Presidential Elections & US Investments

Amidst the recent turmoil in the global financial markets one of the most influential and highly contested Presidential elections is taking place in the United States on the 4th November. With these elections rapidly approaching, the Association of Investment Companies (AIC) has collated the views of some investment company managers with high exposure to the US.

In general, the managers believe that the elections will have an impact on their US investments and the recent crisis in global markets will influence the election result. Russell Cleveland, manager of Renaissance US Capital commented, "The US Presidential elections will have an impact on the US stock market across all sectors. It appears that Senator Obama will win the election and the Democrats will gain in both the House and Senate."

A new President will bring with them a new set of policies and managers seem optimistic about the future of the US and its long term investment opportunities.

Peter Dicks, Chairman of Private Equity Investor said: "Yes, I believe the election will have an impact in the sense that it will remove an administration which has largely become a lame duck and more importantly it will remove uncertainty. No doubt the first 100 days will be significant especially, in my opinion, if Obama gets in.

"In our field, which is venture capital, we think this is potentially one of the very best times to invest in this field, Why? Venture is an all cash investment in an all equity asset class without a dollar of debt. If debt features at all; it is at a much later stage in the Company's life when it has significant sales and earnings. So, there is a no "damaged goods" aspect to this asset class which, in the current environment, must make it almost unique. And innovation is far from dead in Silicon Valley and other parts of the US especially in areas such as "cleantech" and along with all the other technology based areas of the venture capital world.

"We have been making new commitments to quality venture funds and are currently in the middle of raising a new Fund of Funds to enable us to do more in this area. We are very excited about the current timing and agree with one of our Partnership interests who believe this is likely to be a time of unprecedented investment opportunity."

Russell Cleveland, manager of Renaissance US Capital agrees commenting: "This is a good time to invest in the US market because I believe investors will view a change as good. The US will be withdrawing from Iraq and this will be very favourable to the stock market. So while a recession may be going on the stock market may be going up."

Tom Walker, manager of Martin Currie Portfolio Investment Trust, commented: "The result of the US presidential election, as always, is a significant world event. But these are extraordinary times. Fundamental economics and wider confidence remain the key to recovery - that is much more than one individual. We believe that much of the bad news of late is now discounted in equity markets and that, difficult though the immediate outlook appears, long-term investors should be rewarded from this point."

Garrett Fish, manager of JPMorgan American Investment Trust said: "History has shown that during times of severe stress in the markets there are decent buying opportunities. We are currently seeing multi decade lows in terms of sentiment and multi-decade highs in terms of volatility. If you are interested in buying high quality merchandise (shares) many are now on sale. Looking out over the next few years this should prove to be another example of buy on fear sell on greed."

David McCraw, manager of the Edinburgh US Tracker Trust plc has looked into past US elections with a particular focus on those that have taken place during a period of economic downturn. He said, "Historic analysis shows that US equities in 2008 have so far followed the same pattern that has occurred in past periods of slower economic growth and lower interest rates - namely that equity returns in an election year have been weaker than in the preceding year. However, in previous election years where such economic conditions prevailed, (1936, 1968, 1976, 1992 and 1996), returns from equities were in positive territory and that appears unlikely in 2008.

"Analysis of Presidential cycles since 1926 show that there may be grounds for being more optimistic - the average returns from the S&P500 have been positive in the first year of the Presidential term although the best returns have been generated in the third year of the four year cycle. However, given the headwinds now facing the US and global economy the first term of the new President may follow a similar pattern of rewarding investors who invest for the long term."

Aside from the market difficulties, a key issue for managers when considering the impact of the elections will be the policies surrounding climate change. Speaking on this subject

Walter Price, manager of the RCM Technology Trust said, "The platforms of the incumbent Republican president, Bush, and the leading Presidential candidate, Democrat Obama, are quite different. Obama believes in the beneficial effects of government policy, and this should matter in a number of areas relevant to Technology. For instance, Obama has pledged to address Global Climate Change and the need to eliminate the dependence of the USA on foreign oil imports. We should see a programme that builds upon the Investment Tax Credit (the package of tax measures designed for the solar energy sector) that was passed by Congress as a part of the rescue bill to encourage alternative energy generation, including new credits for electric, hybrid, and natural gas run cars and trucks; more funds for research into new energy sources; and credits for energy conservation efforts. We think this will spur the wind and solar industries in the US to become the largest in the world, but there will be a bias for those companies that locate their plants in the US and employ lots of US citizens."

Russell Cleveland, manager of Renaissance US Capital is also planning to take advantage of the alternative energy sector as well as US traded Chinese companies. He said: "We are positioning our portfolio to take advantage of the world as we see it. We are placing about one-half of our positions in US traded Chinese companies. These companies are growing rapidly and selling at very low valuations. The other areas we are concentrating on are related to alternative energy, i.e., solar, wind power, etc.; internet, software, medical technology and other areas that can do well in a slow growth economy."

Sidley Austin Promotes Hedge Fund Lawyers Among Others

Sidley Austin LLP has added six new members to its Executive Committee, the Committee that exercises general authority over the affairs of the firm, and two new members to its Management Committee, the Committee which governs the firm’s day-to-day activities.

William D. Kerr of Chicago joins as global coordinator of the firm’s Investment Funds, Advisers and Derivatives practice and a partner since 1991. He represents clients in securities and derivatives-related corporate and regulatory matters, including the organization and operation of hedge funds, commodity pools, real estate funds and private equity funds, organization and operation of investment advisers, commodity pool operators and commodity trading advisors, structured products, and derivatives documentation and regulation.

Michael J. Schmidtberger of New York has been a partner since 1993 and a global coordinator of the firm’s Investment Funds, Advisers and Derivatives practice, focuses his practice on securities and futures-related funds and corporate transactions, including related regulatory matters.

Schmidtberger regularly advises and represents clients in domestic and international offerings of hedge funds, fund of funds, public and private commodity pools and structured derivative and principal-protected transactions. Mr. Schmidtberger has also counseled clients in numerous fund restructurings and work-out situations. He is also a member of the firm’s Executive Committee and a member of the Committee on Retention and Promotion of Women.

“All of these partners are extremely talented lawyers and have contributed significantly to the growth and success of the firm,” said Thomas A. Cole, Chair of the Executive Committee.

Also hired are, Edward G. Poplawski, Raymond A. Bonner, Constance Choy and Peter D. Keisler, bringing the current count to 49.

“We are delighted to welcome these lawyers to governance roles so they may continue to serve as leaders of the firm,” said Charles W. Douglas, Chair of the Management Committee.

Sidley Austin LLP is one of the world's largest full-service law firms, with more than 1800 lawyers practicing in 16 U.S. and international cities, including Beijing, Brussels, Frankfurt, Geneva, Hong Kong, London, Shanghai, Singapore, Sydney and Tokyo.

Competition Becomes Fierce for Financial Jobs

Employment offers in financial services fell by 11% in September compared to 6 months ago, according to Powerchex Limited, a pre-employment screening firm for financial institutions.

Research by Powerchex showed that Investment Banks made the biggest cutback with 52% less jobs being offered in September compared to 6 months ago. Uncertainty about the world economy heightened with the collapse of U.S investment bank Lehman Brothers, meaning that investment banks are reluctant to hire with the fear they may be the next to falter. Unemployed stockbrokers will also be worried by the news that there has been an 11% decline in the amount of jobs being offered by brokerage firms.

Despite this, investment managers saw a 22% increase in job offers as rival firms take advantage of the increasing number of financial services workers looking for a job by “snapping up the cream of the crop on much less than they would have been able to 6 months ago”, said Alexandra Kelly, Managing Director of Powerchex Limited.

Hedge fund and insurance companies also made more employment offers than 6 months ago as those companies who have been able to remain stable through the turmoil prepare to put themselves at the head of the pack to take advantage of any economic recovery.

IT contractors based at financial services firms have been the big winners with a 30% rise in job offers. Harvey Nash, whose business is predominantly IT outsourcing, this year announced a large rise in profits and strong revenue growth. The trend towards temporary workers is likely to continue as companies attempt to avoid long term commitments in the current economic climate, coupled with the fact that there are more highly skilled workers willing to take on temporary positions.

According to financial recruitment specialists Morgan McKinley, there has been a 42% rise in the number of financial services workers looking for a job in September, with this number likely to rise, those who are unable to secure permanent positions will be forced to accept temporary roles.

“The employment landscape in financial services is getting decisively more difficult, with offers being made only to the best candidates” says Kelly. “Applicants are well advised to be very candid in their CVs, as even a small discrepancy may disqualify them from a job they can ill afford to lose”. “I expect to see a rise in CV discrepancies, as the competition for financials jobs becomes more fierce”, she concludes.

