hedge funds - Institutional Investor`s Alpha

AIN.09.27.04
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FORMER AEP EXEC READIES ENERGY FUND
SEPTEMBER 27, 2004
VOL. V, NO. 19
Web Exclusive
Martin Currie
Rebuilds Fund
Martin Currie is rebuilding its long/short
European equity fund after replacing the
fund’s manager due to poor
performance.
See AIN’s Web site,
www.iialternatives.com
At Press Time
Small Funds Turn To Online Brokers
Muirfield To Launch Fund
Pilgrim Launches Levered Strat
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U.S. News
Illinois To Weigh Hedge Funds
Next Year
Third Point Hires Distressed Analyst
Former Russell Official To
Launch Fund
Mass. Plan Still Not Ready
For Hedge Funds
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6
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European News
GAM Funds to Reopen
Cardinal Readies Fund
Charlemagne Hires
Portfolio Managers
Finnish Fund Taps Private
Equity Managers
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FRM PLANS U.S. PUSH
London-based fund of funds giant Financial Risk
Management is making its first concerted push into the U.S.
market. FRM, which manages $12 billion, is developing a
range of funds of funds for taxable and tax-exempt U.S.
investors. FRM’s exposure to this market to date has been
very limited and its physical presence in the country has been
predominantly focused on research, said John Capaldi,
managing director, head of product management.
“Institutional take-up of hedge funds in the U.S. has
(continued on page 11)
HEDGE FUNDS TAP SYNTHETIC CDO MART
Hedge funds are aggressively buying and selling synthetic collateralized debt obligation
tranches, a trade known as correlation trading. Synthetic CDOs are backed by a portfolio of
credit derivatives instead of bonds or loans. “While the largest players in the credit derivatives
market are commercial banks, we expect more and more participation by hedge funds in the
credit market,” said Michiko Whetten, a quantitative credit analyst at Nomura Securities.
“A lot of hedge funds are now trading in the credit space, and buying and selling synthetic
CDOs is a quick and easy way to trade credit,” said Romita Shetty, co-head of the CDO
(continued on page 11)
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Search & Hire Directory
Lew Williams, formerly v.p. of energy trading at American Electric Power, is planning to
launch a hedge fund next month. Williams has formed Alpha Energy Partners, based in
Columbus, Ohio, to focus on natural gas trading. The nascent firm has also reeled in Carey
Metz, formerly a senior trader at Citadel Investment Group, who will join Alpha Nov. 1.
The fund will commence operations with more than $50 million, said Barry Hines, cofounder of Boomerang Capital, which has been retained to market the fund. He declined to
name the investors.
(continued on page 12)
SANTANDER OFFSHOOT PLANS
MAJOR EXPANSION
Optimal Investment Services, the $4 billion hedge fund
firm owned by Spanish banking giant Santander
Group, will open offices in the U.K. and Japan next
year. The decision to set up a U.K. office is in part
related to the upcoming planned acquisition by
Santander of British bank Abbey National, representing
a new focus for the group, said James Woodyatt, head of
institutional sales in Switzerland. Optimal also intends to
(continued on page 12)
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Alternative Investment News
www.iialternatives.com
September 27, 2004
At Press Time
Smaller Hedge Funds Eye Online Brokers
EDITORIAL
Smaller hedge funds are increasingly turning to online brokers to avoid the
higher fees charged by prime brokers. “We are seeing fewer small hedge funds
using large prime brokers. Many want their own technology and instant access to
the markets and they don’t want to or can’t pay large fees,” said Andrew
Fishman, president of Schonfeld Group, a trading firm. “Online trading really
only took off in 2000 and it took a few years for the hedge fund industry to
catch on,” added Kathy Lien, chief strategist for Forex Capital Markets.
Online trading has lower fees per trade, which is ideal for hedge funds with
fewer assets. The vast majority of hedge funds turning to online brokers tend to
have less than $10 million in assets, said Lien.
Another attractive feature of electronic trading for hedge funds is the ability to
trade spot foreign exchange currency directly, instantly and anonymously.
“Investors, whether they are hedge funds or banks, can see all offers currently on
the market and they can see all bids on the offers. They can also actively bid and
offer,” said Peter Burton, a representative of Hotspot FX. Instantly after a trade
takes place it is sent to each counterparties’ bank or prime broker, which is what
sets online traders apart from prime brokers, Burton said.
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Editor
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Muirfield To Roll Out Fund
Muirfield Capital Management is launching a new leveraged offshore fund. The
fund of funds firm, founded in part by former Donaldson Lufkin & Jenrette
CEO and Chairman John Chalsty, has demonstrated a strong track record in the
close to three years since it opened its doors. It is now targeting institutional and
offshore private clients with its new offering, said Chalsty, noting the firm had
been created to run the assets of its founders, their family and friends.
The leveraged new Return Enhancement Fund is broadly based on the Low
Volatility Portfolio, a non-directional multi-strategy fund of funds that does not
include equity long/short managers. It can use up to 3x leverage and is slated to
launch Oct. 1. The firm had been marketing the low volatility fund when it
found out investors were interested in an investment that could generate higher
returns, Chalsty noted.
