HEDGE FUND NEWS
@ Mon 22 October 2007 : GMT

Hedge Funds Review's awards are the most sought after accolades in the industry. The hedge fund investment process relies on more than just numbers and our judging process recognises this. The European Fund of Hedge Fund Awards remain the only signature event held exclusively for the European fund of hedge fund sector and as such continue to attract the top names from the industry.
Chaired by the Editor and Alternatives Journalist of the Year 2007, David Walker, the judging panel is impartial and unbiased and seek to reward genuine performance and success. Previous recipients of these awards have seen as much as a 10 fold increase in their AUM in the 12 months after winning - making the shortlist alone guarantees managers increased awareness in the investor community and an enhanced reputation.
Details of the categories for nomination and the judging process are below.

THE SHORTLIST

The shortlist for the European Fund of Hedge Funds Awards has been announced.

Best long term achievement in diversified fund of hedge funds (over 10 years)
Aurum Investor Fund - USD
GAM Diversity USD
GEMS Low Volatility Portfolio - Regular USD Shares
Momentum AllWeather Fund
Olympia Star I (USD) Class
Stenham Universal Portfolio
Xiphias Investissement

Best performing diversified fund of hedge funds over 3 years on a risk/return basis
CMA Multi-Hedge Class A Arbitrage
Liongate Multi-Strategy Fund
Mellon Sanctuary Fund II - US$ Share Class
Momentum AllWeather Fund
Solar A Global Strategy

Best performing diversified fund of hedge funds over 1 year on a risk/return basis
CPO II
Culross Global H Fund
GEMS Multi Strategy SP1
Mellon Sanctuary Fund II - US$ Share Class

Best long-term achievement in specialist fund of hedge funds (over 10 years)
First European Growth USD Class
GAM Trading USD Open
HDF Global Opportunities
Stenham Trading Portfolio

Best performing specialist fund of hedge funds over 3 years on a risk/return basis
GEMS Recovery
io Defensive Equity Fund USD I
Key Recovery
Stenham Growth Portfolio
The Discovery Fund

Best performing specialist fund of hedge funds over 1 year on a risk/return basis
Aurum Eagle Fund
Eden Rock Structured Finance Fund
io Defensive Equity Fund USD I
Mont Blanc Select USD
The Discovery Fund

Best performing fund of energy/commodity funds
Fitzwilliam Commodity Plus
GAM Multi-Commodities
Opus Commodities Fund (Class A)

Best European HNW/Retail fund of hedge funds product provider
Aurum Funds Ltd
CrossBorder Capital
Nedgroup

Best European Institutional hedge funds of funds product provider
GAM
Gottex Fund Management
HSBC Alternative Investments
IAM
Key Asset Management
New Finance Capital LLP
UBP

Best newcomer fund of hedge funds (fund inception July 2 2006 or later)
47 Degrees North New Generation 1848 Fund LP
Gottex ABI Fund (USD)
Liongate Select Fund
Mont Blanc Select

Best performing leverage product on a risk/return basis
Albemarle Geared Fund S Share Class
CMA Multi-Hedge Class E Leveraged Fund
GEMS Multi Strategy x2
HSBC Leveraged GH Fund
Key Europe Triple

Best performing fund of emerging manager funds
Barracuda BlueSpring Fund (CHF)
Select Opportunities Fund

Best performing in-house fund of funds
Gartmore AlphaGen Perseus Class A USD
Old Mutual Spectrum Fund
RAB Multi-Strategy

Most innovative fund of funds product
47 Degrees North New Generation 1848 Fund LP
CMA Global Hedge PCC Ltd
Comas Global Alternatives Fund
Gottex ABI Fund (USD)
Principal Absolute Alpha Portfolio IC

Best group
GAM
Gottex Fund Management
HDF Finance
HSBC Alternative Investments
IAM
Liongate Capital

Best structured product house
Commerzbank
Credit Suisse
Gottex Fund Management
Man Investments
Matrix Group
Societe Generale

Best seeding platform
Arundel Iveagh
Fortune Asset Management
Ivy Asset Management
Man Group
Weston Atlas Partners Fund

Best managed account platform
To be announced on the night

Best overall investment platform
HFR
Lyxor
X-markets hedge fund platform

Long-term achievement in fund of hedge funds
To be announced on the night

nvestors were this morning steeling themselves for major reversals on the London stock market amid heightened fears of a global economic slowdown.

