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Here are the details of our Japan Deal Awards for 2008, which were announced in February. A write-up of our House Awards was published yesterday.
DEAL OF THE YEAR
Takeda Pharmaceutical's $8.5 billion acquisition of the US's Millennium Pharmaceuticals
Acquirer adviser: UBS Investment Bank
Target adviser: Goldman Sachs
This was a deal which simply ticked all the right boxes in a very complete manner. It was the biggest deal of the year, it made excellent strategic sense and it was flawlessly executed. It also makes sense for the deal of the year to come from the pharmaceutical sector this year, as this sector saw the greatest level of cross-border activity. This deal enables an industry-leading Japanese company (Takeda) to widen its expertise to include anti-cancer drugs, an area of special expertise at Millennium. The acquisition is extremely complementary to Takeda's core business in Japan and will be of clear benefit to shareholders.
Seven Bank's $486 million IPO
Lead managers: Morgan Stanley, Nikko Citigroup, Nomura.
Seven Bank was the largest offering out of the Japanese IPO market last year, and it was a deal worth waiting for -- the biggest since the IPO of Sony Financial in October 2007. The marketing was excellent, with the leads emphasising that the company was not in fact a bank in the normal sense of the world: it is actually an ATM servicing company. Given the poor sentiment prevailing at the time towards financial institutions, the approach made absolute sense. Execution was spotless with the retail and institutional tranches both heavily oversubscribed. The icing on the cake was the fact that the stock traded up in the secondary market -- at a very difficult time for the stock market. It's a pity there weren't more deals just like it.
BEST SECONDARY EQUITY OFFERING
Mitsubishi UFJ Financial Group's $4.5 billion follow-on
Lead managers: J.P. Morgan, Mitsubishi UFJ Securities, Morgan Stanley, Nomura.
This was an incredible transaction by any standards: the biggest follow-on of the year, it enabled MUFG to obtain essential capital at an extremely difficult time for the banking sector. It also helped to lay the basis for the group's acquisition of a path-breaking 22% stake in Morgan Stanley. Interestingly, the deal was also successfully marketed to US retail investors. Since this deal, it has become clear that the banks which did not tap the markets early will suffer for it, so credit to MUFG for getting in first. The deal also traded up in the after-market. This was a transaction with 'historic' written all over it.
BEST M&A DEAL
Takeda Pharmaceuticals' $8.5 billion acquisition of Millennium Pharmaceuticals
Acquirer adviser: UBS Investment Bank
Target adviser: Goldman Sachs
See write-up above under Deal of the Year.
BEST PRIVATE EQUITY DEAL
Carlyle Group's $560 million acquisition of NH Techno Glass
Acquirer adviser: Merrill Lynch
Target adviser: UBS Investment Bank
The demand for LCD TVs is huge, and this deal represented a bold move by Japan veterans the Carlyle Group to capitalise on the market. The second half of last year was not a great time for private equity, but decent deals could still get done, and this has all the hallmarks of such a deal. NH Techno, a maker of glass substrates for liquid crystal displays, was a 50-50 joint venture between Nippon Sheet Glass and HOYA Corporation. Following the transaction, it will be majority owned by Carlyle with HOYA as a strategic partner with a minority stake. The deal closed in the nick of time, in the summer of last year, just as the financing markets became trickier. The deal features a rare alliance between the sponsor and a strategic investor (HOYA). When exit opportunities begin to improve again, this company should go to the head of the queue.
BEST INTERNATIONAL BOND
Sumitomo Mitsui Financial Group's $1.8 billion preferred share issue
Lead managers: Daiwa Securities SMBC, Goldman Sachs, J.P. Morgan, UBS Investment Bank
Another important deal, expertly executed in very tough markets was the Sumitomo Mitsui Financial Group $1.8 billion retail Tier 1 offering, which priced in May last year. The leads managed to generate great momentum, and the deal priced tight to the range, generating a book of almost $5 billion from close to 200 accounts: a tribute to the leads in a market which was showing increasing volatility and where competing supply complicated the deal. The deal ended up going 48% to Asia, 49% to Europe, Middle East and Africa (EMEA) with the balance to other regions. The success of the marketing of the retail tranche was reflected in the fact that 68% of the deal went to retail investors.
