. Grant Hutchinson was hired by London-based Polygon Investment this month to work on marketing and investor relations. Nadeem Janmohamed, a technology-stock analyst, took a job this month with S Squared Technology of New York. Two other analysts, Eric Wasserstrom and Rajeev Patel, went to work in recent weeks at Soros Fund Management. Meanwhile, ex-Galleon traders Leon Shaulov, Owen Li and Adam Smith are laying the groundwork for their own hedge fund. Rajaratnam shuttered his $3.7 billion firm in October, shortly after he was arrested and charged with 13 counts of insider trading. The early buzz among hedge fund recruiters was that the scandal would make it difficult, if not impossible, for many staffers to find work in the industry. But it now looks like former Galleon employees with solid track records and no ties to the insider-trading scheme are being welcomed by fund managers hungry for talent.... http://www.hfalert.com/headlines.php?hid=67378 A regulatory crackdown on corporate pension plans is putting pressure on hedge fund managers. The U.S. Department of Labor now requires private pensions to disclose any gifts, entertainment or other perks they receive from hedge funds and third-party marketers. In response, pension administrators are seeking detailed records from fund managers. The initial deadline for pensions to meet the heightened requirements is July 31. One lawyer who represents hedge funds said several of his clients already are preparing to turn over records of meals and other events at which they picked up the tab for pension officials. quot;There is some unease that DOL might not differentiate between legitimate, relationship-building activities and things that clearly don't pass the smell test, like giving someone a yacht,quot; said Steve Rabitz, a lawyer with the New York firm Stroock amp; Stroock. quot;There are real questions being raised about what might be reportable and what might not be legal.quot; Ever since the New York Common Fund scandal came to light early last year, government regulators have been tightening the screws on both public and private pension plans. quot;I think people in the private pension space might not have recorded these amounts religiously in the past, but not anymore,quot; said Melanie Nussdorf, a lawyer with Steptoe amp; Johnson. quot;In the public space, there isn't anyone giving anything to anyone.quot; Under the law, any expenditure in excess of $10 must be reported, although pensions don't have to file a report until they receive up to $5,000... http://www.hfalert.com/headlines.php?hid=67402 Sandell Asset Management has shrunk to about $1 billion under management - a precipitous fall for a firm that was running $7 billion just two years ago. The operations of the multi-strategy fund shop also continue to shrink: Last month, the New York firm closed its Hong Kong office, leaving it with a lone outpost in London and fewer than 40 staffers. Among the latest departures: Rebecca Pacholder, a partner in the firm who worked closely with credit-trading chief Serge Adam, left Dec. 31 for a new job at an undisclosed firm. Founded by Tom Sandell in 1998, the firm is best known for its flagship Castlerigg fund, whose offshore version lost 32.6 in 2008. Castlerigg reportedly gained 8.5 last year through November, but that didn't include quot;special situation sharesquot; that were down 11.4 during the same period. As much as 50 of Sandell's overall investor capital apparently is tied up in investments the firm has labeled as illiquid. The Castlerigg portfolio traditionally was split among three strategies: credit, special-situations equity and merger arbitrage. Before starting the firm, Tom Sandell was a senior managing director in Bear Stearns' risk-arbitrage unit. Castlerigg's special-situations portfolio had dwindled to only 2 of the fund's net equity as of November - three months after the departure of Nick Graziano, head of special situations trading. He left to join Leon Cooperman's Omega Advisors. Just before Christmas, Sandell announced it was sharpening its focus on the remaining... http://www.hfalert.com/headlines.php?hid=67070 Distressed-investment specialist Bay Harbour Management is putting the finishing touches on a hedge fund that is expected to have $500 million under management by midyear 2010. The New York firm plans to launch BHR Master Fund on Jan. 1 with about $300 million of investor equity. The fund is designed to make special-situations investments in the debt of distressed U.S. companies. Once it reaches the $500 million mark, BHR would close to new investors. In a marketing environment where any fund launch north of $100 million is considered impressive, Bay Harbour apparently is capitalizing on investors' appetite for credit-opportunities investments, pitching equity-like returns with less risk. As it has in the past, Bay Harbour has teamed up with Neil Ramsey, who runs RQSI of Louisville, Ky., to create BHR Master Fund. The vehicle will be managed by a new firm, BHR Capital, which is operating out of Bay Harbour's offices. The principals of BHR Capital, including Ramsey, are kicking in a combined $100 million of equity for the fund launch. BHR's principals also include Steve Van Dyke, the founder and managing partner of Bay Harbour, and Michael Thompson, who is a principal of Bay Harbour. Van Dyke is chief investment officer of BHR Capital, while Thompson is portfolio manager of the new fund. Ramsey, Van Dyke and Thompson all serve on the fund's investment committee. Bay Harbour has partnered with Ramsey on a series of initiatives over the past 20 years. Overall, Bay Harbour manages about $400 million of hedge fund... http://www.hfalert.com/headlines.php?hid=66937 Hedge fund giant GLG Partners is repackaging its key equity strategies for a fund that began trading last week. The vehicle, GLG Global Equity Tactical, deploys capital to existing management teams across five portfolios: relative value, emerging markets, volatility trading, financial-services stocks and pan-European equities. Prior to the addition of the new fund, the equity teams managed portfolios ranging from $70 million to $390 million. The $22 billion London manager teed up the vehicle in response to investors seeking broad exposure to GLG's equity strategies, which outperformed both the broader stock markets and various hedge fund benchmarks last year. Until now, the only way to get exposure to the firm's stock-trading teams was via single-strategy equity funds or multi-strategy vehicles. Back-testing a simulated portfolio modeled on the new fund showed average annual returns of 21.5 going back to 2005. That included a 21 gain last year, when hedge funds lost an average of 18. This year, the simulated portfolio has gained around 22. Helming the new vehicle are David Sanders, co-manager of GLG Financials Fund, and Warren Touwen, who came aboard last year to conduct behavioral analysis of the firm's European equity traders. Touwen previously worked at Merrill Lynch as a portfolio manager and director of the bank's global strategic risk group. Sanders, a Goldman Sachs alumnus, has been at GLG since June 2006. While the fund charges typical fees of 2 of assets under management and 20 of gains, early... http://www.hfalert.com/headlines.php?hid=67093 Although his firm has seen only a trickle of revenue during the past two years, Clarium Capital founder Peter Thiel is seeking to reassure investors that he remains committed to his $2 billion hedge fund and its global-macro strategy. Some investors in Clarium's hedge fund have grown increasingly nervous about the San Francisco firm's financial stability after nearly two years of losses. Unlike most hedge funds, Clarium charges no management fee - just 25 of gains - so the firm hasn't had any hedge fund revenue since the end of 2007. Thiel, best known as a venture capitalist who co-founded PayPal, told investors during a conference call last month that he has the wherewithal to keep the firm afloat. For one thing, Clarium manages several separate accounts that have continued to pay management fees. And the hedge fund's hefty performance fee generated enough revenue in the good years to sustain the firm for the foreseeable future. Thiel said he plans to continue running his personal capital through Clarium's hedge fund for another 10-15 years. Thanks to Thiel's deep pockets, Clarium can remain in business at a time when countless fund operators are struggling to survive. After the hedge fund industry suffered its worst-ever losses last year, many funds remain well below their high-water marks. For fund operators, that means getting by on management fees for as long as their funds are under water. Indeed, many management firms are expected to go bust before their funds get back to their high-water marks.... http://www.hfalert.com/headlines.php?hid=66521 Hedge funds that profited from a suspected $500 million Ponzi scheme in Florida will likely have to relinquish their gains to investors who lost money in the scam. At least three hedge funds - Centurion Credit, Clockwork Capital and Platinum Management - loaned money to investors in a Fort Lauderdale operation that claimed to finance legal-settlement payments. A lawyer who headed the operation, Scott Rothstein, is now under investigation by the U.S. Justice Department. Authorities have seized Rothstein's personal assets and his firm, Rothstein Rosenfeldt, has been turned over to a court-appointed receiver. A bankruptcy judge is expected to be appointed on Friday. Soon after, the judge will open a 90-day window during which an estimated 375 investors can file claims to recoup their losses. Legal experts say the court will likely track down early investors that made money off the scheme - including hedge funds that helped finance the operation - and order them to give up their profits to reimburse later investors who were left holding the bag. Some hedge funds could be among the investors that lost money on the scheme and, therefore, could benefit from the clawbacks. It's unclear how much Centurion, Clockwork and Platinum made or lost by lending money to investors in Rothstein's operation. However, Platinum has said it had nothing invested in the scheme at the time the alleged fraud was exposed earlier this month - suggesting it may have pocketed profits. Rothstein pitched his investment scheme as a... http://www.hfalert.com/headlines.php?hid=66381 The SEC has extended the reach of its insider-trading probe by looking into the activities of a stock analyst who worked at Balyasny Asset Management until just several weeks ago. The Chicago firm informed its investors of the investigation over the weekend and told them that it had invited the SEC to look into its books to verify the actions of the unidentified individual. It also reassured investors that the probe focused on the analyst, not the firm as a whole. The analyst worked as part of Balyasny's extensive group of research professionals from early 2008 until recently. The firm now employs some 80 researchers and portfolio managers, many who work in New York. It couldn't be learned whether the analyst was dismissed by the firm or left voluntarily. After learning in recent weeks that the commission was investigating the analyst's activities, Balyasny conducted an internal review of its operations with the help of an outside specialist. The review found no improprieties at the firm, which oversees $2 billion of investments, about half through its flagship vehicle, Atlas Global fund. Atlas Global, which follows diversified-equity and global-macro strategies, has produced gains each year since its inception in 2002. quot;We've a very long history of compliance and take it extremely seriously,quot; said Balyasny vice chairman Barry Colvin. quot;We've always attempted to do the right thing, as was demonstrated through these circumstances.quot; Balyasny has become the third major hedge fund operator with... http://www.hfalert.com/headlines.php?hid=66340 Hedge fund backer Weston Capital has teamed up with Swiss fund-of-funds operator Harcourt Investment Consulting to launch an incubation vehicle. Weston, a $1.2 billion firm run by Albert Hallac, signed a joint-venture agreement with Harcourt last week, with the goal of launching Weston Capital Partners Fund 3 by yearend. Weston already has raised $10 million from investors in its two other incubation vehicles: Weston Atlas Partners Fund and Weston Capital Partners Fund 2. The Westport, Conn., firm eventually hopes to raise $250 million for the new fund. Weston will take the lead in managing the vehicle, but the Harcourt name will appear on offering memoranda and marketing materials due to go out between Nov. 15 and Dec. 1. The Zurich outfit will have a seat on the fund's investment committee, and Harcourt's investment and risk-management teams will vet managers invited to join the seeding platform. Harcourt, which is owned by Swiss private bank Vontobel Group, has some prior experience in the hedge fund-incubation business. The $3.9 billion firm spoke with several incubation specialists in the U.S. before reaching a deal with Weston. Harcourt was attracted by Weston's marketing team and the way the firm has structured past deals. On the performance front, Weston stumbled last year, when Atlas Partners dropped 34.8. The fund recouped two-thirds of that loss during the first nine months of this year, rising 35.8. Weston Capital Partners Fund 2 has fared better. It gained 10.7 in 2008, and was up 9.1... http://www.hfalert.com/headlines.php?hid=66157 Three hedge fund service providers are separately pursuing startup managers by offering streamlined services and cut-rate fees. Fund administrator Columbus Avenue Consulting has set up an quot;emerging managers platformquot; that provides basic asset-valuation and reporting services for half the usual rate. Citigroup has begun marketing a currency-trading platform designed to be accessible to small hedge funds that don't yet trade in large volumes. And auditor Grant Thornton is about to introduce a tiered pricing schedule that would offer quot;softerquot; services at reduced fees. The initiatives reflect the contraction of the hedge fund business during the past year. Prior to last year's market meltdown, hedge fund managers could count on launching with at least $100 million under management. Now, with many investors still licking their wounds, the norm has become a quot;soft launchquot; with $10 million or $20 million raised from friends and family. quot;They want to get their feet wet, establish a track record and go out publicly to investors in 2011,quot; said Stephanie Doane, head of business development for Columbus Avenue. quot;But in the interim, they want to keep costs low.quot; Columbus Avenue already has signed up two managers that plan to launch funds in January. Over the next year, the New York firm hopes to add 20 or so long/short equity funds to its emerging-managers platform. For under $3,000 a month, Columbus will do month-end net-asset valuations and process subscriptions and redemption requests. Additionally, it will handle daily tr... http://www.hfalert.com/headlines.php?hid=66137 The investment team that managed Ross Perot's failed hedge fund, Parkcentral Global, is gearing up to launch a fund of its own. Peter Karmin, who was the top portfolio manager at fund operator Parkcentral Capital, left in June to form Highland Park Office Partners of Highland Park, Ill., with six other Parkcentral alumni. Karmin quit Parkcentral at the urging of investors eager to back a new fund managed by his team. Highland Park plans to launch a fixed-income hedge fund in 2010, but already is managing more than $1 billion of long-only credit investments for institutions and family offices via managed accounts. Parkcentral was set up primarily to run money for Perot and his family. The firm was based in Dallas, but mostly the investment staff worked in Highland Park, Ill. Parkcentral decided to liquidate its hedge fund last November after it had fallen 40 for the year. At the beginning of 2008, Parkcentral Global had about $2.5 billion under management, but by yearend the fund was down to about $1.5 billion. By some accounts, including the allegations in an investor lawsuit, the value of the assets continued to fall until they were worth less than the fund's liabilities. Despite Parkcentral's meltdown, Highland Park is drawing interest from investors who see an array of opportunities across the fixed-income spectrum, even in low-risk asset classes. At the same time, some banks have indicated they are again willing to extend credit to leverage up such investments. Karmin is chief investment officer of... http://www.hfalert.com/headlines.php?hid=65443 Ervin Shindell, a big contributor to Citadel Investment's high-flying returns prior to last year's meltdown, is setting up his own hedge fund. Shindell's firm, RoundKeep Capital of Chicago, is expected to launch an event-driven fund in the first quarter of 2010. Shindell left Ken Griffin's Citadel in March 2008 after 10 years with the Chicago firm, including the last five as head of its event-driven group. Given his success at Citadel, Shindell's first fund is expected to launch with about $500 million of investor capital, despite the still-difficult fund-raising environment for new funds. Before falling 55 last year, Griffin's flagship hedge funds boasted a 10-year average annual return of 22. Shindell's group was a significant contributor, at its peak running 10-20 of Citadel's capital. Before last year's downturn, Citadel had about $20 billion under management. At RoundKeep, Shindell is expected to maintain the basic strategy he led at Citadel. The fund will focus on investments mainly in North America and Europe, and to a lesser extent on Asia. Event-driven opportunities will include typical risk-arbitrage investments in the mergers-and-acquisitions space, and the fund also will be on the lookout for catalysts such as spinoffs and corporate announcements. Several former members of Shindell's team at Citadel are now on board at RoundKeep: Joseph Rotter, who previously headed Citadel's North American event-driven group; Rob Donath, who was global head of trading for the event-driven group; and Rob... http://www.hfalert.com/headlines.php?hid=65466 Shaken by an SEC proposal that could severely damage their business, third-party hedge fund marketers will revise their code of ethics at an