TD Ameritrade’s president, Tom Bradley, gave his long term vision into 2020 of the investing landscape.  Some highlights - 

(a)  He predicts that by 2020 $45 trillion will be held by investors

(b) The $8 trillion women hold will grow to $22 trillion by 2020

(c) He thinks RIAs have an advantage over other money managers due to their Fiduciary responsibility and product agnosticism.

More can be found out from Bradley here - http://bit.ly/zRdF78

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The Wall Street Journal reports that hedge fund assets under management are nearly surpassing their 2008 highs in AUM.  Many other sources have reported that hedge funds have already passed their 2008 high of $2 trillion or predicted they would this year, the WSJ has jumped on board.  Differences in reporting may depend on how hedge funds are defined or which hedge fund database is being quoted.  More from the WSJ here, http://on.wsj.com/eg8X6r

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 Edoma Capital, launched by a former Goldman Sachs trader has raised more than $1 billion.  Pierre Henry Flamand, former head of GS Principal Strategies may have raised it’s capital from a large network of Goldman Sachs alum.  http://bit.ly/czKDrk

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Merlin Securities released their latest research article, this time focused on helping hedge fund managers identify, understand and market to the right investors.

The white paper, titled “The Spectrum of Hedge Fund Investors and a Roadmap to Effective Marketing,” analyzes the 10 most common types of hedge fund investors (from “Partners, Friends and Family” to “Sovereign Wealth”) along a spectrum from the least “institutional” to the most. The article then defines a four-stage marketing program designed to help funds identify and effectively reach the types of investors most appropriate for their respective funds.

The article includes two helpful charts and some interesting context on the current environment for hedge fund managers and their investors. Interesting reading as always from Merlin.

The full article is available here: http://merlinsecurities.com/pr/spectrum.pdf

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Absolute Return + Alpha (AR) has released the annual ranking of the top 25 earning hedge fund managers for 2009. As a requirement to get on the list, the managers needed to earn at least $350 million. The top earner was David Tepper of Appaloosa, with $4 billion in earnings. The hedge fund managers earned $25 billion, which is more than double the amount earned in 2008.
 
For more information on this article, click on:  http://bit.ly/cNX8c6.

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New Hedge Fund Alert: Nine Masts

According to the Business Week article, “Former Deutsche Bank Saba Asia Head Said to Plan New Hedge Fund” by Bei Hu, Nine Masts Capital, a Hong Kong based company, aims to begin a hedge fund based on investment opportunities from mispriced securities that have diverted from fundamental pricing relationships and trends.    This fund will seek for a 15 percent yearly after-fee return. The head of this venture is the Chief Investment Officer Wang Bing, who had declined to comment about the fund for the article. He had a successful history with the Deutsche bank and later moved on to help found the Saba proprietary trading desk in Asia.

This fund will go in the direction that other managers have taken after the financial crisis. The hedge fund will also help to diversify the Asian industry in starting a relative-value and event-driven hedge fund. In 2009, this strategy has accounted for 18 percent of hedge funds based in Asia.

You can find more here: http://bit.ly/9df3Kq
 

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With the rising need for transparency, there are obvious benefits for hedge funds naming their manager. With every benefit, there is also risk and more importantly the cost of that risk.

In the article from the Journal of Financial Economics, “When should firms share credit with employees? Evidence from anonymously managed mutual funds,” we see that in the early 1990’s into 2003 there was an increasing rate of anonymous management within hedge funds. This decision to remain anonymous, like the decision to name management, is entirely strategic and each hedge fund case varies.

Some benefits for investors in naming managers are the increase in joint surplus and positive media for the hedge fund. Hedge fund managers use their credibility to claim credit for the hedge fund, which can increase his or her incentive to perform well. With these benefits also come the costs that may be attached to the firm and the hedge fund manager. In terms of the cost to firms, successful named managers have increased bargaining power. In this, the manager also experiences a great amount of risk.

According to the article previously mentioned, “For fund managers, the route to stardom is generating high returns.” In terms of the current economic climate, it seems that more hedge funds have been leaning towards transparency in order to gain returns.

You can find more here, http://bit.ly/b7eGaE 

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Venture Capital Funds (VC) continue to see their fortunes slide. They are at a severe disadvantage vs. other alternative investment funds due to the extent of their lockups, lack of liquidity, high risk, and present regulatory environment which diminishes the value of exits.  8.2% VC return on 10 year lockups are incredibly damaging from the eyes of the investor class who have a wide array of risk free options and better risk adjusted options with far higher returns such as hedge funds with 20%  targets and monthly liquidity.  On a risk adjusted basis, VC should outstrip hedge fund returns dramatically but they don’t.   Regulation will continue to increase as regulators see VC as another form of private equity with similar risks of over-leverage, speculation, etc .  Moreover, for funds that depend on capital calls, there is more LP resistance to fulfill obligations. 

