Archive for August, 2009

Fund of Funds Madoff

Funds of Hedge Funds After Bernie Madoff

Funds of hedge funds are trying to remake their image after Bernard Madoff‘s massive ponzi scheme. Investors have lost confidence in the fund of hedge funds industry from factors including poor returns, a deep recession and high profile scandals like Madoff’s. Another factor that may be turning investors away is the common extra level of fess fund of hedge funds charge but many of these funds are changing their methods to attract investors.

Investors withdrew at least $150 billion from fund of funds in 2008 and 2009 leaving these funds with an up-hill battle to reclaim that lost capital. To get investors back without having to drastically cut fees, fund of hedge funds are now replacing employees, heightening risk monitoring or giving investors greater liquidity.

This overhaul is particularly noticeable in the funds that invested with Madoff. Managers are replacing the people who should have foreseen the scheme and bolstering the existing risk management team. In cases when the decision to invest with Madoff was debated in the firm, the person(s) most responsible are being isolated as the sole reason that the fund of funds invested with Madoff.

This strategy of remaking their image and boosting investor confidence may be working. According to S&P, the fund of funds industry is having its first net inflows in over a year.

While the additional fees are not as high as those on the underlying funds, they nevertheless represent an extra cost, and the very need for funds of funds is now being questioned as some institutions consider cutting out the middle man. “Pension funds’ hedge fund databases are getting sufficiently large that you can replicate a fund of funds by buying 50-to-60 funds,” said Nick Bullman, managing partner at Bullman Investment Management.

Some firms have responded by developing a range of so-called managed accounts — tailored and segregated portfolios for individual clients — which allows them to sell when they want and which are hard for investors to reproduce.

London-based Permal, which runs around $19 billion in fund of funds assets, has expanded its range of managed accounts, including some tailored mandates, between which it can move money more quickly.

“Specialist groups and customized products could do quite well. If you focus solely on a customized or country specific product you can justify excess margins,” said Bullman. “The idea of acting as a gatekeeper to … funds doesn’t work now.” Source

Learn more about the Bernard Madoff Scandal and Hedge Funds here.

Related to: Fund of Funds Madoff

• Hedge Fund Tracker Tool
• Fund Marketing and Sales Advice
• Top Hedge Fund Managers
• Free Online Hedge Fund Videos
• Careers & Employment Guide
• Hedge Fund Holdings & Securities Analysis
• Hedge Fund Terminology
• Geographical Guides
• Hedge Fund Startup Tools

Tags: Bernie Madoff, fund of funds, fund of hedge funds, funds of hedge funds, bernard madoff scandal, bernard madoff hedge fund, hedge funds madoff, due diligence, ponzi scheme

Go to Source

“Fitch Ratings downgraded four commercial mortgage-backed securities (CMBS) due to exposure to pieces of a $4.5bn commercial mortgage that is likely to default.”
Go to Source

“Investors want back about $5.5 billion in funds from Cerberus Capital Management’s core hedge funds, The Wall Street Journal reported Friday on its Web site, citing unidentified sources close to the matter. The amount makes up about 71% of fund assets, according to the Journal.”
Go to Source

“American International Group Inc.’s equity is currently worth zero, whatever manic depressive Mr. Market may say today. It is likely to remain zero based on AIG’s own analysis of its future over the next few years. In fact, its obligations to the U.S. Treasury would trade at a discount today. The only reason AIG’s stock should trade above zero today is if you believe crony capitalism will fund the birth of an AIG clone—in other words if you believe AIG’s future will be a rigged game.”
Go to Source

“Still, it was when I read yesterday’s FDIC report, and comments on it, that I started thinking Howard was talking about change that I, so to speak, could believe in. Not only did the FDIC state that their troubled banks list went to 416 ‘clients’, that list has little meaning unless they act on it. More significant is, as Huffington Post noted, that over 25% of all 8500 US banks, for a total of more than 2100 of them, are unprofitable today. ”
Go to Source

“Blackstone rose 25% to $25 billion even as rivals, HSBC and Man Investments, faced double-digit falls in their respective units by the end of June, according to Hedge Fund Journal. Only UBS is ahead of Blackstone with $31.4 billion, according to the London research group.”
Go to Source

“In the latest of many examples of the fraud that has infested the president’s stimulus plan is $1 million in spending cash for incarcerated murderers and rapists and a $15 million infusion for a seldom-used checkpoint in a remote Great Plains town with influential politicians. ”
Go to Source

“The California Association of Highway Patrolmen agreed to amend its current negotiated contract deal with the Department of Personnel Administration and forgo a raise of 0.5 percent that its members were supposed to get July 1. The raise money will be redirected to help prepay officers’ retiree health benefits, state officials said.”
Go to Source

“International passenger travel in July fell 2.9 percent, year-over-year, while freight demand fell 11.3 percent, according to the International Air Transport Association.”
Go to Source

It is clear in retrospect that in parts of the Sun Belt, the economic dependence on construction reached unhealthy levels in recent years.
-NYT

Go to Source