Finvest Launches Offering and FOHF Allocation

Finvest Asset Management is set to launch a new capital protected offering for investors who are seeking to generate annual returns of between 12-20 percent in a low risk structure.

The total offering is for $500 million and is open to non-U.S. investors only. The capital protected product will be offered to investors in the form of a U.S. Dollar denominated subscription. Downward pressure on the Euro relative to the dollar, will further enhance the investment and provide a source of upward performance for investors.

The Zurich-based Asset Management company has also received a mandate to allocate around $300m to the fund of hedge funds sector as part of a low-risk strategy to capitalise on the turbulence in global financial markets market.

Allocations will be made to funds that have a track record of at least three years, have an attractive Sharpe ratio, and are targeting annual returns of between 10 and 15 per cent. Funds of funds that may have incurred negative returns will not be excluded from the selection process.

"The decision to allocate to a hedge fund goes against the current trend," says Finvest portfolio strategist Mayer Greenwald. "However, we see a tremendous amount of upside in the fund of funds space, providing that portfolio managers apply the appropriate risk management." He argues that a good fund of funds can provide value in its ability to optimise allocations and achieve an appropriate risk/reward profile.

Finvest currently operates an office from Zurich and recently announced plans to open an office in London and Cypress. It also manages the Finvest Primer and Finvest Yankee funds.

Research Looks at Retirement Plan Risk Management

The Society of Actuaries and Pension Governance, LLC has released a new research report that explores current pension risk management practices.

The 69-page study by Susan Mangiero looks at the responses of 162 retirement plan decision-makers in the United States and Canada.

In answering broad questions, a majority of surveyed plan sponsors describe themselves as doing all the right things to manage investment, fiduciary and liability risks. However, answers to subsequent questions – those that query further about risk procedures and policies at a detailed level - do not support the notion that pension risk management is being addressed on a comprehensive basis by all plans represented in the survey sample.

Respondents cite numerous reasons for not using derivatives directly, including, but not limited to, "Lack of Fiduciary Understanding", "Perception of Excess Risk", "Considered Too Complex", "Prohibition Against Possible Leverage" and/or "Defined Benefit Plan Risk Not Considered Significant".

Survey respondents seem to rely mainly on elementary tools to measure risk, also worrying about the future, ranking "Accounting Impact" as a concern. Other concerns were also noted to include "Regulation," "Longevity of Plan Participants" and "Fiduciary Pressure."

“A global derivatives market in excess of $600 trillion is hard to ignore,” says Mangiero, “yet most are unaware of how plan sponsors employ futures, options and swaps, if at all. Statutory reports about pension economics are often no longer relevant by the time they are released to the general public. Allowing that derivative instruments can help or hinder, the impact of a poor pension risk management strategy is potentially devastating and might lead to financial ruin for employees who assume that financial managers make sound decisions on their behalf.”

ICI Offers Alternative to Pickens Plan

A national program known as the Intelligent Community Initiative (ICI) is offering an alternative restructuring operation using interconnected client-server databases and online training, resulting, the company says, in self-sustaining financial communities which are not as vulnerable to global financial collapse.

Through its Business Incubation and Facilitation Division, the ICI provides a network for businesses that are integral to (and support) the community. A not insignificant benefit to this approach, ICI says, is that more tightly linked businesses and individuals beholden to their bonds in the community require much less governmental intervention. The ICI plan radically reduces the need for government regulations that limit efficiency.

In September ICI announced an alternative to the Pickens Plan called Operation Energy Transition (OET). According to ICI analysis, the plan that oil billionaire T. Boone Pickens released in July 2008 intensifies the problems of the Peak Oil crisis by transferring dependence on oil to operate automobiles to dependence on natural gas to do the same.

Intelligent Communities President Barry Krusch says, “Not only does the Pickens Plan fail to provide a solid solution to curtail greenhouse gas emissions, but it also lacks the detailed analysis that any comprehensive plan should include. Briefly put, it is too much Pickens, and not enough Plan”.

While the Pickens Plan recommends ramping up wind energy to feed electric grids for powering urban centers, a strategy also to be deployed by OET, the secondary goal of the Pickens Plan to use natural gas to power automobiles requires not only a significant (and expensive) change to the national transportation infrastructure, it also unfortunately shifts reliance on one fossil fuel to another. Natural gas is nonrenewable, which means that when supplies decrease, prices jump and everyone scrambles to search for the next fuel source. And when other countries join the natural gas craze, the supply further diminishes and prices soar.

The alternative answer proposed by Intelligent Communities, Operation Energy Transition, calls for a ramped-up increase in telecommuting, innovations such as carpooling software and a new mode of transport it refers to as intellitaxis, and an enhanced focus on more commonly known ideas such as alternative vehicles and increasing solar and wind technology and availability. While the Pickens Plan can be described in just 2 or 3 sentences, adequately describing OET takes a wall map, which is conveniently located on the OET site.

“If we’re going to solve the problem, let’s solve it”, Krusch said. “Rolling out a plan which is destined to put America yet again behind the eight ball is not the plan we need: Operation Energy Transition is.”

GlobeOp Performance Remains Strong

HedgeCo.net - Hedge Fund provider GlobeOp Financial Services S.A. published its Interim Management Statement covering the period since 30 June 2008. As a group, GlobeOp's clients appear to have out-performed the industry.

"I am pleased to report that we have continued to grow revenues and Assets under Administration (to US$108 billion at 30 September 2008 from $104 billion at 30 June 2008) against a background of turbulent markets and a challenging environment for our clients," Hans Hufschmid, Chief Executive Officer, said, "the three-month period to September has been the strongest quarter this year for fund launches from new clients as well as launches from existing clients. In addition, similar to the first half of 2008, client funds grew organically during the period.

Preliminary data show performance for September of approximately -3% (which includes any exposure to Lehman Brothers) and year-to-date clients show negative returns of around -5.5%. This contrasts positively with performance reports from the Barclays Hedge Fund index and the HFRX index which both show year to date returns of more than -11% through September.

In the three months prior to Lehman Brothers insolvency, GlobeOp used GoCredit to identify and assess specific exposures. As a result, clients terminated or re-assigned over half of their Lehman Brothers positions, reducing their initial margin posted with Lehman by approximately $180 million.

GlobeOp provides administration services to over 180 clients representing hundreds of distinct hedge funds with total assets of $108 billion. Established in 2000, GlobeOp today serves over 180 clients worldwide, representing $108 billion in assets under administration (AuA). With headquarters in London and New York, GlobeOp employs more than 1,800 people on three continents; offices are also located in Dublin, Ireland; George Town, Cayman Islands; Harrison, NY and Hartford, CT, U.S.A.; and Mumbai (Bombay), India.

Survey Shows Nearly 75% of Single Family Offices Invest in Hedge Funds, With Plans to Increase

The alternative investment sector will continue to benefit from increasing asset allocations from Single Family Offices (SFOs), according to "On the Rise," the latest research report sponsored by CPA firm Rothstein Kass.

The white paper, co-sponsored by G Capital highlights the growing relationship between the alternative investment community and SFOs, entities established to serve the needs of individual high-net-worth families. "On the Rise" was co-authored by Russ Alan Prince, a leading authority and counselor on private wealth, and Hannah Shaw Grove, a widely recognized expert on behaviors and finances of high-net-worth individuals.

The findings include that almost three-quarters of SFOs currently invest in hedge funds, with nearly 60% of this group planning additional allocations in the coming year

SFOs with hedge fund allocations hold an average of 3.2 hedge funds or fund-of-funds in the portfolio. Nearly 70% of SFOs with hedge fund allocations report that these investments have met or exceeded performance expectations over the past 12 months.

Over 70% of SFOs with hedge fund allocations report "lack of transparency" as a key concern. Other concerns sited include lock-up periods (60%), style drift (55%) and fraud (37%)

"As SFOs consider an ever-expanding range of investment options, they are increasingly turning to the alternative investment sector and its proven ability to deliver superior returns independent of underlying market conditions," said Rick Flynn, a Principal in Rothstein Kass' Family Office Group. "Moreover, our findings suggest that performance continues to drive alternative investment allocations. Nearly 70% of those polled said that performance over the last 12 months has been 'as expected' or 'better than expected.'"

The "On the Rise" survey was based on telephone interviews with 146 SFOs and was concluded in August 2008. Investable assets ranged from $312.2 million to $1.3 billion, with a median of roughly $500 million. Just under 60% of the firms polled are based in the Americas, with the balance operating in Europe (21%) and Asia (20%). Additional results were generated from only those entities with reported allocations to the alternative investment sector. For the purposes of this research, SFOs are defined as "created exclusively for or by a single exceptionally wealthy family to provide control, negotiating leverage, and a defense for family members."

