Hedge Funds All In on VIX Plunge as S&P 500 Hovers Near Record – Joseph Ciolli

By Joseph Ciolli

Large speculators most bearish since 2013 on ‘fear gauge’
S&P 500 hit fresh all-time high intraday before trimming gains

(Bloomberg) —

Professional speculators are making record bets in volatility markets that U.S. stocks will keep rallying.

Hedge funds and other big traders tracked by the Commodity Futures Trading Commission have pushed net short positions on CBOE Volatility Index futures to 115,000 contracts, the most since 2013, (see chart) data compiled by Bloomberg show. Shorting volatility is effectively a bet equity prices will rise since the VIX and stocks move in opposite directions 80 percent of the time.

USD

The wagers were mixed Tuesday as the VIX climbed 1.4 percent to 11.66 after wiping out a 4.2 percent drop. The S&P 500 rose less than 0.1 percent to 2,181.74 at 4 p.m. in New York. The benchmark gauge for American equity climbed in four of the last five days to push its 2016 increase to 6.7 percent and its gain from February’s low to 19 percent.

The index was little changed near an all-time high as declines in commodity shares and retailers offset gains in health-care and technology stocks spurred by corporate earnings. The Nasdaq Composite Index increased 0.2 percent to a record for the second time in three sessions, and the Dow Jones Industrial Average added 3.76 points to 18,533.05. About 6 billion shares traded hands on U.S. exchanges, 14 percent below the three-month average.

Even with the advance, moves in stocks over the last month have been muted. The S&P 500 has failed to rise or fall more than 1 percent in either direction for 22 straight days, the longest such streak since 2014. The lack of price swings had sent the CBOE Volatility Index to a more than two-year low amid a better-than-expected corporate earnings season and economic data that showed signs of improvement.

“Each time volatility starts coming out, you have policy makers coming and crushing it back down,” Michael Kelly, New York-based global head of multi-asset strategy at PineBridge Investments, which oversees over $80 billion, said in an interview. “People are learning, you have protection underneath you.”

The drop in volatility has created such a downdraft in the prices of VIX-linked exchange-traded products that two securities carried out a reverse split Tuesday to increase their per-share value. The iPath S&P 500 VIX Short-Term Futures ETN and the iPath S&P 500 VIX Mid-Term Futures ETN both enacted 1-for-4 splits after shares tumbled 54 percent and 14 percent this year, respectively.

In the past 30 days, four VIX-related ETPs have declared reverse splits, the most in history, according to data compiled by Sundial Capital Research Inc.

“VIX positioning went from incredibly bullish back in February, when the world was coming to an end, to shorts at all time lows,” Michael Purves, chief global strategist at Weeden & Co LP in Greenwich, Connecticut, said by phone. “It’s crazy.”

While Purves largely attributes the VIX’s current suppressed level to the Federal Reserve’s willingness to reassure the market in times of turbulence, he also cites improving economic data. Citigroup Inc.’s U.S. Economic Surprise Index late last month hit its highest level since September 2014.

A report today showed productivity of American workers unexpectedly declined for a third quarter, consistent with lackluster efficiency that’s characterized the economic expansion. July payrolls data that beat estimates on Friday bolstered confidence in the U.S. economy, calming concerns following recent disappointing readings on growth in the first half of this year.

Stocks have also benefited from better-than-forecast earnings this season, particularly among technology companies. With about 90 percent of S&P 500 members having posted results, 77 percent have beaten profit predictions and 56 percent have topped sales projections.

Analysts have tempered their estimates for a decline in second-quarter net income to 2.7 percent, from a 5.8 percent drop less than a month ago. Forecasts for the current quarter ending in September have turned negative, indicating a sixth straight period of falling profits, the longest since the financial crisis. Sliding earnings are causing valuations to jump, with the benchmark’s price-earnings ratio last month climbing above 20 for the first time since 2009.

Among shares moving on corporate news, Endo International Plc soared 22 percent, the steepest climb since November 2013, after the drugmaker’s results beat analysts’ estimates. Microchip Technology Inc. added 7.1 percent to a record as its sales and profit outlook exceeded predictions.

Gap Inc. lost 6.3 percent, the most in three months, after comparable sales last month missed analysts’ estimates and the company provided some cautious commentary on the second half of the year. Target Corp. fell 3.2 percent after Cleveland Research lowered its estimates for the retailer’s same-store sales and earnings, saying customer traffic softened in July.

