OSPRAIE TO LAUNCH SEEDING PLATFORM HEDGE FUNDS

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Page 1
GRAHAM TWEAKS TREND-FOLLOWING STRATEGIES
MAY 23, 2005
VOL. VI, NO. 20
Web Exclusive
Pensions Examine Global
Macro Funds
Consultants and public funds are being
educated on global macro hedge funds,
a less crowded option for those
interested in entering the hedge fund
space or diversifying their alternatives
portfolios.
See AIN’s Web site,
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At Press Time
Ex-GLG Manager Packs It In
Citi Honchos To Form Fund
2
2
U.S. News
Kingdon, Catequil Pros Launch Fund 3
Aladdin Hires AIG Staffers
4
Ex-DLJ Alums Roll Out Fund
4
Managed futures behemoth Graham Capital Management is making some changes to its
trend-following programs due to poor performance at a time when many firms following this
strategy are struggling. The firm’s trend-following strategies are long-term in nature and this
has helped Graham historically avoid choppy markets, according to an investor letter
obtained by AIN penned by founder Ken Tropin. “The past several months, however, have
been generally characterized by directional moves that persist for up to several weeks and are
then followed by sharp trend reversals and subsequent directionless volatility,” the letter says.
A spokesman for Graham declined to comment, citing a policy not to discuss private investor
(continued on page 11)
OSPRAIE TO LAUNCH SEEDING PLATFORM
Ospraie Management, the New York firm run by well-known manager Dwight Anderson, is
planning to launch a $1 billion seeding platform in July. The impetus for the venture,
Ospraie Wingspan, came from Ospraie—currently closed to new investors—referring
investors to other hedge fund managers with similar philosophies, said an official familiar
with the matter. Erik Vincent, the firm’s chief operating officer, declined to comment.
Wingspan will raise capital from investors and then allocate it to five managers in addition
to a nominal allotment to the main Ospraie fund. There are plans to add additional
managers later. Wingspan has a sharing arrangement with the managers’ fee income. The
(continued on page 12)
European News
RAB Kicks Off Energy Fund
With Lock-Up
Cazenove Preps New U.K. Fund
Hedge Funds Face Margin
Call Crackdown
6
6
6
Departments
Search & Hire Directory
8
Under the Hood
N.Y. Firm Hit By Ford, GM Plays
Basswood Drops During
First Quarter
Brick Shorts Mining Stocks
9
HEDGE FUNDS ATTACK ONE OF THEIR OWN
BKF Capital Group, a publicly traded company that counts John
A. Levin & Co. as its main subsidiary, is facing a proxy battle
initiated by hedge funds. The firm, which also manages hedge
funds, is run by John Levin. Dissident shareholders are
seeking his ouster. Leading the charge is Warren Lichtenstein,
principal of hedge fund firm Steel Partners, who is
challenging Levin and two other directors for their board seats.
(continued on page 12)
9
11
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Cannibals At The Gate?
HEDGE FUNDS BEMOAN WORST CONDITIONS
SINCE LTCM COLLAPSE
As hedge funds struggle to find investment opportunities and returns slip, some are saying
the current environment is the most challenging since 1998 when Long-Term Capital
Management collapsed. “While things are not as bad as they were in 1998, the real problem
is that they could be,” said James Melcher, founder and ceo of Balestra Capital. “Whenever
you have too high a concentration of people in one area, you’re creating conditions for a
disaster. It’s like an avalanche. Once things start falling, it picks up momentum and brings
(continued on page 11)
Check www.iialternatives.com during the week for breaking news and updates.
AIN052305
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Alternative Investment News
Page 2
www.iialternatives.com
May 23, 2005
At Press Time
Citi Trio To Start Fund
EDITORIAL
Three managing directors from Citigroup are leaving to start
their own hedge fund firm. Brian Riano, managing director
of corporate cash derivatives, Sean Fahey, managing director of
emerging markets debt trading, and John Eckerson, managing director of highyield trading, are starting the venture. The fund is expected to launch in August
and follow a global macro strategy, said an industry official. Riano declined to
comment. Calls to Fahey and Eckerson were not returned. Officials in Citi’s press
office referred inquiries to their colleague Danielle Romaro-Apsilos, who was not
available to comment.
