That shouldn't come as a big surprise to those following the next evolution of a changing iShares brand.

In case you missed it, weekend stories in papers ranging from the Wall Street Journal to the Sunday Times reported that a list of finalists has emerged in the auction of Barclays Global Investors by its parent London bank. Insiders are indicating that Hellman & Friedman LLC could wind up as the leading candidate to assume control of BGI.

As pointed out in the WSJ, that's a private equity firm also based in San Francisco with a history of past relations with the asset manager. Other possibilities, according to the paper, are Bain Capital and other private equity rivals such as TPG and Apax Partners LLP.

Although we've heard some industry veterans arguing against such a scenario—that larger, more-diversified fund companies and brokerages are the more likely eventual winners—the push by private equity players actually makes a lot of sense.

First, the strength of the iShares brand among retail investors might provide a nice counterpoint for a private equity firm, which derives most of its investment flows from institutional investors. Private equity companies are also deeply familiar with the ETF market, as they've proven to be cutting edge participants in the ETF marketplace on the institutional side.

When you add in the fact that the core business of private equity is to capitalize on short-term market dislocations, you can see why a private equity bid for iShares would make sense. As IU.com Editor Matt Hougan told Dow Jones Newswires recently, while iShares is a very attractive asset, most of the obvious bidders are tight on cash. A private equity firm could buy iShares today, run it for a few years and then unload it into an improved market.

Whatever happens, iShares is likely to change, shaking off some of the rust and moving into new ventures. In fact, IU.com Publisher Jim Wiandt thinks its new owner is probably going to be someone who wants to take BGI's existing index-based ETF franchise and expand upon that framework.

In a MarketWatch column by Chuck Jaffe that showed up this weekend, Jim noted that "active is going to happen at iShares; it's a seed that has been planted."

In a recent conversation I had with Lee Kranefuss, the chief executive officer of BGI's iShares business hinted at the same. He explained that BGI was a leader in institutional management of enhanced indexing and other related quantitative strategies that were more active in nature, and that BGI has been studying how a more active sort of ETF could leverage the work done within other parts of the company.

Whether that initiative would be scuttled or delayed by a sale remains to be seen. But recent reports indicate that BGI may want to maintain up to 20% of iShares in any sale.  You can bet that any buyer is probably interested in what BGI is doing in the active space.

And just when you thought you'd seen about all there was to see in the ever-changing world of ETFs ...

Stepping out of the way when it could have made trouble for a deal it made just before WaMu went on red alert, investment firm TPG has decided to honor the $7 billion influx to the bank.  An AP report this morning mentions that a failure of Washington Mutual could cost the FDIC north of $20 billion.  Where money like that will come from at this point, who really knows?

So there is motivation for other firms to step in and buy WaMu outright before it crashes and all that's left are little pieces.  WM shares are down 85% year-to-date.  The September quarter is expected to post -$1.14 per share according to the Zacks consensus, and the fiscal 2008 number is currently -$6.60 per share.

Zacks senior analyst Eric Rothmann has already advised investors take profits on WM shorts.  No longer-term investor should be anywhere near owning this right now; of main interest is whether or not it will be spared, and how.

Pharos Financial Group - Hedge Funds

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• Pharos fund portfolio.
• Whitepaper on Pharos Fund. The White paper explains how the pharos fund manager makes decisions.
• Every letter to all investors for 2008, from the Pharos Fund and Gas Fund.
• Excel spreadsheet of every Pharos funds performance. So far, 2008 has a negative return on every fund.
• Excel spreadsheet breakdown of Sector allocations for the pharos fund.
• Excel spreadsheet breakdown of Sector allocations for the Gas fund. Pretty self-explanatory, the fund invests in options and futures in oil and natural gas.
• Article about how there will be an increasing demand for natural gas.
• Excel spreadsheet of Pharos small cap fund. The small cap fund uses Russia’s building economy and uses illiquid shares to make a profit.
• Daily market comment and performance of all three funds. The Political Environment is fragile, which will create volatility in the market overall, which is good for each hedge fund.
• Article about how all Pharos funds are down. The MSCI Russia Index is down 32.4% due to “a reversal of fortune from the market's earlier outperformance.”
• The Georgia conflict severely hurt the Russian economy because investors pulled out more than $7 billion. Russian may not be allowed to host the next Olympics and the U.S. is restricting Visas for Russians.
• Pharos said that the Russian economy is stable, but foreign investors insecurity will create short term-volatility.
• Name of this article pretty much sums it up- “Pharos, TPG to acquire American Beacon Advisors for $480m.”
• Interview with Peter Halloran. Eastern European (Russian affiliated) countries are rapidly growing faster than other developing nations.
• Article about the government planning to increase domestic gas prices by 25-40 per cent, over the next three years.
• A blog post that has a about positive outlook for every Pharos fund, for the month of June.
• Article about how hurricane Gustav may increase gas to $5 a gallon. This may effect pharos gas fund.

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