Caxton hedge fund stops strategic investments

Redeeming investors to get new shares representing longer-term holdings

By Alistair Barr, MarketWatch

Last update: 4:17 p.m. EST Jan. 23, 2008

SAN FRANCISCO (MarketWatch) -- The main hedge fund run by Bruce Kovner's Caxton Associates L.L.C. has stopped making strategic, longer-term investments, according to two people familiar with the situation.

The decision shows how the hedge fund industry's foray into longer-term investing, such as private equity, in recent years has produced tensions between fund investors accustomed to quick returns and fund managers who push for longer-term investments. It doesn't necessarily mean Caxton's strategic investments are performing poorly though.

Private-equity strategies usually require longer investment horizons, locking up investors' money for several years. In contrast, hedge funds have traditionally focused on short-term trading and have allowed investors to withdraw their money more frequently.

The combination of the two investing styles has made some hedge fund investors uncomfortable.

Caxton Global Investment Ltd. told investors in a recent letter that, as of Jan. 1, it won't pursue new strategic investments, a person who's seen the letter said on condition of anonymity. Another person confirmed the general contents of the letter, also without wanting to be identified.

Toby Young, director of investor relations at Caxton in New York, declined to comment.

Strategic investments by hedge funds are usually less liquid and often don't have market quotations. They are also usually held for longer periods, Caxton explained in the letter. The holdings make up 7.89% of the fund's net asset value, the firm noted.

Investors who want to redeem from the Caxton Global Investment fund will get their money back, excluding the portion that's in the strategic investments. They will also get new "FI" shares, which represent those longer-term investments.

The new shares also reflect a $235 million reserve that Caxton is adding to its existing strategic investments, plus other items such as expenses, according to the letter.

Caxton is one of several big hedge funds that set aside a portion of clients' money to invest in less liquid, longer-term investments. During the private-equity boom of the past few years, those moves looked attractive, but big leveraged buyouts slowed sharply after credit crisis hit hard during the summer.

Other hedge funds may now be considering similar moves to Caxton to address their less-liquid holdings.

Caxton Global Investment, which oversees roughly $5 billion, climbed 1.14% in 2007. That lagged some other large hedge funds in its field, such as the Tudor BVI Global Fund and Moore Global Investments.

The Caxton fund suffered during the summer's credit crisis, losing just over 7% from June through August. Since the fund started, it has generated annual returns of more than 17%.

Caxton said in its recent letter that it remains focused on trading in international currency, financial, commodities and securities markets.

The firm also said it's offering new class T shares in the fund. This class represents the fund's main trading business, but excludes the strategic investments, the person who has seen the letter said.

Alistair Barr is a reporter for MarketWatch in San Francisco.

Stopped out of usd/chf

I got stopped out of my position in usd/chf after adding to position and advancing stop.... lost around 70 pips on that one...

AND I told you I would regret the breaking of my disclipline on the aud/nzd and I do.

One other point.

I was in love with the usd/chf opportunity. I wanted to oversize on it. Had I done it I would have regretted it and my disclpline proved me right this time. Go meee.

Closed aud/nzd

I broke discipline and closed aud/nzd at 1.1416 for +31 pips....I will regret this.

trade opportunities

Watching usd/cad for short...If the dailies close down I will look for shorts with stops at 1.0280 for a large swing down.

