Hedge funds are expected to reach a record breaking $3 trillion by year-end 2014, up from $2.6 trillion in 2013, Deutsche Bank reports. The 12th annual Alternative Investor Survey is is based on investors’ predictions of $171 billion net inflows and performance-related gains of 7.3% (representing $191 billion).
“Hedge funds continue to establish their growing position within the broader asset management industry, alongside some of the more mainstream asset managers.” Barry Bausano, co-head of global prime finance at Deutsche Bank, said, “The hedge fund industry is predicted to reach a record $3 trillion by 2014 year end driven by significant inflows, most notably from institutional investors.”
Other survey highlights include:
- Commitment from institutional investors continues to strengthen – Nearly half of institutional investors increased their hedge fund allocations in 2013, and 57% plan to grow their allocations in 2014. Institutional investors now account for two thirds of industry assets, compared to approximately one third pre-crisis.
- Investors are happy with hedge fund performance – Eighty percent of respondents state that hedge funds performed as expected or better in 2013, after their allocations returned a weighted average of 9.3% in 2013. Sixty-three percent of respondents, and 79% of institutional investors, are targeting returns of less than 10% for their hedge fund portfolios in 2014. Equity long short and event driven are the most sought after strategies.
- 2 & 20 is not the norm – Investors today pay an average management fee of 1.7%, and an average performance fee of 18.2%. While fees have come down slightly, investors remain willing to pay for performance: almost half of all investors would allocate to a manager with fees in excess of 2 & 20 where the manager has proven “consistent strong performance in absolute terms”.
- A bigger part of a bigger pie – hedge funds get reclassified – Thirty-nine percent of investors are now embracing a risk-based approach to asset allocation, up from 25% in 2013. Forty-one percent of pension consultants recommend this approach to clients. The risk-based approach effectively removes historical constraints on the percentage allocation to absolute return strategies, allowing equity long/short managers to compete with long only and fixed income absolute return funds within the overall fixed income risk budget.
“With the majority of investors happy with hedge fund performance, we expect institutional investors to further strengthen their commitment to hedge funds. Last year’s respondents targeted 9.2% for their hedge fund portfolios, and hedge funds delivered – the weighted average return for respondents’ hedge fund portfolios this year was 9.3%. Looking forward, respondents are targeting 9.4% for 2014.” Anita Nemes, global head of the hedge fund capital group at Deutsche Bank, said.
This year over 400 investor entities participated, representing over $1.8 trillion in hedge fund assets and over two thirds of the entire market by assets under management (AUM).
BNY Mellon has signed an agreement to acquire the remaining 65% interest of current affiliate and hedge fund risk analytic services company, HedgeMark International, LLC., Zacks Equity Research reports. BNY Mellon has held a 35% ownership stake in HedgeMark since 2011.
“As institutional clients continue their shift into alternatives, especially hedge funds, this acquisition will enable us to better meet demands for improved governance, risk reporting, and transparency,” said Samir Pandiri, BNY Mellon executive vice president and CEO of Asset Servicing. “We’ll be able to integrate HedgeMark’s capabilities with our Global Risk Solutions offerings to set a new industry benchmark on risk and transparency. It marks the next step in our strategy to provide sharper insight into hedge fund investments and enterprise risk across a client’s entire portfolio.”
BNY Mellon’s stock price movement following the news release depicted a positive market response. The shares closed at $31.80 on Feb 24, up 1.4% from the previous day.
Ken Phillips, HedgeMark’s founder and CEO, has announced his intention to retire when the transaction is completed. HedgeMark’s board of directors will appoint Andrew Lapkin, current president, as its new CEO. Lapkin will help supervise the transition and report to Pandiri after the closing.
International banking firm Credit Suisse has agreed to pay $196 million and admitted to violating federal securities laws by providing cross-border brokerage and investment advisory services to U.S. clients without first registering with the SEC.
Credit Suisse provided cross-border securities services to thousands of U.S. clients and collected fees totaling approximately $82 million without adhering to the registration provisions of the federal securities laws, the SEC claims.
“The broker-dealer and investment adviser registration provisions are core protections for investors,” said Andrew J. Ceresney, director of the SEC’s Division of Enforcement. “As Credit Suisse admitted as part of the settlement, its employees for many years failed to comply with these requirements, and the firm took far too long to achieve compliance.”
According to the SEC, Credit Suisse began conducting cross-border advisory and brokerage services for U.S. clients as early as 2002, amassing as many as 8,500 U.S. client accounts that contained an average total of $5.6 billion in securities assets.
“As a multinational firm with a significant U.S. presence, Credit Suisse was well aware of the steps that a firm needs to take to legally conduct advisory or brokerage business with U.S. clients,” said Scott W. Friestad, an associate director in the SEC’s Division of Enforcement. “Credit Suisse failed to effectively implement internal controls designed to keep its employees from crossing the line and being non-compliant with the federal securities laws.”