Pilgrim Unveils Leveraged Arb Strat
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Pilgrim Foresight Management Company has launched its fourth strategy-specific
hedge fund portfolio to be used in private placement insurance offerings.
Additionally, the firm now has available the ability for sub-advisers to construct
portfolios and leverage off the Pilgrim private placement platform, according to
Kevin Murray, president and investment manager. The low volatility Pilgrim
Foresight Fund Enhanced Return Portfolio can use up to 3x leverage and invests in
mid-sized arbitrage managers with an average of $300-500 million in assets. The
offering has been created to round out the firm’s other three strategy-specific
portfolios: long/short, low volatility arbitrage and multi-strategy. It is being
introduced at a time when the New York City-based firm sees as an uptick in
interest for private placement annuity products. Fees on the unleveraged portfolios
are 75 basis points, while the leveraged portfolio carries a 1.75% management fee
and a 15% performance fee. The leveraged portfolio has a target return of 18-22%.
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Alternative Investment News
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September 27, 2004
U.S. News
Illinois To Examine Hedge
Funds Next Year
The $10.4 billion Illinois State Board of
Investment has postponed to the first
quarter of next year considering a 5%
allocation to hedge funds. The mandate
would be for three funds of funds handling a
total of $500-550 million. The interest in
the asset class derives from the fact that
Bill Atwood
hedge funds offer enhanced returns and
diversification, according to Bill Atwood, the plan’s cio. The
allocation was authorized last year by the board but has not
been funded, he said. “We’ve had so many searches going on
[with other asset classes] and we’ve been so busy dealing with
the portfolio that we just have a queue,” Atwood explained.
The discussion was supposed to happen this month (AIN,
September 2003) but Atwood pushed it back to the first
quarter of next year, a time at which the plan will issue an RFP.
Inquiries should be directed to the plan’s consultant, Marquette
Associates in Chicago.
Fornelli Pans Greenspan
On Hedge Fund Registration
Cynthia Fornelli, former deputy director of
the Securities and Exchange Commission’s
Division of Investment Management, told a
Sept. 14 hedge fund seminar in New York
that while she fully agrees with “our fellow
financial regulators” that hedge funds do play
a vital role, hedge fund registration would not
Cynthia Fornelli
interfere with that role.
The three non-SEC members of the President’s Working
Group on Financial Markets—the Treasury Department, the
Federal Reserve and the Commodity Futures Trading
Commission—have not supported the SEC proposal to register
hedge funds and Fed Chairman Alan Greenspan has publicly
attacked it as a threat to market liquidity.
The debate about whether to pass the rule, Fornelli went on,
“really comes down to a central point: do investors deserve the
protection of U.S. securities laws, even when the investment
vehicle they choose provides significant liquidity to the markets?”
Fornelli said she was surprised by the “intensity of the
debate and by the opposition of some to SEC efforts to fulfill
its mandate under the federal securities laws.” Separately, the
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U.S. Chamber of Commerce filed a comment warning that
some could seek to sue the Commission over the rule. It cited
an earlier comment letter filed by members of the Wilmer
Cutler Pickering Hale & Dorr law firm suggesting the SEC’s
action was illegal and said that, at worst, going ahead with
adoption of the rule “could result in a round of protracted but
unnecessary litigation.”
Third Point Adds Distressed Analyst
Third Point Management has hired Neel Devani as a senior
distressed debt and special situation analyst. He joined from
Trust Company of the West in Los Angeles, where he was a
distressed analyst. The position was created because of the New
York firm’s growth. “We want to increase capacity and coverage
of distressed securities due to the growth of the fund,” said
Managing Member Daniel Loeb. Third Point manages a
$1.5 billion event-driven hedge fund that had $800 million at
the beginning of the year.
Devani said he made the move to make a transition from the
universe of long-only investing to alternative assets. Michael
Utley, a TCW spokesman, said that Devani was part of a threeyear associate program and that “he left when he was scheduled
to leave.”
Alexandra Beefs Up Risk,
European Long/Short
Alexandra Investment Management has added a risk manager
and a European long/short trader. Oleg Movchan joins as risk
manager from Ritchie Capital Management where he was
director of risk management. “We are beefing up our risk
management department,” said Mikhail Filimonov, chairman
and ceo, adding that Movchan will be working with Dimitri
Sogoloff, chief risk officer.
Separately, Andrew Moore joins as a European long/short
trader from Susquehanna International Group, where he was a
Dublin-based trader for the institutional sales, research and
market making firm. Moore will be working on the European
long/short book managed by Christian Picot. The position was
created because there was a need to have a trader dedicated to
this strategy with a background in derivatives and options,
Filimonov said.
The firm has not replaced Andrew Pernambuco, head of
business development, who left earlier this year over a flap
created by news reports concerning his professional background.
