“Merchant Capital was an obvious partner in our pursuit of an onshore version of our large-cap equity long/short hedge fund. Michael Kart, Managing Partner at Spectrum Partners said, “They are able to bring funds to market much quicker than some of the larger platforms and have a good track record specifically with alternative products. We look forward to creating a long-lasting relationship with the firm.”

The strategy follows a thematic investment approach with active stock-picking aiming to identify investment opportunities with a favourable risk/reward profile. It predominantly invests in large-cap equities actively traded in the markets of states of the Former Soviet Union (FSU).

The Russian Phoenix UCITS Fund is available to both institutional and retail investors in US dollar, euro, and sterling share classes with a minimum investment of 100,000 (USD, EUR, GBP) for institutions and 20,000 for the professional retail investor.

The hedge fund is the first in a series of five proposed UCITS fund launches recently announced by Merchant Capital. The company expects all of these to begin trading before October 2011.

“If we choose to keep those tax breaks for millionaires and billionaires, or for hedge fund managers and corporate jet owners, or for oil and gas companies pulling in huge profits without our help – then we’ll have to make even deeper cuts somewhere else.” Obama said on Saturday.

“We’ve got to cut the deficit, but we can do that while making investments in education, research and technology that actually create jobs.” Obama said.

Obama’s tax increases include:

• End some tax credits for oil and gas companies
• Tax private equity or hedge fund managers income as earned rather than capital gains rates
• Limit itemized deductions for the nation’s highest earners
• Change the depreciation formula for corporate jets
• Repeal tax benefit for an inventory accounting practice used by many manufacturers

The White House estimates that the changes would raise $600 billion.

Almost every strategy lost money in May, according to Hedge Fund Research Inc. in Chicago, as the Dow index of 30 big stocks sank 7.6 percent including dividends amid speculation that Greece’s debt problems would spread to nations such as Spain and Portugal. Some of the best-known funds saw their gains for this year erased.

John Paulson’s fund lost 6.9 percent through May 21, bringing its year to date loss to 3.3 percent. Halvorsen’s Viking Global fund fell 3.4 percent in the same span and 2.9 percent for the year. Bacon’s Moore Global declined 7.7 percent as of May 20 and 4.8 percent in 2010, investors said. Representatives for these funds declined to comment. Paulson, Halvorsen and Bacon have among the best long-term returns in the industry, each with average gains of 20 percent or more since inception.

SAC capital also suffered losses, but only 2.9 percent, reducing this year’s gain to 4 percent. Citadel is said to have lost 2 percent and Brevan Howard .1 percent, respectively.

The measures many managers, including Paulson, Halvorsen, and Bacon, put in place to hedge against falling markets didn’t work. Their bets on falling stocks didn’t make enough money to counter losses in shares the managers expected to climb. Commodities lost heavily in may, taking losses of 8.2 percent according to the UBS Bloomberg CMCI Index. In addition, those expecting economic growth suffered losses when the difference between payouts on two-year and 10-year Treasury notes narrowed instead.

A few funds actually gained. Among them, notably Caxton Associates LLC rose 1 percent as of May 21 and was up 4.5 percent for the year. Autonomy Capital Research LLP gained .7 percent and is up 12.5 percent for the year.

Robert Gibbins, manager for the $1.5 billion firm, said his trades were based on the forecast that global economies won’t improve until currencies are better aligned, and in particular Chinese officials agree to let the yuan strengthen, he said.

Gibbins said his profitable trades included wagers that the S&P 500 would fall and that interest rates in a number of countries would slide.

BAM Capital LLC, a $300 million hedge-fund firm in New York that bets on price volatility, returned 7.7 percent last month through May 21 with its main BAM Opportunity Fund LP, bringing its gain for the year to 8.2 percent, according to an investor.

However, despite a turbulent May, price swings haven’t changed managers’ attitudes views on whether the global economy is in trouble or recovering.

But European government officials have become increasingly suspicious of the notoriously secretive hedge fund industry. France and Germany are the notable leaders of the call for more regulation. In fact, Germany is apparently so concerned about the sneaky practices that hedge funds employ that on Tuesday night, according to Time Magazine,

Germany unilaterally banned naked short selling, where the trader sells shares without establishing that they can be borrowed in the future, despite the fact that the practice is rarely used in Germany — news that sent the euro to a four-year low against the dollar.

