Long/short equity, fixed income and multi-strategy funds retained the top three slots in terms of investor allocations attracting with $55.5 billion, $15.6 billion and $10.1 billion respectively of net asset flows July 2014 year-to-date.
Other highlights include:
- European hedge funds attracted $33.4 billion in net asset flows as at July 2014 year-to-date, up from $29.4 billion over the same period last year.
- Asia ex-Japan hedge funds outperformed all other regional mandates and are up 6.50% year-to-date and have seen their AUM grow by US$6.5 billion so far this year.
- Greater China investing hedge funds bounced back to report their third consecutive month of positive returns – up 4.13% in July and 2.90% year-to-date.
Activist hedge fund’s AUM grew by over $30 billion since the start of 2013. However, the population of CTA/managed futures funds shrank by 93 funds in the first half of the year and has witnessed net asset outflows of US$11.5 billion as at July 2014 year-to-date.
The Financial Industry Regulatory Authority (FINRA) on Friday filed a complaint against Los Angeles-based Wedbush Securities Inc. for systemic supervisory and anti-money laundering (AML) violations in connection with providing direct market access and sponsored access to broker-dealers and non-registered market participants.
During the period at issue, Wedbush was one of the securities industry’s largest market access providers, which included overseas high-frequency, high-volume, algorithmic day-trading firms, and made millions of dollars from its market access business.
The complaint alleges that from January 2008 through August 2013, Wedbush failed to dedicate sufficient resources to ensure appropriate risk management controls and supervisory systems and procedures. This enabled its market access customers to flood U.S. exchanges with thousands of potentially manipulative wash trades and other potentially manipulative trades, including manipulative layering and spoofing. Despite its obligations to monitor, review, and detect suspicious and potentially manipulative trades, Wedbush largely relied on its market access customers to self-monitor and self-report such trading without sufficient oversight and controls to detect “red flags.”
FINRA also alleges that despite receiving notice of regulatory and compliance risks associated with its market access business — including published industrywide notices, disciplinary decisions taken against other industry participants and multiple self-regulatory organization inquiries and examinations — Wedbush’s regulatory risk management controls and supervisory procedures were not reasonably designed to manage such risks, and, in fact, created incentives that rewarded Wedbush compliance personnel with compensation based on market access customer trading volume. Additionally, the complaint alleges that the firm failed to establish, maintain and enforce adequate AML policies and procedures, and failed to report suspicious and potentially manipulative transactions.
- Private Fund Regulatory Assets Under Management Reported by all Filers:$8.871 trillion
- Parallel Managed Accounts Reported by all Filers: $2.46 trillion
- Qualifying Hedge Fund Population Reported by all Filers: 1,326 Qualifying Hedge Funds reported by 460 filers.
- Qualifying Hedge Fund Regulatory Assets Under Management Reported by all Filers: $4.046 trillion
- Liquidity Funds Following 2a-7 as Reported by Large Liquidity Fund Advisers 27 (52%) liquidity funds advised by Large Liquidity Fund Advisers reported that they are managed in compliance with all of the risk limiting conditions of Rule 2a-7 of the Investment Company Act.
- Aggregate Gross Value of Controlled Portfolio Companies as Reported by Large Private Equity Advisers $7.441 trillion.
The SEC has continued to develop the use of Form PF data in its ongoing risk monitoring activities. During the past year, the Commission primarily used Form PF data in examinations of registered investment advisers to private funds. In addition, the Commission utilized Form PF data in its enforcement program regarding private fund advisers. Commission staff also focused its efforts on incorporating Form PF data into the Commission’s risk monitoring activities, issuing additional guidance to filers and working with other federal regulators and international organizations regarding issues relating to private fund advisers.
HedgeCo Networks, LLC, a preeminent service provider to the hedge fund industry will unveil HedgeCoVest, their new, real time hedge fund replication platform, at the national Finovate conference on September 23-24, 2014 in New York.
Finovate is a conference for innovative startups in the fields of banking and financial technology. Held in New York City, the event offers insight to the future of money and investing, and is an ideal venue to launch a pioneering investment technology like the HedgeCoVest platform.
