Vulture funds set up by the likes of Citigroup, Goldman Sachs, TPG and Kohlberg Kravis Roberts to hunt down fire sales in the LBO debt market have yet to find any great deals. As much as USD300 billion of debt is going for pretty close to 96 cents on the dollar, compared with 90 cents a few months ago. With declining volatility, spreads have started to tighten again. As a result, banks will try to get the best prices.
American Home Mortgage Investment's acquisition by Wilbur Ross's private equity firm is drawing ire from borrowers. Carrington Capital Management's acquisition of new Century drew a similar response. The concern is that the new owners will not modify loan terms, this increasing the risk of foreclosures. Ross, for example, isn't licensed to offer a mortgage loan service.
David Lagone and his cousin Kenneth Lampasona, operators of L2Q3 Advantage hedge fund, were indicted on charges of defrauding investors of USD500,000. The duo allegedly turned their fund into a Ponzi scheme when they began to lose investors' money. Lagone ran the fund from his Lagone Photo Studio from July 2003 to November 2005, according to Federal Bureau of Investigation officials. If convicted, they could each face up to 20 years in prison.
Wood River principal sentenced
Separately, John Whittier of now-defunct Wood River Capital Management was sentenced to three years for his role in a scheme that led to about USD88m in investor losses. In late 2004, Whittier said he couldn't meet redemption requests, which led to the unravelling of the firm.
Meanwhile, the Securities and Exchange Commission sued Colonial Investment Management, alleging that the New York firm made more than USD1.48m in profits from illegal trading. The Colonial Fund is accused of improperly using shares purchased in at least 18 registered offerings to cover short sales that occurred within five business days before the pricing of the offerings.
Chris Levett, an alumnus of Moore Capital in New York, is opening a commodities hedge fund in London. He has hired 11 people for the fund, which is scheduled to go live in December. Levett ran some USD1bn in commodities at Moore, where he worked for more than four years.
New York has no plans to raise any taxes on hedge funds, governor Eliot Spitzer said in a move that industry members hope will enhance the city's competitiveness against London, which has been questioned in recent months.
TCI takes on US railroad operator
US railroad operator CSX is at the receiving end of the Children's Investment Fund's activism play. After taking on ABN Amro earlier this year, the London fund has CSX in its sights, asking it to split the roles of chairman and chief executive and add independent directors with more railroad experience. TCI owns 4.1 per cent of CSX's outstanding shares. There is speculation that Atticus, which owns a 2.3 per cent stake in CSX, may join TCI in its fight.
BlueMountain Capital Management has launched an USD80m hedge fund tied to structured corporate credit markets. The Correlation Relative Value II Fund is the manager's third devoted to credit correlation trading and has a six-and-a-half year lockup.
In a move to shore up its sagging shares, Citi named Vikram Pandit, formerly the head of Old Lane, to head a new group comprising investment banking and alternative investments. Chief executive Chuck Price is under pressure after the banking behemoth reported lacklustre quarterly performance.