Although there are still net outflows being reported by some Australian Hedge Funds, it appears that December was indeed the peak of redemptions, with one of Macquarie's funds reporting net inflows for the beginning of March for the first time since July last year.

Funds with offshore investors were hardest hit towards the end of 2008 as redemptions were based more on the investors' own liquidity and risk issues than on the underlying manager's performance - although those with particularly poor performance were punished accordingly. With the Madoff related issues hitting fund of funds - especially those with exposure to his 20 year Ponzi scheme - many both received and made record redemptions up to the 31 December deadline.

Further liquidity issues being faced by investors have continued in isolated cases in 2009 - with some of the best performing managers with positive returns over the course of the past year receiving redemptions from liquidity stressed investors.

Against this there are signs the corner has been turned. Macquarie Bank's MQ Asia fund reported net inflows in March following a horror stretch of outflows in the second half of 2008, and other funds are reporting positive signs that investors are returning from the sidelines. AFM are also noticing an increase in site visits and interest from offshore investors from both Asia, Europe and the USA.

After almost six months of investigations, Australia's corporate regulator ASIC has finally claimed a scalp - that of a 32 year old stockbroker, Richard Macphillamy, who emailed clients at the height of the market panic just 2 days after the collapse of Lehman's to warn of a run on Macquarie Bank's cash management trust (CMT).

The ban comes 12 months after ASIC announced Project Mint, designed to stamp out illegal market manipulation, and while they are themselves rumoured to be working on additional cases, there are some interesting aspects to the case.

ASIC stated that "in Macphillamy's favour is the fact that there is no evidence that he had any dishonest purpose or manipulative behaviour."  At the time, Lehmans had collapsed two days before, UBS had issued a downgrade on Macquarie a few weeks before, and JP Morgan issued a report the day after stating that Macquarie's model was "irretrievably broken."

No doubt the question will be asked in many brokers' offices what their job is, if not to inform clients about market "information"?  We suspect there will be a very fine line between information and rumour, and as John Durie of the Australian noted in today's edition "if the guy was just passing on the market gossip of the day, his penalty is too harsh - in fact you wonder why he was even hauled over the coals."

ASIC needs to find a party that has actually done what they are looking for - maliciously spreading rumours known to be false with the intent of profiting from the resultant price move.  And make sure it is enforced in both bull AND bear markets.

Australia's financial regulator, ASIC has decided to extend their ban on the short selling of financial stocks for the third time, making it the only country (with the exception of Holland) to maintain a ban on covered short selling.

Citing ongoing market volatility, and potential aggressive and predatory practices by short sellers, ASIC acknowledged that it was prepared allow the market to forgo some price discovery and market efficiency.

ASIC advised that it had discussed the situation with regulators elsewhere, but their decision (although not unexpected) is at odds with the actions of regulators in the US, UK and Hong Kong, who have all lifted the bans, or in the case of Hong Kong, not implemented a ban in the first place.

At ASIC's summer school held earlier this week, representatives of all three offshore regulators indicated that their bans were either no longer necessary, or in the case of Hong Kong, never required.

ASIC also advised it was remaining vigilant to conduct which allowed the ban to be circumvented, presumably referring to the use of derivative and arbitrage strategies. However, as there are widespread exemptions to the ban for market makers and option strategies, this seems to be contradictory.

ASIC's current reporting regime for the reporting only of gross short sales also remains in place, leaving the market no better informed as to the real extent of short selling taking place, and therefore allowing rumour and inuendo to continue.

Australia's Reserve Bank has held rates steady at 3.25% following the board's monthly meeting today, as widely anticipated.  RBA Govenor Glenn Stevens noted that in spite of the global economic crisis, Australia's economy had not experienced the downturn seen elsewhere and that changes to monetary and fiscal policy had changed sufficiently "on the basis of currently available information".  The full text of the Govenor's statement follows:

"At its meeting today, the Board decided to leave the cash rate unchanged at 3.25 per cent.

Recent data confirm that the world economy has remained very weak following the sharp decline in demand that occurred late last year. The major industrial economies reported large contractions in output in the December quarter, as did a number of emerging market economies across Asia and eastern Europe. Many countries are likely to be experiencing further falls in output in the current quarter.

Conditions in global credit markets have improved since November, but sentiment remains fragile. Share prices have weakened and banking systems in several major countries are still under pressure, as authorities work towards a resolution of the balance-sheet problems. Significant macroeconomic policy stimulus is being put in place around the world, but it is too soon to see the effects of those measures.

In Australia, demand has not weakened as much as in other countries and, on the basis of currently available information, the Australian economy has not experienced the sort of large contraction seen elsewhere. The Australian financial system remains strong and the monetary policy transmission process is working to deliver large reductions in interest rates to end borrowers. Nonetheless, economic conditions are clearly weak, and given the speed and scale of the global economic deterioration and its effect on confidence, weak conditions are likely to continue in the near term. Inflation is likely to decline over time.

