Singapore Hedge Fund

Alternative asset management in Singapore

Even Hedge Fund can burn their wings in Indonesia…

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This is a really good piece of news found on AsianInvestor

Once upon a time, Indonesia had a reputation for sharp practise. However, the balloon of epiphany went up after the Asian economic crisis of the late-1990s. The gatekeepers of Indonesia realised that, in business, their old game was up, and in order to obtain foreign investment, they would have to play fairly and decently. They did just that and everyone lived happily ever after.

It makes a nice fairytale ending, but who really is that lying in the bed of Little Red Riding Hood’s granny? And why does granny have such big teeth?

Hedge fund investors are finding the wolf under the eiderdown in the form of a deal they undertook with Central Proteinaprima in Indonesia. CQS, Marathon, Highbridge and GLG Partners, among others, are understood to have bought $200 million in 2% secured exchangeable bonds issued by a company called Red Dragon in 2007. The bonds were convertible into ordinary shares of Central Proteinaprima.

Red Dragon is a Singapore special purpose vehicle controlled by the Chearavanont family, which is behind both the bond issuer and the Charoen Pokphand Group that hails from Thailand.

The bonds that the hedge funds bought should have given them a 70% stake. However, the company undertook a rights issue, didn’t tell the hedge funds about it, and that has diluted their interest to about 41%.

That’s the precise moment when the two parties fell out of love.

Bondholders complained. Red Dragon got in high dudgeon and hired the lawyer that crushed Manulife in Indonesia. The firm started issuing multiple $1 billion writs suing just about everyone connected with their investor counterparties.

On the side of the Chearavanont family, up popped Hendrik Tee, the former CFO of consummate debt reneger Asia Pulp and Paper.

AsianInvestor tried to obtain a comment from Red Dragon regarding this story, but there had been no response at the time of publication.

If anything material has come out of financial crises, it is the invention of a new job description; a person who rapidly switches a white hat for a black hat and advises companies on how to combat investors.

It seems to add insult to injury that not only have the investors been diluted, but for the perceived upset they have inflicted on the issuer, they might also be billed billions of dollars.

Aha, but surely the court with jurisdiction over the deal is going to adjudicate that this a frivolous counter claim? Not so, because the governing law in the documentation is not only English, but Indonesian law as well. So it is back to the South Jakarta District Court, a familiar forum for foreign financial institutions.

There are two sides to every story, so AsianInvestor readers need not leap to conclusions just yet. We have asked Central Proteinaprima and Red Dragon to tell us their version of events.

Though it appears the moral of this story so far is that investors (yes even the sophisticated ones) need to read the fable of the frog that allows the scorpion to ride across the river on its back.

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Betting on the the best performance for 10 years?

It is not just about green shoots anymore…Hedge funds will likely deliver their best first-half performance in a decade, as investors renew their faith in the sector in the wake of last year’s disastrous losses. According to Hedge Fund Research (HFR), the Chicago-based research firm that compiles daily statistics on performance, Hedge funds worldwide returned 5.63 per cent to their investors in the year to last Thursday.

Strategies that forecast big directional market moves made profits of 12.52 per cent over the period as equity markets in Europe, the US and Asia-Pacific posted strong gains and liquidity gradually returned to the credit markets. Actually, confidence in hedge funds returned in a single day in March, when the US Government unveiled the second strand of its Trouble Asset Relief Program, said one hedge fund chief executive.

Toscafund, the West End fund run by former Commerzbank banker Mehmet Dalman, was most recently understood to have improved by more than 50 per cent since January.

According to HFR, energy hedge funds, convertible arbitrage and Asia investment funds have all posted strong gains this year. Besides, hedge fund investors lost an average of 18.9 per cent last year, as the sector plunged to its second annual loss and confidence in alternative asset management hit rock bottom.

HFR said that the total funds under management, which at its peak topped $2 trillion, decreased to below $1.5 trillion, as panic-stricken investors rushed to take back assets. In addition, Man Group, Brevan Howard, Lansdowne, Marshall Wace and CQS have announced their opposition to an EU draft policy on Alternative Investment Fund Managers, which they say is flawed and has been rushed through with little consultation.

The proposed directive, which has caused consternation across the industry, imposes severe new reporting requirements on funds and regulates them and their managers as never before.

with e-commerce journal

Jean Viry-Babel
senior partner
VBK partners

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