TOM LAMONT
Editor
STEVE MURRAY
Deputy Editor
DOUGLAS CUBBERLEY
Executive Editor
(212) 224-3318
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Managing Editor
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Senior Reporter
(44-20) 7303-1705
NATHANIEL BAKER
Reporter
(212) 224-3648
ITT Considers Alternatives Increase,
Portable Alpha
ITT Industries is considering increasing its private equity commitments to 20%
from 10%, hedge fund investments to up to 20% from 10%, and introducing
portable alpha strategies. A recent asset study by Summit Strategies suggested the
moves would enable the engineering and manufacturing company’s pension plan
to meet its 9% actuarial rate of return without increasing risk, according to AIN
sister publication Money Management Letter. “Intuitively, we think that’s true,”
said an official at the $4 billion fund, and the plan is assessing how feasible
implementation is. The fund will start seeking managers over the next few
months and will hire firms gradually as opportunities arise.
With private equity, the plan is less concerned about its strategic allocations to
buyout, venture capital and Europe versus the U.S. than it is with finding abovemedian managers, so funds of funds will inevitably be part of the execution
because they can do more due diligence. The plan would also make some direct
investments, said the official. The fund might increase its exposure to European
private equity, which accounts for approximately 20% of its private equity
portfolio.
JENNIFER MCCANDLESS
Associate Reporter
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Former GLG Manager To Close Shop
Robert Kim, a former portfolio manager at hedge fund giant GLG Partners, will
close his firm, Cydonia Capital, July 1. Cydonia manages a long/short equity
fund that focuses on consumer, health care and media stocks that is down about
6% this year. The firm is closing because the fund’s anchor investor is pulling out
of the fund, said Kim. He declined to name the investor, but a source close to the
situation identified it as SAC Capital Advisors, the hedge fund behemoth run by
Steve Cohen.
Kim said his anchor investor was pulling out because it is undergoing a
restructuring that makes it difficult for the firm to continue investing in
Cydonia’s fund. The fund was launched last July with about $75 million and is
now about $50 million, most of which is from the anchor investor, Kim said.
Calls to an SAC spokesman were not returned.
Kim, who also previously worked for SAC and Moore Capital Management,
was joined at Cydonia by Bill Dalton, formerly of Soros Fund Management,
and Paul Eckel, previously of Moore and Caxton Associates. Kim said the trio is
considering their options with regard to future plans after the closing.
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Page 3
May 23, 2005
www.iialternatives.com
Alternative Investment News
U.S. News
Kingdon, Catequil Officials
Launch Fund
Mitch Swergold, formerly a portfolio manager at Kingdon
Capital Management, and Seth Berman, who was cfo at
Catequil Asset Management, have started their own firm,
Swergold Capital Partners. Swergold is the managing partner
and Berman is a partner and cfo. The duo launched a global
long/short equity fund this month. The $22 million fund, which
includes seed money from JPMorgan and Kingdon Capital
Founder Mark Kingdon, focuses primarily on the global
technology sector, said Berman. The firm hopes to leverage
Swergold’s proprietary network of contacts in the global
technology industry, Berman added.
Berman and Swergold are the New York-based firm’s only
officials but Berman said they are close to hiring an analyst. The
minimum investment is $1 million, which might be flexible
under certain circumstances, said Berman. There are no lockups
but shareholders withdrawing funds are subject to a 90-day
notice and the fund has a gate provision that limits 25% of its
total assets from leaving during any redemption period. There is
a 1.5% management and a 20% performance fee. The prime
broker is Bank of America.
Catequil, a firm run by alumni from Tiger Management,
liquidated its assets last fall after a legal tussle between partners
Robert Ellis and Paul Touradji (AIN, 10/25). Berman departed
Catequil earlier this year, while Swergold left Kingdon last fall.
Calls to Mary Sedarat, a JPMorgan spokeswoman, were not
returned by press time. A Kingdon Capital official confirmed
Kingdon’s personal investment in the fund.
SSgA Sub Rolls Out Japan
Fund of Funds
Stamford, Conn.-based SSARIS Advisors, the majority-owned
hedge fund subsidiary of State Street Global Advisors, has
launched a Japan long/short equity fund of funds to be
distributed by its parent firm’s Tokyo operation. The Tokyo entity
runs a Japan market neutral single-manager hedge fund, which
was closed at $900 million. Continued investor interest led State
Street Tokyo to approach SSARIS about developing a fund of
funds with a level of volatility similar to that of the market neutral
fund, explained Andrew Fisch, v.p., fund of funds at SSARIS.