Traders have endured a nervous weekend following the Dow Jones Index's 367-point fall on Friday afternoon, which came as US investors were panicked into dumping stock by warnings of an impending recession in the US.

The US stock market decline - the Dow Jones closed 2.6 per cent down on the day on Friday evening - was triggered by a warning from the industrial giant Caterpillar that many of its markets were already in "recession". Caterpillar, widely seen as a bellwether for global industry, said the US economy as a whole would also move into recession next year unless the Federal Reserve moved quickly to cut interest rates.

Two New York hedge funds have settled their lawsuit with engineering and construction concern Washington Group International over the Boise, Idaho-based company's proposed sale.

Purchase, N.Y.-based Schultze Asset Management and New York's Greenlight Capital had sued to stop the $2.6 billion takeover by URS Corp., alleging that Washington Group and its board of directors “breached their fiduciary duties because they failed to choose financial projections that fairly valued the company's worth to maximize shareholder value.”

Earlier this week, proxy advisor Institutional Shareholders Service advised owners of Washington Group stock to vote against the deal—which prices the company at $90 per share, while it was trading at more than $93 in midday trading today—while Washington Group continues to push for the deal.

Under the terms of the settlement, Washington Group has agreed to provide shareholder with supplemental disclosures.

Schultze holds a roughly 3% stake in Washington Group.

A new hedge fund run by former senior managers at Nomura and Cheyne Capital has raised $200m (£97m) to lend to companies struggling to raise cash from banks.

Synergy Global Capital, based in London, was set up this month by Stefano Ghersi, who sued Nomura for unfair dismissal after leaving his job as head of debt capital markets last year, and Syd Hanna, who ran Cheyne's listed hedge fund until last year.

Synergy joins a rush by hedge funds into asset-backed lending to small corporate borrowers increasingly ignored by global banks. In the US hedge funds and other asset-backed lenders are a major force, financing everything from banana imports to mergers and acquisitions - including the purchase of Manchester United Football Club by Malcolm Glazer, the Florida tycoon, two years ago.

Mr Ghersi, who settled out of court with Nomura and says he has good relations with the bank, said Synergy aimed to pick up customers who fell between specialists at the big banks.

"The high level of cross-border mergers that have created much larger financial institutions and reduced dramatically the local financial institutions has left a portion of the economy underserved and therefore has left an opening for funds to come in," Mr Ghersi said.

One of the most amusing aspects of the proposed Citi-bailout Super-SIV is the manner in which the get-the-regulators-out-of-the-markets gang have invented and embraced the initiative, apparently cooked up by Treasury under-secretary for domestic finance Robert Steel, to the accompaniment of a standing ovation from his once, at Goldman Sachs, and present boss, Treasury secretary Henry Paulson.

Even more amusing: how about flashing stilettos at the American Enterprise Institute, the lunatic-fringe-of-the-far-right “think”—in the loosest sense of the word—tank, chaired by Bruce Kovner? Last week, NakedShorts highlighted the at least ideologically consistent response of John Makin, a visiting scholar at the AEI and a principal at Kovner's Caxton Associates LLC, reported by The Wall Street Journal:

Treasury's involvement “stinks,” he says, in part because of Mr Paulson's close ties to Wall Street.

Then along comes Peter Wallison, a senior AEI fellow and general counsel of the US Treasury from 1981-85, on the soon to be even more fair and balanced editorial pages of The Wall Street Journal:

Enter the superconduit. With a substantial wad of cash, the contributing banks can help to discover the price at which trading will take place. It's not a mysterious process. The bidding starts low and there are no sellers (holders think the assets are worth more). The bid continues to rise until the supply of securities starts to flow. That's at least the beginning—a substantial number of holders think their mortgage or other asset-backed securities are worth at least that much.

