The Evolving Competitive Landscape for Hedge Funds- Study

HedgeCo Archives, Study - A new independent study that examines the continued emergence of investment managers in the equity long and short marketplace and their convergence with hedge funds has been published by Pershing LLC, a BNY Mellon company, and Finadium LLC.

The report entitled, Competition and Convergence: The Evolving Landscape for Hedge Funds, indicates that while investment managers have relatively few assets in equity long and short investment portfolios, this segment of the market continues to grow rapidly as firms seek to diversify their business lines and compete with hedge funds. This new competition for assets has pushed some hedge funds into long-only investment strategies and others towards retail distribution. The report suggests that investment managers will become more important to hedge funds as potential partners in product offerings and mergers and acquisitions. Key findings from the study include:

– Growth of Equity Long and Short Investment Strategies Among Investment Managers Expected to Increase – Investment managers’ control of equity long and short investment portfolios is expected to rise from $204 billion to $345 billion by 2012 representing an increase from 19% to 28% of today’s $694 billion marketplace. According to a recent Finadium survey, 65% of investment managers now operate some sort of long and short fund, up from 33% one year ago. Independent hedge funds are also expected to continue to grow and increase their equity long and short portfolios to $810 billion by 2012 as equity markets recover;

– Potential Regulatory Reform Remains a Wild Card – Investment managers view potential regulatory reform as a wild card in driving convergence between themselves and hedge funds. The report indicates that some investment managers advocate working more closely with hedge funds as sub-advisors and potential acquisition targets with the expectation that increased regulation will occur. Without specific regulation, hedge funds will continue to have few legal obligations to disclose fees and practices;

– Hedge Funds Continue to Benefit from Strong Prime Brokerage Relationships – Investment managers have notably different servicing needs than their hedge fund competitors. These organizational requirements have created challenges for investment managers looking to do business with noncustodian prime brokers, to the benefit of hedge funds with strong prime brokerage relationships. While investment managers are becoming more agile in their technology and operations, no party has surmounted the funding obstacles that regulatory and market pressures have put in place; and

– Tri-Party Custodial Relationships May Offer Hedge Funds an Edge – Hedge funds have a wide range of opportunities and challenges to take into consideration when evaluating the strategies of investment managers in the long and short arena. For example, hedge funds should consider tri-party custodial relationships which bring many traits of the asset management industry into their domain. These arrangements allow hedge funds to mitigate their counterparty risk by custodying cash and fully paid for securities with a less leveraged bank custodian, while prime brokerages still hold the fund’s short positions and provide margin financing.

“As investment managers increasingly expand into the equity long and short marketplace, hedge fund managers need to provide their investors with a distinct value proposition that uniquely positions them in the marketplace.” Craig Messinger, managing director of Pershing Prime Services, said, “Exploring new investment strategies, embracing potential merger and acquisition opportunities and offering clients innovative separately managed account solutions are several tactics hedge funds should consider to help continue growing their businesses.”

Regulatory Hedge Fund Reform Measures Gain Momentum

HedgeCo New Archives - Regulatory hedge fund compliance consulting firm, FrontLine Compliance LLC, sent out an alert announcing that the House Financial Services Committee has taken the first official steps toward actual financial regulatory reform. The Committee approved three bills that will be moved to the full House for vote in early December. The bills are:

• Private Fund Investment Advisers Registration Act of 2009
• Investor Protection Act of 2009
• The Accountability and Transparency in Rating Agencies Act

The legislative weight of the above bills includes registration and recordkeeping requirements for hedge funds, fiduciary standards for brokers, new restrictions on rating agencies, and enhanced enforcement powers for the SEC, including the ability to pay informants.

FrontLine Compliance is staffed by former SEC and FINRA regulators.

Full Report On Hedge Fund Arrests - Allegations

HedgeCo Blog Archive - The U.S. Department of Justice released the names of the eight defendants who were arrested yesterday, 5th Nov, 2009:

1. Zvi Goffer, who formerly worked at The Schottenfeld Group LLC (Schottenfeld), a broker dealer in New York, and currently operates a trading firm called Incremental Capital (Incremental), in New York;

2. Arthur Cutillo, an attorney at the law firm of Ropes & Gray LLP in New York;

3. Jason Goldfarb, an attorney in New York;

4. Craig Drimal, who worked in the offices of the Galleon Group (Galleon), in New York, but is not employed by Galleon;

5. Emanuel Goffer, who formerly worked at Spectrum Trading LLC, a trading firm in New York, and currently is associated with Incremental;

6. Michael Kimelman, currently associated with Incremental;

7. David Plate, formerly employed by Schottenfeld, and currently associated with Incremental; and

8. Ali Hariri, a Vice President of Atheros Communications, Inc. (Atheros).

A ninth charged defendant, Deep Shah, who was formerly employed by Moody’s Investors Service, Inc. (Moody’s) in New York, remains at large.

Zvi Goffer, Jason Goldfarb, Emanuel Goffer and David Plate were arrested at their homes in New York. Arthur Cutillo was arrested at his home in Ridgewood, N.J. Craig Drimal was arrested at his home in Weston, Conn. Michael Kimelman was arrested at his home in Larchmont, N.Y. Ali Hariri was arrested in San Francisco. All of the defendants except Hariri are expected to be presented in Manhattan federal court later today; Hariri is expected to appear in San Francisco federal court later today.

The five defendants who were previously charged and have pleaded guilty in Manhattan federal court to insider trading crimes are:

1. Steven Fortuna, formerly a Managing Director of S2 Capital LLC (S2 Capital), a hedge fund based in Boston;

2. Ali Far, founder of Spherix Capital LLC (Spherix), a hedge fund based in California;

3. Richard Choo-Beng Lee, former President of Spherix;

4. Roomy Khan, a California trader who served at certain times as a paid consultant to a hedge fund based in New York; and

5. Gautham Shankar, a proprietary trader at Schottenfeld in New York.

According to the complaints and criminal informations unsealed today in Manhattan federal court, the 9 defendants charged list as follows:

The Goffer Insider Trading Network

Zvi Goffer operated an insider trading network through which he obtained, passed to others and traded on material, nonpublic information (the “Inside Information”) regarding mergers and acquisitions of public companies. In exchange for the Inside Information, Zvi Goffer and others paid sources for the Inside Information. In an unsuccessful effort to conceal their fraudulent schemes, Zvi Goffer and his co-conspirators used prepaid telephones to share the Inside Information.

One of Goffer’s sources of Inside Information was a Ropes & Gray attorney, Arthur Cutillo. In violation of his duty of confidentiality to his law firm and its clients, Cutillo provided Inside Information about several mergers and acquisitions of public companies for which Ropes & Gray was providing legal services prior to the public announcements of the deals. Cutillo allegedly stole Inside Information about the following acquisitions: Avaya, Inc. (Avaya); 3Com Corporation (3Com); and Axcan Pharma, Inc. (Axcan). Cutillo provided the Inside Information concerning these companies to Jason Goldfarb, another New York attorney, who in turn passed the Inside Information to Zvi Goffer and other co-conspirators. In exchange for providing the Inside Information to Goffer and his network, Cutillo and Goldfarb received cash payments.

Zvi Goffer and his co-conspirators also obtained Inside Information from another co-conspirator about the acquisition of Kronos, Inc. (Kronos), and Hilton Hotels Corp. (Hilton) prior to the public announcements of those deals.

According to the complaint, on Sept. 4, 2007, Craig Drimal provided an individual with a piece of paper listing the stock symbols of four companies and disclosed that 3Com was going to be acquired. Drimal told that individual to destroy the list and to be careful trading in these securities because there were no public rumors that the companies on the list were acquisition targets. The next day, Drimal told that individual that he did not want to talk about the four stocks on the list over the telephone but said that it was “like shooting fish in a barrel.”

During the course of the government’s investigation, the government used wiretaps to obtain critical evidence against Zvi Goffer and his illegal insider trading network. Some of the intercepted calls show that Zvi Goffer and his co-conspirators used prepaid telephones and that they tried to disguise their criminal conduct by collecting research reports and other publicly available data to justify their transactions in the event that they were scrutinized by regulators. For example, during a Feb. 18, 2008, intercepted call, Zvi Goffer instructed Michael Kimelman:

PF Changs just had earnings and they all put out research reports the next day. There’s like eight of them out there … So you know you print all those out … get everything printed out, because if we’re going to make a big trade and make a big bet and it works … it’s always good to have that on file why you did it.

Wire interceptions also showed that Zvi Goffer and his co-conspirators were conscious of the fact that they would go to jail if they were caught. For example, during a Feb. 20, 2008, intercepted call with Goldfarb, Zvi Goffer expressed concern over someone’s purchase of a large number of options on a particular stock: “[T]hey paid a nickel for them … You know what that means? Someone’s going to jail, going directly to jail so don’t let it be you, okay?” Later, Zvi Goffer reiterated: “That’s a ticket right to the [expletive] big house.” Goldfarb confirmed to Zvi Goffer that he had not purchased the options, and Zvi Goffer responded: “Good, better that way. Better that way. Perfect. All right then, you know what? All it does is give me more cover.”

As a result of their trades of hundreds of thousands of shares of stock based on the Inside Information that Cutillo, Goldfarb and others provided them — including trades in 3Com, Avaya, Axcan, Kronos and Hilton — Zvi Goffer, Drimal, Emanuel Goffer, Kimelman and David Plate earned profits of at least approximately $11 million for themselves and their firms.

