By: Australian Fund Monitors

Commodity Strategies has reported October results for its long/short and long only programs, returning +8.77% and +22.58% YTD for the Long/Short, and -0.53% and +9.67% 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.

By: Australian Fund Monitors

The Reserve Bank issued the following statement at 14:30 AEST Tuesday 4th November:

"At its meeting today, the Board decided to reduce the cash rate by 75 basis points to 5.25 per cent, effective 5 November 2008.

World financial markets have remained turbulent over the past month. Global equity prices have been volatile and fell further in net terms, and there have been significant exchange rate movements, including a sharp depreciation of the Australian dollar.  A number of governments have announced measures to strengthen their financial systems, which should help to stabilise conditions over time.

International economic data have continued to point to significant weakness in the major industrial economies, and there have been further signs that China and other parts of the developing world are slowing as well. These conditions have contributed to further falls in world commodity prices.

In Australia, the overall path of economic activity appears until recently to have been close to what the Board had expected, with a needed moderation in demand occurring after a period of earlier strength. Recent reductions in borrowing rates, the depreciation of the exchange rate and the fiscal stimulus announced in October will work to assist growth in the period ahead, but deteriorating international conditions and falling commodity prices will have a dampening influence. On balance, it appears likely that spending and activity will be weaker than earlier expected.

Consumer price inflation in Australia remained high in the September quarter. As expected, CPI inflation in year ended terms picked up to 5 per cent, while underlying measures were just over 4½ per cent.  Nonetheless, capacity pressures are now easing and, given the outlook for more moderate growth in demand and activity, it is reasonable to expect that inflation in Australia will soon start to fall. Global disinflationary forces will assist in this regard, though the depreciation of the exchange rate means that the decline of inflation to the target could take longer than would otherwise be the case.

Weighing up these international and domestic developments, the Board judged that a further significant reduction in the cash rate was warranted. The Board will continue to monitor developments and make adjustments as needed to promote sustainable growth consistent with achieving the 2-3 per cent inflation target over time."

By: Australian Fund Monitors

ASIC has outlined requirements for short selling disclosures that will become effective from the 19 November 2008 when the ban on shorting non-financial securities is lifted.

ASIC said in their statement "the disclosure and reporting arrangements provide additional transparency on the amount of short selling in Australian securities to participants in financial markets, the market regulator (ASIC) and the market operator (ASX). ASIC and ASX will use this data together with information about trading and market positions in traded securities to assist in detecting market manipulation and other non-compliance with existing obligations."

Disclosure Requirements

Clients are required to inform a financial services licensee (i.e. their broker) when a sale order is for a short sale and trading participants are to ensure they have a system in place to record sell orders as follows:

1. Long Sale - a sell order from a client where they already own the securities;
2. Short Sale - a covered short sale (i.e. in non-financial securities); or
3. Exempt Short - a covered short sale which falls under one of the exemptions to the ban (e.g. a qualifying short sale in financial securities, a naked short sale arising from the exercise of exchange-traded options);

Obligations to report short sales that are otherwise allowable under sub-section 1020B(4) of the Corporations Act 2001 are unchanged.

Reporting

Trading participants will report to ASX each business day all short sales, including Exempt Short sales. Initially this will be a daily report submitted by 9:00am capturing all short sales executed up to 7:00pm on the previous trading day.

Market Disclosure

ASX will produce and disseminate a report to the market that will be released after 9:00am each trading day. The report will show, by security, the total volume of short sales executed on the previous trading day. The report will include Exempt Short sales in financial sector securities.

By: Australian Fund Monitors

Everest Babcock & Brown (EBB) has suspended redemptions in its Income Fund and is reviewing its other wholesale funds in light of redemption requests from investors and the impact of the global financial crisis.

The EBB Income Fund (EBBIF) is yet to report September results but the YTD return as at August was negative 0.20%.

EBBIF was established to invest in high yielding, reasonably predictable, income producing investments and securities. The investment objective is to provide net pre-tax income returns in the order of 10% per annum which may be complemented by longer term capital appreciation. Investments are predominantly sourced from, but not limited to, Babcock & Brown deal flow.

EBB Statement

Everest Capital (ECL), a wholly owned subsidiary of Everest Babcock & Brown (EBB), is the responsible entity, trustee and/or manager of 18 wholesale funds with differing investment objectives and strategies. A review is currently being undertaken of each of these funds to assess the impact of the current adverse market conditions and redemption requests upon the ongoing conduct of these funds. No decisions have been made with respect to any fund other than as set out below. EBB will keep the market informed as and when decisions are made that are relevant for EBB investors.

In its capacity as responsible entity of the unlisted wholesale Everest Babcock & Brown Income Fund (EBBIF or the Fund), ECL has informed EBB of its decision to suspend redemptions of units in EBBIF with effect as at the close of business yesterday until further notice. EBBIF currently accounts for approximately $180 million in funds under management.

The decision to suspend redemptions was made by ECL, recognising the adverse impact the current market conditions have on EBBIF’s portfolio of subordinated debt investments and the impact of a large number of redemption requests.

The ECL Board has advised EBBIF investors that it is in the process of reviewing the ongoing operation of the Fund. This review includes the consideration of possible termination of the Fund and of incremental pro-rata cash distributions to unitholders as investments are progressively realised. It is expected that unitholders will be informed about the outcome of the review process in the next few weeks.

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.