The new fund of funds invests in 15 Japan long/short hedge
The winds and waves are always on the side of the ablest navigators.
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Churchill Capital
e q u i t y c a p i ta l • s u b o rd i nat e d d ebt
Expertly navigating the unique financing
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For more information on Churchill Capital,
call Mary Horsch at --.
Or visit www.churchillnet.com.
John J. “Hap” Fauth, Chairman
Michael J. Hahn, President & CEO
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Alternative Investment News
www.iialternatives.com
May 23, 2005
funds from managers around the globe, continued Fisch,
declining to name the firms. Demand for the product has come
primarily from Japanese institutions, he added. The fund carries a
1% management fee and a 10% performance fee. It has an initial
capacity of $500 million, at which point it will be closed. It might
be reopened to existing investors at a later date, said Fisch.
was hired as a research analyst. She was a professional associate
at AIG.
With this team in place, Aladdin plans to issue two CDOs
backed by ABS and CMBS in the next 12 months (AIN, 2/21).
Andrew Silver, a spokesman for AIG, said the firm does not
comment on personnel issues.
Novel Mutual Fund To Add Hedge
Fund Managers
Garden State Manager Expands
Into Equities
Alternative Investment Partners, which manages a fund of funds
in the form of an open-end mutual fund, plans to add three
underlying hedge fund managers by the third quarter. Lee
Schultheis, chief investment strategist and co-founder of the
Alpha Hedged Strategies fund, said the firm plans to add
long/short international equity managers, long/short REIT and
long/short small-cap managers.
The firm hopes to increase its roster to 20 underlying
managers by this time next year, Schultheis said. AIP could invest
as much as $50-100 million with any given manager. In order to
meet daily liquidity requirements for the fund, each underlying
manager must set up a separately managed account.
The $100 million fund currently invests in seven underlying
managers in various strategies including fixed-income arbitrage,
long/short equity, distressed securities, convertible arbitrage and
merger arbitrage. The fund is currently down about 1.5%. Its
best performing allocations have been long/short equity and
distressed. Its fixed-income slug is down just under 1% year-to
date. “Our only real negative so far this year has been convertible
bond arbitrage,” Schultheis said.
Blenheim Capital Management, a Somerset, N.J.-based global
macro fund manager, is moving into equities. Blenheim, which
is typically a commodities and managed futures firm, is planning
to move into natural resource and commodity-related equities,
said a source familiar with the firm. To help with the move, it
recently hired James Wohlmacher, who was chief operating
officer for Hamilton Investment Management.
Wohlmacher is responsible for risk management, trader
development and the equities push. The firm also hired Joseph
Esposito from Vinya Capital, where he served as general
counsel. He is responsible for administrative and compliance
issues at Blenheim.
Wohlmacher and Esposito were not available for comment.
Sandra Satts, cfo at Hamilton, did not return calls. A Vinya
official said that Esposito has not been replaced and the firm is
considering several options.
Aladdin Nabs AIG Pros
Aladdin Capital Management, the $4 billion Stamford,
Conn.-based hedge fund and collateralized debt obligation
manager, recently hired three officials from AIG Global
Investment Group to round out its asset- and commercial
mortgage-backed securities team. The firm tapped Nunzio
Masone, Martin DeVito and Shirley Cho, said Mike Carroll,
director of sales and marketing. They join a team that was
started in February when Aladdin hired Anatoly Burman from
AIG (AIN, 2/21).
Masone is a managing director at Aladdin. At AIG, he was a
senior managing director of the firm’s residential mortgageand asset-backed securities credit portfolio. Masone said he
joined Aladdin because the firm gave him the opportunity to
build a business around his strengths in the structured credit
market. DeVito, who is also a managing director, was a senior
portfolio manager responsible for investment analysis of
CMBS transactions as well as all trading of the portfolio. Cho
4
Former DLJ Alums Launch Fund
Former Donaldson, Lufkin & Jenrette alumni Simon Baker,
Jacques Soenens and Kevin Goldstein have reunited to form
hedge fund firm Great Gable Partners. Baker Avenue Asset
Management (BAAM), a San Francisco-based wealth
management firm that caters to the high-net-worth and
institutions, developed and seeded Great Gable, said Baker,
BAAM founder, Great Gable president and senior portfolio
manager. BAAM also recently hired its first dedicated
marketing official—Stephen Shea, from investment
counseling firm Wentworth Hauser and Violich, to spearhead
marketing efforts.
