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Friday, January 11, 2008
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Houston Firm Launches CrossCommodity Energy Hedge Fund
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fter six months of marketing its energy hedge fund to institutional investors, Houston-based ETG Capital this week launched its ETG Capital Master Fund with between $25 million and $50 million. The cross-commodity, relative-value energy hedge fund has exposure to the U.S. power, natural gas, crude oil and refined products sectors. The firm intially aimed to launch the fund in October, but was derailed by a committed investor who had too much exposure to the fastsinking credit markets, according to co-founder Don Addison. The fund attracted commitments mainly from large funds of funds looking
for additional energy exposure. “We’ve had 50 to 60 investor meetings over the last five or six months and there is tremendous appetite at the institutional level for the energy commodity sector,” said Addison. No more than 50% of the fund’s capital can be allocated to any one particular commodity. The offering employs short-, intermediate- and long-term trading, and 85% of its trades are in some sort of spread, either in commodities, time or location within a commodity. Addison said the firm is currently c urrently bullish on the U.S. power sector and will be initiating several long
EQUIT Y
NEWS
Vol. IV, No. 1
Inside this Issue News .......... ..................... ...................... ........... 2, 7, 14-15 Memorabilia The Ultimate Alternative? Bear Shutters Third Hedge Fund Point Clear Goes Long MFA Seeks Powerful Lawmaker For Top Post Fund Launches ........... ..................... ................ ...... 3-6 Haar Cultivates Ag. Expertise BlackSquare Unveils $30M Global Macro Fund Martin Asset Mgmt. Plans Hedge Fund, ETF Year In Review ............. ........................ ............... .... 8-9 Top Strategies, Top Trades, Top Funds Halls of Justice ........... ..................... ............ .. 10-11 Anchor Point Founder Enters Prison Lone Star Exec. To Be Questioned In South Korea Shareholder Activism...... Activism................. ............. 13 Hedge Funds Push For Brink's Split Private Equity.............. Equity......................... ................. ...... 14 Sorenson Closes 2nd Fund People Moves.............. Moves......................... ................. ...... 16
Continued on Page 15
Activist Bulldog Preps SPACs Hedge Fund
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ctivist hedge fund shop Bulldog Investors is adding a new strategy to its product line. The Saddle Brook, N.J.-based firm is launching the Absolute Plus Fund, focused on investing in special purpose acquisitions companies or “blank check companies,” this month with some $8 million in assets. “There are great opportunities there and I think we’re one of the top hedge fund managers in
understanding how they work and their risks and rewards,” said cofounder Phil Goldstein . “It’s such a conservative investment but has the perception of being very risky. We’re looking for double-digit returns annualized with a minimum of 6.5% per annum, which will be the worst case. It’s very attractive versus just having your money in the bank and the risk is comparable to having a certificate of deposit.” According to Goldstein, what
makes SPACs safe is that their capital goes into a bank trust fund which can’t be touched until a deal is approved. The shareholders have an opportunity to endorse the deal, and if they don’t they are entitled to a pro-rated share of the trust fund. “It’s a win-win if a good deal comes down the road but if it doesn’t, then the manager has to take the hit,” Goldstein said. “We’ve had a lot of experience Continued on Page15
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Does Madonna-Centered Strategy Have A Prayer?
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ne U.K.-based firm is looking to turn a hobby into a viable trading strategy, giving investors a real alternative to their alternatives portfolio. Marquee Capital is banking on investing in celebrity memorabilia, specifically that related to the singer Madonna , to drive performance for its one-yearold operation. The firm, formed by four entrepreneurs, boasts what it calls “the world’s largest collection” of Madonna memorabilia, ranging from outfits she’s worn to a signed American Express card. It also has a collection of items from other celebrities, including Michael Jackson and Elton John . “As far as we know, we’re the world’s first investment vehicle
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specializing in celebrity memorabilia,” said CEO Chetan Trivedi. “Madonna turns 50 this year and, fan or not, she does represent an opportunity to invest in and we’re going to be holding exhibitions this year globally.” The firm follows a two-prong strategy: long-term investments spanning at least a decade alongside tactical, event-driven acquisitions. Items once belonging to the likes of Madonna and Marilyn Monroe are held for the long-term, while other memorabilia, such as that of the Jackson 5, are flipped within the six to nine months in connection with events like the group’s proposed reunion tour this year. “Last year, we bought a chunk if items, including lyrics to the
‘ABC’ song,” said Trivedi. “If they go forward with their reunion, we’re looking to exit from some of our Jackson 5 memorabilia because it would be a good time to do that with all of the media attention.” Trivedi said 99.9% of its inventory comes from legitimate sources, such as Sotheby’s auction house. Marquee, which doesn’t manage a fund, is offering investors a stake in the firm for their capital, which goes directly into purchasing additional memorabilia, and is currently in conversation with a “major” venture capital firm based in the Middle East. The minimum of investment requirement is £10,000 (US$19,000) and the minimum investment period is 10 years.
$2.8 Billion CTA Closes Out ‘Phenomenal’ Year
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uantitative Investment Management last year enjoyed success on both the fundraising and performance fronts. The Charlottesville, Va.-based firm’s Global Program, a systematic, diversified futures strategy, made gains in 11 out of 12 months as its assets ballooned from just $527 million to over $2.7 billion. The Global program enjoyed a 1.15% return last month, bringing its returns to 28.41% for the full year. In comparison, the Newedge CTA Index (the former Calyon Financial Barclay Index) was up just 8.82%. The program’s performance in December was driven by small profits in many futures markets as no individual market distinFINalternatives FINalternatives
guished itself last month, according to the firm’s December investor letter. “Only one sector, metals, suffered a small loss,” the letter read. “As our assets approach $3 billion, the Global Program has clearly demonstrated that it can handle its increased size, making it the CTA of choice for institutional investors. Due to our asset growth, the Global Program will be included in the Newedge CTA Index for 2008.” The program does not charge a management fee, and its performance fee is 30%. There is a $250,000 minimum investment requirement for fund investors, and a $20 million minimum for managed accounts. Jan. 11, 2008
FUND LAUNCHES
Absolute Return Debuts Second Fund Of Funds
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.K.-based Absolute Return Partners this month launched another fund of hedge funds vehicle, a follow-on vehicle to its Millennium Wave Fund, which launched in March 2006. The Millennium Wave II Fund launched with US$60 million in seed capital from a large northern European pension fund, as well as from the firm. Fund II will follow exactly the same investment strategy as its predecessor, ultimately investing in 15 to 20 underlying managers. Each of the fund’s underlying managers must seek to deliver a return of at least 10% to 12% annually; to enhance its expected returns, the fund will use leverage of an average of 50% to 100%, subject to market conditions. There is no underlying manager overlap between the existing fund and the new offering, according to the firm. Millennium Wave Advisors, which is headed by John Mauldin , will act as a sub-advisor to the fund. “We are excited to launch this sister fund to The Millennium Wave Fund and to continue the successful co-operation with John Mauldin whose immense network we consider a major asset,” said Niels Jensen, chief executive of Absolute Return. Absolute Return currently manages some $400 million in total assets under management.
