Former Head of Hedge Fund Faces 20 Years For Fraud

John H. Whittier, the former head of Idaho hedge-fund company Wood River Capital Management LLC has been indicted on criminal charges that he engaged in a securities fraud scheme that allegedly cost investors $88 million. The SEC originally filed civil charges against Whittier and WRC back in October 2005. Whittier could serve as much as 20 years on each count.

Whittier has been charged with securities fraud, failure to disclose a beneficial interest in 5% or more in a publicly traded security and two counts of failing to disclose a beneficial interest of 10% or more in a publicly traded security.

Prosecutors alleged Thursday that Whittier, from fall 2004 to September 2005, schemed to defraud investors in the company's U.S.-based Wood River Partners LP and Cayman Islands-based Wood River Partners Offshore Ltd. hedge funds by acquiring beneficial ownership of more than 70% of the common stock of EndWave without disclosing that ownership as required by the SEC.

The government said Whittier also accumulated beneficial ownership for the Wood River U.S. fund and other managed accounts of more than 20% of the common stock of New Jersey digital media and publishing company MediaBay Inc. without disclosing that ownership as required by the SEC.

Prosecutors alleged that Whittier falsely represented to investors that the funds had a broad investment strategy and no investment would ever constitute more than 10% of their holdings, he also falsely represented to investors that the U.S. fund was audited by outside auditors.

Ex Morgn Stanley Employee Pleads Guilty In Hedge Fund Conspiracy

Ira S. Chilowitz, former employee of the brokerage firm Morgan Stanley & Co has pleaded guilty to four counts relating to the theft of information regarding hedge funds, conspiracy, transportation of stolen property, theft of trade secrets, and unauthorized computer access. He faces a total maximum sentence of 26 years' imprisonment and a maximum fine of $850,000.

Chilowitz was charged with conspiracy and unauthorized computer access, according to a criminal complaint unsealed in July of last year.

Federal prosecutors charged Ira Chilowitz with stealing the confidential pricing information from Morgan Stanley’s hedge fund prime brokerage group and passing it on to a “co-conspirator’’ at a midtown company that provides advisory services to hedge funds.

From about December 2005 until about February 2006, Chilowitz conspired with another individual, who was a former Morgan Stanley client service representative, to misappropriate the Client Rate List and to transmit it, via e-mail to his partner. Morgan Stanley provides financial and administrative services to numerous hedge funds and the data in the Client Rate List is not generally known to the public and is valuable to competitors of Morgan.

Chilowitz admitted in court during his guilty plea that he took the confidential and proprietary information from Morgan Stanley because it would potentially assist him in generating business for a consulting firm they had planned to launch.

Hedge Fund Care Award Gala

Speaker Nancy Pelosi is to be Special Guest at the 9th Annual Hedge Funds Care New York Open Your Heart to the Children Benefit. The Hedge Funds Care Award for Caring will also be awarded this year at the gala event at the Marriott Marquis Hotel in New York. The benefit is taking place on February 8th, 2007.

Pelosi, long a champion of children's rights, will be joined by two devoted advocates for the rights of abused, neglected and at-risk children: Michael Vranos, Founder and Chief Executive Officer of Ellington with assets under management of over $21.7 billion. Mr. Vranos was cited by Global Finance magazine as one of the world's 600 most powerful people in finance, and Shari Shink, Founder and Executive Director of the Rocky Mountain Children's Law Center.

The flagship event will be chaired by Mitchell Lieberman of Goldman Sachs and Michael Tannenbaum of Tannenbaum Helpern Syracuse & Hirschtritt LLP. The three individuals being honored represent the very ideals Hedge Funds Care was created to serve. Each has displayed a commitment to the rights of children and families through their work in government, philanthropy and children services.

For more information on the hedge fund event visit; http://www.hedgefundscare.org/2007/ninth-annual-northeast-open-your-heart-to-the-children-benefit/

MARHedge Holds Hedge Fund Conference In San Francisco and Switzerland

MARHedge is holding the 13th Annual Institutional Investment Conference, April 15–17 in San Francisco. The conference is designed to assist investors in exploring hedge fund strategies that can be employed to meet their investment objectives. MARHedge boasts a highly interactive agenda, including focused panels and workshops, that thoroughly examines the expanded role for hedge fund vehicles in institutional portfolios.

The majority of the speakers are investors and investment consultants, who will offer practical and implementable information and suggest ways to help protect capital, increase diversification of the portfolio and generate alpha.

MARHedge/Institutional Investor plans to delve deeply into the practical issues of using hedge funds and funds of hedge funds to meet investment objectives by accessing new talent and new opportunities. Some of the key players in the hedge fund industry will be attending, according to a statement, and there will be time for interaction with colleagues and peers during cocktail receptions and dinners throughout San Francisco.

MARHedge is also presenting the Institutional Investor 12th Annual European Conference On Alternative Investments on February 5 - 7, 2007 at the Hotel President Wilson in Geneva, Switzerland.

Man Investments Announces Fund Launch

Hedge fund Man Investments announced the launch of a new fund in the Man MGS Access Series 2 Ltd.

The fund will be offered in two bond classes, both targeting a moderate level of 8-10% annualised volatility. The USD bonds will aim for annualised returns of 13-16% and EUR bonds will target annualised returns of 11-14%.1 Investors will also benefit from a capital guarantee from Citibank, N.A., London Branch2, and a profit lock-in feature3.

Only managers that are highly-rated by Man Global Strategies (‘MGS’), a core investment manager of Man Investments, will be considered for inclusion in the portfolio, comprised of about 15 hedge funds. MGS has negotiated favourable terms with these managers, several of which are closed to new investors. These terms include increased levels of reporting, the flexibility to adjust the amount of money invested with the manager.

“The quality of the managers in the Access portfolio and the high level of transparency that we have into their daily operations gives us the confidence to offer such a concentrated and dynamic portfolio,” said Antoine Massad, Chief Executive of Man Investments Middle East. “This has allowed the structuring experts at MGS to develop a product that offers the potential for strong capital growth and diversification with the security of a capital guarantee.”

Man MGS Access Series 2 Ltd will be open for investment from 29 January 2007 to 12 March 2007. The minimum subscription being $50,000, with the maturity date being 31 May, 2019.

Man also announced a new hedge fund product, Man-IP 220 Plus Series, Series 3 was launched earlier this year, and raised over US$ 430 million, a new record for Man's guaranteed products. Series 4 aims to generate strong profits for hedge funds in falling as well as rising markets, performing independently of stocks and bonds.

Hedge Funds Examine Airline Merger

Delta Air Lines is planning a reorganization of its business plan, including a possible merger that is said would improve service, but is being scrutinized by hedge fund shareholders.

US Airways has offered to buy Delta in an $8.4 billion bid, and Delta has the option to sell before Feb. 7th when the U.S. Bankruptcy Court for the Southern District of New York holds a hearing on Delta’s disclosure statement.

The group of unsecured creditors that are questioning the merger is made up largely of hedge funds holding billions of dollars in claims. The hedge fund team said in a statement that they "look forward to analyzing carefully and discussing with Delta the proposed plan and the assumptions upon which it is based however..... it expects Delta to consider alternatives to its proposed stand alone chapter 11 plan to ensure that creditor recoveries are maximized."

The Unofficial Committee of Unsecured Claimholders includes 18 hedge funds and investment management companies that hold $2.35 billion worth of creditors’ claims against Delta and its subsidiaries. The hedge fund team was formed in Dec 06 and is represented by Paul, Weiss, Rifkind, Wharton & Garrison.

On Jan. 10, the hedge fund group called on Delta to allow US Airways to postpone the Feb. 7 disclosure hearing so that the proposal could be fully evaluated. Other creditors, such as those on the unofficial committee, could pressure larger creditors to force Delta's hand. If approved, the statement will be submitted to a vote of all creditors.

SEC Reviews New Hedge Fund Rules

The Managed Funds Association, the main lobbying group for hedge funds, has urged regulators to increase the minimum investment for hedge funds as an alternative to tighter oversight. The proposed new rules are now up for review before the SEC.

This proposal would define a new category of accredited investor that would apply to offers and sales of securities issued by hedge funds and other private investment pools. The number of households permitted to invest in hedge funds would be reduced by 88% if the change takes effect, according to SEC economists. Under the proposal, only investors worth $2.5 million or more, about 1.3 percent of U.S. households, would qualify.

The proposal, which is open to a 60-day public comment period, also prohibits using the value of a primary home to meet the requirement. The increased investor standard will only apply to hedge funds and not to private companies that rely on other exemptions of the federal securities laws.

Christopher Cox, the current SEC chairman, said in December that the SEC's proposed rules "do a much better job of assuring that individuals investing in private funds are likely to have the knowledge and the sophistication that's necessary."

