Week in Review
April 28, 2008
Hedge Fund Investments Drop in First Quarter
Hedge fund investors started the year off slowly, only raising $16.5 billion in the first quarter of this year, according to Hedge Fund Research (HFR).
"The financial market volatility which characterized the second half of 2007 accelerated into the first quarter of 2008, resulting in a broad dispersion among the returns posted by hedge funds strategies," said Kenneth Heinz, president of HFR. "In some cases, the performance has been extreme, ranging from liquidations to gains of 100%," he said in a press release.
Selected strategies garnered more assets than others: $8.2 billion was allocated to equity hedge strategies. Over $6.5 billion was allocated to relative value strategies. Funds looking for opportunities in distressed credit saw significant asset inflows, with distressed and special situations strategies attracting almost $8 billion in new funds.
Strategies that had investors liquidating were macro strategies, which investors redeemed $1 billion, and within the event-driven strategy sector investors reduced assets in merger arbitrage strategies by more than $4 billion.
Regarding performance, credit and equity strategies turned in weak returns over fourth quarter 2007 results. Equity hedge decreased 5.7% and most arbitrage strategies declined up to 5%. Convertible arbitrage, emerging markets and technology-focused equities all decreased over 6% for the quarter.
Investors pumped $194 billion into hedge funds last year.
SEI Private Bank Offers New Platform
SEI Investments, an Oaks, Pa., investment manager, has announced that its private banking unit introduced an enhanced integrated managed account platform to U.S. banks.
The company said Tuesday that the platform was introduced in response to emerging client needs and an industry moving toward integrated solutions.
South Carolina Bank and Trust Financial Corp. in Columbia, an SEI client for nearly three years, was the first bank to adopt SEI's Integrated Managed Account Program.
It is a component of SEI's comprehensive array of wealth management services. SEI administered $426 billion of mutual fund and pooled assets and managed $197 billion at Dec. 31.
Hedge Funds Manipulate Global Commodity Prices
While hedge fund activity in commodities is contributing to the surge of oil to record highs, long-term, fundamental supply constraints are the main culprit.
"In the short-term, you have hedge fund flows affecting prices," Bob Greer, executive vice president at PIMCO, told Reuters. "They are increasing the volatility of the markets."
Hedge funds have been drawn to commodities due to their lack of correlation to stocks, bonds and mutual funds.
Greer said about $200 billion is tracking long-only commodity indexes, in addition to an unknown amount of hedge fund money long and short.
Some hedge funds are more focused on trading strategies than the physical oil supply and demand, he said, and "tend to operate in the futures trading world rather than the real world where physical commodities are traded."
He said some funds have been trading in oil's relationship to the U.S. dollar, but ultimately the supply and demand fundamentals of a commodity will determine the price level.
Connecticut Lawmakers Consider Universal 401(k)
Senate Democrats in Connecticut are pushing for a state-sponsored 401(k) retirement plan for small businesses, designed for employers who can't afford to offer a retirement plan to their workers.
Senate President Donald Williams, Jr. D-Brooklyn, said he estimates about 75% of Connecticut's small employers - those businesses with 100 or fewer employees - do not offer retirement benefits, leaving approximately 500,000 workers without a plan.
The bill has seen strong opposition from the state's pension professionals, bankers, insurers and financial advisers, who argue that the program is too expensive, costing $1 million for the first two years and $400,000 in following years.
Also, employees of small businesses can set aside retirement funds in Individual Retirement Accounts.
Clare Hushbeck, a labor economist at the American Association of Retired Persons in Washington, D.C., said the 401(k) is preferable because funds can be automatically deducted from an employee's paycheck.
The bill does not require small business employers to provide a company match, which is both a key advantage to 401(k) plans as well as the reason these plans are so costly.
The state of Washington passed legislation last year to set aside money for a two-year study of the concept, and similar legislation is being debated in California, Illinois, Indiana, Maryland, Michigan, Ohio and Pennsylvania, according to the AARP.
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