BEST SAMURAI BOND
Westpac Bank's ¥245 billion multi-tranche offering
Lead managers: Daiwa Securities SMBC, Nikko Citigroup, Nomura
Lead manager on euro-yen tranche: Nikko Citigroup
This was a great deal which came to the rescue of the Samurai market after a period where it looked as if it might be closed for ever. This was the deal which brought the market 'back from the dead', after shocked Japanese institutional investors witnessed foreign blue chip Samurai issuers suffer grievously in the credit crunch. But the Westpac deal was carefully crafted to overcome investors' fears, with the Australian government attaching a guarantee to the deal. That guarantee was sufficient to convince investors, and the Samurai market has now been reopened, although in a somewhat more demanding form than previously.
BEST EQUITY-LINKED DEAL
Yamada Denki's $1.4 billion convertible bond
Lead manager: Nomura
When deals go wrong in the Japanese markets, they often seem to be convertible bonds. But this deal, one of the largest of the year, was an excellent reflection of Nomura's capabilities in the area. Electronics retailer Yamada Denki's issue was well priced -- at a good premium to reduce dilution -- and generated strong demand. The deal (the proceeds of which were used for a share buyback) was so successful in fact, that many believed it would trigger a spate of copy cat deals. Given the keen pricing, excellent marketing and execution, and the fact that it was shareholder-friendly, it's not hard to see why.
BEST SECURITISATION DEAL
¥72.7 billion Shinsei Bank Headquarters Building securitisation (J-CORE 15)
Lead manager: Deutsche Bank AG Tokyo Branch
This was surely one of the most dramatic, difficult and speedy deals of the year. Shinsei Bank was keen to offload its headquarters to help its earnings figures and Deutsche Bank was chosen for its ability to carry out a fast and effective deal. This was financing at its best: -- the use of a difficult technique in a skilful manner to help a client under some stress. It was a risky deal for Deutsche Bank, too, but they carried it off with real panache.
MOST INNOVATIVE DEAL
World Bank's $25 million Certified Emission Reduction-linked CO2L Uridashi Bond
Lead manager: Daiwa Securities SMBC
Aimed at Japanese investors, this bond combined the laudable aim of 'saving the planet' with sophisticated financing techniques. The US dollar-denominated bond offered principal protection with a fixed rate coupon, which was then followed by a coupon linked to the performance of CER (Certified Emission Reduction, a unit representing one tonne of CO2 equivalent) market prices. It is good to see financial techniques combined with climate-saving techniques being made more familiar and transparent to investors, which makes this deal a worthy winner of the most innovative deal category.
Hedge funds likely fell in February as big names slip
Thu Mar 5, 2009 7:38pm EST
By Svea Herbst-Bayliss
BOSTON (Reuters) - Hedge fund investors likely lost money again in February as some high profile managers, including John Paulson, reported small declines.
Paulson, who correctly predicted the subprime crisis, saw his $3.5 billion Paulson Credit Opportunities fund and his $2.3 billion Paulson Credit Opportunities II slip 0.93 percent each in February, people who saw the funds' numbers said.
Since January, these funds are up only a smidgen, disappointing investors who still swoon over their 589.62 percent and 351.72 percent returns, respectively, in 2007.
For investors in activist manager William Ackman's fund that bets exclusively on retailer Target (TGT.N: Quote, Profile, Research, Stock Buzz), February brought more bad news with the fund off 33 percent after having lost 40 percent in January, people familiar with the numbers said.
William von Mueffling's well-respected $1.8 billion Cantillon World Ltd fund was down 2.19 percent in February even though the fund is up 7.55 percent year-to-date.
Mark Mobius' $1.3 billion Templeton Emerging Market fund lost 0.88 percent last month, putting it down 13.13 percent for the year.