In response to that outlook, there has already been a major change in both monetary and fiscal policy. Market and mortgage rates are at very low levels by historical standards and business loan rates are below recent averages, reducing debt-servicing burdens considerably. Together with the substantial fiscal initiatives, the cumulative decline in interest rates will provide significant support to domestic demand over the period ahead. On this basis, notwithstanding evident economic weakness at present, the Board judged that the stance of monetary policy was appropriate for the moment. The Board will consider the position again at its next meeting."

With the Australian ban on covered short selling of financial stocks due to expire by Friday 6th March, speculation is mounting that it will be extended further with ongoing weakness and volatility giving the ban's proponents additional ammunition.

David Murray, former CEO of the Commonwealth Bank, and now heading up the government's Future Fund, has been reported as supporting an extension of the ban. At the same time the Dutch regulator, AFM, has extended their ban on the shorting of financials until June after ING and Aegon came under renewed pressure.

The hard facts are that financial stocks in Australia have not been shown to have been protected by the ban while it has been in place. This leads detractors of the ban to claim that the ban is a populist knee jerk reaction which is damaging price discovery, (otherwise known as letting the market dictate the value of a stock) liquidity and Australia's reputation as a serious financial centre.

At the same time they point out that as there are significant exclusions to the ban (market makers, derivatives etc) it is not being even handed. We expect the debate to increase over the next week, and, whatever the regulator's decision, to leave one side or the other decidedly unhappy.

Pioneer Global Investment (Australia) has declined to provide performance updates on their three funds since October 2008. The manager has advised that they are undergoing a restructure, but declined to provide any further information.

For the 10 months up until October last year, the Momentum Global Long/Short Strategy fund had lost 24.45%, the Momentum AllWeather fund was down 17.56% and the Restructuring Fund lost 20.7%.

From December brokers, superannuation firms and hedge funds will be required to report when they are borrowing stock, the RBA revealed yesterday.

Under the new disclosure rules brokers are required to report to the ASX when they are using stock borrowed under security lending agreements in trades. The quantities of stock borrowed daily will be published by the ASX. Investors who frequently lend stock will also be obliged to disclose their lending activities.

These rules were developed after an RBA-led investigation into the delayed settlement of trades across the market last January indicated stock lending was to blame. Along with the new short selling reporting rules revealed last year, the RBA is hoping these new regulations will increase transparency, thereby increasing confidence in the markets in volatile times.

The Governor of the Reserve Bank of Australia, Glenn Stevens, addressed the House of Representatives Standing Committee on Economics today and delivered an opening statement that was both sobering and relatively positive at the same time.

Citing the worst economic conditions in decades, and severe threats to the World's banking and financial system, he nonetheless indicated that Australia was relatively well placed after easing monetary policy by 400 basis points, and citing China's ongoing growth as a potential saviour.

For a full copy of the text of the speech, click here

Goldman Sachs JBWere's Multi-Strategy Fund was closed on February 2, after freezing applications and redemptions in late November. The Fund is a fund of hedge funds, which offers Australian and New Zealand investors exposure to a variety of underlying managers and strategies.

Liquidity has proven to be a problem for fund of hedge funds in recent times, particularly due to the slide in the Australian dollar and in cases where the fund offers monthly liquidity however the underlying funds only allow quarterly or longer redemptions. Several other fund of hedge funds, including the BT Global Return Fund, Select Gottex Market Neutral Fund, HFA's Diversified and Octane Funds, DWS Strategic Value Fund and the Credit Suisse/Tremont Index Strategies Fund were also forced to freeze redemptions in late 2008.

As widely expected the Reserve Bank of Australia (RBA) reduced official interest rates by a further 100 basis points to 3.25% as a response to the global economic crisis.

The full text of the Board's media release follows:

'At its meeting today, the Board decided to reduce the cash rate by a further 100 basis points, to 3.25 per cent, effective 4 February 2009.

There was a significant deterioration in world economic conditions late in 2008. The effects on household and business confidence of the financial turmoil following Lehman’s collapse, and continuing strains on major financial institutions, saw a significant downturn in demand around the world. As a result, the major advanced economies contracted sharply in the December quarter, as did a number of emerging market economies. The Chinese economy, though still growing, has slowed markedly. Global inflation, having reached high rates during the middle of 2008, is now declining.

Measures to stabilise financial systems have contributed to an improvement in the functioning of credit markets over the past couple of months. This, in conjunction with expansionary macroeconomic policy measures being taken around the world, should assist in promoting global recovery over time. But the near-term outlook for the global economy is the weakest for many years.

Economic conditions in Australia have also been affected, though less than in other advanced economies. Australia’s financial system remains in a strong condition and large interest rate reductions over recent months have been passed through in substantial measure to end borrowers. Nonetheless, the combination of last year’s financial turmoil, a severe global downturn and substantial falls in commodity prices has had a significant dampening effect on confidence, and therefore on prospects for growth in demand. Inflation has begun to moderate and, given recent developments, it is likely to continue to decline.

In these circumstances, the Board judged that a further sizable reduction in the cash rate was appropriate, to give further support to demand. In making its decision, the Board took into account the package of measures announced by the Government earlier today. The combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionary forces coming from abroad.'