The Next Credit Debacle: A $915 billion bomb

If you can believe Fortune, this past summer's subprime meltdown involved about $900 billion in now-suspect securitized debt, reckless lending, and consumers who buckled under the weight of loans they couldn't afford. Now another link in the consumer debt chain - credit cards - is starting to show signs of strain. And the fear that the $915 billion in U.S. credit card debt (an uncannily similar figure) may blow up has major financial institutions like Citigroup, American Express, and Bank of America strapping on their Kevlar vests.

Last month, as banks reported their worst quarterly results since 2001, concerns about rising credit card delinquencies began to make their way onto earnings announcements alongside mentions of subprime woes.

First Citi , reporting a 57% decline in earnings, cited higher consumer credit costs and said it would put aside $2.24 billion in loan-loss reserves to cover future defaults. Citi said the change in loan losses was "inherent in the portfolio but not yet visible in delinquencies."

Then American Express said that it too was seeing "signs of stress" and would boost its loss reserves in its core U.S. card unit by 44%. Capital One , Bank of America , and Washington Mutual all said they are bracing for a 20% or higher increase in credit card losses over the near and medium term.

"We are in a heightened state of alert to monitor a potential domino effect," says Michael Mayo, Deutsche Bank's U.S. banking analyst.

Dennis Moroney, an analyst at TowerGroup, expects credit card delinquencies will rise as consumers, who have until now used home-equity lines of credit to pay off their cards, start ratcheting up higher card debt. When housing prices were rising, it was easy for consumers to tap the escalating values of their homes to keep borrowing. With the home-equity spigot turned off, over-leveraged consumers may have trouble keeping up with payments.

The doomsday scenario would play out something like this: Just like CDOs and other asset-backed securities, credit card debt is sliced, diced, and sold off again as packages of securities. Rising delinquencies would hurt not only the banks involved but the securities backed by the credit card receivables. Those securities would decline in value as consumers defaulted, leading to bank losses as well as portfolio losses in the hedge funds, institutions, and pensions that own the securities. If the damage is widespread enough, it could wreak havoc on the economy much as the subprime crisis has done.

To be sure, there are key differences between the subprime market and the problems brewing with credit cards. The first is that while rising mortgage delinquencies were apparent for months before the subprime market blew up, credit card delinquencies are actually coming off unusually low levels.

"This is absolutely not the next one to blow," says Meredith Whitney, banking analyst at CIBC. Christopher Marshall, CFO of Fifth Third Bancorp in Cincinnati, points out that the U.S. has a long history of credit card securitization, "so it's fairly well understood." The securitization of the subprime sector, by comparison, "got blurry, and people didn't focus on what it meant."

Credit agencies that monitor credit cards in the asset-backed securities market share that confidence. "The performance in the core consumer [asset-backed securities] sectors is expected to deteriorate modestly, but not enough to cause substantial downgrades," says Kevin Duignan, managing director at Fitch.

But credit card debt is different from subprime debt in another way: Unlike mortgages, credit card debt is unsecured, so a default means a total loss. And while missed payments are at a historical low, they show signs of an uptick: The quarterly delinquency rate for Capital One, Washington Mutual, Citigroup, J.P. Morgan Chase, and Bank of America rose an average of 13% in the third quarter, compared with a 2% drop in the previous quarter.

What's more, consumers and the people who market financial services to them may not have learned their lesson. Klaus-Peter Müller, CEO of Germany's Commerzbank, told Fortune he was stunned on a recent trip to the U.S. to see TV ads still aggressively touting no-questions-asked credit. In Germany he's calling for tighter standards.

"I'm speaking out on the ethical questions about consumer lending," he says.

If there is an international precedent the U.S. should be watching, it's actually that of the U.K. British consumers are just as overstretched as Americans, but since the real estate market there rose faster and fell earlier, they're about 18 months ahead in the credit cycle. Since the last quarter of 2005, credit card delinquencies and charge-off rates in Britain have risen as much as 50%, forcing banks to take huge write-offs.

It's a sign of the times that, according to one survey last month, 6% of British homeowners have been using their credit cards to pay their mortgages. That's suicidal, of course, given that credit card interest rates are more than double even the heftiest mortgage. Keep your fingers crossed that it's not a trend that crosses the Atlantic.

http://money.cnn.com/2007/10/29/magazines/fortune/consumer_debt.fortune
/index.htm?postversion=2007103007

What the Merrill Release Didn’t Say

OK, so Merrill finally broke its silence on CEO Stan O’Neal’s departure. But for every question it answered, it raised two more. Here are a few:

–Where does the leadership plan leave Bob McCann, the head of Merrill’s jewel, its 16,000- member-strong retail brokerage arm. He was rumored to be a contender for the top job, or for sharing the No. 2 slot. Instead, there was no mention of McCann in the release, suggesting he is either a real contender for the top job (unlikely), or that O’Neal’s animosity for him also is felt by the outgoing CEO’s handpicked directors.

–Why are Fakahany and Fleming staying in their jobs. Ahmass Fakahany was in charge of risk at Merrill. The circumstances that led to O’Neal’s abrupt ouster were all about a failure of risk management. Greg Fleming, meanwhile, was involved in the incident that apparently exhausted the board’s patience with O’Neal: a stealthy last-ditch merger approach to Wachovia.

–How much will O’Neal be paid. Clearly a subject the board would rather not discuss right now, giving the possibility of shareholder and public outrage over yet another nine-figure golden goodbye for a CEO with a mixed record. If they do decide to give O’Neal a severance, they are obligated to disclose it within 48 hours. (Of course, if severance negotiations drag on, they can get an extension on that.)

http://blogs.wsj.com/deals/2007/10/30/what-the-merrill-release-didnt-say/

How a Hedge Fund, college budds and the $62,000 Porsche came to spell Fraud

Take two college pals, a hedge fund and a $62,000 Porsche, stir in allegations of fraud and the potent legal brew will next week lead to a $537m (£260m) court case against the former brokerage of Man Group, the London hedge fund, and an arm of UBS, the Swiss bank.

Man Financial, renamed MF Global and listed in New York this summer, and the Cayman Islands operation of UBS are accused by the receiver of the failed Philadelphia Alternative Asset Management (PAAM) of negligently allowing the hedge fund's manager to allegedly hide $179m racked up in loss-making futures trades.

Man rejects all the claims, saying it had no idea a fraud was under way, and has counter-sued UBS Cayman, arguing it should have spotted the problems. It has also counter-sued John Wallace, vice-chairman of the Philadelphia stock exchange and chairman of Paam; Ed Gobora, a Paam employee; and the Cayman-based directors of the offshore fund. UBS and all the other parties also deny responsibility.

http://www.msnbc.msn.com/id/21554483/

The Story of One “Beyond Crazy” Hedge Investment

This is so totally lame, you've gotta laugh or cry.

An adviser lost nearly all of the $225 million the state agency for injured workers put into a hedge fund, but that doesn't mean it was a crime, his attorney said Monday.

Mark Lay, chief executive and founder of MDL Capital Management of Pittsburgh, was following a strategy that officials at the Ohio Bureau of Workers' Compensation agreed upon, defense attorney Richard Kerger said during closing arguments at Lay's fraud trial in U.S. District Court.

"There is nothing in the charges that says loss is a crime," Kerger said.

Lay hid the extent of the risk he took, which went way beyond the limit that state officials set, assistant U.S. Attorney Antoinette Bacon said. Lay occasionally shook his head during her closing argument.

"Because of his cheating, because of his lies, he turned what would have been a $2 million market loss to over $200 million," Bacon said. Nearly $216 million was lost from the $225 million fund.

Lay, 44, was indicted in June on charges of investment advisory fraud, mail fraud and conspiracy to commit mail and wire fraud. The charges were part of an investigation into a wide-reaching investment scandal at the state's agency for injured workers that reached to former Gov. Bob Taft. Jurors deliberated for about two hours Monday before going home. They had listened to two weeks of testimony in the case .

http://www.forbes.com/feeds/ap/2007/10/29/ap4275288.html

A Fugitive Hedge Funder Returns to the scene of the crime

The Canadian Mounties got their man. The founder of collapsed Canadian hedge fund Portus Alternative Asset Management will return to Toronto next month to face fraud charges, court-appointed receiver KPMG said today.

A court in Israel, where Boaz Manor fled just before the Ontario Securities Commission seized his firm’s assets, lifted a travel ban that KPMG asked the court to impose two years ago. Manor is expected to fly to Toronto on Nov. 13, where he has been charged by the Royal Canadian Mounted Police with fraud and obstruction of justice. Portus co-founder Michael Mendelson has also been charged.

KPMG, which had been unable to reach an agreement with Manor on the fate of a Portus-related case making its way through Israeli courts, had sought to extend the travel ban. But those issues have apparently been resolved to KPMG’s satisfaction.

Manor will only be allowed to travel under a strict set of guidelines. He will have to be accompanied to the airport by both his lawyer and an attorney from KPMG. Further, he will be babysat on the long flight to Toronto by the KPMG lawyer, before surrendering to the Mounties in Canada.

http://www.finalternatives.com/node/2783

Hedges: Washington’s Whipping Boys? Pity.

Forget vampires and terrorists. This year's favorite boogeymen are hedge-fund managers, a convenient whipping boy for critics ranging from Bill O'Reilly, who targets oil speculators, to Rep. Charlie Rangel, the New York Democrat who recently proposed tax hikes aimed at investment-fund managers. From high oil prices to falling home sales, we now blame hedge funds and other greedy, speculative interests for most of the world's problems.

The top hedge-fund managers are richly paid, just as the top corporate CEOs, lawyers, professional athletes and actors are. Unlike most other industries, however, the unspoken conviction is that professional investors, especially hedge-fund managers, succeed by exploiting others. We begrudgingly respect their ability only as we would a magician, pool player or card shark. They're seen as shysters.

On Thursday, congressional Democrats led by Rangel unveiled a tax plan that promised tax reductions for middle-class families funded by, in large part, a $48 billion tax increase on private equity and hedge-fund managers. The bill also would impose a surtax of 4% on single filers with incomes above $150,000 and $200,000 for married couples filing jointly.

According to a statement on the Ways and Means web site, Rangel comments how, "For too long, hard-working families have struggled to keep pace with the rising cost of living in America. This legislation would put money back in their pockets to combat the growing economic insecurity gripping our nation."

The implication is that hedge-fund managers and the "rich" who earn more than $150,000 a year have taken money out of the pockets of "hard-working families." This bill aims, quite overtly, to redistribute money from those who've made it to those who have not. The mortgage crisis simply provides a convenient news peg to demonize wealthy speculators whose greed, in the eyes of the politicians and irresponsible journalists, created the economic hardship some citizens now face.

http://www.smartmoney.com/tradecraft/index.cfm?story=20071029&nav=RSS20

Registering hedges will make them flee California en mass

California's proposal to register hedge funds could drive much of the industry out of the state, experts say. As proposed, hedge fund advisers that have fewer than 15 hedge fund clients and more than $25 million under management would be required to register with the state if they are not already registered with the Securities and Exchange Commission.

California hedge fund advisers that manage less than $25 million — there are 400 to 500 of them — already must register with the state.The proposal would bring all hedge fund advisers under closer state supervision.

It "doesn't really change the rule for how they operate," said Mr. DuFauchard, who is a member of Gov. Arnold Schwarzenegger's administration. "It just [requires them] to register with us," and the cost of registration would be minimal, he said.

Donald Davidson: “It’s no accident that hedge funds tend to be concentrated in states that do not impose heavy regulatory regimes.” "At the end of the day, there's a parade of horribles that could easily happen arising from the Department of Corporations' looking into your books and records," said Donald Davidson, a partner in the San Francisco office of Bingham McCutchen LLP of Boston. Hedges tend to set up shop in states that impose the fewest regulations on their activities, he contends.

"If you plotted the degree of regulatory oversight the states impose, it's no accident that hedge funds tend to be concentrated in states that do not impose heavy regulatory regimes," said Mr. Davidson, who represents hedge funds in his practice. If registration is required, he predicts, hedge funds will leave California, a view shared by Phillip Goldstein, the hedge fund operator who filed the successful suit against the SEC's hedge fund registration rule.

http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20071029/FREE/710290349

Games Hedgies Play: Fund Manager Boosts Longshot Prez Bid

Mike Gravel is a former U.S. senator from Alaska and a long-shot candidate for the Democratic nomination for the presidency. He’s also the unlikely cause of choice for a New Hampshire hedge fund manager, who is doing all he can to power Gravel to victory in his state’s first-in-the-nation presidential primary.

Gregory Chase has poured about $100,000 into the effort, which is unaffiliated with Gravel’s campaign. The money has bought full-page ads in New Hampshire newspapers, brochures sent to homes in Chase’s hometown of Nashua, as well as yard signs and bumper stickers.

Chase, of course, is not the only hedge fund manager with skin in the presidential game; but he may be the only one to prominently attach his name to a campaign likeGravel’s.

The 27-year-old Chase, a former oil and foreign exchange trader, credits Gravel’s strong stand on reducing the U.S.’s dependence on foreign oil and investing in alternate fuel sources for his decision to support the candidate. Annoyed by Gravel’s continued anonymity in a race dominated by the likes of Sens. Hillary Clinton and Barack Obama , Chase has offered to give much more.

Gravel has been excluded from an upcoming NBC-sponsored debate because he has failed to meet polling and fundraising requirements; he has raised only $272,000 through the end of September. (Reality check: Clinton has raised in excess of $90 million and Obama more than $80 million.)

http://www.finalternatives.com/node/2762

The next big fund mess

Did mutual fund companies fall afoul of a key federal regulation by allowing their money market funds to buy securities issued by the shadowy debt funds that are now struggling?

Money market funds are often the safest investments offered by fund companies, but several large money market funds own securities that were issued by structured investment vehicles (SIVs), the large, offshore funds that have recently made it into the headlines because the U.S. Treasury, along with Citigroup (Charts, Fortune 500), Bank of America (Charts, Fortune 500) and JP Morgan Chase (Charts, Fortune 500), are working on a plan to shore up them up.

Typically, SIVs borrowed money by issuing short-term notes at a certain interest rate and then invested that money in longer-term securities that had higher interest rates, hoping to make money on the difference between interest rates. Many money market funds bought the notes that SIVs issued to raise the money to make their bet.

Securities regulations state that money market funds can only buy short-term, very safe securities. In particular, rule 2a-7, part of the Investment Company Act of 1940, says that money market funds can only hold securities that have "minimal credit risks." The fact that the SIVs are in trouble suggests that SIV securities had more than "minimal credit risks." Of course, money market funds would have felt comfortable buying SIV securities because they had very high credit ratings, but the current SIV difficulties indicate that those top-notch ratings were in many cases undeserved.

The issue here is whether money market funds should ever have been invested in SIV paper at all. Some fund management companies that have large money market funds have very small SIV-related holdings, like BlackRock (under 0.5% of money market fund assets, according to a company spokesman) and Goldman Sachs and Vanguard, which have none, say company representatives. In other words, certain money market funds chose to eschew SIV securities, which dispenses with the excuse that SIV exposure is an industry-wide phenomenon. Not everyone was into it.

http://money.cnn.com/2007/10/25/magazines/fortune/funds_sivs.
fortune/index.htm?postversion=2007102605

It’s a bird…it’s a plane…no, it’s the Hedge Superleague!

A "superleague" of hedge fund managers is seizing an ever greater proportion of inflows into the sector, according to research by Morgan Stanley. Huw van Steenis, who leads the asset management and diversified financial groups at the US bank, found that a handful of large groups were emerging as the prime beneficiaries of the ongoing institutionalisation of the industry.

"We see the 'superleague' taking share as larger platforms offer greater capacity, a broadening fund offering and fiduciary reassurance," he said.

The gulf appears to be widest in the fund of hedge funds universe where the six largest managers; UBS, Man Group, Union Bancaire Privée, Permal/Legg Mason, HSBC and GAM/Julius Baer, have each seen assets under management rise by a compound annual growth rate of at least 39 per cent in 2007, according to Morgan Stanley - a rate achieved by just two of the 20 next largest managers; Blackstone and Gottex.

Mr van Steenis also found that the 100 largest hedge fund houses had increased their share of total industry assets from 49 per cent in 2003 to 67 per cent last year.

As a result, established hedge fund platforms faced just a 6 per cent shortfall in their fundraising aspirations in 2006 (compared to 21 per cent in 2004), while new start-ups suffered a shortfall of 64 per cent, against just 21 per cent in 2004.

http://www.ft.com/cms/s/0/ff65144a-85bf-11dc-8170-0000779fd2ac.html?nclick_check=1

Pledging Allegiance to the United States of Hedge Funds

According to Ben Stein of the New York Times, “…when scientists discovered nucular power, as George Bush and I call it, they considered its uses virtually unlimited. Even now, we have not plumbed all of the atom’s utility. The same goes for hedge funds.

Supposedly, a number of wizard managers consistently earn more than 40 percent a year for their hedge funds. Yes, I know that this conflicts with every bit of investment and market theory — or almost every bit. I know that such a thing should be impossible. But, supposedly, magicians like Steven A. Cohen, founder of SAC Capital in Stamford, Conn., can regularly earn 40 percent a year — often more — on their capital.

But why waste our time on envy or disbelief? Let’s put Mr. Cohen to work for the greater good. Let’s have the federal government issue about $10 trillion in Steven A. Cohen National Debt Retirement Fund Bonds. After interest is paid on the bonds, if Mr. Cohen makes 40 percent on the money, the fund will return 36 percent a year. That means that in only two years, he will have made roughly $10 trillion for the taxpayers, with which he can pay off the entire United States federal debt.

Even if Mr. Cohen follows his usual pattern and charges the client — in this case, the government — 50 percent, thus lowering the effective yield to a “mere” 16 percent, his brilliance and skills will have paid off the entire national debt in less than five years. That’s unless, of course, Mr. Bush — or Hillary or Mitt or Rudy or Barack after him — add hugely to the national debt.

http://www.nytimes.com/2007/10/28/business/28every.html?ref=business

The Curious Case of the Disappearing Homm

Investors in Absolute Capital Management are poised to demand a full investigation into the strategy of Florian Homm, the flamboyant former chief investment officer whose sudden departure last month plunged the $3.2 billion (£1.5 billion) AIM-listed hedge fund into a financial crisis.

The leading lawyer representing Absolute shareholders said yesterday that they would be demanding a thorough explanation of why as much as $500 million (£244 million) of Mr Homm’s investments had turned out to be in lightly regulated and illiquid American stocks, listed only on bulletin boards and traded over the counter. He said that investors had been unaware of the nature of the funds’ holdings.

Many Absolute investors found themselves looking at big losses after it emerged in the days after Mr Homm’s disappearance that a substantial amount of his holdings had been in bulletin board, or “pink sheet” stocks. This forced Absolute to propose an emergency restructuring of the funds, hiving off the hard-to-exit holdings into “side pockets”. Investors voted through the move at an emergency meeting over the weekend.

