Tuesday, October 16, 2007

You Want Out of Your Hedge Fund? Not So Fast

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Wait, I thought the credit contagion was 'contained'. Dear oh dear, why are things like this still happening? Well it's only $9 billion - heck the Fed pushes that much into the market every week the past 6 weeks ... when it used to only save actions like that for real emergencies such as post 9/11 - now I suppose real emergencies = speculators with very deep pockets needing help

Cambridge Place to block Withdrawels
  • Cambridge Place Investment Management has become the latest hedge fund to limit investor withdrawals and cut fees after the $9bn London and Boston-based structured credit specialist saw returns crumble.
  • CPIM, co-founded by finance entrepreneur Martin Finegold, best known as the founder of UK subprime lender Kensington Group, persuaded investors in two of its funds to vote to block withdrawals until next summer to give it time to turn them round. Another of its five funds will hold a vote on blocking withdrawals later this month.
  • Extended lock-ups are becoming increasingly common among hedge funds hit by the credit squeeze, many of which would be forced into a firesale of assets if they allowed withdrawals.
  • The returns of CPIM’s structured credit hedge funds have not been as bad as its $900m London-listed vehicle, Caliber Global, which it agreed in June to wind up within a year because of heavy losses on US subprime mortgages. (geez I wonder why? Could it be they are valuing stuff on their books per computer models instead of what they really could get if they had to sell on an open market? It appears so since they don't want to sell anything right now, and instead lock investors inside the fund - so why do we report their performance anymore and tout it as 'not as bad' when it's illusionary)
  • CPIM’s $673m Structured Credit Fund 1000 dropped 8.7 per cent in August to leave it down 22.8 per cent for the year. (wow, I wonder what it REALLY is if they had to actually sell their 'stuff' in a liquid market)
  • Investors have agreed to block withdrawals until next September, unless CPIM agrees to them, and even then a 10 per cent fee would be levied. CPIM has agreed to cut its management fee from 2 per cent to 1.5 per cent for a year. (wow, so if I want my money out even NEXT SEPTEMBER, I have to pay 10%! And in return for your horrid performance you are dropping your management fee a whopping 0.5%. Seriously why am I bothering with being a future mutual fund manager - this hedge fund business takes the cake)
On another note, August saw massive outflows of foreign money; if you are a RealMoney subscriber click on this story - very interesting. It is a lagging indicator, AND August was a month of turmoil but let's see if this is an anomaly or the beginning of a trend. With the dollar weakening by the year, most foreign investors in US equities are seeing gains wiped out by currency issues, even worst for bond holders. Japan has wanted out for years, and China for the first time sold more than they bought; 2 countries, Norway and Ireland sold all their holdings period. This is something very interersting to watch from an economic point of view - if countries begin refusing to buy our debt (Treasuries) how will continue to spend over our heads as a country? Is the USA now going to be considered 'subprime'? Sad.
  • In a figure that is likely to be oft-cited and to impact markets until it reverses, net foreign purchases of U.S. securities were a record -$69.3 billion in August, meaning that foreign investors were net sellers of $69.3 billion of U.S. securities during the month. The outflow exceeded the previous record, set in March 1990, by $48.1 billion.
  • The consensus forecast was for an inflow of $60 billion, a level roughly equal to the monthly average for the past five years.
  • Japan's $24.8 billion sale of U.S. Treasuries stands out. Japan has been a net seller of Treasuries for three years, shaving its holdings to $585.6 billion from a peak of $699.4 billion in August 2004.

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