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The common understanding of hedge funds as highly leveraged, risky investment vehicles is false, according to the Alternative Investment Management Association (AIMA).

The hedge fund industry association points to data from the European Central Bank and Britain’s Financial Services Authority (FSA) indicating that hedge fund leverage is only at about one-times the net assets. That’s lower than most banks, according to The Turner Review: A regulatory response to the global banking crisis, which was published by the FSA in March.

“Some policy-makers mistakenly base their demand for regulatory reform of the world’s hedge fund industry on the idea that it is highly leveraged, but as the recent figures from the ECB and the FSA show, it’s a complete myth,” says Andrew Baker, CEO of AIMA.

And while hedge funds are often seen as colossal financial titans, they are dwarfed by the global banking industry.

“There are some individual banks that have bigger balance sheets than the entire global hedge fund industry,” Baker says. “Of course, as these figures demonstrate, leverage levels are also much lower in the hedge fund industry than in the banks. We at AIMA hope that international policy-makers will keep a sense of perspective when it comes to establishing the future regulatory framework for the industry.”

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Risk management tied to losses

The world’s pension funds could have mitigated their losses over the past six months if they had employed tighter risk management regimens and insisted on better governance, according to a study by the Organization for Economic Co-operation and Development (OECD).

The report, penned by Pablo Antolín and Fiona Stewart and entitled Private Pensions and Policy Responses to the Crisis, said the crisis destroyed US$5.4 trillion in global pension value, or about one-fifth of the industry’s assets, by the end of2008.

The OECD report says that some funds may not have realized how much risk they were taking on, because the managers did not fully comprehend the complex debt instruments they were buying.

Regulators in Canada, Poland, Portugal, Spain, Italy, Australia and the U.K. are all looking at ways to bolster pension fund risk management and governance mechanisms.

The report suggests that pension fund staff should be trained to better understand the products in which they are investing.

The OECD says that pension funds can be a force for greater transparency in the financial markets, because their massive portfolios would make them formidable shareholder activists.

Sponsors of defined contribution plans should consider providing financial education to their plan members and discourage excessive equity allocations as those members near retirement.

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AGF to close World Opportunities

AGF Funds has announced it will terminate the AGF World Opportunities Fund on May 15, 2009, nearly a month later than initially planned. The company announced in February that it would close the fund on April 20.

AGF cited the usual reasons for a fund closure: Few unitholders, low asset base and the costs associated with maintaining such a small fund.

What investors there are have the option of switching to any other AGF fund, or redeeming their units. Any units that remain in the fund at the close of business May 14, will be redeemed with the proceeds invested in the AGF Canadian Money Market Fund.

Unitholders will not be required to pay any redemption fees or sales charges.

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BCSC issued reciprocal orders

The BCSC has issued reciprocal orders against five individuals sanctioned by securities regulators in Alberta and Ontario.

In the case of Alberta, the decision stems from sanctions imposed in July 2007, against Milowe Brost, Edna Forrest, Carol Weeks and Bradley Regier. These four are now banned from participating in B.C.’s capital markets.

The Ontario case is a little more recent. In May 2008, the OSC sanctioned three men in connection with CGC Financial Services Inc. and First Financial Services. The BCSC has issued a ban against John Alexander Cornwall, having previously banned the other two, David Simpson and Jerome Stanislaus Xavier.

The five individuals sanctioned today may not trade in securities or exchange contracts; are barred from serving as a director or officer of any issuer, registrant or investment fund manager; are banned from becoming or acting as a registrant, investment fund manager or promoter; may not act as a manager or consultant in the securities market; and are prohibited from engaging in investor relations activities.

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Scotia tops in investment banking

Scotia Capital has been given top marks in investment banking by Global Finance, a financial services publication. The company was named best in Canada overall and best in the world for infrastructure.

“Global infrastructure financing and advisory [services] continue to be a priority for Scotia Capital,” said Mike Durland, co-chair and co-CEO of Scotia Capital and head of global capital markets. “In 2008, we greatly enhanced our specialized infrastructure finance teams to service clients globally.”

In arriving at its selection, Global Finance studies market share, volume and size of deals; service and advice; structuring capabilities; distribution network; efforts to address market conditions, innovation and pricing; and aftermarket performance of underwritings.

(04/24/09)