Wednesday, October 19, 2011

Gilad Shalit home. Hamas supporters rally near Ramallah, call for renewed terror attacks, soldier kidnappings.

HaAretz published minute-by-minute report on Gilad Shalit's return home
As you read, note:
08:50 Hamas supporters rally near Ramallah, call for renewed terror attacks, soldier kidnappings.

17:05 The Shalit family arrives in Mitzpe Hila to a ecstatic welcome from hundreds of friends, family and supporters.
Shalit family - Yaron Kaminsky - 18.10.2011
The Shalit family en route to their reunion with Gilad, October 18, 2011.
Photo by: Yaron Kaminsky

Shalit will be flown home at 16:00 accompanied by a doctor, reports Channel 2.16:00 The Shalit family is flown home to Mitzpe Hila in a military helicopter, with medical personnel onboard.
14:29 Shalit reported he felt weak and ill during flight from Egypt border and as such will undergo more comprehensive medical check-ups, reports Channel 2.
13:58 All prisoners have been transfered to their respective drop-off points. Gilad Shalit has been reunited with this family. The live blogging of the prisoner release ends here.
13:28 Netanyahu mentions that this week will be the Jewish holiday of Simchat Torah, when portions of the book Isaiah will be read in synagogues, which discuss the importance of achieving the release of captives.
Shalit family - Nir Kafri - 18.10.2011
The Shalit family leaves their Mitzpe Hila home en route to reunion with Gilad , Oct. 18, 2011.
Photo by: Nir Kafri
Netanyahu: I just embraced Gilad and took him to his parents, and told them, I have returned your son to you.
13:23 Netanyahu: I thought about Gilad Shalit stuck in captivity for more than 5 years. I didn't want Gilad Shalit to turn out like Ron Arad, who has now been missing for 25 years. I thought about the pain of Ron Arad's mother until her dying day.
13:21 Netanyahu: I held fast to my insistence that the leaders of Hamas stay in Israeli jails and that they would not return to the territories. In recent months, Hamas compromised on this demand to free their leaders, so I was forced to make a difficult decision. It was the best deal we could make.
13:20 Netanyahu: Today is a happy day and a sad day for Israel. When I returned to the position of Prime Minister in 2009, I had a important task waiting for me: to return our soldier Gilad Shalit home.
13:18 Netanyahu speaks at press conference at Tel Nof Air Force Base.
13:09 Netanyahu meets with Shalit, tells him: How good that you have returned home. Shalit salutes Netanyahu, Netanyahu embraces Shalit.
13:04 After 5 years and 4 months of captivity, Gilad Shalit meets with his family.
Ofer 181011
Prisoners to be freed as part of the Shalit swap arrive at Ofer, October 18, 2011.
Photo by: Tomoer Appelbaum
Gilad Shalit, in first interview to Egyptian television: I knew people were working to free me, I had access to mass media.
12:45 Gilad Shalit lands in Tel Nof Air Base.
12:25 IDF Spokesperson announces that it has completely carried out its end of the prisoner release deal and that it has released the Palestinian prisoners, with the help of the Red Cross.
First video released of Gilad Shalit being greeted by IDF soldiers; he is filmed wearing glasses. Channel 2 reports that he was not given sunglasses in captivity, so there is a fear that his eyesight may have deteriorated.
11:53 Palestinian protesters clash with IDF near Ramallah. Protesters are reportedly upset that prisoners will not be released at pre-determined location they were waiting at. Route of the prisoner release convoy was reportedly altered due to protesters burning tires at the scene.
Shalit Red Cross - Alon Ron - 18.10.2011
Red Cross vehicles arriving at the Kerem Shalom crossing, Oct. 18, 2011.
Photo by: Alon Ron
11:49 IDF Spokesperson: IDF has conducted medical tests on Gilad Shalit and found him to be in good health. He will now be taken to see his family.
11:47 Gilad Shalit in first interview, to Egyptian TV: It's uncomfortable to see so many people at once, after not seeing people for so long.
11:42 Gilad Shalit in first interview, to Egyptian TV: I will endeavor to facilitate peace between Israel and Palestinians.
11:32 Hamas chief Khaled Meshal currently in el-Arish, reports Channel 2.
11:25 Gilad Shalit currently undergoing medical tests in Israel.
11:23 Gilad Shalit, in first interview, to Egyptian television: "I did think that I would be set free. I felt over the last few months that it would happen."
11:22 Gilad Shalit, in first interview, to Egyptian television: "I missed my family, seeing people, and talking."
11:18 Gilad Shalit to Egyptian television: "I will be very happy if the Palestinian prisoners in Israeli jails are released, so long as they don't return to attack Israel."
11:11 Gilad Shalit to Egyptian television: "I was informed of my impending release a week ago."
11:08 Gilad Shalit to Egyptian television: "Hamas treated me well."
11:05 IDF Spokesperson: "Gilad Shalit has returned home"
OFFICIAL CONFIRMATION: Gilad Shalit has been returned to Israeli soil after 5 years and 4 months in captivity.
10:59 Gilad Shalit is currently at the Israel border crossing.
10:44 Shalit family watches first photos of Gilad Shalit released from captivity in a private room on Tel Nof Air Force Base.
10:38 OFFICIAL CONFIRMATION: Gilad Shalit has returned to Israeli hands after 5 years and 4 months in captivity.
After confirming that Gilad Shalit is in Egyptian hands, IDF begins transfer of Palestinian prisoners.

