The Austral Equity Fund recorded a small loss of -0.04% in February, following on from a +0.74% gain in January. Due to poor interim company reports and a lack of forward guidance, as well as often misleading disclosures regarding capital raisings, the Fund remained lightly invested.

During February the Fund held significant amounts in cash (69%) and short term investment grade corporate credit. More specifically, the Fund continued to hold Macquarie Airport Tickets, which fell later in the month, while the proceeds from its CBA Perls II will be received shortly.

Australia's financial regulator, ASIC has decided to extend their ban on the short selling of financial stocks for the third time, making it the only country (with the exception of Holland) to maintain a ban on covered short selling.

Citing ongoing market volatility, and potential aggressive and predatory practices by short sellers, ASIC acknowledged that it was prepared allow the market to forgo some price discovery and market efficiency.

ASIC advised that it had discussed the situation with regulators elsewhere, but their decision (although not unexpected) is at odds with the actions of regulators in the US, UK and Hong Kong, who have all lifted the bans, or in the case of Hong Kong, not implemented a ban in the first place.

At ASIC's summer school held earlier this week, representatives of all three offshore regulators indicated that their bans were either no longer necessary, or in the case of Hong Kong, never required.

ASIC also advised it was remaining vigilant to conduct which allowed the ban to be circumvented, presumably referring to the use of derivative and arbitrage strategies. However, as there are widespread exemptions to the ban for market makers and option strategies, this seems to be contradictory.

ASIC's current reporting regime for the reporting only of gross short sales also remains in place, leaving the market no better informed as to the real extent of short selling taking place, and therefore allowing rumour and inuendo to continue.

Australia's Reserve Bank has held rates steady at 3.25% following the board's monthly meeting today, as widely anticipated.  RBA Govenor Glenn Stevens noted that in spite of the global economic crisis, Australia's economy had not experienced the downturn seen elsewhere and that changes to monetary and fiscal policy had changed sufficiently "on the basis of currently available information".  The full text of the Govenor's statement follows:

"At its meeting today, the Board decided to leave the cash rate unchanged at 3.25 per cent.

Recent data confirm that the world economy has remained very weak following the sharp decline in demand that occurred late last year. The major industrial economies reported large contractions in output in the December quarter, as did a number of emerging market economies across Asia and eastern Europe. Many countries are likely to be experiencing further falls in output in the current quarter.

Conditions in global credit markets have improved since November, but sentiment remains fragile. Share prices have weakened and banking systems in several major countries are still under pressure, as authorities work towards a resolution of the balance-sheet problems. Significant macroeconomic policy stimulus is being put in place around the world, but it is too soon to see the effects of those measures.

In Australia, demand has not weakened as much as in other countries and, on the basis of currently available information, the Australian economy has not experienced the sort of large contraction seen elsewhere. The Australian financial system remains strong and the monetary policy transmission process is working to deliver large reductions in interest rates to end borrowers. Nonetheless, economic conditions are clearly weak, and given the speed and scale of the global economic deterioration and its effect on confidence, weak conditions are likely to continue in the near term. Inflation is likely to decline over time.

In response to that outlook, there has already been a major change in both monetary and fiscal policy. Market and mortgage rates are at very low levels by historical standards and business loan rates are below recent averages, reducing debt-servicing burdens considerably. Together with the substantial fiscal initiatives, the cumulative decline in interest rates will provide significant support to domestic demand over the period ahead. On this basis, notwithstanding evident economic weakness at present, the Board judged that the stance of monetary policy was appropriate for the moment. The Board will consider the position again at its next meeting."

The Apostle Loomis Sayles Senior Loan Fund, which mainly invests in US senior loans, posted a return of +8.29% in January, a record for the Fund.

The manager attributed the excellent result to a rally in loan markets, which in previous months had been dragged down by forced selling from leveraged vehicles. This appeared to stop in January, allowing bargain hunters to buy up across all credit sectors. The manager also attributed the result to the generally high quality of loans that make up the Fund's portfolio, loans that will most likely survive challenging market conditions in 2009.

Looking ahead the manager expects prices to remain low, based on continuing poor economic news, although there will be an influx of new capital into the sector.

