October 7, 2016

Weekly Roundup October 7, 2016

Legal & Compliance:

Och-Ziff Capital Management agreed to pay more than $400 million to settle a five-year long African bribery probe, in the first Foreign Corrupt Practices Act case against a hedge fund. The firm entered into a three-year deferred prosecution agreement and agreed to appoint a compliance monitor, while its African subsidiary pleaded guilty to conspiracy charges. [Hedge Fund LCD] Founder Daniel Och and CFO Joel Frank were also cited by the Securities and Exchange Commission, with the former agreeing to pay $2.2 million in restitution. [Wall Street Journal] The settlement threatens to increase the pace of redemptions at Och-Ziff, which could put it at risk of default if assets drop too far. The firm will also have to seek “bad actor” waivers from the SEC and Labor Department. [New York Times]

“I’m not sure that your solution is going to clarify much of this area.” The shorthanded U.S. Supreme Court appears unlikely to rewrite insider-trading law in a case dealing with the benefit required for tippers, although the High Court seems likely to uphold the conviction in question, that of Bassam Salman. [Wall Street Journal]

The Sixth Circuit Court of Appeals has punted a Republican effort to block new municipal securities pay-to-play restrictions to a merits panel. [Law360]

The U.S. Commodity Futures Trading Commission and U.K. Financial Conduct Authority have agreed to a memorandum of understanding on information exchanges about supervised covered firms. [CFTC]

The founders of the defunct Kortright Capital sued seeder Investcorp for pulling its investment just as the hedge fund was set to sell itself to the Man Group—leading the deal to fall apart. [New York Post]

Insurer CNO Financial Group has sued Beechwood Re over its investments with scandal-tarred hedge fund Platinum Partners. [Wall Street Journal]

“There are now a variety of new ETFs and mutual funds being launched that aim to replicate the returns of hedge funds at a fraction of the cost…. Make no mistake, the product is real and significant. For securities lawyers, it’s time to prepare for a future where hedge funds may not be the staple of investment alternatives that they are today.” [Above the Law]

The world’s biggest asset manager, BlackRock, has thrown its weight behind the Financial Stability Board’s plan to stress-test individual mutual funds. The Vanguard Group opposes the measure. [Reuters]

The European Securities and Markets Authority has finalized insider-trading guidelines for commodity derivatives. [ESMA]

British judges are flexing their muscle in determining the terms of the country’s new deferred prosecution agreements. [Wall Street Journal]

The SEC rapped mutual fund manager Laurence Balter and his firm, Oracle Investment Research, for cherry-picking profitable trades for his own account at the expense of investors, as well as charging advisory and management fees he assured investors they would not incur. [SEC]

Caesars Entertainment’s private-equity owners and hedge-fund creditors appear to have a deal that will allow the gambling giant to emerge from Chapter 11 bankruptcy. [New York Times] But hedge fund Trilogy Capital Management plans to continue its lawsuit against the company. [Bloomberg]

Maverick Capital and Ranger Capital co-founder Sam Wyly has settled SEC securities fraud charges for $198.1 million, as he seeks to negotiate down a $1.11 billion tax judgment against him. [Reuters]

iPayment founder Carl Grimstad sued two hedge funds for conspiring with their “hand-picked” board members to loot the company. [press release]

Hedge fund NuWave Investment Corp. wins $40 million defamation suit against BackTrack Reports. [Daily Record]

Federal judges are pushing for fewer words in appellate court briefs [New York Times], and more opportunities for junior lawyers. [Wall Street Journal]

Canada’s Tax Court has found that investments in offshore hedge funds have valid business reasons and therefore do not violate tax rules. [Canadian Securities Law]

Chilean pension funds will be permitted to invest up to 15% of their assets in hedge funds beginning next month. [BN Americas]

The Office of the Director of National Intelligence’s Intelligence Advanced Research Projects Activity has launched a three-and-a-half year program to detect cyberattacks using unconventional indicators. [Wall Street Journal]

“Harming investors or employees is not the point of financial misconduct but, rather, an inevitable corollary or externality. This helps explain why, from the standpoint of the executive, misconduct doesn’t necessarily lead to the immediate sensation of taking or stealing anything from anyone.” A new book explores the “innocent origins” of white-collar crime. [Wall Street Journal]

“Modern GCs cannot make impartial, purely legalistic decisions from the sidelines. They must exercise judgment on risks and opportunities from the front, harmonizing legal insight with business acumen to help guide their company through the big decisions.” [Metropolitan Corporate Counsel]

 

Interlude:

“One thing is absolutely clear: Delaware corporate law cares not at all about employees, communities, customers or other stakeholders, except insofar as shareholders also gain.” [The Atlantic]

“But if you are like most consumers you are probably unaware of the more subtle ways that your digital books—and movies, games, and other media purchases—are different from physical copies. That’s because your rights to those digital things are filtered through a maze of intellectual property law and limited by the fine print that you agree to when you buy them.” [Quartz]

