Posts tagged “hedge funds”

Ex-Goldman Prop. Trader’s Hedge Fund Picks Three Prime Brokers

March 1st, 2011

Azentus Capital, expected to be among the largest hedge fund launches of the year, has recruited a trio of brand-name prime brokers to handle its trades.

The Hong Kong-based hedge fund, founded by former Goldman Sachs proprietary-trading chief Morgan Sze, will use the services of his old firm, as well as those of Morgan Stanley and UBS, Reuters reports. The new fund is expected to debut in the second quarter with more than US$1 billion in initial assets.

Sze, who has been planning the fund since last year after Goldman decided to pull the plug on its prop. trading operations, officially left the firm earlier this month and registered Azentus with Hong Kong regulators a week ago. He is thought to be building a team of about 30 for the firm, including Roger Denby-Jones, former Boyer Allan Investment Management CEO, as chief operating officer, and at least four former members of his team at Goldman.

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SEC: Accused Hedge Fund Fraudster Stole More Than $1.2M

February 28th, 2011

A Texas hedge fund manager was quite the storyteller, the Securities and Exchange Commission has alleged.

The regulator said that Christopher Blackwell misappropriated more than $1.2 million of the $4 million he raised, spending large sums on himself—including covering his child support payments and funding his fancy for “gentlemen’s clubs”—and some $500,000 on Ponzi scheme payments. More money went out in the form of payments to both himself and his associates.

A court has frozen Blackwell’s assets, HedgeFund.net reports. The SEC was led to his alleged scam by the Department of Homeland Security, which became concerned by large wire transfers made by Blackwell.

A DHS agent then met with Blackwell in the guise of a potential investor, and the lies continued, according to the SEC. Blackwell allegedly claimed, during a confab at a local Hooters restaurant, that he had studied at the University of Madrid and worked for the Bank of Madrid and Goldman Sachs. None of those claims are true, according to the regulator.

Blackwell allegedly told his victims, including an unidentified former member of the Dallas Cowboys football team, that his hedge fund invested in fixed-income, hedge funds and movie distribution deals.

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New Asian Funds Attract Almost $4B In 2010

February 25th, 2011

Asian fund launches were up 48% year on year in 2010, with 95 new funds attracting $3.84 billion in assets, according to the latest AsiaHedge New Funds Survey.

In 2009, 78 Asian funds were launched with a total of $2.6 billion.

“Despite a slightly lackluster second half, new Asian hedge fund launches continued to see a sustained interest, though rising barriers to entry meant that most of the capital went to either second-generation managers with a strong pedigree or new offerings from established hedge fund shops,” says Aradhna Dayal, editor of AsiaHedge in Hong Kong.

“Anecdotal evidence suggests that U.S. allocators were probably the largest contributors to the start-up capital last year, though a new breed of Asian high net worth individuals and family offices also emerged as silent but serious backers of several new hedge funds.”

Singapore performed well in 2010, reporting the launch of 15 new funds with $673 million, up significantly from 2009. “The new regulatory regime being rolled out there has brought about a renewed confidence in the Lion City funds, and that is being reflected in the start-up space too,” says Dayal. Hong Kong remained the leader in the region, though, with 57 launches that attracted $2.4 billion in assets.

Redistribution of assets, resulting from the outflows from closures to new managers, as well portfolio rebalancing by investors within Asia, contributed significantly to the total new launch asset raising.

In terms of strategy, new China funds led the pack, as they did in 2009, attracted $817 million or 21% of total assets gathered by new funds. Multi-strategy funds, with $365 million; Japan-focused funds, with $317 million; and macro funds, with $208 million, also attracted considerable interest.

Dayal says 2011 holds promise, with several high-profile bank spin-offs and second-generation hedge fund launches in the offing. “Just like the class of 2009, the class of 2011 will be an interesting one to watch, with star prop traders such as Morgan Sze, Ben Fuchs and Charlie Chan expected to make their debuts,” she says.

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N.Y. Pay-To-Play Ringleader Gets Up To Four Years

February 21st, 2011

Andrew Cuomo

Henry Morris, the man at the center of New York’s pay-to-play pension scandal, was sentenced to between 16 months and four years in prison yesterday.

Morris, who pleaded guilty to corruption charges in March, was sent straight to jail by New York State Justice Lewis Stone. Stone called Morris’ scheme of taking kickbacks from investment advisers, including hedge funds, in exchange for allocations from the New York State Common Retirement Fund, “evil.”