That move followed on the heels of the decision of European finance ministers to move ahead with the proposed AIFM legislation. It should be noted that the versions of the draft law presented to the European Parliament and the finance ministers differed in that, as the Wall Street Journal puts it, “The European Parliament’s draft even offers the carrot of a pan-EU ‘passport,’ provided funds agree to comply with the new rules and their home regulator agrees to enforce them.” The WSJ also points out that both versions are an improvement upon earlier proposed drafts– and with a final version not expected until July, there is still time and room for compromise (though whether the newly elected British Conservative-Liberal Democrat leadership has the connections or clout to do so remains to be seen).

According to Time Magazine:

The draft law aims to put “alternative investment funds” — hedge funds and private equity — under closer scrutiny by a new pan-European watchdog, which will be armed with the power to cap their borrowing from 2012. It will oblige fund managers to register with national authorities and reveal to both regulators and investors closely guarded information about their investments and borrowings.

The law also contains plans to make it much more difficult for non-E.U. hedge funds to sell their products across the single market, by forcing them to register in each individual member state.

Naturally, this last bit has “raised the hackles” of the Obama Administration, Geithner most notably. E.U. officials, however, insist that the move is not protectionist in nature (as Geithner has asserted) and is in accordance with the pledges made by G-20 leaders last year in London to set up the oversight, registration and reporting of hedge funds. And apparently the crackdown on hedge funds is only the beginning of a larger financial services overhaul planned by E.U. Internal Markets Commissioner Michel Barnier in the interest of avoiding another global financial crisis.

According to Time Magazine,

Other reforms in the pipeline include a crackdown on the derivatives market, new legislation on credit rating agencies, limits on banker pay, and new watchdogs being set up to police banks, insurers and markets.

The conditions of Tang’s bail require him to remain in Canada and to have no direct or indirect communication with investors or partners in a hedge fund called the Oversea Chinese Fund Limited Partnership that boasted a return of 1% a week, which Tang promoted. He is also banned from soliciting investment funds and must report to police once a week. A Judge also previously granted a temporary restraining order, asset freeze, and other emergency relief against the defendants.

More than $51 million was allegedly involved in the hedge fund failure. The fraud is alleged to have begun as early as 2004, and through the hedge fund, Tang raised somewhere between $50 and $75 million from more than 200 investors.

A provincial court trial on those charges is set to begin April 19. Tang is also wanted in the United States on a number of fraud-related charges.

Anyhoodle, on April 20, the SEC fired up the batmobile and arrested five people from Staten Island who thought it was a good idea to pretend to run a $1.4 billion hedge fund– because, you know, the SEC is made up of a group of people whose mission in life is basically just to be a major buzz kill. Thanks, Mary Schapiro. In reality, according to Business Insider, these schmucks were actually using fake names, offices, and ridiculous quotes on ridiculous (I honestly can’t think of another more appropriate word) websites to lure in investors rather than running any sort of a legit business. I’ve got to give them credit, though: these guys saw an opportunity to swindle investors and they didn’t just go with your typical Ponzi scheme– no, these guys really went above and beyond, using all of their combined creative forces to compose their fictional ten-man team of superstar grads from Harvard and Wharton. But they didn’t stop there. No, these assclowns decided to bring in the big guns and created false endorsements from the likes of the Financial Times and George Soros. It would be brilliant if it weren’t so completely unbelievable– except, here’s the thing: people actually bought it.

An example of some of the crap they were peddling, according to Business Insider:

Ken Marsh, who went by “Ken Maseka,” “Michael Warren,” and “Marcus Thorn,” according to the SEC’s complaint, was a front-man for the fake $1.4 billion fraudulent hedge fund. He described himself to investors as “Wall Street’s Most Wanted,” using this bio:

Back in 1991 Kenneth Maseka was the most sought after trader on Wall Street for his uncanny knack for finding Wall Street’s hidden gems. In 1995 his average profit exceeded 1000% per trade (not much has changed since then.)

Goldman Sachs, Lehman Brothers and Bear Stearns could not lure him away with offers of millions of dollars up front to come over. Maseka asked himself, “Where is the challenge,” and passed on their generous offers. Anyway, when you are averaging 1000% per trade there is no need to be an employee and a few million dollars is nothing in the long-term scheme of things. (Emphasis ours.)

But, as it turns out, Ken Maseka is a fictional character of Ken Marsh’s invention. The company also made up the rest of its other employee’s names, and fudged the fact that Maseka and Michael Warren were billionaires. A quick fact check of Forbes’ billionaires list by any potential investor doing even the most routine due diligence would have tipped them off that something was rotten in the state of Denmark. Also fake: Gryphon’s Wall Street address. Their real office is in Staten Island in between a martial arts school and a bakery. Classy.

Better yet, these guys posted “press” from the FT, which supposedly wrote:

This secret group has identified as the latest hedge fund to exploit the weakening sub prime markets – pounding stocks down to nothing and making billions along the way, one hedge fund run by this group had been rammed to see returns of over 1000% in 2007.