The Ali Hariri Complaint

Between 2008 and March 2009, Ali Hariri, a Vice President at Atheros, provided Inside Information to a cooperating witness who managed a hedge fund in California in exchange for advice received from that cooperating witness about the purchase and sale of other securities. The cooperating witness caused the hedge fund to execute securities transactions in Atheros stock based on the Inside Information, realizing hundreds of thousands of dollars of profits.

The Deep Shah Complaint

Between 2006 and July 2007, former Moody’s analyst Deep Shah provided Inside Information concerning Hilton, a client of Moody’s, to a cooperating witness in exchange for a cash payment of $10,000, with the understanding that the cooperating witness would use the Inside Information to engage in securities transactions. Specifically, on July 2, 2007, Shah told the cooperating witness that Hilton was going to be taken private the following day. The cooperating witness purchased Hilton securities the day Shah provided that information and the next day, and later sold those securities for a profit of $630,000. The cooperating witness then arranged to pay Shah $10,000 in cash. In 2006 and 2007, Shah provided Inside Information concerning Adesa, Inc., and Kronos, to the cooperating witness. The cooperating witness realized profits of approximately $37,000 from the Inside Information concerning Kronos.

The Five Defendants Who Have Pleaded Guilty:

The Steven Fortuna Information

On Oct. 20, 2009, Fortuna pleaded guilty to a criminal information charging him with three counts of conspiracy to commit securities fraud and one count of securities fraud. Between July 2008 and March 2009, Steven Fortuna, formerly the Managing Director of hedge fund S2 Capital, in three separate conspiracies, conspired with four individuals: (1) the Managing Director of a hedge fund based in New York; (2) a Managing Director of S2 Capital; (3) an analyst for a hedge fund based in Chicago; and (4) the manager of a hedge fund based in Boston. Among other things, Fortuna obtained Inside Information concerning the quarterly earnings of a technology company and the plans of a semiconductor company to spin off its manufacturing operations into a separate entity. Based on that Inside Information, Fortuna executed trades which netted profits of approximately $2.4 million for S2 Capital. Fortuna obtained the Inside Information from a co-conspirator who provided the information because s/he was his friend and because Fortuna provided him/her with trading advice about other technology companies.

The Ali Far and Richard Choo-Beng Lee Informations

On Oct. 13 and 19, 2009, respectively, Richard Choo-Beng Lee, former President of California-based hedge fund Spherix, and Ali Far, founder of Spherix, pleaded guilty to criminal informations each charging one count of conspiracy to commit securities fraud and wire fraud and a substantive count of securities fraud. Far and Lee both admitted to conspiring with each other as well as employees of several publicly traded technology companies and individuals employed by hedge funds in New York and elsewhere. Lee also admitted to conspiring to commit insider trading with an employee of a California investor relations firm and individuals associated with three other hedge funds. Far and Lee compensated certain of their sources of Inside Information with cash payments each fiscal quarter and with Inside Information about other companies. Far and Lee used the Inside Information that they received to earn profits and/or avoid losses in excess of approximately $5 million in one or more brokerage accounts affiliated with Spherix.

The Roomy Khan Information

On Oct. 19, 2009, Roomy Khan pleaded guilty to a criminal information charging one count each of conspiracy to commit securities fraud, securities fraud and obstruction of justice. Khan lived in California, where she traded securities on her own behalf, and also served as a paid consultant to a hedge fund located in New York. From 2004 through November 2007, Khan conspired with, among others: (1) an executive at a technology company headquartered in California; (2) an analyst at a credit ratings agency located in New York; (3) an individual who worked at an investor relations firm located in California; (4) the manager of a hedge fund located in New York; (5) the manager of another hedge fund located in New York; (6) a portfolio manager for a hedge fund; (7) the President and principal portfolio manager of a hedge fund located in California; and (8) the Managing Director at a hedge fund located in New York. Khan compensated certain of her sources of Inside Information by giving them other Inside Information, cash and/or by executing trades in their personal brokerage accounts. Khan also admitted to deleting an incriminating e-mail that she had received from a co-conspirator and attempted to deter other co-conspirators from sending incriminating e-mails or instant messages in light of the then-pending SEC investigation. Khan profited approximately $1.6 million as a result of her insider trading.

The Gautham Shankar Information

Gautham Shankar pleaded guilty on Oct. 20, 2009, to conspiracy to commit securities fraud and securities fraud. Shankar received Inside Information from a friend in advance of the publicly announced acquisitions of Kronos and Hilton. Shankar also received Inside Information from a proprietary trader at Schottenfeld in advance of the publicly announced acquisitions of Avaya, 3Com, and Axcan. Shankar shared the Inside Information, collected cash payments for certain of the Inside Information and, along with his co-conspirators, used the Inside Information to execute profitable securities transactions. Shankar made hundreds of thousands of dollars in profits from his insider trading.

The criminal investigation, which was led by the U.S. Attorney’s Office for the Southern District of New York and the FBI, working in close coordination with the U.S. Securities and Exchange Commission (SEC), employed various investigative techniques including the analysis of information from the SEC, business records obtained from relevant entities, court-authorized pen register and telephone toll records, consensually-recorded conversations between cooperating sources and others and court-authorized wire taps on various telephones.

Manhattan Attorney Charges 14 With Over $20 Million in Hedge Fund Insider Trading

HedgeCo Archives - Allegations against 14 Wall Street professionals have emerged from the SEC’s ongoing investigation of insider trading at hedge funds and stock trading firms.

The charged defendants include hedge fund managers and trading firm executives, lawyers and corporate insiders. Five of the charged defendants previously pleaded guilty to insider trading charges in Manhattan federal court. The defendants collectively are charged with allegedly participating in insider trading schemes that generated more than $20 million in illegal profits.

“If you talk on the phone, we may be listening, there’s always a chance the person you conspire with is working for us.” FBI Assistant Director Joseph M. Demarest Jr. stated, “Insider trading provides an illegal competitive edge over honest players in the hedge fund business. Our job is to ensure a level playing field through enforcement and deterrence.”

“When we announced our first arrests three weeks ago, I said this case should be a wake-up call for Wall Street. Today the alarm bells have only grown louder.” U.S. Attorney Preet Bharara said, “Over the last three weeks, we have charged 20 defendants with more than $40 million worth of alleged insider trading, and our investigation is ongoing. When criminal activity is your business model, business as usual has to stop.”

Hedgeco's Fall Hedge Fund Networking Event in NYC

HedgeCo Archives - Held at the Nikki Midtown yesterday, the HedgeCo Fall Networking Event attracted 200+ investors, hedge fund managers, and other industry professionals for a night of food, drink, music and mingling with other members of the alternative investments community.

We hope to continue having these events and keeping the hedge fund community well networked." Andrew Schneider, founder and co-principal of HedgeCo Networks, said, "Networking is especially important as the economy continues to change, knowing what is going on in the hedge fund community and having connections in the industry is all-important."

There was a raffle for two Watch Logic signature watches, one round trip ticket anywhere in the US by American Airways and two units for an unescorted foursome of golf at any of the 300 plus private clubs in the TOUR GCX network. All proceeds were donated to Hedge Funds Care.

Recognized as having the largest attendance for any type of event in the hedge fund industry, the HedgeCo Networking Events have quickly become the top destination for generating new business and meeting new industry contacts.

Weston Capital Management and Harcourt AG Launch an Incubation Joint Venture Hedge Fund

HedgeCo Archives - Independent alternative investment group, Weston Capital Management LLC and Zurich-based Harcourt Investment Consulting AG, have joined in a strategic alliance to seed and develop new hedge fund businesses via Weston Capital’s incubation platform.

The alliance will combine Weston’s extensive experience in early stage hedge fund investing and marketing with Harcourt’s proven investment expertise in global manager selection, due diligence and risk management.

"Through our collaboration with Harcourt, we will further expand our seeding platform with a valuable institutional long-term partner that brings enormous alternative investment expertise to the table. The partnership brings the strengths of each organization together to form a robust and far reaching strategic incubation business,” said Albert Hallac, Chairman and Founder of Weston Capital Management LLC.

Since January 2004, Weston Capital’s hedge fund seeding platform (via the Weston-Atlas Partners Fund and the Weston Capital Partners Fund II) has provided sponsor capital for 13 emerging hedge fund managers. Weston intends to close Partners III, its third incubation fund, at $250 million, with Harcourt providing investment infrastructure and risk management.

Stephan Fritz, CEO of Harcourt said: “Seeding and incubation is a highly specialized field in the area of hedge fund investing. We are pleased to combine our institutional investment process with a leading firm in the seeding space, and we look forward to a successful strategic collaboration.”

HedgeCo Confirms Report On Expansion And New Hires

HedgeCo Archives - Hedge Fund Alert reported this week that the fund-marketing arm of HedgeCo Networks is hiring again as it gets ready to open offices in Naples, Fla., and San Diego.

After cutting staff over the past 18 months, HedgeCo also recently added to its staff in West Palm Beach, Fla., HedgeCo Securities, which also plans to hire two or three marketers for each of the two new offices, which it intends to open in a couple of weeks, HedgeCo can confirm.

HedgeCo Securities is expanding after the signing of new clients, including SeaBreeze Partners, the Palm Beach, Fla., firm led by CNBC commentator Doug Kass. His shop’s SeaBreeze Partners Long/Short Fund has about $125 million under management.

