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According to industry consultants at the Hennessee Group, the average hedge rose 3.05 percent last month after inching up 1 percent in February and starting 2010 with small losses of 0.5 percent. Since January, the average fund has gained 3.5 percent, the data showed. During the same time the average U.S. stock fund climbed 5.67 percent, according to industry research firm Lipper.

"Investors remain willing to assume greater levels of risk, and equity markets rallied sharply in March," Charles Gradante, one of Hennessee Group's co-founders, said about hedge funds' gains last month.

Performance numbers are closely followed by hedge fund industry analysts to gauge the $1.5 trillion industry's health and how much money wealthy investors might commit later.

Strong gains at some of the industry's biggest and most prominent firms helped push the overall index up last month and put these normally secretive managers back in the spotlight, according to people who had seen the numbers but were not allowed to speak about them publicly.

John Paulson, one of the industry's savviest investors after correctly betting three years ago that housing prices would fall, delivered double-digit returns when his Recovery fund gained 13.24 percent in March. Paulson's firm manages roughly $32 billion and late last year he made bigger bets on financial stocks, according to regulatory filings.

Daniel Loeb's Third Point also gained with his offshore fund rising 8 percent after the fund manager disclosed in regulatory filings that he had added financial stocks Citigroup and CIT late last year.

The Hennessee Group's financial equities index gained 5.36 percent while its distressed index climbed 5.32 percent. The Asia-Pacific Index gained 5.28 percent and the emerging market index was up 5.47 percent.

While hedge funds made money in March, their returns fell short of the average stock index where the Standard & Poor's Stock index gained 5.88 percent last month and the technology heavy NASDAQ Composite Index rose 7.14 percent.

Part of the reason may be that managers were still cautious, Gradante said.

Still the industry's strong showing so far this year should help pave the way for more assets to flow. Demand is expected to increase especially at pension funds as some of the country's biggest are being forced to fund bigger-than-expected gaps between what they must pay retirees some day and the money they set aside for these payments.

Not surprisingly, the hedge fund industry's worst performers last month were so-called short sellers, managers who bet exclusively that share prices will drop.

The short-biased index lost 5.24 percent last month to be off 5.60 percent for the first quarter.

Prominent firms that lost money last month -- although they are not exclusive short sellers -- include David Einhorn's Greenlight Capital which was down roughly 1.3 percent since January. Billionaire investor Carl Icahn's fund slipped about half a percent, people who had seen their numbers said.

Hennessee was the first prominent research firm that tracks performance and flows to release monthly and quarterly numbers on Thursday. Other firms, including Hedge Fund Research, are expected to be released by the end of this week.

(Reporting by Svea Herbst-Bayliss, editing by Matthew Lewis)

Hedge fund assets may hit their pre-financial crisis peak this year, according to the people in a position to make that happen.

A Credit Suisse Group survey of about 600 institutional investors show a confidence that the industry could be managing $2 trillion by the end of December, an increase of 25% this year. Much of that growth will come in the Asia-Pacific region, with 61% of survey respondents saying they are increasing, or might increase, their allocations to the region.

While they’re ready to pour more money into the asset class, institutional investors are more wary, and more selective, than they were before the financial crisis. Due-diligence takes more time, with 65% saying they spend more time investigating managers before they invest. The due-diligence process now takes almost six months, 30% longer than 18 months ago.

And investors are putting their increased allocations with fewer managers. The average number of hedge fund managers employed by those surveyed fell 17% over the last year-and-a-half to 48.

“Investors are taking a more selective, thoughtful approach and concentrating their investments with the managers in whom they have the greatest degree of trust,” Benjamin Happ, head of capital services in Hong Kong for Credit Suisse’s prime services division, said.

The Prime Minister insisted businessmen who backed David Cameron's plans for curbing hikes planned for next April had been ''deceived''.

He also spoke of his concerns about taking young sons John and Fraser on the campaign trail.

The comments came in an interview with GMTV as the party leaders prepared to square up at the final Prime Minister's Questions before the General Election on May 6.

Pressed on continuing criticism from business figures of the Government's proposed NI rises, he insisted: ''I think they have been deceived. Because the big issue is: Can we sustain the economy?''

He went on: ''Britain is on the road to recovery. Don't put that at risk.

''The Conservative's policy would take £6 billion out of the economy. That is a huge sum of money to take out of the economy.''

He also rejected the idea that VAT could be increased to help reduce the spiralling deficit.

'We have looked at it and decided on National Insurance,'' Mr Brown said. ''We thought that was a better and fairer tax.''

The Labour leader went on: "National Insurance is to pay for the public services that we are getting. We have more teachers... we have got more nurses, we have got more doctors. That is what we are trying to maintain - the high standard of public services."

Some 23 senior figures initially wrote to The Daily Telegraph last week expressing support for a Tory pledge to halt the bulk of the NI rise.

Lord Mandelson, the Business Secretary, fuelled the row by suggesting that they had been "deceived" by the Tories.