10:23 BREAKING: First images of Gilad Shalit broadcast on Egyptian television.
10:16 OFFICIAL IDF CONFIRMATION: Gilad Shalit has been identified alive and well at the Egypt-Gaza border.
10:00 Egypt has agreed to accept Palestinian prisoner Amna Muna.
09:52 Female Palestinian prisoners have relented, begin their way to Gaza.
09:49 Gilad Shalit has spoken to his family by telephone, reports BBC on Twitter.
09:44 Transfer of female Palestinian prisoners to Gaza has begun, reports DPA.
09:37 Prime Minister Netanyahu meets with family of Gilad Shalit at Tel Nof Air Force Base.
09:33 IDF official says that the prisoner exchange deal is being held up because of the two Palestinian prisoners' refusal to be deported to Gaza.
09:31 Unattributed report: Two female Palestinian prisoners refuse to be deported into Gaza.
09:23 Gilad Shalit has arrived in Egypt and is wearing an IDF uniform, reports Channel 2.
09:17 Egyptian television says it will release pictures of Gilad Shalit being transferred.
09:13 Israel official meets Gilad Shalit ahead of return to Israel, reports Channel 2.
08:50 Hamas supporters rally near Ramallah, call for renewed terror attacks, soldier kidnappings.
08:38 Top Hamas official confirms that Gilad Shalit has been transferred to Egyptian hands.
08:34 Dozens of families from Isawiya awaiting Israeli Arab prisoners' release (Haaretz)
08:28 Al-Arabiya reports that Gilad Shalit has been handed over to the IDF; no Israeli confirmation has been given as of yet.
08:24 Gilad Shalit arrives at the Israel-Gaza border crossing.
08:21 The Shalit family arrives at the Tel Nof Air Force Base.
08:18 Noam Shalit: "You can say this is one of the happiest days of my life."
08:11 Israeli Arab prisoners transferred from Prison Service to Red Cross, and from there to a Border Police base near Jerusalem; with that, the Prison Service has completed its role in the prisoner exchange.
08:06 A lot of medical equipment, including dental and x-ray equipment, is brought to Tel Nof Air Force Base.
08:03 IDF Chief of Staff Benny Gantz makes his way to Tel Nof Air Force Base in anticipation of Gilad Shalit's arrival.
08:01 Gilad Shalit's grandfather Zvi arrives at Tel Nof Air Force Base.
07:53 Buses carrying Palestinian prisoners roll out, in effective confirmation of Gilad Shalit's presence in Egyptian hands.
07:41 All Palestinian prisoners are on Red Cross buses awaiting the Egyptian go-ahead for the final exchange to take place.
07:37 A convoy with Israeli Arab prisoners is on its way to an IDF base near Jerusalem, ahead of their impending release.
07:35 Al-Jazeera reports that Gilad Shalit is now held on the Palestinian side of border by Egyptian officials.
07:31 Egypt reports that Gilad Shalit is now in Egyptian hands; Hamas denies exchange has already taken place.
07:20 Reports emerge from Egypt that Gilad Shalit is already en route to the Kerem Shalom border crossing.
07:15 Female Palestinian prisoner Amna Muna, who was supposed to be deported abroad as part of prisoner exchange deal, will instead be deported to Gaza.
06:54 Shalit family departs from North toward IAF Tel Nof base as all Palestinian prisoners arrive at border crossings.
At first, prisoners will be taken off the busses and identified, ahead of being handed over to Egyptian authorities in Kerem Shalom, and the Red Cross in the Ofer Camp prison (Anshel Pfeffer)
06:04 Prisoner convoy from Sharon Prison arrives at Ofer Prison. Two female prisoners and 14 east Jerusalem residents will be moved to a police station near Ma'aleh Adumim and from there to Jerusalem(Anshel Pfeffer)
Another convoy, this one with 147 prisoners will leave for Kerem Shalom and will be followed several other small envoys transporting 40 additional prisoners.
One prisoner will be moved taken to the Katzrin police; two prisoners will arrive at Ayalon Prison and will be released in Lod, and three prisoners that were moved to Megido Prison are residents of Wadi Ara(Yaniv Kubovic)
05:38 Red Cross representatives arrive at Israeli prison, identify prisoners earmarked for release. (Yaniv Kubovic)
05:33 Israeli Border Patrol prepares to close roads leading to Kerem Shalom, forming a ‘sterile zone’ for Palestinian prisoner transfer.(Anshel Pfeffer)
05:16 Second convoy with 147 Palestinian prisoners leaves prison for Kerem Shalom. (Yanir Yagna)