The firm hosted a New York conference on Oct. 13, 'Starting A Hedge Fund In The Post-Madoff Era', organized by Andrew Schneider and Hedgeco Networks. 220 managers, investors and service providers came together at the U.S. Trust Building to hear Joe Goldstein and Ron Geffner, among others, discuss the future of startups in the hedge fund industry.

HedgeCo Networks, founded by Evan Rapoport and Andrew Schneider in 2002, also has an office in New York. The parent company offers a variety of hedge fund services, and its HedgeCo Securities unit conducts third-party marketing and capital-introduction services. It also introduces prime brokers to prospective fund-management clients.

On Nov. 10, HedgeCo Securities is holding the Fall 2009 Capital Introduction Round Tables, also in New York, with the goal of putting investors together with six fund managers.

Close of $12.2 Million Financing For Hedge Fund Renewable Funding

Renewable Funding, a U.S. financier of Property Assessed Clean Energy (PACE) programs, announced the close of a $12.2 million Series A round of financing.

The investment was led by NGEN Partners LLC and Draper Fisher Jurvetson. Other investors included New Cycle Capital, a San Francisco based venture fund focused on businesses that can change the world, and the Wilson Sonsini law firm, which also serves as counsel to the company.

The infusion of capital will accelerate Renewable Funding's expansion of PACE financing programs throughout the United States. PACE allows private property owners to pay for energy efficiency and renewable energy projects through an addition to their property tax bill. Over the past twelve months, legislation enabling PACE programs has been adopted in 14 states. Renewable Funding developed the PACE model with the City of Berkeley, and is now working with cities, counties and states around the country in the development, administration, and financing of these programs.

"Renewable Funding developed the PACE financing model to address climate change and help families and businesses save money," said Cisco DeVries, President of Renewable Funding. "With this infusion of capital, we have additional resources to accelerate the rollout of clean energy funding programs and respond to the growing demand for PACE financing."

The funding comes on the heels of an announcement by Vice President Biden that PACE programs will be a key component of the nation's "Recovery Through Retrofit" effort to reduce greenhouse gas emissions and provide an engine for green job growth. The Clinton Global Initiative recently called for a rapid expansion of PACE programs to 50 municipalities around the country.

SEC Appoints Multi-Billion Hedge Fund Manager As Lead NY Examiner

HedgeCo Archives - The SEC has appointed hedge fund veteran Norm Champ as Associate Regional Director for Examinations in the agency's New York Regional Office (NYRO). Beginning in January, Champ will direct a staff of approximately 100 accountants and examiners responsible for the inspections of investment advisers and hedge funds within the New York Region.

"Norm brings to our inspection program an unusual diversity of experience — as general counsel of a multi-billion dollar hedge fund complex, as a university lecturer, and as a policy thinker," said George S. Canellos, Director of the SEC's New York Regional Office. "I'm very pleased to welcome him to the SEC."

For the past 10 years, Champ has served as General Counsel of Chilton Investment Company, a multi-national investment adviser and hedge fund manager with $5 billion in assets under management. Champ is also a member of the Board of Directors of the Managed Funds Association.

Joel Klein To Receive The 100 Women in Hedge Funds' Effecting Change Award

100 Women in Hedge Funds’ Board of Directors today announced that Joel Klein, Chancellor of the New York City Department of Education, will receive its 2009 Effecting Change Award at its New York Gala on November 18, 2009.

The 100 Women in Hedge Funds' Effecting Change Award is given to an individual who has made a difference in the area of the philanthropic theme for the year. This year 100 Women in Hedge Funds’ philanthropic theme is education.

Past recipients include Ken Langone, Julian Robertson, Carl Icahn, Gary Cohn, Ray Chambers, George Soros, and Hillary Clinton.

Announcing the decision, Lauren Malafronte, a Board member of 100 Women in Hedge Funds, and Director at Barclays Capital, said, "We are very pleased to honor Joel Klein with the Effecting Change Award. The impact that Joel has had in significantly enhancing the educational opportunities for children in New York is largely due to his consistent leadership and vision. His goals closely match those of 100 Women in Hedge Funds in a year when we also aim to truly make a difference in the field of education."

As Chancellor, Mr. Klein oversees the New York City Department of Education, the largest public school system in the United States, serving more than 1.1 million students in more than 1,600 schools with 1.1 million students, 36,000 employees, and a $21-billion operating budget. Before his appointment to Chancellor in 2002 by Mayor Michael R. Bloomberg, Klein was chairman and chief executive officer of Bertelsmann, one of the world’s largest media companies. Prior to that, Mr. Klein served as United States Assistant Attorney General in charge of the Antitrust Division of the U.S. Department of Justice.

When Mayor Michael R. Bloomberg appointed Mr. Klein, a graduate of New York City public schools, as the first Chancellor of the newly-reorganized Department of Education, he called the new Chancellor "a true leader who never shies away from the tough and sometimes controversial decisions that are necessary to implement change."

The 2009 Effecting Change Award will be presented to Mr. Klein at the 100 Women in Hedge Funds Gala in New York City on Wednesday, November 18, 2009. Net proceeds from the Gala will be presented to Computers for Youth (CFY), a national non-profit organization that helps low income children perform better in school. 100 Women in Hedge Funds' support will help CFY extend its reach to eventually serve 10,000 families per year. In addition, CFY will be able to build out its Affiliate Network, developed in response to requests for advice and assistance from organizations across the nation, and thereby broaden its reach to all 50 U.S. states.

AIMA Reiterates Support For Registration Of Hedge Fund Managers In The U.S.

The Alternative Investment Management Association (AIMA) – the global hedge fund industry association – has reiterated its support for the registration of hedge fund managers in the U.S. and for the reporting of systemically relevant information by larger managers to national authorities in the interests of financial stability.

The move comes as the bill (sponsored by Rep. Paul Kanjorski) that will require hedge fund managers operating in the U.S. to register with and be supervised by the Securities and Exchange Commission (SEC) won bi-partisan support from the House Financial Services Committee. The Private Fund Investment Advisers Registration Act 2009 will make the registration of hedge fund managers in the U.S. mandatory for the first time.

Todd Groome, AIMA Chairman, said: “We have supported the registration of managers in the U.S. and elsewhere as well as the reporting of systemically relevant information to national authorities in the interests of financial stability. Our industry recognizes the need to constructively support efforts to improve financial stability analysis and has worked with U.S. authorities voluntarily in this regard for many years.”

AIMA, which represents hedge fund managers and a wide variety of industry participants in the U.S. and globally, supports the registration and supervision of hedge fund managers by their domestic authorities. Until now, U.S. hedge fund managers who registered with the SEC have done so voluntarily.

The bill now faces a vote on the floor of the House - possibly in early December - before it is sent to the Senate. This process allows for further revisions to be made to the bill, and AIMA will continue to work with policymakers to address several areas where the bill may be improved before it is passed into law.

Todd Groome added, “Registration of hedge fund managers and the supervisory dialogue that this creates between managers and the authorities is valuable, but it is not a costless exercise. It is important that the reporting of market information in the interests of financial stability focuses on relevant information and is consistent with the supervisory capacity of national authorities; managers should not be burdened with expensive and unnecessary reporting requirements. If we ask even smaller managers to provide such information, we run the risk of overwhelming managers and supervisors. It is a question of striking the right balance.”

The bill also has implications for non-U.S. managers who could face ‘dual registration’. AIMA is seeking a full exemption from registration in the U.S. for non-U.S. fund managers who are already registered in a ‘relevant jurisdiction’, such as those based in an OECD country or others especially where the domestic regulator may cooperate and share information with the SEC.

Todd Groome concluded: “It is important to ensure that any new regulatory framework does not create unintended consequences, such as duplicative requirements or unnecessary additional costs on hedge fund managers. We look forward to continuing our dialogue with policymakers on possible revisions and further enhancements to the bill. ”

Edinburgh Hedge Fund Company Expands Equities Team

Christine Montgomery and Neil Robson are to join Martin Currie’s global equities team by the end of the year. The highly experienced team, led by CIO and head of global equities James Fairweather, currently has combined investment experience of 75 years and manages $4.6 billion.

"As we have discussed with our clients, we have been searching to expand the team, and I am delighted we have been able to attract such talented individuals." James Fairweather, CIO with overall responsibility for global equity portfolios at Martin Currie, said, "Their skills strengthen and complement the existing team. I look forward to working with them both."

Christine Montgomery has 20 years’ experience of global equity markets. She joins Martin Currie from Edinburgh Partners, where she was an investment partner, responsible for managing segregated institutional accounts totalling $742 million.

Neil Robson has 23 years of experience in global equity markets and joins Martin Currie from Pioneer Investments where he was head of global equities. At Pioneer, he was responsible for the four equity teams run from the Dublin office with $17.7 billion assets under management.

Martin Currie is a specialist investment management business. From its headquarters in Edinburgh, it manages £12.0 billion ($19.1 billion) in active equity portfolios for a global client base of financial institutions, charities, foundations, endowments, pension funds, family offices, government agencies and investment funds. Its pooled funds include an Oeic, Sicav, offshore mutual funds, investment trusts and a range of absolute return funds.

Historical Performance of Hedge Funds in Down Markets

Addressing the rising concern among investors that the financial markets are due for a near term correction, Charles Gradante, Co-Founder of the Hennessee Group, said, “With the equity markets up over +50% since the lows reached in early March, and ongoing uncertainty regarding the true health of the global economy, we are fielding more and more questions regarding the sustainability of the current market rally and what are our expectations are for hedge funds in a market correction.”

