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November 2008

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  • Under pressure from investors to put money to work, private equity firms are reconsidering the structure of their investment strategies.
  • Giulio Tremonti, Italy’s finance minister, caused something of a PR nightmare when he announced at a G8 meeting in Washington that he would consider banning hedge funds in Italy. He added that hedge funds were opaque and problematic. "Clearly he is crazy," says the head of a prime brokerage. The Alternative Investment Management Association and the Managed Funds Association were more diplomatic, responding jointly: "It is too easy to point a finger at an industry that is misunderstood; hedge funds are not an appropriate scapegoat during a crisis that was caused by failures in the regulated banking system. The hedge fund industry in Italy is a model of successful regulation, provides excellent risk-adjusted returns for investors and is an important source for job creation. It would be a serious mistake to consider eliminating these innovative private pools of capital that are, in fact, an essential source of capital to investors, to Italy and to the global economy."
  • News that ICE is to relaunch its FX contracts gets a cool reception.
  • "This is a profound ethical issue. These are very sophisticated operations where the counterparty was not a hedge fund – it was not even a financial institution. Should a grocery chain be selling volatility protection?"
  • In the September issue of Euromoney, in an article about Turkey entitled It’s about the journey, not the destination, we wrongly attributed a quote to Ceren Akdag of Yapi Kredi. We would like to point out that these comments were not made by Ms Akdag nor anyone else at Yapi Kredi, and apologise for the error.
  • The huge losses being reported by corporates from emerging markets around the world suggest that not all is as rosy in FX as might have been reported.
  • Investors in convertible bonds have been washed out by the storm in debt, equity and derivatives markets, so potential issuers are having to look to other buyers.
  • The collapse of Lehman Brothers has made investors wary of derivatives-based investments, but the US structured notes industry remains confident the market will grow.
  • "This is worse then a divorce – I’ve lost half my net worth but I still have my wife!"
  • Almost two-thirds of asset managers at buy-side firms in the US believe the continuing credit crisis is having a big impact on the trading of over-the-counter derivatives, according to research and consultancy firm Tabb Group. Meanwhile, 57% say the leading impact of the credit crisis is an increased focus on counterparty risk.
  • Difficult market conditions cost the hedge fund industry $210 billion over the third quarter, according to Hedge Fund Research. Of that, $31 billion was in outflows as investors pulled money out. The entire industry, which was thought to hit $2 trillion last year, is now at $1.72 trillion, says HFR.
  • Commerzbank has confirmed market rumours that two senior figures from Dresdner Kleinwort will not now be joining it. Staff were told that Eddie Listorti, Dresdner’s head of FICC, and Stefan Gütter, its head of sales, would have senior roles at the new, enlarged bank when the takeover is completed in Q3 of 2009. The two were involved in pre-integration planning. Their decision will no doubt lead to a good deal of uncertainty among their existing staff at Dresdner.
  • A good deal has already been written about the relatively high cost, at least when compared with many other markets, of processing trades in foreign exchange.
  • The Loan Market Association held its inaugural conference in London on October 16. It was packed meeting of market participants looked for reasons to be optimistic amidst the gloom. The programme featured panel discussions designed to shine some light in the darkness: how to revitalize the primary market; where the liquidity safe havens are; how to invest in distressed debt.
  • Hedge funds are resorting to fee cuts in an attempt to discourage investors from redemptions. Ramius Capital, which has two funds totalling $11 billion in assets, reduced its incentive fee last month from 20% to 15% for current investors who agree to leave their money in its funds. Those investors would enjoy the lower fees until the end of 2010. Investors that add capital won’t pay an incentive fee on the additional funds until the beginning of 2010.
  • Apparently, you can learn everything you ever wanted to know about investment banking in just four weeks.
  • The BBC has launched a new series in the UK that seems eerily well timed considering the current financial situation. Little Dorrit, which premiered on Sunday October 26, is the story of a family that has fallen into debt and lost its house thanks to the overly aggressive lending policies of banks on the brink of world recession.
  • Seesawing markets set a number of records over the four weeks between mid-September and mid-October, including:
  • The credit crisis has crossed the Pacific and hit home in Asia and is now even being felt in the streets of Kuala Lumpur, the capital of oil-rich Malaysia.
  • When structured products started turning into four-letter words, investors should have taken heed.
  • Central bank governor reveals the extent of intervention required by the FX losses of a Mexican retailer.
  • Hungary reached agreement on a $25.1 billion rescue package last month from a number of multilaterals, including the IMF. The money will be used to help Hungary shore up its financial system, battered by the international crisis. Hungary’s reliance on external debt has made it especially vulnerable with the forint down 20% against the dollar and euro in the past month.
  • In late October, the upper house of parliament in Kazakhstan passed the latest amendments to a law designed to bolster confidence in the central Asian republic’s banking sector, which has been buffeted by the global credit crunch. This, in turn, has choked off the supply of cheap foreign currency debt that had fuelled the rapid expansion of Kazakh banks’ networks and lending portfolios in recent years.
  • As the global financial crisis begins to take its toll in Latin America, several banks are starting to look towards private equity opportunities. "Investment banks are very creative at finding ways to charge fees," says Matt Cole, managing director at North Bay Equity Partners, a Latin America focused private equity house. "In 2006/07 the investment banks encouraged companies to list on the stock exchange. Now the banks are starting to pitch private equity deals rather than public equity deals." Antonio Neto, debt banker at HSBC, says: "It makes sense for the investment banks to consider private equity investments when the capital markets are so quiet."
  • Venezuelan President Hugo Chavez said last month that oil prices, which have dropped by half in the last few months, will probably keep falling as the US falls into recession.
  • Bank of America is due to close its acquisition of Merrill Lynch in March 2009 but it is still not clear what it plans to do with Merrill’s Latin American business.
  • The people of Nigeria’s oil-rich Niger delta have yet to see many benefits of the natural resources under their feet. But Rotimi Amaechi, governor of Rivers State, the most populous delta state, is trumpeting the measures he is taking to improve his state’s infrastructural deficiencies. He tells Euromoney that in Nigeria’s federal system, the 36 states get 30% of government revenue, while the nine delta states get additional cash thanks to their importance in the country’s petrochemicals industry.
  • Pension system nationalization announced last month brings country ‘closer to the abyss’.