China’s manufacturing sector continues to splutter – David Scutt

DAVID SCUTT

AUG 1, 2016, 11:00 AM

Photo by Kevin Frayer/Getty Images

Activity levels across China’s manufacturing sector contracted last month for the first time since February, albeit by the smallest of margins.

The latest manufacturing purchasing managers’ index (PMI), released by China National Bureau of Statistics, came in at 49.9, fractionally below the 50.0 level expected by economists. It was the lowest level seen since February, and below the 50.0 level seen in June.

The index measures changes in activity levels from one month to the next. Anything above 50 signals growth, while anything below that level means contraction -— so the higher the number the better.

Writing earlier today, Richard Grace, chief currency strategist at the Commonwealth Bank, suggested that the index was likely to fall below 50, signalling contraction, “because floods disrupted economic activity across large parts of China during the month”.

According to the NBS, the weakness in July was concentrated in small and medium sized firms, offsetting an improvement in activity levels in larger manufacturing firms.

The large manufacturers PMI came in at 51.2, up from 51.0 in June. Elsewhere the readings for small and medium sized firms came in at 46.9 and 48.9, down from 47.4 and 49.1 reported in June.

Of the major subindices, output came in at 52.1, down from 52.5 in June, while new orders fell to 50.4, leaving it growing at the slowest pace since February this year.

After rising modestly in March and April, new export orders continued to decline — this time at a faster pace — with the subindex sliding to 49.0 from 49.6 in June.

Elsewhere readings on inventories, both of raw materials and finished goods, along with employment, imports and order backlogs, all continued to contract.

Despite the weak July report, manufacturers, as a whole, turned more optimistic on the outlook for activity levels with the subindex measuring expectations rising to 55.3 from 53.4.

While the manufacturing sector continued to splutter, there was better news elsewhere with the separate non-manufacturing PMI gauge, released in conjunction with the manufacturing PMI figure by the NBS, rising to 53.9 from 53.7 in June.

It now sits at the highest level seen since December last year, and indicates that activity levels across China’s non-manufacturing sectors — predominately services — are now expanding at a modest pace.

While the headline index rose modestly, somewhat surprisingly, most of the surveys internal components weakened in July compared to levels seen in June.

New orders contracted, falling to 49.9 from 50.8, while gauges on employment, selling prices, new export orders, order backlogs and inventories all came in below the 50 level signalling contraction.

Only business expectations, up 0.9 points to 59.5 — the highest level seen since February — and inventories (46.3 v 46.0) recorded a small increase compared to levels seen in June.

Given China’s tertiary sector is now the largest component of the Chinese economy, and also the fastest growing, the acceleration seen in the non-manufacturing PMI in July — albeit narrow in its composition — should help to offset weakness in the manufacturing report.

The market reaction to both data releases has been negligible, although Chinese commodity futures have ripped higher in recent trade, suggesting that some Chinese investors are betting that the weak manufacturing report may prompt a fresh wave of fiscal stimulus from policymakers. We’ll see.

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Australia: Bonds Deliver Yet Again – PIMCO

JULY 25, 2016

As we close the books on another Australian financial year, we make a striking observation: Over the last eight financial years, bond returns have exceeded equity returns on average by over 250 basis points per annum.¹ Over this time, bonds also achieved this performance with almost one-fifth of the volatility of equities and have continued to demonstrate strong diversification benefits.

Yet Australian investors continue to have one of the lowest allocations to bonds in the world. According to the Willis Towers Watson Global Pension Assets Study 2016, the average Australian pension portfolio allocated only 14% to bonds, well below other developed market counterparts like the U.S. (23%), the UK (37%), Canada (31%) and Japan (57%).

Since the global financial crisis, the number of Australians age 65 and over has increased by more than 750,000, a rise of 27% in just seven years.² With this dramatic shift in demographics comes an important need for retirement income; given the investment horizon is shorter, retirement income sources should generally obtain exposure to assets with lower levels of volatility.

Australia’s Economy Pivoting

History is one thing, but what about the future?

The growth engine of the Australian economy is pivoting from mining to housing, which can be characterised as moving from a sector where Australia had a legitimate comparative advantage to a sector where it has a comparative disadvantage. The mining sector benefitted from ample sources of high-quality ore and close proximity to China, whereas the housing sector will likely eventually be weighed down by Australia’s highly levered consumer, expensive house prices and no limit on the supply response.

This “unbalanced rebalancing,” combined with investors’ increasing focus on stable retirement income, bodes well for a healthy dose of bonds in Australian investors’ portfolios in the years to come.