Hedge fund adviser, Hennessee Group, conducted a brief study comparing the performance of the Hennessee Hedge Fund Index relative to the performance of the S&P 500 Index dating back to 1993.

The Hennessee Group isolated the analysis to the fifteen largest monthly drawdowns in the S&P 500 Index and measured the downside protection provided by hedge funds using the Hennessee Hedge Fund Index as a proxy. Hedge funds managed to outperform the S&P 500 Index all fifteen months and generated over +100% in outperformance during these periods of panic.

Gradante stated, “Hedge funds participated in only about one third of the market downturn which is due, in large part, to their ability to hedge their portfolios and maintain reduced market exposures. In addition, hedge funds generated a -2.67% average monthly loss over these 15 months while the S&P 500 generated an average monthly loss of -9.38%.” Gradante added, “We would expect to see similar results going forward, particularly given the cautious stance of most hedge funds today as uncertainty and nervousness continues to overhang the financial markets and economy.”

CONCLUSION

Hedge funds are on track for one of their best years since the Hennessee Group started monitoring performance since 1987. The Hennessee Hedge Fund Index is up +20.9% through September relative to the +17.0% gain for the S&P 500 Index. Consistent with longer term results, hedge funds managed to protect capital during the market sell-off in early 2009 and have participated in a good portion of the market rally since March.

In addition to strong performance, the Hennessee Group is encouraged by the slowdown in redemptions which is restoring stability to hedge fund organizations and allowing them to once again focus on alpha generation for investors. As investors take note of these positive developments we expect to see renewed interest and growth for the hedge fund industry in the coming years.

New Position At BNY Mellon Highlights Growth Of Their Hedge Fund Administration Business

Brian Ruane has been appointed to the new position of Chief Executive Officer of Alternative Investment Services (AIS) at $200 billion hedge fund administrator, BNY Mellon Alternative Investment Services.

"Brian's experience and leadership will help us continue to grow, build on our strengths, and set new standards for serving clients during this transformational time in the industry," Art Certosimo, senior executive vice president and head of Broker-Dealer/Alternative Investment Services. "BNY Mellon's AIS business has achieved impressive revenue and market share gains the past few years, where others have struggled. We're confident in Brian's ability to develop the strategies and forge the relationships we'll need to take our global growth forward."

Ruane, who joined BNY Mellon in 1993, was most recently executive vice president and head of global client management North America. For the five years prior, he was head of financial institutions, overseeing the firm's relationships with banks, broker-dealers and hedge funds. In his new role he will focus on expanding AIS' global client relationships and leveraging the array of fund administration products and services the group provides to hedge fund, fund of hedge fund, private equity and real estate clients worldwide.

BNY Mellon Alternative Investment Services has an extensive global presence, including locations in Bermuda, Cayman Islands, Hong Kong, Ireland, Luxembourg, Singapore and the United Kingdom, as well as US offices in California, Florida, Massachusetts, New Jersey, New York, Pennsylvania and Texas.

The Cayman Islands and Netherlands Antilles Sign Tax Information Exchange Agreement

George Town, Grand Cayman – The Cayman Islands signed a Tax Information Exchange Agreement (TIEA) with the Netherlands Antilles on 29 October 2009 whilst attending the CFATF Plenary, held in Curacao.

The agreement, which is Cayman’s fourteenth, was signed on behalf of the Cayman Islands by Attorney General, the Honourable Samuel Bulgin, who was Cabinet’s authorised signatory.

Mr Bulgin said: “This signing represents the Cayman Islands continued commitment to OECD standards for transparency and exchange of information on tax matters. It will commemorate the beginning of what I am sure will be a mutually-rewarding relationship between the Cayman Islands and the Netherlands Antilles.”

Negotiations have also been completed with a number of other countries including Aruba, Australia, Canada, Germany, Italy and Mexico and it is anticipated that agreements will be signed before the end of 2009. Negotiations are also currently ongoing with a further 10 jurisdictions which comprise Argentina, Belgium, China, Czech Republic, India, Japan, Korea, Portugal, Spain and South Africa..

Commenting on the signing, Premier/Leader of Government Business, Minister for Financial Services, the Honourable McKeeva Bush said “The Cayman Islands are committed to effective implementation of these agreements and as such, we have in place all the necessary internal processes required for the legal implementation of all signed agreements.”

Ticonderoga Securities Expands With Launch of Equity Derivatives Group Led By Hedge fund Veteran

New York (Press Release) - Ticonderoga Securities, an institutional broker dealer, today announced the launch of its Equity Derivatives Group, which will be led by Vuk Bulajic, an industry veteran with a dynamic track record of launching and building equity derivatives businesses.

With the addition of the Equity Derivatives Group, Ticonderoga continues to position itself as a leading broker dealer, concentrating on domestic and international equities with a focus on high-quality order execution alongside its differentiated research. The new group will further diversify Ticonderoga’s product offerings, which was recently expanded to include institutional equity research. As head of the Equity Derivatives Group, Bulajic will focus on building out the platform to deliver unique and valuable offerings.

“We are extremely pleased to be able to launch our Equity Derivatives Group with such an experienced and knowledgeable leader as Vuk,” Shawn McLoughlin, CEO and Co-Founder of Ticonderoga Securities, said. “His success in building teams from the ground up will be valuable as we continue to build out our Equity Derivatives team over the coming months to deliver services in several sectors important to our clients.”

Bulajic has built equity derivatives businesses for several large banks and Wall Street institutions, and brings 25 years of experience to Ticonderoga. Prior to joining the firm, Bulajic served as head of U.S. equity derivatives at the French bank Natixis for eight years, and in the same position at BNP Paribas from 1997-2002. He was also global head of equity derivative trading at Lehman Brothers, and helped launch the Equity Derivatives Group for the Americas at Nat West Capital Markets in the early 1990s. Earlier in his career, Bulajic worked as a trader for Morgan Stanley and Stern Brothers. He earned his B.S. and M.S. in Chemical Engineering from Columbia University.

“As Wall Street begins to reinvent itself, nimble firms like Ticonderoga have a great opportunity to innovate in the equity derivatives space,” Bulajic said. “I look forward to growing the group here at Ticonderoga.”

In May 2009, Ticonderoga Securities LLC acquired Reynders, Gray & Co. Inc. a respected firm with more than 30-years experience and an enviable track record. Ticonderoga Securities operates a dual capability with a New York Stock Exchange floor based team providing direct access as well as the desk based models. The firm concentrates on domestic and international equities and focuses on high quality, conflict free order execution, as well as a differentiated research offering to support its first class execution capabilities.

Northern Trust Named Best Overall Hedge Fund Administrator

HedgeCo News Archives - Northern Trust has been named the Best Overall Hedge Fund Administrator by HFMWeek in the magazine's inaugural U.S. Service Provider Awards. The awards recognize companies that have outperformed their peers during 2008-2009 and demonstrated financial progress, growth and genuine innovation.

"Northern Trust was recognized for the strength of its service offering and for demonstrating business momentum and product innovation during a challenging period for the hedge fund industry," said Lucy Guest, senior publishing executive for HFMWeek.

Northern Trust has a growing hedge fund servicing business, with assets under administration of $75.5 billion as of June 30, 2009, an increase of 54 percent over the prior year. Northern Trust services nearly 300 hedge funds worldwide as of June 2009, and in the previous 12 months had provided global operations services to more than 120 new fund launches and transitions.

"Investment managers are facing increased pressure to effectively manage costs while providing greater returns for investors," said Peter Cherecwich, Chief Operating Officer for Corporate and Institutional Services at Northern Trust. "Northern Trust is delivering the scale and infrastructure required to support higher volumes and expanded trading strategies, including experienced staff with specialized expertise in alternative asset classes."

Northern Trust implemented its Hedge Fund Monitor solution in 2008, a major step forward in managing information for fund of hedge funds and other institutional investors with exposure to hedge funds. The solution, expanded to institutional investors in 2009, provides managers with a broad range of vital fund data to increase the efficiency of trading, valuation and operational processes.

"We're delighted to be recognized as best overall administrator as it validates our approach of blending innovative technology, strong process and automation with the exceptional service standards that set Northern Trust apart from our competitors," said Matt Ward, Head of Fund Administration-North America for Northern Trust. "Ultimately this is a service business and our experienced and attentive people are the real strength of our offering."

People Moves: Knight Libertas Expands Global Emerging Markets Team

HedgeCo Blogs Archives - Knight Capital Group, Inc. today announced that Knight Libertas has established a Global Emerging Markets Sales team based in Greenwich, Conn., Hong Kong and London.

Effective immediately, the following have joined the institutional fixed income broker-dealer: Augusto Castilho, Eamon Tubridy, Alfredo Viegas and Elena Antonova in the U.S.; Alesandro Gherzi, Alisa Mujagic, Nipun Ramaiya, Darren Reiss, Richard Segal and Will Trossell in the U.K.; and Jay Lee and Felix Sun in Asia.

"Knight is pleased to announce these hires as part of the build-out of our Global Emerging Markets business, which will focus on names across Latin America, Eastern Europe/Russia, Africa and Asia," said Dan Mullineaux, managing director, global head of emerging markets fixed income. "We will continue to add top-tier talent in all three major time zones as we develop a full-service emerging markets platform encompassing sales, trading, strategy, research and capital markets capabilities."

Knight Libertas is an institutional fixed income broker-dealer providing trade execution, fundamental investment research and capital markets services across a broad range of fixed income securities, including Emerging Market Credit and Sovereigns. Knight Libertas also provides secondary market liquidity and credit-based analysis for Investment Grade and High Yield bonds, Bank Loans and ABS/MBS, among other securities.