 

Hedge Fund:

Bridgewater Associates remains the biggest hedge fund manager in the world, but it and the rest of the industry’s titans are hurting: Hedge Fund Intelligence’s semi-annual Billion Dollar Club report shows that the largest hedge funds shrank by 7% in the year to July. [HFI]

“Among those feeling the heat is Paul Tudor Jones’s Tudor Investment Corp., one of the oldest and most expensive hedge-fund firms. After suffering more than $2 billion of investor withdrawals this year, it has cut 15 percent of its staff, including the closure of its Singapore trading desk, and lowered fees to retain clients.” [Bloomberg]

Brevan Howard Capital Management will waive its management fee for existing clients in an effort to stem outflows. [CNBC]

“It’s tougher to be a hedge fund investor than ever before,” according to Julian Robertson. [Bloomberg] Especially for William Ackman, David Einhorn, Marc Lasry and Nelson Peltz, all of whom have lost their spots on the Forbes 400 ranking of the richest Americans. George Soros remains the richest hedge fund manager in the country, with $24.9 billion. [Forbes]

Hedge funds are cutting back on their business with Deutsche Bank’s prime brokerage amidst fears about the bank’s stability in the face of a potential $14 billion fine for mortgage fraud. [Wall Street Journal] Deutsche Bank dismissed the moves as “typical ebbs and flows.” [CNBC] And while hedge funds may be wary of doing business with Deutsche, they can’t get enough of its shares—to short. [New York Times] Meanwhile, Deutsche Bank is apparently mulling the spin-off of its asset management business via an initial public offering. [Financial Times]

“It seems like at the next gas station, we should stop and tell those guys to get out and get us something to eat, and then drive away as fast as we can.” The Teacher Retirement System of Texas is talking about leaving hedge funds behind, [TheStreet] while the Orange County Employees Retirement System may replace or reorganize its hedge fund program. [Pensions & Investments] The Garden State is already getting there, with the New Jersey Investment Council pulling $190 million from embattled Och-Ziff Capital Management. [Bloomberg] The state may go even further if former Ambassador Phil Murphy is elected governor next year: He’s calling for Pennsylvania’s Division of Investment to “get out of the hedge fund business.” [NJ Spotlight]

Just over a year after returning outside capital, JAT Capital Management founder John Thaler may take on investors once again. [Reuters]

Janus Capital Group and Henderson Group announced plans to merge. [press release]

Point72 Asset Management is expanding its Point72 Academy program for recent college graduates in London and Asia. [Business Insider]

Tudor Investment Corp. has closed its trading desk in Singapore [Bloomberg], where hedge fund assets have grown at the slowest pace in three years. [Bloomberg]

George Soros and Paloma Partners founder Donald Sussman are backing a pair of new hedge funds in Europe with impressive pedigrees: Soros has invested with two former BlueBay Asset Management traders and Paloma with former Highbridge Capital Management trader John Aylward. [Bloomberg]

Kohlberg Kravis Roberts has abandoned plans for a Chinese small- and mid-cap fund in favor of focusing on larger buyouts. [Reuters]

“AI today will solve certain problems but not everything. The quest to create general human intelligence, that’s probably a long way in the future.” Two Sigma Investments founder David Siegel isn’t worried that his quantitative systems will be able to replace him any time soon. [Bloomberg]

Launches: Pershing Square Capital Management veteran Hilal to launch hedge fund Mantle Ridge [Reuters]; Perella Weinberg Partners’ David Schiff, Andrew Dyn found private equity shop Innovatus Capital Partners [New York Times]; Odey Asset Management spin-off Latitude Investment Management goes UCITS, abandons performance fee [CNBC]; 28-year-old Third Point alum nets $75 million for new hedge fund [Business Insider]; Bain Capital credit arm raises $500 million for first BDC [Wall Street Journal]; hedge fund West Face Capital eyes $1.5 billion private equity fundraise [Bloomberg]

Liquidations: Legendary hedge fund Perry Capital to close amidst “industry and market headwinds” [Wall Street Journal]; London-based Camares Capital closes doors after three years [Bloomberg]

Returns: Rokos Capital +8% YTD [Financial Times]; Greenlight Capital -0.9% Sept., +4.5% YTD [Bloomberg]; Brevan Howard Asset Management Master Fund -0.9% Sept., -3.4% YTD [Bloomberg]; Lansdowne Partners -2.3% Sept., -14.7% YTD [Wall Street Journal]

People Moves: CQS Capital Management credit chief Simon Finch stepping down [Bloomberg]; Citadel Investment Group snaps up BlueCrest quantitative equities chief Frank Fehle and his team [Reuters]; Alternative Investment Management Association appoints Millennium Management chief legal officer Simon Lorne chairman [Reuters]; Leda Braga among nine new board members at Managed Funds Association [Reuters]; JPMorgan Chase reshuffles wealth management business, taps Barry Sommers as co-head [Wall Street Journal]