“We use our home grown talent. We have three people taking
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GLOBAL ORGANISERS OF INSTITUTIONAL FINANCE & INVESTMENT CONFERENCES
Alternative
Investments
Summit
November 15-16, 2004
Puck Building • New York, NY
Alternative investment
professionals will gather with institutional investors
to discuss strategic, analytical and performance related challenges facing the
industry at a time of exponential growth. Key industry leaders will delve into the
nuances of the various alternative asset classes including hedge funds, private
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Alternative Investment News
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care of [business development],” Filimonov said, adding that no
money has left the firm as a result of the negative headlines.
“We’ve handled the crisis very well. We’ve created a lot of
goodwill over the past 10 years,” he said. Since inception in May
1994, Alexandra’s performance has been over 16% net of fees.
The firm runs convertible arbitrage, European long/short, eventdriven, distressed and high-yield and special situations strategies.
Thane Ritchie, founder of Ritchie Capital, and Kelli Crudo, a
spokeswoman at Susquehanna, did not return calls. Moore
declined to comment, and a call to Movchan was not returned.
New York Firm Hires Former
Dresdner Honcho
Peter Carril, former global head of emerging markets debt
trading at Dresdner Kleinwort Wasserstein, has joined Nexstar
Capital Partners as managing director and portfolio manager.
“Peter Carril is an exceptional addition to the Nexstar team and
his reputation and experience as one of the top emerging markets
debt traders add considerably to the firm’s capabilities,” said Peter
Getsinger, cio of the New York firm.
Carril said that he joined Nexstar, an emerging markets hedge
fund firm that mostly focuses on Latin America, due to the firm’s
growth. Carril declined to elaborate on the firm’s recent growth.
Carril has more than 23 years of credit trading experience,
including focusing on emerging markets corporate debt for the last
14 years. He is a board member of the Emerging Markets Traders
Association and has authored a number of articles pertaining to
the relative value characteristics of emerging market corporate
bonds. Calls to a DrKW spokeswoman were not returned.
Mass. Retirement Plan Still Won’t
Bite On Hedge Funds
Massachusetts’ $300 million Barnstable County Retirement
System is still not ready for hedge funds. Given that the State of
Massachusetts provided a blessing for its municipal plans to
invest in hedge funds two years ago, and Barnstable
acknowledges that traditional target returns are creeping lower,
this might seem surprising. However, it is not a position which
appears likely to change in the near future, said Marc Zielinski,
chairman and treasurer for the municipal retirement system.
Pressure is being applied from many sides for the plan to eke
out larger returns. On top of the state’s blessing for hedge fund
investments, there is a Massachusetts mandate that all municipal
plans be fully-funded by 2028. In lean investment periods, the
plan falls behind in preparing to meet this requirement, Zielinski
conceded. And Barnstable has already come down in its target
return, from between 9% and 10%, to 8.25%. “It is harder to
6
September 27, 2004
squeeze 8.25% out of equities,” Zielinski added.
Still, Zielinski sees no rush to make the move to hedge funds.
“Last year, we returned 22%. We do re-examine these things, but
the impetus will only come over time if we see our asset
allocation planned returns continue to creep down,” he said. One
safety net available to the municipal plan that Zielinski alluded to
is that any shortfall in a retirement system must be made up for
by the municipality itself. Therefore, if traditional equity returns
continue to creep downward, Zielinski expects more pressure
from the towns themselves to invest in hedge funds. “We will
hear it more from them,” he said.
Credit Start-Up Taps Merrill
Quant Honcho
New York-based credit arbitrage start-up Panton Capital has
nabbed Yongjai Shin, head of the global emerging markets
research group at Merrill Lynch, to be head of quantitative
research and analytics. In his new role, Shin will build models and
risk management systems in the field of credit derivatives, fixedincome derivatives and structured products, said Kassy Kebede,
principal. “I joined because research on credit derivatives is my
main interest and this fund is specialized in credit,” said Shin.
Panton was launched in February by Kebede, the former head
of European fixed-income derivatives and global equity
derivatives at Deutsche Bank (iialternatives.com, 4/12). Jessica
Oppenheim, a spokeswoman at Merrill, did not return a call.
Former Russell Research Honcho
To Launch Fund
Brad Lawson, co-head of research for Russell Investment
Group’s fund of funds operation, has left to start his own hedge
fund firm. Lawson started Kettle Creek Partners with Richard
Phillips, a principal at Suffolk Capital Partners.
Kettle Creek, which has offices in Tacoma, Wash., and
Westport, Conn., expects to launch its first hedge fund Nov. 1.
The fund will invest in small-cap equities, Lawson said. “Part of
the appeal of the small-cap market is that there is less
competition from an investor’s standpoint, which makes it a
more fertile investment environment. The downside is that this
particular market does not have a great deal of liquidity,” he said.
Lawson and Phillips both have backgrounds in long/short
small-cap strategies. At Russell, Lawson researched small-cap
long/short funds. Phillips ran a small-cap long/short fund at
Suffolk and has more than 10 years trading experience. Lawson
declined to quantify the fund’s investment minimum and fees.
