HEDGE FUND NEWS
@ Tue 23 October 2007 : GMT

Below is an example of what the Citibank, B of A, and J P Morgan bail-out fund are trying to circumvent the default of a SIV. From Bloomberg:

Royal Bank of Scotland Group Plc is in talks to buy the assets of Cheyne Finance Plc, the structured investment vehicle that defaulted last week.

``The action follows detailed discussions with a number of different bidders over the past few weeks and after consultation with the informal creditors' committees,'' Cheyne Finance and its receiver Deloitte & Touche LLP said today in a statement.

Cheyne Finance appointed Deloitte last month to oversee its assets after the SIV was forced to liquidate some holdings to repay maturing commercial paper. The company, which bought securities backed by home loans, had its credit ratings cut to default by Standard & Poor's last week.

SIVs have sold about $75 billion of assets since July after record U.S. home foreclosures prompted investors to avoid debt linked to mortgages. The U.S. Treasury stepped in to arrange talks between Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. to create an $80 billion fund to buy the assets.

Cheyne Finance, set up by London-based hedge fund Cheyne Capital Management Ltd., has about $7.3 billion of outstanding debt, Standard & Poor's said on Oct. 19. The value of the portfolio backing Cheyne Finance's bonds is $6.2 billion, excluding cash of $948 million, S&P said.

More than half of Cheyne Finance's holdings are mortgage- backed securities, and have a market value of 93 percent of their face value, S&P said.

Deloitte is trying to organize a restructuring of the SIV's debt or the sale of its assets.

SIVs, with $320 billion of assets, invest in securities from mortgage-backed debt to bank bonds. They finance their investments by selling commercial paper, debt that comes due in 270 days or less, and medium term notes, which mature in nine months or longer.

Threadneedle has launched the first fund in its 130/30 strategy range, the Threadneedle American Extended Alpha Fund, to be managed by US equities fund manager, Stephen Moore. The new range of 130/ 30 strategies is an extension of the Threadneedle higher alpha, long-only capability which is characterised by a fundamental, stock picking approach.

The Threadneedle American Extended Alpha Fund hopes to provide exposure that maximises the investment potential of stock markets through both long and short positions. It is a traditional long-only portfolio of primarily North American equities enhanced with a short exposure to unattractive stocks set at around 30% of the value of the fund. This additional short position is offset by additional long positions in attractive companies, thereby raising the long exposure to around 130%.

Threadneedle's nine-strong North American equity desk is one of the largest teams entirely based in London and manages a total of $9.9bn in hedge and long-only assets. As part of the North American equity team, Moore manages $3.01bn in assets.

Alistair Darling refused to bow to calls from senior business leaders for a U-turn on the changes he plans for capital gains tax, rejecting demands yesterday to scrap the reforms in a face-to-face meeting with his leading critics. The Chancellor told a coalition of business groups he could not offer any concessions on CGT policy, despite an increasingly vociferous campaign against the measures.

The row follows the announcement in this month's pre-Budget report of an overhaul of the UK's CGT system. From April, Mr Darling intends to implement a single rate of CGT of 18 per cent, abolishing the right of some taxpayers to claim taper relief, which reduces the tax payable on assets held for longer periods.

The reforms will create some significant winners because the top rate of CGT is 40 per cent. However, business groups are furious that owners of small businesses, who pay just 10 per cent tax on profits made on disposals of their ventures as long as they have been up and running for two years or more, will be caught by the higher rate.

The campaign against the proposals culminated yesterday in a meeting between Mr Darling and the leaders of the CBI, the British Chambers of Commerce, the Institute of Directors and the Federation of Small Businesses. However, while all four groups accused the Chancellor of undermining the efforts of entrepreneurs, Mr Darling told them he was committed to the reform.

The stalemate prompted a furious reaction from small businesses, despite promises from the Chancellor that he would consider other measures designed to stimulate enterprise, primarily through an ongoing review of the advice available to would-be entrepreneurs.

John Wright, the national chairman of the Federation of Small Businesses, said the CGT reforms would reduce the incentives on offer to investors such as business angels, which provide capital to start-up businesses, as well as penalising successful entrepreneurs. "There are four and a half million small businesses - many would have been unable to start up under this proposed new regime," Mr Wright said. "Others that were relying on the proceeds of the sale of their business to provide for their retirement will now be heavily taxed on that income."

Britain has been branded "the sick man of Europe" after a Government report revealed a nation blighted by record levels of obesity, alcohol abuse, diabetes and smoking related deaths.

The rate of obesity in British adults is the worst in Europe and, in some areas, are now above the national average of the United States. In Boston, Lincolnshire, almost a third of men and women are now dangerously overweight.

