Editor's Corner: Verizon offering to test the debt market Also Noted: Spotlight On... Private equity landlord to sell new type of security News From the Fierce Network:
Today's Top News1. Beta hedge fund, a bow to reality?
For many hedge funds, alpha is the prime objective. Without alpha, what else do they have? Why else do they exist? Unfortunately for many, alpha has been hard to come by. At the other end of the spectrum, too much alpha these days may well be a red flag; witness SAC Capital. More institutions these days in fact actually seem enamored of beta. Such thinking marks a bow to reality. If you cannot get alpha, why not be happy with beta at the lowest possible cost basis? Interest among institutional investors in rules-based hedge fund beta strategies is growing, part of "an evolution of the understanding of hedge fund returns," one expert was quoted by P&I. "The more you understand systemic beta or the risk premium, the better able you are to separate from it pure alpha or the information edge. In 10 years, we won't be talking about alpha the way we do now. Alpha is a black box and it's being smashed open, which is a very positive process for hedge fund investors." So why not just go with a passive, index-mimicking fund or ETF? In theory, beta funds can offer exposure to more hedge fund strategies. "Current replication strategies don't try to reproduce index returns. Instead, these approaches are using bottom-up, systematic, rules-based processes to identify hedge fund beta sources that better mimic returns of specific strategies. The approaches are very liquid, far more than actual hedge funds, and offer a much cheaper way to get exposure to hedge fund strategies that derive most of their return from market activity…" We may well see more hedge funds embrace beta investing for a portion of their massive allocations. But first more reliable beta fund will have to hit the market. For more: Read more about: Hedge Fund Performance, Beta Funds 2. Are mortgages targeted for eminent domain really underwater?
The great eminent domain debate rolls on in Richmond, CA, where local officials have partnered with Mortgage Resolution Partners to seize more troubled mortgages to be modified. Opponents of the contentious plan have hit back in court, questioning in part whether the mortgages are really underwater. "Opponents of the eminent domain seizures contend that Richmond and its partner firm have mischaracterized the first 624 loans the city has targeted. The majority of the loans in question are either not underwater — meaning owners owe more than the homes are worth — or not delinquent," notes the LATimes. "About 31% of the targeted loans do not exceed the current value of the home, and so are not at elevated risk of default, according to the filing. About 10% of the borrowers have at least 20% equity in the homes, according to a loan-by-loan analysis performed by Phillip R. Burnaman II, an investment banker hired by the plaintiffs as an expert on mortgage securities. Of the borrowers who are underwater, 43% are current on their loan payments, the plaintiffs argue. In all, 68% of the borrowers have not fallen behind, and an additional 5% are only one payment behind, according to the filing." Mortgage Resolution Partners suggests that such analysis is dead wrong. The city's appraisals work was handled by a firm whose work has been highly rated by securities trade groups. The city notes "about two-thirds of the borrowers have indeed stayed current on their loans, he said. But helping them now — before they default — is the best way to make sure they stay current on the loans and thereby limit further damage to Richmond's battered neighborhoods." Wells Fargo and Deutsche Bank, the trustees for the private label MBS mortgage components, seem to be making some headway in their efforts to scuttle Richmond's plans. Bond holders will likely suffer huge haircuts on the actual MBS, and that has them up in arms. Mortgage Resolution Partners suggests that these investors can turn around and help finance the program to make up losses. It seems willing to compromise. For more: Read more about: mortgages, MBS 3. Will JPMorgan Chase move prompt other banks to exit student loans?