William Rodger, the financial litigation partner at Simmons & Simmons, which has been working for the Absolute Investors Action Group, said that the agreed restructuring was not the end of the matter for shareholders. He told The Times: “There will have to be an investigation into how the funds got into this position. My clients want explanations…”

Rodger declined to be drawn on the Action Group’s next move before discussions with investors that are expected to take place this week, but he ruled out the need for a criminal investigation.

Absolute Capital declined to comment.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_
and_finance/article2759407.ece

“It’s Sickening”: Merrill's Ex-Chief Tully

Daniel Tully, who tripled Merrill Lynch & Co.'s stock price during his tenure as CEO in the 1990s, became the first former head of the brokerage to castigate CEO Stan O'Neal, calling the firm's record third-quarter loss ``sickening.''

``With the help of God this too shall pass, and the firm will continue to do extraordinarily well, but without the excessive risk that apparently was taken,'' Tully, 75, said in a telephone interview from his home in Florida. ``This company is bigger than any one of us, and it is a tremendous franchise.''

Merrill last week disclosed $8.4 billion of writedowns on loans and mortgage-linked bonds, leading to the biggest quarterly loss of its 93-year history. O'Neal, 56, is facing pressure to resign as investors, angered by a 29 percent drop in the stock price this year, question his ability to police risks. Merrill directors met Oct. 26 to discuss his potential departure, the Wall Street Journal reported.

The third-quarter net loss of $2.24 billion, or $2.82 a share, was six times bigger than the firm forecast just three weeks earlier. Merrill's shares have fallen the most of the five biggest U.S. securities firms. All of them have dropped except Goldman Sachs Group Inc., the largest and most profitable.

`I've been in touch with many, many of our fellow employees and ex-employees and they're sick, everyone is sick about it, as I am too,'' Tully said. ``It's awful. You hate like hell to see the firm, the headlines in the New York Times and Barron's today. It's sickening.''

Merrill Lynch spokesman Michael O'Looney declined to comment.

http://www.bloomberg.com/apps/news?pid=20601109&refer=news&sid=a66FJWURnWlA

Guess what? RBC Traders “Mismarked” Bonds

A mistake or is this Satan?

Growing distrust about Wall Street's ability to determine accurate prices for securities -- a foundation of the financial system -- isn't confined to esoteric mortgage-backed bonds.

In a series of emails to senior bank executives, a former Royal Bank of Canada trader alleged that some of his colleagues intentionally "mismarked," or improperly valued, plain-vanilla government agency and corporate bonds in a bid to boost profits at the firm's New York-based investment-banking unit.

"Losses have been intentionally hidden over the last 5 months," trader Gregory O'Connor told a top Royal Bank of Canada executive in a July 24 email.

http://online.wsj.com/article/SB119336404368572503.html?mod=hpp_us_whats_news

Ex-Fund Manager Gets Illegal Trading Charges Dumped

A former hedge fund manager is halfway home towards being cleared of insider-trading charges. John Mangan, half of the now defunct Charlotte, N.C., hedge fund Mangan and McColl Partners, said that a federal judge had dismissed an alleged violation during a short-sale involving a private investment in public equity.

Mangan, who is now reportedly working in private securities trading, expressed optimism that Judge Graham Mullen of the U.S. District Court for the Western District of North Carolina would also dismiss the insider trading charges against him at a summary judgment hearing in March.

The SEC in December accused Mangan of making some $178,870 in ill-gotten profits in trading CompuDyne Corp. shares while working for Friedman Billings Ramsey in 2001. The agency said Mangan had shorted CompuDyne after learning of a planned PIPE, and that he also sold unregistered CompuDyne shares after the PIPE was announced.

Mangan allegedly used the account of HLM Securities, an investment advisor run by former partner Hugh McColl to buy 80,000 shares in the PIPE. McColl was named as only a “relief defendant,” meaning he was cleared of any wrongdoing but was caught holding the money obtained by Mangan, settled with the SEC for $115,643, amounting to the proceeds of the alleged crime plus interest.

http://www.finalternatives.com/node/2750

Billionaire takes a licking

Well, we think that’s what this about. But it’s a free country - make up your own mind. The case of the insane, drug-addicted, transgendered model wannabe, who's suing the billionaire moneyman with an alleged penchant for underage girls and a sculpture of dog feces in his Upper East Side mansion, is getting weird.

In papers filed in Manhattan Supreme Court, Avarelle Maximillia - formerly Maximillian - Cordero claims she once told Jeffrey Epstein that she hears "demonic voices" and that he once put on lipstick and a red wig and told her to "call me Janice."

He then fondled and licked the still biologically male Cordero, the suit charges.

On one occasion in 2000, the vulgarly written suit says, the teenaged Cordero told Epstein "I'm Old Yella" and "began barking like a dog. She got on all fours in her lingerie and continued barking. She told defendant Epstein to be careful or she would 'bite him.' "

The bizarre claims were added in an amended version of Cordero's suit charging that she was pressured into a sexual relationship with Epstein when she was only 16.

The new suit says a pal warned Epstein that Cordero had a history of being abused and having severe mental problems when they were introduced, and he replied, "I love a crazy chick. I bet you are lots of fun."

Epstein's spokesman, Howard Rubenstein, said, "It's all baloney."

http://www.wallstfolly.com/

Soros slams emissions trading systems

George Soros, currency trader extraordinaire, has slammed the use of cap and trade carbon emissions trading systems, claiming they are “ineffective” and do nothing to stop developing countries increasing their levels of pollution. Speaking last week at a high-level regional energy conference in Budapest, Hungary, Soros, said: “The cap and trade system of emissions trading is very difficult to control and its effects are diluted. It is pretty much breaking down because there is no penalty for developing countries not to add to their pollution.”

He went on to say, “You count the saving but you don’t count the added pollution going on. As a world, I don’t think we are getting our act together on climate change at the moment.” Soros was particularly scathing about the Clean Development Mechanism developed under the Kyoto Protocol whereby companies in developing countries earn credits for low carbon business projects: “They are not effective: you buy credits in third world countries that don’t have a cap on emissions and you can get carbon credits whether you can sell them or not.” Responding to a question from Responsible Investor, Soros said: “It is precisely because I am a market practitioner that I know the flaws in the system. It would be better if a flat rate carbon taxation system.”

http://www.responsible-investor.com/article/soros_slams_emissions_cap_and_trading_systems/

The Mother of All Reforms May Cost Buyout Firms, Hedge Funds $48 Billion

Nothing like getting Wall Street biggies where they live. In the pocket book. House Ways and Means Committee Chairman Charles Rangel said he will propose a $48 billion tax increase on executives of hedge funds and private-equity firms to help pay for curbing the alternative minimum tax this year. The New York Democrat said the proposal would more than double the tax rate on so-called carried interest, the compensation that executives at buyout and venture-capital firms, as well as real estate and oil and gas partnerships, receive for managing investments. It also would require hedge- fund managers to pay tax on income they defer in offshore accounts, he said.

The so-called patch, which lawmakers must pass this year to forestall a tax increase on 21 million households, will set up a showdown between Democrats who want to offset the lost revenue with new levies and Republicans who oppose any increase. The carried-interest measure also will be part of a broader overhaul that contains a permanent repeal of the minimum tax, a tax-rate surcharge on wealthy households and a lower corporate rate.

Rangel, 77, laid out his plans yesterday to the tax-writing Ways and Means Committee. ``I didn't get a lot of responses, though,'' he said. Rangel plans to introduce the broader measure today and the one-year stopgap bill next week.

After the half-hour meeting, Louisiana Representative Jim McCrery, the ranking Republican on the panel, said he didn't know all the details of Rangel's plan, though had heard enough ``to know that I can't support the bill.''

Rangel said the broader measure, which he has called the ``mother of all reforms,'' would contain a 4 percent tax-rate surcharge on adjusted gross income over $200,000 for married couples. The surcharge would rise to 4.6 percent for those with income of more than $500,000. In addition, households with income of more than $200,000 would have to pay rates as high as 19.6 percent on capital gains and dividends, instead of the current rate of 15 percent.

http://www.bloomberg.com/apps/news?pid=20601070&sid=aaMJr5prsUGM&refer=home

Hedges still Top of the Pops

Investors put significantly less money into U.S. hedge funds in the third quarter, when credit market woes sparked heavy losses at many prominent portfolios. But demand did not dry up, as some analysts had predicted.

Pension funds, endowments and wealthy private investors added a net $45.2 billion to hedge funds in July, August and September, bringing the total assets under management in the loosely regulated industry to $1.8 trillion, data tracker Hedge Fund Research said Tuesday. The net inflow was down from $58.6 billion in the second quarter and $60.2 billion in the first quarter.

Unnerved by heavy losses at funds operated by AQR Capital Management, Highbridge Capital Management, D.E. Shaw and Goldman, Sachs & Co., some investors signaled plans to rush for the exits in August. During the third quarter, the average hedge fund posted a return of only 1.36%, down from 5.04% in the second quarter.

Funds that rely on computer models to make trading decisions suffered heavy losses in July and August and saw net outflows of $278 million. So-called short-seller funds, which profit when stocks fall and are considered very volatile, delivered the best returns in the quarter but attracted only $1 million. Funds that invest in other hedge funds attracted the most assets during the quarter, pulling in $22.5 billion.

http://www.latimes.com/business/la-fi-wrap24oct24,1,3565365.story?coll=la-headlines-business

Sad News: Aetos Founder, 54, Succumbs To Cancer

James Allwin, the founder and chief executive officer of New York-based asset management firm Aetos Capital, died of Brain cancer on Oct. 19, in Greenwich, Conn. He was 54.

Allwin founded Aetos in 1999 after serving as the head of the investment management businesses of Morgan Stanley, including Morgan Stanley Asset Management; Miller Anderson & Sherrerd; and Morgan Stanley's private equity and real estate funds.

Aetos currently manages real estate and portable alpha strategies.

http://www.finalternatives.com/node/2740

Europe's 20 biggest and brightest hedges

Fun City is so over. The tidal wave of fund listings has turned to a trickle. And the rough slog now begins. In the past few years, many of Europe's biggest hedge fund managers have sold stakes to new owners or gone public. But investment bankers looking for deals are likely to find the going will get harder.

Of Europe's 20 largest hedge fund managers, six have sold minority stakes to investment banks or other hedge fund groups in the past four years, three have listed closed-end funds to raise capital, two are publicly listed, one completed a management buyout and bankers think another six, which are either wholly-owned by investment banks or private institutions, are unlikely to want to undertake deals.

Corporate asset management adviser Putnam Lovell suggests dealflow is robust for the moment, with 2007 on course to be a record year for transactions in the sector. As of October 16, 184 deals have been conducted worldwide, representing $1.6 trillion (€1.1 trillion) of assets, compared with 191 deals and $2.6 trillion in assets last year. That figure was inflated by two deals, according to Putnam Lovell - the merger of Bank of New York with Mellon and BlackRock's acquisition of Merrill Lynch Investment Managers.

A survey by accountancy Ernst & Young last week found almost one in seven hedge fund managers wanted to raise capital for their business, either through a strategic stake or stock market listing...

http://www.financialnews-us.com/?page=ushome&contentid=2449013272#2449015454

The Case of Those Mysterious Lehman Stories

The pump and dump is a classic Wall Street trading move. The reversed pump and dump is a little less common. Yet Lehman Brothers appears to have been the target of that scheme on Wednesday, according to OptionMonster.com’s Jon Najarian. The scheme, if there was one (and we’re not saying there was), involved spreading a rumor that the investment bank would announce a $7 billion write-down a la Merrill Lynch. Its share price dropped shortly thereafter. And it gets interesting from there.

According to Mr. Najarian, the Lehman rumor hit the markets at about 10:40 Eastern Time, prompting the firm’s shares to fall to $54.07 from $58.54 for the next 35 minutes. Lehman subsequently denied that any write-down announcement was in the offing.

During that 35-minute window, a mass of November 55 and 50 puts, or options to sell Lehman stock at those strike prices, were quickly sold on the market as their value rose.

Mr. Najarian said that the November 50 puts rose to $1.50 from 55 cents during that window, before settling down at $1. The November 55 puts climbed to $3.50 from $1.40 during the 35-minute window, though they have since fallen to about $2.30 as demand returned to normal.

Other firms — Goldman Sachs, Bear Stearns and Morgan Stanley — have also been the subject of those rumors, he said. Again, it’s not clear that an organized scheme was behind the rumors. But if there were, someone made a tidy profit.

http://dealbook.blogs.nytimes.com/2007/10/24/rumor-mongering-at-lehman-
nets-a-tidy-profit/

Hedge Funds Flaunt It in Third Quarter

You know the old line, if you've got, flaunt it. According to the New York Sun, the recent chaos in the credit markets and attempts on Capitol Hill to raise taxes have failed to put a damper on the lucrative hedge fund industry.

In fact, investors have allocated a record-breaking $164 billion so far this year to the industry, according to Chicago-based Hedge Fund Research. This far surpasses the $126 billion invested during all of last year, which was also a record.

This is good news for New York City, where 44 of the top 100 hedge funds are located, and where 32% of the world's hedge fund assets, or $436 billion, are based.

"The fact that hedge funds are doing well is very good news for the New York City economy," the president of the Partnership for New York City, Kathryn Wylde, said. "It is a key industry for the city's commercial real estate market, with hedge funds paying some of the city's highest rents, and it also has a multiplier effect, creating four to five additional jobs for every highly paid hedge-fund employee."

This summer, a crisis that started with defaults in the sub-prime mortgage market spread across sectors, sending equity and bond prices plummeting. The Standard & Poor's 500 Index lost more than 6% from early July through mid-August. Some hedge funds closed their doors, including two run by Bear Stearns, and others, like those run by Goldman Sachs Group, posted large losses.

Despite some fuckups, however, many hedge funds swelled with new capital. The reasons include the flexibility that hedge funds offer during a volatile market, and the fact that many institutional investors withdrew their allocations from the private equity industry — which was one of the hardest hit by the credit crunch — and hedge funds were an attractive alternative.

"If you remove those in-house hedge funds run by the investment banks, hedge funds in general performed well during the summer," the president of Aurelian Management, Brian Horey, said.

Rate cuts failing to stem investor panic

If you thought they would, please email and tell me what meds you're taking. Investors are running scared, with State Street Global Markets’ (SSGM) Global Investor Confidence Index falling from 6.1 points to 82.6, its second monthly reverse.

The group declared monetary loosening had failed to provide relief in the wake of the credit crisis. “It is now more than a month since the US Federal Reserve cut both the Fed funds and discount rates by 50 basis points, but investor confidence is more fragile than ever,” it said.

In the US the decline in confidence has been especially pronounced, SSGM said, with the North American Index notching up a decline of 13 points for October, after falling 10 points in September.

“This is by far the biggest two month fall in any of the indices, including the Global series that dates back to June 2000,” confirmed SSGM. “It is also the lowest reading of North American investor confidence since February 2006.”

It attributes the declining confidence both to the oft-bemoaned credit crunch and the worsening broader macro-economic environment, particularly in the US, a “slow motion train crash in housing (which) is accelerating.”

SSGM said a lower than expected Philadelphia Fed manufacturing index and rising jobless claims are “the first tentative signs that the bombs that have been dropping on housing and financial markets might be beginning to cause collateral damage to the real economy.” Futures markets indicate a further rate cut on 31 October is twice as likely as believed last week.

http://www.hedgefundsreview.com/public/showPage.html?page=478809

Deposit growth down-shifts at hedges

According to those good folks at Bloomberg, Hedge-fund managers attracted $45.2 billion in the third quarter, a decline from record fundraising earlier in the year as subprime-mortgage losses hurt investment returns.

New money gathered from investors worldwide fell by more than a fifth, from $60 billion and $58.7 billion in the first and second quarters, respectively, Chicago-based Hedge Fund Research Inc. said Tuesday.

Deposits were the lowest since the final three months of 2006, when managers pulled in $15.8 billion. Returns averaged 1.36 percent in the third quarter, the smallest gain in a year, Hedge Fund Research said. Almost half of the new money from July to September, or $22.5 billion, came in through funds of funds, bringing those firms' assets under advisement to $773 billion, according to Hedge Fund Research. The industry manages $1.81 trillion in all.

The largest hedge fund strategies led the industry's fundraising in the third quarter, with $9.8 billion going to managers who invest in companies going through bankruptcies, mergers and other corporate events, according to Hedge Fund Research. Relative-value arbitrage managers, who try to take advantage of price differences among stocks, bonds and other securities, pulled in $9.2 billion. Included are multistrategy credit funds affected by declines in subprime and leveraged loans.

Long-short managers, who buy stocks they expect to rise in value while selling short other stocks they expect will decline, raised $8.5 billion. In a short sale, a trader normally borrows and sells shares, aiming to profit by repurchasing them after the price falls.

http://www.chicagotribune.com/business/chi-wed_hedge_1024oct24,1,2319130.story

S.A. Hedges Could Double

South African hedge funds have the capacity to more than double the assets they now manage, according to a survey by Novare Investments (Pty) Ltd.

Hedge fund assets in Africa's biggest economy have swelled fourfold in the two years ended June 30 to 26 billion rand ($3.8 billion), according to the survey of more than 72 South African hedge fund managers. Including mutual funds that use hedge fund methods, assets are 29.6 billion rand, the survey found.

Existing hedge fund managers with open funds have enough spare capacity left to take an extra 30.5 billion rand from investors,'' Carla de Waal, who helps manage a $250 million fund of hedge funds at Novare, said in an interview from Cape Town today. Hedge funds started in the past 12 months have 11.4 billion rand in capacity, she added.

At least 17 hedge fund managers started new boutiques, small funds focusing on specific strategy, while 33 new funds were launched over the 12 months, De Waal said. Most new funds were started within existing asset-management companies, whereas in ``previous years most new hedge funds were started by managers who left large asset mangers,'' she said.

Funds of hedge funds, which pool money and then farm it out to other managers, are still the largest investors in hedge funds, accounting for 60 percent of the assets, De Waal added. High net worth individuals are the second-largest investors, holding 18 percent of hedge fund assets, while foreigners hold only 1.2 percent, she said.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=agmJ69htBapM

The Layoff League Tables

This hasn’t been a good second half of the year for investment banks. You think?

Rocked by troubles in the credit market — the subprime mortgage meltdown, the drought of buyers of leveraged loans — over the summer, firms across Wall Street and around the world felt the pain that is now coming out through billions of dollars in write downs.

And with that has come large numbers of layoffs. To help people sort through the mess, DealBook has compiled a sort of reverse league table, where being at the top is not something to boast about.

