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The Morning Brief: Hedge Funds Post Losses in January

Hedge funds posted an aggregate loss of 2.22 percent in January, according to the latest report from data tracker eVestment. Interestingly, it found that just 32 percent of funds that report to the data collector made money last month. This was the third straight monthly loss for hedge funds and seventh in the past eight months.

“The decline was driven by losses in equity and credit as global financial markets entered the new year with volatility on the rise,” eVestment states in its announcement. The biggest winners were macro and managed futures funds, the only strategies that finished in the black for the month. In fact, nearly 70 percent of the funds in those two groups made money in January.

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Chris Hohn’s The Children’s Investment Fund Management UK established a position in Atlantica Yield, according to its fourth-quarter 13F filing made public on Thursday. The U.S.-listed, U.K.-based company, formerly known as Abengoa Yield, owns a portfolio of contracted renewable energy, power generation, electric transmission and water assets in North America, South America and certain emerging markets. The stock, which trades on the Nasdaq, throws off a dividend yield of more than 10 percent. It is the only new position among seven holdings disclosed in the filing.

TCI also reduced its positions in five of the six stocks it previously held, including its largest holding, Time Warner Cable, a big winner for TCI in 2015. It also sold shares in cable giant Comcast, credit ratings company Moody’s, Chinese web search firm Baidu, and financial services giant American Express. It stood pat with its position in financial services firm Ambac.

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The Financial Industry Regulatory Authority (FINRA) has banned two brokers from the securities industry for allegedly committing fraud while selling a hedge fund. According to the regulator, the hedge fund lost 80 percent in its last full month of operation. Timothy Dembski and Walter Grenda of Buffalo, New York-based Mid Atlantic Capital Corporation made “material misrepresentations and omissions” that led investors in the hedge fund, the Prestige Wealth Management Fund, to believe it was a “growth” fund “that would be based on a computer algorithm that automatically included risk protections and stop-losses to limit losses in the fund.” Rather, the regulator asserts the fund was “highly speculative,” the chief investment officer had complete control over the investments and it was not required to use the computerized trading strategy. In their agreed upon settlement, Dembski and Grenda neither admitted nor denied the charges.

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Deutsche Bank raised its price target on CONSOL Energy from $6 to $7, calling it a “tweak” of its calculations. However, it maintained its hold rating on the coal stock, one of last year’s worst performers and a big favorite of David Einhorn’s Greenlight Capital. The investment bank adjusted the target price after slightly raising its cash flow estimates for the next three years. However, it stressed: “Management appears to be taking a slower pace on asset sales given high bid-ask spread.”

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Yikes! Hedge fund darling Sun Edison dropped another 13.56 percent or so, and is now down to $2.04. It will be interesting to learn over the next two days who owned the shares going into the new year.

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Hedge fund flows rose 0.66 percent in February after declining 3.28 percent the previous month, according to SS&C Technologies. “This improvement is very much in line with normal seasonal patterns,” says Bill Stone, chairman and chief executive officer of SS&C, in a press release. “This steadiness in investor confidence underscores the resilience of the hedge fund sector even in the face of significant deterioration in global markets, as has been seen thus far in 2016.”

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