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12 Jan 2007

London Hedge Fund Launch

Brevan Howard, the hedge fund manager, is planning to raise up to £1bn through the first hedge fund listed on the main London market, investing the proceeds in the four-year-old manager’s flagship global fund

BH has rapidly risen to be one of London’s biggest hedge fund managers, the fund manages $11bn, mainly used for macroeconomic bets. BH is planning the new fund to run a similar strategy to MW TOPS, which was listed in Amsterdam by Marshall Wace, a rival British hedge fund group, in December.

The Financial Services Authority (FSA) is in the process of relaxing rules to allow single-strategy hedge funds to float in London. The move will be a coup for the London Stock Exchange after it lost out to its European rivals last year because of its ban on listed specialist hedge funds.

Marshall Wace’s listing on Euronext Amsterdam last month was the largest ever for a single fund, raising €1.5 billion for MW TOPS. It came after Sir Andrew Large, the former Deputy Governor of the Bank of England and its chairman, attacked the FSA’s restrictions as anachronistic.

Single-strategy hedge funds, as distinct from funds of hedge funds, had been banned from full listings in London because they were not sufficiently diversified and because of restrictions on short-selling.

BH was set up in 2002 by Alan Howard, Credit Suisse’s former head of interest-rate derivatives trading. Since then, its main global fund has returned 10.2 per cent a year with low volatility.

Hedge Fund Picks SEI as Partner in Outsourcing

Rock Ridge Advisors has selected SEI to provide a operational outsourcing solutions for its hedge funds. SEI was selected in a competitive evaluation process among some of the most notable providers in the industry. The company's combination of deep industry expertise, advanced capabilities, robust infrastructure, and innovative technology were pointed to as key differentiators in the selection process.

"To be a successful investor in today's evolving markets we recognize the need to implement an efficient and innovative investment process with solid operational expertise," said Woody Jay, Rock Ridge's Co-managing Partner. The deal points to an industry trend as investors continue to push hedge funds to seek out larger institutional partners amid increased competition and regulatory scrutiny.

"As the hedge fund sector becomes more competitive and investor driven, the selection of an outsourcing partner becomes even more critical," said John Alshefski, head of Business Development for SEI's Investment Manager Services division. "We're seeing hedge fund clients looking for larger institutional partners with broad capabilities, resources and credibility. We're excited to partner with Rock Ridge Advisors as they look to grow their funds and provide new levels of service to their investors."

Rock Ridge Advisors is a Greenwich, CT.-based hedge fund managed by Woody Jay and Brian Pennington. Rock Ridge Advisors launched the Rock Ridge Funds eighteen months ago with $75 million in assets, and is growing rapidly, currently managing approximately $300 million for institutional clients.

Hedge Funds asked to Bid on Ameriquest

Ameriquest has had talks with several hedge funds recently, including Ellington Capital Management, a large Old Greenwich, Conn.-based hedge fund, to see if there would be any interest in bidding on their company.

News of the possible sale was first reported by trade publication Asset Securitization Report. The New York Post reported that a source familiar with the hedge fund said J.P. Morgan bankers representing Ameriquest asked the fund if it was interested, fund executives haven't decided if they want to proceed and receive an offering circular.

Ellington's strategy relies on their ability to identify and purchase undervalued securities. They manage around $4.5 billion, with over $3 billion dedicated to mortgage bonds. Ellington’s Managing Directors are also investors in its strategies, with over $50 million of their capital invested alongside its clients’ capital. One of the hedge fund's specialties is hedging what Wall Street terms "mortgage credit risk" or the risk that homeowners with less than stellar credit profiles - which is Ameriquest's customer base - might default or fall behind on their payments.

According to rival hedge fund managers, selling the privately held Ameriquest to Ellington is a good idea, "Ellington has hundreds of millions of dollars in sub-prime paper on their books, they have good risk management and they have the cash. If [Ameriquest] is cheap enough, why not?," said one rival hedge fund manager. This rival noted that Ameriquest's $295 million settlement with regulators last year over predatory lending abuses removed a significant barrier for a possible buyer.

Hedge Fund Managers Indicted for Fraud

The managers of KL Group in West Palm Beach, Fla. were indicted yesterday, accused of orchestrating an extensive fraud that raised more than $194 million from at least 250 investors.

KL operated many hedge funds until March 2, 2005, when the SEC filed an emergency civil action to halt the massive fraud by the group of Palm Beach, Florida based hedge funds, their principals, their unregistered investment advisers, and an affiliated registered broker-dealer. The three, Won Sok Lee, Yung Bae Kim and his brother Jung Bae Kim, are accused of promoting the KL hedge funds as successful, when, in fact, some of the funds suffered losses every quarter of their existence.

From 1999 to 2005, KL claimed to have raised at least $81 million from investors nationwide, boasting annualized returns of 125 to 150, and KL sent false account statements to investors showing similar gains. According to the complaint, the hedge funds were suffering tremendous trading losses and only about $11 million remains of the more than $81 million that investors put into the hedge funds.

The collapse of the KL Group was the subject of an article in The New York Times in August 2005 that detailed how the three principals used their expensively furnished West Palm Beach office and high-tech trading floor to lure some of Palm Beach’s elite to invest in the funds. Prosecutors say that some money was also siphoned off for the personal use of the three principals.

The scheme was further carried out, court filings say, by paying a handful of early investors with money from new investors and using counterfeit documents to report investment returns falsely to mislead lawyers and accountants as well as investors.

According to The New York Times, John Kim, who faces 35 counts of various criminal charges, including conspiracy to commit wire fraud, mail fraud and conspiracy to commit money laundering, pleaded not guilty yesterday in Federal District Court in West Palm Beach. Calls to lawyers for Mr. Kim were not returned. The other two individuals remain fugitives and are believed to be living outside of the country, according to an individual briefed on the case.