Monday, October 17, 2011

Release of Gilad Shalit

Officials in the Prime Minister’s Office said that “a brief window of opportunity has been opened that would possibly lead to Gilad Shalit’s homecoming.” In his speech, Netanyahu said that he is thankful he can take part in the mitzvah of “pidyom shvuyim,” freeing the captive, as Shalit should be on his way home “in the next few days.” He emphasized that he instructed the team to sign the deal which was crafted keeping in mind the obligation to Gilad’s family as well as Israel’s security.

Gilad Shalit (born August, 28 1986) was kidnapped from his post on June 25, 2006, by Hamas militants in a cross-border raid near the Kerem Shalom crossing in Israel, and has been held as a hostage at an unknown location in the Gaza Strip by Hamas since then.

For more than five years, Hamas has refused requests from the International Committee of the Red Cross to allow visits to Shalit. Multiple human rights organizations have stated that the terms and conditions of Shalit’s confinement are contrary to international humanitarian law. To date, the only contact between Shalit and the outside world since his capture has been three letters, an audio tape, and a DVD that Israel received in return for releasing 20 female Palestinian prisoners. The current deal consists of the release of over 1,000 Palestinian prisoners serving various terms in Israel.

Listen to a song called “erev chag”, holiday eve, dedicated to Gilad, and our awaiting for his return:

Wednesday, October 12, 2011

Jeffrey Gundlach on bonds, risky assets and gold

Jeffrey Gundlach, bond-fund manager and CEO of DoubleLine Capital LP, held a conference call late Tuesday, October 11, discussing whether the risky assets are cheap enough. Not yet. “It’s a dangerous market at the present level, and if anything we’d be inclined to short risk assets.”
DoubleLIne Multi-Asset Growth Fund DMLIX is positioned to benefit from further declines in the price of copper ,  which Gundlach called a “wonderful indicator” of global economic health. DMLIX is “significantly underweight” commodities in general. Copper’s weakness “shows that the global recession story has some teeth.”
The global-growth slowdown also has driven Gundlach into U.S. dollar-based assets, with no exposure of any kind to non-U.S. stocks. Gundlach' funds are in a low-risk mode . There will be a better entry point into the emerging market equity, energy and commodity complex and equities in general.
Gundlach is bullish on gold, especially shares of gold miners, which under performed  metal itself. “Gold could come down to $1,500 or so on a sell-off of commodities and inflation-risk generally.” And at that level he would be a buyer .
Gundlach has owned Treasury bonds for some time and his investors have benefited from the rally, but nowadays he sees long-term bonds as hedges, not investments. In fact, if and when the 10-year Treasury yield  touches 1.7% again, Gundlach would be inclined to lighten up on Treasurys. It’s not that he believes inflation is imminent and threatens bond values. It’s more that bonds have rallied tremendously and may have had their best days for capital appreciation.  “I don’t think buying Treasurys at 1.7% on the 10-year can be classified as investments.”