Credit Suisse agreed to pay $82,170,990 in disgorgement, $64,340,024 in prejudgment interest, and a $50 million penalty.
One of the largest shareholders of Darden Restaurants, Starboard Value LP, has joined another activist investor, New York-based hedge fund Barington Capital Group LP, who said it is “evaluating all options” to provide a way “for shareholders to have their voices heard” on a plan to spin off Red Lobster.
Darden said on last week that it would sell or spin off its Red Lobster chain, which along with Olive Garden has been a drag on profits.
“While we are pleased that you recognize that Red Lobster could perform better with increased management focus, we do not believe the currently proposed plan to spin-off or sell Red Lobster, by itself, is in the best interest of shareholders.” The activist investors said in a letter to shareholders. “We believe the Company should more fully evaluate all available operational, financial, and strategic alternatives for Darden in order to create and execution a comprehensive plan to address all aspects of the business and to ensure the best possible outcome for all shareholders. This evaluation should include consultation with the Company’s financial advisers and discussions with shareholders such as Starboard.”
The hedge fund group goes on to say that the “Company (has an) extended record of disappointing operating performance, poor capital allocation,and missed expectations. Most notably, when adjusted for Darden’s extensive real estate ownership, the Company’s operating margins are well below peers.”
Portfolio manager Alexander Jansson was appointed CEO of EU hedge fund CB Asset Management by the board of directors. Carl Bernadotte will continue as portfolio manager.
“It feels good to hand over the reins internally to Alexander, who is familiar with the company, our clients and the portfolio management. Alexander has the right qualities to manage and maneuver in an increasingly complex financial market that will continue to face major changes. To continue the work with the portfolio management together with Alexander and Marcus feels very inspiring. I welcome Alexander as CEO and look forward to keep on delivering good performance to our investors,” says Carl Bernadotte.
Alexander Jansson has been a portfolio manager since 2009. Prior to that he worked in private equity. Alexander is 30 years old and holds a M.Sc. in Business Administration and a B.Sc. in Economics from Uppsala University. Alexander will continue his work as portfolio manager.
“I am very honored by the trust Carl, as the company’s owner, and the board has given me and look forward to developing the company together with Carl and our colleagues. The company is in an interesting phase with strong AUM growth; good performance over time, and a tailwind for our core investment themes: Europe and the environmental sector. I see us as well positioned in an industry where cost consciousness and an active and ethical management are crucial for the customer,” says Alexander Jansson.
Former New York Yankees Manager, Chairman of The Joe Torre Safe At Home Foundation, and prior recipient of the Hedge Funds Care/Help For Children (HFC) award, Joe Torre, will present Marathon Asset Management’s Bruce Richards with the Award for Caring during the 16th Annual New York Open Your Heart to the Children Benefit. Mr. Torre was recognized in 2012 by HFC for his dedication to ending the cycle of domestic violence, and its effects on children, after experiencing abuse as a child in his own home in Brooklyn.
Mr. Torre is looking forward to presenting the award to Bruce Richards of Marathon. He said, “I was grateful to receive the HFC award two years ago. It is my honor to present the award on behalf of HFC to Bruce Richards.”
Mr. Richards is a Managing Partner and CEO of the multi-billion global credit market focused hedge fund Marathon Asset Management. His is a strong supporter of HFC, Safe at Home, Earth Day Network, UJA, the Birds Nest Foundation, the R Baby Foundation, and other vital non-profit organizations. Marathon was founded in 1998 and is headquartered in New York City with offices in London and Singapore.
The annual HFC benefit, one of the hedge fund industry’s premier charity events, will take place on Thursday, March 6, 2014 at Cipriani 42nd Street (110 East 42nd Street, New York City). The event will unite 1,000 hedge fund executives for an evening that will feature cocktails, hors d’oeuvres, networking, a silent auction, and live entertainment. Proceeds will fund programs focused on the prevention and treatment of child abuse in New York, New Jersey, and Connecticut.
The Co-chairs for this year’s gala are Dylan Curley, Managing Director and Head of Business Development, Hedge Funds America, at J.P. Morgan, and Gerry Polizzi, Managing Director and Senior Prime Brokerage Relationship Manager for UBS Prime Services.
Legg Mason affiliate Permal Group, has launched Permal Alternative Select Fund , its first open end alternative mutual fund. The multi-strategy fund, which offers investors daily liquidity, is sub-advised by a selection of leading hedge fund managers and has a minimum investment of $1,000.
By means of a tactical asset allocation program, the Fund is seeking to produce positive returns across a full market cycle, allocating assets to strategies that historically have had a low correlation to each other. These strategies may include Equity Hedge, Event Driven, Global Macro and Relative Value.