upcoming annual meeting later this month in Chicago. The move planned by the Third Party Marketers Association is part of an industry effort to head off federal regulation and legislation that would severely limit the portion of the institutional-investment community that placement agents can serve. Some marketers have begun refusing to handle hedge funds that aren't registered with the SEC - a gesture that could soon become moot under pending U.S. legislation that would require most funds to register. At the same time, promised regulatory reforms for the hedge fund industry are slowly advancing. Under an SEC proposal introduced in August, fund-marketing firms would be banned from receiving payment for serving as a matchmaker between investment advisors and government pension plans. The $2.2 trillion in state and municipal retirement systems represent about one-third of all U.S. pension-plan dollars. The proposal was made in the wake of the New York Common Fund scandal, which implicated placement agents in alleged kickbacks to public officials who secured investments. Placement agents have fought back hard against the SEC rules. Their association, known as 3PM for short, sent a 23-page letter to the SEC, joining about 100 others who submitted comments lambasting the commission's plan. To be sure, there are dissenting views - New York Mayor M... http://www.hfalert.com/headlines.php?hid=65298 The investment industry is hopeful the SEC will scale back its proposal that would require asset managers to undergo surprise reviews by private auditors in order to deter swindlers like Bernard Madoff. Their optimism stems from closed-door sessions that representatives of the 470-member Investment Adviser Association held in recent weeks with SEC chief Mary Schapiro and two other commissioners. The group's executive director, David Tittsworth, said the agency officials appeared sympathetic to the concerns of his association, whose members include managers of hedge funds and mutual funds. A follow-up meeting with a fourth member of the five-commissioner SEC is scheduled for today. SEC officials stressed the seriousness of the issue and vowed action by yearend, but it was also clear that they had been sifting through some of the 700-plus letters filed in response to the proposal. quot;I felt there was a real sensitivity to what we in the industry, what real people who will be affected by this rule change would be put through,quot; Tittsworth said. He added that Schapiro had a firm grasp of the industry's concerns. quot;This was not some high-plane conversation,quot; he said. quot;She was extremely knowledgeable about every issue we raised.quot; Under the May 20 proposal, the SEC would require annual quot;surprise auditsquot; by independent accounting firms on all registered investment advisors and broker-dealers deemed to have quot;custodyquot; of client assets. The commission has used a strict definition of quot;custodyquot; to include even client assets held... http://www.hfalert.com/headlines.php?hid=66564 William Ackman, founder of Pershing Square Capital, pulled no punches last week in admitting to investors that he misplayed the market in the second quarter. His Sept. 18 letter to investors was a surprisingly harsh mea culpa considering the returns that his hedge funds produced were less than shameful. His two main funds, Pershing Square 1 and 2, gained around 7 each in the April-June stretch. Pershing Square International rose 8.2 during the same period. Still, those results were far worse than the 16 gain in the Samp;P 500 index in the second quarter and the 20 jump in the Nasdaq index. Discussing that shortfall, Ackman beat himself up in writing, admitting his firm was guilty of quot;errors of omissionquot; for missing out on buying opportunities as stocks surged during the second quarter. quot;Because I believe that owning up to one's mistakes in a public fashion decreases the probability of those errors reoccurring, I do so here,quot; he wrote. His firm had $6 billion of assets at the end of 2008. As a stock picker, Ackman is known for taking concentrated positions based on extensive research. In his 10-page letter, he acknowledged the strategy has its limitations during a bull market. quot;We have always believed in managing a concentrated, high-conviction portfolio that requires detailed, in-depth and oftentimes consuming analysis,quot; he wrote. quot;The benefit of our approach is that once we find an investment that is extraordinarily attractive, we can confidently invest a meaningful percentage of our capital.... http://www.hfalert.com/headlines.php?hid=66473 ---------- CORRECTION: An article on Sept. 16, quot;Cautious UK Taking Months to Okay Funds,quot; misspelled the last name of Julian Korek, a founding partner of Kinetic Partners. ---------- Don't expect swift government permission to start marketing a hedge fund in the U.K., where the Financial Services Authority is taking months to give its go-ahead. Since early this year, the London regulator has needed about four months and sometimes longer to complete background checks of key officials, conduct risk-management and operations reviews and take other approval steps. That's at least twice as long as the 6-8 weeks FSA had been taking in years past to give the go-ahead to funds. The regulatory backlog worsened in April and May, when FSA was inundated with proposals from investment firms rushing to pursue what they view as post-crisis market opportunities. Case in point: Only this week did two former Deephaven Capital professionals receive verbal approval to start marketing their planned event-driven hedge fund - nearly five months after applying to the FSA. And they are still waiting for written confirmation. In April, Tony Chedraoui and Mark Madden submitted their initial paperwork to FSA after setting up Tyrus Capital. Word has it they will launch with $750 million to $1 billion. Their proposed vehicle would follow the same approach as Deephaven's $500 million European Event Fund. Chedraoui managed that vehicle for Deephaven until Stark... http://www.hfalert.com/headlines.php?hid=64679 Three former staffers of different multi-billion-dollar fund-management firms are starting a hedge fund that would invest in stocks and bonds, having lined up more than $100 million of backing from at least two unidentified investors. The founders of New York startup Alti Capital are Rishi Bajaj, formerly of Silver Point Capital; Toby Symonds, who worked at SAC Capital; and Steve Tesoriere of Anchorage Capital. By yearend, they plan to start trading through a long/short fund that would invest in the equities and fixed-income securities of 20 or fewer companies at a time. Bajaj and Tesoriere will serve as portfolio managers for the firm, while Symonds will handle the business side of Alti, including marketing duties. Bajaj was a senior analyst focused on debt and equity investments in technology, media and telecommunications companies at Silver Point, a $6.5 billion debt-focused firm in Greenwich, Conn. He left Silver Point in May. Tesoriere was a senior analyst at Anchorage, a $7 billion New York firm that invests in distressed debt and other credit products, since the firm's inception in 2003. Prior to that, he did a stint at Goldman Sachs. Symonds worked nine years at Morgan Stanley, the last two in its prime-brokerage unit. In 2002, he left Morgan Stanley and joined SAC to recruit portfolio managers for the Stamford, Conn., firm and its subsidiaries. He left the $14 billion SAC in 2008. http://www.hfalert.com/headlines.php?hid=64419 Trian Fund Management, the hedge fund firm run by corporate raider Nelson Peltz, is cutting fees and loosening liquidity in a bid to attract fresh capital. Peltz, whose takeover targets have included food companies Heinz, Kraft, Arby's and Wendy's, disclosed the changes in an Aug. 4 letter to investors in his two hedge funds, Trian Partners and Trian Credit. The firm's original fund, Trian Partners, has posted disappointing returns since its inception in 2005. Trian Credit has gained about 15 since its launch last summer. Both funds were set up with unusually long three-year lockups and standard 2 management and 20 performance fees. The New York firm is now restructuring each fund into two share classes. Both share classes offer a reduced management fee of 1.5. One share class also offers better liquidity: a one-year lockup instead of three years. Investors in the other share class will still have their capital locked up for three years, but they will pay a reduced performance fee of 15. And the performance fee only kicks in after the three-year lockup period expires. Peltz quot;is trying to keep existing investors and give a carrot to new ones,quot; one investor said. quot;It's as simple as that.quot; Since launching in November 2005, Trian Partners has returned a paltry annual gain of 1.2 on average. The vehicle rose 14 in 2006 and 5.3 in 2007, but it lost 18.9 last year. Trian Partners is up 5 for the first seven months of this year, including a 10.5 gain in July. Peltz isn't alone among activist managers... http://www.hfalert.com/headlines.php?hid=64441 Hedge fund administrators, after experiencing a one-third drop in assets under administration amid last year's financial-market carnage, are drawing a measure of hope from an unlikely source: Bernard Madoff. To reassure investors spooked by Madoff's fraud, a number of large hedge fund managers that previously did their own number-crunching have hired outside administrators to calculate net asset value and produce investor reports. That could help top administration firms hold on to their market shares, even as overall assets continue to drop. If Madoff's massive Ponzi scheme ultimately means more business for fund administrators, that silver lining is hardly visible in a new industry survey that documents in excruciating detail how the steep losses and heavy redemptions that plagued most hedge funds last fall took a toll on administration shops (see table on Page 6). Nearly every firm in the top 25 suffered double-digit declines in assets under administration. The survey, conducted by Carbon360 Research of New York, found that assets under administration fell to $3.4 trillion at the end of March, from $4.7 trillion a year earlier - a 28 drop. As late as last summer, the research firm was forecasting a single-digit gain for the year ending in March 2009. But that was before Lehman Brothers collapsed, triggering the near-collapse of securities markets worldwide. Carbon360's numbers reflect some double counting, since they include assets in both single-manager funds and funds of funds. What's... http://www.hfalert.com/headlines.php?hid=64295 Two fund managers have teamed up to buy stakes in hedge fund quot;side pocketsquot; from impatient investors willing to sell their shares at steep discounts. Andrew Lawrence and Jonathan Lewis, who formed Rosebrook Partners in New York, are targeting hedge fund shares tied to illiquid assets or long-term investments that could take years to unwind. They are looking to pick up shares on the cheap from investors unable or unwilling to wait for the side-pocketed assets to be liquidated. Rosebrook has raised between $150 million and $200 million so far, managing the money in separate accounts for institutional investors that include an investment manager, a life insurer and an endowment. The firm aims to raise another $200 million for a private equity fund that would follow the same strategy. Before launching Rosebrook, Lawrence worked at San Francisco-based Pantera Capital, where he was co-manager of the $800 million PCM Global Macro Fund. He left Pantera in March. He previously was chief executive of Longitude, a New York derivatives business that he sold in 2005. He also founded Rubicon Capital, a global-macro hedge fund operator in New York. Lewis most recently was managing partner of New York-based Folio Holdings, an opportunistic fund that invests in multiple asset classes. He earlier founded Metropolis Capital, a $40 million venture-capital firm in New York. At Rosebrook, the partners' initial goal was to raise $200 million for a private equity fund before the July-August European vacation season, when... http://www.hfalert.com/headlines.php?hid=63951 Amid huge writedowns and regulatory issues, UBS has struggled to fill the top job in its prime-brokerage unit following the defection of Alex Ehrlich to Morgan Stanley. After Ehrlich left in May, UBS apparently told employees it would name a new global head of prime brokerage by July 1. The word on the street is that UBS so far has been unable to lure top talent because of concerns about the bank's financial strength and demands by U.S. authorities that UBS disclose the names of thousands of private-banking clients. Another issue: The bank's apparent reluctance to offer a long-term contract. quot;They don't have the luxury of time,quot; one market player said, noting that the firm's client balances have dropped 50 from their 2007 peak of around $286 billion. By leaving the top job vacant for too long, he said, UBS risks giving the appearance that it is no longer committed to prime brokerage. UBS declined to comment. The bank's prime-brokerage business - which Bernstein Research recently ranked fourth in terms of market share behind J.P. Morgan, Goldman Sachs and Morgan Stanley - is temporarily being run by Dan Coleman, the global head of equities. The global head of prime brokerage reports to Coleman. In the U.S., John Laub runs prime brokerage for UBS, while Marina Slowey oversees Europe. Laub is thought to be a candidate for the top job, though it appears the bank has focused its search so far on outside candidates. Given the issues facing the Swiss bank, it's unclear how much attention prime brokerage... http://www.hfalert.com/headlines.php?hid=63749 It's the end of the line for Drake Management, an operator of hedge funds and long-only accounts that had more than $11 billion under management at the start of last year. The fixed-income specialist suspended redemptions from its hedge funds in late 2007, as the credit crisis deepened, and by the following March decided to get out of the hedge fund business altogether. Now, the firm's founders - chief executive Anthony Faillace and chief operating officer Steve Lutrell - are throwing in the towel on their long-only business as well. The New York firm, which was set up in 2001, did not return phone calls. One sign that Drake is winding down is that its head of client management, Inna Koehler, recently left to join Passport Capital, a San Francisco fund operator run by John Burbank. Like many of its credit-focused peers, Drake's hedge funds suffered huge losses beginning in 2007. From its high-water mark in September 2007, Drake Global Opportunities Fund fell 56.7 through March 2009. The fund was down 4.6 for the first five months of this year. Another vehicle, Drake Absolute Return Fund, has experienced similar losses. Between its hedge funds and long-only accounts, Drake was managing $11.5 billion in early 2008. By the end of the year, assets under management had fallen to $5 billion, including $1.9 billion in its long-only bond business. Earlier this year, hedge fund investors began complaining that Drake was moving too slowly to liquidate the funds and return their capital. The firm was reluctant to sell... http://www.hfalert.com/headlines.php?hid=63768 Daniel B. Zwirn, whose once-high-flying hedge fund firm was brought down by an accounting scandal, is about to raise the curtain on his second act. Even as he continues to unwind D.B. Zwirn, a New York shop that managed more than $5.5 billion at its peak, Zwirn has established a new firm called Zwirn Family Interests and has quietly begun raising capital from friends and family and other backers familiar with his high-risk investment style. Zwirn is not targeting institutional investors at this stage, but has already raised a significant amount of capital for the new venture. Zwirn, 38, is planning to launch several funds in the coming months. He is currently working in New York with a small staff of key lieutenants who followed him from D.B. Zwirn, but soon will be scouting for fresh talent. One market player familiar with his plans said Zwirn is determined to regain his perch high up in the hedge fund industry. Zwirn's early success established him as a hedge fund wunderkind, alongside such industry luminaries as Ken Griffin of Citadel Investment and Dan Och of Och-Ziff. After stints at J.P. Morgan's Highbridge Capital and Michael Dell's MSD Capital, Zwirn founded D.B. Zwirn in 2001 and quickly gained a reputation for high-stakes investing in risky and illiquid assets. The firm's flagship vehicle, D.B. Zwirn Special Opportunities Fund, targeted real estate, debt, private equity and other exotic investments. At its peak, the Special Opportunities Fund - both the U.S. and offshore versions - accounted for ab... http://www.hfalert.com/headlines.php?hid=56400 Polygon, a big multi-strategy hedge fund firm that got clobbered last year, has begun soliciting capital for a pair of single-strategy funds that offer unusually low fees to existing investors. The London firm, run by Reade Griffith and Paddy Dear, is prepping one fund that would focus on European equities and another that would target convertible-bond arbitrage. The firm is trying to lure investors from its flagship Polygon Global Opportunities Fund, a $4 billion multi-strategy vehicle that lost 30 last year through October and is now unwinding. To retain its existing investors, Polygon is offering sharply discounted performance fees. Investors who commit before Aug. 1 would be charged no performance fee for the life of the their investment - a feature that may be unprecedented in the hedge fund industry. They would pay only a 1.5 management fee. Existing investors who join the new funds after Aug. 1 will be permitted to carry over their high-water mark from the multi-strategy fund. They, too, would pay a 1.5 management fee. New investors presumably will be charged the standard 20 performance fee and a 1.5 management fee. Polygon has said it wanted to evolve from a multi-strategy shop into a single-strategy manager, after seeing assets under management in its Global Opportunities Fund fall by about a third last year. The firm believes investors have grown disillusioned with multi-strategy vehicles and are now seeking the expertise