Great Gable is a strategic value long/short equity hedge fund
with a small-cap bias. Its target annual return is 10-20%. Baker,
former Credit Suisse First Boston/DLJ alum, had been a
managing director at Bank of America Private Bank for about
two years before leaving at the end of last year. Soenens, portfolio
manager at Great Gable and a former DLJ analyst, had been the
co-managing partner of hedge fund firm Osmium Partners.
Goldstein, director of research at Great Gable and former DLJ
analyst, co-founded Arcanum Partners in Chicago.
Copying prohibited without the permission of the publisher.
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May 23, 2005
European News
RAB Launches Energy Fund With
Lock-Up
with a 1.5% management fee and 20% performance fee with a
high-water mark. Deutsche Bank will act as prime broker.
London-based RAB Capital last week launched RAB Octane, an
energy fund focused on pre-IPO energy companies. This is the
first fund launched by the firm to carry a one-year lock-up, said
Marc Popiolek, spokesman. The fund’s pre-IPO focus means it is
limited in the number of investments it can make. “This is an
illiquid fund, and capacity is linked to the opportunities
available,” he explained.
Octane, managed by Gavin Wilson, opened with $55 million
from investors in the firm’s existing energy vehicle, which is also
run by Wilson. The new fund has not really been marketed and,
although a second round of asset-raising is planned for July, the
firm has not yet decided whether to make the fund available to
new investors or to simply allow existing investors to increase
their allocations, said Popiolek.
The fund carries a 1.5% management fee coupled with a 20%
performance fee with a high-water mark. As with most of RAB’s
other funds, it has a $50,000 investment minimum. It has a
likely capacity of $100 million.
The firm is also prepping a fund focused on index futures, to
be managed by Harvey Neale (iialternatives.com, 3/11). This will
launch in the summer, said Popiolek.
Stenham Seeks To Grow
Flagship Funds
Cazenove Readies New U.K. Fund
Cazenove Capital Management is preparing to launch its second
U.K. long/short fund toward the end of the month. The fund
will be managed by Neil Pegrum, who joined last summer to
manage a long-only product (iialternatives.com, 8/6). The
Cazenove U.K. Dynamic Absolute Return Fund is expected to
launch with around £20 million, most of which is coming from
private clients, said Robin Minter-Kemp, director of fund
management and head of institutional marketing.
“The marketing has been quite selective,” said James Cahill,
who works in the European institutional marketing group. “We
haven’t been out promoting it extensively. We were fairly
confident we could launch with a decent amount and let Neil
stress-test the model for about six months,” continued Cahill,
explaining that more assets will be sought after this period.
The fund will focus on small- to mid-cap stocks, differentiating
it from the firm’s existing U.K. long/short fund, managed by Tim
Russell, which focuses on large- to mid-caps and holds £342
million. “By definition, capacity will be more of an issue [with the
new fund],” noted Minter-Kemp. It might grow to £200-250
million quite quickly, but “we simply don’t know because we
haven’t offered this kind of strategy before,” he added.
The new fund will have a $100,000 investment minimum,
6
Stenham Advisors, the $1.5 billion fund of funds and wealth
management firm, is making a push to double the assets in its
flagship pair of diversified funds of funds, SGL Universal and
SGL Universal II. These were launched in 1992 and 2002
respectively, and hold $160 million and $180 million, according
to Harry Wulfsohn, director in London. “We think we have the
capacity to double both,” he ventured. Each fund of funds
allocates to 25 underlying hedge funds and there is a 75%
overlap between the two. “About five of the underlying funds are
hard-closed, but the rest all have capacity,” he added.
The firm, which began in 1901 as a family office for a pair of
South African families, is predominantly targeting large family
offices and this is being done via one-to-one meetings,
continued Wulfsohn.
Stenham also runs several strategy-specific funds of funds,
focused on global macro, global long/short equity, Asian equity
and gold. There is also a highly concentrated fund of funds, with
a second due to be launched in a few months (AIN, 5/16). The
firm’s fund of funds assets, including managed accounts, total
$900 million.
Tranche Loss Aftermath
Hedge Funds Face Margin
Call Clampdown
Credit hedge funds report dealers are increasing margin call
frequency in the wake of recent mark-to-market losses on
collateralized debt obligation trades. One fund manager said this
is adding to the pressure on funds, which are also facing dealers
unwilling to provide liquidity in the structured credit market.
