Hedge Fund Gains Don’t Prevent Redemptions

Hedge funds continued to lose money in the first quarter of 2009 despite improved performance. Investors remain skeptical about a portion of the financial  industry facing widespread consolidation and structural change.

Investors withdrew some $104 billion, or 7.4% of industry assets, for the three months ending March 31.

The total redemption figure fell from $152 billion in the last quarter of 2008, but contributed to a record withdrawal from funds of hedge funds in the first quarter of 2009 – $85 billion, compared with $50 billion in the fourth quarter of 2008, said Chicago-based HFR.

Meanwhile, performance rose, with HFR’s composite index posting a gain of 0.53%. Funds of funds recorded a gain of 0.47%, said HFR.

The slight gains after last year’s record losses aren’t enough to keep investors interested and most are waiting for the industry to stabilize before going back in, experts said.

“Investor risk aversion remains at elevated historical levels as industry consolidation continued through quarter-end,” HFR President Kenneth J. Heinz.

Turmoil in the industry over the last year, which saw numerous funds taken out, is continuing, with investors demanding better financial terms and governance, and large-asset managers making a play for smaller funds.

Last week, asset manager BlackRock Inc, which has some $1 trillion under management, agreed to buy hedge fund manager R3 Capital Management LLC, which runs $1.5 billion in credit strategies.

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Hedge Fund Lists

Here is a link to a partial list of hedge funds in New York City. It is always hard to find legitimate lists:

List of Hedge Funds in New York (NYC)

Fairfield Greenwich Group Sued by Mass. Regulator

Massachusetts regulators have sued the Fairfield Greenwich Group, one of the earliest and largest of these so-called feeder fund managers, for fraud, saying it had repeatedly misled investors about how diligently it checked out Mr. Madoff’s operations over the years.

“Fairfield’s complete disregard of its fiduciary duties to its investors and its flagrant and recurring misrepresentations to its investors rises to the level of fraud,” said lawyers for William Galvin secretary of state for Massachusetts and its top securities regulator, in an administrative complaint filed Wednesday.

More Hedge Funds in New York?

There are close to 1000 hedge funds in New York alone, including many boutique hedge funds in New York. Dozens of new hedge funds have opened in New York this year, even while many times more have shut down. It remains to be seen if the industry is on its way to recovery.

Goldman Hedge Fund Managers Quit

Mark Carhart and Raymond Iwanowski, co-heads of Goldman Sachs Group Inc.’s quantitative-investment group and Global Alpha hedge fund, quit the firm.

Mark Carhart was previously the Managing Director, Co-Head of Quantitative Strategies, Investment Management Division for Goldman Sachs.

In 2005, the secretive Goldman hedge fund returned more than 50%

Greenlight Capital

David Einhorn generated gains of almost 5% during the first quarter, recovering from a difficult year in 2008, according to the investment results of Greenlight Capital Re, a reinsurer that invests its premiums with the hedge fund manager. Einhorn runs hedge fund firm Greenlight Capital and is also chairman of Greenlight Capital which reinsures a variety of property and casualty risks.

Many reinsurers are stuffing premiums into bonds and other fixed-income securities, Greenlight Capital reinvests almost all its premiums with Einhorn, who specializes in long/short equity trading.

Greenlight Capital Re reported investment losses of almost 18% in 2008, partly because Einhorn’s strategy was disrupted by a temporary ban on shorting, or betting against more than 800 financial-services stocks.

Greenlight Capital Re said it generated investment returns of 5.5% in March, after fees and expenses. That left the reinsurer’s portfolio up 4.5% in the first quarter. The Standard & Poor’s 500 Index lost 12% in the first quarter.

Greenlight Capital Re’s investment returns so far this year have been better than the 2.5% gain forecast by UBS insurance analyst Brian Meredith.

“The latest monthly returns also show much lower volatility compared to prior year,” Meredith added in a note to investors on Thursday.

Still, Meredith said that Greenlight Capital Re shares probably won’t trade at much of a premium to book value, given the reinsurer’s “heavy dependence” on investment returns, which makes earnings “very volatile.”

