Hedge Funds Charged Under SEC Rule Prohibiting Short-Selling

HedgeCo News - In one case this week, the SEC charged Los Angeles-based AGB Partners LLC and its principals Gregory A. Bied of Boise, Idaho, and Andrew J. Goldberger of Santa Monica, Calif., finding that they netted thousands of dollars in improper profits by shorting in advance of their purchase of stock in a secondary offering.

In the other case, also this week, the SEC charged Los Angeles-based Palmyra Capital Advisors LLC, finding that the firm violated short selling rules and improperly profited in three of its managed hedge funds. Both firms have agreed to settle the SEC’s charges.

These mark the first cases filed under the SEC's amended Rule 105 of Regulation M, which is designed to prohibit manipulative short selling ahead of follow-on securities offerings.

Rule 105 is intended to prevent abusive short selling and market manipulation by ensuring that offering prices are set by the market forces of supply and demand for the securities in an offering rather than by manipulative activity. The SEC is concerned that short selling ahead of offerings may reduce the proceeds received by public companies and their shareholders by artificially depressing the market price shortly before the company prices its offering. The SEC amended Rule 105 effective October 2007 to prevent this trading practice known as "shorting into the deal." The revised rule generally prohibits the purchase of offering shares by any person who sold short the same securities within five business days before the pricing of the offering.

The SEC found that AGB Partners violated both the pre- and post-amended Rule 105 to gain illicit profits. According to the SEC's order, AGB Partners used secondary offering shares in April 2007 to cover a portion of a short position in Boots & Coots International Well Control, Inc. In June 2008, under the amended rule, AGB Partners sold short shares of BGC Partners, Inc. and then purchased BGC Partners shares in the company's secondary offering.

According to the SEC's order, AGB Partners used two accounts. The account that was used for short selling consisted solely of Bied's and Goldberger's personal funds. The other account, a private investment fund they managed for outside clients, was used for participating in the follow-on offerings. Although amended Rule 105 created an exception to allow otherwise prohibited trades if the trades occur in separate accounts, the SEC's order found that Goldberger's and Bied's close collaboration with the accounts fell outside the separate accounts exception.

In its order against Palmyra, the SEC found that the firm violated Rule 105 in connection with short sales made in advance of a public offering by Capital One Financial Corp., resulting in improper profits of $225,500. Palmyra sold short a total of 50,000 shares of Capital One stock on Sept. 18, 2008, and then received 50,000 shares from Capital One's secondary offering on Sept. 24, 2008.

In settling the SEC's charges without admitting or denying the Commission's findings, AGB Partners, Bied and Goldberger consented to be censured and pay more than $50,000 in disgorgement and penalties. Palmyra Capital consented to be censured and pay more than $330,000 in disgorgement and penalties.

Hedge Fund Manager Salus Alpha Launches UCITS III Commodity Arbitrage Fund

HedgeCo News - UCITS III hedge fund manager Salus Alpha has launched a new Commodity Arbitrage fund which the company believes is an innovation both in the UCITS III and in the hedge fund world.

The investment approach of the Salus Alpha Commodity Arbitrage enables the fund to obtain returns for the investors from both Backwardation (the expiring futures contract is more expensive as the next delivery month) and Contango. The strategy commodity arbitrage tries to profit from price differences on various commodity markets or between related commodities.

The new fund invests indirectly into commodities via index derivatives such as Swaps and Futures. The fund’s portfolio consists of financial indices, e.g. the CAX - Commodity Arbitrage Index listed on the Vienna stock exchange. The Index was launched by Alternative-Index Ltd., a member of the Salus Alpha Group.


By introducing the first world wide daily liquid UCITS III hedge fund, Salus Alpha set the course for a new era of investment funds. Salus Alpha successfully established hedge fund strategies in mutual funds. Not surprisingly now Salus Alpha is the first asset manager to offer an arbitrage strategy as a UCITS III fund with daily liquidity.

Salus Alpha Commodity Arbitrage is listed on different fund platforms in Germany and Austria. Amongst others it can be found on Augsburger Aktienbank, Metzler Fund Xchange, Frankfurter Fondsbank, Fonds Depotbank, Cortal Consors, DAB, Moventum, Capital Bank and direktanlage.at.

Hedge Funds & Investors Rate Global Brokers

HedgeCo News - A recent survey of 176 leading investment managers, private banks and hedge funds by McLagan, a compensation consulting, productivity and performance benchmarking firm, showed that broker performance has again risen significantly in many areas this year, particularly in US and Asian markets and for OTC Derivatives.

When asked to rank the leading brokers on their 2009 Operational Performance and Client Service offerings across Equities, Fixed Income and OTC Derivatives, the managers rated as follows:

In the US:
Liquidnet – Best 2009 Broker for Equities Operations
Morgan Stanley - Best 2009 Broker for Fixed Income Operations
Deutsche Bank – Most Improved Broker

In Europe:
UBS - Best 2009 Broker for Equities Operations
UBS - Best 2009 Broker for Fixed Income Operations
Deutsche Bank – Most Improved Broker

In Asia:
UBS - Best 2009 Broker for Equities Operations
UBS - Best 2009 Broker for Fixed Income Operations
Morgan Stanley – Most Improved Broker

For Global OTC Derivatives:
Goldman Sachs - Best 2009 Broker for Core Processing
Deutsche Bank - Best 2009 Broker for Client Management
Morgan Stanley - Most Improved Broker

"The goal of UBS Operations is to be the leading client-focused global service provider." Simon Haggerty, Global Client Service Head at UBS said, "With 176 clients rating 15 brokers across a range of products & measures, the report provides a comprehensive and credible viewpoint on our performance. One of the most accurate and independent methods by which we can measure our progress is for us to sponsor, support and analyse the feedback obtained from this annual survey."

“In particular, UBS has leveraged this feedback to help develop our 2010 client objectives – that of delivering post trade service excellence. The feedback and rankings are taken seriously both within Operations, and also by our trading & sales partners.”

“Providing superior services and support for our Members is why we’ve been voted number one for overall performance in US Equities Operations for the second year in a row, and we very much appreciate this recognition,” said Seth Merrin, Founder and CEO of Liquidnet. “We continuously strive to deliver the best value and experience for our Members throughout the entire trading process.”

A key factor of the survey results this year was the increase in usage of technology by the buy-side, particularly implementation of OMGEO CTM for both Equities and Fixed Income. This has contributed to the rise in Straight Through Processing (STP) particularly in Electronic Trade Matching which in turn has reduced fails and re-work in the back-office.

Carsten Eckhardt, Managing Director, Global Business Services at Deutsche Bank added, "Deutsche Bank has made a commitment to improving its operational processes in order to provide exceptional service to its clients. The McLagan Z/Yen survey is key in enabling us to assess the extent to which we have achieved these goals and in highlighting areas of focus for further improvement."

Galleon Hedge Fund Fraud Case Claims 8th Guilty Plea

HedgeCo News Update - The Galleon hedge fund insider trading case yesterday saw its eighth guilty plea in Mark Kurland, a onetime colleague of Danielle Chiesi at New Castle Funds LLC, Reuters reports.

The SEC alleges that Kurland, Chiesi and a former executive at IBM, Robert Moffat, engaged in overlapping insider trading schemes, according to Reuters. Moffat's case has not been resolved, but his lawyer is talking with prosecutors, the newspaper said.

Because of legal hurdles in obtaining the 14,000 wiretap intercepts, the SEC is seeking it from Rajaratnam and his co-defendant, Chiesi.

Rajaratnam's lawyer attacked the U.S. government's wiretap evidence saying he would file a motion to suppress the telephone recordings which were used to arrest Rajaratnam and more than a dozen other people in the Galleon raid. A hedge fund manager known as "Tipper X", and hedge fund consultant Roomy Khan are cooperating with investigators in providing evidence against Rajaratnam.