James Palotta, who split from Tudor Investments and is now running his own firm, said his fund was off 2.15 percent in February, leaving it off 2.47 percent for the year.
And Paul Tudor Jones' $6.8 billion Tudor B.V.I. Global Fund inched up 1.71 percent in February, leaving it up 4.61 percent year-to-date.
Overall the average hedge fund will likely be down slightly in February after having gained about 1 percent in January, industry analysts who track performance said on Thursday.
Trackers like Hedge Fund Research and Hennessee Group will begin to release their numbers in the coming days.
Even though these loosely regulated portfolios again outperformed the broader Standard & Poor's 500 stock index, industry analysts said these numbers and overall nervousness about stumbling markets will prompt investors to keep pulling money out of the once red-hot asset class.
"We expect that there were more outflows in February," said Conrad Gann, president of research group TrimTabs. "We are seeing money flow out of the market on all sides -- mutual funds, exchange traded funds and hedge funds," he added.
In January, TrimTabs said investors pulled $93 billion out of hedge funds after having pulled out $118 billion in December, which was the bulk of the $167 billion taken out in all of 2008.
Since hedge funds are only loosely regulated they are not required to report performance or assets and so any information on their returns is closely scrutinized.
Even large hedge fund firms like Och-Ziff Capital Management Group LLC (OZM.N: Quote, Profile, Research, Stock Buzz), which manages roughly $22 billion and is one of the few publicly traded hedge fund firms, is bracing for more redemptions.
"We believe the industrywide redemption cycle is not yet over," the company's chief executive officer, Dan Och, said last month after investors pulled an estimated $5.4 billion out of the company last year.
Industry analysts expect global hedge funds, which boasted $1.9 trillion in assets at the start of 2008, to shrink to about $1 trillion this year.
Crude May Reach $60 Should OPEC Cut, BlueGold Hedge Fund Says
By Chanyaporn Chanjaroen
March 6 (Bloomberg) -- Oil may rise 37 percent to $60 a barrel should OPEC agree to cut production this month, according to BlueGold Capital Management LLP, the London hedge fund that returned 31 percent this year on energy trades.
The Organization of Petroleum Exporting Countries may agree to reduce output for the fourth time since September at a meeting on March 15 in Vienna to shore up prices that fell as much as 77 percent from a record in July. Crude traded at $43.69 at 5 p.m. in New York yesterday.
“So far OPEC has shown a good compliance on their output cuts and they might be successful in providing a floor to oil prices,” BlueGold Chief Investment Officer Pierre Andurand said in an interview March 4. “Oil prices have a chance to rise to $60 soon if OPEC members carry on showing a high level of compliance and announce another cut.”
Crude rebounded 13 percent in two days this week, partly on speculation OPEC will cut output again. The group, accounting for 40 percent of world supply, may act after the International Energy Agency forecast that demand this year will drop the most since 1982. U.S. crude stockpiles expanded 7.7 percent this year and are near their highest since July 2007.
BlueGold has returned 307 percent since starting in February last year, 32-year-old Andurand said. The money manager began trading oil in 2000 with Goldman Sachs Group Inc.’s J. Aron & Co. unit in Singapore. He co-founded BlueGold with Dennis Crema, 48, who has traded energy for more than two decades.
BlueGold’s assets under management peaked at $1.3 billion in January, falling to $830 million in February as investors sought to raise cash, Andurand said. This year’s performance has increased assets to $1 billion. The fund is seeking additional investment, Andurand said.
The world economic slump is unlikely to end any time soon, the money manager said. Governments and central banks are spending trillions of dollars to combat the worst financial crisis since the Great Depression. More than $31 trillion has been erased from the value of global equities in the past year.
“We are more likely to see deflation than inflation over the next few years,” Andurand said. “It could be a multi-year process with a danger of lasting more than a decade if governments don’t react aggressively enough.”
Hedge funds lost 19 percent on average in 2008, the worst year since Chicago-based Hedge Fund Research started tracking data in 1990. They were little changed in January. BlueGold returned about 16 percent in February.
