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

 

Amid Underperformance, Hedge Funds Cut Fees

Hedge fund underperformance continues to leave investors dissatisfied, forcing the industry to cut back on its famed “2 and 20” fee model: a management fee 

of 2 percent on assets and a performance fee of 20 percent on profits.

According to The Wall Street Journal, most hedge fund managers now charge 1.6 percent for annual management fees and 18 percent on profits.

The pressure to cut down on fees is mostly felt by hedge funds focused on stocks and commodities, as those strategies have continued to be the biggest under-performers in the industry this year.

In addition, investors are increasingly investing their money in the industry’s largest funds, which requires mid-size and small funds to push down their fees.

In the first seven months of the year, hedge funds had an average return of 4.5 percent, which lags far behind the 19.6 percent gain of the S&P.

Howard Marks, chairman of Oaktree Capital LLC, says that average annual returns of 6 or 8 percent over the past decade do not justify such high fees.

“For a client to give a manager 20 percent of the profits, the manager should be exceptional,” Marks told Bloomberg News. “There aren’t 10,000 exceptional people in this industry.”

 

See detailed coverage from:

Market Intelligence Center

FINalternatives

Bloomberg News

 

British Regulators to Go Easy on Hedge Funds

Hedge fund firms in London will not be hit as hard as they anticipated by new pay rules drafted by the U.K’s Financial Conduct Authority.

The regulator plans to allow hedge funds between £500 million and £1.5 billion in assets to opt out of restrictions on cash bonuses. Also, hedge funds with a high level of assets that operate in one territory and run non-toxic strategies could be exempt.

Tim Wright, a director of the reward practice at PricewaterhouseCoopers, believes roughly half of hedge fund firms authorized in the United Kingdom could be exempt from the pay rules.

This is a contrast from regulators in the United States, who are having a hard time implementing regulatory practices under the Dodd-Frank Reform.

Paul Volcker, the former Federal Reserve Chairman, has said that there is “no reason why the Volcker rule should take three years to write.”

The Volcker Rule, which is a specific section of the Dodd-Frank Reform, restricts banks from making speculative investments that do not benefit their customers. In addition, it limits the amount banks can invest in private equity and hedge funds to 3 precent of tier one capital.

Just 40 percent of Dodd-Frank’s nearly 400 provisions have been fleshed out with regulatory language and made legal, the law firm Davis Polk & Wardwell LLP has estimated.

 

See detailed coverage from:

Dealbreaker

FINalternatives

Financial Times

 

Metacapital Raises $130M for New Hedge Fund

Metacapital Management LP has raised $130 million for a new hedge fund designed to profit from rising interest rates.

Although Metacapital’s flagship vehicle suffered its worst quarter this year, the fund’s manager, Deepak Narula, remains optimistic stating, “While we do not claim to be experts at timing interest rate movements, we believe that there are several factors that make entry into this trade attractive at present.”

Two months after launching Rising Rate Fund, Deepak Narula said that the fund had $31 million in assets under management. The fund’s early investors enjoyed nice returns as the fund is up 13.5 percent this year.

In an interview with CNBC, Narula stated that there is still “plenty to do” in the mortgage market but the “very significant investment opportunities” created by the credit crisis will be difficult to see again without another crisis “which we all hope doesn’t happen.”

 

See detailed coverage from:

Bloomberg News

FINalternatives

CNBC

 

In Dell Deal, Icahn Throws in the Towel

After a very public, seven-month battle between Dell CEO Michael Dell and activist investors led by Carl Icahn, Dell Inc. shareholders have approved a $28.8 billion buyout that will take the company private.

The approval comes after Icahn sent a letter to Dell shareholders, stating he will no longer fight to thwart a buyout proposal from founder Michael Dell and Silver Lake Partners. Icahn had initially proposed a plan for a leveraged recapitalization that would have paid a special dividend and kept Dell as a public company.

The feud between Icahn and Dell underscores how shareholder activism can lead to long and bitter proxy fights.

Icahn, who is known for pushing companies towards share-boosting changes, was disappointed but has shifted his focus onto other targets, including Dell rival Apple.

In a conference call with Bloomberg News, Michael Dell stated that, “In taking Dell private, we plan to go back to our roots.”

 

See detailed coverage from:

FINalternatives

The Wall Street Journal

HedgeWorld