U.S. Hedge Fund Reform: Investor Protection Provisions

HedgeCo.net - On July 21, 2010, after a legislative process that included intensive lobbying by influential interest groups and a partisan minority, President Obama signed into law H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”). With this legislation, Congress approved the most sweeping overhaul of U. S. financial regulation since the Great Depression.

The U.S. Chamber of Commerce says the Act will require federal agencies to develop 520 rules, conduct 81 studies, and issue 93 reports. As a result of the legislation, the U.S. Treasury Department will create a Federal Insurance Office and the Federal Reserve Board will create a Consumer Financial Protection Agency, which will have an Office of Financial Protection for Older Americans and an Office of Financial Literacy. The topics the Financial Literacy Office will address include retirement planning. Other sections of the Act will revamp bank and hedge fund regulation and create a Financial Stability Oversight Council.

Investor Protection Provisions of the Act

General Purposes & Approach
While further regulations and studies are yet to be developed under the Act, the Investor Protection Provisions aim generally to protect investors, foster efficient and competitive markets, and enable the best services to investors. A fundamental purpose is to address areas identified as adversely impacting investors during the 2008 and 2009 credit and financial crisis. To better protect investors, the Act focuses primarily on enhanced SEC regulatory authority and penalty imposition with respect to financial institutions, securities brokers and dealers, and investment advisers.

With respect specifically to investment advisers, the Investor Protection Provisions generally first empower the SEC to gather and monitor from such advisers additional information regarding financial products sold, trading strategies, fee and commission structures and related matters. Second, they authorize expanded SEC examinations of, and enforcement protocols against, investment advisers, including imposition of civil penalties. Additional provisions include prohibitions against improper credit (margin) extension to investors.

A. Disclosure & Oversight Provisions
The Act amends the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940 and establishes an Investor Advisory Committee to advise and consult with the SEC on (1) regulatory priorities and issues regarding new products, trading strategies, fee structures, and the effectiveness of disclosures; (2) initiatives to protect investor interests; and (3) initiatives to promote investor confidence in the integrity of the financial marketplace.

Observation: To enforce the new disclosure rules, the SEC is authorized to gather information, communicate with investors or other members of the public, and engage in temporary or experimental programs in the public interest or for the protection of investors.

The SEC is also directed to establish a standard of conduct or fiduciary duty for brokers, dealers, and investment advisers to act, without regard to their own financial or other interests, in the best interests of the customer when providing personalized investment advice about securities to a retail customer.

Additionally, the SEC is required to:

• Publish a study that examines the nature of “retail customers,” the range of products and services sold to them, the sellers or providers, and information such customers should receive before their purchase of investment products or services; and, following completion of this study, promulgate rules requiring that the appropriate persons or entities provide designated documents or information to retail customers prior to the purchase of identified investment products or services.

• Report to Congress on the need for enhanced examination and enforcement resources for investment advisers, and regarding the regulation and oversight of financial planning.

B. Enforcement and Remedies
The Act authorizes the SEC to restrict or prohibit mandatory dispute arbitration affecting customers or clients of brokers and dealers, including municipal securities dealers, and requires reporting to Congress on the costs of arbitration related to the Financial Industry Regulatory Authority as overseen by the SEC. The Act also expands incentives and protections for so-called whistleblowers and funding to the SEC to pay awards to whistleblowers as well as to provide investor education initiatives to help investors protect themselves against securities fraud or other violations of securities laws and regulations.

Observation: The Act also broadens the regulation of brokers, dealers, municipal securities dealers, transfer agents, and investment advisers, to revise requirements for collateral bars or suspensions in the case of persons associated, or seeking to be associated, with any who are subject to penalties for specified offenses. The Investment Advisers Act of 1940 is also broadened with regard to liability of, and prosecution and penalties for, persons who aid or abet violations of that act.

Enhanced SEC enforcement and remedies also include:
(1) Expanded deadlines and procedures for completing compliance examinations, inspections, and enforcement actions for violations of securities laws; (2) nationwide service of subpoenas; (3) imposition of civil penalties in cease and desist proceedings; (4) enforcement authority over any person who at the time of the alleged misconduct was a member or employee of specified bodies (formerly associated persons); (5) the sharing of privileged information with other authorities; (6) increased access to grand jury information; (7) recklessness as an element of the aiding and abetting standard of knowledge; and (8) SEC extraterritorial jurisdiction with respect to antifraud activities.

• Requirements for the fidelity bonding of registered management companies.

• Reasonable periodic, special or other information and document requests by SEC representatives conducting surveillance or risk assessments of all securities markets, national securities exchanges, their members, brokers or dealers who transact a business in securities through the medium of any such member, SEC-registered securities associations, registered brokers or dealers and municipal securities dealers, registered securities information processors, registered transfer agents, and other persons.

• Record-examination requirements for registered investment companies, and each underwriter, broker, dealer, or investment adviser that is a majority-owned subsidiary of such a company.

• Provision that any person who controls a person liable for a violation is also jointly and severally liable to the SEC in certain actions it may bring.

• Extension of SEC rulemaking authority to prescribe rules for proxy access by shareholders.

Observation: Section 413 of the Act excludes a primary residence from an investor’s net worth for purposes of determining “accredited investor” status under Rule 501(a)(5) of the SEC’s private placement safe harbor in Regulation D. This exclusion, immediately effective upon enactment without any further action by the SEC, will make it more difficult for natural persons to qualify as accredited investors. Issuers and other participants in private placement transactions should review their disclosure and subscription documents immediately and make necessary changes to conform to the new standard.

Also regarding Section 413, it has been reported that the staff of the SEC is expressing informally its view that, in determining an individual’s net worth for such purposes, the amount of mortgage or other indebtedness secured by the investor’s primary residence – to the extent such indebtedness does not exceed the value of the residence – does not need to be considered as a liability, but where the indebtedness secured by the primary residence exceeds the value of the residence and the lender has other recourse against the investor, the excess should be deducted from the investor’s net worth.

Observation: The Act addresses manipulative and deceptive devices, and (1) makes it unlawful for any person to effect, accept, or facilitate a transaction involving the loan or borrowing of securities in contravention of SEC rules and regulations; (2) imposes requirements for the reporting of lost and stolen securities to include canceled securities or any other category the SEC may prescribe; (3) requires fingerprinting of partners, directors, officers, and employees of registered securities information processors, national securities exchanges, and national securities associations; and (4) declares void any condition, stipulation or provision binding any person to waive compliance with the rules of a self-regulatory organization.

Further, the Act:

• Revises the prohibition against unlawful credit extension (margin lending) to customers.

• Extends the definition of “interested person” to any natural person who is a member of a class of persons the SEC determines are unlikely to exercise an appropriate degree of independence due to (1) a material business or professional relationship with a company or any affiliated person of such company or (2) a close familial relationship with any natural person who is an affiliated person of such company.

• Repeals two current requirements dealing with execution of portfolio transactions and the lending of money or other property.

• Authorizes the SEC to limit the extent to which a registered open-end investment company may own, hold, or invest in illiquid securities or other illiquid property.

• Subjects to domiciliary state registration requirements certain mid-sized investment advisers otherwise not exempt from federal registration requirements.

• Directs the SEC to adopt a rule making it unlawful for an SEC-registered investment adviser to have custody of funds or securities of a client the value of which exceeds $10 million, unless: (1) the funds and securities are maintained with a qualified custodian either in a separate account for each client under the client’s name, or in accounts that contain only client funds and securities under the name of the investment adviser as agent or trustee for the client; and (2) the qualified custodian does not directly or indirectly provide investment advice with respect to such funds or securities.

• Requires the SEC to revise recordkeeping requirements for each person with custody or use of a registered investment company’s securities, deposits, or credits.

• Requires the SEC to revise requirements for beneficial ownership and short-swing profit reporting.

• Requires every institutional investment manager who effects a short sale of an equity security to file daily with the SEC specified short sale disclosures and makes it unlawful to effect manipulative short sales of securities.

• Requires registered brokers or dealers to notify customers that (1) they may elect not to allow their fully paid securities to be used in connection with short sales and (2) the broker or dealer may receive compensation in connection with lending the customer’s securities.

C. SEC Funding and Organization and Additional Reforms
The Act directs the SEC to promulgate rules to collect fees annually from registered investment advisers, in order to recover the cost of inspections and examinations of such advisers. To implement this provision, the SEC is required to hire an independent consultant to examine and report to the SEC and Congress on SEC internal operations, structure, funding and the need for comprehensive reform, including the SEC’s reliance upon self-regulatory organizations for the regulation of securities matters and the protection of investors.

The SEC is also now required to report to certain congressional committees on the implementation of SEC reforms in the wake of the Madoff fraud.

Additionally, the Act directs the SEC, the Public Company Accounting Oversight Board (PCAOB), and a designated standard-setting body to provide oral testimony annually for five years to the Committee on Financial Services of the House of Representatives regarding efforts to reduce the complexity in financial reporting, in order to provide more accurate and clear financial information to investors.

On other procedural matters, the Act also:

• Directs the Comptroller General to study and report to Congress on SEC employees who leave the agency to work for financial institutions regulated by the SEC.

• Establishes a Financial Reporting Forum composed of certain senior federal agency personnel to report annually to Congress on immediate and long-term issues critical to financial reporting.

• Requires the SEC to (1) appoint an Ombudsman to act as a liaison between the SEC and any affected person who may have a problem dealing with the SEC as a result of its regulatory activities; and (2) revise its regulations to require due diligence on the part of brokers and dealers and other specified paying agents to search for lost security holders who have been sent checks for dividends, interest, and other valuable property which have not yet been negotiated.

• Revises requirements for SEC filing procedures with respect to proposed rule changes.

D. Securities Investor Protection Act Amendments
The Act amends the Securities Investor Protection Act of 1970 (SIPA) to increase: (1) the minimum assessment paid by Securities Investor Protection Corporation (SIPC) members; (2) the borrowing limit on Treasury loans; (3) the standard maximum cash advance for each customer (including an inflation adjustment); and (4) the fine for certain prohibited acts, including misrepresentation of SIPC membership or protection for investors.

Additionally, the Act:

• Amends SIPA with respect to (1) SIPC trusteeship in liquidation proceedings; (2) insider ineligibility for SIPC advances; and (3) futures held in a portfolio margin securities account.

• Revises requirements for determining whether a SIPC member qualifies for SIPC use of the direct payment procedure to satisfy customer claims without a liquidation proceeding; and increases from $250,000 to $850,000 the maximum aggregate amount of claims of all customers of a SIPC member that, among other criteria, allows SIPC to use the direct payment procedure.

• Directs the Comptroller General to study and report to Congress whether SIPC should be required to impose risk-based assessments on member brokers and dealers in order to maintain the SIPC Fund adequately and to provide additional levels of coverage on an optional basis.

E. Seniors’ Investment Protection
With regard to older investors, the Act directs the SEC to establish a program of grants to states to (1) investigate and prosecute misleading and fraudulent marketing practices and/or (2) develop educational materials and training to reduce misleading and fraudulent marketing of financial products.

F. Registration of Municipal Financial Advisors
The Act requires municipal financial advisers to register with the SEC.

Conclusion
The reports and regulations to implement the key Investor Protection Provisions of the Act will be developed over the next 6 to 18 months or longer, reflecting varying effective dates for different provisions and allowing in many cases a transition period for affected institutions to meet new requirements.

For more information, contact: swittner@eisnerllp.com

Editing by Alex Akesson
For HedgeCo.net
alex@hedgeco.net
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People Moves: Hedge Fund Specialist Takes Position at $3 Billion Arts Foundation

HedgeCo News - Marc A. Schwartz has been named chief investment officer of The Broad Foundation's $3 billion portfolio, working closely with founder Eli Broad.

"Marc's vast experience in hedge funds, private equity and other similar investments that are consistent with our portfolio makes him a perfect fit," said Broad. "I am impressed with Marc's intelligence, drive, instincts and investment success, and we are delighted that Marc will join our team."

Schwartz joins The Broad Foundations from Reservoir Capital Group, a more than $4.5 billion hybrid fund where he served for nine years as managing director, principal and vice president. Schwartz was a senior member of the Reservoir investment team and most recently was focused on private fund sponsorship and direct co-investments. Before joining Reservoir, Schwartz spent much of the previous decade working in senior positions at a global holding company and an international private equity firm.

The Broad Foundations were established by entrepreneur and philanthropist Eli Broad to advance entrepreneurship for the public good in education, science and the arts. The Broad Foundations include The Eli and Edythe Broad Foundation and The Broad Art Foundation.

Guilty Plea From Hedge Fund Manager In University Ponzi Scheme

New York (HedgeCo.net) – Former hedge fund manager Paul R. Greenwood pled guilty to criminal charges involving a Ponzi-esque scam in which he is alleged to have cheated millions from four university endowments.

The Chronicle For Higher Education reports that Greenwood and his partner, Steven Walsh, may have used the $900 million as a personal fund. Walsh has pleaded not guilty, and Greenwood will testify against him at trial.

“The two spent at least $160-million on mansions, horses, rare books, and an $80,000 collectible teddy bear.” The paper reports.

Offering low risks and high returns, the team’s investors included the University of Pittsburgh, who invested $65 million, Carnegie Mellon University, $49-million, Bowling Green State University, $15 million, and Ohio Northern University who invested $10-million.

Greenwood’s assets will be auctioned off in an attempt to recoup some of the investor losses. He also faces a prison sentence of as long as 85 years and hundreds of millions of dollars in fines at his December sentencing, according to The Chronicle For Higher Education.

HedgeBay: Secondary Hedge Fund Market Rebounds

New York (HedgeCo.net) - The average price for assets on the secondary hedge fund market rose to 78% after shaking off some of the fallout from May’s European debt crisis, according to Hedgebay’s June Index.

Investors’ confidence was shaken by the damage caused by the Greek crisis, and saw the average price for hedge fund shares drop to an all time low. Although the average price shows that secondary users continue to be wary of paying too much for assets, the rise does indicate an upturn in confidence.

The 8% rise in the average price has been helped by trading in the ‘near-par zone’ – trades which take place at just below the net asset value of each share. Originally a key driver of trading volume, significant trading in this area has not been seen since before the credit crisis. Previously, investors would offer small discounts for their shares in order to tactically manoeuvre within locked up hedge funds:

“The near-per zone was typically used by investors in locked up funds to raise short term capital or reduce the market risk in their portfolios. When the crisis first arrived, the ability of managers to raise any capital disappeared, and there are virtually no locked up funds around. This, and the fact that investors generally have much greater concerns than liquidity or tactical trading, has made near par trading virtually non-existent”, Elias Tueta, co-founder of Hedgebay said.

“It is a consequence of the change in the basic nature of the secondary market caused by the crisis. Where once the main use of the market was to access high quality, locked up funds, investors are now concerned with mitigating the damage within their portfolios.”

While Mr Tueta believes that near par trading is an interesting development, it is not yet conclusive evidence of what is to come on the secondary market. The return of near par trading in earnest will be the clearest indication that trading patterns on the secondary market have returned to pre-crisis conditions – and that the hedge fund market has finally and fully recovered. Mr Tueta says that the primary market will dictate when this occurs.

“The volume of near par trading is a good barometer of the health of the hedge fund industry. The performance of hedge funds in the primary market will give us a good idea of what we can expect in that regard. The success of capital raising among managers will depend on them sustaining the solid performance we have lately seen in the industry. If this continues, we may eventually see more managers closing to new investors or offering share classes with longer lock-ups, and then we may see the de facto return of near par trading.

Summary Of The Dodd-Frank Act For Hedge Fund Advisers

Holland & Knight LLP (HedgeCo Blogs) - On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act). The Act has several potential impacts on our clients and within the investment management community.

"This memo is intended to summarize, in general, what we believe to be notable aspects of the Act that impact many of our clients." Scott R. MacLeod, Jay S. Crenshaw of Holland & Knight said, "A more explanatory summary from us is available upon request. However, you should review the Act as a whole to identify specific areas of relevance. Lengthy and detailed write ups regarding the background, impacts, and policy of all areas of the Act are available online."

Unless otherwise stated, any changes in law discussed herein generally are effective July 21, 2011.

I. Adviser Registration

A. If you manage any separately managed accounts and have assets under management ("AUM") in excess of $100 million, then you must register with the SEC (even if you only have one account /client).

B. If you have separate accounts and AUM of $25 million - $100mm, you must register with your home state unless exempt under state law, in which case you must register with the SEC.*

C. If your only clients are investment funds and you have AUM of more than $150 million, also register with the SEC.

D. If you are a non-U.S. adviser with any separate accounts, or with fund assets over $150 million, also register with the SEC unless you have (1) no place of business in the U.S.; (2) less than $25 million in AUM from U.S. clients and U.S. fund investors; (3) fewer than 15 U.S. clients and fund investors; and (4) do not hold yourself out generally to the public in the U.S. as an adviser.

E. If you have AUM of less than $25 million or are exempt from SEC registration, then you must be registered or find an exemption in any state where you have a place of business or more than 5 clients.*

F. If you are a "Family office" or an adviser solely to one or more "venture capital funds" (both terms to be defined), then you are exempt from SEC registration.

*It is not clear what state exemptions may change as a result of the Act; we can help you analyze state law if you fit within one of the noted categories.

IMPORTANT NOTE RE: WHEN TO BEGIN IMPLEMENTING: IF, AS A RESULT OF THE ABOVE, ANY ADVISER NEEDS TO: (1) REGISTER WITH THE SEC; (2) REGISTER WITH ANY STATE(S); AND/OR (3) DE-REGISTER WITH THE SEC, SUCH ADVISER SHOULD SEEK TO IMPLEMENT ANY OF THE FOREGOING ACTIONS WELL IN ADVANCE OF THE JULY 21, 2011 EFFECTIVE DATE, PREFERABLY BEGINNING IN THE FALL OF 2010.

II. Investor Certifications

A. You must immediately amend your fund subscription agreement's definition of accredited investors to exclude primary residence from an investor's net worth. For now, this change seems to apply only to new investors or additional subscriptions from existing investors with no need to expel any existing investors. This change is effective immidiately and requires your prompt attention.

B. IF you are a registered investment adviser ("RIA") and charge performance fees/allocations to any investor in a 3(c)(1) fund, you WILL need to amend to adjust for inflation the "qualified client" certification obtained from each client/fund investor next year.

III. Swaps

A. You may need to register with the National Futures Association ("NFA") as a Commodity Pool Operator (CPO) IF (1) you buy commodities and currently rely on an exemption based on margin and notional exposure percentage limitations because you will now need to include any swaps when determining compliance with such limitations, or (2) you are defined as a "major swap participant" when new rules are adopted.

B. You may need to report (1) pre-enactment swaps if applicable regulators issue related interim rules, and (2) future swaps which are not accepted for clearing.

IV. Miscellaneous

A. Reporting.

• If you manage funds (whether or not you are a RIA), you will be required to maintain records and file reports to the SEC.

• Such reports will include a description of funds':

o amount of AUM;

o use of leverage, including off-balance sheet leverage;

o counterparty credit risk exposure;

o trading and investment positions;

o valuation policies and procedures;

o types of assets held;

o side letters;

o trading practices, and

o any other information that the SEC deems to be “necessary or appropriate…"

B. Custody.

Future rules under the Act MAY require RIAs to take further steps to safeguard client assets.

C. The "Volcker" Rule.

If you are affiliated with a bank, you generally must not engage in proprietary trading activities or sponsoring or investing in a hedge fund, private equity fund or similar entity.

D. "Bad Boy" Provisions.

I further rules are adopted, you will be disqualified from using Rule 506 Regulation D offerings if your firm or principals have engaged in certain improper conduct in the past.

E. Securities Lending.

Within two years, the SEC will promulgate rules designed to raise the transparency of information available to investors with respect to the loan or borrowing of securities.

F. Shorting and Arbitrage.

The SEC may adopt further reporting rules and restrictions on such activities pursuant to the Act.

G. Mandatory Arbitration.

The SEC MAY adopt rules and regulations restricting or prohibiting the use of mandatory arbitration agreements by advisers.

Note from the authors: "This is a very brief summary intended to highlight aspects of rules that are very fact dependent. Please contact us to discuss specific questions."

Hedge Fund Seeding Arm Of FRM Teams Up With Varna Capital

Hedgeco News - The hedge fund seeding division of Financial Risk Management (FRM), and Varna Capital LLC (Varna) have formed a strategic relationship which involves FCA making a significant investment in Varna’s first fund.

Varna is a newly formed hedge fund manager based in New York and headed by Svetlana Lee. Following the signing of the strategic relationship, Varna is expected to launch its first fund during the fourth quarter of 2010.

“The long-term performance characteristics of fundamental equity long-short strategies are very attractive, and we look forward to bringing this opportunity to our investors.” Clive Peggram, CEO of FRM, said, “Lee is one of the most talented new equity long-short managers in the industry and we are very pleased to form a strategic relationship with her new firm and to support its development.”

“A firm’s anchor investors are a critical element to a successful launch. FCA is a well respected institutional firm and its significant day one investment will provide us with a strong foundation to launch and grow.” Lee said.

Lee, together with the Varna team, previously managed an equity long-short fund at Citadel’s PioneerPath new manager platform. Prior to that she gained extensive investment experience at leading hedge funds Greenlight Capital, The Baupost Group and Perry Capital. Varna will implement a value-focused, equity long-short strategy that seeks to exploit event-driven situations, structural market dislocations and identify hidden fundamental business value.

SEC Pays $1 Million To Hedge Fund Whistleblowers

HedgeCo.net News -Based on the new Dodd-Frank Act that was just signed into law last week by President Obama, new legislation allows the SEC to award huge sums to whistleblowers in insider-trading cases such as the one against hedge fund Pequot Capital Management.

“As of this past Friday, the SEC now has greater ability to extract information from employees of corporations and others involved with those employees.” Ed Tomko, head of the White Collar Crime practice at Curran Tomko Tarski, announced.

On Friday, a payment was made by the SEC to Karen and Glen Kaiser who provided documents that helped the SEC build its case against Arthur J. Samberg, founder of the Pequot hedge fund and David E. Zilkha, a former Microsoft employee.

“This has broad reaching implications for public companies as well as businesses operating in the financial sectors,” said Tomko. “This is the largest amount awarded by the SEC to whistleblowers in an insider-trading case.”

As a result, there is the potential now for whistleblowers to be enticed by lucrative fees they will receive for providing information to the government. This can become a slippery slope for businesses. This can now provide possibly a powerful incentive for an employee or individual related to an employee who know of a securities violation to contact the SEC and provide information that may lead to a large payment in exchange for the information.

SEC Reverses Course In Favor of Third Party Marketing

Donald A. Steinbrugge (Feb, 2010) via HedgeCo : The SEC has changed its position with regard to third party marketing firms and is exploring legislation that indicates that the SEC is apparently willing to reconsider its recommendation that all third parties be banned from soliciting government business.

SEC Director Andy Donahue has asked FINRA's Robert Ketchum for help in crafting legislation that is designed to curb pay for play activity while protecting the role of third party marketing firms. The SEC changed course, at least in part, because of an outcry of response from a wide spectrum of investment professionals, that articulated the positive role that third party marketing firms play in the industry.

The SEC had originally signalled that it intended to ban third party marketing to public pension plans in the wake of the New York State Common Retirement Fund pay-for-play fiasco. While eliminating pay-for-play activities is laudable, the SEC's original course of action completely ignored the positive impact that third party marketing has on the investment decision making process. Based on numerous complaints that the SEC received that articulated the positive impact that third party marketing firms play throughout the investment process, the SEC reversed course and asked for FINRA’s help in crafting legislation that would curb pay for play activities, but protect the role of third party marketing firms.

As you may recall, in early 2009, David J. Loglisci, former chief investment officer of the New York State Common Retirement Fund, and Henry Morris, (former chief political adviser and chief fundraiser for former New York State Comptroller Alan Hevesi), were indicted on 123 charges, including enterprise corruption, securities fraud, grand larceny, bribery and money laundering.

Following the indictment, New York state Attorney General Andrew Cuomo promised to eliminate the use of third-party marketers in the public pension allocation process. As the nation’s third largest pension plan, the Common Fund wields significant influence in the pension industry. Unfortunately, the initial debate regarding third party marketing firms was framed in part by the Common Fund and others who committed wrongdoing, who chose to deflect blame from themselves and their deficient internal governance practices onto others.

I am delighted that during its due diligence the SEC has listened to the outcry from investment professional and now recognizes the important role that third party marketing firms play in the industry. If the SEC had followed the New York State Attorney General's recommendation to ban third party marketing, the marketplace would likely sustain far-reaching negative consequences without resolving the breach of fiduciary duty and public trust that is alleged. I will go into greater detail regarding the benefits that third party marketing firms bring to the process later in the discussion.

While I applaud the SEC’s decision to reconsider its course of action, I would encourage the SEC and FINRA to adopt a series of measures.

First, I would require all marketing professionals that call on public funds to be registered with FINRA, whether they are employed with third party marketing firms or employees of alternative investment firms.

This measure will level the playing field for everyone soliciting business with public funds. Second, I believe that greater transparency including fee disclosure be required of all third party marketing firms. THIRD, I would also suggest a ban on political contributions from third party marketing firms and all alternative investment firms seeking to do business with public funds. Finally, I would expect that strict policies regarding Travel and Entertainment Expenses of all third party marketing firms be enforced by FINRA. Effective legislation combined with rigorous enforcement will protect the positive role that third party marketing firms bring to the table and protect the broader interests of all market participants.

The State of New York Common Retirement Fund pay for play disaster serves to remind us that we have no outright protection from fraud and unethical behavior in our society. However, we do have powerful regulatory bodies capable of enacting and enforcing laws that promote ethical and responsible behavior. I am encouraged that the SEC has solicited feedback and is apparently willing to be thoughtful in its approach to third party marketing firms.

The value that third-party marketers add to the allocation process is manifold. Third-party marketers act in the role of an investment bank by raising capital for many private equity firms, hedge funds and other organizations in the alternative investment arena. Third party marketing firms are paid a fee for their efforts, typically a percentage of assets raised or a percentage of all fees generated by the investment in the future. The elimination of third-party marketers would likely cause many of these alternative investments firms to close their doors while simultaneously creating a higher hurdle rate for new managers considering entry into the business. It would also disproportionately harm minority- and woman-owned firms, which tend to be smaller. Many small and medium-sized hedge funds and private equity firms provide seed capital to start-up and small businesses and are an integral part of the global economy's shadow banking system. Small businesses represent a significant portion of our country’s job growth and are the backbone of our nation’s economic competitiveness on a global scale. Retarding the growth of the nation’s shadow banking system, during a time when traditional banks and lending institutions are less active, will likely have negative consequences for the market.

In sum, third party marketers contribute to the health and existence of the alternative investment arena, which in turn provides capital for the global economy and increases market efficiency. Banning third-party marketers from the investment process would also shrink the opportunity set for investors and speed the migration of investor’s capital to the largest hedge funds and private equity firms, who can afford large marketing infrastructures. Many would argue that compared with their smaller brethren, larger organizations are not able to generate the same returns as their smaller, more nimble competitors, which would negatively impact market efficiency. Given that small and mid-size hedge funds and private equity firms have the potential to generate a significant amount of alpha, any legislation that impacts their existence should be carefully considered. Hedge funds can choose to build their own sales teams, outsource the fundraising effort to a third-party marketing firm, or choose a hybrid approach.

There are some important distinctions between third-party marketing firms and in-house sales staff. Third-party marketers are required to be licensed and regulated by the SEC and FINRA. These firms are heavily regulated and are required to follow all rules and regulations. Most hedge funds are not regulated and their internal sales people in many cases are not licensed. As it now stands, third-party marketers face a much higher degree of regulatory scrutiny than hedge funds that have not voluntarily registered with the SEC. Another critical role played by third-party marketers is the screening of the manager universe. The best third-party marketers perform extensive due diligence before making the decision to represent a hedge fund. In some cases, third-party marketers represent less than 1% of the firms on which they perform due diligence. If one of the firms they are representing becomes less marketable for any reason, they have the option to focus their efforts on the other managers they represent.

All of the reasons articulated above suggest that the SEC is wise in its most recent efforts to explore a framework of rules and regulations that protect third party marketing firms and market participants.

I am pleased that the SEC has listened to the marketplace and recognizes the value that third party marketing adds to the investment process. The SEC’s appreciation of the role that third party marketers play and its request for help from FINRA to create rules that will level that playing field for all of us is welcomed.

Donald A. Steinbrugge is managing member of Agecroft Partners LLC, a Richmond, Va.-based consulting and third-party marketing firm specializing in hedge funds and other alternative investments.

Hedge Fund Trader Banned For Manipulating Stock Prices

HedgeCo News - The Financial Industry Regulatory Authority (FINRA) has permanently barred a former Deutsche Bank broker from the securities industry for manipulating the price of Monogram Biosciences (MGRM) stock in an effort to enrich a hedge fund client, himself and his family.

A FINRA panel found that Edward S. Brokaw was engaged in a pattern of trading designed deliberately to drive the value of MGRM stock down and, in turn, drive up the value of contingent value rights (CVRs) on that stock.

According to FINRA, Brokaw`s hedge fund client held approximately 18.5 million CVRs – nearly 30 percent of the 64.8 million MGRM CVRs outstanding. For every penny the final VWAP dropped below $2.90, the value of the hedge fund`s CVRs increased by $185,000.

If the maximum payout of $.88 per CVR were achieved, FINRA said, the hedge fund would receive approximately $16 million. Brokaw and his family owned 217,000 of the CVRs, with a potential maximum payout of $188,000.

Included in the evidence against Brokaw were tape recordings of his phone calls to his firm`s trading desk to place sell orders. In one phone call, Brokaw told a Deutsche Bank sales trader, “Take 50,000 MGRM at the market. Sell it down. Sell it as low as you want. Sell it hard, 50,000.”

FINRA also found that Brokaw violated a Deutsche Bank`s policy by only completing one “booking ticket” each day, each showing a single 100,000-share order to sell, each with a false notation that the order was given by the client directly to the trading desk rather than to Brokaw – thus circumventing automatic branch office compliance review of the orders.

Deutsche Bank first suspended, then terminated Brokaw based on his MGRM sales orders for the hedge fund.

UK Hedge Fund SRM's Case Against Countrywide Dismissed

New York (HedgeCo.net) – London hedge fund SRM Global’s case against Countrywide Financial Corp, the mortgage lender acquired by Bank of America, was dismissed yesterday according to a Reuters article.

The hedge fund alleged that Countrywide was “flying blind” and had made misrepresentations and omissions, delaying disclosure of its problems in the U.S. housing market fall, Reuters said. The hedge fund said it lost nearly 90% of its value in 50 million shares of Countrywide common stock in 2008.

Manhattan federal court Judge Richard Berman said, “The hedge fund failed to plead facts showing a primary violation of the securities laws,” dismissing the lawsuit, which also identified Countrywide, Bank of America and former BOFA Chief Executive Officer Ken Lewis, former Countrywide Chief Executive Officer Angelo Mozilo, company President David Sambol and Executive Managing Director Eric Sieracki as defendants, the news source reported.

The three former Countrywide executives are also defendants in an SEC civil fraud lawsuit, Reuters said.

Philanthropy NY: The Fresh Air Fund

HedgeCo News - The Countdown to Summer 2010 is on and The Fresh Air Fund is in need of host families.

The Fresh Air Fund is an independent, not-for-profit agency, which has so far provided free summer vacations to more than 1.7 million New York City children from low-income communities since 1877. Nearly 10,000 New York City children enjoy free Fresh Air Fund programs annually. In 2008, close to 5,000 children visited volunteer host families in suburbs and small town communities across 13 states from Virginia to Maine and Canada. 3,000 children also attended five Fresh Air camps on a 2,300-acre site in Fishkill, New York. The Fund’s year-round camping program serves an additional 2,000 young people each year.

"We also just received a tremendous offer by a very generous donor."Sara Wilson od www.freshair.org said, "Any gift given from now until the end of June will be matched dollar-for-dollar."

In 2009, The Fresh Air Fund's Volunteer Host Family program, called Friendly Town, gave close to 5,000 New York City boys and girls, ages six to 18, free summer experiences in the country and the suburbs. Volunteer host families shared their friendship and homes FOR up to two weeks or more in 13 Northeastern states from Virginia to Maine and Canada.

Silverstone Capital’s flagship hedge funds deliver in May

Hedgeco News - London-based hedge fund manager, Silverstone Capital's flagship hedge fund delivered a gross return of +4.92% for the month of may taking YTD gross performance to +5.31%, whilst the Monza Fund posted a gross return of +6.77% in May. Monza has year-to-date delivered a positive gross return of +10.65%.

Silverstone runs equity long/short hedge funds that specialize in investments in the global automotive industry and related fields.

“We are pleased with the May result but we continue to look forwards." Saul Rubin, Founding Partner at Silverstone said, "Our intention continues to be to deliver good returns over the long run irrespective of the overall market conditions.”

Silverstone was founded in May 2004, and today manages investments in equity and equity linked products. The firm currently manages the Silverstone Fund and the Monza Fund. The flagship Silverstone Fund opened to outside investors in July 2004. Silverstone has throughout Q2 of 2010 continued to see strong international investor demand for its funds products, and the strong May numbers further reaffirms the unique advantages of the investment philosophy in the Silverstone Fund and the Monza Fund.

House Bill on Carried Interests may Affect Hedge Funds

HedgeCo News - The House of Representatives recently passed legislation pushing back the effective date of a proposed tax increase on hedge fund managers which would prevent a portion of their income realized from carried interests in investment partnerships from being characterized as capital gain.

This provision would increase the effective tax rate for fund managers with respect to the portion of their compensation they receive as a "carried interest". An earlier version of the bill had a Jan. 1, 2010 effective date which has now been moved to Jan. 1, 2011.

"As one of the revenue offsets for these extensions, the bill would generally prevent a portion of any income with respect to carried interests in investment partnerships held by service providers to such partnerships (“investment service partnership interests”) from being characterized as capital gains." Federal income taxation specialist at RK&O Kenneth E. Werner, said, "Instead, such portion (50% for tax years beginning before January 1, 2013 and 75% thereafter) would be treated as ordinary income."

The term ‘investment services partnership interest’ means any interest in a partnership which is held by any person if it was reasonably expected that such person (or any person related to such person) would provide a substantial quantity of any services in the nature of advising as to investing in, purchasing, or selling any specified asset, managing, acquiring, or disposing of any specified asset, arranging financing with respect to acquiring specified assets, or any activities in support of the foregoing.

The term “specified asset” means securities, real estate held for rental or investment, partnership interests, commodities, or options or derivative contracts with respect to any of the foregoing.

Hedge Funds Down -2.99% In May

The Hennessee Hedge Fund Index declined -2.99% in May (+1.57% YTD), while the S&P 500 decreased -8.20% (-2.30% YTD), the Dow Jones Industrial Average declined -7.92% (-2.79%), and the NASDAQ Composite Index fell -8.29% (-0.53% YTD). Bonds advanced, as the Barclays Aggregate Bond Index increased +0.84% (+3.74% YTD), due to increases in U.S. Treasuries as both Investment Grade and High Yield bonds declined.

“May was the worst month of the year for hedge funds and the worst monthly drawdown since October 2008. However, hedge fund managers avoided significant losses and outperformed traditional benchmarks on a relative basis due to conservative exposures, hedging and short positions,” commented Charles Gradante , Co-Founder of Hennessee Group . “In May, we saw investors significantly de-risk portfolios as volatility increased. Given the negative headwinds that exist and potential global crises, hedge funds continue to operate with low gross exposure levels as they navigate an increasingly challenging investment environment.”

“Hedge funds’ defensive positioning prior to May helped limit losses and provided downside protection,” said Lee Hennessee, Managing Principal of Hennessee Group . “Downside protection is the primary benefit of the hedge fund asset class. In the current environment, where investors seem to be very skittish due to higher volatility and dramatic drawdowns, downside protection and hedges are extremely beneficial. We are seeing hedge funds garner continued interest by the investment community desiring lower drawdowns.”

Activist Hedge Funds Buying Newspaper Industry Debt

HedgeCo News - The Los Angeles Times reports that hedge funds and banks are taking over some of the major US newspapers as they begin to emerge from bankruptcy protection.

"Distressed debt" hedge funds such as Angelo, Gordon & Co. and Alden Global Capital and Oaktree Capital Management have been buying up cheap, delinquent debt, then taking it to Bankruptcy Court for a settlement that transforms the debt into a large share of company stock, the LA Times reported, with itself, Tribune Co., being one of the newspapers under siege along with KTLA-TV Channel 5 among others.

The hedge funds, such as Angelo, Gordon & Co, as well as JPMorgan will be major shareholders in both Tribune and Freedom The LA Times reported. People with knowledge of the the hedge funds' strategy, say that the hedge funds want quality, branded journalism that still draws advertisers and therefore is worth preserving.

"The hedge funds will have to remain patient if they want to reap what they've sown in newspapers," the LA Times quoted. "The funds probably don't even have a firm exit strategy in place, and it will take sure signs of an economic recovery to grease deals and liquidity events."

Analysts believe, the LA Times said, that the newspaper industry had gotten so beaten down during the crisis that they have become a bargain for hedge funds.

Opalesque: Hedge Funds Engage in "Armageddon Strategies"

HedgeCo News - Opalesque has released the 32nd issue in a series of regional roundtable forums - the 2010 Opalesque West Coast Roundtable. The 25 page Roundtable publication covers “Armageddon” strategies and how plan sponsors have changed their game during the past 18 months.

"All we did was provide huge amounts of liquidity." John Burbank from Passport Capital said regarding the massive deficits run up in an effort to stabilize the markets and economies, "The markets are as vulnerable to financial shocks and at least as highly leveraged than they were before the financial crisis. The Fed has more than doubled its balance sheet and will have to exit markets at some point or its legitimacy will be called into question".

Burbank added that a number of people have asked Passport to design funds comprised of macro trades that would help them hedge against systemic risks.

Jay Gould from Pillsbury also helped creating distaster insurance or “armageddon strategy” funds which work under the premise that U.S. will experience a very difficult time over the next several years, “including hyper-inflation, the abandonment of the U.S. dollar as the world’s reserve currency, further complications associated with our huge deficit spending, and a rush toward hard assets.”

The Roundtable discussion also includes:

• Overview of the latest products and research from funds and CTAs on intermarket correlations and quantitative trading
• A discussion on the impact the regulatory changes will have on the markets: How will mandating more OTC products to clear/trade on an exchange impact liquidity? What is more important in a derivatives contract - liquidity or flexibility?
• The democratization of alternatives: More funds using the 1940 Act format will be offering real CTA strategies with daily liquidity
• Running a hedge fund from the West Coast: Why this location counts and where West beats the East Coast.

The Roundtable was sponsored by the CME Group and the Opalesque 2010 Roundtable Series Sponsors Custom House Group and Taussig Capital. The following West Coast based experts participated:

• John Burbank, Managing Member and Chief Investment Officer, Passport Capital
• Jay Gould, Partner, Pillsbury
• Jeremy Evnine, President, Evnine & Associates, Inc.
• Matt Osborne, Executive Vice President & CIO, Altegris
• Ranjit Sufi, Manging Director, Nuveen
• Rishi Narang, Founding Principal, Telesis Capital
• Tina Lemieux, Managing Director of Hedge Fund and Broker Services, CME Group
• Tom Shanks, Founder and CEO, Hawksbill

Matthias Knab, founder of Opalesque and internationally recognized expert on hedge funds and alternatives, moderates the Opalesque Roundtables.

Pastor's Hedge Fund Fraud Verdict Upheld

HedgeCo news - A Colorado Springs pastor found guilty in 2008 of hedge fund fraud lost his appeal in a Court yesterday according to the Colorado Springs Gazette.

The pastor, Douglas Alan Scott, was charged with taking part in a $12 million hedge fund scam, more than 400 investors were solicited from his parish for a fraudulent hedge fund, XL Capital Partners Inc.

The conviction was upheld in a 14-page, three-judge panel, who unanimously upheld the jury’s guilty verdict on charges of theft and securities fraud, the paper reported.

The appeal was held because the defense alleged flaws in the jury instruction, the evidence presented and in the prosecution's closing arguments. The panel dismissed the arguments, saying the errors were insignificant.

Scott is sentenced to 15 years probation and ordered to pay $1.4 million in restitution.

People Moves: Kathryn Graham Joins London Board Of 100 Women In Hedge Funds

HedgeCo News - Kathryn Graham has been appointed to the 100 Women in Hedge Fund's London Board, a non-profit organization for professionals in the alternative investments industry.

"I joined 100 Women in Hedge Funds in 2008 as a member because of its dedication to providing educational seminars, networking events and philanthropy work and now I look forward to contributing as a London Board member." Ms. Graham said "I have been very impressed with both the quality and creativity of the organisation's work and look forward to building on this success".

Ms. Graham is a Director of BT Pension Scheme Management Limited, the pensions advisory arm of the BT Pension Scheme, the largest in the UK. She joined BTPSM in 2004 to help establish a new team mandated to invest up to 5% of the BT Scheme directly into single manager hedge funds.

In 2007, she took responsibility for Manager Selection across the BT scheme before moving in 2009 to set up a new team tasked with managing Liability Risk. She has more than 15 years experience in capital markets and hedge funds both as an end buyer and structurer. She began her career at SG Warburg in 1994 and also worked at UBS and Progressive Alternative Investments before joining BTPSM. She was educated at Edinburgh University, where she was awarded an MA in Economics and Mathematics.

Ms. Graham is a member of the BTPSM Investment Committee, through which she is fully involved in all aspects of the scheme’s investments. She has a special interest in improving the treatment of investors in offshore vehicles and most recently has been heavily involved in lobbying for changes to the EU Alternatives Directive alongside other like-minded investors. She is a Trustee of the Hedge Fund Standards Board, a Director of a number of BTPSM offshore vehicles, is an occasional board member at the UNPRI, and was one of the Hedge Fund Journal’s “50 Leading Women in Hedge Funds”.

Ms. Graham is the seventh member of its London Board. She joins an already well established London board that includes London Board Chair - Effie Datson, Product Head of the dbSelect Platform for Deutsche Bank; London Board Vice Chair - Carole Philippe, Global General Counsel, Aviva Investors; Treasurer - Olivia Bernard, CFO, Massena Capital Partners; Philanthropy Board Champion - Kristen Weldon (Eshak), Managing Director, The Blackstone Group; Swiss Board Champion - Claire Smith, Research Analyst, Partner, Albourne Partners Limited, and Anne Popkin, Chair of the Board of 100WHF Association. The Board manages 2,000 members in London, and has extended its European reach to Paris, Geneva and Zurich. Amanda Pullinger serves as the organisation’s global Executive Director.

Credit Suisse: Hedge Funds Post Negative Returns in May

HedgeCo News - Hedge fund performance was negative across most strategies in May, according to Jordan Drachman, Head of Research for Alternative Beta Strategies at Credit Suisse.

"The Credit Suisse Liquid Alternative Beta Index (CSLAB) generated negative performance in May, returning -2.64% for the month, bringing year-to-date performance to +0.27%." Dr. Drachman said, "All four Liquid Alternative Beta (LAB) sector indices also posted negative performance in May, suggesting that hedge fund managers across different strategies suffered as a result of the month's increased market volatility. Despite negative returns, hedge funds appear to have outperformed global equity markets, as represented by the MSCI World Index, which lost -9.91% in May and is down 7.59% year-to-date."

LAB is a series of indices that seek to replicate the aggregate return profiles of alternative investment strategies using liquid, tradable instruments that are selected and weighted using an objective and transparent rules-based methodology. An algorithm determines the appropriate factors and weightings employed in seeking to replicate the returns of specific hedge fund strategies.

"Hedge Fund Manager" on the Run From FBI Arrested in Poland

HedgeCo News - An American fugitive, Alexsander Efrosman, also known as Alex Besser, has been arrested in Krakow, Poland, the Associated Press reports.

The Polish police arrested the Staten Island "hedge fund manager", who is wanted by the FBI for fraud and money laundering.

AP reports that the U.S. Commodity Futures Trading Commission alleges that Efrosman/Besser stole about $5 million from customers of two fraudulent hedge funds that he claimed to manage, Century Maxim Fund, Inc. and AJR Capital Inc.

The commission says that investors were shown fake financial statements for trades that never occurred and the fake earnings were used in the solicitation of new investors to his hedge funds.

Hedge Fund Nominees Wanted: 40 Under 40 M&A Advisor Recognition Awards

HedgeCo News - Nominations are now being accepted by for candidates for the 2010 40 Under 40 M&A Advisor Recognition Awards in the professional classifications of, Investment Banking, Private Equity, Hedge Fund, Law, Valuation, Research, among others.

Nominees will be evaluated by their career accomplishments and professional expertise. Consideration will be given to their community/charitable involvement and special circumstances.

The 2010 40 Under 40 M&A Advisor Recognition Awards will be announced on July 26, 2010 at the inaugural Awards Gala.

Eligible candidates are invited to submit a nomination directly or be nominated by their firm, associates, friends or family. To qualify, nominees must be under 40 years of age as of July 25, 2010. An independent committee of M&A industry business leaders will judge all nominations and finalists will be invited to attend the Awards Gala in Los Angeles.

Citigroup Hedge Fund Investors Awarded 100% Return on Losses

HedgeCo News - Investors in Citigroup's fixed-income municipal arbitrage hedge fund have been awarded over $550,000 by the Financial Industry Regulatory Authority (FINRA).

The Wall Street Journal reports that the MAT 3 Municipal Arbitrage Fund was "a risky investment that not only exposed investors to a 100% or more loss of principal, but was 2.5 times more volatile than the S&P 500 and 7.8 times more volatile than a traditional portfolio of municipal bonds," according to lawyers.

FINRA said that the bank understated the hedge fund's risk to investors and awarded a 100% return on the investors' losses.

"We are disappointed and disagree with this decision as it is inconsistent with other panels, which have dismissed similar claims." Citigroup Spokesman Alex Samuelson said in an interview with WSJ. Citigroup also said the hedge funds were offered only to clients who knew about and could afford the risks.

UCITS Funds of Hedge Funds Monitor Launched

HedgeCo News - Investment manager Northern Trust is enhancing its hedge fund monitor with a new compliance module designed to support the demands of Undertakings for Collective Investment in Transferable Securities (UCITS) funds of hedge funds.

"Our latest hedge fund monitor enhancement helps fund managers running UCITS funds of hedge funds to monitor their compliance with restrictions on liquidity, concentration risk and exposure to underlying non-UCITS funds," said Ian Headon, senior product manager for alternative asset servicing at the $647.3 billion Northern Trust.

UCITS' are a set of European Union directives that allow collective investment schemes to operate throughout the European Union on the basis of a single authorisation from one member state. UCITS funds must operate within a strict regulatory framework that imposes standards on liquidity, concentration risk, transparency and other attributes.

"Northern Trust is committed to meeting the asset servicing needs of traditional and alternative investment managers, often with complex fund structures and multi-jurisdictional requirements," said Wilson Leech, head of Northern Trust's Global Fund Services business.

People Moves: Insparo Expands Hedge Fund Team

HedgeCo News - UK-based limited liability investment group, Insparo Asset Management, has appointed Man Investments’ Emma Robinson as Investor Relations Manager to the Africa and Middle East Fund, which has returned over 45% since the start of 2009.

The Africa and Middle East Fund has a range of hedge fund and emerging market investors in Europe, Middle East and the US. Emma will also take on responsibility for the firm’s investor communications and client liaison.

“The return our Africa and the Middle East strategy has made in the last 18 months has, unsurprisingly, drawn a lot of attention from investors." Jamie Allsopp, the fund's investment manager, said, "Frontier markets are in relatively robust fiscal positions when compared to their OECD counterparts, and the investment community is generally underweight this enormous growth opportunity. With the confluence of our historic returns and our optimistic outlook for our region we feel that it is the right time to increase our capabilities in client services.”

Before joining Insparo, Emma spent two years at Man Investments as an institutional sales assistant before heading up Man’s UK consultant relationship management. Prior to joining Man, Emma was with recruitment consultancy Venn Group.

Hedge Funds & FoHFs Expect Competition

HedgeCo News - International hedge fund advisory firm, Rothstein Kass, released a survey report "A Call to Action" on key trends impacting the fund of funds sector. Findings suggest that the hedge fund industry expects intense competition for investment capital as firms work to enhance transparency.

Nearly half of survey respondents indicated that they anticipate increased competition from single-manager vehicles, and over 45 percent expect greater competition from institutional investors replicating fund of funds. As the sector confronts this challenge, 60 percent of fund of funds are providing greater transparency to investors in response to market conditions.

"The growth of the fund of funds sector was propelled by its ability to offer portfolio diversification, superior results consistent with specific risk profiles and to some extent, peace of mind. Though investor resolve was shaken by market events and high-profile incidents of malfeasance, the fund of funds industry was sustained by an institutional investment community that recognized that the fundamental benefits were unchanged by short-term market volatility," said Howard Altman, Co-CEO and Co-Managing Principal of Rothstein Kass.

"As they seek to raise new capital, however, fund of funds managers are finding that institutional investors are placing a greater emphasis on due diligence processes. By continuing to act institutional themselves, fund of funds can provide a window into their operating environment to restore investor confidence and effectively compete with single manager vehicles and fund of funds replication strategies that are more aggressively pursuing institutional assets."

Results were based on online and telephone interviews with 103 fund of fund managers and executives representing a total of 93 companies and 294 funds.

Rothstein Kass commissioned market research firm Infosurv to conduct the research to gain insight into the trends shaping the fund of funds space and the outlook for the future. 34 percent of participants' underlying funds reported assets under management under $50 million, with 36 percent reporting assets under management between $50 and $150 million. 19 percent of survey respondents indicated assets under management between $150 and $500 million, with the balance, 11 percent reporting assets under management over $500 million. Survey participation included but was not limited to Rothstein Kass clients.

Notable findings include:

-- 60 percent of respondents indicated that they are providing increased
transparency in response to market conditions
-- 58 percent of survey participants would consider lowering fees in
exchange for longer investment lock-up periods
-- 34 percent of fund of funds are providing increased liquidity in
response to market conditions
-- 47 percent of respondents suggested that of existing service
providers, they would be most likely to review or change their fund
administrator relationship this year
-- 25 percent of participants indicated that they would be most likely to
review or change their custodian, with 28 percent most likely to
review or change their auditor or legal counsel

"The institutional investment community's trust in the alternative investment sector has not been shattered, but it's fair to say it has been rattled. As they work to thoroughly address the market-driven demand for greater transparency, for many fund of funds, the dynamics of the relationship have changed," said Jeff Kollin, a Director in the Financial Services practice of the Rothstein Kass Business Advisory Services Group. "Fund of fund managers also understand that they will be judged, to a greater extent, on the quality of professional relationships. As a result alignment with reputable third-parties has become a key differentiator in the marketing of these investment vehicles."

Hedge Fund Adviser & Politician Charged in Fraud Case

HedgeCo News - Hedge fund adviser Kenneth Starr has been charged with investment fraud in an alleged $30 million scheme in which Andrew Stein, a former New York City politician, has also been described as an "associate", the Wall Street Journal reports.

Starr, who has advised Wesley Snipes and Goldie Hawn, was named in a criminal complaint filed by federal prosecutors, allegedly using his access to hedge funds and celebrities, to "burnish an image of trustworthiness", according to the Journal.

"The criminal complaint didn't name the alleged victims, but described them as an unnamed hedge fund manager and well-known philanthropist, an actress, a former executive of a talent agency, an elderly heiress and a jeweler who is a convicted felon." The paper reported.

The SEC said Starr provided investment adviser services to more than 30 high net worth individuals and has AUM over $700 million.

Starr remains detained while Stein, who is accused of making false statements to the IRS, was released on a $250,000 bond.

Comada Partners with Custom House to Deliver Online Transaction Tracking Platform for Hedge Fund Investors

HedgeCo News - Transaction technology developer Comada today announced that it has partnered with hedge fund administrator Custom House to launch a new platform for fund managers and their investors. Launched this week, the platform allows investors in hedge funds administered by Custom House to invest, track and receive investment and redemption confirmations electronically. Most importantly, it achieves this via browser-based architecture that precludes the need to download software to a desktop computer, seamlessly integrating with, and extending in-house legacy technology.

"The hedge fund industry has needed an application like this for some time now," said Rupert Vaughan Williams, Co-Founder of Comada. "We are delighted to be working with Custom House who are committed to best of breed technology. This platform significantly raises the bar for hedge fund investing. Users of this technology can now rely on robust infrastructure that electronically processes and reconciles transactions from a single reference point. It is specifically designed to minimise the operational risks of the day to day management of portfolios of alternative investments."

Comada specialises in designing and delivering transaction-based solutions for the managed assets industry, particularly hedge funds. Its core management team has been working together in the industry for almost two decades. It provides both bespoke and off-the-shelf solutions for hedge fund managers and their clients. Comada partnered with Custom House to deliver an advanced platform that would further integrate investors into the investment cycle and help reduce operational risk.

Dermot Butler, Chairman of hedge fund administrator Custom House commented: "We wanted to deliver a service to our customers which they could rely on. It is now possible for both managers and investors to track the progress of investments and redemptions electronically, real time, 24 hours a day. Thanks to our partnership with Comada, we believe we are the first hedge fund administrator to be able to offer this particular kind of service."

Custom House is responsible for the administration of more than $40 billion in hedge fund assets globally, across a range of different investment strategies. It has established its credentials as being a first mover and innovator in the arena of hedge fund administration.

Silk Invest To Launch Fronteir Fund Including Pakistan Reigon

HedgeCo News - Specialist asset management boutique Silk Invest has announced the launch of a new UCITS III frontier fund, The Silk Road Equities fund, which will invest in Africa, the Middle East and the Caucasus and Caspian region. The fund is to be launched later this year, according to hedge fund industry magazine, FundStrategy.

These regions have traditionally been shunned by emerging market funds as being too illiquid. "We have handled such illiquidity in the past with the award winning Silk Road Fixed Income fund, which covers the same geographies." Silk Invest said.

"Pakistan is the 27th largest economy in the world and still classified as a frontier market." Daniel Broby, the chief investment officer said. "Investment in the Caucasus and Caspian region have tended to focus on the oil and gas resources of the region. We, however, are focused on the opportunity afforded by the strong growth of the consumer."

The fund will have both institutional and retail share classes and will charge a 20% performance fee above a hurdle rate of 8%.

2 Year Sentence In Hedge Fund Fraud Case

HedgeCo News - Wall Street Journal reports that Mark Kurland, former partner at hedge fund New Castle Funds LLC was sentenced to over two years in prison. Kurland pled guilty to insider trading in January with connections to the Galleon/Rajaratnam case.

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

At a hearing Friday, Judge Victor Marrero said, "He had a choice. As a leader of the financial industry, he could have led by law-abiding example. Instead, he chose to follow," the judge also said, according to WSJ, that Kurland surrendered "to a spree of the financial market's virtual mob mentality that nearly brought down this country's financial industry in the quest for ever bigger and faster gains."

The judge als ordered a forfeit of $900,000 in proceeds from the alleged scheme the Journal reported.

Kurland reports to prison on July 23.

Hedge Fund Industry Review: May 2010

HedgeCo News - North American hedge funds' assets under management crossed the $1 trillion mark for the first time since November 2008, the May 2010 Eurekahedge Report announced.

Global hedge funds' assets also exceeded the $1.5 trillion mark and are on track to surpass $1.75 trillion by year-end and distressed debt hedge funds saw 13th consecutive month of positive returns, up 50.34% since March 2009 the report said.

Japanese hedge funds gained 2.99% in the month and 7.23% YTD – the best April YTD returns since 2004. Winners of the Asian Hedge Fund Awards 2010 will be published on Eurekahedge, Friday, 21st May 2010.

The report details analyses and insights into the state of the hedge fund industry in recent months up to April through a comprehensive qualitative and quantitative presentation of the industry’s asset flows and performance, with a special feature on key trends in funds of hedge funds.

Hedge Fund Lawyers: SEC Proposes Stock-by-Stock Circuit Breaker Rule

HedgeCo News - The SEC is filing proposed rules under which they would pause trading in certain individual stocks if the price moves 10% or more in a five-minute period, according to hedge fund law firm Pillsbury Investment Funds.

In consultation with FINRA, the SEC wants to set uniform market-wide standards for individual securities in the S&P 500 Index that experience a rapid price movement, the attorneys said.

These proposed rules reflect a consensus that was achieved among the exchanges and FINRA after SEC Chairman Mary Schapiro convened a meeting of exchange leaders and FINRA at the SEC early last week. That meeting took place after the market dropped significantly and after approximately 30 S&P 500 Index stocks fell at least 10 percent in a five-minute period.

"The market disruption of May 6 was exacerbated by disparate trading rules and conventions across the exchanges, and that it is important that all the exchanges quickly reach a consensus on a set of uniform circuit breakers that would be triggered when needed." Chairman Schapiro said.

Under the proposed rules, which are subject to SEC approval following the completion of the comment period, trading in a stock would pause across U.S. equity markets for a five-minute period in the event that the stock experiences a 10 percent change in price over the preceding five minutes. The pause would give the markets the opportunity to attract new trading interest in an affected stock, establish a reasonable market price, and resume trading in a fair and orderly fashion. Initially, these new rules would be in effect on a pilot basis through Dec. 10, 2010.

The markets will use the pilot period to make appropriate adjustments to the parameters or operation of the circuit breaker as warranted based on their experience, and to expand the scope to securities beyond the S&P 500 (including ETFs) as soon as practicable.

The SEC intends to promptly publish the proposed rules for a 10-day public comment period, and determine whether to approve them shortly thereafter.

During the pilot period, Chairman Schapiro has asked the SEC staff to consider ways to address the risks of market orders and their potential to contribute to sudden price moves, as well as to consider steps to deter or prohibit the use by market makers of "stub" quotes, which are not intended to indicate actual trading interest.

The staff will study the impact of other trading protocols at the exchanges, including the use of trading pauses and self-help rules. The SEC staff also will continue to work with the exchanges and FINRA to improve the process for breaking erroneous trades, by assuring speed and consistency across markets.

"The SEC staff is working with the markets to consider recalibrating market-wide circuit breakers currently on the books — none of which were triggered on May 6. These circuit breakers apply across all equity trading venues and the futures markets," the Pillsbury Investment Funds attorneys concluded.

Hedge Fund Launch: QQP's Global Equity Strategies Fund

HedgeCo News - Luxembourg based Global Equity Strategies Fund (QQP) has launched operations today May 18th, 2010.

The new global long-short equity fund, has a member of the Hedge Fund Association (AIMA), TQ Capital Partners Limited (TQCP) as its investment advisor. The hedge fund
aims to achieve superior risk adjusted returns through a systematic investment strategy.

QQP is a Specialised Investment Fund (SIF) incorporated in Luxembourg as a SICAV and administered by Pictet & Cie (Europe) S.A. QQP is an open-end long-short equity investment fund authorised and regulated by the Luxembourg Commission de Surveillance du Secteur Financier (CSSF).

"We are proud to advise QQP on investment strategies which aim to generate superior risk-adjusted returns and to assist in creating a leading investment fund." The managing partners of TQCP stated.

TQCP is a London based long-short equity fund advisor authorised and regulated by the UK Financial Services Authority (FSA). TQCP has a global investment approach, combining top-down macro-economic analysis with bottom-up investment principles. A combination of quantitative and qualitative risk-management measures is applied to protect invested funds.

Chicago Hedge Fund Manager Showcase

HedgeCo.net - "We are very excited about the turnout for our Chicago Manager Showcase." Evan Rapoport, Co-Founder of HedgeCo Networks said, "We had a nice mix of high net worth investors, family offices, fund of funds and institutions."

Each manager had five minutes to introduce themselves to the entire room, before breaking down into smaller groups. The interaction between the hedge fund managers and guests was successful and both parties seemed to be totally engaged.

The keynote speaker, Rob Stein, gave a dissertation on the current climate of the economy. Other speakers at the event included Steve Hall from Lattice Capital Management, Lonny Bernath from Headline Capital Management, Kevin Lennil from Exagroup, Bruce Bernstein from Rockmore Capital Management, and Kurt Hovan from Hovan Capital Management.

After the presentations, hedge fund managers, hosts and speakers mingled during a networking hour. Enjoying excellent food and an open bar, the social aspect of the event lasted longer than planned.

"There ended up being an 11 to 1 ratio of investors to fund managers, this is something you just don't see at other similar conferences. Our managers also really seemed to enjoy sitting down face to face with small groups of investors, rather than presenting to the whole room at once." Rapoport said.

IMC Expands Investment Grade Credit Team

HedgeCo - Specialist asset management company, IMC asset management, announced the hiring of a team of four senior investment professionals, and the launch of investment grade corporate capability platform.

The investment grade platform consisting of a long/short and a long-only capability, it will be formally launched and open to clients on 1st June 2010.

The team joins from Lombard Odier Darier Hentsch (LODH). Rodrigo Araya, who joins IMCam as Head of Investment Grade Credit Strategies, was responsible for the entire fixed income business at LODH while continuing to directly head the credit business.

The other team members joining are Oscar Jansen (who joins as Senior Portfolio Manager), Robert Manning (Head of Investment Grade Credit analysis) and Henk Wiersma (Senior Investment Grade Credit Analyst), who were running several high performing credit mandates and funds at LODH.

“The addition of this highly experienced and successful team will significantly expand the scope of asset management credit strategies delivered by IMCam to our institutional and HNWI client base." Sander Nieuwland, CEO of IMCam commented, "We are delighted to welcome such high quality individuals, with a very strong nine year track record, and a shared vision of excellence. We believe credit is an important area of opportunity for investors and in these turbulent markets there is a greater need for talent and experience than ever."

IMCam, part of the IMC Group, established in 1998, is a specialist asset manager of European and US credit products, including distressed debt and asset-backed securities.

Other recent key hires which reinforce IMCam’s ambitious growth plans and expansion into new business areas include W. Gregory Drennen – Head of US Structured Debt (ex Clinton Group, Goldman Sachs and Citigroup), Jan-Hein Cremers – Head of Behavioural Quantitative Management (FDO Partners and State Street) and Vivina Berla – MD Business Development and Investor Relations (ex Merrill Lynch and Gartmore)

Man Merger Launches $63 Billion Hedge Fund

HedgeCo News - Hedge fund giant Man Group has created a hedge fund managing $63 billion after acquiring rival $23.7 billion hedge fund GLG Partners in a $1.6 billion in deal.

“I am delighted to announce Man's proposed acquisition of GLG to create a diversified, world-leading alternative investment manager with $63 billion in funds under management." Jon Aisbitt, Chairman of Man, said, "It is central to Man's stated strategy of acquiring high quality discretionary investment management capability to broaden our range of diversified, liquid strategies for the benefit of our investors."

The acquisition will be implemented by way of a merger, creating a diversified, world-leading alternative investment manager with an emphasis on liquid strategies, positioned to benefit from the expected continued growth in onshore hedge funds globally.

"The structure of the transaction allows us to retain vital focus and commitment to performance whilst integrating Man's leading structuring and distribution capabilities to the advantage of investors and shareholders alike." Peter Clarke, Chief Executive of Man, said, "We have deployed surplus capital in an earnings enhancing transaction to access savings, balance our investment strategies, and created a powerful business from which we can grow organically.

The deal will be closed by the end of September.

Public Pension Plans to Top Corporate Plans In US Hedge Fund Allocation

HedgeCo News – Agecroft Partners predicts that United States public pension funds will increase their allocation to hedge funds at faster rate than corporate pension plans due to sweeping new corporate pension legislation that is just beginning to take hold in the industry.

“The new legislation does not directly impact public pension funds.” Don Steinbrugge, Managing Member at Agecroft Partners, LLC, said in an interview this morning, “Corporate pension fund allocations have historically targeted a higher risk and return profile than public pension funds, but that may be changing due to the passage of the 2006 Pension Protection Act that became effective in 2008.”

This was the most dramatic pension legislation in the US since the passage of ERISA back in the early 1970s and the legislation will have major implications for corporate pension funds asset allocation, the structure of corporate pension plans and the retirement burden on society.

5 main points Steinbrugge focused on during the interview are as follows:

1. Public pension funds will increase their allocation to hedge funds at faster rate than corporate pension plans due to sweeping new corporate pension legislation that is just beginning to take hold in the industry.
2. The new legislation does not directly impact public pension funds.
3. The new extensive and complex pension legislation includes two provisions which will alter how many corporate pension fund assets are managed.
4. Many corporate defined benefit plans are moving away from maximizing return by utilizing the efficient frontier strategy of portfolio construction to a liability matching strategy for their portfolio which features a significant increase in their allocation to long duration fixed income securities in order to reduce the variability of annual contributions.
5. This increased expense will enhance the speed of corporations terminating or freezing their defined benefit plans and replacing them with 401k plans.

Historically, Steinbrugge explained, a vast majority of defined benefit pension funds used a static discounts rate of approximately 7.5% to 8% to determine the present value of their future liabilities. By keeping the discount rate constant year after year and by amortizing unfunded liabilities over a 20 to 30 year period, it allowed for a fairly consistent required contribution to a defined benefit plan on an annual basis.

In order for the pension fund to achieve investment returns equal to the discount rate, pension funds used modern portfolio theory to constructed diversified portfolios along the efficient frontier which allowed them to maximize return for a targeted level of volatility. Over the years, this efficient frontier was enhanced as more asset classes were utilized and through the adoption of alternative investments within their portfolios. Over long periods of time, this investment strategy was effective at reaching their return objectives. In addition, this strategy of maximizing long term returns had reduced the long term cost of funding these defined benefit plans.

The new extensive and complex pension legislation includes two provisions which will alter how many corporate pension fund assets are managed.

* The first provision effects how companies determine the present value of the future liability stream, which includes many variables, but is dominated by the discount rate. The new regulation states that the discount rate will be derived from a “yield curve” of investment-grade corporate bonds averaged over the most recent 24 months, which is updated on an annual basis. This has had major implications for corporate defined benefit plans. The average discount rate to calculate future unfunded liabilities has been significantly reduced from what corporations have used historically. This has caused their unfunded liability to increase significantly. It has also added significant variability to future pension fund contributions because of the unpredictability of future discount rates.

* The second provision reduced the time period that corporations could amortize these liabilities from 20 to 30 years down to half that time period. The effect of combining these two provisions has been to significantly increase annual funding for many plans over previous levels at a time when many corporations can least afford to incur additional liabilities.

“As a result,” Steinbrugge wrote in a release on the subject, “many corporate defined benefit plans are moving away from maximizing return by utilizing the efficient frontier strategy of portfolio construction to a liability matching strategy for their portfolio which features a significant increase in their allocation to long duration fixed income securities in order to reduce the variability of annual contributions. Agecroft Partners believes that this increased allocation to long duration fixed income will be funded primarily through a reduction in corporate pension funds allocation to shorter duration fixed income and long only equity managers. Some of the more sophisticated corporate plans might match the duration of their assets to liabilities through the derivative markets which will allow them to continue to manage the underlying portfolio on a total return basis.”

“Unfortunately, this duration matching strategy for US corporate pension funds will reduce the long term expected returns of their portfolios from the 7.5% to 8% range down to 5% to 6.5% which will significantly increase the expense of these plans. This increased expense will enhance the speed of corporations terminating or freezing their defined benefit plans and replacing them with 401k plans. The problem with 401k plans is that they typically do not provide a large enough lump sum distribution to provide for retirement. Additionally, the average retiree lacks the discipline to spend these assets over their expected life span. The end result may very well be that many individuals will run out of their retirement savings and rely on government program for their retirement needs. Another unfortunate aspect of this new legislation is that many corporations are locking in long duration fixed income portfolios while interest rates are at their lowest point in decades. If the massive government deficient creates inflation causing interest rates to spike these long duration portfolio could lose a significant percent of their value.”

“Public pension funds will not be affected by this legislation and will have no incentive to move away from the efficient frontier structure of investing.” Steinbrugge said, “Given most state and local government’s shaky budgets and large unfunded liabilities they need to maximize their investment returns on their portfolios in order to reduce the financial burden on their constituencies. As a result of this we will see a significant divergence between the asset allocations of corporate and public pension funds.”

“Public pension funds will steadily increase their allocation to alternative investments over the next decade, where hedge funds may represent as much as 20% of their portfolio while corporations will also increase their alternative portfolio, but at a slower rate due to their growing allocation to longer duration fixed income.” Steinbrugge concluded.

Agecroft Partners is a consulting and third party marketing firm which specializes solely in the alternative investment arena with a particular focus on hedge funds.

100 Women in Hedge Funds: La Parisienne Race in Support of Breast Cancer Research

Sunday, September 12, 2010 at 10 AM Paris

Registration is 35 Euros and this includes access to several optional training sessions, our team logo and the chance to run with your friends in finance. Part of the registration fee will be donated by the Race organizers to Breast Cancer Research (Fondation Recherche Médicale, Action Cancer du Sein). You can help raise more funds through sponsorship, individually or through your company, details available on request. PARIS@100womeninhedgefunds.org

The Race will start at 10AM; groups will form near the Pont d’Iena beginning at 9AM.
CELEBRATE and NETWORK at a post-race brunch (Cost, location and time to be provided.)