Dealers said this is because they have already reached risk limits
for volumes of CDO equity tranches they can hold and hedge.
On top of losses from holding equity tranches of CDOs,
funds are also believed to be suffering from losses through selling
the mezzanine tranche, which they did to hedge the equity
position. Reports funds have lost on both legs of these popular
trades have forced dealers to rethink their exposure to highly
leveraged credit funds. Robert McWilliam, head of counterparty
exposure management at ABN AMRO in London, agreed there
has been a pickup in margining activity. He noted it is hard to
see when margin calls might go back to normal, because current
credit volatility seems to be triggered more by investors’ nerves
than credit market fundamentals.
Copying prohibited without the permission of the publisher.
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2:30 PM
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AIN052305
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Alternative Investment News
www.iialternatives.com
May 23, 2005
Search & Hire Directory
The following directory includes search and hire activity for the week. The accuracy of the information, which is derived from many sources, is
deemed reliable but cannot be guaranteed. All amounts are in US$ millions unless otherwise stated. To report manager hires and new searches,
please call Mark Faro at (212) 224-3287, Nathaniel Baker 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
Fund & City
Fairfax County (Va.) Uniformed
Retirement System, Fairfax, VA
Total
Amt (Mlns)
USD749
Sacramento County Employees
USD4,300
Retirement System, Sacramento, CA
The Spartanburg County (SC) Foundation, USD50
Spartanburg, SC
Fund
Type
Public D.B.
Public D.B.
Foundation
Assignment
US/ Alternative/
Hedge Fund
Global/ Alternative/
Portable Alpha
US/ Alternative/
Private Equity
Mandate
Size
(Mlns)
N/A
Consultant
New England Pension
Consultants, Cambridge, MA
N/A
N/A
N/A
Prime, Buchholz & Associates,
Portsmouth, NH
Comments
Currently evaluating alternatives, specifically hedge
funds, and could make a decision on whether to search
by the end of summer.
Will be educated on portable alpha in July. Searches
possible.
Will consider adding private equity and real assets this
fall to boost returns and cut volatility.
New Searches
Northern Mariana Islands Retirement
Fund, Saipan, Northern Mariana Islands
USD390
Public D.B.
US/ Alternative/
Fund-of-Funds
USD18
None
Searching for a multi-strategy alternative investment
fund-of-funds manager. Contact Karl Reyes at
[email protected]. A deadline for
proposals has not been set.
APK Pensionkasse, Vienna, Austria
EUR1,700
Union/
Multiemployer D.B.
Global/ Alternative/
Commodities
EUR30
None
Union/
Multiemployer D.B.
Global/ Alternative/
Hedge Fund
N/A
None
Union/
Multiemployer D.B.
Union/
Multiemployer D.B.
Permanent Fund
Global/ Alternative/
Infrastructure
Global/ Alternative/
Private Equity
Global/ Alternative/
Hedge Fund
US/ Alternative/
Private Equity
Global/ Alternative/
Private Equity
Fund-of-Funds
Global/ Alternative
N/A
N/A
JANA Investment Advisers
Melbourne, Australia
JANA Investment Advisers
Melbourne, Australia
None
USD5
Portfolio Advisors, Darien, CT
GBP50
Geoff Singleton, Hymans
Robertson, Glasgow, U.K.
Contemplating commodities and may invest if it can find
a strategy that reflects an understanding of fundamental
markets.
Looking at single-strategy funds registered in Europe.
Regulatory restrictions mean that offshore investments
are not an option. Mandate size has not been decided.
Has not altered its infrastructure mandate. Fund still only
has investments in domestic infrastructure.
Fund has not allocated any of its assets to global private
equity.
Will earmark funds for hedge fund investments next
March.
Recommended committing to the Summit Partners Private
Equity fund.
Fund has made no progress regarding the appointment of
a manager to handle a private equity fund-of-funds
mandate.
Started a review of its property and alternative
investment structure.
APK Pensionkasse, Vienna, Austria
EUR1,700
Updated Searches
Emergency Services Superannuation
AUD4,300
Scheme, Melbourne, Australia
Emergency Services Superannuation
AUD4,300
Scheme, Melbourne, Australia
Government Pension Investment Fund, JPY32,000,000
Tokyo, Japan
Los Angeles Fire & Police Pension
USD12,200
System, Los Angeles, CA
Royal County of Berkshire Pension
GBP960
Fund, Berkshire, U.K.
