Editor's Corner: Bitcoin trust inspires a funny look at ETFs Also Noted: Spotlight On... Credit hedge funds struggle in new rate era News From the Fierce Network:
Today's Top News1. Eminent domain to solve housing woes still alive
When the idea of using eminent domain to condemn, seize and restructure underwater mortgages first popped up, Wall Street mobilized pretty quickly. Certainly, MBS holders did not want to see portfolio mortgages restructured in ways that would inevitably stick them with additional loses. The effect of the protest was palpable, as the idea was struck down in a number of cities. But as Unstructured Finance notes, the concept is alive and well, and Mortgage Resolution Partners, the company pushing the idea, is having some success in bellwether cities. Since the company lost a high-profile battle in San Bernardino, CA, it has inked advisory deals with half dozen towns and cities, including North Las Vegas. "And while none of those towns has yet agreed to go forward with the condemnation process, things are inching in that direction." All eyes for the moment are on North Las Vegas, "a community of 219,020, located less than 10 miles from the glitz and glamour of the Vegas strip." It was "particularly hard hit by the financial crisis and the housing bust. In some neighborhoods in North Las Vegas, 70 percent of homeowners not in foreclosure were under water on their mortgages, according to RealtyTrac." The city has just inked an advisory deal with Mortgage Resolution Partners, though implementation of any plans is far in the future. In the end, you can understand why cities would want to move ahead with aggressive programs to clear the backlog of wasting properties. But they well understand that they are ensuring a litigation explosion if they do. That will delay the housing revival that much longer. You can bet that Wall Street lobbying organizations will actively engage in all cities where this issue comes up. For more: Read more about: mortgages, Eminent Domain 2. Pimco vs. DoubleLine on TIPS
What's the difference between a decent year and sorry year for bond funds? It just might boil down to TIPS, which has emerged as a big problem for Pimco, which bought in eagerly, and a bright spot for DoubleLine, which has largely avoided TIPS. Jeffrey Gundlach, founder of DoubleLine, recently told Bloomberg, "Unless inflation goes higher, then all you have with TIPS is interest rate risk, just like every other Treasury." Pimco was unfortunately convinced that inflation expectations would soar, which led it invest heavily in TIPS. Those holdings then "amplified" the firm's losses this year. The big bond fund fell 4.7 percent in May and June, prompting $9.9 billion in withdrawals last month, the most on record, according to the article. The losses highlight the difficulties that famed bond manager Bill Gross faces as he steers Pimco "through what's arguably the biggest market challenge for the $2 trillion bond-fund manager since its inception in 1971. A premature bet against Treasuries caused his flagship to trail peers in 2011, prompting Gross to apologize to clients. With about 10 percent of the TIPS market owned by Pimco," his success is tied to the securities. Meanwhile, Gundlach, who called TIPS a "disaster" and a "trap" recently, "lost 2.6 percent in the two months through June and is down 0.3 percent so far this year in his main fund, beating 83 percent of peers. None of Gundlach's funds reported holding any TIPS as of March 31." For more: Read more about: PIMCO, bonds 3. Private equity funds find ways to jack fees
While some fees are up for negotiation by private equity general partners and limited partners (transaction and monitoring fees, for example), the management fee has been relatively controversy-less. Until now. Fortune reports that some private equity firms are beginning to "violate the spirit" of the management by outsourcing some tasks and then billing the fund. The annual management fee is designed to "cover such overhead as salaries, office space and administrative functions. It's usually around 2% on uncalled capital, and begins to ratchet down as the fund ages," according to the magazine. "We can quibble on whether 2% is an appropriate percentage -- particularly when certain fund sizes become stratospheric -- but it's a fairly simple arrangement that both sides can easily understand before signing on the dotted line." Unfortunately, however, some private equity firms are beginning to outsource certain activities and "apply the charges on top of the baseline management fee." Most private equity partnership agreements "allow for additional fees to be charged if the fund is required to hire outside help, such as in the case of a serious legal issue. But I'm hearing more and more about how some general partners are hiring others for tasks that should reasonably be expected to fall under the management fee, in order to juice the bottom line. Including due diligence, which is the main thing that general partners are hired to do!" This trend flies in the face of the notion that limited partners have gained power at the general partners expense. Perhaps the general partners are starting to take the upper hand again. The same might true of the bond market, where the deals do not seem quite as investor friendly as they were in the immediate aftermath of the financial crisis. For more: Read more about: Management Fee, fees 4. Who deserves blame in MFGlobal mess?