The NVCA has published a widely quoted study stating Venture-backed companies employ 11% of all Americans in the private sector. Yet this empty metric doesn’t differentiate between the jobs created by VC backed firms vs. those acquired by the same firm. Nor does it differentiate between the age of the VC backed firms or whether they are public companies.  According to this study, HP and other firms that have grown dramatically through acquisitions of major competitors lump together acquired jobs and "created" VC jobs for a nonsensical metric.  Reviewing the study in more detail shows that VC backed firms peaked in creation and backing at the time the internet bubble burst and are now operating at 33% of where they were. VC backed firms and job creation since their nadir in  2003 barely track the U.S. population increase.  It is questionable that the formal VC industry needs to remain at its current size as the golden era of VC may be looked back upon as the time when VC was 5% the size of it’s peak yet churned out winners like Apple Computer and Hewlett Packard.  It is really a question of what have you done for me lately.

An argument for reducing the size of VC is (1) the cost of software startups have broadly diminished due to the availability of global sourcing for cheap software and project management talent and micro marketing capability for customers created by the internet.  One well known VC has said that the cost of marketing niche products in the ’80s could be as much as $15 million to 50,000 potential customers, today that cost is 10% of what it was BEFORE INFLATION ADJUSTMENT.  (2)  Likewise, the need for clean tech is diminished due to the global warming crackup.  With many state coffers empty, it will not be surprising if states roll back their tax incentives for clean tech as happened in the late ’70s and early ’80s with alternative energy.  The empty statement that VCs provide 11% of all jobs is similar to pre-global meltdown statements of real estate and the stock market values always go up.  Clearly changes will come and hopefully government will focus on ways to make credit cheap for job creators and emerging companies reducing their overall cost of capital and the need to sell equity at a dear price.

You can find the link to the NVCA study here, http://bit.ly/9ZGaNM

The Wall Street Journal reports that VC syndicate failure is increasing.  Again, LP cash is diminishing with resistance to capital calls as more LPs see the risk in litigation and penalties as more rewarding than the chance of losing all their capital in funds where the dynamic for success is diminished i.e. lack of leverage in the marketplace and side to side stock market performance. " of the 9,267 closely held companies in the U.S. backed by venture-capital firms, 59% have an investment syndicate. Such alliances, which aren’t new, allow venture-capital firms to spread the risk of investing in a start-up, though some firms demand at least a 20% stake."

More info here, http://bit.ly/9C9cq1

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 Many new funds have announced their launch with a bit of fanfare in the last quarter.  The gap between new fund launches and closings continues to narrow as older funds with poor performance are shuttering, re-organizing, finding liquidity in the secondary markets or being acquired. Though 292 funds shut down in the second quarter, 182 funds opened.  http://bit.ly/3bzdjE

New fund raises include:

Daoud Zekrya, who was jointly responsible for running Marshall Wace’s Core fund, one of two strategies that makes up the $4 billion) firm’s European long/short flagship Eureka portfolio, has set up Belay Partners with Harry Tyser, who previously ran New Star’s Firefly hedge fund.  http://bit.ly/a1dKH

Oak Hill Advisors, L.P. ("Oak Hill Advisors"), a leading investment management firm specializing in below investment grade credit, announced today the final closing of the OHA Strategic Credit Fund (the "Fund"), a $1.125 billion corporate credit distressed fund which targets opportunities in stressed and distressed loans, bonds and other investments.  http://bit.ly/sZHTn

Raven Rock Capital launched September 1 with at least $7.6 million under management, according to a Securities & Exchange Commission filing. The online publication Hedge Fund Alert put the figure at between $10 million and $20 million.  http://bit.ly/2gsPe3

Former Societe Generale SA bankers including Arie Assayag have started their own hedge fund, Nexar Capital Group LLC.  The fund is backed by an investment from U.S. private equity company Aquiline Capital Partners LLC.  Nexar has more than 30 investment professionals in New York and Paris and will provide clients with the ability to invest in a “variety of hedge fund products,” including funds of hedge funds and volatility arbitrage funds, the company said.   http://bit.ly/vy7gE

In Private Equity News, the California-based Westly Group venture capital firm announced closing of its second fund, exceeding $100 million and focused on clean-technology companies, founder Steve Westly said on Wednesday.   http://bit.ly/SkyaZ

 Likewise, in a less recent seeding, Citigroup Alternative Investments seeded a new hedge fund run by Viathon Capital. Viathon recently launched the Whitewater Master Fund, a credit opportunity fund focused on non-correlated absolute returns. The fund employs a fundamental, credit-intensive research process aimed at identifing long and short investment opportunities in the United States and Europe.  The fund launched in May of 2009 with $50 million in capital.  http://bit.ly/kJn46

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