As the Indian market went into a tailspin yet again on Friday, the finger of blame once again pointed to leveraged hedge funds, which are trying to cut their losses and run. But some global fund managers and hedge fund officials maintain the crash was accentuated by too many leveraged players rushing for the exit door at the same time, and not just hedge funds alone. “Money is flowing out of every emerging market, not only in India. How does one differentiate between a hedge fund and local mutual fund selling,” asks Amit Bhartia, partner, GMO (Grantham, Mayo, Van Otterloo), a global institutional money management firm managing $120 billion of assets. “For any country today, you need serious policy action to stop the carnage. What is worrying is that in a country like India, actions are more reactive than proactive. What is the need of the hour is a serious statement and policy action by government to jump-start infrastructure and maintain growth,” he adds.   more »

Andrew Lahde, the hedge fund founder who shot to fame with his small fund that soared 870 percent last year on bets against U.S. subprime home loans, has called it quits, thanking "stupid" traders for making him rich. In a biting, but humorous letter to investors posted on the website of Portfolio magazine on Friday, Lahde told investors last month he will no longer manage money because his bank counterparties had become too risky.Lahde, whose Lahde Capital's Short Credit Fund returned 886 percent in 2007, said he didn't have a strong opinion about any market other than to comment, "Things will continue to get worse for some time, probably years."   more »

Regulators spooked markets by trying to make short-sellers the scapegoats for problems they didn’t cause. The biggest impact of the temporary ban on short-selling, which expired earlier this month, was its role in undermining the trust on which markets rely. Why would regulators ban short-selling in nearly 1,000 companies, effectively banning accurate information from the markets?But the ban had several unintended consequences. It undermined risk-lowering hedging strategies. It raised the costs of trading by widening the bid-ask spread, added to volatility, and made prices less accurate.the first to signal, through short-selling, troubles at Tyco, Enron and now Fannie Mae, Freddie Mac and banks. Adding insult to hedge fund injury, several funds are in danger of being driven out of business as collateral damage from the Lehman bankruptcy. Lehman acted as a prime brokerage to some 3,500 clients, including many hedge funds which used Lehman for stock and derivatives transactions. Lehman’s London affiliate has some $65 billion (Rs3.17 trillion) client assets, with $45 billion in long positions and $20 billion in short positions.   more »

Up to 30 percent of the world's hedge funds could disappear "in a Darwinian process," according to the co-chief executive of one of Europe's biggest, GLG Partners. Emmanuel Roman was quoted by several British newspapers as saying many hedge funds would either go bust or decide that the meagre profits were not worth the effort. "This will go down in the history books as one of the greatest fiascos of banking in 100 years," he was quoted as saying. "There needs to be some scapegoats, and the regulators are going to go hunt people. That will be good in the long run."   more »

Hedge funds worldwide posted record monthly losses in September, according to Eurekahedge Pte., as short sale bans and client redemptions amid the credit crisis hurt funds including Citadel Investment Group Inc. The Eurekahedge Hedge Fund Index, which tracks 2,431 funds that invest globally, declined 4.7 percent, preliminary figures from the data provider show. The drop is the biggest one-month loss since it began collecting data in 2000 and the index, down 7.9 percent through September, is set for its worst year on record. Hedge funds have suffered in a financial market contagion triggered by the collapse of the U.S. subprime mortgage market last year, losing about $88 billion of assets on investment declines and investor withdrawals in September. That's reduced the industry's total size to about $1.8 trillion, according to Singapore-based Eurekahedge   more »

India-focused hedge funds have been among the worst performers in Asia as they have lost a staggering 43 per cent of their net asset values (NAVs) to date in sharp contrast to the nearly 50 per cent return that they gave in 2007. Compared to this, hedge funds of other Asian countries, including China, Japan and Taiwan, have fallen between 20 and 30 per cent. In September, the Eureka hedge fund index of India-focused funds fell by 12.72 per cent after 45.45 per cent of the 20 index constituents reported their NAVs. This is the worst monthly decline so far this year. However, Samir Arora, fund manager of Singapore-based Helios Capital, told Business Standard that hedge funds have put up better resistance in falling markets compared to some mutual funds in India. “NAVs of some Indian mutual funds have declined by 60 per cent, while the market has fallen by 55 per cent year to date,” he said.   more »

The rich world’s financial system is headed toward meltdown. Stock markets have been falling most days, money markets and credit markets have shut down as their ­interest-­rate spreads skyrocket, and it is still too early to tell whether the raft of measures adopted by the US and Europe will stem the bleeding on a sustained basis. A generalized run on the banking system has been a source of fear for the first time in seven decades, while the shadow banking system — broker-­dealers, non-bank mortgage lenders, structured investment vehicles and conduits, hedge funds, money market funds and private equity firms — are at risk of a run on their short-term liabilities. On the real economic side, all the advanced economies — representing 55 percent of global GDP — entered a recession even before the massive financial shocks that started in late summer. So we now have recession, a severe financial crisis and a severe banking crisis in the advanced economies.   more »

These are unprecedented times and market regulators across the globe have been up in arms fighting the tumbling stock prices. The Reserve Bank of India and Securities and Exchanges Board of India (SEBI) have been pro-actively managing the situation at home with a series of policy changes. One such measure, taken last Monday, was SEBI’s decision to reverse its stance on offshore derivative instruments (ODIs). While this move could stem the outflow of money from the stock market to some extent, there are a few pitfalls as well.   more »

The SEBI has decided to lift some of the restrictions imposed on participatory notes (PNs). The idea is to further facilitate foreign capital flows into the stock market. FIIs have been net sellers to the tune of $9.2 billion so far this year. The question is whether easing the PN regime will, by itself, bring FII flows back. Quite unlikely, considering that the massive deleveraging on Wall Street will take some time to play out fully. Besides, the tightening of the PN regime was done with the primary objective of making large hedge fund investments coming through the PN route more transparent by asking them to directly register with SEBI.   more »

Foreign investors withdrawing a net $9.5 billion from the Indian stock markets this year has made the Securities & Exchange Board of India remove the restrictions on the issue of participatory notes (PNs) by foreign institutional investors, against securities, including derivatives as underlying. Speaking after the board meeting on Monday, Sebi chairman CB Bhave told reporters the board reviewed the FII investment regime. “We are restoring the pre-October 2007 position, when no cap existed,” said Bhave. He also said the framework governing the participation of FIIs in Indian securities markets needs a comprehensive review. “It has been decided to put out a detailed consultative paper on this for comments from the public”, he said. Expert committees have asked for relaxing the rules that govern FII presence in the Indian equity markets.   more »