The Bank of New York Tops $100 Billion in Hedge Fund Assets

The Bank of New York has surpassed the $100 billion mark in hedge fund assets under administration, reflecting rapid growth in the bank's focus on hedge funds, funds of hedge funds, multi-strategy hedge funds, and European- based hedge funds.

In the last five years the Bank has grown hedge fund assets under administration from $16 billion to $100 billion and last year posted a 41% increase in assets under administration. The Bank has also experienced significant growth in the average fund size and number of hedge fund structures serviced as part of a strategic focus on building long-term relationships with the leading industry funds.

"We have posted consistently strong organic growth in our hedge fund administration business by customizing our core operational and technology expertise to meet the unique needs of the industry," said Brian Ruane, executive vice president at The Bank of New York. "With institutional demand for hedge funds expected to triple by 2010, we are uniquely positioned to serve this burgeoning industry through hedge fund administration and a variety of other securities services."

Global institutional demand for hedge funds will increase from $360 billion currently to more than $1 trillion by 2010, according to a recent study of leading institutional investors, investment consultants and hedge funds by The Bank of New York and Casey, Quirk & Associates LLC. Retirement plans globally will account for the vast majority of asset flows.

In addition to hedge fund administration, the Bank offers accounting, cash management, collateral management, custody, trust, asset management and private banking services to the hedge fund industry.

The Bank of New York Company, Inc. has a global array of services that enable institutions and individuals to move and manage their financial assets in more than 100 markets worldwide. Its principal subsidiary, The Bank of New York, founded in 1784, is the oldest bank in the United States and has consistently played a prominent role in the evolution of financial markets worldwide.

Silver Creek Hedge Fund Hires New Director

Silver Creek Capital Management LLC, a leading manager of funds of hedge funds with approximately $6.5 billion in assets under management, today announced that Steven H. Bloom, founder and Managing Partner of Sagamore Hill Capital Management LP, has joined the firm as Senior Managing Director.

In this role, Mr. Bloom will oversee Silver Creek’s Early Advantage Fund, a multi-manager fund that invests in emerging hedge fund managers, and will assist with all aspects of the firm’s investment process. Based in Silver Creek’s New York office, Mr. Bloom will also be a senior member of the firm’s investment committee.

“We are very excited to bring someone of Steve’s caliber on to our investment team,” said Eric E. Dillon, co-Founder and Managing Member of Silver Creek. “We look forward to leveraging Steve’s deep industry knowledge and broad experience to identify uniquely promising emerging hedge fund managers.”

Mr. Bloom has extensive experience in hedge fund management. He was the founder and CEO of Sagamore Hill Capital Management LP, previously a multi-billion dollar multi-strategy global hedge fund, where he was the head portfolio manager, responsible for overall fund management and the development of numerous fundamental and arbitrage investment strategies.

Silver Creek is a fund of hedge funds management firm with offices in Seattle and New York, whose team has been managing funds since 1994. Silver Creek manages a variety of multi-manager investment products designed to deliver superior, risk-adjusted, absolute returns.

Hedge Fund Sentiment Survey Shows Technology as Best Investment

VanthedgePoint Group Inc. announced the results of its second annual Emerging Hedge Fund Manager Sentiment Survey.

When asked where to invest in the U.S. stock market, hedge fund managers said that Technology (41.0%), Financial Services (31.2%), Consumer Goods (26.2%), Food & Beverage (21.3%) and Defense (21.3%) will be the best performing sectors in 2007.

57.4% of emerging hedge fund managers indicated they are largely "neutral" on the U.S. economy for 2007. Approximately one-third are "bullish" on the economy and U.S. equities. They believe a continued "Real state market slowdown" (29.5%) and "inflation" (21.3%) will play the biggest role in how the U.S. economy will fare this year.

Over half of all respondents manage hedge funds with less than $10 million in assets under management, while over 85% currently manage less than $100 million. In addition, emerging hedge fund managers indicated that the most difficult aspect of running a hedge fund business is "raising capital/marketing".

In 2006, the Emerging Hedge Fund Manager Sentiment Survey results turned out to be quite accurate. Last year, respondents predicted increasing energy costs and a real estate market slowdown, both of which slowed the U.S. economy in 2006. They correctly predicted that Technology, Raw Materials, Financial Services and Defense would be among the top performing sectors in the U.S., and they narrowly missed the mark by indicating China would be the best performing international market.

VanthedgePoint Group, Inc. is an integrated financial services holding company focused on delivering products and services to emerging hedge funds. VanthedgePoint offers customers a comprehensive solution that includes U.S. and international equities, options and futures execution along with equity finance and operations outsourcing.

Hedge Fund Officials

A new trend is being seen in Washington is of some former high-ranking officials that have been reported to be testing the hedge fund waters. Former chairman of the Securities and Exchange Commission, Richard Breeden, is now a hedge-fund manager, complete with $500 million under management, a Cayman Islands registry, and an office in hedge-fund capital Greenwich, Conn. According to an article in the New York Times, he "has no investing experience." but, "Mr. Breeden is now perhaps the most senior former government official ever to run a hedge fund."

Clinton Secretary of State Madeleine Albright, also of no investing experience, launched the emerging-markets hedge fund Albright Capital Management, with $329 million in seed money from a Dutch pension.

In October, mammoth hedge fund/private-equity firm DE Shaw appointed Clinton Treasury Secretary Lawrence Summers as a part-time managing director, and Cerebus Capital, another mammoth hedge-fund/private-equity firm, named departing Bush Treasury Secretary John Snow as chairman. As more big institutional investors such as pension funds allocate capital to hedge funds, we should expect more such career switches.

Emerging Market Hedge Funds are in Full Swing Studies Show.

Hedge funds that specialize in emerging markets rose 20.49% in 2006, according to new data, and mergers and acquisitions in emerging markets reached a record value of $635.4 billion in 2006 via 10,995 deals, according to data company Dealogic. China was the busiest emerging market with deals worth $104.3 billion, an increase of 69% on 2005. Russia and South Korea followed with $98.5 billion and $42.3 billion worth of deals respectively.

The MSCI Emerging Markets index rose 29.2% last year, Oliver Schupp, president of the index said in a statement, "Record highs in global markets and mergers and acquisition activity along with a stronger than expected earnings season, a pause in the continual increasing of interest rates by the Federal Reserve, high energy prices and volatility fluctuations were positive contributors to hedge fund performance in 2006."

The average emerging market fund beat out all other individual hedge fund strategies, according to numbers published by New York-based Credit Suisse's Credit Suisse/Tremont Hedge Fund Index. Hedge Fund Research Inc. said the average hedge fund gained 12.99%.

Amarid Hedge Fund Launches New Movie Making Fund

Simon Fawcett, chief executive of hedge fund Aramid Capital Partners, announced that they are spearheading the launch of The Aramid Entertainment Fund, a hedge fund with a strategy of financing independent British films.

Aramid was formed with three other film finance experts, namely Tim Levy of the UK's future films, David Molner from Los Angeles firm Screen Capital and Thomas Adamek from Stonehenge Capital.

The hedge fund team has in the past financed films including "Kill Bill 2", "The Queen", "Girl with a Pearl Earring", and "Bend it Like Beckham". According to the Times Online, the new Aramid Entertainment Fund is planning on backing Manolete, a biopic of Spain’s most famous bullfighter. The hedge fund, which was launched last October, expects the film to premiere at the Cannes Film Festival in May.

Aramid is expected to raise well above the £150 million originally targeted by the end of this year, as hedge fund interest in film financing picks up speed in Britain. Experts are saying that hedge funds are increasingly interested in asset-backed lending, such as film and television financing, because it offers an opportunity to diversify their investments.

The hedge fund works by offering “bridge finance” to UK producers, the hedge fund offers credit to film companies based on the tax rebates that they will receive when the film is complete. Under a new tax scheme to encourage film-making in Britain, producers can gain tax credits depending on how much of a film is produced in the UK. It does take time to receive the benefit in cash, however, which is where the hedge fund intends to come in and provide finance to bridge the gap.

A more common tax-based method of financing is for investors to lend money to finance films, then offset the cost of making the film against their personal tax liabilities. Aramid demands a minimum investment of $50,000 and targets a 20% yearly return for investors.

Hedge Fund RCB Indexes Up

RBC Capital Markets reported that for the month of December 2006 the RBC Hedge 250 Index had a net return of 1.41%. Bringing the year-to-date return of the Index to 10.64%. These returns are estimated and will be finalized by the middle of next month. The return for November 2006 has been finalized at 1.60%.

