News&Notes: Redemption Deadline, LIBOR, Insurers' Rules & Equity Funds Outflows

U.S. hedge funds anxious as redemption deadline looms - Reuters.com
Reuters.com reports anxiety is sweeping the hedge fund industry before a crucial deadline on Saturday, when investors angered by recent heavy losses are expected to demand the return of billions of dollars. "Managers have a pretty good feeling for what is coming, and there are significant redemption requests out there," said Stewart Massey, founding partner of Massey, Quick, an investment consultant that puts money into hedge funds. Saturday is the last day for thousands of investors to notify hundreds of hedge funds if they want their money back by year's end. Hedge funds that require three months notice from investors who wanted to exit by year's end had a similar deadline on September 30 -- also known in the industry as "D-Day."

RCM Comment: We may be coming to the end of the redemption wave or at least the fear of the unknown. After Saturday the final demands will be in and it will be our job to look for signs that the panic has subsided. Signs such as weakness in U.S. Treasury bond prices, strength in gold and other commodities, weakness in the US$, tightening of credit spreads are a few examples of the signs.

ECONX Libor for dollars increases a second day as recession spreads - Bloomberg.com Bloomberg.com reports money-market rates in dollars rose for a second day in London after Europe sank into its first recession in 15 years, heightening concern lending by banks will slow as their balance sheets deteriorate. The London interbank offered rate, or Libor, that banks say they charge each other for three-month loans rose 9 basis points to 2.24% today, according to British Bankers' Association data. The overnight rate climbed 1 basis point to 0.41%, 59 basis points below the Federal Reserve's target... The Libor-OIS spread, a gauge of cash scarcity among banks, widened 7 basis points to 167 basis points. The TED spread, which measures the difference between what the U.S. government and banks pay for three-month loans, widened 6 basis points to 203 basis points. RCM Comment: Not a good sign...

M.S. Howells & Co.- The ability of Time Warner Cable to tap the New Issue market for $2bn in financing is a concrete example of credit crisis easing – regardless of TARP restructuring. RCM Comment: A good sign...

Insurers' cash rules may loosen - WSJ
The Wall Street Journal reports at the prompting of a major life-insurance trade group, state insurance regulators are considering moves to loosen capital requirements for the industry, a development that could buoy companies but also could raise concerns about consumer protection. State regulators impose steep capital requirements on life insurers to help make sure the companies can deliver on customer commitments. But as stock markets have sunk, insurers appear increasingly likely to need billions of additional dollars to satisfy those requirements. And the decline in their own stock prices makes it more difficult to raise capital. "Let's be honest, we're in new territory here," said Susan Voss, commissioner of insurance in Iowa and secretary-treasurer of the National Association of Insurance Commissioners, in an interview Thursday. "We want to be as nimble as possible and address these issues." She added: "I can tell you, we won't do anything that puts our consumers in a vulnerable position. It's a balancing act." The balance concerns keeping requirements steep enough to protect consumers, while not so steep as to damage insurers. Ms. Voss says NAIC's leadership generally agrees with the American Council of Life Insurers, which submitted the proposals this week, that the conservative accounting used for regulatory purposes contains reserve redundancies, and some could be eliminated without hurting policyholders. "This isn't a change in the rules in the middle of the game" (RCM Comment: Which means of course it is a rule change in the middle of the game.) but "carburetor adjustments" needed because of the market collapse and which would be "prudent from a regulatory standpoint," said ACLI Senior Vice President Bruce Ferguson.

RCM Comment: I find the above story amazing at a time like this. We are dealing with the ugly fallout that easing of rules and relaxing of capital requirements in the banking sector has caused and now apparently the fix for insurance companies is the very poison that created this mess.

Trim Tabs - So far this year, a record $235.5 billion has flowed out of equity funds, reversing almost all of the inflow of $254.0 billion in 2006 and 2007. Why have equity funds experienced such huge outflows? The reason is simple—the average U.S. equity fund is down 51.1% year-to-date, and the average global equity fund is down 65.4% year-to-date.