Benzinga's Daily Hedge Fund Briefing - January 11: Hedge Fund Predicts Economic Crash in China

Reflect on the views of the hedge fund manager (who smoked out Enron) Jim Chanos. He has built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other high-flying companies whose stories were too good to be true. Now Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.

This is not a new position for legendary short selling oriented Jim Chanos, but he continues to pound the table on the dangers of China. Its surging real estate sector, buoyed by a flood of speculative capital, looks like 'Dubai times 1,000 — or worse,' he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent.

But others say that China is no Dubai or Enron. China, the largest gold producer, is also set to overtake India as the world’s largest gold consumer.

However, the debate on the main-land does not prevent the Hong Kong-based funds management group from entering a new business arrangement. It hopes this will help it raise capital to invest in start-up Asian hedge funds.

Penjing Asset Management has partnered with funds management services provider Triple A Partners, an affiliate of Asia Alternative Partners Cayman Limited, to ramp up activity in its Penjing Seed Fund. The existing Penjing Asset Management seed fund will be renamed the Penjing Triple A Partners Emerging Managers Fund as the two groups seek to raise investment capital for start-up hedge funds in Asia. Source

History shows us that financial crisis breeds behavioural change. This time is no different. Consumer attitudes towards homeownership have changed ... semi-permanently. This is why the U.S. government has to encourage people to buy homes with extended and expanded tax credits.

Consumer attitudes toward automobiles have changed too, and this is the reason the government again has to entice people to buy cars through the 'cash-for-clunkers' program. Source

Banks have returned their lending to hedge funds and private equity firms to levels unseen since before the financial crisis, increasing leverage to players in the stock, debt, and buyout markets, but increasing risk.

Financial institutions including Citigroup (NYSE:C), Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM) and Morgan Stanley (NYSE:MS)are offering levels of borrowing not seen in two years. Terms of borrowing have also been loosened, but are not as easy as they were before the crisis. Source

Meanwhile, DE Shaw’s new fund nods to hedge fund worries. Hedge fund management heavyweight DE Shaw is preparing to launch a new fund that will be more liquid and transparent than its widely followed flagship macro-oriented fund.

The DE Shaw Heliant fund, the planned entity, is expected to set sail during the first quarter amid markets that, in Shaw’s view, are conducive to global macro strategies and investment styles that meld discretionary and systematic approaches. Source

A year ago today, the hedge fund market was on its knees. Average annual returns were touching 19 per cent, at least 150 European funds had been axed in the preceding 12 months, and hedge fund lending had dried up.

Twelve months on and the situation is much improved. According to figures from Credit Suisse/Tremont, annual returns have rebounded to 17.5 per cent – the best year-on-year figures since 1994 – fund openings rather than closures are once again the norm, and, importantly, prime brokers have reopened their credit lines. Source

Investment manager WisdomTree hopes a new exchange-traded fund that invests in foreign stocks but hedges currency exposure will find a receptive audience with investors nervous about the prospects of a strengthening dollar in 2010.

When U.S.-based investors buy a mutual fund that invests in international companies, in most cases they are also exposed to the fluctuations of that country's currency against the U.S. dollar. A vast majority of foreign-stock funds do not hedge against currency shifts. Source