Hedge-Fund Milestones
Hedge-Fund Milestones
WSJ, January 29, 2007
Hedge funds, investment vehicles for the wealthy and institutional investors, have proliferated in recent years. When Long Term Capital Management collapsed in 1998, the industry had about $240 billion under management. In contrast, by the end of 2006, the industry had about $1.4 trillion under management, according to Hedge Fund Research, Inc., a private firm in Chicago. Though they control just 5% of all U.S. assets under management, they account for about 30% of all U.S. stock-trading volume. But the industry's rise hasn't always been smooth. Here are some key milestones for hedge funds since 1995.
June 1995-- Highlighting the difficulties faced by many hedge funds in the mid-1990s, Bruce Kovner, a legendary currency and commodities speculator, disbands his U.S. fund and returns about two-thirds of the $1.8 billion he managed at Caxton Corp., founded in 1983. Caxton had averaged annual returns of at least 30% for most of its existence, but lost money in 1994 and was struggling again in 1995. Caxton's troubles weren't unique: Hedge funds' total assets under management shrank for the only time in industry history in 1994. Analysts blame rising interest rates and the industry's unwieldy size after a 1991-93 growth spurt.
October 1995-- An even more shocking closure follows a few months later, when Michael Steinhardt shuts down his $2.6 billion investment partnerships. Mr. Steinhardt's decision came despite the fact that he had enjoyed good returns in 1995 after a disastrous 1994. Mr. Steinhardt, known for his aggressive, short-term trading and big, risky market bets, started his fund in 1967 and was a pioneer of the industry. His average annual returns of 30% or more helped his assets under management balloon to $4.4 billion at their peak.
January 1997-- Odyssey Partners, one of Wall Street's most successful private investment partnerships, dissolves because the $3 billion hedge fund has grown too bulky to easily invest.
June 1997 -- Another legendary manager, Julian Robertson Jr., hoping to profit from the rising prices of mutual-fund and asset-management companies, puts a chunk of his Tiger Management Co. on the block.
September 1997 -- George Soros, founder of Soros Fund Management LLC, one of the world's largest hedge funds, is accused by Malaysian Prime Minister Mahathir bin Mohamad of bringing down the Malaysian currency, the ringgit, during the Asian financial crisis.
September 1998 -- After spectacular early success, Long Term Capital Management, a fund founded in 1994 by John Meriwether, the former head of bond trading at Salomon Brothers, faces a cash and credit crunch after a series of bad investments. The fund nearly collapses, but a consortium of Wall Street firms, including Goldman Sachs & Co., puts up $3.6 billion for a bailout.
October 1998 -- Hedge-fund operator Everest Capital Ltd., headed by Marko Dimitrijevic, loses nearly half of its $2.7 billion under management. Financier Nelson Peltz and several college endowments, including those of Yale and Brown universities, are hurt.
December 1998 -- A disastrous year for the industry comes to a close. In addition to the LTCM and Everest debacles, Mr. Robertson's gains for the year were wiped out in the last quarter, and one of Mr. Soros's funds lost 18%. The average hedge fund focused on U.S. stocks returned 12.7%, less than half the 28.6% gain of the S&P 500. Many other hedge-fund categories produced gains in the low single digits, while several categories racked up losses for investors.
March 2000 -- Tiger Management LLC, a $6 billion hedge-fund, announces it will close down most of its operations and liquidate its investments. Mr. Robertson, Tiger's chief, blames the stock market's rush to Internet stocks. Meanwhile, throughout the year, Soros Fund Management struggles with losses as its attempt to venture into tech stocks fails and several people quit, including chief investment officer Stanley Druckenmiller. Mr. Soros vows to stick to more conservative investments.
October 2001-- Charles Schwab Corp., the top U.S. online and discount broker, announces plans to start offering hedge funds to its clients in the next year.
December 2001 -- Though hedge funds now control more than $500 billion in assets, most saw mediocre results for the year, with average returns of 3.2%. The Sept. 11 attacks, a vacillating stock market and a lack of deal-making are key reasons for the weak returns.
