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Hedgemedia’s AltInvestment Global News Round-Up: Rating agencies warn funds on debt quality

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Hedge funds that invest in the beleaguered US sub-prime market could come under further pressure if ratings agency Standards & Poor’s were to downgrade USD12bn worth of offerings.

Hedge funds that invest in the beleaguered US sub-prime market could come under further pressure if ratings agency Standards & Poor’s were to downgrade USD12bn worth of offerings. S&P said it might lower ratings on around 2 per cent of the USD565.3bn in sub-prime mortgage-backed bonds it rates due to deterioration of their asset quality. It placed ‘negative implications’ on 612 classes of residential mortgage securities that are backed by US sub-prime collateral.

Another ratings firm, Moody’s, warned that investors are providing too much debt on easy terms, which is encouraging companies, especially those owned by private equity firms, to load up on debt instead of paying it down. A drying-up of cheap debt could take some of the sparkle out of returns from leveraged buy-outs.

Private equity and hedge fund managers are contesting a proposed change in the way their carried interest or performance fees are taxed by saying it would eventually cut the returns of pension funds that invest in alternatives to improve their members’ pensions. The income is currently taxed at the capital gains rate of 15 per cent but partners could end up paying more than double that if their lobbying efforts fail and the money is taxed as income at the top trate of 25 per cent. US lawmakers are holding hearings on Capitol Hill to discuss the issue.

Report sees strong hedge fund growth
In a report entitled State of the Buy Side, consultancy TowerGroup predicted that hedge funds would continue to grow at 19 per cent during 2007 and that their presence would become more visible as alternative and traditional investments continue to converge and hybrids such as 130/30 strategies gain in popularity. Real estate investment trusts will suffer a slowdown due to trouble in the US housing market, the report said said.

Deutsche Asset Management’s US retail arm, DWS Scudder, has launched the DWS Rreef World Real Estate & Tactical Strategic Fund, having raised USD223m. Deutsche Investment Management Americas is its manager of the global fund while its affiliate Rreef Alternative Investements is the investment adviser.

Research firm Hennessee Group said hedge funds gained roughly 1 per cent last month despite the overall decline in US stock markets. Long/short equity outperformed the broader indices due to strong performance of short-side portfolios. Global macro rose a healthy 1.7 per cent, while the Hennessee Macro Index gained 2.1 per cent, thanks in party to higher US Treasury yields and the slide of Japan’s yen.

Barclays raids Credit Suisse in LA
Barclays Capital tapped six leverage finance specialists from Credit Suisse’s Los Angeles outpost. Ted Iantuono, formerly the co-head of Credit Suisse’s investment banking business, will jointly lead US financial sponsor coverage at Barclays. Jon Bunce becomes a director, Darrick Geant an associate director, James Meehan and Elaine Kao associates and Brian Rapf an analyst. Joe McGrath and Rick Van Zijl, who previously worked at Goldman Sachs, are co-heads of Barclays’ US leverage finance business.

Auto-parts maker Delphi has annulled a deal to be bought by Appaloosa Management, Harbinger Capital and Pardus Capital Management. Pardus replaced Cerberus Capital, which pulled out of the group earlier this year. Highland Capital may launch a rival bid for the company, which filed for Chapter 11 in October 2005.

Private equity manager Energy Investors Funds has closed its seventh entity, US Power Fund III, with USD1.35bn in commitments from 443 investors. Energy Investors, which operates from Boston, New York and San Francisco, set an initial target of USD1bn.

Miami firm HIG Capital is expanding in London, Paris and Hamburg and will hire 30 people. It has also raised 600m euros for a European buyout fund.

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