Briefly: “More than 200 U.S. hedge funds close” and more news

Previously this week: | MON | TUE | WED | THURS |

Between the bear market run on the stock market and the Bernard Madoff Ponzi scheme scandal, the American hedge fund industry has come under heavy pressure. While politicians clamour for more regulation of the industry, the funds themselves are blowing up.

Last year, more than 200 hedge funds or fund families either began to liquidate their assets or simply shut their doors, according to a report in Absolute Return magazine. These funds accounted for $84 billion in assets. In 2007, just 48 funds shut down, with assets of $18.7 billion.

The number of fund closures could have been even higher, had several funds not suspended redemptions.

The Madoff scandal played a major role in the closures, with feeder funds to his Ponzi scheme shutting down. These funds accounted for $16 billion in assets.

The largest fund to shut its doors, Fairfield Greenwich Group’s Fairfield Sentry Fund, managed about $6.9 billion, and was a Madoff feeder.

Two other Madoff feeder funds, Tremont Group Holdings’ $3.1 billion Rye Investment Management and Kingate Management’s $2.7 billion Kingate Global Fund, were the ninth- and tenth-largest funds to close.

But the Madoff affair wasn’t the only alleged impropriety to claim a fund. The $4 billion Zwirn Special Opportunities fund was closed after an SEC investigation into accounting irregularities.

Not all of the fund closures were due to scandal, however. Citigroup shut down its Old Lane Partners after appointing two of the fund’s founders. Fund chief Vikram Pandit was named CEO of the entire bank, while co-founder John Havens was named head of investment banking.

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Firms look to Ottawa for pension relief

A group of Canadian organizations has appealed to the federal government to ease funding rules on pension plans, claiming they place unrealistic burdens on their businesses.

Seven companies, including Air Canada, Canadian Pacific Railway and Bell Canada, have told the government that current pension regulations are forcing them to make large contributions to their pension plans at a time when the money would be better spent on operational costs.

The group is supported by the Federally Regulated Employers – Transportation and Communication organization, which submitted a consultation paper on pension reform this week to the Department of Finance.

The request has drawn the ire of CARP, the lobby group representing retired Canadians. The group says that easing the rules on deficiencies would amount to a bailout for the companies, paid for by retirees.

“For precisely these kinds of decisions, retirees are no longer willing to be bystanders in pension reform discussions,” says Susan Eng, vice-president of CARP. “If pensioners had a real say, they would never approve this!”

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Sprott offers direct gold exposure

The Sprott Bullion Fund opened to investors yesterday, providing investors access to a “pot o’ gold”, just in time for St. Patrick’s Day.

The fund invests primarily in unencumbered, fully allocated gold bullion, permitted gold certificates, and/or closed-end funds with an underlying interest in gold. The fund can also park its capital in cash, money market instruments and T-bills.

Sprott Asset Management describes the fund as “suitable for those investors who want exposure to the capital appreciation potential of gold and who want to maintain a high level of liquidity of their investments with a medium tolerance for risk and volatility.”

(03/18/09)