The RBC Hedge 250 Index is an investable benchmark of the performance of the hedge fund industry. The Index operates in accordance with a unique construction methodology. Comprised of more than 250 actual hedge funds, the RBC Hedge 250 Index is positioned as the industry's most diversified and representative investable index. The Universe on which the Index is based currently consists of 5,635 hedge funds (excludes funds of hedge funds) with aggregate assets under management of $1.159 trillion.

Since its inception on July 1, 2005 through the end of November 2006, the RBC Hedge 250 Index has had an annualized net return of 10.76%. In comparison, over the same period, other investable indices have averaged 7.43% while non-investable indices have averaged 12.63%, according to information reported by the sponsors of RCB.

Executive To Leave Position 2 Years After Hedge Fund Buyout

Cerberus Capital Management LP, the New York-based $16 billion hedge fund, announced that executive chairwoman Vanessa Castagna will leave her position Feb. 1, Rick Leto, president and chief merchandising officer for Mervyns, will take over day-to-day management of the 172-store chain. The hedge fund bought Mervyns from the Target Corp. in 2004.

"Vanessa's leadership was instrumental to Mervyns' successful transition as an independent company," Leto said in a statement. "We thank her for her commitment to the company and many contributions and wish her well in her future endeavors." The Mervyns announcement did not offer details about Castagna's plans. She came to Mervyns after leading a similar turnaround at a much larger retailer, JCPenney.

Castagna is credited with reviving Mervyns at a time when many retail analysts predicted its demise. Target, the highly successful discount retailer, was blamed for neglecting Mervyns and Marshall Field's, the upscale Chicago-based department store that was bought by the Federated Department Stores Inc and converted into Macy's.

Cerberus is a privately owned hedge fund, run by 45-year-old financier Steven Feinberg. Former Vice President Dan Quayle has been a prominent Cerberus spokesperson and runs one of its international units.

Founded in 1992, Cerberus invests primarily in companies which are near bankruptcy and hopes to make the businesses it acquires profitable. The company has bought out many businesses over the past several years and now includes sizable investments in sportswear, paper products, military services, real estate, energy, retail, glass making, transportation, and building products.

Hedge Fund Doubles Turnover by $229 Million

RAB Capital, the $5 billion hedge fund, doubled its turnover for the year to at least $229 million, while pre-tax profit soared 95% and assets under management went up to $5.18bn.

Assets under management as at 31 December 2006 jumped 98% from $2.62bn a year earlier “After an excellent opening four months, trading in 2006 became more challenging during the summer period, but conditions improved significantly in the fourth quarter,” the hedge fund said.

Net asset inflows were strong in the first half and there was a revival in the final quarter which included a long term allocation of $200m by Mittal family trusts to RAB Special Situations.

“The near-doubling of assets under management over the course of 2006, further successful investment performance and an even stronger balance sheet, give us an excellent base from which to advance in the year ahead,” said chief executive Philip Richards.

“2007 offers RAB Capital new opportunities, and management will focus both on organic growth and on those opportunities that add to our strong existing line-up,” added executive chairman Michael Alen-Buckley.

Hedge Fund Defends Winning Strategy

Multimillionaire hedge fund co-founder, Paul Marshall, defended his hedge fund Marshal Wace and its controversial strategy, which relies on investment ideas supplied by City stockbrokers, he said in an interview with the Times.

Marshal doesn't believe that his system, called Tops, would encourage market abuse. The hedge fund, which manages only about $11 bn but it is thought to trade a greater volume of European equities than any other fund, is reputed to pay out £250 million in commission each year to equity salesmen to ensure that it is in the best position to make the most of a good investment opportunity.

Mr Marshall said: “Our audit trail and compliance procedures act as a very strong deterrent to anyone who even considers entering unauthorised information into the Tops system.” Tops was the attraction of MW Tops, a listed hedge fund that Marshall Wace floated last month in Amsterdam.

The Tops methodology goes to the heart of the firm’s success. It has also raised the eyebrows of regulators, although the Financial Services Authority recently gave the practice a cautious nod of approval, despite fears that the system might encourage people in investment banks to pass on recommendations based on inside information.

Hegde Fund Offers to Buy Out Near-Bankrupt Company

The hedge fund Farallon Capital Management, which owns 11% of shares in The Mills Corp., proposed pumping $499 million into the mall developer to help ease the company's heavy debt and avoid putting it up for sale at a depressed price.

The hedge fund said in a Securities and Exchange Commission filing that the recapitalization would buy Mills time to "move from a triage mode into a recovery mode." Farallon said Mills requested the proposal.

The hedge fund offered to buy Mills shares at $20 and set a Friday deadline for the two sides to agree on the proposal. The extra money would give Mills a cash infusion to cover some of its debt, which Mills warned last week could drive it into bankruptcy.

Hegde fund Farallon also said it could keep Mills from having to sell itself out of desperation to cover its debts. "Any sale today would almost certainly be at a discount in order to compensate the buyer for abnormal conditions," Farallon wrote in a letter accompanying the SEC filing.

Those abnormal conditions include widespread accounting problems that have forced Mills to delay several SEC filings and restate earnings dating to 2001. Mills said last week that an internal review uncovered extensive accounting errors, some the result of possible wrongdoing by company officials.

The company also warned that it is struggling to repay the $1 billion remaining on a loan it took out from Goldman Sachs Mortgage Co. last year to help it stay afloat. That loan is due at the end of March.

Chief Exec and Vice President Quit after Hedge Fund Takeover

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

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

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

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

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

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

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

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

Alternative Investment Survey Shows Hedge Funds Will Continue to Grow

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

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

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

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

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

Canadian Hedge Fund Regulation

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

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

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

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

Shariah Capital Finds Islamic Hedge Fund Niche

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

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

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

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

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

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

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

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

London Hedge Fund Launch

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

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

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

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

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

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

Hedge Fund Picks SEI as Partner in Outsourcing

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

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

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


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

Hedge Funds asked to Bid on Ameriquest

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

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

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

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

Hedge Fund Managers Indicted for Fraud

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

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

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


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

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

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

HFN Reports 2006 as Good Year for Hedge Funds

Early estimates from HFN Hedge Fund Aggregate Average shows plus 1.36% in December and finished 2006 at almost plus 12%. Although trailing the S&P 500 TR's +15.80%, 2006 was the best year for hedge funds since 2003 when they returned an average of just over plus 21%.

Since 2001, the HFN Aggregate Average has increased by over 11% while the S&P 500 has a yearly return of 2.94%, HFN reports an equal weighted average of all single manager hedge funds and CTA/managed futures products in the HedgeFund.net database, the HedgeFund.net database consists of over 7,000 current hedge funds and fund of funds.

Emerging markets were the place to be in 2006. Despite a turbulent summer, EM funds outperformed every other hedge fund strategy. The HFN Emerging Markets Average was +2.84% in December and finished 2006 +21.72%. The year ended strong for most emerging markets with the noticeable exception being Thailand where the implementation of capital controls, though only lasting one day, caused the country's equity market to finish down over 8% in December.

The energy sector ended a volatile year on a soft note. The HFN Energy Sector Average was flat in December, -0.01%, and +12.23% for 2006, but returns are more impressive taking into account that while crude oil prices were an average of 16.5% higher throughout the year, natural gas prices were an average of 22.5% lower compared to 2005.

Equity related strategies were prime beneficiaries of global market trends and other strategies which had notable years were distressed and convertible arbitrage funds.

US and Europe Conduct Joint Probe into Hedge Fund Lending

US and European regulators are conducting a joint probe into banks and securities firms to see if they are setting careful limits when lending to hedge funds.

Officials want to know how much margin banks require hedge funds to provide up front to obtain loans and cover potential losses. They're hoping to avoid the kind of turmoil that engulfed financial markets when Long-Term Capital Management LP's losses forced the Fed to organize a rescue in 1998.

The SEC, the Federal Reserve Bank of New York and the UK Financial Services Authority last month met with top lenders to the hedge-fund industry asking about the amount of collateral required by prime brokers for loans. Officials from Germany, and Switzerland are also taking part. strict enough limits on loans to hedge funds.

“We are doing work on credit-risk management with the SEC,” David Cliffe, a spokesman for the FSA, said. “It's looking at the prime brokers in relation to the hedge funds.'' The Swiss Banking Commission in Bern has worked with British, US and German authorities on the issue.

ExPirate's Launch new Hedge Fund

Two former analysts and a portfolio manager from activist hedge fund Pirate capital have joined a new hedge fund started by another ex-Pirate colleague. Andrew Stotland, a former marketer at Tom Hudson’s Pirate Capital, formed FrontFour Capital Group and launched the event-driven fund at the beginning of the month.