“Suffolk was still a start-up when I joined in ’93. The biggest
difference is this time I own the company,” said Phillips.
Copying prohibited without the permission of the publisher.
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Benchmarking, Performance Measurement, and Asset
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NATIONAL RAILROAD RETIREMENT INVESTMENT TRUST
Risk Budgeting: Proactively Incorporating Risk Management in
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Evaluating and Selecting New & Next Generation Managers,
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AIN.09.27.04
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Alternative Investment News
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September 27, 2004
European News
British Scheme To Consider Hedge
Funds Next Year
The £1.4 billion Middlesbrough Borough Council Teesside
Pension Fund will look at hedge funds again next spring. If it
decides to move forward, funds of funds would be the route of
choice. “I am sure of that. The only way an organization such as
us would be able to properly identify the managers would be
with funds of funds. We just don’t have the resources and the
expertise,” said Fred Green, investment manager.
The scheme decided last spring not to make a first foray into
hedge funds, an asset class that “we don’t believe is mature
enough,” said Green. However, this decision will be reviewed
periodically and the next review will occur next spring.
“Obviously we are seeing evidence of U.K. institutions making
[hedge fund] allocations and that gives us some comfort.
Whether we will consider the asset class to be mature then, I
don’t really know. Probably.”
The plan currently allocates 75% to equities, 15% to bonds
and 10% to property and cash.
GAM To Reopen Funds
Hedge fund giant GAM, with over $34 billion under
management, will reopen its four Composite Absolute Return
funds of funds and its Diversity III multi-manager fund on Oct.
18. The funds were closed in March following high inflows
during the first quarter of 2004 but the firm has now identified
new managers and increased capacity with existing managers,
explained Anne Gilding, marketer.
The assets under management in GAM’s multi-manager funds
rose from $13.5 billion at year-end 2003 to $17 billion at the
end of March, she said. “We are looking at industry norm
inflows [when we reopen]. We are not expecting those first
quarter levels again,” she added.
The Composite Absolute Return funds of funds were launched
in 1986 and currently hold over $5 billion in total. The range
includes a U.S. dollar fund, a euro fund, a sterling fund and a Swiss
franc fund. The funds of funds invest solely in around 50 of GAM’s
own funds, including a number of its multi-manager vehicles, said
Gilding. The Composite funds of funds range carries a 1.05%
management fee with a 5% purchase fee and no performance fee.
Diversity III, which invests in about 30 external funds, is managed
by David Smith, cio, and presently totals around $450 million. It
carries a 1.76% management fee and a 5% purchase fee.
To date, the Composite funds and the Diversity III fund have
had a $5,000 investment minimum but, with the reopening, this
will be raised to $25,000. Another change will be an increase in
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the notice period required for redemptions, with this changing
from weekly to monthly, and subscriptions accepted weekly
instead of daily. These alterations are all intended to bring the
funds in line with wider industry practice, explained Gilding.
Cardinal Preps Fund, Snags
Soros Honcho
Cardinal Asset Management, a London- and Dublin-based firm
which is 15% owned by ISIS Asset Management, is developing a
hedge fund that will feature a private equity capability. The fund
will be able to trade both public and private companies and will
be able to take public companies private. Andrew Switajewski, expartner at Soros Private Equity Partners, has been brought on
board as a managing director to develop and run the new active
value hedge fund, said Nick Corcoran, founder of Cardinal.
The firm will also assemble a team to help run the fund going
forward and this will require hiring two or three “pretty senior
professionals,” Corcoran said, adding that Switajewski has
enough experience to start the fund alone if necessary. “[We are]
in the process of bringing it all together,” said Corcoran. The
fund will likely launch in the last quarter of 2004 or in early
2005, depending on market conditions. Fees and any investment
minimum have not been decided. Calls to Switajewski were
referred to Corcoran. A Soros spokesman declined to comment.
ABN Amro Launches Low-Risk
Fund of Funds
ABN Amro Asset Management has launched a global relative
value fund of hedge funds. The Conservative Strategies Fund has a
low-volatility strategy with low correlation to fixed income. It is
aimed at risk-averse investors, enabling them to protect part of
their holdings against predicted interest rate hikes, explained
Herman Barten, head of business development for alternative
fund of funds products in Amsterdam. The firm also has plans to
launch other funds going forward, he said, declining to elaborate.
The conservative fund is being run by a U.K.-based team led
by Gary Smith. It invests in around 30 external hedge funds
through ABN Amro’s Luxembourg SICAV. At present, the
majority of investors are private banking clients, although more
institutions might invest over time, predicted Barten. The fund
of funds charges a 1% management fee and a 15% performance
fee, with a high-water mark and a hurdle rate equivalent to one
month’s LIBOR. Minimum investment is €10,000 and the
vehicle is available in both euro and U.S. dollar share classes. It
currently has €130 million in assets.
Copying prohibited without the permission of the publisher.
AIN.09.27.04
9/23/04
5:58 PM
Page 9
September 27, 2004
www.iialternatives.com
More Hires To Come
Alternative Investment News
develop the multi-manager vehicle. “[At the moment,] if I fall
down the stairs, we have a problem,” he quipped.
