axa readies first asian foray sec preps hedge fund sweeps maverick

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SEPTEMBER 19, 2005
VOL. VI, NO. 37
Large Firms First
Cardinal FoF Plans Unclear
The Securities and Exchange Commission has chosen to approach
hedge fund inspections with targeted sweeps. Large hedge funds that
trade exotic securities will be targeted first because the SEC considers
them more risky, Commissioner Roel Campos told a Securities
Industry Association conference last Wednesday. There is no
timeframe for the sweep yet, Campos told AIN sister publication
Compliance Reporter. The scope of the sweeps will be fairly narrow,
SEC PREPS HEDGE FUND SWEEPS
Cardinal Asset Management’s plans
to develop a range of funds of funds
look uncertain after trio of key staffers
departed after less than a year.
See story, page 2
At Press Time
RAB Preps Tech Fund
2
U.S. News
Pequot Hires Marketer
Campbell Funds Slip In August
Calif. Firm Adds New Strategies
4
4
6
European News
Mellon Increases Converts,
Credit Exposure
London Firm Shutters
Small-Cap Fund
8
10
(continued on page 19)
PLATINUM READIES FUND OF GIANT HEDGE FUNDS
Platinum Capital Management, the $450 million London-based hedge fund firm, will
launch a fund of funds on Oct. 1 offering investors access to large, closed hedge funds. The
multi-strategy Platinum AllStar fund of funds will use capacity obtained by Platinum to invest
in 12-14 large managers. The firm has undertaken lengthy relationship building to obtain
this exclusivity. It is not using feeders, but has let the managers know it would be interested in
capacity if another investor redeems.
The fund is “the culmination of a few years’ work,” said Craig Reeves, managing director
and co-founder. “All of the best and biggest hedge funds are closed to new assets,” he
(continued on page 19)
Under The Hood
New York Firm Shorts Pasta Maker 11
Sagamore Makes UAL Play
11
News From Other Ports
Abria To Launch Energy
Fund of Funds
15
Departments
Search & Hire Directory
17
Market Focus
Niche Prime Brokers Cater
To Small Funds
Chatri Trisiripsal, managing director on the industrials team at Maverick Capital, has left to
start his own fund. He is seeking to raise $200 million for a global, diversified long/short
equity play that will launch sometime in the first quarter. Trisiripsal’s venture is being backed
by an undisclosed amount of capital from anchor investors in the industry, namely Jeff
Feinberg of JLF Asset Management, Saurabh Mittal of Farallon Capital Management and
Sam Barai of Tribeca Global Management.
The New York firm, which has not yet been named, will also hire four analysts, a cfo
and a head trader, said Trisiripsal. The hires will hopefully all be made by the first and
(continued on page 18)
18
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MAVERICK MANAGER TO START FUND
AXA READIES FIRST ASIAN FORAY
AXA Private Equity, the private equity arm of the giant French insurer, is planning to make
its first push for Asian assets and has opened an office in Singapore. The firm, which manages
€7 billion does not have any Asian clients, but expects to build an investor base with the
launch of its first Asia-focused private equity fund of funds, said Sylvie Deneubourg,
spokeswoman in Paris. “We think it’s a good time [to enter Asia],” she added, explaining that
the firm has perceived both investment and asset-raising opportunities in the region.
To prepare for the push, AXA opened a Singapore office on Sept. 1—the firm’s first
location in Asia, said Deneubourg. The Asian fund of funds is in the early planning stages
(continued on page 2)
Check www.iialternatives.com during the week for breaking news and updates.
AIN091905
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Alternative Investment News
www.iialternatives.com
September 19, 2005
AXA READIES
(continued from page 1)
and will not be launched until December or early next year, she added. The firm’s
focus has until now been on investment opportunities in Europe and the U.S. It
already has a range of primary funds of funds, which invest in new private equity
funds, and secondary funds of funds, which purchase stakes in existing private
equity funds and acquire portfolios of shareholdings in unlisted companies. It has
not yet decided whether the Asian fund of funds will be primary or secondary,
said Deneubourg.
AXA’s move follows on the heels of similar plans by other private equity
players. Paris-based Access Capital Partners is pushing its two newest funds of
funds to Asian investors (AIN, 5/16), while Citadel Investment Group is also on
the prowl for private equity deals—and clients—in the Far East (AIN, 8/1). New
York-based hedge fund Eton Park Capital Management, which invests heavily in
private equity, is also planning Asian expansion (AIN, 7/4).
—R.M.
EDITORIAL
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London Bureau Chiefs
RAB Plans Technology Fund
RAB Capital, the London-based hedge fund giant, is planning to launch a fund
focused on new technologies, with a probable launch date of Dec. 1. The fund
will invest in “everything from hi-tech to biotech,” said Michael Alen-Buckley,
co-founder and chairman. It will be managed by Schehrezade Sadeque, director.
“We’ve got some investors lined up, but we haven’t really flagged it yet,” said
Alen-Buckley, adding that the fund will probably have a medium-term capacity
target of $250 million. A standard hedge fund fee structure of 2% of assets and
20% of performance will likely apply.
Cardinal FoF Plans Cast In Doubt
London- and Dublin-based alternative investment firm Cardinal Asset
Management’s plans to develop a range of funds of funds now look uncertain. A
trio of key figures at the firm, who were responsible for the fund of funds
business, have departed less than a year after their arrival. A Cardinal official told
AIN last week that with their departure there is no team working on developing
funds of funds.
The firm emerged early in 2004 with ambitious plans, hiring three pros to
head up its global fund of funds business: Paul Boulton and Christopher Peel
from FIM Limited (AIN, 9/6/2004), and Stuart Davies from Coronation
International (AIN, 11/15). Davies has resurfaced at U.S. fund of funds giant Ivy
Asset Management’s London operation; Boulton and Peel could not be tracked
down by press time. Nick Corcoran and Nigel McDermott, co-founders of
Cardinal, did not return messages.