“My actions diminished the integrity of New York State’s government,” Morris said at his sentencing. “Most importantly, they caused ordinary people to question their faith in the political system.”

The case against Morris was led by former New York Attorney General Andrew Cuomo, now the state’s governor. His successor, Eric Schneiderman, said, “today’s sentencing decision by the court sends a strong message to New Yorkers that those who abuse positions of power to line their own pockets will be held accountable by this office.”

Morris was the top political consultant under former state Comptroller Alan Hevesi, who resigned after an unrelated scandal and last year pleaded guilty to corruption charges himself. Among the alternative investments firms caught up in the scandal were the Carlyle Group and Riverstone Holdings.

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Hedge Funds, Banks Drive Up Prices In Madoff Claims Market

February 15th, 2011

Competition in the secondary market for claims against fraudster Bernard Madoff is driving up prices, says one of the UK’s biggest hedge fund market makers.

“We’ve had these positions on our books for two years, and two years ago you couldn’t get a price,” Neil Campbell, head of alternative investments at brokerage Tullett Prebon told Reuters. “Up to six months ago it’s been one or two cents in the dollar, as optionality, but now it’s become more serious because there’s more competition.”

In the past six months, the price of holdings in Madoff feeder funds like Fairfield Sentry and Kingate has risen to 7 or 8 cents on the dollar from 1 or 2 cents, says the news agency. Buying bankruptcy claims from a direct investor with Madoff can cost 30 or 40 cents.

The market has been encouraged by the successor of Irving Picard, trustee for the Madoff bankruptcy, who has recovered about $10 billion for victims of Madoff’s Ponzi scheme.

According to Campbell, distressed hedge funds, distressed desks at banks and funds of funds specializing in the secondary market are all entering the sector. And on the other side, many funds of funds are trying to dump Madoff holdings to limit damage to their reputations.

“There are a lot of vehicles globally looking at this opportunity,” said Campbell. “A variety of buyers are coming in, due to the success of the trustee, who has been fairly ferocious in getting results, and the (small) amount of claims made, especially in Europe, which has created a very interesting window of opportunity.”

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Raided Hedge Fund Barai Liquidating, Cooperating

February 2nd, 2011

Barai Capital Management, the hedge fund whose founder has been identified as an alleged co-conspirator of accused insider-trader Winifred Jiau, is closing its doors.

The New York-based firm is cooperating with the investigation, which has led to at least eight arrests since November, one of its early backers said. Among those charged was Jason Pflaum, an analyst at Barai, who pleaded guilty to conspiracy and securities fraud.

“BCM has informed us that they are cooperating fully with the government’s investigation,” Jeff Tarrant and Ted Seides, co-founders of Protégé Partners, wrote to investors yesterday. “The firm has also informed its investors that it commenced an orderly wind-down of the BCM funds.”

Barai was identified as “Hedge Fund A” in the complaint against Jiau, a former consultant for expert-network firm Primary Global Research. The firm’s Manhattan offices were raided by the Federal Bureau of Investigation in mid-December, about a week before three more highly-publicized raids at other hedge funds. The agents seized some computers and tape recorders from Barai Capital; firm founder Samir Barai has a hearing disorder and frequently recorded conversations, including with Jiau.

Pflaum was identified as a cooperating witness in that complaint, while Barai is the unnamed co-conspirator called “CC-1” in the complaint, The Wall Street Journal reported yesterday.

Barai has not been accused of any wrongdoing, but the Jiau complaint said that Barai “communicated directly” with “some individuals… in order to receive inside information.” The complaint alleges that he earned some $820,000 trading on tips provided by Barai.

Barai Capital managed less than $100 million as of last fall, despite returning 13% since its inception in 2008. Protégé seeded the firm.

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CFTC Proposes Joint Rule With SEC On Hedge, P.E. Disclosure

January 28th, 2011

A day after the Securities and Exchange Commission moved forward with plans to force hedge funds and private equity funds to increase their disclosures to regulators, the Commodity Futures Trading Commission followed suit.

The CFTC yesterday proposed a rule that would require private fund advisers to provide an array of information to it and the SEC for risk-monitoring purposes. The proposed new regulation, mandated by last year’s financial reform law, was written jointly by the two regulators. The SEC and CFTC would also share the information they collect with the Financial Stability Oversight Council.

Included in the information sought by the two agencies is data on leverage, counterparty risk and positions. While all funds would have to make some disclosures, the brunt of the new rule would fall on the largest managers, those with more than $1 billion, which will have to make more frequent and more detailed disclosures.