Man Investments and Credit Suisse Launch Joint Offering

HedgeCo News Archives - Man Investments and Credit Suisse are launching a managed accounts initiative in response to investors’ increased demands for transparency, liquidity and control.

The new initiative brings together Man’s extensive managed accounts platform and portfolio management expertise with access to Credit Suisse’s structured fund linked products capability, to offer institutional investors flexible and secure investment across a broad selection of the best managers globally.

Under the initiative, Man Investments is responsible for the sourcing, due-diligence and ongoing quality monitoring of managers. For more than ten years Man has built a significant managed accounts platform as an investor, in contrast to the flow driven business model of other providers. This means that in addition to the security, transparency and liquidity that managed accounts provide, Man is also able to offer ongoing portfolio monitoring and risk management oversight, bespoke and transparent investor reporting, as well as portfolio investment advice. Man will continue to offer its managed accounts platform directly to Man investors.

Credit Suisse is responsible for providing risk transfer and delivery expertise in combination with its strong balance sheet to provide a choice of principal protection, dynamic leverage, pass-through exposure and enhanced liquidity. Delivery vehicles include solutions such as notes, certificates, swaps, unit trust and UCITS III funds.

A key differentiator of the joint offering is its independence; it has been designed to mitigate potential conflicts between investors and the structured products provider by offering the same liquidity terms across all investors. Independence also means that managers are offered a choice of prime brokers, enabling them to spread counterparty risk and achieve better execution.

Christoph Moeller, Global Head of Distribution at Man, said: “Man has always approached managed accounts from an investment perspective and we view them as a powerful tool in portfolio construction, rather than just a standalone solution. For this reason, managed accounts have always been deeply rooted in our investment process. We are delighted to have teamed up with Credit Suisse, a leader in fund linked products, to help broaden our global investor reach through customised solutions on the platform.”

Walter Rotondo, Global Head of Fund Linked Products at Credit Suisse, said: "Man has accumulated a wealth of experience over the years in running managed accounts, supported by highly impressive portfolio management, research, infrastructure and risk management teams. Credit Suisse is delighted to commit its specialised resources, capital and balance sheet to the programme and provide investors with highly attractive investment solutions.”

Swiss Hedge Fund Discloses Portfolio Holdings

HedgeCo News Archives - ALTIN AG, the Swiss alternative investment company listed on the London and Swiss stock exchanges, is today pursuing its policy of greater transparency to investors initiated in March by disclosing its entire portfolio holdings.

The portfolio, featuring over 30 underlying funds representing 10 different strategies, is particularly well diversified and boasts a positive performance of +11.16 %1 to date in 2009.

Only approximately 16% of funds held by ALTIN have restricted redemptions of one form or another, down 4% from 20% in the last quarter. This relatively low proportion does not affect ALTIN as, being a fixed-capital investment company, it is not faced with redemption requests.

The portfolio’s great liquidity allows the investment manager to conduct a dynamic management strategy and benefit from the current investment opportunities. During the third quarter of this year, the manager has therefore continued the investment programme initiated earlier this year. Since June, weightings in “Long/Short Equity”, “Multi-Strategy” and “Credit” strategies have been increased, through a reduction of cash, “Event Driven” and “Other Equity and Derivatives” strategies.

ALTIN AG was launched in December 1996 and has been listed on the Swiss Stock Exchange since its inception, as well as on the London Stock Exchange since 2001. ALTIN is a multi-strategy fund of hedge funds investing in more than 30 hedge funds representing various investment styles. The Company holds one of the world’s longest track records as an exchange-listed fund of hedge funds. Its objective is to generate an absolute annual return in US dollars terms with lower volatility than equity markets.

Mohican Receives 2009 Lipper Hedge Fund Award

HedgeCo News Archives - Mohican VCA Fund, LP has received the 2009 Lipper Hedge Fund award for Best Hedge Fund in Convertible Arbitrage. The award is based on portfolio performance of convertible arbitrage funds over a period of three years ending June 30, 2009.

"We appreciate that Lipper and Hedgeworld have recognized our fund for this award. Lipper's methodology makes this award especially credible because they consider risk and return over a statistically significant period of time, in this case 3 years."
Eric Hage, Chief Investment Officer of Mohican Financial Management, said.

The Lipper Award honors a hedge fund and management firm that has delivered the best performance among peers. Each candidate for the award is a fund that has provided superior consistency and risk-adjusted returns when compared to similar funds.

Hedge Fund Expert To Launch a Quant Equity Market Neutral Fund

HedgeCo News Archives - CEO at QuantZ Capital Management, Milind Sharma, is in the process of launching his own hedge fund, sources say.

The hedge fund manager is reportedly in talks to raise $500 million for the QuantZ Quark Market Neutral Fund. One of his analysts from RBC is joining him in the launch in addition to a marquee name Quant who is being brought on board as Head of Research.

Sharma has extensive experience in asset management, serving at a number of high-profile Wall Street Firms. He was previously on the Portfolio Management Team of the Merrill Lynch Large Cap Series Funds with Bob Doll, who is now Global CIO for BlackRock's equity arm. At BlackRock (MLIM), his investment role spanned a dozen quantitatively managed funds & separate accounts with approx $30B in AUM pegged to the models. Subsequently, he managed Quant EMN portfolios of significant size at Deutsche Bank as Senior Proprietary Trader. Most recently he ran a Proprietary Trading desk at RBC Capital Markets which included Quant EMN, Short Term & Event Driven portfolios (upto $700mm exposure).

Sharma also has significant Risk Management expertise having created the AIRAP (Alternative Investments Risk Adjusted Performance) measure for hedge funds in addition to being co-founder of the Quant Strategies unit (previously Risk & Performance) at MLIM. Prior to that he was Manager of the Risk Analytics and Research Group at Ernst & Young LLP where he was co-architect of Raven TM (one the earliest derivatives pricing/ validation engines).

His publications have appeared in the Journal of Investment Management, Risk, Wiley, HedgeQuest, World Scientific, Elsevier etc. He is a frequent speaker at conferences (Risk, GARP, Institutional Investor etc).

Over Half a Billion Dollars Advanced to Madoff Customers

HedgeCo Archives - The total amount of Securities Investor Protection Corporation (SIPC) advances committed to customers in the Securities Investor Protection Act (SIPA) liquidation proceeding for Bernard L. Madoff Investment Securities LLC (BLMIS) has topped half a billion dollars ($534.25 million), with a total of 2,861 direct customer claims determined to date, according to BLMIS Trustee Irving H. Picard, who is a partner of Baker & Hostetler LLP.

In another major milestone: Securities Investor Protection Corporation President Stephen Harbeck announced that the SIPC advances committed in the Madoff proceeding now exceeds the total of all advances made in the 321 prior liquidations handled under SIPA since the act creating the Securities Investor Protection Corporation (SIPC) was passed by Congress in 1970.

"The fact that one liquidation proceeding has now involved more in advances from SIPC's reserve than all 321 of the liquidations that preceded it is a testament to both the wisdom of those who created this safety net for investors and the resiliency of the safety net itself." SIPC President Harbeck said.

"I am pleased to report that we have made significant headway in recent months in the processing of BLMIS customer claims under what have been very challenging circumstances." BLMIS Trustee Irving H. Picard said, "With more than $4.43 billion in customer claims already allowed and advances of over half a billion dollars committed by SIPC, the Trustee's office is working tirelessly to ensure that every BLMIS customer with a valid claim is given full consideration and handled as expeditiously as possible. That will continue to be our focus in the coming weeks and months."

At a briefing, Picard and Harbeck said that as of noon EDT on October 27, 2009, SIPC committed advances to Madoff customers now totals $534,250,113.22. In SIPC's previous liquidations of brokerage firms from 1970 up to the time of the Madoff case, a total of $520 million has been advanced to pay customers and for the expenses of those cases.

SIPC maintains a special reserve fund authorized by Congress to help investors at failed brokerage firms.

For more information about SIPC liquidation proceedings, see "The Investor's Guide to Brokerage Firm Liquidations".

BNY Mellon Wins HFMWeek Hedge Fund Award

HedgeCo Archives - BNY Mellon was one of eight industry-leading companies to be nominated for the honor as part of HFMWeek's 2009 U.S. Service Provider Awards, which were presented in New York on October 22. BNY Mellon's Alternative Investment Services (AIS) group received the 'best single manager administrator' award.

"BNY Mellon stood out in this category; a truly global administrator which has increased its market share and boasts substantial single manager assets," said HFMWeek's panel of judges.

"Recognition like this is noteworthy because it validates and reinforces our commitment to clients and the investments we're making to better serve them," said Brian Ruane, executive vice president and head of global client management North America at BNY Mellon. "It also speaks to the talent and collaboration of our global team to receive this honor from HFMWeek."

BNY Mellon Alternative Investment Services has more than $200 billion in assets under administration and an extensive global presence, including locations in Bermuda, Cayman Islands, Hong Kong, Ireland, Luxembourg, Singapore and the United Kingdom, as well as US offices in California, Florida, Massachusetts, New Jersey, New York, Pennsylvania and Texas. In addition to administration the company offers a wide range of accounting, cash management, collateral management, custody, corporate trust, asset management and wealth management services to the hedge fund industry.