From Bear Stearns to Barclays, most of the major banks have resorted to job cuts in some way or another since the summer. More will probably follow. After announcing a 93 percent drop in profits at its investment bank last week, Bank of America’s chief executive, Kenneth Lewis, said on a conference call that he will probably take on major cost-cutting. “I’ve had all the fun I can stand in investment banking right now,” he said.

The numbers are considerable. As The New York Times reported Monday morning, 42,404 financial jobs have been cut in New York this year, according to the job-placement consulting firm Challenger, Gray & Christmas.

http://dealbook.blogs.nytimes.com/2007/10/22/the-layoff-league-tables/

New credit crunch looms

Fresh turmoil in the global debt markets has set off sharp falls in commodity prices and high-risk assets as investors scrambled for safety. The dollar soared as US investors liquidated foreign holdings, ending at $1.4129 against the euro and £2.0276 against the pound, in one of the most dramatic currency moves this year.

Libor spreads in Europe's interbank market jumped to 64 basis points, roughly the level that set off the credit crisis last summer and prompted a liquidity rescue by the European Central Bank. The iTraxx Crossover index that measures spreads on corporate bonds has jumped 100 basis since last week to 364 yesterday.

"It's the summer that won't end," said Peter Berezin, a strategist at Goldman Sachs.

He said investors were shaken by last week's drop in US home-builder sentiment to an all-time low and by fresh falls in the ABX index for sub-prime debt. "We continue to learn that it pays to respect the sell-offs in ABX and housing-related credit. This has elements of the February and August sell-offs, where credit markets signalled problems," he said.

The lowest tier of ABX debt has fallen to a record low of 20.72 – from par of 100 – pointing to huge losses that have yet to surface.

Wall Street yesterday avoided a repeat of Black Monday, eking out a recovery after the Dow's 368-point dive on Friday. The fall-out triggered tumbles in Tokyo, Shanghai, Hong Kong, Indonesia, Korea, Taiwan, and Turkey. Lead, copper, zinc, and nickel all fell hard on growing fears of a global economic slowdown, while gold dropped $13 to $754 an ounce. Brent crude fell 61 cents to $83.18.

There are concerns that a $75bn (£37bn) rescue operation put together by US Treasury Secretary Hank Paulson to stabilise the sub-prime market is intended to mask the scale of the crisis.

"This rescue has back-fired," said Hans Redeker, currency chief at BNP Paribas. "The central banks don't want anything to do with it. There is a fear that the big four US banks are trying to hide their debts," he said.

The US market for asset-backed commercial paper (ABCP) contracted a further $11bn last week as lenders refused to roll over short-term debt. This form of paper has shrunk by 25pc since August, cutting off almost $300bn of funding.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/10/23/cncredit123.xml

Hedge Honcho Says Asset Growth Will Halt

Now here’s a real shocker! Hedge fund asset growth, which in spite of recent market troubles hasn’t missed a beat, will slow in the second half, one hedge fund executive posits.

Polar Capital CEO Mark Kary’s words conflict with those of the Man Group’s Peter Clarke, who earlier this month said he expected no “material” change in hedge fund growth.

In an interview, Kary said,“If there has been a very rapid inflow in the first half, then at the margin it will be a little bit slower for the second half—that’s generally for the industry.” But he added that there “will be pockets that prosper,” notably his own pocket, equity long/short.

“At the margin equity long/short should be a market-share gainer,” he said.

Polar Capital’s assets under management rose 13.8% in the six month ended Sept. 30. The firm now manages $3.88 billion, $2.21 billion of which is in equity long/short strategies.

http://www.finalternatives.com/node/2715

The Subprime Effect: McMansions to take McBreather

If you want to sell a mansion in the upscale Chicago suburb of Hinsdale, this is not the best time.

"People are afraid, and that is driving the mood of the market right now," Bryan Bomba, principal of local realty the Bryan Bomba Group, said while touring a house here. "You can still sell, but it takes hard work and a lot more time."

Welcome to Hinsdale, an affluent village in demand from doctors, lawyers and executives for its proximity to the city's heart -- 30 minutes by train in rush hour -- with good schools, polite wealthy neighbors and leafy quiet streets.

Across the United States even in wealthy areas like this -- Hinsdale's median asking price for a home is $1.5 million -- residential property sales have been slowed to a crawl by the subprime mortgage crisis.

"It's a harsh reality out there for all of us right now," said Dave Hanna, managing partner of Prudential Preferred Properties CRE, which has offices in Chicago and Hinsdale.

The house Bomba was showing is a 6,000-square-foot (540-square-meter) property. Far larger than average homes and often mass-produced for large gated or semi-private neighborhoods, houses like this are called "McMansions" -- a satirical term for excess that references popular fast food giant McDonald's Corp

McMansions have come to be associated with the swollen wealth of the lucky winners of the last decade, dating to the Internet boom of the 1990s through wealthy taxpayers made even richer by U.S. tax cuts under President George W. Bush.

Bomba said the asking price for the five-bedroom, three-story house is $1.85 million. It has been on the market for more than two months and, granite kitchen counter tops and red oak floors notwithstanding, may be available for some time more.

Hinsdale houses are now taking six to nine months to sell, compared with four to six months during 2004 and 2005. There are 69 active listings in the town priced at $2 million or more.

"At the current rate of absorption, it would take two and half years to work through that inventory," said Bomba. He said his own business has slowed even as a client base he has built over 18 years has cushioned the blow.

Real-estate businesses are hurting. Uncertainty about the U.S. economy and tighter mortgage financing in the fallout from the "subprime" credit crunch have reduced buyers.

"In more than 30 years I've never seen so much inventory," said Julie Deutsch of Coldwell Banker Residential Brokerage serving the North Shore, Chicago's premium property market.

Deutsch had sales of around $63 million in 2006 and said "I'll consider myself lucky if I see $30 million in '07."

Hanna said one way to view the U.S. property market was to picture it as "a pyramid, where subprime forms the base."

A credit crunch has tightened all mortgage lending because of probes of bankers, lenders and brokers amid the subprime crisis, limiting mid-tier borrowers from buying up.

"Now people at the bottom can't sell to move up a level and that also hurts people at the top of the pyramid," Hanna said.

Lenders are more reluctant to lend to people at the bottom of the market. But wealthier Americans with less-than-perfect credit -- some, for instance, with a hefty mortgage or two already -- are finding themselves in the same boat.

"Many of the people at the high end are CEO's and entrepreneurs who are used to getting what they want," said Bill McNamee, president of Pinnacle Home Mortgage, a mortgage broker focused on Chicago area high-end homes. "They don't like being told 'no,' but some will be forced to get used to it."

Nervousness after the summer's stock market volatility and fear of a recession have also played a role.

"High-end owners are staying put and adding on to their houses because they're afraid of what's happening in the economy," said Sandy Heinlein of Baird & Warner Real Estate in Inverness, a wealthy Chicago suburb.

http://www.reuters.com/article/bondsNews/idUSN1619121920071021?pageNumber=3

Assistant Claims Wife Killed Hedgie

We know. This is the fourth time we've run almost the same story. But hedge fund news is very low to the ground lately and, well, four thousand of you have checked this story out so far. We figure, why not give another thousand or so their chance?

An associate of Circle T Partners founder Seth Tobias, who was found dead in his pool last month, is making explosive new claims about the hedge fund manager’s death.

William Ash, who says he worked for five years as a personal assistant to Tobias and his wife, told FINalternatives that Tobias’ widow, Filomena, is responsible for his death. Ash also claims that Filomena confessed to murdering Tobias, her third husband, in a phone call the week of his death.

“A few days later, in a conversation, is when she just started talking about what happened on Sunday, going into Monday, and then how she eventually did it Monday night,” Ash said. He claims that Jupiter, Fla., police recorded “hundreds” of calls between himself and Filomena.

A spokesman for the Jupiter police did not return calls for comment.

Ash, who lives in San Diego, says that the phone call in which Filomena Tobias confessed to the alleged murder was not recorded. He says she never explicitly admitted killing her husband again.

“It’s like a big jigsaw puzzle,” he says of their subsequent, recorded conversations, which began the Friday after Labor Day and continued through last Friday. “You have to put all the tapes together.”

Jupiter police are awaiting the results of toxicology tests on Tobias, though they have not said they suspect foul play. Ash says it was “not necessarily poisoning” that killed his employer.

Ash declined to specify how he believes Filomena Tobias allegedly tried, failed and eventually succeeded in murdering her husband.

Michael Posner, one of Filomena Tobias’ five lawyers, declined to comment on Ash’s allegations. But Jupiter police have cast doubt on Ash’s credibility, pointing to his criminal past.

Ash says his past—he claims to have run a major prostitution ring as an associate of famed “Hollywood Madame” Heidi Fleiss, including arrests for living off of the proceeds of a prostitute and writing bad checks—was no secret to the Tobiases at the time of his hiring, and wasn’t a problem.

According to Ash, the Tobiases had a volatile relationship, including frequent battles over money. Further, Ash claims that Seth Tobias was gay, and battled drug and alcohol addiction.

“The marriage was a façade: He was gay,” he said. “As far as I’m aware, he’s always had boyfriends.” His most recent, according to Ash, was an exotic dancer from a club in Palm Beach, Fla., who is to be deposed, along with Ash, on Monday, as part of Filomena Tobias’ battle with her husband’s family over his multi-million dollar fortune. Seth Tobias left his wife out of his will, though she is claiming to be his sole heiress.

http://www.finalternatives.com/node/2701

Goldman leads in race for Cheyne

Goldman Sachs has emerged as one of the front-runners bidding to bail out bankrupt Cheyne Finance, the London-based structured investment fund hit hardest by the credit crunch. It is understood Deloitte, the administrator of the so-called structured investment vehicle (SIV), which was owned by £12bn hedge fund Cheyne Capital, is in advanced talks with three banks – thought also to include RBS – about a life-saving deal.

Deloitte is expected to narrow these rescue talks down to a single bidder within days and sources close to the process said there was a good chance the Cheyne fund could survive intact and start trading again.

Until late last week a fire-sale of Cheyne's assets had looked likely but City bankers said last night that the fund's survival would bolster hopes that the London market is emerging from the credit crunch -crisis.

A source close to the process said: "If someone can take a longer-term view on this – and this is being considered – that opens up various options better than an asset sale."

One arrangement could see a bank refinance the Cheyne SIV, allowing it to continue trading for at least the next few years, giving it time to run off its assets. It is unclear whether the SIV's management would stay on under this scenario.

Both retail banks and investment banks such as Goldman Sachs who have spare cash are moving to take advantage of the credit crunch either by buying up assets that are now undervalued or by lending money on much better terms than they could have demanded before the collapse of the debt markets. Goldman has also seized the opportunity to ingratiate itself further with hedge funds, a key client base for investment banks, but one that was tainted by heavy losses at the start of the credit crunch.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/10/21/cncheyne121.xml

Hedge Funds Settle Nasty Lawsuit

Two New York hedge funds have settled their lawsuit with engineering and construction concern Washington Group International over the Boise, Idaho-based company’s proposed sale.

Purchase, N.Y.-based Schultze Asset Management and New York’s Greenlight Capital had sued to stop the $2.6 billion takeover by URS Corp., alleging that Washington Group and its board of directors “breached their fiduciary duties because they failed to choose financial projections that fairly valued the company’s worth to maximize shareholder value.”

Earlier this week, proxy advisor Institutional Shareholders Service advised owners of Washington Group stock to vote against the deal—which prices the company at $90 per share, while it was trading at more than $93 in midday trading today—while Washington Group continues to push for the deal.

Under the terms of the settlement, Washington Group has agreed to provide shareholder with supplemental disclosures.

http://www.finalternatives.com/node/2704

Poor Hedgies Pissed At Pay

It may come as a shock to the folks in Washington—who want to dig further into the pockets of hedge fund managers with a higher tax—that some of those pockets are not so deep. According to Hedge Fund Search Digest’s compensation survey, the average total compensation for hedge fund managers and executives is just $250,000 and only 3% of those surveyed earn more than $1 million. (To put things in perspective, to make Alpha magazine’s top 25 HF earners list, one needed to get paid $240 million a year.) Broken down by jobs, managers averaged around a thousand bucks per day, per year ($364,566). Analysts meanwhile came in at the low end with $205,381 per year. Given the disparity between the have lots and the have nots, it makes sense, according to the survey, that 76% of those polled are unhappy with their compensation, especially with the constant media exposure the multimillionaire hedgies receive. “Even when you’re getting paid three-quarters of a million or a million a year, there’s still that, ‘What’s possible?,’ Digest President David Kochanek said in an interview with Dow Jones Newswires.

The result is frequent turnover in the industry. In fact, most of the survey participants—who hailed from more than 200 HF firms, including Credit Suisse, Deutsche Bank, BlueBay and Goldman Sachs—were in senior positions, with more than 10 years’ experience, but less than two years in their current jobs. Though the survey found that three-quarters of respondents expect to see raises this year, apparently there won’t be enough. “The dissatisfaction may be a function of expectations and perceived opportunity cost.” The survey also noted:

--Hedge fund analysts on the West Coast earn on average 30% more than their East Cost counterparts.

--Professionals with a master’s degree in business took home about 33% more compensation than those that don’t have one, mainly in the form of a bonus.

--More than half the firms surveyed say they are achieving good to excellent performance, with most using a multi-manager investment approach.

http://www.institutionalinvestor.com/Articles/1463752/Home-Page/Top-Stories/
Poor-Hedgies-Unhappy-With-Pay.aspx

You're Not Super Rich? You Lucked Out..

Whenever my kids swoon over a palatial home or a passing Ferrari, it always bugs the heck out of me. Before long, I am on my soapbox, insisting that they shouldn't be awed by such symbols of wealth.

This might sound odd coming from a personal-finance columnist. But the fact is, while it is comforting to be financially secure, money is no measure of self-worth, no guarantee of happiness -- and no reason to be impressed.

We all tend to sit up and take notice when we come across people with fancy titles, hefty incomes and immense riches. Yet these aren't signs of genius or virtue. Want proof? All it takes is two words: Paris Hilton.

Wealth may be inherited, which means the beneficiaries' struggle for riches didn't extend beyond the delivery room. Legendary investor Warren Buffett, the billionaire chairman of Berkshire Hathaway, has described "the idea that you win the lottery the moment you're born" as "outrageous."

What about the self-made rich? Shouldn't we be more impressed by them? While their hard work and perseverance are often admirable, I wouldn't be too quick to deify.

Today, if you are adept at judging the chances that a corporate takeover will go through, you can make good money running an investment fund devoted to merger arbitrage. Such a skill, however, wasn't nearly so valuable in thirteenth century England -- or, for that matter, twenty-first century Afghanistan.

In other words, in a different society or at a different time, your peculiar set of skills might ensure fabulous financial success. But in today's America, you are just another working stiff.

Displays of wealth can also be misleading. Folks can appear wealthy -- but the mansion may be fully mortgaged, the cars might be leased and the landscaper may still be awaiting payment.

Even if you come across somebody who can easily afford the trappings of wealth, the trappings themselves are not a sign of wealth, but of wealth that has been spent. The money lavished on the cars, homes and jewelry is now gone.

True, these purchases could always be sold. But there's no guarantee they will fetch the price that was paid -- and, in the meantime, they may require hefty maintenance costs.

http://online.wsj.com/article/SB119291792840766073.html?mod=fpa_mostpop

SAC Socked With New Allegations

Some stories are too good to die. Case in point: for a hedge fund as obsessed with secrecy as SAC Capital, two weeks of sex-scandal headlines, reporters milling around and federal agencies poking around cannot have been much fun. But things at the Stamford, Conn.-based firm could get worse before they get better.

The federal Equal Employment Opportunity Commission is set to decide in the next few weeks whether to join ex-SAC junior trader Andrew Tong’s sexual harassment lawsuit against the firm and his former boss, Ping Jiang. Tong alleges that he was sexually assaulted at work, and that Jiang ordered him to take estrogen pills and wear women’s clothing in an effort to curb his aggressive trading habits. Tong, who is married, also alleges that he and Jiang had a sexual relationship.

SAC and Jiang have angrily denied the charges. But CNBC reports that the EEOC is ramping up its probe of SAC, taking the rare step of conducting on site interviews with Jiang and his team at SAC’s New York office. CNBC anchor Charles Gasparino reports that the federal agency has spoken to most, if not all, of Jiang’s trading staff.

Worse still for SAC, the EEOC may expand its probe beyond Tong’s claims, prompted by a newspaper quote from a SAC employee.

“If taking female hormones actually helped you do your job, they would simply hire women here,” the unidentified employee at SAC’s Stamford headquarters told the New York Post. “But they don't. They don't think women are aggressive enough.”

Should the probe expand to SAC’s alleged sexism in hiring, SAC brass is unlikely to be especially pleased. Another employee told the Post last week that firm leaders were “livid” about Tong’s allegations appearing in the media and conducted a “witch hunt” to find the leaker.

Worst of all, CNBC reports, the U.S. Attorney for the Eastern District of New York has interviewed Tong about SAC’s trading activity. The hedge fund has been sued over allegedly trading on tips about negative analyst reports.

http://www.finalternatives.com/node/2695

Exchange honcho hints at futures trades for water, air

The prospect that air and water may eventually join crude oil, pork bellies, orange futures and other commodities traded on global markets was raised in Tokyo today by Craig Donohue, the chief executive of the Chicago Mercantile Exchange.

Mr Donohue, who runs the world's largest commodities trading exchange, declined to confirm directly that water would become a tradeable commodity, but told The Times: "We are working on a lot of products."

He said that the concept of a global futures market in water “would not surprise me”, as the world and its commodities were going through a phase of fundamental change, as derivatives exchanges adapted to explosive growth and demands of China and India.

Amid record crude oil prices, historic drawdowns on grain inventories and other trading phenomena, Mr Donohue said: “This is not just a cyclical change. This is an entirely new market.”.

Amid these changes, soaring industrial and agricultural demand for water, say some analysts, could become a more critical geopolitical issue than climate change. Water trading, say some, may provide a market-based way of forcing higher levels of water efficiency on the worst offenders.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking
_and_finance/article2686388.ece

Banks’ $75Bn Rescue Plan Needs Help

The plan is still being developed, but the roughly $75 billion effort to snap up troubled securities is struggling to get off the ground, days after it was disclosed by the country’s three biggest banks with the support of the Treasury Department.

Citigroup, Bank of America, and JPMorgan Chase back the plan but are just beginning to hammer out the details. Bank regulators are aware of the discussions but some say they are out of the loop. And market participants are puzzled, with investors like Pimco and T. Rowe Price balking at buying in.

Yesterday, Citigroup executives said separately that they bought some time by securing $80 billion in financing through the end of the year. That provides some relief because Citigroup can avoid a fire sale of assets at distressed prices, but it is not a long-term solution for the bank or the industry. A greater amount of backup financing is needed.

