Kotak Mahindra Group, the Mumbai-based financial services group, will consolidate its private equity investment (PE) activities under a separate alternative investments subsidiary. The company will open for business in October with approximately $1.5 billion (about Rs6,150 crore) in capital under management. This includes just the group’s private equity funds though new alternative investment products, among them a hedge fund, are in the pipeline, said a person close to the group, who did not want to be named. The spokesperson for Kotak Private Equity Group (KPEG) declined comment. Kotak’s move to integrate and expand its alternative investments activities, including PE, echoes similar moves by financial groups globally and in India in recent times. Notably, financial services conglomerate Citigroup Inc. acquired Old Lane LP in April, which was a New York-based hedge fund with India operations. Mumbai-based PE firm ICICI Venture Funds Management Co. is also raising a hedge fund. The move is also reflective of the blurring of lines between PE and hedge fund investors globally, the ripple effects of which are being felt in the Indian market with the entry of foreign hedge funds, such as DE Shaw & Co., LP, Tiger Global Advise Pvt. Ltd, Och-Ziff Capital Management Group Llc. and New Vernon Capital Llc. in the PE deal market here.   more »

India-dedicated fund first to register as FII. Private equity player Baer Capital Partners plans to launch $ 250 million India-dedicated hedge fund by the year-end. Baer Capital is the first hedge fund to announce its India plans, after the recent proposal by the Securities and Exchange Board of India allowing direct entry of hedge funds. The fund is likely to be called Beacon India Growth Fund. Baer Capital will have to register as a foreign institutional investor (FII). The fund will be investing in public (or listed) companies. It will be a long biased hedge fund using futures/derivatives to hedge itself against market decline. It will have more flexibility to stay in cash or take concentrated position and will be focused mainly on the mid-cap stocks across sectors. “We have applied for our FII registration and we expect a minimum annual return of 25-30 per cent out of all our investments both through private equity and hedge fund. We will see more of hedge funds coming to India in the coming days and a lot of strategic activity happening in the space as hedge funds bring a lot of liquidity and efficiency into the capital markets, “said Alok Sama, president & founder, Baer Capital Partners.   more »

Like many other emerging markets, India has been benefiting from significant foreign fund flows in recent years as investors’ quest for yield and increasing risk appetite has led them to look farther afield from their home markets. Hedge funds have been a less significant and undoubtedly somewhat nascent conduit thus far. However, a combination of several factors, including continued economic strength at the macro level, increasing visibility and interest from investors and favourable developments from a regulatory standpoint, have arguably positioned hedge funds to become a far more influential and integral force in the market in the future. The Indian equity market has several features that create an ideal playing field for hedge funds. The market comprises over 5,000 listed companies, providing an extremely broad universe of potential opportunities. At the same time, institutional ownership and research coverage is quite thin and limited to a handful of large-cap names, providing a real opportunity for hedge funds to bring its sourcing abilities and depth of research to bear on an investment. While the current investment climate in India is undoubtedly favourable for all equity managers, hedge funds are arguably best positioned to exploit the opportunity. This can be ascribed to several factors, including the ability to invest across a wider cross-section of the investment universe (given their typically smaller size), the latitude afforded to run more concentrated portfolios (since they are typically not measuring themselves against a benchmark) and the flexibility to use tools to gain short exposure (single stock, single stock futures and index futures).   more »

At a time when the Indian equity market has been volatile, a top performing US-based, India-dedicated hedge fund has decided to reopen one of its main funds to raise additional capital. Massachusetts-based Monsoon Capital, founded by a former president of Indus Entrepreneurs (TiE), Gautam Prakash, is likely to reopen its flagship fund, the $800-million India Inflection Fund, a hedge fund that invests in mid-market Indian companies. Although the exact details are not known, it has been learnt that Monsoon Capital plans to raise an additional $200 million for the fund from its investors that include large endowments and institutions. Reopening of hedge funds and loosely-regulated pools that have flexibility in their positions and in the type of instruments employed, is typically done when the market situation is likely to improve. Hedge funds are vital in global equity markets and manage about $1.3 trillion in assets worldwide. Weak global markets, including yen, carry-trade unwinding, heavy FII selling and subprime concerns led the benchmark Sensex to fall by about 6% last week.   more »

Bethesda, Md.-based Monsoon Capital has hired Alkesh Gianchandani as a managing director in charge of marketing. He will report to founder Gautam Prakash and will be based in firm’s new New York office, which will be opened next month. He officially joins the firm today.

