Hedge Fund News Wrap: Week Ending 8/9/13

 Hedge Fund Overview: Slow Rebound

Hedge funds on average gained 1.2 percent in July, which is a slight improvement after a June market sell-off sent returns tumbling.

Stock-focused hedge funds were the best performers last month, gaining about 2.4 percent. Macro and managed futures hedge funds posted negative returns, falling 0.83 percent and 0.87 percent respectively.

Commodity-focused hedge funds also struggled in July, as they entered their sixth consecutive month of loses, for a year-to-date decline of 4.3 percent.

Overall, hedge funds are up 4.5 percent on average this year, while the broader market is up 19.6 percent year to date through July 31st.

Both the New York Post and The Washington Post point out that hedge fund underperformance has caused a cooling perception of the industry amongst investors.

See detailed coverage from:

Reuters
New York Post

 

Hedge Fund Fraudster Hochfeld Gets Two Years for Stealing $2 Million

Berton Hochfeld, who stole about a quarter of the $6 million he raised for Hochfeld Capital Management’s Heppelwhite Fund, has been sentenced to two years in prison.  Also, Hochfeld has been ordered to serve three years of supervised release and was fined $2.1 million.

In January, Hochfeld pled guilty to one count of securities fraud and one count of wire fraud.

According to prosecutors and the Securities and Exchange Commission, the former hedge fund manager stole about $2 million to buy a collection of antiques and expensive vacations.  Meanwhile, investors were sent monthly statements that reflected an inflated net asset value as oppose to the actual value reflected in the books of the prime broker where the fund’s assets were located.

In addition, Hochfeld allegedly failed to tell his investors that he’d been banned from the hedge fund industry in 2006 by the SEC.

Hochfeld’s lawyer, Roland Riopelle, said that it was a “fair sentence” and that Hochfeld “is very anxious to put this whole matter behind him.”

See detailed coverage from:

FINalternatives
The Wall Street Journal
Law 360

 

Loeb Humble After Sony Rejects His Shake-Up Plan

On Tuesday, Sony Corp. rejected a proposal from activist shareholder Daniel Loeb to partially spin-off its huge entertainment business.

In a letter to Loeb, CEO Kauzo Hirai informed the hedge fund manager that Sony would continue to hold onto its entire entertainment unit, as it does not need the capital that a partial spin-off would generate.  However, Hirai added that Sony would improve transparency and accountability.

The decision comes after a three-month effort by Loeb’s Third Point LLC hedge fund to convince the company to list as much as 20 percent of the business on the public market.

Loeb, who was caustically challenging in a letter to Sony last week, was uncharacteristically humble in face of the rejection.

In an interview with Variety, Loeb said that although he was “disappointed” with the decision, he was “pleased with the outcome” of his hedge fund’s efforts.

“What we would expect is more disclosure and a more detailed plan for how they will improve profitability in their entertainment division, including specific profitability targets,” he said. “We will monitor their performance in coming quarters and revisit Sony’s progress around the time of next year’s annual meeting.”

Loeb also added that Third Point will “continue to be highly engaged, maintain a dialogue with management, and expect to offer further suggestions to increase shareholder value.”

Loeb also took the opportunity to address comments from actor George Clooney, who had some choice words for the hedge fund manager last week.

“Notwithstanding the fact that the media likes to create a stir, I admire Mr. Clooney’s passion for Sony and his loyalty to Sony and his friends there,” Mr. Loeb said, adding, “We are all for intelligent investment in creative content. I believe our interests are aligned in a way he probably doesn’t realize.”

See detailed coverage from:

DealBook
FINalternatives
Variety


SEC Loses Momentum: Hedge Fund Magnetar to Avoid Charges Tied to CDOs

The Securities and Exchange Commission will not pursue fraud charges against the hedge fund firm Magnetar Capital LLC.

For over a year, the SEC has been investigating whether Magnetar violated securities law over its influence in the selection of assets bundled in one CDO, known as “Norma CDO I,” that was created by Merrill Lynch & Co.

Allegedly, Magnetar helped fuel the CDO by purchasing the riskiest portions of certain deals while simultaneously betting that some CDOs would decline in value.

Senior SEC officials have concluded that there isn’t sufficient evidence to file charges against Magnetar. However, the SEC hasn’t officially closed its investigation, and could still take enforcement action if new information surfaces.

The decision may be a sign that the SEC is winding down on its investigations related to the financial crisis of 2008, as it nears a five-year statute of limitations.

According to The Wall Street Journal, “Officials at the SEC, which has taken enforcement action stemming from the crisis against 157 firms and individuals, aim to complete the vast majority of such cases by the end of this year, according to people close to the agency.”

The news comes less than a week after the SEC won its first “major” victory when a civil jury found former Goldman Sachs Group Inc. Vice President, Fabrice Tourre, liable for six charges of securities fraud.

Regardless, the SEC faces widespread criticism from lawmakers, investor advocates and the media for its perceived shortage of big-name victories.

See detailed coverage from:

Huffington Post
Morning Ledger
The Wall Street Journal

 

Trust Fund Frat Boy Seeking “Slampieces,” Not Alpha, in Hedge Fund World

The Washington Post puts it best: “Rich? Bored? Unable to find a job because of ‘Obama?’ Then tap into your inheritance and start a hedge fund, bro!”

At least, that seems to be the plan for one well off frat boy, who sent out a recruiting e-mail to his fellow frat brothers:

“As some of you may already know, I have been interested in the world of finance for some time. After a series of summer internships, however, I have somehow found myself without a full-time job offer for the upcoming year. F***n’ Obama’s fault for strangling this economy.

Luckily, due to the tough job market, my dad has agreed to let me access my trust fund early (mid 7-figures) to start a relatively small hedge fund, ___ Ventures, after graduation. I’m emailing you guys today to let you know that, for the rest of the year, I will be recruiting 2 full-time employees and 1 intern to help me get this off the ground.

With my financial expertise, help from my powerful father and connections, and a skilled team, I have no doubt that this fund will rise quickly to prominence. We’ll all get filthy rich and, inevitably, bag hot slampieces. If possible, I’d love to give all 3 of these positions to my brothers.”

The aspiring professional goes on to list the requirements and expectations for each position. “Finance experience preferred but not required,” is listed under “Lead Investment Analyst.” The office manager/secretary will be in charge of “hiring hot secretaries for us to ogle (and possibly slam) during the workday.” Lastly, the intern will be judged on their “slampiece pulling ability.”

It seems that chasing alpha is not a priority for this future hedge fund manager.

UPDATE: According to Jezebel, a tipster claims that the e-mail was sent as a prank from someone in the fraternity.

See detailed coverage from:

The Washington Post
Huffington Post
Jezebel