Hedge Fund News Wrap: Week Ending 7/12/2013

Hedge Fund Overview: Glory Days May Be Over

In June, markets continued to fall as they reacted negatively to speculation about a slowdown in the Fed’s “easy money” policies, which include quantitative easing.

For the first six months of 2013, the average hedge fund gained just 3.4%, under-performing the broader S&P, which climbed 12.6%. To make matters worse, hedge funds around the globe saw negative returns in June, which ends the seven-month “Mets winning streak” of gains amid a broad pullback in equity markets.

Hedges, unfortunately, did not provide a hedge against the downturn, posting negative results, with the Eurekahedge Hedge Fund Index down 1.5%, and the MSCI World Index down 3.10%, versus the S&P which was down 1.5% over the same period.

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Hedge Fund Manager Bill Ackman Seeks to Raise $1 Billion for Unnamed Activist Stake

Hedge fund manager William Ackman is known for his strong returns, which have made him into one of Wall Street’s biggest managers. Now, the manager is seeking to raise $1 billion within the next 10 days for a special investment vehicle to buy the stock of a large U.S. company. The new special investment vehicle will have a three-year lockup until September 30, 2016.

In a letter to investments, Ackman wrote, “The business is simple, predictable, and free-cash-flow-generative, and enjoys high barriers to entry, high customer switching costs and substantial pricing power.”

One of his clients, the Public Employees Retirement Association of New Mexico, has already said it will take a pass on the new special investment vehicle.

“We were notified of the PS (Pershing Square) special vehicle, but will not be investing as it has a longer lock-up than what we’d like,” said Jason Goeller, who oversees hedge fund investments at the $13 billion pension fund.

Many outlets are reporting that recent industry returns on the one hand, and the vagueness of the fund target on the other, might make this a challenging target. We’ll have to wait and see how this one pans out.

See detailed coverage from:
Business Insider

SEC Eases Off SAC: What A Difference an “A” Makes

U.S. Prosecutors don’t believe they have enough evidence to bring a case against Steve Cohen, the founder and chairman of SAC Capital.

The SEC has been investigating SAC Capital for several years, and nine current or former employees have been tied to allegations of insider trading. One in particular, Mathew Martoma, has been charged with insider trading fraud and his trial begins this November. Martoma, however, has refused to implicate his boss, which has led authorities to conclude that they lack sufficient evidence to file a criminal case against Cohen himself in relation to drug-stock trades made in 2008.

The hedge fund titan is also exercising his Fifth Amendment rights, by declining to testify, after a subpoena was issued to him and five of his senior executives in May.

The five-year statute of limitations deadline for prosecutors to bring charges against the hedge-fund billionaire expires July 29th at the latest.

Prosecutors also face an August deadline to file charges against Cohen related to trading in Dell shares, a case that has resulted in two indictments of onetime SAC employees, including one who pleaded guilty.

SAC is one of the world’s most influential hedge funds, with about 1,000 employees and $15 billion in assets. The firm also has one of the best investment track records, posting nearly 30% annual returns over the last two decades. Some attribute this to Cohen, who has been described as a “preternaturally gifted trader,” but skeptics have long questioned the legitimacy of the firm’s annual returns.

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Hedge Fund Perry Capital Sues U.S. Treasury Department

Hedge fund Perry Capital filed a lawsuit against the U.S. Treasury in a federal court, alleging that the government’s takeover of Fannie Mae and Freddie Mac’s profits is illegal and violates the terms of the government’s bailout agreement from 2008.

In 2008, the government agreed to a 10% dividend, but is now considering liquidating the two mortgage giants. This would result in $238 billion in revenues for the U.S. government.

Perry Capital is one of many hedge funds that had purchased preferred shares of Fannie and Freddie in hopes that their value would go up under privatization. However, the chances of that happening appear bleak, as senators are hoping to replace Fannie and Freddie with a new Federal Mortgage Insurance Corporation. This new corporation would be a government reinsurer of mortgage securities that would halt private capital investment in mortgages.

See detailed coverage from:
Financial Times
Market Watch

“Hedge Funds Care” Raises $650k for Kids

From Traders Magazine–
The Midwest chapter of the “Hedge Funds Care” charity raised over $650,000 during its annual “Open Your Heart to the Children” benefit in Chicago. The funds are donated to local charities that prevent and treat child abuse.

The annual gala brought together over 450 members of the hedge fund, proprietary trading, private equity and venture capital communities.

Committee co-chair Benji Wolken of Ernst & Young said, “This incredible evening brought together leaders of the Chicago financial community in support of a common charitable cause, which is to empower programs that actively prevent and treat child abuse.”

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Traders Magazine

SEC Lifts Longtime Advertising Ban for Hedge Funds

The Securities and Exchange Commission has decided to lift an 80-year-old ban on advertising by hedge funds and private equity firms. Critics of the ban say that the ban was outdated, as we now live in an age that is largely driven by social media.

The ban was lifted under a new rule, which passed by a 4-1 vote, and is the first rule mandated by the JOBS Act. The rule is set to kick in 60 days after it is published in the Federal Register.

Brian Lane, a former division director at the SEC and now a partner at Gibson Dunn & Crutcher LLP says that, “Hedge funds will benefit because they have the most restrictions on their ability to communicate more broadly about different funds coming to the market.”

However, CFA Director of Investor Protection Barbara Roper says that, “With this vote, the commission has thrown open the doors to mass marketing of hedge funds and other so-called private offerings, knowing full well that it lacks the tools to provide effective market oversight.”

Other critics of the new rule believe that lifting the ban will only help companies that can’t get capital from anywhere else, and are not the strongest place for investors to put their money.
Many are also responding through Twitter under the hashtag, “#hedgefundslogans.”
Some of the slogans:

See detailed coverage from:
Bloomberg Businessweek
Financial Times