Charlemagne Appoints
Portfolio Managers
London-based Charlemagne Capital has hired two new portfolio
managers and is seeking to expand its team further. The roles are
newly-created and the pair has not yet joined. The firm manages
$1.4 billion and is trying to ensure it has an appropriate team in
place, both to manage its current business and to accommodate
future growth, explained Matthew Todd, marketer. He declined
to name the new hires or specify a start date.
Charlemagne currently employs six fund managers to oversee
its long-only funds and hedge funds. At present, the firm does
not have any plans to develop new funds; the two new managers
will work across the firm’s existing global emerging markets,
eastern European and Asian hedge fund vehicles, he said,
declining to comment further on the hires. The firm is currently
looking for two additional managers, one of whom will focus on
the Asian fund, Todd added. “We haven’t lined anyone up but
we’ve been looking for a couple of months,” he continued.
Danish Firm Seeks
Marketing Partners
Danish firm Copenhagen Fund Management
is looking to partner with one or two
marketing firms. The move comes as the
hedge fund firm prepares to launch a new
currency fund that will invest in several
underlying managers (AIN, 8/16). Fund
Manager Michael Hecht will meet with a
Michael Hecht
potential partner this week. This is a fellow
Danish firm, he said, declining to name the marketer.
Although Copenhagen has a couple of advisors, it is effectively
a one-man show, said Hecht, explaining that, until now, he has
handled all marketing efforts himself alongside running the
Copenhagen Currency Fund. This fund will be replaced by the
new multi-manager iteration, due for launch in October. “As
soon as I get [the fund] kicked off, I’ll be on my way. I don’t want
to lose focus,” he explained.
There are no plans to hire anybody in-house at the moment,
with Hecht preferring to outsource the marketing of the fund
instead. This is likely to be done through a select number of
partnerships. “I don’t want to make marketing agreements left,
right and center. I would prefer [the marketers] contact me,
rather than the other way around,” he said.
The limitations of being a small operation might become
more pronounced if the new fund gains momentum.
“Institutional investors like bigger firms,” Hecht observed. The
fact that he works solo was instrumental in his decision to
ISDA Starts Hedge Fund
Definition Effort
The International Swaps and Derivatives Association plans to
draft a set of definitions for derivatives on hedge funds and
mutual funds. Tim Hailes, assistant general counsel at
JPMorgan in London and co-chair of the working group looking
at the template, said it will start the project in the fourth quarter.
Louise Marshall, spokeswoman in New York, said ISDA has
been sent four other templates besides the JPMorgan one. Davis
Polk & Wardwell will draft the document.
ISDA started looking at the project after its annual general
meeting at which a panel of hedge fund professionals showed
interest in such a document. Later that month JPMorgan presented
its template to the association to form the basis of discussion.
Finnish Fund Hires Private Equity
Managers, Looks For More
The €15 billion local government pensions institution in
Helsinki, Kuntien Eläkevakuutus, has hired five single-strategy
private equity managers for a €105 million portfolio and expects
to appoint another three by year-end for a maximum of
€75 million, funded from new contributions. The eight new
managers will all run buyout segregated mandates.
The scheme is increasing its exposure to buyouts, as opposed to
venture capital, because there are more investment opportunities
for buyout managers available in Europe, said Markus Pauli,
alternatives portfolio manager. The fund’s target is to invest up to
€200 million in private equity this year as part of a long-term plan
to invest 3-6% of its assets in alternatives. Alternatives have a low
correlation to more traditional asset classes which helps lower
volatility, he explained, adding that high returns are also important.
The fund hired Vector Capital, Sagitta Asset Management,
Enterprise Investors and Bain Capital for a €20 million private
equity mandate each. EQT Scandinavia was awarded a
€25 million brief. Jacek Siwicki, managing partner at Enterprise
in Warsaw, said Kuntien is its first Scandinavian client. “The
fund is taking its first step in the region [Eastern Europe] and is
diversifying its regional reach,” he explained. Officials at the
other fund management firms did not return calls.
Kuntien employs approximately 45 private equity managers and
invests 3% of its assets in private equity.
Investing further in hedge funds is also on the agenda, but not
until the fund has hired a specialised hedge fund team internally
“like we have for private equity,” Pauli explained. It may invest
€80 million in hedge funds sometime next year.
Copying prohibited without the permission of the publisher.
9
AIN.09.27.04
9/23/04
5:58 PM
Page 10
Alternative Investment News
www.iialternatives.com
September 27, 2004
Search & Hire Directory
The following directory includes search and hire activity for the week. The accuracy of the information, which is derived from many sources, is deemed
reliable but cannot be guaranteed. All amounts are in US$ millions unless otherwise stated. To report manager hires and new searches, please call
Mark Faro at (212) 224-3287, Emma Trincal at (212) 224-3648, Jennifer McCandless at (212) 224-3615 and Robert Murray at 44 (0)207
303 1705 or fax (212) 224-3939.
