This content is from: Portfolio

The Morning Brief: “Bad Actor” Rule Hamper’s Citigroup’s Hedge Fund Sales

Hedge funds are an unlikely victim of Citigroup’s recent settlement with the U.S. Securities and Exchange Commission over earlier sales of collateralized debt obligations. That’s because as part of the settlement Citigroup is being restricted from selling hedge funds to customers of its private client business, according to a Wall Street Journal report. It’s partly an issue of timing: Citigroup inked its settlement after the SEC implemented the so-called “bad actor” rule, which stipulates that parties with “a relevant criminal conviction, regulatory or court order or other disqualifying event” cannot participate in private offerings, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Other firms that made similar settlements before the rule went into effect do not face the same restrictions, according to the report.

The bank had been offering some 40 hedge funds, including Och Ziff Capital Management, to its wealthy private clients, who are required to have a net worth of at least $25 million. The banking giant will still be able to offer hedge fund investments to institutional clients, the report says, and Citigroup said it is working with the SEC to resolve the issue. The bank may be able to obtain a waiver from the SEC, according to the report.

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Being a hedge fund manager in London is not what it used to be, if a recent salary survey is to be believed. Emolument.com, which tracks salary data for financial careers, claims that hedge fund executives in the Big Smoke are earning 55 percent less than they did two years ago. The firm found that average total compensation at London hedge fund firms now clocks in at £120,000, or approximately $200,000, compared with £265,000 in 2012. Senior-level executives are feeling the most pain, with their bonuses falling by 62 percent, while junior-level employees are actually doing quite well, thanks to a 50 percent increase in bonus compensation over the same period. The news isn’t terribly shocking given that hedge funds on average have posted less-than-stellar returns over the period.

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Richard Handler, CEO of Leucadia National Corp., a New York-headquartered conglomerate, is joining the board of former SAC Capital Advisors executive Solomon Kumin’s new hedge fund and investing $400 million to boot, according to a Dealbook report. Kumin — whose firm Folger Hill Asset Management debuted last week — was in charge of new business and recruitment at SAC, which has since been converted to a family office called Point72 Asset Management after SAC pleaded guilty to insider trading in 2013. Leucadia, known as a “baby Berkshire Hathaway,” will invest the $400 million provided the firm can raise another $400 million on its own. Leucadia is also giving Folger Hill a three-year revolving credit facility of $20 million to help with startup costs, according to the report.

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Andrew Hall’s Astenbeck Capital Management had a rough month in July, posting a 7 percent loss, according to aWall Street Journalreport. The fund is still up some 12 percent for the year, according to the report. It is a welcome reversal of fortune for the famed commodity trader, whose fund posted an 8.33 percent loss in 2013, a slim 3.41 percent gain in 2012 and a 3.81 percent loss in 2011.

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