The most popular type of hedge funds abroad, long-short funds, will soon be within the reach of retail investors in India. With Sebi indicating that mutual funds will be allowed to sell stocks without actually owning them (called short selling), many fund houses are in final stages of designing products that will allow small investors to have a taste of this sophisticated style of investing. In fact, ICICI Prudential has become the first fund house in the country to consider launching such a product and is seeking Sebi’s permission to introduce a long-short fund. This is a technical name for a fund that allows a fund manager (and thus investor in the fund) to hold those stocks that he is bullish on and yet sell those, whose prices he feels will fall in the future. In November last year, capital market regulator Sebi had asked mutual funds to engage in short-selling of securities as well as lending and borrowing of securities. Earlier, no institutions (foreign institutional investors (FIIs), insurance players or mutual funds) were allowed to do this. The change in regulation has not only opened up another avenue of revenue (lend securities and earn), but allowed fund houses to launch such innovative long-short funds.   more »

Market estimates Rs 5,000 cr unwinding on Monday, Tuesday. Participatory note (P-note) holders investing in India may have trimmed their positions by Rs 5,000 crore, according to market estimates, as the Indian market fell up to 12 per cent in Monday and Tuesday trading sessions. The Securities and Exchange Board of India (Sebi) has restricted P-note investments in the derivatives market and asked investors to unwind their positions within 18 months. At the same time, the regulator has permitted P-note investments in the cash market up to 40 per cent of FIIs’ assets under custody. An incremental 5 per cent increase in P-note investments has been allowed, subject to the 40 per cent level. P-notes are offshore derivatives instruments (ODIs) issued by FIIs to anonymous investors, who do not come under Sebi’s supervision. “Roughly 34 FIIs and sub-accounts issue P-Notes which form around 50 per cent of assets under FII. Assuming that most, if not all, pulled out… we think around Rs 5,000 crore still cannot be ruled out,” said Manish Jain, vice-president, structured products group, Atherstone Capital. Another fund manager said: “P-note holders have unwound their positions. But, that is because of redemptions from overseas investors due to US subprime woes.” According to stock exchange figures, FIIs sold a net of Rs 7,200-crore on the first two days of this week in the cash segment. However, in the derivatives segment, FIIs were net buyers for Rs 8,774 crore — interpreted as an arbitrage play by the overseas funds.   more »

Recent stock market drops hurt some of the world's most famous hedge fund managers, who have long attracted money with promises that they could sidestep even the worst conditions. Bruce Kovner's Caxton Alpha Equity fund, Lee Ainslie's Maverick Fund and Leon Cooperman's Omega fund rank among the $2 trillion hedge fund industry's prominent losers in the first days of 2008, according to people who have seen the numbers. The average global hedge fund lost 3 percent through the end of last week, according to Hedge Fund Research data, and that was before global markets plunged on Monday, when indexes fell 7.2 percent in Germany and 7.4 percent in India. U.S. markets were closed on Monday. U.S. hedge funds specializing in stocks were off 5 percent on average through last Friday, according to data from New York-based Hennessee Group, which invests in hedge funds and tracks their performance. "This month is going to be the worst start to the year for hedge funds in a very, very long time," said Charles Gradante, a principal at Hennessee. In fact hedge funds, loosely regulated portfolios that became hugely popular with endowments and pension funds over the last decade on promises to protect against declines, have never lost more than 1 percent in the first month of the year since Hennessee began tracking the data in 1993.   more »

Magnum has launched a new India fund of funds. The Magnum India Fund hopes to provide diversified exposure to India, investing with approximately 9-12 different hedge fund managers across a range of strategies and industry sectors. The strategies include long/short large-cap and mid-cap equity, long-only small-cap equity and PIPES, event-driven/risk arbitrage, multi-strategy arbitrage, and distressed debt. The broad-based exposure seeks to minimise volatility, while capturing the upside of India's growth opportunities. A Master Fund in which the fund invests, has produced returns of 40% since inception in November 2006, with standard deviation of 12% and beta of 0.45%. Magnum has deferred the manager selection on India focused funds to a third party firm (Sub-Manager) that is focused exclusively on selecting India focused funds. The fund takes advantage of the Sub-Manager’s deep experience investing in India and strong relationships with India-focused managers.   more »

Pandit's Old Lane, Oz Management push up number of new FIIs by 123. Some of the world’s top hedge funds have been granted direct entry into the Indian stock markets, nearly three months after the Securities and Exchange Board of India (Sebi) imposed curbs on foreign investments through the participatory note (P-note) route. Since the curb, the number of FIIs in India has swelled by 123 to 1,248. The funds include Vikram Pandit-founded Old Lane LP, which was acquired by Citigroup early last year, and Oz Management, which is ranked among the world’s 20 largest hedge funds. While putting the restrictions, Sebi had asked the funds to invest in the Indian market directly by getting themselves registered as foreign institutional investors (FII).   more »

The Antara India Evergreen Fund recently launched with $10 million of assets. The new hedge fund has an estimated capacity of $500 million. In its first month of operations, the fund was up 0.3%, compared to a 3% fall in the main Indian index. A full NAV for December is not available yet, but the fund was up approximately 10%, compared to a 3.8% rise in the main Indian index. The fund’s target returns are 20%+ on projected volatility of 12%. There is a gross exposure maximum of 200%, with typical net exposure of 30-75%. Fees are 2% and 20% with a high water mark. Leverage is a maximum of 1.5 times, and there is a liquidity criteria whereby 90% of the fund can be liquidated within ten days, on volumes of not more than 25% of average daily volumes. Redemption is monthly with 45 days notice. The fund’s investment advisor is Karma Capital, which is registered with and regulated by the Securities and Exchange Board of India. Karma Capital had previously been a sub-advisor to a multi-strategy India fund managed by Julius Baer. Mauritius-based Antara Asset Management is the investment manager and that in turn is regulated by the FSC in Mauritius.   more »