The Treasury-supported proposal for the industry, however, provides a framework for a new fund to purchase assets held by structured investment vehicles, or S.I.V.’s, that have been pressured since the credit market meltdown this summer. It is intended to help the banks backing such vehicles avoid bringing those risky loans onto their balance sheets and to spare investors — including money market funds — distress.

But the plan, which was hatched in August but leaked last week, has been plagued by uncertainties. All three banks agree on the concept but differ on the details. Other questions remain. How will the plan work? Who will participate? How much will its backers put in?

http://www.nytimes.com/2007/10/19/business/19place.html?_r=1&oref=slogin

The fund manager, the stripper and the missing millions

It must be something in the water; Canada's hedgies have more than their share of rogues and nogoodniks. Few, though, are as colourful as Paul Eustace. By his own admission in a deposition filed in court, Mr. Eustace lied to investors, lost $208-million (U.S.) in his hedge funds and stole roughly $2-million of client cash. He has also acknowledged cheating on his wife with a stripper for years and using investor money to give his lover $1-million worth of gifts including paying for breast augmentation surgery.

Now Mr. Eustace, 42, faces the prospect of going to jail over allegations he violated court orders and used money that belonged to creditors to cover personal expenses such as tuition for his children's private school.

“Eustace's varied and endless acts of fraud were perpetrated on such a grand scale that it has not only cost innocent investors hundreds of millions of dollars, but has helped to cast a dark cloud over the entire hedge fund industry,” alleges a motion filed in a U.S. court this week by a receiver who is searching for assets. The allegations have not been proved.

Mr. Eustace, who lives in Oakville, Ont., was unavailable for comment but in court filings he said he didn't know about some of the court orders and was only trying to pay legal bills.

Little was known about Mr. Eustace until June 23, 2005, when regulators in the United States and Canada shut down his company, Philadelphia Alternative Asset Management Co. (PAAM), and froze his bank accounts.

Mr. Eustace is an American and while he ran PAAM out of Oakville, it had operations in Philadelphia. The U.S. Commodity Futures Trading Commission has since banned Mr. Eustace for life from “engaging in any commodity-related activity.”

The company collapsed into receivership in Philadelphia and the receiver, Clark Hodgson, has filed a series of lawsuits in a bid to recover assets. Hundreds of pages of documents filed in court this week by the receiver's lawyers revealed new details about Mr. Eustace and how he allegedly operated.

http://www.reportonbusiness.com/servlet/story/RTGAM.20071018.weustace
1018/BNStory/Business/?page=rss&id=RTGAM.20071018.weustace1018

Feds bust bogus hedge fund at Long Island photo shop

Think it must be simple and easy enough to run a hedge fund in say, a Plainview, New York photo studio between portrait taking? Not quite, said federal officials who indicted the operators of the L2Q3 Advantage hedge fund on charges of defrauding their clients of $500,000.

FBI agents arrested David Lagone, the owner of the Lagone Photo Studio, 1670 Old Country Rd., Plainview, and his cousin, Kenneth Lampasona, a cashier in a liquor store, at their homes early Wednesday morning on mail fraud charges for allegedly turning their L2Q3 fund into a Ponzi scheme when they began to lose investors' money.

Lagone, 55, of 2 Young Hill Rd., Halesite, and Lampasona of 3 Caldwell St., Huntington Station, allegedly operated the hedge fund from the photo studio from July 2003 to November 2005, according to an arrest warrant filed by the FBI. Lagone and Lampasona were not required to plead at their arraignment before U.S. Magistrate William Wall at the U.S. District Court in Central Islip.

Langone's attorney, Benedict Gullo of Mineola declined to comment, as did Lampasona's attorney, federal public defender Tracey Gaffey. Assistant U.S. Attorney John Martin also declined to comment, as did Robert Nardoza, the chief spokesman for the U.S. Attorney's office in the Eastern District.

Initially, Lagone and Lampasona claimed that Lagone, who says he has a master's in business administration from the University of Chicago, had developed an incredibly complex mathematical formula that could predict the outcome of stocks on the Nasdaq exchange based on the Nasdaq's previous day's results. They also falsely told the alleged victims that they had worked on Wall Street as stock-market analysts, the warrant said.

They told their victims that using Lagone's formula they could double the money in a year and sent victims false account statements claiming the hedge fund had "extraordinary profitability," the warrant said.

http://www.newsday.com/business/ny-bzhedg1018,0,1819802.story

'Mr. Madam' grilled in Wall Streeter's death

The aftermath of last month's death in Jupiter of CNBC commentator and Wall Street big Seth Tobias has taken a bizarre turn.

Billy Ash, a former Lauderdale-based gay pimp who called himself "Mr. Madam," has become a key figure in the continuing police investigation into the death and the battle for Tobias' millions.

And then there's "Tiger." That's the stage name of the go-go dancer at the WPB gay hangout Cupids who was supposed to be deposed in the probate fight.

What's going on here? Neither Tobias' widow, Filomena, nor her four — Count 'em! four — high-profile lawyers, including ex-husband Jay Jacknin, are talking.

But Ash, now based in San Diego, is. He told the Palm Beach Post that Jupiter PD Detectives Danielle Hirsch and Brent Hoosac spent two days grilling him at home in late September. Ash — who was arrested at least 11 times in South Florida from 1983 through 1997 for prostitution, bouncing checks and staying in a hotel without paying, according to law enforcement records — says he was the Tobiases' personal assistant for two years.

He quit shortly after hedge-fund whiz Tobias, 44, was found floating in the pool of his $3 million home at the Bears Club. Ash e-mailed what appears to be a pay stub showing he received a $3,000 payment from Filomena on Sept. 2, two days before the death.

"I have intimate knowledge about the inner workings of the couple. I booked their travels, made sure they made appointments on time, watched after their many houses," Ash said, acknowledging that he has "a past" and that it didn't disturb the Tobiases when he was hired. He said he didn't witness the death and was flying home when it occurred.

http://www.palmbeachpost.com/localnews/content/local_news/epaper/
2007/10/17/a2a_josecol_1017.html

Dimon to Chuck Prince: Watch and Learn, Asswipe

J.P. Morgan Chase, which Dimon now heads, turned in a third-quarter performance today that put Citigroup’s results to shame. Not only did J.P. Morgan report an increase in net income, but it also beat the 90-cent average analyst estimate for per-share profit by 2 cents. Its write-downs from the credit storm were kept to less than $2 billion, net of fees and hedges, and its return on equity held steady at 11%.

Compare that to Citi, which Weill anointed Chuck Prince to run after Dimon’s departure. It had a 57% decline in net income in the same period, $6.5 billion of credit losses, and its ROE tumbled to 7% from 19% a year earlier. To be fair, the write-down figures aren’t an apples-to-apples comparison, but J.P. Morgan clearly managed its exposure to risk better. Dimon also proved that he learned a thing or two from Weill about controlling costs, something that has bedeviled Prince. The market isn’t entirely surprised: while J.P. Morgan’s shares are down 7% this year, Citigroup shares have skidded 20%.

To be sure, part of Prince’s travails come from a difficult hand he was dealt when he took over in 2003, courtesy of the breakneck pace of acquisitions that Weill struck, abetted by Dimon, and the unwieldy giant it created. And it isn’t clear that Dimon would have been the right man to clean up the regulatory mess Weill left.

Still, with many people inside and outside of Citigroup now calling for Prince’s head, the diverging fortunes of the two companies must have Citigroup’s down-on-their-heels shareholders wondering how things would have turned out differently had Weill stuck with his man back then.

http://blogs.wsj.com/deals/2007/10/17/dimon-to-chuck-prince-watch-and-learn/

'Dark Pools' Threaten Wall Street

One of the fastest moving trends on Wall Street has flown under the radar of individual investors and, seemingly, the Securities and Exchange Commission: the rapid rise of "dark pools" stock trading arenas.

As the name suggests, dark pools lack transparency: They are used by institutional investors seeking to trade large blocks of stocks without creating the price wobbles that routinely accompany such moves. The trading is done away from the traditional exchanges, offering unprecedented anonymity.

Recently, more than 20% of all trades in New York Stock Exchange-listed stocks have been funneled through these dark pools, up from just 3% to 5% two years ago, according to NYSE figures.

Asked about the SEC's view of dark pools, a spokesman cited a recent speech by the head of the Division of Market Regulation, Erik Sirri, who said that "while the increasing use of hidden orders may be troubling," the SEC believes the new venues are available to all market participants. He suggested that the SEC is not in the position of favoring one market model over another. It would appear that until the trend toward dark pools has a measurable impact on investors, the SEC is willing to be simply an observer.

In the wake of the subprime mortgage debacle of the past two months, the importance of transparency is obvious. The packaging and repackaging of impossibly shaky mortgages into sophisticated investment products resulted in securities that were overly complicated and not well understood, and that ultimately went bust and brought down an entire industry.

http://www.nysun.com/article/64598

Shocker! Calif. To Require Fund Managers to Register

The California Department of Corporations recently announced plans to delete an exemption from registration for certain investment advisers that has been on the books since 2002. The proposed rule change is aimed at California hedge fund advisers, but other investment advisers to pooled investment vehicles may be affected as well. Private equity managers in particular also may be required to register with the Department as investment advisers if the funds they manage do not meet California’s definition of a venture capital company.

Citing only the somewhat dated 2003 Securities and Exchange Commission (“SEC”) hedge fund study and the SEC’s failed 2004 bid to require hedge fund advisers to register with it, the Department claims that the growth of hedge funds, the increase in fraud related to hedge fund activities and the increased participation in hedge funds by retail investors all warrant state action. The Department did not acknowledge any dissenting views — most notably those of the President’s Working Group on Financial Markets — suggesting that additional regulatory oversight of hedge funds and their advisers is unnecessary.

http://www.finalternatives.com/node/2680

Hedges Have Hottest Month in Over a Year: Eurekahedge

An index tracking global hedge funds had its best month in over a year as the Federal Reserve cut the overnight lending rate by a larger-than-expected half a percentage point, according to Eurekahedge.

The Eurekahedge Hedge Fund Index, which tracks the performance of 2,566 funds investing globally, gained 3.4 percent in September, the biggest advance since January 2006, according to preliminary figures compiled by Eurekahedge, a Singapore-based hedge-fund research and publishing company.

The Fed on Sept. 18 reduced its benchmark lending rate by half a percentage point to 4.75 percent, more than most economists surveyed by Bloomberg predicted. Policy makers also pledged to ``act as needed'' to prevent mortgage defaults from weakening the broader economy. The rate cut triggered gains in global equities last month, pushing the MSCI World Index up 4.6 percent, the best month since November 2004.

Regional indexes also rebounded after the turmoil in the U.S. subprime loan market in August. The Eurekahedge North American Hedge Fund Index advanced 3 percent, while the one tracking European hedge funds added 0.3 percent.

http://www.bloomberg.com/apps/news?pid=20601208&sid=aR1rX_l_xKLg&refer=finance

What Credit Shakeout? Wall Street Hiring Soars

JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and BNP Paribas SA say oil, wheat and metals traders are Wall Street's hottest commodities.

Banks and securities firms hired a record 450 commodity traders this year, up 33 percent from 2006, according to Options Group, the New York-based recruitment and consulting firm that has tracked the industry since 2002. While the increase is equal to only 3.4 percent of the 13,100 new hires in the securities industry last year, commodities traders are so coveted that headhunters are turning to fired mortgage bond salesmen to fill the help wanted.

Lehman doubled its commodity unit to 200, and JPMorgan added 45 to bring its total to 170, including Foster Smith from Deutsche Bank AG as head of U.S. power and gas and Andrew Harrison from Goldman Sachs Group Inc., where he traded oil.

Revenue from commodities may rise 20 percent this year to a total of $15 billion at the world's 10 largest securities firms, said Ethan Ravage, a financial-services industry consultant in San Francisco. Rising prices for oil, grains and metals are stoking demand for traders even as Wall Street firms eliminate more than 2,300 jobs because of slowing U.S. growth and the worst housing slump in 16 years.

http://www.bloomberg.com/apps/news?pid=20601087&sid=
ausWiwNk8kWY&refer=worldwide

Those wild and crazy Brits: The Traders, The Strippers, The Dwarf & The Stretch Limo

Forget the stiff upper lip stuff! The London Metal Exchange had its annual dinner at Grosvenor House last week and, so the column says, some of the traders went out after to continue letting their hair down at the likes of the Spearmint Rhino and Stringfellows adult entertainment clubs. Another group of more enterprising traders, however, thought it would be a good lark to engage the services of Limousine Strip. The traders had a PA make the call to the company, which specializes, according to its website, in 'lap dancing on the move', and claims to be 'the world's No. 1 for lap dancing strippers in stretch limousines'!

Said to have shelled out a cool $2,400 for an hour of 'fun', the traders allegedly ordered two strippers and a dwarf . The dwarf, it seems, had to be under 4 feet tall, so he could walk up and down the limo and serve drinks. He was also required to wear a tux.

For those interested in this service, you might like to know that the company has offices in Amsterdam as well as London and New York. On departure from your destination you will usually be served drinks by your chosen dancer, which will be followed 'by close contact lap dancing and strip till fully nude'. Punters can, it seems, touch the girls ' 'as long as you ask first gentlemen!.......(although) you cannot touch below the dancers' waist'.

http://news.hereisthecity.com/news/business_news/7170.cntns

Is Banks’ Super Fund Plan Just Spin?

Industry observers seemed to cast a jaundiced eye yesterday over a plan unveiled by Citigroup, Bank of America and JPMorgan Chase, with active encouragement from the Treasury Department, to keep the housing-related debt crisis from worsening.

The plan calls for the banks to create a new financing vehicle to try to restore confidence and reduce the risk of a market meltdown by propping up an important part of the debt markets. But, The New York Times said, the banks hope to take minimal risk and avoid actually investing any of their own money.

“I don’t really see that this is going to make a significant difference,” Jan Hatzius, chief United States economist at Goldman Sachs, told The New York Times. “It seems a little more like a P.R. move, frankly.”

Mr. Hatzius said he wondered “why this is going on when previously the official word was that things were getting better.” His words echoed those of Christian Stracke, an anlayst at the research firm CreditSights, who told The Times in an article published Monday that the effort appears to be an attempt to soothe tense investors in the debt market, rather than to provide substantive relief to the worst-hit mortgage securities.

http://dealbook.blogs.nytimes.com/2007/10/16/is-banks-funding-plan-just-spin/

Bonuses up by £3bn ($6Bn) Did somebody say Credit Crunch?

As bankers brood about the impact of the global credit crunch on their bonuses, data has emerged that shows the country's employers paid out £3bn more in the last bonus round than in 2005/2006.

The Office for National Statistics, which only measures the increase in bonuses rather than the total pool, said the boost compared with a £2.5bn increase in 2005/2006.

The average earnings index shows a spike each year between December and April, when big City institutions fork out huge sums of money to keep their highest earners from defecting elsewhere.

In February, annual growth in earnings ticked up to 5.4pc before falling back to 3.1pc in April.

The City is braced for major cuts to bonuses this year following the recent market turmoil caused by the collapse in confidence in sub-prime mortgage lending in North America.

Those bankers with the greatest exposure to complex structured credit products are expected to be among the worst hit

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/10/16/cnbonus116.xml

Sink or Swim: Firm’s Staff Have 45 Days To Save Their Skins

Financial News reports that Royal Bank of Scotland (RBS) 'has given itself 45 days to decide what parts of ABN AMRO's wholesale banking business it will keep, and which staff it will retain'. According to the newspaper, RBS has no less than 118 initiatives looking at the integration of the two banks' wholesale banking operations, including reviewing whether to continue ABN's equity capital markets jv with Rothschild, and a possible sale of the Hoare Govett corporate broking unit. And within 45 days, so the story goes, RBS will present its transition plan to De Nederlandsche Bank, the Dutch Central Bank. Job cuts, however, will not take place until April at the earliest as there will be a need for consultation with regulators and Dutch workers' councils.

There have been concerns expressed that RBS has overpaid for its parts of ABN, and there are worries that wholesale banking in particular is heading for a slowdown following the recent market turmoil. RBS has, however, flagged up cost and synergy saving of some $2.55bn, and investors will be watching carefully over the coming months to ensure that the bank makes good on its promises. Although there is unlikely to be mass redundancies as the two wholesale units come together, many feel that hundreds of jobs are likely to go in the City.

The combined wholesale banking operation will become the largest in Europe, and the fifth largest in North America. Overall, RBS is taking on 30,000 ABN employees, making the Scottish bank number one in Europe for corporate banking and number five in commercial banking in Asia-Pac. It also will be one of the top five players globally in transaction services.

http://news.hereisthecity.com/news/business_news/7164.cntns

$1 Billion Fund of Fund Bagged

Integrated Asset Management has agreed to acquire 51% of Altigefi, the Paris-based fund of hedge funds manager for a total of €8 million (US$11.3 million).

As part of the transaction, Pierre Edouard Coiffard and Bruno Lescoat, Altigefi’s co- founders, will join as senior members of Alternative Investment Market-listed Integrated’s investment team in London and Paris.

Financière Atlas, a French subsidiary of Luxembourg-based Sal. Oppenheim Jr & Cie, the largest shareholder of Integrated, owns 49% of Altigefi. As part of the multi-year agreement, Integrated and Financière Atlas will work to develop institutional alternative products for the French market.

Altigefi manages four principal funds of hedge funds with a total of approximately US$1 billion under management as of Oct. 5. Altigefi’s flagship product is the Altipro family of funds, a low volatility product with a nine-year track record.

Following the acquisition, Integrated will manage and advise approximately US$2.5 billion in total assets.

http://www.finalternatives.com/node/2656

Hedge Fund Fraudster Goes Up the River

A former hedge fund manager was sentenced to three years in prison Monday after he pleaded guilty to securities fraud, admitting that the scheme cost investors $88 million.

John H. Whittier, 41, of Hailey, Idaho was also ordered to forfeit $5.5 million. U.S. District Judge Jed S. Rakoff told him to surrender on Jan. 15 to federal prison authorities.

Whittier pleaded guilty in May, admitting that he promised investors in his Wood River U.S. and Wood River Cayman hedge funds that no more than 10 percent of the hedge funds' holdings would be invested in the stock of any one company.

Prosecutors said he then invested approximately 85 percent of Wood River U.S.'s $127 million portfolio in a single stock, gaining ownership of 80 percent of the common stock of Endwave Corp. In September 2005, Endwave's stock price dropped dramatically.

They said he also falsely told investors that the hedge fund was being audited when it was not, and he failed to make required filings with the Securities and Exchange Commission.

http://www.wnbc.com/investigations/14346473/detail.html

Wall Street Still Stressful, Less Drugged?