HFMWeek's U.S. Service Provider Awards are designed to recognize companies that have outperformed their peer group over the course of 2008 and 2009. BNY Mellon AIS captured the best single manager administrator award as a result of its robust technology platform, range of value-added fund services, and overall client service excellence.

OakRun Hedge Fund Registers in Singapore

Hedgeco Archives - Hedge fund manager OakRun Capital celebrated their one year anniversary at the same time as registering its flag ship fund OakRun Income Plus Fund with Monetary Authority of Singapore (MAS). Through a distribution partnership in Asia, OakRun plans to make the fund available to investors in Singapore, Japan, China, and other areas of the region.

The OakRun Income Plus Fund charges a 1% management fee and a 10% incentive fee with a $1MM minimum investment requirement, it returned 0.73% (9.26% Annual Yield) for September 2009 and paid out its fourth quarterly dividend of 2.25%.

“The flagship OakRun Income Plus Fund has received incredible initial feedback from institutions. The fund is invested in highly liquid instruments with substantially higher yields than comparable investments with duration of less than 45 days,” Portfolio Manager, Arturo Neto, CFA, said.

The fund is an actively managed receivables re-factoring fund born out of demand for a low risk, income generating investment. The fund strategy is to purchase commercial receivables (obligations) of highly rated companies. The fund insures a high proportion of portfolio holdings and strives to maintain a short term investment grade weighted average credit quality of A1/P1. OakRun Capital performs a rigorous due diligence process which includes the firms detailed proprietary research and selection method, leading independent third party investment ratings (Moody’s, S&P, Fitch) and credit and payment history (Dun & Bradstreet).

Proposed EU Directive on Alternative Investment Fund Managers - Answers from Michael G. Tannenbaum

HedgeCo Blogs - This outline addresses the European Commission’s (the “EU”) proposal for a Directive meant to establish an EU framework for the authorization and operation of alternative investment fund managers (“AIFM”). Of particular focus are non EU domiciled managers and funds and EU managers seeking investors for non EU domiciled funds.

On April 30, 2009, the Commission of the European Communities (“EU Commission”) published a “Proposal for a Directive of the European Parliament and the Council on Alternative Investment Fund Managers.” The Directive relates to activity within the EU Member States. Jurisdictions outside of the EU are referred to as Third Countries.

Who is affected? What is an AIF? AIFM?

Virtually all investment managers and “collective investment undertakings” are covered by the Directive. As drafted, the Directive applies to any natural or legal person established in the EU who manages one or more AIFs and which provides management services to one or more AIFs regardless of its domicile. The Directive in current form affects:

1. Hedge funds, private equity funds, venture capital funds, and real estate funds (collectively referred to as “Alternative Investment Funds” or “AIFs” in the Directive)

2. Persons or entities rendering “management services” to AIFs. These are referred to as “Alternative Investment Fund Managers” or “AIFMs” in the Directive and include:

a. Investment advisers and managers of any of the above
b. Administrators
3. Custodians
4. Valuation agents and appraisers
5. Delegates of the above (sub-advisers, sub-custodians etc.)

The Directive by its terms exempts UCITS from coverage.

In general terms, what is prohibited?

The Directive generally prohibits any AIFM which is not authorized by a Member State of the EU from providing management services to any AIF domiciled in the EU and prohibits a non EU domiciled AIFM from “soliciting” investors in the EU. Note that the focus of the Directive is on the AIFM and not the AIF itself. This is similar in approach to the United States requirement to register the AIFM (if certain conditions are satisfied) and not the AIF itself.

What is definition of “management services”?

The term “management services” is defined as “managing and administering” but the Directive does not go into any detail as to what “managing” means or what “administering” means. It would appear to include investment management, risk management and other services.

Are there operating conditions imposed for AIFMs?

The Directive imposes a number of business requirements on AIFMs including, without limitation, a duty to:

1. act honestly, with due care, skill and diligence and fairly in conducting its activities;
2. act in the best interests of the AIF it manages, its investors and the integrity of the market;
3. act in a manner that treats investors fairly;
4. identify the conflicts, and manage those conflicts;
5. operate its organization effectively; and
6. structure its internal organization such that risk and portfolio management
are separated.

UCITS are essentially mutual funds designed for retail investor consumption. They are established under the Undertakings for Collective Investments in Transferable Securities Directive (the “UCITS Directive.”)

Many of the conditions seem obvious, but some raise issues. For example, is it always possible for an AIFM to act in the best interest of the AIF, the best interest of the investors and preserve market integrity all at the same time?

How are “side letters” affected?

No investor can receive beneficial treatment unless disclosed to all investors in the AIF. Accordingly, the Directive would essentially require all side letter arrangements disclosed to all investors.

1. Whether or not material.
2. Investors’ identity would be disclosed.

What standards would be imposed by the Directive?

1. Risk Management. The Directive mandates that there be a separation between risk management and portfolio management.

2. Short sales. There is a specific concern with and focus on short selling. The EU Commission is to set forth rules with regard to short sales.

3. Liquidity management. The AIFM must adopt procedures and implement appropriate liquidity management policies to ensure that its liquidity profile is consistent with its investment strategies.

a. Regular stress testing is required.
b. AIF redemption policies need to be consistent with liquidity management policies, and vice versa.

4. Leverage. Disclosure to investors and regulators on a quarterly basis. The EU
Commission is authorized to establish standards.

5. Independent valuator is required.

6. Independent Administrator is required.

7. Independent Depositary is required and must be a credit institution authorized in the EU.

What AIFMs are exempted under the Directive?

Under the Directive, the following AIFMs are exempt from seeking authorization:

1. AIFs that use leverage: Any AIFM with assets under management (in the aggregate) of €100 million or more.

2. For AIFs that do not use leverage, the threshold is raised to €500 million provided. The AIF has no redemption right that is exercisable during a 5 year period following the start up of the AIF.

3. Certain banks, insurance companies, pension funds, etc.

4. AIFMs that render services only to UCITS.

Are there minimum capital requirements being proposed?

Yes. Each AIFM must maintain at least €125,000 in regulatory capital. Where the aggregate value of the AIFs exceeds €250,000 then the AIFM must maintain additional capital of .02% of the excess over €250,000.

Can an EU domiciled manager hire a non EU sub-manager? Can a non EU AIFM hire an EU AIFM? How is delegation handled?

This kind of delegation is virtually impossible because under the Directive a sub-manager or delegate with regard to portfolio management services or risk management functions for an EU AIFM would need to be able to provide that service in its own right in the EU, i.e. would need to meet the requirements of the Directive itself. This would seem to prohibit delegations, sub-advisory agreements and even parent subsidiary relationships to AIFMs who do not meet the requirements of the Directive.

How are administrators and other service providers affected?

An EU AIFM would need to seek authorization from its home Member State before a third party service provider can be appointed for the AIF.

Authorization

Presumably there will be some procedure established by which an AIFM can become authorized in its Member State to render services to an EU AIF. But as to non EU domiciled AIFMs, the Directive does not permit such AIFMs from even seeking
authorization under the Directive to manage an EU AIF. One possible alternative is for the non EU AIFM to establish a subsidiary in the EU and seek approval from there but in light of the strict delegation rules (described below) it is doubtful whether this type of strategy will be practical.

How is marketing, even to sophisticated and high net worth investors, affected?

1. Non EU AIFM marketing to EU investors is generally not permitted.

a. After a three year waiting period following the effective date of the
Directive, a non EU AIFM would be permitted to apply for authorization to market to “professional clients” if:

i. The EU Commission has determined that the Third Country has adopted “prudential regulation and ongoing supervision” equivalent to the regulations set forth in the Directive as to management, administration, custodian, valuators, leverage, liquidity management etc. This is a subjective standard and may be difficult, if not impossible, to attain.

ii. The AIFM’s Third Country has agreed to reciprocal arrangements as to marketing and grants comparable market access to EU AIFMs.

iii. Cooperation agreement in place as to information sharing with regard to market stability.

iv. Tax protocol adopted by Third Country that is consistent with the Model Tax Convention of the EU (e.g. as to tax data information sharing.)

2. EU AIFMs marketing EU AIFs to EU investors. This is permitted once the Member State regulator is notified (similar to the “Blue Sky” filing requirements imposed within the United States.)

3. EU AIFMs marketing non EU AIFs to EU investors. After the three year waiting period, such marketing is permitted to professional clients but only if:

a. The AIF is domiciled in a country that that has signed a tax protocol agreement that complies with the EU Model Tax Convention, which provides, inter alia, for an effective exchange of information.

4. Unclear what happens during the 3 year period. No authorization is allowable under the Directive but presumably each Member state will decide on its own.

Can AIFs taking control positions in issuers?

Yes, however control positions in excess of 30% of the voting shares of an issuer require disclosure under the Directive.

What confidential information is required to be disclosed under the Directive?

While reporting is required by various provisions of the Directive, it is silent on the protection of legitimate confidential data.

What is a “professional client”?

A client (in this context, an investor) that meets at least 2 of the following 3 conditions:

1. It has carried out transactions in significant size on the relevant market at an average frequency of 10 such transactions per quarter over the previous 4 quarters.

2. It has a portfolio of financial instruments (including cash) exceeding €500,000.

3. It works for or has worked in the financial sector for at least one year in a professional capacity which requires knowledge of the transaction or services to be rendered.

There are also per se professional clients which include banks, regulated financial institutions, pension funds, among others.

What about existing deals?

No information has been made available; on this issue the Directive is silent.

