Despite a predicted 14 percent drop in assets managed by hedge funds this quarter, several new funds are in formation in Fairfield County ”“ a seemingly counterintuitive development given the uncertainty over the economy, markets and the potential for new regulations on the financial sector.
New funds are being forged both by established companies and financiers who have left their previous employers in New York City or Fairfield County, according to multiple reports, even as UBS AG issued a report this month stating assets under hedge fund management would fall by nearly $200 billion this quarter to $1.2 trillion worldwide.
Despite the redemptions, North American hedge funds appeared on track for a 1.3 percent increase on returns in February, which would mark the second straight month they have posted gains, according to Eurekahedge Ptd. Ltd., after six straight months of declines.
Fairfield County has one of the world”™s largest concentrations of hedge funds, which as a global sector dropped nearly 11 percent last year according to Eurekahedge, which is based in Singapore and has an office in New York City.
Eurekahedge released initial estimates for January based on just over a third of hedge funds that report data to the company. Faring best with a 2.3 percent gain for the month were arbitrage funds that benefit from momentum in the convertibles market, while distressed-debt investors were up 1.7 percent thanks in part to funds focused on emerging markets.
Several pension funds and other institutional investors have approved new investments in hedge funds in the past several weeks, replacing at least some of the capital yanked out by skittish investors. That has emboldened some firms, established and startup alike, to attempt to cobble together new funds.
Russell Fryer left Greenwich-based North Sound Capital L.L.C. in Greenwich to start up the Baobab Natural Resource Fund which starts trading in March, according to Bloomberg News.
Stamford-based Aladdin Capital Management L.L.C. has created a new hedge fund to take debtor-in-possession (DIP) stakes in companies hoping to recapitalize under duress.
Aladdin Capital indicated many DIP financing providers have exited the market or curtailed lending. The fund is managed by Victor Russo, formerly with CIT Group; and Luke Gosselin, a onetime manager at CIT and Goldman Sachs Group Inc.
In Darien, former energy traders at JPMorgan Chase and Goldman Sachs Group Inc. have founded FSM Capital, according to SparkSpread, an energy trade publication.
And in Norwalk, Frontera Management reportedly is attempting to raise a new global macro fund, promising greater transparency than its competitors. Frontera will debut its Global Opportunity Fund in the second quarter, according to the trade publication Finalternatives citing a letter to investors. The firm plans to invest in equities, fixed-income instruments, currencies and commodities.
Even John Meriweather is returning to the fray, according to the Wall Street Journal, after the epic collapse in 1998 of his Long Term Capital Management and a 42 percent decline in his Greenwich-based JWM Partners funds last year.
The great unknown is the degree to which hedge funds will face new scrutiny as part of an overhaul of financial services regulation, which could puncture the competitive strengths hedge funds enjoy as a result of their secretive strategies.
At least one Connecticut company is warning investors to tread carefully. Earlier this month in Hartford, Pelorus Advisors launched a due-diligence service dedicated to helping investors audit hedge funds they are considering for investment.
“It”™s an enormous conflict of interest for diligence teams to be compensated by the same hedge funds they cover,” said Pelorus founder Jeff Rathgeber. “The hedge fund community has seen more than enough target-sponsored, independent report cards. We”™ll let other risk-management firms issue their seals of approval based on manager-supplied data.”
