The Draft Report of the Committee on Financial Sector Reforms headed by Professor Raghuram Rajan was issued for comment in April 2008. Among the proposals that the high-level committee made was the introduction of domestic hedge funds. The committee feels that, “The presence of hedge funds would induce greater competitive pressure for other regulated fund management channels such as mutual funds.” This week’s article discusses the benefits of introducing hedge funds in the Indian market. It shows how hedge funds could improve asset price efficiency. Besides, such funds, by virtue of their diverse investment styles, could provide investors an opportunity to enhance their risk-adjusted portfolio returns.   more »

Kuwait-basd Global Investment House has launched The Mayur Hedge Fund, a long short absolute return growth oriented fund with a net long bias. This is the first direct India-focused product by Global which will aim to achieve capital growth and provide investors the opportunity to benefit from the long term growth of the Indian market, according to a press statement. (Ameinfo)   more »

Lone Pine Capital LLC, run by Stephen Mandel, and Traxis Partners LLC are among 56 overseas funds that registered to buy shares in India in July, the most in six months. Helios Capital Management Pte and Stonewater Capital LLC also won approval from the nation's regulator, nine months after authorities forced hedge funds to register. The Securities and Exchange Board of India reviewed the rules today without making changes, Chairman C.B. Bhave told reporters after a board meeting in Mumbai. The following table is a list of funds registered with the Securities & Exchange Board of India since January.   more »

A $31 meltdown in value during the overnight hours brought gold to the $775 level far faster than even the most pessimistic expectations we had seen of late. Once the $800 level was breached at 19:40 hours NY time, the metal went into a tailspin the magnitude and viciousness of which was frightening. While gold will make every headline in today's financial press as it undergoes this now nearly vertical slide that puts even its 2006 drop of $200 into the minor leagues, the bigger story unfolded in the silver market where the white metal lost more than 12% of the value it finished at on Thursday afternoon. Words like 'overdone' or 'oversold' began to no longer apply once the metals penetrated the key psychological round figures that lay at $800, $14, $1400 and $300 for gold, silver, platinum, and palladium. "The speculative allure [gold] had presented to index and hedge funds has all but dissipated," said Jon Nadler, a senior analyst at Kitco Bullion Dealers.While the storm in commodities is far from over (they have now fallen 21% since Independence Day), today's focus will be trying to find depth gauges long enough to probe what kind of waters these markets are currently navigating in.   more »

Two years ago, Wilbur Ross, an investor in distressed securities, set up a $300 million fund focused on India. He convinced India's Housing Development Finance Corp. (HDFC), a local giant, to partner with the fund, bringing its extensive network of local contacts and strong reputation to the venture. He staffed an office in Mumbai, run by managing director Ranjeet Nabha, a Dartmouth MBA who had been a vice-president at JPMorgan Chase and later CEO of a software company. And then Ross proceeded to do very, very little. Now, Ross is at last making a major move. On Aug. 11, the chairman of New York-based WL Ross & Co. announced his India fund would buy an $80 million chunk of convertible bonds issued by Indian discount airline SpiceJet . The once red-hot Indian stock market has cooled down enough to suit Ross, who made his name patching together the remnants of dying U.S. industries like textiles and steel. And several years of cutthroat competition—and more recently, record-high prices for jet fuel—have left India's nascent airline industry in particular need of help(BusinessWeek.com, 7/7/08).   more »

Asia-focused hedge funds have taken a beating this year and investors are shying away from managers who not too long ago were seeing double-digit returns. Funds investing in India and China produced the worst performance of any specific hedge fund classification after leading all hedge funds for much of 2007, according to HedgeFund.net. The HFN India and China Averages were down 14.97% and 8.87% in June, respectively, leaving them down 36.88% and 18.77% in the first half of 2008. Venus Capital Management’s $100 million Special Situations Fund, an India-focused event-driven arbitrage and special-situation strategy, is down 22.25% in the first half.Monsoon India Inflection Fund (down 41.1% year-to-date, up 102.38% in 2007) and newcomer Vishwas India Fund (down 24.48% YTD, up 29.58% 2007).   more »

Launch of trading in currency futures has come at such a time when several Indian corporates have burnt their fingers in another version of currency derivative called Over the Counter (OTC) products few months back, and the issue has turned into a legal battle between suffered companies and banks involved. Though currency futures products like currency swap, currency forwards and currency options were already allowed to corporates in India after Reserve Bank of India's (RBI) circular as on April 2007, but they were not traded on any recognised exchanges in India and were available like OTC products only. As per an official gazette of Government of India (GOI), which is available on RBI's site, a person who is resident of India can now hedge his currency risk by using advanced and complex derivatives like currency forwards, currency swaps and currency options not only through OTC products but also through exchange traded currency futures products.   more »

The second quarter of 2008 saw Asia-focused hedge funds around the world gain capital inflows of $530 million from investors, says Chicago-based Hedge Fund Research. But the industry’s total assets under management grew by a mere 0.25% (about $200 million to $100.48 billion) because managers have lost $320 million in volatile markets. And while the industry did enjoy net inflows from investors in the second quarter, the gain is nearly half the $1 billion gain from the first quarter, suggesting that investor interest is flagging. As absolute-return vehicles, hedge funds are failing the test this year. Those Asia ex-Japan-focused strategies tracked by HFR have in aggregate lost -15.86% year-to-date, while Japan-only strategies have lost -7.14%, and Asia including Japan strategies are down -8.29%.   more »

Baer Capital has announced the launch of their new fund that invests in Indian equities, distressed debt and derivatives, further propelling Dubai’s prominence in the hedge fund industry. The Beacon India Alpha Equity Fund is the latest fund aimed at capitalizing on India’s emerging markets. ‘We are extremely excited about the launch of the Beacon India Alpha Equity Fund which is a long short equity fund focused on listed Indian equities and managed by Baer Capital Partners International Ltd,” said Brij Singh, Founder and Chief Executive Officer of Baer Capital Partners. “The Beacon India Alpha Equity Fund is an integral part of our mission to create a ‘Best in Class’ alternative asset management platform focused on India.”   more »

The restrictions imposed on investments in Indian equities through participatory notes (PNs) last year have seen those foreign investors, who prefer to stay away from the regulatory glare, tapping other routes for investment in the local market. In the past few months, these investors, including global hedge funds, have been increasingly using the equity swap — an unregulated over-the-counter (OTC) derivative contract — to take exposure to the Indian market. An equity swap is an arrangement where a series of future cash flows are made by two counterparties to each other. The pre-determined set of payments, which is based on a notional principal amount, may be determined by returns on stocks or indices or a fixed or floating rate. In the Indian context, a simple equity swap could work this way. Say, a US-based hedge fund, which does not want to be registered with SEBI or with poor credentials, wants to bet on India. It is bearish on India and wants to get the benefits of going short in the markets here.   more »