“What this does is bring more transparency to the regulators,” CFTC chief Gary Gensler said.

Both the CFTC and SEC are accepting comments on the proposal. Both will have to vote again to finalize the new rule.

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SEC Proposes Quarterly Reporting For Biggest Hedge, Private Equity Funds

January 25th, 2011

The biggest hedge funds in the U.S. will face the toughest regulatory burden under a new risk-reporting rule proposed today by the Securities and Exchange Commission.

The SEC unanimously voted to seek comment on the new rule, which would require hedge funds, private equity firms and other private investment fund advisers to maintain a wide range of information for sharing with regulators. The proposed joint rule with the Commodity Futures Trading Commission will be considered by that regulator tomorrow.

The new rule, required by the Dodd-Frank financial regulation reform law, will fall most heavily on firms managing more than $1 billion in assets. SEC Chairman Mary Schapiro notes that the 200 such firms in the U.S. control more than 80% of private fund assets under management.

“The information required would be ‘tiered’ so that we would receive more detailed information from larger private fund advisers, rather than imposing the same reporting requirements on all private funds,” Schapiro said. “While the group of large private fund advisers is relatively small in number, it represents a large majority of private funds’ assets.”

Those firms will be required to make quarterly reports on assets, leverage, positions, valuation and trading. That information will be shared by the SEC and CFTC with the Financial Stability Oversight Council.

Today’s vote opens a 60-day comment period.

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FBI Approached Accused Insider-Trader For Help

January 11th, 2011

The California woman who last month became the seventh person arrested in the Justice Department’s massive insider-trading investigation only felt the cuffs after refusing to cooperate.

Winifred Jiau, in her first jailhouse interview, told Reuters that the Federal Bureau of Investigation approached her about assisting in the investigation before she was arrested last month. Despite the fact that the former Primary Global Research consultant has now been charged, she would not rule out cooperating with the probe.

“Initially, the FBI just wanted me to be a cooperating witness,” she said shortly after her arrest. But she offered no details about what the FBI wanted or why she declined to help, saying only that she has “not decided” whether to cooperate.

The FBI declined to comment on whether Jiau was so approached.

Jiau compared her situation to that of John Kinnucan, the research analyst also approached last year by the FBI. Kinnucan famously refused to help and sent a widely-publicized e-mail to his clients—including several prominent hedge funds—telling them so. Kinnucan has not been arrested or accused of wrongoing.

Like the other defendants in the case, Jiau will likely be sent to New York to face the charges against her. She has been charged with conspiracy and securities fraud for allegedly passing confidential information to three hedge funds. She faces up to 25 years in prison.

But Jiau told Reuters she has had trouble finding a lawyer in New York. “I really need a counsel,” she said. Unlike her fellow defendants, Jiau was denied bail; a federal judge in San Francisco ruled that the dual U.S.-Taiwanese citizen is a flight risk.

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FBR to Exit Prime Brokerage Business

January 7th, 2011

FBR Capital Markets is shuttering its prime brokerage unit, which the firm opened just 16 months ago, according to people with knowledge of the matter who were not authorized to speak publicly.

FBR had high hopes for the modest-size business, which started in August 2009. The company heavily recruited senior talent from Shoreline Trading, a Los Angeles-based firm, including Michael J. Murray and Matthew W. Ventura, who were brought on as managing directors. The unit was a “mini” prime brokerage operation, mainly servicing the trades of small hedge funds.

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In the wake of the financial crisis, some of the largest prime brokerage firms dropped their smallest clients. According to analysts, FBR opened its prime brokerage unit to take advantage of the turnover. But they said it struggled to find traction and significant scale in the market.

“The prime brokerage industry is very competitive, especially for prime brokers, like FBR, who service smaller and midsized hedge funds,” said Josh Galper, a managing principal at the Finadium Group, who expects more consolidation in this space.

FBR declined to comment on the closing of its prime brokerage unit.

According to Mr. Galper, hedge funds have also used less leverage in the last two years, resulting in fewer trades and profits for prime brokerage firms.

The silver lining, says Devin Ryan, an analyst with Sandler O’Neill, is the unit never became a significant business, so its disappearance will barely dent the company’s bottom line. The majority of FBR’s revenue comes from its investment banking and sales and trading businesses.

“Ultimately for them, it’s so small it doesn’t move the needle in a major way, it wasn’t something that was generating significant revenues,” Mr. Ryan said. “FBR quickly figured out, it wasn’t going to be a meaningful driver.”

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