Someone at Businessweek still hasn't heard about Bolivian Marching Powder. No surprise really. There's lots of things Businessweek hasn't stumbled on yet. But accordig to them , While Wall Street still has its rough edges, the culture is far more straitlaced today than in past eras. "It's more institutionalized," says one hedge fund manager. It's no longer acceptable to deal with your stress by hurling a computer on the floor or by indulging in drink, drugs, or alcohol. As a practical matter, the threat of a lawsuit is much higher than before. And traders are generally a more professional group than in past decades. "There weren't as many Wharton MBAs on the scene during the 80s," says the fund manager, who spoke on condition that he not be identified.

Today, when drugs are employed against stress, they're more likely to be the prescription variety. Another hedge fund manager, speaking on condition of anonymity, says he has been taking antidepressants for years. While his work didn't cause his depression, it can exacerbate it. That can lead to a modification in medication or work habits. He once even closed a particularly troublesome fund at the urging of his wife, who said it was leading to severe stress that was affecting his behavior and disrupting their marriage.

There certainly are a lot more people in finance putting on the Ritz and taking the A-Train—that is, taking Ritalin and Adderall—than there were in the days before the little pills that could were invented. But is usage of the hard stuff really down as far as the article claims? If so, then Wall Street must have been under a permanent blizzard in those days.

http://www.businessweek.com/bwdaily/dnflash/content/oct2007/db20071014_
507091.htm?chan=search

Hey, it’s No Bailout. It’s ‘Financial Engineering

Let’s see if we have this right: funds set up to make money on illiquid securities are causing some problems for large banking institutions, so in response, the banks — including some of those smart enough to avoid such vehicles — are all getting together to make an even larger fund to buy all of this stuff.

As the Wall Street Journal has pointed out in a handful of stories, there are these off-balance sheet structured investment vehicles (SIVs, not SUVs), set up to issue short-term debt and invest the proceeds in things like mortgage-backed securities, which have seized up as investors have run away from the risk thanks to the downturn in the housing market. These SIVs are still struggling to issue paper, the FT.com pointed out last week.

So in response, the banks have created a single master liquidity enhancement conduit, or M-LEC, a sort of golem-like entity that may or may not resemble the Master Control Program from the film “Tron.” The Entity, as it will be known in MarketBeat, will agree (because as an entity, it has no free will) to buy up this debt to help restore these markets.

The Entity should work swimmingly, unless, of course, investors in the debt markets become more nervous as a result of what is a tacit admission by the banks that things aren’t going so well. At the moment, the 10-year Treasury note is down 6/32, to yield 4.71%, so that reaction has been limited.

“Conceptually, the move makes sense,” writes Simon Nixon of Breakingviews.com, noting that The Entity’s liquidity infusion should “remove a major element of uncertainty from both the commercial paper market and the asset-backed securities market.”

But Mr. Nixon also points out that it raises, again, the moral hazard argument, that a bailout will be forthcoming to those large institutions whose pursuit of risk threatens markets in general. Todd Harrison, CEO of Minyanville.com, responds similarly, saying that “if the private sector will be subjectively saved after reckless risk-taking, have we effectively embraced the notion of moral hazard?”

In particular, he says, the bailout seems to penalize those who “properly managed previous risk” (in part by not using these conduits) or “those who will shape future risk.” Oddly enough, Bank of America and J.P. Morgan Chase are a party to all of this, even though they, unlike Citigroup, have no exposure to this area. (Citigroup has about $80 billion in exposure out of the $400 billion outstanding, which prompts Michael Shedlock to groan: “In other words, Citigroup is setting up a fund to buy assets from itself.” )

http://blogs.wsj.com/marketbeat/2007/10/15/its-not-a-bailout-its-financial-engineering/

The bulging Wall Street bums unveil 100bn bailout fund

Coming in at the last minute, taking their clue from the likes of Bruce Willis, and Schwartzenegger, the three biggest Wall Street banks have unveiled firm plans to create a $100 billion (£49 billion) bailout fund designed to avert a worsening credit crisis on Wall Street. Citi, JPMorgan and Bank of America (BoA) have agreed to pool together and launch a fund that will buy risky securities backed by mortgages at risk of default.

The plan marks the biggest bailout on Wall Street since 1998, when Alan Greenspan, former Chairman of the US Federal Reserve, pushed seven American investment banks to prevent the Long Term Capital Management hedge fund from collapsing.

Although the three banks have agreed how much they will put into the fund, they were last night still trying to agree who will run it, how long it will exist, and the quality of assets that it will buy. Citigroup is putting the most into the fund.

It is understood that Henry Paulson, the US Treasury Secretary, has tried to help the three banks by urging other Wall Street institutions to join the pool.

Although Citigroup, JPMorgan and BoA are the core banks backing the fund, insiders claimed last night that HSBC and Barclays had also been contacted about whether they were prepared to join the consortium. HSBC is understood to be still considering whether to participate.

The three banks want to create a mega-fund, which would be called the Master-Liquidity Enhancement Conduit or the “M-LEC”. The fund would buy assets backed by shaky mortgages and prevent the banks from trying to sell them into the open market. Guaranteed by a consortium of the banks, it would sell its own short-term debt.

http://business.timesonline.co.uk/tol/business/industry_sectors/
banking_and_finance/article2658425.ece

When is the next Wall St crash coming?

The triggers for 1987's Black Monday – when Wall Street fell 22.6pc in a single day – are back, writes Ambrose Evans-Pritchard

Simon Derrick, chief currency strategist at the Bank of New York Mellon, says the collapse of the US dollar in the mid-1980s lay behind the ructions that led to Black Monday – modern times' most dramatic one-day crash. The dollar had been sliding relentlessly for two years and was at risk of breaking down in a disorderly rout, much like today.

"The dollar was under severe pressure in October 1987. Interest rates were on the rise globally, the US trade deficit remained high and energy prices had been increasing on the back of tension in the Gulf," he said. These conditions are more or less in place once again. The dollar has fallen below parity against the Canadian dollar for the first time since 1976. The global dollar index has dropped 9pc over the last year, touching an all-time lows of 77.66.

Economists' concern this time is that Asian and Middle East central banks and investment funds are losing their taste for US investments. This could knock away a key prop for the dollar. There is already evidence that Korea, Singapore, Taiwan, Vietnam and Qatar are drawing back. Europe is less likely to prove a trigger today. Even so, European Central Bank governors recently warned that inflation risks are rising, hinting at another rate rise.

One missing ingredient this time is that 10-year US Treasury bonds – the world's benchmark price of credit – remain stable. Yields have risen 30 basis points to 4.69pc since the Fed cut the Discount Rate in August. In 1987 they jumped 300 basis points from the start of the year to a pre-crash peak of 10.23pc on October 16, as investors feared a return of 1970s-style inflation. Nor are stocks as richly valued today. The price-to-earnings ratio of Wall Street stocks was 22 in 1987. It is nearer 17 now.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/10/15/cncrash115.xml

GLG principals suck it up. invest ‘hurt money’

Here’s a heart-warming story if we’ve ever seen one. Hedge fund-ers actually putting up their hard earned cash just the way civilians like you and I do. The founders of GLG Partners, a UK hedge fund manager planning to float on the New York Stock Exchange through a reverse takeover, are set to follow the rest of their industry by putting more of their money into the funds they manage for others.

The definitive proxy statement published last week by Freedom Acquisition Holdings, a NYSE-quoted shell company that will buy GLG in a reverse takeover and change its name to GLG Partners, said: “GLG’s principals, their related trustees and certain GLG key personnel, after the completion of the acquisition, are expected to have investments in GLG funds equal to approximately $715m (€504m) of net assets under management.”

The firm’s principals are Noam Gottesman, Emmanuel Roman and Pierre Lagrange. Key personnel include fund manager Steve Roth and Greg Coffey. The proxy statement said the principals, trustees and personnel had $105m invested in GLG funds at the end of last month. The firm managed $20.5bn of assets at that date. Most hedge fund managers, particularly in the US, invest in the funds they manage, according to investment consultants and investors.

In case you were about to shed a compassionate tear or two, the use of “hurt money” is one of the most effective ways to ensure hedge fund managers align their interests with those of their investors. GLG charges performance fees that take up to 30% of any gains made on its funds but is not required to repay fees if its funds lose value. Hurt money ensures a manager suffers with clients if its funds make a loss.

http://www.financialnews-us.com/?page=ushome&contentid=2448956700

Medicated Trader Says Boss Turned Him Gender Bender

No, we’re not having a senior moment. We liked this news item so much, we’re running it again. How often do you get this kind of insight into what makes a hedge fund tick?

SAC Capital is one of the world's best-known hedge funds - a $10bn beast run by trader Stevie Cohen, a man who earns around $500m-a-year. The firm has now been dragged into a bizarre lawsuit which, according to CNBC, has been sealed by a New York judge and sent to arbitration.

The story goes that Ping Jiang, a SAC Capital trader who is said to earn around $100m-a-year, thought that one of his team, 37-year-old Andrew Tong, would bring in more profit if he was generally less aggressive. Jiang is alleged to have demanded that Tong take female hormone tablets (tablets that Tong managed to find on the black market) to ensure that he was less macho. The end result, so Tong claims, is that he took the hormones, became impotent, went off his wife, started to wear ladies dresses and then embarked on a homosexual relationship with his boss! Tong claims that he has suffered emotional and physical distress, and lodged a sexual harassment lawsuit.

Of course, SAC Capital and Jiang have denied the charges, saying that the firm 'conducted a thorough investigation and found these scurrilous accusations to be false. We will vigorously defend ourselves and are confident that these claims will be swiftly rejected in arbitration'. Tong is said to have been terminated with cause from the firm in April last year, after less than a year there.

http://news.hereisthecity.com/news/business_news/7158.cntns

Investors Recoup Ponzi Losses

According to the Hays Daily News,: investors who were bilked out of millions of dollars in what prosecutors have called an international Ponzi scheme have begun receiving a refund, although it's unknown whether they'll recoup much of what they lost.

A federal court-appointed receiver last month mailed out $2.6 million in payments to former investors in Capital Enhancement Club. The payments, the second this year, brought the total refund to $5.2 million. About 1,200 people from the U.S. and overseas have filed claims in the case, claiming they lost almost $20 million. The Lenexa, Kan.-based receiver, Larry Cook, has recovered about $9.1 million in investor funds with some of it going to another receivership case and expenses. He said a third round of payments is possible, depending on how successful he is prying loose another $7.9 million that prosecutors say the club's leaders stashed in banks and real estate investments from Nevada to Riga, Latvia.

"It's a ways away," Cook said of future payments. "As far as litigation ahead of us to get money out of Latvia, that will take a year or longer." A federal judge in Topeka has also ordered the club's alleged ringleader, Scott F. Klion, to turn over more than $22 million in cash and assets that prosecutors said he generated through the club. Klion, who prosecutors said has also gone by the names James S. Tucker and David Tanner and who they called a "recidivist securities law violator," has so far denied involvement in the scheme and hasn't cooperated with investigators.

Citi’s Top Trader Bails Amid Losses

Citigroup said its trading chief will leave after almost $6 billion of losses and bad-debt costs, and named former Morgan Stanley exec Vikram Pandit to oversee trading, investment banking and alternative investments.

Thomas Maheras and a top fixed-income executive, Randy Barker, are leaving the New York-based firm, CEO Chuck E. “Cheese” Prince said yesterday in a telephone interview. Pandit, 50, joined the bank as head of alternative investments earlier this year when it bought his hedge fund for $800 million.

Maheras, 44, and Barker 48, are the first casualties at Citi following its disclosure last week that profits fell 60 percent in the third quarter because of losses tied to the collapse of the subprime mortgage market. Merrill Lynch & Co., Bear Stearns Cos., and UBS AG have already announced high-level firings after being forced to book losses as a result of three months of credit turmoil.

Citi shares have fallen 13 percent this year, more than rivals. Bank of America Corp., the second-biggest U.S. bank, has declined 1.8 percent, while JPMorgan Chase & Co., the third largest, is down 3.4 percent.

Maheras, the son of a Greek immigrant, started his career at the company as a Salomon Brothers trader more than two decades ago. Prince promoted him in 2004 to oversee fixed income and stock-trading, businesses that produced about $10.3 billion of revenue during the first half of the year, or 20 percent of Citi's total. He didn't reply to a phone call and e-mail seeking comment.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aj_gsc6Yk8lI&refer=home

JPMorgan Layoffs '07: Some Of Jamie Dimon's Souvlakettes Are More Expendable Than Others

JPMorgan Chase said yesterday it was cutting an unspecified number of jobs across its fixed-income division as investors brace for a multibillion-dollar write-down next week on the bank's leveraged loans and other assets.

The No. 3 U.S. bank said the job cuts include structured credit and leveraged finance positions.
The cuts are expected to be less than 10 percent in the affected areas, according to people familiar with the situation. And no senior executives are expected to lose their jobs, unlike what has happened at rival banks such as Bear Stearns and Merrill Lynch.

Job losses in the leveraged finance group, among the first announced on Wall Street, indicate casualties from the credit crunch and the pullback in private equity deals.

The buyout boom kept leveraged finance desks busy. But the credit crunch that hit this summer spooked debt investors and left banks with more than $350 billion in loans stuck on their balance sheets. That sparked a severe slowdown in private equity dealmaking, leaving leveraged finance desks with few deals to arrange or syndicate.

Meanwhile it's belt-tightening time back at the ranch in Greenwich, the Dimon family is going to switch from linen dinner napkins to paper – and only one per family member per week.

http://www.cnbc.com/id/21252943

Trader says SAC made him take female hormones

Talk about being abreast of the market! One of the world's richest and most secretive hedge funds is telling its traders to swallow female hormones to trade better, a lawsuit claims.

The bizarre twist on how to get wealthy fast swept across Wall Street's trading desks amid ribald laughter and groans after revelations yesterday of the shocking claims involving SAC Capital.

The firm, a powerful $10 billion hedge fund, is run by superstar trader Steven A. Cohen, one of Wall Street's most prolific players who regularly takes home $500 million a year.

It was alleged that one of Cohen's top bosses at SAC chided traders for being too aggressive - and that they must use a soft feminine touch to score in their trading pitches.

One junior trader claimed that the boss, Ping Jiang, a key producer at the big hedge fund, demanded that the young trader take female hormone pills to help erase his aggressive male ways so he could be more effeminate in his trading style.

Eventually, the hormones caused the junior trader to start wearing dresses, avoid his wife's touches altogether and allegedly begin a sexual relationship with his boss, the trader claims.

Details of the case, disclosed yesterday by Charlie Gasparino on CNBC, claimed that the boss bragged he had developed a successful trading method based on being effeminate and that other traders ought to start using it, too.

The method apparently worked for Jiang, who's listed by Trader Monthly magazine as one of Wall Street's top 100 traders, with estimated income of $100 million a year.

http://www.nypost.com/seven/10112007/business/trading_places.htm

To the gentleman who called me a depreciating asset

Reply to: pers-445962092@craigslist.org

Date: 2007-10-11, 8:23AM EDT

Dear Sir,

I must confess that I was somewhat taken aback upon reading your email. Indeed, it has taken some time for me to sufficiently recuperate from my surprise. Lest your confidence quickly inflate for little reason (as we know is the predisposition for Wall St. types), allow me to hasten to reassure you that the source of my surprise was neither your candor nor the accuracy of your perception. Indeed, it is your "claimed" success in light of your poor grasp of economics which has me baffled. If the standards required to meet with financial success on Wall St. have sunk so low, perhaps I should indeed "make my own money", except for the fact that the effort/reward ratio is far too high for my liking - especially when so many of your ilk have displayed a far more cogent grasp of market realities than you have.

By now you are likely scratching your ever-vanishing hairline in confusion, so allow me to elaborate, dear man. To build some credibility I will tell you a bit more about yourself. Though you did not mention the details of your occupation, it is clear that you are an investment banker and not a trader, as any good trader would understand that human courtships are based upon a semi-efficient open market, and not an investment banking cartel. However, your inability to grasp the realities of the dating market is not surprising, given that you have successfully employed the tools of collusion and market manipulation rather that true acumen in your supposed wealth generation.

If your grasp of finance were not a minority partner with your ego, you would realize that the "outflows" associated with my depreciating "assets" are quite certain, and therefore subject to a low discount rate when determining their present value. In addition, though your concept of economics evidentially failed to move past the 1950s, advancement in plastic surgery is not subject to the same limitation. Thus, with some additional capital expenditure, the overall lifetime of "outflows" generated by these assets is greatly increased. Sad that Ashton Kutcher has demonstrated understanding of the female asset class which you, in all of your financial "wisdom", have not.

You, on the other hand, are, given the uncertainty of the Wall St. job market, more of an inflation-indexed junk bond with an underwater nested call option. Though you may argue that you are more of an equity investment, my monetary minimums required from you do not change, and if you are unable to pay them, I will liquidate you without the benefit of a chapter 11, just as you would me.

Because your outflows are so much more uncertain with respect to mine, I require additional compensation in the form of a underwater nested call option on your future assets. I say underwater because, even taking into account the value of your junk bond coupon payment to me, the value of my "outflow" is in excess of the market price of your equity (which is quite low due to its riskiness associated with your poor grasp of finance and my existing claim upon your junk bond coupon).

http://newyork.craigslist.org/mnh/w4m/445962092.html

7 Semi-Serious Tips on How to Avoid Getting Fired

1) Face time helps, though it’s more cultivating relationships that matters.

2) Do not say the words “subprime mortgage.”

3) Now is not the time to put in a job change request.

4) Simply: work hard. Volunteer your help on new projects.

5) Realize you are not on the top of the heap. Sniff out the alpha dogs and latch on for dear life.

6) “Don’t f*ck up.”

7) Bring your group head or staffer a peace offering of dried fruits and nuts. Just kidding.

If all else fails, there’s always Hedgefinger to get you through.

http://www.bankersball.com/2007/10/09/7-semi-serious-tips-on-how-to-avoid-getting-fired/

What does SAC know about making money that you don’t?

With your chronic case of ADD you've probably forgotten it, but weeks ago we told you about the allegations of sartorial behavior modification at SAC Capital Management. Former SAC employee Andrew Z. Tong had accused current SAC employee (and top trader, and Yoko Ono neighbor) Ping Jiang of sexual harassment that included enrollment in a “top secret training program,” and the elimination of Tong’s alleged personality flaws by requiring him to wear “certain kinds of clothes to work.” No one got back to us regarding whether or not leather was involved and we pretty much forgot about the whole thing, the night terrors involving Stevie Cohen, spandex and warm-up suits notwithstanding. Today, Charlie Gasparino, because he tracks this sort of thing, brings us an update.

-- Apparently, one aspect of the “program,” guided by Jiang’s belief that traders are too aggressive and should be more effeminate, had Tong taking female hormones, which he bought on the black market.

-- According to Tong, as a result of the hormones, he suffered emotional and physical distress, and started wearing women’s clothes. He also said that he was unable to perform sexually with his wife, with whom he was trying to have a baby.

-- Other forms of harassment allegedly included “sexual relations between two men.”