After last Friday's meeting in Washington of the Group of Seven nations, U.S. Treasury Secretary Henry Paulson said that the market's "fundamentals are sound."

History suggests, however, that is one phrase you don't want to hear any politician, fund manager, or corporate leader say in response to a worrying situation. More often than not, the person uttering that particular cliché 1) doesn't have a clue about what is going on; or, 2) knows that the so-called "fundamentals" are bad, but figures that he (or she) might as well engage in some meaningless cheerleading because it makes for a great sound byte.

Still, it's probably not fair to single out Mr. Paulson, because a number of public officials have been uttering similar reassurances for many months now about the state of the U.S. economy. Despite clear signs that the fallout from the collapsing housing and credit bubbles is spreading by the day, and polls that indicate more and more Americans see a recession on the horizon, our leaders in Washington keep suggesting that "the fundamentals are sound."

An associate of Circle T Partners founder Seth Tobias, who was found dead in his pool last month, is making explosive new claims about the hedge fund manager's death.

William Ash, who says he worked for five years as a personal assistant to Tobias and his wife, told FINalternatives that Tobias' widow, Filomena, is responsible for his death. Ash also claims that Filomena confessed to murdering Tobias, her third husband, in a phone call the week of his death.

“A few days later, in a conversation, is when she just started talking about what happened on Sunday, going into Monday, and then how she eventually did it Monday night,” Ash said. He claims that Jupiter, Fla., police recorded “hundreds” of calls between himself and Filomena.

A spokesman for the Jupiter police did not return calls for comment.

Ash, who lives in San Diego, says that the phone call in which Filomena Tobias confessed to the alleged murder was not recorded. He says she never explicitly admitted killing her husband again.

“It's like a big jigsaw puzzle,” he says of their subsequent, recorded conversations, which began the Friday after Labor Day and continued through last Friday. “You have to put all the tapes together.”

Jupiter police are awaiting the results of toxicology tests on Tobias, though they have not said they suspect foul play. Ash says it was “not necessarily poisoning” that killed his employer.

“It definitely wasn't only that, if that was the case. There were a lot of other things that happened,” he alleges. “When she did her first thing...she had everything very thought out, and then he didn't die. Then she had to hurry up and think, 'I don't want him living anymore.' She had every opportunity, and every step of that night, over the course of all of those hours, at any given time she could have changed her mind and said, 'Am I losing my mind? Why am I doing this?' And she never did.”

Wachovia pledged to grow its leveraged finance, structured credit and commercial real estate securitization businesses despite an 80% plunge in profits from corporate and investment banking due to writedowns of $1.3bn (€909m).

Corporate and investment banking profits tumbled to $105m in the three months ended September 30, from $533m in the same period last year.

The plummet in profits was due to a charge of $1.3bn, which the bank said was the “effect of the market disruption, partially offset by improved principal investing results and strong advisory and underwriting fees.”

The bank took $488m in losses related to commercial mortgage structured products; $438m in collateralized debt obligations, collateralized loan obligations and other structured credit products and $272m in leveraged finance.

In addition to the losses in investment banking, Wachovia also took a $40m charge related to the purchase of certain asset-backed commercial paper investments from Evergreen money market funds, its asset management unit.

Ken Thompson, chairman and chief executive officer of Wachovia, said the disruption in fixed income was in areas where the bank has most developed in corporate and investment banking with leveraged finance and structured products making over $4bn in revenues in 2005 and 2006.

Thompson said that the units had operated within approved risk limits at all times although in the future the bank would increase the severity of its stress testing. He said: "We have always understood that losses could take place in market-related businesses and that we could lose one quarter's earnings which is what happened, but we will continue to grow these businesses going forward."