“The key purpose for his hiring is our planned expansion with two new India-dedicated funds that we expect to announce later this year,” said Prakash. “We’ve also re-opened our flagship fund to accept up to $200 million in additional capital and Alkesh will assist with that fund-raising process as well.  In essence, he will head up marketing globally for the firm.”

For the past two years, Gianchandani has been at Robeco Investment Management where he marketed the firm’s products to endowments, foundations and fund-of-funds. Prior to joining Robeco, he spent close to five years with RiskMetrics Group where he directed the firm's sales and marketing efforts for hedge funds and fund-of-funds.  (Finalternatives)

Circa 2005, the US housing market was booming. As conveyed by the June 2005 Time magazine’s cover title “Home $weet Home,” the housing market was minting money for everyone. Amid this, every individual in the US was living the American dream to own a house. Housing prices were consistently rising and appreciation was the highest over the past 30 years. This, coupled with historically low interest rates, prompted most people to buy “investment properties”. In the US mortgage market, by borrower quality, a mortgage is prime, sub-prime, or Alt-A. Prime borrowers are those who have good credit scores, a strong debt-to-income ratio, provide required documentation, tax history, residence records and so on. The mortgage is a first-lien mortgage. A sub-prime mortgage is to a borrower who does not qualify as per prime norms, or it is a second-lien mortgage. An Alt-A is to a borrower who is not necessarily poor quality, but does not qualify for prime lending due to documentation problems. Understandably, spreads are quite high in sub-prime lending; yet defaults were low largely due to home prices. Buoyed by this, US banks pressed the accelerator on sub-prime mortgage loans. The outstanding volume is estimated $1.8 trillion. Many of the mortgages originated in 2005 and 2006 had features to make the mortgage enticing — interest-only mortgage, negative amortisation mortgage and teaser-rate adjusted-rate mortgages.   more »

Through confidential sources it has been affirmed that the renowned US hedge fund Atticus Capital, also an activist investor while going on steadfastly with its determined decision to go for an abrupt change at Deutsche Börse in the recent days is on an expansion mode and at this time the movement of the stock exchange movements is with India, the upcoming Asian giant and a substantial contributor in the international scenario of the Information Technology. Atticus Capital LP is a foremost investment management firm, with in excess of US$9 billion of assets under management. From its commencement in 1995 by Timothy Barakett, the firm is headquartered in New York with an office in London. Atticus as an investment management firm usually invests in global securities markets on behalf of its clients. Timothy Barakett, Chairman and CEO, and David Slager, Senior Managing Director, are in the topmost hierarchy of the firm's portfolio management team. Nathaniel Rothschild is the Co-Chairman of the firm. On the other hand, the Atticus has been a shareholder in Euronext for over a year, and has already invested over 1 billion euro through out the globe in publicly listed exchange operators. In addition to its Euronext investment, Atticus happened to be a significant shareholder of Deutsche Boerse AG.   more »

The Reserve Bank of India (RBI) today expressed concern over investments by hedge funds in the stock markets and raised questions over the longer term sustainability of such investments worldwide. In its first quarter review of the annual monetary policy for 2007-08, the RBI has described how the hedge funds are facing solvency threats in the wake of continued slump in the US housing markets and said the “contagion” could spread to other credit and corporate bond markets, in a spiral of repricing, tighter mortgage & borrowing conditions, falling house prices and slower consumption growth. “With greater risk aversion going forward, with credit quality deteriorating and with the widening of credit spreads, the potential fragility of hedge funds could pose significant risks to financial market stability and to the prospects for financing and growth in the EMEs (emerging market economies),” RBI said. At present, hedge funds cannot invest directly in the Indian markets. However, they could invest through PNs issued by Sebi-registered FIIs.   more »