Since then more business leaders have signed up, with the latest including Ocado founder Tim Steiner, Asos chief executive Nick Robertson, Monsoon's Peter Simon and Yell chairman Bob Wigley.

In his interview on GMTV, Mr Brown accused the Conservatives of planning to cut child tax credits, and said Mr Cameron's tax breaks for marriage would punish single parents and widows.

Asked about his family's role in what promises to be a gruelling campaign, Mr Brown said his wife Sarah was giving him "tips".

"I think we are a bit worried about the children because obviously we are taking a lot of time going round the country," he said.

"But we like to see them every evening and make sure they are okay. But it is really good that (Sarah) is coming with me. She is always giving me tips. About how to do things better."

Mr Brown said he "relished" the prospect of televised leaders' debates.

John Stapleton, the GMTV presenter, also revealed that he and Mr Brown had been briefly stuck in a lift at the studios earlier.

"We made it in the end," he joked.

Meanwhile, shadow chancellor George Osborne said the PM had "declared war on British business".

"For the first time he has said that business leaders have been 'deceived' into opposing Labour's jobs tax," Mr Osborne insisted.

"When Peter Mandelson made the same accusation, they reacted with understandable anger.

"This is a highly significant moment which proves that Gordon Brown is on the wrong side of British business and working people who know that Labour's jobs tax will put the recovery at risk."


March 17, 2010, 7:15 AM EDT

By Bei Hu

March 17 (Bloomberg) -- China is in the midst of “the greatest bubble in history,” said James Rickards, former general counsel of hedge fund Long-Term Capital Management LP.

The Chinese central bank’s balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan, said Rickards, now the senior managing director for market intelligence at McLean, Virginia-based consulting firm Omnis Inc.

“As I see it, it is the greatest bubble in history with the most massive misallocation of wealth,” Rickards said at the Asset Allocation Summit Asia 2010 organized by Terrapinn Pte in Hong Kong yesterday. China “is a bubble waiting to burst.”

Rickards joins hedge fund manager Jim Chanos, Gloom, Boom & Doom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China’s economy. The government has raised banks’ reserve requirements twice this year after economic growth accelerated and property prices rallied.

China has pegged the yuan to the dollar since July 2008 to help exporters weather the global recession. The central bank buys dollars and sells its own currency to prevent the yuan strengthening, driving foreign-exchange reserves to a world- record $2.4 trillion as of December.

The Shanghai Composite Index of stocks jumped 80 percent last year and property prices rose at the fastest pace in almost two years in February, helped by a record 9.59 trillion yuan ($1.4 trillion) of new loans in 2009.

‘Massive Stimulus’

The World Bank indicated today that China should raise interest rates to help contain the risk of a property bubble and allow a stronger yuan to help damp inflation expectations. The nation’s “massive monetary stimulus” risks triggering large asset-price increases, a housing bubble, and bad debts from the financing of local-government projects, Washington-based World Bank said in a quarterly report on China released in Beijing.

“People making comments about bubbles possibly don’t have all the facts,” HSBC Holdings Plc Chief Executive Officer Michael Geoghegan said in Shanghai today. Regulators are in control of the banking industry, and have the ability to curb lending as needed, he said.

Rickards said leveraged speculation in the stock market, wasteful allocation of resources by state-owned enterprises, off-balance-sheet debt through regional governments and the country’s human rights record are concerns.

“Take Russia and China together, neither of them is really deserving any investment” except for short-term speculation, Rickards said. India and Brazil are two of the “real economies” among the developing countries, he said.

Hard Landing

China is poised to overtake Japan as the world’s second- largest economy this year, according to the International Monetary Fund, and Nomura Holdings Inc. forecasts it will contribute more than a third of global growth. The nation has surpassed the U.S. as the world’s largest auto market and Germany as the No. 1 exporter.

Harvard’s Rogoff said Feb. 23 that a debt-fueled bubble in China may trigger a regional recession within a decade, while Chanos, founder of New York-based Kynikos Associates Ltd., predicted a slump after excessive property investments.

Investors Bob Doll and Antoine van Agtmael say China’s stock market isn’t a bubble.

Equities will gain by the end of the year as the government takes measures to prevent the economy from overheating, Doll, BlackRock Inc.’s chief investment officer for global equities, said on March 5. China is unlikely to face “chaos” or experience a hard landing, Van Agtmael, who helps manage $13 billion as chairman and chief investment officer of Emerging Markets Management LLC, said in a Bloomberg Television interview yesterday.

Lending Slowdown

The Shanghai Composite Index is valued at 32 times reported earnings, compared with 52 times at its peak in October 2007. The U.S. benchmark Standard & Poor’s 500 Index trades at 19 times earnings.

China’s economic growth quickened to 10.7 percent last quarter, helped by a 4 trillion yuan, two-year stimulus plan for railways, airports and homes. Property prices in 70 cities rose 10.7 percent from a year earlier in February.