Federal prosecutors have doubled the sum of the allegations and former senior partner at McKinsey & Co., Anil Kumar, pleaded guilty to conspiracy, insider trading and securities fraud.

Rajaratnam was taken into custody in New York on Oct. 16, 2009 in what is being called the USA’s largest hedge fund insider-trading scheme.

The insider trading case involves the employees of some of America’s best-known companies, including International Business Machines Corp, McKinsey & Co and Intel Capital, an arm of Intel Corp, and Chiesi, an executive at New Castle Funds LLC was also indicted on multiple counts of conspiracy and securities fraud.

A civil lawsuit is scheduled for August 2, 2010. The prosecution has also indicted Rajaratnam on criminal charges.

SEC Wants Wiretap Evidence From Hedge Fund Founder Rajaratnam

HedgeCo News - The SEC asked a judge to order hedge fund founder Raj Rajaratnam to share wiretap recordings that his lawyers got from federal prosecutors, Bloomberg reports.

Because of legal hurdles in obtaining the 14,000 wiretap intercepts, the SEC is seeking it from Rajaratnam and his co-defendant, Danielle Chiesi, a New Castle Funds LLC executive.

“Defendants have the wiretap information; the commission does not,” SEC lawyer Valerie Szczepanik said in a letter filed in court, according to Bloomberg. “It would be highly inequitable and inconsistent with the federal rules to permit this case to be tried while defendants possess such an informational advantage.”


"The recordings were cherry picked and mismanaged and someone did not do their homework," Dowd told the Judge last week.

Rajaratnam's lawyer attacked the U.S. government's wiretap evidence saying he would file a motion to suppress the telephone recordings which were used to arrest Rajaratnam and more than a dozen other people in the Galleon raid. A hedge fund manager known as "Tipper X", and hedge fund consultant Roomy Khan are cooperating with investigators in providing evidence against Rajaratnam.

Federal prosecutors have doubled the sum of the allegations and former senior partner at McKinsey & Co., Anil Kumar, pleaded guilty to conspiracy, insider trading and securities fraud.

Rajaratnam was taken into custody in New York on Oct. 16, 2009 in what is being called the USA’s largest hedge fund insider-trading scheme.

The insider trading case involves the employees of some of America’s best-known companies, including International Business Machines Corp, McKinsey & Co and Intel Capital, an arm of Intel Corp, and Chiesi, an executive at New Castle Funds LLC was also indicted on multiple counts of conspiracy and securities fraud.

A civil lawsuit is scheduled for August 2, 2010. The prosecution has also indicted Rajaratnam on criminal charges.

The "Volcker Rule"

Obama: "We simply cannot accept a system in which hedge funds or private equity firms inside banks can place huge, risky bets that are subsidized by taxpayers and that could pose a conflict of interest. And we cannot accept a system in which shareholders make money on these operations if the bank wins but taxpayers foot the bill if the bank loses."

"Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers." The President said, "If financial firms want to trade for profit, that's something they're free to do. Indeed, doing so –- responsibly –- is a good thing for the markets and the economy. But these firms should not be allowed to run these hedge funds and private equities funds while running a bank backed by the American people."

Remarks by the President on Financial Reform - Transcript

THE PRESIDENT: Good morning, everybody. I just had a very productive meeting with two members of my Economic Recovery Advisory Board: Paul Volcker, who's the former chair of the Federal Reserve Board; and Bill Donaldson, previously the head of the SEC. And I deeply appreciate the counsel of these two leaders and the board that they've offered as we have dealt with a broad array of very difficult economic challenges.

Over the past two years, more than seven million Americans have lost their jobs in the deepest recession our country has known in generations. Rarely does a day go by that I don't hear from folks who are hurting. And every day, we are working to put our economy back on track and put America back to work. But even as we dig our way out of this deep hole, it's important that we not lose sight of what led us into this mess in the first place.

This economic crisis began as a financial crisis, when banks and financial institutions took huge, reckless risks in pursuit of quick profits and massive bonuses. When the dust settled, and this binge of irresponsibility was over, several of the world's oldest and largest financial institutions had collapsed, or were on the verge of doing so. Markets plummeted, credit dried up, and jobs were vanishing by the hundreds of thousands each month. We were on the precipice of a second Great Depression.

To avoid this calamity, the American people -- who were already struggling in their own right -- were forced to rescue financial firms facing crises largely of their own creation. And that rescue, undertaken by the previous administration, was deeply offensive but it was a necessary thing to do, and it succeeded in stabilizing the financial system and helping to avert that depression.

Since that time, over the past year, my administration has recovered most of what the federal government provided to banks. And last week, I proposed a fee to be paid by the largest financial firms in order to recover every last dime. But that's not all we have to do. We have to enact common-sense reforms that will protect American taxpayers -– and the American economy -– from future crises as well.

For while the financial system is far stronger today than it was one year ago, it's still operating under the same rules that led to its near collapse. These are rules that allowed firms to act contrary to the interests of customers; to conceal their exposure to debt through complex financial dealings; to benefit from taxpayer-insured deposits while making speculative investments; and to take on risks so vast that they posed threats to the entire system.

That's why we are seeking reforms to protect consumers; we intend to close loopholes that allowed big financial firms to trade risky financial products like credit defaults swaps and other derivatives without oversight; to identify system-wide risks that could cause a meltdown; to strengthen capital and liquidity requirements to make the system more stable; and to ensure that the failure of any large firm does not take the entire economy down with it. Never again will the American taxpayer be held hostage by a bank that is "too big to fail."

Now, limits on the risks major financial firms can take are central to the reforms that I've proposed. They are central to the legislation that has passed the House under the leadership of Chairman Barney Frank, and that we're working to pass in the Senate under the leadership of Chairman Chris Dodd. As part of these efforts, today I'm proposing two additional reforms that I believe will strengthen the financial system while preventing future crises.

First, we should no longer allow banks to stray too far from their central mission of serving their customers. In recent years, too many financial firms have put taxpayer money at risk by operating hedge funds and private equity funds and making riskier investments to reap a quick reward. And these firms have taken these risks while benefiting from special financial privileges that are reserved only for banks.

Our government provides deposit insurance and other safeguards and guarantees to firms that operate banks. We do so because a stable and reliable banking system promotes sustained growth, and because we learned how dangerous the failure of that system can be during the Great Depression.

But these privileges were not created to bestow banks operating hedge funds or private equity funds with an unfair advantage. When banks benefit from the safety net that taxpayers provide –- which includes lower-cost capital –- it is not appropriate for them to turn around and use that cheap money to trade for profit. And that is especially true when this kind of trading often puts banks in direct conflict with their customers' interests.

The fact is, these kinds of trading operations can create enormous and costly risks, endangering the entire bank if things go wrong. We simply cannot accept a system in which hedge funds or private equity firms inside banks can place huge, risky bets that are subsidized by taxpayers and that could pose a conflict of interest. And we cannot accept a system in which shareholders make money on these operations if the bank wins but taxpayers foot the bill if the bank loses.

It's for these reasons that I'm proposing a simple and common-sense reform, which we're calling the "Volcker Rule" -- after this tall guy behind me. Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers. If financial firms want to trade for profit, that's something they're free to do. Indeed, doing so –- responsibly –- is a good thing for the markets and the economy. But these firms should not be allowed to run these hedge funds and private equities funds while running a bank backed by the American people.

In addition, as part of our efforts to protect against future crises, I'm also proposing that we prevent the further consolidation of our financial system. There has long been a deposit cap in place to guard against too much risk being concentrated in a single bank. The same principle should apply to wider forms of funding employed by large financial institutions in today's economy. The American people will not be served by a financial system that comprises just a few massive firms. That's not good for consumers; it's not good for the economy. And through this policy, that is an outcome we will avoid.

My message to members of Congress of both parties is that we have to get this done. And my message to leaders of the financial industry is to work with us, and not against us, on needed reforms. I welcome constructive input from folks in the financial sector. But what we've seen so far, in recent weeks, is an army of industry lobbyists from Wall Street descending on Capitol Hill to try and block basic and common-sense rules of the road that would protect our economy and the American people.

