By: Australian Fund Monitors

Feedback from two recent hedge fund conferences, one in Hong Kong and one in Sydney, have confirmed that the next three months will create significant challenges for hedge fund managers around the world.

As a result of the crisis in all financial markets, and the damage done to corporate balance sheets around the world, there has been widespread deleveraging as investors, banks, investment banks and other financial institutions rush to get their balance sheets in order, and reduce debt wherever possible. One keynote speaker at the AsiaHedge conference in Hong Kong last week claimed that investment banks had increased their leverage over the past few years from a factor of 10 times to over 40 times. This was now in the process of being unwound. In addition many of those investment banks operate (or operated) prime broking facilities for hedge funds, which also included leverage of up to 5 to 10 times for the underlying funds in some instances .

Many hedge funds and fund of funds, especially the large ones based in the US and Europe, operate with 12 month lock-ups to 31 December each year, and also require 90 days notice for redemptions. Those redemption notices will have hit at the end of September and reports are coming through which indicate that possibly 25% or more of investors' funds might be recalled either through necessity or in order to reallocate to other managers or strategies.

Very few of these have been made public as yet, and it is unlikely that too many managers will want to publicise the fact for fear of triggering additional redemptions from other investors. However it is more than likely that some managers will invoke the gate clauses in their management agreements, and halt redemptions come 31st of December or otherwise face the prospect of closing the shop.

In any event the de-leveraging that has been such a powerful downward force in equity markets over the past 3 to 6 months is likely to continue. Hedge fund selling to meet redemptions will add to the downward pressure and certainly create some headlines in the media.

By: Infohedge.com.au

Fortitude Capital's onshore absolute return fund has maintained its ranking as the only Australian fund to record a positive performance in every month of 2008. Given the extreme volatility of the markets this year, coupled with the ASIC short selling ban which was introduced partway through September, the result justifies Fortitude recently taking out the 2008 hedge fund of the year award.

Fortitude's Cayman offshore fund returned +2.10% in September for an annual result of +5.27%, but has not quite been able to achieve a positive return every month, with small losses of -0.43% and -0.29% in June and March respectively

Fortitude Capital Absolute Return Trust is a multi-strategy market neutral fund specialising in listed Australian equities and derivatives.

By: Australian Fund Monitors

ASIC has extended the ban on covered short selling for non-financial securities until 18 Novemeber 2008 while the ban on covered short selling for financial securities is expected to remain in place until 27 January 2009.

Full ASIC Statement

ASIC today said it would extend the ban on covered short selling for non-financial securities for a further 28 days until 18 November 2008, when it expected the ban would be lifted.

In its announcement of 21 September ASIC said that the ban on covered short selling for non-financial stocks would be reviewed in 30 days. In the case of financial stocks, ASIC said that its review would be in line with time limits imposed by other international regulators.

Following the 30 day review, ASIC has decided to maintain the ban on covered short sales for non-financial stocks until 18 November 2008. ASIC expects to lift the ban from opening of trading the next day.

The ban on financial stocks will continue until 27 January 2009, and while the US has lifted its bans, other jurisdictions such as the UK are maintaining bans on financial stocks.

ASIC Chairman, Tony D'Aloisio, said market conditions since the bans were imposed remained difficult. "While the various Government actions and packages introduced in Australia and overseas are positive developments, they are yet to work through the financial system. The financial markets are still fragile, so we feel the reopening of covered short sales should be done in stages and in a measured way over an extended period and have regard to systemic issues, particularly for financial stocks."

Key changes

In summary:

1. The ban on financials will continue until 27 January 2009. For the purposes of the Australian market, ASIC has taken a pragmatic approach to the definition of financials as entities in the S&P/ASX 200 Financial Index (which will include property trusts and five other APRA supervised listed entities not in this index).



2. ASIC expects to lift the ban on non financials from opening trade on 19 November 2008. ASIC cannot, however, provide greater certainty than that because of the state of the markets.



3. As part of lifting the ban on non-financials, ASIC with ASX have been putting in place disclosure and reporting arrangements that will apply from the time the ban is lifted. These will be announced to the market later this week.

For clarity, no changes have been made to the exemptions and facilitations which ASIC has granted. In short, all current arrangements will continue.

ASIC will, at least three trading days before 18 November 2008, issue a further release on its expectation of lifting the ban on non-financials.