Zachary George and David Lorber, former analysts at Pirate, and Carl Klein, the firm’s former fixed income portfolio manager, have now joined FrontFour Capital Management. The new hedge fund is expected to launch in the coming months. Its seed investment came from Weston-Atlas Partners, a joint venture between London-based alternative asset management firm Atlas capital Group and Weston Capital.

“New York-based FrontFour employs an event-driven strategy, investing across the capital structure, pairing fundamental analysis with the identification of specific catalysts,” Stotland said. He left Pirate Capital in August. He was responsible for raising the majority of the firms assets. George, Lorber and Klein were part of a group of staff members that left Pirate in September. They departed just as Pirate saw its performance fall below its historically high returns and the firm closed its funds to new investors so that it could control its overall growth. They are now principals at the new hedge fund.

Stotland was the last of the four marketers from Pirate to find a new venture after departing the firm last summer. Miguel Triay went to New York-based Argonaut Capital Management, which runs global macro funds. Kerry Baldwin went to Brian Lippey’s Connecticut-based Trigram Capital Management, which runs an Asia fund. Meanwhile, Gregory Teitel went to Florida-based fund of hedge funds Crystal Advisors.

RFA Introduces new Hedge Fund Protection Product

Richard Fleischman & Associates (RFA), the leader in IT solutions for the hedge fund community, today announced the general availability of the eHarbor file and e-mail data backup/restore solution for hedge funds.

"The best way for a hedge fund to protect itself from disaster is to prevent it from happening in the first place. No organization is immune from lost data and the staggering costs in both time and resources involved rebuilding databases and trading history," says Richard Fleischman, president of RFA. "eHarbor is an enterprise-quality storage solution available at an affordable price. This scalable storage solution grows with hedge funds and never becomes out-dated. eHarbor was designed to provide secure, off-site storage with unlimited backup and restore capability which helps clients save money on their IT investment while protecting their most valuable asset - their data."

RFA was stablished in 1990 and headquartered in New York City, Richard Fleischman & Associates currently serves more than 400 hedge funds globally, RFA maintains a world-class data center in Westchester, NY, providing fully equipped office and trading desk space, disaster recovery and business continuity services.

Hedge Fund Manager Hired by L&G

Legal & General, the UK pension fund worth £218 billion, has appointed former hedge fund executive Ian King as head of L&G's active European equities. He was involved in 2006 in establishing KDR Europe, a European equity hedge fund, according to Reuters.

King will hold the post beginning from the end of January, the strategy is to revive its European active equity team after staff exits last year. His move to Legal & General Investment Management bucks a recent trend of managers at traditional asset management firms moving into the fast-growing hedge fund arena.

In a statement L&G said, "His (King's) immediate task will be to rebuild the active European equity team with the intention that the European equity portfolios are returned to active management by the mid-year." Before his work at KDR, L&G said, King worked at American Express Asset Management International for more than 10 years.

Legal & General is one of Britain's top 50 FTSE companies, with over 5.4 million customers L&G employs over 8,800 staff. The company has operations in the USA, France, the Netherlands and Germany, as well as the UK.

Hedge Fund Technology Training 2007

Chameleon productions is holding a conference on the future of algorithmic trading this March in London. Chameleon is asking hedge fund managers and other high level investors to submit papers on working showcase application, case studies, progress through research, and evidence of outcomes, among other things. Submission deadline date: 14th January 2007.

The conference is aimed at attracting hedge fund managers, investment bankers, and asset managers who are considering algorithmic trading solutions for increasing investment returns. Algorithmic or rule based trading strategies are fast becoming the standard across a number of financial institutions.

Institutional and high net worth individuals are being targeted with algorithm-based strategies that are constantly gaining in sophistication. The conference will allow for sell-side financial institutions to market their algorithmic trading strategies and for buy-side financial institutions to determine how these can be complementary to their existing trade process.

Algorithmic Trading 2007 will be a focal point for research and discussion on new strategies within algorithmic trading and a forum for existing vendors to display their models and supporting technology.

In an environment where gaining investor confidence is becoming more and more difficult; the demands set by potential investors rest more on finding asset classes that provide diversification and stable positive returns. It has become increasingly important to start exploiting new algorithm based investment strategies.

The conference also aims to be the definitive breeding ground for a new type of investment professional. One that uses the power of mathematical inference to generate alpha and exploit anomalies found in global financial markets.


For more information see; http://www.chameleonproductions.co.uk/algorithmics.html

Hedge Fund buys Access to Energy Trading and Delivery

Highbridge Capital Management, a $17 billion hedge fund is reported to have taken a $1 billion equity stake in the energy business of Louis Dreyfus Group, the old-line commodities trading firm, in a deal worth about

Highbridge Capital, which is majority owned by JPMorgan Chase, said it invested in Louis Dreyfus to gain more access to energy delivery and trading markets on its own. “We saw this as a real opportunity that is uncorrelated to everything else we’re doing,” said Glenn Dubin, managing partner of the hedge fund. He explained that he had considered trying to get the hedge fund into the energy trading business more heavily on its own, but concluded, “there was no way we could do this by ourselves.”

Highbridge and Dreyfus will jointly manage the venture, which will be called Louis Dreyfus Highbridge Energy and maintain its headquarters in Wilton, Conn. Before the Highbridge investment, Louis Dreyfus Energy was one of the 10 largest natural gas marketers in the United States and had worldwide interests in both the physical delivery of petroleum and natural gas as well as financial interests in energy.

JPMorgan Chase bought its stake in Highbridge in 2004 to gain exposure to the fast-growing hedge fund sector. The deal proved to be well-timed, as pension funds and other institutions continued to pour billions in to hedge funds, including Highbridge.

BGI gets Ahead with Hedge Fund Technology

"We didn't set out to be a hedge fund giant," said Blake Grossman, the head of Barclays Global Investors in San Francisco.

But it has!... BGI manages almost $1.7 trillion in assets and has a stake in 65 of the world's 100 largest pension plans, making them one of the most powerful forces in money management today.

New Technology goes into the picking of the shares, such as computer software called Optimizer, which crunches corporate earnings data and dozens of other variables for almost every stock in the world. Ph.D.s, mathematicians and other quantitative analysts, or quants, spend their time at BGI designing investing strategies for thousands of stocks, bonds and currencies and then use computers to pick which ones to buy and sell.

Grossman has used his quants to transform a firm built on index investing into one of the world's largest hedge fund managers. In an article by Bloomberg, it was reported that Grossman is converting corporate and public pension funds into what BGI calls a scientific approach to hedge funds.

Institutional investing is undergoing radical change, according to Grossman. Ten or 20 years ago, money managers who had been entrusted with people's retirement nest eggs refused to make risky investments or short stocks.

Now, these managers are adopting hedge fund strategies to generate the returns they will need to keep their promises to workers and retirees.

"As of Sept. 30, the firm had amassed $17 billion in long/ short funds......We think this artificial divide between long-only and long/short is one that's destined to become extinct over the next several years" Grossman said.

Oil Losses May Impact Hedge Funds

The recent drop in oil prices has raised market speculation that hedge funds might be taking large losses in oil position investments. A lot like the big natural gas bet that sank the multi-billion dollar Amaranth fund in 2006.

Oil prices stayed under $56 on Friday after an almost 9% drop over the past two days to its lowest close in 18 months. Investors are worried about growing U.S. fuel stocks and mild weather. The hefty losses in oil as well as in other commodities also may have been triggered by funds switching into other assets, it was reported in the Scotsman.

"Weather is certainly a key driver of sentiment, but what has been set in motion is a far more general demand pessimism for the year ahead," said Barclays Capital in the Scotsman.com. "This has produced a market that is more sensitive than usual to any producer hedging, and which is inclined to attempt to break sharply lower."

A top Iranian oil official said they were hoping to keep markets balanced until the 12-member group meets on March 15, but OPEC was keeping an eye on hedge fund activity in the markets, "We have to see whether the funds overreact... If that's the case, we may have to consider meeting (before March)," said Iran's OPEC Governor Hossein Kazempour Ardebili.

Office Space

Massachusetts Secretary of State William F. Galvin is investigating whether leased office space and other services that investment bank UBS provides to hedge funds have created a conflict of interest that could hurt investors, Galvin's spokesman said in an announcement.

It was reported that UBS and other investment banks lease space to young hedge fund traders in various cities, hoping they may become larger clients eventually. The arrangement could amount to a conflict of interest, Brian McNiff, Galvin's spokesman, said in his announcement, comparing it to "soft dollar" payments. These drew criticism when they were commonly paid by mutual funds in the 1990s, because the services often benefit managers more than shareholders who cover their costs.

