Goldman Sachs is pulling money out of its in-house hedge fund in order to comply with the Volcker rule’s limits on how much capital a bank can invest in hedge funds, the Wall Street Journal reports. The investment bank redeemed more than $2.3 billion from hedge funds between March 2012 and March 2014, most of it reportedly from Goldman Sachs Investment Partners, a multistrategy fund that began in 2008 with $7 billion in assets but was down to $5 billion as of the end of June. The Volcker rule says a bank can’t own more than 3 percent of the assets in a hedge fund, so Goldman will have to keep its allocation at no more than
$150 million.
The Journal reports that Goldman has been changing the way its prime brokerage division does business due to regulations. With requirements that banks hold more capital in reserve and the cost of basic prime brokerage services rising, Goldman has told its hedge fund clients that they have to produce a return on assets for the bank. Large prime brokers have always been selective about the hedge funds they take on as clients, but in the past they’ve wanted to do business with the hedge funds that bring in the most revenue.
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Och-Ziff Capital Management Group, Daniel Och’s publicly traded hedge fund firm, reported strong earnings for the second quarter of 2014. The New York–based company’s earnings were 18 cents a share for the quarter, up from 16 cents for the same period a year ago, and total assets under management reached a record $45.9 billion on June 30 of this year. Most of that is in hedge funds but some is in other investment vehicles. Och said that the flagship fund has had net inflows of $1.5 billion so far this year. The firm ranked No. 4 on Alpha’s 2014 Hedge Fund 100 list.
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Marc Lasry’s Avenue Capital Group and Fortress Investment Group have filed a lawsuit against the former owners of Quiznos. The hedge fund managers bought the troubled Denver-based sandwich chain in a restructuring deal in 2012, but in a civil lawsuit filed in U.S. District Court in Denver, they allege that former father-and-son owners Richard and Rick Schaden and six other top executives defrauded them by overvaluing the company, costing them “hundreds of millions of dollars.” The Schadens responded through a spokesman for their company, Consumer Capital Partners, who told the Denver Post it was “absurd to suggest that these self-described incredibly sophisticated investors” could have been misled so easily.
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Meanwhile Caesars Entertainment Corp. is taking a group of hedge funds to court. The Las Vegas-based casino operator, in a complaint filed in New York Supreme Court, names Appaloosa Management, Canyon Capital Advisors and Oaktree Capital Management as investors in lower-priority notes and credit default swaps who allegedly served Caesars with a baseless notice of default in an effort to enrich their own coffers. But the suit singles out Paul Singer’s Elliott Management for its holdings of both first-lien notes and an even larger position in credit default swaps; the complaint accuses Singer’s fund of having “the greatest ulterior motive in seeing that CEOC defaults rather than survives and thrives.” More than 30 bondholders objected to a $1.75 billion refinancing deal that Illinois casino regulators approved in July. Wilmington Savings Fund Society, a trustee for some of the bondholders, has countered Caesars with a suit claiming the company transferred assets fraudulently and wasted assets to avoid paying off its creditors.