By: Australian Fund Monitors

Attunga Capital reported positive gains for September achieving 4.72% (YTD 15.19%) and 0.06% (YTD 2.62%) in the Attunga Agricultural Trading Fund and the Attunga Enviro Opportunities Fund, respectively

The Attunga Agricultural Trading Fund primarily invests in global exchange traded soft commodity and agricultural derivatives and securities, with a focus on relative value and other trading strategies. Attunga took advantage of continuing high volatility in commodity markets which they commented was as much due to the credit crisis fallout as fundamental factors.

The Attunga Enviro Opportunities Fund primarily invests in derivative products, mainly focusing on the Australian National Electricity Market (ETC and OTC), but with a mandate which includes CO² emissions, weather, gas, water and other energy and environmental related markets. Attunga reported a quiet month on power markets resulting in the nominal gain.

By: Australian Fund Monitors

Excalibur Absolute Return Fund reported a small positive return of 0.08% in September bringing their year-to-date cumulative performance to positive 9.76%

Excalibur reduced leverage to preserve capital and commented it was a tough month with extreme deleveraging and position shakeouts in their targeted currency pairs.

Excalibur employs a currency/FX strategy trading the Australian and New Zealand Dollars against the Japanese Yen. The fund aims to exploit significant interest rate differentials between the countries whilst holding put options over the core position to improve capacity, control risk and allow for profit generation in down months.

By: Australian Fund Monitors

Headland Global Diversified Fund has reported a negative return of 1.18% in September bringing their year-to-date cumulative performance to positive 1.09%.

The fund moved into a cash position mid-September as per their risk management processes designed to preserve capital during extreme volatility. Headland commented they will re-enter markets as volatility levels fall and substantial market trends develop.

Headland employs a global macro strategy by investing in a diverse pool of price trends in global bonds, currencies and commodities.

By: Australian Fund Monitors

Arnott Opportunities Fund has reported a positive return in September of 1.82% bringing their year-to-date performance to a positive 3.94%.

Unlike many managers Arnott noted that they were seeing opportunities emerge from the mayhem of September on two fronts; firstly they were focusing on long opportunities from oversold positions, and secondly they were relatively unconcerned about restrictions on short selling, having traded pan Asian markets for over 10 years, and as such being relatively used to issues around short selling restrictions.

The Arnott opportunities fund is an equity long/short strategy investing in Australia and Asia. The manager's total FUM is US $825 million, with the majority of that ($775 million) in The Opportunities Fund. By the end of October 2008 the fund will have a three-year track record.

By: Australian Fund Monitors

Austral Capital has reported marginally positive returns for September, continuing their very defensive strategy and allocating aroung 95% of the portfolio to cash citing capital protection as paramount. Austral Capital further stated it is continually monitoring counterparty risk and is satisfied with all assets held by or on behalf of its prime broker UBS.

The Austral Equity Fund achieved 0.24% for the month with approximately A$14m FUM. In the Austral Opportunity Fund, which uses a similar investment strategy and has approximately A$32m FUM, A$ shares returned a positive 0.32% while US$ shares recorded a negative 0.24%, due to the devaluation in the Aussie dollar. The September results bring the YTD cumulative returns to -0.32% and -0.22% for the Equity and Opportunities Funds, respectively.

Austral Capital is an event driven hedge fund manager and invests primarily in the securities of Australian companies that are, or may be, involved in special situations or corporate events such as equity and hybrid security issues, block trades, mergers and takeovers, de-mergers, reconstructions, recapitalisations and spin-offs.

By: Australian Fund Monitors

As expected initial September performance reports from Australia's Absolute Return and Hedge Fund sector are showing considerable diversification. However given the significant volatility across a range of underlying financial markets and asset classes, plus the ban on short selling equities, there have been some positive results.

Best results to date (as of 7th October) include Blue Fin Capital’s Currency/FX with 9% (5.83% YTD); Apeiron Global Macro’s +7.22% (+13.55% YTD); TechInvest's market neutral Intercept Capital Fund +3.44% (+11.97% YTD); Commodity Strategies’ long/short fund +3.27% (+11.9% YTD) and Wallace Funds Management’s equity market neutral +0.85% (+29.73% YTD).

On the negative side Plato Investment Management’s Equity 130/30 was down over 12% (-27.48% YTD) reflecting the problems experienced in the equity sector and the ban on short selling.

By: Australian Fund Monitors

Commodity Strategies has reported September results for its long/short and long only programs, returning +3.27% and +11.94% YTD for the Long/Short, and -1.61% and +7.96% YTD for the Long only.

Commodity Strategies was established in 1999 by Robert Holroyd with the objective of providing diversification from and low correlation to equity markets.