Monday, October 10, 2011

Christoph Eibl on the price of Gold as commodity

Christoph Eibl, founding partner of Tiberius Asset Management, talks about the demand for gold and the outlook for industrial metals. He speaks with Linzie Janis on Bloomberg Television's "Countdown."
Watch the interview with Christoph Eibl on YouTube  (Source: Bloomberg, October 4, 2011)

Adrian Mowat on Europe and emerging markets

Adrian Mowat, Hong Kong-based chief Asia and emerging-market strategist at JPMorgan Chase & Co., talks about global financial markets and his investment strategy. Mowat, speaking with Susan Li on Bloomberg Television's "First Up," also discusses China's economy and Europe's sovereign debt crisis. 

Watch the interview with Adrian Mowat on YouTube (Source: Bloomberg, October 10, 2011)

Saturday, October 8, 2011

What is in a draft of the 'Volcker Rule' on proprietary trading?

A draft of the 'Volcker Rule' on proprietary trading has hit the Internet, rocking both Wall Street and Washington and sending financial organizations across the country into a frenzy.
"Billions of dollars are at stake for big banks, which have been working for months to shape the rule aimed at curbing risky trading activities that played a part in the financial crisis," the Wall Street Journal wrote.
The leaked document was labeled as a draft and was authored by FDIC, the Federal Reserve, the Comptroller of the Currency and the Securities and Exchange Commission. It was posted on the American Banker's website .
The Volcker Rule proposal defines proprietary trading, offer limited circumstances under which a bank could invest in a hedge or private-equity fund, and require banks to install internal controls to ensure compliance with the rule. The Federal Deposit Insurance Corp. is set to release proposal on Oct. 11.
From WSJ:

"Officials inside the government agencies that drafted the document fumed about the leak. They worried that it could lead to pressure to change the language ahead of the FDIC's meeting next week. Alternatively, the regulators could feel pressure to refrain from changes that could make it appear that they had given in to industry pressure.[...]
The leak left regulators fuming and opened a new front in Wall Street's battle to soften the blow of the proposed rule. The draft gave banking industry lobbyists several days to discuss it before Tuesday, when the Federal Deposit Insurance Corp. is scheduled to consider issuing a version for public comment."
Many of those who have seen the draft are reportedly concerned that it demands extremely granular policing of traders, as part of the strict compliance program described in the leaked 205-page draft.
From the WSJ:

"Among the many prescriptions for these compliance regimes: Banks with trading assets of $1 billion or more in trading assets and liabilities would have to measure their trading with a variety of quantitative formulas, and periodically report these metrics to regulators. The specific reporting requirements would vary by the scale and scope of a banks' trading activity, according to the document." [...]Critics say that by allowing banks to hedge risks on a portfolio-wide basis, the rule could open the door to more aggressive trading tactics. A bank could claim that its portfolio is at risk from an economic turn, such as a recession, and take positions that protect it from such an event, they say."
Still, like countless other pieces of legislation pushed through under the Dodd-Frank Act, it will likely take many more months if not years before Wall Street firms and regulators know how the rule will actually be applied in practice.

