Hedge Fund News: Mohnish Pabrai, Eric Sprott, Paul Singer

MOHNISH PABRAIHedge fund firm losing pulling power (Reuters)
Celebrity financier Arpad Busson has been mulling a sale of EIM, the hedge fund investor he founded in the 1990s, for several months but buyers with pockets as big as the firm’s glossy profile may prove hard to find. EIM’s assets have fallen to around $6.2 billion, a spokesman told Reuters, less than half their peak level of $14 billion, and the returns from most of its funds are below their high-water mark, the level at which they can levy performance fees.

Hedge Fund Third Party Marketing Industry Is Seeing Strong Growth in Demand (Hedgeco)
After a tumultuous three years the hedge fund Third Party Marketing (TPM) industry is seeing very strong growth in demand from both hedge funds and investors, although this growth is not shared evenly across the estimated 500 firms in the industry due to a wide difference in the quality and reputation of TPM firms. Addressed below are reasons for the increase in demand for TPMs, the benefits of the top TPMs to investors and hedge fund managers, what has transpired in the TPM industry over the past three years and the quality difference among TPM firms in the industry. Why the Recent Increase in Demand The third party marketing industry is seeing strong growth in demand from hedge funds because most net flows into the hedge fund business have been concentrated in a small percentage of firms with the strongest brands.

Hedge Fund Association Asks SEC for Clearer Rules on Vetting Investors, Supports Hedge Fund Advertising in Comment Letter (Marketwatch)
The Hedge Fund Association, an international organization that represents hedge funds, service providers and investors, said liberalized advertising and solicitations rules contained in the new Jumpstart Our Business Startups (JOBS) Act would help hedge funds raise assets and “encourage emerging managers to continue to enter the industry.” The HFA also asked the SEC for clearer rules to verify that potential investors are indeed accredited as a way to “add further stability to the industry.” The HFA’s position was outlined in a comment letter submitted to the Securities and Exchange Commission on June 6, 2012. The SEC is soliciting comments before implementing regulations, scheduled to be published July 5, 2012, which are expected to allow hedge fund management companies to communicate directly with potential investors for the first time in their history. Hedge funds would still be restricted to selling their securities to accredited investors such as individuals with a minimum $1 million net worth and qualified institutional investors.

Ackman, Loeb, other hedge funds lose in May (Reuters)
May’s stock market rout dealt a blow to many on Wall Street including several big hedge fund stars whose bets on prominent U.S. companies looked badly timed. Even William Ackman and Daniel Loeb, two of the $2 trillion industry’s most respected players, failed to escape last month’s sharp sell-off and finished May in the red.

Sprott to buy hedge fund manager Flatiron (Theglobeandmail)
Flatiron is a hedge fund business with $275-million in assets, running a strategy involving convertible bond arbitrage that’s designed to produce income and protect investments in a down market. The companies have a letter of intent for a cash and stock purchase by Sprott. No price is being announced. Sprott’s long-held belief, starting with founder Eric Sprott, is that the world’s financial system is nowhere near fixed and it’s going to get worse before it gets better. For years, the firm and its investor clients profited from that belief through investments in energy and gold, which soared.

Fortress Asia Macro Fund Named “Best New Asia Fund” at Eurekahedge Asian Hedge Fund Awards 2012 (Marketwatch)
Fortress Investment Group’s FIG +2.98% Fortress Asia Macro Fund was named “Best New Asian Hedge Fund” at the Eurekahedge Asian Hedge Fund Awards 2012. Sponsored by Eurekahedge, the world’s largest alternative investment funds research house, the awards considered over 400 Asian hedge funds, with winners selected by an independent panel of judges based on performance in 2011 and the first quarter of 2012. The Fortress Asia Macro Fund was launched in March 2011, and is managed by a Singapore-based team headed by chief investment officer Adam Levinson. The Fortress Asia Macro main fund recorded net returns of 9.42% inception-to-date and 5.93% year-to-date through May 31, 2012.

Paulson’s Gold Fund Down In May, But Sees Reversion (Nasdaq)
Billionaire hedge-fund manager John Paulson’s gold fund declined by 12.7% last month as the price of gold dropped, bringing the fund’s losses so far this year to 22.5%, a person familiar with the situation said. But in a letter that Paulson & Co. sent to investors Tuesday, along with the performance numbers, the hedge-fund manager said the trade has reversed lately.