To learn more about the macroeconomic factors affecting markets and investors, click on the PIMCO blog. You can also read more insights fromRobert Mead on the blog.

Robert Mead is a managing director at PIMCO in Sydney and head of portfolio management in Australia.

¹Source: Bloomberg. Data from 30 June 2008 to 30 June 2016. Indices: ASX200 Accumulation Index and Bloomberg AusBond Composite Bond 0+Index.

²Source: Australian Bureau of Statistics. Data from 30 June 2008 to 30 June 2015 (latest available demographics data).

Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Diversification does not ensure against loss. Investors should consult their investment professional prior to making an investment decision.

This material contains the opinions of the author but not necessarily those of PIMCO and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2016, PIMCO.

PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Asia Pte Ltd (501 Orchard Road #09-03, Wheelock Place, Singapore 238880, Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited (Suite 2201, 22nd Floor, Two International Finance Centre, No. 8 Finance Street, Central, Hong Kong) is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862 (PIMCO Australia) offers products and services to both wholesale and retail clients as defined in the Corporations Act 2001 (limited to general financial product advice in the case of retail clients). This communication is provided for general information only without taking into account the objectives, financial situation or needs of any particular investors.

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Why Australian investors use offshore funds – Craig Stanford…..Cuffelinks

by Craig Stanford on July 20, 2016

The recent release of the ‘Panama Papers’ shone a spotlight on offshore financial centres, but unfortunately, most of the reporting painted an incomplete picture of the industry. Many articles confused the concept of an offshore financial centre with that of a tax haven, but these are two separate concepts. The important differentiating feature of a tax haven is not that is has low or no taxes, but rather that it tends not to share data with the tax or regulatory authorities of other countries. In other words, not all offshore financial centres are the same.

This article explains the differences and why setting up a fund offshore can be attractive.

The Cayman Islands, for instance, is a popular domicile for hedge funds and has no corporate taxes, although it does have a well-developed reporting framework that automatically shares important tax data on locally-domiciled entities with the relevant tax authorities in the US and UK. For this reason, it is not regarded as a tax haven despite having zero tax rates.

A few articles took matters a step further, suggesting that all offshore hedge funds were secretive and opaque investment vehicles used by wealthy individuals to avoid paying taxes. This fiction was enhanced when the hedge fund is incorporated in a jurisdiction which was incorrectly portrayed as a tax haven.

Although this makes a great story, the press frequently confuses a tax neutral jurisdiction with a tax haven. The reality is that the largest investors in hedge funds are institutions including pension funds, sovereign wealth funds and insurance companies in developed countries and regions like the US, UK and Europe. These investors require the benefits that come from investing in a tax neutral, offshore jurisdiction.

No imposition of an additional layer of taxes

Tax neutrality essentially means that the country where the fund is domiciled (or registered) does not impose its own additional layer of taxes on the investors in the fund. But this does not mean that investors in tax neutral funds do not pay taxes. Tax neutral status is not unique to offshore funds and there are tax-neutral investment fund categories in the UK and the USA, for example. What sets offshore funds apart is the combination of tax neutrality and investment flexibility allowed by the fund structure.

Investment through a fund adds a potential layer of tax as opposed to the investors owning the underlying investments directly. Funds are given tax-neutral status to prevent the layer 2 tax being applied in addition to the taxes incurred at layers 1 and 3, so that an investor would be indifferent to holding the assets directly or through a fund, as illustrated Table 1 below.

Table 1: Different layers of potential tax in any fund

Investment flexibility

Another key benefit of investing in an offshore fund is that it can have more investment flexibility than a domestically domiciled fund. Although we have a flexible investment regime for domestically-incorporated hedge funds in Australia, other countries are not so fortunate. For those managers the ability to leverage investments with borrowed money, or to undertake short selling, is an important part of being able to manage their client’s capital effectively.

Regulation is continually evolving, and as it has the scope of ‘know your client’ rules have been expanded. As such, investors in certain offshore fund jurisdictions are fully and automatically reported to international tax authorities such as the US IRS and the UK HMRC. With the implementation of FATCA, the hedge fund must register and provide this data and if it does not, it will face penalties and will be unlikely to be able to trade with market counterparties (who are required to confirm the FATCA compliance of firms or funds they deal with). Funds will likely expel investors who refuse to disclose sufficient information about their identity rather than risk running foul of the tax authorities.