(Source: WSJ, October 7, 2011)

Tuesday, October 4, 2011

Reflection Series: gold outlook almost a year ago - November 22, 2010

Christoph Eibl, co-founder and head of trading at Tiberius Asset Management, talks about the outlook for commodities including gold. Gold bought for investment accounted for 38 percent of total demand in 2010, compared with about 4 percent a decade before, the World Gold Council estimates. (Source: Bloomberg, November 22, 2010)

Monday, October 3, 2011

Meet David Tepper managing Appaloosa

David Tepper Hedge Fund Manager Appaloosa Management
He is a “distressed-debt specialist”, was once (2003) considered to be “the hottest investor on wall street” and was one of the top 10 money earners in Institutional Investor’s Alpha’s Ranking of the world’s 25 Highest-Paid Hedge Fund Managers in 2004. He also ranked second on the same list in 2003. With an estimated current net worth of around $1.2 billion, he is ranked by Forbes as the 645th richest person in the world.
Tepper was born in Pittsburgh’s East End, the second of three children. During his adolescence he spent plenty of time with his maternal Grandfather, Benjamin Tauberg. The two were huge fans of baseball, especially the Pittsburgh Pirates. Tepper said of the game, "I loved baseball. I lived and died for Roberto Clemente. I knew every player in the major league. You could pull a player’s card, and I could tell you the statistics."
David and his family lived modestly in a four-bedroom plain redbrick row house or terraced house in Stanton Heights. David stuck close to his father Harry and mother Roberta. His father was a bright accountant with a modestly sized firm. His mother was a homemaker, but decided to become an elementary school teacher and taught at different Pittsburgh Public Schools.
David attended Peabody High School where he was good at math but never received an 'A'. Tepper would ask plenty of questions as a student, but didn't study often. Although Math was an easy subject and he could memorize baseball statistics with ease, it did not translate into his academic performance.
David showed an interest in his father’s investments and the numbers associated with them. His father made a hobby of investing in the markets and would share his knowledge with the family over dinner. David showed immediate interest in his first investments, "Pennsylvania Engineering Co" and the soon to be bankrupt "Career Academies", that were given to him by his father.
While in High School he had a hand at Intramural football, but preferred acting because he didn't like the condition of the football field. During his senior year he won the school's best actor award for his role as "the father" in Bye Bye Birdie and received a standing ovation at the awards ceremony.
The University of Pittsburgh would prove to be a stepping stone for David. His grades improved significantly and he paid his way through school by working at the Fine Arts library. He graduated with honors receiving his Bachelor of Arts degree in Economics. He also dabbled in the markets during college.
After graduation he entered the finance industry working for Equibank as a Credit Analyst in the Treasury department. In 1980, unsatisfied with this position he enrolled for his Graduate Degree from Carnegie Mellon University.
Tepper has an uncanny ability to invest in a market outside of his expertise. Tepper was the former head of junk bond trading at Goldman Sachs In 2001 he generated a 61% return by focusing on distressed bonds, and in the fourth quarter of 2005 he pursued what he saw as better opportunities in Standard & Poor's 500 stocks. He makes significant gains year after year by “investing in the diciest of companies,” such as MCI and Mirant. Investments in Conseco and Marconi also led to huge profits for the company’s hedge funds while Tepper “keeps the market on edge.”
On March 19, 2003 David announced he would make a single donation of $55m to Carnegie Mellon University's Graduate School of Industrial Administration. This donation was made after being encouraged by Kenneth Dunn his former professor who became Dean of the school. He accepted the suggestion, but made it a “naming-gift” and suggested the school's name be changed to David A. Tepper School of Business.

Hedge Fund and Private Equity Executives on the Forbes 400 List of Wealthiest Americans