“Investing in Europe: Finding the Alpha” Provides the Mid-Atlantic Hedge Fund Association’s June 14th Conference Topic as the Organization Celebrates Its Ten-Year Anniversary (Marketwatch)
“Investing in Europe: Finding the Alpha” provides a particularly timely topic for the Mid-Atlantic Hedge Fund Association’s (“MAHFA”) June 14, 2012 conference featuring a distinguished speaker roster while the organization proudly celebrates its ten-year anniversary. This MAHFA event at the Union League in Philadelphia, PA begins with 3:30 pm registration, followed by the panel discussion and cocktails concluding at 7:00 pm. The following hedge fund industry executives are speakers: Russell Clark, Portfolio Manager, Horseman Capital

Turning Slumdogs Into Millionaires: One Hedge Fund Manager’s Quest (Forbes)
Believe it or not, Wall Streeters and other investment professionals can be a generous bunch when it comes to charitable giving. Taking a lead from Warren Buffett, Wall Streeters give away billions annually. Checkbook philanthropy has its limits, however, especially when it comes to its effectiveness in producing mea­sur­able return on investment—something the investing crowd demands in their professional life but ignores when they give to charity. Mohnish Pabrai, founder of $500 million Pabrai Investment Funds, wasn’t having any of it.

Hedge Funds Shorts Match October With VIX Near 26 (Bloomberg)
The selloff that erased $1.78 trillion from American equity values has pushed the cost of options to the highest levels of 2012 and prompted hedge funds to add to short sales at the fastest rate since October. The Chicago Board Options Exchange Volatility Index surpassed 26 last week, a level not seen since December. The gain left the gauge near its price just before the Standard & Poor’s 500 Index slumped 12 percent in August and September 2011, data compiled by Bloomberg show. As the VIX has risen, an International Strategy & Investment Group measure of hedge fund bullishness has retreated by 7.4 percent.

It’s not so fine for Woodbine (NYPost)
The bigger they are, the harder they fall. That about sums up the downward spiral of Woodbine Capital Advisors, a hedge fund launched with much fanfare by former Soros Fund Management brass Josh Berkowitz and Marcel Kasumovich in 2008. While capital was scarce in the post-financial crisis world, Woodbine’s dynamic duo were so hot that they turned away money after raising $2.5 billion in just a few months.

The JOBS Act Offers Huge Opportunities To Hedge Fund Managers (Businessinsider)
Mike McD comment: With the passage of the JOBS (Jumpstart Our Business Startups) Act, the regulatory environment for hedge funds and other private investment managers is about to change dramatically. I sat down with Kevin Cott, Esq. – An expert on securities law, and our legal counsel; to find out exactly how this new act will affect the industry.

SEC Promotes Two For Hedge Fund Enforcement (Finalternatives)
The Securities and Exchange Commission has moved to fill the void left in its hedge fund enforcement team left by former group co-chief Robert Kaplan. Kaplan will not be replaced as co-head of the asset management unit. Instead, the SEC has promoted two lawyers to serve as deputies to remaining chief Bruce Karpati; both will handle probes at hedge funds and private equity firms.

Elliott, Third Point Funds Drop in May; Largest Drop for Elliott International Since Nov. 2008 (Nasdaq)
Two of the hedge-fund industry’s most widely watched managers posted a down month in May, with Paul Singer’s Elliott Management recording the largest monthly decline since November 2008 in one of its main funds. Its $13 billionElliott International Ltd. fund was down 1.4% in May, eroding gains earlier in the year, according to a letter to investors. The fund was still up 3.1% this year through May 31, the firm said. Elliott Management’s firmwide assets totaled $20 billion.

Index IQ Hedge Global Macro Beta Index down -0.39% in May (+2.39% YTD) (Opalesque)
IndexIQ, a developer of index-based alternative investment solutions, today announced the performance of its proprietary family of hedge fund replication and alternative beta indexes. Designed as investable benchmarks that replicate the performance characteristics of sophisticated hedge fund strategies, the IQ Hedge™ benchmark indexes were originally introduced on March 30, 2007, and have been calculating live since that date. IQ Hedge is the first family of investable benchmark indexes covering hedge fund replication/alternative beta strategies.

Jack Schwager Says Hedge Fund Managers are Not Necessarily Smarter than the Rest of Us (Benzinga)
When asked if hedge fund managers are naturally smarter than the rest of the population, Schwager said no. “A number of them are absolutely brilliant,” he said. “But a number of them I wouldn’t consider intellects in that sense. They might be smart people but they’re not exceptional. That’s not what makes them exceptional traders. Intellect may help but by itself is certainly not enough. It’s more a matter of having the right type of personality and having the ability to change your mind very quickly, to act without hesitation when you’re wrong.”