Bank loans slowed to 700 billion yuan last month after surging more in January than the previous three months combined, central bank data showed. Growth of the broadest measure of money supply, or M2, slowed for a third month to 25.5 percent.

‘Very Sound’

The banking industry has “very low impairment charges compared to what you’d expect this time in the cycle,” HSBC’s Geoghegan said. “I wouldn’t be surprised if there’s a gradual increase in impairments, but long term I’m confident that the structure of the banking industry is very, very sound.”

Rickards disputed an argument that China could hold U.S. policies hostage through its Treasuries holdings. The nation remained the largest overseas owner of U.S. debt after trimming its holdings by $5.8 billion in January to $889 billion.

China would suffer massive losses if the debt was dumped, reducing the funds available in the U.S. securities market and forcing the prices lower, he said. The U.S. president also has the authority, rarely used, to freeze such positions, he said.

Rickards worked for LTCM between 1994 and 1999 and helped to negotiate its rescue by 14 Wall Street firms after the fund lost $4 billion in a few weeks in 1998. The Federal Reserve brokered the bailout on concern that LTCM’s collapse would cause a meltdown in financial markets.

--Editors: Matthew Brooker, Chitra Somayaji.

By Nikki Tait in Brussels and George Parker and Brooke Masters in London

Published: March 16 2010 11:21 | Last updated: March 16 2010 13:42

European Union finance ministers on Tuesday abandoned efforts to reach a compromise deal over the EU’s controversial proposals to tighten regulation of hedge funds and private equity after a last-minute intervention by Gordon Brown, the British prime minister.

The proposed Alternative Investment Fund Manager directive, the first effort at drawing up EU-wide rules for the industry, has faced sharp criticism from both private equity and hedge funds.

The sticking points

The stalemate centred on differences over the extent to which non EU-based fund managers and funds should be allowed to market on an EU-wide basis, provided the jurisdictions in which they were based met certain standards – the so-called “passport” issue.

Coupled to this was the question of how those standards should be defined and how much discretion should be given to Brussels to impose conditions – which British officials claim raises issues of extraterritoriality.

The most controversial part of the directive focuses on its rules for non EU funds and managers, which critics say unfairly discriminate against US fund managers as well as those in offshore jurisdictions.

The draft’s tough rules for depositories - banks that hold funds assets - disclosure requirements for private equity held companies and limits on borrowing by hedge funds have also caused controversy.

Spain, which holds the rotating EU presidency, on Tuesday dropped the issue from the agenda of an EU finance ministers’ meeting in Brussels after 11th-hour negotiations failed to overcome hurdles to an agreement.

It emerged on Tuesday that Mr Brown called José Luis Rodríguez Zapatero, his Spanish counterpart, on Monday night, insisting Britain could not accept the compromise plans on the table.

The UK and the Scandinavian countries have generally been more supportive of the alternative investment industry, while France has fought for a tighter crackdown, particularly on the depository banks.

British officials accuse France of pushing aggressively to curb the activities of hedge funds and private equity. But Nicolas Sarkozy, French president, told Mr Brown last week he would be flexible in searching for “a point of equilibrium”.

Downing Street officials said Paris had agreed to defer a vote – rather than forcing the issue and inflicting a defeat on Britain – a sign of the constructive working relationship between the British prime minster and Mr Sarkozy.

Mr Brown wants to refer the issue to G20 finance ministers at their meeting next month and Spanish diplomats on Tuesday said they hoped to agree a deal before the end of the presidency in June.

He could face heavy criticism in the City if he is seen to bow to excessive regulation: 80 per cent of Europe’s hedge fund industry is based in London.

The breakdown in talks comes after Tim Geithner, US Treasury secretary, warned the EU that he viewed the proposed rules for non-EU fund managers as protectionist.

Hedge funds

London skyline

FT In depth: The European Union’s draft rules on hedge funds and private equity have encountered opposition from Britain among others

Britain says it is not opposed to widening the regulatory net to cover hedge funds and private equity, but the UK Treasury said on Tuesday: “A number of countries had concern about the details and more discussions are necessary.”

A spokesman for the British Private Equity and Venture Capital Association said: “We’re very concerned about the directive in its current form. Hopefully this will give us more time to work things out.”

Andrew Baker, chief executive of the Alternative Investment Management Association, said: “It is better to get the directive right than to rush it through and risk botching it ... We hope that European policymakers will in the coming weeks and months reach a sensible consensus agreement .”

The industry was breathing “a huge sigh of relief that the current draft has not been accepted especially following the Geithner letter, which raises the risk of retaliatory action by the US”, said Andrew Shrimpton, a former UK regulator who works at Kinetic Partners, a consultancy.

Tuesday’s decision could affect the timetable for any eventual proposal becoming law. Hopes had been for a single text to be agreed between the member states and the parliament – and possibly even voted on – before the summer break.

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