Potential Searches
Mandate
Size
(Mlns)
Consultant
Total
Amt (Mlns)
Fund
Type
GBP1,100
Public D.B.
Global/ Alternative/
Hedge Fund-of-Funds
N/A
None
Will examine hedge funds again in the 2Q of 2005.
Funds-of-funds would be the likely investment vehicle.
AP-Fonden 1, Stockholm, Sweden
SEK126,598
Public D.B.
US/ Alternative/
Private Equity
N/A
Lodewijk van Pol, Towers Perrin,
Amsterdam Zuidoost,
Netherlands
Fund plans to appoint one or more strategic private equity
partners to provide advice on global, U.S. and European
private equity mandates. Deadline for submission of
expressions of interest is Oct. 18, 2004. New contracts
to start from Jan. 1, 2005.
AP-Fonden 1, Stockholm, Sweden
SEK126,598
Public D.B.
Europe/ Alternative/
Private Equity
N/A
Lodewijk van Pol, Towers Perrin,
Amsterdam Zuidoost,
Netherlands
Fund plans to appoint one or more strategic private equity
partners to provide advice on global, U.S., and European
private equity mandates. Deadline for submission of
expressions of interest is Oct. 18, 2004. New contracts
to start from Jan. 1, 2005.
New York City Retirement Systems,
New York, NY
USD74,000
Public D.B.
US/ Alternative/
Distressed Debt
N/A
Unknown
Issued an RFP for at least one debt-based manager to
handle economically targeted investments. RFP is
available at (http://www.comptroller.nyc.gov/bureaus/
bam/rfps.shtm ). No due date has been set.
USD27
Public D.B.
US/ Alternative/ Private
Equity Fund-of-Funds
USD1
Rosemary Guillette, Segal
Advisors, Boston, MA
Searching for a private equity fund-of-funds manager.
RFPs are available from Rosemary Guillette at
([email protected]). Proposals are due Oct.
10, 2004. No timeframe for selection.
AP-Fonden 1, Stockholm, Sweden
SEK126,598
Public D.B.
Global/ Alternative/
Private Equity
N/A
Lodewijk van Pol, Towers Perrin,
Amsterdam Zuidoost, Netherlands
Will appoint one or more strategic private equity
partners to provide advice on private equity mandates
totalling USD400M for the first year. Deadline for
submission of expressions of interest is Oct. 18, 2004.
New contracts to start from Jan. 1, 2005.
Illinois State Board of Investment,
Chicago, IL
USD10,300
Public D.B.
US/ Alternative/
Hedge Fund-of-Funds
USD550
Marquette Associates,
Chicago, IL
Plan has postponed search. Expects to issue RFPs for
three hedge funds-of-funds in Q1 2005.
Norfolk County Council, Superannuation
Fund, Norwich, U.K.
GBP1,100
Public D.B.
Global/ Alternative/ Private
Equity Fund-of-Funds
GBP55
Geoff Singleton, Hymans
Robertson & Co., London, U.K.
Fund has selected a manager. It will name the manager
by Oct. 2004, once the contract is signed.
Oklahoma Tobacco Settlement Endowment
Trust Fund, Oklahoma City, OK
USD190
Endowment
US/ Alternative/
Market-Neutral
AP-Fonden 1, Stockholm, Sweden
USD295
Insurance
Global/ Alternative/
Hedge Fund-of-Funds
USD30
Lodewijk van Pol, Towers Perrin,
Amsterdam Zuidoost, Netherlands
Wellington Management Company LLP
Pennsylvania State Employees
Retirement System, Harrisburg, PA
USD24,500
Public D.B.
US/ Alternative/
Private Equity
USD49
Cambridge Associates,
Boston, MA
Bain Capital
Pennsylvania State Employees
Retirement System, Harrisburg, PA
USD24,500
Public D.B.
US/ Alternative/
Private Equity
USD50
Cambridge Associates,
Boston, MA
AXA Investment Managers
USD60
Endowment
US/ Alternative/
Hedge Fund-of-Funds
USD4
Prime, Buchholz & Associates,
Portsmouth, NH
Archstone Partners
Fund & City
Middlesbrough Borough Council Teesside
Pension Fund, Middlesbrough, U.K.
Assignment
Comments
New Searches
Swampscott Retirement System,
Swampscott, MA
Updated Searches
N/A
Allan Martin, New England Pension Plan is exploring the possibility of investing in marketConsultants, Cambridge, MA
neutral hedge funds. Will issue an RFP in spring 2005,
if asset class is approved.
Completed Searches
St. Anselm College, Manchester, NH
Data provided by iisearches—the premier daily sales and marketing research tool for investment managers. For further information on iisearches’ daily search leads and searchable database of
mandates awarded and lost since 1995, please visit iisearches.com or contact Keith Arends at 212 224 3533 or [email protected].
10
Copying prohibited without the permission of the publisher.