Och-Ziff Fund up for the Quarter (Q1 2009)

The Och-Ziff Master Fund Ltd. gained 0.9% in March after fees and expenses. That hedge fund’s largest fund returned 4.38% during the first quarter of 2009. In contrast, the Standard & Poor’s 500 index lost 12% in the first three months of 2009. This left Och-Ziff with more than 15% outperformance of the S&P 500 during this time.

Och-Ziff’s European, Asian and Global Special Investments funds also generated gains in March and during the first quarter.

Och-Ziff  Capital Management also said that assets under management stood at $20.3 billion on April 1. That’s down roughly $2 billion from the beginning of March.

G-20 Agrees to Reform Hedge Fund Industry

A trade group for the global hedge fund industry,The Alternative Investment Management Association,  today offered support for the Group of 20′s efforts to stabilize the international financial system.

The G20 countries on Thursday agreed to reform the organization of the international financial system in depth, by regulating hedge funds and registering credit agencies, overhauling accounting rules and setting guidelines to cap bankers’ pay.

AIMA Chief Executive Andrew Baker said in a statement: “We are very glad that the G20 has made such a significant commitment to financial stability. Last year was the worst year on record for the world’s hedge fund industry and of course our members want stability returned to the global economy as much as everyone else.”

Baker added, “Of course it is right that systemically significant institutions should be subject to oversight.” But he added that hedge fund leverage is generally far smaller than banks’, and suggested hedge funds shouldn’t be regulated in the same way as banks.

While hedge funds haven’t been at the center of the global financial crisis, some policymakers fear the collapse of a large fund could harm its trading partners, potentially doing damage to the wider economy.

It is yet unclear how much systemic risk is posed by unregulated hedge funds.

New Hedge Fund Rules Discussed at G-20

The Group of 20 leaders ay agree on new rules to rein in hedge funds. Additionally, the G-20may more than double the resources of the International Monetary Fund.

This comes according to U.K. Chancellor of the Exchequer Alistair Darling  who said,  “There is a recognition that some hedge funds are systemically important and there will be an agreement there. Where you’ve got something that’s systemically important like a hedge fund, you need to know what’s going on there.” “You’ll see a substantive and ambitious outcome,” U.K. Business Secretary Peter Mandelson told Bloomberg Television in an interview. “I don’t think President Sarkozy will be disappointed. There’s now a very strong consensus” and a commitment to making changes, he said.

Darling’s comments suggestthat  consensus may now emerge with G-20 leaders in the London talks on a number of methods of dealing with the financial crisrs. “We’re going to take action to shorten what would otherwise be a long and painful downturn,” Darling said. “I’m very confident that we will significantly increase IMF funding. We talked about doubling it, perhaps we can go further.” Sarkozy said yesterday a draft agreement from the summit didn’t do enough to crack down on tax cheats.Darling and Mandelson both said that the G-20 won’t require nations to rewrite their budgets. “Every country at the end of the day has to live within its means,” Darling said, adding that public finances have to be sustainable. “What investors and the people of the world want to see is that there is a commitment that countries will do whatever is necessary,” Darling said. Today’s summit will “inject a real shot in the arm for confidence,” Mandelson said. “There has to be a strong commitment to build on what we’ve already started to do.”

Hedge Funds Say Regulations are Coming

Hedge Funds Can’t Stop Regulation -

Many hedge funds and private equity firms seem resigned to the fact that greater hedge fund regulation is coming.

According to David Rubenstien of the multi-billion dollar hedge fund, the Carlyle Group, “We’re not going to be able to stand in the way of that speeding train.”

Yesterday, Treasury Secretary Tim Geithner discussed the need for increased hedge fund regulation including the ability of regulatory bodies to take over hedge funds that pose systemic risk, much like they have the right to do with banks.

According to Geithner, “In the future, if some of them individually reach the size where they may be systemic, then at that point we believe they should be brought within a regulatory framework that’s similar to that which exists for banks.”

There are still a lot of details that need to be filled in and it remains to be seen whether hedge funds will face similar scrutiny to mutual funds.