Cardinal, which is 15% owned by F&C Asset Management, had been
planning to launch two funds of funds this year, one focused on equity and the
other on fixed-income, and to make a global marketing push for institutional
assets (AIN, 5/16).
An Ivy official confirmed that Davies was due to join the firm this week as
managing director and head of investments for its U.K. operation. Davies could
not be reached.
2
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Alternative Investment News
www.iialternatives.com
September 19, 2005
U.S. News
Pequot Adds Marketer
Pequot Capital Management, the $6.5 billion hedge fund giant
run by well-known manager Art Samberg, has hired Holly
Goodrich from Guggenheim Partners as a marketer. Goodrich
will pitch the firm’s funds to European investors, said an official
at the firm. The position is a new one at the firm, which is
expanding its marketing team in an effort to increase assets. In
January, the firm hired Robert Burdick from MacKay Shields as
its chief marketing officer (AIN, 1/31). The firm later added
Karyn Geringer from Credit Suisse First Boston’s Capital
Introduction Group to market to funds of funds and other
investors in North America. Pequot also plans to hire a marketer
to cover Asia and U.S. pension funds (AIN, 4/4). Goodrich did
not return calls and Burdick was not available for comment.
Barclays Alts. Head To Resign
John Demaine, head of alternative investments for Barclays
Global Investors, will step down from his position in October.
According to an internal memo, Demaine, who has been with the
group for more than 10 years, decided to step down for personal
reasons. He will be replaced by Stan Beckers, who has worked
for the group for over a year.
Beckers works out of the firm’s London office and is
responsible for running its multi-strategy fund of funds,
which was launched earlier this year. The fund allocates across
the range of BGI’s market-neutral, global macro, credit
long/short and industry sector rotation strategies, the
memo stated. Demaine and Beckers did not return calls
for comment.
Dog Days
Campbell Funds Stumble In August
Campbell & Company‘s funds had a rough time of it last
month, turning in some of their worst performances in recent
memory. The FME Large Portfolio dropped 5.5% in August, the
FME Small Portfolio was down 6.2% and the Global Diversified
Large Portfolio gave up 5%. In a letter to investors, CEO Bruce
Cleland cited “a series of trend reversals” as catalysts for the dip
in performance. The three funds have not performed this badly
since April 2004, when they dropped 6.67%, 7.21% and 6.37%
respectively. Year-to-date, all three funds are still in the black,
however.
Currencies were the firm’s worst performing sector, with the
U.S. dollar trading close to lows at month-end, after having
peaked at the end of July. “A similar reversal occurred in the
interest rates sector, resulting in losses at both ends of the yield
4
curve,” says the letter. The firm was also hit with record energy
prices, which caused a sharp sell-off in the equities sector. Energy
itself “was the only profitable sector in our portfolios this month,
but the size of positions was not sufficient to offset the losses
incurred in the financial sectors.” Cleland did not return calls by
press time.
N.Y. Firm Launches
Market-Neutral Fund
Hilton Asset Management, a New York-based firm, has launched
its second fund, the Kenmore Fund, which has a market-neutral,
long equity strategy. It holds 40-80 positions in companies that
have high growth potential, said Founder Chris Hilton. The fund
typically holds a position for two to four months because of a
rolling model the portfolio uses, Hilton added.
The offshore fund is open to non-U.S. investors. It could
grow to $100 million but Hilton said he will likely close at
$75 million. The minimum investment is $100,000. The fund
carries a 2% management fee and a 20% performance fee.
Hilton started the firm in January after leaving Haidar Capital
Management, where he was a trader and portfolio manager.
Hilton also runs a fundamental equity fund, Abercastle Fund,
which invests in companies with growth potential that are
trading at a discount. The fund, which was launched in January,
is open to U.S. investors. The minimum investment is $100,000.
There is a 2% management fee and a 20% performance fee.
Phoenix Taps Analyst For Asset Push
New York-based Phoenix Investment Adviser has hired an
analyst as part of its move to ramp up assets. Andrew Cray, a
sell-side analyst at Imperial Capital, joins as a research analyst
to cover distressed companies and all parts of the capital
structure for the JLP Credit Opportunity Fund. The firm, which
opened its doors roughly two years ago, now manages roughly
$30 million, affording it the ability to hire an analyst, said
Jeffrey Peskind, founder.
Phoenix was originally started as a friends and family vehicle,
but in April it received an anchor investor and now has a twoyear track record. The firm is hoping to reach $200 million in
the next six months or so, and then plans to soft-close, said
Peskind. Phoenix will soon go on a roadshow with its prime
broker Bear Stearns in a bid to raise assets.
Cray said he was excited about joining the buy-side after a
little more than three years at Imperial, where he focused on all
parts of the capital structure including bank debt, bonds and
post-reorganization equities.
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Alternative Investment News
www.iialternatives.com
September 19, 2005
U.S. News (cont’d)
San Diego Firm To Grow Fund
Denali Advisors is making an effort to increase assets for its
market-neutral fund. The firm manages $750 million total, but
the Denali Advisors Market Neutral Equity Fund has only around
$2 million, said Robert Snigaroff, president and cio. The
market-neutral investment was launched a little over two years
ago and the firm has been building a track record. It is now
talking to an undisclosed public fund that is interested in
investing $10-20 million, he added.
If the new prospective investor comes on board, the fund will
have enough assets to begin marketing on a broader basis, said
Snigaroff. The offering has low volatility and roughly 5% returns
on an annualized, cumulative basis. Denali, which is run by
Alaskan Natives/American Indians, plans to pitch the fund to
Indian tribes. The tribes have a low volatility appetite and
typically invest in traditional fixed-income, making the fund a
good fit, he said. It will also seek pensions looking to establish
portable alpha programs, as the low volatility product would be a
good match, said Snigaroff.
NASD Prepping Hedge Fund
Guidance
The NASD is prepping guidance for member
firms on affiliations with hedge funds.