Just put on short usd/chf at 1.0930 with stops at 1.1062 bid looking for 1.0449

Kuwait set to invest as Merrill seeks $4bn
By Henny Sender and Ben White in New York and Stephanie Kirchgaessner in Washington
Published: January 13 2008 19:29 Last updated: January 13 2008 19:29
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Merrill Lynch is seeking about $4bn in a second capital raising, as the hole in the US investment bank’s balance sheet continues to grow.
The Kuwait Investment Authority is expected to be a significant investor in the new deal, which could be announced as soon as midweek, according to people familiar with the matter. Other investors could come from Europe.
EDITOR’S CHOICE
Lex: Kuwait’s helping hand - Jan-14
Lex: Banking bonuses - Jan-14
Wolfgang Münchau: Why we are facing more than merely a subprime crisis - Jan-14
Lina Saigol: Thain reverses ‘Goldmanising’ - Jan-14
Merrill to suffer $15bn writedown - Jan-11
Citi and Merrill in SWF talks - Jan-10
KIA, which may also invest as much as $2bn or $3bn in Citigroup, is emerging as an large source of rescue finance on Wall Street. Once among the most conservative of sovereign wealth funds, KIA is changing its strategy in order to move more quickly than competitors and seize opportunities amid the turmoil in the US credit markets, these people say. Both Merrill and KIA declined to comment.
Both the price and the terms of the deals at Citi and Merrill are still being negotiated.
The latest round of capital raising comes at the start of a round of earnings reports during which big US banks and brokers are expected to reveal as much as $40bn in further mortgage-related writedowns. Action taken by Citi and Merrill will be closely watched by other institutions
Citi is expected to announce a writedown of close to $20bn and present plans to raise as much as $14bn in new capital from the Chinese and public market investors as well as the KIA. Analysts expect Vikram Pandit, Citi’s recently installed chief executive, to slash the dividend 40 per cent or more to improve Citi’s capital position.
The infusion would follow the $7.5bn Citi raised from the Abu Dhabi Investment Authority in late November.
Merrill Lynch on Thursday is expected to announce a writedown of $10bn to $20bn. Brad Hintz, Sanford Bernstein analyst, said a writedown of more than $20bn “would significantly increase leverage and would threaten the credit ratings of the firm”.
Any new capital infusion from the KIA and others would follow the $6.4bn Merrill raised last month from Temasek, the Singapore government fund, and Davis Selected Advisors, a New York-based asset manager.
More positive news is expected to come from JPMorgan Chase on Wednesday. The bank, which has avoided the worst of the mortgage problems thus far, is expected to report earnings of 93 cents per share, a decline of 14 per cent from last year.
JPMorgan is in a strong position and is thought likely to pursue a significant US acquisition to expand its domestic consumer business. Often mentioned candidates include Washington Mutual and SunTrust.
News that Citi is seeking further financing from sovereign wealth funds comes as some analysts in Washington say the state-controlled funds could soon face closer scrutiny.
Chuck Schumer, the New York senator and influential Democrat, quickly blessed an investment last year in Citi by Abu Dhabi. But last week, Mr Schumer expressed a hint of caution at reports that the US bank might receive more foreign government investment.
“Because sovereign wealth funds, by definition, are potentially susceptible to non-economic interests, the closer they come to exercising control and influence, the greater concerns we have,” he said.
While few predict that investment could be blocked, one Washington attorney who works on cross-border transactions says he believed minority investments could become subject to reviews by the inter-agency Committee on Foreign Investment in the US (Cfius)that investigates foreign takeover of US assets.
“It is one thing if you have one or two of these smallish deals,” the attorney says. “It is quite another thing, when institutions are being propped up by a bunch of investors, all from the same three states.”
So far, Citi and private equity groups that have received minority investments have not submitted their transactions to a voluntary review by Cfius. That could change if the political temperature increases on such deals.
Copyright The Financial Times Limited 2008

New Positions

Long aud/nzd at 1.1385 with stop loss at 1.1308 offer and tp at 1.1605

Renaissance Clients Pull $4 Billion From Biggest Hedge Fund

By Jenny Strasburg and Katherine Burton

Jan. 10 (Bloomberg) -- Clients of James Simons's Renaissance Technologies Corp. withdrew $4 billion from the firm's largest hedge fund in the past four months after returns trailed peers.

Redemptions from the Renaissance Institutional Equities Fund, which declined less than 1 percent last year, trimmed assets to between $21 billion and $22 billion, spokeswoman Marcia Horowitz said today in an e-mail. The average stock hedge fund gained 10.4 percent in 2007, according to data compiled by Hedge Fund Research Inc. of Chicago.

The East Setauket, New York-based firm, like other quantitative fund managers, lost money when the computer models it uses to select trades were confounded by volatile stock markets caused by the collapse of subprime mortgages. Stock volatility, as measured by the Chicago Board Options Exchange SPX Volatility Index, almost doubled last year to the highest since early 2003.

When Simons started the equity fund in 2005, he said it could handle as much as $100 billion. Last year, the firm limited inflows to $1.5 billion a month. The recent withdrawals were reported earlier today by Reuters.

The Renaissance institutional fund gained an average of 9.7 percent annually from July 31, 2005, through December 31. That compared with the 9.5 percent gain of the Standard & Poor's 500 Index including dividends reinvested in the same period.

New Operations Chief

Separately, Renaissance has hired James Rowen, the finance chief of hedge-fund firm SAC Capital Advisors LLC since April 2005, as chief operating officer. Rowen, 43, said in a telephone interview today he will move to Renaissance in the next month or so. He's replacing Stephen Daffron, who went to Morgan Stanley. The changes were reported earlier today by Dow Jones Newswires.

Dan Berkowitz, who has overseen accounting and operations for Stamford, Connecticut-based SAC for almost eight years, will replace Rowen, according to spokesman Jonathan Gasthalter. SAC, started in 1992 by Steven Cohen, oversees $15 billion.

SAC's Capital International Fund returned 13 percent last year, beating the 10.4 percent average gain of hedge funds, according to Hedge Fund Research.

To contact the reporter on this story: Jenny Strasburg in New York at jstrasburg@bloomberg.net ; Katherine Burton in New York at kburton@bloomberg.net .

Last Updated: January 10, 2008 20:40 EST