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Morning Brief: AMT Tax Scuffle Continues to Hit Long-Short Equity Funds

The first week of December brought a correction to IT stocks, which dragged down the Lyxor Hedge Fund Index.

A battle over the alternative minimum tax is hurting long-short equity hedge funds, according to Paris-based money manager Lyxor Asset Management’s weekly hedge fund report.

Last week, these funds continued to be hit by the correction in information tech stocks related to the U.S. tax bill, Lyxor reported. Long-short equity funds fell 1.3 percent last week, leaving the Lyxor Hedge Fund Index down 2 percent last week.

The S&P 500 Information Technology index was down 4.1 percent for the week due to “political brinkmanship” on the alternative minimum tax, Lyxor reported. “The AMT currently forces companies to pay a base level of federal taxes, meaning deductions and tax credits are capped. The repeal of the AMT, which was considered in the original Senate tax bill, is key for R&D intensive sectors such as health care and IT,” Lyxor said in the report, as these sectors benefit from substantial tax credits. But the final Senate bill retained the AMT.

Given that the current AMT rate is about the same as the corporate rate considered in the reform, the effective tax rate would probably increase for such sectors if it survives, according to Lyxor.

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Asset manager Man Group announced the launch of its first hedge fund located in China.

The new investment fund will employ a systematic trend-following approach and “aims to be uncorrelated with traditional portfolios,” the British firm said in a press release. It will be managed by its investment unit Man AHL’s Shanghai-based team.

Man’s China hedge fund is the first foreign hedge fund to be located there.

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Securities regulators in China have started a probe into hedge funds, Bloomberg reported.

The China Securities Regulatory Commission said it is investigating such issues as “market manipulation, misappropriation of client funds, insider trading and trading by managers using their personal accounts,” Bloomberg reported, referring to a statement on the regulator’s website.

Bloomberg added that the regulator said that the move is intended to contain a “trend of rising legal violations,” which it is confronting “severely.”

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