Stephen Luparello, NASD executive v.p. of
market regulation, told a Practising Law
Institute conference last week that the
guidance is based on a sweep the NASD did
in 2004 of broker/dealer-hedge fund
Stephen Luparello
relationships. While Luparello declined to
comment on what the guidance will address or when it will be
released, his statement came as a response to a question about
how regulators are looking at targeted returns in hedge fund
marketing. Luparello also said the NASD is evaluating how
broker/dealers pitch hedge fund investments to low-net worth
individuals and whether they are serving as conduits for hedge
funds to attract unsophisticated investors.
In addition, another NASD official last week warned that
B/Ds selling hedge funds need to provide enhanced disclosure to
back up targeted rates of return in advertising literature. Gary
Goldsholle, NASD associate general counsel for regulatory policy
and oversight, told a Securities Industry Association hedge fund
conference Wednesday that disclosure statements must specify
risk factors such as leverage.
Paul Roth, partner at Schulte Roth & Zabel in New York,
said he is encouraged the NASD would allow B/Ds to
6
disclose targeted rates of return, given adequate disclosure.
Investors need access to targeted rates of return to make
decisions about the suitability of investing in a particular
hedge fund, Roth said. “I can’t imagine an investor making a
judgment without the targeted return.” The NASD has
brought enforcement actions against Citigroup and other
B/Ds in connection with advertising literature selling hedge
funds last year.
Conn. Firm Hires Quant Analyst
Third Wave Global Investors, a Greenwich, Conn.-based
hedge fund, has hired Jie Ding as a senior quantitative
analyst. She is responsible for researching new areas of
enhancement for the firm’s quantitative models, said a
headhunter familiar with the hire. Ding recently received
doctorates in astrophysics and astronomy from Pennsylvania
State University.
Ding and Robert Birnbaum, co-founder of the firm, did not
return calls for comment. Third Wave was started in 2004 by
Birnbaum and Laurence Smith. Birnbaum and Smith worked
together at Credit Suisse Asset Management and JPMorgan
Investment Management before starting the firm.
Calif. Firm Adds New Strategies
San Francisco-based Lion Capital Management Group has
taken the first step in rolling out a range of new hedge fund
strategies as part of its Lion Select fund. The fund was launched
in December 2003, running a private placement strategy. This
month Lion began investing in long/short equity via
proprietary software, and plans to add other strategies over
time, including global macro, four fixed-income strategies and
four event-driven strategies, said Hausmann-Alain Banét,
president and ceo.
“To see someone coming from private placement into the
more active management strategies is certainly unusual,” he
noted, adding that the firm had originally intended to begin with
long/short equity, before realizing its skill-base at the time was
better suited to private placement. Next up, Lion will probably
add event-driven risk arbitrage, followed by fixed-income
mortgage-backed securities, said Banét. The firm is lining up
managers with experience in these areas.
The fund holds $109 million and has commitments for a
further $21 million. Lion has a target capacity of $500 million,
at which point the fund is likely to be closed to allow the firm
to focus on the strategies already implemented by this point.
There is no specific timeframe, said Banét.
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AIN091905
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Alternative Investment News
www.iialternatives.com
September 19, 2005
U.S. News (cont’d)
CSFB To Merge FoF Groups
As part of its corporate restructuring efforts, Credit Suisse First
Boston is integrating its two alternative asset management
groups. The new Funds and Alternative Solutions group will
combine the Alternative Investments and Mutual Funds group,
headed by Ramon Koss in Zurich, with the First Boston
Alternative Group in New York. Koss and Anthony Pesco, will
co-head the new group, whose combined investment personnel
will total about 130 in the two cities. The integration is expected
to be completed by Jan. 1.
Jim Vos, currently head of CSFB’s Hedge Fund Investment
Group in New York, will be in charge of selecting the hedge funds
of the combined platform. The old structure had teams of
specialists managing hedge fund investments in different market
sectors or along investment styles. As a result of the merger, “we
can be more specialized and have the staffing to cover many of
the more peripheral areas, such as the new strategies,” said an
insider. Vos, Koss and Pesco referred calls to Wesley McDade,
spokesman. “The new platform will be designed to service both
private clients and institutional investors,” said McDade. “Our
alternative investment businesses, including funds of hedge
funds, will form an important part…of the new asset
management division.”
European News
Welsh Authority Shuns
Hedge Funds
Cardiff County Council, which oversees £650 million of assets
for the Cardiff and Vale of Glamorgan Pension Fund, has
rejected the idea of investing in hedge funds. The council lists
lack of transparency and poor performance as catalysts for its
decision. “We hold the view…that they’re still opaque, and
particularly over the last year, returns have not been as good,”
said Richard Bettley, pension fund manager, accounts and
investments. The fund had been looking to enhance returns to
counter a 37% deficit, but opted last month to tender for U.K.
active equity and high alpha mandates instead.
Performance fees were also a turn-off. “We’re in the lucky
position at the moment where we don’t pay any performance
fees to any of our managers. Performance fees are a particular
local authority concern. I get the feeling that going for the fixed
fee approach is best,” continued Bettley.
The authority assesses its allocations every three months and
undertakes a major review of all asset classes annually in
November, when hedge funds will be looked at again. Bettley
8
said it is unlikely an allocation will be made any time soon,
however. If Cardiff did go down the hedge fund route, it would
be via funds of funds, he added. The fund has a 3% investment
in private equity and plans to increase this every two years or so,
although no mandates are imminent.
Passing The Euro?
EU Regulator Defers To
Member Countries
European hedge fund regulation should be
the responsibility of individual EU member
regulators, rather than of the European
Commission, said Charlie McCreevy,
commissioner for internal market and
services. Regulators and central banks are
best-placed to decide, for example, whether
Charlie McCreevy
rules are needed to limit hedge fund
borrowing, McCreevy said in a speech prepared for a conference
in Luxembourg last Tuesday. Pan-European regulation could
also limit hedge fund innovation, he added.