"'On the Rise' details the latest evidence of the growing interrelation between SFOs and the alternative investment community. While high-net-worth individuals generally recognize advantages of hedge fund investing, they are frequently confounded by the growing roster of products and services available. SFOs have had great success in bridging this knowledge gap," said Peter Gerhard, Chief Executive Officer of G Capital Management LLC. "Still, lingering challenges face this blossoming relationship. Both transparency (73%) and style drift (55%) rated as key concerns among respondents. It seems that although high-net-worth families are comfortable involving SFOs in the asset allocation process, they themselves retain a level of involvement. Investors need to feel confident that the funds that have been selected are not only good choices in the moment, but reflect overarching and longer-term investment objectives."

Rothstein Kass is a financial services firm, recognized nationally as a top service provider to the alternative investment industry. The Firm provides audit, tax, accounting and consulting services to hedge funds, fund of funds, private equity funds, broker-dealers and registered investment advisors. Rothstein Kass has offices in New York, New Jersey, California, Colorado, Texas and the Cayman Islands.

Hedge Fund Performance for the Third-Quarter Lowest In Morningstar History

Morningstar, Inc. reported that hedge funds reported the worst losses in the Morningstar Hedge Fund Index’s history, which began in January 2003.

In September, the Morningstar 1000 Hedge Fund index dropped 7.87%, more than double August`s losses. Hedge funds entered the third quarter virtually flat for the year, but the index`s 13.17% third-quarter drop dragged year-to-date performance into the red.

"In September, the financial world as we know it turned upside down. We saw a shakeout in the hedge fund industry all around the globe. Hedge funds experienced poor borrowing, hedging, and trading conditions while liquidity dried up and volatility skyrocketed," said Morningstar hedge fund analyst Nadia Van Dalen.

Hedge funds were affected by extreme and unforeseen events during the month, including failures and takeovers of mortgage agencies, banks, insurers, and prime brokers.

As the world watched in anticipation of a U.S. government bailout, the global equity markets roiled. The Morningstar Global Equity Hedge Fund Index lost 11.22% in September. The Morningstar Europe Equity Hedge Fund Index declined 9.62% during the month but outperformed the MSCI Europe Index by more than five percentage points, while the Morningstar US Equity Hedge Fund Index underperformed the SandP 500 Index by more than one percentage point.

Developed Asia and emerging markets equity hedge funds managed to avoid some of the market losses, as these indexes outperformed the MSCI AC Asia Index and the MSCI Emerging Markets Index by about five percentage points in September. For the year to date, however, these emerging markets funds have taken more than a 30% hit.

Hedging proved difficult for hedge funds this month. The SEC and the FSA announced temporary bans on shorting financial stocks. Many convertible arbitrage funds taking long positions in financial sector convertible bonds were unable to hedge with short stock positions. The Morningstar Convertible Arbitrage Hedge Fund Index lost 12.39% in September. Fortunately, some equity arbitrage hedge funds were able to avoid financials. The Morningstar Equity Arbitrage Hedge Fund Index lost only 4.60%.

Debt-oriented hedge funds also experienced hedging problems. Credit default swaps, a common way to hedge bond exposure, became more expensive and less attractive with fears of default and counterparty risk. Both the Morningstar Debt Arbitrage and the Morningstar Global Debt Hedge Fund Indexes underperformed global and U.S. bonds, losing 4.39% and 7.50% respectively. The Morningstar Distressed Securities Hedge Fund Index closed the month down 6.21% as risky debt yields rose.

Global trend following hedge funds actually profited from some of the downward trends in the market, as these funds trade stock index futures as well as interest rates, currencies, and commodities. The Morningstar Global Trend Hedge Fund Index lost only 1.26% in September, the best-performing category other than short equity. The Morningstar Global Non-trend Index, comprised of funds with a more macro-economic approach, slid only 1.56%.

Funds of funds performed in line with the Morningstar 1000 Hedge Fund Index, outperforming the index by about 20 basis points in September, but falling slightly short for the quarter and year to date. The Morningstar Multistrategy Hedge Fund Index underperformed the overall index by about 200 basis points in September.

Russian Trader Looses $50 Million In Risky Trades

Moscow's The Statesman reports that a Russian rogue trader lost his investment bank up to $50 million in risky trades that went wrong in the financial crisis, the Vedomosti business daily reported today. Quoting unnamed sources at Renaissance Capital, one of Russia’s biggest investment banks, Vedomosti reported that the rogue trader had disappeared.

A source close to the bank’s top management put the loss at about $50 million, although chief executive Mr Ruben Aganbegyan said it was only around $10 million. “He opened positions on blue-chip companies that were above the limits and outside of the controls. The market fell and we quickly found the problem,” he was quoted as saying.

The incident is eerily reminiscent of Nick Leeson ~ the rogue trader whose unchecked risk-taking caused the biggest financial scandals of the 20th century.
The collapse of Barings Bank (personal bank to Queen Elizabeth II) in 1995 and Leeson’s role in it is one of the most spectacular debacles in modern financial history, according to the Leeson website.

Edge Launches New Alternative Investment Site

Hedge fund advisor Edge Capital Partners, LLC has launched a new website (www.edgecappartners.com) highlighting the firm's offerings in the areas of asset allocation strategies, benchmarked investment options, corporate mergers and acquisitions and finance strategies, wealth management and individual portfolio management.

Designed by Glick Interactive, the Edge Capital Partners new website decribes the firm's culture and goals. "(our firm) is built on providing unbiased wealth management solutions. Our goal is to elevate the standards of wealth management and use our website as a tool to communicate our firm’s values in this challenging global market environment,” said Partner J. Peek Garlington III.

Edge Capital Partners, LLC is a provider of wealth management and investment advisory services to a select group of high-net-worth and institutional clients globally. Seasoned advisors understand the challenges of creating solutions that match clients’ unique and evolving needs and work in unison with clients, their advisors and accountants to capture, generate, and implement all points of strategy and service.

Overstock Settles After Gradient Apologises

Overstock.com Inc. announced it has settled all claims against Gradient Analytics and its principals and officers named as defendants in Overstock's defamation case filed in Marin County, California.

Overstock.com chairman and CEO, Patrick Byrne said, "I am pleased to publish this statement from Gradient Analytics:"

Having reviewed all SEC filings, relevant accounting literature, and all other information available to it, Gradient now believes that, to the best of it knowledge, Overstock's stated accounting policies did in fact conform with Generally Accepted Accounting Principles (GAAP) and regrets any prior statements to the contrary.

Some of Gradient's prior reports asserted that certain Overstock directors, i.e., Allison Abraham, John Fisher and Gordon Macklin, were not independent directors according to Gradient's criteria for evaluating independence.

However, under NASD Rules, those directors were independent. Gradient extends its apology to the Macklin family for any remarks or observations concerning the suitability or independence of Mr. Gordon Macklin.

Gradient has examined and improved its internal policies concerning how it communicates with clients, including hedge funds, and the media.

Gradient regrets that the parties have been embroiled in litigation over its reports and looks forward to both sides' moving forward with their respective businesses.

Byrne added, "I wish Gradient Analytics the best in their future endeavors. Overstock.com will now focus on the remaining defendants, Copper River, David Rocker, and Mark Cohodes."

The details of the settlement reached are confidential.

$200 Million Designated to Alternative Investments by Chicago Media Company

New York based Elliott Associates has designated $1 billion into Ryan Kavanaugh's Relativity Media which will finance a large slate of Universal Pictures' films over the next few years.

Noci Pictures Entertainment a Chicago and Los Angeles film production and structured finance company thinks it may have the answer and its own opportunity with its $100 million dollar international tax advantaged structured film deal that has an option to be principally protected as well using CPPI, including a stand alone 100% principal protected Prints and Advertising Fund which will insure the Company's U.S. theatrical distribution.

"No matter how bad things are in the world, people need to be entertained", states Yuri Rutman, Noci's CEO. "And while the crowd mentality of panic in the U.S. financial markets exists, overseas, properly structured commercial films generate more revenues which add to bigger distributor buys with the Euro vs. USD."

Apart from Elliott Associates, other investors including billionaires,family offices from Wall Street to Silicon Valley to the Middle East to Russia have been parking their money into Hollywood.

Larry Ellison Of Oracle, Paul Allen Of Microsoft, Steven Rales, Fred Smith of Federal Express, Norman Waitt, the Co-Founder of Gateway Computers, Jeff Skoll Of Ebay, Marc Turtletaub of The Money Store, Roger Marino Of EMC Corp, Sidney Kimmel Of Jones Apparel Group, Minnesota Twins owner Bill Pohlad; Real Estate Developers Tom Rosenberg and Bob Yari, and, financiers Sheikh Waleed Al Ibrahim, Michel Litvak, and Philip Anschutz are all behind the finance of a lot of films that range from box office hits to Academy Award winners.