So if these folks want a fight, it's a fight I'm ready to have. And my resolve is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see soaring profits and obscene bonuses at some of the very firms claiming that they can't lend more to small business, they can't keep credit card rates low, they can't pay a fee to refund taxpayers for the bailout without passing on the cost to shareholders or customers -- that's the claims they're making. It's exactly this kind of irresponsibility that makes clear reform is necessary.

We've come through a terrible crisis. The American people have paid a very high price. We simply cannot return to business as usual. That's why we're going to ensure that Wall Street pays back the American people for the bailout. That's why we're going to rein in the excess and abuse that nearly brought down our financial system. That's why we're going to pass these reforms into law.

Thank you very much, everybody.

Investment Team Launches Range of Hedge Funds in London & Hong Kong

HedgeCo: Hedge Fund Launch News - A team led by investment management specialists, Anders Jacobsen and Paul Thompson have launched Galileo Capital Management, a global hedge fund investment management and advisory firm with operations in London and Hong Kong.

Galileo Capital Management will launch, manage and raise capital for a range of alternative asset funds. These planned funds target very under-invested business sectors or are highly innovative improvements of existing investment strategies. Offering a low correlation to traditional investments, the firm will also provide advice on business entry strategies into China, including sourcing suitable business partners and execution.

“The future of Galileo will witness niche positioning and effective maximization of opportunity in markets that are quite unexplored to date. Anders Jacobsen, co-founder and Principal, said, "Our strategy will pick up in areas which the market has traditionally dropped off its radar screen.”

“The recent financial crisis has underlined the importance of China and more broadly of Asia as a source of growth and key determinant in the global economy." Paul Thompson said, "Our experience and high-level network in China gives clients access to this region in a high-quality manner through our business entry and advisory services."

Founders Jacobsen and Thompson have over 40 years combined experience in the investment management sector with distinguished track records in global investment managers including Goldman Sachs, Prudential Financial, Inc., Bankers Trust and Chase Manhattan Bank. Between them they have advised numerous mutual, private equity, venture capital and hedge funds on their establishment and launch, as well as provided growth and development strategies for existing investment funds.

Investor Commitment to Hedge Funds Comes With Rising Expectations - Report

HedgeCo Whitepaper Reviews - A new white paper published by the SEI Knowledge Partnership in collaboration with Greenwich Associates, reports that transparency and liquidity risk have surpassed poor performance as the top concerns for institutional investors investing in hedge funds.

The 17-page report, entitled "The Era of the Investor: New Rules of Institutional Hedge Fund Investing," points to a need for hedge fund managers to institutionalise responses to transparency demands and to demonstrate clear sources of alpha to retain and gain assets among an increasingly demanding institutional investor base.

The survey revealed a continued commitment to hedge fund investing among institutions as nearly 80 percent of all survey respondents said they have no plans to change their hedge fund allocations in the next 12 months, while 15 percent expect to increase their allocations.

What will change is their demand for transparency. Over 70 percent of respondents reported requesting more detailed information from managers than they did a year ago.

While the type of information sought ranged from counterparty and leverage exposure data to sector and position-level detail, over 80 percent of the respondents reported a focus on funds' valuation methodologies. Investors also continue to exert influence on fee structures, as nearly one in five respondents reported negotiating fee arrangements different than the standard "2 and 20" for single-manager funds and "1 and 10" for funds of hedge funds over the last year.

"Investors remain committed to hedge funds but that commitment comes with increased expectations," said Phil Masterson, Managing Director for SEI's Investment Manager Services division. "The balance of power has clearly shifted and managers must meet the growing demand for transparency and increase their focus on operational effectiveness if they want to be successful in this 'Era of the Investor.'"

With respect to manager selection, institutional investors are even more focused on a manager's ability to identify and clearly explain the alpha source from which the performance is derived. Another critical factor in manager selection was compliance infrastructure, with nearly 50 percent of respondents citing it as "very important." Independent administration and a separation of investment management and operations management roles were also identified as high-ranking factors in manager selection.

For hedge fund managers, the survey clearly points to the need to focus on the fundamentals as they face greater scrutiny and demands from investors. The survey reveals that investors are concerned with issues such as liquidity risk, valuation methodology, and whether performance characteristics are in line with stated strategies. It also points to institutional investors' willingness to look beyond short-term performance and focus on other traditional indicators of quality, such as a firm's management team, investment process, and operations and compliance infrastructure.

For fund managers to remain competitive, the survey emphasised the need for firms to proactively enhance their transparency and investor communications and reporting. Fund managers also have an opportunity to add value by helping educate the investment committees and boards of institutional investors, given that investors cited that as their second greatest challenge.

Hedge Fund Ponzi Scammer's Company Sold by Court

Jerry Gillman a director of South American Development Corporation (SADC) has purchased Home Front Homes LLC, a Structural Insulated Panel manufacturer located in Englewood Florida.

In 2006, Art Nadel using a hedge fund Ponzi scheme ended up with the controlling interest in this innovative company when he agreed to invest millions of dollars in the “Green” panelized housing manufacturing Company. Nadel was later arrested on January 27, 2009 after disappearing with over 400 million dollars of his investor’s money. Home Front Homes, and many other companies controlled by Nadel were quickly placed in the hands of a court appointed receiver by the Securities and Exchange Commission (SEC). Home Front’s debts exceeded $3 million when purchased by SADC. Craig said the only issue with Home Front was “Art Nadel”. We plan to remove the word “Nadel from Home Front Homes and re-launch the company in April. Were taking orders now and plan to continue manufacturing award winning energy efficient green housing solutions.

Home Front Homes has manufactured energy efficient environmentally friendly Structural Insulated Panel homes (SIPS) for over ten years. The Home Front Homes “building system” products have won many building and environmental awards including one for innovation and another for its “Green Building System.” The company also won the 2008 Habitat for Humanity Aurora Award. Gillman stated he had been in the General Contracting business in Florida for over 30 years and considered the Home Front Homes System, “The Building System of the Future” for low cost energy efficient housing.

Hedge Fund Center Hit By 5.8 Quake

HedgeCo News - The Cayman Islands were hit by a 5.8 magnitude earthquake Tuesday at 9:23 am ET, the earthquake took place 30 miles southeast of Grand Cayman Island.

The major offshore hedge fund center in the Caribbean maintains 12 bilateral tax information arrangements with Denmark, Faroe Islands, Finland, Greenland, Iceland, Ireland, Netherlands, New Zealand, Norway, Sweden, United Kingdom and the United States.

"No injuries have been reported and there have been no reports of damage to buildings. Business and schools have remained open and residents have resumed their normal daily routines," the department of tourism said in a statement.

The 6.2-mile deep quake shook the are with force, but there were no immediate reports of damage or casualties.

Grand Cayman lies just north of a very active fault line called the Oriente Fracture Zone, which roughly follows the northern edge of the Cayman Trough, the deepest part of the Caribbean Sea.

Hedge Funds Gain $4.6 Billion In Jan 2010 – New Launches

HedgeCo News - The January 2010 Eurekahedge Report found that global hedge fund industry gained $4.6 billion since December 2009.

Hedge funds recovered from their record losses in 2008 as stimulus packages by governments around the globe helped stock and bond markets rebound. The Eurekahedge Hedge Fund Index, tracking more than 2,000 funds, rose 19% in 2009, the best performance in six years, when the index rose 21%.

“The financial markets rebounded strongly as investors returned from the sidelines and snatched up securities trading at ‘once in a life time’ valuations,” Hennessee reported in their January 2010 Hedge Fund Review. “Investor confidence was boosted as the year progressed due to improving economic data and positive earnings reports.”

“Entering 2010, the industry appears to have put the worst behind it as it is once again experiencing positive net inflows and an uptick in fund launches,” Hennessee said.