But the Commission still has an important role to play in
helping identify possible hedge fund risks, McCreevy noted. For
example, EU regulators need to step up their financial education
initiatives to help customers understand the possible risks of
hedge funds. Calls to Commission spokespersons were not
returned by press time.
Mellon Ups Converts,
Credit Exposure
Mellon Global Alternative Investments has increased exposure
to convertible arbitrage managers in its Mellon Sanctuary and
Mellon Sanctuary 2 funds of hedge funds. The firm is also
considering growing its allocation to long/short credit
managers. “Credit markets have grown and developed over the
last few years. It was very difficult to be short credit before,”
observed said Derek Stewart, director, citing opportunities
created by investing in indices and the ability to short bonds.
Tight credit spreads and the upward trend in interest rates also
make the strategy appealing, he added.
Mellon had, like many firms, soured on converts as the strategy
struggled earlier this year. The firm made redemptions from the
strategy so that it accounted for only 7% of the portfolio. “After
the turmoil, we’ve increased it up to 10%,” said Stewart. “As all
the indicators changed and the strategy became oversold…it’s
looking really cheap so we decided we wanted to reverse and
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AIN091905
9/15/05
7:32 PM
Page 10
Alternative Investment News
www.iialternatives.com
increase [our allocation],” he explained. The firm may consider
upping its converts exposure further, perhaps to 15%.
A handful of long/short credit managers account for
approximately 25% of both Sanctuary funds of funds, which
hold around $500 million between them and mirror each other’s
strategy allocations. Mellon might increase its long/short credit
exposure to 40-45% in the next year or so, said Stewart. “We’ve
found a peer group of about 70 [hedge funds], of which 20-25
are investable,” he added.
Concordia Taps Atlas Marketing Pro
Concordia Advisors, the $2 billion London-based hedge fund
firm, has hired Michael Warrender away from fund of funds
giant Atlas Capital, where he was responsible for institutional
sales and marketing until July. Warrender joined Concordia two
weeks ago as director of institutional investor relations.
“[Concordia] has a higher institutional focus than I think you’d
expect from a [single-manager] hedge fund, and that’s one of the
reasons I’m here,” he explained. He will focus on growing
Concordia’s core European business.
An Atlas official confirmed Warrender’s departure and said his
role has been filled internally by Gustaf Bradshaw, who joined
the sales team from Financial Risk Management last year
(iialternatives.com, 7/11/2004).
Belgian Firm Eyes Long/Short
European Fund
Erasmus Capital, a Brussels-based start-up, is considering
launching a long/short European equity fund. The firm,
founded by two managing directors at KBC Financial
Products, Karl Ottevaere and Jan De Spiegeleer, rolled out a
market-neutral European equity fund, in May
(iialternatives.com, 6/17). “We don’t want to stick to just one
fund,” said De Spiegeleer. A long/short version would enable
the firm to offer a more flexible strategy than market neutral,
with higher levels of risk, but without having to develop new
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10
September 19, 2005
technology systems, he explained.
The fund will not go ahead until next year, continued De
Spiegeleer. “The regulator in Ireland has deadlines to meet. If you
don’t have [the prospectus] in by October, you won’t get
[authorization] until next year. And December’s not a good time
to launch a fund,” he said, explaining that investors tend not to
make new allocations at the end of the year.
The firm’s market-neutral fund holds €18.2 million but has a
capacity of €250 million. Erasmus hopes to grow the fund to €50
million within a year and will undertake a marketing drive in the
next few months.
London Firm Closes
Small-Cap Fund
London-based hedge fund firm Otus Capital Management has
closed its small-cap long/short European fund to new investors.
The Maga Smaller Companies Fund holds €130 million and will
probably grow to €150 million over the next twelve months
through allocations from existing clients, said Claire Griffiths,
portfolio manager. The fund will not be allowed to grow any
larger and will not be reopened after that, she added. “We’re
being quite conservative in closing it at this point, because we
want the fund to remain quite liquid.”
The Maga fund’s assets have more than doubled in recent
months, from €53 million in April (iialternatives.com, 4/8).
Griffiths attributed this rapid growth to the fact that the fund
now has more than a one-year track record: it can be difficult to
raise assets for the first six months but it becomes easier when the
fund is better-established, she observed.
Commodities Firm Lines
Up Traders
London-based Galena Asset Management, with $150 million
under management, has hired Duncan Letchford from HSBC
as a trader on its long/short leveraged metals fund. He will join
the firm in the next couple of months, said Jeremy Weir,
director. Letchford was on gardening leave and could not be
reached at press time. Neil Brazil and Richard Lindsay,
spokesmen at HSBC, did not immediately return calls. The firm
is also on the verge of hiring a trader for its planned oil and
energy fund, added Weir.
“We’re trying to give people core responsibilities in one fund
but…they won’t be pigeon-holed,” said Weir, explaining that the
traders will participate across all three funds. Galena uses
Trafigura’s existing research resources, so is not looking for
analysts. “What we want are people to be involved in the
execution of strategies and the investment management process.”
Copying prohibited without the permission of the publisher.
AIN091905
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8:09 PM
Page 11
September 19, 2005
www.iialternatives.com
Alternative Investment News
Under The Hood: AIN’s look inside hedge fund strategies
Big Apple Firm Shorts
Pasta Maker
New York-based MCM Associates’ Mission Partners fund was
up 1.3% last month partly on the back of a short position in
American Italian Pasta Company. The Kansas City, Mo.-based
company’s stock price took a big hit when it announced a
$60.7 million charge, an internal audit committee investigation
and an inquiry from the Securities and Exchange Commission.
The SEC is reviewing inquiries from the Philadelphia and New
York Stock Exchanges regarding trading activity in the pasta
maker’s stock.
The company’s stock fell by roughly 37% following the
announcement. “It turns out they are not making up for the
lower commoditized prices in volume, and their magical ability
to add plant capacity but not depreciation expense turned out to
be accounting fiction,” according to a MCM investor letter. The
fund has held a short position for almost three years but has
covered most of this position. The company, despite its woes, has
a large sale base and strategic value, the letter says, justifying
covering the position.
