HEDGE FUND NEWS
@ Fri 13 July 2007 : GMT

FINTAG COMMENT

Friday 13th.

The Dow sets a new high, markets surge around the world, oil predicted to hit USD80, inflation and interest rates creep up, savings ratios turn negative, media obsessed with irrelevant subprime, we are all doing fine and the bears can all go to hell. As with any good party, you keep on drinking until you can do so no more.

Finbar joins the CEO club of split personalities.

Samsung takeover rumours.

MAN group's Assets Under Management USD76bn.

Japan keeps rates on hold.

Investors are bored of hedge funds.

Ex trader sues Amaranth.

Refco advisers get sued.

SEC is still fast asleep over BSAM.

Meet Me
I will be having brunch at Caffe In, Mayfair, today. Having only a handful of friends on Facebook, I need to get out more; be a man of the people and frequent establishments of the commoner. And if you do have a facebook account, please poke me because I am really quite a nice person with too much money and time on my hands (even more when I have to close my global macro funds for inadequate performance).

The 4 - 1 = 4 Lesson
If I buy a 24 carat gold ring, I expect it to be pure 100% gold. If I buy into a triple A rated bond, I expect the underlying to be triple A too.

So why are the rules different for Asset Back Securities?

The JP Morgan Chase Commercial Mortgage Securities Trust, 2007-LDP11 is made up of commercial property underlying assets based in New York, Florida and California. It consists of 25 tranches of differing quality, yields and risk. The trust has a notional amount of over USD5 bn and 9 of the tranches, which can be bought as separate notes, have been desginated by Moody's and S&P the top grading of Aaa and AAA respectively. This accounts for 86% of the portfolio. The other 15 tranches are less than triple A and mostly of junk status.

The total portfolio has been designated triple A status.

This is the equivalent of my gold ring containing 14% tin, but still being sold as 24 carat.

I don't get it?

PARTY NEWS

Distressed debt fundraising hits record (financialnews-us)

Hedge funds get House warning (baltimoresun)

Samsung Q2 profit falls on chip price tumble (wistv)

Pomeroy, Flagg Street reach deal on directors (cincinnati)

Oil hits 11-month high amid flow of fund cash (gulfdailynews)

Bank of Japan keeps key interest rate on hold at 0.5% (finfacts)



Activist Fund Keeps Pressure on Brink's to Sell (dealbook)

I NEED HELP

John Mackey, Patrick Byrne, and a Snoozing SEC (garyweiss)
Today the news wires are buzzing about an amazing tale: the CEO of a public company, John P. Mackey of Whole Foods, systematically posted messages under a pseudonym on Yahoo message boards. The media is astonished: "How Whole Foods C.E.O. Led 2 Lives," gasped the New York Times Dealbook. I guess you can call Mackey the Lon Chaney of Corporate America.

Mackey, it seems, posted anonymously on message boards to bash a competitor and boost the company's share price -- amazing behavior that came to light not because of an SEC enforcement action, on any number of possible grounds ranging from securities fraud to Regulation FD, but in a lawsuit by the Federal Trade Commission. Seems that in those anonymous posts, Mackey bashed a competitor, Wild Oats, which he was going to acquire.

Two things are noteworthy about this:

1. The SEC's inaction.

and

2. The fact that no federal agency, including and most notably the SEC, has taken action against (speaking of horror shows) a far worse Internet-addicted CEO, Patrick Byrne of Overstock.com, whose prolific message board posts, in my view, are far worse than anything Mackey did.

Like Mackey, Byrne posts under a pseudonym -- "Hannibal" -- on stock message boards. As a rule, Byrne does not give his full name, or identify himself as chief executive of Overstock.com, chairman of its board of directors, and, just as importantly, as the single largest holder of Overstock shares.

Yet, as I have documented time and again in this blog, has repeatedly used Internet message boards to smear his critics -- spreading lies about people in the media (myself included) and making nutty accusations such as that the Motley Fool website and some of its analysts are "bent" and corrupted.

He has done so not as some anonymous "basher" but as a message board Big Kahuna -- if, that is, you are among the select few who are aware of the fact that the nutty-sounding, paranoid crackpot posting on various message boards is actually the nutty-sounding paranoid crackpot who runs Overstock.com.

The media, perhaps inured to Byrne's chronic wackiness, has missed this significant point. Andrew Leonard in Salon, in a column entitled "Whole Foods CEO John Mackey's wacky Web rants," said as follows:

One assumes that the CEO of a publicly traded company would not be dumb enough to leak insider information on a stock discussion board, or make unmerited forward-looking statements in an effort to pump up Whole Foods stock. But who knows? It's sure hard to imagine any Whole Foods corporate public relations person being anything but horrified at the news that the CEO is bashing competitors and predicting stock prices under a pseudonym out in the wild Internet.