The investigation is focused on whether the hedge funds are paying higher trading fees to the banks to compensate them for the office space, and failing to disclose the expense to investors. "He's looking at potential violations of securities laws, and a conflict of interest would be one of those," McNiff said.

Galvin's probe was disclosed in stories in The New York Times and The Boston Globe on Tuesday. McNiff told the press he was aware only of Galvin's interest in UBS, which leases space to hedge fund traders in a downtown Boston office tower. The space comes with receptionists, espresso machines and consultants to manage information systems, the Times said.

McNiff said the investigation into what he called "hedge fund hotels" was at a preliminary stage, and it was too early to say whether the probe might lead to enforcement actions.

Hedge Fund Provider Announces Stong Growth With New Wall Street Technology

Hedge fund provider LiquidPoint LLC, announced that it has far exceeded 2006 performance projections, ncluding huge increases in both options transaction volume and number of end-users.

Anthony Saliba, CEO of LiquidPoint stated, “LiquidPoint’s monthly contract volume in December was up over 100% compared to the same time frame last year. Our 2006 volume was 78% greater than last year. With the onset of penny markets, we have every reason to expect this trend to continue in 2007.”

LiquidPoint’s technology affiliate, First Traders Analytical Solutions (FTAS), delivered several high-impact enhancements in 2006. Among the new features delivered, the focus was on specific work flow efficiencies for Wall Street firms. Daniel Rooney, LiquidPoint’s Director of Sales, said,” Our user community increased in 2006 as we substantially increased our presence on the trading floor at key Wall Street firms.”

First Traders provides software products and services for the electronic options trading marketplace to Wall Street firms, executing brokerage firms, hedge funds, proprietary trading firms, the retail trading community and the U.S. options exchanges.

LiquidPoint’s client base includes hedge funds, institutions, prime brokers and their customers and other professional options traders. The HEAT™ System is also available through select prime brokers.

“These recent enhancements are satisfying a strong demand within this expanding industry, contributing to our firm’s growth. As the exchanges race to differentiate themselves. LiquidPoint and FTAS are working to ensure their customers have all they need to take advantage of industry changes and new opportunities.” Mr. Rooney said in a statement.

Man Investments Supports Hedge Fund World Middle East Awards

Man Investments is supporting this year's Hedge Funds World Middle East Awards. Man said, "We believe that they will play a critical role in identifying the future stars of the region's hedge fund industry."

Awards will be made in six categories, including for the year's best hedge fund distributor and the most innovative project. The awards are being held as part of the Hedge Funds World Middle East conference, which runs from 5-8 March 2007 in Dubai.

The winners and finalists will receive their well deserved recognition and accolade at the Hedge Funds Awards ceremony and gala dinner at 19:00 – March 6th at The Events Arena, The Jumeirah Beach Hotel, Dubai. The deadline to enter the awards is the 12th of January.

For more information on the event see, http://www.hedgefundsworld.com/2007/awardsme/

Predictions for Hedge Funds in the New Year

"A hedge-fund manager will buy Aston Martin." That's the forecast according to Bloomberg columnist Matthew Lynn. Pretty bold, but you never know, he also says that "farming will become a great way (for hedge funds) to get rich"

"High oil prices are causing a surge of interest in alternative energy, with ethanol leading the way. Making fuel from corn or other grains, however, means digging up a lot of fields....It has been more than a century since farmland was the basis for a financial aristocracy, but every asset comes back into its own if you just wait long enough. JPMorgan Chase & Co. already rates corn among the best investments for 2007.... Expect to hear the hedge-fund manager beside you in the bar boasting about how he has just snapped up 1 million acres in Ukraine."

And about the Aston Martin, he had this to say, "Ford Motor Co. has already put its world-beating luxury-car unit Aston Martin up for sale. The hedge funds are awash with money and have been snapping up all sorts of interesting companies. London-based RAB Capital Plc, for example, just took control of the A1 Grand Prix motor-racing business....London's loaded hedgehogs love to drive around in their shiny new Astons. What better synergies could there be than owning the company that makes them? You can sell it to the investors as a great deal and have fun messing around in the factory at the same time."

Activist Hedge Fund calls for sale Of Sunpower.

Activist hedge fund Chapman Capital LLC announced that it has notified the Board of Directors of Cypress Semiconductor Corporation of its recommendation that Cypress reorganize via a split-off and subsequent going-private LBO transaction.

A letter from Robert L. Chapman, Jr., Managing Member of Chapman Capital, has been sent to Cypress's full Board of Directors, accused the company of under performing and called for the launch of a large-scale "corporate reorganization" that would involve splitting from Sunpower Corp, in which Cypress has held a major stake insince 2002.

The letter, calling for the sale of SunPower, says "Our long term investment in Cypress was made following passive participation in over a dozen recent conference calls and presentations, on top of countless inquiries to semiconductor and solar cell industry experts. In fact, it is our view that Cypress may be experiencing a slight, short-term order shortfall in line with others in its industry, a condition with which we are comfortable given our long term perspective."

The letter, signed by Chapman Capital's managing member Robert Chapman, Jr., claimed that since it owns 1.5 million common shares in Cypress, its financial interest the company now exceeds CEO Thurman J. Rodgers' own, Chapman cited what he called the "needlessly protracted undervaluation placed by the market on Cypress's core semiconductor operations" as fueling the hedge fund's call for a corporate reorganization that would separate Cypress' core semiconductor operations from its controlling stake in SunPower.

Regarding Chapman Capital's growing concerns regarding relatively immaterial Cypress share ownership by its Board of Directors, Mr. Chapman stated further, "Cypress's core semiconductor business, which Mr. Rodgers founded nearly 25 years ago, deserves a much higher valuation than what it was ascribed the day Mr. Rodgers took it public two decades ago. Mr. Rodgers has stated publicly, 'you and I are going to make as much money as fast as we can on this.' Cypress's Board of Directors, despite their insignificant percentage ownership of Cypress, should expect that we are going to hold Mr. Rodgers to this promise."

Chapman Capital L.L.C. is a Los Angeles, CA based hedge fund focusing on takeover and turnaround investing. The firm currently manages over $300 million as the registered investment advisor to Chap-Cap Partners II Master Fund, Ltd. and Chap-Cap Activist Partners Master Fund, Ltd., the combined owners of approximately 1% of Cypress Semiconductor Corporation's common shares.

Hedge Funds Voted Down

US hedge funds Ramius Capital Group and Moon Capital Management voted with a 47.6% share to remove the directors of South Korean online game developer Gravity Co. Ltd.

Gravity's other shareholders however, rejected the proposal to remove Chief Executive Il Young Ryu and Seung Taik Baik, the company's chief operating officer.

A spokesman for the hedge funds said that the majority of "disinterested" shareholders voted to remove the executives. "These results demonstrate that Gravity's minority shareholders clearly and overwhelmingly demand the immediate removal of Mr. Ryu and Mr. Baik as directors," Mark Mitchell, Ramius Capital's executive managing director, said in a statement.

The hedge funds had cited "consistent detrimental actions against shareholders by the executives and the board through various related-party transactions with companies that clearly have conflicts of interest with the company." The hedge funds also questioned the executives' decision to acquire another gaming company, Emile Chronicle Online, without seeking an independent valuation.

In a statement from Gravity, the management "urges the two hedge funds, Ramius and Moon, to offer constructive criticism and positive encouragement as responsible shareholders."

Hegde Fund Funded Exco Doubles Oil Reserves

Exco Resources Inc. announced an agreement to buy producing oil and gas properties in Jackson Parish, Louisiana from Anadarko Petroleum Corp. for $1.6 billion, almost doubling its oil and gas reserves. The total acreage is approximately 66,000 net acres.

Exco's largest shareholder is legendary oilman and billionaire hedge fund manager T. Boone Pickens, who with his two hedge funds, owns 12.5% of Exco's outstanding shares. Pickens is also on the board of directors and this purchase is the largest of six announced this year by Exco.

Exco is the culmination of several acquisitions made in the last few years by Pickens and Exco CEO, Doug Miller. Pickens, 77, started Mesa Petroleum with $2500 in 1956, growing it into one of the world's leading independent oil and gas producers. He is also the founder and chairman emeritus of Clean Energy Fuels, the nation's largest supplier of natural gas to the transportation sector.

The fields are tapped by about 350 wells, and 96% of the proved reserves on the properties are in production, Exco said. The fields have proved reserves equivalent to about 466 billion cubic feet of gas of which 446 is producing today, Exco said. The acquisition also includes gathering systems, compression and treating plants.

Exco will use cash generated by the new fields to accelerate drilling on more than $2-billion of properties acquired since the public offering. The purchase of the Anadarko fields, expected to close in March, will be financed with a new revolving credit facility and a bridge loan from banks, Exco said in a separate statement.