Hedge funds are private and largely unregulated pools of capital whose managers can buy or sell any assets and make bets on falling as well as rising asset prices and participate substantially in profits from money invested.
To contact the reporter on this story: Chanyaporn Chanjaroen in London at email@example.com
Apollo may seek control with Harrah's debt offer-KDP
Thu Mar 5, 2009 6:33pm EST
NEW YORK, March 5 (Reuters) - Harrah's Entertainment Inc's proposed debt tender may be an attempt by private equity firm Apollo Global Management to gain more control of the company if it files for bankruptcy protection, KDP Investment Advisors said on Thursday.
Investors including affiliates of private equity firms Apollo and TPG Capital said on Wednesday they were starting a $250 million cash tender offer for debt issued by Harrah's Operating Company. For details, see [ID:nWNAB0441]
Apollo and TPG acquired Harrah's Entertainment HAMLEH.UL in a $31 billion leveraged buyout in early 2008.
Harrah's also commenced an offer to exchange $2.8 billion of debt for new notes due in 2018.
"We find the Apollo new investment to be curious," KDP analyst Barbara Cappaert said in a report on Thursday.
"The investment (at a tender price rumored to be in the high 30s) would give Apollo (if our math is correct) control of up to $675 million face amount of the December issued debt," she said.
"This would represent one-third of those new bonds and that, interestingly enough, would be enough to block any restructuring plan in bankruptcy. It would also put Apollo well ahead of pre-LBO and post LBO unsecured bondholders," she added.
An Apollo spokesman declined comment.
Harrah's, the world's biggest gaming operator, has struggled under its debt load as gaming revenues dry up. The company cut its $24.1 billion debt load by $1.14 billion in a debt exchange completed in January.
Current bondholders may be unwilling to participate in the exchange, Cappaert said.
"We doubt the exchange will be wildly successful. The cash component is still negligible," she said.
Apollo's tender for senior debt issues may also reflect a longer term plan to commence a debt for equity restructuring, or a reorganization in bankruptcy, Cappaert added.
"We think this latest restructuring is an attempt to rearrange the deck chairs on the Titanic," she said.
"The company will very likely throw in the towel and reduce debt via a debt/equity restructuring (or bankruptcy) later this year to streamline its balance sheet. Now with Apollo's interest in the higher tranches of the capital structure, we think this possibility is very real," Cappaert said.
Citadel Investment Group’s flagship hedge funds continued their rebound last month, bringing their returns for the first two months of the year to almost 8%.
The Kensington and Wellington funds returned 2.6% in February, the New York Post reports. The funds rose 5% in January, getting Citadel off on the right foot as it tries to recoup the massive losses suffered by the funds last year. Kensington and Wellington dropped by more than half amidst the economic crisis.
Those huge losses, combined with an avalanche of redemption requests, led Citadel to impose a withdrawal freeze on the funds in December. Last month, in a letter to investors, Citadel founder Kenneth Griffin promised a “distribution program” that would allow investors to get their money out of the funds, albeit very slowly and only when Citadel deems it advisable.
Bridgewater Tops List of Biggest U.S. Hedge Funds (Update3)
By Saijel Kishan
March 4 (Bloomberg) -- Ray Dalio’s Bridgewater Associates Inc. overtook JPMorgan Chase & Co. to become the biggest U.S. hedge-fund manager, even as the firm lost assets during the industry’s worst year, according to a survey.
Bridgewater, based in Westport, Connecticut, managed $38.6 billion on Jan. 1, down 11 percent from July, according to Absolute Return magazine. New York-based JPMorgan, which owns Highbridge Capital Management LLC, ranked second at $32.9 billion, a decline of 26 percent.
“The bulk of hedge funds were delivering returns that were highly correlated with the market,” said Sharath Sury, chief executive officer of S4 Capital LLC, a Chicago-based firm that advises clients on investing. “So when the markets fell, so did their assets.”
Investment returns dropped an average of 19 percent last year, the most on record, according to data compiled by Chicago- based Hedge Fund Research Inc. Hedge-fund assets shrank to $1.2 trillion at the end of 2008 from the June peak of $1.9 trillion on the market losses and investor withdrawals, according to Morgan Stanley analyst Huw van Steenis in London.