Michael G. Tannenbaum is a founding partner of Tannenbaum Helpern Syracuse and Hirschtritt LLP, where he heads the Firm's Financial Services, Hedge Funds and Capital Markets Group. For close to 30 years, he has concentrated on U.S. and non-U.S. based hedge funds, funds-of-funds, investment partnerships, investment adviser and SEC, NFA, NASD and CFTC regulations, venture capital and private equity matters, futures, swaps, derivatives, structured finance deals and corporate and securities law and regulation. He regularly advises clients as to registrations of advisers, operating agreements and business combinations in the hedge fund and investment adviser space, and represents funds, advisers and sponsors as part of his global practice.

Hedge Funds Given One Year To Register With SEC

HedgeCo Archives - The House Financial Services Committee on Tuesday said that hedge-fund managers and private-equity managers would be given a one-year transitional period before being required to register with the SEC and be subject to disclosure requirements to investors and creditors. They also would have to maintain records and potentially open their books to federal inspection.

The bill received broad bipartisan support in a 67-1 vote. Rep. Susan Kosmas, D-Fla., the drafter of the measure, said a one-year transition period for registration is necessary because both the SEC and fund managers will need time to organize themselves, news source MarketWatch said.

"The SEC will need time to prepare for the additional responsibilities that will come from the registration of potentially thousands of new managers," said Kosmas. She added that managers will need time to set up formal compliance programs, hire chief compliance officers, all of which is required by the legislation.

5fth Annual Hedge Funds Care Hosts Art Auction - Picasso, Dali, Matisse and Chagall

HedgeCo Archives - Hedge Funds Care is holding its fifth London black tie event in Whitehall, London, on 3 December 2009. Esther Rantzen CBE, veteran journalist and TV presenter as well as founder of ChildLine has agreed to become Patron of the charity and will be attending the December event.

The fifth annual fundraising gala will include a live auction conducted by Lord Jeffrey Archer. Items on auction will include a hand-signed Salvador Dali etching donated by the Broad Gallery and a dinner for 10 cooked by Chef Tom Aiken in your home. The evening will also feature a spectacular silent auction of limited edition works of art by some of the 20th century's most celebrated artists, including Picasso, Dali, Matisse and Chagall.

"We are very proud to be in the position to hold a second fundraising event in 2009, despite the less favourable conditions for philanthropy over the past year." Robert Mirsky, Chairman, Hedge Funds Care UK, said, "Our support from the hedge fund industry continues to grow and allows us to help prevent and treat child abuse in the UK."

Since it was established in 2006, the UK chapter of Hedge Funds Care has raised over US$1.4 million through its three annual fundraising events and a summer event held earlier this year. To date, Hedge Funds Care UK has pledged funds to numerous charities, all focusing on improving the lives of children and families that have suffered the trauma of abuse. Recent beneficiaries include: Barnado's (Young Women's Service), CSV(Volunteers in Child Protection) and Family Action (Building Bridges Newham).

Hedge Funds Care was founded in 1998 with the mission of raising funds to support activities focused on the prevention and treatment of child abuse and neglect. Funds are raised through Open Your Heart to the Children benefits in the United States, Canada, Cayman Islands and the UK. Hedge Funds Care UK is registered with the Charities Commission in the United Kingdom.

Hedge Fund Shareholder Appointed To Legg Mason's Board Of Directors

HedgeCo Archives - $703 billion global asset management firm, Legg Mason, announced today that an outstanding shareholder, hedge fund manager Nelson Peltz, will be elected to the Company’s Board of Directors,

Peltz is Chief Executive Officer and a founding partner of hedge fund Trian Fund Management, L.P., which owns 6,946,756 shares, or approximately 4.3% of Legg Mason’s outstanding common stock.

"Over the past several months, my colleagues and I have been engaged in constructive dialogue with Mark Fetting and other members of the Legg Mason management team." Peltz commented, "We share their view that Legg Mason’s recent strategic initiatives are improving the Company’s operating performance and I look forward to contributing as a Board member and working with the management team and the Board to help this great company achieve its full potential.”

The addition of Mr. Peltz to the Board reflects an agreement between Legg Mason and Trian Fund Management, L.P., certain funds managed by it and certain of its affiliates. In addition, pursuant to the agreement, Trian Partners has agreed to vote its shares in favor of Legg Mason’s director nominees as provided in the agreement and made certain other commitments.

UPDATE: New Hedge Fund To Benefit From Offshore Tax Changes

HedgeCo Archives - Two UK hedge fund managers have timed the launch of their new hedge fund so that investors subscribing before 1 December will see their returns subject to Capital Gains Tax rather than income tax ahead of the changes to the taxation of offshore funds currently being drafted.

Launched by UK hedge fund managers, Aramid Asset Management and Thomas Funds, the long and short multi-asset hedge fund, which will invest across equities, bonds and commodities, will be jointly managed by Aramid co-founder Sean Flanagan and Thomas Funds’ Glen Cremer.

"Our first step is to set up a target for maximum loss that we can tolerate in the next 30 to 60 days on which we base our allocation to each asset class and the level of hedges." Cremer says.

"We also hedge at all times because we believe market timing is almost impossible to achieve. There is no free lunch – you can only make money by taking residual market, credit or liquidity risk. The key is to identify that residual risk and minimise it using risk management overlay."

The Cayman Islands-domiciled fund can be accessed through both a closed-ended Jersey feeder fund, the Aramid All Asset Capital Preservation Fund Limited or a Cayman- domiciled open-ended feeder fund, the Aramid/Thomas All Asset Preservation fund.

Event Driven Hedge Funds Rebound - Brighton House Q3 Report Summary

HedgeCo Blogs Archive - Buoyed by a strong equity-market rally, hedge funds performed well during the past quarter, according to the Brighton House Q3 report. Investors gravitated towards event-driven hedge funds throughout the third quarter, 2009, primarily in the merger/risk arbitrage and distressed fixed-income areas.

Brighton House Associates (BHA) is an alternative investment research firm that speaks to investors across the globe about their current interest and activity in alternative investment funds. Brighton House works with a network of over 100 fund managers and assists in indentifying qualified investors for their internal marketing campaigns.

Global Equity

The rebound in global equity markets during the first three quarters, along with successful capital-raising campaigns by large financial institutions, created a favorable environment for catalyst events. The announcements of acquisitions by well-known companies such as Xerox, Walt Disney, and Kraft Foods are only a few examples of the flurry of corporate activity that took place in a variety of sectors during the third quarter.

Dealogic reported that banks and financial institutions sold more than $11 billion in non-government guaranteed bonds in September alone, an increase of more than $6 billion over August.

A senior investment analyst at a southern U.S. university with approximately 30 percent of its endowment dedicated to alternative investments expressed substantial interest in distressed corporate credit and senior bank loans.

As the year winds down and markets continue to stabilize, BHA expects event-driven strategies to present considerable options for attractive returns. York Capital Management, for example, a New York-based firm with over $9 billion under management, recently partnered with Bank of America Merrill Lynch and launched a UCITS III-compliant event-driven fund. Capitalizing on market conditions, the fund has reportedly raised $100 million in assets.3 Furthermore, M&A activity is poised for a flurry of activity particularly in the biotechnology and pharmaceutical sectors.

Long/short equity hedge funds steadily gained momentum in the third quarter, continuing a trend that began in the second quarter.

Many investors turned to funds of funds during this quarter for the same reasons they invested before the economic downturn: superior manager selection, enhanced risk management, diversification, and consistent returns. Funds that offered these benefits attracted investor attention.

Although some investors mentioned interest in single-strategy funds of funds—the most popular being CTA/managed futures, credit, distressed debt, global macro, and long/short equity—81 percent of investors were focused on multi-strategy funds of funds.

During the last six to eight weeks of the quarter, many funds of funds reported that investors were becoming more serious and detailed in their research. This is a key indicator that commitments are beginning to flow back into the industry. BHA sees this as another sign that funds of funds will continue their rebound.

BHA saw a steady increase in demand for technology-focused funds among private equity investors. During the third quarter, the percentage of investors looking for technology-focused funds in the private equity space increased 11.2 percent. Year to date, the technology sector has been popular with approximately 18 percent of investors researching private equity funds.

Hedge fund investors also expressed increased interest in the technology sector. In the first quarter of 2009, of the top five sectors, the technology sector garnered 20.1 percent of overall market share in the hedge fund space.

During the second quarter, this percentage increased slightly. These numbers indicate that hedge funds increased the amount of capital allocated to technology-related opportunities. Separately, of the hedge fund investors BHA analysts interviewed in the third quarter, the percentage that were looking for technology-focused funds rose to 11 percent.

Both in the hedge fund and in the private equity fund space, increased interest in the technology sector is largely due to industry consolidation and company restructurings, both of which help to eliminate inefficiencies and increase profit margins, leading to solid returns for managers and investors.

Private Equity Funds

During the third quarter, investor interest in private equity funds remained strong and originated from a wide array of different investors. Although funds of private equity funds are statistically the forerunner in the search for private equity funds, BHA’s data suggest that this quarter’s interest came from an even broader source of investors.

Wealth advisors, government pension plans, family offices, and insurance companies all showed considerable interest in speaking with private equity fund managers.

Funds of private equity funds showed the most interest in single-manager private equity funds.

One reason for this diversified interest is that investors from across the globe were, once again, beginning to express interest in capitalizing on opportunities that have emerged in the wake of the financial crisis.