AIN.09.27.04
9/23/04
5:58 PM
Page 11
September 27, 2004
www.iialternatives.com
FRM PLANS
(continued from page 1)
been quite strong, initially with endowments and more recently
with pension funds. We want to be involved in what is effectively
the biggest investment market in the world,” Capaldi explained.
“It’s always a good time to be active in the U.S. and we’re looking
to increase our presence.”
Only 2-3% of the firm’s assets under management currently
come from U.S. clients, as FRM only has one offering for the
U.S. market. This is a conservative, low-volatility fund that holds
around $82 million. The proposed new vehicles will include two
that mirror funds of funds that have been launched to non-U.S.
investors recently—the Global Equity Fund and the
Manufactured Alpha Fund. The U.S. versions will be available “in
the foreseeable future,” said Capaldi.
FRM launched the Global Equity Fund on Aug. 1. It is an
umbrella structure encapsulating a variety of geography-specific
equity long/short funds of funds. The umbrella contains a
world fund, a U.S. fund, a European fund, a Japanese fund and
the Kokusai fund—a world ex-Japan fund. “An investor can
choose which geographical exposure they have,” Capaldi said.
The funds of funds invest in feeder portfolios which replicate
the weighting of the relevant MSCI index. In total, the Global
Equity Fund umbrella currently holds assets of over
Alternative Investment News
$250 million.
FRM launched the Manufactured Alpha Fund in June. It
focuses on an amalgam of macro trading and relative value
arbitrage strategies.
The Global Equity Fund umbrella is managed by FRM’s
Guernsey operation, advised by a team led by Luke Ellis in
London; the advisory team for the Manufactured Alpha Fund
is headed by Damian Johnson. The funds each have a $1
million investment minimum. The U.S. versions will be run
through the firm’s New York operation, which is already
registered with the Securities and Exchange Commission.
—Robert Murray
HEDGE FUNDS
(continued from page 1)
group at RBS Greenwich Capital. Liquidity is the main driving
force. With the emergence last year of credit derivative indices,
such as the CDX Index in the U.S. and the i-Traxx Index in
Europe, the market is now more liquid. “This market is now
sufficiently liquid for hedge funds,” noted Andrew Feldstein, a
partner at BlueCrest North America, a hedge fund firm that
utilizes the correlation trading strategy. “The bid/offer spread is
extremely tight and that’s good for us,” he added. The credit
derivatives market has also become more liquid due to the
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B40901
NAME
TITLE
JANUARY 2004
VOL. V, NO. 1
FIRM
GATE SLAMS ON
MILLENNIUM INVESTORS
FrontPoint Shuts Down
Quant Fund
FrontPoint Partners has
for the first
time liquidated one of its
funds. The
Greenwich, Conn.-based
hedge fund
juggernaut has shut
down the
Quantitative Equity Strategies
(QES) fund.
See story, page 19
ADDRESS
Some investors looking to
get out of an offshore fund
last quarter run by multi-billio
n dollar hedge fund firm
Millennium Internation
al Management found they
were stuck. That’s because
following a guilty plea by
a
former senior trader at the
Millennium Internationa
l
Fund, the fund’s redemption
limits were reached,
(continued on page 25)
At Press Time
Ex-Ranger Manager Readies
Fund
LONGHORNS TO PLOW
INTO ALTS
2
U.S. Searches
CITY/STATE
POSTAL CODE/ZIP
Ispat Inland Considers Mezz.
Search 10
Albuquerque School Weighs
Funds 12
COUNTRY
European Searches
French Insurer Seeks Hedge
Funds
Health Charity Makes Foray
16
16
Bob Boldt
U.S. Manager News
Former Caxton Bond Trader
Returns 19
Amaranth Unveils Changes
20
TEL
FAX
E-MAIL
European Manager News
Quadriga Readies Fund
22
News From Other Ports
Telstra To Tap Managers
25
Departments
Market Focus
Search & Hire Directory
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The University of Texas
System’s $11.5 billion endowmen
t funds are
seeking to add roughly $575
million in new hedge fund
investments this
year. The funds, which are
managed by the University
of Texas
Investment Management
Company (UTIMCO),
currently have a little
over 20% of their assets
allocated to hedge funds,
and the goal is to have
a 25% allocation, said Bob
Boldt, cio. The school is
leaning towards
investing in absolute return
funds over other hedge fund
styles, Boldt
FARALLON FOLLOWS LONE
PINE’S LEAD
ON HIGH-WATER MARK
S
(continued on page 4)
Farallon Capital Manageme
nt, the San Francisco-based
hedge fund behemoth run
Steyer, is the latest hedge
by Tom
fund manager to propose
changes to its high-water
provisions. As first reported
mark
on AIN’s Web site, www.iialter
natives.com, the move would
the firm in line with a growing
put
number of funds adopting
changes first proposed last
by Tiger cub Lone Pine
Capital that allow hedge
fund managers to earn performanc spring
even when their funds are
e fees
under water. Farallon wants
the ability to earn a reduced
(continued on page 26)
KLM TO WEIGH FUNDS
OF FUNDS
The €8 billion KLM Pensioenfo
nds, the Amstelveen-based
pension plan for pilots, crew
members and ground staff
of
KLM Royal Dutch Airlines,
may make its first foray into
hedge funds of funds this
year. Fons Lute, cio of Blue
Sky
Group, the money managemen
t subsidiary of KLM
Pensionenfonds, said he
plans to recommend a 2-5%
allocation to
hedge funds of funds at a
board meeting in April.