Assets at U.S. hedge funds that managed at least $1 billion each fell 32.3 percent in the second half to $1.1 trillion, according to Absolute Return, which is published by London-based HedgeFund Intelligence Ltd.
Paulson & Co., run by John Paulson, rose to third place from fourth. The New York-based firm’s assets declined 16 percent to $29 billion, according to the magazine.
Bridgewater’s Pure Alpha fund returned 8.68 percent last year, Absolute Return said on its Web site. Highbridge saw assets drop 32 percent in 2008 from the previous year, the bank said during a Feb. 26 investor presentation. Its multistrategy fund lost 27 percent of its value. The bank said its returns improved in early 2009.
The number of hedge fund firms managing more than $1 billion declined 19 percent to 218, according to the magazine.
Baupost Group LLC, a Boston-based hedge fund run by Seth Klarman, gained the most assets in 2008, with money under management rising 49 percent to $16.8 billion, according to the magazine. Farallon Capital Management LLC, a San Francisco-based firm, lost 44.4 percent of its assets last year, the most among all hedge funds, leaving the company with $20 billion, Absolute Return said.
New York state is home to the largest hedge-fund firms, where 121 firms managing a combined $680 billion are based, according to Alpha magazine. Connecticut ranked second with 29 firms overseeing $149 billion in assets, while California was third with 25 hedge-fund companies managing $96 billion.
Top 10 U.S. Hedge-Fund Firms Firm AUM
Bridgewater Associates $38.6
Paulson & Co. $29
D.E. Shaw Group $28.6
Och-Ziff Capital Management $22.1
Soros Fund Management $21
Goldman Sachs Asset Management $20.6*
Farallon Capital Management $20
Renaissance Technologies $20
Barclays Global Investors $17*
*As of Dec. 31. All other figures as of Jan. 1
Source: Absolute Return magazine
To contact the reporter on this story: Saijel Kishan in New York at firstname.lastname@example.org
Corporate Bond Losses Drive Investors ‘to the Bunker’ (Update3)
By Bryan Keogh
March 3 (Bloomberg) -- Just as investors were gaining confidence in the credit-market recovery, corporate bonds fell last month for the first time since October as the U.S. recession deepened.
The combination of a record $595 billion of bond sales this year in dollars, euros and pounds, the shrinking U.S. economy and increasing costs to bail out the world’s biggest financial companies caused Merrill Lynch & Co.’s U.S. Corporate & High Yield Master Index to decline 1.9 percent in February after gaining 8.8 percent in the previous three months.
While markets improved since the collapse of Lehman Brothers Holdings Inc. in September, yields on corporate bonds relative to government rates are widening at the fastest pace since November and are still five times what they were before the credit crisis began in July 2007. A thaw in credit is critical to an economic recovery in 2010, Federal Reserve Chairman Ben S. Bernanke told lawmakers last week.
It’s time to “go back into the bunker,” said Joseph Balestrino, fixed-income market strategist at Federated Investors Inc. in Pittsburgh, who advises buying longer-term Treasuries and avoiding corporate debt. “We can’t see any bright lights out there. This is a worldwide recession.”
Investors demand 5.64 percentage points more in yield to own investment-grade company bonds rather than Treasuries, up from a four-month low of 5.16 points on Feb. 11, Merrill Lynch index data show.
Companies are paying punitive rates to raise money. Basel, Switzerland-based drugmaker Roche Holding AG sold $32.4 billion of debt last month. The discounts on the debt provided buyers with profits of about $775 million in less than two weeks, according to data compiled by Bloomberg.
U.S. bank bonds are off to their worst start in at least two decades as writedowns and credit losses at financial companies approach almost $1.2 trillion since the start of 2007, according to Merrill Lynch index data. Bank bonds lost 6.32 percent this year, even as the U.S. continues to inject capital into financial firms deemed too big to fail, the data show.
