Report: Hedge Fund Investors Upbeat on Emerging Markets, Fixed-Income

(May 10, 2011) — The hedge fund industry has posted inflows of $15 billion in March, representing the seventh month in the past eight of positive returns, according to BarclayHedge and TrimTabs Investment Research.

“We expect recent strength to persist in light of a particularly kind landscape,” Sol Waksman, BarclayHedge’s president, says in a statement.

The research reveals that industry assets increased to $1.8 trillion by the end of March, the highest level since October 2008. Additionally, the report shows that hedge fund-of-funds obtained $3.4 billion, while emerging market funds attracted $3.4 billion, their eighth-straight month of inflows. The report finds that emerging markets and fixed-income strategies account for about half of all hedge fund inflows in 2011.

“The strength of flows into fixed-income is remarkable,” Vincent Deluard, Executive Vice President of Research at TrimTabs, notes in a statement. “Hedge funds investors and retail investors alike are keen on the space, while speculative traders and the Fed are buying Treasuries in size.”

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Additionally, the report reveals that commodity trading advisors (CTAs) took in $6 billion (1.9% of assets) in March, drawing further attention to investors flocking toward commodities investments to guard themselves from inflation, while tapping into demand from developing countries and markets.

Calming worries over heightened interest rates following QE2, Deluard added: “Although many market participants expect interest rates to increase after QE2 closes at the end of June, prices have plenty of support at present.”

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

(May 10, 2011) — In a 10Q released today, Goldman Sachs has disclosed that it is facing fraud charges over whether it improperly used investment accounts to conduct trades.

According to the filing, the Commodity Futures Trading Commission (CFTC) will recommend that the federal regulatory agency bring fraud charges against the banking giant over the firm’s role as clearing broker for an unnamed SEC-registered broker dealer. The CFTC has alleged that Goldman either “knew or should have known” that the broker-dealer’s sub-accounts at Goldman belonged to the dealer’s customers and weren’t the broker-dealer’s own accounts.

Goldman may now face “aiding and abetting, civil fraud and supervision-related charges.” In its quarterly regulatory filing, Goldman noted that the CFTC investigation will focus on Goldman Sachs Execution & Clearing (GSEC), which provides clearing and trade execution services for Goldman clients that include hedge funds, companies, mutual funds and central banks.

The heightened scrutiny by the CFTC illustrates its greater authority under Chairman Gary Gensler, a former Goldman Sachs executive appointed by President Obama. Late last month, as part of the Dodd-Frank law, financial regulators approved a 300-page proposal to define a new swaps plan, specifying the roles of the Securities and Exchange Commission (SEC) and the CFTC.

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The disclosure also comes weeks after the European Commission indicated that it was investigating the role of 16 investment banks, including Goldman, Royal Bank of Scotland and Barclays, into their influence over credit default swaps (CDS).

Last year, Goldman Sachs spent $500 million to settle civil fraud charges brought by the SEC, which accused the banking giant of failing to disclose conflicts in mortgage securities that cost investors more than $1 billion and fueled the worst financial crisis since the Great Depression. While the housing market crumbed, the suit said, Goldman profited by betting against the mortgage investments it marketed to its customers.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742