The fund is up 2.9% year-to-date through the end of August.
It ended last month with 19 long positions and 15 shorts, with a
beta-adjusted net long position of 33%. MCM manages over
$50 million. Calls to Jim Crigler and to officials at the American
Italian Pasta Company were not returned by press time.
Sagamore Makes UAL Play
Sagamore Hill Capital Management purchased United Airlines
enhanced equipment trust certificates (EETCs), which are
collateralized with Boeing and Airbus aircraft in the carrier’s
fleet. EETC transactions are a financing technique in the airline
industry in which a carrier purchases a plane from a
manufacturer with the plane’s title entered into a trust. The trust
will then lease the plane to the airline and sell certificates to pay
the manufacturer. Bondholders are paid by the lease payments on
the aircraft.
The firm bought class A senior secured EETCs at prices
averaging in the low 90s, according to an investor
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AIN091905
9/15/05
7:32 PM
Page 12
Alternative Investment News
www.iialternatives.com
September 19, 2005
presentation. The securities were trading around 96 at the end
of August, representing an average principal gain of roughly
five points plus a current yield of approximately 8%, the
document says. Sagamore also purchased class B subordinated
secured certificates. “These certificates were sold at a price
equal to 68% of face value, representing a return of 74% on
the initial investment. […] We expected that these securities
would likely be restructured as non-cash pay for the first seven
years following [United’s] emergence from bankruptcy, but
thereafter would receive sufficient cash to achieve full principal
recovery. ” It also bought unsecured United bonds at 13.6% of
face value, which currently trade at 15% of face value, the
document says.
Sagamore also made an unsuccessful play in Delphi
Corporation earlier this year. The auto supplier was targeted
as a short because of its legacy cost structure, accounting
irregularities and pension obligation requirements, the
presentation says. The company had a June deadline to
refinance its existing credit facilities. Sagamore felt the
company would have a difficult time refinancing the facility
and there was increased likelihood it would file for
bankruptcy. In late April and early May, the firm sold Delphi
6.5% ’09 notes at an average price of 75% and purchased
credit default swaps.
The play backfired, however, when Kirk Kerkorian
announced his tender offer for General Motors shares. This gave
the auto sector a boost and provided a more favorable
environment for Delphi to renegotiate its facility. “Given lenders’
willingness to extend credit in the face of what we believe is a
deteriorating credit picture, we decided to unwind the position at
a loss,” the document says. Calls to Steve Bloom, managing
partner, were not returned by press time.
Third Wave Gains on
U.K. Equity Short
Smith. Birnbaum and Smith worked together at Credit Suisse
Asset Management and JPMorgan Investment Management
before starting the firm.
Third Wave Global Investors, a Greenwich, Conn.-based
firm, saw its global macro fund return 0.82% in July. The fund
is up 3.74% year-to-date due in part to its moves in U.K. and
Swiss equities. The fund went short on U.K. equities and long
on Swiss equities—a pairs trade the fund held from April
through July, said Robert Birnbaum, president. The trade
added about 100 basis points in return over the four month
period.
The firm, which manages about $50 million, also shorted
Hong Kong equities and went long on Emerging Markets
equities in July. The fund was short Hong Kong at one point
10.9% of capital, and long the MSCI Emerging Markets index
11.4%, which adds up to a very small net long exposure. The
trade added about 31 bps in July.
The firm is currently shorting the Swiss Franc and going
long on the British Pound. The exposure in this trade is close to
zero. The fund also holds a modestly short position on North
American equities (U.S. and Canada) and is long European
Equities. This is a net long equities position that is consistent
with the firm’s view that equities are generally undervalued
worldwide, but that Europe will outperform North America
based on valuation signals and improved earnings coming out
of Europe.
According to Birnbaum, the global macro fund invests in
currencies, equities and fixed-income indices. It typically takes
about five months for a long position to turn short, and vice
versa, he added. The fund was launched in September 2004 and
has onshore and offshore versions.
Birnbaum started Third Wave in June 2004 with Laurence
12
Good Call!
Mont Pelerin Gains on Russian
Cellular Play
Mont Pelerin Capital, the Newport Beach, Calif., firm started by
Chuck Martin, was up 7.9% in July, due in part to its
investment in the Russian cellular telephone company Mobile
Telesis. The Mont Pelerin Alpha Fund had a long position in the
company until its growth began to decelerate and the position
was exited for a 70% gain, Martin said.
The firm also held a long position in drug manufacturer
Teva Pharmaceutical Industries. The position was vacated after
the company announced a $7.4 billion deal to buy Ivax,
another drug manufacturer. The play had great gains for the
fund but was exited because it violated one of the firm’s 24
rules of investment. The breached rule states the fund will not
invest in hugely acquisitive companies.
The fund tends to invest in mid-cap growth companies in
eight to 10 industry sectors and currently holds positions in
healthcare, retail, energy, business services, consumer products
and in an industrial company. Mont Perlerin follows a
long/short equity approach but tends to be long-biased. The
short plays are made opportunistically to add to returns,
Martin said. About 25% of the fund’s holdings are in
international equities. These allocations are made cautiously to
evaluate risk. Martin is best known in the private equity
industry as the founder of Enterprise Partners and Westar
Capital (AIN, 5/30).
Copying prohibited without the permission of the publisher.
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September 19, 2005
www.iialternatives.com
Alternative Investment News
News From Other Ports
Wine Investment Fund Takes Shape
The Dumbarton Group’s European Wine Investment Fund has
filled out its executive roster. Joining managing partner Brooks
Miller are wine experts Michel Rolland and Joel Palous.
According to the
Oxford Companion
to Wine, Rolland is
the most famous
oenologist in the
world, said Miller.