HedgeCoVest will revolutionize the way institutional and retail clients allocate to hedge fund strategies through its proprietary technology called the Replicazor. The Replicazor will allow clients to replicate the strategies of hedge fund managers in real time and, unlike traditional hedge funds, will allow clients to retain control of investment capital in their brokerage account.
“Finovate is a world-renowned conference for financial and investment technology, and we think it’s a great platform to introduce HedgeCoVest to the public,” says Evan Rapoport, CEO of HedgeCoVest. “Finovate is about disruptive technology solutions, and we believe HedgeCoVest will revolutionize the way investors allocate to hedge funds.”
HedgeCoVest removes the structural barriers of traditional hedge funds by enabling individuals and institutions to tactically allocate to hedge fund strategies historically employed by large institutional investors. As HedgeCoVest clients utilize separately managed accounts for their allocations, they have more security, access, liquidity, and transparency than traditional, commingled hedge fund investments
“We are excited to debut what we believe is one of the most innovative advancements in the fund industry since the ETF. Through the Replicazor, HedgeCoVest eliminates the need for investors to allocate to the fund structure, which reduces the risks that exist inherently in commingled fund vehicles,” says Rapoport.
ABOUT FINOVATE: FinovateFall is a demo-based conference for innovative startups and established companies in the fields of banking and financial technology. The event offers a glimpse of the future of money via a fast-paced, intimate, and unique format.
ABOUT HEDGECO NETWORKS: HedgeCo Networks has built a broad suite of services for the alternative investment industry. Our network includes: HedgeCo, HedgeCo.Net, G&S Fund Services, HedgeCo Securities, HedgeCo Investment Management, Start a Hedge Fund Today, Hedge Fund Calculator, The Primeline, and the HedgeCoVest. For more:www.hedgeconetworks.com.
Porsche has won a case in the US appeals court put forward by a group of over 30 hedge funds led by Greenlight Capital, Elliott International and Perry Partners, who tried to sue the carmakers for 1.81 billion euros (approximately $2.4 billion), Reuters reports.
The news source said: “The 2nd U.S. Circuit Court of Appeals on Friday [Aug. 15] said Porsche’s alleged wrongdoing was “so predominantly foreign” that it could not be held liable in U.S. federal courts under domestic securities fraud laws. It also said that the hedge funds might still “conceivably” show that U.S. laws should apply, and try to amend their lawsuit in Manhattan federal court.”
Porsche’s headquarters were raided in 2009 during investigations into allegations revolving around the failed takeover of Volkswagen, during which Porsche took large positions in VW stock. Prosecutors allege that inside information was leaked in pursuit of the failed bid. Porsche denied any disclosure irregularities but many hedge funds and investment management firms sued anyway.
German regulator BaFin dropped its initial investigation but re-opened it after claims that the incident was bringing the entire German stock market into disrepute.
A US federal judge dismissed a lawsuit by a group of 10 hedge fund in 2011 and a New York State appeals court dismissed a lawsuit brought by hedge funds against Porsche back in January of this year. A total of 24 funds have now withdrawn their appeal of an earlier court decision dismissing the case.
California-based hedge fund manager, Convergence Capital Management Group LLC., is opening its absolute return diversified multi-strategy fund, Convergence Capital Partners Fund I LP. to qualified investors.
The Fund was launched in May 2013 and has since returned 20.8% gross in fees. Richard Hawkins, CAIA, and Alexander Olson are the managers of the Fund.
“The Fund is designed for the preservation of capital and will offer investors the advantage of an uncorrelated, stable return stream.” Richard Hawkins, co?founder and fund manager, said. By focusing on the options market, the fund offers investors access to a unique asset class. We feel the fund will appeal to both institutional and individual investors alike, and should be a core holding to further diversify their portfolios.”
The Fund targets a 12% net return annually to investors regardless of general stock market movements. The Fund takes advantage of structural inefficiencies and behavioral mispricings in the stock and stock option markets.
The Fund offers “Founder’s Class A” and “Founder’s Class B” shares, allowing early investors the chance to allocate opportunistically for better terms. The Founder’s class shares require a minimum investment of $100,000 and $500,000, respectively. Convergence will close these shares on December 31, 2014.
A Calpers spokesman told the paper that the investment staff will make a formal recommendation to the board in the fall.
