Rajaratnam Ordered to Pay $92.8 Million Penalty (NYT)
A federal judge on Tuesday ordered the convicted hedge fund titan Raj Rajaratnam to pay a $92.8 million penalty, the largest ever assessed against a person in a Securities and Exchange Commission insider trading case. Combined with the fines and forfeitures ordered last month when he was sentenced to 11 years in prison for insider trading, Mr. Rajaratnam will be paying a total of $156.6 million.
Citi’s Hedge Fund 1.0, saw the hedge fund industry as a niche business, with funds typically relying upon a single prime broker to support trading and reporting. In Hedge Fund 2.0, the next evolutionary phase, funds expanded to include more specialized arbitrage, event-driven, macro and credit-related strategies. “The Hedge Fund 3.0 concept reflects the emergence of specialty providers who focus on the hedge fund industry, enabling fund managers to concentrate on key aspects of investment management while reducing their base of fixed costs,” Alan Pace, Head of Prime Finance in the Americas at Citi, said. “These experts have a keen understanding of the complexities of hedge fund management and can lift the burden of building and maintaining the infrastructure needed to handle complex trading strategies, as well as extensive regulatory and reporting demands.”
Cardano, a pensions manager that looks after about £5bn in the UK and is a large investor in hedge funds, is considering a move into distressed debt strategies if and when the eurozone crisis moves toward resolution — believing the best managers will be able to make big gains.
SEC Seeks to Question Rajaratnam Brothers in Gupta Case (Businessweek)
The U.S. Securities and Exchange Commission wants to question under oath “one or both” brothers of Raj Rajaratnam for its lawsuit against Rajat Gupta, the former Goldman Sachs Group Inc. director, an agency lawyer said. The SEC sued Gupta on Oct. 26, accusing him of feeding tips to Rajaratnam, the Galleon Group LLC co-founder convicted of being at the center of the largest hedge fund insider-trading case in U.S. history. “We have a long list of witnesses including the defendant and one or both of Mr. Rajaratnam’s brothers,” Kevin McGrath, a lawyer for the SEC, told U.S. District Judge Jed Rakoff today at a hearing in Manhattan.
A prominent Philadelphia lawyer was arrested and charged with running a $1.1 million fraud that included an undisclosed loan from a hedge fund. Michael Kwasnik faces four counts, including theft. He and four others, including his father, were also sued by the New Jersey State Attorney General. The heart of the New Jersey charges is that Kwasnik ripped off an elderly Cherry Hill woman to the tune of $1.1 million. But the lawsuit alleges that $5 million of the $13.5 million raised by Kwasnik’s Liberty State Benefits was stolen, and that its life settlement policies were pledged as collateral for a $2.3 million loan from a Canadian hedge fund, Westdale Construction Co. Liberty State never told investors about the loan, or the fact that it defaulted on it.
A federal judge has gone through with his plan to fine a man for passing confidential corporate information to his hedge fund manager son. U.S. District Judge Robert Patterson said last month, while sentencing H. Clay Peterson to two years’ probation and three months of house arrest, that he might also fine him $400,000. Last week, he decided that his initial inclination was the right one, and ordered the fine. Peterson pleaded guilty in August to tipping his son Drew off to the impending acquisition of Mariner Energy, on whose board the senior Peterson served. Drew Peterson then tipped off another hedge fund manager, Big 5 Asset Management’s Bo Brownstein. Both Drew Peterson and Brownstein have pleaded guilty in the case. Prosecutors had not sought a fine from Patterson. Peterson’s defense team suggested a $126,000 fine instead, citing their client’s limited assets and his diminished future earnings capacity.
The litigation and mudslinging surrounding hedge fund DoubleLine Capital hasn’t kept investors away. The firm, whose first hedge fund raised $1 billion within three months of its launch last year, now boasts another $1 billion vehicle. A mutual fund launched by the Los Angeles-based firm last June now manages $1 billion, DoubleLine said.
Xcel Energy to Abandon Plans to Build Power Line Through Louis Bacon’s Ranch (FINAlternatives)
Louis Bacon has lost every single round in his fight to keep a 140-mile power line off of his massive southern Colorado ranch, but he appears to have fought one opponent to exhaustion. Xcel Energy announced this week that it was dropping out of the project.
When it comes to its first foray into energy fund management, the Blackstone Group isn’t starting small. The private equity giant hopes to raise up to $3 billion for its first energy fund, Bloomberg News reports.
A major Texas public pension fund will make a pair of major investments in two major private equity firms. The Teacher Retirement System of Texas will invest $3 billion each in Apollo Global Management and Kohlberg Kravis Roberts, the firms announced yesterday.
Just a week after a federal judge tossed the Bernard Madoff receiver’s lawsuit against JPMorgan Chase, a pair of Madoff investors has taken her reasoning to heart. The investors, Stephen and Leyla Hill, filed a $19 billion lawsuit against the bank, accusing it, as did trustee Irving Picard before them, of ignoring red flags that pointed to Madoff’s $65 billion Ponzi scheme.
Warren Buffett never mentions this but he is one of the first hedge fund managers who unlocked the secrets of successful stock market investing. He launched his hedge fund in 1956 with $105,100 in seed capital. Back then they weren’t called hedge funds, they were called “partnerships”. Warren Buffett took 25% of all returns in excess of 6 percent.
For example S&P 500 Index returned 43.4% in 1958. If Warren Buffett’s hedge fund didn’t generate any outperformance (i.e. secretly invested like a closet index fund), Warren Buffett would have pocketed a quarter of the 37.4% excess return. That would have been 9.35% in hedge fund “fees”.
Actually Warren Buffett failed to beat the S&P 500 Index in 1958, returned only 40.9% and pocketed 8.7 percentage of it as “fees”. His investors didn’t mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year Buffett’s hedge fund returned 10.4% and Buffett took only 1.1 percentage points of that as “fees”. S&P 500 Index lost 10.8% in 1957, so Buffett’s investors actually thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966 Warren Buffett’s hedge fund returned 23.5% annually after deducting Warren Buffett’s 5.5 percentage point annual fees. S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. An investor who invested $10,000 in Warren Buffett’s hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett made more than $36,000 in fees from this investor).
As you can guess, Warren Buffett’s #1 wealth building strategy is to generate high returns in the 20% to 30% range.
We see several investors trying to strike it rich in options market by risking their entire savings. You can get rich by returning 20% per year and compounding that for several years. Warren Buffett has been investing and compounding for at least 65 years.
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Wall Street Legend Warns: “A Strange Day Is Coming to America”