Hedge Fund News Wrap: Week Ending 12/13/13

SAC Reaches Deal to Sell Reinsurance Firm

Just a month after pleading guilty to criminal fraud charges, the hedge fund, SAC Capital Advisors, said it would sell its reinsurance unit to Hamilton Reinsurance Group for an undisclosed amount.

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SAC’s reinsurance firm, SAC Re, will be renamed Hamilton Re after the deal closes.

SAC Capital Advisors was SAC Re’s largest investor, and managed approximately $550 million in assets for the reinsurance firm.

A SAC spokesperson, Jonathan Gasthalter, released a statement, “We are proud of our role in founding SAC Re, but we are now focusing on our transition to a family office and our core investing business.”

As a family office, SAC would manage founder Steven Cohen’s $9 billion in wealth exclusively.

The deal is expected to close by the end of this year.

 

See detailed coverage from:

DealBook

Reuters

The Wall Street Journal

 

 

Hedge Fund GLG to Pay $9 Million over Inflated Assets and Fees

The British hedge fund adviser, GLG Partners LP, has agreed to pay $9 million to settle charges with the U.S Securities and Exchange Commission over inflated assets and fees.

According to the SEC, GLG overvalued a stake by 60 percent, or $161 million, in one of its funds held in an emerging markets coal company, Sibanthracite PLC. Allegedly, this occurred between November 2008 and November 2010.

The overvaluation resulted in inflated fees to the GLG firms and the overstatement of assets under management in the holding company’s filings with the SEC,” according to a statement released Thursday by the SEC.

While GLG will pay the $9 million fee, it did not admit or deny wrongdoing.

A spokesperson for GLG released a statement, “GLG is pleased that this matter is resolved and remains committed to maintaining robust policies, procedures and practices in line with market conventions.”

 

See detailed coverage from:

The Wall Street Journal

Reuters

DealBook

 

SEC Votes to Adopt Volcker Rule

On Tuesday, five federal agencies approved the final provisions of the Volcker Rule, which is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Volcker Rule, which is section 619 of the Dodd-Frank Reform, will go into effect in June 2015. The provision is meant to restrict large banks from making risky bets that do not benefit their investors.

According to HedgeCo, banking entities will be prohibited from “engaging in short-term proprietary trading of securities, derivatives, commodity futures, and options on these instruments for their own account,” and “owning, sponsoring, or having certain relationships with hedge funds or private equity funds, referred to as ‘covered funds.’”

Former Federal Reserve Chairman Paul Volcker, after whom the provision is named, believes that the risky behavior on the part of large banks contributed to the financial crisis of 2008.

However, some feel that the Volcker Rule is flawed. U.S. Securities and Exchange Commissioner Daniel Gallagher opposes the rule, writing, “I believe that market-making activities will be impacted most by this faulty rule.”

See detailed coverage from:

Reuters

HedgeCo

DealBook

 

To Start a Hedge Fund Today, You Will need $300 Million in Assets

A survey conducted by Citigroup found that traders launching a hedge fund will need to raise at least $300 million in assets, which according to Reuters, is a big change from the days before the 2008 credit crisis, when funds could launch with only tens of millions of dollars. 

According to Citi’s prime brokerage chief, Alan Pace, this is due in part to rising regulatory costs and falling management fees. “Fee compression continues to reshape the business of hedge funds, lowering fees even as expenses rise, all but eliminating fee-only operating margins, and raising the level of assets needed for a hedge fund business to succeed,” said Pace.

The survey found that management fees are now as low as 1.58 percent, down from the traditional 2 percent that established hedge funds usually charge.

The survey also found that the situation is much worse in Europe, where company expenses were at least 20 percent higher than for U.S. firms. However, the survey also found that running a hedge fund in the Asia-Pacific region can be 42 percent cheaper than in the U.S. and Europe. This is due to “lower-than-average” compensation.

The study surveyed 124 hedge funds with $465 billion in assets under management.

 

See detailed coverage from:

FINalternatives

Reuters

Bloomberg News