The bankers' new best friends
It was still early on a balmy June evening in Lausanne when the cocktail party at Europe's annual hedge fund conference started thinning out. For a while, the event, staged around the central fountain in the gardens of the Beaulieu Centre, was buzzing with delegates from the investment, hedge fund and banking worlds. But almost as soon as the drinks began to flow, people started leaving, piling into coaches or cabs to attend various discreet events hosted by Europe's biggest banks.
UBS, which sponsored the Global Alternative Investment Management Forum, held a huge dinner in the hills, inviting more than 200 clients and investors. Morgan Stanley, meanwhile, bused a few dozen investors to Geneva to meet a group of new hedge fund managers in a "capital introduction" event. But it was not just these two banks that hosted dinners: Credit Suisse First Boston, Deutsche Bank, Citigroup, Goldman Sachs and Lehman Brothers also laid out spreads.
Investment banks in Europe have good reason to want to help the rapidly growing population of hedge funds mingle with the continent's growing number of potential investors - the banks' prime broking businesses, which serve hedge fund clients, have become an extremely important source of commission income.
According to Greenwich Associates, which tracks trading data, a sampling of the largest hedge funds in Europe indicated that the group accounted for 20 per cent of equity commissions. Greenwich Associates said that a larger sampling would likely indicate a much greater percentage and that the level was rising both in Europe and the US.
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Prime brokers provide services such as the parties in Lausanne because they get paid handsomely for clearing hedge funds' trades, providing them with leverage, and lending them stocks. The three largest prime brokerages are at Goldman Sachs, Morgan Stanley and Bear Stearns, but competition for the top spots is intensifying as the number of hedge fund clients grows. This competition is being keenly felt in the City of London because more than 70 per cent of European hedge fund managers have chosen London as a base.
"Every prime broker that has a foothold in Europe will throw some kind of party at that sort of event," says Nick Roe, head of equity prime services at Deutsche Bank in London. "We hosted a dinner, inviting 40 people and 85 turned up. It is really just a chance to get your hedge fund clients and investors around a table. If they talk about business, that's great."
However, as the banks' desire to win business from hedge funds grows, financial regulators are also showing increasing interest, not least because hedge funds have been subject only to the lightest regulation up to now, and in the US are largely unregulated.
Regulators such as the US Securities and Exchange Commission want to know more about the ties between hedge funds and banks, in part because both parties played a role in the US mutual fund trading scandal that rocked Wall Street last year. These ties are growing ever tighter. As hedge funds grow more sophisticated, banks are developing a roster of services to meet their needs.
"Why do we want hedge fund clients?" asks a banker at a large City house. "It is simple. Hedge funds are very active across their whole portfolio. They don't just buy and hold Vodafone in line with the index. A hedge fund will turn over their portfolio 20 or 30 times more than a long-only fund and it means they have a disproportionate effect on revenue.
"Hedge funds must account for 30-40 per cent of equity trading commissions at most of the [London] investment banks. It is just huge. Every young sales person wants to be on the desk dealing with the hedge funds - they are dealing with the brightest clients and they don't get bogged down with the sort of managers who take 25 days to make a decision."
And once the power of leverage is added to the mix, hedge funds become even more important clients for the banks. As one former banker who now works in a leading London-based fund, explains: "If you have $2bn of hedge fund money and the manager decides to leverage his book three times, you have $6bn of positions. If they turn over their portfolio five times a year, you are trading $30bn. That is the same as having a $90bn [traditional] long-only institution that has a $30bn turnover. On top of that, you have commissions every time the hedge fund trades or borrows stocks from you. So that $2bn hedge fund can be as valuable to you as a $90bn asset manager because of the leverage and trading - that is the dynamics of this business.
"The volume of business generated by hedge funds is anywhere between 25 and 50 per cent of commissions per year, but the assets managed by hedge funds are about 1.5 per cent of institutional assets under management. So they have a disproportionate effect on revenues to brokers, and the problem for brokers is how they should prioritise hedge funds vis-a-vis institutional business."