of single-strategy managers. Polygon's planned European Equity... http://www.hfalert.com/headlines.php?hid=56420 Farallon Capital has managed to unwind a so-called liquidating trust faster and more profitably than many investors had expected. The $22.7 billion firm angered redeeming investors at the end of last year with a plan to lock up their assets in a separate vehicle until market conditions improved. Investors feared the liquidating trust could take many months to unwind. But a faster-than-expected turnaround in financial markets allowed the firm to pay redeeming shareholders 85 of their investments in the liquidating trust as of June 1. By the end of this month, redeeming investors are expected to have received almost 90 of their money. Investors were further surprised to learn that the assets in the liquidating trust have posted 13-plus gains. The results are a vindication of sorts for Farallon founder Thomas Steyer, whose plan to manage the assets initially drew investors' ire. Like many other hedge fund operators, Steyer's San Francisco firm restricted withdrawals after investors queued up to redeem at the end of 2008. Investors in Farallon's Capital Partners fund asked to withdraw 25 of the assets after the fund lost about 28 through aggressive investments in stocks and bonds, as well as private equity plays. In setting up the liquidating trust, the firm told shareholders it wanted to avoid dumping assets at fire-sale prices - a standard refrain among hedge fund managers during the most difficult year in the industry's history. Across the industry, fund managers set up special-purpose... http://www.hfalert.com/headlines.php?hid=53122 Pursuit Partners liquidated asset-backed securities at a deep discount to their late-March values instead of complying with some redeeming investors who believed they could have recovered more by taking possession of the bonds. At the end of March, the Stamford, Conn., firm set up a special-purpose vehicle for investors seeking to redeem from Pursuit Capital Management Fund 1 and an offshore companion vehicle. A number of investors asked for in-kind payments of the securities, but Pursuit turned most of them down, saying that dividing the holdings into smaller pieces would make them even harder to sell. The firm said it would consider in-kind distributions only for shareholders with more than $50 million of assets - a threshold that excluded all but two investors. Then, in mid-May, Pursuit sold a third of the asset-backed securities in the special-purpose vehicle for 20 of their value as reported in the most recent audited statement on March 31. Around the time of the sale last month, Pursuit offered to buy some of the asset-backed securities directly from investors. But the prices the firm offered were much lower than the valuations contained in the March 31 report. The fund, which managed about $400 million earlier this year, invests in structured-credit products, including residential mortgage-backed securities, collateralized debt obligations and collateralized loan obligations. In January, Pursuit offered investors two options: either redeem their investments or remain in the fund and accept an 18-month lockup.... http://www.hfalert.com/headlines.php?hid=47944 ---------- CORRECTION: A June 10 article, quot;Citadel Fund Carries Novel High-Water Mark,quot; incorrectly reported the liquidity terms for Citadel Investment's two main funds, Kensington Global Strategies and Wellington. Citadel offers two options. One permits investors to redeem any amount of capital once every two years with 90 days' notice, and to withdraw profits annually. The second option allows quarterly redemptions with 45 days' notice, so long as total redemptions from the fund don't exceed 3 of assets. If the 3 threshold is reached, investors can redeem no more than one-sixteenth of their money at a time. If they wish to withdraw more than one-sixteenth, then they face a 5-9 penalty. The liquidity terms will go back into effect once Citadel lifts its suspension on redemptions from the two funds. ---------- Citadel Investment, whose multi-strategy funds remain underwater after falling 55 last year, is about to launch a single-strategy fund with an unusual high-water-mark provision. Ken Griffin's $11 billion hedge fund firm has begun pitching a long/short equities vehicle it plans to launch next month. According to a marketing document, Citadel Global Equities Fund will charge a 2.5 management fee and 25 performance fee. If the new fund falls below its high-water mark, it will still charge a performance fee, albeit at a reduced rate of 12.5. The lower rate will remain in effect until the fund has earned back 250 of the drawdown. If the fund w... http://www.hfalert.com/headlines.php?hid=47059 Cayman Islands, home to more hedge funds than any other offshore jurisdiction, is eyeing a plan to improve the transparency of some 7,000 hedge funds that are domiciled in the British territory. Its financial regulator, Cayman Islands Monetary Authority, is considering the posting of a number of details about hedge funds, including the names of directors and service providers, on its Web site (www.cimoney.com.ky). The site currently provides little more than the name for each of the funds registered with the authority. quot;The site doesn't provide our stakeholders with a lot of beneficial information,quot; said Yolanda McCoy, head of the authority's investments and securities division. quot;One of our primary objectives is to enhance the overall transparency of the hedge fund industry. We hope to have this organized by late 2009.quot; The move comes as offshore jurisdictions, including the Cayman Islands, Bermuda and the British Virgin Islands, have come under increased scrutiny due to their reputation as lightly regulated tax havens. At the most recent G-20 summit, held in London in April, some world leaders threatened sanctions against quot;non-cooperative jurisdictions.quot; At the same time, Cayman Islands officials have heard from institutional investors seeking more transparency in order to aid their due diligence of hedge fund managers. The expanded Web site would provide investors with quick access to the names of prime brokers, auditors, administrators and other firms servicing hedge funds. Investors also would be able to see whet... http://www.hfalert.com/headlines.php?hid=46937 Following a difficult year that saw its flagship fund plummet 40, AQR has begun marketing a special-opportunities fund it launched last year with its own capital. The firm's co-founder, quantitative specialist Cliff Asness, pitched the fund to investors at a recent capital-introduction event in New York sponsored by Goldman Sachs. AQR Diversified Opportunities fund, set up with $40 million of the firm's own money, takes an event-driven approach to investing in convertible bonds, special-purpose-acquisition vehicles and merger arbitrage. The Greenwich, Conn., fund manager is looking to solicit up to $750 million of equity, though it's unclear how much the firm can expect to raise in the current environment. Despite the fund-raising challenges, AQR is expected to begin marketing another vehicle in the coming weeks. Details were unavailable, but the equity goal is roughly $125 million. The 10-year-old firm runs $20 billion - mostly through long-only vehicles, including separate accounts. It also manages hedge funds with $6 billion to $7 billion of assets. Last year, AQR's hedge funds posted mixed results, ranging from a 4 gain to a 40 loss for the firm's flagship, Global Alpha. In the face of sharp losses and heavy redemptions for some of its funds, AQR cut its staff last fall, laying off 15 people, or about 7 of its staff. They were the first layoffs in the firm's history. But the difficulties haven't stopped the firm from cranking out new investment products in an ongoing effort to diversify its business. Earlier... http://www.hfalert.com/headlines.php?hid=46974 FrontPoint Partners, a hedge fund-incubation platform owned by Morgan Stanley, is exploring a management-led buyout. FrontPoint's executives are considering their options for funding a buyout deal that would likely include a minority stake for Morgan Stanley. That would give FrontPoint continued access to the bank's network of investors. It's unclear whether Morgan Stanley is nudging FrontPoint's management toward a buyout. A person close to Morgan Stanley said that the bank and FrontPoint haven't had any discussions about a deal. The bank acquired the firm in December 2006 for $400 million. At the time, FrontPoint's hedge fund managers signed agreements to stay with the firm until the end of 2008. At least a few of those managers haven't had their contracts renewed, although FrontPoint maintains that all of the revenue-sharing agreements remain in place. Some managers have explored severing their ties to FrontPoint and either striking out on their own or joining another hedge fund operator. FrontPoint has about $7.6 billion under management, supplying seed capital and infrastructure support to 15 hedge fund teams. Before being bought by Morgan Stanley, FrontPoint would offer fund managers an equity position in the firm. Morgan Stanley took 100 ownership of FrontPoint. Under a typical seed deal, FrontPoint splits the combined management and performance fees with the fund manager on a 50/50 basis. The split moves toward 75/25, in favor of the fund manager, as a fund gains assets and becomes more profitable. Among... http://www.hfalert.com/headlines.php?hid=45915 Fairfield Greenwich, which had more investor capital tied up with Bernard Madoff's Ponzi scheme than any other firm, is turning over the bulk of its fund-of-funds business to Sciens Capital. While the exact terms of the transaction are unknown, Sciens will initially advise New York-based Fairfield as it restructures four funds of hedge funds whose combined assets under management have fallen to about $2.5 billion, from a peak of $5 billion last year. Assuming investors sign off on the restructuring plan, Sciens would then take over management of the funds, sharing some of the fee revenue with Fairfield. Because no money is changing hands, the deal isn't being described as a sale. However, Sciens eventually is expected to have complete control over the business and to rename the funds. Fairfield will retain a stake in the business. Together, the four funds of funds invest in about 40 hedge funds. Fairfield had about half of its $14 billion of assets under management tied up with Madoff when he admitted in December that he was running a massive fraud. Fairfield, founded in 1983 by Walter Noel and Jeffrey Tucker, now faces charges by securities regulators in Massachusetts, as well as investor lawsuits. The deal with Sciens leaves Fairfield with a fraction of the business it once ran. Sciens will gain control over Fairfield's Chester Global Strategy, Chester Global Emerging Markets, Chester Horizons and Irongate Global funds. Fairfield, meanwhile, will retain a few small funds of funds, some... http://www.hfalert.com/headlines.php?hid=45031 ---------- CORRECTION: A May 6 article, Goldman Cap-Intro Event Draws Big Names, incorrectly reported that a capital-introduction conference being hosted by Goldman Sachs tomorrow in New York was originally to be held in March at the Fairmont Turnberry Isle Resort in Miami. The Miami conference, which Goldman plans to hold at a later date, will focus on emerging hedge fund managers. This weeks conference in New York features established managers. ---------- Goldman Sachs has lured some of the most prominent hedge fund managers to a capital-introduction event scheduled for next week, flexing its muscle at a time when many prime brokers are still struggling to find their footing. The bank's senior management has been working the phones to get big-name fund managers to attend, and the efforts have paid off. The biggest coup: Steve Cohen, head of SAC Capital, is slated to attend. Cohen, whose Stamford, Conn., firm manages around $12 billion, rarely attends cap-intro events. Other marquee names who have RSVP'd for the May 14 event in New York include AQR Capital's Cliff Asness, Galleon Group's Raj Rajaratnam, GLG Partners' Pierre LaGrange, Maverick Capital's Lee Ainslie, Millennium Partners' Israel quot;Izzyquot; Englander, Och-Ziff Capital's Dan Och, Pershing Square's William Ackman, Third Point Capital's Dan Loeb and Touradji Capital's Paul Touradji. In past years,... http://www.hfalert.com/headlines.php?hid=44928 James Simons' notoriously secretive Renaissance Technologies is taking a small step toward transparency - a sign that even the most-successful fund operators are feeling pressure to provide more information to investors in the wake of Bernard Madoff's fraud. Two Renaissance funds have instructed their auditor, PricewaterhouseCoopers, to provide limited partners with verification of investment valuations and of the banks that hold fund assets in custody. The auditor will supply the confirmations upon request on a quarterly basis. The affected funds are the long-biased Renaissance Institutional Equity Fund and Renaissance Institutional Futures Fund, a commodities vehicle. Simons, a quantitative-investment specialist, is as well known for secrecy as he is for producing spectacular returns. The move toward transparency clearly comes in response to demands that hedge funds be more open in the aftermath of Madoff's $60 billion Ponzi scheme. Still, the step is relatively small, and it may not go far enough for large institutional investors. For example, after getting burned by Madoff, Union Bancaire Privee said in December that it would pull out of any hedge fund that didn't use an independent administrator to verify its net asset value. One fund operator used by UBP, Millennium Partners, quickly hired administrator GlobeOp. Another, D.E. Shaw, is looking into hiring an outside administrator. But Renaissance has so far decided that hiring an outside administrator is unnecessary. Renaissance apparently doesn't want any... http://www.hfalert.com/headlines.php?hid=29077 Stephen Freidheim's Cyrus Capital hired a chief financial officer last week after several key staffers left the New York firm in recent months. Cyrus, whose assets under management have shrunk dramatically during the past year, has also seen the departure of its chief operating officer, head of research and a senior investment staffer. The outgoing chief financial officer, Cyrus Borzooyeh, and former chief operating officer, Robert Nisi, were both partners in the firm. Borzooyeh has already begun working at Dan Stern's Reservoir Capital part time, but has stuck around Cyrus to help his replacement, Brennan McCaw, get up to speed. Nisi's replacement, David Millich, joined Cyrus a few months ago. Nisi is expected to start at a new firm next month. McCaw previously worked for DKR Oasis Management, a joint venture between DKR Capital Partners and Oasis Management that operates Asia-focused hedge funds. Millich was previously chief operating officer at Diamond Lake, a hedge fund firm founded by former Merrill Lynch investment banking chief Dow Kim. Diamond Lake folded last year before launching a fund. Prior to that, Millich ran the North and South American operations of Merrill's prime-brokerage business. Cyrus, which invests mainly in credit products, had assets under management of $1.1 billion on Feb. 1, according to the firm's Web site. That is down from a peak of about $2 billion in 2008. The firm's flagship vehicle, Cyrus Opportunities Fund 2, lost 55 last year. The fund made big investments in auto companies ... http://www.hfalert.com/headlines.php?hid=28908 Capital-introduction events, which virtually disappeared amid the market's meltdown late last year, are suddenly showing signs of life. As the hedge fund industry reeled from steep losses and heavy redemptions during the fourth quarter of 2008, prime brokers quickly moved to scale back or scuttle cap-intro gatherings in New York, London and elsewhere. Investor appetite for alternative investments all but evaporated as many hedge fund managers were unable to meet redemption requests or make good on the promise of absolute returns. Now, investors are beginning to show renewed interest in hedge funds, based on the attendance at several recent cap-intro events. At the beginning of April, for example, 120 investors attended a gathering in New York hosted by Credit Suisse. In late March, the bank hosted a similar event in London that drew 140 investors. The turnout at both events was quot;more than we expected,quot; said Robert Leonard, Credit Suisse's global chief operating officer for capital services. Attendance has jumped 40-50 compared with late 2008, he said, and is on par or slightly ahead of early 2008. In the coming months, Credit Suisse has additional cap-intro events scheduled for Boston, Geneva, Zurich, Paris, Sao Paolo, Rio de Janeiro and Hong Kong. Merrill Lynch hosted a cap-intro gathering in New York last month that also drew a good crowd. quot;Some very senior people from big fund-management companies attended,quot; said one market player who was at the event. Morgan Stanley organized an event in New York last month... http://www.hfalert.com/headlines.php?hid=28812 Fortress Investment, scrambling to manage heavy withdrawals from its $5 billion Drawbridge Special Opportunities Fund, is proposing an unusual maneuver to meet some of the redemptions. In an April 1 letter to investors, the New York firm sought permission to buy certain illiquid assets Fortress had earlier set aside in special accounts. It's unclear why the firm is interested in purchasing the assets rather than liquidating via secondary-market sales, but presumably Fortress sees an investment opportunity. It also would allow the firm to return some money to investors. Drawbridge Special Opportunities invests mainly by making direct loans to unrated companies. The U.S. version of the fund lost 26 last year, triggering a flood of redemption requests from investors. In response, Fortress established so-called redemption capital accounts at the end of the year to hold certain assets pending liquidation. The terms of the fund already give Fortress the option of purchasing, on a pro rata basis, portions of all of the assets in those accounts. The loans the fund invests in are highly illiquid. Rather than try to sell pieces of the loans held in the redemption capital accounts