Even In Hedge Fund Mecca, Billions Lost In Market Fall

Date: Monday, May 11, 2009
Author: Greg Bordonaro, Hartford Business

Connecticut is home to 10 of the world’s 100 largest hedge funds, maintaining its position as a dominant center for the lightly regulated pools of capital that cater to wealthy individuals and institutional investors.

But even though the state maintained its title as a hedge fund Mecca, Connecticut’s 10 largest funds lost a combined $14.7 billion in assets last year, reflecting the overall struggles the industry went through as the stock market began to tumble in the fall.

Connecticut’s 10 largest hedge funds had a combined $119 billion in assets at the end of 2008, down from $134 billion in the year-ago period, according to data provided Alpha Magazine, a New York-based financial publication.

Bridgewater Associates, a Westport-based fund, topped the list and is the world’s largest hedge fund with $38.6 billion in assets, according to Alpha Magazine. Bridgewater, which is led by Raymond Dalio, was one of the few funds that grew last year, adding about $2.6 billion in assets.

Seven of Connecticut’s 10 largest funds saw their assets shrink in 2008.

Greenwich is the epicenter of wealthy hedge funds in Connecticut with seven of the state’s 10 largest funds calling that city home, including Lone Pine Capital, Tudor Investment Corp., and ESL Investments which have $13 billion, $11.4 billion and $10.5 billion in assets respectively.

Of the 100 largest hedge funds tracked by Alpha Magazine, 46 of them reside in the New York, with a combined $504 billion in assets. The Big Apple’s largest hedge fund is JPMorgan Asset Management, with $32.9 billion in assets.

London has the second highest concentration of the world’s largest hedge funds, which own a collective $202 billion in assets.

Overall, the world’s largest 100 hedge funds saw their assets shrink by 23.7 percent in 2008, down to $1.03 trillion from $1.35 trillion in 2007.

Those numbers demonstrate that 2008 was one of the most difficult years in the industry’s history. Industry-wide assets tumbled by $525 billion from their mid-2008 peak, to finish the year at $1.4 trillion, according to Chicago-based Hedge Fund Research. Those declines were largely due to investment losses and massive redemptions by weary investors.

Many lawmakers have called for tougher regulations over hedge funds. Some politicians have even partially blamed hedge funds for the financial crisis because they are major players in short selling and credit default swaps, investment tactics accused of putting intense stress on the stock market.

Connecticut lawmakers on the bank’s committee have proposed some oversight over the industry, but have backed off aggressive measures hoping the federal government will act in their place.

 Merger Proposed

Naugatuck Savings Bank and Meriden-based Castle Bank & Trust Co., both wholly-owned subsidiaries of Nutmeg Financial, MHC, filed an application for a merger.

If approved Castle Bank would merge with and into Naugatuck Savings Bank.

Naugatuck Savings Bank, which has about $731 million in assets, recorded a net income of $4.1 million in 2008, down 2.2 percent from the $4.2 million it earned in 2007, according to the Federal Deposit Insurance Corp.

Castle Bank & Trust Co. is a much smaller institution with $72.5 million in assets. In 2008, the bank recorded a net loss of $939,000 compared to a net loss of $188,000 a year earlier, according to FDIC data.

The merger request is the fourth of its kind in the state since late 2008.

Income Increase

Salisbury Bancorp, the holding company for Salisbury Bank and Trust Co., recorded a net income of $1.1 million in the first quarter of 2009, a $241,000 increase over the same time period last year.

The bank’s board of directors also declared a first quarter cash dividend of $0.28 per common share outstanding, which was the same amount declared for the first quarter of 2008.

John F. Perotti, chairman and CEO of the bank, said continued economic weakness in the company’s market area “contributed significantly to the earnings level for the first quarter of 2009,” including higher FDIC insurance premiums and a higher loan loss provision.

Despite the tough environment, total deposits at the bank grew to record levels and increased $30 million or 8.96 percent to $366 million. The bank’s assets also grew by more than $33 million.

Greg Bordonaro is a Hartford Business Journal staff writer.