The balance has tipped towards the hedge funds in recent years as the money flows into their coffers. And as with the big investment banks, companies can no longer ignore them either.
"Hedge funds will grow bigger, so the impact they have is going to grow," says Andy Preston, head of KBC alternatives, which is one of Europe's largest arbitrage hedge funds with $5.5bn under management.
Whereas in the past senior company executives may have shied away from seeing hedge funds, in the belief that they were not long-term investors, banks are now using their relationships with big companies as another way of providing a service to hedge fund clients that want access to high-quality information on potential investments.
"When a bank calls you for business they ask if you need corporate access," says an experienced hedge fund manager who runs more than $1bn in equity funds. "Because hedge funds are dominant traders, companies can't avoid them. They are reluctant, but with a bit of shepherding by investment banks they are beginning to meet us more."
Hedge funds' liking for short selling - making money by selling shares they believe are over-valued - has become a particular bone of contention between the funds and some companies, which argue that this trading technique unfairly depresses share prices. Essentially it involves a fund borrowing a block of shares from a long-term holder, such as an insurance company, and selling it into the market. When the price falls, the hedge fund manager will buy back the block of shares and return it to the lender, pocketing the difference.
David Prosser, chief executive of insurer Legal & General, famously called on the Financial Services Authority to "put more grit in the system" in 2002 after his company's shares took a battering from short selling by hedge funds, which prompted the FSA to look into the rules on shorting. Although the City watchdog gave the practice a clean bill of health, it is still a contentious issue for some.
Earlier this year, Ray Webster, chief executive of Easyjet, hit out at hedge funds when the budget airline's share price fell by a quarter after it released its interim results. A t the time, Easyjet said it would consider making a formal protest to the FSA, although it has since changed its mind.
"There was a huge volume of share trading at that time, 40 or 50 times our normal daily average. There was a great deal of hedge fund activity, but at the end of the day they are now part and parcel of the City," says Easyjet.
"We don't go out of our way to see them. Put it this way - we have results twice a year and our managers make themselves available for that time, and during that time we want to see long-term investors rather than hedge funds."
But that type of attitude may change. Hedge fund managers are increasingly playing the role of activist shareholder, and like the corporate raiders of the 1970s and 1980s, shaping and even dictating the outcome of deals.
In June, a group of hedge funds led by Trafalgar Asset Managers, a $600m specialist fund based just off London's Oxford Street that deals with corporate events such as takeovers and debt restructurings, swung the takeover battle for British tank manufacturer Alvis in favour of the eventual winner, BAE Systems.
"From the moment BAE took the strategic stake in Alvis, the company came on to the radar screen of the hedge funds," says Lee Robinson, a manager at Trafalgar. "We were wondering if they would bid for the company. Then a few months later General Dynamics bids for Alvis. But the company is about 18 per cent owned by hedge funds and we came together and worked with BAE to broker a cash bid that won them the deal."
The hedge funds' willingness to commit their collective interest irrevocably to the British defence company proved the decisive factor.
Mr Robinson's partner, Theo Phanos, adds: "From an M & A point of view, it was the last M & A boom in 1999-2000 that really showed what hedge funds could do. In terms of distressed debt, it was in 2001-2002 that hedge funds really came to the fore. Even though we control a small part of global assets under management, we get lumpy. Over time, hedge funds get very large in a company and then they move on because they turn over their portfolios much more in a year."
And as another hedge fund manager points out, this is unlikely to be a passing phase for companies.
"Corporates are going to realise how they need to work with hedge funds. You can't issue a convertible bond if it is not in the ball park of what hedge funds will buy. What we are saying to corporates is that you had better start thinking about us as a major investor."
Additional reporting by David Wells
Industry powers ahead like a bull in a bear market
The past decade has seen a powerful surge in the growth of hedge funds, which has easily outpaced the growth in the asset management industry worldwide, writes Deborah Brewster.
However, the unregulated and fragmented nature of the industry has resulted in a paucity of reliable data. Estimates of the size of the industry range from $650bn to $1,000bn, with estimates of the number of funds ranging from 5,000 to 8,000.