Rolland, a graduate
Joel Palous, Michel Rolland, Brooks Miller
of the Bordeaux
Faculty of Oenology, owns a wine laboratory in Pomerol,
France. Paulos is the ceo of Wine and Vineyards, which invests
in wineries in the Bordeaux region.
The $200 million EWI fund, expected to launch this fall, will
aim to generate returns by buying wines that have the greatest
future value in relation to others in their class (AIN, 7/18).
Investments will be made primarily in vineyards in France, Italy,
Portugal and Spain, and in inventories of selected vintages.
Strategies include purchasing wines prior to their bottling and
through direct investments in vineyards. Miller’s grandfather was
the ceo of Kraft Foods from 1972-1979.
U.S.-Aussie Venture Launches
Real Estate Play
Babcock & Brown has linked up with Australian property
company General Property Trust to launch an AUD4 billion
diversified fund investing in Australian, Asian, US and European
real estate assets. The partnership launched the fund in June, and
has been purchasing European assets with hopes to move the
focus to the US and link up with local partners.
The Sydney-based firm wanted to launch the diversified fund
while real estate globalization is still in the early stages. The fund
is targeting 1/3 Australian and Asian, 1/3 US and 1/3 European
investments, but the structure could change as the investment
progresses. “With global property investing, you want to start
your run before the market gets really crowded,” said Michael
Maxwell, global head of real estate. “If we can find relationship
partners for deals that make sense, there’s no reason why it
couldn’t be 2/3 US [allocation].”
The effort is headed up by Maxwell and two Babcock
executives, with three representatives from General Property in
various international locations. So far, the fund has purchased
several German residential properties and portfolios and is
targeting all major metro areas including Eastern Europe. In the
US, the team particularly focused on development opportunities.
Maxwell declined to comment on the fund’s yield and fee
structure. Babcock & Brown, launched in 1977, has AUD14.7
billion in real estate assets spanning 20 countries.
Abria Preps Energy
Fund of Funds
Toronto-based Abria Alternative Investments is preparing to
launch an energy fund of funds, the Abria Energy Fund, on Oct.
1. The fund will invest in several strategies, including broad
energy equity long/short, sector-focused equity long/short and
energy commodity futures. It will also allocate internationally, to
managers in Canada, the U.S. and Europe, said Davee Gunn,
head of business development. Abria will target underlying funds
that trade equities and commodities in sectors including crude
oil, natural gas, pipelines, refineries and fossil fuels, Dunn added.
Peter Fusaro and Gary Vasey of the Energy Hedge Fund Centre
in New York will serve as advisors to the fund, which is targeting
volatility of 12% and returns in excess of 20%. The new offering
will have an offshore version for investors outside Canada and a
domestic fund for Canadian investors.
You read it here first!
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Copying prohibited without the permission of the publisher.
15
LAB-IINews1
I
1/6/05
11:26 AM
Page 1
N T E G R I T Y
•
E
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•
O M M U N I C A T I O N
e
c
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P
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Executio
!
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Beats Th
NYSE Trading Cost
7/03 - 6/04 Rank
NASDAQ Trading Cost
Difference vs. E/M Universe
1
LaBranche
Institutional Execution Group
2
3
4
5
6
7
8
9
10
M.J. Whitman
Boston Institutional Services
Liquidnet
B-Trade Services
Bridge Trading
Spear, Leeds & Kellogg
Griswold & Co.
Guzman & Co.
Broadcort Capital
29.6 B.P.S.
Additional NYSE Rankings: (11) Fox-Pitt, Kelton, (12) Pershing,
(13) Charles Schwab, (14) Instinet, (15) UBS Securities
Source: Institutional Investor November 2004
27.2
25.7
23.4
20.7
18.2
17.4
16.7
16.6
16.2
7/03 - 6/04 Rank
1
2
3
4
5
6
7
8
9
10
Difference vs. E/M Universe
B-Trade Services
M.J. Whitman
Morgan Stanley
Liquidnet
Bridge Trading
Pershing
32.3 B.P.S.
25.5
20.3
19.2
19
17.9
LaBranche
Institutional Execution Group
Archipelago
Knight Trading Group
Instinet
16.8*
15.7
14.5
14.2
Additional NASDAQ Rankings: (11) Goldman, Sachs & Co.,
(12) Credit Suisse First Boston, (13) Boston Institutional Services,
(14) Citicorp Global Markets, (15) UBS Securities
* The Elkins/McSherry Trading Cost Analysis for VWAP Trading is compiled using data from 1,300 institutions,
pension funds, investment managers and 1,900 brokers worldwide. This data is from 7/03 - 6/04.
*For NASDAQ with $496 million in volume the Institutional Execution Group volume was slightly below the threshold for the
study ($500 Million). However, in terms of basis points the LaBranche Financial Services Institutional Execution Group ranking would be 7.
Contact Greg Cavallo, Managing Director
Institutional Sales & Trading
An Affiliate of LaBranche & Co., LLC
Member of NYSE, NASD, AMEX & SIPC
www.labfs.com
888.522.3711
AIN091905
9/15/05
7:32 PM
Page 17
September 19, 2005
www.iialternatives.com
Alternative Investment News
Search & Hire Directory
The following directory includes search and hire activity for the week. The accuracy of the information, which is derived from many sources, is
deemed reliable but cannot be guaranteed. All amounts are in US$ millions unless otherwise stated. To report manager hires and new searches,
please call Nathaniel Baker at (212) 224-3648, Mark Faro at (212) 224-3287, Jennifer McCandless at (212) 224-3615 or Robert Murray
at 44 (0)207 303 1705 or fax (212) 224-3939.
Potential Searches
Total
Amt (Mlns)
Fund
Type
First Choice Holidays plc
GBP49
Corporate D.C.
Fort Lauderdale Police & Fire
Retirement System
USD380
Fund & City
Assignment
Mandate
Size
(Mlns)
Consultant
Comments
Global
N/A
N/A
Will consider alternatives as part of its review.
Public D.B.
US
N/A
Asset Consulting Group
If legislation is passed the fund will talk to its consultant
about being educated on alternatives.