This is what makes offshore funds so attractive to investors. Investors seeking to invest in stocks or bonds have a choice. They can either buy these instruments directly themselves or via collective investment vehicles such as funds, which pool monies from a number of investors and then manage the pool on their behalf. The use of collective investment schemes gives investors, including pension funds and other sophisticated investors, the ability to diversify their portfolios across a broad range of investment strategies such as those pursued by hedge funds.

The investment fund management industry is global in terms of the location of investors, the fund management team and the portfolio investments. Consequently, the challenge for fund managers is how and where to create investment fund structures which are able to accommodate in a cost- efficient way investors from all over the world. They must operate within the complexities of existing tax and securities laws that apply to those investors, the management team and the business or investment activities, in their multiple home jurisdictions.

http://cuffelinks.com.au/australian-investors-use-offshore-funds/

Craig Stanford is Chair of the Alternative Investment Management Association (AIMA)’s Investor Education Committee in Australia and Head of Alternative Investments at Morningstar Investment Management Australia. This article is adapted from the AIMA paper, ‘Transparent, Sophisticated, Tax Neutral: The Truth About Offshore Funds.’ For further information, contact AIMA. The information provided is for general use only and does not constitute personal financial advice. Views expressed are those of the Alternative Investment Management Association and do not necessarily represent those of Morningstar Investment Management Australia or Morningstar, Inc.

More than 500 SMSF licensing applications in limbo – Miranda Brownlee SMSF Adviser

An industry lawyer has warned accountants that many of the 582 limited licence applications still pending assessment could take several months for ASIC to process, and are not guaranteed approval.

WRITTEN BY

Miranda Brownlee

Friday, 08 July 20160 Comments

An update from ASIC yesterday revealed that out of the 1,146 licence applications it received from the beginning of the transitional period, only 317 have been granted a licence of have been offered a draft licence.

A further 582 applications are still yet to be assessed by ASIC while another 264 applications have been withdrawn or returned to applicants because they were “incomplete, deficient, or missed mandatory information”.

Two licences that were refused by ASIC have been referred to an ASIC Hearing’s Delegate.

Speaking to SMSF Adviser, Holley Nethercote partner David Court said some of the pending applications that were lodged in the very late stages of the transitional period may take several months to be processed.

“There are two outcomes [for pending licence applications]; they’ll either be rejected if they don’t meet the requirements or if they’ll be accepted and get a licence in due course, which could be several months at this stage,” said Mr Court.

“Once the accountant has the licence they’re good to go, but in the meantime they’ll be treated as if they’re unlicensed.”

Mr Court said there will be some scope with the pending applications to provide ASIC analysts with additional information, where required.

“It may get to the point with some applications where ASIC says the application is not good enough and they’ll reject it,” he said.

“The rejection rate for limited licensing for accountants has been fairly high compared to other types of financial services licensing so I imagine a fair few of the 582 would be rejected.”

Mr Court said that ASIC is concerned about the low levels of licence applications as it thinks a lot of accountants have simply chosen to ignore it.

“ASIC will now move from a licensing environment to an enforcement environment, and they’ll start looking in a lot more detail at accountants who aren’t licensed, and seeing whether they should be,” he said.

SMSF Adviser article

You don’t have to self manage with an SMSF, despite the name – SMH

Just because a self-managed super fund (SMSF) has the words “self managed” it doesn’t mean you are all alone to set one up or run a fund by yourself. Help is close at hand. A recent Investment Trends report suggests around 40 per cent of SMSF owners seek advice from a financial adviser and close to 100 per cent use an accountant or specialist administrator to assist with the compliance obligations such as tax returns, minutes, member statements, managing contributions and pensions.

If you think obtaining professional advice is expensive, remember the cost of amateur advice could be astronomical. Obtaining good advice and finding someone you can trust can have both qualitative and quantitative positive effects on your super fund.

On the qualitative front, good advice provides piece of mind, and from a quantitative perspective, advice can add thousands of extra dollars to your super fund that may help you have a better retirement sooner. For example, a person earning $100,000 and salary sacrificing $20,000 per annum can save $4500 in tax a year. This simple piece of advice has a direct correlation to increasing your wealth and it is just one of many potential advice strategies. So too, having a trusted professional such as an accountant or adviser can provide an innumerable level of comfort for investors.

Of the 33,000 practicing accountants providing services to SMSFs, only 9500, or just under 30 per cent, are licensed to provide investment and strategy advice. This number illustrates that finding the right professional can be problematic and like seeking good medical advice, wealth advice requires some due diligence and thorough research.