Net inflows were relatively modest through the month, standing at $0.6 billion while performance-based gains accounted for $4 billion. The Eurekahedge Hedge Fund Index up was 1.07% in December, bringing the November YTD figure to 19.37% – the highest yearly returns since 2003.

Students Keen to Work for Hedge Funds - LSE Head Hunting Conference

HedgeCo News - Despite the fact that the global economy and the financial markets are still recovering from the crisis, interest in hedge funds from the cream of the crop of universities and business schools worldwide is stronger than ever.

The Alternative Investments Conference organised by the London School of Economics Private Equity Society and Financial Markets Group has attracted unprecedented interest among students and financial institutions worldwide, with over six top-level students competing for each place available.

The Conference has attracted a stellar collection of keynote speakers, such as David Rubenstein, Co-Founder and Managing Director of The Carlyle Group, James Chanos, Founder and Managing Partner of Kynikos Associates, Emmanuel Roman, Co-Chief Executive Officer of GLG Partners, Randall Dillard, Co-Founder and Chief Investment Officer of Liongate Capital Management and Sir Deryck Maughan, Global Head of Financial Services of Kohlberg Kravis Roberts & Co.

The conference will cover a wide range of topics, including identifying value in unusual places, the crisis aftermath, going back to basics in private equity, commodities, funds of hedge funds, emerging markets, regulatory developments and the future outlook for hedge funds and private equity as well as a wide variety of hedge fund investment strategies.

As future sector employees, the most motivated students were quick to notice the turnaround in 2009 and see the long-term future of the industry. This has driven applications to attend this year’s conference up by over 50% to 2,200 applications for the 350 places available. 75 nationalities from 75 leading universities and business schools worldwide are represented this year.

“The talent pool for alternative asset recruitment at even the graduate and post-graduate level is now truly global," Randall Dillard, Co-Founder & Chief Investment Officer of Liongate Capital Management, the lead platinum conference sponsor, said.

The event is entirely self-financing, receiving no financial support from the London School of Economics or its students union. Preparation by the committee to arrange sponsorship funding starts nearly a year ahead, to meet the conference budget of approximately £100,000.

The strong draw the conference exerts is evidenced by the many delegates who are prepared to sacrifice time and money to travel from the US, Asia and even Australia, to hear what the brightest minds in the industry have to say. The fact that high-profile institutions are sponsoring the event is a bellwether of the positive trends seen in the alternative assets sector in recent months.

The four annual conferences since inception have been possible thanks to generous and loyal sponsors, with Liongate Capital Management, the London-based fund of hedge funds group, as lead sponsor since the first conference. Selection is based on academic merit and work experience, along with proven interest in the industry.

Sponsors of the conference in 2010 are Liongate Capital Management (Platinum sponsor), Silver Oven, IAM, Greenoaks Capital Management and Sankaty Advisors with support from JP Morgan.

Truebeta Launches Hedge Fund Replication Model

New York (HedgeCo.net) – Independent, factor-based hedge fund replication service, TrueBeta, is launching a dynamic leverage model for hedge fund replication. The company says the application will improve it’s correlation to broad hedge fund performance.

“TrueBeta is setting a benchmark for the replication accuracy,” TrueBeta CEO Rabbe Ekholm said. “The new dynamic leverage model will enable TrueBeta to explicitly reflect the impact of variations in leverage across market cycles.”

The model is based on return trends in major market indices, primarily the S&P 500, adjusted monthly. The company said that through extensive quantitative testing that changes in leverage are primarily driven by broad trends in market returns. TrueBeta’s leverage will move between 1 and 2, compared with a fixed 1.5 of the original model.

For calendar year 2009, the new dynamic leverage model showed a correlation of 0.95 with the industry-standard Hedge Fund Research Index compared to 0.91 of the original TrueBeta model. The dynamic model had a compound 2009 return of 13.7 percent after fees, versus the 10.9 percent achieved by the original model.

TrueBeta will publish both its standard and enhanced methodologies until May 2010, after which the enhanced methodology will become the new standard. During the transition period, it may adjust aspects of the dynamic leverage model based on feedback from clients and other market participants.

TrueBeta LLC develops and markets quantitative financial strategies for institutional clients. It is the first replication offering created expressly with the goal of serving as a benchmark for the hedge fund industry, and it is the only replication strategy with a fully transparent, completely rules-based methodology. True Beta is fully independent and available through licensing to all market participants, including white label options to banks and other financial institutions.

Hedge fund experts predict more due diligence in 2010

HedgeCo News - Experts predict greater market discipline from investors and an increased focus on due diligence by providers and custodians.

Joel Press, Managing Director of Morgan Stanley’s Prime Brokerage Division; Todd Groome, non-Executive Chairman of the Alternative Investment Management Association (AIMA); and Gregory Zuckerman, author and special writer with The Wall Street Journal were among the experts who offered their predictions for 2010 at a seminar for more than 300 members of the financial industry in New York, hosted by international offshore law firm Walkers.

Greater allocations to hedge funds were anticipated at the expense of equities, while the latest regulatory waves and the next likely bubbles in the market were also debated.

“In today’s environment, there can no longer simply be a checklist to confirm a process. Potential investors must look at what motivates and drives the relevant provider,” said Ingrid Pierce, Partner with Walkers and head of the firm’s Cayman Islands Hedge Fund practice. “Custody diligence is very much at the forefront of people’s minds. Key questions include whether counterparties have the ability to move or re-hypothecate assets and whether contracts will hold up in an insolvency.”

Investigative diligence, which looks in a very detailed way at precisely what various providers do, not just what they say they do, has also become a key focus as investors and other players ramp up their policies in this area, according to Ms. Pierce.

“It is important for both funds and investors to work out well in advance exactly what their exit strategy will be and how the provisions in the fund’s documents will actually work,” Ms Pierce said. “The heightened levels of diligence we have seen throughout the investment process are not going to diminish anytime soon. All participants, including legal counsel have to increase our awareness of the issues and address key areas of risk with our clients.”

Highlighting some positive trends in hedge funds, AIMA’s Todd Groome pointed to new allocations going to a variety of strategies. For example, managers in Asia are seeing 75 percent of net new allocations coming from the United States, primarily from pension funds. He also noted the launch of new hedge funds represents a clear increase in confidence.

“Market discipline from investors is back with a vengeance,” said Mr. Groome. “Investors are asking for greater transparency. They want to use the transparency to create a more idiosyncratic contract for their particular situation and a particular strategy.”

On the regulatory front, in this current challenging policy environment, Mr Groome said things will take time and require considerable coordination among financial leaders, policy makers, and investors.

Joel Press of Morgan Stanley offered his personal insights on what can be expected in the hedge fund market going forward. He anticipates hundreds of smaller start ups in 2010 and said that seeding is more important than ever. With inflows still coming into the market, Mr Press predicted that the industry will be worth US$3 trillion four years from now, compared to the current estimated value of US$1.8 trillion.

“There is no need for hedge fund fees to go down,” Mr Press said. “If you look at long-term investing, hedge funds are absolutely performing better than any other investment vehicle. Investors are looking to replace equities with hedge fund allocations and hedge funds are increasingly being used as an equity substitute.”

The seminar also featured an in-depth examination of the role of fiduciaries, notably issues of responsibilities and accountability, from Guy Locke, Partner and Joint Head of the Corporate and Financial Restructuring Group at Walkers and Scott Lennon, Senior Vice President at Walkers Fund Services.

“It is a brand new world for hedge fund directors. Questionnaires are more extensive and elaborate and people want to know that manuals have been fully tested,” Mr Lennon said. “With changing standards of care and liability caps for auditors and other service providers, managers are in a tough negotiating environment. It is important to understand the whole picture of risk and where it will fall if things go wrong.”