6 small-caps that hedge funds love (Marketwatch)
In the financial press, mega-cap stocks dominate the headlines, as they represent the largest percentage of trading activity in the markets. For growth hunters, however, small-caps — those with a market cap between $1 billion and $4 billion — represent some of the most intriguing investments, as they have historically outperformed their brawnier peers over the past century. Yes, with added reward comes more risk, but it’s always a good strategy to consider the little guys. Interestingly, one indicator that often goes overlooked by the everyday investor is hedge fund sentiment, particularly surrounding small-caps. Here are six such stocks that the Street’s biggest money managers are clamoring over; all data is taken from each fund’s 13F filings, which Insider Monkey conveniently reorganizes for your viewing pleasure.

Brownstein, Petersons to pay $4.7 million in insider-trading case (Denverpost)
Three prominent Denver men recently convicted in an insider-trading scheme have settled a civil suit filed by federal regulators that claimed they made more than $5 million on the deal. The $4.7 million settlement between the U.S. Securities and Exchange Commission and H. Clayton Peterson, his son, Drew Peterson, and Drew “Bo” Brownstein comes after the three pleaded guilty to securities-related charges for profiting from the inside deal.

Rajaratnam Added $4 Million To Gupta Fund Value: Witness (Bloomberg)
A lawyer for former Goldman Sachs Group Inc. (GS) director Rajat Gupta, who’s on trial for disclosing inside information, tried to persuade jurors that leaks from the bank came from another firm executive. With the government’s case winding down in Manhattan federal court, prosecutors yesterday called Joseph Yanagisawa, who works in Goldman Sachs’s technology unit, to testify about records of phone calls between Gupta’s office and Chief Executive Officer Lloyd Blankfein’s office.

Hedge Funds Lose 2.9% In Worst Month Since September (Bloomberg)
Hedge funds fell 2.9 percent in May, their worst month since September, as stocks slumped on concern Greece may exit the euro and the global economy is weakening. The decline was driven by long-short equity, multistrategy and global macro (BBHFMCRO) funds, according to data compiled by Bloomberg. Hedge funds have lost 1.3 percent since the start of the year, trailing a 0.9 percent gain for equities worldwide, including reinvested dividends.

Dodd-Frank reporting bigger concern than AIFMD, say COOs (HFMWeek)
Dodd-Frank remains the key regulatory concern for hedge fund COOs globally, while EU short selling has stolen a march on the Alternative Investment Fund Managers Directive (AIFMD) as the biggest issue in Europe, HFMWeek’s inaugural COO Monitor survey has found. According to the Spring 2012 study, based primarily on cloud computing but with a regular regulatory barometer, Dodd-Frank’s SEC reporting requirements were deemed the most important, with nearly 90% of those polled rating it as significant.

SEC’s AM enforcement unit close to full capacity (HFMWeek)
The Asset Management Unit of the Enforcement Division of the US Securities and Exchange Commission (SEC) will be operating at full capacity by the end of this year for the first time since its launch in 2010, a founder of the division has told HFMWeek sister publication Hedge Compliance. “The majority of the asset management unit started the summer of 2011, and last year we brought 30% more enforcement action involving investment managers at a time when the unit was still operating at part capacity,” said Jordan Thomas, chair of the whistle-blowing practice at Labaton Sucharow, who previously worked at the SEC and was one of the founding members of the unit.

Former Credit Suisse pro launches US consultancy firm (HFMWeek)
Vito Pizzullo, who previously worked in Credit Suisse’s fund administration arm, has formed a New York-based consulting firm to help new and existing hedge fund managers with business development, particularly in to regards service provider selection, HFMWeek has learned. Among its services, KGDV Consulting, which formed last month and will initial focus on US-based firms, will help start-up hedge funds decided whether to outsource their service providers or hire dedicated operations personnel.

Cerberus shoots past $1 billion in new RMBS fund (Absolutereturn-Alpha)
Cerberus Capital Management has scored a big win in the hot mortgage-backed securities market, raising more than $1 billion for its new Cerberus RMBS Opportunities Fund according to investor documents obtained by AR. Stephen Feinberg’s firm has been on a fundraising tear of late in the strategy, which launched in June 2008. It managed just $188 million last August, but jumped to $705 million at the start of the year, and crossed into nine-figure territory in April. Cerberus now has $1.064 billion in…

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