Franklin W. Olin College of Engineering USD400
Endowment
US
N/A
CRA RogersCasey
Considering additional alternatives allocations after its
investment committee meets in November.
Jacksonville (Fla.) Police & Fire
Pension Fund
Public D.B.
US
USD129
Merrill Lynch Consulting
Services Group
Hopes to invest 15% of its assets in alternatives, providing
that legislation lifting investment restrictions is passed.
New Mexico State Investment Council USD12,000
Public D.B.
Private Equity
N/A
New England Pension
Consultants
Will consider investing in Giza Venture Fund IV.
New Mexico State Investment Council USD12,000
Public D.B.
Private Equity
N/A
New England Pension
Consultants
Will consider investing in the GSC Recovery III fund.
Ohio Public Employees
Retirement System
USD64,500
Public D.B.
Currency Hedging
N/A
N/A
Learning about active currency strategies.
USD200
Public D.B.
US
N/A
Dahab Associates
If legislation is passed, which could happen as soon as next
spring, the fund would likely be educated in alternatives.
Year-long assessment of alternatives.
USD860
Pembroke Pines (Fla.) Firefighters’ &
Police Officers’ Pension Fund
Somerset County Council Pension Fund
GBP800
Public D.B.
Private Equity
N/A
N/A
SunSuper Brisbane
AUD5,600
Union
Absolute Return
N/A
N/A
Will increase its allocation to absolute return funds.
Teachers Retirement System of Texas
USD90,000
Public D.B.
Absolute Return
N/A
Hamilton Lane Advisors
May commit to: Clovis Capital Partners (Cayman), Walker
Smith International Fund, Gramercy Emerging Market Fund,
MKP Credit Offshore or Footbridge Capital Fund.
Teachers Retirement System of Texas
USD90,000
Public D.B.
Private Equity
N/A
Hamilton Lane Advisors
Will consider Apollo Investment Fund, VI, L.P.
USD458
Endowment
Real Assets
USD8
Monticello Associates
Fund now has a 4% exposure and will have to add managers.
Washington State Investment Board
USD61,200
Public D.B.
Private Equity
N/A
N/A
Considering investing in the Vestar Capital Partners V fund.
Washington State Investment Board
USD61,200
Public D.B.
Private Equity
N/A
N/A
Considering investing in the OCM Opportunity Fund VI.
USD194,000
Public D.B.
Hedge Fund-of-Funds
Hamilton & Company,
Finalists selected: KBC Alpha Asset Management, Vision
Investment Management and Persistent Edge Asia Partners.
University of Colorado Foundation
Updated Searches
California Public Employees
Retirement System (CalPERS)
Durham County Council Pension Fund
USD100
GBP1,000
Public D.B.
Hedge Fund-of-Funds
N/A
Franklin W. Olin College of Engineering USD400
Endowment
Hedge Fund-of-Funds
USD18
Somerset County Council Pension Fund
GBP800
Public D.B.
Global
Somerset County Council Pension Fund
GBP800
Public D.B.
Global Hedge Fund
AUD5,600
Union/
SunSuper Brisbane
N/A
Still considering first hedge fund foray.
John M. Dickson, CRA
RogersCasey
Will make a maiden allocation to hedge
fund-of-funds next month.
N/A
N/A
Four year business plan will look at all alternatives.
N/A
N/A
Will consider hedge funds as part of its review of alternatives.
Private Equity
N/A
N/A
Will increase its private equity allocation.
N/A
Gray & Company, Atlanta, GA
Maxam Capital Management, Attucks Asset Management
Deerfield Capital Management, Lyster Watson
Management Inc, BlackRock Financial Management
Completed Searches
Chicago Transit Authority
Retirement System
USD1,521
Public D.B.
Hedge Fund-of-Funds
Los Angeles City Employees
Retirement System (LACERS)
USD8,400
Public D.B.
Private Equity
USD15
Hamilton Lane Advisors,
Apollo Advisors
Pennsylvania State Employees
Retirement System
USD26,850
Public D.B.
Private Equity
USD20
Cambridge Associates,
Marshall Wace Asset Management
Pennsylvania State Employees
USD26,850
Public D.B.
Private Equity
USD20
Cambridge Associates,
Lime Rock Partners
Royal Mail Pension Plan
GBP15,600
Corporate D.B.
Private Equity
N/A
N/A
Hermes Pensions Management
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17
AIN091905
9/15/05
7:32 PM
Page 18
Alternative Investment News
www.iialternatives.com
September 19, 2005
Market Focus
It’s A Match!
By using a niche broker, the funds can get increased attention
and better trade execution, said Barry Levin, an institutional
derivatives salesman at Man Securities. These firms can also be
useful because many startup managers either lack the ability to
hedge or do not have trading expertise. Mark Sellers, who runs
Chicago-based Sellers Capital, uses several outside niche traders.
When he first started the fund, Sellers said he did all the trading
himself, but this was time consuming. The benefit of using these
traders is their expertise and relationships with liquidity
providers, he noted.
Small Funds Find Niche Brokers To
Meet Their Needs
Small and emerging manager hedge funds, snubbed by large
prime brokers, are finding a cottage industry of boutique prime
brokerages that have cropped up to serve them. Emerging hedge
fund manager firms generally have a need for ancillary services
besides the capital introduction and office leasing offered by
larger shops. Large prime brokers, meanwhile, tend to focus on
larger funds who can supply them with a more significant
volume of trades—and commission dollars. This leaves $10
million firms to fend for themselves.
“We give small- to mid-size hedge funds a level playing field
with large funds,” said John Quartararo, a managing director at
Merlin Securities, a boutique that opened in the last year. RCP
Prime, a division of Rafferty Capital Markets that opened in
January, helps fund find attorneys, clearing houses, fund
administrators and accountants in addition to traditional prime
brokerage services. Others, such as Cuttone & Company, TNI
Securities and Baypoint Trading have opened in the last year or
so to fill the gap in this market.