The "snapshot" of the nation's health showed that almost 900,000 children aged under 11 are obese - a 50 per cent increase in the past decade. The report from the Department of Health also revealed England as the only European country with rising alcohol consumption and an increase in alcohol-related deaths, particularly amongst women.

Other findings included:

* Britons drink 11.37 litres of pure alcohol per person compared with an EU average of 10.95 litres.

* The number of women aged 35 to 54 dying of alcohol abuse has almost doubled in the last 15 years.

* There are 288 deaths per 100,000 people from smoking-related causes in the UK, compared with an EU average of 263.

* People in the Britain eat an average of 25kg less fruit and vegetables each per year compared with EU countries.

* Diabetes sufferers have risen to 4.8 per cent of men and 3.6 per cent of women in 2003.

* Despite declining teenage pregnancy rates, the UK still has the highest proportion of births to under-20s compared to other western European countries. There are also new highs in separate figures for self harm, and the sexually transmitted disease Chlamydia.

* A stark north-south divide remains, with boys born in Manchester likely to die on average 10 years younger than those born in the borough of Kensington and Chelsea in London.

New York-based fund of hedge funds firm Ginepri Capital Partners has entered into a multi-year deal with Handpicked Films to finance a slate of motion pictures.

The first group of 11 films, dubbed Ginepri Motion Picture Slate, is valued at approximately $110 million dollars with three more slates to follow. The film budgets will range from $5 million to $40 million, and the films will be produced by Handpicked Films executives Michel Shane and Anthony Romano.

"This is a great fit. Both parties are bringing their expertise to the table, and we are very complementary,” said Shane. “The difference between Ginepri and everyone else in this space is that this will be an actively managed program. We will all be very hands on."

That's the problem with stock market tumbles: they rarely turn up on cue. Yesterday's 68-point loss on the FTSE 100 was a relative triumph after Wall Street's slide on Friday. The City's bears, baffled by the resilience, can continue to circulate an amusing email that illustrates how the investment world is able to see good news everywhere.

The "equity cheat sheet" reads like this: Weak economic data? The US Federal Reserve will cut rates. Strong data? The economy's sound. Bank loses £4bn in sub-prime mess? Bad news is out of the way. Oil price spikes? Great for producers. Oil falls? Great for consumers. Dollar plunges? Multinationals like that. Dollar rises? Inflation will fall.

You get the picture: every possible financial development can be, and is being, wrestled into an argument for why share prices should rise.

In more serious vein, Morgan Stanley's equity strategist, Teun Draaisma, yesterday published his latest epistle, titled "the rally is not over". Draaisma is not a man to be scoffed at because he, virtually alone, was advising clients to get back into the market several weeks ago. His timing turned out to be both brave and correct, which is as good as it gets in the punditry stakes.

The two firms enter a $1 billion alliance and an investment banking joint venture to cover Asia with specific emphasis on China.

Citic Securities and Bear Stearns will form a strategic partnership which includes $1 billion of cross-holdings, a joint venture to service Asia and a focus on offering investment banking services in China.

Citic Securities, which is owned by the Citic group, a Chinese government-owned conglomerate, will buy $1 billion worth of 40-year convertible trust preferred securities in Bear Stearns that will convert to about 6% of Bear Stearns' outstanding shares. The conversion price is pegged to the closing price on five trading days up to and including October 19. Citic could potentially increase the stake to 9.9% though no details of this have been provided.

Bear Stearns will acquire a similar stake in Citic for $1 billion through a six-year convertible debt security. Bear Stearns will be allotted five-year options to acquire additional shares.

Citic and Bear Stearns will form a new 50:50 joint venture based in Hong Kong that will offer capital markets services across Asia. Bear Stearns will contribute its businesses in Asia including its operations in Hong Kong, Tokyo and Singapore to the JV. Citic will contribute its operations in Hong Kong and pay Bear Stearns a financial consideration.

The JV will offer a range of products, including cross-border mergers and acquisitions advisory, international equity and fixed-income capital markets deals with a focus on international offerings of Chinese companies and venture capital and private equity, asset management as well as local equity and fixed-income services.

We've been members of nearly every major social networking site that's come around. One thing we've discovered is that social networking is a lot like dating. When you first come across a new networking site it can be very, very exciting but once the bloom is off the flower, so to speak, interest tends to wane. The stats for the big social networking sites seem to bear this out: after the initial rush of interest and time spent exploring, usage seems to die off.

So what's wrong with social networking? Well, as The Long Tail author and Wired magazine editor Chris Anderson has explained, part of the problem is that social networking should not be a destination on the web but a feature of good websites. Flickr and YouTube, for instance, have from their beginnings used social networking in this way—turning users of other services into a social network. Especially in its early months, YouTube felt very much like a social networking community.