Calpers reported a preliminary 18.4 percent return on investments for the 12 months that ended June 30, 2014. CalPERS assets at the end of the fiscal year stood at more than $300 billion.
“The retreat comes after many pension funds poured money into hedge funds in recent years in hopes of making up huge shortfalls.” The Wall Street Journal reports. “The officials overseeing pensions for Los Angeles’s fire and police employees decided last year to get out of hedge funds altogether after an investment of $500 million produced a return of less than 2% over seven years, according to Los Angeles Fire and Police Pensions General Manager Ray Ciranna. The hedge-fund investment was just 4% of the pension’s total portfolio and yet $15 million a year in fees went to hedge-fund managers, 17% of all fees paid by the fund.”
CalPERS 20-year investment return is 8.5 percent, while its return since 1988 is 8.9 percent.
Over a dozen hedge funds are accused of misusing a complex financial structure to claim billions of dollars in unjustified tax savings and to avoid leverage limits that protect the financial system from risky debt, a Senate Subcommittee investigation has found.
“These banks and hedge funds used dubious structured financial products in a giant game of ‘let’s pretend,’ costing the Treasury billions and bypassing safeguards that protect the economy from excessive bank lending for stock speculation.” Sen. Carl Levin said.
The improper use of this structured financial product, known as basket options, is the subject of a 93-page report which will be the focus of a Tuesday hearing at which bank and hedge fund officials and tax experts will testify.
“Americans are tired of large financial institutions playing by a different set of rules when it comes to paying taxes,” said McCain. “The banks and hedge funds involved in this case used the basket options structure to change the tax treatment of their short-term stock trades, something the average American investor cannot do. Hedge funds cannot be allowed to have an unfair tax advantage over ordinary citizens.”
The report outlines how Deutsche Bank AG and Barclays Bank PLC, over the course of more than a decade, sold financial products known as basket options to more than a dozen hedge funds. From 1998 to 2013, the banks sold 199 basket options to hedge funds which used them to conduct more than $100 billion in trades. The subcommittee focused on options involving two of the largest basket option users, Renaissance Technology Corp. LLC (“RenTec”) and George Weiss Associates.
The banks and hedge funds used the option structure to open proprietary trading accounts in the names of the banks and create the fiction that the banks owned the account assets, when in fact the hedge funds exercised total control over the assets, executed all the trades, and reaped all the trading profits.
Download the report, “Abuse of Structured Financial Products: Misusing Basket Options to Avoid Taxes and Leverage Limits” [PDF]
$8 billion hedge fund firm Black Diamond Capital Management, has appointed Samuel Farahnak as a Director in its Private Equity business.
Mr. Farahnak will focus on identifying and evaluating controlling equity investments and M&A opportunities.
“Sam’s wealth of experience and industry knowledge will further strengthen our private equity team and expand our sourcing capabilities,” said Stephen Deckoff, Managing Principal of Black Diamond. “We are pleased to have him join the Black Diamond team.”
“I am thrilled to be part of Black Diamond,” said Mr. Farahnak. “I look forward to working with the team to help achieve the firm’s long-term goals and continue its tradition of excellence.”
Prior to joining BDCM, Mr. Farahnak was a Vice President with Platinum Equity where he led many of the firm’s business development, investment origination and evaluation activities.
Steve Clark’s hedge fund, Omni Partners LLP, has been authorised by the Financial Conduct Authority (“FCA”) for a licence under the Alternative Investment Fund Managers Directive (“AIFMD”).
“It is Omni’s aim to be at the spearhead of alternative investment fund management best practice on a global basis. This licence is evidence of our commitment to providing the highest standards of integrity, ethics, and regulatory compliance to investors.” Omni’s CEO, Peter Coates, said.
The AIFMD has a number of aims including the enhancement of supervisory practices with a view to preventing instability within the European financial system, improving investor protection through the imposition of new depository standards, and enhancing transparency via new investor disclosure rules and mandatory reporting to competent authorities.
The granting of this licence allows Omni Partners to continue to offer wealth management and institutional clients access to its alternative investment funds as part of an EU-wide harmonised framework. Citibank International PLC has been appointed as independent depositary, complying with the requirements of the Directive.