on the secondary market, the fund manager is seeking to maintain control of entire loans. Some of the redeeming investors still maintain investments in the fund, so those investors would essentially be selling the assets to themselves. In its letter to investors, the firm made another unusual pitch: It asked redeeming investors if they want to particip... http://www.hfalert.com/headlines.php?hid=28836 Stark Investments, which is scrambling to complete its acquisition of Deephaven Capital's main hedge fund, has told its own investors that it wants to restructure two big funds in the wake of sharp losses and heavy redemptions. The multi-strategy fund operator, which manages more than $8.5 billion, has notified investors in its flagship Stark Investment vehicle and an offshore fund, Shepherd Investment, that they will receive a portion of their March 31 redemptions in the form of shares in a newly created vehicle. In a March 23 letter, the Milwaukee firm said it was setting up two companion vehicles to hold the funds' least-liquid assets - Stark Select Asset Fund and Shepherd Select Asset Fund. The firm said it could take up to three years to liquidate the hard-to-sell holdings. Redeeming investors won't be charged a management fee on assets in the new vehicles. The firm, run by Brian Stark and Mike Roth, said that about 55 of the net asset value of Shepherd Investment will be transferred to Shepherd Select. The figure doesn't include investments the firm parked in quot;side pocketsquot; a few years ago to separate liquid assets from private equity-type investments. It's unclear what portion of the assets in Stark Investment would be transferred to Stark Select. The Stark funds have been flooded with redemption requests amid severe losses last year and in early-2009. The Shepherd fund lost 22.2 in 2008 and another 4.2 during the first two months of this year. In their letter to investors, Stark and Roth... http://www.hfalert.com/headlines.php?hid=28824 Hedge-fund incubation firms, which act as middlemen between deep-pocketed investors and startup fund managers, are struggling with a growing mismatch between supply and demand. On the one hand, the incubation shops are seeing heavy demand for seed capital from early-stage managers who have had little luck raising funds since the onset of the financial crisis. But on the other hand, institutional investors that were once eager to back incubation efforts have slashed their allocations for seed financing. Incubation operators such as SkyBridge Capital, Protege Partners and Weston Capital are seeding fewer funds and providing less capital per manager. Incubation firms traditionally have been a key source of capital for startup managers, while also providing much-needed marketing and operational support. quot;There's a lot of tire kicking going on right now,quot; said one early-stage hedge fund manager who has been hunting for seed capital. One incubation executive described the current market conditions as an quot;almost perfect storm.quot; Most incubation firms, he said, are struggling to hold on to existing commitments from investors that are suddenly having second thoughts. The few investors still in the market are increasingly wary of multi-year lockups on their capital - a standard condition for incubation investments. Traditionally, incubators have counted on pension funds, endowments, family offices and wealthy individuals as their main sources of capital. SkyBridge, a New York incubation firm, has reduced its standard... http://www.hfalert.com/headlines.php?hid=28534 With the audit season just around the corner, new accounting rules are requiring funds of funds to consider secondary-market prices when valuing investments in hedge funds that have blocked or gated redemptions. In the past, the auditor of a fund of funds could value an investment in an underlying hedge fund simply by pegging it to the net asset value, as confirmed by that fund's auditor. But under the Financial Accounting Standards Board's mark-to-market requirements, known as FAS 157, the NAV of an underlying fund will have to be discounted by a fund of funds if the hedge fund manager has invoked gate provisions or suspended redemptions, said Jeffrey Yager, a partner at accounting firm McGladrey amp; Pullen. Now, the big question for fund-of-funds auditors is: How much of a discount Funds of funds and their auditors will get some guidance from the American Institute of Certified Public Accountants, which is preparing a quot;technical practice aidquot; to advise auditors. An early draft of the document says that when valuing funds that have been gated or closed to withdrawals, auditors must consider recent sales of the fund's shares on the secondary market. Even when shares have sold at a steep discount, however, auditors aren't required to mark down a multi-manager vehicle's investment in that fund by the full discount, and can consider a range of other factors, including the reputation of the hedge fund manager. Still, the new rule could cause problems for multi-manager funds. Fund-of-funds managers generally would pre... http://www.hfalert.com/headlines.php?hid=28456 Brevan Howard Asset Management is set to hire Morgan Stanley to market the giant hedge fund operator's vehicles to the bank's institutional clients. Brevan Howard already has a prime-brokerage relationship with Morgan Stanley, but the marketing deal would go beyond the standard services the investment bank provides to the London firm. Morgan Stanley would market Brevan Howard funds through multiple channels, not just its prime-brokerage unit. While prime brokers typically don't charge for capital-introduction services, Brevan Howard would pay Morgan Stanley a fee for referrals to institutional clients. The bank hopes the deal will pave the way for more fee-based cap-intro business. Brevan Howard, which has about $26 billion under management, posted big gains last year, even as most fund operators were suffering steep losses. Nonetheless, the firm was hit with redemption requests for about 20 of assets across all of its funds. The tentative deal with Morgan Stanley appears to stem from conversations between John Mack, the investment bank's chief executive, and Brevan Howard founder Alan Howard. The two worked together when Mack was CEO of Credit Suisse First Boston and Howard ran proprietary interest-rate trading for the bank. Howard left Credit Suisse in 2002 to launch Brevan Howard amid efforts by Mack to rein in costs, including compensation. Brevan Howard's flagship vehicle, the $15 billion global-macro Brevan Howard Master Fund, was up more than 20 last year. The firm also runs Brevan Howard... http://www.hfalert.com/headlines.php?hid=28317 Passport Capital's flagship fund redeemed $37 million from a sister vehicle, Passport India Fund, angering some investors who have been waiting for withdrawals as the India-focused fund continues to lose money. The San Francisco firm, with $2 billion under management, disclosed the withdrawal from the India fund in a quarterly letter to the fund's investors last week. As part of a rebalancing of its portfolio, Passport Global Fund redeemed the shares at yearend, the letter said. The move didn't sit well with investors in Passport India, which fell 67 last year. (By comparison, India's benchmark stock index, the Sensex 30, fell 61.) One investor accused the firm, led by John Burbank, of ignoring the fund's liquidity terms, which require three months' notice for withdrawals. The firm also failed to disclose the withdrawal in a timely manner, the investor said. quot;It appears the mother ship could redeem in a day, while the rest of us will have to wait longer than 100 days to get our money back,quot; the investor said. By redeeming, the investor said, the firm further may have pushed down the net asset value of the India fund, and left the remaining investors holding a higher percentage of less-liquid assets. About 35 of the fund's assets are stakes in private companies. The firm should have notified investors as soon as it decided to redeem from the India fund, the disgruntled investor said. The fund has lost another 7 since the start of the year. Passport declined to comment. Since its inception in 2005, Passport... http://www.hfalert.com/headlines.php?hid=28468 Philip Falcone, chief of hedge fund heavyweight Harbinger Capital, is buying out the firm that backed Harbinger at its inception. Harbert Management, a Birmingham, Ala., alternative-investment manager, acquired a stake in Falcone's New York firm when it provided $25 million of seed capital for the launch of Harbinger's first fund in 2001. Falcone is buying back Harbert's stake for an undisclosed sum. The decision to split appears to be mutual. When the deal is finalized, Falcone will own 100 of Harbinger, which has $9 billion under management. But Harbinger will continue to rely on Harbert for operational support. Harbert will also maintain its current investments with Harbinger's funds: the flagship, multi-strategy Harbinger Capital Partners Fund 1, Harbinger Capital Partners Special Situations Fund, and the two vehicles' offshore versions. Falcone began positioning Harbinger to be more independent from Harbert last year when his flagship fund was riding high, up nearly 42 during the first six months of 2008. He hired Blackstone Group's Park Hill unit to take over marketing of his funds. At that point, Harbinger had assets under management in excess of $26 billion. Since then, however, Harbinger's funds have fallen sharply. Its flagship ended 2008 with a 27.8 loss, while Special Opportunities Fund slid 56.1. Losses and redemptions have left the firm with just $9 billion under management. It's unclear how much Harbert has under management with Harbinger. Over the years, Falcone has done well for Harbert,... http://www.hfalert.com/headlines.php?hid=28222 Fund-of-funds operator Alstra Capital is shutting down after its biggest client, Max Capital, decided to take direct control of its hedge fund investments after they suffered double-digit losses last year. Since its inception in 2005, Alstra's main business has been managing the alternative-investment assets for Max, a Bermuda reinsurance company that shares a common ancestry with Alstra. Both firms trace their roots to Louis Bacon's Moore Capital: Max was launched by a Moore-led consortium in 1999 in part as a way to boost the hedge fund's assets under management, while Alstra is run by Bacon's brother, Zack Bacon. At the beginning of 2008, Max accounted for about $1.2 billion of Alstra's $1.4 billion under management. Alstra runs a fund of funds for Max called Max Diversified Strategies, which according to a recent regulatory filing contains quot;materially allquot; of Max's alternative investments. In its annual report, issued last week, Max reported losing $233 million, or 19.3, on its alternative investments. Alstra said Max Diversified Strategies' assets under management fell to $749 million at yearend, suggesting that in addition to losses, Max redeemed some of its assets last year. Max said in its annual report that it was seeking to reduce its hedge fund exposure. The portfolio's decline in value last year took a significant bite out of the reinsurer's capital base. Those losses led to a reevaluation of the investments. Max decided to sever its quot;trading agreementquot; with Alstra in the last few weeks, according to a... http://www.hfalert.com/headlines.php?hid=27951 As the secondary market for hedge fund shares heats up, Neuberger Berman hopes to raise $500 million for an investment vehicle that would buy fund stakes at a discount. The offering is being crafted by staffers in Neuberger's fund-of-hedge funds group, led by Eric Weinstein. The New York money-management firm is an established player in the secondary market for private equity funds, running a $2.3 billion vehicle that targets stakes in buyout and venture capital funds. The secondary market for hedge fund shares is expected to grow as investors look to get out following the worst year in the industry's history. Neuberger is one of several firms with plans to target interests in hedge funds. London-based Permal Group, the fund-of-funds unit of Legg Mason, is about to launch Permal Hedge Fund Opportunities, which will buy hedge fund stakes in the secondary market. Some of Permal's funds of funds have been trading secondary-market shares for years, but this would be the firm's first investment vehicle devoted solely to that market. In the past, fund managers have discouraged investors from selling their stakes in the secondary market in order to maintain control over their investor base and avoid administrative hassles. But managers appear to be loosening their policies as they look for ways to help cash-strapped investors without being forced to liquidate assets in a depressed market. Plainfield Asset Management, for example, recently sponsored an auction to help investors unload their stakes. The auction, run... http://www.hfalert.com/headlines.php?hid=27966 Perry Capital is floating a plan to continue charging investors a performance fee, albeit at a reduced rate, even though its flagship fund remains well below its high-water mark. Richard Perry's New York firm is giving investors in Perry Partners International a choice: stick with the traditional high-water mark provision, which means no performance fees until the fund returns to its peak level, or join a new share class with a more-complicated fee structure. Investors in the new class would pay a performance fee of 10 - half the usual rate - on any gains after Jan. 2, 2009, even if the fund remains below the high-water mark. The incentive for investors is that the discounted rate would remain in effect even after the high-water mark is reached, until 250 of the losses have been recouped. The move is expected to be closely watched by investors and fund managers alike at a time when most funds remain far below their peak levels. For investors, the high-water mark is what sets hedge funds apart from other investment vehicles, ensuring that asset managers reap generous fees only when they generate positive returns. Perry's flagship fund, which manages $6 billion of the firm's $8 billion of assets, posted a 26.8 loss in 2008, the first annual loss in the firm's 20-year history. Like most of its peers, Perry Capital stands to see its revenue decline now that performance fees have dried up and all that's left is the standard 2 management fee. Depending on the extent of the losses and the strength of the... http://www.hfalert.com/headlines.php?hid=27726 A study six years ago found evidence of inadequate internal controls and compliance procedures at the fund shop run by Arthur Nadel, who was arrested and charged with fraud yesterday after disappearing for two weeks. The 16-page report, prepared by CarbonBased Consulting, was commissioned by Nadel's firm, Scoop Management of Sarasota, Fla. CarbonBased highlighted numerous operational shortcomings that it said were so obvious that they should have been apparent to sophisticated investors conducting their own due diligence of the firm. The report, which was obtained by Hedge Fund Alert, raised questions about Scoop's trade-reconciliation procedures, accounting, investor relations and other issues. It's unclear why Scoop commissioned the report or whether it acted on the findings or disclosed them to its investors. Brian Shapiro, president CarbonBased, confirmed Scoop had been a client, but declined further comment, citing confidentiality agreements. Among other things, the New York consulting firm found that Scoop's daily trading activity was reconciled only once a month. As a result, Scoop didn't have a clear idea of the assets it held in each fund. Neither the accounting nor the performance of the funds could be certified for accuracy, the consultant said. It recommended that Scoop hire a nationally recognized accounting firm and enter into a relationship with a prime broker. The consultant also found that Scoop allowed unqualified investors into limited partnerships with qualified... http://www.hfalert.com/headlines.php?hid=27702 The secondary market for shares of hedge funds is heating up. After suspending redemptions for its main fund, GoldenTree Asset Management has hired Credit Suisse to run an auction for investors wishing to sell their shares in the vehicle. Meanwhile, Morgan Stanley is getting ready to unveil a service that would match buyers and sellers of hedge fund stakes. Separately, an unidentified European bank is circulating a list of high-profile hedge funds for which it has lined up investors who would buy discounted stakes if they were to become available. Investors in GoldenTree Master Fund vehicles interested in selling their stakes must submit their asking prices by Feb. 6. Bids for fund shares are also expected to be due on that date. If any bids equal or exceed any of the offers, Credit Suisse will set a single price that will enable the most possible transactions to be completed. The auction appears to be similar to the one Credit Suisse is running for Plainfield Asset Management's Plainfield Special Situations Master Fund. In order to attract bidders, GoldenTree agreed that any shares sold at auction would be assigned a high-water mark that is above the purchase price - thus giving buyers an opportunity to avoid some performance fees. Credit Suisse followed the Plainfield blueprint in setting terms for the GoldenTree auction. Buyers of Plainfield shares will be assigned the most attractive high-water mark that exists for any current investor in the fund. The sale price will be set based... http://www.hfalert.com/headlines.php?hid=27580 After suspending redemptions two months ago, Plainfield Asset Management turned around and set up an auction to let investors in its $5 billion flagship fund sell their stakes on the secondary market. Though some fund operators have condoned secondary-market sales in the past, Plainfield's move may be the first time a fund shop has coordinated the effort itself. The rationale: An auction allows disgruntled investors to cash out without forcing the fund operator to sell off assets in depressed markets. The Greenwich, Conn., firm arranged the auction for investors in the Plainfield Special Situations Master Fund, a multi-strategy credit fund that was down 9 last year through October. By the end of October, investors sought to withdraw a whopping 