Not surprisingly, SAC and Jiang have denied the charges, and said in a statement:

On a lighter note, this whole thing makes the rumors about Cohen leaving the dismembered body of a (former) analyst floating in tank of formaldehyde on the Stamford trading desk, "as a motivational technique," not seem so bad, eh?

http://www.dealbreaker.com/

Morgan Stanley Traders Blew $390 Million in One Day

Morgan Stanley, the world's second- biggest securities firm, said its quantitative strategy traders lost $390 million during a single day in August as their computer models failed to account for ``widespread'' investor selling.

The company's traders lost money on 13 days during the quarter ended Aug. 31, the New York-based firm said in a quarterly regulatory filing today. ``The largest loss days resulted from losses associated with quantitative strategies in early August 2007, when these strategies were adversely affected by widespread portfolio reductions,'' the company said.

Morgan Stanley said last month that the quantitative strategies group lost $480 million during the quarter after being caught off-guard when other investors sold securities to reduce borrowings. Separate areas of the equity sales and trading unit made up for the losses, enabling it to report $1.8 billion of revenue for the third quarter, up 16 percent from a year earlier.

Morgan Stanley disclosed today that daily trading losses during the quarter exceeded the firm's trading value-at-risk calculation on six days during the quarter.

The filing with the U.S. Securities and Exchange Commission also shows that the firm's traders generated more than $100 million of revenue on about 19 days during the quarter.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aY4.Y24hPlxQ&refer=home

Veteran Trader Loses Investor, Throws in Towel

The roller-coaster career of maverick trader Victor Niederhoffer took a sharp downturn after losses mounted and a key investor withdrew money from his firm, demonstrating how the market's recent volatility has shaken even some veterans.

Mr. Niederhoffer's hedge-fund firm, Manchester Trading LLC, ran into difficulties a decade after Mr. Niederhoffer lost most of his personal savings when his previous hedge fund collapsed. Last month, Mr. Niederhoffer's largest hedge fund, Matador Fund Ltd., was liquidated after suffering losses of more than 70%, according to people close to the matter. Adding to Mr. Niederhoffer's problems, according to a person close to the firm: Swiss-based Octane, a fund-of-funds firm that invests in hedge funds, pulled a significant amount of money from the firm.

In recent years, Mr. Niederhoffer, 63 years old, had staged something of a comeback, relying on a trading style that generally bets on rising markets and quick trades and is characterized by wild swings. Last year, for example, he saw the Matador Fund, based in Weston, Conn., lose 30% of its assets early in the year, but stage a rebound to finish with gains by year's end.

Mr. Niederhoffer, known for quirks such as wearing colorful pants and keeping the thermostat in his trading room set so high that his traders dripped sweat over their computer terminals, continues to manage money for himself, his family and his friends, according to a person close to the matter.

http://www.wallstfolly.com/

Hedge Fund Manager gets 2 1/2 years in Web kidnap plot

Who knows what lurks in the hearts of men? Who even knew that hedgies actually had hearts? Only the Shadow…

Albert Hsu, the former manager of a $95 million hedge fund will spend 2 1/2 years in prison after pleading guilty yesterday to recruiting strangers to rape and kidnap his ex-mistress. Hsu, 43, of New Canaan, also will have to register as a sex offender for life after pleading guilty to two felonies, including attempted first-degree kidnapping.

Police charged Hsu in March with posing as his mistress and posting an ad on the bondage-themed Web site www.collarme.com, asking readers to kidnap her as part of a sexual fantasy.

Hsu, a former Cub Scout leader who is married with two children, apparently wanted to get back at the woman for breaking off their affair in 2005. He had been stalking her since, prompting her to file two complaints with New Canaan police last year.

"I want a real-life abduction and rape scene," the phony Web advertisement read. "Only those who can deliver on my extreme desires need apply."

Hsu disclosed the make of the victim's car, her license plate number, her style of clothing and where she prefers to stand on the Talmadge Hill station during her commute to New York City, court records show.

The victim, 36, learned about the plot when a New Jersey man planning to go through with the scenario called her to make sure she was really up to it.

http://www.stamfordadvocate.com/news/local/scn-sa-hsu2oct10,0,3331961.story?
coll=stam-news-local-headlines

New York War With London Takes a Turn

It's about friggin' time!

Things are looking up for New York: Not only does it appear Congress is backing off legislation to raise taxes that would hit the city's private equity industry, but now London has announced plans to do just that.

Yesterday, Prime Minister Brown's administration announced it would introduce an 18% capital gains tax and do away with the tiered system that allows private equity firms to pay only 10% tax on profits from shares of companies held for at least two years.

The news was met with immediate disdain in British financial circles, where the current tax structure is lax compared with the capital gains taxes that private equity firms face in New York.

The head of the tax division in Britain for Ernst & Young, Paul Davies, said the proposals "threaten to undermine the entrepreneur culture that has blossomed in the last decade."

"Complete abolition of the taper removes a large incentive for entrepreneurs and challenges the ‘Dragon's Den' success of the U.K.," Mr. Davies was quoted as saying by several news organizations yesterday.

http://www.nysun.com/article/64241

Hedge investor wealth requirement could double

The Securities and Exchange Commission has proposed changes that would more than double the wealth requirement to invest in unregistered securities such as hedge funds, after a similar suggestion last year generated fierce opposition.

The changes would affect Regulation D under the Securities Act of 1933, which exempts certain equity offerings from many of the financial requirements public offerings adhere to.

The SEC, which recommended the rule changes in June, wants to increase the net worth requirement for individual investors in the securities from $1m to $2.5m in order to add an extra layer of investor protection. It also raises the income requirement from $200,000 to $400,000.

A proposed rule change last year by the SEC that would have raised the wealth requirement for investors in hedge funds received a largely negative response in 600 comments.

The new suggestion did not generate as much response by yesterday, the close of the public comment period.

It’s really really tough being a Multi-Millionaire!

The surge in the number of millionaires in the world is spawning a fast-growing industry -- wealth psychology. U.S. wealth managers are adding services such as psychological counseling for wealthy clients to set them apart from the competition, experts said.

Some of these psychologists handle clients who feel guilty about inheriting wealth. Others help with problems such as how to raise children in an environment where almost anything can be bought, or intervene when spouses fight over money.

"One of the biggest concerns when people become significantly wealthy is ... 'How am I going to raise my kids responsibly with all this money'," psychologist and consultant James Grubman told the Reuters Wealth Management Summit in Boston.

Grubman, who works with rich clients of Wachovia Corp, the fifth-biggest U.S. wealth management company, predicted that within 10 years most financial management firms will offer psychological services.

"The more cutting-edge wealth management firms and banks are beginning to realize they need to get people available and in house," said Grubman.

The wealth management division of Wells Fargo recently hired two psychologists to meet with its clients, and is seeing demand for another new service for the wealthy -- catering to the aging parents of millionaires.

"A growing need for a lot of business executives, entrepreneurs and other people of wealth is somebody to handle some of their parents' needs," Dean Junkans, chief investment officer of Wells Fargo's wealth management division, told the Reuters Summit.

http://uk.reuters.com/article/fundsNews/idUKNOA94397120071009?pageNumber=2

You Can Get Away With Anything When You're A (Fake) Hedge Fund Manager

More than a year after the mother-son team of Ayferaet and Hakan Yalincak plead guilty the practically foolproof scam of pretending to have a hedge fund through which they defrauded “investors” of millions of dollars, and five months after Hakan was sent off to serve a 42-month sentence, the Yalincak Family Foundation Lecture Hall remains a fixture on the NYU campus. The Yalincaks had originally pledged $21 million to the school in exchange for the honor of having their name bolted to a wall, though that got shot to shit when it turned out they were full of shit.

What’s the deal, then, with the testament to their crime still being on display for the youth of New York to see? The university, which returned $1.05 million of the $1.25 million the Yalincaks actually managed to cough up for the tribute, says it has not yet figured out how to remove the letters without leaving a noticeable pattern on the wall. “Testing” on “mock-ups” thus far has led the school to believe that it would be “difficult if not impossible to replace the panels on which the lettering is found in a way that will fit in with the look of the remaining, unlettered panels," said NYU spokesman John Beckam. (Apparently, the $200,000 NYU was allowed to keep to “offset the costs incurred by [the] fraudulent gift” does not cover letter-removal.)

While one professor-- probably an old crotchety one, hellbent on truth and consequences-- said he thinks the university is being “just plain stupid” in keeping the Yalincak name on the building, CAS freshman Alexis Johnson doesn't feel the school is at fault and doesn’t “care what funded [the hall].” Just what a budding criminal would say. We kid, Alexis, of course. Yeah, but no, she’ll probably end up working for Stevie Cohen. So we obviously don’t kid at all.

http://www.dealbreaker.com/index.php?page=2

Buffett Buffett Buffett - What is that low life up to now?

Sis! Boom! Bah!. This dude makes us look like Buffett cheerleaders.

Warren Buffett owns over 12% of American Express. Now if you don't believe me when I say Warren Buffet IS NOTHING BUT A PUMP AND DUMP SCUMBAG, ask the folks at Level 3 (symbol LVLT). Level 3 was spwan from Peter Kiewit Inc -a construction company that leases an office space to Warren Buffett at Kiewit's corporate office. When LVLT was strapped for cash the chairmen of LVLT who also a member of Berkshire's board of directors helped work out a deal with Warren Buffett's Berkshire fund to where for less than 5% of the total funding LVLT recieved from bond and shareholders LVLT would give up 33% of it's right's to it's assets in exchange for a LOAN at 9% from Buffett's fund.

I'm sure you can guess what happened next. The low life Buffett announced to the world that he was part of a 33% stake in LVLT. The stock exploded. Buffett then quietly umped 100% of his holdings. The same man that believed it was right to make a public announcement of ownership dumped his holdings in secretaly. Not untill his holdings were gone did people learn what he did. Guess where LVLT has been trading for the past few years since.

Now American Express may not have a Chairman of the Board that is also on Buffett's payroll to betray the trust of it's shareholders. But never under estimate the power of Buffett.

n 1929 on October 25 there was a meeting of some deep pockets on how best to save their vested money. The result was to halt the slide by BUYING. It worked for one day. But Tuesday was coming. Schemes only work for so long.

For the FIRST time the default of consumer debt is hitting the banks after years of reckless loans. But not to worry they have defined their losses and the stocks RALLIED just prior to COLUMBUS day - a day in which the volume would be light and the stock price can easily be controlled.

The slide was aborted last week. Monday it resumed on a small scale. Tuesday should have been a whole other story..

My money is on AXP going down.. It will take DFS with it.

http://www.socialpicks.com/ideas/show/57756

Did This Cost A Broker His Job?

We’ve been told that Christopher Carter, as in the guy who threw fellow spinning classmate Stuart Sugarman, still seated on his bike, into a wall for “loudly” grunting, commenting “Great song!” and yelling “You go, girl!” throughout a spin class at an Upper East Side Equinox in late August, has been fired from his job at Maxim Investments Group. For what, we have no idea, but one presumes it could have to do with being charged with the misdemeanor that sent “Stewy” to Lenox Hill Hospital’s ICU for “major surgery involving the use of cadaver tissue and multiple metal plates and screws.” (Or he could just be a bad broker. If you know, let us know, too.)

We’re not exactly sure how to feel about this one. One the one hand, Carter does sort of sound like a crazed sociopath who you probably wouldn’t want working at your firm. On the other, Sugarman had been given fair warning (first Carter told him to “quiet down,” then told him to “shut the fuck up,” then threatened, “If you don’t shut the fuck up, I’m going to get off my bike,” then finally made good on the promise), and if anyone deserves to lose their job over this ridiculous show of idiocy, it’s the guy screaming “You go, girl.” To himself. On the Upper East Side. In a spinning class.

http://www.dealbreaker.com/

U.S. Hosts 60% Of Top Hedges (Eat your heart out London!)

Barron’s magazine ranking of the world’s top performing hedge funds gives the U.S. a boost in its boast that it is the center of the HF world. In the ongoing battle for bragging rights, the U.S. is home to 30 or 60%, of Barron?s Hedge Fund 50, while London lays claim to only 11 (22%) of the top performers. London does have a slight leg up in the quality of performance, however, as three of the top five are based there, with RAB Capital’s RAB Special Situations Fund returning +47.69% a year net of fees, for the three-year study period that ended June 30.

Occupying the No. 2 spot are The Children’s Investment Fund with 44.27% and SR Phoenica at No. 5 with 43.10%. Sandwiched in between at No. 3 and 4 are, from the U.S., Highland Capital Management’s Highland CDO Opportunity Fund with 44.12% and BTR Global Opportunity Fund with 43.42%. Some of the more high-profile funds did okay in the tally based on data gathered by BarclayHedge and Credit Agricole Structured Asset Management Advisers, but nowhere near the top performers. For example, for the period in question, Pequot Capital, Greenlight Capital and GLG Partners exceeded 18% while Lone Pine Capital and Cerberus Capital gained slightly less than that a year over 36 months.

One caveat regarding the listing: Some big names are conspicuously missing and may have ranked high were it not for the lack of reliable figures for the survey. These include Renaissance Technologies? Renaissance Medallion Fund and ESL Investments? ESL Partners, both with 35% or more annual returns. Also omitted were funds with less than $250 million in assets under management and new funds that may have had one or two good years as startups.

http://www.dailyii.com/article.asp?ArticleID=1450324

Portrait of a Fallen Hedge Fund Manager

Victor Niederhoffer, the hedge-fund manager who lost his entire $130 million portfolio in the Thai stock market crash of 1997, has found himself out of luck again.

The latest downfall of Mr. Niederhoffer, who in September was forced to close two of his funds, including his flagship, Matador, is tracked in a long profile in The New Yorker this week. “The market was not as liquid as I anticipated,” he told the publication. “The movements in volatility were greater than I had anticipated. We were prepared for many different contingencies, but this kind of one we were not prepared for.”

The magazine tracks the woes — past and present — of this champion squash player, statistician and serial risk taker.

After his first hedge-fund blow-up in the 1980s, Mr. Niederhoffer was forced to sell his silver and take out a mortgage on his 20,000-square-foot home in Weston, Conn., to stay afloat. He got back in the game in 2002 with Matador, although he seemed to acknowledge at the time that it might be his last chance.

“I am still walking on very thin ice,” he told The New York Times two years ago. “And I am older. I am 61. I don’t have the resilience to come back again.”

Even so, his latest comments to the New Yorker suggest Mr. Niederhoffer isn’t ready to pack it in quite yet.

http://www.newyorker.com/reporting/2007/10/15/071015fa_fact_cassidy

Hedge performance picked up in September….How did you rate?

Hedge fund performance recovered in September as equity markets rebounded strongly from credit market turmoil this summer, industry-tracking firms said on Monday.

An index of hedge funds run by Hedge Fund Research rose 2.98% last month, after dropping 1.31% in August, the firm reported. A similar index run by Hennessee Group LLC gained 2.26% in September, after dropping 0.96% during the previous month. HFR's index is now up 9.14% so far this year, while Hennessee's has climbed 10.16%.

Some managers benefited from a strong rally in equity markets that began in mid-August and continued as the credit crisis began to subside. The Standard & Poor's 500 index jumped more than 3% in September, while the Dow Jones Industrial Average and the Nasdaq Composite Index rose more than 4%.

Emerging-markets hedge funds performed the best as equity markets outside the U.S. and other developed nations surged. Emerging-markets managers tracked by HFR gained 4.91% in September, leaving them up more than 20% so far this year.

Short sellers, which bet against stocks and other securities, performed the worst, losing 3.14% in September. These managers are down 0.12% so far this year, HFR said.

Credit-focused hedge funds also rebounded in September, but not as much as equity funds, as the effects of this summer's credit crisis lingered in fixed-income markets.

Fixed-income managers tracked by HFR returned 1.63% in September, leaving them up 2.5% so far in 2007. Funds specializing in mortgage-backed securities advanced 1.24%, leaving them up 2.65% this year.

http://www.marketwatch.com/news/story/story.aspx?guid
=%7BCF3F4F3B%2DDC71%2D4B66%2DA24E%2D1496D034D705%7D&siteid=rss

Finance is a Scam, We Admit It

According to Johnny Debacle, when you go into finance from any liberal arts college, you almost certainly have encountered and befriended in the past people who act like finance types are scammy. They don’t really make anything. They just moves numbers around and somehow get paid for it. They have to be leeches.

Normally our response was something like “At age 32, I will be worth my weight in gold, literally” or the more cogent, “Finance is a coordinator of economic activity, a grand sorter of what endeavours are the best for the world.”

But with this admission by Citigroup that it is loaning money to KKR to buy hung loans off Citi’s books, we will admit it. Finance is a scam. A big scam in which people who are incrementally better than you in every way, smugly take money from the plebes, launder it through assorted transactions, then redistribute to themselves in the form of huge bonuses, incommensurate with the zero value which they add to society.

http://longorshortcapital.com/finance-is-a-scam-we-admit-it.htm

BIG FREEZE IS ON AT GIANT HEDGE

Ellington Capital Management, the country's largest mortgage-backed securities hedge fund, sent a letter to investors notifying them that redemptions and withdrawals in two of its funds would be suspended because of a sharp decline in the liquidity of certain mortgage- and asset-backed markets.

The Old Greenwich, Conn.-based hedge fund, which has $5.2 billion in assets, is considered a bellwether for measuring the health of the mortgage-backed securities market.The fund's redemption suspension covered two mortgage-credit funds with about $1.9 billion in assets between them, according to the investor letter from Michael Vranos, the fund's general partner.

According to the letter, which was obtained by The Post, Ellington's move came after liquidity and value data provided by Wall Street's mortgage-bond desks at the end of September for the bonds in the portfolios varied so widely that Vranos and his colleagues could not assign a fair value to them. The letter emphasizes that the redemption suspension was not a function of losses or investor withdrawals. The two funds, according to the letter, have a minimal amount of withdrawal requests and any that came in easily could have been handled out of available cash.

Ellington's other funds do have some of the same lower-rated mortgage credit bonds that forced the suspension in the two funds, but not enough to be affected by the valuation troubles, a fund official told The Post.

http://www.nypost.com/seven/10062007/business/freeze_is_on_at_giant_mortgage.htm

2007 Bonuses In The Toilet

Well, maybe not all of them have hit the bowl. Yet. But certainly, for most, down on last year.

With some of the largest banks (Bear, Citi, Credit Suisse, Deutsche, Goldman, Lehman, Merrill, Morgan Stanley, UBS) coming out recently and confirming third-quarter write-downs of some $20bn between them, the pressure is on to contain costs - and an easy way to do this is to reduce bonus pots. The smart money also expects Bank of America to come out soon and announce LBO write-downs of around $1bn, with JP Morgan Chase likely to follow suit with LBO-related provisions of around $2bn. All of a sudden, as we run up to year-end, the world that is the financial markets is not such a happy place.

