Archive for the 'Hedge Funds' Category

For Small Hedge Funds, Success Brings New Headaches

Posted on January 20, 2011, 9:00 pm. Closed

Via NYT’s DealBook:

The hedge fund manager Grange Johnson of LaGrange Capital Partners had a banner year in 2010. His two portfolios returned nearly 70 percent in a period when the average hedge fund gained about 10 percent.

But those gains will bring new challenges this year. With his total assets now above $150 million, Mr. Johnson will have to register with the Securities and Exchange Commission under a new rule created to increase industry oversight.

While the cost of compliance will barely make a dent at multibillion-dollar firms like SAC Capital Advisors or Eton Park Capital Management, small players like LaGrange could face a significant financial burden. Even money managers winding down their operations will have to comply if their assets are above the $150 million threshold.

“The $150 million number is so arbitrary,” Mr. Johnson said at a basic conference table in his modest Midtown Manhattan office. “What possible risk could a $150 million hedge fund pose to the system? We’re the guppies of the industry.”

So it’s probably going to cost LaGrange more than $250k to register. That money could be used to hire two junior analysts, which I have no doubt would better serve LaGrange’s investors. Instead, that money will be going to lawyers, auditors, and incompetent regulators.

Hedge Fund Activism and SPACs

Posted on February 5, 2009, 10:06 pm. Closed

The Harvard Law School Corporate Governance Blog posted an article on how some hedge funds are pressuring SPACs to liquidate before making an acquisition. The article cites Phil Goldstein’s investment in TMI as an example and also asks whether TMI will be the first in a wave of forced-liquidations of SPACs:

Is TMI a forerunner of a wave of forced-liquidations of SPACs? Or is this just another example for Phil Goldstein’s detractors to cite when they say that he’s only interested in his own pocketbook and doesn’t care how his actions affect value for other shareholders?

It’s obvious that Goldstein wants his money out of TMI – whether because he has better things to do with it, or because he doesn’t believe that TMI will be successful even if a merger is completed. Consent solicitations can be quick and painless or long and drawn out (under state law, Goldstein has 60 days to reach 50%).

I think this will serve as an interesting test-case: if Goldstein is successful early, it may trigger a wave of copy-cat liquidation solicitations (by other hedge funds) at other SPACs. Perhaps, though, “copy-cat” isn’t exactly the right word, because such a wave might be an indicator that Goldstein is in fact representing the feelings of other hedge fund SPAC shareholders – that while the SPAC seemed like a great investment vehicle a year ago, today’s market conditions are just too tough. Hedge funds recently hammered by the market may see this as an easy way to get their cash back.

Fed’s “Junk for Treasuries” Lending Program May Have Unintended Consequences

Posted on March 13, 2008, 8:28 am. Closed

After the announcement late last night that Carlyle Capital could not come to an agreement with its creditors and that its assets would be seized as soon as possible, futures were down sharply as a result. Since March 12, the company has defaulted on approximately $16.6 billion of its indebtedness, with the remaining indebtedness is expected soon to go into default.

But interestingly enough, this instance of banks seizing assets of a hedge fund unable to meet margin calls might be the unintended consequence of the Fed’s recent announcement a couple of days ago to allow banks to swap mortgage-backed (most of which is essentially worthless) debt for Treasuries. Via Robert Peston of the BBC:

In fact, it’s arguable that the banks’ seizure of Carlyle’s $20bn-odd in assets has actually been encouraged by the Fed’s mortgages-for-Treasuries offer. Because the Fed’s new lending emergency lending facility allows the banks to swap mortgage-backed debt for Treasury Bills in a way that Carlyle could not do.

So it would be rational for the banks to take Carlyle’s assets and exchange them for top-quality, liquid US government bonds, rather than leave loans in place to a business, Carlyle, whose assets remained highly illiquid.

If that’s the case, there will be some very scared people in hedge-fund land today. Hedge funds that have borrowed from banks against the security of mortgage-backed debt could be about to see their assets sucked into the banking system and their businesses vanish.

It’s not unusual for policy-makers to come up with a seemingly rational and well-considered plans, plans that in the end actually hurt more than they help. I wonder if the Fed foresaw this possibility? For some reason, I highly doubt it.

The Financial Fashion of Bermuda

Posted on July 5, 2007, 9:41 pm. Closed

Take a look at this guy in knee-length light pink shorts, knee-high socks, a striped shirt and tie and a jacket flung casually over his shoulder.  I guess that’s your typical business person in Bermuda.  I couldn’t really see myself wearing such an outfit, even though it would feel nice in the mucky heat of a Georgia summer.  I’m not really a trend setter and I try to stay in line with the grain, not go against it, so if people started to wear these types of outfits, then I would probably tentatively follow suit (what a pun).

Above-Market Returns on the Cheap

Posted on July 2, 2007, 9:03 pm. Closed

Yet more on hedge funds and the people who run them and the academics who study them, this time from The New Yorker. Continue reading ‘Above-Market Returns on the Cheap’

Impact of Hedge Funds on Target Companies’ Share Prices

Posted on July 2, 2007, 6:48 pm. Closed

Continuing on with my fascination of the surge in attention on hedge funds and private equity, Knowledge@Wharton published an article recently about a study that has attempted to document the impact the effect of hedge funds upon the stock of the companies in which they have invested.  It’s an interesting article, but they now require you register (it’s free).  Here’s a snippet of one of their conclusions: Continue reading ‘Impact of Hedge Funds on Target Companies’ Share Prices’

Federal Court Freezes Assets of Hedge Fund

Posted on June 29, 2007, 8:24 am. Closed

Bloomberg reports, “Lake Shore Asset Management Ltd., a hedge fund firm run by a former chairman of the Chicago Mercantile Exchange, had its assets frozen by a federal court after regulators said it overstated its holdings.”

I am guessing that stories such as these will continue on for a couple more years until there is another huge financial crisis.  Then our lawmakers will go on a crusade to score political points and pass overly restrictive legislation that ends up hurting investors and businesses more than helping protect investors.

But it is difficult to argue with Geoffrey Aronow, the former head of enforcement at the CFTC.  “Whether it’s conscious or not, everyone is more attuned to concerns to what’s going on with hedge funds.”

Hedge Fund Fashion

Posted on June 28, 2007, 12:04 pm. Closed

An article about the fashion trends in Milan: apparently, its all about the hedge funds. Continue reading ‘Hedge Fund Fashion’

What Goes Around Comes Around

Posted on June 25, 2007, 7:37 am. Closed

Bloomberg reports that no one has come to help Bear Stearns rescue two of its hedge funds:

It was Bear Stearns, the biggest broker to hedge funds, that nine years ago declined to join 14 other investment banks in the bailout of Long-Term Capital Management LP. Then last week, as New York-based Bear Stearns pleaded for help to rescue two of its hedge funds teetering on the brink of collapse, many of the same firms refused to come to its aid.

Merrill Lynch & Co., which pumped $300 million into LTCM, said no and seized $850 million of bonds held as collateral for loans it had made to the funds. Lehman Brothers Holdings Inc., JPMorgan Chase & Co. and Cantor Fitzgerald LP also pulled out, leaving Bear Stearns to sort through the wreckage of bad bets on subprime mortgage bonds and collateralized debt obligations.

Bear Stearns is using $3.2 billion of its own to salvage the situation.  All I can say is that Bear Stearns made a huge mistake when they refused to follow the crowd in bailing out LTCM nine years ago.  It came back to bite them in the ass.