30 of the fund's assets at yearend, prompting Plainfield to suspend redemptions in November. After that, the fund shop tapped Credit Suisse to organize a quot;modified Dutch auction,quot; according to a letter to investors. Investors interested in selling their stakes and potential buyers were invited to submit offers by early January. Credit Suisse would then set a clearing price that would allow for the maximum number of completed deals. Fund investors who were willing to sell at or below the clearing price would be matched with buyers whose bids were at or above that price. To attract bidders, Plainfield agreed to allow buyers of fund stakes to assume the fund's high-water mark, meaning they won't be subject to performance fees until the fund's assets return to their peak level. Buy... http://www.hfalert.com/headlines.php?hid=27447 Deutsche Bank's $4.5 billion fund-of-funds unit is shutting down one of its fund series and running into serious trouble with another. The bank's DB Advisors unit, which manages money for institutional investors, has suspended redemptions for its two main fund-of-funds lines: the Topiary series, which will be liquidated, and the DB Global Masters Fund, Deutsche's flagship multi-manager vehicle. In recent weeks, Deutsche also cut jobs in its fund-of-funds operation. People familiar with the operations say DB Global Masters will probably close as well, though a Deutsche spokeswoman denied that is the plan and insisted the bank remains committed to its fund-of-funds business. As of Nov. 30, the Topiary series had more than $1.3 billion under management, down from more than $2.3 billion at yearend 2007. DB Global Masters was managing more than $2.2 billion, compared with its yearend total of more than $2.5 billion. One of the largest Topiary funds, DB Topiary Trust, was down 19.5 last year through November. Global Masters fell 16.3 during the same period. Even some Deutsche investment advisors have lost faith in the fund-of-funds operation. During the final quarter of 2008, Deutsche's Private Wealth Management business removed both Topiary and DB Global Masters from its investment platform due to performance issues. Until five years ago, when Private Wealth Management began investing in outside hedge funds, almost all of the investors for DB Advisors' funds of funds came through marketers at the... http://www.hfalert.com/headlines.php?hid=27312 Fairfield Greenwich Group, which steered more investor capital to Bernard Madoff's con game than perhaps any other player, was pitching a new Madoff offering as late as Dec. 11, the day of his arrest. Only about two weeks ago, marketers for Fairfield Greenwich, a New York money manager, told a fund-of-funds operator that investors had already snapped up $300 million of a $500 million offering from Bernard L. Madoff Investment Securities. The pitches described a strategy that could return 14-16 a year - more than the returns from Madoff's typical strategy - but with more risk. Sales people said the opportunity would no longer be available by the end of January. Also during the week of Dec. 1, another hedge fund professional was pressured by Fairfield Greenwich representatives, who insisted Madoff would punish redeeming investors and those declining to participate in the fresh offering. The marketers said such investors would be shut out of future Madoff opportunities. A separate fund staffer was offered a chance to invest in a Fairfield Sentry fund - a Fairfield Greenwich vehicle allocated entirely to Madoff - at around 4 p.m. on Dec. 11. Madoff had been arrested that morning. As the fallout of Madoff's Ponzi scheme spread rapidly across the global investment community, a federal judge this week ordered a liquidation of his asset-management business. Fairfield Greenwich, established in 1983, is reported to have $7.5 billion of client money tied up with Madoff, which accounts for more than half of the ... http://www.hfalert.com/headlines.php?hid=26865 Fund operators SAC Capital and Diamondback Capital have created quot;side pocketsquot; to wall off a portion of their assets, but for different reasons. SAC, whose main hedge fund is down about 20 this year, wants to protect illiquid, hard-to-value assets from investor redemptions. The $16 billion Stamford, Conn., firm, which is run by Steve Cohen, notified investors within the past two weeks that it had set up a side pocket for about 13 of the fund's assets. The segregated investments include both fixed-income and private-equity assets. By walling off those holdings, SAC can exclude them from performance calculations until the positions can be sold or properly valued. Diamondback established a side pocket for about 14 of its assets to account for its exposure to Lehman Brothers, which filed for bankruptcy in September. The Stamford fund operator, headed by SAC alumni Larry Sapanski, Richard Schimel and Chad Loweth, initially estimated that it had $772.5 million tied up in Lehman's prime-brokerage unit. On Nov. 10, the firm wrote down the value of its Lehman assets to $518 million quot;due to increased concerns about the extent and timing of recovery.quot; Diamondback has told investors its Lehman holdings will likely have to be discounted further. The side-pocket provisions apply to investors in Diamondback funds before Nov. 1. No management fee will be charged on the covered assets. Including the Lehman securities, Diamondback has about $5.3 billion under management. Through November, Diamondback's main hedge f... http://www.hfalert.com/headlines.php?hid=26853 Even as it faces a flood of redemption requests, Millennium Partners is investing more than $1 billion of seed capital in three planned stock funds run by outside managers. The New York fund operator, founded by Israel quot;Izzyquot; Englander, is expected to be the exclusive investor in the three funds, at least initially. Julie Macklowe, who recently lost her job at SAC Capital's Sigma unit, will launch a fund on Jan. 1 with $250 million from Millennium. Former J.P. Morgan proprietary trader Brian Pinsker is expected to receive up to $1 billion of seed capital. And Jon Cheng, formerly of Perry Capital, is in talks with Millennium for a deal that would fall somewhere between the other two. Like Macklowe, Cheng and Pinsker recently lost their jobs as the financial markets collapsed. Cheng, a retail-stock portfolio manager, was laid off by New York-based Perry Capital in October, as Perry cut three-quarters of its equity investment staff. Cheng's fund, to be based in New York, will focus on the retail sector. Pinsker, whose trading group at J.P. Morgan was shut down in September, has started a New York firm called 11:11 Capital to launch a healthcare-focused fund. Macklowe, a consumer and retail-stock specialist, is setting up Macklowe Asset Management in New York. The fund will only manage Millennium money for at least a year before opening up to outside investors. At Sigma, part of Steve Cohen's Stamford, Conn., firm, Macklowe managed a similar-size portfolio from offices in New York. Millennium is borrowing half... http://www.hfalert.com/headlines.php?hid=26839 After losing about half of its value since it started last year, a Goldman Sachs distressed-debt fund is allowing investors to redeem all of their shares ahead of schedule, an option that limited partners in other hedge funds are sure to envy. Goldman Sachs Liquidity Partners 3, which launched in the summer of 2007 with $1.7 billion of commitments, also gave investors an opportunity to stick with the fund in return for reduced management fees and zero performance fees for a limited period. Those wishing to contribute capital are also eligible for reduced fees. But for LPs wanting out, Goldman is willing to waive a lockup provision requiring investors to leave their capital in the fund for at least two years. Goldman is outlining the options in a letter it expected to send to investors this week. The fund, housed in Goldman Sachs Asset Management alongside other bank-run hedge funds, is overseen by James Clark, a partner. The vehicle's management team also includes Roberta Goss, who heads bank-loan investments at Goldman Sachs Asset Management. Liquidity Partners 3, which invested in leveraged bank loans and subprime mortgage-backed securities, borrowed to boost its exposure to those markets. Toward the end of 2007, Goldman and many others believed the values of such assets were soon to recover. As it turned out, credit-market values were nowhere near their bottom, roiling the many players that began investing around that time. Loans issued to finance LBOs, for instance, have since dropped to 70 cents on the... http://www.hfalert.com/headlines.php?hid=26826 Chilton Investment let go about 30 staffers last week, as it scales back operations to cope with a $2.5 billion drop in assets over the past four months. The New York firm showed the door to about 20 of its staff, starting with the most-junior employees and working up from there. Most low-level staffers had been kept somewhat in the dark about the state of the company since the end of September, when Chilton cut off their access to its quarterly investment letter. The departed staffers included all but one member of Chilton's distressed-investment team. That worker stayed on to oversee the liquidation of those holdings. Chilton now has about 120 employees, which is where it stood before embarking on an ambitious expansion effort about two years ago. Like many fund operators, Chilton is being forced to cut costs as it struggles to survive the prolonged financial crisis. Chilton was managing about $6.5 billion of investments in early October, down from $9 billion at midyear. One of its biggest vehicles is the $3 billion Chilton Global Natural Resources Partners, which invests in stocks issued by companies in mining, energy and related industries. The fund suffered losses after taking mostly long positions. They turned out to be wrong bets a few months ago, when plunging commodities prices decimated the stocks of natural-resources companies Richard Chilton, who founded the firm in 1992, runs its flagship equities fund. His outfit has been putting down roots in Asia over the past 18 months... http://www.hfalert.com/headlines.php?hid=26813 Three large fund-of-funds operators in Europe are making it tougher for investors to withdraw their money, reversing the easy liquidity terms that helped fuel their rapid growth. The unprecedented defensive steps are being taken by Permal Investment of London, Thames River Capital, also of London, and Geneva-based Notz Stucki. Many others are expected to follow soon with their own defensive measures. quot;I think a lot of funds of funds will be doing this,quot; said the chief investment officer of a U.S. fund-of-funds manager. quot;It is not something we are doing, but I would be a liar if I told you it didn't cross our minds.quot; The three European firms are paying the price for the investor-friendly liquidity terms they offered during the years leading up to the financial crisis. Their monthly liquidity terms helped them raise capital quickly, particularly from wealthy investors who were eager to put their money to work in hedge funds. Such terms were looser than those imposed by most funds of funds, particularly U.S. vehicles that typically offer quarterly liquidity if notice is given 65 days prior to the end of a quarter. Permal, with $35 billion under management, is now requiring far more notice than it used to from investors wishing to redeem shares. It wants investors to request their withdrawals 95 days ahead of the redemption date, up from 20 days. The move had the effect of blocking redemptions from those who wanted out before yearend. Permal's next redemption date is Feb. 28, 2009, with notice due by Nov. 25.... http://www.hfalert.com/headlines.php?hid=27213 A leveraged fund of funds run by HRJ Capital lost 30.9 last month, leaving it down 53.5 for the year. The vehicle, HRJ Legends Multi-Strategy Plus Fund, invests with some of the highest-profile hedge fund managers in the world. Among them: Cantillon Capital, Centaurus Capital, D.E. Shaw, Farallon Capital, Ospraie Management, Perry Capital and Tudor Investment. HRJ Legends was overseen by Jennifer Coffey until Sept. 25, when she left HRJ to select investments at Lasair Capital - a new multi-manager shop run by former Financial Risk Management U.S. chief Carrie McCabe. The fund is now run by Michael Merrigan, who assumed Coffey's title as head of hedge fund investing. Merrigan started at HRJ in 2006, a few months before Coffey. Both previously worked in Credit Suisse's fund of funds group. Merrigan also oversees an unleveraged version of HRJ Legends, called HRJ Legends Multi-Strategy Fund. That vehicle lost 7.7 in September and 16 for the first nine months of this year. The leveraged version of HRJ Legends parks capital with 15 underlying managers overall, putting $1.90 of borrowed money to work for every $1 of investor equity. The fund's September losses reflected widespread beatings that hedge funds took amid turbulent financial-market conditions. Extreme volatility had already marked its track record, with four months of double-digit losses in 2008 alone. The entity caught the attention of industry players as the financial crisis was beginning in August 2007, as a shakeup among quantitat... http://www.hfalert.com/headlines.php?hid=26800 Multi-strategy shop Whitebox Advisors is suspending redemptions from the half-dozen or so hedge funds it runs - cutting off investors from some $4 billion of assets. The Minneapolis firm, run by Andrew Redleaf, has apparently been telling shareholders of its plans over the telephone while drafting a formal letter for release later this week. The move reflects at least some expectations of withdrawals, given losses the outfit took on convertible-bond investments last month and liberal terms that allow backers to pull money monthly. But the situation may be more closely tied to shifts in prime-brokerage terms. Word on the street was that Whitebox was in a strong position to fulfill any yearend redemption requests until this month, when Goldman Sachs ordered the firm to double the amount of collateral it puts up against margin loans used to trade convertible bonds. And sources say that Whitebox anticipates other prime brokers following suit. The result is a funding squeeze: The firm needs more of its already-devalued holdings to put up against its margin accounts, which it would otherwise be forced to repay. That means it can't sell the investments to meet redemptions, which is something it might want to avoid anyway as such a move might magnify losses. Hence, the severe measure of blocking off shareholders from their money. The undertaking places Whitebox among a slew of hedge fund managers that have been withholding investor capital in some fashion in recent weeks, some in... http://www.hfalert.com/headlines.php?hid=16202 Ramius Capital is attempting to persuade investors not to cash out of its flagship hedge fund by offering to reduce their fees. The firm also laid off about 40 members of its 200-person workforce on Oct. 14, including employees in its New York headquarters and elsewhere. And it moved to shed some of the office space where they worked in New York and shuttered its Hong Kong outpost. At the same time, the multi-billion-dollar outfit has begun booking assets stranded in prime-brokerage accounts with bankrupt Lehman Brothers at 20 cents on the dollar. The confluence of actions point to a tumultuous time for Ramius. The fee-cutting move, for example, is aimed at stemming potentially heavy investor withdrawals from the New York firm's multi-strategy hedge funds. Those vehicles, operating under the Ramius Multi-Strategy Fund banner, were already taking losses before Lehman collapsed. For investors who keep their money in any version of Ramius Multi-Strategy for any amount of time, Ramius is offering to reduce its incentive fee to 15 of gains above each of their high-water marks, from 20, until yearend 2010. Those who agree to leave their money untouched through 2009 will only pay a 10 performance fee until the end of 2010 and a 15 charge in 2011. What's more, current investors who add capital to any Ramius fund in 2008 or 2009 won't pay any incentive fees on that money until the beginning of 2010. At that point, Ramius will take 10 of gains on the added contributions for a year, and then 15 the year after. Investors... http://www.hfalert.com/headlines.php?hid=16119 Merrill Lynch has slashed the staff of a group it set up last year to perform operational services for startup hedge funds. The bank also reassigned the unit's leader, Artie DiRocco. He'll continue in his current role for the next month or so, while also serving in a new post as head of stock-loan activities in North America and South America. He now reports to worldwide financing co-chiefs Jeff Penney and Sylvan Chackman, whose combined oversight encompasses the institution's prime-brokerage division. DiRocco's former group, called hedge fund integrated services, encompassed about 40 staffers when it launched last year. It stands to be far smaller going forward. The trimming appears to be a response to a failure by the group to attract clients. It was essentially working with just one fund, WCG Master Fund - a vehicle run by former Merrill bond trader Barry Wittlin under the banner of WCG Management. DiRocco joined Merrill around the beginning of 2007, after a 4-year stint as treasurer at Amaranth Advisors that ended with that firm's failure in September 2006. He then spent about seven months constructing his group, whose mission is to offer accounting, human-resources, legal and administration services to newly forming hedge fund managers. While the team functions independently of Merrill's prime-brokerage operation, it was supposed to work with some clients of that unit. It was also gearing up to supply its services to funds that Merrill's proprietary traders would start, such as Wittlin's WCG. Another trader,... http://www.hfalert.com/headlines.php?hid=16018 Black Diamond Capital suspended investor redemptions from one of its hedge funds last week, citing uncertainty related to the financial crisis. The move applies to the firm's BDC Partners vehicle, which invests in leveraged loans. It took effect with withdrawals scheduled for Sept. 30. Leveraged loans are just one of the many types of debt products