But the most deliciously deceitful part of the scam is that they went so far as to post a fake quote from, of all people, George motherfu$&ing Soros on their website pretty much saying that these guys were the shit.

“Alone the traders of Gryphon Financial are incredible, together they are unstoppable”
– George Soros

I mean, really? I honestly can’t believe people bought this crap.

According to Business Insider, some of the other BS they posted on one of their related sites (Gryphon Daily) included:

* “Join this Exclusive Service or Go Broke!”
* “It’s like having your own mini Hedge Fund”
* 9 out of every 10 trades will hit 100% profit status?
* Returns of Up to 483% in Less Than 2 Months?
* Just this once – step outside your comfort zone – buy stocks without prejudice and don’t look at the numbers, don’t look at the chart, buy the stock the minute you hear from us and don’t sell a single share until we tell you to – do this and you are rich, do not and continue to invest in mediocrity.”

Sadly, a surprising number of people fell for it. The five alleged fraudsters ended up scamming some $17.5 million from unsuspecting investors.

BarclayHedge reported that investors invested some $16.6 billion in hedge funds in February alone, with industry assets totaling an all-time high of $1.5 trillion, putting it within range of the projected $2 trillion mark before the year is out.

The New York Times reports that Deutsche Bank’s Alternative Investment Survey projected that a total of $222 billion would be invested in hedge funds this year. It’s an ambitious number, especially in light of the negative light cast upon the industry by Paulson and Co. and Magnetar’s recently disclosed involvement in betting against the housing market. Public sentiment will almost certainly be turned against all hedge funds, who the average American may inaccurately equate with the people who brought down the housing market– but, then again, the average American is not your typical hedge fund investor. Hell hath no fury like a foreclosed home owner… or something like that. Well, except for this guy.

Despite the return of investors to the hedge fund industry, there’s been a drought of seeding capital, according to the Financial Times (subscription required). One reason for the continuing lack of capital is the decline in seeding activity from investment banks in the wake of the Lehman Brothers collapse as banks have focused their attention on larger issues. Furthermore, amid the uncertainty of the new financial regulation, which may eliminate their ability to participate in proprietary trading and hedge fund activity, many banks may be hesitant to provide seeding capital. Fund of funds are currently the main seeding investors, followed by followed by asset management companies and family offices, according to a survey by Deutsche Bank. And with due diligence becoming a more pressing issue for investors, money is being handed out less liberally and in smaller amounts.

One consequence of the financial mess that ensued in 2008 is that investors are demanding more liquidity and greater transparency. Of course, just because investors want these things doesn’t mean they will necessarily get them, but there is a collective demand being voiced. And some funds are obliging. Another trend is that investors are doing significantly more due diligence before investing with a strategy. Regardless of the fact that investors are taking a couple extra months to do due diligence and demanding shorter lockups, more liquidity and greater transparency, they’re pouring money into hedge funds at a record-setting pace.

Centaur Group’s Galileo fund makes investments not in traditional stocks, commodities, or derivatives, but rather by betting on the outcomes of actual tennis matches, soccer and cricket games, golf tournaments, and horse races. By all accounts, Galileo is the first hedge fund ever to make bets on sports.

Mark Cuban, owner of the Dallas Mavericks and perhaps more famous for his stint on Dancing with the Stars, caused quite a stir five and a half years ago when he had announced his intentions of starting a similar sports betting hedge fund, but quickly came up against opposition because of U.S. laws. Now Cuban is an outspoken supporter of the Centaur venture– and Tony Woodhams, the managing director at Centaur Group, which operates Gallileo, likewise, has said that Cuban was right on with his instincts that the stock market had more inefficiencies than sports betting. According to CNBC,

Besides emotion, Woodhams said that the sports market has a lot of mispricing, with some bookmakers that don’t often set the best lines for every game. The market isn’t effected by the economy and there’s no intervention from outside parties like a central bank or a government.

Woodhams was quoted in the LA Times as saying,

We put numbers against those things that you and me and everyone in pubs have casual discussions about. That gives us an edge on these markets.

Woodhams claims that Centaur has a proprietary number-crunching system that is data-driven and can make sports bets with far better results than the casual bettor. In fact, the Centaur plans even plans to use fluctuations in odds and point spreads that are affected by amateur bets to its advantage and somehow make money off of it. The exact method is, obviously, proprietary and probably beyond my comprehension anyways because I was never much of a gambler, but we’ll soon see if they can produce results or if they’re just talking a good game.