The Pengana Property Securities Fund was down -9.1% in January, after ending 2008 down -57.2%.

The Fund closely mirrored its benchmark, the S&P/ASX 300 Property Accumulation Index, which was down -9.6%. The Fund's portfolio remained positioned around larger, high quality business models with limited balance sheet risk, including CFS Retail, Westfield and Stockland. The Fund also began to take postions in regional property markets such as Hong Kong and Singapore, which present a lower risk profile. Cash holdings were increased to over 2% during the month, with the intention to further increase this position in future, due to the damaging affects of ongoing capital raisings on confidence.

With the Australian ban on covered short selling of financial stocks due to expire by Friday 6th March, speculation is mounting that it will be extended further with ongoing weakness and volatility giving the ban's proponents additional ammunition.

David Murray, former CEO of the Commonwealth Bank, and now heading up the government's Future Fund, has been reported as supporting an extension of the ban. At the same time the Dutch regulator, AFM, has extended their ban on the shorting of financials until June after ING and Aegon came under renewed pressure.

The hard facts are that financial stocks in Australia have not been shown to have been protected by the ban while it has been in place. This leads detractors of the ban to claim that the ban is a populist knee jerk reaction which is damaging price discovery, (otherwise known as letting the market dictate the value of a stock) liquidity and Australia's reputation as a serious financial centre.

At the same time they point out that as there are significant exclusions to the ban (market makers, derivatives etc) it is not being even handed. We expect the debate to increase over the next week, and, whatever the regulator's decision, to leave one side or the other decidedly unhappy.

Pioneer Global Investment (Australia) has declined to provide performance updates on their three funds since October 2008. The manager has advised that they are undergoing a restructure, but declined to provide any further information.

For the 10 months up until October last year, the Momentum Global Long/Short Strategy fund had lost 24.45%, the Momentum AllWeather fund was down 17.56% and the Restructuring Fund lost 20.7%.

From December brokers, superannuation firms and hedge funds will be required to report when they are borrowing stock, the RBA revealed yesterday.

Under the new disclosure rules brokers are required to report to the ASX when they are using stock borrowed under security lending agreements in trades. The quantities of stock borrowed daily will be published by the ASX. Investors who frequently lend stock will also be obliged to disclose their lending activities.

These rules were developed after an RBA-led investigation into the delayed settlement of trades across the market last January indicated stock lending was to blame. Along with the new short selling reporting rules revealed last year, the RBA is hoping these new regulations will increase transparency, thereby increasing confidence in the markets in volatile times.

The Aston BRIC Fund, Select Fund and Performance Fund all made gains in January, up +1.80%, +0.22% and +1.77% respectively (USD class).

The BRIC Fund, a regional multi-strategy fund which invests in countries which exhibit high levels of growth, bounced back after a disappointing 2008 (12 month return -12.72%). All three underlying managers contributed a positive return to the Fund.

Positive performance for the Select Fund came from global macro and volatility strategies, which have performed strongly over the past few months. This was partially offset by losses in credit and asset backed strategies, due to asset writedowns and a challenging corporate environment.

The Performance Fund also enjoyed gains from global macro and volatility, as well as event driven strategies. The manager identified the marked absence of leverage and reduced trading activity of proprietary trading desks as a great opportunity set for managers with a trading orientation. The underlying funds actually performed better than the Ashton fund result implies, as their returns were offset slightly by Ashton’s cash holdings. These holdings are expected to be deployed as new opportunities arise.

The AMP Total Return Fund was up +0.01% in January, bringing its 12 month return to -32.6%.

The Fund's underlying managers maintained an extremely low level of exposure during the month, and due to the Fund's active risk reduction in the last quarter of 2008 leverage was around 1.2x. Positive returns were gained in macro/commodity strategies, in particular natural gas, European emissions trading and gasoline markets. Negative returns came from leveraged loan markets due to a lack of liquidity, as well as distressed and event driven strategies. The manager continued to reduce exposure to certain strategies, including fixed income and distressed securities, believing that this, along with reduced amounts of leverage, will position the Fund well to take advantage of future opportunities.