Over in the US, bonus pots are thought likely to be down around 15 - 20% on last year, and UK 'think tank' The Centre for Economics and Business Research (CEBR) is predicting City bonuses will shrink 16% on average this year. Once again, there is likely to be large differentials between staff this bonus time, as firms ensure that good performers and those working in strategic businesses (commodities and emerging markets) are well taken care of. There are also likely to be more staff who receive 'doughnut' (zero) bonuses this year. Sarah Bloomfield from the CEBR says that City 'employees will need to get used to a smaller (bonus) payouts over the next two years', but describes bonus pots as still relatively 'large' compared to previous years.

Given the state of the market, we thought it was time to update our bonus ditty, which this year we are calling: 'We Won't Know It's Bonus Time At All' (This should be sung to the tune of Band Aid's 'Do They Know It's Christmas').

'This bonus time

We doubt we'll get paid

At bonus time

We won't have it made.

And in this world of subprime,

We'll likely get no cash

And all because of lousy trailer trash!

We live in fear

That we'll loose our good jobs too

Don't wanna join that long 'dole' queue.

They're jumping out the windows,

Our bosses are getting the sack.

Third-quarter's in the toilet, there's really no way back.

I hope to God they fire you and you and you.

And there'll be no champagne in bars this bonus time (yeah)

Yes, it's the end of the world we once knew.

(Oooh) Nothing will be the same

Our lives will be so tame,

We won't know it's bonus time at all.

Here's to you over in fixed income,

This year you will surely have no fun

You won't know it's bonus time at all.

Heed my words

Heed my words

We won't know it's bonus time at all.

Heed my words

You won't know it's bonus time at all'.

http://news.hereisthecity.com/news/business_news/7139.cntns

Hedge-Fund Hurts Attract the Land Sharks

This summer's hedge-fund heartbreaks have whetted the appetite of opportunistic buyers and insolvency experts, who are hunting through the wreckage in search of bargains.

Fifteen hedge funds with more than $100 million under management have suffered severe problems this year -- such as a sudden, large loss, a regulator freezing assets or the departure of a key manager -- that have forced them to suspend redemptions or shut down entirely. Investment consultants and prime brokers -- which finance hedge-fund trading -- say the number is more than the total number of hedge funds that have suffered similar fates over the past five years.

One of the first signs of this year's troubles came in May when Swiss bank UBS AG shut its Dillon Read Capital Management hedge-fund business, which it had opened two years before. The business had recorded losses of 150 million Swiss francs ($127 million) in the first three months, thanks to its investments in subprime U.S. mortgage-backed securities.

Two other hedge-fund managers reported bankruptcy or had assets frozen by a regulator in June, in developments unconnected to subprime.

Opportunistic asset-management firms have taken advantage of the distress to acquire assets cheaply. Geoff Varga, a liquidation and forensic partner in the Cayman Islands office of Kinetic Partners, a U.K. management-advisory firm, said: "There is always money around looking for a deal."

For example, Citadel Investment Group Inc. of the U.S. bought a $1.5 billion portfolio of assets from Sowood Capital Management LP of the U.S. in July and in August acquired $500 million of assets from Sentinel Management Group, a U.S. money-market fund manager that the U.S. Securities and Exchange Commission has charged with fraud.

Crosby Capital Partners Inc., a U.K.-listed investment bank and asset manager, last month bought the profitable U.K. fund of hedge funds business of Forsyth Partners Ltd., a U.K. alternative asset-management firm that had gone into administration following losses in its new Dubai distribution arm.

Steve Fletcher, chief operating officer at Crosby Capital Partners, said: "One of our contacts told us Forsyth had problems. We saw it as a strategic acquisition, complementing our Asian business, and we threw all our resources behind it. There were three or four other asset managers looking at it but getting in early and securing the support of the management team gave us an advantage."

http://online.wsj.com/article/SB119181070406751899.html?mod=googlenews_wsj

Is a Hedge fund collapse on the way?

No way, Jose. Absolutely and totally no way. The dollar may be turning to doo-doo….But read on…..

Investors will withdraw $500bn (£245bn, €355bn) - a quarter of the asset base - from hedge funds in the next year, leading to the collapse of a "large number" of hedge funds.

So predicts Giles Conway-Gordon, managing partner of Cogo Wolf, a San Francisco-based fund of hedge funds, who believes investors are increasingly dissatisfied with industry performance, and that computer-driven quantitative hedge funds now simply run too much money to make healthy returns.

"I don't think it [the hedge fund industry] can support $2,000bn of assets. I think we are going to see large numbers of hedge funds go out of business, and rightly so," he says. "Hedge funds are supposed to avoid losses when things are bad, but there are very few that can break even then. I think a lot of them are not earning their keep.

"There's a hell of a wave of money, say $500bn, coming out of hedge funds over the next year. There is going to be more of a focus on demonstrable results and track records that do not rely on 10-12 times leverage. I think we are going to see a very sharp Darwinian process in the next six months. Things have been too easy for too long and I think cold winds are about to blow."

Mr Conway-Gordon's comments come as much of the hedge fund industry has struggled to cope with the market turbulence. Two hedge funds run by Bear Stearns and one managed by Australia's Basis Capital have filed for bankruptcy, while others run by Goldman Sachs and Sowood Capital have encountered severe problems.

The HFRI Fund Weighted Composite Index fell 1.3 per cent in August, even as the S&P 500 index rose 1.5 per cent, although hedge funds made money in June and July when the S&P fell.

Mr Conway-Gordon, a 20-year industry veteran and former director at GAM, believes "black box" quant hedge funds in particular face a moment of truth. "We don't believe in this quant stuff, it's like using only the rear-view mirror and blacking out the windscreen when driving a car."

While the market backdrop may have been supportive to quant funds in the past, he fears the current environment will find many managers out. "It worked when not too many people were doing it, but it's now starting to fall apart. As soon as the road bends only slightly you are off the road. If you have got 10 times leverage in your engine you will come a cropper."

In contrast, Mr Conway-Gordon uses no leverage, does not invest in hedge funds that are more than twice leveraged themselves and favours fundamentally driven hedge funds.

His $65m Cogo Wolf Global Strategy Fund has responded by producing a five-year annualised return of 21.7 per cent in the period to July 31, comfortably ahead of the MSCI World equity index and more than double the return of the HFRI Fund of Funds Composite Index, although a wobble in August will have reduced this to a degree.

This outperformance has largely been driven by Mr Conway-Gordon's faith in two interlocking themes; the strength of both emerging markets and commodities. He argues that the rapid changes underway across a swathe of emerging markets, lifting large numbers of people out of grinding poverty, are the sort of global shift that happens only once every 75-100 years.

He is playing this theme through holdings in a dozen long/short equity funds focused on India, China, Russia, Africa and Latin America. In spite of his optimism towards the asset class, he still argues that gaining exposure via hedge, rather than long-only funds, is beneficial.

"There is a long bias to emerging market funds as you don't tend to get the shorting mechanisms there. But we prefer to be in the hands of people who will have the avoidance mechanisms, rather than simply being long-only."

Natural resources, one of the factors that have helped power the rise of many emerging market economies, are Mr Conway-Gordon's other pet theme. In particular, he is enthusiastic about gold in spite of the fact that prices have already surged to a near 28-year high in nominal terms, with the most recent leg-up aided by the crumbling US dollar.

"The dollar is going to continue weakening. It's the end, probably, of the dollar's dominance in the international arena."

http://search.ft.com/ftArticle?queryText=hedge+funds&y=0&aje=true&x
=0&id=071008000171&ct=0

Morgan Stanley and Goldman’s :$1 Trillion Grudge Match

It’s down to two. Morgan Stanley and Goldman Sachs Group. Which bank will capture the ever-tainted but ever-capitvating League Table crown in 2007?

Right now the two are within about $50 billion of each other, with Goldman advising on a total of $1.048 trillion of deals and Morgan Stanley $998 billion, according to Dealogic.

“Winning” is in some ways an artificial construct, given how easy it is to manipulate these figures over the course of a year with “phantom” low-fee assignments, sketchy “spinoffs” and the ever-handy fairness opinions.

So let’s call the league-table race a dead heat. It is thus clear who already has won the battle, when measured by profitability and performance. That’s Goldman. Its operating profit margin for the quarter ending in August? 17.9%. Morgan Stanley’s was 10.7%

http://blogs.wsj.com/deals/

State Street’s customers mad as hell and ready to sue

What’s a little loss among friends? Off-hand you'd think that the Boston financial-services giant, whose State Street Global Advisors unit handles $1.9 trillion in assets, known as one of the largest managers of so-called passive investments -- including stock and bond funds designed to mirror the performance of broad market indexes, would have plenty. Of friends, that is. .

But customers are fuming about losses they have suffered in State Street bond funds that are designed not only to track but also just beat the indexes. Customers believed they were low-risk vehicles. Instead, the funds made aggressive bets on mortgage-backed securities, derivatives and other investment exotica.

In the latest development, attorneys general in Alaska and Idaho are looking into possible legal action against State Street over losses their state retirement funds suffered investing in two "enhanced index" bond funds. Both states have dropped the State Street funds in question and say the funds veered wildly from their index benchmarks, which caused them to post losses over the summer.

The potential costs of lawsuits could be just part of State Street's troubles. Its enhanced-index funds are "actively managed" vehicles that typically carry higher management fees than plain-vanilla index funds, and investors appear to be dumping the enhanced-index funds. Assets in the company's five bond mutual funds are down 43% so far this year. Because State Street is paid based on the assets it manages, it could potentially cut its profits. All we can say is we're glad Marsh Carter, the guy who made State Street what it is, ain't around to see what's become of his baby.

http://online.wsj.com/article/SB119154807382849795.html?mod=hpp_us_whats_news

Blood Flows on Wall Street, but is it enough?

Should Wall Street brace for job cuts? This is supposedly the worst credit crunch in two decades. Repackaging mortgages, in fact the entire structured credit business, has been all but shut for three months. And the private equity business seems to be on an extended break, too. Thus far, the slowdown hasn’t translated into much in the way of cutbacks.

True, UBS is culling 1,500 from its fixed-income division after taking some $4 billion (Rs15,900 crore) in write-downs. But the Swiss bank is the exception. Rivals like Bear Stearns, Credit Suisse, Lehman Brothers and Morgan Stanley have mostly just trimmed their mortgage teams. Or they have sacrificed a head honcho or two. Bear ditched its second-in-command, Warren Spector, in August. And Merrill Lynch ousted its head of fixed income, Osman Semerci this week.

These more surgical strikes might be enough to appease investors if the summer turmoil turns out to be an aberration. But if market woes persist, Wall Street will have to take more drastic measures.

A fifth of New York City’s financial workforce got the boot in the two years after the 2001 downturn, according to the Securities Industry and Financial Markets Association. Similar bloodshed now would mean pink slips for 40,000 Big Apple financiers.

http://www.livemint.com/2007/10/05001805/Blood-on-Wall-Street-but-is-i.html

One Hedge Fund Saw What Was Coming Did you?

“Sometime in the next 12 to 18 months, there is going to be a panic in credit markets,” Andy Redleaf, a 50-year-old hedge fund manager, wrote to investors in December. “The driver in the credit market panic of 2007 or 2008 will be a sudden, profound and pervasive loss of faith in the alchemy of structured finance as currently practiced.”

That prediction came true, and earlier than Mr. Redleaf anticipated. The structured finance market collapsed in August, as investors fled complex financial instruments, many derived from subprime mortgages, which were defaulting at alarming rates — or alarming to some.

“I think the number of true contrarians is very small, and Andy is absolutely one of them,” says Michael Harron, managing partner for TMF Capital Management, which has invested in Whitebox funds since 2003. “Andy and his team want to be on the other side of consensus — not for the sake of it, but because it allows them to stay in front of where things are going.”

In August, when many fund managers watched the bottom fall out of their portfolios, Mr. Redleaf urged traders to think aggressively (buy the stocks of buyout targets that others were selling) and think creatively (who could be forced into a fire sale and what opportunities would that create?). It was a strategy that many funds would have taken, had they not been busy reducing leverage by as much as 30 to 50 percent. Whitebox, a $3.1 billion family of funds, increased its leverage.

http://dealbook.blogs.nytimes.com/2007/10/03/a-hedge-fund-that-saw-what-was-coming/

Guess Who Is The Only Bear Exec Who Is Never At The Office!

This truly has to be the greatest story ever told. I submit that its magnificence is unparalleled. I’m not a very religious person but believe that the following information proves the existence of God. If ever you are lonely or poor or just plain sad, think about what I’m about to tell you and all will be good again.

In the last few months of Spector's tenure, the two men avoided each other in the executive dining hall, according to former and current associates. And as the storm over the hedge fund meltdown gathered force in July, Cayne was angry at Spector for spending almost two weeks at a bridge tournament in Nashville, Tennessee. Cayne, who is ranked 611th in the world by the World Bridge Federation, attended the same event for just a few days.

Got that? James Cayne took someone other than himself to task for not coming in to work. James Cayne, who took the entire summer off to cheat at golf, showed someone the door for allegedly shirking his responsibility to play games. JAMES CAYNE, who played and lost in the first round to the No. 15 seed at that same bridge tournament, stripped someone of his livelihood for taking too many personal days. JAMES CAYNE, who left the Bear Stearns conference call that was held to discuss the various way in which the company was fucking stuff up over the summer after two minutes because he was going to be late to his regularly scheduled (early) Friday afternoon golf game, forcing another Bear Stearns exec to tell an analyst who had posed a question at Cayne, “Um, Mr. Cayne has just stepped out. Let me see if I can answer that,” fired someone for doing things other than his job. It’s really all too magical for words. If you’re embarrassed about crying at the office, come over to the DB HQs where I say free of compunction I am getting misty right now.

Cayne apparently also didn’t like the fact that Spector is a Democrat, and censured him for making such information public, in a company-wide memo, and might have felt that he was making advances on the CEO parking space, and was probably jealous that Spector’s wife was in “9 1/2 Weeks,” but that stuff, in light of other revelations, means absolutely nothing.

http://www.dealbreaker.com/

MaxQ: the Best Fund You’ve Never Heard of

If you don’t believe Barrons, just ask Bear’s chief James Cayne how tricky hedge-fund performance can be. Because a couple of his firm's funds got blindsided in August's subprime-mortgage panic, he's now spending time fending off speculation about the fate of his venerable investment bank.

Cayne — and most of the rest of us — would've been much better off with money invested in the MaxQ Fund, a global macro vehicle run by North Asset Management in London that actually posted a 6.64% gain in August's stormy markets by adroitly investing in a mixture of derivatives, bonds, currencies and stocks in smaller European economies.

Months like that have helped make MaxQ Fund a charter member of Barron's Hedge Fund 50, our inaugural ranking of hedge funds based on their long-term performance for investors. Rather than rank firms based on asset size or partners' take, we're trying to give investors a longer-term perspective on this often-opaque arena (some of our top funds wouldn't even talk to us), and acknowledge just how important the investment sector — which now numbers an estimated 9,500 funds with $1.67 trillion under management — has become to the markets. - The summer swoon definitely underscored the volatility hedge funds can cause. "August tested commonly held notions about diversification. Almost all the [hedge fund] strategies lost money," says Ferenc Sanderson, analyst for Lipper HedgeWorld in New York. The Barclay Hedge Fund Index dropped 1.44%, one of its biggest declines in recent years..

http://www.smartmoney.com/barrons/index.cfm?story=20071003&src=fb&nav=RSS20

Time for Hedges’ Next Hammer Blow?

First, forget everything you know about the fickle finger of fate. Hedge-fund executives say the next blow to hammer their industry will likely come from a wave of hedge-fund redemptions driven by highly-levered funds that invest in other hedge funds.

One bellwether of how this may play out in coming months can be seen in the performance of two key European-hedge funds that have sustained sharp losses because of their exposure to some of the most problematic investment strategies in this summer's hedge-fund sell-off.

Fix Asset Management's Canary Fund Ltd. and Fairfax Fund Ltd. - each of which have $3.5 billion under management - have suffered a brutal three months.Their fund-of-fund portfolios have dropped between 16 percent and 18 percent between June and August.

While it could not be determined which hedge funds had investments from Canary and Fairfax, given the size and timing of their monthly losses, it appears likely that the two funds had significant exposure to funds employing statistical arbitrage, credit arbitrage and merger arbitrage strategies.

The problem for the hedge-fund biz, according to a vet hedge-fund capital provider, is that Fix's Canary and Fairfax funds are likely not the only fund-of-funds that used borrowings to enhance their performance. Several hedge-fund executives told The Post that a next wave of hedge-fund redemptions would likely be fueled by highly-levered fund-of-funds needing to redeem their investments to meet margin calls.

http://www.nypost.com/seven/10032007/business/crisis_for_new_class_of_funds.htm

Absolute Cap Portfolio Managers Drop Like Flies

Beleaguered hedge fund Absolute Capital Management today said that Frank Siebrecht and Stefan Heieck have tendered their resignations as portfolio managers of the Absolute Germany Fund, effective immediately. The pair cited personal reasons for their departures.

The move comes on the heels of co-founder Florian Homm’s departure last month, which led to a flurry of investor redemption requests.
In the interim, the Germany Fund is being managed by Jens Peters and Antonio Porsia. Peters is currently a portfolio manager of the Absolute India Fund and Porsia is the lead portfolio manager of the Absolute Return Europe Fund and the Absolute Large

The firm said it is reviewing the status of the Absolute Germany Fund and “expects to make further announcements shortly.” The fund is down an estimated –7.17% in September and up 1.81% for the year.

Other Absolute funds that fared worse than the Germany fund last month include the Absolute Octane Fund, down 22.33% last month (-17.23% YTD), the Absolute European Catalyst Fund, down 21.6% last month (-13.9 YTD) and the Absolute Activist Value Fund, which dropped 20.43% last month (-13.39% YTD)

http://www.finalternatives.com/node/2588

Hedgie Caught In California Caper

A prominent hedge fund manager is at the center of what some Democrats have called former New York Mayor Rudolph Giuliani’s attempt to rig the 2008 U.S. presidential election. Democrats are crying foul after it was revealed that Paul Singer, the founder of New York-based hedge fund Elliott Associates, bankrolled an aborted effort to change the way that California awards its electoral votes. The move would purportedly favor Republicans.

Singer, a major Giuliani fundraiser and adviser, turned out to be the only donor to the effort, giving $175,000 to Missouri-based Take Initiative America, which in turn gave the money to Californians for Equal Representation. Democrats say they smell something fishy, and have filed a complaint with the Federal Election Commission asking it to probe the link between the effort and the Giuliani campaign.

“Why wasn’t Paul Singer’s involvement in this dirty trick aimed at stealing the White House previously disclosed?” Democratic National Committee Chairman Howard Dean demanded in a statement. “Given his role in the Giuliani campaign, voters deserve to know the truth about Rudy’s involvement in and knowledge about this shameful effort to disenfranchise voters.”