whose values have been shaken up by the ongoing credit crisis. That turmoil had already contributed to a 13.5 loss for BDC Partners during the first eight months of 2008. However, Black Diamond is making the case that its decision to halt withdrawals from the fund isn't tied to its performance, or any resulting capital squeeze. Rather, the firm said the move was prompted by uncertainty surrounding the U.S. Treasury Department's proposed $700 billion bailout of the battered financial sector, and what the action might mean in terms of investment decisions. The confusion only grew when the plan was shot down by Congress on Monday. Black Diamond's stance was echoed in a letter the firm sent to BDC Partners' shareholders informing them of its plans. The firm noted that the vehicle hadn't been hit with an unusually large number of redemption notices in response to its losses. It also said it was holding enough cash to meet withdrawal requests it did receive. BDC Partners has an estimated $500 million to $1 billion under management. Black Diamond joins an ever-growing list of hedge fund managers that have been blocking their investors from cashing out, as deepening... http://www.hfalert.com/headlines.php?hid=15920 Amber Capital cut its 75-member staff nearly in half this month in anticipation of its assets plummeting to $2 billion from a peak of more than $7 billion last year. The New York firm is left with 42 employees worldwide. Amber's investors are set to redeem $1.5 billion on Sept. 30, which would leave the event-driven Amber Fund with $2 billion. As of Aug. 31, Amber was down 11 since the beginning of the year, when it had $6.6 billion under management. It peaked in October 2007 with just over $7 billion, about two years after Joseph Oughourlian and 15 colleagues from Societe Generale spun off to launch the European-focused fund with $1.5 billion. Complicating the picture for Amber is $300 million to $500 million that the fund has tied up in Lehman Brothers' U.K. bankruptcy case. According to Amber, its accounts with Lehman's London office are made up of equities that it owns directly, rather than borrowed shares or collateral for margin loans. PricewaterhouseCoopers, the London bankruptcy administrator, has reported that it might take several months to return assets to Lehman's hedge fund clients. Amber's layoffs could be the shape of things to come for many hedge funds facing negative returns and significant redemptions. When funds suffer losses, they can't charge investors performance fees until the losses are made up. In addition, they often face redemptions, which hamper their ability to collect future fees. With bonus season arriving at yearend or soon after, there's an incentive for hedge fund... http://www.hfalert.com/headlines.php?hid=15830 Fund-of-funds operators are anticipating panic among their investors by maintaining historically high cash positions and clarifying under what circumstances they might be allowed to withhold capital from those who wish to cash out. quot;I don't see how the fund-of-funds industry can survive,quot; said a breathless executive at a multi-billion-dollar fund of funds. quot;There are too many hedge funds that have suspended redemptions. You have to hope your clients hang in there, but more and more won't.quot; For their part, fund-of-funds managers insist their investors are sticking with them, and that while they have been redeeming their shares in some funds, they are holding cash as they mull over new hedge fund investments. London-based Permal Investments, a Legg Mason unit with $38.2 billion under management, runs Permal Macro Holdings, which is maintaining a 12 cash position. London-based Thames River has been reducing its leverage and amassing cash reserves across its range of multi-manager vehicles. And New York-based Focus Investment Group said it is no different from most other funds of funds, which are holding cash equal to 5-10 of total assets. Indeed, Focus Investment doesn't foresee major redemptions at yearend, because 98 of its capital comes from institutional investors. quot;We are just taking a few extra months to evaluate new allocations,quot; said Andrew Godfrey, director of the firm's emerging-manager program. Wealthy individuals have been shell-shocked by the past week's bankruptcy of Lehman... http://www.hfalert.com/headlines.php?hid=15745 Goldman Sachs is reworking the terms of its credit agreements with prime-brokerage clients as part of an effort to better control its exposure to struggling hedge funds. Goldman is telling hedge fund clients that it won't be renewing the current terms of margin-lending agreements with them, and that if they want to continue borrowing from the bank they will need to renegotiate when the credit facilities expire. Prime brokers typically renew such provisions as the interest rate, capacity and term of the facility each day, and Goldman has been telling some hedge funds that there will have to be changes when it rolls over agreements. In some cases, Goldman may be attempting to push weaker clients off its roster. Throughout the ongoing credit crisis, Goldman's risk-management practices have been the envy of Wall Street, which is why the bank's tightening of its hedge fund financing terms should capture the attention of prime-brokerage rivals. In reworking credit agreements, Goldman is trying to conserve capital and pare down its exposure to hedge funds at a time when a number of high-profile funds are struggling to produce respectable returns. In the last month, for instance, Ospraie Management decided to shutter its flagship $2 billion commodities-focused hedge fund following a 27 loss in August. Andor Capital, a $2 billion fund manager, is closing down the entire firm. Last month, the Financial Times reported that Goldman and Morgan Stanley were tying the amounts they lend to hedge funds to the banks' own... http://www.hfalert.com/headlines.php?hid=15640 Small-cap stock specialist Bonanza Capital is returning its investors' money, following steep losses and a wave of redemption requests. The move comes after the Dallas hedge fund shop, which runs about $350 million, saw its Bonanza Master Fund and two feeder vehicles called Bonanza Partners and Bonanza Offshore lose about 30 over the first seven months of this year. The outfit ultimately decided to cash out all investors in those entities after receiving about $100 million of withdrawal notices. Bonanza's losses involved holdings of thinly traded, illiquid stocks. In a number of cases, the firm owned many times more shares in a particular company than the stock's average daily trading volume. One example is Silverleaf Resorts. Bonanza was holding 2,329,100 shares of the Dallas-based timeshare-resort operator throughout the first quarter of this year, according to SEC documents. On average, 61,000 shares of Silverleaf change hands each day. Silverleaf's shares fell from $4.16 coming into this year to $2.27 on March 31, which works out to a $4.4 million loss for Bonanza. Silverleaf closed at $1.93 on August 13. Bonanza's decision to cash out all investors in its funds reflects a squeeze that would have occurred if the firm moved only to meet the redemption requests it received. Under that scenario, Bonanza would have been forced to unload its most liquid holdings first - introducing the risk of trading losses or saddling the shop with its hardest-to-sell positions. Ultimately, president Bernay Box... http://www.hfalert.com/headlines.php?hid=15546 Atticus Capital has racked up more losses in recent months, a development that is sure to strike a nerve with investors who were already upset with the firm for stashing one of its positions in a side pocket. Adding to sizable losses it had already accumulated in the first few months of this year, the New York firm's flagship Atticus Global fund saw its year-to-date returns fall to minus-22.1 by the end of July - including a 2.5 dip that month. Even excluding the side pocket, the $5.2 billion vehicle was down 17.7 during the January-July span and down 3.3 last month. The side pocket, which accounts for about 20 of the firm's Atticus Global and Atticus European funds, is down 26.6 for the year, after posting a 2.3 gain in July. Atticus told investors in March that it would create the separate basket on April 1 for stock it holds in European securities exchange Deutsche Boerse. The firm said the move was meant to convince Deutsche Boerse's management that it is unlikely to come under pressure to liquidate the position, by demonstrating that it is a long-term shareholder. Some investors were angered by the maneuver, as side pockets are typically reserved for illiquid or hard-to-value positions such as private-company stakes. Plus, parsing out the Deutsche Boerse holdings essentially blocked them from redeeming a fifth of their contributions. Whether investors were upset enough to file significant redemption requests is unknown. But the recent losses increase the likelihood of withdrawals at a... http://www.hfalert.com/headlines.php?hid=15363 An era of staggering growth for hedge funds is drawing to a close, according to new survey of administrators. Administrators were handling $4.7 trillion of assets for single-manager hedge funds and funds of funds at the end of March, up 31 from $3.6 trillion a year earlier, according to an annual survey conducted by CarbonBased Consulting of New York (see administrator ranking on Page 4). But the same measure showed a 45 expansion for the year ended March 31, 2007, and CarbonBased is projecting that next year's tally will reveal only single-digit growth. Factoring in the dwindling amount of unadministered assets, the hedge fund universe may have grown by as little as 19 in the latest year. The new figures show administrators handling $3.4 trillion of single-manager fund assets (up 33 from the year before) and $1.3 trillion of fund-of-funds assets (up 26). CarbonBased estimates that 17 of the largest funds use in-house staff to administer another $337 billion to $438 billion of assets. Even at the low end of that range, the administered and unadministered assets in the hedge fund arena would total just over $5 trillion, up from $4.2 trillion a year ago. CarbonBased lowered its estimate of self-administered assets from last year's range of $634 billion to $761 billion. Brian Shapiro, the firm's chief executive, said many fund managers are employing outside administrators for the first time. In some cases, he said, as investments are redeemed out of older, unadministered funds, new investments are channeled i... http://www.hfalert.com/headlines.php?hid=15264 Investors committed $800 million this month to Martin Hughes' Tosca Fund, a vote of confidence for the star money manager whose stock vehicle suffered severe losses in the first half. Hughes' Toscafund Asset Management, a London firm with more than $7 billion under management in various vehicles, sent a July 17 letter assuring investors that it was able to raise the hefty sum for its flagship vehicle. The letter pointed out that the new capital came from investors willing to lock up their money for three years. The new money came on top of $700 million it previously took in from holders of Class-B shares, which means the firm is managing about $1.5 billion subject to 3-year lockup periods. Counting both of its share classes, Tosca Fund had $5 billion under management in January. The fund, heavily invested in financial and homebuilder stocks in the U.K. and the U.S., lost 32.3 through July 3. In June, Hughes denied rumors that he was liquidating his holdings, many of which were under pressure from short-sellers. In the letter, the firm told investors that some of its beaten-down stocks might require two years to recover. Therefore, it recommended that holders of the fund's more liquid Class-A shares transfer their capital into the Class-B shares, which carry the more stringent liquidity terms. quot;A cynic is a man who knows the price of everything and the value of nothing,quot; the firm wrote in its letter, quoting playwright Oscar Wilde. Matching investor liquidity terms with a manager's investment strategy has... http://www.hfalert.com/headlines.php?hid=15168 Fortress Investment's $1 billion foray into residential mortgage-backed securities has gotten off on the wrong foot. Fortress Mortgage Opportunities Fund is down 30, just a few months after launching. The fund targets annual gross returns of more than 25 by investing in mortgages through MBS and derivatives tied to the ABX index, which tracks the prices of subprime MBS. The falling value of the firms' ABX investments has been largely the cause of its losses. The fund employs leverage to boost its buying power, borrowing $2 for every $1 of equity it puts to work. The vehicle's returns were always expected to be volatile. But even with its long-term investment outlook, the steep initial decline is sure to raise doubts among investors. The fund closed to new investments immediately after reaching its $1 billion capital-raising target, and investors must keep their capital in the fund for at least three years. Fortress is charging a 1 management fee and a performance fee equal to 10 of gains, rather than the standard 2 and 20 charged by hedge funds. New York-based Fortress manages about $16 billion in hedge funds and $40 billion overall, including private equity funds. Doug Greenig is portfolio manager for Fortress Mortgage Opportunities, with the firm's chief executive, Wes Edens, and its co-president, Michael Novogratz, serving as the fund's chief investment officers. http://www.hfalert.com/headlines.php?hid=15073 One of the two founders of Argenis Capital has left the New York healthcare-stock investor, which is raising capital for a new hedge fund. Alan Kessler split from Argenis within the past eight weeks. A former senior analyst of medical technology at Oracle Partners, Kessler managed investments in stocks of medical-product companies for Argenis. Co-founder Nicholas Vita is now running the firm, which is raising capital for a master fund set up under the Apelles banner. That vehicle began trading last week with an undisclosed sum. Argenis, meanwhile, is no longer accepting capital for an existing U.S. fund and an offshore companion, which have a combined $300 million of assets, including those bought with leverage. That portfolio gained 33.5 last year. The firm was set up in 2006, with initial funding from Fairfield Greenwich Capital. Its debut entity was called Fairfield Argenis Fund and renamed Argenis Capital in July 2007, when it began accepting outside capital. The vehicle's first-half 2008 results couldn't be learned. Like its predecessor, the new fund uses a variety of strategies to invest in equities and credit linked to healthcare corporations. Under Vita's leadership, the portfolio is expected to be less concentrated than in the past. Vita, who specializes in fixed-income, hybrid and private investments, previously worked as portfolio manager at Arx Investment Management. He also spent six years at Goldman Sachs. Vita oversees seven staffers. Among them is partner and... http://www.hfalert.com/headlines.php?hid=14979 Citigroup last week laid off two of its top capital-introduction executives as part of a shakeup of its prime-brokerage unit. The pink slips were handed to Dan Lancellotti, a Citi veteran who was global head of capital introduction, and John Fell, who ran the North American cap-intro team. Jamison Hill, who joined the prime-brokerage operation in December to help multi-manager shops identify hedge fund investment opportunities, is said to be assuming a senior role. Before moving to Citi, Hill worked in Bank of America's prime-brokerage unit under Jenny Fung, who oversaw capital introduction on the East Coast. Earlier this month, BofA agreed to sell its prime-brokerage business to BNP Paribas. The departures of Lancellotti and Fell follow the exit last week of Steve Bowman, who was Citi's head of hedge fund services. Bowman oversaw the bank's prime-brokerage and fund-administration businesses, as well as other bank units that work with hedge funds. No one has been named to replace Bowman. Citi's brokerage reshuffling began in April, when Alan Pace joined the bank as head of North American prime-brokerage activities. Before coming to Citi, he worked in Lehman Brothers' prime-brokerage area for 12 years. His appointment came just two weeks after Nick Roe replaced Ali Hackett and Tom Tesauro, who were global co-heads of Citi's prime-brokerage area. Lancellotti's affiliation with Citi dates back to 1994, when he joined the controller's office of Smith Barney. After the integration of Salomon Brothers with Smith... http://www.hfalert.com/headlines.php?hid=14882 Faced with an avalanche of redemption requests, event-driven shop Amber Capital wants to surrender assets from its main hedge fund to some of the vehicle's shareholders. The so-called payments in kind would take the place of cash distributions for a collection of investors who recently asked to pull $1.5 billion from the New York firm's Amber Master Fund. That's on top of a rush of withdrawals that had already caused the entity's assets under management to wither to $4.9 billion as of May 31, from $6.7 billion heading into 2008. The investor exodus has accompanied a period of poor performance for the fund, which has lost 9.2 so far this year. Payment-in-kind arrangements are typically a sure sign that a fund manager has run into trouble. They often involve hard-to-sell assets that would be difficult to liquidate at anything but steep discounts. In Amber's case, founder Joseph Oughourlian has proposed that the firm hand over illiquid investments from a basket that makes up as much as 30 of its vehicle's portfolio. There's no word on what those holdings might be, but Amber has often invested in stocks of companies in Europe, the U.S., Canada and Latin America. It's also unclear whether Amber's limited partners will accept the offer. In many cases, taking assets from a struggling fund instead of cash can pose problems for shareholders, as many of them lack the expertise to manage the holdings directly. Nonetheless, that option can still be more appealing than a mass unwinding that might further... http://www.hfalert.com/headlines.php?hid=14782 Goldman Sachs is assembling a $1 billion-plus vehicle that will invest in hedge funds in exchange for shares of their managers' revenues. The