Wine and Hedge Funds

Aside from the hedge fund millionaires investing in the land rich wine making lifestyle, a new trend is now being seen among hedge fund investors in the buying of premium wines. Merryl Lynch noted the surge in wine investment in their 2003 World Wealth Report, which found that the rich were devoting 13% of their assets to so-called alternative investments. The category also included art, hedge funds, and foreign exchange.

Peter Meltzer, author of the recently published "Keys to the Cellar: Strategies and Secrets of Wine Collecting," said in an interview with Reuters that six magnums of Domaine de la Romanee-Conti sold earlier this year for $170,375. "There has been a phenomenal growth in the collection of premium wines," said Peter Meltzer, the caretaker of the Wine Spectator index, a gauge of the most frequently sold premium wines, mostly Bordeaux and Burgundies. A single bottle of Chateau Latour 1955 sold with commission for $28,440.

Wall Street wine mavens interested in purchasing a Burgundy vineyard or expanding their investments, have the opportunity to invest in the some 105 million bottles of chardonnay white wines and 75 million bottles of pinot noir reds produced annually. There are about 4,000 “domaines” and 59 types of soil beneath the Cote d’Or’s 50-kilometer (31-mile) stretch.

It seems however, that buying a bottle of the stuff is less risky than trying to go for buying the vinyard “Owning a domaine is a venture capitalist’s dream, high in risk and if the weather is good and you’re really lucky, you might make a 4 percent return. But owning a domaine is the greatest lifestyle imaginable.” Says Wasserman, a vinyard owner in his own right.

It takes three years after the first harvest for the wine to be ready for market,” says Wasserman, who has been a Burgundy wine trader for 40 of his 62 years. “You’re not making a cent for three years, and then your buyers must wait a minimum of three to four years after that before they can drink it. Perfection wouldn’t appear until the wine is six to eight years old…..The land will cost you $6 million, and that will produce 90 casks of

Higher Standards may be Welcomed by Hedge Funds

State Attorney General Richard Blumenthal, one of the nation's most outspoken advocates for increased hedge fund regulation has repeatedly urged regulators and legislators to consider raising the accredited investor standard.

Some hedge funds have now also expressed support for the proposal by the Securities and Exchange Commission that would shrink the pool of eligible hedge fund investors.

The number of households permitted to invest in hedge funds would be reduced by 88% if the change takes effect, according to SEC economists. Under the proposal, only investors worth $2.5 million or more, about 1.3 percent of U.S. households, would qualify. The proposal, which is open to a 60-day public comment period, also prohibits using the value of a primary home to meet the requirement.

"Raising net worth requirements is a critically significant first step toward helping protect vulnerable investors in the higher risk world of hedge fund investment," Blumenthal said in a statement.

"Especially in areas like Connecticut, increasing real estate values have escalated the retailization of hedge funds -- and entitled and exposed exponentially growing masses of middle class investors to hedge funds," Blumenthal said.

Industry insiders agree. "The change is long overdue," said the head of a Connecticut-based multibillion-dollar fund of funds, who declined to give his name because of company policy.

"It's totally appropriate that the SEC should be updating the standard, which has not increased for inflation for many, many years," the fund manager said. The new rule would have "virtually no impact" on the industry in terms of the amount of assets being pumped into hedge funds, he said.

Victor Zimmermann Jr., managing partner of the Stamford office of Curtis, Mallet-Prevost, Colt & Mosle LLC, a law firm with many hedge fund clients, agreed that the impact would not be extreme. "The industry has changed quite a bit in the last five or 10 years," he said. "It is much more dominated by institutional money, rather than individuals."

Even hedge fund startups, which historically sought out wealthy individuals for seed money, are now turning to large banks as initial seed investors, Zimmermann said. "It is just fewer and fewer funds relying on individual investors," he said.

Zimmermann said hedge funds probably won't oppose the SEC rule, recognizing that it wouldn't have much impact on the industry and at the same time might satisfy some state regulators such as Blumenthal who have been clamoring for more oversight.

New Laws Create Investment Opportunities in Russia

Sberbank, Russia's central bank, says that in 2006 48 Russian banks were fully owned by foreigners, and the total share of non-residents in Russian banks stood at 12.92%.

According to a report by Reuters, the lower house of Russian parliament has just made it easier for foreigners to gain exposure to the booming sector by passing legislation that would put foreign and domestic investors on an equal footing when buying shares in Russian banks, also making it easier for Russian banks to go public.

The new rules would oblige residents and non-residents to inform regulators if they purchase more than a 1% stake in a Russian bank and seek permission to build a stake of more than 20%, according to the report by Reuters.

After approval by the upper chamber of parliament and signed into law by President Vladimir Putin, the amendments should pave the way for a $7.6 billion additional share issue by Russia's largest bank, state-owned Sberbank, as well as a $4 billion initial public offering by domestic rival VTB.

"These amendments will clearly facilitate secondary trading and be positive for all banking stocks traded in Russia," Alfa Bank analysts said in a research note, suggesting the new law will have a positive effect on Russian banks going public.

Citigroup buys Morgan Stanley Fund

Citigroup has agreed to buy wealth manager fund Quilter from rival Morgan Stanley as it seeks to expand in the UK. The acquisition places Citigroup among the top 10 wealth managers in the UK, the bank said in an e-mail.

Quilter, which manages $11 billion, will become part of the bank's global wealth-management division in Europe, run by Marianne Hay, Citigroup said.

Quilter has more than 18,000 clients and 300 employees in 10 offices in Britain, Ireland and the Channel Islands. The fund manages assets worth more than 5.6 billion pounds, has 18,000 clients and employs 300 staff, said the companies, which did not disclose details of the transaction such as the price paid by the bank.

"With strategic investments geared especially for Brazil, India and greater China, Quilter is an important step in establishing a meaningful presence in the UK, with an excellent platform to support the further growth of our Private Bank and international Smith Barney businesses," said Todd Thomson, Chairman and CEO of Citigroup Global Wealth Management, in the Citigroup statement. The bank said it plans to fuse Quilter into its CWA unit.

Goldman Sachs names New Hedge Fund Manager

Goldman Sachs has named the new head of their alternative investments asset-management units as Marc Spilker, he will be overseeing hedge funds and private equity.

Goldman named Spilker, 42, to replace George Walker, who left in May to run the funds unit at Lehman Brothers. Spilker will report to Eric Schwartz and Peter Kraus, co-heads of Goldman Sachs Asset Management.

Spilker is a 16-year veteran of the investment bank, he was co-head of U.S. equituies trading and global head of volatility trading. He previously headed currency options and Japanese fixed-income.

Asia's $100 Million Bonuses

Some traders in Tokyo and London are rumoured to be in the $100 million bonus club. The "giant" bonuses at Morgan Stanley and the $40 million John Mack took home has started rumors inside Wall Street about who might be in the running to get $100 million checks this year.

Several members of the $100 million club are in Goldman Sachs Asian offices. Morgan Sze, a head trader in Goldman's principal strategies group based in Hong Kong, is mentioned by several sources as a possible member of the club according to the New York Post. Sze's counterpart in London, Pierre-Henri Flamand is also rumored to be receiving a $100 million bonus.

Raanan Agus, who is the New York-based head of Goldman's principal strategies hedge fund group makes bets using nearly $10 billion of the firm's capital, could get $70 million. "Apparently, a $100 million payout isn't as uncommon as some originally thought," said one Goldman source in the Post.

Goldman CEO Lloyd Blankfein is likely to get about $50 million, while co-presidents Gary Cohn and Jon Winkelried are expected to receive between $40 million and $45 million, sources said. Goldman bonuses make up between 80% and 90% of the traders and bankers annual salaries.

Word of the nine-figure bonuses came as Goldman named Marc Spilker to oversee its money management unit's alternative investments operation, which includes private equity and hedge funds.

SEC Votes on new Hedge Fund Rules

The Securities and Exchange Commission has voted to propose several new rules to provide additional protection to investors in hedge funds and other pooled investment vehicles.

The proposing release, which has not yet been published on the SEC's website, will need to explain why there is more risk associated with hedge funds than, for example, raising money to start a coffee kiosk or a pet rock distribution organization. Investors and hedge fund managers may decide that the explanation is insufficient and decide to challenge the SEC's authority to make this distinction.

In an email to the company's clients, HedgeCo lawyer Jay Gould describes one of the proposals being discussed as the reinstatement of the Anti Fraud Provision under the Investment Advisers Act of 1940. This proposal would make it a fraudulent, deceptive, or manipulative act, for an investment adviser to a pooled investment vehicle to make false or misleading statements or to otherwise defraud investors or prospective investors in that pool.