Summary

The continued thaw of credit markets and the resurgence of equity markets led to a sense of optimism in the alternative investment community during the third quarter. Investors reassessed their portfolios and found opportunities abounding in hedge funds and private equity and real estate space. Investors looked to capitalize on distressed situations through event-driven and merger/risk arbitrage hedge funds, they recognized the significant growth potential of the early stage private equity space, and they targeted emerging market real estate investments that could be poised to rebound over the next several years.

Investors took the time to reevaluate their positions, and focused on making strategic allocations to address specific shortcomings or potential opportunities, such as the ones that they found in the technology sector. Institutional investors sought to make savvy investments that do more than satisfy a percentage of a diversified portfolio. They looked for specific fund managers that have an expertise and a track record of success.

If these statistics are an indication of future trends in the alternative industry than BHA expects the optimism that has driven the equity markets back up to continue to ripple into the alternative investment space. BHA data suggests that the strategies and sectors that are poised for explosive growth in the event of an economic recovery will continue to be the focus of alternative investors throughout the remainder of 2009.

Editing By Alex Akesson

Hedge Fund Broker Dealer Expands With Hires of Jennifer Bloom and Catherine Wagner

HedgeCo Archive - Broker dealer BTIG LLC, has expanded its Capital Introduction team with the addition of Jennifer Bloom and Catherine Wagner as Vice Presidents to help drive the firm’s services to its Prime Brokerage and Outsource Trading clients.

The Capital Introduction team, which is led by Peter Tarrant, Managing Director and Head of Business Development at BTIG, works with a wide range of managers and has a particular expertise in new and emerging hedge fund managers. Through the firm’s network and existing client base of over 1,200 institutional clients, the Capital Introduction team looks to provide clients with effective and targeted introductions.

“Our ability to offer our Prime Brokerage and Outsource Trading clients an enhanced capital introduction team is an important move in BTIG’s strategic growth plan,” said Justin Press, Managing Director and Co-Head of Prime Brokerage at BTIG. “We are a client-led business and strive to provide added value at every stage of the client’s relationship with us.”

Ms. Bloom joins BTIG from Credit Suisse’s Private Fund Group where she was an Analyst. Prior to Credit Suisse, she was with Merrill Lynch’s Real Estate Investment Banking team. Ms. Bloom is responsible for capital introduction on the East Coast and across Europe. She is a graduate of Yale University.

Ms. Wagner joins BTIG from UBS where she was an Associate Director in the Prime Brokerage Sales team. Prior to UBS, she was an Investment Analyst for FirstWorthing. At BTIG, Ms. Wagner is responsible for delivering capital introduction coverage for the Western United States region. She is a graduate of The University of Texas at Austin.

“Our strong network of senior level executives across the hedge fund industry and with institutional investors means that we can provide our clients with the most appropriate, high quality introductions to help further their growth,” added Tarrant.

Rajaratnam Out On Bail, Winds Down Hedge Funds In Letter to Clients

HedgeCo Archives - In a letter to Galleon employees and clients, Raj Rajaratnam, who has been released on bail, said "I have decided that it is now in the best interest of our investors and employees to conduct an orderly wind down of Galleon’s funds while we explore various alternatives for our business."

His bail was set at $100 million. He also said in regard to the charges, that, "they are, without exception, entirely baseless. I am innocent and will vigorously defend myself and our firm."

"The privilege of managing investors’ capital is a responsibility that I have always taken very seriously. I want to reiterate that I am innocent of all charges and will defend myself against these accusations with the same intensity and focus I have brought to managing our investors’ capital." Rajartnam concluded.

Speculation Over Hedge Fund Manager's Downfall In Full Swing

HedgeCo Archives - The Galleon scandal is raging full force, with Raj Rajaratnam's global hedge funds under a microscope. Supervising the case is U.S. District Court Judge Jed S. Rakoff, who's ruling on the Merrill Lynch/BofA case, earned him the nickname 'Judge Dread' on Wall Street, according to The Post.

Reuters reported the Sri Lankan stock market .CSE tumbling more than 4%, as investors withdrew money. Galleon Asia is keeping its $500 million AUM Asia hedge fund liquid, as they also await a possible mass exodus.

The CEO of the Asia hedge fund, David Lau, said the Asia fund is not under investigation by the SEC at the time. He said the fund has reduced leverage in the past few days but there has been no request for redemptions as yet, according to CNBC. The Asia fund, which runs a long/short equity and macro strategy, has risen over 15% since the start of the year.

In the USA's largest hedge fund insider-trading scheme, Raj Rajaratnam was taken into custody in New York on Oct. 16, 2009.

Silk Road Income Fund Launch

HedgeCo Blogs - Baldwin Berges, Head of Business Development at Silk Invest, announced the launch of a new fronteir hedge fund which invests in sovereign and corporate debt securities across Africa, The Middle East and Central Asia.

"It very likely that we are at the advent of what could be dubbed “The mother of all carry trades” and this time it is not only coming from Asia but also from Europe and the USA." Berges said, "Developed world government debt yields are too low and commodities are looking mighty expensive."

"We have already seen this trade unfolding in the corporate bond arena, investors will likely continue to venture out further into the wilderness of frontier markets in search of high yields. There is very little consumer and/or corporate debt. The local banking system is reluctant to lend money or lack the experience required to evaluate the risk and therefore capital adequacy ratios in the financial sector tend to be very solid."

Hedge Fund Highlights:

Current average Yield to Maturity above 16%
Average duration of 3.4 years
High diversification: currently 65 holdings, 27 countries, 17 currencies
Luxembourg UCITSIII Fund offering weekly liquidity

Morningstar's Prelininary Third Quarter Hedge Fund Performance Report

Hedge funds are recovering rapidly in 2009, Morningstar reported in their preliminary hedge fund performance study for the third quarter of 2009 and asset flows through August 2009.

"Paced by an exceptionally strong September, hedge funds began to regain their swagger in the third quarter," said Nadia Papagiannis, Morningstar alternative investments strategist. "The road to recovery for hedge funds was paved by strong performance in riskier asset classes such as emerging markets, distressed, and small-cap securities."

But hedge funds overall haven't yet returned to their October 2007 peaks, the Morningstar 1000 Hedge Fund Index declined 25.2% through February 2009, and has only recovered 20% in the last seven months, with 11.4% to go.

Certain hedge fund strategies have set new highs, however. In September, hedge funds following global macro-economic strategies, fully recovered from 2008 losses, despite lagging the performance of other category indexes this year.

Global Custodian Chosen For Capula Hedge Fund

London-based government fixed-income specialist firm, Capula Investment Management LLP, has appointed BNY Mellon as provider of global hedge fund custody services for their flagship hedge fund, the Capula Global Relative Value Master Fund Limited.

“We selected BNY Mellon as a global custodian as in the current economic environment it is important - to both the firm and to its clients - to have a provider with the financial stability to ensure the safekeeping of our assets. Neil McCallum, chief operating officer at the $4 billion Capula Investment Management LLP, said.

“BNY Mellon is committed to helping our hedge fund clients reduce their counterparty risks. Our appointment gives Capula an additional custody option with a custodian of recognized quality.”David Aldrich, managing director and head of alternative investment services EMEA, at BNY Mellon said.

Salus Alpha’s perspective on UCITS III Hedge Funds

HedgeCo Archives - Salus Alpha issued a statement regarding the reinvention of the hedge fund sector since last year’s crisis. “UCITS Hedge Funds” are known as a new and innovative concept, but the strategy actually goes back to 2002 when the first hedge fund was implemented under UCITS I.

The UCITS directive was established in 1986 but it took 16 years for asset managers to take notice of the opportunities the directive provided, Salus Alpha states. Only few tried to structure innovative hedge fund products within the UCITS directive and only one was able to successfully launch the first UCITS I Hedge Fund and expand the product range significantly under UCITS III.

"From the beginning it was clear to us that transparency, liquidity and risk management were the most important factors to secure our success in inventing UCITS Hedge Funds. We recognized the potential of UCITS Hedge Funds in 2002 and despite the complicated regulations we were able to offer the first regulated Hedge Funds already under UCITS I in 2003." Salus Alpha explained.

Now after the financial crisis has wreaked havoc on the market everyone wants to be part of the UCITS Hedge Fund world.

"We strongly believe in investing in alpha therefore it’s a mystery to us why the majority of the market invests in beta. It is becoming clearer that the interval between crises will get shorter since the global markets are more volatile than the markets of just one country. Therefore investing in products independent from this market volatility will become more important as markets get closer connected."

Hedge Fund Billionaire Probed Through Wiretapping And An Unidentified Informant

The SEC's case against Raj Rajaratnam and his hedge fund Galleon Management LP, is sending ripples throughout the industry, as the use of wiretapping and its effects are emerging.

According to Bloomberg, an unidentified informant began setting up interviews and taping the conversations, leading to the uncovering of the alleged massive insider trading scheme that generated more than $25 million in illicit gains.

The SEC also charged six other hedge fund managers with insider trading, including senior executives at major companies IBM, Intel and McKinsey & Company.

“This complaint describes a web of fraud that has been unraveled,” said SEC Chairman Mary L. Schapiro.

“What we have uncovered in the trading activities of Raj Rajaratnam is that the secret of his success is not genius trading strategies. He is not the astute study of company fundamentals or marketplace trends that he is widely thought to be." said Robert Khuzami, Director of the SEC’s Division of Enforcement. “He cultivated a network of high-ranking corporate executives and insiders, and then tapped into this ring to obtain confidential details about quarterly earnings and takeover activity.”