Hedge Fund

FCA Publishes Report on Hedge Fund Activity in the UK

On March 24, the FCA published a report which sets out its findings from a survey of hedge fund activity in the UK.

Key findings are:

    • 98 percent of total leverage used by hedge funds in the UK is acquired through derivatives.
    • Institutional investors are the dominant investors in hedge funds.
    • The proportion of high net worth individuals investing in hedge funds has declined.
    • Equity strategies are the most popular among the funds in the survey.   Report.

FSA Report on Assessing Sources of Systemic Risk from Hedge Funds

On August 22, the FSA published a report on assessing the possible sources of systemic risk from hedge funds, setting out the findings of the March 2012 hedge fund survey (HFS) and the April 2012 hedge fund as counterparty survey (HFACS). Report

Some of the key findings include:

  • Aggregate assets under management increased in the survey period;
  • Leverage remains largely unchanged and modest for most funds;
  • In aggregate, surveyed hedge funds report that they are able to liquidate their assets in a shorter timeframe than the period after which their liabilities would fall due; and
  • Counterparty exposures of surveyed hedge funds remain fairly concentrated among five banks.

The FSA intends to repeat the HFS in September 2012 and the HFACS in October.

FSA Levies Record Fine of £3 Million on Hedge Fund Manager Micalizzi

On 29 May 2012, the FSA published a decision notice indicating that it had decided to fine Alberto Micalizzi, CEO of Dynamic Decisions Capital Management Ltd (DDCM), a hedge fund management company based in London, £3 million and ban him from performing any role in regulated financial services for not being fit and proper. The FSA also decided to cancel the permission of DDCM to conduct regulated business.

Between 1 October 2008 and 31 December 2008, the master fund (the Fund) managed by DDCM suffered catastrophic losses of over USD390 million, approximately 85% of its value. In the FSA’s opinion, in late 2008, to conceal the losses, Mr. Micalizzi lied to investors about the true position of the Fund and entered into a number of contracts, on behalf of the Fund, for the purchase and resale of a bond (the Bond contracts). The FSA believes that the bond was not a genuine financial instrument and that Mr. Micalizzi was aware of this when he entered into the Bond contracts. This is the biggest ever penalty for an individual in the case of non market abuse imposed by the FSA. Decision Notice for Mr. Micalizzi.  Decision Notice for DDCM.

FSOC Volcker Rule Study

On January 18, the Financial Stability Oversight Council issued a study required by the Dodd-Frank Act entitled, “Study & Recommendations on Prohibitions on Proprietary Trading & Certain Relationships with Hedge Funds & Private Equity Funds”. The study recommends, among other things, that rulemaking agencies consider providing exceptions for certain funds that are within the Volcker Rule’s broad definition of “hedge fund” and “private equity fund”. FSOC Study.