Hedge Fund News Summary (Pershing Square, Rentec, & more) ~ market folly

Monday, January 12, 2009

Hedge Fund News Summary (Pershing Square, Rentec, & more)

There has been a lot of news popping up in Hedge fund land lately, so we thought we'd give a brief summary of some of the news:

Firstly, Jim Simons' Renaissance Technologies (or Rentec as they are known) has disclosed that they will be waiving their 1% management fee for their Institutional Futures Fund for 2009. The fund is a year old and lost 12% for the year in 2008. We recently covered Rentec in our hedge fund portfolio tracking series here.

Secondly, Bill Ackman's Pershing Square has been betting that General Growth Properties (GGP) will file for bankruptcy. But, they haven't been shorting them. Pershing owns a large stake in the U.S. mall owner and operator. And, even though Pershing owns such a large chunk of shares, they would like to see GGP file for bankruptcy. Why? Well, the answer lies hidden in GGP's inability to refinance their maturing debt, due to the troubled credit markets. GGP's problems don't stem from their real estate assets. They have around $30 billion in assets and $27 billion in debt. Companies who go through bankruptcy with more assets than liabilities usually leave shareholders in good shape. At least, that's Pershing's rationale. Also, we've recently covered Pershing Square's portfolio in our hedge fund tracking series.

Thirdly, JD Capital Management has closed its $1 billion Tempo Master Fund. The fund suffered big losses and was down more than 40% for 2008. The fund is ran by J. David Rogers who was previously co-chief of equity derivatives at Goldman Sachs. They will still run their volatility arbitrage fund, with $100 million AUM.

Lastly, Barron's was out with a piece claiming that hedge funds had met their match. They noted that they thought the industry could be halved, and we think that's a very realistic number as well. Only the strong survive. They went on to focus on specific hedge fund strategies, noting,

"For long/short funds, those industry staples that not only buy stocks but also bet on declines, the big problem last year was on the long side; the huge majority of stocks went down. In the 2000-2002 bear market, by contrast, there was much greater dispersion among stocks. Hedge funds as a group almost broke even back then, while the broad market was off 22%.

Long/short was by no means the only hedge-fund strategy to fail last year. Convertible arbitrage, which entails buying convertible securities and short-selling the related stocks, racked up losses of nearly 50%, according to Dow Jones indexes. And investing in distressed securities produced average losses of 37%."

Since we track hedge fund portfolios and their performance, we have also noted the poor performance this year. And, this even includes some of the most respected funds in the game. We noted their poor performance in both our October and November performance updates and will soon be out with our December update. You can read the entire Barron's piece here.

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