The Self Managed Super Funds Association includes professionals from the financial planning profession and the accounting fraternity, and their collective nuanced associations and groups who specialise in SMSF advice. You can also refer to the Financial Planning Association, Certified Practicing Accountants or Charted Accountants for their specialist advisers, too.

Expect to pay around $2500 to $3500 for a specialist adviser or accountant to do your returns and administration, or you can access a discounted online service for around $1000 a year. Financial advisers who manage money will often charge a percentage of fees (typically 1-2 per cent in total of funds under management) although some may charge a fixed fee for once-off advice or a fixed monthly or annual fee for ongoing advice and portfolio management. There’s a service to suit all sorts of needs.

Like all professionals in your life, the most important aspect is finding someone you can trust and work with over the long term. Once you determine what services you need, then you can decide who it is that you are going to seek out. Family and friends can be a great source of referral for you and often they’ve done the legwork to choose someone who is right for them so, potentially, that person may be right for you, too.

Make sure you do your homework and never feel like you are all alone. Managing your own money can be overwhelming when times get tough and seeking a second opinion can not only save you thousands or make you thousands, it can give you something much more important: peace of mind.

Financial planner Sam Henderson is chief executive of accounting, advice and funds management firm Henderson Maxwell.

Terrifying highlights from Ray Dalio’s note on the China bubble

BEN MOSHINSKY JUL 24 2015, 11:18 PM

image (4)

We got hold of Ray Dalio’s note on China to Bridgewater Associates’ clients, and it’s way worse than everyone first thought. Bridgewater is the world’s largest hedge fund, and it is advising its investors to get the heck out of China because “There are now no safe places to invest.”

This is the context, per Dalio: “because the forces on debt are coming from debt restructurings, economic restructurings, and real estate and stock market bubbles bursting all at the same time, we are now seeing mutually reinforcing negative forces on growth.” He estimates that those negative forces may wipe between 1.8% and 4% off China’s GDP growth. (Given that some people believe that China’s real GDP growth is already as low as 5%, that would be catastrophic.)

Here are the highlights:

1: Chinese households lost more money than anyone in recent memory.

Retail speculators lost the equivalent of about 1.3% of the country’s GDP gambling on stock prices going up. The market went down — and hard — losing about 22% of its value in a month.

They lost more than their American counterparts did during the the tech and finance meltdowns of 2000 and 2008. COMBINED.

Chinese households lost big money

2. The dumb money was really dumb.

67% of retail investors had less than a high school education and were borrowing money to trade.

3. Big companies also got caught up in the bubble.

According to the note, people who should have known better were also taking losses. Dalio says: “We did not properly anticipate the rate of acceleration in the bubble and the rate of unravelling, or realise that the speculation in the markets was so big by established corporate entities as well as the naive speculators.”

4. Economic growth is usually terrible after an asset bubble pops

GDP growth is hit hard

China is targeting 7% GDP growth but very few people believe they can hit that. Dalio just added his voice. The psychological effects of people losing money on the stock market can quickly translate into lower growth and consumer spending.

Dalio said: “We believe the that the stock market was in a bubble that burst, and the fact that this is coming on top of both the debt bubble bursting and the economy transitioning growth from sectors that cannot sustain their growth rates to other sectors is more reason for concern.”

5. The Chinese government is trying too hard to prop up the market

The Bridgewater note estimates the Chinese government has spent RMB 380 billion propping up stocks, and has a total war chest of RMB 3.5 trillion at its disposal. While this helps things in the short term, in the medium and longer term it can hurt credibility among investors.

Here’s Dalio summing it up: “History has shown that smart investors tend to sell when the government is artificially supporting prices and buy when they are liquidating positions.”

And concluding: “I believe that China’s policy makers have both considerable resources and skills and the willingness to manage it well, though the new development makes me less confident it can be managed without a painful economic slowdown along the way.”

Government to move on crowdfunding – The Australian

Glenda Korporaal

Senior Journalist, Sydney

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Small Business Minister and Assistant Treasurer Kelly O’Dwyer in her office at Parliament House in Canberra. Picture: Author: Kym Smith. Source: News Corp Australia

The federal government is to introduce new legislation to allow crowd- sourced equity funding that will force crowdfunding platforms to register with the Australian Securities and Investments Commission and allow investors a five-day cooling-off period.

The legislation will allow start-ups and small companies, with a turnover of less than $5 million, to raise annually up to $5m in equity through crowdsourcing.

The Minister for Small Business and Assistant Treasurer, Kelly O’Dwyer, announced the details at a breakfast in Sydney yesterday hosted by the Financial Services Council.