Double-dip recessions, sovereign debt crises and political gridlock notwithstanding, it's been a good year for hedge fund billionaires.
Alternative investments players make up some 16% of this year's Forbes 400 list of the wealthiest Americans. One of them even cracks the top 10: George Soros, who is now a retired hedge fund manager, did very well for himself in Soros Fund Management's last year of managing money for outside investors. Soros' fortune now totals $22 billion, up almost $8 billion from last year and good enough for seventh place on the list.
No other hedge fund or private equity honcho cracked that elite group, but 18 others made the top 100. And most of them boast larger fortunes than last year, some of them significantly larger.
Despite his miserable year, Paulson & Co.'s John Paulson remains the second-richest hedge fund manager in the country, with a $15.5 billion fortune, 17th on the list and $3.1 billion higher than a year ago. Dell Inc. and MSD Capital founder Michael Dell was one spot behind with $15 billion, followed by Soros' fellow retiree Carl Icahn in 25th place with $13 billion ($2 billion more than last year), Ronald Perelman in 26th with $12 billion ($1 billion more) and James Simons in 30th with $10.6 billion ($1.9 billion more).
Steven Cohen was 35th on the list with $8.3 billion ($1 billion more than last year), Ray Dalio 44th with $6.6 billion (up $1.6 billion), David Tepper in 60th with $5 billion (up $700 million) and Stephen Schwarzman and Sam Zell in 66th with $4.7 billion (up $600 million and $300 million, respectively). Another hedge fund retiree, Caxton Associates' Bruce Kovner, was in 74th place with $4.3 billion ($200 million more than last year).
Two alternatives players dropped off the list this year. Blackstone Group co-founder Peter Peterson has given away a huge chunk of his fortune over the past year, while Maverick Capital Management's Samuel Wyly, who just made the cut last year, fell short this year. Wyly is facing Securities and Exchange Commission fraud charges and this year lost his brother and business partner, Charles Wyly, in a car accident. 
(Source: FINAlternatives, Oct 3, 2011)
Hedge Fund and Private Equity Executives
on the Forbes 400 List of Wealthiest Americans
rank billionairefirmnet worth
7George SorosSoros Fund Management$22 billion
17John PaulsonPaulson & Co.$15.5 billion
18Michael DellMSD Capital$15 billion
25Carl IcahnIcahn Enterprises$13 billion
26Ronald PerelmanMacAndrews & Forbes$12 billion
30James SimonsRenaissance Technologies$10.6 billion
35Steven CohenSAC Capital Advisors$8.3 billion
44Ray DalioBridgewater Associates$6.6 billion
60David TepperAppaloosa Management$5 billion
66Stephen SchwarzmanThe Blackstone Group$4.7 billion
66Samuel ZellEquity Group Investments$4.7 billion
73Bruce KovnerCaxton Associates$4.3 billion
75Daniel ZiffOch-Ziff Capital Management$4.2 billion
75Dirk ZiffOch-Ziff Capital Management$4.2 billion
75Robert ZiffOch-Ziff Capital Management$4.2 billion
86Henry KravisKohlberg Kravis Roberts$3.7 billion
88Robert BassOak Hill Capital Management$3.6 billion
91John ArnoldCentaurus Energy$3.5 billion
96George RobertsKohlberg Kravis Roberts$3.4 billion
107Leon BlackApollo Management$3.2 billion
107Ron BurkleYucaipa Cos.$3.2 billion
107Paul Tudor JonesApollo Management$3.2 billion
117Edward LampertESL Investments$3 billion
139William ConwayThe Carlyle Group$2.7 billion
139Daniel D'AnielloThe Carlyle Group$2.7 billion
139David RubensteinThe Carlyle Group$2.7 billion
150Daniel OchOch-Ziff Capital Management$2.6 billion
159Stanley DruckenmillerDuquense Capital Management$2.5 billion
159Tom GoresPlatinum Equity$2.5 billion
166Julian RobertsonTiger Management$2.4 billion
171Nicolas BerggruenAlpha Investment Management$2.3 billion
171Kenneth GriffinCitadel Investment Group$2.3 billion
188Philip FalconeHarbinger Capital Management$2.2 billion
188Henry HillmanHillman Cos.$2.2 billion
200Israel EnglanderMillenium Partners$2.1 billion
200Wilbur RossW.L. Ross & Co.$2.1 billion
200David ShawD.E. Shaw Group$2.1 billion
227David BondermanTexas Pacific Group$1.9 billion
227James CoulterTexas Pacific Group$1.9 billion
227Alec GoresGores Technology Group$1.9 billion
242Leon CoopermanOmega Advisors$1.8 billion
242Theodore ForstmannForstmann Little$1.8 billion
260George ArgyrosWestar Capital$1.75 billion
273Glenn DubinHighbridge Capital Management$1.6 billion
273Noam GottesmanMan Group$1.6 billion
273Bruce KarshOaktree Capital Management$1.6 billion
273Howard MarksOaktree Capital Management$1.6 billion
293Stephen MandelLone Pine Capital$1.5 billion
293Jonathan NelsonProvidence Equity Partners$1.5 billion
293Peter ThielClarium Capital Management$1.5 billion
309Joshua HarrisApollo Management$1.45 billion
309T. Boone PickensBP Capital$1.45 billion
309Marc RowanApollo Management$1.45 billion
312Louis BaconMoore Capital Management$1.4 billion
312Thomas LeeLee Equity Partners$1.4 billion
331Richard ChiltonChilton Investment Co.$1.3 billion
331Marc LasryAvenue Capital Management$1.3 billion
331Thomas SteyerFarallon Capital Management$1.3 billion
359James DinanYork Capital Management$1.2 billion
359C. Dean MetropoulosMetropoulos & Co.$1.2 billion
359Nelson PeltzTrian Partners$1.2 billion
359Henry SwiceaHighbridge Capital Management$1.2 billion
375Thomas BarrackColony Capital$1.1 billion
375John HenryJohn W. Henry & Co.$1.1 billion