Jan. 11, 2008
Haar Offers Agriculture Program
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aar Capital Management believes that further success in the managed futures industry can be had by sticking to its knitting. The Boca Raton, Fla.-based commodity trading adviser last month launched the Discretionary Ag Trading program, a discretionary agricultural-only futures strategy. The program finished its first month of trading up 5.67%, with about $11 million in assets under management. Haar’s new program is not entirely a carve-out of its existing and more diversified Commodity Trading program, according to founder Stanley Haar . “Obviously, it’s a subset of the markets that we trade under the bigger program,” he said. “However, we can hold different positions and different size positions in the new program.” But Haar admits that there’s going to be significant overlap
between the two programs because of his background and experience in the agricultural sector, coupled with the success of the existing program within that sector. Last year, the former trader for the Continental Grain Co. returned 16.76% to investors in the $42 million Commodity program, largely from trading soybeans, wheat and cocoa. Haar said his decision to launch the latest strategy was based largely on institutional demand for agricultural-based products. “There was a demand from some of those clients for an ag-only program. We think there’s more interest out there partly because the ags seem to be the center of attention by everybody whether it is Goldman Sachs or Jim Rogers.” The Ag program charges a 2% management fee and 20% incentive fee. The minimum investment requirement is $500,000.
Singapore Firm Unveils Korea FoF
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FG Investments , a Singaporebased joint venture established last year by Hana Daetoo Securities and Opvs Investment Holdings , launched its inaugural fund of hedge funds last month. The HFG Korea Fund will invest in a range of actively managed Korea-focused hedge funds, targeting a 12% annual return. 3A Asia, the Hong Kong-based arm of alternative asset management firm 3A SA, has been appointed as the FINalternatives FINalternatives
fund’s investment advisor. “We are extremely excited about the launch of this product,” said Jennifer Carver , CEO of 3A Asia. “The Korean hedge fund market has been growing dramatically in recent years and the HFG Korea Fund creates the ideal opportunity for global investors to either establish or expand their exposure to Korea. We expect HFG to receive significant demand for this product.” 3
Launching a Hedge Fund Conference
Member FINRA, SIPC
Thursday, February 7, 2008 Thursday, The Princeton Club 15 West 43rd Street (bet. 5th & 6th Ave.) New York, NY 10036
Conference Agenda: 5:30pm 6:00pm – 7:00pm 7:00pm – 8:30pm
Conference Registration Conference Presentation & Industry Panel Cocktails & Hors d'oeuvres
Space is limited, li mited, RESERVE YOUR SPOT TODA TODAY Y If you are a financial advisor, advisor, trader, portfolio manager or analyst and are contemplating launching a hedge fund in 2008, you 2008, you shouldn’t miss this opportunity to meet with some of the leading industry service providers from the legal, accounting, fund administration and prime brokerage community to discuss your upcoming launch. Gain insight insight into the inner-workings of launching a hedge fund and an accurate level of expectation when it comes to startup budget, operational responsibilities, capital raising and many more.
RSVP and More Information: Bill Hanson Hedge Fund Capital Partners, LLC Tel# 646.747.5222 Email
[email protected] www.hedgecap.com
Sponsor Panelists:
Hedge Fund Capital Partners, LLC, a member of FINRA and SIPC, is a New York based broker dealer catering to the needs of the hedge fund community.
FUND LAUNCHES
Roxbury Capital Launches Maiden Hedge Fund
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fter two decades of managing traditional equity strategies, Roxbury Capital Management has launched its first hedge fund. The $3 billion Santa Monica, Calif.-based firm’s RQS Migration Fund, a quantitative long/short vehicle, debuted in September with $5.4 million in assets. The fund now manages about $8 million and has returned an estimated 11.1% in its first four months of trading. The fund is agnostic to capitalization, growth, value or sectors and uses a behavioral, quantitative model to predict demand shocks in stocks, which tend to be driven by analysts’ information, according to Jon Foust , head of marketing and client services. “What we’ve heard from large hedge fund of funds players is that it’s different from any other quant model out there because it is based on behavioral dynamics in a given stock as opposed to fundamentals,” he said. “From a placement standpoint, it can be very complementary in uncorrelated returns to the traditional quant funds that have gotten a black eye in the back half of 2007.” The Migration Fund, which is benchmarked to the Russell 3000 Index, charges a 2% management fee and a 20% incentive fee, with a $1 million minimum investment requirement. Roxbury Capital was founded in 1986.
Jan. 11, 2008
BlackSquare Unveils Global Macro
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.K-based BlackSquare Capital launched the BlackSquare Capital Global Macro Fund of Funds on Jan. 1 with some US$30 million in assets. The concentrated multi-manager portfolio launched with 11 discretionary and systematic macro hedge fund managers, many of whom are closed to new investment. The portfolio includes managers such as Caxton Associates , Moore Capital Management , Fortress Investment Group ’s Drawbridge Commodities Fund and Winton Capital Management , and will be equally split between equities, commodities, interest rates and foreign exchange. Eventually, the portfolio will contain between 15 to 20 managers. “When I look at the world today and going forward, I view the cur-
rent environment given the level of uncertainty in interest rates and revaluation of equity/debt markets, as a very good environment for topdown thematic macro investing, more so now than any time over the last 10 years,” Christopher Peel, CEO of BlackSquare, said. The Global Macro Fund of Funds charges a 1% management fee and a 10% incentive fee with a US$100,000 minimum investment requirement. Next quarter, the firm is also looking to launch a long/short commodities fund of funds. “What we want to do is create a product that will complement investors currently invested in long-only products so we want to have a discretionary but fundamental fund that will trade across global commodity markets,” said Peel.
