HFs Declaring Independence From Banks?

Date: Friday, December 1, 2006
Author: Dailyii.com

As banks are making major moves to attract and keep hedge fund business, they may discover fewer takers in the future. The New York Times reports that the announcement this week of Citadel Investment Group?s bond issue, which comes after Fortress Investment Group?s decision last month to launch the first-of-its-kind initial public offering in the U.S., may be signaling a trend that hedge funds are likely to follow: less dependence on banks. The recent moves by Citadel and Fortress indicate a desire to create a steady stream of cash into their coffers. But, according to The Times, another reason, at least in Citadel?s case, is to become more independent of banks, which are eager to lend, but then often impose tough new terms on hedge funds if business goes bad. Take the disaster of the day, Amaranth Advisors, which discovered after its multi-billion-dollar losses that investors were lining up to withdraw their money ? and its lending bank was threatening to call in its loans. When that happens, it could spell the end of a hedge fund. This is not to say that hedge funds may not altogether be thrilled with the prospect of a Citadel-like bond issue. By doing so, hedge funds will be forced to reveal more of its workings, including how much they make and how much they charge. By sending those sacred cows out to pasture, HFs may be surrendering their privacy in exchange for the milk of investor kindness.