While the glamour of the movie business may be appealing to most, at the end of the day, it is still an unknown business that many try to gamble on, and only a handful come out as winners. The real key is to minimize risk, maximize profits, and offer a steadier stream of revenues than what other alternative investments may offer such as real estate, oil & gas, commodities, hedge funds, or practically any other investment in today's market.

The Company is putting together a slate of films using an innovative hybrid public-private finance strategy aimed at investors who either want to take a 100% Federal deduction under Section 181 or "The American Jobs Creations Act" against their ordinary income, get an additional 20-40% in tradable and monetized state tax credits or cash rebates, have a hedge of revenues from 20-30 films, a possible exit IPO on the London AIM., as well as stimulating local economic development, and creating jobs, including for women and minorities. Plus the Company is offering an alternative 100% principal protection of capital using Constant Proportion Portfolio Insurance.

"I don't know of any other alternative investment that can offer tax incentives, multiple exit strategies, an opportunity to guarantee 100% of capital, as well as giving back to the American economy and labor, while being involved with the moviemaking process", states Yuri Rutman,. "That would also add to the long line of recent film funds that have been structured with numerous hedge funds, private equity investors, corporate tax credit buyers, and institutions. Heck I don't even know of any business that someone can start where they know they will receive an exact ROI before they see any profits".

"I am also surprised how many investors, hedge funds, VC, tax planners, CPA's, tax attorneys, public and private companies have no clue about these benefits", Rutman adds. "Federal Preservation, New Markets Tax Credits, etc was the usual route for tax credit planning or alternative investments , but film production incentives offer a more liquid premium, equity, as well as a little Hollywood adventure and schmoozing with movie stars."

Rutman adds "Plus, I am reinventing 'conscious' film finance. A lot of competitor deals have proven that they didn't do their homework and won't be around in a few years because they didn't do their homework. I want to be making movies when I am 90".

Oversight Weaknesses in the Banking System Seen by an Obscure Breton Trader

In the October 20, 2008, issue of The New Yorker, in “The Omen", James B. Stewart uses police and psychological reports to tell the story of how the financial trader Jérôme Kerviel caused the French bank Société Générale to lose 4.9 billion euros, in what is “said to be the largest trading fraud in banking history.”

While some characterized Kerviel as an ambitious flambeur (“high roller”) and joueur (“gambler”), Stewart writes that “now that the financial world is enduring its most serious turmoil since the Great Depression, and public outrage is focussed on financial chief executives and their multimillion-dollar incomes, Kerviel looks even less like an isolated rogue trader, and more like a harbinger of systemic failure: the sophisticated investing vehicles that few understood; the impotence of internal risk controls; the moral blindness in the face of mounting profits; and, above all, greed.”

Kerviel, who grew up in a small town in Brittany and attended a trade university instead of a prestigious grande école, began his career at Société Générale in the middle office, where he helped to administer the bank’s database and computerized trading systems. Soon, Stewart writes, he was transferred to the trading floor, where he showed “an unexpected aptitude for arcane derivative strategies and developed an avid interest in trading.”

Kerviel felt unusual pressure to prove himself to his colleagues and superiors, Stewart writes, telling the police, “I didn’t go straight to the front lines—I went through the middle office, and was the only one who did.” “Well versed in the accounting system from his time in the middle office,” Kerviel soon observed that it was possible to take unauthorized positions and offset them by entering false trades into the computer system, a strategy that proved immensely profitable.

Kerviel told the police that when he shared news of this profit with his supervisors, “Their first reaction was satisfaction, naturally, although they told me ... to avoid such positions, because I could just as easily have lost.” “Kerviel saw this as a ‘mild’ admonition, not meant all that seriously,” Stewart notes.

Over the years that followed, Kerviel continued this ambitious, unauthorized form of trading, covering his positions with fictitious trades. Whenever compliance officers within Société Générale questioned him about his trades, Kerviel managed to deflect them with lies and evasions.

Kerviel earned forty-three million euros for the bank in 2007, which accounted for fifty-nine per cent of earnings for his department’s listed-products desk and twenty-seven per cent of earnings for the department as a whole. “His colleagues started calling him a ‘cash machine’ and a ‘star,’ ” Stewart writes.

Despite newly increased oversight, Stewart writes, “during the first half of January Kerviel amassed a large long position on futures, betting this time on a market recovery.…By mid-January, his exposure approached fifty billion euros.” Eight fictitious trades that Kerviel had created to offset his 1.5-billion-euro gain for 2007 were uncovered by Société Générale’s compliance officials.

Kerviel was called in for questioning, and the extent of his positions was eventually revealed. “The magnitude of the problem was almost unimaginable, and there was a serious risk that the bank could fail,” Stewart writes. Société Générales’s rush to liquidate his fifty-billion-euro position “likely contributed to the global sell-off and the mounting sense of panic.”

When questioned by the police, Kerviel told his interrogators, “I admit having taken large positions that could be qualified…as outside the limits of my mandate, and which I masked by a fictitious transaction. I had several motivations in making those orders, but first and foremost I had in mind to make money for the bank.”

Kerviel says he assumed that he had the tacit approval of bank officials, as there had been, by his count, a total of ninety-three alertes, or official notices, generated by his trading. “My positions made money, so, in a way, I told myself that…it legitimized what I was doing,” Kerviel told a court-appointed psychologist. Of his wildly successful first unauthorized trade, Kerviel told the police, “It makes you want to continue; there’s a snowball effect.” “When you’re used to making five hundred thousand euros every day, at some point it becomes normal,” Kerviel told the psychologist. “The results, the numbers, become banal.”

While the report produced by Société Générale after investigating the Kerviel affair “concluded that Kerviel had essentially acted alone,” Stewart writes, it also “included a catalogue of supervisory failures that reflected the culture and the regulatory climate,” and “noted that Kerviel’s superiors knew of intra-day trading outside his normal purview.” Kerviel’s immediate supervisor later admitted that he was “unqualified to supervise a trading desk,” Stewart writes.

As Kerviel told the psychologist, “I accept my share of responsibility, which I don’t deny, but it must be acknowledged that I was not alone in this thing, that my superiors were indulgent toward my activities, and that the responsibility is not mine alone.”

The October 20, 2008, issue of The New Yorker goes on sale at newsstands beginning Monday, October 13th.

Hedge Fund Manager Attempts Overhaul of Noront's Board of Directors

Hedge fund manager Rosseau Asset Management Ltd. and certain related parties have filed a dissident's proxy circular (the "Dissident's Circular") to Noront Resources Ltd., in which the hedge fund group controls over approximately 9.2% of common shares.

Rosseau asks Noront's shareholders to vote against the re-election of the Company's current Board of Directors and instead vote to elect a new slate of directors at the upcoming annual meeting of shareholders scheduled to be held on October 28, 2008.

During recent meetings between Rosseau and Noront's management, the hedge fund manager indicated it wanted significant changes to Noront's Board of Directors and some senior management.

Rosseau rejected Noront's compromise proposal and has commenced its proxy fight with the filing of the Dissident's Circular, saying, "Rosseau's action is not in the best interest of shareholders. It is an opportunistic attempt, in light of extraordinary recent market conditions......Norent will respond (to the circular) shortly."

Aviva Announces Increased Hedges

UK asset management group and hedge fund investor Aviva plc ("Aviva") is holding an investor and analyst briefing to announce the strengthening of its protection against further falls in global equity markets through increased hedges.

Such that even in the event of a further 40% fall in equity markets, its surplus regulatory capital would only be reduced by £0.7 billion ($1.1 billion). This is a significant improvement when contrasted with the position as at 30 June 2008 when a 40% fall in equity markets would have reduced the surplus regulatory capital by £1.3 billion ($2.2 billion).

"We are focused on accelerating transformational change to deliver a unified and more profitable company," Andrew Moss, CEO, commented, "This is clearly demonstrated both by the creation of Aviva Investors and the reshaping of our UK General Insurance business to focus on insurance excellence and deliver the promise of scale."

Moss also said, "We are pleased to confirm that in the face of the recent market turmoil, Aviva's capital position remains strong. Our active capital management ensures the group remains robust in the face of the current economic adversity, providing security for our customers and investors alike, and ensuring that the group is well positioned as confidence returns."

Moss will take the opportunity to provide an update on Aviva's continuing strong position in the current economic environment with Aviva's surplus regulatory capital estimated to be £1.9 billion ($3.2 billion) at 30 September 2008, compared to £1.8 billion ($3 billion) at 30 June 2008.

