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Hedgemedia’s AltInvestment Global News Round-Up: Interest rate surprise threatens new hedge fund losses

Hedge funds and investment banks may have suffered fresh losses of up to USD5bn over the past month alone on exotic interest rate options, reports

Hedge funds and investment banks may have suffered fresh losses of up to USD5bn over the past month alone on exotic interest rate options, reports say. Short-term swap rates climbed sharply above long-term rates following surprise comments by the European Central Bank’s president Jean-Claude Trichet on June 5 that it could hike interest rates in July. Rates are now expected to increase by 25 basis points to 4.25 per cent, after the market had expected the ECB to hold rates at 4 per cent.

Former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin, indicted last week on securities fraud charges, are also being investigated for allegedly making misleading comments to the funds’ lenders and trading partners. Prosecutors are believed to be looking into the duo’s dealings with Bank of America, Barclays, Dresdner Bank and Merrill Lynch.

In particular, investigators are examining a USD4bn collateralised debt obligation that Cioffi and Tannin persuaded Bank of America to guarantee and sell in the spring of 2007. The two managers have pleaded not guilty to charges that they misrepresented the financial condition of two hedge funds they oversaw to investors even as they knew the entities were near collapse.

Manhasset Capital of New York will liquidate following the decision of the firm that provided its seeding capital to withdraw its USD100m investment. Fairfield Greenwich Group, which seeded Manhasset’s offshore fund, wants to rebalance its capital following the ending of their agreement on May 1. Manhasset ran USD165m in two funds.

Goldman Sachs’ quantitative funds appear to have turned a corner. The firm’s Global Alpha Fund has risen 19 per cent this year after tumbling around 38 per cent during 2007, while the Global Equities Opportunities Fund has gained 7 per cent this year, partially reversing the 30 per cent drop it suffered last August.

Goldman shored up the Global Equities Opportunities Fund with USD2bn from its own coffers and USD1bn from outsiders. The second half of 2007 was particularly difficult for funds that use computer models to generate trading ideas. Run by Mark Carhart and Raymond Iwanowski, Global Alpha now manages around USD2.5bn, down from its peak of USD12bn, while Global Equities runs USD1bn compared with a previous level of USD6bn.

The New York State Common Retirement Fund, which oversees USD154.4bn in assets, has selected two private equity funds and one hedge fund for investment. The fund has committed USD233m to CVC European Equity Fund V, USD50m to Levine Leichtman Capital Partners IV, and USD1m to a fund run by Clarium Capital.

Marshall Wace has teamed up with Hong Kong-based research and asset management house GaveKal. The joint venture, dubbed Marshall Wace GaveKal Asia, will develop a series of Asian long/short hedge funds. A Japanese equity fund is first in line for a third-quarter launch.

John Brynjolfsson, previously a fund manager at bond fund management giant Pimco, and global macro specialist Ronald Solberg, a principal at Viking Asset Management, have established Armored Wolf in Aliso Viejo, California. They plan to focus on commodities.

In partnership with investor George Soros, Ospraie Management has purchased the commodity trading and merchandising operation of ConAgra Foods for USD2.8bn. The trading business places hedges against swings in the prices of food and energy.

Fabrice Bay, a managing director at DWS/Deutsche Asset Management responsible for USD3.1bn in European equities, will join GLG Partners in August. He will lead its consumer fund team and co-manage its Capital Appreciation Fund with Ben Funnel.

Steve Bowman, Citigroup’s head of hedge fund services, is leaving following 24 years with the bank at its offices in New York and London.

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