Guess again, Andrew. Here's one example of Byrne's naked, manipulative efforts to hype Overstock shares -- and the value of his holdings -- on Internet message boards. I've written about this before, but I think a re-run is in order.

On March 12, 2006, Byrne put a tantalizing little kicker at the bottom of a post on the limited-readership, subscription only Motley Fool message board:

click for image

PPS Big story breaking next 24 hours. Stay tuned.

I repeat, this is a limited-readership, subscription-only message board, concerning a stock with a wafer-thin float.

It also needs to be taken into consideration that this was done by a CEO who takes message boards very seriously, and who has contended that "paid bashers" are involved in the famous Sith Lord conspiracy.

He really did this. No foolin'.

Here's a screen shot of the relevant portion of the post:

click for image

Here's a link to this historic post, which you can access if you are a paid member of the Motley Fool website.

I repeat: you can access this only if you are a paid member of the Motley Fool website. (I'm repeating myself, and putting the relevant passages in boldface, because I sometimes think that the SEC has either eyesight or reading comprehension problems.)

Note that this CEO and largest shareholder of a public company is not identifying himself as CEO and largest shareholder of a public company. I repeat..... OK, I made my point.

It so happens there was some activity within the "next 24 hours" -- an idiotically bullish article by investor Arnie Alsin.

The Alsin article caused the stock to explode. The shares, which traded at 22.85 on March 10, climbed 12% to 25.55 on March 13, and another 25% to 28.50 on March 14l, on massive (for Overstock) volume of more than 2 million shares each day. Nice! Until you consider that Alsin was dead wrong. The shares have since skittered down to 19 and have traded at a lot lower than that. Note the link in the comment to this article by the proprietor of the O-Smear blog.

Confronted with this blast from the past in April on the Investor Village Overstock message board, (perhaps inspired by this Motley Fool article by Seth Jayson) Byrne tap danced and pirouetted -- and came forth with the following cock-and-bull story:

"Odd that you don't quote from that one"? You might find it even odder that Byrne did not "quote from that one."

Or at least it would be odd -- if that post actually exists. As best as I can tell, it does not. In the three months since I originally posted on this subject, it hasn't emerged. No loyal member of the Byrne Fan Club has brought it to my attention.

So I think it is fair to assume that Byrne was lying in a public forum. Say, doesn't the SEC have a word for that?

Seth Jayson of the Motley Fool (Byrne's bloviation venue in the Spring of 2006, until critics there bruised his fragile ego and he sulked away), observed as follows:

Where, I wonder, is this face- (or neck-) saving "disclosure," as to what Patrick was talking about. I haven't seen a single clarification from Hannibal100 in any of the posts made under that user name on this board subsequent to the original "big news" post -- and I just read every single one of them

Further proof that the "clarification post" dwells only in Byrne's vivid imagination can be found in a June 2006 post on another Motley Fool board from a Byrne supporter. One user had pointed to the "big news" comment, and the Byrne defender responded, "Nonsense. I forwarded your post to Dr. Byrne. He replied that the big news he was referring had not happened yet. "

I've reprinted the past few paragraphs from my April 23 blog post on Byrne's deceptive conduct. What's even more amazing is that the SEC is aware of this, and is of course aware of similar if less troublesome sliminess by John Mackey, and does nothing.

The famously passive board of directors of Overstock.com has also been made aware, including its "independent" board members, who now included a noted class action lawyer, Joseph Tabacco.

I wonder about Mr. Tabacco. Is he in the chicken coop to guard the birds, or to leave the door open for the fox?

BOY TO MAN

Man Group assets rise to $67 billion (reuters)
Man Group, the world's largest listed hedge fund firm, said on Thursday that its assets under management rose to $67 billion (33 billion pounds) at end-June, up from $61.7 billion at end-March, and that it was upbeat on prospects.

The firm (EMG.L: Quote, Profile , Research) said it logged sales of $3.8 billion over the three months, while redemptions totalled $2.3 billion.

"The board remains very confident of the group's prospects for the year," Chairman Harvey McGrath said in a statement ahead of the firm's annual meeting.

Over the three months, Man's closely watched AHL futures strategy, which lost around $500 million in value in the three months to March, was up 15 percent, while Man Global Strategies rose 8 percent.

Investors have continued to pour money into the $2 trillion hedge fund industry, despite sub-market returns this year.