Check www.iialternatives
.com during the week for
(continued on page 26)
breaking news and updates.
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AIN.09.27.04
9/23/04
5:58 PM
Page 12
Alternative Investment News
www.iialternatives.com
adoption of a new definition for credit derivatives contracts by
the International Swaps and Derivatives Association last year.
Another firm looking to get involved in this area is multibillion dollar manager Deerfield Capital Management, which
manages CDOs and hedge funds. The firm is planning to roll out
a fund next month that will employ several strategies, including
correlation trading. Also, Panton Capital, a New York-based
credit arbitrage start-up, is looking to add the strategy to its fund.
Because the pricing of synthetic CDO tranches depends on
several factors, arbitrage opportunities abound for hedge funds.
“You can be long a tranche and short another and play arbitrage
based on the credit rating,” said Feldstein. Another trade,
dubbed a calendar spread, involves managers going “long and
short the tranches with the same portfolio but at different
maturities,” he added.
Managers can also make correlation bets. When the underlying
assets are highly correlated, then most likely either all the names
will default or none will, making the overall default risk less,
explained Whetten. When this occurs, hedge funds take long
positions in the equity tranche of the CDO because this piece is
the first to absorb losses in the event of a default. Its price rises as
the probability of a default decreases. The managers also take
short positions in the senior debt tranche, as this piece will offer
the highest protection against default because its price declines
when the chances of a default are reduced.
—Emma Trincal
SANTANDER OFFSHOOT
(continued from page 1)
more than triple its assets under management and double its
headcount by 2007.
Optimal’s client base is predominantly Continental European
and it currently has offices in Geneva and New York, with the
latter focused on research. The proposed acquisition of Abbey
would be Santander’s first prominent venture outside its
traditional markets of Spain, Portugal and Latin America,
explained Woodyatt. “If [the Abbey deal] does go through, it
would be nice to ride the Santander wave,” he said. “We are
interested in partnering with independent asset managers in the
U.K.” Woodyatt added that he was not sure whether Optimal’s
push into the U.K. could lead to a partnership with Abbey. The
office is due to be set up in the first half of next year. Optimal will
look to more actively target pension funds in the U.K.; the firm
has some clients there at present but not many, noted Woodyatt.
Optimal also aims to open a Japanese office later in 2005 to
concentrate on the firm’s pension fund clients in the country. It is
not yet clear whether this will be a small outpost or a full operation,
said Woodyatt. “Japan has a special culture, and we feel it would be
very nice to provide a service for our clients there with someone on
the ground and…in the same time zone,” he continued. The firm
12
September 27, 2004
has only a handful of pension fund clients in the country. “We feel
we could make that much bigger,” he ventured.
The anticipated growth in both assets and locations will
necessitate a significant headcount increase. “We feel we need to
go out and hire…quite a lot of people,” said Woodyatt. The firm
employs 27 people but this will likely balloon to 55-60 people by
2007, he said. The hires will predominantly be analysts and sales
support staff. There will also be a clear need to populate the two
new offices, although some existing staff members might move
to the new locales.
Optimal manages eight funds of hedge funds and two longonly funds of funds but will look at developing further products.
No strategies or timescales have been confirmed but it is possible
that an emerging markets fund of funds could be in the mix,
Woodyatt said.
—R.M.
FORMER AEP
(continued from page 1)
The fund will dedicate up to 60% to the North American
natural gas market. The remainder will be invested in areas such
as power, electricity and crude oil. The hedge fund energy space
is not very crowded, and that should afford the firm trading
opportunities in inefficient markets, Hines explained.
Williams will oversee the natural gas trading and Metz is
expected to complement that effort when he arrives. At Citadel,
Metz had a lead role in establishing the firm’s energy trading
strategy and focused on trading in the Western U.S. markets. He
also previously worked for AEP and spent some time at Enron
prior to the energy concern’s infamous debacle.
The fund will carry a 2% management fee and a 20%
performance fee with a one-year lock-up provision. It will have
a $1 million investment minimum. Boomerang will pitch the
fund to high-net-worth, family office and institutional
investors, said Hines.
—Mark Faro
Quote Of The Week
“[At the moment,] if I fall down the stairs, we have a
problem”—Michael Hecht, fund manager of Copenhagen
Fund Management, on the peril of running a one-man outfit
(see story, page 9).
One Year Ago In Alternative Investment News
The Illinois State Board of Investment put hedge funds back on
its agenda. The plan had previously considered investing but due
to other priorities and staff turnover no decision had been made.
[The search process has been postponed again to the first quarter
of next year (see story, page 4).]
Copying prohibited without the permission of the publisher.