Hedge fund financing was addressed by Philip Paschalides, a Walkers Partner and head of the firm’s Finance and Corporate Group in the Cayman Islands. Mr Paschalides said that the banking team in Walkers’ Cayman office had its busiest year ever for hedge fund financing, suggesting that leverage may not be a thing of the past. “Lenders are generally quite savvy about the hedge fund world,” Mr Paschalides said. “They keep databases, look at redemptions and gates and will lower borrowing bases to account for liquidity and concentration issues.”

Gregory Zuckerman from The Wall Street Journal said we are in an age of bubbles, citing housing, energy, Asian currencies and technology stocks as examples of bubbles the market has experienced over the past decade.

“The next bubble may be emerging markets, Brazil, China, or pockets of real estate in Asia or Australia,” Mr Zuckerman said. “Everyone is worried about the next investor. There is an incentive to increasingly pile on trades and now it is much easier to express trades using ETFs, synthetic CDS and other types of derivatives. Managers today are fully invested and talking about adding leverage, but they don’t really believe in the long term nature of these investments. It might work out in the short term but long term you wonder if they can all get out.”

The New York event was the latest in the ‘Walkers Fundamentals’ series designed to bring discussions of key financial issues to the world’s investment capitals. Video highlights of the seminar will be posted to Walkers’ website.

“We were delighted to hear attendees use words such as ‘enlightening’ and ‘relevant’ to describe the event,” said Mark Lewis, Senior Investment Funds Partner with Walkers, who opened the seminar. “Walkers believes the best way to ensure best practices in the financial community is through open discussion and education by all the participants.”

Editing by Alex Akesson
For HedgeCo.net
alex@hedgeco.net
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UCITS III Compliant Fund of Hedge Funds Launched By HSBC

HedgeCo News - HSBC has launched a Sterling Class of its HSBC UCITS AdvantEdge fund of hedge funds. The Fund will comply with the new ‘reporting’ tax regime for offshore funds, allowing UK investors to be taxed at capital gains rather than income tax rates on disposal of their interests.

“The Sterling classes will allow UK investors to gain maximum benefit from the opportunities to participate in the hedge fund sector offered by the HSBC UCITS AdvantEdge fund.” Chris Allen, CEO of HSBC Alternative Investments Ltd, said, ” The hedge fund industry is leaner and fitter as we enter 2010 and as weaker performers continue to withdraw we believe the remaining providers will reap the rewards from their stronger platforms in the coming months.”

The Fund combines a number of core strategies that are expected to benefit from opportunities created by the credit crunch, such as discretionary macro, equity market neutral, managed futures, and equity long/short.

The Fund is a new generation fund of hedge funds, designed to enable both retail and institutional investors to participate in the absolute return opportunities offered by current market conditions via a more liquid and regulated vehicle than a traditional fund of hedge funds.

The Fund offers weekly liquidity, and complies with the strict UCITS III rules concerning leverage, counterparty risk and investments traded. The Fund’s investment manager is HSBC Alternative Investments Ltd, an established adviser of funds of hedge funds.

All underlying UCITS hedge funds under consideration go through its quantitative and qualitative investment due diligence process which has been proven over many years.

Hedge Funds Industry Trends report

Heidrick & Struggles surveyed more than 400 portfolio managers (PMs) and studied more than 100 hedge fund firms for the report, providing a comprehensive view of the industry and its talent flows. Highlights of the report include:

* Tight talent inventory: The availability of senior top talent is decreasing as hedge fund investment professionals re-surface at other hedge funds, proprietary trading banks, asset management firms, and a host of other destinations including endowments, foundations, and family offices.
* SEC changes drawing talent: Veteran hedge fund and markets professionals are also in demand at the SEC, where a promise of increasing government enforcement and the creation of a new Division of Risk, Strategy, and Financial Innovation are leading to new hires.
* Compensation bidding wars will return: "The post-TARP brain drain is turning around, with a significant increase in hiring at most large banks/proprietary trading firms," says Mr. Schwab. "But comp will not reach levels prior to the summer and fall of 2008."
* New, "safer" investment vehicles helping to drive asset-building frenzy: "Assets are coming back to funds, swayed by innovative, more transparent investment products that give more control and liquidity to investors," he says. "Marketing professionals who can sell these products will be key drivers of this activity as funds gear up for the best fundraising opportunity in two years."
* Re-emergence of seeding funds and boom in new launches: Despite the number of funds closing in '08 and '09, launches exceeded liquidations beginning in 3Q '09 and continuing into 4Q.
* Return of comp guarantees in '10: Front office professionals in 2010 can expect to see compensation guarantees return, although this will be coupled with an increase in clawbacks and deferrals.

"It has been a tremendous turnaround year for hedge fund survivors, marking their best returns in over 10 years," says Claude Schwab, head of the U.S. hedge fund practice and a partner at Heidrick & Struggles. "By November 2009, the industry re-crossed the $2 trillion mark, and this was largely due to performance rather than net inflows."

"But this has been a Pyrrhic victory for the industry as a whole," says Mr. Schwab, who is one of the report's authors. "The fact is that more than 20% of hedge funds shut down in the past two years, with 1,500 liquidations in 2008 and 900 in 2009 – and those firms under $1 billion and underwater are especially vulnerable. This vulnerability will have a direct impact on talent flow in 2010; top talent seeks high-quality, stable firms."

Which funds will lose talent in 2010?

"An active hiring market in 2010 will mean that some firms can expect to lose their senior-most talent," says Mr. Schwab. Through their intensive study of firms and portfolio managers, Heidrick & Struggles was able to identify eight characteristics of firms that are the most vulnerable to talent leaving.

Fund underperformance was the top factor cited in the report. Other factors making firms vulnerable include: a lack of formulaic payouts to PMs; shared portfolios; traditionally centralized structures; firms where trigger-pulling responsibility has been pulled from individual PMs; "placeholder" firms housing talent from funds that shut down; those with lower capital (under $1 billion), except for more recent 2009 startups; and funds undergoing a significant internal event, such as a merger or acquisition.

Which funds are most likely to retain talent in 2010? How can top performers be lured away?

"In addition to spotting the most likely firms from which to recruit talent, we were able to identify the characteristics of firms from which it will be difficult to pull the top people. These include firms with strong performance and access to stable, sizeable capital. Other factors keeping talent put include well-run management that provides relative autonomy and a healthy, transparent work environment. And, of course, the best talent will expect lucrative, competitive payout models.

"It's very difficult to pull a strong performer from a firm that has all of these factors in place. A true 'game-changing' opportunity is what it would take to lure the best professionals from such a firm," says Mr. Schwab. Examples of "game changers" include: a very significant increase in capital allocation; sufficient capital to start one's own firm; the opportunity to build a firm and/or be a key part of the firm's succession plan; and the opportunity to serve a cause while investing.

"Major endowments, sovereign wealth funds, and the SEC made key hires in 2009 where candidates were attracted to the cause or mission associated with the institution as well as the investment opportunity. The year 2010 will see a continuation of this trend."

ITG to Donate a Portion of Friday's Revenues to Haitian Relief Funds

Investment Technology Group, Inc. (NYSE:ITG) announced that the firm will contribute ten percent of its global trading revenues on Friday, January 15, toward Haitian earthquake relief efforts. In addition, ITG is organizing a firm-wide employee charity day to encourage donations to the affected region.

ITG will donate to the following charities: the American Red Cross, Partners in Health, and Save the Children. To make a donation to any of these charities, contact information is provided below:

AMERICAN RED CROSS
www.redcross.org
Text "HAITI" to "90999 to make a $10 donation.
2025 E Street, NW
Washington, D.C. 20006
(800) REDCROSS (733-2767)

PARTNERS IN HEALTH
www.pih.org
P.O. Box 845578
Boston, MA 02284-5578
(617) 432-5256

SAVE THE CHILDREN
www.savethechildren.org
Haiti Earthquake Children in Emergency Fund
54 Wilton Road
Westport, CT 06880
(800) 728-3843

About ITG

Investment Technology Group, Inc., is a specialized agency brokerage and financial technology firm that partners with asset managers globally to provide innovative solutions spanning the investment continuum. A leader in electronic trading since launching POSIT in 1987, ITG's integrated approach now includes a range of products from portfolio management and pre-trade analysis to trade execution and post-trade evaluation. Asset managers rely on ITG's independence, experience, and agility to help mitigate risk, improve performance and navigate increasingly complex markets. The firm is headquartered in New York with offices in North America, Europe and the Asia Pacific regions. For more information on ITG, please visit www.itg.com.

