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16 Jan 2007

Chief Exec and Vice President Quit after Hedge Fund Takeover

Catalyst Paper Corporation announced that it has accepted the resignations of its two executives Russell J. Horner, president and chief executive officer, and Ralph Leverton, vice-president, finance and chief financial officer.

The announcement of the departures follow the company's partial takeover by an American hedge fund, Third Avenue Management LLC. Last October, Third Avenue acquired approximately 18% of Catalyst's common shares for $128.7 million cash, raising its stake to about 38%.

This purchase invalidated an agreement between Horner and the company limiting change of control to 25%.

An executive search is underway to identify their successors and both executives have agreed to remain with the company to the end of the next annual meeting of shareholders to assist in the transition. “We appreciate their loyalty, dedication and willingness to facilitate a smooth transition as the board completes its selection of new executives who will build on the fundamental strengths of the business.” Catalyst said in a press release.

Horner has been with Catalyst and its predecessor companies for more than 30 years. He will receive pension benefits of almost 5 million. Leverton, who has been with the company for seven years will take a $1.6-million payment.

"The stock was drifting lower and lower," said an investor, "Here was an investor from the U.S. with a good track record taking an interest in Catalyst. They obviously weren't doing this without a plan as to how to turn the company's fortunes around.

"I wouldn't be surprised if Third Avenue had a management team or a number of individuals that they shortlisted for key executive positions before they started investing in the company. If your hockey team isn't doing well, you replace the coach."

On the TSX on Monday, Catalyst's stock closed at $4.15, up 1%, before the changes were announced. When Third Avenue completed its bid to gain 38% of Catalyst in October, the stock was trading at $3.30. "The stock has come up some 25 per cent," said the trader "So if you were a shareholder at that time, you are definitely going to support Third Avenue because now the share price is going in the right direction.

Alternative Investment Survey Shows Hedge Funds Will Continue to Grow

Deutsche Bank announced the results of its Fifth Annual Alternative Investment Survey, which was conducted during the second half of 2006. Over 1000 representatives from almost 700 institutions responded to the $1.4 trillion industry survey.

"Despite a series of setbacks and scares in 2006, survey respondents feel the hedge fund industry will continue to grow modestly in 2007," said John Dyment, Global Head of the Hedge Fund Capital Group at Deutsche Bank. "Investors indicated that they are keeping the market and industry events of 2006 in perspective and using risk management as key factor in selecting hedge fund managers."

According to investors, hedge funds that invest in China are going to see a huge jump in assets; Deutsche Bank predicts inflows of more than 38% of current investment levels to these funds. Emerging Asia is predicted to be the top performing region for the second year in a row. Pensions, government organizations, endowments and foundations are particularly interested in this region, with more than half of these respondents indicating that they will increase their exposure to the region.

The survey included banks, hedge funds, corporations, insurance companies, consultants, family offices, high net worth individuals, wealth management companies, funds of funds, pensions, government organizations, endowments and foundations.

Deutsche Bank is one of the largest financial institutions in the world with approximately Euro 972 billion in assets and 63,751 employees in 74 countries worldwide.

Canadian Hedge Fund Regulation

The Canadian Securities Administrators is working to improve its regulatory framework for hedge funds.

According to a staff notice summary (81-316 Hedge Funds), the CSA conducted a review in response to increased retail interest in hedge funds. The review was done through a combination of compliance reviews of fund managers and advisers, disclosure reviews and industry consultations.

Based on the review, the CSA determined that while an appropriate securities regulatory framework exists for hedge funds in Canada, certain areas can be improved. "Regulators in Canada recognize the increased popularity of hedge funds among retail investors," said Jean St-Gelais, Chair of the CSA and President & Chief Executive Officer of the Autorité des marchés financiers (Québec). "While we feel the necessary regulatory framework is in place, it is important to continually examine the framework against new products in our evolving markets."

The CSA, the council of the securities regulators of Canada's provinces and territories, co-ordinates and harmonizes regulation for the Canadian capital markets.

Shariah Capital Finds Islamic Hedge Fund Niche

Hedge fund Shariah Capital is looking for strategic partners in the Middle East among the local banks with international funds, and major investment institutions and high net worth individuals. “Hedge funds are all about diversification” they say.

But wealthy Muslim investors in the Gulf Arab region and Asia have traditionally frowned on hedge funds because they adopt strategies that are considered forbidden by Shariah. Shariah being Islamic law.

So several fund managers have been trying to develop Shariah compliant strategies that will emulate the strong returns of hedge funds and tap some of the estimated $750bn in Islamic assets parked equity and property related funds. The oil-rich Persian Gulf region has close to a trillion dollars of liquidity.

The ideal ‘fund of caution’ for the Arabian investor is an Islamic hedge fund of funds, argues Eric Meyer, President and CEO of US based Shariah Capital who visited Dubai for the Islamic Funds World Conference to promote what is believed to be the first Shariah compliant fund of hedge funds. “Islamic hedge funds have the advantage of not being highly borrowed, unlike many hedge funds. This is one reason for their strength. It is true that borrowing by hedge funds improves return in a bull market but this will also magnify losses in a downturn.” Meyer said.

The firm spent the past six years working with Islamic scholars, as well as Western financial and legal experts, to develop risk management tools that enable observant Islamic investors to participate in the alternative investment world. The hedge fund developed the software to screen thousands of publicly-traded companies for Shariah compliance in seconds in 52 securities markets around the world.

Meyer's firm initially sought the fatwas to launch its own Shariah-compliant fund of funds. Now, the division of Meyer Fund Management LLC has expanded its business strategy. It is making its investment vehicles available to other alternative investment managers who want to create their own Shariah-compliant funds to attract investors in the Middle East and Asia.

Amiri, a UK-based Islamic investment manager with a partner in Bahrain, also believes it has found a Sharia compliant way to emulate one of the conventional hedge fund strategies short selling. He plans to launch a global long short equity hedge fund in 2007 that it says will comply with Shariah.

A conventional short is forbidden by Shariah because it requires a hedge fund to sell something it does not own, while pay out interest to brokers, considered usury in Islam. The $1.3tn global hedge fund industry plans to develop a viable $50bn Islamic niche market in the next three years, according to sources.