According to Tass Research, which has tracked the industry since 1990 and has the largest data base, hedge fund assets worldwide have grown by 700 per cent in the past decade, to $830bn at the end of March. Over the same period, worldwide mutual fund assets have grown 300 per cent to $14,000bn, according to the Investment Companies Institute.
During the bear market of the past few years, when most asset classes showed little or no growth, hedge funds powered ahead, with assets rising by 25 per cent last year and 20 per cent the year before. Last year, investor inflows hit a record of $72.2bn, and this year they are on track to exceed that, with $38.1bn coming in during the first quarter alone.
This growth has translated into huge earnings for the leading managers.
The US accounts for 77 per cent of hedge fund assets, but this is down from more than 90 per cent a decade ago, according to Tass. The industry has been growing more rapidly in Europe, which today has 21 per cent of assets. Asia is creeping up, with about 1.3 per cent of assets.
The number of hedge funds has doubled since 1994, to more than 7,000 today, with a steady increase in the size of the average fund, according to Tass. The group estimates that the median hedge fund size is about $91m, compared with $21m a decade ago.
Although there has been much talk about the "retailisation" of the industry, the evidence is that the weight of money is increasingly institutional. Most sources agree th at individual investors now account for less than half of all assets invested, a much lower proportion than a decade ago. This is likely to shrink even further as more and more pension funds and foundations announce plans to invest in hedge funds.
银行家新交的好友
在一个温和的6月之夜，欧洲对冲基金年度大会在洛桑的鸡尾酒会早早开始散场。活动现场设在博利厄中心(Beaulieu Centre)花园的中央喷泉周围，来自投资、对冲基金和银行业的代表聚集在此，随意交谈了一阵。但几乎就在酒会正式开始时，人们就陆续离开，成群结队地坐上客车或出租车，去参加欧洲几家最大的银行各自主办的活动。
全球另类投资管理论坛(Global Alternative Investment Management Forum)的主办方瑞士联合银行(UBS)在群山中举行了一场盛大的晚宴，邀请了200多名客户与投资者到场。同时，摩根士丹利(Morgan Stanley)用大巴把几十名投资者载到日内瓦，让他们在一个“资本推介”活动上和一群新的对冲基金经理人会面。但举行晚宴的不单单是这两家银行：瑞士信贷第一波士顿(Credit Suisse First Boston)、德意志银行(Deutsche Bank)、花旗集团(Citigroup)、高盛(Goldman Sachs)，还有雷曼兄弟(Lehman Brothers)，个个都大宴宾客。