In May Man Group reported that full-year profits rose 13 percent, despite a drop in performance fee income, and said it expected strong asset growth to continue.

In March it unveiled plans to spin off its U.S. brokerage arm, MF Global, in an offering that could raise around $3.8 billion and in what is likely to be the second-largest initial public offering on a U.S. exchange so far this year.

BASHER

Angling Today (allaboutalpha)
We're taking another mental health day today. But we've just re-loaded the “alpha ticker” as we do every few days. So may suggest a helping of alpha-centric news with your Friday afternoon chilled beverage? Ticker parameters: it has to be alpha-centric, and it has to be free.

Just click one of the dozen or so stories currently running above. (A news archive page is in the works that will amount to a virtual “Google News” search of alpha-centric news links - but one created by humans instead of a 500 googlebyte server farm buried in the side of a mountain somewhere.)

Until next week, happy fishing.

ITS A SHOWER

Natural gas trader sues hedge fund Amaranth (reuters)
A trader sued Amaranth Advisors LLC on Thursday, alleging he lost money because the hedge fund that collapsed last year after $6 billion in losses manipulated natural gas prices.

Roberto Gracey, who traded natural gas futures contracts, alleged that Amaranth amassed large positions, causing the price of natural gas futures contracts on the New York Mercantile Exchange and InterContinental Exchange to be artificial, according to the complaint in the U.S. District Court in Manhattan.

"When defendants' unlawful scheme of highly leveraged trading collapsed in September 2006, the price of natural gas and natural gas futures contracts traded on NYMEX experienced an almost unprecedented drop," the complaint alleged.

"Defendants' manipulative trading caused traders of natural gas futures contracts, including plaintiff, to suffer substantial losses," it said.

The lawsuit, which also names Amaranth's principal Nicholas Maounis and JPMorgan Chase & Co. (JPM.N: Quote, Profile, Research), one of the fund's prime brokers, is seeking class action status. It seeks to represent people who bought or held NYMEX natural gas futures contracts between February 23, 2006, and September 20, 2006.

A JPMorgan representative declined to comment. Lawyers representing Amaranth and Maounis in another case were not immediately available for comment.

Gracey's lawyer was not immediately available for comment.

Amaranth, a hedge fund manager with about $9.3 billion in assets last year, imploded last September after billions of dollars in bets in the natural gas market went sour.

ANOTHER FRIDGE OF BEER FOUND

Dow Closes at Record High on Retail Data (foxnews)
Wall Street soared Thursday, propelling the Standard & Poor's 500 index and Dow Jones industrials to record highs as bright spots among generally sluggish retail sales allowed investors to toss aside concerns about the health of the economy.

The rally, which included the Dow's biggest one-day gain since March 2003, was perhaps surprising given the fact that there was no extraordinary announcent or other catalyst usually seen with such a huge gain, and that it came before most companies have announced their second-quarter earnings. The rise also marked a sharp contrast to the start of the week, when stocks fell sharply amid concerns that some hedge funds could buckle under ill-placed bets on the housing sector.

But investors, heartened by signs of a happy and spending consumer, clearly decided to put some bets on the table. Though retail sales generally appeared to be crimped last month by higher gasoline prices and a tepid housing market, and the outlook for the coming months was difficult to ascertain, the overall reading wasn't as dour as some investors expected.

Several reports beat Street expectations -- notably that of Wal-Mart Stores Inc. (WMT), the world's largest retailer, which posted a better-than-expected 2.4 percent jump in sales at stores open at least a year.

"It's relief that things weren't as bad as people expected," said Bill Schultz, chief investment officer at McQueen, Ball & Associates, referring to the retailers' reports and the economy at large. "We're maybe getting slower growth but not the fall-of-the-cliff economic scenarios," he said of investors' reading of the economy.

But, Schultz said, "I think it is, over the near-term, a little bit over done, certainly on a two-day basis," he added, referring to the rally.

According to preliminary calculations, the S&P 500 rose 28.94, or 1.91 percent, to 1,547.70, above its record close of 1,539.18, set June 4.

The Dow shot up 283.86, or 2.09 percent, to 13,861.73; its previous record close is 13,676.32, also set June 4.

The Nasdaq composite index rose 49.94, or 1.88 percent, to 2,701.73. The index, bloated by the late 1990s tech boom, is nowhere near its closing record of 5,048.62, set in March 2000.

PLUSFUNDS

Lawyers and accountants face Refco negligence claims (times)
Two international law and accountancy firms have been named as potential targets for litigation over their roles in the 2005 collapse of futures broker Refco.