entity, called GSIV, functions somewhat like a private equity fund. It has already committed to its first investment, agreeing to supply Perry Capital alumnus Tye Schlegelmilch with at least $100 million for three or more years as he works to start a firm called Sonterra Capital. GSIV will be funded mostly by investors outside Goldman, with a launch date scheduled for the July-September period. It will be run by Goldman fund-of-funds managers Omar Asali and Peter Ort, in their capacities as co-heads of hedge fund strategies within the bank's Goldman Sachs Asset Management division. Asali and Ort have also handled some due-diligence and research work for Petershill Fund, a Goldman private equity vehicle that takes stakes in established hedge fund management firms. That fund, however, is managed by Jonathan Sorrell. It launched last year with $500 million, and since then has taken stakes in Capula Investment, Claren Road Asset Management, Trafalgar Asset Management and Winton Capital. The approach is similar to one Lehman Brothers is using for a sizable new vehicle that will back hedge fund managers (see The Grapevine). GSIV's arrangement with Schlegelmilch's Sonterra, on the other hand, will only involve a share of the New York firm's revenues - as opposed to an equity interest. That follows an industry-wide pattern in which revenue sharing has become a standard means of... http://www.hfalert.com/headlines.php?hid=14682 Passport Capital has set up a fund that invests in both public and private deals. The vehicle, Passport Special Opportunities Fund, launched at the beginning of May with a $500 million capital-raising goal. Passport plans to kick in 10 of the entity's overall equity, up to $50 million. Outside investors who contribute $50 million or more by July 1 get a discount on fees. Goldman Sachs appears to be among those already on board. Passport Special Opportunities is designed to capitalize on deal flow that San Francisco-based Passport has been generating through existing funds, but that exceed the investment capacity of those vehicles. Specifically, its strategy is an amalgam of those used by its broad-based Passport Master Fund, along with separate vehicles that invest in special situations, materials and energy companies, and companies based in India. Passport is focusing on investments that it expects to undergo changes in liquidity in 12-36 months, especially those in which its deals coincide with or spur increases in the underlying companies' values. It expects to hold 15-25 positions in the new fund's portfolio, with an average size of $50 million each and a minimum size of $25 million. Up to 40 of the vehicle's capital can be used for private transactions. Shareholders may be offered co-investment opportunities. Passport, led by chief investment officer John Burbank 3d, has a history of profiting from such deals. For example, the $2.4 billion Passport Master Fund and an offshore companion gai... http://www.hfalert.com/headlines.php?hid=14573 Fund-of-funds operator Gottex Fund Management is suing a hedge fund manager for allegedly mishandling a series of redemption requests it submitted over the past two years - and then finally paying the firm with securities, rather than cash. The London shop took action against Stewardship Investment of Greenwich, Conn., on May 28, filing accompanying fraud accusations in U.S. District Court in Connecticut and in the Bermuda Supreme Court. It also named Stewardship founder Marlon Quan as a defendant. At issue is more than $100 million that Gottex invested in an offshore version of Quan's Stewardship Credit Arbitrage Fund through four funds of funds and two separate accounts. Neither of the suits involve that vehicle's U.S.-domiciled companion. The Stewardship fund buys notes backed by loans, much of which comes from another firm that Quan owns, Acorn Capital. Acorn, in turn, offers financing to cash-starved companies, which would seem to fit well with the $16 billion Gottex's standing as a sophisticated investor in asset-based lending funds. Signs of trouble first appeared in 2006, when Gottex claims it started submitting withdrawal requests to Stewardship because the firm's fund was underperforming and its fees were too high. Quan persuaded Gottex to stick around, however, by offering to temporarily cut the management fees he was charging the outfit, according to court documents. The result was supposed to be a boost to Gottex's returns. But in 2007, Quan allegedly breached the... http://www.hfalert.com/headlines.php?hid=14474 As part of a strategy shift, Fairfield Greenwich has pulled capital from two hedge funds that carry the Fairfield name and are run by outside managers it bankrolled. The New York firm is scaling back the number of partnerships it maintains with some 20 managers that oversee $3 billion of investments for Fairfield. It is expected to part ways with at least five of those funds. So far, Fairfield has decided to redeem its shares in funds run by two firms: Manhasset Capital of New York, whose partners are now discussing whether to continue operating. Pilot Advisors, a New York outfit run by Art Wilson, which is expected to stay in business. Fairfield is withdrawing $100 million of seed capital and client money from the $125 million Manhasset vehicle, Fairfield Manhasset Offshore Fund. Manhasset also runs a $40 million U.S. version. Fairfield's three-year profit-sharing agreement, under which it marketed and helped capitalize the vehicle, expired on May 1. It is expected to get its money back at the end of June. Mike Gaffney, Manhasset's managing partner, is now discussing with his partners whether to continue running the fund. His partners include Christopher Thorsheim, who serves as chief operating officer, as well as Jamie Michaelson and Matt Marcus, who are senior analysts. Fairfield, which oversees $16 billion of investments, opted to exit the Manhasset fund in part because the fund never gained much traction with its clients despite respectable results over the past few years. The fund posted... http://www.hfalert.com/headlines.php?hid=14382 A star manager of global-macro investments has set sail from George Soros' hedge fund empire to start his own enterprise, which has the potential to attract substantially more than $1 billion by the time it launches in January. Joshua Berkowitz left his post at Soros to start Woodbine Capital, which will run a global-macro hedge fund and employ junior portfolio managers to oversee quot;subportfoliosquot; that follow subsets of the global-macro strategy. In other words, one Woodbine manager will employ a long/short approach to trading equities, another will trade commodities and a third will focus on emerging-markets securities - and combined the various entities will add up to a complete global-macro fund. Investors could put their capital in any or all of the subportfolios. Berkowitz is now rounding up 10-15 professionals, who will begin coming on board at the New York firm next month. The fund's expected launch has created considerable buzz in the market largely because Berkowitz generated an average annual return in the mid-30s during the three years he ran $1 billion of the firm's $17 billion. He oversaw the portfolio from July 11, 2005, through April 4, 2008. It's unknown whether Soros is backing Berkowitz, who was able to line up other high-rollers with just a preliminary marketing effort. The expected success of his initial fund-raising push shows that managers with proven track records at brand-name operations can still attract substantial sums despite a tough fund-raising environment for... http://www.hfalert.com/headlines.php?hid=14282 Merrill Lynch has done away with the four-member team that raised institutional money for its hedge fund development and management group. The four team members - Sean Duff, Ed Finneran, Bob Hamilton, and Kirk Rostron - disbanded two weeks ago. At least two other staffers from the fund-development unit also left around the same time. Those fund-raising pros courted institutional investors on behalf of third-party managers that do business with Merrill through its alternative-investment platform. Duff has left Merrill to join a new hedge fund firm being launched by Fariborz quot;Borisquot; Ehsani, who headed Merrill's principal-investments group. Duff has been working with Ehsani since late last summer. In addition to his sales role, Duff also had a hand in manager selection. Hamilton is now at Perella Weinberg Partners, a boutique investment bank founded by former Morgan Stanley banker Joseph Perella. Last year, Peralla Weinberg bought distressed-debt hedge fund Xerion Capital. Kirk Rostron was reassigned within Merrill, and Finneran is no longer with the bank. Three other members of the fundraising team left in early 2007. Michael Pechersky and Todd Walters, who worked on the investment side of Merrill's fund-development group, were let go. Pechersky was responsible for manager selection of global equity hedge funds, while Walters picked multi-strategy and credit funds. Walters was also working on a seeding initiative that was scrapped when Rohit D'Souza, head of global equities at Merrill, announced ... http://www.hfalert.com/headlines.php?hid=14185 A top credit trader is about to leave Lehman Brothers to start his own hedge fund operation, which could receive a major contribution from the bank if its fund-raising effort goes well. Rick Rieder and a team of professionals who invested Lehman's capital in credit-related instruments are 3-6 weeks away from leaving the bank and launching an operation called R3 Capital. The group plans to start a multi-strategy vehicle that will invest primarily in fixed-income securities. Lehman doesn't want its investment to make up too much of the fund - its investment is contingent on the success of Rieder's fund-raising efforts. He expects to raise a large chunk of capital from outsiders. Great expectations accompany the launch of R3, largely because Rieder is the current head of Lehman's global principal strategies group. He is also vice chairman of the U.S. Treasury Department's debt-management advisory committee, which advises the federal government. Rieder's departure coincides with Lehman's broad initiative to reduce its proprietary-trading activities and make the traders in that business more accessible to its clients. Toward that end, Lehman is spinning off Rieder's group just as it did earlier this year with manager David Sherr, who used to run Lehman's global structured-products business. In December, Sherr left to start One William Street, a new fund operation that is expected to launch a hedge fund and a private equity vehicle next month. The hedge fund is expected to raise $1.5 billion over the next y... http://www.hfalert.com/headlines.php?hid=14096 Former Bank of America equity chief Peter Forlenza is trying his hand at running hedge funds. Forlenza, who left his managing director post at BofA in October, has teamed up with ex-Goldman Sachs trader Jason Bajaj and JWM Partners executive Allen Arakal to start a management shop called Outpost Investment in New York. The trio is now aiming to raise $100 million for a global-macro hedge fund that's pegged to launch June 1, and plans are already in the works for additional vehicles in 2009. Forlenza is Outpost's chief executive. Bajaj is head of investments. Other investment staffers include portfolio managers Martin Walker and Robert Morris. Walker most recently worked at Kenneth Tropin's $5.3 billion Graham Capital. Morris researched energy-company stocks at BofA. Gregory Powell is on board as well, serving as risk manager. He last worked at New York Life Investment, and before that was employed at Credit Suisse and the Federal Reserve Bank of New York. Forlenza's name carries considerable weight in the investment-banking world. He joined BofA in 2002, coming off a 14-year run at the former Salomon Smith Barney in which he eventually rose to lead the bank's entire equity area. At BofA, his first job was as head of quot;cashquot; equities under Jon Sandelman, who left in 2004 to run hedge funds under the banner Sandelman Partners. In 2006, Forlenza took over as BofA's global equity chief, a New York-based role that encompassed both his duties as the Charlotte bank's head of cash equit... http://www.hfalert.com/headlines.php?hid=13994 Another Sipprelle brother is closing up shop. In an April 17 letter to investors, Arx Investment chief Dwight Sipprelle said he plans to retire as a professional money manager to spend more time with his family. The 50-year-old manager will, however, continue to oversee investments for friends and relatives. Arx, which was managing $1.2 billion last year, plans to return all outside capital by June 30. Sipprelle started the firm in 2001, and has been using its offshore Arx Master Fund and a U.S. companion to invest in a mix of stocks and fixed-income products around the world, with a focus on high-yield instruments. He has a staff of about 18. While Sipprelle is citing personal reasons for his exit from the hedge fund industry, the move comes amid turbulent financial-market conditions that have caused havoc across the hedge fund world. In fact, Sipprelle's brother, equity specialist Scott Sipprelle, shut down his $1 billion Copper Arch Capital at yearend after admitting he felt out of step with the U.S. stock market. Arx, meanwhile, acknowledged in its letter to investors that it also had to contend with the hostile environment. Over the past six months, the firm moved to preserve capital by reducing leverage and seeking more-liquid positions. It gained 19.9 in 2007, and was down 3 for the first three months of this year. Before starting Arx, Dwight Sipprelle ran a portfolio of high-yield bonds at Morgan Stanley. Scott Sipprelle is also an alumnus of the bank, where he wor... http://www.hfalert.com/headlines.php?hid=13914 BNP Paribas has emerged as the leading contender to buy Bank of America's prime-brokerage business. Officials from the banks met last week, as BNP began a due-diligence review of the BofA division. BNP's move to the forefront of the bidding follows an initial round of offers that fell short of BofA's expectations. While J.P. Morgan was widely expected to be the top contender in that process, it dropped out after agreeing last month to buy beleaguered investment bank Bear Stearns - one of the top players in the prime-brokerage space. Initially, BofA didn't view overtures from BNP as competitive. But after other suitors' offers proved unsatisfactory, the Charlotte bank promised to be more helpful in guiding an acceptable bid. BNP's new offer, along with those from other second-round bidders, are due in a week. At the same time, a spurt of layoffs and resignations is continuing at BofA, in part because of the planned sale of the prime-brokerage division. Most recently, East Coast capital-introduction chief Jenny Fung quit about three weeks ago to join New York hedge fund manager Taconic Partners in a marketing role. In February, her boss, Scot McGregor, stepped down from his post as global head of capital introduction and leader of the broader prime-brokerage division's East Coast operations. Jamison Hill and Marina Greene also left BofA in recent months. And global prime-brokerage head Christopher Pesce resigned in October. He was replaced by Jeff Cohen.... http://www.hfalert.com/headlines.php?hid=13828 The two former senior executives of Redwood Capital and Goldman Sachs who teamed up to start a debt hedge fund have bagged a $300 million investment from Citadel Investment's fund-of-funds group. In return, Citadel Alternative Asset Management is getting an economic interest in the profits of the startup, Knighthead Capital of New York. Citadel is investing through a vehicle called Discovery. The vehicle will start off investing in distressed debt, high-yield bonds and leveraged loans. Knighthead, expected to launch the fund on May 1, is led by Ara Cohen and Tom Wagner. Cohen previously served as second in command to Jonathan Kolatch, who founded Redwood Capital of Englewood Cliffs, N.J. Cohen also was a Redwood partner. Wagner spent seven years at Goldman, where he headed the junk-bond and distressed-debt trading operations. In addition, he was co-head of capital-structure franchise trading, which included special-situation equity activity. Cohen and Wagner have finished hiring their full team of about 10 employees. The Knighthead deal represents the second seed investment in a hedge fund made by New York-based Citadel Alternative Asset Management. Ken Griffin's fund-of-funds unit previously invested $110 million of seed money into Vestry Capital, a New York fund operator that invests in the stocks of technology, media, telecommunications and entertainment companies. Vestry launched on Jan. 2. http://www.hfalert.com/headlines.php?hid=13734 New York Common Fund plans to stop investing in funds of funds, and will direct more capital directly into hedge funds instead. The initiative involves a dramatic restructuring of the $154.4 billion retirement system's absolute-return portfolio, which accounted for $4.6 billion, or 3, of its assets on March 31, 2007, the end of its previous fiscal year. Of that amount, $3.9 billion was in seven multi-manager vehicles - investments the organization will now likely purge. By contrast, New York Common Fund had just $700 million invested directly in four multi-strategy hedge funds as of a year ago. By backing out of its fund-of-funds investments, which it began amassing in January 2005, the state pension system expects to create a more efficient alternative-investment program. For starters, the operation will be able to forego the extra layer of fees that funds of funds collect on top of those charged by their underlying hedge funds - in this case, an unwieldy 186 of them covering a range of sectors. It also plans to thin that herd in hopes of capturing greater returns. It is now interviewing consultants for the job of helping devise a strategy for carrying out the plan. The seven funds of funds on New York Common Fund's roster, meanwhile, stand to see some rather hefty assignments evaporate as the retirement fund moves forward with the effort. They are: Coast Asset Management, which had $553 million of the organizations' money in its Coast Pacific Fund a year ago. Guggenheim... http://www.hfalert.com/headlines.php?hid=13643 Tim Barakett's Atticus Capital is moving 20 of