Magnum Pops Cork On Asia FoFs
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agnum Global Investments is making investing in China and India a priority in 2008. The $350 million fund of hedge funds shop last month launched the Magnum China Fund, a Greater China-focused fund of hedge funds, and kicked off the New Year with the unveiling of the Magnum India fund. Magnum’s China Fund invests in hedge funds and long-only funds focused on the Greater China region. It currently invests in six managers, with plans to add another 10 to 12. The minimum investment for the FINalternatives FINalternatives
fund is $100,000. It charges a 1.5% management fee and a 10% incentive fee over a hurdle of 20%. Magnum’s Indian vehicle has been set up as a feeder fund to invest in a fund of hedge funds managed by New York-based RAS Capital Management , which launched in November 2006. That fund currently includes a dozen managers employing a mix of long/short equity, event-driven and arbitrage strategies The India fund charges a 1.5% management fee and 10% incentive fee. 5
FUND LAUNCHES
Calif. Firm Preps Alternative Energy Hedge Fund
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arzana, Calif.-based Martin Asset Management is ushering in the New Year with a pair of launches. Next month, the firm will launch its Ilios Alternative Energy Fund, a long-biased vehicle, with between $10 million to $15 million in assets. The firm will also serve as a subadviser to an exchange-traded fund strategy to be rolled out at the end of March. Ilios will invest in a range of public companies involved in wind, solar, hydro, geothermal and biomass energy, and will hedge certain exposures using inversely correlated ETFs. “We don’t use leverage, derivatives or futures because they’re
added risks to the portfolio,” said Francisco Martin , founder. “We use a lot of PowerShares [ETFs] to get downside protection when we deem it necessary.” Martin said the fund is investing inve sting in companies such as First Solar , a product manufacturer for solar power plants, because of the performance of its stock and the fact that it “probably has the best track record of all the solar energy companies out there.” He also said that investors are looking to invest in more alternative energy funds as oil prices top the $100 mark. “We’re seeing $115 to $120 per barrel, which will make alternative energy more feasible.” The fund charges a 2% manage-
ment fee and a 20% incentive fee with a $500,000 minimum investment requirement Martin is also sub-advising an ETF-specific strategy dubbed the Integris Global Index Plus Fund, which is slated to launch on March 31 with some $10 million in proprietary capital. Martin said the fund is mostly replicating the performance and risk performance of the HFRI Index by going long and shorting certain ETFs. Thirty percent of the fund will be a global, macro opportunistic strategy designed to add more alpha. The Integris fund charges a 1% management fee and a 15% performance fee.
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Jan. 11, 2008
Blackstone Buys Credit Hedge Fund GSO
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he Blackstone Group is getting bigger, agreeing to buy hedge fund GSO Capital Partners for $930 million. Meanwhile, it has unveiled a plan to stop its stock price from doing the opposite. GSO, which manages $10 billion in leveraged finance assets, including a multi-strategy credit hedge fund, is headed by former Credit Suisse executive Bennett Goodman . He will join the firm’s executive committee. Blackstone will pay $620 in cash and stock at closing, with an additional $310 to be paid over five years subject to performance targets. “The combination of GSO’s business with our existing corporate debt operations will produce one of the largest credit platforms in the alternative asset management business, with over $21 billion of total assets under management,” Blackstone CEO Stephen Schwartzman said. “Given the current dislocation in the credit markets, this is an ideal time to create a more powerful, diversified platform from which to grow Blackstone’s business.” Goodman, who headed Credit Suisse’s alternative capital unit, founded GSO with Tripp Smith and Doug Ostrover, formerly co-heads of leveraged finance at the bank. It has offices in New York, London, Los Angeles and Houston. Blackstone—which has seen its share price plummet more than 40% since its initial public offering in June—also announced a $500 million share buyback plan.
Jan. 11, 2008
Bear Stearns To Close Third Hedge Fund After 40% Decline
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eversing course, Bear Stearns has told investors that it is shuttering an asset-backed securities hedge fund that lost almost 40% of its value last year. The firm, which was forced by the subprime mortgage collapse to close two funds in the summer, had unveiled a plan to save the fund in August, suspending investor redemptions. The once-$900 million Bear Stearns Asset Backed Securities Fund lost 21.4% in November, and dropped by one-third between August and November. All told, it fell by at least 39% last year. Bear blamed the ongoing credit crisis for its decision, noting that “given the difficult market conditions that continue to exist,” things could get worse, Bear told clients in a letter on Dec. 20, Bloomberg News reports. Bear said the fund still has about $500 million in assets, and would return $90 million immediately, with the rest refunded as its assets are sold. The firm did not give a timetable for the fund’s unwinding, but did say that it is completely unlevered and had just 0.5% exposure to subprime-linked securities. Portfolio manager Colin Gordon will remain on until the fund closes. Under Bear’s original plan, the fund would have been restructured, locking up investor cash for two years. The bad news put a damper on a hopeful report about some of its other hedge funds. At least two of its more than dozen hedge funds posted respectable, if not spectacular, returns. Its $1.7 bilFINalternatives FINalternatives
Bear, Fortress Talked Merger
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proposed merger of Bear Stearns and alternative investments giant Fortress Investment Group fell apart in recent weeks, as the bloodied Wall Street giant seeks to turn around its recent run of bad fortune. In the weeks before former Bear CEO James Cayne announced his resignation, the firms held preliminary talks on a tie-up, the Financial Times reports. But discussions ended without a deal, due to tax complications and disagreements about the price. The Fortress failure is at least the second try by Bear to add a high-profile alternatives manager to burnish its image. When troubled first surfaced at two hedge funds managed by the firm this summer, Bear officials approached Avenue Capital about taking a stake in the hedge fund.
lion Emerging Markets Macro Fund returned 25.56% last year, after a 2.95% December surge, according to a letter sent to investors Tuesday, Reuters reports. Of course, emerging markets funds were among the best-performing of all hedge funds last year. Bear’s $200 million Europe Long/Short Fund added 1.05% last month, bringing its full-year return to 18.29%.