January 2003 -- A new breed of hedge funds, which have a reduced minimum investment requirement, are gaining popularity. Most traditional hedge funds require investments of $250,000; but new funds such as Oppenheimer Tremont allow affluent individuals to invest as little as $25,000.
May 2003 -- The research firm Strategic Financial Solutions LLC estimates that there are about 4,100 hedge funds in existence, with about $450 billion in assets.
September 2003 -- The SEC recommends regulations for the hedge-fund industry, including a requirement that managers register as investment advisers and be subject to occasional audits.
July 2004 -- Hedge funds, looking for other places to put their money, are increasingly competing with private-equity funds to provide capital to ailing companies. Perry Capital, an $8 billion hedge fund, gave $100 million revolving line of credit to the energy company, Xcel Energy Inc. Hedge funds are also becoming prominent in acquisitions. A group of a dozen hedge funds makes it into the final round of bidding for the Texas Genco Holdings Inc. unit of CenterPoint Energy Inc., but loses out to two big-name private equity funds: Blackstone Group and Kohlberg Kravis Roberts.
November 2004 -- Assets under management by hedge funds reach a record $1 trillion. They have grown 20% a year, on average, since 1990.
May 2005 -- Citigroup Inc. announces it is forming a joint venture with Pacific Alternative Asset Management Co. to offer hedge-fund portfolio-management services to its wealthiest clients.
August 2005 -- Greenwich, Conn. becomes the unofficial hedge-fund capital with more than 100 funds. Greenwich-based hedge funds collectively manage more than $100 billion, about a 10th of the total invested in hedge funds world-wide.
August 2005 -- Bayou Management LLC, a $440 million hedge fund based in Stamford, Conn., closes down without returning investor money. The founder, Sam Israel III, is accused of overstating gains and understating losses.
February 1, 2006 -- The SEC's registration requirement takes effect.
June 2006 -- Amid a tumultuous stock market, several hedge funds shut down, and others suffer. KBC Alternative Investment Management, for example, drops from $5.3 billion in assets to less than a $1 billion in 18 months. But the problems appear well-contained.
June 2006 -- The Court of Appeals for the District of Columbia Circuit vacates the SEC rule requiring hedge-find advisers to register with the agency, calling it "arbitrary." The decision is a major victory for the $1.2 trillion hedge-fund industry and forces the SEC to find another way to monitor it. By early December, some 275 hedge-fund advisers withdraw from SEC registration.
August 2006 -- One of the biggest New York hedge funds trading natural-gas futures, MotherRock, shuts down after suffering big losses in the natural-gas market in June and July.
September 2006 -- Connecticut hedge fund Amaranth Advisors, despite boasting of world-class risk-management systems, loses $5 billion in one week on a natural-gas bet gone wrong, cutting its assets under management in half. Days later, after losing another $1 billion, Amaranth agrees to sell its energy portfolio to J.P. Morgan Chase and Citadel Investment Group. By the end of the month -- after talks with Citigroup about a possible purchase of assets break down -- Amaranth says it will liquidate all its positions, marking the end of one of the most spectacular collapses in industry history.
November 9, 2006 -- Fortress Investment Group files plans with the SEC for what would be the first initial public offering of shares by a hedge-fund firm in the U.S. In January 2007, underwriters set terms at 34.29 million shares with an estimated price range of $16.50 to $18.50 a share.
November 28, 2006 -- Citadel Investment Group says it plans to sell $500 million in bonds, the first stage in what could be up to $2 billion in debt issuance and one of the largest offerings from a hedge fund in the investment-grade corporate-bond market.
December 2006 -- The SEC proposes raising the net worth investors must have to invest in a hedge fund to a minimum of $2.5 million in investments from $1 million in net worth, a step aimed at protecting individual investors.
January 26, 2007 -- Hedge funds are increasingly borrowing shares to influence the outcome of company votes, The Wall Street Journal reports.