Lawyers Mayer, Brown, Rowe & Maw and Weil, Gotshal & Manges, were identified alongside accountants Ernst & Young and Grant Thornton in an independent report into Refco's bankruptcy published last night.

The report said Mayer, Brown and the two accountants could possibly be sued for professional negligence while Weil, Gotshal & Manges could be sued for failing to use appropriate care while acting for Refco.

Grant Thornton was Refco's auditor and Ernst & Young tax adviser.

Refco filed for bankruptcy in October 2005, a week after it emerged that Philip Bennett, its former chief executive had hidden hundreds of millions of dollars in debt.

According to US press reports, Mayer, Brown advised Refco on a series of counterfeit loans designed to hide its debt. The report said there was significant evidence that the law firm, based in Chicago with large offices in New York and London, “knew or should have known” that the transactions were fraudulent.

Mayer, Brown rejected the report and said it would show it had “acted properly and adhered to the highest ethical standards.”

Weil, Gotshal said its work was carried out “thoroughly, professionally and conscientiously”.

Ernst & Young and Grant Thornton also issued statements defending the work they did for Refco.

HOME FROM HOME

New LSE market launch will target hedge funds (telegraph)
The London Stock Exchange is to launch a new market with lighter regulation in a bid to attract hedge funds and private equity funds from rival bourses such as NYSE Euronext.

The LSE will open the new Specialist Fund Market for business from November.

The SFM will be aimed at the institutional investors, filling the gap between the main market and the lightly regulated Alternative Investment Market.


It is hoped the new market will be as successful as NYSE Euronext has been at attracting large hedge funds to list entities in Amsterdam.

London-based hedge funds Marshall Wace and Boussard & Gavaudan have both chosen Amsterdam over London to list funds.

One of the key drivers behind setting up the new market was the decision by the Financial Services Authority to drop a previously proposed two-tier listing regime for investment firms.

Following industry consultation, the FSA dropped its two-tier plan after criticism that its investors might not be as well protected, with the regulator instead opting for a single listing regime.

The admission process to the SFM will be different from applying to join the main market, although the FSA will still monitor conformity to rules and regulations.

Entities and funds quoted on the SFM will not be "listed" in the strictest sense of the word, however, and so that will prevent certain institutions from investing in them.

The new market will also make it slightly easier for funds to operate, as they will not have to disclose assets over 10pc, and there will be no requirement for a sponsor.

In addition, funds that trade on the SFM will not be eligible for inclusion in index tracker funds, as the FTSE indices are limited to primary listed securities.

Martin Graham, the LSE's director of markets, said: "Hedge funds and private equity are an increasingly important asset class that pension funds and other institutional investors want access to in order to diversify their overall portfolios and improve their returns."

Although the LSE has been successful in attracting a few such funds - such as Brevan Howard's BH Macro fund - in reality the number so far has been limited, and Mr Graham hopes the new market will make it easier for the LSE to compete with its rivals.

Meanwhile, the LSE yesterday insisted it is on track to complete its proposed £1.1bn takeover of Borsa Italiana, in spite of early opposition from Nasdaq at the British bourse's annual general meeting on Wednesday.

TIME TO GO HOME

Bored with hedge funds? More investors turning to 'exotic assets' (iht)
Zelda Cheatle, a London photography gallery owner, is close to sealing one of her biggest and most peculiar deals. In late August, she expects to sell about 4,000 photographs in a single transaction, but the buyers will not be allowed to keep the works.

Cheatle manages a photography investment fund, set up by the hedge fund WMG in London, which had raised the money to buy the photographs, including Brassai's of Pablo Picasso in his studio and Eve Arnold's Malcolm X, from a handful of investors.

WMG hopes the fund will make returns of as much as 50 percent over three years by buying and selling the art.

"With the right expertise and attitude, collecting photography is a good investment," Cheatle, who spends all her time managing the fund, said while sifting through a stack of 1930s prints from Paris at WMG's office in London.

As investors range far afield in search of places to put their money, hedge funds have expanded investments beyond stocks and bonds into art, wine, rare stamps and even soccer players. Money managers have begun to look at these so-called exotic assets as way to diversify risk while searching for assets that may provide a cushion if the five-year market boom comes to an end. Critics, however, call them too risky and opaque.

The funds have begun to rely on the record year-end bonuses found on Wall Street and the inflow of new wealth from developing countries like China and Russia to drive up demand and the prices of luxury items like wine, watches and violins. The expectation is that demand would continue even if the economy moves into a recession.