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YEAR IN REVIEW
HFR: Hedge Funds Up 10.36% In 2007
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he average hedge fund managed double-digit returns—just—last year, according to figures from Hedge Fund Research . The firm’s HFRI Fund Weighted Composite Index returned 10.36% for 2007 after a 0.68% rise in December. Funds of funds trailed, but not by much, adding 9.94% last year following a 0.1% return last month. As far as individual strategies go, there are emerging market funds, and then there’s everybody else. E.M. blew all other comers out of the water, returning 24.91% on the year (1.75% in December). Funds focused on Asia, in particular, had a stellar 2007, soaring 35.88%. The strategy’s 2.82% December return was also tops among those tracked by HFR. Energy hedge funds also enjoyed a successful 2007, returning 16.47% (1.95% in December). Technology funds also posted strong returns, adding 15.68% on year, though the strategy fell 0.46% last month. Speaking of losing, just three of the myriad strategies and sub-strategies tracked by the HFRI indices finished last year in negative territory. Hedge funds focusing on the financial sector suffered the most, as financial firms were battered by the credit crisis and roiling stock markets. The strategy lost 5.88% in 2007, dropping 1.62% in December alone. Real estate hedge funds were pushed into the red by a 2.41% decline last month, leaving the strategy down 1.33% on the
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year. And high-yield funds finished marginally down, losing 0.14% in 2007 (down 0.05% in December). Among other major hedge fund strategies, macro funds posted a 12.2% return in 2007 (1.33% in December), while equity hedge funds returned 10.71% (0.68% last month). Relative value funds added 9.35% (0.99% last month), eventdriven 7.38% (0.13%), merger arbitrage 6.73% (down 0.67% last month) and distressed securities 6.29% (0.55%). Equity-market neutral funds were up 5.78% last year (0.78% last month), convertible arbitrage 4.9% (down 0.83% last month) and fixed-income 2.68% (0.23%). Investable hedge funds did proportionally worse, according to HFR’s HFRX indices. Overall, investable funds returned 4.23% in 2007, declining 0.14% in December. While only one of the HFRX subindices found itself in the red last year—convertible arbitrage, which lost 0.95% for the year after a 2.17% drop in December— just one bettered the Standard & Poor’s 500 Index, which returned 4.9% in 2007. That was relative value arbitrage, which topped all other investable strategies with a 5.8% return, though like most of the HFRX strategy indices, it found itself in the red last month, dropping 0.42% in December. Event-driven investable funds returned 4.88% on the year, merger arbitrage funds 4.85% and distressed securities 3.99%. FINalternatives FINalternatives
Atticus, Ackman Top List Of Top Hedge Fund Trades
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ew things bring a smile to a hedge fund manager’s face more than being right, and profiting handsomely by it. So there are likely to be more than a few broad grins on Atticus Management ’s New York trading desk. The firm was recognized by Dow Jones Hedge Fund Trades in its second-annual list for making two of the top hedge fund trades of 2007, moves which netted the firm almost $1.2 billion in and of themselves. THE BIG TEN
Top Hedge Fund Trades of 2007 1. Atticus Management: Freeport McMoran Copper & Gold Profit: $800 million 2. Pershing Square Capital Management: MBIA Inc. and Ambac Financial Profit: more than $500 million 3. Tontine Partners: Foster Wheeler Profit: $426 million 4. Atticus: Union Pacific and other U.S. railroads Profit: $387 million 5. Maverick Capital : First Solar Profit: more than $350 million 6. Glenview Capital Management: Crown Castle International and American Tower Profit: $319 million 7. Dawson-Herman Capital Management: CF Industries Profit: $160 million 8. Meditor Capital Management: Onyx Pharmaceuticals Profit: $155 million 9. Tremblant Capital Group: Chipotle Mexican Grill Profit: $95 million 10. Shunway Capital Partners: United Therapeutics Corp. Profit: $73 million source: Dow Jones Hedge Fund Trades
Jan. 11, 2008
YEAR IN REVIEW
Goldman, Highbridge Among 2007 Losers
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ome of the biggest hedge funds in the world have been weighed in the balance of 2007, and found wanting. Most indices show that the average hedge fund returned roughly 10% last year, a figure that some big names in the industry can only dream about, according to published reports. The biggest name of all, Goldman Sachs ’ Global Alpha fund, suffered one of the largest declines of any hedge fund last year, losing 38% through Dec. 28. It is the second-straight losing year for the one-time Cadillac of hedge funds, which, like many of its quantitative peers, was severely burned by this summer’s subprime slide, and continued to be hurt by the credit crisis throughout the second half of the year. It was hardly alone. According to Bloomberg News, seven of the 10 largest hedge fund managers trailed the industry average; six of those seven were quant managers. A case in point is the quant offering from the world’s largest hedge fund manager, JPMorgan . Its Highbridge Capital Management unit saw its Statistical Opportunities Fund fall 14%. But the firm’s non-quant funds often performed extremely well, with its long/short equities offering up 40% and its Asian equities fund up 19%. The firm’s flagship returned a more modest 8.5%, while its event-driven and relative value fund dropped 10%. Other funds glad to see the ball drop on New Years are Blue Sky Capital Management ’s Japan Jan. 11, 2008
Fund, which fell 31% last year, Odey Asset Management ’s Japan & General Fund, which declined by 26%, Drake Capital Management’s flagship Global Opportunities Fund, which lost 23%, and GMN Capital, which lost 19%. San Francisco-based GMN announced in November that it would close its doors and return its remaining assets to investors. Goldman’s Global Equity Opportunities Fund, for which the firm led a $3 billion bailout in August, was down 30% through November, and Renaissance Technologies ’ largest fund, Institutional Equities, fell by about 1% on the year. Many hedge funds avoided the quants’ fate at the hands of the subprime market, and in fact profited from the experience, none more spectacularly than Paulson & Co. The New York firm boasts three funds with triple-digit returns in 2007, led by its Credit Opportunities Fund, with an awe-inspiring 589.9% return. The firm’s Credit Opportunities II and event-driven arbitrage funds didn’t do too badly, either, returning 351.8% and 100%, respectively. The firm’s merger arbitrage fund trailed all three, but still returned a handsome 52%. Triple-digit performances were also turned in by San Francisco’s Passport Management , whose Global Master Fund returned 219%, New York-based Harbinger Capital Management , whose flagship added 118% while its Special Situations Fund returned 170%, and 788 Capital Management , whose China Fund rose 104% on the year. FINalternatives FINalternatives
Other notable winners of 2007 include Gartmore , whose Tenro fund added 57%; Sandler Capital Management , which rose 53%; Odey’s European fund; which jumped 52%; Eton Park Capital Management , whose Master Fund returned 35%; Pequot Capital Management ’s Core Global Strategies Fund, which also rose 35%; Quantitative Investment Management ’s Quantitative Global Fund, which bucked the quant trend and returned 28.6%; MKP Capital Management ’s MKP Partners, which added 27.7%; and Tremblant Capital ’s flagship Tremblant Parters, which returned 22%. William Ackman’s $4 billion activist hedge fund, Pershing Square Capital Management , also returned about 22%. Among industry titans, Citadel Investment Group ’s flagship Kensington fund returned 30%, D.E. Shaw & Co.’s Oculus Fund rose 26% (its Composite Fund managed just 7.4%), and Atticus Capital’s European offering also rose 26%. Cerberus Capital Management ’s International Fund was up 18%, Farallon Capital Management ’s flagship rose 14.8%, SAC Capital Advisors ’ International Fund added 13%, and OchZiff Capital Management ’s OZ Master Fund returned 11.7%. Two other high-profile names were not as lucky: 32 Capital, run by Barclays Global Investors, returned just 0.3%, while Old Lane, the hedge fund founded by new Citigroup CEO Vikram Pandit , added only 2.8% in 2007. 9
HALLS OF JUSTICE
Hsu Enters Prison With Apology, Explanation
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acing a judge before going to prison, disgraced hedge fund manager Albert Hsu blamed his bipolar disorder for his misfortune, and decried putting the mentally ill in jail. “My mental illness is not an excuse” for plotting to have his former mistress raped and kidnapped, Hsu said at his formal sentencing yesterday in Stamford, Conn. “But it is an explanation for my actions.” Judge Richard Comerford sentenced Hsu, the founder of hedge fund Anchor Point Capital , to two-and-a-half years in prison, and 12 years probation. He also has to register as a sex offender upon his release, and a violation of his
r d 0 7 7 o c 0 r e n 2 2 0 0 k i i n c a r o r s t s t r s t a n a e i p y e i n v i c 9 t % p a r 3 4 + 5 0 6
probation could send him back to the slammer for 12½ years. Hsu pleaded guilty to the charges in October. Hsu apologized to his victim, whom he posed as to post an online ad on a bondage and sadomasochism Web site seeking “a reallife abduction and rape scene” that included her photo, license plate number and where she preferred to stand at a New Canaan, Conn., commuter rail station. And he expressed regret for its effect on his family, saying he “never wanted to shame” it, and adding that the worst moment in his life was when his mother denied he was her son after his arrest. His wife, Kendra , with whom he has
two children, has filed for divorce. But he also inveighed against jailing the mentally ill. “Incarcerating [the mentally ill] in an environment that is already overcrowded is a step that further solidifies their mental illness,” he said. Hsu said he has attempted suicide five times, and that he posted the offending ad after the medication for his bipolar disorder stopped working. Hsu had previously been warned by police in New Canaan after the victim complained of harassment. Hsu’s victim, who has not been identified, approved of Hsu’s plea agreement, her attorney said. He could have faced up to 25 years in prison. 9th annual event
3 - 6 March 2008, Madinat Jumeirah Hotel, Dubai, UAE
The Middle East’s largest and most influential hedge fund investment conference Special Guest Strategist Partner,, Traxis Partners Barton Biggs, Managing Partner This year, our guest strategist is the legendary Barton Biggs, who founded and built Morgan Stanley Investment Management (MSIM) into a global powerhouse, and who now runs Traxis Partners LLC, a global macro hedge fund based in New York. Institutional Investor magazine named Barton as a strategist to its “AllAmerica Research Team” eleven times, and from 1996 to 2002 he was voted the world’s top global strategist by the Institutional Investor global research poll.
Join us at the
Other industry leaders presenting
Nouriel Roubini
Dr Sushil Wadhwani CBE, Chief Executive
Sindo Oliveros
Chairman
Officer
Peter Clarke
Plan and Endowments
Roubini Global Economics
Wadhwani Asset Management
Chief Executive Officer
The World Bank Pension Fund
Director of Pension
Man Group plc
Book online now! www.hedgefundsworld.com/2008/hfwme
10
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Jan. 11, 2008
HALLS OF JUSTICE
Homm Sued By Investor Over ‘Secret’ Brokerage
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litigious Colorado millionaire has filed suit against Absolute Capital Management Holdings co-founder Florian Homm, accusing him of defrauding investors in the once high-flying hedge fund. Jack Grynberg , an oil and natural gas developer best known for a flurry of lawsuits arguing that more than 70 energy companies owed billions of dollars to the U.S. government for oil and gas exploration on federal and Native American tribal lands, accused Homm of buying highly-illiquid penny stocks for AbCap’s funds through a brokerage firm he owned.
According to Grynberg, Homm and co-defendant Todd Ficeto each owned half of Beverly Hills, Calif.based Hunter World Markets , which sold pink sheets to AbCap. The suit alleges that Hunter earned a commission on the pink sheets, the value of which Grynberg says Homm inflated, taking a 20% cut as his incentive fee for his role as manager of the AbCap funds. In addition, Grynberg accuses Homm of lying to investors by putting as much as 44% of the funds’ assets into pink sheets, while telling investors that investments in unlisted companies would be capped at 10%.
Texas Prime Broker Slapped For ‘Inadequacy’
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Houston prime brokerage and three employees have been disciplined for a variety of failures in dealings with hedge fund clients. According to the Financial Industry Regulatory Authority , SMH Capital made $325,000 in improper soft-dollar payments to a hedge fund client in spite of “several red flags” raised by the manager’s requests, including the fact that the hedge fund asked to be paid directly for third-party services, identified neither the research provider nor the provider, or provide any invoice or backup documentation. FINRA said that SMH “took no steps” to determine whether the Jan. 11, 2008
soft-dollar payment was proper. What’s more, SMH allowed two of its brokers to collect commissions on trades made for a hedge fund the two managed while employed at SMH. Michael Rosen and Jack Seibald received bonuses from a “profit pool” filled in part with commissions from their own hedge funds. SMH was fined $450,000 for failure to adopt adequate supervisory procedures and systems. The firm was also ordered to retain an independent consultant to review its policies and systems. Rosen and Seibald were each hit with $100,000 fines and 20-day suspensions. FINalternatives FINalternatives
Lone Star Exec. Hit With Travel Ban In Korea
T
he chairman of hedge fund Lone Star Funds may be spending more time in South Korea than he planned, after prosecutors slapped a 10-day travel ban on him. John Grayken traveled to the country Wednesday to testify in the stock-price manipulation trial of one of its portfolio companies. Prosecutors had sought to question Grayken for months, and said he would be brought in for questioning after his court appearance, scheduled for today. It would not say how long he would be detained for; South Korean prosecutors can hold a person in custody for up to a month before arresting him. At issue is Lone Star’s purchase of a majority stake in Korea Exchange Bank in 2003. Some labor unions and politicians alleges that the hedge fund colluded with KEB management to depress its stock price in advance of that deal, in which Lone Star paid US$1.2 billion for a 65% share of the firm. Lone Star came under a hail of criticism in 2006, when it agreed to sell KEB to Kookmin Bank at a US$4 billion profit. Last year, it broke off that deal, saying KEB’s value has grown further, striking a new tentative agreement in September to sell the bank to HSBC. Grayken has defended his firm’s stewardship of KEB, saying Lone Star’s investment and management shakeup resulted in its soaring value. 11
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SHAREHOLDER ACTIVISM
Defense Contractor Fends Off Hedge Fund
A
Maryland court has dealt a potentially fatal setback to activist hedge fund Costa Brava’s battle with defense contractor Telos Corp. Baltimore City Circuit Court Judge Albert Matricianni dismissed two shareholder derivative claims, filed by Costa Brava Partnership III two years ago, seeking $79 million in accrued but unpaid dividends on preferred shares of the company. Matricianni ruled that Costa Brava “failed to prove” that Telos has wrongfully withheld the dividends and are misusing company funds. Telos had countered that Maryland law prohibits it from paying dividends while it is insolvent. Matricianni ruled that a pair of special litigation committees set up by Telos to review Costa Brava’s claims “were independent, disinterested and performed their duties in good faith.” “We are gratified, but not surprised, that the Court ruled in our favor,” CEO John Wood said. Costa Brava, which owns 16% of Telos, isn’t done fighting just yet. Last year, it won two seats on Telos’ board in a proxy fight, and two other counts—seeking to have Telos put into receivership and dissolved—are set to be heard at trial in April. The firm can appeal Matricianni’s decision. Telos expressed confidence that those two counts would also be dismissed. Jan. 11, 2008
Third Activist Takes Aim At Brink’s
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nother activist hedge fund that joined the raid on Brink’s Co. Steel Partners on Tuesday warned the security company, famous for its armored trucks, to seek a spinoff or sale, or else. It also disclosed a 6.2% stake in Brink’s. “Steel Partners II believes that significant shareholder value would be unlocked if the issuer were to pursue a tax-free spin-off of one of its two business segments,” the hedge fund wrote. Steel further demanded an immediate sale of Brink’s if it does not pursue a spinoff, and called on the company to
increase its stock buyback plan fivefold to $500 million. Steel is the third activist hedge fund to express its unhappiness with Brink’s’ efforts to boost its stock price. Both Pirate Capital and Millbrook Capital Management have sought a tax-free spinoff, with the latter nominating a slate of board candidates for the company’s 2008 annual meeting. In November, Richmond, Va.based Brink’s said it had retained the Monitor Group to investigate strategic alternatives for the company.
Jana, Sandell Launch Offensive Against CNET
A
nnoyed by its poor stock performance, activist manager Jana Partners has launched a bid to take control of Internet media group CNET Networks. The New York-based firm, backed by fellow hedge fund Sandell Asset Management , said it plans to nominate a pair of candidates to challenge the two CNET board members up for reelection at the company’s next annual meeting. It also plans a push to add five seats to the CNET’s board—which currently numbers eight directors—in an effort to gain control. Jana complains that CNET’s performance is not up to snuff, pointing both to a 19% decline in stock price between 2005 and last year, as well as last year’s less than FINalternatives FINalternatives
1% return. The hedge fund boosted its voting stake to 10.6% this week, and also owns an 8% non-voting stake. Sandell owns a 5% nonvoting stake in CNET. San Francisco-based CNET quickly responded to Jana’s intrigues, calling its proposal “improper under the company’s bylaws” and arguing that “no person or group of persons should be able to gain a majority of the board and control of the company without offering sufficient value to all stockholders.” Jana managing partner Barry Rosenstein said it is the company’s “own underperformance that makes it more vulnerable to an opportunistic acquirer looking to acquire it cheaply.” 13
PRIVATE EQUITY
Sorenson Capital Raises $400 Million Fund II
P
rivate equity firm Sorenson Capital has closed its second private equity fund, which has attracted approximately $400 million in capital. It is the largest closing to date for a Utah-based firm. Sorenson is best known for its high-powered management team, including founding managing directors Fraser Bullock , who was chief operating officer of the 2002 Salt City Winter Olympics; Ron Mika, a former managing director of Bain Capital; and Tim Layton , former president and CEO of Medeco Security Locks and managing director of Alpine Consolidated .
G.E. Exec Joins $500M P.E. Firm
A
top General Electric executive is making the move into private equity, joining a large group of other G.E. veterans. Lloyd Trotter, the highestranking African-American in the history of G.E., is joining New York-based GenNx360 Capital Partners , Business Week reports. He currently serves as CEO of General Electric Industrial and a vice chairman of the parent company. GenNx360, which is backed by G.E., will focus on commercial security, industrial water treatment, infrastructure and aerospace investments. It is expected to launch with more than $500 million in capital. 14
Point Clear’s Short-Biased Credit Strategy To Go Long
F
airhope, Ala.-based Point Clear Capital Management is betting on continued volatility in the credit markets, and is adjusting its credit hedge fund accordingly. The $80 million shop is transforming its Alpha 1 Fund from a directional short strategy to a long/short one. “We felt it was the right call to be in directional short positions early in that fund and now that we’re entering into a wider spread, more volatile environment, we’re staying with a short-bias and picking our entry points to start taking long credit risks,” said Lyle Minton , partner. “The name of the game going forward is still a wider
posture with a lot of volatility.” The Alpha I Fund and its levered versions, Alpha 50 and Alpha 150, returned 22.17%, 16.84% and 39.05%, respectively, last year. The firm’s Piedmont Fund is an offshore structured credit fund with a short bias to exposure to the U.S. investment-grade corporate bond market. The fund implements its short credit position through the trading of credit default swaps. The firm offers its funds in credit-linked notes, allowing it to issue different funds on the same platform. The Piedmont Alpha fund charges a 1% management fee and a 20% incentive fee.
‘Nowhere To Hide’ For Babylon Fund In November
G
odvig Capital ’s Iraq-focused hedge fund, the Babylon Fund, experienced its biggest monthly drawdown since inception, losing 5.4% in November. The drawdown slowed the US$13.1 million fund’s year-to-date returns to 13.6%. In his monthly investor letter, portfolio manager Björn Englund partially attributed the loss to “the general spike in risk aversion globally and in the region in November, which was combined with ‘lackof-liquidity-driven’ falling share prices on the Iraq Stock Exchange and higher yields, while the ongoing appreciation of the Iraqi FINalternatives FINalternatives
dinar stalled–at least temporarily.” The open-ended mutual fund structured vehicle’s largest losses during the month were in a few Iraqi financial services names such as Dar ElSalam Investment Bank and Kurdistan International Bank, which both lost 25% of their value in November. Going forward, Englund said he expects the hiccup in the Iraqi equities market to subside and the prevailing improved security and macroeconomic situation in Iraq to help “breath new life into the stock market and investors’ sentiment in 2008.” Jan. 11, 2008
Citadel Ponders Taking IPO ‘Plunge’ In ‘08
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fter enjoying another year of stellar returns, Citadel Investment Group may be ready to meet its public. The $20 billion hedge fund giant is considering an initial public offering, BusinessWeek reports, citing sources who say the Chicago firm may “take the plunge this year.” Citadel itself was coy about the possibility of a public listing. “An IPO is something we’d consider,” CFO Gerald Beeson told the magazine. “It would be a byproduct of our wanting to expand our firm to create an even more diverse and permanent institution.” In September, Citadel hired John Andrews , the former Goldman Sachs head of investor relations, who joined the investment bank just prior to its 1999 IPO.
BULLDOG cont. from page 1 in dealing with the managers and we know who the good ones are. It’s just safer than just investing in straight equities.” Goldstein estimates there are 95 SPACs currently trading with $14 billion in total capitalization. The firm is marketing its new offering, which charges a management fee of 75 basis points and a 15% incentive fee above a hurdle of three-month Treasury bills, to its existing investors comprising of individuals and funds of funds.
Jan. 11, 2008
MFA Courts Republican Congressman For Top Job
A
top Republican on Capitol Hill is poised to become the chief lobbyist for hedge funds as head of the Managed Funds Association . Rep. Richard Baker (R-La.) disclosed last week that he is in talks to become the next president and CEO of the MFA. The lobbying group is reportedly prepared to offer Baker the nearly $1 million-per-year job, though it is still unclear if he will accept the position. The MFA acknowledged that it plans to “begin negotiations with Congressman Richard Baker as a candidate for the president/CEO position.” Baker would replace John Gaine, who has led the MFA for more than a decade. Gaine will remain with the organization. Baker, first elected to Congress from the Baton Rouge area in 1986, is the former chairman of the House subcommittee on capital markets, insurance and government-sponsored entities, a role in which he was noted for his efforts to reform mortgage finance giants Fannie Mae and Freddie Mac . Hedge funds have not been a focus of Baker in Congress, though he
introduced an unsuccessful bill seeking increased disclosure for hedge funds in 1999. The MFA’s courting of the Republican Baker comes as the hedge fund industry has avoided a flurry of potentially damaging legislation pushed by the newly-Democratic-controlled Congress. Still, hedge fund executives have overwhelmingly supported Democrats in recent election cycles, helping fund the party’s successful effort to retake both the House and Senate in 2006. Hedge fund executives are among the prominent fundraisers for presidential candidates in both parties. Should Baker resign from Congress to take the MFA post, he would be the 20th House Republican since the 2006 election to announce his exit or retirement. The departures are complicating Republicans’ efforts to retake Congress this November, making that already remote possibility an even greater reach. Baker has said if he does not leave the House to take the MFA job, he’ll seek reelection in the fall.
ETG cont. from page 1 positions across the curve in U.S. power. The fund will probably be a seller of natural gas on a “heat-rate “ heat-rate basis,” but within that sector there are certain periods, particularly next winter, when the firm will begin to initiate more long natural gas positions. He also mentioned that the
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firm is contemplating launching an alternative energy offering in the carbon trading space but those plans are “still a bit further on the horizon.” The fund charges a 2% management fee and a 20% incentive fee with a $1 million minimum investment requirement.
15
PEOPLE MOVES GAM Adds Baer Structured Products Team
H
edge fund manager GAM has added Julius Baer ’s alternative risk trading team to its structured products division. GAM, which manages some US$76 billion, said the group will be based in its Zurich, Switzerland, office. Redubbed GAM Structured Investments, the five-person team is led by Yoshiki Ohmura , who has managed structured portfolios totaling US$610 million for GAM funds of funds since 2006.
Hedge Fund Veteran Returns To Mellon Capital
M
ellon Capital Management has brought a veteran former hedge fund manager back as chief investment officer. Michael Ho, who developed and managed hedge fund strategies during a seven-year stint at Mellon Capital, has also been named vice chairman of the Bank of New York Mellon division. In his new role, he will focus on client relationships. Ho returns to Mellon from Kévian Capital Management , the $300 million tactical asset allocation management firm he founded. That firm is closing. He also worked at Zurich, Switzerlandbased Marcuard Family Office
16
as chief investment officer after leaving Mellon Capital in 2003.
FrontFour Snags Ex-Pirate Capital Exec.
E
vent-driven hedge fund shop FrontFour Capital has appointed former Pirate Capital executive Jerry Meyer as chief operating officer. In his new post, Meyer is responsible for back office operations, technology and all fund accounting duties. He will also assist in all compliance issues, since the firm is in the process of registering with the SEC. Prior to joining FrontFour, Meyer was director of operations at Pirate.
Citi AI Names COO
C
ontinuing the shakeup precipitated by the ouster of CEO Charles Prince and the appointment of Vikram Pandit as his successor, Citigroup named Jacob Lew chief operating officer of its alternative investments division. Lew moves to Citi Alternative Investments from the firm’s wealth management business, where he also served as COO. He succeeds Don Callahan , who became chief administrative officer of the whole of Citi last month. Prior to joining Citi, Lew served as director of the U.S. Office of Management and Budget for three years under President Bill Clinton.
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Cole Partners Hires New CIO
C
ole Partners Asset Management has named Philip Halpern chief investment officer of Tellus Asset Management , a natural resources fund of hedge funds affiliated with the firm. Halpern is responsible for directing portfolio strategy and manager structure of the natural resources fund of funds. Halpern formerly served as the CIO of the University of Chicago and California Institute of Technology . Prior to moving to the endowment world, he served as CIO at The Washington State Investment Board .
Aide To Newark Mayor Joins Hedge Fund
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top aide to the mayor of Newark, N.J., is leaving his post to join a hedge fund. Bo Kemp, currently the troubled city’s business administrator and acting director of its engineering department, has resigned to take a post at an unidentified hedge fund. Before joining the administration of Mayor Cory Booker 18 months ago, he led a now-defunct publishing company. Kemp said he left because he could no longer support his children’s private school and eventual college expenses at his current salary. Jan. 11, 2008
North American Hedge Fund League Tables By Ankur Samtaney, Eurekahedge Analyst
N
orth American hedge funds finished last month up 0.6%, bringing their returns for 2007 to a decent 9.4%. These positive December returns were achieved despite persisting fears of an economic slowdown in the U.S., and amidst considerable volatility volatility in the underlying markets. Equities, which started the month rallying, turned volatile on the Federal Reserve ’s announcement of a 25 basis point rate cut on Dec. 11, and the Standard & Poor’s 500 finished the month down 0.9%. Long/ short managers, against this backdrop, made some gains
from short positions in underperforming sectors such as the financial and consumer cyclical sectors. Among other asset classes, commodities fared considerably well, with gold and silver rising in excess of 7% on the month, and oil prices climbing by 8.6%. These movements, among others, largely benefited CTAs, who were the best performers in December.
Rank2
Name of the Fund
AuM Dec. ‘07 (US$ Mln) Return
Eurekahedge North American Hedge Fund Index 1
2007 return
2006 return
% rise in NAV
Annualized return
0.59
9 .3 9
1 2 .3 1
146.92
11.96
0.52
1 0 .3 4
1 1 .6 9
147.25
11.98
Long/Short Equity Eurekahedge North America Long/Short Equities Hedge Fund Index
C&O Investment Partnership LP
1
36
4.21
74.15
2.31
620.27
15.15
Sandler Plus Domestic Fund LP
2
67
1.30
54.82
4.95
58.11
22.58
McGinnis Capital LP
3
2
-7.40
53.91
43.61
229.88
32.42
Blake Street BCM Fund LP
4
5
4.80
44.26
-5.88
95.28
9.12
Whitebox Intermarket Fund Ltd
5
30
2.16
39.07
16.96
100.05
21.35
Rosen Offshore Limited
6
25
5.97
37.81
1.75
115.96
9.29
J.W. Partners LP
7
45
4.43
36.83
2.10
949.45
30.17
The Preservation Trust
8
62
0.72
36.83
10.45
257.96
15.85
Pequot Core Global Offshore Fund Inc
9
522
2.10
34.94
8.35
788.46
16.89
10
108
2.80
34.77
19.16
118.66
23.20
2.64
1 2 .6 9
9 .5 9
166.97
13.06
-16.01
54.47
64.49
23.04
64.49
Modern Capital Fund LLC CTA/Managed Futures Eurekahedge North America CTA/Managed Futures Hedge Fund Index
Trendline Fund LP
1
2
7.43
28.94
H T Funds CTA
2
*
6.73
23.04
Salem Futures Fund LP
3
108
6.35
20.04
9.22
1,012.05
15.06
Legacy Futures Fund LP
4
12
3.95
19.30
-7.51
593.02
12.00
FORT Global Trend LP
5
6
-0.82
12.21
1.58
377.48
13.91
Briarwood Fund 1 LP -2XL Series
6
4
2.31
11.36
32.38
91.95
22.87
Tactical Multistrategy Commodity Fund LP
7
31
2.44
11.19
18.59
198.40
16.48
Sunrise Commodities Select Portfolio - Currency Fund LP
8
9
1.00
10.28
2.93
109.09
5.07
Tactical Institutional Futures Program
9
33
2.40
7.34
24.26
1,142.01
18.63
10
224
2.30
7.15
8.38
6,039.58
18.03
Sunrise Commodities Select Portfolio LP 1
based on 34.83% of the funds reporting their December 2007 returns as at Jan. 10, 2008
Jan. 11, 2008
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2
ranked by 2007 YTD returns * not disclosed
17
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