Global Future Analysis Review

I have been reading the somewhat lengthy (aprox.250 pages) Global Future Analysis report by the Planck Foundation, I’ll try to do a short(ish) review.

“It has been said that there are three types of people: Those who make things happen, those who watch things happen and those who wonder what happened,” it says on the cover of the report.

The Global Future Analysis report covers the interfacing/interaction between the energy crisis and credit crisis, which has been making headlines globaly, also analyzed is the water crisis and its effect on food prices.

The energy crisis has two effects, according to the report, energy will become much more expensive and no longer abundantly available. Firstly it will give a reach/distance contraction within the economy (less transport and less mobility, due to high energy prices). Secondly, due the fact that energy is used for everything, expenses will rise.

“You need to understand currency, credit, minerals, energy and water. Watching the news without some basic knowledge of those five is useless.” The report says, “knowledge of those five make the past, present and future clearer.”

The analysis is very up to date, covering the current dynamic credit and energy situation. Also the governmental bail-out fund (which it explains in depth, non-favourably) proposed by US Treasury Secretary Henry Paulson which was turned down on September 29th by the House of Representatives.

”This big figure gambling can only lead to a disconnection with the rest of the world economy for the US, UK/Europe and Japan,” the report says, “due the fact that Euro and the Yen have today the highest possible dollar reserves ever, certainly since their massive support of the dollar of the last month. The Central Banks of Europe and Japan thought that they could fix the US problems overnight in buying lots of dollars since mid July till mid September.”

The report goes on to say, “production gives real payment power, that’s something the US economy is learning the hard way. Increasing production isn’t easy in these times of expensive energy. But combining the bail-out with production increase could do the job.”

One bright spot in all this, it says, “The Energy Crisis certainly will ‘bring the jobs back home’. Long distance travel will also decline (stimulating the national leisure industry) according to the report. Air travel, air transport, road transport and commuting are where we will see the effects of high oil prices instantly. Local is to be king of the 21st century.

The report approves of T. Boone Pickens proposal to re-energize America using peakoil/gas/coal, the benefits of wind energy and the exporting wealth facets (trade deficits and foreign policy) of oil imports. On the other side of the world, it also talks about the Chinese government deciding that sustainable prosperity is the most wanted/economic direction for the 21st century.

”Bail-outs without any structural change it will lead to nothing than more problems. And yes, Obama has a point when he said that mortgage bail-outs during the ‘30ties has proven to be successful. But those were other days: Back then there was no Energy Crisis that put restrictions to growth, something we certainly have now.”

The name of the commercial version is ‘The Perfect Storm: when the energy crisis joins the credit crisis.

Altos Ventures Leads $5.7 Million Mobile Funding

Trilibis Mobilen announced today that it has raised $5.7 million in Series B financing.

Alternative Investor Altos Ventures led the round with participation from ATA Ventures and several early individual investors. Ho Nam, General Partner and Co-Founder of Altos Ventures, has joined the board of Trilibis Mobile. Mike Hodges, Managing Director of ATA Ventures, has joined as a board observer.

"Trilibis has done a great job of establishing relationships with Tier 1 carriers and proving out the SmartPath platform with key content partners," said Ho Nam of Altos Ventures. "With this capital infusion, we look forward to working with the Trilibis team to continue to take market share and grow the business."

The newly raised capital will be used to fund development of the next generation of SmartPath to include support for native applications for BlackBerry, iPhone, Windows Mobile and Android devices. Additionally, Trilibis will devote some of the capital to boost its marketing and sales efforts.

"The tremendous increase in consumer adoption of smart phones has fueled the growth in mobile data services usage," said Alex Panelli, CEO of Trilibis. "Our objective is to capitalize on this emerging trend."

With this funding, Trilibis has raised a total of $8.3 million since inception.

Altos Ventures is a first-stage venture capital firm focused on leading investments in emerging technology companies with the goal of building market leaders. Altos manages $200 million in dedicated first-stage capital on behalf of leading endowment, fund-of-funds, financial and family office investors based in the United States and Asia. Altos Ventures is based in Menlo Park, California. Additional information is available at www.altosventures.com.

Hedge Funds Outperform Equity in September

Hedge funds measured by both the Greenwich Global Hedge Fund Index ("GGHFI") and the Greenwich Composite Investable Index ("GI2") significantly outperformed equity indices despite posting their greatest losses since August 1998 during September.

"It was a perfect storm for both credit/equity markets and hedge funds in September," said Thomas Whelan, Greenwich CEO, "The already deflated values of financial firms provided the perfect trap for value investors while government intervention limited the ability of hedge funds to effectively mitigate their risk. Simultaneously, the continued freezing of credit markets combined with investor redemptions forced fixed-income funds to liquidate or otherwise mark down assets at depressed prices. The results of the market turmoil and unpredictable regulatory environment are evident in their returns this month."

Long/Short Equity managers fared better than both US and foreign equity markets during the month, but still were subject to unpredictable market movements, losing -6.69%. Both Growth and Value funds struggled to find profitable trades, returning -8.16% and -7.05%, respectively. Short Selling managers by contrast enjoyed their most profitable month this year, advancing +9.27% on average. Year-to-date, Short Selling funds have gained 17% and remain the best performing subsector of hedge fund strategies.

Market Neutral funds were not immune to market forces during September, as they felt the effects of dysfunctional credit markets, declining -4.49%.

Despite the marked weakness in hedge funds in September, not all hedge fund strategy groups moved lower for the month. Directional Trading funds advanced by +0.51% on average, led by Futures managers who capitalized on declining commodity values. Macro managers did not fare as well, losing -3.62% on the month.

Specialty Strategy managers were the weakest performing strategy group for the month of September, with funds losing -7.33% on average. Emerging Markets funds were once again the main reason behind the losses as these managers shed nearly 10% during the month.

The Group Of Thirty Issues Supervisory Report

The Group of Thirty released a new report, 'The Structure of Financial Supervision: Approaches and Challenges in a Global Marketplace'.

The report was issued after the meeting of G7 finance ministers and central bank governors in Washington DC. The Group of Thirty is an international body composed of central bank governors, leading economists, and private financial sector experts,

"The financial turmoil that has unfolded over the last year has tested the ability of regulatory authorities to respond effectively to financial crises. It is evident that a number of countries need to revise and reform financial regulatory structures," said Paul Volcker, Chairman of the Group of Thirty's Board of Trustees.

Volcker underscored that improvement in regulatory approaches is essential at the national and cross-border levels. The G30 report compares and analyses the financial regulatory approaches of 17 jurisdictions, including the UK, the US and Australia, in order to illustrate the implications of the four principal models of supervisory oversight: (1) the Institutional Approach, (2) the Functional Approach, (3) the Integrated Approach, and (4) the Twin Peaks Approach.

The US structure, which falls outside of these four approaches, combines institutional and functional approaches with the added complexity of a number of state level agencies and actors.

Roger W Ferguson, President and CEO of TIAA-CREF, former Vice Chairman of the US Federal Reserve Board and the Vice Chairman of the G30 Working Group, said, "As we start to re-examine regulatory structures, the G30 report can play a role by building the fact base that regulators, politicians, and financial market participants will consider."

In March, the US Treasury released its 'Blueprint for a Modernized Financial Regulatory Structure', which proposes a major restructuring of financial supervision toward a regulation by objectives approach, in some ways similar to the twin peaks model to supervision and regulation. The UK has already introduced modifications in its highly integrated approach.

In preparing the report, the G30 conducted interviews with key officials in the relevant jurisdictions, as well as practitioners, regulated parties, and those who may have been involved historically in the development of the current regulatory arrangements.

Potential for Hedge Fund Returns Is Still There For Investors - Report

According to a recent survey conducted by the Association of Investment Companies (AIC), a poll of 1,300 sophisticated private investors showed that 15% believed that hedge funds offer the potential for strong returns in the current environment. However they are also concerned about their perceived lack of transparency (17%) and riskiness (17%).

Investors are also cautious about hedge funds because they believe that they are not regulated (14%), and are concerned about the reputation for high charges (12%). Some investors also find them confusing (11%) and believe they are only accessible to the wealthy (5%).

Although some sophisticated private investors are wary of hedge funds, 6% of those surveyed are already investing in hedge funds, 5% have invested in the past and 3% are planning to invest in the future. Interestingly, nearly half (46%) of investors believe they may possibly invest in hedge funds in the future whilst only 29% of investors surveyed would never invest in hedge funds.

"Many of these investors' concerns over hedge funds are addressed through the listed hedge fund and fund of hedge funds sectors," Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC) said, "The listed structure of closed ended hedge funds and fund of funds means investors have access to a much higher level of transparency. Shares in listed funds are available on the stock market just like any other share so they are available to those of modest means as well as the super wealthy."