the assets of its two largest hedge funds into quot;side-pocketquot; entities, a move that is angering some investors by limiting the portion of their capital they can immediately withdraw. The New York firm, which manages $17.5 billion in five hedge funds, told investors in a letter last week that it would be setting aside its shares of Deutsche Boerse, the European exchange. The shares are to be moved into a side-pocket entity on April 1. Atticus Global, with $6.1 billion under management, and Atticus European, with $10.1 billion, took the step after suffering significant losses in January and February. Until then, the two vehicles had been solid performers. Except for a 2002 loss of 13.9, Atticus Global has posted annual returns of 14-42 since its 1999 inception, including a 25.2 gain last year. Atticus European was up 27.9 last year. But after the first two months of 2008, Atticus Global was down 16 and Atticus European was down 12.1. Some investors argued that it would be improper for Atticus to set aside readily marketable securities in a side pocket, which is typically established for private equity holdings or other illiquid investments that can't be immediately valued. Hedge fund investors don't receive their pro-rated share of the profit or loss from side-pocket assets until the investments are sold or taken back into the main fund. Investors redeeming their shares in a fund can't immediately recoup the portion of their capital allocated to the side-pocket... http://www.hfalert.com/headlines.php?hid=13548 J.P. Morgan's rescue of Bear Stearns has likely dampened its interest in bidding for the prime-brokerage unit that is being offered by Bank of America. One of the jewels that comes with J.P. Morgan's government-assisted acquisition is Bear's profitable prime-brokerage unit, which recently ranked in the top three in that business - along with Goldman Sachs and Morgan Stanley. Bear's franchise was tarnished in recent weeks as many of its clients fled, making it hard to determine how much of the business remains. In January, BofA responded to credit-crunch losses by scaling back its investment banking business and putting its prime-brokerage operation on the auction block. J.P. Morgan has been rumored to be among the leading suitors of that unit, along with Barclays, BNP Paribas and, to a lesser extent, Royal Bank of Scotland and Jefferies Group. Integrating Bear's prime-brokerage business into the small fixed-income and derivatives brokerage operation that J.P. Morgan has operated since 2003 looms as a daunting task for the bank - one that would make it extremely difficult to simultaneously merge BofA's operation. Also, it's likely that many of the hedge funds that clear their trades and borrow from BofA have also done so at Bear. There might be enough overlap of clients to make such an acquisition less valuable to J.P. Morgan. Regardless of who takes over BofA's unit, the landscape of the prime-brokerage business is being radically altered. To be sure, Morgan Stanley and Goldman remain the most... http://www.hfalert.com/headlines.php?hid=13454 Ford Motor's retirement fund has awarded Lehman Brothers a plum mandate, agreeing to invest $3 billion in hedge funds as well as private equity and real estate vehicles run by Lehman. The investment bank landed the assignment within the past couple of weeks and is expected to accept the automaker's funding in stages. The money will be invested equally among the three asset classes. Ford's alternative-investment mandate is believed to be one of the largest ever awarded by a corporate pension fund to a single money manager. It is also the biggest alternative-investment prize won by Lehman since George H. Walker 4th took over as head of the bank's investment-management division in 2006. Walker, a second cousin of President Bush, left a partnership position at Goldman Sachs to join Lehman. Lehman's investment-management division oversees $282 billion, including $30 billion allocated to alternative investment vehicles. The investment bank runs $4.5 billion in its fund-of-funds unit, with 30 of its capital coming from pension plans. Of Ford's $57 billion retirement fund, $46 billion is in its defined-benefit plan and $11.5 billion is in the 401(k) segment. Before the Lehman mandate, the pension plan had allocated 2, or nearly $1 billion, of the defined-benefit portfolio to alternative investments. http://www.hfalert.com/headlines.php?hid=13365 A new survey confirms that investors and analysts who subscribe to just one of the many hedge fund databases get a far-from-complete view of the market. Reason: Of the 22,650 single-manager and multi-manager funds that reported their results to databases last year, more than half of them (about 12,000) submitted information to just one of the data collectors, according to PerTrac Financial Solutions, which conducted the annual survey. That means, on average, each of the 11 databases surveyed by PerTrac collects data from 1,100 funds that don't report results to any of the other services. quot;Adding even one additional database can boost the number of funds available for screening, analysis and peer comparisons by as much as 40,quot; Meredith Jones, a PerTrac managing director, said in a prepared statement. PerTrac has a uniquely broad view of the hedge fund universe because it sells software that allows investors to compare and analyze data from 11 different fund-performance databases. It, therefore, shouldn't come as a surprise to hear PerTrac advocate the use of multiple databases. The company's software becomes more valuable to investors as they increase the number of databases they subscribe to. Jones pointed out that few hedge funds and funds of funds report to more than two or three databases, and only one unidentified vehicle reports to all 11. With access to the content of the 11 databases, PerTrac's annual survey is able to offer other big-picture observations about the make-up of the hedge fund... http://www.hfalert.com/headlines.php?hid=13284 A Bank of New York subsidiary told investors on Tuesday that it would block their efforts to pull out of a Europe-focused debt fund it runs, confessing that it can't determine what the vehicle's holdings are worth. The move by Alcentra Management suspends both redemptions and asset-value calculations for the London operation's Alcentra European Credit Fund, an umbrella vehicle that encompasses seven Isle of Jersey-domiciled hedge funds with a combined $300 million of investor capital. Alcentra is just the latest in a string of debt-fund managers to make such maneuvers since midyear 2007, when the collapse of the subprime-mortgage industry threw the entire credit market into turmoil. This time, the firm finds itself on the wrong end of a portfolio of total-return swaps that are threatening to go bad. In those investments, Alcentra sold protection to clients who hold portfolios of leveraged loans, promising to cover losses if their values fall below certain quot;triggers.quot; In a strong market, such arrangements allow the firm to gain exposure to the underlying credits without huge cash outlays. But when conditions deteriorate, as they have lately, it could be obligated to make good on the contracts. Alcentra said in a letter to shareholders this week that the leveraged-loan market has been on an unprecedented negative trend in the past few months, with liquidity declining and loan values dropping especially fast in recent weeks. That, in turn, has placed many of the firm's swaps in danger of hitting their... http://www.hfalert.com/headlines.php?hid=13192 Two former Citigroup executives who left the bank amid a massive staffing shakeout late last year are starting their own hedge fund operation. Randy Barker and Geoff Coley, who presided over the fixed-income division of Citi's investment-banking unit alongside Paco Ybarra, will maintain a focus on credit-related investments at their new firm. They're currently trying to line up investors for a debut fund. Barker and Coley are calling their outfit Deepstream Capital, or some variation on those words that references their pastime as fly fishermen. It's believed that they will try to recruit some former colleagues from Citi's distressed-debt and private equity groups to assist in the venture. Barker and Coley are among some 20,000 Citi staffers ultimately expected to resign or be let go by the bank as it reels from losses on holdings of securities tied to troubled subprime mortgages. As the values of those investments plummeted during the second half of last year, amid a global credit crisis, Citi eventually wrote down the assets by $21.3 billion. It appears that Barker left in October, as the staff cuts were beginning and Citi was rearranging some of its upper management. Coley was initially reassigned at that time before parting ways with the bank. Their boss, investment-banking co-chief Tom Maheras, left shortly after Barker as well. His exit, meanwhile, came as Vikram Pandit was taking control of a new unit that combined Citi's investment-banking and alternative-investment areas. Pandit later rose to the... http://www.hfalert.com/headlines.php?hid=13100 Brevan Howard is assembling its latest hedge fund, and investors expect the London firm to attract $500 million to $1 billion of commitments for the vehicle by the time it launches next month. Like Brevan Howard's flagship Brevan Howard Master Fund, the new Brevan Howard Multi-Strategy Fund will employ a global-macro strategy. But it will be riskier and more volatile, reflecting growth among investments that don't fit the existing entity's risk-reward profile. The new fund's investments will include commodities, debt and equities, along with currencies and sovereign securities from emerging markets. Brevan Howard is asking investors in the new fund to leave their capital untouched for two years. It will charge a penalty equal to 10 of assets for first-year withdrawals and 5 for second-year redemptions. Investors willing to pay a 5 penalty could also gain exemption from a gate that limits simultaneous withdrawals to one quarter of the entity's assets. Prospective investors say demand to get into the vehicle is likely to be strong, given Brevan Howard's existing presence in the global-macro field. Brevan Howard Master Fund manages some $16.5 billion and isn't accepting new investors. Brevan Howard also started a vehicle called BH Macro last March with amp;8364;770 million raised on the London Stock Exchange. All told, the outfit, founded by former Credit Suisse bond trader Alan Howard in 2002, manages $20 billion. http://www.hfalert.com/headlines.php?hid=12999 Pequot Capital and Merrill Lynch are scrapping a joint venture that sought to cultivate up-and-coming equity managers. The emerging-managers program, overseen by Pequot, is scheduled to finish unwinding by the end of March. It had $422 million invested with nine underlying hedge funds as of Dec. 31, most of which - more than 90, by some estimates - came from Merrill. Pequot, led by Art Samberg, kicked in the remainder. The end of the program first came into sight last summer, when Merrill gave notice that it wanted its money back. The $7.5 billion Pequot then sought replacement capital in a bid to keep the effort up and running, but was unable to strike a deal. An agreement with one prospective investor fell through around the beginning of this year. Merrill, meanwhile, is working with the managers running its money to make sure they aren't forced to sell positions too quickly during the wind-down. The bank's decision to pull out of the operation, which formed in July 2005, is believed to be related to an overall reassessment of its hedge fund investments, as opposed to a specific objection to the Pequot undertaking. There's a chance that Pequot will preserve some portion of the initiative, however. The Westport, Conn., firm has offered some of the underlying managers the option to remain under its umbrella, but with drastically reduced capital - in hopes that other investors might eventually emerge. It remains to be seen if any of the managers will accept. In addition to shopping the emerging-managers program... http://www.hfalert.com/headlines.php?hid=12909 Hedge funds operated by asset-based lender MKA Capital are facing a cash squeeze due to the decline in the U.S. housing market. On Jan. 15, the Newport Beach, Calif., firm, which manages $800 million in three hedge funds, told investors it was suspending redemptions to conserve capital. Each of the firm's three funds suffered losses last year. MKA Real Estate Opportunity Fund and its offshore companion lost about 10, while a third vehicle, which employs leverage, lost an estimated 25. Depending on the fund, MKA is promising to honor redemptions no earlier than March 31 and perhaps not until the end of the year. MKA Capital is among a new breed of asset-based lending funds, which have grown in number over the past few years (see article on Page 2). Like traditional equity hedge funds, asset-based lending funds charge performance fees, provide monthly net asset value reports and offer quarterly redemption opportunities. However, their investment activities resemble those of banks as they finance a variety of businesses. MKA had been lending mostly to housing developers in the western U.S. Most of its loans financed single-family housing projects, but it also funded apartment buildings and other types of commercial properties. For example, MKA lent $20 million to finance a Baja, Calif., condominium complex that Donald Trump is building. The firm originates senior and mezzanine debt, which leaves MKA second in line behind senior bank lenders when a loan defaults and debtors seek to recover their principal investments.... http://www.hfalert.com/headlines.php?hid=12828 Hedge funds are off to a grim start this year, facing their toughest down-market test since the technology-stock bubble burst in 2000. The industry as a whole was down 2.8 as of Jan. 17, according to the HFRX Global Hedge Fund Index maintained by Chicago-based Hedge Fund Research. And all indications are that long-bias equity funds, in particular, have gotten slaughtered this month. According to one analyst who selects hedge funds for a large fund of funds, equity vehicles were down 5-15 through the middle of January, and those dismal results are attributable mostly to funds that favor the long side of the market. quot;I think right now if you're flat, you're doing cartwheels,quot; said Bruce Ruehl, chief investment officer of Gleacher Advisors, a Greenwich, Conn., fund-of-funds operation with $800 million under management. Feeling the most pain are funds that typically experience the most dramatic swings in their returns, including funds betting on the Asian and European stock markets, as well as U.S. vehicles with value-oriented or event-driven strategies. Managers with leverage have been caught in a selloff. While leverage levels came down late last year, there are still many funds that borrowed amounts equal to two or three times their equity capital and are likely receiving margin calls. The sharp selloff in Asia and Europe early this week reflected that pressure, prompting the Federal Reserve to announce a 75-basis-point cut in the federal funds rate Tuesday - an unexpected emergency step. Hedge... http://www.hfalert.com/headlines.php?hid=12736 Goldman Sachs Asset Management and Fortress Investment are planning separate investment funds that will each put more than $1 billion to work in the battered credit market. Goldman Mortgage Credit Opportunities Fund is expected to launch at the end of the month with $1 billion to $2 billion of commitments. Fortress, which is targeting $2 billion, hopes to launch within two months. The Fortress fund, headed by company president Peter Briger, will invest mostly in nonperforming mortgages as well as mezzanine loans and other types of types of debt. The fund also features a minimum five-year lockup period, which makes it more of a private equity vehicle than a hedge fund. Goldman's fund will be managed by a team headed by Jonathan Beinner, GSAM's chief investment officer. He will get help from James Clark, co-head of fixed-income investments for Goldman, and Thomas Teles, head of mortgage-backed securities. Goldman Mortgage Credit Opportunities is expected to take long positions in subprime-mortgage-related investments, primarily in triple-A tranches of collateralized debt obligations, but also in lower-rated CDOs. The fund is expected to close to new investors within two months of launching. The fund's bullish view of the mortgage market would mark a sharp turnabout for Goldman. It distinguished itself from other big banks last year by betting against the mortgage market, which contributed to its record profits. Goldman is touting its virtual omnipresence in the capital markets as providing an e... http://www.hfalert.com/headlines.php?hid=12642 Investors who want out of Mercury Real Estate Securities Fund received some unsettling news just before the holidays - at least half their money is stuck in the vehicle. Mercury Real Estate Advisors told investors it is withholding 50-60 of the net asset value of shares redeemed from the $105 million fund and its $205 million offshore companion. The Greenwich, Conn., hedge fund operator notified investors of the restrictions in letters dated Dec. 18. The firm said it was either unable or unwilling to sell its fixed-income holdings due to the moribund state of the credit markets. The funds invest in common and preferred stocks, as well as the debt of small real estate companies - in addition to collateralized debt obligations. As is the case with most hedge funds, Mercury investors who put in redemption requests lost their limited-partner status in the fund even though they haven't been fully paid. The U.S.-domiciled Mercury Real Estate Securities Fund fell 8.7 during the first 11 months of the year, while Mercury Real Estate Securities Offshore Fund posted a loss of 9.5. The U.S. vehicle was launched in June 2004, and posted a gain of 15.2 for the remainder of that year, 23 in 2005, and 13.6 in 2006. The offshore version was launched in May 2005 and posted a 9.8 gain for the remainder of that year and a 13.7 gain in 2006. Both funds are run by Mercury founder David Jarvis. In total, Mercury runs more than $900 million in hedge funds, including $260 million in its Mercury Asia Real Estate Securities Fund...