Check your Cayman accounts. There was a lot of publicity last week about how Prime Minister Malcolm Turnbull had some of his fortune invested in hedge funds based in the Cayman Islands. Those beating this drum forgot that plenty of superannuation fund managers invest the same way, as does the biggest government fund manager, The Future Fund, which has billions of dollars across a wide range of differing sorts of hedge, private equity and debt funds. But do hedge fund managers always act in the best interests of clients like our PM and The Future Fund? According to a speech last week by Mary Jo White, head of the powerful US Securities and Exchange Commission, perhaps not always.
The hedge fund industry manages US$3.4 trillion (twice our superannuation pool), private equity US$6.7 trillion. According to White, some of these Masters of the Universe direct their best trade to their accounts and not to their clients; fail to disclose conflicts of interest; massage performance figures in their marketing material; and engage in undisclosed related-party transactions and cost-shifting from the funds to the clients. It’s rather a telling indictment discovered by the SEC as it ploughs through more and more data it is gathering from the funds in a series of spot checks conducted over the past two years. — Glenn Dyer
The SEC’s shame list. According to White:
“Examiners saw, for example, advisers allocating profitable trades and investment opportunities to proprietary funds rather than client accounts in contravention of existing policies and procedures. In [examinations] of private equity advisers, examiners also observed instances of conflicts involving fees and expenses. For example, staff was concerned that some advisers may have been improperly shifting expenses away from the adviser and to the funds or portfolio companies by, for example, charging a fund for the salaries of the adviser’s employees or hiring the adviser’s former employees as ‘consultants’ paid by the funds. Examiners also continue to observe advisers collecting millions of dollars in accelerated monitoring fees without disclosing the practice.”
That’s quite an indictment of the business morality of so-called alternative investments — no wonder they call it “shadow banking”. Caveat emptor, Prime Minister. — Glenn Dyer
Forza Ferrari. A rare success in 2015 for a new company issue on Wall Street as shares in Ferrari staged a successful rally overnight — accelerating 16% at one stage from the US$52 issue price and then slowing to a 5.7% gain on its first day of trading — and on a day when a late slide took the wider market lower. But Ferrari’s initial public offering (IPO) was a rarity this year (Fiat Chrysler sold 17 million shares in the issue).
All up 48 companies have pulled their IPO’s on Wall Street so far this year — the highest number of withdrawals since 2012. Some the failures are big retailers, mobile phone companies, drug groups, tech and net companies. October is, in fact, shaping up as the worst month for four years for IPO’s — just 11 new issues, against 30 in October 2014 and the lowest since October 2011. According to US group, Renaissance, average returns so far this year for US floats is a negative 2%, the worst since 2011 as well. And the Dealogic data group says that so far this year 154 companies have floated on Wall Street, compared with 242 at the same point last year, 173 during the same period in 2013, and 12 in 2012. — Glenn Dyer
All in the timing. At 5.15pm yesterday, Hills Ltd, the faded Adelaide industrial, now a techie stock (after having shucked off the Hills Hoist to a joint venture with Woolworths) issued a trading update revealing a small loss, after tax, for the first quarter and then a forecast return to profit, with a stronger second half to June 2016. That will be a significant improvement on total losses of $86 million for the year to June this year. But what was that, a big move on the market ahead of the release of the update? By the end of trading at 4pm on the ASX, Hills shares had jumped 3.5 cents, or more than 8% to 46.5 cents. Yesterday’s close was the highest the shares have been since August 13. A total of 263,337 shares were traded yesterday. Well informed. — Glenn Dyer
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