This leads us to something we're been toying with for nearly a year here at DealBreaker. Our commenters and emailers are already something of a community, with many regular participants in our comments section adopting regular and instantly recognizable handles or pseudonyms such as Bulging Bracket, Random Banker, Anal_lyst, BSD and Zbignew. We'd like to take this further, allowing permanent profiles for commenters, where readers can track discussions, get in touch with each other and keep conversations going even after certain discussions have moved off the main page. Our creation of the “Recent Comments” page was the beginning of this effort but it is a mere seed for what we hope will eventually grow into a much more interesting social network, user-generated part of our pages.

[More on social networking DealBreaker-style after the jump.]

One impetus for moving toward social networking here is the lack of a usable social network for financial professionals. Linkedin seems heavily geared toward tech, and lacks the fun of a Facebook. Myspace and Facebook are somewhat disreputable, although financial professional participation is growing, especially on Facebook. Why not create Facebook for finance at DealBreaker, we asked.

All sorts of networking possibilities jump out. For instance, stories could include a button that would instantly show readers how they might be linked to the players, or how this story connects to another they've already discussed in comments. It would be terrific to click on a Bear Stearns story and discover who in your network works or worked for Bear Stearns.

One thing that seems to be clear is that any features of DealBreaker built along these lines would have to preserve the option for anonymity. Perhaps users could have dual profiles, public and anonymous, so they could connect with colleagues under real names but make comments and track discussions under pseudonyms.

We love the community that has grown up around DealBreaker. We were tempted to say “that we've built at DealBreaker” but that's only true in the sense that by “we” we mean to include our readers, tipsters and commenters. The editors never expected our commenters to become a community, we never really set out to create a community based site, but we're ecstatic that this is what we're becoming.

So we're moving ahead with plans to grow the social network features of our site, and we'd love to hear more from you about what you'd like to see in this respect. Feel free, of course, to leave a comment below or email us at tips@dealbreaker.com.

The Ryada Capital Investment Company, a Kuwaiti money manager, is prepping a $100 million Shariah-compliant hedge fund product, hoping to take advantage of the growing demand for investment products that comply with Islamic law.

“There's huge liquidity in the region, and investors are looking for asset classes that comply with Islamic law, which can be low risk and allow for diversification of risk,” Ryada's chief, Jamal Al-Saeed, told Reuters.

Last month, Barclays Capital said it also planned hedge funds that comply with Islamic law.

However, the Ryada fund plans to use a limited amount of short-selling, which some argue contravenes Islamic bans on lending on interest and gambling.

“We will do limited short selling ... We have it there just in case we need it. Speculation happens, its human nature. But it's not the essence of the fund,” Mr. Saeed told Reuters.

Almost exactly 100 years ago at 4.45 in the morning of a November day on the corner of Madison and 35th Street in New York a group of some 50 or so exhausted men stumbled out into the street.

Some had not slept for days.

Behind them, on the other side of the monumental brass doors that closed behind them, they left a piece of paper which pledged them collectively to a loan of some $25m - about $10bn (£5bn) in today's money.

Beside it stood a large gentleman with a walrus moustache, who had forced them into the deal which ended a two-week financial panic that had come close to destroying New York's financial system. That man was J Pierpont Morgan.

From 1903 to 1906 the global economy had boomed and the Dow Jones had doubled.

But the global supply of gold to which all hard currency was pegged had not kept pace, and hard cash was increasingly scarce.

A hundred years later our credit squeeze had its genesis in the infamous sub-prime mortgage market of the US.

Hedge fund asset growth, which in spite of recent market troubles hasn't missed a beat, will slow in the second half, one hedge fund executive posits.

Polar Capital CEO Mark Kary's words conflict with those of the Man Group's Peter Clarke, who earlier this month said he expected no “material” change in hedge fund growth.

In an interview, Kary said,“If there has been a very rapid inflow in the first half, then at the margin it will be a little bit slower for the second half—that's generally for the industry.” But he added that there “will be pockets that prosper,” notably his own pocket, equity long/short.

“At the margin equity long/short should be a market-share gainer,” he said.

Polar Capital's assets under management rose 13.8% in the six month ended Sept. 30. The firm now manages $3.88 billion, $2.21 billion of which is in equity long/short strategies.

Bank of America has replaced the global head of structured products for the second time in nine months in the wake of reporting the biggest third-quarter loss in the sector.

George Ellison, head of global structured finance, will take over Chris Hentemann's position, according to Bloomberg, citing Bank of America spokeswoman Louise Hennessy.