Though the firm is technically based out of Gibraltar (where the regulatory environment is a little bit more lax), Centaur will have 25 traders working on its London trading floor. According to the LA Times,

The traders will use statistical modeling to place bets on websites such as Betfair, which is popular in Britain but banned in the U.S. The bets will not just be on matches’ final outcomes — Centaur will also wager on items such as the over-under that takes into account the total points scored.

Of course, Galileo is not the kind of “sports bet” you make lightly– and it’s not open to just anyone. The fund requires a minimum investment of 100,000 euros (about $135,000). Not exactly pocket change. But Woodhams has found a few investors (he says there are fewer than twenty), and he has set a goal of growing assets under management to $100 million within the next two years. And Centaur is charging a hefty 3% management fee and 30% performance fee– not the typical “2 and 20″ seen in the industry. Maybe he has a L’Oreal Complex and can justify the exorbinant rates “because he’s worth it”– after all, he is projecting returns of 15-20 percent. For it’s part, the fund promises not to bet more than five percent of assets under management on any one event.

For now, at least, the fund is only open to Europeans– the SEC has yet to confer its blessing. According to the LA Times, Woodhams said Centaur hope to get SEC approval sometime in 2011. In the U.S., online sports betting is generally illegal (as Cuban found out), with horse racing being the major exception. But some gambling experts say Galileo could win approval because Americans who invest in the fund would not be placing bets themselves. So for now, at least, loaded Americans with a gambling penchant are SOL. But there’s always Vegas…

Here’s a short guide to telling the difference between two of the biggest names in finance:

* Early Years: Henry (Hank) Paulson was born in Palm Beach, FL, later moved to Barrington, IL, and went to Dartmouth undergrad where he was an ΣΑΕ (ΦΑ, gents) and also graduated Phi Beta Kappa and was All Ivy, All East, and honorable mention All American in Football. He went on to receive a Harvard MBA. John Paulson was born in Queens, NY and went to NYU undergrad where he graduated valedictorian of his class. He went on to receive a Harvard MBA where he was designated a Baker Scholar.

* Career: Hank Paulson was Staff Assistant to the Assistant Secretary of Defense at The Pentagon from 1970 to 1972. He then worked for the administration President Richard Nixon, serving as assistant to John Ehrlichman from 1972 to 1973, during the Watergate scandal for which Ehrlichman was convicted and sentenced to prison. After that, he joined Goldman Sachs and rose through the ranks, eventually becoming CEO from 1999-2006, after which he left to become US Secretary of the Treasury.

* Career: John Paulson began his career at Boston Consulting Group before leaving to join Odyssey Partners. He later worked in M&A at Bear Stearns, then became a partner at the mergers arbitrage firm Gruss Partners LP. In 1994, he founded his own hedge fund (Paulson & Co.) with $2 million and two employees (himself and an assistant). Paulson & Co. is now the world’s third largest hedge fund, with $32 billion in assets under management, thanks in large part to its successful bet on the housing market crash.

*Run-ins with the SEC: John Paulson’s name popped up in connection with civil fraud charges filed against Goldman Sachs and VP Fabrice Tourre last Friday. According to the charges, Goldman and Tourre allegedly misstated and omitted the fact that the CDOs they were marketing to investors as the housing bubble was bursting were tied to subprime mortgages that Paulson had helped create and recommend to Goldman– mortgages which he later bet against by buying credit default swaps, garnering over $1 billion for himself and $3.7 billion for his firm. Although Paulson was not named in the suit and Goldman denies all wrongdoing, reputations have been dragged through the mud. Hank Paulson, meanwhile, allegedly received a tip from GE in 2008 that it was having trouble selling debt and the SEC has taken an interest in why the company shared this info with the Sect. of the Treasury and no one else, particularly because it has been suggested Paulson profited from this information.

*Wealth: Hank, by no means poor, has amassed a fortune of somewhere in the vicinity of $700 million, according to various web sources. However, John’s hedge fund paydays put his net worth somewhere in the $12 billion range. He is ranked #45 on Forbes list of the World’s Richest People.

*What They’ll Be Remembered For: Hank Paulson is most famous for his service as the US Secretary of the Treasury and his handling of the financial crisis– specifically TARP and bailouts of “too big to fail” firms. John Paulson is most famous for his financial prowess and huge accumulation of wealth through operation of his hedge fund– though, now, he will probably also be remembered for his role in betting against the housing market.