The other one being the application to hedge funds of the Amendment to Private Offering rules under the Securities Act of 1933. This proposal would define a new category of accredited investor that would apply to offers and sales of securities issued by hedge funds and other private investment pools. The proposed definition would include any person who meets either the net worth test or income test, or owns at least $2.5 million in investments.

The increased investor standard will only apply to hedge funds and not to private companies that rely on other exemptions of the federal securities laws. Comments are due 60 days after publication in the Federal Register.

Germany to Determine if Hedge Funds are a "Systemic Risk"

Germany's Deputy Finance Minister Thomas Mirow held a briefing with reporters on Germany's upcoming presidency of the Group of Eight in 2007, the G8 are the top 8 major industrialized countries, and Mirow plans to examine next year whether hedge funds pose systemic risks.

Mirow said hedge funds were "insufficiently transparent" and the industry had already seen one big hedge fund fail although with few market repercussions. He said industrial nations would try and coordinate efforts to reduce risks posed from hedge funds by promoting more transparency but not necessarily through regulations.

He said, "All over the world, people who are in charge of the stability of the international financial system are dealing with the problem,....There is a sufficient amount of experts saying we should have a closer look at it so to prevent a possible crisis," he added.

"What we would like to know is are there systemic risks, yes or no, and if so, what could we do to deal with it in a reasonable manner," he said.

Mirow's comment came as the U.S. Securities and Exchange Commission prepared to vote on a proposal on Wednesday to raise the limit investors can invest in hedge funds to $2.5 million from $1 million set in 1982.


The SEC's proposed rule, if adopted, would shut the door on a lot of the just-barely wealthy who have been piling into hedge funds lately, although one market analyst said it would likely not affect larger funds with big clients.

U.S. Treasury Secretary Henry Paulson has also weighed in on the issue on December 8 and said it was important to make sure hedge fund liquidity and borrowing were closely monitored, but said they were making a helpful contribution to financial markets.

Morgan Stanley Gives Record Bonuses

Controversial "Mack the Knife" CEO, John Mack was recently cleared by the SEC after investigations into accusations of hedge fund insider trading. Now he has received a record bonus of $40 million as chief executive officer of Morgan Stanley.

Mack, son of Lebanese immigrants, was given $36.2 million in stock, and about $4 million in options to buy Morgan Stanley shares, the company said in a filing with the U.S. Securities and Exchange Commission. The firm also granted more than $57 million in bonuses for seven other top executives.

The bonus is 44% more than Morgan Stanley gave him last year, the previous record was the $38.3 million bonus Henry Paulson received in 2005 as CEO of Goldman Sachs Group Inc. Shares of Morgan Stanley, the second-biggest U.S. securities firm by market value, are having their best year since 2003 after Mack put the firm on course for record earnings.

Mack, who's also Morgan Stanley's chairman, received the 2006 bonus in stock and options, according to the filing. Last year, Mack declined the $28 million bonus he was offered because he had worked at Morgan Stanley for only five months. He accepted a pro-rata payout of $11.5 million in stock and also received a $337,534 salary.

Since Mack joined, Morgan Stanley has fired more than 1,000 under performing brokers, made acquisitions to bolster the firms energy, fixed-income and hedge fund businesses and created new incentives to keep top-producing employees. Morgan Stanley has surpassed analysts' profit estimates by at least 20% for the past four quarters.

Ritchie sells Hedge Fund to Refund Investors

Ritchie Capital Management Ltd. has "decided to terminate the restructuring and effect an orderly disposition of the assets,'' of its flagship hedge fund, the Multistrategy Global Fund.

After consulting with investors, an email was sent to Ritchie's clients revealing their negotiations with an undisclosed buyer for the assets of the hedge fund, and the plan to return the cash to investors. Ritchie Capital has been struggling the past two years with returns that were below average, the fund suffered last year from losing energy bets.

Thane Ritchie, the founder of the company, had previously planned to refund 80% of clients' money over the next 2 1/2 years and keep the fund open for at least three years. The fund, which invests in everything from bonds to energy, lost more than 2% through August from the start of 2005. That compared with an average gain of 14% for competing funds, according to data compiled by Hedge Fund Research Inc. in Chicago.

The sale does not include the mostly private-equity investments that the firm separated into a so-called side pocket last year. Those holdings accounted for about 20% of the fund. The deal would be structured so that Ritchie Capital will continue to manage the assets, Doug Rothschild, the firm's chief administrative officer, said in an interview with Bloomberg. Based in Geneva, Illinois, Richie capital oversees about $2.8 billion including borrowed money.

Hedge Fund Averages Up this year

An index of managers compiled by Hedge Fund Research climbed 2.45% in November, leaving it up 11.69% this year. Five of the six hedge-fund strategy indexes run by Dow Jones also rose last month.

Hedge funds also outperformed the benchmark Standard & Poor's 500 stock market index in November for the first time since May as managers benefited from a falling U.S. dollar, sliding bond yields and a rebound in energy prices.

Managers tracked by Hedgefund.net returned 2.18% on average last month, compared to 1.65% for the S&P 500, leaving them up 10.65% so far this year.

A rebound in energy prices also helped hedge funds focused on that sector. Energy funds tracked by Hedge Fund Research gained 4.41% in November, leaving them up 16.59% so far this year.

Hedge Funds and the Middle East

The Middle East accounted for 8%, or $28.9bn, of the global hedge fund market last year. According to a new Bank of New York study, hedge funds will draw a forecast $140.3bn in investments from the Middle East by 2010, accounting for 15% invested globally. Institutional investors provide 40% of the global market, which will increase to 65% by 2010, the study said.

The report by the Bank of New York and Casey, Quirk and Associates LLC, entitled “Institutional Demand for Hedge Funds 2: A Global Perspective”, also estimates that by 2010 nearly 25% of institutional investors will have investments in hedge funds, up from 15% today. It estimates institutional investors will account for more than 50% of flows into hedge funds through 2010 compared to 30% today.

The forecast demand for hedge funds is set to triple to $1 trillion by 2010, up from $360 billion today, as investors continue to embrace alternative investments, the report shows.

Hedge Fund buys stake in A1 Grand Prix

RAB Capital has bought a stake in the A1 Grand Prix. The RAB Special Situations hedge fund, run by Philip Richards, has taken an 80% stake worth £100m. The fund has been known in the past for taking large positions in natural-resources firms.

According to The Times Online, as part of the deal, A1’s management will be restructured, Tony Teixeira will move up to chairman while Peter da Silva, Brazilian-born motor-racing fanatic who has spent 20 years at Siemens, has been appointed chief executive. Ben Hill of RAB will also join the board.

Philip Richards said A1, which was launched two years ago and pits nation against nation rather than team against team as in Formula One, represents an opportunity to make a lot of money in China. “Our focus has always been on western-owned and western-run companies that sell successfully to Asia.

"A1 fits with this. Motor racing is one of the fastest-growing sports in Asia, it is watched by both the elite and the masses. It is also the only single event that spans the region and so offers a unique advertising opportunity for global brands.” Richards said.

“We’ve made a fortune selling natural resources, copper, zinc, coal and so on, to the Chinese. This is the same: we’re selling motor racing to Asians, and with it the only event available for global brands to advertise across the continent in the context of a western company.”

Gargoyle's flagship Hedge Fund Exceeds Forecast

Gargoyle Asset Management announced today that its flagship hedge fund, the Gargoyle Hedged Value Master Fund, has exceeded $200 million in assets under management.

This fund is designed to allow investors to participate in the large cap U.S. equity market with enhanced performance and lower risk. Since January 2000, this Fund has shown a cumulative return of 118%. During the same period, the S&P 500 is up 6%. The Gargoyle Hedged Value Funds’ results are driven by a relative value stock selection process tightly coupled to an index option writing strategy. The skillful blending of those components has provided a consistent edge for the Gargoyle funds in all market environments.

Joshua B. Parker and Alan L. Salzbank are the fund’s managers. Additionally, Mr. Parker is a partner in Gargoyle's sister business, one of the country's largest independent market makers for equity options.

The Gargoyle company philosophy endeavors to protect and to grow the treasure of its investing partners through the use and appropriate application of equity options. Their website states that when used properly, equity options, have the potential to enhance investment performance and simultaneously to reduce investment risk.

BB&T Asset Management adds Hedge Funds to its Invesment Lineup

BB&T Asset Management, $15 billion investment adviser and subsidiary of BB&T Corporation, said they are now offering a broader range of alternative investment strategies to the bank's Wealth Management and Institutional Services clients.

These strategies will include hedge funds, private equity funds, private real estate funds, structured notes, commodity funds, covered call writing strategies, and multiple tax-efficient single-stock risk management strategies.