WSJ, January 29, 2007
Hedge funds, investment vehicles for the wealthy and institutional investors, have proliferated in recent years. When Long Term Capital Management collapsed in 1998, the industry had about $240 billion under management. In contrast, by the end of 2006, the industry had about $1.4 trillion under management, according to Hedge Fund Research, Inc., a private firm in Chicago. Though they control just 5% of all U.S. assets under management, they account for about 30% of all U.S. stock-trading volume. But the industry's rise hasn't always been smooth. Here are some key milestones for hedge funds since 1995.
June 1995-- Highlighting the difficulties faced by many hedge funds in the mid-1990s, Bruce Kovner, a legendary currency and commodities speculator, disbands his U.S. fund and returns about two-thirds of the $1.8 billion he managed at Caxton Corp., founded in 1983. Caxton had averaged annual returns of at least 30% for most of its existence, but lost money in 1994 and was struggling again in 1995. Caxton's troubles weren't unique: Hedge funds' total assets under management shrank for the only time in industry history in 1994. Analysts blame rising interest rates and the industry's unwieldy size after a 1991-93 growth spurt.
October 1995-- An even more shocking closure follows a few months later, when Michael Steinhardt shuts down his $2.6 billion investment partnerships. Mr. Steinhardt's decision came despite the fact that he had enjoyed good returns in 1995 after a disastrous 1994. Mr. Steinhardt, known for his aggressive, short-term trading and big, risky market bets, started his fund in 1967 and was a pioneer of the industry. His average annual returns of 30% or more helped his assets under management balloon to $4.4 billion at their peak.
January 1997-- Odyssey Partners, one of Wall Street's most successful private investment partnerships, dissolves because the $3 billion hedge fund has grown too bulky to easily invest.
June 1997 -- Another legendary manager, Julian Robertson Jr., hoping to profit from the rising prices of mutual-fund and asset-management companies, puts a chunk of his Tiger Management Co. on the block.
September 1997 -- George Soros, founder of Soros Fund Management LLC, one of the world's largest hedge funds, is accused by Malaysian Prime Minister Mahathir bin Mohamad of bringing down the Malaysian currency, the ringgit, during the Asian financial crisis.
September 1998 -- After spectacular early success, Long Term Capital Management, a fund founded in 1994 by John Meriwether, the former head of bond trading at Salomon Brothers, faces a cash and credit crunch after a series of bad investments. The fund nearly collapses, but a consortium of Wall Street firms, including Goldman Sachs & Co., puts up $3.6 billion for a bailout.
October 1998 -- Hedge-fund operator Everest Capital Ltd., headed by Marko Dimitrijevic, loses nearly half of its $2.7 billion under management. Financier Nelson Peltz and several college endowments, including those of Yale and Brown universities, are hurt.
December 1998 -- A disastrous year for the industry comes to a close. In addition to the LTCM and Everest debacles, Mr. Robertson's gains for the year were wiped out in the last quarter, and one of Mr. Soros's funds lost 18%. The average hedge fund focused on U.S. stocks returned 12.7%, less than half the 28.6% gain of the S&P 500. Many other hedge-fund categories produced gains in the low single digits, while several categories racked up losses for investors.
March 2000 -- Tiger Management LLC, a $6 billion hedge-fund, announces it will close down most of its operations and liquidate its investments. Mr. Robertson, Tiger's chief, blames the stock market's rush to Internet stocks. Meanwhile, throughout the year, Soros Fund Management struggles with losses as its attempt to venture into tech stocks fails and several people quit, including chief investment officer Stanley Druckenmiller. Mr. Soros vows to stick to more conservative investments.
October 2001-- Charles Schwab Corp., the top U.S. online and discount broker, announces plans to start offering hedge funds to its clients in the next year.
December 2001 -- Though hedge funds now control more than $500 billion in assets, most saw mediocre results for the year, with average returns of 3.2%. The Sept. 11 attacks, a vacillating stock market and a lack of deal-making are key reasons for the weak returns.