The initial investment strategies and subadvisers are:
- Equity Hedge: Apex Capital, LLC
- Event-Driven: River Canyon Fund Management LLC, a wholly-owned subsidiary of Canyon Capital Advisors
- Global Macro (Discretionary): TT International
- Global Macro (Systematic): BH-DG Systematic Trading LLP, part of a joint venture arrangement between David Gorton and Brevan Howard
“Clients today are far more interested in accessing a range of liquidity solutions covering the spectrum from daily to quarterly and beyond. Through Permal Alternative Select Fund, we are offering an alternative daily liquid multi-manager fund with a select group of leading managers and a core focus on diversification by manager and strategy,” said Maxwell Osborne, Head of U.S. Distribution for Permal.
Tom Hoops, Head of Business Development for Legg Mason, who oversees M&A activity and new product development, said, “As investor needs evolve, Legg Mason has the resources to tap into the expertise of its investment affiliates and bring to market new products through our global distribution channels. For over 40 years Permal has been a leader in the alternative investment space and is the ideal partner to launch a liquid alternative product. This is also a great example of industry convergence, where the offshore world meets the onshore market. Retail investors today are looking beyond the more traditional products and with Permal Alternative Select Fund we have a daily liquid product that offers diversification across a range of hedge fund strategies and managers.”
The Fund, which is registered with the SEC under both the Securities Act of 1933 and Investment Company Act of 1940, is managed by Permal Asset Management LLC, a member of Permal Group. It has been structured to provide investors with 1099 tax reporting and is available to U.S. retail and institutional investors.
Retired hedge fund manager Jim Cramer, the host of CNBC’s Mad Money is hosting a broadcast event sponsored by the New Jersey City University (NJCU).
A magna cum laude graduate of Harvard College, Cramer earned his J.D. from Harvard Law School. He worked in sales and trading at Goldman Sachs before starting his own hedge fund, which produced an annualized return of 24 percent.
The event, entitled Get Rich Carefully, will be held on Tuesday, February 11, 2014, 6:00 – 9:00 p.m., in the Margaret Williams Theatre of Hepburn Hall on the NJCU campus at 2039 Kennedy Boulevard in Jersey City and is free.
Cramer will discuss how students with college debt can have a chance at financial success. Then, he will explain the value of the stock market and low-risk vs. high-risk investing. Lastly, he will focus on how anyone can make money work for themselves.
Cramer retired from his hedge fund in 2000 to embrace radio and television to help educate people about the financial markets. He is the founder of and chief markets columnist at TheStreet, Inc., a multimedia financial news organization. He also manages his charitable trust’s real-time portfolio product Action Alerts PLUS. Cramer’s charitable trust portfolio has distributed more than $1.8 million to well-known charities since its inception.
Former SAC Capital trader Mathew Martoma has been found guilty of insider trading in what is being called the most lucrative hedge fund insider trading cases ever prosecuted.
“As the jury unanimously found, Mathew Martoma cultivated and purchased the confidence of doctors with secret knowledge of an experimental Alzheimer’s drug, and used it to engage in illegal insider trading.” Preet Bharara said in a statement following the conviction.
“Martoma bought the answer sheet before the exam – more than once – netting a quarter billion dollars in profits and losses avoided for SAC, as well as a $9 million bonus for him. In the short run, cheating may have been profitable for Martoma, but in the end, it made him a convicted felon, and likely will result in the forfeiture of his illegal windfall and the loss of his liberty. Mathew Martoma becomes the 79th person convicted of insider trading after trial or by guilty plea in this District in the last four years.” Bharara concluded.
Martoma, a former portfolio manager for a division of a group of SAC-affiliated hedge funds, allegedly used inside information that he received from a doctor who served as an adviser to Elan Corporation PLC on the clinical trial of an Alzheimer’s Disease drug to make profits and avoid losses for the hedge fund. Martoma and his then-employer, SAC Capital Advisors, liquidated holdings in two companies after receiving insider information, the prosecution said.
Billionaire philanthropist Warren Buffett made a decade long bet with hedge fund manager Protégé Partners that funds that invest in hedge funds couldn’t beat the stock market , profit wise.
The prize, Berkshire Hathaway stock worth almost $1.3 million as of the end of 2013, will go to the winner’s chosen charity. Buffett’s designee is Girls Inc. of Omaha, and Protégé’s is Absolute Returns for Kids.
Fortune reports that after six years, Buffett’s fund, a S&P index fund, Vanguard 500 Index Fund Admiral Shares, was up 43.8%. For the same period, Protégé’s five funds of funds, on the average, gained only approximately 12.5% .
A campaign specifically focusing on billionaires was made public in 2010 by Warren Buffett and Bill Gates. The Huffington Post reported in April 2012 that “81 billionaires committed to giving at least half of their fortunes to charity”. As of July 2013, 113 billionaire individuals and couples and one family group have signed the pledge.