"We continue to develop our alternative investment services in order to meet the needs of our clients," said Shawn Gibson, director of Alternative Investments. "Research has shown that these asset classes can add significant diversification and performance benefits to investors, especially if they are invested with the top managers. And our platform includes some of the top alternative investment managers in the world, according to several industry experts."

BB&T Asset Management's Alternative Investment Group will be looking at high investment minimums strategies ranging from $1 million to $10 million, access to the top performing managers, and diversification among managers and strategies. The new lineup of products and services appeals to both conservative and aggressive investors," said BB&T Asset Management President Keith Karlawish.

"We are committed to building out our alternative investment capabilities and will continue to explore the various strategies that are available in the market," Karlawish said. "Our ability to offer these strategies allows us to deliver a complete menu of services and products to our clients."

Raleigh, N.C.-based BB&T Asset Management is a registered investment adviser and subsidiary of BB&T Corporation with more than $15 billion in discretionary assets under management.

Winston-Salem, N.C.-based BB&T Corporation has $118.5 billion in assets under management, BB&T operates more than 1,450 financial centers in the Carolinas, Virginia, Maryland, West Virginia, Kentucky, Tennessee, Georgia, Florida, Alabama, Indiana and Washington, D.C.

Hedge Fund Survey

Hennessee Group's 12th annual hedge fund manager survey reported that hedge fund assets grew 21% from $1.009 trillion as of June 30, 2005, to $1.2 trillion by Oct. 31.

"Hedge funds are evolving in a manner similar to that of investment banks of old," said Charles Gradante, managing principal of Hennessee's survey. "The fact that they’re getting into venture capital and private equity is no big surprise," Mr. Gradante said. Though the investment vehicles once were "pigeonholed" as bond and stock players, today’s hedge funds have taken significant positions in tech and biotech companies, are floating bonds and are even funding movies made by actor Tom Cruise after his split with Paramount Pictures. A New York-based hedge fund, Fortress Investment Group, with $26 billion in assets, has become the first in the nation to file for an IPO.

The 2006 Hennessee survey also found that the number of hedge funds grew 10%, from 8,050 to 8,900. The survey was conducted on 440 hedge funds from 97 management companies representing over $256 billion in assets.

Though hedge funds traditionally have stood apart from regulated investments like mutual funds, the survey found that 86% of hedge funds are registered with a regulatory agency, such as the Securities and Exchange Commission, the NASD or state authorities. That compares with 61% in the earlier period.

Mr. Gradante likened the changes in hedge funds to the evolution of investment banks such as Lehman Brothers and Goldman Sachs from the 1930s to the early 1990's. "Hedge funds are evolving in the same way investment banks evolved," he said. "They’ll play an important role in financing venture capital in the future." Mr. Gradante also noted that one of the white-shoe investment banks, Goldman Sachs, also is the nation’s No. 1 hedge fund.

Hedge Fund Breaks Asset Record

MW Tops, an Amsterdam hedge fund, has outperformed in a variety of market conditions, breaking the world record for a listed hedge fund float after successfully raising €1.5 billion. Capital was first allocated to the Tops strategy in 2002 by Marshall Wace Asset Management Limited, a London hedge fund manager.

The amount is well over three times as much as the previous record holder, an offering from the Anglo-French hedge fund group Boussard & Gavaudan, which raised €440 million, according to the Times Online.

MW Tops is chaired by the former Bank of England deputy governor Sir Andrew Large. Marshall Wace Asset Management was established in 1997 by Paul Marshall and Ian Wace and transferred its business in 2003 to Marshall Wace LLP, a limited liability partnership incorporated in England and Wales.

According to Marshall Wace, the greatest interest in new hedge fund managers is being shown by rich individuals or family offices, private fund management operations devoted to managing wealth.

New investors include institutions precluded from conventional investment in illiquid, unlisted hedge funds, including some pension funds and insurance companies, as well as wealthy individuals. Investors are also attracted by the liquidity and visibility of a listed stock, where a price is also quoted. Traditional hedge funds are highly illiquid, with investors paying big penalties for sudden redemptions.

The minimum investment was set at €75,000 for the initial offering, but small investors will from today have access to MW Tops for the price of a €10 share in the secondary market.

4 Billion Hedge Fund Rewrites Contract

Deephaven Capital Management, a $4 billion hedge fund is close to making a multimillion-dollar contract with Knight Capital Group.

Knight bought the hedge fund more than three years ago and Deephaven is listed on the companys website as their in house asset management business.

Deephaven is an alternative investment manager founded in 1994, with more than 120 people in Minneapolis, Hong Kong, and London. The new contracts are expected to be completed as early as next week and could give Deephaven chief Colin Smith and his deputies millions more than they previously earned.

Smith and other Deephaven managers have been in heated negotiations with Jersey City-based Knight since September. That has some investors speculating that the firms principals might separate from Knight or try to buy majority control of the firm, according to the New York Post.

Any deal struck between the two parties comes as profits from Deephaven have continued to boost Knight's earnings at a time when the traditional trading business has slowed.

In the third quarter alone, Deephaven contributed $50 million to Knight's $203 million in overall revenue - a threefold increase from the year before.

As Deephaven's assets under management surpass the $4 billion mark, the cash from management fees alone could amount to $80 million a year.

Under the current contracts, which are set to expire at the end of the year, Deephaven's management team earned roughly $20 million through September, according to an analysis by CIBC World Markets.

The Hedge Fund Hearings

The Senate Judiciary Committee conducted re-investigation hearings Dec. 5 on the hedge fund industry, looking into the handling of hedge fund giant Pequot Capital.

The Committee hearing focused on the regulation and enforcement issue. It is trying to determine whether the Securities & Exchange Commission might have been improperly influenced when it allowed Morgan Stanley Chief Executive John Mack to avoid questioning in an inquiry.

Although the SEC has cleared Pequot Capital and Morgan Stanley chief John Mack, questions still linger over allegations that the initial investigation was quashed when the lead investigator sought to subpoena Mack. Now two Senate investigations are underway to determine whether the SEC failed to thoroughly conduct the initial investigation and whether politics played a role in that failure.

The inquiry is focused on the trades that involved Morgan Stanley and Pequot, where Mack previously worked as chairman. As the hearings proceed industry observers will be looking for clues into just how much enthusiasm lawmakers have for imposing broader controls on the hedge fund industry.

Many hedge funds done tremendously well, attracting more capital and allowing them to pull off larger, higher-profile deals. But lawmakers and the media have focused on the blow up of a few funds, such as Amaranth Advisors.

Such problems have been relatively few in number, and the damage has largely been contained. Yet they have nonetheless led to calls for more regulation of hedge funds, which have been drawing more money from pension funds and even from some smaller, individual investors.

Earlier this year there was an effort to require hedge funds to register as investment companies, which would force them to disclose a certain amount of information about their strategy. The U.S. Court of Appeals in Washington overturned an SEC rule that would have required hedge fund registration. Some industry executives fear that would depress returns because funds would tip off their moves to rivals.

If the government were to impose leverage limits, the impact on the markets could be significant, industry observers say. Firms use debt to boost their return on investment. If deals become less profitable as a result of leverage limits, big pension funds may cut back on their allocations to alternative investments. Deals could become less competitive, and deal volume and price could decline as a result, weakening the investment market overall.

Hedge Funds in Stock

Brookville Capital Management, a 4 year old hedge fund with less than ten employees and about $221 million in assets under management, has been bought by Morgan Stanley.

Morgan Stanley has already acquired a large stock of hedge funds, in late October the giant agreed to buy FrontPoint Partners, a hedge fund with about $5.5 billion, for about $400 million. Last month said it would buy a minority stake in Avenue Capital Group, which oversees about $12 billion of distressed debt investments, and in Landsdowne Partners. John Mack, Morgan Stanley’s chief executive, has assembleed these hedge funds to help the firm catch up with rivals like Goldman Sachs in offering clients alternative investments.

The company said in a memorandum that the expansion is part of Morgan Stanley's aggressive push to catch up with rivals in providing hedge funds and other alternatives to traditional money management products such as mutual funds. The price of the acquisition was not disclosed in the memo.

Brookville is based in New York and was formed in August 2002 by former Bankers Trust New York Corp. traders David Reiss, Jacob Gulkowitz and Abraham Gulkowitz. The hedge fund specializes in what is known as credit arbitrage, taking long and short positions in companies whose stock prices are driven by takeover speculation and other "event-driven" opportunities, the memo said.

The memo was signed by Owen Thomas, president of Morgan Stanley's asset management division, along with alternatives investment chief Stu Bohart and the group's strategic acquisitions and absolute return strategies head, Yie-Hsin Hung.