In suits filed in Illinois, the SEC and the Commodity Futures Trading Commission took emergency enforcement action against hedge fund manager Nikolai Battoo for allegedly exaggerating the value of the assets he managed and concealing major losses from investors during the 2008 financial crisis.
Alex Akesson, editor of Hedgeco.net reports that the SEC alleges that Nikolai Battoo claims to manage $1.5 billion on behalf of investors around the world, including at least $100 million for U.S.-based investors. But contrary to Battoo’s proclaimed track record of exceptional risk-adjusted returns for his investors, he actually suffered major losses in 2008 due to his investments in the Bernard Madoff Ponzi scheme and a failed derivative investment program.
“Rather than admit the losses to investors,” The SEC said, “Battoo has been overstating the value of his investments in a variety of ways. By boasting benchmark-beating returns, he has continued to attract new investors. However, during the past several months, investors have requested redemptions on their investments with Battoo. Instead of paying them, Battoo has provided a series of excuses ranging from the MF Global collapse to others placing a hold on investors’ money due to government investigations.”
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New research suggests hedge funds are continuing to beef up risk management, and well they might: the report says they face 14 distinct forms of risk.
Risk Roadmap: Hedge Funds and Investors’ Evolving Approach to Risk, a study by the Managed Funds Association, BNY Mellon and HedgeMark based on interviews with chief risk officers of “leading global hedge funds,” found that 91% employed a third party administrator in some risk management capacity. Moreover, the risk officers surveyed expect that in five years, 41% of investor reporting will be published daily or weekly, up from 22% today and just 12% in 2007.
The study also found that 79% of firms now separate risk manager and fund manager functions; that 55% of firms considered liquidity risk their highest priority; that 60% of larger hedge funds have a dedicated risk management function and 84% use off-the-shelf risk analytics for portfolio management or trading.
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The Hedge Fund Association, an international organization that represents investors, hedge funds and service providers, today announced that it has appointed Don Steinbrugge, chairman of Agecroft Partners, to its board of directors. Mr. Steinbrugge will join the segment of the group’s board which represents the interests of hedge fund investors. The HFA also selected Joel Schwab, managing director of Hedge Fund Research (HFR) to be its new Midwest chapter director and Kislay (Sal) Shah of McGladrey to fill the newly created role of Connecticut chapter director. Mr. Shah also continues to serve on HFA’s board of directors representing the interests of hedge fund service providers.
Mr. Steinbrugge is the chairman and founder of Agecroft Partners, an award-winning hedge fund consulting and marketing firm, and has had a distinguished 27-year career in institutional investment management sales. Prior to forming Agecroft Partners, he was the head of sales and a founding principal of Andor Capital Management, which at the time ranked as the 2nd largest hedge fund in the world. Prior to that, he also held the roles as head of institutional sales for Merrill Lynch Investment Managers (now part of Blackrock) and head of institutional sales for NationsBank (now Bank of America Capital Management). Steinbrugge is also member of the investment committee for The City of Richmond Retirement System and The Science Museum of Virginia Endowment Fund, which gives him valuable insights into institutional investors’ decision making processes.
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