Opalesque

For many funds, high watermarks were set in October 2007, and the 21 months since have been a long, hard climb to try and get back to levels where performance fees kick back in. Hedge Fund Research reported on Tuesday that according to its HFRI Fund Weighted Composite Index funds had an average climb of 14.7% to reach that point.

As the industry’s performance disappointed throughout 2008 the number of hedge funds contracted significantly, leaving approximately 8,900 funds (down from a high of 10,000+ funds in 2007). However, the worries that numerous managers would fold funds that had descended below high watermarks in order to start new funds that would be eligible for performance fees has not panned out.

Kaufman Rossin Fund Services, LLC (KRFS), a US-based administrator for a wide variety of single strategy funds and fund of hedge funds funds (onshore and offshore), says that when it comes to funds that have been under high-water marks, it has seen managers “sticking it out”, taking a long-term view of their funds and the industry in general.

The bounce back in hedge fund performance, happening rather quickly in the first half of 2009 (HFRI Fund Weighted Composite Index is up +9.46% YTD), may have made the decision to stick with their funds a little easier for many managers. “We feel that among many managers, there is a sentiment that 2008 will be an outlier over the long haul,” says Christine Egan – Business Development Manager at KRFS.

For full story: http://www.opalesque.com/53670/Hedge_fund_managers_staying_with_underwater670.html

One of U.S. Treasury Secretary Timothy Geithner’s initiative, called the Public-Private Investment Program, or PPIP, has lost momentum, reported the Wall Street Journal on Monday, as big banks are worried about having to sell at fire-sale prices while small banks fear they would be shut out. Potential buyers balk at the risk of doing business with the government, concerned that politicians might demonize them for making big profits (coverage).

On March 23, 2009, the FDIC, the Federal Reserve and the U.S. Treasury announced the Public-Private Investment Program for Legacy Assets – which is designed to provide liquidity for toxic assets on the balance sheets of financial institutions. It is part of the Troubled Asset Relief Program (TARP) as implemented by Geithner. The major stock market indexes in the U.S. rallied on the day of the announcement.

PPIP has two parts, addressing both the legacy loans (which has since been postponed) and legacy securities (which is apparently still going ahead). The funds are meant to come from TARP monies, private investors, and from loans from the Federal Reserve’s Term Asset Lending Facility (TALF).

Large banks, which had positive revenues in Q1-2009 (some say partly due to the relaxation of the mark-to-market rules of FAS 157) and managed to raise significant capital through sales and share offerings, do not seem overly keen on participating.

Earlier this month, BlackRock, Franklin Templeton Investments, Invesco, PIMCO and Western Asset Management were reportedly among the candidates to run funds for the legacy securities portion of the PPIP. Blackrock last month claimed in a release: “the PPIP is one of the most important initiatives recently launched by the government and one that should, over time, help stabilize the banking system.” Bloomberg.com has just confirmed that the Treasury Department was set to name 8 to 10 asset managers for the PPIP this week . Once the asset managers have signed deals with Treasury, they each will be expected to raise at least $500m of private capital within 12 weeks.

Read full article here: http://www.opalesque.com/53173/New_York_Roundtable_HF_managers_are_afraid173.html

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