So what really happened between Edith O'Brien and Jon Corzine? And who is to blame for the MFGlobal mess? The answer, according to the CFTC, is that they both are culpable. The agency charged both with illegal acts that led to the downfall of MFGlobal. At the center of the controversy is the use of segregated funds to satisfy company obligations, which is a definite no-no, but appears to have been somewhat common at MFGlobal. A Common Sense columnist at the New York Times reconstructs the events that led to the ill-fated transfer of segregated funds, suggesting that while Corzine never explicitly ordered O'Brien to take this illegal step, he nevertheless made clear what he wanted. She, a mid-level back-office employee, felt pressure to comply. After the deed was done, she told a colleague, "The only place I had the 175 million, O.K., was in seg." She added, "That's what we do all the time because we don't have enough capital." All the time? That's troubling. So who deserves the blame? Corzine, for his "will no one rid me of this problem" approach to getting what he wanted? Or O'Brien, for her inability to stand up to a powerful boss and say she wasn't going to do it? Perhaps the fault lies with the third party charged by the CFTC, the company itself. Its shocking lack of controls led to this unfortunate situation, in which just one low-level employee stood in the way of an illegal act. All three entities have been charged civilly. For more: Read more about: MFGlobal 5. Dell battle turns on proxy advisor recommendation
There has been a lot of talk as of late about how the main proxy advisory services have lost their clout, a victim of conflicts of interests in at least one case. But when it comes to the Dell leveraged buyout drama, Institutional Shareholders Services (ISS), the most controversial of the proxy advisors, has moved center stage. It is expected to weigh in soon on whether shareholders should support the $24.4 billion bid by founder Michael Dell and Silver Lake. Some think that the service will decline to fully support the bid, a notion that has already goosed some shareholders, leading to a sell-off last week. But no one knows for sure what the service will advise, and that has every one on edge. One intriguing theory here is that Michael Dell will actually benefit if the service weighs in against his bid. "Mr. Dell and Silver Lake believe that Dell's stock will tumble if I.S.S. comes out in opposition to their deal, as investors fear that the transaction will fail and flee the stock. A significant portion of the shareholder base — by some counts, more than 15 percent — is held by arbitrageurs who are betting on the success of the leveraged buyout and are inclined to bail out if signs emerge that the takeover is on the rocks," according to DealBook. At that point, the betting seems to be that ISS may have little choice but to reverse its position and support the bid. It seems a bit speculative, but for the moment, Michael Dell has decided to stand pat with his offer, despite the admonishment of the special company that he should boost it soon. This is going to be interesting. For more: Read more about: Leveraged Buyout, Dell Also NotedSPOTLIGHT ON... Credit hedge funds struggle in new rate era We've noted that credit hedge funds are facing a challenging transition, as a new era of higher rates dawns. So far this year, these funds have seen more than $80 billion in value wiped away, with no signs of a let up. "It's too soon to know how deep the carnage will go as many credit-focused hedge funds have not yet reported June performance numbers. But the early indications are that few with credit market exposure will be immune, especially as bond yields keep surging and bond prices keep falling," Reuters reports. Article Company News:
©2013 FierceMarkets This email was sent to kumaresan.selva.blogger@gmail.com as part of the FierceFinance email list which is administered by FierceMarkets, 1900 L Street NW, Suite 400, Washington, DC 20036, (202) 628-8778. Contact Us Editor: Jim Kim Advertise Advertising: Jack Fordi or call 202.824.5040 Email Management Unsubscribe from FierceFinance Explore our network of publications: | |||||||||||||||||||||||||||||||
Monday, July 8, 2013
| 07.08.13 | Bitcoin trust inspires a funny look at ETFs
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment