HedgeCo News - The Cayman Islands were hit by a 5.8 magnitude earthquake Tuesday at 9:23 am ET, the earthquake took place 30 miles southeast of Grand Cayman Island.
The major offshore hedge fund center in the Caribbean maintains 12 bilateral tax information arrangements with Denmark, Faroe Islands, Finland, Greenland, Iceland, Ireland, Netherlands, New Zealand, Norway, Sweden, United Kingdom and the United States.
"No injuries have been reported and there have been no reports of damage to buildings. Business and schools have remained open and residents have resumed their normal daily routines," the department of tourism said in a statement.
The 6.2-mile deep quake shook the are with force, but there were no immediate reports of damage or casualties.
Grand Cayman lies just north of a very active fault line called the Oriente Fracture Zone, which roughly follows the northern edge of the Cayman Trough, the deepest part of the Caribbean Sea.
20 Jan 2010
Hedge Funds Gain $4.6 Billion In Jan 2010 – New Launches
HedgeCo News - The January 2010 Eurekahedge Report found that global hedge fund industry gained $4.6 billion since December 2009.
Hedge funds recovered from their record losses in 2008 as stimulus packages by governments around the globe helped stock and bond markets rebound. The Eurekahedge Hedge Fund Index, tracking more than 2,000 funds, rose 19% in 2009, the best performance in six years, when the index rose 21%.
“The financial markets rebounded strongly as investors returned from the sidelines and snatched up securities trading at ‘once in a life time’ valuations,” Hennessee reported in their January 2010 Hedge Fund Review. “Investor confidence was boosted as the year progressed due to improving economic data and positive earnings reports.”
“Entering 2010, the industry appears to have put the worst behind it as it is once again experiencing positive net inflows and an uptick in fund launches,” Hennessee said.
Net inflows were relatively modest through the month, standing at $0.6 billion while performance-based gains accounted for $4 billion. The Eurekahedge Hedge Fund Index up was 1.07% in December, bringing the November YTD figure to 19.37% – the highest yearly returns since 2003.
Hedge funds recovered from their record losses in 2008 as stimulus packages by governments around the globe helped stock and bond markets rebound. The Eurekahedge Hedge Fund Index, tracking more than 2,000 funds, rose 19% in 2009, the best performance in six years, when the index rose 21%.
“The financial markets rebounded strongly as investors returned from the sidelines and snatched up securities trading at ‘once in a life time’ valuations,” Hennessee reported in their January 2010 Hedge Fund Review. “Investor confidence was boosted as the year progressed due to improving economic data and positive earnings reports.”
“Entering 2010, the industry appears to have put the worst behind it as it is once again experiencing positive net inflows and an uptick in fund launches,” Hennessee said.
Net inflows were relatively modest through the month, standing at $0.6 billion while performance-based gains accounted for $4 billion. The Eurekahedge Hedge Fund Index up was 1.07% in December, bringing the November YTD figure to 19.37% – the highest yearly returns since 2003.
19 Jan 2010
Students Keen to Work for Hedge Funds - LSE Head Hunting Conference
HedgeCo News - Despite the fact that the global economy and the financial markets are still recovering from the crisis, interest in hedge funds from the cream of the crop of universities and business schools worldwide is stronger than ever.
The Alternative Investments Conference organised by the London School of Economics Private Equity Society and Financial Markets Group has attracted unprecedented interest among students and financial institutions worldwide, with over six top-level students competing for each place available.
The Conference has attracted a stellar collection of keynote speakers, such as David Rubenstein, Co-Founder and Managing Director of The Carlyle Group, James Chanos, Founder and Managing Partner of Kynikos Associates, Emmanuel Roman, Co-Chief Executive Officer of GLG Partners, Randall Dillard, Co-Founder and Chief Investment Officer of Liongate Capital Management and Sir Deryck Maughan, Global Head of Financial Services of Kohlberg Kravis Roberts & Co.
The conference will cover a wide range of topics, including identifying value in unusual places, the crisis aftermath, going back to basics in private equity, commodities, funds of hedge funds, emerging markets, regulatory developments and the future outlook for hedge funds and private equity as well as a wide variety of hedge fund investment strategies.
As future sector employees, the most motivated students were quick to notice the turnaround in 2009 and see the long-term future of the industry. This has driven applications to attend this year’s conference up by over 50% to 2,200 applications for the 350 places available. 75 nationalities from 75 leading universities and business schools worldwide are represented this year.
“The talent pool for alternative asset recruitment at even the graduate and post-graduate level is now truly global," Randall Dillard, Co-Founder & Chief Investment Officer of Liongate Capital Management, the lead platinum conference sponsor, said.
The event is entirely self-financing, receiving no financial support from the London School of Economics or its students union. Preparation by the committee to arrange sponsorship funding starts nearly a year ahead, to meet the conference budget of approximately £100,000.
The strong draw the conference exerts is evidenced by the many delegates who are prepared to sacrifice time and money to travel from the US, Asia and even Australia, to hear what the brightest minds in the industry have to say. The fact that high-profile institutions are sponsoring the event is a bellwether of the positive trends seen in the alternative assets sector in recent months.
The four annual conferences since inception have been possible thanks to generous and loyal sponsors, with Liongate Capital Management, the London-based fund of hedge funds group, as lead sponsor since the first conference. Selection is based on academic merit and work experience, along with proven interest in the industry.
Sponsors of the conference in 2010 are Liongate Capital Management (Platinum sponsor), Silver Oven, IAM, Greenoaks Capital Management and Sankaty Advisors with support from JP Morgan.
The Alternative Investments Conference organised by the London School of Economics Private Equity Society and Financial Markets Group has attracted unprecedented interest among students and financial institutions worldwide, with over six top-level students competing for each place available.
The Conference has attracted a stellar collection of keynote speakers, such as David Rubenstein, Co-Founder and Managing Director of The Carlyle Group, James Chanos, Founder and Managing Partner of Kynikos Associates, Emmanuel Roman, Co-Chief Executive Officer of GLG Partners, Randall Dillard, Co-Founder and Chief Investment Officer of Liongate Capital Management and Sir Deryck Maughan, Global Head of Financial Services of Kohlberg Kravis Roberts & Co.
The conference will cover a wide range of topics, including identifying value in unusual places, the crisis aftermath, going back to basics in private equity, commodities, funds of hedge funds, emerging markets, regulatory developments and the future outlook for hedge funds and private equity as well as a wide variety of hedge fund investment strategies.
As future sector employees, the most motivated students were quick to notice the turnaround in 2009 and see the long-term future of the industry. This has driven applications to attend this year’s conference up by over 50% to 2,200 applications for the 350 places available. 75 nationalities from 75 leading universities and business schools worldwide are represented this year.
“The talent pool for alternative asset recruitment at even the graduate and post-graduate level is now truly global," Randall Dillard, Co-Founder & Chief Investment Officer of Liongate Capital Management, the lead platinum conference sponsor, said.
The event is entirely self-financing, receiving no financial support from the London School of Economics or its students union. Preparation by the committee to arrange sponsorship funding starts nearly a year ahead, to meet the conference budget of approximately £100,000.
The strong draw the conference exerts is evidenced by the many delegates who are prepared to sacrifice time and money to travel from the US, Asia and even Australia, to hear what the brightest minds in the industry have to say. The fact that high-profile institutions are sponsoring the event is a bellwether of the positive trends seen in the alternative assets sector in recent months.
The four annual conferences since inception have been possible thanks to generous and loyal sponsors, with Liongate Capital Management, the London-based fund of hedge funds group, as lead sponsor since the first conference. Selection is based on academic merit and work experience, along with proven interest in the industry.
Sponsors of the conference in 2010 are Liongate Capital Management (Platinum sponsor), Silver Oven, IAM, Greenoaks Capital Management and Sankaty Advisors with support from JP Morgan.
18 Jan 2010
Truebeta Launches Hedge Fund Replication Model
New York (HedgeCo.net) – Independent, factor-based hedge fund replication service, TrueBeta, is launching a dynamic leverage model for hedge fund replication. The company says the application will improve it’s correlation to broad hedge fund performance.
“TrueBeta is setting a benchmark for the replication accuracy,” TrueBeta CEO Rabbe Ekholm said. “The new dynamic leverage model will enable TrueBeta to explicitly reflect the impact of variations in leverage across market cycles.”
The model is based on return trends in major market indices, primarily the S&P 500, adjusted monthly. The company said that through extensive quantitative testing that changes in leverage are primarily driven by broad trends in market returns. TrueBeta’s leverage will move between 1 and 2, compared with a fixed 1.5 of the original model.
For calendar year 2009, the new dynamic leverage model showed a correlation of 0.95 with the industry-standard Hedge Fund Research Index compared to 0.91 of the original TrueBeta model. The dynamic model had a compound 2009 return of 13.7 percent after fees, versus the 10.9 percent achieved by the original model.
TrueBeta will publish both its standard and enhanced methodologies until May 2010, after which the enhanced methodology will become the new standard. During the transition period, it may adjust aspects of the dynamic leverage model based on feedback from clients and other market participants.
TrueBeta LLC develops and markets quantitative financial strategies for institutional clients. It is the first replication offering created expressly with the goal of serving as a benchmark for the hedge fund industry, and it is the only replication strategy with a fully transparent, completely rules-based methodology. True Beta is fully independent and available through licensing to all market participants, including white label options to banks and other financial institutions.
“TrueBeta is setting a benchmark for the replication accuracy,” TrueBeta CEO Rabbe Ekholm said. “The new dynamic leverage model will enable TrueBeta to explicitly reflect the impact of variations in leverage across market cycles.”
The model is based on return trends in major market indices, primarily the S&P 500, adjusted monthly. The company said that through extensive quantitative testing that changes in leverage are primarily driven by broad trends in market returns. TrueBeta’s leverage will move between 1 and 2, compared with a fixed 1.5 of the original model.
For calendar year 2009, the new dynamic leverage model showed a correlation of 0.95 with the industry-standard Hedge Fund Research Index compared to 0.91 of the original TrueBeta model. The dynamic model had a compound 2009 return of 13.7 percent after fees, versus the 10.9 percent achieved by the original model.
TrueBeta will publish both its standard and enhanced methodologies until May 2010, after which the enhanced methodology will become the new standard. During the transition period, it may adjust aspects of the dynamic leverage model based on feedback from clients and other market participants.
TrueBeta LLC develops and markets quantitative financial strategies for institutional clients. It is the first replication offering created expressly with the goal of serving as a benchmark for the hedge fund industry, and it is the only replication strategy with a fully transparent, completely rules-based methodology. True Beta is fully independent and available through licensing to all market participants, including white label options to banks and other financial institutions.
Hedge fund experts predict more due diligence in 2010
HedgeCo News - Experts predict greater market discipline from investors and an increased focus on due diligence by providers and custodians.
Joel Press, Managing Director of Morgan Stanley’s Prime Brokerage Division; Todd Groome, non-Executive Chairman of the Alternative Investment Management Association (AIMA); and Gregory Zuckerman, author and special writer with The Wall Street Journal were among the experts who offered their predictions for 2010 at a seminar for more than 300 members of the financial industry in New York, hosted by international offshore law firm Walkers.
Greater allocations to hedge funds were anticipated at the expense of equities, while the latest regulatory waves and the next likely bubbles in the market were also debated.
“In today’s environment, there can no longer simply be a checklist to confirm a process. Potential investors must look at what motivates and drives the relevant provider,” said Ingrid Pierce, Partner with Walkers and head of the firm’s Cayman Islands Hedge Fund practice. “Custody diligence is very much at the forefront of people’s minds. Key questions include whether counterparties have the ability to move or re-hypothecate assets and whether contracts will hold up in an insolvency.”
Investigative diligence, which looks in a very detailed way at precisely what various providers do, not just what they say they do, has also become a key focus as investors and other players ramp up their policies in this area, according to Ms. Pierce.
“It is important for both funds and investors to work out well in advance exactly what their exit strategy will be and how the provisions in the fund’s documents will actually work,” Ms Pierce said. “The heightened levels of diligence we have seen throughout the investment process are not going to diminish anytime soon. All participants, including legal counsel have to increase our awareness of the issues and address key areas of risk with our clients.”
Highlighting some positive trends in hedge funds, AIMA’s Todd Groome pointed to new allocations going to a variety of strategies. For example, managers in Asia are seeing 75 percent of net new allocations coming from the United States, primarily from pension funds. He also noted the launch of new hedge funds represents a clear increase in confidence.
“Market discipline from investors is back with a vengeance,” said Mr. Groome. “Investors are asking for greater transparency. They want to use the transparency to create a more idiosyncratic contract for their particular situation and a particular strategy.”
On the regulatory front, in this current challenging policy environment, Mr Groome said things will take time and require considerable coordination among financial leaders, policy makers, and investors.
Joel Press of Morgan Stanley offered his personal insights on what can be expected in the hedge fund market going forward. He anticipates hundreds of smaller start ups in 2010 and said that seeding is more important than ever. With inflows still coming into the market, Mr Press predicted that the industry will be worth US$3 trillion four years from now, compared to the current estimated value of US$1.8 trillion.
“There is no need for hedge fund fees to go down,” Mr Press said. “If you look at long-term investing, hedge funds are absolutely performing better than any other investment vehicle. Investors are looking to replace equities with hedge fund allocations and hedge funds are increasingly being used as an equity substitute.”
The seminar also featured an in-depth examination of the role of fiduciaries, notably issues of responsibilities and accountability, from Guy Locke, Partner and Joint Head of the Corporate and Financial Restructuring Group at Walkers and Scott Lennon, Senior Vice President at Walkers Fund Services.
“It is a brand new world for hedge fund directors. Questionnaires are more extensive and elaborate and people want to know that manuals have been fully tested,” Mr Lennon said. “With changing standards of care and liability caps for auditors and other service providers, managers are in a tough negotiating environment. It is important to understand the whole picture of risk and where it will fall if things go wrong.”
Hedge fund financing was addressed by Philip Paschalides, a Walkers Partner and head of the firm’s Finance and Corporate Group in the Cayman Islands. Mr Paschalides said that the banking team in Walkers’ Cayman office had its busiest year ever for hedge fund financing, suggesting that leverage may not be a thing of the past. “Lenders are generally quite savvy about the hedge fund world,” Mr Paschalides said. “They keep databases, look at redemptions and gates and will lower borrowing bases to account for liquidity and concentration issues.”
Gregory Zuckerman from The Wall Street Journal said we are in an age of bubbles, citing housing, energy, Asian currencies and technology stocks as examples of bubbles the market has experienced over the past decade.
“The next bubble may be emerging markets, Brazil, China, or pockets of real estate in Asia or Australia,” Mr Zuckerman said. “Everyone is worried about the next investor. There is an incentive to increasingly pile on trades and now it is much easier to express trades using ETFs, synthetic CDS and other types of derivatives. Managers today are fully invested and talking about adding leverage, but they don’t really believe in the long term nature of these investments. It might work out in the short term but long term you wonder if they can all get out.”
The New York event was the latest in the ‘Walkers Fundamentals’ series designed to bring discussions of key financial issues to the world’s investment capitals. Video highlights of the seminar will be posted to Walkers’ website.
“We were delighted to hear attendees use words such as ‘enlightening’ and ‘relevant’ to describe the event,” said Mark Lewis, Senior Investment Funds Partner with Walkers, who opened the seminar. “Walkers believes the best way to ensure best practices in the financial community is through open discussion and education by all the participants.”
Editing by Alex Akesson
For HedgeCo.net
alex@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership in HedgeCo.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
Joel Press, Managing Director of Morgan Stanley’s Prime Brokerage Division; Todd Groome, non-Executive Chairman of the Alternative Investment Management Association (AIMA); and Gregory Zuckerman, author and special writer with The Wall Street Journal were among the experts who offered their predictions for 2010 at a seminar for more than 300 members of the financial industry in New York, hosted by international offshore law firm Walkers.
Greater allocations to hedge funds were anticipated at the expense of equities, while the latest regulatory waves and the next likely bubbles in the market were also debated.
“In today’s environment, there can no longer simply be a checklist to confirm a process. Potential investors must look at what motivates and drives the relevant provider,” said Ingrid Pierce, Partner with Walkers and head of the firm’s Cayman Islands Hedge Fund practice. “Custody diligence is very much at the forefront of people’s minds. Key questions include whether counterparties have the ability to move or re-hypothecate assets and whether contracts will hold up in an insolvency.”
Investigative diligence, which looks in a very detailed way at precisely what various providers do, not just what they say they do, has also become a key focus as investors and other players ramp up their policies in this area, according to Ms. Pierce.
“It is important for both funds and investors to work out well in advance exactly what their exit strategy will be and how the provisions in the fund’s documents will actually work,” Ms Pierce said. “The heightened levels of diligence we have seen throughout the investment process are not going to diminish anytime soon. All participants, including legal counsel have to increase our awareness of the issues and address key areas of risk with our clients.”
Highlighting some positive trends in hedge funds, AIMA’s Todd Groome pointed to new allocations going to a variety of strategies. For example, managers in Asia are seeing 75 percent of net new allocations coming from the United States, primarily from pension funds. He also noted the launch of new hedge funds represents a clear increase in confidence.
“Market discipline from investors is back with a vengeance,” said Mr. Groome. “Investors are asking for greater transparency. They want to use the transparency to create a more idiosyncratic contract for their particular situation and a particular strategy.”
On the regulatory front, in this current challenging policy environment, Mr Groome said things will take time and require considerable coordination among financial leaders, policy makers, and investors.
Joel Press of Morgan Stanley offered his personal insights on what can be expected in the hedge fund market going forward. He anticipates hundreds of smaller start ups in 2010 and said that seeding is more important than ever. With inflows still coming into the market, Mr Press predicted that the industry will be worth US$3 trillion four years from now, compared to the current estimated value of US$1.8 trillion.
“There is no need for hedge fund fees to go down,” Mr Press said. “If you look at long-term investing, hedge funds are absolutely performing better than any other investment vehicle. Investors are looking to replace equities with hedge fund allocations and hedge funds are increasingly being used as an equity substitute.”
The seminar also featured an in-depth examination of the role of fiduciaries, notably issues of responsibilities and accountability, from Guy Locke, Partner and Joint Head of the Corporate and Financial Restructuring Group at Walkers and Scott Lennon, Senior Vice President at Walkers Fund Services.
“It is a brand new world for hedge fund directors. Questionnaires are more extensive and elaborate and people want to know that manuals have been fully tested,” Mr Lennon said. “With changing standards of care and liability caps for auditors and other service providers, managers are in a tough negotiating environment. It is important to understand the whole picture of risk and where it will fall if things go wrong.”
Hedge fund financing was addressed by Philip Paschalides, a Walkers Partner and head of the firm’s Finance and Corporate Group in the Cayman Islands. Mr Paschalides said that the banking team in Walkers’ Cayman office had its busiest year ever for hedge fund financing, suggesting that leverage may not be a thing of the past. “Lenders are generally quite savvy about the hedge fund world,” Mr Paschalides said. “They keep databases, look at redemptions and gates and will lower borrowing bases to account for liquidity and concentration issues.”
Gregory Zuckerman from The Wall Street Journal said we are in an age of bubbles, citing housing, energy, Asian currencies and technology stocks as examples of bubbles the market has experienced over the past decade.
“The next bubble may be emerging markets, Brazil, China, or pockets of real estate in Asia or Australia,” Mr Zuckerman said. “Everyone is worried about the next investor. There is an incentive to increasingly pile on trades and now it is much easier to express trades using ETFs, synthetic CDS and other types of derivatives. Managers today are fully invested and talking about adding leverage, but they don’t really believe in the long term nature of these investments. It might work out in the short term but long term you wonder if they can all get out.”
The New York event was the latest in the ‘Walkers Fundamentals’ series designed to bring discussions of key financial issues to the world’s investment capitals. Video highlights of the seminar will be posted to Walkers’ website.
“We were delighted to hear attendees use words such as ‘enlightening’ and ‘relevant’ to describe the event,” said Mark Lewis, Senior Investment Funds Partner with Walkers, who opened the seminar. “Walkers believes the best way to ensure best practices in the financial community is through open discussion and education by all the participants.”
Editing by Alex Akesson
For HedgeCo.net
alex@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership in HedgeCo.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds!
UCITS III Compliant Fund of Hedge Funds Launched By HSBC
HedgeCo News - HSBC has launched a Sterling Class of its HSBC UCITS AdvantEdge fund of hedge funds. The Fund will comply with the new ‘reporting’ tax regime for offshore funds, allowing UK investors to be taxed at capital gains rather than income tax rates on disposal of their interests.
“The Sterling classes will allow UK investors to gain maximum benefit from the opportunities to participate in the hedge fund sector offered by the HSBC UCITS AdvantEdge fund.” Chris Allen, CEO of HSBC Alternative Investments Ltd, said, ” The hedge fund industry is leaner and fitter as we enter 2010 and as weaker performers continue to withdraw we believe the remaining providers will reap the rewards from their stronger platforms in the coming months.”
The Fund combines a number of core strategies that are expected to benefit from opportunities created by the credit crunch, such as discretionary macro, equity market neutral, managed futures, and equity long/short.
The Fund is a new generation fund of hedge funds, designed to enable both retail and institutional investors to participate in the absolute return opportunities offered by current market conditions via a more liquid and regulated vehicle than a traditional fund of hedge funds.
The Fund offers weekly liquidity, and complies with the strict UCITS III rules concerning leverage, counterparty risk and investments traded. The Fund’s investment manager is HSBC Alternative Investments Ltd, an established adviser of funds of hedge funds.
All underlying UCITS hedge funds under consideration go through its quantitative and qualitative investment due diligence process which has been proven over many years.
“The Sterling classes will allow UK investors to gain maximum benefit from the opportunities to participate in the hedge fund sector offered by the HSBC UCITS AdvantEdge fund.” Chris Allen, CEO of HSBC Alternative Investments Ltd, said, ” The hedge fund industry is leaner and fitter as we enter 2010 and as weaker performers continue to withdraw we believe the remaining providers will reap the rewards from their stronger platforms in the coming months.”
The Fund combines a number of core strategies that are expected to benefit from opportunities created by the credit crunch, such as discretionary macro, equity market neutral, managed futures, and equity long/short.
The Fund is a new generation fund of hedge funds, designed to enable both retail and institutional investors to participate in the absolute return opportunities offered by current market conditions via a more liquid and regulated vehicle than a traditional fund of hedge funds.
The Fund offers weekly liquidity, and complies with the strict UCITS III rules concerning leverage, counterparty risk and investments traded. The Fund’s investment manager is HSBC Alternative Investments Ltd, an established adviser of funds of hedge funds.
All underlying UCITS hedge funds under consideration go through its quantitative and qualitative investment due diligence process which has been proven over many years.
14 Jan 2010
Hedge Funds Industry Trends report
Heidrick & Struggles surveyed more than 400 portfolio managers (PMs) and studied more than 100 hedge fund firms for the report, providing a comprehensive view of the industry and its talent flows. Highlights of the report include:
* Tight talent inventory: The availability of senior top talent is decreasing as hedge fund investment professionals re-surface at other hedge funds, proprietary trading banks, asset management firms, and a host of other destinations including endowments, foundations, and family offices.
* SEC changes drawing talent: Veteran hedge fund and markets professionals are also in demand at the SEC, where a promise of increasing government enforcement and the creation of a new Division of Risk, Strategy, and Financial Innovation are leading to new hires.
* Compensation bidding wars will return: "The post-TARP brain drain is turning around, with a significant increase in hiring at most large banks/proprietary trading firms," says Mr. Schwab. "But comp will not reach levels prior to the summer and fall of 2008."
* New, "safer" investment vehicles helping to drive asset-building frenzy: "Assets are coming back to funds, swayed by innovative, more transparent investment products that give more control and liquidity to investors," he says. "Marketing professionals who can sell these products will be key drivers of this activity as funds gear up for the best fundraising opportunity in two years."
* Re-emergence of seeding funds and boom in new launches: Despite the number of funds closing in '08 and '09, launches exceeded liquidations beginning in 3Q '09 and continuing into 4Q.
* Return of comp guarantees in '10: Front office professionals in 2010 can expect to see compensation guarantees return, although this will be coupled with an increase in clawbacks and deferrals.
"It has been a tremendous turnaround year for hedge fund survivors, marking their best returns in over 10 years," says Claude Schwab, head of the U.S. hedge fund practice and a partner at Heidrick & Struggles. "By November 2009, the industry re-crossed the $2 trillion mark, and this was largely due to performance rather than net inflows."
"But this has been a Pyrrhic victory for the industry as a whole," says Mr. Schwab, who is one of the report's authors. "The fact is that more than 20% of hedge funds shut down in the past two years, with 1,500 liquidations in 2008 and 900 in 2009 – and those firms under $1 billion and underwater are especially vulnerable. This vulnerability will have a direct impact on talent flow in 2010; top talent seeks high-quality, stable firms."
Which funds will lose talent in 2010?
"An active hiring market in 2010 will mean that some firms can expect to lose their senior-most talent," says Mr. Schwab. Through their intensive study of firms and portfolio managers, Heidrick & Struggles was able to identify eight characteristics of firms that are the most vulnerable to talent leaving.
Fund underperformance was the top factor cited in the report. Other factors making firms vulnerable include: a lack of formulaic payouts to PMs; shared portfolios; traditionally centralized structures; firms where trigger-pulling responsibility has been pulled from individual PMs; "placeholder" firms housing talent from funds that shut down; those with lower capital (under $1 billion), except for more recent 2009 startups; and funds undergoing a significant internal event, such as a merger or acquisition.
Which funds are most likely to retain talent in 2010? How can top performers be lured away?
"In addition to spotting the most likely firms from which to recruit talent, we were able to identify the characteristics of firms from which it will be difficult to pull the top people. These include firms with strong performance and access to stable, sizeable capital. Other factors keeping talent put include well-run management that provides relative autonomy and a healthy, transparent work environment. And, of course, the best talent will expect lucrative, competitive payout models.
"It's very difficult to pull a strong performer from a firm that has all of these factors in place. A true 'game-changing' opportunity is what it would take to lure the best professionals from such a firm," says Mr. Schwab. Examples of "game changers" include: a very significant increase in capital allocation; sufficient capital to start one's own firm; the opportunity to build a firm and/or be a key part of the firm's succession plan; and the opportunity to serve a cause while investing.
"Major endowments, sovereign wealth funds, and the SEC made key hires in 2009 where candidates were attracted to the cause or mission associated with the institution as well as the investment opportunity. The year 2010 will see a continuation of this trend."
* Tight talent inventory: The availability of senior top talent is decreasing as hedge fund investment professionals re-surface at other hedge funds, proprietary trading banks, asset management firms, and a host of other destinations including endowments, foundations, and family offices.
* SEC changes drawing talent: Veteran hedge fund and markets professionals are also in demand at the SEC, where a promise of increasing government enforcement and the creation of a new Division of Risk, Strategy, and Financial Innovation are leading to new hires.
* Compensation bidding wars will return: "The post-TARP brain drain is turning around, with a significant increase in hiring at most large banks/proprietary trading firms," says Mr. Schwab. "But comp will not reach levels prior to the summer and fall of 2008."
* New, "safer" investment vehicles helping to drive asset-building frenzy: "Assets are coming back to funds, swayed by innovative, more transparent investment products that give more control and liquidity to investors," he says. "Marketing professionals who can sell these products will be key drivers of this activity as funds gear up for the best fundraising opportunity in two years."
* Re-emergence of seeding funds and boom in new launches: Despite the number of funds closing in '08 and '09, launches exceeded liquidations beginning in 3Q '09 and continuing into 4Q.
* Return of comp guarantees in '10: Front office professionals in 2010 can expect to see compensation guarantees return, although this will be coupled with an increase in clawbacks and deferrals.
"It has been a tremendous turnaround year for hedge fund survivors, marking their best returns in over 10 years," says Claude Schwab, head of the U.S. hedge fund practice and a partner at Heidrick & Struggles. "By November 2009, the industry re-crossed the $2 trillion mark, and this was largely due to performance rather than net inflows."
"But this has been a Pyrrhic victory for the industry as a whole," says Mr. Schwab, who is one of the report's authors. "The fact is that more than 20% of hedge funds shut down in the past two years, with 1,500 liquidations in 2008 and 900 in 2009 – and those firms under $1 billion and underwater are especially vulnerable. This vulnerability will have a direct impact on talent flow in 2010; top talent seeks high-quality, stable firms."
Which funds will lose talent in 2010?
"An active hiring market in 2010 will mean that some firms can expect to lose their senior-most talent," says Mr. Schwab. Through their intensive study of firms and portfolio managers, Heidrick & Struggles was able to identify eight characteristics of firms that are the most vulnerable to talent leaving.
Fund underperformance was the top factor cited in the report. Other factors making firms vulnerable include: a lack of formulaic payouts to PMs; shared portfolios; traditionally centralized structures; firms where trigger-pulling responsibility has been pulled from individual PMs; "placeholder" firms housing talent from funds that shut down; those with lower capital (under $1 billion), except for more recent 2009 startups; and funds undergoing a significant internal event, such as a merger or acquisition.
Which funds are most likely to retain talent in 2010? How can top performers be lured away?
"In addition to spotting the most likely firms from which to recruit talent, we were able to identify the characteristics of firms from which it will be difficult to pull the top people. These include firms with strong performance and access to stable, sizeable capital. Other factors keeping talent put include well-run management that provides relative autonomy and a healthy, transparent work environment. And, of course, the best talent will expect lucrative, competitive payout models.
"It's very difficult to pull a strong performer from a firm that has all of these factors in place. A true 'game-changing' opportunity is what it would take to lure the best professionals from such a firm," says Mr. Schwab. Examples of "game changers" include: a very significant increase in capital allocation; sufficient capital to start one's own firm; the opportunity to build a firm and/or be a key part of the firm's succession plan; and the opportunity to serve a cause while investing.
"Major endowments, sovereign wealth funds, and the SEC made key hires in 2009 where candidates were attracted to the cause or mission associated with the institution as well as the investment opportunity. The year 2010 will see a continuation of this trend."
ITG to Donate a Portion of Friday's Revenues to Haitian Relief Funds
Investment Technology Group, Inc. (NYSE:ITG) announced that the firm will contribute ten percent of its global trading revenues on Friday, January 15, toward Haitian earthquake relief efforts. In addition, ITG is organizing a firm-wide employee charity day to encourage donations to the affected region.
ITG will donate to the following charities: the American Red Cross, Partners in Health, and Save the Children. To make a donation to any of these charities, contact information is provided below:
AMERICAN RED CROSS
www.redcross.org
Text "HAITI" to "90999 to make a $10 donation.
2025 E Street, NW
Washington, D.C. 20006
(800) REDCROSS (733-2767)
PARTNERS IN HEALTH
www.pih.org
P.O. Box 845578
Boston, MA 02284-5578
(617) 432-5256
SAVE THE CHILDREN
www.savethechildren.org
Haiti Earthquake Children in Emergency Fund
54 Wilton Road
Westport, CT 06880
(800) 728-3843
About ITG
Investment Technology Group, Inc., is a specialized agency brokerage and financial technology firm that partners with asset managers globally to provide innovative solutions spanning the investment continuum. A leader in electronic trading since launching POSIT in 1987, ITG's integrated approach now includes a range of products from portfolio management and pre-trade analysis to trade execution and post-trade evaluation. Asset managers rely on ITG's independence, experience, and agility to help mitigate risk, improve performance and navigate increasingly complex markets. The firm is headquartered in New York with offices in North America, Europe and the Asia Pacific regions. For more information on ITG, please visit www.itg.com.
ITG will donate to the following charities: the American Red Cross, Partners in Health, and Save the Children. To make a donation to any of these charities, contact information is provided below:
AMERICAN RED CROSS
www.redcross.org
Text "HAITI" to "90999 to make a $10 donation.
2025 E Street, NW
Washington, D.C. 20006
(800) REDCROSS (733-2767)
PARTNERS IN HEALTH
www.pih.org
P.O. Box 845578
Boston, MA 02284-5578
(617) 432-5256
SAVE THE CHILDREN
www.savethechildren.org
Haiti Earthquake Children in Emergency Fund
54 Wilton Road
Westport, CT 06880
(800) 728-3843
About ITG
Investment Technology Group, Inc., is a specialized agency brokerage and financial technology firm that partners with asset managers globally to provide innovative solutions spanning the investment continuum. A leader in electronic trading since launching POSIT in 1987, ITG's integrated approach now includes a range of products from portfolio management and pre-trade analysis to trade execution and post-trade evaluation. Asset managers rely on ITG's independence, experience, and agility to help mitigate risk, improve performance and navigate increasingly complex markets. The firm is headquartered in New York with offices in North America, Europe and the Asia Pacific regions. For more information on ITG, please visit www.itg.com.
13 Jan 2010
Rajaratnam Attacks Wiretap Evidence In Hedge Fund Case
HedgeCo News - Hedge fund manager Raj Rajaratnam won approval yesterday from U.S. District Court Judge Richard Holwell to stay free on $100 million bail while awaiting trial on his insider trading case. The judge refused to reduce or revoke bail.
Rajaratnam's lawyer attacked the U.S. government's wiretap evidence saying he would file a motion to suppress the telephone recordings which were used to arrest Rajaratnam and more than a dozen other people in the Galleon raid. A hedge fund manager known as "Tipper X", and hedge fund consultant Roomy Khan are cooperating with investigators in providing evidence against Rajaratnam.
"The recordings were cherry picked and mismanaged and someone did not do their homework," Dowd told the Judge, according to reports.
Last week Federal prosecutors doubled the sum of the allegations and former senior partner at McKinsey & Co., Anil Kumar, pleaded guilty to conspiracy, insider trading and securities fraud.
Rajaratnam was taken into custody in New York on Oct. 16, 2009 in what is being called the USA’s largest hedge fund insider-trading scheme.
The insider trading case involves the employees of some of America’s best-known companies, including International Business Machines Corp, McKinsey & Co and Intel Capital, an arm of Intel Corp. Danielle Chiesi, an executive at New Castle Funds LLC was also indicted on multiple counts of conspiracy and securities fraud.
Rajaratnam's lawyer attacked the U.S. government's wiretap evidence saying he would file a motion to suppress the telephone recordings which were used to arrest Rajaratnam and more than a dozen other people in the Galleon raid. A hedge fund manager known as "Tipper X", and hedge fund consultant Roomy Khan are cooperating with investigators in providing evidence against Rajaratnam.
"The recordings were cherry picked and mismanaged and someone did not do their homework," Dowd told the Judge, according to reports.
Last week Federal prosecutors doubled the sum of the allegations and former senior partner at McKinsey & Co., Anil Kumar, pleaded guilty to conspiracy, insider trading and securities fraud.
Rajaratnam was taken into custody in New York on Oct. 16, 2009 in what is being called the USA’s largest hedge fund insider-trading scheme.
The insider trading case involves the employees of some of America’s best-known companies, including International Business Machines Corp, McKinsey & Co and Intel Capital, an arm of Intel Corp. Danielle Chiesi, an executive at New Castle Funds LLC was also indicted on multiple counts of conspiracy and securities fraud.
12 Jan 2010
UK Hedge Fund Manager Launches Green Investment Opportunity
HedgeCo News - Future Capital Partners (FCP), the £6 billion ($9.68 billion) hedge fund and alternative investment boutique, has launched a groundbreaking investment opportunity that will allow UK investors to invest in the rapidly growing Renewable Transport Fuels (RTF) sector for the first time.
The production of European RTFs is expected to grow tenfold over the next decade, and RTFs are currently the only sector into which Shell and BP are committing significant Renewable Energy investments.
The partnership expects to provide its investors returns of over 30% per annum over a five to seven year period. It will be raising £40 million ($64.56 million) equity, of which it has already secured over £5 million ($8 million) (including a £3 million ($investment from Future Capital Partners itself), and there will be a minimum investment of £50,000 ($87,000). A trade sale or IPO is targeted within 5 years of commissioning of the plant.
“RTFs are the investment opportunity of the future." Tim Levy, CEO at Future Capital Partners said, "The global focus on renewable energy is there for all to see, yet opportunities to invest in such an obvious growth sector are currently non-existent. Future Fuels will provide investors with the opportunity to invest in one of only three RTF production plants in the country. Climate change “is the moral issue of our time” (Ed Miliband) and “the greatest challenge facing humanity” (Lord Stern). Many of us believe that ranking not far behind are issues of oil reserves and price, together with food security. This project has at its heart all of these issues.”
Levy added: “Investment in first generation Renewable Transport Fuels is essential to underpin investment in second and third generation technologies – and is a crucial step towards the long term goal of replacing oil in transport fuels (in the UK this accounts for about 70% of our oil imports).”
EU and UK directives have indicated that by 2020 13% (estimated at 23 billion litres) of all the Europe’s petrol fuel must come from renewable sources. Currently, just 2 billion litres (or 3.5%) of the Europe’s petrol fuel comes from renewable sources, meaning that the petrol based Renewable Transport sector is set to grow more than ten-fold in the next decade.
“We believe this project is not only worthy of investment on purely commercial terms but also allows investors to be a ‘catalyst for change’ in an incredibly important way." Levy said.
“It is a chance to capitalise on a non-correlated, niche investment of huge potential and at the same time benefiting from the risk controls we have placed around the partnership. Moreover, by securing off take agreements for the plant’s produce, we have done a great deal to ensure the project’s long term success. For the first time, Future Fuels will give UK investors the chance to take advantage of the next decade’s most lucrative investment.” Levy concluded.
The production of European RTFs is expected to grow tenfold over the next decade, and RTFs are currently the only sector into which Shell and BP are committing significant Renewable Energy investments.
The partnership expects to provide its investors returns of over 30% per annum over a five to seven year period. It will be raising £40 million ($64.56 million) equity, of which it has already secured over £5 million ($8 million) (including a £3 million ($investment from Future Capital Partners itself), and there will be a minimum investment of £50,000 ($87,000). A trade sale or IPO is targeted within 5 years of commissioning of the plant.
“RTFs are the investment opportunity of the future." Tim Levy, CEO at Future Capital Partners said, "The global focus on renewable energy is there for all to see, yet opportunities to invest in such an obvious growth sector are currently non-existent. Future Fuels will provide investors with the opportunity to invest in one of only three RTF production plants in the country. Climate change “is the moral issue of our time” (Ed Miliband) and “the greatest challenge facing humanity” (Lord Stern). Many of us believe that ranking not far behind are issues of oil reserves and price, together with food security. This project has at its heart all of these issues.”
Levy added: “Investment in first generation Renewable Transport Fuels is essential to underpin investment in second and third generation technologies – and is a crucial step towards the long term goal of replacing oil in transport fuels (in the UK this accounts for about 70% of our oil imports).”
EU and UK directives have indicated that by 2020 13% (estimated at 23 billion litres) of all the Europe’s petrol fuel must come from renewable sources. Currently, just 2 billion litres (or 3.5%) of the Europe’s petrol fuel comes from renewable sources, meaning that the petrol based Renewable Transport sector is set to grow more than ten-fold in the next decade.
“We believe this project is not only worthy of investment on purely commercial terms but also allows investors to be a ‘catalyst for change’ in an incredibly important way." Levy said.
“It is a chance to capitalise on a non-correlated, niche investment of huge potential and at the same time benefiting from the risk controls we have placed around the partnership. Moreover, by securing off take agreements for the plant’s produce, we have done a great deal to ensure the project’s long term success. For the first time, Future Fuels will give UK investors the chance to take advantage of the next decade’s most lucrative investment.” Levy concluded.
Bandon Embraces Alternative Strategy for Non-accredited Investors
Hedge fund manager, Bandon Capital Management, LLC, announced a new relationship with American Independent Securities Group, LLC (AISG) enabling the advisors of AISG to make available Bandon’s flagship investment strategy, the Directional Interest Rate Strategy (DIRS), to clients as a separately managed account featuring daily liquidity with minimum investments as low as $25,000.
The Strategy, available to both accredited and non-accredited investors, was created by a former New York Federal Reserve economist and seeks to provide investors with absolute returns, uncorrelated with the equity and fixed income markets, by investing in the US Treasury Market through ETF’s or mutual funds.
Diana Burrell, President of AISG said “We‘re incredibly excited about the new relationship with Bandon and the opportunity for our clients to have access to liquid, non-correlated, absolute return strategies. We believe investors make money in the long term by constructing portfolios with high compound annual returns, low volatility and low probability of large draw downs - Bandon qualifies on all accounts.”
Bandon identifies institutional quality alternative strategies that can be translated and implemented using liquid, transparent securities and distributes these solutions through financial intermediaries.
The Strategy, available to both accredited and non-accredited investors, was created by a former New York Federal Reserve economist and seeks to provide investors with absolute returns, uncorrelated with the equity and fixed income markets, by investing in the US Treasury Market through ETF’s or mutual funds.
Diana Burrell, President of AISG said “We‘re incredibly excited about the new relationship with Bandon and the opportunity for our clients to have access to liquid, non-correlated, absolute return strategies. We believe investors make money in the long term by constructing portfolios with high compound annual returns, low volatility and low probability of large draw downs - Bandon qualifies on all accounts.”
Bandon identifies institutional quality alternative strategies that can be translated and implemented using liquid, transparent securities and distributes these solutions through financial intermediaries.
Father-Son Advisor Team Charged With Nadel Related Hedge Fund Fraud
HedgeCo News - The SEC has charged two investment advisers with securities fraud for misleading investors about the financial condition of three hedge funds they managed, and misrepresenting that they controlled the funds' investment and trading activities when in fact they were being handled by Arthur G. Nadel.
The SEC alleges that Sarasota, Fla.-based Neil V. Moody and his son, Christopher D. Moody, distributed offering materials, account statements, and newsletters to investors that misrepresented the hedge funds' historical investment returns and overstated their asset values by as much as $160 million.
According to the SEC's complaint, hedge funds Valhalla Investment Partners L.P., Viking IRA Fund LLC, and Viking Fund were controlled by Nadel with no meaningful supervision or oversight by the Moodys. The SEC charged Nadel with fraud last year and obtained an emergency court order to freeze his assets.
"The Moodys led investors to believe that they were faithfully managing funds invested with them," said Glenn S. Gordon, Associate Director of the SEC's Miami Regional Office. "Instead, they abdicated their responsibilities to investors and ignored warning signs that should have alerted them to the fraud that was occurring all around them."
In its complaint against the Moodys, the SEC seeks permanent injunctions, financial penalties, and disgorgement of illegal gains. Without admitting or denying the SEC's allegations, the Moodys have consented to permanent injunctions against future securities fraud violations and are bared from associating with any investment adviser for five years.
The SEC alleges that Sarasota, Fla.-based Neil V. Moody and his son, Christopher D. Moody, distributed offering materials, account statements, and newsletters to investors that misrepresented the hedge funds' historical investment returns and overstated their asset values by as much as $160 million.
According to the SEC's complaint, hedge funds Valhalla Investment Partners L.P., Viking IRA Fund LLC, and Viking Fund were controlled by Nadel with no meaningful supervision or oversight by the Moodys. The SEC charged Nadel with fraud last year and obtained an emergency court order to freeze his assets.
"The Moodys led investors to believe that they were faithfully managing funds invested with them," said Glenn S. Gordon, Associate Director of the SEC's Miami Regional Office. "Instead, they abdicated their responsibilities to investors and ignored warning signs that should have alerted them to the fraud that was occurring all around them."
In its complaint against the Moodys, the SEC seeks permanent injunctions, financial penalties, and disgorgement of illegal gains. Without admitting or denying the SEC's allegations, the Moodys have consented to permanent injunctions against future securities fraud violations and are bared from associating with any investment adviser for five years.
11 Jan 2010
Future Crisis Worries - Hedge Fund Compliance Survey
HedgeCo.net News - Three quarters of the world’s senior banking and compliance officers polled as part of a wide-ranging survey by Complinet, a hedge fund compliance company, said they are expecting the next financial crisis will strike within the first half of this decade, the company said.
The survey found that the majority of regulatory experts questioned predicted the next significant economic downturn before 2015. 77% said recent reforms were insufficient to avoid another crash similar to the 2008 collapse.
The survey of 232 global compliance officers was made up of 34% from the banking sector, 9% insurance, 32% securities, 7% legal, 18% others.
“The continuing lack of company transparency and accountability to the markets and the public makes the possibility of another crisis almost assured,” said one of the businesses questioned.
The Complinet survey also showed that only 40% thought their firm had changed its approach to compensating employees based on a better understanding of risks associated with the business.
And 91% recognised that the current bonus culture is resented by those outside the financial services industry.
But the survey also showed that 62% of senior management believe they’re putting the right controls in place.
“Regulatory reform and implementation of effective compliance solutions are clearly vital to avoid another crash,” says Paul Johns, Vice President of Global Markets at Complinet.
“The key message from this survey is financial institutions must ensure they have enough compliance resource to navigate through the regulatory maze and reduce the risk of falling foul of the rules.”
The survey found that the majority of regulatory experts questioned predicted the next significant economic downturn before 2015. 77% said recent reforms were insufficient to avoid another crash similar to the 2008 collapse.
The survey of 232 global compliance officers was made up of 34% from the banking sector, 9% insurance, 32% securities, 7% legal, 18% others.
“The continuing lack of company transparency and accountability to the markets and the public makes the possibility of another crisis almost assured,” said one of the businesses questioned.
The Complinet survey also showed that only 40% thought their firm had changed its approach to compensating employees based on a better understanding of risks associated with the business.
And 91% recognised that the current bonus culture is resented by those outside the financial services industry.
But the survey also showed that 62% of senior management believe they’re putting the right controls in place.
“Regulatory reform and implementation of effective compliance solutions are clearly vital to avoid another crash,” says Paul Johns, Vice President of Global Markets at Complinet.
“The key message from this survey is financial institutions must ensure they have enough compliance resource to navigate through the regulatory maze and reduce the risk of falling foul of the rules.”
Bluenose To Launch Onshore Hedge Fund
HedgeCo News - BVI-based investment manager Bluenose Capital Management is planning to launch The Bluenose North American Market Neutral fund, an onshore version of its flagship offshore hedge fund on March 1st, 2010.
The Delaware-domiciled fund has a 1 year lock-up period, with a minimum investment of $250,000, with a 1% management fee and 20% incentive.
Bluenose's JS Pelletier and Dario Borelli will be managing the fund.
Aimed at U.S. accredited and qualified investors, the US & Canada equity market neutral fund has 4 underlying strategies employed according to prevailing market conditions, including systematic, quantitative & automated investment process. With rigorous risk management practices ensuring low downside volatility the new fund trades only highly liquid exchange-listed securities.
The objective is to generate an annualized compound rate of return of 15% with lower downside volatility vs. the S&P500 and TSX benchmarks. Using proprietary multi-factor models, the fund will engage in short-term market neutral trading in Canadian and U.S. liquid exchange-listed securities. The Fund has a capacity of $700M at the trading level.
The Delaware-domiciled fund has a 1 year lock-up period, with a minimum investment of $250,000, with a 1% management fee and 20% incentive.
Bluenose's JS Pelletier and Dario Borelli will be managing the fund.
Aimed at U.S. accredited and qualified investors, the US & Canada equity market neutral fund has 4 underlying strategies employed according to prevailing market conditions, including systematic, quantitative & automated investment process. With rigorous risk management practices ensuring low downside volatility the new fund trades only highly liquid exchange-listed securities.
The objective is to generate an annualized compound rate of return of 15% with lower downside volatility vs. the S&P500 and TSX benchmarks. Using proprietary multi-factor models, the fund will engage in short-term market neutral trading in Canadian and U.S. liquid exchange-listed securities. The Fund has a capacity of $700M at the trading level.
8 Jan 2010
Kumar Pleads Guilty in Galleon Hedge Fund Case
New York - Former senior partner at McKinsey & Co., Anil Kumar, yesterday pleaded guilty to conspiracy, insider trading and securities fraud in the Galleon/Raj Rajaratnam hedge fund fraud case, the U.S. Attorney’s Office said.
The prosecution alledged, before US District Judge Denny Chin in Manhattanthat, that Rajaratnam paid Kumar up to $1 million a year for his inside tips, making the hedge fund over $19 million. Kumar, 51, of Saratoga, Calif., is cooperating with prosecutors. He will be sentenced on March 26.
The investigation started with suspicions in the 1990s when chip maker Intel Corp alleged that Rajaratnam was receiving tips from an Intel insider. The investigation was based on a witness who had first entered into a plea agreement with the United States before she began to cooperate in an investigation into Rajaratnam’s practices.
Rajaratnam was taken into custody in New York on Oct. 16, 2009 in the USA’s largest hedge fund insider-trading scheme. His bail was set at $100 million.
The insider trading case involves the employees of some of America’s best-known companies, including International Business Machines Corp, McKinsey & Co and Intel Capital, an arm of Intel Corp.
7 Jan 2010
Hedge Fund Greatwater Shows Strong Gains In First Year
New York (HedgeCo.net) – Greatwater Investment Management, Inc. (GWIM) last year launched the Greatwater Fund, LP., whose unique strategy and philosophy focuses on risk adjusted returns in the emerging markets. In its first year, the Greatwater Fund gained 69.6%.
Domiciled in Delaware, the Greatwater Fund is hedged against market extremes in Latin America with a concentration of investments in the Central Pacific region of Costa Rica. With no lockup period, the hedge fund has monthly redemptions and subscriptions subject to cash flows and development schedule. The fund is expected to run for eight to ten years with distributions planned in year five.
With a minimum investment of $100,000, the 2% management fee, and 25% incentive fee are for retail investors, with institutional fees being adjusted based on investment size. The hedge fund focuses on asset management in the areas of global trends, real estate, marketing and management.
“Our unique marketing strategies have been so successful they we are working on what promises to be the countries most interesting and attractive adventure resort.” Richard Lackey, the hedge fund’s managing director, said, “Imagine taking jungle tours on a Segway, or riding a zip line through a cave or waterfall.”
One of the world’s leading talent agencies is now working with fund management on a reality TV show (non-scripted) featuring their global “eco-architect challenge” where architects and engineers from around the world will compete to design the ultimate luxury tree house. In addition to a stable of luxury tree houses, the resort promises to have luxury homes, jungle villas, lake front villas and a 5 star boutique hotel.
Several factors are keeping Costa Rica investments low risk and high return, ahead of most of their emerging market peers. The low cost of living, close proximity to the US, and democratic government are drawing second-home buyers and retirees to Costa Rica.
“Our strategies are working better than expected,” Lackey said, “Our first hotel has gone from a ranking of 48 out of 80 to number 1 in eighteen months, surpassing our five year expectations. I am even more confident now that this unique space will continue to offer a low volatility opportunity to fund of funds and others wanting exposure in Latin America.”
The Greatwater Fund hosts investor and advisor groups almost monthly at their hotel in Manuel Antonio, Costa Rica. They expect their fund to fully capitalized by mid-May 2010
Domiciled in Delaware, the Greatwater Fund is hedged against market extremes in Latin America with a concentration of investments in the Central Pacific region of Costa Rica. With no lockup period, the hedge fund has monthly redemptions and subscriptions subject to cash flows and development schedule. The fund is expected to run for eight to ten years with distributions planned in year five.
With a minimum investment of $100,000, the 2% management fee, and 25% incentive fee are for retail investors, with institutional fees being adjusted based on investment size. The hedge fund focuses on asset management in the areas of global trends, real estate, marketing and management.
“Our unique marketing strategies have been so successful they we are working on what promises to be the countries most interesting and attractive adventure resort.” Richard Lackey, the hedge fund’s managing director, said, “Imagine taking jungle tours on a Segway, or riding a zip line through a cave or waterfall.”
One of the world’s leading talent agencies is now working with fund management on a reality TV show (non-scripted) featuring their global “eco-architect challenge” where architects and engineers from around the world will compete to design the ultimate luxury tree house. In addition to a stable of luxury tree houses, the resort promises to have luxury homes, jungle villas, lake front villas and a 5 star boutique hotel.
Several factors are keeping Costa Rica investments low risk and high return, ahead of most of their emerging market peers. The low cost of living, close proximity to the US, and democratic government are drawing second-home buyers and retirees to Costa Rica.
“Our strategies are working better than expected,” Lackey said, “Our first hotel has gone from a ranking of 48 out of 80 to number 1 in eighteen months, surpassing our five year expectations. I am even more confident now that this unique space will continue to offer a low volatility opportunity to fund of funds and others wanting exposure in Latin America.”
The Greatwater Fund hosts investor and advisor groups almost monthly at their hotel in Manuel Antonio, Costa Rica. They expect their fund to fully capitalized by mid-May 2010
Ponta Negra Hedge Fund Manager Pleads Guilty
New York (HedgeCo.net) - Former Stamford hedge fund manager, Francesco Rusciano. waived his right to indictment and pleaded guilty today before US Judge Ellen Bree Burns in New Haven to one count of wire fraud.
According to court documents and statements made in court, from approximately March 2007 to April 2009, Rusciano operated a private investment fund, the Ponta Negra Fund I, LLC at his residence in Stamford. In approximately January 2009, he started the Ponta Negra Offshore Fund, LTD. Rusciano implied that the money invested in his hedge funds would be used for trading of spot, forwards, non-deliverable forwards, and options in G7 and emerging market economies.
In pleading guilty, he admitted that he defrauded investors by overstating his background and experience as a currency trader with his prior employer and by overstating his performance history.
Rusciano's investors placed approximately $24 million in principal with the hedge funds during their time of operation and, in turn, investors redeemed approximately $9 million before his scheme was discovered. At the time the Securities and Exchange Commission froze the assets of the Funds in April 2009, approximately $15 million remained in the Funds.
Judge Burns has scheduled sentencing for April 2, 2010, at which time Rusciano faces a maximum term of imprisonment of 20 years. The FBI arrested Rusciano at his residence on May 1, 2009. He has been released on bond under electronic monitoring since May 4th.
According to court documents and statements made in court, from approximately March 2007 to April 2009, Rusciano operated a private investment fund, the Ponta Negra Fund I, LLC at his residence in Stamford. In approximately January 2009, he started the Ponta Negra Offshore Fund, LTD. Rusciano implied that the money invested in his hedge funds would be used for trading of spot, forwards, non-deliverable forwards, and options in G7 and emerging market economies.
In pleading guilty, he admitted that he defrauded investors by overstating his background and experience as a currency trader with his prior employer and by overstating his performance history.
Rusciano's investors placed approximately $24 million in principal with the hedge funds during their time of operation and, in turn, investors redeemed approximately $9 million before his scheme was discovered. At the time the Securities and Exchange Commission froze the assets of the Funds in April 2009, approximately $15 million remained in the Funds.
Judge Burns has scheduled sentencing for April 2, 2010, at which time Rusciano faces a maximum term of imprisonment of 20 years. The FBI arrested Rusciano at his residence on May 1, 2009. He has been released on bond under electronic monitoring since May 4th.
6 Jan 2010
Fed Doubles Rajaratnam Hedge Fund Allegations
New York (HedgeCo.net) - U.S. prosecutors yesterday filed papers saying Raj Rajaratnam’s profits in the alleged Galleon hedge fund scheme are higher than previously thought. Federal prosecutors doubled the sum to $36 million from the previous allegations of $17 million in fraudulent income. Prosecutors also opposed Rajaratnam’s bid for reduced bail.
The investigation started with suspicions in the 1990s when chip maker Intel Corp alleged that Rajaratnam was receiving tips from an Intel insider. The investigation was based on a witness who had first entered into a plea agreement with the United States before she began to cooperate in an investigation into Rajaratnam's practices.
Rajaratnam was taken into custody in New York on Oct. 16, 2009 in the USA's largest hedge fund insider-trading scheme. His bail was set at $100 million, Rajaratnam said in regard to the charges, that, "they are, without exception, entirely baseless. I am innocent and will vigorously defend myself and our firm."
Rajaratnam was hailed a hero in post-tsunami Sri Lanka, now however, his massive donations are being called into question.
Rajaratnam is a U.S. citizen and the most prominent defendant among 21 people criminally or civilly charged in an insider trading case involving employees of some of America's best-known companies, according to Bloomberg, including International Business Machines Corp, McKinsey & Co and Intel Capital, an arm of Intel Corp.
The investigation started with suspicions in the 1990s when chip maker Intel Corp alleged that Rajaratnam was receiving tips from an Intel insider. The investigation was based on a witness who had first entered into a plea agreement with the United States before she began to cooperate in an investigation into Rajaratnam's practices.
Rajaratnam was taken into custody in New York on Oct. 16, 2009 in the USA's largest hedge fund insider-trading scheme. His bail was set at $100 million, Rajaratnam said in regard to the charges, that, "they are, without exception, entirely baseless. I am innocent and will vigorously defend myself and our firm."
Rajaratnam was hailed a hero in post-tsunami Sri Lanka, now however, his massive donations are being called into question.
Rajaratnam is a U.S. citizen and the most prominent defendant among 21 people criminally or civilly charged in an insider trading case involving employees of some of America's best-known companies, according to Bloomberg, including International Business Machines Corp, McKinsey & Co and Intel Capital, an arm of Intel Corp.
4 Jan 2010
Trends in Hedge Fund Capital Raising for 2010
HedgeCo News - Several dominant trends regarding capital flows into the hedge fund arena were identified through conversations with more than 200 hedge fund organizations and 1000 institutional investors during 2009, according to Agecroft Partners.
These hedge fund trends include:
Continued Improvement of Capital Flows: The past 16 months witnessed unprecedented changes in the hedge fund industry with assets off 40% from their peak levels and industry revenues down approximately 70%. The environment was worse for fund raising where we estimate that new flows were likely down 95% from peak levels for the 4Q08 and 1Q09. The asset raising environment slowly improved during the 2nd and 3rd quarter, with a significant increase in the 4th quarter. However, it was still down an estimated 60% to 70% from the peak. During each successive quarter in 2010, we expect hedge fund capital inflows will continue to improve. A major driver of this renewed growth will be a gradual yet substantial increase in allocations made by pension funds.
Increased Competition: While asset flows had been a fraction of their previous highs, 2009 saw a significant increase in competition as many hedge funds, previously closed to new investors, began to market their funds. This trend will continue throughout 2010 as many leading hedge funds strive to return to their previous asset peak. The asset raising environment in 2009 was also affected by the development of a large secondary market for hedge funds, where investors could buy into many hedge funds at a large discount to NAV, as well as receive the benefit of investing below the high-water mark. Secondary funds should not be as big a factor in 2010 as discounts to NAV narrow. Finally, while there was a ‘flight to safety’ by institutional investors to larger hedge funds with strong brands in 2009, this trend should reverse itself as investors seek out smaller and more nimble alpha generators.
Increased Importance of Marketing: Due to the aforementioned increased competition, and the dynamic changes occurring amongst the major investor types, marketing and branding of hedge funds plays a more crucial role today than in the past. While most institutional allocators were stable investors throughout the crisis, high net worth individuals led the redemption wave and created liquidity problems for many hedge funds and hedge fund of funds, along with their underlying investors. Hedge funds will be more focused on their investor demographics in the wake of 2008. The resulting landscape features institutional investors as the preferred client, controlling a greater market share of hedge fund allocations. This trend will continue as pension funds significantly increase allocations to hedge funds. These changes highlight the need for a professional, proactive and knowledgeable sales force able to sell a fund’s specific attributes to an appropriate mix of investors.
Extension of the Due Diligence Process: The due diligence process of hedge fund investors is longer, more focused and deeper than ever before. Institutional investors typically require three to five meetings before making an investment decision. Their process focuses on multiple evaluation factors including: (1) organizational quality, (2) investment team, (3) investment process, (4) risk controls, (5) operational infrastructure, (6) terms and (7) historical performance. The weighting of the various attributes varies among investors, but the trend, particularly in the wake of the Madoff scandal, is toward longer due diligence and increased focus on areas of operational due diligence and risk management policies.
Marketplace Segmentation by Investor Type: The hedge fund marketplace consists of many different segments each displaying a unique profile with regard to the following factors: (1) decision-making structure, (2) length of due diligence process, (3) evaluation factors utilized, (4) average duration of investment and (5) impact on capital flows in the hedge fund industry. Next we will highlight the trends in hedge fund allocations by major investor types.
Pension Funds: The average pension fund portfolio allocates approximately 2.5% to hedge funds. Although it is still only a small fraction of the allocation of the top endowments, this percentage represents a significant increase from ten years ago. We anticipate that pension funds will gradually increase allocations to hedge funds during the next decade, approaching 15% of their asset base. Furthermore, we estimate that 90% of pension funds that allocate to hedge funds currently use a fund of hedge funds structure. However, over time we expect an increasing number of pension funds to choose direct access to managers as they acquire more knowledge and experience of hedge funds. Smaller pension funds will continue to use fund of funds. In addition, rather than separating hedge funds out as a separate asset class, we expect many pension funds to use hedge fund managers within their existing equity and fixed income buckets as a best of breed solution. During the recent crisis, pension funds were the most stable investor in hedge funds and will continue to be a sought-after investor by managers.
Endowments and Foundations: During 2009, endowments and foundations redeemed well below industry average. Primarily liquidity issues, as opposed to less favorable long-term opinion on the merits of investing in hedge funds, drove these redemptions. The endowment and foundation space is a bifurcated market comprised of organizations with more than $1B AUM and those with less than $1B AUM. Many of the larger endowments and foundations are fully allocated to hedge funds and will continue (in some instances) to favor a portfolio allocation of more than 50% to managers. Although we do not underestimate the positive impact that endowments and foundations have had as early adopters of hedge funds, the growth in this space is limited given current, already large allocations. The primary opportunity in this space is, as we see it, takeaway business, where a new manager will replace an existing manager. For endowments and foundations with less than $1B AUM, we anticipate growing portfolio allocations to hedge funds up from an estimated 10-25% overall. We also anticipate an increase in reliance on access to hedge funds through consultants for smaller endowments and foundations.
Fund of Hedge Funds: 2009 saw significant contraction in hedge fund of funds assets. The crisis of 2008 did not treat all fund of hedge funds equally. Some fund of funds experienced significantly fewer redemptions relative to peers due to a variety of factors including, (1) higher concentrations of institutional clients, (2) avoiding extreme leverage, (3) low Madoff exposure, (4) outperforming peers and (5) proactively educating clients on appropriate comparative benchmarks. While we expect the absolute dollar amount invested in funds of funds to increase with the expansion of assets in the hedge fund industry, the market share of funds of funds should decrease as increasing numbers of institutional investors go ‘direct’ to single managers.
The hedge fund of funds industry also consolidated throughout 2009—a trend we expect to continue. Some larger funds of funds ceased operations due to (1) Madoff exposure, (2) poor performance or (3) strategic decisions by a parent company. Larger competitors with greater distribution capabilities also acquired some smaller funds of hedge funds. As funds of funds continue to consolidate, opportunities will arise for smaller firms to differentiate themselves.
Consultants: The institutional hedge fund consultant market place has seen explosive growth as more institutional investors begin to go direct. Most of these firms saw few redemptions from their client base in 2009, while seeing the number of clients expand. This trend will continue well into the future, with increased competition from traditional institutional consultant firms and fund of fund organization that create separately managed portfolios for large institutional investors.
High Net Worth Investors: Generally, high net-worth investors fall into two categories: institutional and non-institutional. The first group, categorized by high sophistication, portfolio stability and endowment style approach to investing, constitutes a desirable investor. Many among this group operate from a family-office structure or spend a majority of their time independently evaluating hedge fund managers. The second category, characterized by less sophistication and fewer resources, tends to chase performance, and utilize a follow the herd mentality to investing. Unfortunately, we believe that this group bears primary responsibility for redemptions from both hedge funds and hedge fund of funds in the recent crisis. A large percent of assets controlled by this latter group have left the hedge fund space and we anticipate their return to be a lengthy process. The return of this capital will likely involve the engagement of advisors and consultants
Conclusion: The hedge fund industry is moving toward a period of sustained growth driven by institutional investors that will increasingly adopt a more institutionalized process for evaluating hedge fund managers. The majority of assets will flow to a small percentage of managers representing firms characterized by: (1) strong distribution, (2) clear comprehension of nuances among investor segments, (3) strong brand, and (4) consistent high-quality marketing message.