"This is a real growth area of the industry with the hedge fund sector making up 65% of the assets raised this year in the investment company sector. However, it is still a young sector, so long-term performance records are not available for the majority. Investors need to do their homework to make sure they select the right fund for them in this diverse sector and if they are unsure they should take independent financial advice," she concluded.

Ian Plenderleith, Chairman of BH Macro, said, "Hedge funds who can maintain the necessary standards of investment expertise and risk management have demonstrated that they can deliver superior returns on a consistent basis. Listed hedge fund vehicles give a wider range of investors access to alternative investment strategies through an avenue they are familiar with. They get the benefit of the regulatory safeguards and disclosure obligations, and the secondary market liquidity that go with stock exchange listing."

Robin Bowie, Chairman of Dexion Capital, said: "When dislocation in financial markets reaches the present level, it provides an ideal environment for hedge funds, which are well-placed to make opportunistic investments where they recognise value and can hedge out the market risk. Some of those positions will be illiquid, which will be unsuitable for most managers of open-ended funds. Closed-ended funds employ ‘permanent capital', raised on the stock exchange, which allow managers to blend liquid and illiquid assets and take advantage of the current mismatch in the markets. In essence, closed-ended funds bring liquidity to illiquid situations."

Airline Files For Chap.11 After Petters Arrest

Holiday airline Sun Country filed for bankruptcy yesterday, just 3 days after the arrest of investor Thomas Petters, founder of Petters Group Worldwide, the firm that owns Sun Country among other investments.

Petters was charged with mail and wire fraud, money laundering and obstructing justice.

"We were forced to take this action as a result of recent events at Petters Group Worldwide," said Sun Country Chairman and CEO Stan Gadek. The airline said that it would continue to fly its regular schedule.

A federal judge in Minneapolis order Petters to be held without bail after a taped phone conversation revealed that the disgraced entrepreneur planned to leave the country. A hearing is scheduled for Tuesday.

Petters has stated that he plans to fight to be released from custody and maintains his innocence.

Blackstone Closes China Investment in Bluestar

State-owned company China National Chemical Corporation (ChemChina) and hedge fund manager the Blackstone Group announced the closing of Blackstone’s investment in ChemChina subsidiary, China National Bluestar Corporation.

Bluestar has also completed its group restructuring and has registered as a Sino-foreign joint stock limited company. Blackstone will invest up to $600 million in Bluestar for a 20% stake. Two Senior Managing Directors of Blackstone, Antony Leung and Ben Jenkins, will join the board of Bluestar.

Headquartered in Beijing, ChemChina was founded in 2004, and administrated by the State-owned Assets Supervision and Administration Commission of the State Council of China. Through fast growth in the last 4 years, ChemChina is now a large group corporation with both asset value and revenue exceeding RMB100 billion ($14.6 billion). ChemChina is ranked 35th among China's top 500 corporations, according to National Bureau of Statistics of China.

The Blackstone Group's alternative asset management businesses include the management of corporate private equity funds, real estate opportunity funds, funds of hedge funds, mezzanine funds, senior debt funds, proprietary hedge funds and closed-end mutual funds.

HedgeCo Launches Hedge Fund Calculator

HedgeCo Networks LLC today announced the launch of the next generation online analytical and reporting tool, the Hedge Fund Calculator.

Designed for hedge funds and funds of hedge funds, the calculator is available for a monthly or annual subscription service. HedgeCo says, "(the calculator) facilitates the rapid computation of quantitative statistics, net performance numbers and the creation of branded marketing materials."

Aaron Wormus, Managing Director of HedgeCo Networks said, "Through the HedgeCo.Net hedge fund database and Hedge Fund Websites platform, we have worked with thousands of funds worldwide to create statistical performance reports and compelling investor presentations."

"By combining our deep experience with cutting edge development technology, we have been able to deliver a powerful and cost-effective tool that can dramatically enhance marketing and reporting capabilities at any hedge fund firm." Wormus explained.

Key features of the Hedge Fund Calculator include:

* Online Access - Easily create, modify and distribute reports from any web-connected PC
* Branded & Customized Tearsheets - Quickly update fund information, customize statistics, select data points and generate PDF reports with a simple 3-click process
* Contact Manager - Efficiently manage investor and prospective investor lists, email fund marketing materials and track leads with integrated, easy-to-use contact management
* Benchmark Analysis - Compare fund performance to industry standard benchmarks, HedgeCo Indices or add your own benchmarks.

Agecroft Hires Hedge Fund Manager

Hedge fund third party marketing firm, Agecroft Partners has hired its 5th Managing Director, Jarratt Ramsey. Jarratt spent the last 11 years at multi-billion hedge fund Chesapeake Capital Management.

"Jarratt is a wonderful addition to our firm. Our business model is to introduce large well established hedge funds in a consultative manner to institutional investors," Agecroft Partners' Managing Partner Don Steinbrugge said, "It is imperative that the members of our firm are highly technically competent. Jarratt's educational and professional experiences are very impressive. Furthermore, his knowledge of the hedge fund industry, and security markets should give him a lot of credibility with large institutional investors."

Jarratt's responsibilities will include assisting with due diligence on potential hedge funds the firm may represent and introducing the firm's hedge fund clients to large institutional investors located within the Northern region of the United States.

Agecroft Partners recently received the 2008 Third Party Marketer of the Year award. It was founded by Donald A Steinbrugge, CFA, a Founding Principal of Andor Capital Management when it was the 2nd largest hedge fund firm in the world. Don was also Head of Institutional Sales for Merrill Lynch Investment Managers. Agecroft Partners, LLC is a Member FINRA and SIPC.

Mooring Hedge Fund Gains Amid Losses

Mooring Financial Corp., a private investment firm specializing in the management of alternative assets, has seen its hedge fund, the Mooring Intrepid Opportunity Fund gain 37% year-to-date, while global hedge fund returns have declined almost 10% this year.

The fund gained by capitalizing on corrections in the high-yield corporate bond, commercial mortgage-backed securities and subprime residential mortgage markets. The Fund has gained 132.1% since its inception on March 1, 2007, the Fund’s highest gain on investment to date.

"The centerpiece of our objective for Mooring Intrepid Opportunity Fund is the expectation of a repricing of risk in the credit markets," said president and founder John Jacquemin, "We mapped out a strategy two years ago in anticipation of the credit markets debacle now taking place. The fund’s positions are volatile and aggressive, and appropriate only for investors who understand these risks."

In recent weeks, the fund has begun to take additional bearish positions in financial and commercial real estate stocks as well as exchange traded funds in anticipation of continued deterioration within these markets.

"We believed strongly that the credit markets had reached a point of excess never before experienced in modern history." Jacqumin explained, "and we felt strongly that the risk/reward ratio was very much in our favor. This has proven to be the case."

The firm has acquired and managed more than $2 billion of financial assets since inception in 1982. Mooring Financial Corporation manages four funds across different asset classes, including distressed commercial loans, real estate tax liens, publicly traded equities and credit derivatives.

Pharos Funds Resilient, But Drop With Russian Market

Conservatively positioned given the high level of stress that existed on the global financial system, the 3 Pharos Russia Funds' current strategy uses alpha generation which comes from a combination of stock selection and active use of hedging tools available in the marketplace.

The three funds are showing the most resilience among funds in the Russia & CIS universe year-to-date. However, during the month of August, the Pharos Russia Fund was down 7.8%, the Pharos Small Cap Fund was down 8.8% and the Pharos Gas Investment Fund was down 2.3%. Meanwhile the MSCI Russia Index was down 14.7% over the same period.

August saw a continuation in the decline in markets globally, with Russian markets succumbing to the sell-off in global credit markets, continued pressure on commodities and dollar strength.

The Russian authorities have shown a willingness to intervene to protect against domestic dislocations caused by distressed selling. The Russian state has announced a liquidity package of more than $150bn.

It has increased its deposits held at the largest banks and offered them repo lending that references inflated asset valuations. The state-owned Vneshekenom Bank will also provide up to $50bn to Russian companies and banks to help redeem the $65bn of external debt coming due through 1Q'09. Meanwhile the interbank lending market is being supported by a government guarantee against defaults.

"Given the relative size of the economy," Pharos says, "Russia is better positioned than most to withstand a downturn in credit markets with its $581bn of reserves and over $200bn Stabilization Fund."

"Valuations are compelling and we expect to take advantage of these opportunities. We look for catalysts to the market to guide our entry points, such as stability in the industrial commodities markets, a reversal in measures of global risk aversion and global monetary easing."

Cartoon

Hedge Fund Manager Launches Lettable Space Park In Romania

Argo Group, an emerging markets investment manager, announced the launch of The Era Shopping Park Iasi. Projected to generate EUR 18 million ($25.7 million) in annual rental income the launch is funded by Argo's private equity fund, the Argo Capital Partners Fund 1, together with a local joint venture partner, Omilos Group.

