The whole spectrum of hedge fund/prime brokerage/securities lending industry is about nothing other than making money. As we are in reporting season, we can start to see the impact of the continuing liquidity crisis, market weakness and the Lehman default.
I guess it is now a virtue to say that you aren't doing securities lending. Unitrim, Principal Financial Group and Horace Mann Educators all have recently reported little or no securities lending activity. You know that this means that they USED TO HAVE EXPOSURE, but don't any more - and how clever are they!
This quarter's results are always lower as a result of the seasonal business flows., so all marke participants normally report reduced numbers over second quarter Expect it to be even lower or for people to report losses.
The exception to all the glum news was the Credit Suisse announcement last week. They announced an increase of over $100 billion in assets in their prime brokerage business as a result of outflows from other prime brokers. The business that migrated to them came from somewhere else, so it will be very interesting to see how the P&L is affected at those prime brokers that have lost business.
At was always going to be the case that the furious expansion of hedge funds would lead to an over supply of hedge funds and an under supply of performance. It has taken a pretty nasty and turbulent market to shake things out, but that is what is happening. Similarly, the investors blindly buying into just about any hedge fund were bound to be disappointed overall. I have been saying for many years that the key threshold was for institutions to get alternatives on to their radar screen and make it a normal part of their investment process. That was the hard part. From there, it just becomes a matter of performance and will get judged in the same way as traditional investment portfolios. So obviously at the moment things are pretty bad. But just because people have been pulling funds, it doesn't ring the death knell for hedgies. There is a pretty horrific withdrawal of investments from funds that is continuing to impact markets. Money will return. Some leading hedgies are pushing forward trying to raise funds even with poor recent results.
More importantly, the buy-side money will return. New York City Employee Retirement System has recently earmarked $1 billion for new investment into fixed income hedge funds. At the end of the day, funds that perform will get money. Some funds that deserve to continue no doubt will get caught up in the fray and fall victims. However, investors still need performance and those finds that can deliver it will prosper. Eventually.
I guess it is now a virtue to say that you aren't doing securities lending. Unitrim, Principal Financial Group and Horace Mann Educators all have recently reported little or no securities lending activity. You know that this means that they USED TO HAVE EXPOSURE, but don't any more - and how clever are they!
This quarter's results are always lower as a result of the seasonal business flows., so all marke participants normally report reduced numbers over second quarter Expect it to be even lower or for people to report losses.
The exception to all the glum news was the Credit Suisse announcement last week. They announced an increase of over $100 billion in assets in their prime brokerage business as a result of outflows from other prime brokers. The business that migrated to them came from somewhere else, so it will be very interesting to see how the P&L is affected at those prime brokers that have lost business.
At was always going to be the case that the furious expansion of hedge funds would lead to an over supply of hedge funds and an under supply of performance. It has taken a pretty nasty and turbulent market to shake things out, but that is what is happening. Similarly, the investors blindly buying into just about any hedge fund were bound to be disappointed overall. I have been saying for many years that the key threshold was for institutions to get alternatives on to their radar screen and make it a normal part of their investment process. That was the hard part. From there, it just becomes a matter of performance and will get judged in the same way as traditional investment portfolios. So obviously at the moment things are pretty bad. But just because people have been pulling funds, it doesn't ring the death knell for hedgies. There is a pretty horrific withdrawal of investments from funds that is continuing to impact markets. Money will return. Some leading hedgies are pushing forward trying to raise funds even with poor recent results.
More importantly, the buy-side money will return. New York City Employee Retirement System has recently earmarked $1 billion for new investment into fixed income hedge funds. At the end of the day, funds that perform will get money. Some funds that deserve to continue no doubt will get caught up in the fray and fall victims. However, investors still need performance and those finds that can deliver it will prosper. Eventually.