I honestly don’t know. These sort of back-room deals done with a handshake and a wink and a smile by the a couple of “old boys club” guys in $5,000 suits are notoriously hard to police. Sure, we can attempt to limit compensation and cut big banks out of hedge fund activity and proprietary trading. We can require hedge funds to register with the SEC or with some regulatory body abroad, monitor their risk exposure and the amount of leverage they can take on, restrict who they can employ in third party roles, try to force them to increase transparency… but, honestly, there are nearly 15,000 single-strategy hedge funds globally… somehow I feel that, even with the most dedicated and brightest of staff (and the SEC is apparently looking to hire experienced hedge funders now so they will have insight into the inner workings of hedge funds in order to properly monitor them), the highly intelligent minds running those hedge funds will be able to find loopholes in whatever laws the government comes up with– or just disregard the laws entirely and conceal whatever devious designs they have to make a fast buck. There will always be loopholes—and sometimes, making money isn’t pretty. In fact, greed can be downright ugly, as we have seen here with the Goldman fraud charges. The only real solution I can see is to minimize the opportunities for such insider deals by pushing as many transactions as possible onto central clearinghouses and exchanges in order to increase transparency– and that’s not really a solution. People will still find ways around it.

Ever since Lehman collapsed in 2008 and America has really been feeling the financial strain (not that our economy was exactly setting records prior to that), there has been public outcry that something be done. Big banks are not making themselves look good. Hedge funds are not helping themselves out here either, despite the fact that official reports looking into the financial crisis — such as the British government-commissioned Turner Review, published in March — assigned such funds only a marginal role in the melee. But most politicians are quick to blame, the public is easily convinced of their guilt, and they’re an easy scapegoat. It looks really bad when America finds out that they’re the ones largely behind all of this mess… nevermind the fact that there were only a select few jackasses behind the plan to create the CDOs that Paulson would later bet against and Goldman would conveniently forget to tell its investors Paulson had a hand in creating and picking… now both industries will be blamed. And the big paydays for bank and hedge fund heads look really bad when 10 percent of the nation is unemployed and close to 17 percent is underemployed thanks to the mess they helped (in part) to create. I mean, the current state of the economy is hardly entirely Goldman’s fault (or Lehman’s or any one other entity’s), but they certainly didn’t help matters.

So it’s little wonder that Obama and et al., along with most of Europe (with the notable exception of Britain, which is trying to push for softer hedge fund regulation) are clamoring for financial reform, with the U.S. trying to corral the commercial banks and the E.U. seeking to reign in hedge funds. Right now, big banks are a frickin’ jack of all trades. In this case, Goldman was creator, trader, hedger and seller of the CDOs. It reminds me of a Homer Simpson quote: “Television: teacher, mother, secret lover.” Not quite the same, but my brain is wired a little funny, and I have loose associations, so indulge me. My point is, maybe banks have their fingers in too many pies and their sticky fingers are creating quite a mess… at least such is the thinking behind the proposed legislation. If we were to restrict the number of functions they could perform, we could also eliminate some of the conflicts of interest. Maybe.

But the banks are fighting hard against the legislation designed to weaken their market power, despite the fact that their actions continue to erode public trust in the markets. It’s a real blow to the financial system as it struggles to rebuild public confidence. And as long as this lack of trust and uncertainty persists, markets might charge a higher systematic risk premium. A new breakdown in trust could also undermine efforts to revitalize the battered financial industry, possibly increasing concerns about transparency, due diligence and complexity.

It’s unlikely that the timing of the charge brought against Goldman is coincidental: Obama is probably going to use it politically to bolster his argument that America seriously needs the financial reform he is proposing– most likely, as the Washington Post put it, “as a cudgel to persuade Republicans to line up behind the bill.” I already thought that the odds of the legislation being passed were high, but now I’m all but certain of it. The public wants greater oversight. They want the big banks to stop screwing them over and taking them under when they bet big and lose.

The SEC’s allegations against Goldman are hardly shocking, and I expect that in the coming weeks/months we will see more charges against other firms involved in similar investment schemes. A headhunt was all but inevitable—it’s just took a little longer than I personally thought it would. But, again, maybe Obama was biding his time, waiting to announce it so that it coincided with the near-passage of his proposed financial reform legislation. Just a pet theory.

The sad truth is that there is a solid chance that Goldman may get away with this, despite the public desire to see heads roll. The reality of the situation is that there has been a lot of deregulation in recent years (see the Commodities Futures Modernization Act of 2000, for example)—maybe too much deregulation for Goldman to be found guilty, and maybe too much for these charges to even stick. You’ve got to know Goldman has it’s legal team working overtime to find a way out of this, and fast– before its stock sinks any lower. It’s entirely possible that Goldman’s conduct may be ruled distasteful and unethical, but technically legal… Unbelievable as that may seem, it’s entirely possible. Only time will tell.