"From Argo's perspective this has been an excellent investment," says Argo Capital Management chief investment officer Andreas Rialas. "Through our partnership with Omilos we acquired two excellent sites at a time when property and land prices were relatively low. Since then both projects are well advanced and demonstrating their potential to generate substantial returns."

The Park is the first of two planned retail parks to operate under the Era Shopping Park brand. The Iasi retail park will be the largest outside of Bucharest and the second largest in Romania.

Based in Romania's second largest city, situated in the north-east of the country close to the Moldovan border. The Era Shopping Park Iasi will offer on completion more than 115,000 square metres of gross lettable area.

The second facility planned, the Era Shopping Park Oradea, is located in Oradea in the north-west of Romania, close to the Hungarian border. This smaller project with a gross lettable area of 65,000 square metres is expected to open in March next year. The Oradea site is projected to generate annual rental income of EUR 10.5 million.

"Economically, Romania continues to perform strongly. Following its EU accession, there has been a significant uplift in consumer spending and as demonstrated by tenant demand for Era, western European retailers are increasing their presence in the country," Rialas concluded.

The Argo Group has significant experience in property notably through the Argo Real Estate Opportunities Fund, a Guernsey-domiciled closed-ended investment company that invests in the commercial property markets of Central and Eastern Europe. The AIM-listed company is managed by Argo Capital Management Property, which has offices in London, Bucharest and Kiev.

The Argo Capital Partners Fund I was launched in August 2006 to focus on delivering private equity returns from different types of investments and situations in emerging markets. The fund, which was launched targeting a minimum internal rate of return of 40 per cent, has not yet exited any investments.

Its current portfolio includes Infarmasa, a generics pharmaceutical company in Peru, Nigerian commercial and retail bank Intercontinental Bank, Greek triple-play telecommunications Telecoms and Russian regional bank Probusinessbank as well as the Era Shopping Parks.

Vodia Expands Into Frontier Markets

Reflecting a growth in corporate activities, Vodia Group has rebranded as Finadium. The move was made, the re-named Finadium says, to showcase an ability to develop new ideas and create products and marketing strategies in financial markets, expanding beyond the original scope of Vodia Group.

The Finadium name comes from the abbreviation Fin for finance and the latin word Aedium, meaning house. As Finadium, the firm emphasizes its core value proposition – providing ideas, product development and marketing strategies to the securities and investments industry.

The Finadium name comes from the abbreviation Fin for finance and the latin word Aedium, meaning house. As Finadium, the firm emphasizes its core value proposition – providing ideas, product development and marketing strategies to the securities and investments industry.

Based on proprietary surveys and market knowledge, the company is looking multiple market sectors such as institutional investors, hedge funds and traditional asset managers.

As part of the rebranding, the company are launching a monthly newsletter for portfolio managers, traders and others looking for briefings on prime brokerage, securities finance and custody but who do not need the detail of our full reports.

Also expanding into frontier and emerging markets, Josh Galper, Managing Principal, says “As Finadium, we are pleased to expand our audience in prime brokerage, securities finance and custody to include a broader range of market professionals. We also look forward to tackling the complex subject matter of financial services in frontier and emerging markets.”

Bracewell & Giuliani LLP Announces Legislation Task Force

Bracewell & Giuliani LLP today announced that it has formed a multi-disciplinary Task Force to guide financial institutions, private investment funds, institutional investors and other market participants through the legislative, regulatory and enforcement challenges posed by the Troubled Asset Relief Act and other impending actions by Congress, the Treasury Department, the Federal Reserve and the SEC.

The Task Force will focus in particular on legislation, regulatory actions, enforcement matters and strategic communications to assist market participants in their efforts to navigate one of the most significant governmental actions in the history of the U.S. economy.

Commenting on the formation of the Bracewell Task Force, senior partner Rudy Giuliani said, "Our team of former government officials and experienced attorneys in the fields of legislation, enforcement and finance are equipped to guide institutions in this quickly evolving and complex environment." Mr. Giuliani noted that the Bracewell Task Force includes a former Comptroller of the Currency, a former Assistant Secretary of Legislative Affairs of the U.S. Department of the Treasury, former members of Congress from both political parties, former federal prosecutors, and former SEC enforcement attorneys.

In addition, the Bracewell Task Force will draw heavily upon our resources in the areas of broker-dealer and market regulation, financial restructuring, and corporate and securities.

As part of its services, the Task Force is establishing a blog to relay critical real-time information on the development of policy related to the legislation, regulation and enforcement priorities, and will also be providing periodic updates directly to interested clients.

SGAM Launches Hedge Fund Replicant

SGAM (Société Générale Asset Management) Alternative Investments launched the SGAM ETF T-Rex (for total return exposure), on Euronext Paris.

"It is possible to build a portfolio of dynamic strategies designed to replicate overall allocations in the hedge funds industry," SGAM says, "and thus attempt to replicate performances by taking up equivalent positions in these asset classes."

The portfolio invests in the main asset classes of equities, bonds and currencies, and is managed dynamically using liquid financial instruments such as futures. The new fund has no minimum subscription, and offers real-time liquidity and total transparency. Launched in a mutual fund format in August 2007, the strategy in an ETF format offers investors a choice between the subscription/redemption channel of a traditional fund and the flexibility of a real-time stock market negotiation via the ETF.

"Based on the concept of alternative beta, involving the replication of estimated hedge fund allocations in traditional asset classes," SGAM says, "academic studies show that hedge fund investments can on the whole be broken down into long/buy positions and short/sell positions in traditional asset classes."

The allocation process of the SGAM ETF T-Rex portfolio is based on a quantitative model, created by SGAM AI's structured asset management team. The model automatically calculates the allocation that optimises correlation to the index, composed of more than 2,000 hedge funds tracked in the HFR database. Positions are reviewed every month.

Société Générale Asset Management had EUR 309 billion ($452 billion) in assets under management at the end of June, including EUR 50 billion ($73.2 billion) in alternative investments.

SGAM Index is a wholly owned Société Générale Asset Management subsidiary that offers passive management, differentiated index management, structured ETFs and alternative beta products, and whose funds are commercialised by SGAM Alternative Investments.

MSCI Barra Joins Morningstar Arrangement

MSCI Barra and Morningstar have entered into an arrangement to calculate and distribute hedge fund indices jointly.

“We are delighted to be working with Morningstar, and believe that this exciting development will greatly benefit all users of our hedge fund indices. Going forward they will have access to enhanced hedge fund indices from Morningstar based upon MSCI Barra’s methodology applied to one of the largest hedge fund databases,” said David Brierwood, Chief Operating Officer, MSCI Barra.

“For more than 35 years, MSCI Barra has produced some of the most widely used and well-respected indices in the industry, and we’re pleased to apply the MSCI Hedge Fund Index Methodology to our extensive hedge fund database,” said Liz Kirscher, President of Data Services for Morningstar. “The combination of MSCI Barra’s methodology and Morningstar’s large hedge fund universe will allow us to offer a valuable set of robust benchmarks to both MSCI Barra clients and ours.”

These indices and the Morningstar database will replace the current MSCI Hedge Fund Indices and Database after a brief transition period. MSCI Barra will continue to calculate and distribute the MSCI Investable Hedge Fund Indices and the Barra Hedge Fund Risk Model. Morningstar will continue to calculate and distribute its existing Morningstar Hedge Fund Indices, including the Morningstar® 1000 Hedge Fund Index.

The MSCI Hedge Fund Index Methodology uses primary and secondary hedge fund characteristics to build the indices based on investment process, asset class, geography, and Global Industry Classification Standard (GICS®) sectors. This granularity is unique among hedge fund indices and allows investors to benchmark precise investment opportunities. Morningstar collects 300 data points from 8,500 hedge funds and funds of hedge funds for its database including information about portfolio holdings, strategy allocation and hedging techniques.

MSCI Barra is headquartered in New York, with research and commercial offices around the world. Morgan Stanley, a global financial services firm, is the controlling shareholder of MSCI Barra.

Recently named Index Provider of the Year at the 2008 European Pensions Awards, MSCI Barra is a provider of investment decision support tools worldwide, including indices and portfolio risk and performance analytics.

Morningstar, Inc. is a provider of independent investment research in North America, Europe, Australia, and Asia.

PROXY Governance, Inc.(PGI), a leading proxy advisory firm, has recommended that shareholders support management in the Cleveland-Cliffs proxy battle.

Cleveland-Cliffs is a mining company that produces iron ore pellets and supplies metallurgical coal to the steelmaking industry; the company also has announced plans to build a biomass fuel plant.