"There's a new wealth that will not go away and that means for luxury cars, watches and wine, there will always be demand," said Stephen Decani, a partner at Arch Financial Products, a firm in London that runs a fund investing in Bordeaux wines, which are among the most expensive and exclusive.

Michael Hall, the chief executive of the Stanley Gibbons Group, a coin, stamp and autograph collecting company that offers investment funds, considers his funds "a safe haven for cash."

"The stamp market didn't budge a bit from Sept. 11," Hall said. Areas like wine and art investing, previously reserved for the rich, are becoming more mainstream as pension funds and institutional investors look for ways to spread risk. Booming stock and credit markets have left asset managers and private equity firms flush with cash and hungry for new opportunities.

Yet, many large institutional investors balk at the risk, saying such investments are difficult to price and difficult to monitor. Stock or bond investors can track the value and the performance of their portfolios minute by minute while those buying into fine wines or soccer players have less visibility.

There are indexes tracking the price of wine, called Liv-ex, and one for art, Art Market Research, but they offer limited insight into how the markets move, tracking certain wines or artworks sold at certain auctions.

One problem for investors, Hall said, is that they are largely at the mercy of the specialized fund managers.

"Would the average investor know that autographs by Robert de Niro are worth more than Tom Cruise's because they are rarer? Probably not," he said.

The need of special knowledge raises the barrier of entry, keeping the size of the market small. For Jan Vilhelmsen, a partner at Absolute Return Partners in London, some level of transparency is a must.

"We stop when we can't get a good sense of how you price an asset," he said.

Transparency may improve with time because it allows for a historic price and performance track record, but some managers, like Philip Hoffman, who runs the Fine Art Fund in London, disagree. At least art will never be as transparent as stocks, he said, because "every painting is different" and making high returns requires knowledge and market expertise.

Returns for investments in wine and art, the most established exotic investment types, have been strong. Prices for the 4,000 most popular artists, like Andy Warhol and Picasso, as tracked by Art Market Research increased 20 percent last year from a record in 2005 and gained 75 percent since 1988.

The Liv-ex 100 index of investment-grade wines, which is more than 90 percent weighted toward Bordeaux, rose 49 percent in 2006 after rising 18 percent the year before. A case of Château Latour brought £5,290, or $10,700, at a Sotheby's fine-wine auction in London in January, 5 percent more than at a similar auction in September.

"Demand from Asia, Korea, China and Japan, where wine is perceived as a status symbol, just like a Rolls-Royce or a Louis Vuitton bag, increased dramatically," said Peter Lunzer, director of the Wine Investment Fund, a £10 million fund based in London. About half of that amount comes from private investors, and his five-year funds all have a plan to double their investments.

Yet, even if returns are bigger than those of stock funds, some analysts said they may be harder to realize because exotic markets remain small and less liquid.

"The liquidity is difficult and means you may not be able to realize returns when you have to sell," said Frances Hudson, global thematic strategist at Standard Life Investments in Edinburgh. "The illiquid nature of the investments can be problematic for some investors."

But investors may overlook that shortfall in exchange for some fun and a lively dinner party conversation. Hoffman in June invited investors in one of his art funds to Geneva to admire and discuss some Picasso and Ed Ruscha paintings over lunch. Arch Financial Products organized wine-tasting trips, and investors in WMG's photography fund would get the first right to buy any prints in the fund.

"It's really as much a lifestyle thing as an investment," Decani said.

NICE

Bear Stearns hedge fund cuts debt in half (iht)
Bear Stearns said that one of the firm's two hedge funds that flirted with collapse last month has since cut its debt in half to $600 million after finding buyers for more assets.

The High-Grade Structured Credit Strategies Enhanced Leverage Fund owed creditors $1.2 billion as of June 26, Bear Stearns said then. The New York-based company, the fifth-largest U.S. securities firm, disclosed the new debt figure in a regulatory filing Tuesday.

Bear Stearns was forced to provide $1.6 billion in emergency financing to one of the two funds after its asset-management division made wrong-way bets on securities tied to subprime mortgage bonds. The firm declined to bail out lenders to the so-called enhanced fund, which borrowed more money against its investors' capital to take bigger risks.

Concern that the hedge fund rescue and collateral damage would hurt earnings made June the worst month for Bear Stearns shares since February. The stock fell 4.1 percent Tuesday, bringing its decline for the year to 13 percent, after Standard & Poor's said it may downgrade $12 billion of subprime mortgage debt, threatening to sap demand for new bonds.

The enhanced fund continues to work with creditors to "facilitate an orderly deleveraging," Bear Stearns said in Tuesday's filing.