JPMorgan continues to streamline its operations, announcing that it will exit the student loan business. The move is not necessarily surprising, as the private student loan market has been shrinking, as government programs step up. While other banks may or may not follow suits directly, it's fair to say that all have scaled back a bit, and few big banks think this will be a growth market going forward. "JPMorgan, which already restricted student loans to existing Chase bank customers, will stop accepting applications for private student loans on October 12, at the end of the peak borrowing season for this school year, according to a memo from the company to colleges that was reviewed by Reuters on Thursday. Final loan disbursements are expected before March 15, 2014," according to Reuters. "JPMorgan's decision comes after Congress acted in mid-2010 to bypass the banks and have the government lend directly to students. The federal government now issues 93 percent of student loans. Banks and other private lenders have also come under pressure from regulators and politicians to offer more flexible repayment terms on student loans." While the growth-market bloom is off the rose for the big banks, we're seeing some interesting niche efforts to make student lending profitable. Elsewhere, we take a look at CommonBond, a Brooklyn-based start-up that aims to provide financing to MBA students. For more: Read more about: student loans, JPMorgan Chase 4. New lending start-up aims for b-school students
The struggles of banks large and small have given rise to an intriguing spurt of innovation. Start-ups have seized the moment, launching all sorts of new initiatives aimed at filling a diverse need for more credit. Some of these attempts seem unsavory; witness the rise of all those online lenders. Others seem less unsavory but still uncomfortable. Some states still ban P2P loan operations, for example. And some seem like a terrific business opportunity; witness alternative funds aiming to lend more to distressed businesses. All this qualifies as shadow banking, as the means of business falls outside core banking regulations. Yet another interesting concept has advanced recently. CommonBond, based in Brooklyn, aims to provide loans to students in business school, to either fund tuition or refinance existing debt. It was given a shot in the arm recently when no less than former CEO of Citigroup Vikram Pandit decided to personally invest in it. In addition to Pandit, Thomas Kalaris, a former head of wealth management at Barclays, and Thomas Glocer, a former CEO of Thomson Reuters, have invested in early rounds. "Unlike a traditional lender, CommonBond collects money from individual investors, including alumni of graduate programs who want to support other students, and channels it into loans. The company promises lower rates than those offered by the federal government," notes DealBook. We'll likely seem more activity along these lines, which bodes poorly for traditional bank lending. For more:
Read more about: shadow banking, student loans 5. New doctor plays role in larger SAC Capital drama
The case against Matthew Martoma gets more interesting by the week. The latest is that the media has identified the previously unnamed Doctor-2, who was alleged by the government to have provided Martoma, formerly of SAC Capital, with insider tips. The doctor is Joel Ross, who has conducted Alzheimer's drug trials for major pharmaceutical companies and is apparently quite well known in the field. The New Jersey resident has yet to be charged, but one has to wonder why his name has been leaked to the press. The ins-and-outs of his involvement with prosecutors are unknown as of now. But one might surmise that the relationship may have taken a rocky turn. Prosecutors no doubt would like him to turn state's evidence and testify against Martoma, who has been charged with multiple counts of fraud related to insider trading. If they could secure Ross's cooperation, they could put even more pressure on Martoma, whom they would rather have as a cooperating witness against Steven Cohen, the embattled founder of SAC Capital. As of now, Ross has been merely described as a co-conspirator. Prosecutors may be gradually turning the thumbscrews in pursuit of their goal. Going public with his name may only be the beginning. Ultimately, if he doesn't cooperate, he could easily end up being charged with a crime. Ross may be holding out for a deal similar to the one that Dr. Sidney Gilman received. Gilman, according to the government, was corrupted by Martoma, who plied him with favors and treats to get insider information. He will serve as a key witness against Martoma and has received a non-prosecution agreement. For more: Read more about: SAC Capital, Mathew Martoma Also NotedSPOTLIGHT ON... Private equity landlord to sell new type of security American Homes 4 Rent---which has bought up thousands of residential properties---as plans to sell preferred shares to the public that will allow investors to share in the appreciation of the properties as well as the rental income. The preferred shares "have an initial liquidation preference of $25 per share, which may be increased by an additional Home Price Appreciation Amount" that takes into account prices in the company's 20 largest markets," notes Bloomberg. Article Company News:
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Monday, September 9, 2013
| 09.09.13 | Verizon offering to test the debt market
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