These hedge fund trends include:
Continued Improvement of Capital Flows: The past 16 months witnessed unprecedented changes in the hedge fund industry with assets off 40% from their peak levels and industry revenues down approximately 70%. The environment was worse for fund raising where we estimate that new flows were likely down 95% from peak levels for the 4Q08 and 1Q09. The asset raising environment slowly improved during the 2nd and 3rd quarter, with a significant increase in the 4th quarter. However, it was still down an estimated 60% to 70% from the peak. During each successive quarter in 2010, we expect hedge fund capital inflows will continue to improve. A major driver of this renewed growth will be a gradual yet substantial increase in allocations made by pension funds.
Increased Competition: While asset flows had been a fraction of their previous highs, 2009 saw a significant increase in competition as many hedge funds, previously closed to new investors, began to market their funds. This trend will continue throughout 2010 as many leading hedge funds strive to return to their previous asset peak. The asset raising environment in 2009 was also affected by the development of a large secondary market for hedge funds, where investors could buy into many hedge funds at a large discount to NAV, as well as receive the benefit of investing below the high-water mark. Secondary funds should not be as big a factor in 2010 as discounts to NAV narrow. Finally, while there was a ‘flight to safety’ by institutional investors to larger hedge funds with strong brands in 2009, this trend should reverse itself as investors seek out smaller and more nimble alpha generators.
Increased Importance of Marketing: Due to the aforementioned increased competition, and the dynamic changes occurring amongst the major investor types, marketing and branding of hedge funds plays a more crucial role today than in the past. While most institutional allocators were stable investors throughout the crisis, high net worth individuals led the redemption wave and created liquidity problems for many hedge funds and hedge fund of funds, along with their underlying investors. Hedge funds will be more focused on their investor demographics in the wake of 2008. The resulting landscape features institutional investors as the preferred client, controlling a greater market share of hedge fund allocations. This trend will continue as pension funds significantly increase allocations to hedge funds. These changes highlight the need for a professional, proactive and knowledgeable sales force able to sell a fund’s specific attributes to an appropriate mix of investors.
Extension of the Due Diligence Process: The due diligence process of hedge fund investors is longer, more focused and deeper than ever before. Institutional investors typically require three to five meetings before making an investment decision. Their process focuses on multiple evaluation factors including: (1) organizational quality, (2) investment team, (3) investment process, (4) risk controls, (5) operational infrastructure, (6) terms and (7) historical performance. The weighting of the various attributes varies among investors, but the trend, particularly in the wake of the Madoff scandal, is toward longer due diligence and increased focus on areas of operational due diligence and risk management policies.
Marketplace Segmentation by Investor Type: The hedge fund marketplace consists of many different segments each displaying a unique profile with regard to the following factors: (1) decision-making structure, (2) length of due diligence process, (3) evaluation factors utilized, (4) average duration of investment and (5) impact on capital flows in the hedge fund industry. Next we will highlight the trends in hedge fund allocations by major investor types.
Pension Funds: The average pension fund portfolio allocates approximately 2.5% to hedge funds. Although it is still only a small fraction of the allocation of the top endowments, this percentage represents a significant increase from ten years ago. We anticipate that pension funds will gradually increase allocations to hedge funds during the next decade, approaching 15% of their asset base. Furthermore, we estimate that 90% of pension funds that allocate to hedge funds currently use a fund of hedge funds structure. However, over time we expect an increasing number of pension funds to choose direct access to managers as they acquire more knowledge and experience of hedge funds. Smaller pension funds will continue to use fund of funds. In addition, rather than separating hedge funds out as a separate asset class, we expect many pension funds to use hedge fund managers within their existing equity and fixed income buckets as a best of breed solution. During the recent crisis, pension funds were the most stable investor in hedge funds and will continue to be a sought-after investor by managers.
Endowments and Foundations: During 2009, endowments and foundations redeemed well below industry average. Primarily liquidity issues, as opposed to less favorable long-term opinion on the merits of investing in hedge funds, drove these redemptions. The endowment and foundation space is a bifurcated market comprised of organizations with more than $1B AUM and those with less than $1B AUM. Many of the larger endowments and foundations are fully allocated to hedge funds and will continue (in some instances) to favor a portfolio allocation of more than 50% to managers. Although we do not underestimate the positive impact that endowments and foundations have had as early adopters of hedge funds, the growth in this space is limited given current, already large allocations. The primary opportunity in this space is, as we see it, takeaway business, where a new manager will replace an existing manager. For endowments and foundations with less than $1B AUM, we anticipate growing portfolio allocations to hedge funds up from an estimated 10-25% overall. We also anticipate an increase in reliance on access to hedge funds through consultants for smaller endowments and foundations.
Fund of Hedge Funds: 2009 saw significant contraction in hedge fund of funds assets. The crisis of 2008 did not treat all fund of hedge funds equally. Some fund of funds experienced significantly fewer redemptions relative to peers due to a variety of factors including, (1) higher concentrations of institutional clients, (2) avoiding extreme leverage, (3) low Madoff exposure, (4) outperforming peers and (5) proactively educating clients on appropriate comparative benchmarks. While we expect the absolute dollar amount invested in funds of funds to increase with the expansion of assets in the hedge fund industry, the market share of funds of funds should decrease as increasing numbers of institutional investors go ‘direct’ to single managers.
The hedge fund of funds industry also consolidated throughout 2009—a trend we expect to continue. Some larger funds of funds ceased operations due to (1) Madoff exposure, (2) poor performance or (3) strategic decisions by a parent company. Larger competitors with greater distribution capabilities also acquired some smaller funds of hedge funds. As funds of funds continue to consolidate, opportunities will arise for smaller firms to differentiate themselves.
Consultants: The institutional hedge fund consultant market place has seen explosive growth as more institutional investors begin to go direct. Most of these firms saw few redemptions from their client base in 2009, while seeing the number of clients expand. This trend will continue well into the future, with increased competition from traditional institutional consultant firms and fund of fund organization that create separately managed portfolios for large institutional investors.
High Net Worth Investors: Generally, high net-worth investors fall into two categories: institutional and non-institutional. The first group, categorized by high sophistication, portfolio stability and endowment style approach to investing, constitutes a desirable investor. Many among this group operate from a family-office structure or spend a majority of their time independently evaluating hedge fund managers. The second category, characterized by less sophistication and fewer resources, tends to chase performance, and utilize a follow the herd mentality to investing. Unfortunately, we believe that this group bears primary responsibility for redemptions from both hedge funds and hedge fund of funds in the recent crisis. A large percent of assets controlled by this latter group have left the hedge fund space and we anticipate their return to be a lengthy process. The return of this capital will likely involve the engagement of advisors and consultants
Conclusion: The hedge fund industry is moving toward a period of sustained growth driven by institutional investors that will increasingly adopt a more institutionalized process for evaluating hedge fund managers. The majority of assets will flow to a small percentage of managers representing firms characterized by: (1) strong distribution, (2) clear comprehension of nuances among investor segments, (3) strong brand, and (4) consistent high-quality marketing message.
Diamond Notch Fund Manager to Join WindTamer Board
Wind turbine technology company WindTamer Corporation has elected hedge fund investment advisor Steven DiNunzio as an independent member of the Company's Board of Directors.
DiNunzio is currently CFO of Diamond Notch Asset Management, LLC, a multi-strategy investment advisor with approximately $430 million of assets under management. His responsibilities at the company include accounting and financial management and reporting, middle and back office operations and managing service provider relationships, for administration, audit, tax and most prime broker relationships for the Diamond Notch Funds.
Prior to joining Diamond Notch Asset Management, from 2002 to 2007 Mr. DiNunzio held several positions in the Fund Derivatives Department at BNP Paribas and Zurich Capital Markets, most recently as Director and Head of Fund Derivatives Operations for BNP Paribas in New York. Previous to that, Mr. DiNunzio was a Director at Dune Partners, Ltd., a London based hedge fund where his responsibilities included directing operations, compliance and finance. Mr. DiNunzio has also held various positions at Swiss Bank/UBS in the Foreign Exchange, Middle Office and Program Management groups.
"We are very pleased that Steve DiNunzio has agreed to join the WindTamer team," said Gerald E. Brock, WindTamer's Chairman and Chief Executive Officer. "Steve's skills and his long experience in the financial services industry will bring a valuable perspective to our Board of Directors."
DiNunzio is currently CFO of Diamond Notch Asset Management, LLC, a multi-strategy investment advisor with approximately $430 million of assets under management. His responsibilities at the company include accounting and financial management and reporting, middle and back office operations and managing service provider relationships, for administration, audit, tax and most prime broker relationships for the Diamond Notch Funds.
Prior to joining Diamond Notch Asset Management, from 2002 to 2007 Mr. DiNunzio held several positions in the Fund Derivatives Department at BNP Paribas and Zurich Capital Markets, most recently as Director and Head of Fund Derivatives Operations for BNP Paribas in New York. Previous to that, Mr. DiNunzio was a Director at Dune Partners, Ltd., a London based hedge fund where his responsibilities included directing operations, compliance and finance. Mr. DiNunzio has also held various positions at Swiss Bank/UBS in the Foreign Exchange, Middle Office and Program Management groups.
"We are very pleased that Steve DiNunzio has agreed to join the WindTamer team," said Gerald E. Brock, WindTamer's Chairman and Chief Executive Officer. "Steve's skills and his long experience in the financial services industry will bring a valuable perspective to our Board of Directors."
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