Annoa Cirian, from HDF Finance, ran the Parisienne last year, here is her story:

"Some of you might already know about the race that is becoming a major event in Paris; you might even have run it before! All women are welcome, from 7 to 77 years old, Parisian or not. The idea is to share a truly fun and enjoyable event and help raise awareness and funding for Breast Cancer Research.

The challenge IS manageable!!!! It is only 6 kms from the start, on the Iéna bridge, to the finish line under the Eiffel Tower! If you are generally fit and reasonably in shape, you should be able to run this in under 40 minutes and walking is permitted. I myself am not a marathoner (!) and only trained a few times before participating last year and I finished!!!! There were 17.499 other ladies running with me; the positive and emotional atmosphere was something that cannot be forgotten; it moved me to tears.

As in the past, the Village area opens up on the Friday before the race, with many stands from the main sponsors (Nike, Weleda, Fitness . . . )

Every Sunday morning, Nike organizes free training sessions; just meet up at 9h45 at their Champ Elysees store! They also offer a few evening shopping sessions and special rebates for runners registered for the Parisienne!

The 8th Annual Hedge Fund Industry Award Nominees

HedgeCo News - Institutional Investor magazine is presenting the 8th Annual Hedge Fund Industry Awards, which will recognize the hedge funds, hedge funds of funds, seeder firms, investment consultants, endowments, foundations, family offices, corporate funds and public funds who stood out for their innovation, achievements and contributions to the industry in 2009.

Award nominees will be honored and winners will be announced and awarded at a dinner and awards ceremony at the Mandarin Oriental in New York City on Monday, June 21, 2010.

Lifetime Achievement Award

Julian Robertson Jr., Founder and ChairmanTiger Management Corp.

Outstanding Contribution Award

Orin Kramer, Chairman, New Jersey State Investment Council

2010 MANAGER AWARD CATEGORIES & NOMINEES:

Institutional Hedge Fund Firm of the Year

* D.E. Shaw & Co.
* Highbridge Capital Management
* Och-Ziff Capital Management Group
* Paulson & Co.
* York Capital Management

Emerging Hedge Fund Firm of the Year

* 1798 Global Partners
* Arrowhawk Capital Partners
* Atalaya Capital Management
* HealthCor Management
* Merchants' Gate Capital

Equity-Focused Hedge Fund of the Year

* Lansdowne Partners
* Pershing Square Capital Management
* SAC Capital Advisors
* Stelliam Investment Management
* Viking Global Investors

Credit-Focused Hedge Fund of the Year

* Appaloosa Management
* Avenue Capital Group
* Canyon Capital Advisors
* Centerbridge Partners
* Pacific Investment Management Co.

Macro-Focused Hedge Fund of the Year

* BlueCrest Capital Management
* BlueGold Capital Management
* Moore Capital Management
* Pharo Management
* Tudor Investment Corp.

Multistrategy Hedge Fund of the Year

* D.E. Shaw & Co.
* Hudson Bay Capital Management
* Millennium Management
* Och-Ziff Capital Management Group
* Perry Capital

Relative Value Hedge Fund of the Year

* Barnegat Fund Management
* BlueMountain Capital Management
* Citadel Investment Group
* CQS
* Pine River Capital Management

Large Fund of Hedge Funds Firm of the Year

* Blackstone Alternative Asset Management
* Lighthouse Partners
* Morgan Stanley Alternative Investment Partners
* Permal Group
* Prisma Capital Partners

Small Fund of Hedge Funds Firm of the Year

* Corbin Capital Partners
* Greenlight Masters
* Magnitude Capital
* NewFinance Capital
* SSARIS Advisors

Hedge Fund Seeder Firm of the Year

* Investcorp Investment Advisers
* Larch Lane Advisors
* Paloma Partners Management Co.
* Protégé Partners
* SkyBridge Capital

AIMA Comments on AIFMD Statement

HedgeCo.net - As part of the the debate over the European Union’s draft Alternative Investment Fund Managers Directive, French and German Finance Ministers, Christine Lagarde and Wolfgang Schäuble, made a statement about the standard for European hedge funds, - found in full in today’s Wall Street Journal, proposing a draft directive providing supervisors with full access to all relevant information regarding individual hedge funds.

AIMA, (The Global Hedge Fund Industry Association) said: “We very much welcome the comments by Mrs. Lagarde and Mr. Schäuble that ‘France and Germany believe in open financial markets’ and that ‘qualified investors should be free to invest in funds from all around the globe irrespective of quality standards set for state-of-the-art European hedge funds’. Given the widespread international concern over possible protectionist consequences of the Directive and the potential impact on European investors, this is a significant and reassuring statement.

“While the comments by Mrs. Lagarde and Mr. Schäuble are welcome, we would note that the current texts of the Directive do not necessarily reflect these sentiments, and we presume that the French and German governments would therefore support appropriate revisions in line with these remarks. In particular, while Mrs. Lagarde and Mr. Schäuble say that EU investors should be free to invest in non-EU funds as long as non-EU investment funds and their supervisors provide for adequate information exchange to mitigate systemic risk, the current text being discussed at Council level imposes additional requirements on non-EU funds beyond this.

“We do agree that it is important that the AIFM Directive addresses the issue of systemic risk; AIMA, as the global hedge fund industry association, has consistently supported transparency by the industry in this respect, namely the reporting of systemically relevant data in the interests of financial stability to national supervisors.

“We also remain concerned about the details of the practical application of this Directive and would urge policymakers to liaise closely not only with the industry but with the regulators with the most experience of the sectors covered by this Directive to ensure a consistent, proportionate and practical piece of final legislation.”

Assets Seized After Suicide Attempt

HedgeCo.net – The Denver Post reports that authorities have seized the assets of local hedge fund manager Sean Mueller. The State is accusing him of running a Ponzi scheme involving approximately $122 million.

An investment statement released by investigators showed only $15 million in his account, after the hedge fund had claimed assets of $122 million.

Mueller Capital’s Over-Under Fund raised more than $20 million from three investors and that at least 30 more also may have made “substantial investments”, the Denver Post reported.

“I’m very sorry for the damage I have done.” Mueller said in a handwritten note, according to the Post.” I always thought I could make it back. Nobody else had any involvement except me.”

After threatening to kill himself, it is reported that Mueller was found by police last Thursday considering a jump from about 19 stories. Mueller had also apologized to his clients for financial losses by Email.

The hedge fund manager was taken to a hospital by the Greenwood Village police.

Fund Of Funds Investing: Q&A with Richard Bookbinder

New York (HedgeCo.net) In the new book, ‘Fund of Funds Investing – A Roadmap to Portfolio Diversification,’ Richard Bookbinder and Daniel Strachman write about the evolution of capital markets and the changes that have taken place in the arena of alternative investing.

I asked Richard Bookbinder, founder of Bookbinder Capital Management LLC and co-author of the book about his thoughts on what investors should look for in choosing a hedge fund manager.

Some pointers include:

• Ensure that the manager has a verifiable track record, it is important to review performance results and source of returns not only in 2009, but also to review prior and current periods.

• Take time for due diligence and review: 3 to 6 months minimum, even as long as 12 to 24 months.

• Look at the quantitative as well as qualitative results:

“While a quantitative review of performance and correlation results is critical,” Bookbinder said, “the qualitative on site due diligence includes review of systems, procedures, processes, and risk management systems along with extensive meetings of managers and key personnel.”

• Size is important, but bigger is not always better:

“While much of the new flow of capital into the hedge fund industry has been directed to large, visible hedge fund complexes, size should not be the key factor, “ The author explained, “There are many smaller funds with long, consistent track records that have outperformed the large funds.”

• Learning from history:

“It is important to understand what the source of alpha was in driving past performance returns.” Bookbinder said regarding the history of market performance and its relevance on future performance. “Investors had the wind to their backs in 2009 with the equity and credit market rally. In 2010, the story has changed. Performance returns are dependent upon manager skill sets and depth of the organization team.”

In conclusion, I asked what the crisis had to teach us. Bookbinder said, “Due diligence is not a check the box business. It must be performed by seasoned analysts who have a specialized understanding of the strategies.”

Bookbinder is a frequent speaker at hedge fund industry academic forums including the New York Society of Security Analysts and various hedge fund industry programs. He is also active in charitable activities including as a member of the Board of Trustees of the Darrow School, New Lebanon, NY. He is the External Advisor to the Wharton Hedge Fund Club, and participates in the Executive Student Partnership Mentoring program at Baruch College, New York, NY.

Fictional Trading Experts Charged in NY Hedge Fund Scam

HedgeCo.net - The SEC has charged the self-proclaimed, “Wolves of Wall Street,” a Staten Island investment advisory firm, with operating an Internet-based scam that misleads investors into paying fees for phony stock tips and investment advice from fictional trading experts.

The team is charged with fraud, pretending to run a $1.4 billion hedge fund using fake names and claiming millions of dollars in trading riches as well as top-notch educational backgrounds and prominent experience at major Wall Street firms.

The “hedge fund”, called Gryphon, had fabricated glowing testimonials from George Soros and other big name traders on its website.

Gryphon frequently posted investment tips on the Internet, the SEC alleges, using at least 40 different monikers such as “Wolves of Wall Street,” “Wall Street’s Most Wanted,” “Pure Profit,” and “Mafia Trader.” In reality, Gryphon’s financial publications only served as a vehicle to attract unsuspecting investors.

According to the SEC’s complaint, Gryphon obtained more than $17.5 million from its operations over the past three years.

The Judge granted the SEC’s request for a temporary restraining order and asset freeze against the Defendants and six others named as Relief Defendants: (real names) Richard Borrello, Nicole Marsh, Ginna Mungiovi, Michael Scarpaci, Dominic Spinelli, and Paul Stokes.