The chief executive said he was most disappointed by $300m in losses related to sub-prime mortgage securities held on the trading desks or in inventories. Thompson said: "We have had an institutional bias against sub-prime mortgages and avoided origination or securitization. We held triple-A paper and did not expect them to degenerate so far and so quickly."

Group net profit for the third quarter was $1.7bn, a tenth lower than the bank reported in the same quarter of last year. Profits rose at the general bank, which includes retail, small business and commercial customers.

It is understood Deloitte, the administrator of the so-called structured investment vehicle (SIV), which was owned by £12bn hedge fund Cheyne Capital, is in advanced talks with three banks - thought also to include RBS - about a life-saving deal.


Deloitte is expected to narrow these rescue talks down to a single bidder within days and sources close to the process said there was a good chance the Cheyne fund could survive intact and start trading again.

Until late last week a fire-sale of Cheyne's assets had looked likely but City bankers said last night that the fund's survival would bolster hopes that the London market is emerging from the credit crunch -crisis.

A source close to the process said: "If someone can take a longer-term view on this - and this is being considered - that opens up various options better than an asset sale."

One arrangement could see a bank refinance the Cheyne SIV, allowing it to continue trading for at least the next few years, giving it time to run off its assets. It is unclear whether the SIV's management would stay on under this scenario.

Deloitte partner Neville Kahn has been trying to arrange a bail-out since the beginning of September, but his hand was strengthened on Wednesday when a court ruled Cheyne could stop paying creditors of its so-called commercial paper because it had become insolvent. The ruling gave Kahn much more power to negotiate a deal acceptable to all the different levels of creditor because he no longer has to keep paying out to a single group.

Both retail banks and investment banks such as Goldman Sachs who have spare cash are moving to take advantage of the credit crunch either by buying up assets that are now undervalued or by lending money on much better terms than they could have demanded before the collapse of the debt markets.

Goldman has also seized the opportunity to ingratiate itself further with hedge funds, a key client base for investment banks, but one that was tainted by heavy losses at the start of the credit crunch.

For the first time in 15 years, I am seriously worried about the outlook for the British economy, the housing market and sterling. For almost the whole of the period since 1992, when British economic policy was liberated on Black Wednesday, I have been at the optimistic extreme of economic opinion in Britain. Today, however, I find myself at the opposite end. Most economists are predicting nothing worse than a modest slowdown for the British economy next year and are laughing off the IMF's suggestion that house prices here could fall more steeply than they have in America. But to me it appears that all the risks in the year ahead - to economic activity, employment, house prices and sterling - are now clearly on the downside. To explain why I have turned so bearish, let me borrow the technique of Donald Rumsfeld: I will start with the obvious risks, move on to the “known unknowns” and finally to the “unknown unknowns”.

Starting with the known problems, there are essentially three, corresponding with the three main driving forces of British economic growth in the past decade. These have been financial activity, public sector spending and housing. The first two forces clearly will be much weaker in the year ahead than they have been for most of the past decade. Public sector employment has already stopped growing and will be squeezed much more tightly in the next few years. Wholesale finance and business services, which are more important to Britain than to any other major economy, are bound to experience a serious setback after the recent credit crisis.

With public sector employment and financial incomes stagnating and the wholesale mortgage markets semi-paralysed, the property boom of the past two years must - surely - be over. The only question is whether the next phase of the housing cycle will be a long period of stable prices, which is what most British economists are still predicting, or whether the boom will be followed by a bust, like the one in America, as suggested in an IMF report published in Washington last week. The IMF report did not predict a crash in British housing, but merely pointed out a simple statistical fact often mentioned on this page: house prices in Britain, along with many other European countries, have risen much faster in the past decade than US house prices and the difference in house price inflation cannot be explained by relative movements in incomes, population or interest rates.

The fact that house prices in Britain and in several other European countries (see chart) have risen 40 per cent more than the IMF can explain on the basis of such fundamental factors does not mean that they are likely to fall by this amount. But the IMF figures do show that Britain (along with Ireland, Spain, France, Denmark and many other European countries) is potentially even more vulnerable than America to a property shakeout if the forces stimulating housing demand ever run out of steam. And that is what is happening now, as the simultaneous slowdown in financial and public sector employment combines with the sudden loss of liquidity in the mortgage markets and the vertiginous levels already reached by house prices and mortgage borrowing.