Sunday, October 2, 2011

The biggest risk is not to protect your assets now

Reflection Series: John Godden on managing the capital originating from emerging markets

The map of the hedge fund world is being redrawn. And following the near total re-charting of investment, away from high-net-worth individuals and towards institutional money, how much of this new investor landscape is likely to be capital originating from emerging markets?
At a macro level, it seems promising. There is already a global shift away from Western economies with their traditional wealth creation founded in industry and service sectors, towards new regions. Emerging economies and their 21st century resources, including energy, low-cost labour and manufacturing, are growing rapidly.
Fast-track growth has alerted hedge fund marketers to the  potential in emerging regions, yet there are stumbling blocks. The money may be present, but most emerging market countries are making determined inward investment and, in many cases, are looking to raise external capital to assist with infrastructure development. So investing externally is contrary to such programmes. Additionally, the emerging economies are looking to buy assets that enable them to have ownership/control of upstream/downstream services. They want to control the means of production or ramp up the cost efficiencies of their own products, not flick through manager pitch books.
So why would these countries and their wealth managers be interested in investing in hedge funds and what would appeal to them? Despite a marked preference for internal investment, it does appear that there is a growing attraction of emerging market capital towards the very basic fundamentals of hedge funds. Diversification and non-correlated return streams.
If you have massive exposure to a narrow underlying resource such as oil or outsourcing services, no matter what level of relative value you place on the future value of your own ‘home market’ exposure, it will always be prudent to have a level of differential exposure to act as a hedge against these core exposures. Investing in geographically diversified baskets of equity, credit or real estate does not necessarily hit the right buttons, due to global factors often driving up correlation and thus dulling the diversification impact.
Rather, investing in strategies that are fundamentally differential to their core holdings can be the key. However, it still remains very difficult to execute pure alpha strategies in the Mena region, as the required tool kit, from short equity through to CFDs, is often not available. As such, accessing the returns of many arbitrage strategies requires the use of more mature markets, which can then provide the truly non-correlating return streams.
Of key significance to investors generally at this time is counterparty risk and infrastructure governance. This is perhaps more sensitive for emerging market capital where political and cultural requirements demand particular care. This is a key driver behind an upsurge in interest in pre-formed infrastructures such as Ucits or segregated managed account platforms.
The Ucits brand has travelled very well to investors from emerging markets, who see the Ucits III structure as an important quality mark. The dawn of absolute return ‘Newcits’ appears well supported among wealth managers representing emerging market capital,  as they are seen as a safe access method to the alternative asset management skill set.
The massive uptick in the use of managed accounts is a result of fund of hedge funds managers responding to the governance demands made by emerging market origin investors. The ability to gain proper levels of information and investment control are of extreme importance when mandate conditions include avoidance of exposure to certain commercial activities, let alone being able to control unwanted counterparty credit exposures.
So what should a hedge fund marketer put in their bag when heading off to engage with emerging market investors?
The current answer appears to be a range of strategies that are properly non-correlated to the economic interests of the target investor pool. Avoid beta – particularly commodities and equity – and show evidence of differential return shapes (what used to be called alpha). Take the strategies neatly wrapped in a Ucits III or a segregated managed account structure and be just as willing to be guided by their map, as your own route plan.
(Source: John Godden, March 25, 2010)