Latest updates from the Madoff scheme

Bloomberg recently recounted all of the events that have currently happened since the Madoff scheme was busted. Madoff Enablers Winked at Suspected Front-Running take an in-depth look at the events that have occurred up until this time.

Has the moment for greater UK hedge fund regulation passed?

According to Laurence Fletcher at Reuters, UK Hedge Fund managers are undergoing rigorous questioning because of worries about future Ponzi schemes. Investors are beginning to pull back assets and are now playing it safe. The current temporary ban on short-selling financials in the UK has encountered much criticism from analysts and hedge fund executives. It will be interesting to see if the UK will soon follow the U.S., where Treasury Secretary nominee Timothy Geithner has pledged to pursue hedge fund registration. What do you think?

Proactive due diligence in today's world

Sidney Wigfall recently took a look at what needs to be done for due diligence in a post-Madoff world. These complex funds lack transparency, and it's imperative that they be monitored by proactive due diligence.

Due diligence is the process and set of procedures used to gather, analyze, and evaluate information about a particular investment and/or investment manager for purposes of deciding whether such investment opportunity is appropriate and prudent.

For more on what change with the oversight on hedge funds read Due Diligence: Implications for Investors In A Post Madoff World.

Sidney Wigfall will be joining us as a speaker at GAIM Ops Cayman. Find out more here.

PwC Proposal on Fair Value Accounting

PwC has released a discussion paper proposing changes to fair value accounting. According to Castle Hall Alternatives, they do not propose eliminating fair value accounting - thankfully - but they do suggest that, for banks, only "credit related" losses be reflected in net income (this is, of course, the headline number that everyone focuses on for publicly traded entities.) Other changes in current market value unrelated to the borrower's ability to repay a loan, such as write downs due to an illiquid or dysfunctional market, would be recorded in "other comprehensive income". OCI is essentially a bucket for items that companies don't want to pass through their reported, "business" P&L.

Hedge fund investors removing money

According to Bloomberg, $152 billion was withdrawn from hedge funds in the fourth quarter of 2008. At the same time, hedge fund investors saw the lowest return on investments in two decades.

Kenneth Heinz, the president of Hedge Fund Research, said:
“Investor risk aversion remained at historically extreme levels through year end. Investor redemptions were widespread and indiscriminate across fund strategies, regions, asset sizes and performance.”

Fee structure for hedge funds in question

Recently at the Wall Street Journal, they question whether the current fee structure for hedge funds is still working due to their poor performances. The current structure is 2% of assets and 20% of gains, which allows investors to make money no matter what the market performance is. However, last year, this did not pan out, as many of the investors managed to loose even some of their original investments. For more, read the article at the Wall Street Journal.

Mary Schapiro: SEC Chief Nominee

"I have never been afraid to go after people I thought had violated the public trust," said SEC Chief Nominee Mary Schapiro at her nomination hearing this week. Schapiro has vowed to go after white collar financial crime and restore the public trust within the Securites and Exchange Commission. Among the many items on her list to change, Schapiro spoke about slowing down the IFRS transition process. According to CFO.com, she said she would immediately focus on fixing the regulatory holes that contributed to the credit crisis. How do you think she will impact the changing economic climate of the US? We'd like to hear your thoughts.

Why do fund of funds exist?

Clusterstock recently asked Why do Fund of Funds exist? The article states that it's evident that due diligence by fund of funds is not occurring, which is evident due to the recent unveiling of the Madoff scheme. Fund of funds really can't go through the books of these hedge funds, they simply aren't allowed. Fund of funds are simply selling access to these hedge funds.

What do you think?

Hedge Funds and Funds of Funds: Biting the Hand That Feeds You

Seeking Alpha covered the "juicy" quote about the Fund of Funds bunch from a hedge fund manager.

"Funds of funds are, in general, a highly overrated bunch, many of them attracting people who can't manage money themselves," says Jonathan Trugman, who runs a small New York stockpicking hedge fund, Pendulum Capital Management, that made money in 2008. "You have to be selective about which funds of funds you do business with, because much of it is allocated more by marketers and back-slappers than by true analysts."

Hm...What do you think? The writer of this particular article seems that its part of the human condition to resent those that we are dependent upon. Within this closed world, should we be constantly worried over those who closely align with us yet may be the enemy?

Your thoughts are appreciated.

Giovanni Beliossi, Managing Partner and CEO at FGS Capital, weighs in on 2009 Hedge Fund Strategies for Success

Giovanni Beliossi, Managing Partner and CEO at FGS Capital and guest host Ron Ianieri from the Options University weigh-in on CNBC's Martin Soong & Sri Jegarajah, YouTube video --what is the alternative investment industry is doing to cope with the credit crisis.

Fund managers warn against sharing short selling trade practices

According to an article at the Albourne Village, association representing fund managers in th US, UK and Australian have let officials know that publishing their techniques about short selling trade positions could ruin the industry. They fear that if the information is made public, other investors will mimic their actions and use similar trading strategies. The three associations represented, Financial Services Association, the Investment Company Institute of the US and the Investment Management Association of the UK, have over $15 billion currently under their management.

Read the article here.

Poll: Hedge Fund Oversight Should Top SEC Agenda

According to Greg Schulas and Ignites, The Securities and Exchange Commission should make stricter hedge fund regulations a top priority of its 2009 agenda. That’s according to a strong plurality of Ignites poll respondents.Approximately 49%, or 230 voters, said placing more stringent regulations on hedge funds should be the first item on the SEC’s to-do list. The high ranking comes in the wake of Bernie Madoff's alleged $50 billion-plus Ponzi scheme, which has renewed calls for tougher hedge fund oversight.

With tougher oversight, more due diligence can occur--but at what cost?

How do you see this implementation working with Hedge Funds?

We'd love to hear your thoughts.

White Paper by Pershing Confirms Importance of Counterparty Risk Management to Managers

HedgeFunds Review discusses in this latest article that the results of a survey published by Pershing shows us that hedge funds are viewing counterparty risks as a much more important issue than they have in the past. Over 50% of hedge funds surveyed mentioned that they were currently monitoring counterparty risks on a daily basis and of those almost 85% consider it an important business issue.

The economic crisis has put more pressure in the eyes of hedge funds managers to keep a close watch on counterparty risks. Even though more managers are starting to pay attention to counterparty risks, there is still much work to be done on creating a comprehensive automated system. Currently, most hedge funds rely on a manual process to keep track of the counterparty relationships. How is your hedge fund dealing with counterparty risks?

Hedgeweek has also written a similar article.

Madoff investors may have to return profits

In the recent ruling of the Bayou Group, those who cashed out with their interest two years of the collapse of the hedge fund were forced to had back their principle as well as their interest received. This is enough evidence to prove that they saw something wrong with the hedge fund. This could provide a road map for recovering investments in the Madoff hedge fund. Those who invested may have to return their interest, as well as the principal originally invested in the business. For more on the story, read the article here at Newsweek.