对冲基金的队伍迅速壮大，引得欧洲的投资银行都想在它们与欧洲大陆越来越多的潜在投资者之间牵线搭桥。它们这么做是有充分理由的，因为银行的首要经纪业务就是为对冲基金客户提供服务，而该业务已成为银行极为重要的佣金收入来源。
据追踪交易数据的Greenwich Associates报告，对欧洲几家最大对冲基金的抽样调查显示，这个群体占了投资银行股票佣金的20%。Greenwich Associates表示，如果进行更大规模的抽样调查，百分比可能大得多，而且这一百分比在欧洲和美国都在上升。
主要经纪商提供洛桑聚会之类的服务，是因为它们能从对冲基金那里获得可观的报酬，而它们为对冲基金提供的服务包括完成交割、提供杠杆融资，以及出借股票。经纪业务规模最大的三家银行是高盛、摩根士丹利和贝尔斯登(Bear Stearns)，但由于对冲基金客户数量增多，为争夺头把交椅而展开的竞争正在加剧。在伦敦金融城，人们可以深切地感受到这种竞争，因为超过70%的欧洲对冲基金选择伦敦作为基地。
“在这种活动中，每一家在欧洲排得上的主要经纪商都会举办某种形式的宴会，”德意志银行驻伦敦的股票优质服务负责人尼克?罗(Nick Roe)说道，“我们举办一场晚宴，邀请了40人，结果来了85个。这确实是个让你的对冲基金客户与投资者齐聚一桌的好机会。如果他们又能谈点生意，那就太好了。”
然而，随着各家银行越来越渴望从对冲基金那里赢得生意，金融监管机构也对此表现出越来越大的兴趣。这里相当重要的原因是，到目前为止，对冲基金所受的监管一直极为宽松，而在美国，它们在很大程度上根本不受管制。
美国证交会(SEC)等监管机构希望更多地了解对冲基金与银行之间的关系，部分原因是，两者在去年震惊华尔街的美国共同基金交易丑闻中都扮演了相应角色。对冲基金与投资银行之间的关系正日益紧密。随着对冲基金变得越来越成熟，各家银行正在开发一整套服务，以迎合它们的需求。
“为什么我们需要对冲基金客户？”伦敦金融城一家大投行的某位银行家说，“很简单，对冲基金整个投资组合里的交易都很活跃。它们不会买入沃达丰(Vodafone)的股票后，只根据指数走向来持有。与一家仅仅做多的基金相比，一只对冲基金投资组合的易手次数要高出20至30倍还多，这意味着它们会对银行收入产生重大影响。”
“在大多数(伦敦的)投资银行，对冲基金肯定在股票交易佣金中占了30%至40%，这个比例真是大。所有的年轻销售员都想去对冲基金交易的柜台，因为他们能为最聪明的客户提供服务，而且不会因为一个要花25天才能做决定的经理而停下来。”
一旦在业务组合中加上杠杆融资的威力，对冲基金对银行来说就更重要了。一位曾经在银行工作，目前在伦敦一家领先基金供职的人士解释说：“如果你的对冲基金有20亿美元资金，基金经理决定通过杠杆融资将这笔钱放大三倍，那么你就有了60亿美元头寸。如果它们把该投资组合每年周转5次，那么你的交易额就是300亿美元。这和一个传统做多机构拿着900亿美元资金，却只做300亿美元的交易额是一回事。另外，对冲基金每交易一次，或者从你手中拆借股票，你都有佣金进账。因此对你来说，由于有杠杆作用和交易的存在，一个20亿美元的对冲基金可以与一个900亿美元的资产管理机构价值相当，这就是此类生意的奥妙所在。”
“在每年的佣金收入中，对冲基金业务总能占25%到50%，但对冲基金管理的资产大约只有普通机构所管理资产的1.5%。因此，对冲基金对经纪行的收入有巨大的影响，而经纪行的问题就是，它们在机构业务和对冲基金业务之间应当优先考虑哪个。”
随着对冲基金给银行带来滚滚财源，银行的天平近年来已开始向对冲基金倾斜。而且，企业也和大型投资银行一样，再也不能忽视对冲基金了。
KBC alternatives的负责人安迪?普利斯顿(Andy Preston)说：“对冲基金的规模将越来越大，因此它们的影响也将随之增大。”KBC alternatives是欧洲最大的套利对冲基金之一，管理着55亿美元资产。
在过去，企业高管可能会避免与对冲基金打交道，因为他们认为，对冲基金不是长期投资者。但现在，银行正把它们与大企业的关系用作为对冲基金客户提供服务的另一种方式。这些对冲基金想得到有关潜在投资的高质量信息。
“当银行给你打电话谈业务时，它们会问，你是否需要与企业联系的途径，”一位经验丰富的对冲基金经理说。他掌管着规模逾10亿美元的股票基金。“因为对冲基金是交易的主导者，企业无法回避它们。开始它们犹豫不决，但在投资银行的引导下，它们与我们碰面的次数越来越多了。”
对冲基金喜欢卖空，即通过抛售它们认为被高估的股票来获利，这已成为基金和一些公司之间特别的争论焦点。这些公司声称，这种交易技巧打压了股价，是不公正的。这种交易从本质上说，就是某一基金从长期持有者(诸如保险公司)那里借入一批股票，然后抛售给市场。当价格下跌时，对冲基金经理会买回这批股票，然后把股票还给借出机构，赚取其中的差价。
