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2. Fundraising will doom some private equity funds

Many would agree that working as a proprietary trader is not one and same as running a hedge fund. And yet when the Volcker Rule started taking a toll on prop units across Wall Street, people assumed that these traders would simply start hedge funds and make even more money, especially traders who worked at Goldman Sachs' vaunted Principal Strategies Group.

As it turns out, running hedge funds turned out to be anything but easy, especially in turbulent markets that vexed other funds in 2012.

Financial News reports, "Benros Capital, an event-driven hedge fund set up by two Goldman Sachs proprietary traders and backed by Brummer & Partners, Sweden's largest hedge fund manager, is closing down after Brummer decided to redeem its $300m investment…Brummer's Multi-Strategy fund decided to redeem its investment in the Benros Event Driven and Opportunistic Fund because 'the fund's performance has not met expectations,' according to a statement published yesterday on Brummer's website."

The shut-down follows the news in November that another hedge funds started by a former Goldman Sachs proprietary trader, Edoma, was shutting down amid lackluster returns.

Some may be wondering about the fate Azentus Capital, which was set up by former Goldman Sachs prop trader Morgan Sze. The fund managed $2 billion at one point. According to Reuters, the fund fell 6.8 percent in in 2011 and gained only about 1 percent in 2012.

For more:
- here's the article

Read more about: Hedge Funds, Prop Traders
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By Jim Kim

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3. Shareholders seek to split top jobs at JPMorgan Chase

I noted recently that according to data from Preqin, deal flow in the private equity business as well as exits have been strong recently.

In some ways, 2012 was a banner year. The proposed Dell leveraged buyout has generated some good energy, making clear that in the right circumstances massive deals are still possible. But I also noted that a new era was settling in, with fundraising as a big issue.

Bloomberg weighs in with a look at the dearth of fresh funds that looms large for the entire industry, especially the smaller companies. The private equity industry "is bracing for a shakeout that's been brewing since the collapse of credit markets choked off a record leveraged-buyout binge. Firms that attracted an unprecedented $702 billion from investors from 2006 to 2008 must replenish their coffers for future deals and avoid a reduction in fee income when the investment periods on those older funds run out, typically after five years."

The harsh conclusion is that, the "combination of underperformance and funding needs has set the stage for a purge as investors pull the plug on the weakest firms. Only the scope of a shake-out is a matter of debate."

The bottom line is that up to 708 firms face such deadlines through 2015, according to Preqin.

What we're seeing is a flight to quality. The premiere buyout companies are still raising money for funds, albeit in smaller amounts than in previous years. The problem is that the big limited partners only want to spread around so much, and inevitably that reduced inflow will hit some of the smaller funds very hard.

By one estimate, up to one-quarter of all funds "will see their funding pulled." That said, the smaller funds will either follow their larger brethren and diversify their offerings, or they will have to come up with the mythic "next big thing," which proves elusive more often than not.

For more:
- here's the article

Related articles:
Private equity deal flow soars, exits strong

Read more about: Private Equity, Fund Raising, Fundraising
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By Jim Kim

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4. Netting of derivatives re-emerges as big issue

Do shareholders really have a chance at splitting the chairman and CEO titles at JPMorgan Chase (NYSE:JPM)?

At first blush, you would think that the effort is doomed. The issue was put forward in shareholder resolutions in 2010 and 2011, and management easily won in both cases. The resolution won just 34 percent of the vote in 2010 and 40 percent last year, according to Crain's.

Jamie Dimon is a rock star, and even now it will be very hard to unseat him as chairman. But the trend across the corporate governance landscape is toward independent chairmen right now. and both Bank of America and Citigroup have fairly recently split the roles. Wells Fargo has not split the jobs, as John Stumpf serves chairman, CEO and president of Wells Fargo.

Shareholders -- led by the American Federation of State County & Muncipal Employees, money manager Hermes, Connecticut pension plans and others -- may have reason to hope this spring. It was in 2012 after all that the London Whale "hedging" fiasco stuck the bank with $6.8 billion in losses, forcing Dimon to make a raft of changes and prompting the board's compensation committee to slash his pay by roughly 50 percent.

My guess is that the proposal to split the top jobs will generate more votes this year than last year, though it will fall short of a majority. Still, if the vote rises appreciably, the board may be forced to act.

While the board will not likely seek a new chairman, it might play up the role of presiding director Lee Raymond, a former CEO of Exxon Mobile, who is also the head of the compensation committee. Directors might try to make him more chairman-like in ways cosmetic as well as consequential.

For more:
- here's the article

Related articles:
Could JP Morgan split chairman/CEO jobs?

Read more about: corporate governance, CEO
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By Jim Kim

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5. Goldman Sachs ferry now operational

One big area of disagreement between the IFRS and U.S. GAAP is the respective requirements on netting and offsetting of derivatives positions, and thus how much of the value of derivatives held by banks should be carried on balance sheets.

In the wake of the financial crisis, this has been percolating along as a big issue. The result of the differing standards has been significant differences in the relative sizes of banks, especially U.S. banks compared with European banks, which of course has big regulatory implications.

Master netting agreements, which establish the terms of derivatives transactions in the U.S., essentially roll up multiple transactions, creating a single contract that reports out a single netted figure. The netted amount governs the amount included by U.S. bank on balance sheets. European banks in general are forced to carry more of this exposure on balance sheets.

The result is that U.S. banks look small relatively. If they were forced to carry as much as European banks on their balance sheet, they would be much larger, notes Bloomberg.

The news service raises this issue all over again in light of a suggestion by the vice chairman of the FDIC that perhaps U.S. banks should be asked to carry more of their derivatives exposure on their balance sheet going forward. U.S. banks will fight this tooth and nail, and so far anyway, efforts to collapse IFRS and U.S. GAAP have not progressed to the point that U.S. banks are in serious danger of a change in this area.

Where there has been some welcome change is on disclosure. New rules coming online soon should facilitate comparisons despite this big accounting difference.

For more:
- here's the article

Read more about: derivatives, Netting
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By Jim Kim

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