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January 2007

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  • The launch of Goldman Sachs’s Absolute Return Tracker Index in Italy in December has revived the argument about the value of passive hedge fund investing through indices compared with direct hedge fund investments or investment through funds of hedge funds.
  • Strong business confidence, healthy demand for German products and an increasing share of income going to capital belie fears that Germany’s growth rate is under threat.
  • “Hedge funds have trailed equities on a relative basis in 2006 because of the unusually consistent strength in the equity markets”
  • Corporates need to recognize that they need to care about their CDS investors and that the old attitude of concentrating on the requirements of bondholders alone will no longer wash.
  • Investment bankers in Japan are confident that a hybrid securities market will be established this year, despite fears that the lack of a sizeable standout deal thus far is contributing to investor and issuer caution about the structure. The sector was extremely active in the US as 2006 came to a close, with overwhelming levels of investor demand for deals from Axa and Washington Mutual, and bankers in Japan say that treasurers and CFOs there are looking closely at how their counterparts in the US use the instruments to fund acquisitions and improve capital structure.
  • 18,000,000,000 the dollar volume of ECM deals that was expected to be executed in December 2006 in the EMEA region, according to Dealogic. $244 billion was raised in the first 11 months of the year, up 9% on full-year 2005, making the amount of money raised in ECM deals in 2006 the highest on record.
  • Alongside the announcement that it was raising its key interest rates by 25 basis points last month, the European Central Bank released the latest set of growth and inflation forecasts prepared jointly by the staff of the ECB and the euro area national central banks. ECB president Jean-Claude Trichet is always at pains to emphasize that these “projections” – which are shown as ranges, rather than point estimates, to reflect the uncertainties associated with past forecasting errors – are published on the responsibility of the staff and are not formally endorsed by the ECB’s executive board or its governing council.
  • Has anyone seen this man?
  • The SEC has proposed increasing the minimum net worth for an investor in hedge funds to $2.5 million from $1 million in 2007. The $2.5 million net worth minimum is to include only liquid assets. Analysts doubt that the move will have much effect.
  • After some considerable time in development, Eurex plans to launch the world’s first exchange traded credit derivatives contract on March 27. The contract will be based on the iTraxx Europe five year series and – dependent on market demand and sufficient market maker support – Eurex might also list futures contracts on the HiVol and Crossover indices on the same date. The contracts will be cash settled.
  • January is the month to purge the excesses of Christmas and New Year from the system. Detoxing won’t be so easy for the markets.
  • When it comes to hedge fund regulation 2006 is a year to be forgotten. It began with regulation by the SEC, only for it to be withdrawn later after an adverse court ruling. And no country seemed willing or able to decide what to do about international regulation. A pessimist would suggest that things won’t change much in 2007.
  • The wonderful world of financial PR
  • Moody’s threw a potential spanner in the works of the European hybrid market by announcing a consultation on possibly increasing the notching on securities with non-cumulative deferral features and cumulative deferral with stock settlement. Feedback was due at the end of December.
  • In its financial stability review in December, the European Central Bank suggested the introduction of an international register containing information on the exposure of firms to highly leveraged institutions, such as hedge funds and prime broker banks. The register would provide prime brokers with frequent and aggregated risk information on the whole portfolio of an individual hedge fund, says the report. However, the report adds, it’s a little bit complicated and might be best left to some of the existing market products that collect reporting and flow information.
  • Big strategic acquisitions might be an exciting diversion for banks’ senior managers. But it is shareholders that pay for them.
  • Wealth managers are muscling in on the fund of hedge funds business.
  • “I’m afraid he says he is unable to speak with you at the moment.”
  • Abuse of information prompts worries about integrity in credit markets.
  • New FX indices have been separately launched by the International Index Company (IIC), the company behind the successful iBoxx bond and iTraxx credit derivative indices, and JPMorgan.
  • Farouk Ramzan has joined Lloyds TSB as head of debt origination reporting to Mark Grant, head of DCM. Ramzan was a long-standing member of SG’s debt team where he was head of UK corporate DCM.
  • China is the world’s largest-ever catch-up economy. It will soon be the world’s largest economy, period. But policymakers in Beijing face some tough choices in the years to come to cope with the strains that industrial revolution brings, writes Diana Choyleva.
  • Dresdner Bank’s EUR medium-risk portfolio is one of six risk profiles the bank runs for high-net-worth investors looking for a balanced portfolio and accepting exposure to global markets.
  • The UK private banking market is in rude health. However, although London still dominates, banks are throwing resources into regional growth. The biggest obstacle to organic growth is the lack of suitable talent to drive this expansion. Banks have to decide on the best business development strategy – acquisition, organic growth or servicing from the City? Julian Marshall reports.
  • Lombard Odier Darier Hentsch’s US dollar, low-risk portfolio caters to high-net-worth clients who want to preserve their money over the long term but are also looking for performance.
  • Another record year for financial institutions suggests no end to the boom in financial markets. But a correction in the global imbalances that have so far sustained the boom threatens economic growth and could have painful consequences for global capital markets. Are we on the cusp of a downturn?
  • ATS operators sunk by Icebergs in Europe turn to America and Asia. ITG, which launched its crossing centre in Canada as recently as the fourth quarter of 2005, has already seen its market share rise to 4.1% of the volume of the dominant Toronto Exchange, TSX.
  • In 2000 Saddam Hussein attempted to stop accepting US dollars for oil transactions in favour of the euro, threatening demand for and the liquidity value of the dollar. After the Bush regime had invaded Iraq and ousted the dictator, they quietly went about converting Iraq’s oil currency back to the dollar.
  • Charles Dumas warns of a ‘reverse Robin Hood’ scenario.
  • Bank Zenit issued the first collateralized debt obligation backed by a portfolio of Russian corporate debt last month. The Red Square transaction is a two-year synthetic CDO, denominated in roubles with 40 local credits. It is one of a handful of emerging market CDO transactions, and what makes it significant is that the underlying portfolio consists of local-currency debt.
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