Week in Review
January 14, 2008
Hedge Fund Managers Add Billions to Bottom Line
Hedge fund managers may turn out to have raked in more dough last year than they did in 2006, according to Bloomberg.
Through the first nine months of 2007 alone, three hedge fund managers had made more than $1 billion. Two of them, John Paulson and Paolo Pellegrini of Paulson & Co., earned a combined $2.7 billion.
That figure outstrips the $1 billion pulled in by the 2006 leader, James Simons of Renaissance Technologies.
The Paulson executives profited from bets that the housing bubble was about to pop. Coming in third on the list is Philip Falcone, a principal in Harbinger Capital Partners, who also bet against the housing market. He had earned $1.3 billion as of Sept. 28. Hedge fund managers needed to have earned $240 million just to be included in the top 25.
Majority of Fund Managers Bullish on Growth Stocks
Three out of four money managers are bullish on large-cap domestic growth stocks, and four out of five have a bright outlook on technology, according to Russell Investment Group. However, less than half of the investment managers are bullish on emerging markets and less than a third are upbeat on value.
Investors warmed up to growth stocks in 2007, as the broad-market Russell 3000 Growth Index outperformed the Russell 3000 Value for the first time since 1999. The growth index rose 11.4% in 2007, while the value index dipped 1%.
In addition, growth stocks outperformed value stocks during the year at every capitalization tier by a double-digit spread. The gap favoring growth in the large-cap segment, for example, was 12 percentage points for the year-a complete reversal from 2006.
Driving growth's resurgence in 2007 was the poor performance of financial services stocks, which comprise a large percentage of the value index.
Another reversal in 2007 involved the resurgence of large-cap stocks. The large-cap Russell 1000 Index climbed 5.8%, outpacing the small-cap Russell 2000 Index, which dipped 1.6%.
Chinese Prepare to Help Investors Maneuver Market
Mutual fund managers in China need to improve the way they manage funds and do more to educate investors on their products, Shanghai Daily reports.
After a new report by China Galaxy Securities showed that Chinese net assets in mutual funds quadrupled last year, experts say managers are in dire need to prepare themselves, financial advisers and investors for another year of expansion.
"The industry expanded by leaps and bounds last year," said Sang Yu, general manager of marketing development department with Great Wall Fund Management. "The outlook for this year remains good, as the domestic stock market may continue to boom based on people's positive sentiment."
Sang said the securities regulator is expected to introduce stock index futures, which will allow investors to sell short, as well as a "through train" program that will enable investors to buy into Hong Kong equities through a Bank of China account.
By the end of 2007, there were more than 100 million accounts held in 363 mutual funds, meaning that one in four households opened an account, Sang said.
Despite this growth, many investors don't really understand the differences between the products and need to be informed about the risks instead of simply being encouraged to invest, Sang said.
Va Va Voom': VAs to Thrive in Europe
Global consulting firm Oliver Wyman, in a report titled, "Va Va Voom," predicts that U.S.-style variable annuities could be as successful with European Baby Boomers as they have been in the U.S. and Japan.
According to Wyman, demographic changes in Europe-population aging and Baby Boomer wealth-will drive VAs' appeal.
Wyman reports that in the U.S., variable annuities have overtaken traditional fixed annuities to become the primary form of tax-protected investment. In Japan, where the market has seen a similar movement, VAs are projected to reach $350 billion in assets by 2010.
Asset Management M&As Up 22% to $135 Billion
Asset-management mergers and acquisitions increased by 22% worldwide last year, totaling 122 deals with $1.4 trillion of assets under management, valued at $135 billion. The surge occurred despite the credit crisis, according to investment boutique Freeman.
The number of deals involving investment-management firms with more than $10 billion in assets rose from 23 in 2006 to 28 in 2007. There were only 13 such deals in 2005.
Total deal volume, measured by assets under management, however, declined 36% from 2006.
"In 2008, we expect to see activity driven initially by the market stresses, including divestitures and continued minority investments followed by more strategic acquisitions and cross-border deals later in the year," said Eric Weber, managing director and chief operating officer at Freeman.
Alternatives Haven't Hit Market Bottom Yet
Despite last summer's credit crisis, alternative-asset managers-such as private equity shops and hedge funds-are valued at more than 20% of assets under management, compared to 5% for traditional managers, The Wall Street Journal reports.
One reason may be that alternative managers charge higher fees and trade at about six times revenue, compared to four times for traditional fund groups.