Rajaratnam Attacks Wiretap Evidence In Hedge Fund Case

HedgeCo News - Hedge fund manager Raj Rajaratnam won approval yesterday from U.S. District Court Judge Richard Holwell to stay free on $100 million bail while awaiting trial on his insider trading case. The judge refused to reduce or revoke bail.

Rajaratnam's lawyer attacked the U.S. government's wiretap evidence saying he would file a motion to suppress the telephone recordings which were used to arrest Rajaratnam and more than a dozen other people in the Galleon raid. A hedge fund manager known as "Tipper X", and hedge fund consultant Roomy Khan are cooperating with investigators in providing evidence against Rajaratnam.

"The recordings were cherry picked and mismanaged and someone did not do their homework," Dowd told the Judge, according to reports.

Last week Federal prosecutors doubled the sum of the allegations and former senior partner at McKinsey & Co., Anil Kumar, pleaded guilty to conspiracy, insider trading and securities fraud.

Rajaratnam was taken into custody in New York on Oct. 16, 2009 in what is being called the USA’s largest hedge fund insider-trading scheme.

The insider trading case involves the employees of some of America’s best-known companies, including International Business Machines Corp, McKinsey & Co and Intel Capital, an arm of Intel Corp. Danielle Chiesi, an executive at New Castle Funds LLC was also indicted on multiple counts of conspiracy and securities fraud.

UK Hedge Fund Manager Launches Green Investment Opportunity

HedgeCo News - Future Capital Partners (FCP), the £6 billion ($9.68 billion) hedge fund and alternative investment boutique, has launched a groundbreaking investment opportunity that will allow UK investors to invest in the rapidly growing Renewable Transport Fuels (RTF) sector for the first time.

The production of European RTFs is expected to grow tenfold over the next decade, and RTFs are currently the only sector into which Shell and BP are committing significant Renewable Energy investments.

The partnership expects to provide its investors returns of over 30% per annum over a five to seven year period. It will be raising £40 million ($64.56 million) equity, of which it has already secured over £5 million ($8 million) (including a £3 million ($investment from Future Capital Partners itself), and there will be a minimum investment of £50,000 ($87,000). A trade sale or IPO is targeted within 5 years of commissioning of the plant.

“RTFs are the investment opportunity of the future." Tim Levy, CEO at Future Capital Partners said, "The global focus on renewable energy is there for all to see, yet opportunities to invest in such an obvious growth sector are currently non-existent. Future Fuels will provide investors with the opportunity to invest in one of only three RTF production plants in the country. Climate change “is the moral issue of our time” (Ed Miliband) and “the greatest challenge facing humanity” (Lord Stern). Many of us believe that ranking not far behind are issues of oil reserves and price, together with food security. This project has at its heart all of these issues.”
Levy added: “Investment in first generation Renewable Transport Fuels is essential to underpin investment in second and third generation technologies – and is a crucial step towards the long term goal of replacing oil in transport fuels (in the UK this accounts for about 70% of our oil imports).”

EU and UK directives have indicated that by 2020 13% (estimated at 23 billion litres) of all the Europe’s petrol fuel must come from renewable sources. Currently, just 2 billion litres (or 3.5%) of the Europe’s petrol fuel comes from renewable sources, meaning that the petrol based Renewable Transport sector is set to grow more than ten-fold in the next decade.

“We believe this project is not only worthy of investment on purely commercial terms but also allows investors to be a ‘catalyst for change’ in an incredibly important way." Levy said.    

“It is a chance to capitalise on a non-correlated, niche investment of huge potential and at the same time benefiting from the risk controls we have placed around the partnership. Moreover, by securing off take agreements for the plant’s produce, we have done a great deal to ensure the project’s long term success. For the first time, Future Fuels will give UK investors the chance to take advantage of the next decade’s most lucrative investment.” Levy concluded.

Bandon Embraces Alternative Strategy for Non-accredited Investors

Hedge fund manager, Bandon Capital Management, LLC, announced a new relationship with American Independent Securities Group, LLC (AISG) enabling the advisors of AISG to make available Bandon’s flagship investment strategy, the Directional Interest Rate Strategy (DIRS), to clients as a separately managed account featuring daily liquidity with minimum investments as low as $25,000.

The Strategy, available to both accredited and non-accredited investors, was created by a former New York Federal Reserve economist and seeks to provide investors with absolute returns, uncorrelated with the equity and fixed income markets, by investing in the US Treasury Market through ETF’s or mutual funds.

Diana Burrell, President of AISG said “We‘re incredibly excited about the new relationship with Bandon and the opportunity for our clients to have access to liquid, non-correlated, absolute return strategies. We believe investors make money in the long term by constructing portfolios with high compound annual returns, low volatility and low probability of large draw downs - Bandon qualifies on all accounts.”

Bandon identifies institutional quality alternative strategies that can be translated and implemented using liquid, transparent securities and distributes these solutions through financial intermediaries.

Father-Son Advisor Team Charged With Nadel Related Hedge Fund Fraud

HedgeCo News - The SEC has charged two investment advisers with securities fraud for misleading investors about the financial condition of three hedge funds they managed, and misrepresenting that they controlled the funds' investment and trading activities when in fact they were being handled by Arthur G. Nadel.

The SEC alleges that Sarasota, Fla.-based Neil V. Moody and his son, Christopher D. Moody, distributed offering materials, account statements, and newsletters to investors that misrepresented the hedge funds' historical investment returns and overstated their asset values by as much as $160 million.

According to the SEC's complaint, hedge funds Valhalla Investment Partners L.P., Viking IRA Fund LLC, and Viking Fund were controlled by Nadel with no meaningful supervision or oversight by the Moodys. The SEC charged Nadel with fraud last year and obtained an emergency court order to freeze his assets.

"The Moodys led investors to believe that they were faithfully managing funds invested with them," said Glenn S. Gordon, Associate Director of the SEC's Miami Regional Office. "Instead, they abdicated their responsibilities to investors and ignored warning signs that should have alerted them to the fraud that was occurring all around them."

In its complaint against the Moodys, the SEC seeks permanent injunctions, financial penalties, and disgorgement of illegal gains. Without admitting or denying the SEC's allegations, the Moodys have consented to permanent injunctions against future securities fraud violations and are bared from associating with any investment adviser for five years.

Future Crisis Worries - Hedge Fund Compliance Survey

HedgeCo.net News - Three quarters of the world’s senior banking and compliance officers polled as part of a wide-ranging survey by Complinet, a hedge fund compliance company, said they are expecting the next financial crisis will strike within the first half of this decade, the company said.

The survey found that the majority of regulatory experts questioned predicted the next significant economic downturn before 2015. 77% said recent reforms were insufficient to avoid another crash similar to the 2008 collapse.

The survey of 232 global compliance officers was made up of 34% from the banking sector, 9% insurance, 32% securities, 7% legal, 18% others.

“The continuing lack of company transparency and accountability to the markets and the public makes the possibility of another crisis almost assured,” said one of the businesses questioned.

The Complinet survey also showed that only 40% thought their firm had changed its approach to compensating employees based on a better understanding of risks associated with the business.

And 91% recognised that the current bonus culture is resented by those outside the financial services industry.

But the survey also showed that 62% of senior management believe they’re putting the right controls in place.