MAVERICK MANAGER
(continued from page 1)
second quarters, he added, emphasizing that the process would
move cautiously. “I am not going to slap together a company,”
he quipped.
The fund will be typically net long 30-50%, but will also
have the flexibility to be net short. It will have a $1 million
investment minimum with a 2% management fee and 20%
performance fee. There will be a one-year lockup provision.
—Mark Faro
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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-billion
dollar hedge fund firm
Millennium International
Management found they
were stuck. That’s because
following a guilty plea by
a
former senior trader at the
Millennium International
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
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The University of Texas System’s
$11.5 billion endowment
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
a 25% allocation, said Bob
is to have
Boldt, cio. The school is leaning
towards
investing in absolute return
funds over other hedge fund
styles, Boldt
(continued on page 4)
FARALLON FOLLOWS LONE
PINE’S LEAD
ON HIGH-WATER MARKS
Farallon Capital Managemen
t, 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.iialtern
atives.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
spring
that allow hedge fund managers
even when their funds are
to earn performance fees
under water. Farallon wants
the ability to earn a reduced
(continued on page 26)
KLM TO WEIGH FUNDS
Check www.iialternatives.
com during the week for
CREDIT CARD NUMBER
EXPIRATION DATE
OF FUNDS
The €8 billion KLM Pensioenfon
ds, 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
hedge funds of funds at a
to
board meeting in April.
(continued on page 26)
breaking news and updates.
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AIN091905
9/15/05
7:32 PM
Page 19
September 19, 2005
www.iialternatives.com
PLATINUM READIES
(continued from page 1)
observed. “We’ve got about $25-50 million capacity with each
[big-name manager],” continued Reeves, declining to name
them. Because of the closed nature of the underlying funds,
AllStar will be capped at about $200 million. Platinum has seen
interest from institutions including banks, and also expects
money from high-net-worth individuals. The fund is being
seeded with $5 million from Platinum and its affiliates.
While fund of funds firms often tout their ability to access
high-profile managers as a selling point, Platinum is believed to
be the first firm dedicating an entire fund to the strategy,
according to industry officials. Other funds making these
allocations usually only do so with a portion of the portfolio,
because investing in closed funds limits the fund of funds’
overall capacity, observed Gustaf Bradshaw, who is responsible
for institutional sales and marketing at fund of funds firm Atlas
Capital. Reeves confirmed that Platinum will not extend
AllStar’s capacity or add extra managers. “We want it to stay
small and nimble,” he explained.
The AllStar fund will carry a 1.5% management fee and a
10% performance fee. The investment minimum will be quite
low, at $50,000. “We want to offer it to…as wide an audience
as possible,” explained Reeves. “It’s a bit of a coup that you
can access these managers…for 50 grand.”
—Robert Murray
SEC PREPS
(continued from page 1)
Campos told the conference. The SEC estimates there are over
8,000 hedge funds and must accordingly target its resources,
Campos said. “We want to be in a position to move quickly.”
An area that could constitute risk is credit derivatives, whose
recent surge can be attributed to hedge funds, said Campos.
There are several possibilities—among them soft-dollar
arrangements and hedge funds’ relationships with broker/dealers.
Campos said the SEC’s recent settlement with Bingham Capital
Management on charges of hedge fund asset misappropriation
through soft dollar arrangements as an example as a type of fraud
examiners might seek out.
Campos did not indicate whether sweeps would begin ahead
of the Feb. 1 deadline for hedge funds with more than $25
million in investments and 15 or more clients to register as
investment advisers. He cautioned, however, that hedge funds
need to have their registration applications in by December to
help guarantee meeting the deadline and said not to count on
leniency with delays. The SEC’s Office of Compliance
Inspections and Examinations has developed what Campos
called a rigorous training program to prepare staff to examine
Alternative Investment News
hedge funds. Hedge fund managers and their service providers
will be invited to participate and help SEC examiners learn the
business.
—Mark Malyszko & Elizabeth LeBras
Quote Of The Week
“I am not going to slap together a company.”—Chatri Trisiripsal,
recently-departed managing director at Maverick Capital, emphasizing the need for a slow process in hiring staff for his start-up (see story,
page 1).
One Year Ago In Alternative Investment News
Citigroup Alternative Investments launched a major multistrategy hedge fund platform, Tribeca Global Investments, to
invest $10-20 billion in 50 internal managers within a couple of
years. [Tribeca plans to open an office in Singapore to take
advantage of opportunities in Asia. Citi has also increased its
marketing efforts in Europe. The firm tapped Philip Anker from
DB Absolute Return Strategies to spearhead this effort (AIN,
10/25). Anker set about enlarging his team and focusing on new
markets, including Germany (AIN, 2/21).]
The Long & Short Of It
Politics and hedge funds make for an interesting mix,
especially when politicians decide to try their hand at earning
2/20. In light of former Securities and Exchange Commission
Chief Richard Breeden’s decision to reportedly launch an
activist hedge fund, AIN thought it might be fun to speculate
about some other former politicos’ possible contributions to
hedge fund world.
Former California Governor Gray Davis, The Recall Fund:
Arnold can’t take this away from him.
Former SEC Chief William Donaldson, I Proved I Can
Regulate You Fund: But will he avail himself of the two-year
lockup loophole to avoid registering?
Ex-Vice President Al Gore, Recount Fund: Designed to seek
shorts on businesses run by Florida voters who punched the
wrong chad.
Former Treasury Secretary Paul O’Neill, Foot In Mouth
Fund: Known for making comments that sent the markets
into a frenzy, the fund would be a volatility play. Also, good
luck calling on West Wingers for investment.
Former President Bill Clinton, Whitewater Fund: After
initially seemingly profiting from land and cattle futures
investments, the fund is dogged by cranky investor Kenneth
Starr.
Ex-Vice President Dan Quayle, Potato Fund: He may not
be able to spell it, but why not play in commodities?
•
•
•
•
•
•
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