The bank appointed Hentemann as head of global structured products to replace Pat Augustine, following a reshuffle of its equities and structured finance units in January. Hentemann was previously the co-head of global structured finance.

Peter Forlenza, who previously headed up cash equities, was named chief of the combined division which includes equity equity derivatives, convertible debt and prime brokerage.

The credit crunch will take 18 months to feed through to the art market, if at all, according to industry insiders.

This view was reinforced by encouraging sales of contemporary art in London this month when auction houses Christie's and Sotheby's raised £39.8m (€57.1m) and £34m respectively, well within the pre-sale range of estimates. The highest price achieved was £8.1m for “Study from the Human Body, Man Turning on the Light” by Francis Bacon.

The head of one art fund said the market had been unaffected by the summer's turmoil because leverage is not used much by art investors. However, banks are lending money to art buyers and these loans are sometimes secured on art works in collections.

US bank Citigroup is the pioneer in art financing and others, such as UBS, are also offering the service. Philip Hoffman, chief executive of the Fine Art Fund, said the market totals less than $2bn (€1.4bn) but has the potential to grow to $10bn within a couple of years.

Despite the lack of leverage, there are concerns that art prices could suffer as Russian oligarchs and hedge fund managers, who have fueled the recent boom, find their spending power hit.

Hoffman said: “Art at the lower end of the market might face problems. But for great paintings, over a 10-year period, the price is almost guaranteed to go up. Some of the buying frenzy will subside but there will always be buyers and they will always invest in quality works when they come on the market.

“There are a huge number of museums being opened and there is more show-off money than before. If you have a $10m house and a Ferrari, you will also want a Warhol in the sitting room.”

The Federal Reserve indicated it supports the plan brokered by Treasury Secretary Henry Paulson to increase liquidity in the market for asset-backed commercial paper.

The agreement reached by Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. is well-enough designed that it may help credit markets, a Fed official, who declined to be identified, said late yesterday in Washington. The plan also may help investors establish prices for complex securities that funds purchased with the proceeds of commercial-paper sales, the official said.

The Fed's endorsement comes as some banks, analysts and international officials question whether the planned $80 billion fund will help. Deutsche Bank AG Chief Executive Officer Josef Ackermann said yesterday that it is ``premature to make a firm judgment'' because details of the plan haven't been established.

At a meeting of finance ministers and central bank chiefs Friday, the Group of Seven countries showed their willingness to tackle issues including subprime loans, the exchange rate of the yuan and sovereign wealth funds (SWFs).

The G-7 nations, however, have yet to come up with effective measures to deal with these issues.

G-7 finance ministers and central bank chiefs agreed to ask the International Monetary Fund, the World Bank and the Organization for Economic Cooperation Development to look into ways to regulate SWFs that are seen as a threat by some lawmakers in developed countries.

SWFs are funds invested in developed countries by countries with enormous foreign reserves, such as oil-producing nations and newly industrialized economies, including China.

Some lawmakers in developed nations regard SWFs as a threat because such funds are used to buy companies in their countries. But since others say SWFs have contributed to boosting the world economy, it will be hard to reach a consensus.

At a dinner party after the G-7 meeting, China and the United Arab Emirates, which have extensive assets, agreed it is important to improve the transparency of investment standards, but that markets should not discriminate between private and SWF funds.

According to estimates by the U.S. Treasury Department, SWFs invested by oil-producing countries, flush with their huge oil dollars, and newly industrialized countries, supported by enormous foreign reserves, totaled between 1.5 trillion dollars and 2.5 trillion dollars.

Such investment, which is expected to exceed 10 trillion dollars in seven to 10 years, has a tremendous impact on financial markets.

Since SWFs are often used to acquire companies, some lawmakers in the developed countries are concerned that their companies could come under the control of foreign governments.

However, unlike hedge funds, which seek short-term profits, SWFs are basically invested under mid- and long-term outlooks.

With most SWFs being used to buy stocks, a high-ranking U.S. Treasury Department official said such investments have helped stabilize financial markets.

Speaking to reporters at a press conference Friday, U.S. Treasury Secretary Henry Paulson said SWFs should be invested in with transparency, but added that such investment is welcomed.

Recent worries over the potential threat of SWFs are mostly believed to have been floated by U.S. lawmakers with political axes to grind.

With the U.S. presidential election next year, conservative lawmakers have stepped up efforts to protect businesses in the country and the current administration apparently wants to garner domestic support by targeting SWFs.

The G-7 nations are unable to agree on how to regulate SWFs.

Prior to the G-7 meeting, World Bank President Robert Zoellick said the World Bank was limited in what it can do to address the SWF issue. It seems the G-7 still faces a challenge in fleshing out measures to address the issue.