“Regulatory reform and implementation of effective compliance solutions are clearly vital to avoid another crash,” says Paul Johns, Vice President of Global Markets at Complinet.

“The key message from this survey is financial institutions must ensure they have enough compliance resource to navigate through the regulatory maze and reduce the risk of falling foul of the rules.”

Bluenose To Launch Onshore Hedge Fund

HedgeCo News - BVI-based investment manager Bluenose Capital Management is planning to launch The Bluenose North American Market Neutral fund, an onshore version of its flagship offshore hedge fund on March 1st, 2010.

The Delaware-domiciled fund has a 1 year lock-up period, with a minimum investment of $250,000, with a 1% management fee and 20% incentive.
Bluenose's JS Pelletier and Dario Borelli will be managing the fund.

Aimed at U.S. accredited and qualified investors, the US & Canada equity market neutral fund has 4 underlying strategies employed according to prevailing market conditions, including systematic, quantitative & automated investment process. With rigorous risk management practices ensuring low downside volatility the new fund trades only highly liquid exchange-listed securities.

The objective is to generate an annualized compound rate of return of 15% with lower downside volatility vs. the S&P500 and TSX benchmarks. Using proprietary multi-factor models, the fund will engage in short-term market neutral trading in Canadian and U.S. liquid exchange-listed securities. The Fund has a capacity of $700M at the trading level.

Kumar Pleads Guilty in Galleon Hedge Fund Case

New York - Former senior partner at McKinsey & Co., Anil Kumar, yesterday pleaded guilty to conspiracy, insider trading and securities fraud in the Galleon/Raj Rajaratnam hedge fund fraud case, the U.S. Attorney’s Office said.

The prosecution alledged, before US District Judge Denny Chin in Manhattanthat, that Rajaratnam paid Kumar up to $1 million a year for his inside tips, making the hedge fund over $19 million. Kumar, 51, of Saratoga, Calif., is cooperating with prosecutors. He will be sentenced on March 26.

The investigation started with suspicions in the 1990s when chip maker Intel Corp alleged that Rajaratnam was receiving tips from an Intel insider. The investigation was based on a witness who had first entered into a plea agreement with the United States before she began to cooperate in an investigation into Rajaratnam’s practices.

Rajaratnam was taken into custody in New York on Oct. 16, 2009 in the USA’s largest hedge fund insider-trading scheme. His bail was set at $100 million.

The insider trading case involves the employees of some of America’s best-known companies, including International Business Machines Corp, McKinsey & Co and Intel Capital, an arm of Intel Corp.

Hedge Fund Greatwater Shows Strong Gains In First Year

New York (HedgeCo.net) – Greatwater Investment Management, Inc. (GWIM) last year launched the Greatwater Fund, LP., whose unique strategy and philosophy focuses on risk adjusted returns in the emerging markets. In its first year, the Greatwater Fund gained 69.6%.

Domiciled in Delaware, the Greatwater Fund is hedged against market extremes in Latin America with a concentration of investments in the Central Pacific region of Costa Rica. With no lockup period, the hedge fund has monthly redemptions and subscriptions subject to cash flows and development schedule. The fund is expected to run for eight to ten years with distributions planned in year five.

With a minimum investment of $100,000, the 2% management fee, and 25% incentive fee are for retail investors, with institutional fees being adjusted based on investment size. The hedge fund focuses on asset management in the areas of global trends, real estate, marketing and management.

“Our unique marketing strategies have been so successful they we are working on what promises to be the countries most interesting and attractive adventure resort.” Richard Lackey, the hedge fund’s managing director, said, “Imagine taking jungle tours on a Segway, or riding a zip line through a cave or waterfall.”

One of the world’s leading talent agencies is now working with fund management on a reality TV show (non-scripted) featuring their global “eco-architect challenge” where architects and engineers from around the world will compete to design the ultimate luxury tree house. In addition to a stable of luxury tree houses, the resort promises to have luxury homes, jungle villas, lake front villas and a 5 star boutique hotel.

Several factors are keeping Costa Rica investments low risk and high return, ahead of most of their emerging market peers. The low cost of living, close proximity to the US, and democratic government are drawing second-home buyers and retirees to Costa Rica.

“Our strategies are working better than expected,” Lackey said, “Our first hotel has gone from a ranking of 48 out of 80 to number 1 in eighteen months, surpassing our five year expectations. I am even more confident now that this unique space will continue to offer a low volatility opportunity to fund of funds and others wanting exposure in Latin America.”

The Greatwater Fund hosts investor and advisor groups almost monthly at their hotel in Manuel Antonio, Costa Rica. They expect their fund to fully capitalized by mid-May 2010

Ponta Negra Hedge Fund Manager Pleads Guilty

New York (HedgeCo.net) - Former Stamford hedge fund manager, Francesco Rusciano. waived his right to indictment and pleaded guilty today before US Judge Ellen Bree Burns in New Haven to one count of wire fraud.

According to court documents and statements made in court, from approximately March 2007 to April 2009, Rusciano operated a private investment fund, the Ponta Negra Fund I, LLC at his residence in Stamford. In approximately January 2009, he started the Ponta Negra Offshore Fund, LTD. Rusciano implied that the money invested in his hedge funds would be used for trading of spot, forwards, non-deliverable forwards, and options in G7 and emerging market economies.

In pleading guilty, he admitted that he defrauded investors by overstating his background and experience as a currency trader with his prior employer and by overstating his performance history.

Rusciano's investors placed approximately $24 million in principal with the hedge funds during their time of operation and, in turn, investors redeemed approximately $9 million before his scheme was discovered. At the time the Securities and Exchange Commission froze the assets of the Funds in April 2009, approximately $15 million remained in the Funds.

Judge Burns has scheduled sentencing for April 2, 2010, at which time Rusciano faces a maximum term of imprisonment of 20 years. The FBI arrested Rusciano at his residence on May 1, 2009. He has been released on bond under electronic monitoring since May 4th.

Fed Doubles Rajaratnam Hedge Fund Allegations

New York (HedgeCo.net) - U.S. prosecutors yesterday filed papers saying Raj Rajaratnam’s profits in the alleged Galleon hedge fund scheme are higher than previously thought. Federal prosecutors doubled the sum to $36 million from the previous allegations of $17 million in fraudulent income. Prosecutors also opposed Rajaratnam’s bid for reduced bail.

The investigation started with suspicions in the 1990s when chip maker Intel Corp alleged that Rajaratnam was receiving tips from an Intel insider. The investigation was based on a witness who had first entered into a plea agreement with the United States before she began to cooperate in an investigation into Rajaratnam's practices.

Rajaratnam was taken into custody in New York on Oct. 16, 2009 in the USA's largest hedge fund insider-trading scheme. His bail was set at $100 million, Rajaratnam said in regard to the charges, that, "they are, without exception, entirely baseless. I am innocent and will vigorously defend myself and our firm."

Rajaratnam was hailed a hero in post-tsunami Sri Lanka, now however, his massive donations are being called into question.

Rajaratnam is a U.S. citizen and the most prominent defendant among 21 people criminally or civilly charged in an insider trading case involving employees of some of America's best-known companies, according to Bloomberg, including International Business Machines Corp, McKinsey & Co and Intel Capital, an arm of Intel Corp.

Trends in Hedge Fund Capital Raising for 2010

HedgeCo News - Several dominant trends regarding capital flows into the hedge fund arena were identified through conversations with more than 200 hedge fund organizations and 1000 institutional investors during 2009, according to Agecroft Partners.

These hedge fund trends include:

Continued Improvement of Capital Flows: The past 16 months witnessed unprecedented changes in the hedge fund industry with assets off 40% from their peak levels and industry revenues down approximately 70%. The environment was worse for fund raising where we estimate that new flows were likely down 95% from peak levels for the 4Q08 and 1Q09. The asset raising environment slowly improved during the 2nd and 3rd quarter, with a significant increase in the 4th quarter. However, it was still down an estimated 60% to 70% from the peak. During each successive quarter in 2010, we expect hedge fund capital inflows will continue to improve. A major driver of this renewed growth will be a gradual yet substantial increase in allocations made by pension funds.