The Giuliani campaign denied any wrongdoing. “This is completely independent from our campaign and, frankly, it is not an initiative that serves our campaign’s best interests.”

http://www.finalternatives.com/node/2571

What you need to know to survive the coming Hedge Shake-Out

The hedge fund biz is poised for consolidation with smaller hedge fund firms as prime targets for takeover and subject to failure going forward. In an interview with Reuters, Mark Brady, a partner at London-based law firm Eversheds who specializes in alternative investments, predicted there would be a “shake-out” of hedge funds following this summer’s credit crunch. “There are a lot around...and it’s got a lot more difficult for them to stay in business,” he said. “There are buyers around who are sitting on significant amounts of excess cash and are willing to look at smaller acquisitions. Hedge fund assets are still very attractive to traditional fund houses.”

The average portfolio lost 1.53% in August after a lackluster July, according to the Credit Suisse/Tremont Hedge Fund Index, and some high-profile funds recorded double-digit losses. “Over the last 10 years it hasn?t been an especially difficult environment in which to run a hedge fund. But we’ve never really had anything like this [credit squeeze],” Brady said. “Some hedge funds firms will fold” firms managing up to $1 billion are particularly susceptible, especially if they haven’t built the necessary infrastructure... A lot of the assets of smaller hedge funds will drift away and are more likely to go to bigger hedge fund managers.”

Last week, Fidelity International’s Anthony Bolton made a similar prediction, asserting that mediocre people [firms] would get wiped out of the industry while good people [firms] would go on and on and on.

http://www.dailyii.com/article.asp?ArticleID=1448264

The Ultimate Fund of Funds Set-up

Now here’s a fund of fund set up for you! Four California hedge funds have alleged that a local hedge fund manager and his various Jayhawk hedge funds defrauded them through “pump and dump” and other illegal investment schemes.

In a lawsuit filed in federal court in San Francisco, the four allege that the hedge fund manager, Kent C. McCarthy, offered to provide them with investment capital and advice and then sold stocks in which he recommended that they invest.

The suit, submitted recently to arbitration, accuses McCarthy and his funds of taking advantage of the much smaller California funds, which go under the name of Primarius, in order to profit at their expense.

In court documents, McCarthy and the hedge funds, based in Mission, termed the allegations “nonsensical.”

http://www.kansascity.com/business/local/story/300597.html

NYC’s ready for an economic downturn, are you?

With the Dow Jones industrials hitting a new record amid investor optimism that the credit crisis is nearing an end, economists say New York City is well positioned to weather any setback.

The city’s housing market has been somewhat of an anomaly – as the rest of the nation suffers through a massive downturn, Manhattan apartment sales have actually continued to rise. And while Wall Street bonuses will likely be lower than previous years, they aren’t likely to put too large a crimp in consumer spending.

Still, Mayor Michael Bloomberg told attendees at The Economist’s “The Future of New York City as the World’s Business Hub” conference that the nation isn’t out of the woods yet, a reality that could have a trickle-down effect on the city’s economy.

Despite the city’s growth efforts, efforts to cooperate with the state and federal government still fall short, said panelists at the conference, adding that the cost of doing business in the Big Apple is also a hindrance to some companies. A June survey by MasterCard Inc. found that London trumped New York City as the leading center of global commerce, in part because of strict regulatory restrictions.

But Kathryn Wylde, president and chief executive of the Partnership for New York City, says that a weaker U.S. economy could prompt the federal government to loosen some of those restrictions. Either way, she says, New York is in good shape.

http://www.crainsny.com/apps/pbcs.dll/article?AID=/20071002/FREE/71002008/1048

Should the US Switch from the Dollar to Monopoly Money?

According to Johnny Debacle, even as economists have derided the U.S. dollar as heading toward parity with Monopoly money, Monopoly money itself has held its value with marked consistency.

Price of Boardwalk in 1950: m$400

Price of Boardwalk in 2007: m$400

Concurrent decline in the purchasing power of the U.S. dollar: 87%

Recommendation: Not only would the switch to monopoly provide the US with a more stable currency, but it would also grant the Fed even further control over the economy by enabling them to set the “house rules.” By determining the “Free Parking Rules” and financial outcomes from such events as “rolling snake eyes” and “landing directly on Go”, the Fed could steer the economy with even greater precision. Too little liquidity? Just tell the “banker” to actually become a bank and provide loans rather than solely acting as a cash register. More research is needed, but there seem to be real and compelling reasons for the US to switch to the Monopoly currency.

http://longorshortcapital.com/should-the-us-switch-from-the-dollar-to-monopoly-money.htm

How The Hell Does Goldman Do It?

So how did Goldman get things right while so many of its rivals were screwing up so badly? Richard Bove, an analyst at Punk, Ziegel & Co, says it comes down to the sheer volume of capital committed to Goldman's trading operation. He says Goldman pumps more into information technology, trading algorithms, staffing capability and global presence than its rivals — making it hyper-alert to subtle changes in the financial environment and nimble enough to adapt.

"They focus very much on trading — 66% of their revenue is from trading," says Bove. "If you took everything else Goldman does and multiply it by two, it wouldn't match the amount they make from trading."

Historically, Goldman's exposure to mortgage-backed securities was narrower than that of its rivals. Its global reach has helped it to take advantage of esoteric, yet lucrative, opportunities in Chinese banks, commodities and emerging market equities.

One big earner has been Goldman's 5% stake in the Industrial & Commercial Bank of China (ICBC), which cost $2.58bn in May 2006 and has more than doubled in value.

Charles Geisst, a specialist in Wall Street history at Manhattan College, says Goldman's edge developed in the 1960s and 1970s when the bank became one of the first to ditch street-smart "barrow boy" traders in favour of the brightest, sharpest graduates.

To lure the brightest, Goldman has to be among the most generous of employers. Its chief executive, Lloyd Blankfein, took home a record-breaking $53m last year and, along with his staff, he is likely to get even more this year.

http://business.guardian.co.uk/useconomy/story/0,,2181364,00.html

True or False? The average fund manager jumps ship after 2 1/2 years

You guessed it – true. Citywire research has revealed fund manager moves are now so common that the average fund will only retain its fund management team for two-and-a-half years.

The analysis is the most comprehensive yet conducted on UK funds and includes five years of data.

The survey examined a total of 1,741 funds and found that over the five years to the end of August there were 3,440 manager moves.

Terry Bignall of E A Kench & Co in Henley-on-Thames said: ‘This is bad news for investors because it shows a bewildering amount of change and a lack of loyalty from the fund managers to the group.’

The revelations were also condemned by Paul Barnes from Plan Invest Group: ‘We would prefer it if managers had a long-term tenure because switching usually adds to investors costs.

http://www.citywire.co.uk/News/NewsArticle.aspx?VersionID=97019

Trader May Have to Pay $100K for Boys’ Night Out

A hard-partying Wall Street trader and his ex-girlfriend are in court over an allegedly broken $100,000 promise to keep on the straight and narrow.

In recently filed court papers, Elisa Kwon accuses her former beau Greg Calvino, 45, of reneging on a pledge he had made to not "use drugs, stay out late, frequent strippers or hookers." The 30-something Kwon insists Calvino had vowed that if he ever did any of those things again, she could cash a $100,000 check he had made out to her.

After Calvino's allegedly debauched boys' night out at a strip club in March 2005, that's just what Kwon did.

But a fuming Calvino filed suit in Manhattan Supreme Court in late July to get his money back - plus interest, legal fees and damages - claiming the whole thing is an extortion attempt. Calvino claims Kwon had threatened to go to his bosses at RBC Capital Markets, where he was a stock trader at the time of the intemperate night out, and make up tales of drug use "with strippers and hookers." He claims he wrote the $100,000 check to protect his career and reputation, and that she cashed it for no apparent reason.

An RBC spokesman did not immediately comment.

http://www.nypost.com/seven/09302007/news/regionalnews/
ex_is_hit_with_100g_sin_tax.htm

The Rich Conundrum: Do you want a helicopter or minisub to go with that megayacht?

Helicopters? At a boat show? Yacht sales have increased 10 percent to 15 percent a year in the last few years, and this year was no exception. Since everyone who is anyone has to have a yacht, and increasingly does, what buyers want most now, naturally, are accessories: minisubmarines and helicopters.

Olivier Milliex, head of yacht finance at the Dutch bank ING, summed it up best. "Today, a mega-yacht is indispensable," he said. "It's not like 15 years ago, when a yacht was a luxury item."

Stock markets may be in rough seas and oil prices exploding, but none of that put much of a blemish on the mood at the trade fair last month in Monaco. Europeans often watch boat fairs like the canary in the coal mine to judge the overall health of their economies. But Monaco may not be the best bellwether: if other boating fairs are prêt-a-porter, Monaco is, by design, haute couture.

The annual boating trade fair, hardly the largest in a series of fairs that go from Cannes to Genoa to Fort Lauderdale, Florida, at the end of October, ran here from Sept. 19 to Sept. 22. Monaco limits the number of exhibitors to about 500; moreover, many yacht builders do not even show yachts. Their customers do not want off-the-rack yachts, they want boats custom-built to designs that will not be replicated.

One bauble that increasing numbers of big yacht buyers are asking for is a helicopter. Of course, that means adding a pilot and a mechanic to the yacht's crew, but for the people who buy these yachts, that is hardly a concern. So Vilardi, head of marketing in the business and private market segment of Eurocopter, a unit of the EADS aerospace group, has linked up with the British yacht broker Edmiston to meet their wishes. At Monaco this year, Edmiston showed a 60-meter, or 200-foot yacht with Eurocopter's smallest helicopter, which sells for about $2 million, perched atop.

"Our motto is, 'To create what money can't buy,' " Vilardi said.

http://www.iht.com/articles/2007/10/01/news/yacht.php

Could 1987 happen again?

Sure. It’s twenty years after the crash, but investors face many of the same fears

This October marks the 20th anniversary of the 1987 stock market crash, the biggest one-day post-war percentage drop for U.S. markets. In a few short hours on Monday, Oct. 19, 1987, the Dow industrials gave up 508 points, or 22%, bringing an abrupt end to what had been a lively Wall Street party.

The crash came against a backdrop of inflation fears, rising oil prices, Middle East tensions and a host of other eerily familiar worry signs in Wall Street's most notorious month, and helped cement October's reputation as the toughest month for the markets, at least psychologically.

So, could it happen again? Could the world's stock markets wake up one morning this month and suddenly find there is no 'bid' for shares and start plummeting? Could someone mess up in the Middle East, where tensions are already high, and do something so completely unexpected that people suddenly just want out? Or could an overheated market in Asia, Shanghai perhaps, suddenly roll over, sparking a cascading series of falls as complex, computer-driven derivative positions suddenly loose their footing leading to one great global belly flop?

Yes.

Uncertainty and fear are ever present agents in the markets and can overwhelm greed and optimism at any time. Unexpected geopolitical and financial events are an ever present possibility. And, as the absolute seizing up of the world's credit markets earlier this summer showed, financial regulators and central bankers have no more control of events and markets today than they did in 1987, though their reactions may have improved.

But a couple of points are worth keeping in mind.

Large scale events like the crash of 1987 generate enormous headlines and angst because of their sudden and dramatic nature. And of course they can be brutal for workers in the financial industries. But $10,000 invested in the Dow on Friday, Oct. 16, the last trading day before the crash, and held until the present would still have more than quintupled.

And if one is genuinely worried by the similarities between today's backdrop and that of October 1987 -- and there clearly are some -- then there's always cash as an alternative.

On the other hand, if you're feeling a bit more intrepid this month, perhaps because the Fed has managed to give equities a big push with its September rate cut, then our team of experts and commentators has a slew of ideas to consider. Paste this link on your browser and see for yourself.......

http://www.marketwatch.com/news/story/could-1987-happen-again/story.aspx?guid
=%7B9EB9B81B%2D3592%2D47C7%2DAA51%2DE79F3EC99602%7D&dist=TNMostRead

Pink Slips for Everyone!

The credit crisis struck at the heart of the global financial industry on Monday as Swiss bank UBS AG said it faced a shock loss in the third quarter and Citigroup warned its profits had collapsed.

UBS's chief domestic rival Credit Suisse Group also said its third quarter results would be "adversely impacted" by the credit market turmoil but said it would remain profitable in the third quarter.

The announcements are the latest from a lengthening queue of banks who have taken hits from a meltdown in U.S. subprime mortgages, which has set off a global liquidity crisis.

UBS said it would write down a net 4 billion Swiss francs ($3.4 billion) in its fixed-income portfolio and elsewhere, resulting in a third-quarter loss of 600 million to 800 million francs, its first quarterly loss in nine years.

UBS also said it would shed 1,500 jobs in its investment bank -- a sharp reversal of its recent buildup.

Citigroup, the world's largest bank by market value, said it was expecting a fall of about 60 percent in third-quarter net income.

Among the main culprits for the profit warning were $1.4 billion in pretax writedowns on funded and unfunded leveraged loan commitments.

Guess who's next up with job cuts? Yup, "Abandon All Hope, Ye Who Enter" Citi!

http://today.reuters.com/news/articleinvesting.aspx?type=hotStocksNews&storyID
=2007-10-01T140928Z_01_L01888868_RTRUKOC_0_US-BANKS-CREDIT.xml

The Overachieving Hedge 50 - according to Barron's

At the very top: RAB Special Situations (up an average of 47.69% a year for three years), The Children's Investment Fund (44.27%), Highland CDO Opportunity (44.12%), BTR Global Opportunity (43.42%) and SR Phoenica (43.10).

We were surprised that some well-known funds didn't make the grade, though they came close. Citadel Investment Group's $4 billion Citadel Wellington fund missed by a hair, returning 20.25% on a compound annual basis for the 36 months ending in June, according to our sources. Pequot Capital, Greenlight Capital and GLG Partners also had funds with returns topping 18% in that time, sources say. Lone Pine Capital and Cerberus Capital weren't far behind, with gains of at least 16% for funds that easily met our asset minimum, sources said.

A couple of the industry's top funds -- quant-trading powerhouse Renaissance Technologies' Renaissance Medallion Fund and ESL Investments' flagship ESL Partners -- each would have likely merited a spot. Both boasted returns of at least 35% annually for the three years through 2006. But we weren't able to obtain dependable year-to-date figures for either of them.

Two other pace-setters -- SAC Capital and Appaloosa Management -- offer funds that sources said would make our list, but we simply weren't able to obtain reliable figures.

As much as problems in August at funds run not only by Bear Stearns but firms ranging from Goldman Sachs to Cheyne Capital and Germany's Investment Asset Management highlight hedge funds' limitations, their numbers speak for themselves. Since 2000, hedge funds have averaged an 8.85% return, more than twice the 3.94% average return for U.S. equity mutual funds. They have also bested the 5.06% return for U.S. fixed-income funds, according to Lipper.

http://online.barrons.com/article/SB119101983536943198.html?mod=
9_0002_b_this_weeks_magazine_home_top

How to Succeed in Hedge Funds Without Really Trying: Pick up the phone, make $4 billion

Well, not quite. One of the more interesting lawsuits we have seen in the hedge fund industry of late is the case brought by the principals of Veras, a hedge fund which was based in Houston, Texas, against the law firm Akin Gump Strauss Hauer & Feld. The principals allege that Akin Gump provided advice to Veras which enabled them to conclude that the strategy of late trading mutual funds was, in fact, a legal practice. The Veras funds were subsequently investigated by the New York attorney general's office and the Securities Exchange Commission, eventually paying some $36 million in penalties prior to shutting down.

Putting aside legal questions about mutual fund timing in general or this case in particular, what caught our eye was the fact that Veras' lawsuit claims damages of some $4.4 billion, not including, we note, punitive damages.

This case is clearly unique but it raises a very interesting due diligence question: what are the expectations of a hedge fund manager when starting a new fund? We imagine many managers are slightly less optimistic in autumn 2007 than they were in the spring, but is it nonetheless the case that the base line expectation of a successful firm is to generate wealth in excess of $1 billion for the founders?

We certainly see value in spending a great deal of time with a start up fund discussing the manager's business plan and aspirations. For the investment team, "getting rich" is probably not the best answer to why a manager wants to run a hedge fund. On our side of the fence, the aspiring billionaire should start from day 1 with a clear plan of how to build a well resourced business - without investment in operational systems and people, the firm will have severe growing pains long before everyone buys a Gulfstream

http://castlehall.typepad.com/risk_without_reward/2007/09/run-a-hedge-fun.html

The Best Performing Fund You’ve Never Heard Of

Most of the rest of us -- would've been much better off with money invested in the MaxQ Fund, a global macro vehicle run by North Asset Management in London that actually posted a 6.64% gain in August's stormy markets by adroitly investing in a mixture of derivatives, bonds, currencies and stocks in smaller European economies.

Months like that have helped make MaxQ Fund a charter member of Barron's Hedge Fund 50, our inaugural ranking of hedge funds based on their long-term performance for investors. Rather than rank firms based on asset size or partners' take, we're trying to give investors a longer-term perspective on this often-opaque arena (some of our top funds wouldn't even talk to us), and acknowledge just how important the investment sector -- which now numbers an estimated 9,500 funds with $1.67 trillion under management -- has become to the markets. –

The summer swoon definitely underscored the volatility hedge funds can cause. "August tested commonly held notions about diversification. Almost all the [hedge fund] strategies lost money," says Ferenc Sanderson, analyst for Lipper HedgeWorld in New York. The Barclay Hedge Fund Index dropped 1.44%, one of its biggest declines in recent years.

http://online.barrons.com/article/SB119101983536943198.html?
mod=9_0002_b_this_weeks_magazine_home_top

Are Quants Relying Too Much On The Numbers ?

Go figure. With the dominance of high mathematics in the world of investment banking, it seems that computer models have become the 'fortune tellers' of the financial world. 'Quants'—those that follow mathematical models exclusively—like the numbers to tell the story or to predict the future. However, these methods alone can be a very dangerous way of managing and regulating financial risk. For all its apparent quantitative sophistication, much of the current approach to the management of financial risk rests on conceptually shaky foundations.

With a breath of fresh air and a contrarian point of view, Riccardo Rebonato argues that we must restore genuine decision making to our financial planning, and he shows us how to do it using a proper understanding of probability, experimental psychology, and decision theory in his new lively book 'Plight Of The Fortune Tellers: Why We Need to Manage Financial Risk Differently'.

Rebonato, the global head of market risk and global head of quantitative research and analysis at the Royal Bank of Scotland, contends that this is the only way to effectively manage financial risk in a manner congruent with how human beings actually react to chance. He challenges us to rethink the standard wisdom about probability in financial-risk management. Risk managers and banking regulators have become obsessed with measuring risk and believe that these quantitative results by themselves can guide sound financial choices - they can’

http://news.hereisthecity.com/news/business_news/7105.cntns