Ken Griffin’s Citadel Investment Group has agreed to plough in USD2.25bn in embattled discount brokerage E*Trade Financial Corp.
Ken Griffin’s Citadel Investment Group has agreed to plough in USD2.25bn in embattled discount brokerage E*Trade Financial Corp. Under deal terms, the USD17bn Chicago-based hedge fund manager will inject USD1.75bn in exchange for 20 per cent of E*Trade, which had diversified into the mortgage business.
Simultaneously, chief executive Mitchell Caplan was replaced by acting chief R Jarret Lilien, who has been at the firm since 1999. E*Trade took a write-down of USD197m against flailing residential mortgage-backed securities, which resulted in a USD58m third-quarter loss, versus a USD153m gain during the year-earlier period. Citadel, meanwhile, is on track to report double-digit returns for this year.
Louis Bacon’s Moore Capital Management’s Canadian arm lost 15 per cent last month on stock and convertible bond investments. The one-year-old Toronto unit that managed USD1bn of assets in October is overseen by Manon Vourkoutiotis, whom the New York firm hired in September 2006 following a six-year stint at the now defunct Amaranth Advisors of Greenwich, Connecticut. All told, Moore manages USD13bn of assets and with its November loss of 2 per cent is up 15 per cent so far this year.
Credit specialist John Paulson, who has generated an average gain of a whopping 440 per cent this year for his hedge funds, said corporate debt will be the next to fall as recession looms over the horizon in the US. Paulson told a group of 500 people at Paulson & Co.’s annual meeting in New York that he has increased his holdings of derivatives that gain in value when corporate credit defaults rise. Federal rate cuts may fail to staunch the economic drop, Paulson said, hailing a recession likely. Paulson went solo in 1994 following a stint at Bear Stearns and today manages USD28bn. He has more than USD7bn of assets riding on the sub-prime crisis.
Penso Capital Markets in New York plans to launch the Crisis Fund sometime during the first quarter. The USD200m firm will manage a portfolio of equity, fixed-income, commodity and foreign-exchange investments via its planned fund. Separately, Credit Suisse Group plans to launch a product to replicate hedge fund performance using directional equity strategies.
Meanwhile, Barclays Capital predicts investment in commodity indices could rise by a fifth to USD150bn next year, following inflows of an estimated USD125bn this year. Finally, Louis Dreyfus Highbridge Energy trading venture plans to start a commodities hedge fund next year. Highbridge bought a USD1bn stake in the energy unit of Paris-based Louis Dreyfus in January.
Fuelled by China- and Brazil-focused inflows, hedge fund assets grew 3.3 per cent during the third quarter to USD2.7trn. The growth came despite the collapse of some high-powered credit funds including those run by Bear Stearns. Basis Capital and Sowood Capital. Structured credit funds saw assets decline 10 per cent to USD62.7bn. All told, November is expected to be the worse months of returns since 2000. The industry’s losses are expected to go beyond 2.8 per cent, outstripping the 2.55 per cent loss it posted in August, according to Hedge Fund Research.