Increased Competition: While asset flows had been a fraction of their previous highs, 2009 saw a significant increase in competition as many hedge funds, previously closed to new investors, began to market their funds. This trend will continue throughout 2010 as many leading hedge funds strive to return to their previous asset peak. The asset raising environment in 2009 was also affected by the development of a large secondary market for hedge funds, where investors could buy into many hedge funds at a large discount to NAV, as well as receive the benefit of investing below the high-water mark. Secondary funds should not be as big a factor in 2010 as discounts to NAV narrow. Finally, while there was a ‘flight to safety’ by institutional investors to larger hedge funds with strong brands in 2009, this trend should reverse itself as investors seek out smaller and more nimble alpha generators.

Increased Importance of Marketing: Due to the aforementioned increased competition, and the dynamic changes occurring amongst the major investor types, marketing and branding of hedge funds plays a more crucial role today than in the past. While most institutional allocators were stable investors throughout the crisis, high net worth individuals led the redemption wave and created liquidity problems for many hedge funds and hedge fund of funds, along with their underlying investors. Hedge funds will be more focused on their investor demographics in the wake of 2008. The resulting landscape features institutional investors as the preferred client, controlling a greater market share of hedge fund allocations. This trend will continue as pension funds significantly increase allocations to hedge funds. These changes highlight the need for a professional, proactive and knowledgeable sales force able to sell a fund’s specific attributes to an appropriate mix of investors.

Extension of the Due Diligence Process: The due diligence process of hedge fund investors is longer, more focused and deeper than ever before. Institutional investors typically require three to five meetings before making an investment decision. Their process focuses on multiple evaluation factors including: (1) organizational quality, (2) investment team, (3) investment process, (4) risk controls, (5) operational infrastructure, (6) terms and (7) historical performance. The weighting of the various attributes varies among investors, but the trend, particularly in the wake of the Madoff scandal, is toward longer due diligence and increased focus on areas of operational due diligence and risk management policies.

Marketplace Segmentation by Investor Type: The hedge fund marketplace consists of many different segments each displaying a unique profile with regard to the following factors: (1) decision-making structure, (2) length of due diligence process, (3) evaluation factors utilized, (4) average duration of investment and (5) impact on capital flows in the hedge fund industry. Next we will highlight the trends in hedge fund allocations by major investor types.

Pension Funds: The average pension fund portfolio allocates approximately 2.5% to hedge funds. Although it is still only a small fraction of the allocation of the top endowments, this percentage represents a significant increase from ten years ago. We anticipate that pension funds will gradually increase allocations to hedge funds during the next decade, approaching 15% of their asset base. Furthermore, we estimate that 90% of pension funds that allocate to hedge funds currently use a fund of hedge funds structure. However, over time we expect an increasing number of pension funds to choose direct access to managers as they acquire more knowledge and experience of hedge funds. Smaller pension funds will continue to use fund of funds. In addition, rather than separating hedge funds out as a separate asset class, we expect many pension funds to use hedge fund managers within their existing equity and fixed income buckets as a best of breed solution. During the recent crisis, pension funds were the most stable investor in hedge funds and will continue to be a sought-after investor by managers.

Endowments and Foundations: During 2009, endowments and foundations redeemed well below industry average. Primarily liquidity issues, as opposed to less favorable long-term opinion on the merits of investing in hedge funds, drove these redemptions. The endowment and foundation space is a bifurcated market comprised of organizations with more than $1B AUM and those with less than $1B AUM. Many of the larger endowments and foundations are fully allocated to hedge funds and will continue (in some instances) to favor a portfolio allocation of more than 50% to managers. Although we do not underestimate the positive impact that endowments and foundations have had as early adopters of hedge funds, the growth in this space is limited given current, already large allocations. The primary opportunity in this space is, as we see it, takeaway business, where a new manager will replace an existing manager. For endowments and foundations with less than $1B AUM, we anticipate growing portfolio allocations to hedge funds up from an estimated 10-25% overall. We also anticipate an increase in reliance on access to hedge funds through consultants for smaller endowments and foundations.

Fund of Hedge Funds: 2009 saw significant contraction in hedge fund of funds assets. The crisis of 2008 did not treat all fund of hedge funds equally. Some fund of funds experienced significantly fewer redemptions relative to peers due to a variety of factors including, (1) higher concentrations of institutional clients, (2) avoiding extreme leverage, (3) low Madoff exposure, (4) outperforming peers and (5) proactively educating clients on appropriate comparative benchmarks. While we expect the absolute dollar amount invested in funds of funds to increase with the expansion of assets in the hedge fund industry, the market share of funds of funds should decrease as increasing numbers of institutional investors go ‘direct’ to single managers.

The hedge fund of funds industry also consolidated throughout 2009—a trend we expect to continue. Some larger funds of funds ceased operations due to (1) Madoff exposure, (2) poor performance or (3) strategic decisions by a parent company. Larger competitors with greater distribution capabilities also acquired some smaller funds of hedge funds. As funds of funds continue to consolidate, opportunities will arise for smaller firms to differentiate themselves.

Consultants: The institutional hedge fund consultant market place has seen explosive growth as more institutional investors begin to go direct. Most of these firms saw few redemptions from their client base in 2009, while seeing the number of clients expand. This trend will continue well into the future, with increased competition from traditional institutional consultant firms and fund of fund organization that create separately managed portfolios for large institutional investors.

High Net Worth Investors: Generally, high net-worth investors fall into two categories: institutional and non-institutional. The first group, categorized by high sophistication, portfolio stability and endowment style approach to investing, constitutes a desirable investor. Many among this group operate from a family-office structure or spend a majority of their time independently evaluating hedge fund managers. The second category, characterized by less sophistication and fewer resources, tends to chase performance, and utilize a follow the herd mentality to investing. Unfortunately, we believe that this group bears primary responsibility for redemptions from both hedge funds and hedge fund of funds in the recent crisis. A large percent of assets controlled by this latter group have left the hedge fund space and we anticipate their return to be a lengthy process. The return of this capital will likely involve the engagement of advisors and consultants

Conclusion: The hedge fund industry is moving toward a period of sustained growth driven by institutional investors that will increasingly adopt a more institutionalized process for evaluating hedge fund managers. The majority of assets will flow to a small percentage of managers representing firms characterized by: (1) strong distribution, (2) clear comprehension of nuances among investor segments, (3) strong brand, and (4) consistent high-quality marketing message.

Diamond Notch Fund Manager to Join WindTamer Board

Wind turbine technology company WindTamer Corporation has elected hedge fund investment advisor Steven DiNunzio as an independent member of the Company's Board of Directors.

DiNunzio is currently CFO of Diamond Notch Asset Management, LLC, a multi-strategy investment advisor with approximately $430 million of assets under management. His responsibilities at the company include accounting and financial management and reporting, middle and back office operations and managing service provider relationships, for administration, audit, tax and most prime broker relationships for the Diamond Notch Funds.

Prior to joining Diamond Notch Asset Management, from 2002 to 2007 Mr. DiNunzio held several positions in the Fund Derivatives Department at BNP Paribas and Zurich Capital Markets, most recently as Director and Head of Fund Derivatives Operations for BNP Paribas in New York. Previous to that, Mr. DiNunzio was a Director at Dune Partners, Ltd., a London based hedge fund where his responsibilities included directing operations, compliance and finance. Mr. DiNunzio has also held various positions at Swiss Bank/UBS in the Foreign Exchange, Middle Office and Program Management groups.

"We are very pleased that Steve DiNunzio has agreed to join the WindTamer team," said Gerald E. Brock, WindTamer's Chairman and Chief Executive Officer. "Steve's skills and his long experience in the financial services industry will bring a valuable perspective to our Board of Directors."