Hedge Fund Focus: October 7, 2016
In case you missed them, here are the hot topics in the hedge fund space this week…
What a week! With big developments rocking the industry last week, we saw further fallout with Omega Advisors and Och-Ziff due to their insider trading and bribery investigations as well as more developments in the regulation arena that may continue to wreak havoc on the industry:
- The Supreme Court announced it would weigh in on Bassam Salman’s highly followed insider trading case (he is accused of trading on information about Citigroup’s client mergers obtained from his brother-in-law who worked at the firm). At the center of the case is whether prosecutors need to prove informants benefited from leaking information in order to pursue insider trading charges. The outcome could limit prosecutors’ ability to pursue such charges against hedge fund managers and traders
- The SEC announced it will take a closer look at funds hit by heavy redemption requests due to potential conflicts of interest. The regulatory body is concerned managers might gate money or suspend redemption requests in order to not bleed cash
Continued Omega and Och-Ziff Swirl
- In the wake of the SEC’s insider trading investigation into Leon Cooperman’s Omega Advisors, Goldman Sachs’ retirement committee announced it will end the Omega investment option available to employees through the bank’s 401K program. The option amounts to approximately $300M of Omega’s assets and though small, the pull is a major hit to the firm’s reputation as well as a sign of more potential fallout to come
- Although Och-Ziff has settled its bribery investigation, the matter is now presenting a whole new hurdle for the firm. On top of dealing with the current industry environment of widespread outflows and mediocre performance, the firm now has to convince investors to stick with it as questions swirl about its ethics and deal with fundraising constraints stemming from its settlement agreement. Last month alone the firm bled another $2.3B in capital, with New Jersey redeeming $190M. The pension plan still has $2B invested with the firm
Performance Overview: With September over, performance figures began to roll in and it looks like we can count the month as a success, at least according to HFR:
- HFR’s index was up 0.55 percent, bringing yearly gains to 1.22 percent
- Lyxor had funds virtually flat, down 0.1 percent, putting yearly losses at 2.1 percent
- Gains were led by CTAs, which were up 2 percent for the month after taking a performance hit
- Long/short strategies brought in 1.09 percent for the month
- And distressed funds led inflows in August after taking a big hit in July
- Citadel continued its revival, adding 2 percent to two of its main funds, bringing YTD figures to 2.6 percent
- David Einhorn’s Greenlight Capital posted a small loss, 0.9 percent, paring back yearly gains to 4.5 percent
- And unfortunately, Lansdowne lost another 2.3 percent, bringing yearly losses to 14.7 percent or approximately $1.8B
Fees remained a major topic of discussion (shocking) as the head of Britain’s biggest retail broker, Hargreaves Lansdown, came out urging regulators to oversee asset management fees by regulating what costs managers pass on to investors as well as be forcing them to be more transparent about what is being charged. Additionally, and very surprisingly, an Odey alum is charging a 1 percent management fee and zero percent performance fee on his new fund.
Weekly Read: Hedge Fund Intelligence wrote an interesting piece about the industry’s golden goose – pension funds – exploring if this relationship will continue or come to an end, especially for fund of hedge funds, in light of performance issues and the transparency concerns that are amassing.
The activist arena was also abuzz this week after a bit of a hiatus with Elliott reviving its attack on Samsung via a new approach. The luminary activist is proposing “that Samsung essentially split its electronics business into two separate companies as part of a broader reshaping of the business.” Last year the goliath manager failed to thwart a merger between two of Samsung’s affiliates. Additionally, there was a lot of talk about activism in Europe and how it is ramping up to U.S. levels as the number of attacks have doubled in the last year.
Quick Things to Know: Despite a plethora of issues and revelations that a waffle on Brexit cost the firm significantly, Brevan Howard’s CEO publicly confirmed the flailing hedge fund will not close its doors; Citadel gobbled up a team from BlueCrest who ran nearly a fifth of the firm’s business; and fund of hedge funds were slightly up in August, paring back yearly losses but still lagging single managers.