Until recently I would, nevertheless, have joined the moderate majority of commentators in suggesting that the British housing market could enjoy a relatively soft landing, because of the strong underlying demand for housing, especially in London. That demand was, in turn, due mainly to London's position as the world's financial capital. In the past few months, however, this calculation has abruptly changed and this is where we come to Rumsfeld's “known unknowns”.

Nobody knows how much the process of global financial liberalisation will suffer as a result of the summer credit crunch, but there is certain to be less growth in wholesale financial services than there was in the past two years. It is even harder to say whether the mismanagement of the Northern Rock crisis will damage London's standing relative to other financial centres, but it is not going to help. Most unpredictable of all is the impact of Gordon Brown's unexpected tax changes on London's position as the unchallenged centre of global finance.

The post-Budget controversy over inheritance tax and capital gains tax reform, has overlooked the even more radical changes in the tax treatment of foreigners living in Britain. Anecdotally, there is already evidence of hedge funds, banks and international businesses moving some of their highly paid international staff out of London to Geneva, Monte Carlo and the Channel Islands. Of course, these tax havens will never replace London as the financial centre of Europe, but at the margin they are now likely to divert more of the international incomes and employment that would otherwise have come to Britain.

As a result, the London economy is likely to suffer much more than the rest of the British economy in the impending slowdown - and this will be particularly true of the top end of the London housing market, whereI foreigners have accounted for more than 50 per cent of the buyers in the past few years.

Indeed, the evidence of a sharp turnaround in the London property market has already started to appear in unofficial figures, such as the monthly surveys published by Primelocation.com, the high-end property website, which has reported two consecutive months of falling prices in London and an increase of 32 per cent in the number of properties for sale. To make matters worse, the preBudget change in capital gains tax could well encourage buy-to-let landlords to put their properties on the market from next April onwards to take advantage of the big tax reductions that many expect to be reversed in future budgets. This will put further downward pressure on property prices next year - another “known unknown”, suddenly introduced by an abrupt change in economic policy that nobody could have predicted even a few weeks ago....

BANK OF AMERICA

Losses from bad loans, trading and write-downs exceeded $3.7bn in the third-quarter. The firm suffered a $717m net loss in its credit products and equity business ($1.4bn in trading losses overall), wrote down $2bn for credit losses and $247m on its LBO portfolio. Investment banking profits fell from $1.4bn to just $100m.

BEAR STEARNS

Third-quarter profits shrunk 61% to $171.3m, the firm's biggest earnings decrease in a decade, after $700m in asset write-downs ($450 in mortgage-backed securities and CDOs, $250m in commitments to finance LBOs).

CITI

Third-quarter profits fell 57% to $2.38bn after $5.9bn in write downs, including $1.56bn for subprime mortgages, $1.35bn pre-tax write-downs for leveraged loans and $636m in fixed income trading. Profits over at the corporate & investment bank fell 74% to $446m.

DEUTSCHE BANK

Confirmed that third-quarter write-down will total around $3.1bn ($1bn for LBO debt and $2.1bn in other assets, including mortgage-backed securities). Expects the corporate & investment bank to post a third-quarter loss of around $500m.

GOLDMAN SACHS

Third-quarter profits rose an impressive 79% to $2.8bn, despite writing down the value of leverage loan commitments by $1.5bn (net of fees and hedging).

JPMORGAN CHASE

Third-quarter earnings came in up 2.3% to $3.37bn, despite a $2bn write down from leveraged loans and credit-related losses. Profits over at the investment bank fell 70% to just $296m.

LEHMAN BROTHERS

The firm wrote down $700m on the mortgage market, as well as loans to private equity firms. Fixed income revenues fell 47% in the third-quarter.

