Hedge funds

Hedge funds must reshape themselves to regain investors’ trust and continue to grow, speakers at the Managed Funds Association Forum this week said.

Due to a greater ease of getting in and out of markets, smaller hedge funds are handily outperforming large counterparts, according to Eurekahedge.Hedge funds with $100 million of assets under management or less are up 9.7% year-to-date through the end of May, compared with average returns of 5.2% for hedge funds with $500 million or more under management. Those with between $100 million and $500 million are up 9.4%.Bill Maldonado, head of Halbis, a division of HSBC Global Asset Management, told The Wall Street Journal that markets have been moving very swiftly this year, making it difficult for large funds to switch course. “There was an inference that they would be able to turn exposure around very quickly and go short, but, in fact, that didn’t happen,” he said.According to PerTrac Financial Solutions, smaller hedge funds have been beating larger hedge funds since 1996. The firm’s database of performance between 1996 and 2008 shows funds with less than $100 million delivering 13% a year, compared with 10% for funds with $500 million or more.

The number of millionaires in the world plunged 14.9% last year as the markets faced extreme losses and volatility, according to the Merrill Lynch/Capgemini 2009 World Wealth Report. This means there are fewer millionaires in the world today than in 2005. The number of ultra-high-net-worth individuals (those worth net assets of at least $30 million, not including their primary residence) also dropped 24.6%.

As the asset management industry will inevitably face more regulations, costs will increase and competition will intensify, giving the largest companies an advantage that will increase their market share. Those were some of the views of 225 asset managers from 30 countries that Create Research surveyed. The study was commissioned by Citi’s global transaction services group and Principal Global Investors.

Van Eck Global has launched the Van Eck Multi-Manager Alternatives Fund, a mutual fund designed to give investors exposure to a variety of investment strategies, including absolute-return and hedge style strategies.

Hedge funds were spared disclosure requirements in the financial overhauls proposed by the Obama administration, and that is definitely due to the industry’s stepped-up lobbying efforts, The Wall Street Journal reports.

Hedge funds returned 4.06% in May, the largest monthly gains since February 2000, according to the Credit Suisse/Tremont Hedge Fund Index. Year-to-date, hedge funds tracked by the index have risen an average of 6.72%.In the month, emerging markets funds were the strongest performers, delivering 6.96%. “The emerging markets sector has experienced a significant turnaround over the last three months, as risk appetite seems to be returning to the markets,” said Ovlicer Schupp, president of Credit Suisse Index. “Investors are encouraged by positive signs of global growth and risking commodities prices.”Year-to-date, emerging markets hedge funds are up 12.43%. Convertible arbitrage also did well in May, rising 5.81%; the category is up 19.12% YTD.

In a survey of hedge fund executives attending the Global Alternative Investment Management conference in Monaco this week, 65% said they feared that the economic crisis will drag on, Reuters reports.Another 18% said things could even get worse. Only 17% said they thought it was over.“Bailouts [of banks] have worked somewhat, but problems have been transferred to governments,” said Peter Rigg, an executive with HSBC Private Bank who is one of the pessimists surveyed.Fifty-nine percent said they think Europe is suffering the worst, while only 35.5% said conditions are the most precarious in the U.S.“The worst problems are in western economies that have relied on leverage to grow. Economic power is going East,” said Jaime Castan of RMF Investment Management.But not everyone thinks that Asia is insulated, including Marc Lasry of Avenue Capital, who commented: “There’s a huge fiction out there that Asia is going to be fine, but it needs a strong U.S. and Europe to grow.”Asked how the crisis could compromise hedge fund strategies, executives said they were most concerned about liquidity, the lack of alpha and risk management. That said, the investment style that most, 28%, are optimistic about are distressed/event driven, followed by global macro (24%), managed futures (17%) and general arbitrage (10%).

Only 376 hedge funds liquidated in the first quarter of the year, down 52% from 778 that shut their doors in the fourth quarter of 2008, Hedge Fund Research said. The number that liquidated in the first quarter represented 4.05% of the 9,050 total number of hedge funds, and the number that went out of business the previous quarter was 7.77%.

Hedge funds are returning to the practice of leveraging, with some levels as high as 50%, Reuters reports. Nonetheless, risk-taking, even by hedge funds, is not expected to return to pre-crisis levels.

NEW YORK -- Investors tend to stay quiet about financial products they don't understand as long as the profits keep coming in, but when the tide goes out and profits fall, they want answers.

IndexIQ has introduced an exchange-traded fund that will seek to replicate global macro and emerging markets hedge fund strategies.

As part of an increasing trend among mutual fund companies to diversify their offerings into new areas, Putnam Investments is planning to offer hedge funds in the next six to 12 months, according to the firm’s chief executive officer, Robert L. Reynolds.

Hedge funds posted their best monthly performance in nine years, with the HFRI Fund Weighted Composite Index rising 5.2% in May, Hedge Fund Research indicated.

Finally, insiders launched candid criticism at the mutual fund industry last week, to help it respond sensibly to the economic meltdown and reposition itself to regain investor trust.

Thanks to shady money managers like Bernie Madoff who ruined it for everyone, the lucrative and surreptitious heydays of hedge funds may be gone for good.

Finally, insiders launched candid criticism at the mutual fund industry last week, to help it respond sensibly to the economic meltdown and reposition itself to regain investor trust.

A Connecticut bill that would have imposed transparency and licensing requirements on hedge funds failed to be signed into law Wednesday when the House of Representatives ran out of time to vote on the measure.

Hedge fund redemptions will slow in 2009 and be aided greatly by $50 billion in inflows to end the year with around $1.3 trillion in total assets in the U.S., Barclays Capital said in a report issued Tuesday based on interviews with 300 investors and 100 hedge funds.

Connecticut lawmakers in the House of Representatives are expected to pass a hedge fund transparency bill, possibly ending the state’s days as a hedge fund haven, The Wall Street Journal reports.