“Financials were so bad that they sort of swamped corporate credit in general,” said Gary Pollack, who helps oversee $12 billion as head of fixed-income trading for Deutsche Bank AG’s Private Wealth Management unit in New York.
A month ago, investors were talking about a recovery and yield spreads on corporate bonds, which surged to a record 6.56 percentage points on Dec. 5, narrowed, according to the Merrill Lynch indexes.
Bondholders were growing more optimistic the crisis that started in July 2007, when losses in securities related to subprime mortgages pushed spreads up from less than 1 percentage point in the first half of that year, was starting to abate.
The increase in yields compared with Treasuries in February was the first since November, the data show, and shows the struggle Bernanke faces in trying to reduce consumer borrowing costs relative to the rates the government pays.
Thirty-year mortgage rates as measured by Freddie Mac average 2.19 percentage points more than the yield on 10-year Treasury notes, compared with 1.72 percentage points in the decade before the credit crisis began.
“If actions taken by the administration, the Congress and the Federal Reserve are successful in restoring some measure of financial stability -- and only if that is the case, in my view - - there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery,” Bernanke told the Senate Banking Committee on Feb. 24.
The Fed said today its $1 trillion program to prop up the market for auto and business loans will start disbursing funds March 25 and signaled it will use the facility to support an even broader array of credit markets. The central bank is counting on the Term Asset-Backed Securities Loan Facility, or TALF, to help revive lending.
The U.S. economy contracted at a 6.2 percent annual pace in the fourth quarter, the most since 1982. In its latest quarterly outlook, the Fed said it anticipates unemployment will rise to an average rate of 8.5 percent to 8.8 percent in the fourth quarter, from 7.6 percent in January.
Joseph LaVorgna, Frankfurt-based Deutsche Bank chief U.S. economist, said last week a 10 percent contraction this quarter is “conceivable” given job losses and plunging orders for durable goods. Barring major policy changes in Washington, the U.S. recession will “start being called a depression,” said David Malpass, president of New York-based Encima Global LLC and former chief economist at Bear Stearns Cos.
Investment-grade corporate bonds are the next “ugly bubble” as default rates soar and more than half of issuers face multiple ratings cuts, Bob Janjuah, chief credit strategist at Royal Bank of Scotland Group Plc in London, wrote in a report to clients last week.
The world’s largest economy will be “in shambles” this year and “probably well beyond,” billionaire Warren Buffett said on Feb. 28 in his annual letter to shareholders of his Omaha, Nebraska-based Berkshire Hathaway Inc. New York-based American International Group Inc. will get as much as $30 billion in new government capital in a revised bailout after posting the worst loss by a U.S. corporation.
Citigroup Inc. fell more than 50 percent in New York Stock Exchange composite trading after the U.S. government agreed to a third rescue attempt of the New York-based bank in a deal that would bring its stake to 36 percent. The government has injected $45 billion into Citigroup.
Stress in credit markets is reflected in the Libor-OIS spread, which measures the gap between the London interbank offered rate in dollars for three months and the overnight index- swap rate, or what traders expect the Fed’s target rate for overnight loans between banks to average over the term of the contract.
The difference, a measure of banks’ reluctance to lend, widened to 1.02 percentage points, almost a two-month high, from this year’s low of 0.89 percentage point on Jan. 15. Another measure of risk, the gap between what banks and the Treasury pay to borrow for three months, the so-called TED spread, increased to 1.02 percentage points today from 0.91 percentage point on Feb. 10.
The so-called yield curve on financial bonds remains inverted, meaning short-term notes pay a higher rate than longer- term bonds as investors price in the “remote possibility” of near-term defaults, Morgan Stanley analysts led by Rizwan Hussain in New York said in a Feb. 27 report.
Bonds due in one to three years yield about 1.5 percentage points more than debt maturing in seven to 10 years, according to the report.
The costs to protect North American corporate bonds from default is near an 11-week high, according to credit-default swaps. Contracts on the Markit CDX North America Investment-Grade index of 125 companies in the U.S. and Canada rose 5.5 basis points to 244.5 basis points as of 5:01 p.m. in New York, according to Phoenix Partners Group. That’s the highest since Dec. 16, according to CMA DataVision.
