Today, 2 senators, Charles Grassley an Iowa Republican and Carl Levin a Michigan Democrat introduced the Hedge Fund Transparancy Act. This act requires certain private equity funds to register with the SEC. Hopefully, the SEC will be more attentive of any red flags that come in their way unlike the Madoff incident where there was numerous red flags for many years. All the regulation wouldn't mean anything if the SEC doesn't react to any suspicious acts.
I think this act would benefit the public and it is better for overall for the market. Hedgefunds have got so big over the course of the years that they do have the ability to shake the financial markets. Regulating this industry is beneficial not only for the industry but for the investors who invests in the hedge funds. Investors should know what kind of assets the funds are interested in and what is the fair value of these assets.
If this act gets passed, then this would amend the current act of U.S. Company Act of 1940. 2009 will turn out to be a substantial shake-out in the hedge fund industry. This is just the beginning of the process.
Friday, January 30, 2009
Saturday, January 17, 2009
Economy hitting the professional service industry
We all hear what's going on the news and it's pretty dreadful out there. The economy is in the shambles. We all hear what's going on in the financial, retail and auto industries. Banks like Citi are breaking up. Bank of America has issues of their own with their "toxic" assets on their balance sheets requesting for government financial bailout. Layoffs are happening everywhere in the almost every industry.
With the way the economy is going, the professional services industry is getting hit hard. Yesterday, KMPG sent out an e-mail to all their staffs with the following 2 options: the first is to voluntarily take a leave of absence anywhere from 4-12 weeks for 30% of their pay and the second is to move to a 4 day work week with the 5th day being unpaid. Other large accounting firms such as BDO and Grant Thorton also had to re-structure based on the current economic conditions- Grant Thorton announced that they will lay off 225 staffs and 40 partners and BDO said that they will lay off 250 staff members. Law firms and other service providers are also getting hit hard from the serious economic conditions.
With the way the economy is going, the professional services industry is getting hit hard. Yesterday, KMPG sent out an e-mail to all their staffs with the following 2 options: the first is to voluntarily take a leave of absence anywhere from 4-12 weeks for 30% of their pay and the second is to move to a 4 day work week with the 5th day being unpaid. Other large accounting firms such as BDO and Grant Thorton also had to re-structure based on the current economic conditions- Grant Thorton announced that they will lay off 225 staffs and 40 partners and BDO said that they will lay off 250 staff members. Law firms and other service providers are also getting hit hard from the serious economic conditions.
Saturday, January 10, 2009
Will there be more?
We all heard about Madoff and his ponzi scheme. The biggest reported ponzi scheme in the history of our financial markets. The basic theory behind a ponzi scheme is when the investment manager takes the new investor funds to pay out the existing investors who wish to redeem a portion or all of their capital. The fund reports a substantially high unrealized gain which in turn results in a high performance.
In a way, don't most funds that invest in illiquid securities act the same? They have investors coming in and out of the fund but they hold these securities that are not readily marketable and tradable. How do they pay out the investors that wish to redeem if they do not have a large cash position and they invest primarily in illiquid securities? Unless the fund is a plain-vanilla long short hedge fund that invests in readily marketable securities that trades at a primary market, it appears that most funds does not operate that much different from Madoff. It would be interesting to see if in 2009, how many more hedge fund fraud cases would come out.
When Bear Stearns (world's #3 investment house) failed, it was only a matter of time until Lehman failed and Merill got bought out by BoA; then, soon after, the $700 billion federal bailout. Usually when a large event occurs, it's only a matter of time until several others will eventually surface.
In a way, don't most funds that invest in illiquid securities act the same? They have investors coming in and out of the fund but they hold these securities that are not readily marketable and tradable. How do they pay out the investors that wish to redeem if they do not have a large cash position and they invest primarily in illiquid securities? Unless the fund is a plain-vanilla long short hedge fund that invests in readily marketable securities that trades at a primary market, it appears that most funds does not operate that much different from Madoff. It would be interesting to see if in 2009, how many more hedge fund fraud cases would come out.
When Bear Stearns (world's #3 investment house) failed, it was only a matter of time until Lehman failed and Merill got bought out by BoA; then, soon after, the $700 billion federal bailout. Usually when a large event occurs, it's only a matter of time until several others will eventually surface.
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