Ms O’Dwyer said the purpose behind the changes would be to “allow mum and dad investors to make investments in start-ups and small businesses”.

It would also “allow small businesses access to the financial arrangements that are accessible to other small businesses around the world and which, up to this point, has not been able to be accessed in Australia”.

She said Canada, the UK, US and New Zealand already had legislation to allow their companies to raise equity through crowdfunding to finance or expand their businesses through licensed intermediaries.

Ms O’Dwyer said the new laws would be focused on public companies with an annual turnover and gross assets of less than $5m. While US legislation limits the maximum funds that an issuer can raise by crowd funding to $US1m ($1.4m) in any 12-month period, Ms O’Dwyer said the Australian scheme would have a higher cap of $5m.

“This means that the founders of a microbrewery in Tasmania can get their business off the ground with the investment of mums and dads in places like Albury and Sydney.”

She said the government would announce the full details of the proposed legislation in the innovation statement in early December.

“We see it as unlocking great benefits for business, for growth, for employment and also for mum and dad investors who are looking to make investments,” she said. “Traditionally, mum and dad investors have been very keen on putting their money into the stock market and into property and this will allow them the opportunity to invest in small- and medium-sized business in Australia.”

Ms O’Dwyer said the five-day cooling off period would be included in the legislation as “mum and dad investors do need time to consider the investments they have made”.

“There are cooling off periods that apply for all sorts of other investments and we believe it is appropriate for this sort of investment,” she said.

Ms O’Dwyer said the government was consulting with stakeholders and hoped to have the legislation into parliament before the end of the year.

“We are keen to get it in and operating as soon as possible,” Ms O’Dwyer said.

She added that the government was also consulting with the industry on “options to facilitate” crowd-sourced debt funding.

Singapore-based hedge fund star Stephen Diggle seeking money managers, traders – The Straits Times

HONG KONG (BLOOMBERG) – Mr Stephen Diggle, co-founder of a hedge-fund firm whose assets expanded more than 1,000-fold before it returned investors’ money, is re-entering the industry with a plan to back managers and traders seeking a new career in money management.

Mr Diggle’s Singapore-based Vulpes Investment Management has opened the multistrategy Kit Trading Fund, led by former Merrill Lynch & Co trader Michael Downer, on Dec 1, according to an e-mailed statement.

It plans to have as many as 12 managers trading for Kit over the next six to 12 months, using investments by Vulpes and the money the managers themselves can bring in, Mr Diggle said in a telephone interview from Singapore on Tuesday (Dec 8).

He helped build Vulpes’s predecessor, Artradis Fund Management, into a hedge-fund firm that grew from US$4.5 million (S$6.3 million) in 2002 to US$4.8 billion in 2008, before returning money to its investors a few years later. Now he is seeking to provide what he describes as a hybrid between a hedge-fund “hotel” and an incubator for traders leaving global banks, he said.

Financial firms around the world are shrinking their proprietary trading desks and asset managers are paring back amid declining returns.

“The vast majority of these guys don’t have any capital backing them,” said Mr Diggle. “There are fewer options to go and a greater pool of talent looking for a home in Asia because the hedge-fund industry probably has contracted more than in Europe and the US.”

Artradis made more than US$2.5 billion of realised gains for investors between August 2007 and December 2008, with its volatility hedge funds profiting from seesawing markets, according to the statement.

It returned investor money in 2011 after asset-price swings subsided, leading to losses. Vulpes now mostly invests money from its staff in assets from German property to kiwi farms.

The Kit fund will not raise capital from outside investors initially, said Mr Diggle, although it plans to do so after contributions from Vulpes’s partners reach US$20 million.

Mr Diggle is stepping into the business as large institutions, which control the bulk of industry assets, have favoured big and established managers after the 2008 global financial crisis, starving smaller start-ups of capital.

HS Group in Hong Kong and Dymon Asia Capital (Singapore) are also backing managers seeking to start their own hedge funds.

Kit is looking for traders whose strategies have low correlations to the markets and are less volatile. Those include equity long-short managers betting on rising and falling stocks, traders looking to profit from price differences between related securities, and those who use computers to trade currencies and fixed-income securities, Mr Diggle said.

It will provide support services, allowing traders to join with only investment staff. “Over time, we hope to see the best of these traders spin off to form their own hedge funds,” Mr Downer said in the statement.

Mr Diggle said that unlike bigger incubators, which put pressure on managers to expand assets, Kit will be happy to retain indefinitely good traders whose strategies can accommodate only limited assets or who do not have the ambition to run large funds.

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