European speculative-grade debt risk soared to a record today, with the Markit iTraxx Crossover Index of 50 companies rising as much as 20 basis points to 1,130, according to JPMorgan Chase & Co. prices. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
Tighter lending standards at banks are cutting into corporate profit, according to Morgan Stanley’s Hussain.
Fourth-quarter earnings for companies in the Standard & Poor’s 500 Index fell 60 percent from a year earlier, the most since Bloomberg began tracking the data in 1998, and have fallen for six straight quarters. Analysts expect earnings to decline 35 percent on average this quarter.
Investment-grade bonds lost 1.6 percent in February after returning 10 percent over the previous three months, Merrill index data show. Spreads on the debt widened 17 basis points to 548 basis points, the first increase since November. Company bonds in Europe also snapped a three-month rally last month, falling 0.3 percent.
“If you have to be in corporates go for higher quality, strong cash-flow generators,” Balestrino said in an interview with Bloomberg Television.
To contact the reporter on this story: Bryan Keogh in New York at email@example.com
The Blackstone Group wrote down the value of four out of five private equity funds it manages, according to a letter to investor.
The New York-based p.e. giant, which reported a fourth-quarter loss of $827.1 million last week, did no better by its clients than it did by its investors. Three of the five funds covered by the letter posted double-digit losses last year, Reuters reports, while just one enjoyed a positive return. All told, Blackstone wrote down the value of its p.e. portfolio by 20% in the fourth quarter alone, and 31% on the year.
Blackstone’s $21.7 billion Fund V, which it closed in August 2007, was written down 35%. The $6.45 billion Fund IV fell 20%, while Fund III lost 17%. A communications and media fund fell 48%. The only fund in positive ground last year was Fund II, which rose 2%.
Hedge funds cut leverage by almost half last year, according to new figures from Britain’s financial regulator, and borrowing has fallen even further since then.
Leverage dropped to 1.15 times assets in October, according to the Financial Services Authority. The figure was about 1.9 times in October 2007, and was 1.44 times in April. What’s more, hedge funds cut their borrowing even faster than their lenders required.
The FSA report also shows that hedge funds have more “dry powder” since it began measuring four years ago.
The FSA, which measures leverage in the industry twice annually, surveyed hedge funds managing some US$595 billion in assets, held in 13 banks, from around the world.
The fourth quarter of 2008 saw the largest net hedge fund outflows since 1994, according to a new Lipper Tass report. Outflows rose 689% quarter on quarter to a record US$146.95 billion, confirming the trend started in third quarter 2008.
For all of 2008 net flows to hedge funds amounted to an outflow of US$158.91 billion—an amount more than fourfold the sum of any negative quarterly money flows to the industry since first quarter 1994.
The fourth quarter outflows, combined with the overall broad hedge fund index performance of a loss of 10.21% over the same quarter, produced a decrease in global hedge fund assets from US$1.59 trillion at the end of September to US$1.29 trillion as of the end of December, according to Lipper Tass. Cumulative net outflows suffered by all hedge fund substrategies in 2008 accounted for 11.43% of beginning of year assets, up from 0.86% recorded for the first three quarters.
All hedge fund sub-strategies posted negative money flows in the fourth quarter as the industry all at once faced the collapse of global equity markets, a rise in volatility to record highs, liquidity issues, and the failure of a number of key institutions.
In U.S.-dollar terms, the largest outflows were experienced by long/short equity at US$42.52 billion, managed futures at US$23.95 billion, event-driven at US$22.27 billion, and multi-strategy at US$16.64 billion. Combined outflows across these strategies amounted to US$105.39 billion, or 72% of the overall money flows in the quarter, compared to US$14.61 billion of outflows across the same strategies in the third quarter.
Of the four substrategies posting the largest negative outflows in the fourth quarter, only managed futures had recorded positive inflows for third quarter 2008 (US$1.34 billion).