MERRILL LYNCH

The firm has confirmed that it will write down $5.5bn in the third-quarter on collateralized debt obligations and US subprime mortgages, leveraged finance-related transactions. Merrill will post a loss in the third-quarter, its first quarterly loss since the end of 2001.

MORGAN STANLEY

Third-quarter profits over at the firm's institutional securities division fell 49% from Q2, after $940m in write-downs to LBO-related loans and other assets. 300 fixed income staff are now being fired.

UBS

$3.47bn in fixed income losses, mostly related to US subprime lending assets. The firm is likely to post a third-quarter loss of between $511m - $683m, its first quarterly loss in 9 years. 1,500 jobs will go over at the investment bank.

WACHOVIA CORP.

Net income fell 10% in the third-quarter to $1.69bn (this is the bank's first earnings decline in six years). $1.3bn was written down related to leveraged buyouts and mortgage-backed securities. Profits over at the corporate and investment bank fell 80% in the period, as revenue plunged 51%.

The backwash from Alistair Darling's clampdown on wealthy non-domiciles is yet to reach the shores of Lake Geneva. The critics of the British Chancellor's plan may imagine a frenzy of Swiss excitement at the prospect of poaching our wealthy tax exiles, but the real reaction is more muted.

It is the reform to capital gains tax, also announced in the Chancellor's Pre-Budget Report, which has enthused Swiss wealth managers.

Switzerland has long feared that it is losing ground in the battle between the financial marketplaces, relying too heavily on the passive management of money for the very wealthy. Mr Darling's measure, introduced in response to an outcry about low taxes for bloated capitalists, effectively raised the tax paid by a private equity or hedge fund manager on his investments from 10 to 18 per cent. In contrast, Switzerland is “paradise for capital gains”, said Michel Dérobert of the Geneva Private Bankers Association and he hopes more hedge funds will move to Switzerland to be near their clients.

“We have no capital gains tax on private gains. If you make a large capital gain on top of your salary, it is tax-free.” There is a catch. “If it is not a private gain, you go to hell as it is treated as income and is taxed.” Private investors residing in Switzerland can earn tax-free gains from their hedge fund and private equity investments but the managers of those funds are stung if their own stakes, known as “carried interest”, are treated as income.

The way to attract more asset managers to Switzerland, says Mr Dérobert, is to get the tax authorities to treat the carried interest as private capital and he is optimistic that agreement will be reached.

Contrary to popular belief, income tax can be high in Switzerland, notably in Geneva, where the top rate, including federal tax, Mr Dérobert says, is 47 per cent, higher than in Britain, where the marginal rate is 40 per cent. Rates vary from canton to canton and can fall to less than 25 per cent in mountain cantons such as Zug.

Mr Darling's decision to take a £30,000 scalp off the nondomiciled and wealthy causes wry amusement in Switzerland. The Swiss frequently pointed to the eccentric rule, which enables wealthy foreigners to reside and work in Britain but pay no tax on foreign-earned income which remains offshore, whenever Switzerland was accused of unfair tax competition.

Still, no one in Switzerland thinks that Mr Darling's £30,000 charge will send a flood of wealthy expats fleeing to the mountains. For the truly wealthy, London still offers a better tax deal. Arguably, the famous Swiss “forfait” (lump-sum tax) is less attractive for all but exceptionally wealthy, such as Michael Schumacher or Ingvar Kamprad, the Ikea boss. It is a bizarre system that assesses your income by calculating the deemed rental value of your home in Switzerland to which is applied a multiple of five. That sum is then taxed as your income. The catch is that a person opting for “forfait” tax is forbidden from employment in Switzerland.

It is a deal for Saudi princes and the wealthy and retired, such as Jonny Halliday, the French singer who, fed up with French taxes, moved to Gstaad but returned a year later. He didn't say what he thought of Gstaad's nightlife. Lifestyle is, ultimately, as important as taxes in assessing the advantages of Switzerland and tax experts reckon the bigger threat to London is a combination of high company taxation, excessive rents and lousy transport.