As an Ohio corporation, Cleveland-Cliffs is subject to the state's "control share acquisition," which requires shareholder approval for any acquisition of shares which, when added to its existing ownership stake, would entitle the acquirer to control any of the following ranges of voting power in the election of directors: One-fifth or more but less than one-third, one-third or more but less than a majority, or a majority.

In this instance, Harbinger Capital Partners Master Fund 1, Ltd., and Harbinger Capital Partners Special Situations Fund, LP (“Harbinger”), which presently own approximately 15.6% of outstanding shares, seek to increase their aggregate holdings to greater than 20%, but less than 33 1/3%, of the company’s outstanding common shares.

PGI notes that Harbinger's acquisition could allow it to influence corporate strategy and decision-making, yet provides no immediate or obvious economic advantages to existing shareholders.

Hedge funds Down in August

The Morningstar 1000 Hedge Fund Index lost 3.12% in August, significantly underperforming U.S. and global equity and bond markets.

August, like July, was characterized by a large drop in emerging markets and commodities. "Even though commodity prices have started to descend, their lofty valuations slowed growth and demand, especially in emerging markets,” said Morningstar Hedge Fund Analyst Nadia Van Dalen. "It was only a matter of time before hedge funds riding these waves crashed."

The Morningstar Emerging Markets Hedge Fund Index lost 7.13% in August while the Global Trend Hedge Fund Index, which profited from a previous upward trend in commodities, lost 5.35%. Both of these indexes experienced similar losses in July. Through July however, these funds continued to receive the largest inflows of assets this year, approximately $10.9 billion.

Unlike emerging market hedge funds, U.S. equity hedge funds fared relatively well. The Morningstar US Equity Hedge Fund Index earned 0.47% in August. Even though these hedge funds performed better than those in other equity categories, they still underperformed the markets—the S&P 500 Index gained 1.45% in August. Similarly, the Morningstar US Small Cap Equity Hedge Fund Index lost 2.81% while the Russell 2000 Index gained 3.61%

The U.S. equity markets were propped up for most of the month by the rising dollar and weakening Euro. Morningstar calculates its hedge fund indexes by converting hedge fund returns into U.S. dollars using the spot rate at the end of the month. This methodology does not hedge U.S. dollar exposure, and reflects the negative impact of Euro-denominated funds.

Along with the Euro, European equity markets dropped in August, reacting to weak economic data. The Morningstar Europe Equity Hedge Fund Index dropped 3.33%. Year to date through July 31, funds in this index have seen the largest outflows, approximately $9.6 billion. Despite the appreciation of the Yen, developed Asian equity markets followed that of emerging markets in general. The Morningstar Developed Asia Equity Hedge Fund Index lost 3.10%. Currency traders on the right side of the dollar, Yen, and Euro trades helped to cushion the blow for the Global Non-trend Hedge Fund Index, which lost 1.63%.

Global bonds, as measured by the Lehman Global Aggregate index ended the month in the red, and the Morningstar Global Debt Hedge Fund Index and the Morningstar Debt Arbitrage Hedge Fund Index both experienced losses of 3.64% and 1.33%, respectively. During the month, credit spreads widened amid financial distress at Fannie Mae and Freddie Mac, hurting funds in these indexes. Volatility in the credit markets also affected funds in the Morningstar Convertible Arbitrage Hedge Fund Index, which lost 1.08%.

Distressed securities funds and corporate event funds continued to wait for a market turn around. The Morningstar Distressed Securities Hedge Fund Index and Corporate Actions Hedge Fund Index dropped 1.28% and 2.34%, respectively. Multi-strategy funds outperformed hedge funds of funds. These indexes fell 2.40% and 3.99%, respectively.
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Brotman Boldly Launches Market Timing Fund

Brotman Capital Management has chosen this, the worst year for hedge funds in over a decade, to launch its flagship Market Timing Fund.

Since inception through August 2008 the fund is up 14% net of fees. The fund has a $100,000 minimum investment, 2% Management fee and a 20% Incentive allocation.

Domiciled in Boca Raton, Florida, Brotman Capital Partners began trading in January 2008. The proprietary Trend Timing Model that the hedge fund employs dictates when the partnership should be long, short, or retained in cash.

Although trend timing is certainly not a mainstream Wall Street philosophy, the General Partner believes that the Trend Timing Model is valid and will deliver superior returns in the long run when compared to a “just buy and hold the S&P 500” philosophy.

"Even though most market gurus believe nobody can “Time the Market” correctly and consistently," Dr. Randy Brotman, Chairman and CEO, stated, "We are very pleased with our performance and we never use margin to enhance our results."

SEC Plans to Protect Lehman Investors

While coordinating with overseas regulators to protect Lehman's customers and maintain orderly markets, the SEC staff who have been on-site at the U.S. broker-dealer will remain in place to oversee the orderly transfer of customer assets to one or more SIPC-insured brokerage firms.

In cases such as this, the SEC says, Lehman Brothers' customers will benefit from their extensive protections under SEC rules, including segregation of customer securities and cash as well as insurance by the Securities Investor Protection Corporation. These safeguards are designed to ensure that a broker-dealer's customers will be protected.

"For several days, we have worked closely with regulators around the world including the FSA in the United Kingdom, the BaFin in Germany, and the FSA in Japan, as well as our counterparts in other markets around the world, to coordinate our actions in the interest of orderly markets," said SEC Chairman Christopher Cox. "In doing so we have also worked closely with the Treasury and the Federal Reserve and market participants. We are committed to using our regulatory and supervisory authorities to reduce the potential for dislocations from Lehman's unwinding, and to maintain the smooth functioning of the financial markets."

In the meantime, Lehman Brothers Holdings Inc. will continue to operate while the bankruptcy process facilitates the reconciliation of claims and the realization of value from its assets in an orderly fashion, according to the SEC.

Lehman Goes Banktrupt in High Profile Casualty Case

Lehman Brothers, Wall Street's fourth biggest investment bank has filed for bankruptcy, making it the largest and highest-profile casualty of the global credit crisis, with approximately $639 billion in assets.

The bank said the Chapter 11 filing will not include its broker-dealer operations and other units, including Neuberger Berman. Lehman is looking at selling its broker-dealer operations, and is still in advanced discussions with a number of potential buyers of its investment management division.

Investors in recent weeks had grown increasingly jittery about Lehman's $46 billion of mortgages and asset-backed securities, as well as its credit rating and its ability to raise capital.

Bankruptcy also represents a bad end to Chief Executive Dick Fuld's four-decade career at Lehman. Fuld, who piloted the investment bank through prior crises with aplomb, was widely seen as too slow to recognize Lehman's need to raise capital and shed bad assets.

Lehman listed its biggest unsecured creditors as Citigroup Inc, Bank of New York Mellon Corp, Aozora Bank, and Mizuho Financial Group Inc. Citi and Bank of New York Mellon are trustees for Lehman bonds.

The firm said that as of May 31, it owed about $110.5 billion on account of senior unsecured notes, about $12.6 billion on account of subordinated unsecured notes and about $5 billion on account of junior subordinated notes.

WhiteRock Says Markets May Be Rollercoastering but Recruitment is Accelerating

Recruiters at WhiteRock Group are seeing increased opportunity for job-seekers and hiring firms.

The meltdown in sub-prime mortgages, and the ensuing credit crunch, has led to uncertainty and turmoil throughout financial markets worldwide, says WhiteRock, but as with any deal, what’s bad news for one party is often very good news for another.

"There’s never been a better time to look for a job on Wall Street, or the Asian financial markets," says Gustavo Dolfino, founder and chief executive officer of WhiteRock Group. And amazingly, there’s never been a better time to be looking for talent either."

To understand why the recruitment business is booming even as the industry appears to be retrenching, one must understand that the overheated markets of the past few years have actually made recruiting more difficult.

Dolfino, who was quoted last week in Crain’s New York Business as well as the Wall Street Journal and is frequently interviewed for market perspective by CNBC, Bloomberg News and other financial news services, explains.

"With markets soaring these past few years, the price of top talent went through the roof. Everyone had golden handcuffs. Nobody wanted to work for anything but a top-tier firm. Now, you’ve got a situation where suddenly all those people who were ‘unhirable’ might be available. And they don’t necessarily want to work at a top-tier firm – those are the ones who’ve been in the paper everyday, mostly with bad news. Right now, the smart money is picking people up."

Dolfino pointed out that the greatest growth is currently in Asia, especially China, where "If you can get a CFO on the phone, you can get a job." He adds, "And we have everyone’s phone number."

To keep up with this still exploding demand, WhiteRock Group has opened three new offices, all in Asia, and brought on more top recruiting talent. The company is now nearly fifty professionals strong and expects to add to that number before year’s end.