In our latest review of the industry we provide a round-up of hedge fund news as well as giving a detailed run-down of the performance of our Model Portfolios.
As usual we include detailed analysis of performance for each strategy, industry comment and ranking tables for May 2010.

For detailed analysis of performance for each strategy, industry comment and ranking tables, please open the attached .pdf file.

ATTACHED FILESJune absolute return and hedge fund review (pdf format)

Although the bill is yet to be signed off by President Obama, the Dodd-Frank Act is likely to change and shape the US banking and financial markets landscape for some time to come, but at over 2,300 pages it's not light reading.

As much as we'd like to claim that we have burnt the midnight oil to whittle down the legislation's essential points and then calculate the likely winners and losers, we can't.

However for an excellent summary of the Highlights from Reuters, click here, and (again courtesy of Reuters) a concise list of winners and losers.

U.K. hedge funds got a shocker Thursday when they discovered the E.U. had written them into legislation to restrict banker pay. They knew their pay practices faced curbs under a separate directive, but nothing had been set in stone, and the other proposals wouldn't take effect for at least a couple of years.

Now, they're in the E.U. net from January, though it's still unclear how the rules will actually play out in the U.K. and elsewhere. Because the E.U. has left national regulators some leeway, the U.K.'s FSA could decide much of the legislation isn't relevant to hedge fund firms and other asset managers, or at least none but the very largest... Full article (subscription required): Source

Hedge fund managers face curbs on pay after they were caught in an EU-wide clampdown on bankers bonuses. Under a deal agreed with the European Parliament, bankers will be able to receive no more than 30 per cent of any bonus immediately and in cash - which is reduced to 20 percent for larger bonuses. The remainder must be delayed and linked to long-term performance, with 50 percent paid in shares.

Bankers are relatively relaxed about the new rules, because they don't go further than restrictions already agreed with the Financial Services Authority. And the new rules do not contain restrictions on the total size of bonus payments which will mean seven-figure payments will still likely be made... Full article: Source

Fortitude Capital which was voted Australian hedge fund manager of the year in 2008 and 2009, is set to become part of the listed Aurora Funds Ltd following a successful capital raising which will see the combined group list on the ASX on Tuesday, July 13.

Fortitude Capital's Absolute Return Trust (FCART) has one of the most risk averse profiles of all hedge funds in Australia. Since inception in February 2005 it has provided investors with an annualised return of 9.88% with a Sharpe ratio of 1.54. Over a track record in excess of five years Fortitude provided positive monthly performances 88% of the time, with its worst monthly performance being -0.73% and a maximum drawdown of -0.86%.

John Corr, Fortitude's CEO will become the Chief Investment Officer of the new group, whilst Sandringham's founder and major shareholder Steuart Roe will become Aurora's new Chairman and Managing Director. On listing on the ASX Aurora will have a market capitalisation of $19 million and is expected to provide Fortitude with the necessary structure and critical mass to significantly increase FUM, and utilise Aurora's existing strong distribution network to reach both wholesale and retail investors.

The so called "Volcker Rule" incorporated into the US Dodd-Frank Act, designed to curb or stop banks' proprietary trading operations, is seen by many offshore hedge funds as a step in the right direction as it will cause banks to scale back their trading operations, reduce leverage and, as such, create less crowded trades for hedge funds.

The Financial Times recently reported Australian Michael Hintze, chief executive of London-based hedge fund CQS which manages $6.8 billion, welcoming the introduction of the rule, and predicting that opportunities will again favour hedge funds as highly leveraged bank prop desks withdraw from the market. Hedge fund leverage has reduced dramatically since the GFC, as has some of the leverage previously used by prop desks. Hintze estimated leverage of 15 to 20 times was normal for bank prop desks. Other sources have estimated that some banks were leveraged 40 to 50 times leading into the GFC.

However it is unlikely to be a one-way street, as the Volcker rule only applies to US banks, and many European banks such as Societe Generale, which already operate significant prop trading operations, were likely to fill the space left by their US counterparts. In addition other elements of the Dodd-Frank Act contains tighter restrictions on hedge funds which have yet to be fully factored into the market.

The House approved the Dodd-Frank financial reform bill last Wednesday, but Senate leaders postponed a vote on the bill, preventing it from reaching President Obama's desk until at least mid-July, according to The Washington Post.

The Volcker Rules curbing banks' investments in their own funds was amended; last-minute congressional negotiations aimed at winning Republican support led to a compromise that allows banks to invest up to 3% of their capital in private equity and hedge funds; Volcker was said to be disappointed with the rule's final version.
 

Everest Financial Group, which advised last week that it was winding down its hedge fund of fund business and planned to return capital to shareholders, has announced that it has accepted an unconditional offer from One Investment Group to assume responsibility for the majority of Everest's funds under management.

One Investment Group is a Sydney based independent Australian fund management business covering asset classes including real estate, aviation, shipping, private equity, infrastructure and hedge funds which was founded by Frank Tearle and Justin Epstein.

Everest Financial Group, the ASX listed fund of Fund manager that once had $3 billion in funds under management and advice, has announced that following a strategic review it will sell the fund management business and wind down the operations of the business.

Everest was formed in 2000 and developed a significant fund of fund business focusing on investing in offshore hedge funds on behalf of Australian high net worth clients and institutions. During their heyday Everest linked with Babcock and Brown to become Everest Babcock and Brown, but following the GFC and Babcock's demise, reverted to the more investor friendly Everest Financial Group.

The GFC caused significant issues for Everest, with both performance and liquidity suffering, and redemptions saw FUM reduce significantly as investors lost both capital and patience with the Fund of Fund model. Post GFC Everest attempted to rebuild, but was the subject of a number of corporate and legal challenges which eventually led to the Board's decision to announce a Strategic Review early in June.

Everest's CEO, Jeremy Reid, himself a major shareholder, will relinquish his role, but will act as a consultant to assist with the wind down. Meanwhile the funds management business will be sold to a "suitable qualified" but unnamed third party the board has entered into an exclusivity and implementation agreement subject to due diligence expect to be completed within the week.