January 2003 -- A new breed of hedge funds, which have a reduced minimum investment requirement, are gaining popularity. Most traditional hedge funds require investments of $250,000; but new funds such as Oppenheimer Tremont allow affluent individuals to invest as little as $25,000.
May 2003 -- The research firm Strategic Financial Solutions LLC estimates that there are about 4,100 hedge funds in existence, with about $450 billion in assets.
September 2003 -- The SEC recommends regulations for the hedge-fund industry, including a requirement that managers register as investment advisers and be subject to occasional audits.
July 2004 -- Hedge funds, looking for other places to put their money, are increasingly competing with private-equity funds to provide capital to ailing companies. Perry Capital, an $8 billion hedge fund, gave $100 million revolving line of credit to the energy company, Xcel Energy Inc. Hedge funds are also becoming prominent in acquisitions. A group of a dozen hedge funds makes it into the final round of bidding for the Texas Genco Holdings Inc. unit of CenterPoint Energy Inc., but loses out to two big-name private equity funds: Blackstone Group and Kohlberg Kravis Roberts.
November 2004 -- Assets under management by hedge funds reach a record $1 trillion. They have grown 20% a year, on average, since 1990.
May 2005 -- Citigroup Inc. announces it is forming a joint venture with Pacific Alternative Asset Management Co. to offer hedge-fund portfolio-management services to its wealthiest clients.
August 2005 -- Greenwich, Conn. becomes the unofficial hedge-fund capital with more than 100 funds. Greenwich-based hedge funds collectively manage more than $100 billion, about a 10th of the total invested in hedge funds world-wide.
August 2005 -- Bayou Management LLC, a $440 million hedge fund based in Stamford, Conn., closes down without returning investor money. The founder, Sam Israel III, is accused of overstating gains and understating losses.
February 1, 2006 -- The SEC's registration requirement takes effect.
June 2006 -- Amid a tumultuous stock market, several hedge funds shut down, and others suffer. KBC Alternative Investment Management, for example, drops from $5.3 billion in assets to less than a $1 billion in 18 months. But the problems appear well-contained.
June 2006 -- The Court of Appeals for the District of Columbia Circuit vacates the SEC rule requiring hedge-find advisers to register with the agency, calling it "arbitrary." The decision is a major victory for the $1.2 trillion hedge-fund industry and forces the SEC to find another way to monitor it. By early December, some 275 hedge-fund advisers withdraw from SEC registration.
August 2006 -- One of the biggest New York hedge funds trading natural-gas futures, MotherRock, shuts down after suffering big losses in the natural-gas market in June and July.
September 2006 -- Connecticut hedge fund Amaranth Advisors, despite boasting of world-class risk-management systems, loses $5 billion in one week on a natural-gas bet gone wrong, cutting its assets under management in half. Days later, after losing another $1 billion, Amaranth agrees to sell its energy portfolio to J.P. Morgan Chase and Citadel Investment Group. By the end of the month -- after talks with Citigroup about a possible purchase of assets break down -- Amaranth says it will liquidate all its positions, marking the end of one of the most spectacular collapses in industry history.
November 9, 2006 -- Fortress Investment Group files plans with the SEC for what would be the first initial public offering of shares by a hedge-fund firm in the U.S. In January 2007, underwriters set terms at 34.29 million shares with an estimated price range of $16.50 to $18.50 a share.
November 28, 2006 -- Citadel Investment Group says it plans to sell $500 million in bonds, the first stage in what could be up to $2 billion in debt issuance and one of the largest offerings from a hedge fund in the investment-grade corporate-bond market.
December 2006 -- The SEC proposes raising the net worth investors must have to invest in a hedge fund to a minimum of $2.5 million in investments from $1 million in net worth, a step aimed at protecting individual investors.
January 26, 2007 -- Hedge funds are increasingly borrowing shares to influence the outcome of company votes, The Wall Street Journal reports.
posted by The Poster at 11:54 AM
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