Tasplan Superannuation Fund,
Hobart, Australia
AUD500
Public D.B.
Public D.B.
Corporate D.C.
N/A
N/A
Mercer Investment Consulting,
Sydney, Australia
USD15
Hamilton Lane Advisors, Bala
Cynwyd, PA
Unknown
NGEN Partners
Fiduciary Consultants Inc,
St. Louis, MO
JANA Investment Advisers,
Melbourne, Australia
Denis A. Tito, Wilshire
Associates, Santa Monica, CA
Pacific Corporate Group,
La Jolla, CA
Pacific Corporate Group,
La Jolla, CA
Pacific Corporate Group,
La Jolla, CA
Pacific Corporate Group,
La Jolla, CA
Portfolio Advisors, Darien, CT
Prolog Ventures
Completed Searches
California Public Employees Retirement USD182,900
System (CalPERS), Sacramento, CA
Capital Z, London, U.K.
GBP0
Carpenters, District Council, St. Louis,
St. Louis, MO
EquipSuper, Melbourne, Australia
Kern County (Calif.) Employees
Retirement Association, Bakersfield, CA
Oregon Public Employees Retirement
Fund, Salem, OR
Oregon Public Employees Retirement
Fund, Salem, OR
Oregon Public Employees Retirement
Fund, Salem, OR
Oregon Public Employees Retirement
Fund, Salem, OR
San Francisco City & County Employees
Retirement System, San Francisco, CA
USD1,200
Public D.B.
Money Manager
USD2,000
Union/.
Multiemployer D.B
Union/
Multiemployer D.B.
Public D.B.
USD49,000
Public D.B.
USD49,000
Public D.B.
USD49,000
Public D.B.
USD49,000
Public D.B.
USD12,700
Public D.B.
AUD2,900
US/ Alternative/
Private Equity
Global/ Alternative/
Hedge Fund
US/ Alternative/
Private Equity
Global/ Alternative/
Hedge Fund-of-Funds
US/ Alternative/
Hedge Fund-of-Funds
US/ Alternative/
Private Equity
US/ Alternative/
Private Equity
US/ Alternative/
Private Equity
US/ Alternative/
Private Equity
US/ Alternative/
Private Equity
N/A
USD10
USD10
USD60
N/A
N/A
N/A
N/A
USD30
Sanctum FI
Mesirow Financial
K2 Advisors
Evergreen Pacific Partners
Cascadia Partners
Riverlake Partners
Buerk Dale Victor
Summit Partners
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].
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Alternative Investment News
Under The Hood: AIN’s look inside hedge fund strategies
Cajun Fund Makes Energy Plays
Baton Rouge, La.-based Maple Leaf Partners’ fund was up 9.3%
on the back of some plays in the energy, commodities sector. The
fund had a position in Great Lakes Chemical Corp. that
announced its intention to merge with Crompton Corporation
in March, according to an investor letter obtained by AIN. The
fund purchased the bulk of its Great Lakes shares in November
because it liked the company’s niche in the specialty chemical
market and its valuation.
The fund also had positions in energy shippers Seacor
Holdings and Seabulk International, which also announced
their intentions to merge in March. The fund began purchasing
both stocks in 2003. “At the time we acquired our [Seabulk]
shares it was trading at an attractive valuation of only 1.3 times
book value,” according to the letter. The fund was able to buy
Seacor below book value. The fund’s investments in Seabulk and
Seacor were up more than 100% and roughly 40%, respectively.
Dane Andreeff, portfolio manager, was traveling and did not
respond to inquiries by press time.
Firm Hit By GM, Ford Plays
New York-based Balestra Capital
Management lost money recently shorting
General Motors and Ford Motor Company
shares. Well before the credit ratings for GM
and Ford were reduced to junk status, Balestra
began shorting the stocks. James Melcher,
founder, said he was shorting GM and Ford
James Melcher
because he thought the automakers were
facing problems with their competition and obligations to
employees for healthcare and pension benefits. Balestra and many
other players were caught off guard by Kirk Kerkorian’s offer to
buy a sizeable stake of GM shares, which caused a rally for the
automaker’s stock. The firm had been shorting the stocks for
about a year, so it made some money on previous trades. Balestra
recently covered its short on GM but is still shorting Ford.
Balestra was also shorting Fannie Mae and housing stocks such
as Toll Brothers and Standard Pacific, until last week when the
firm covered its short positions. “We’ve been taking these short
positions on and off but because interest rates are staying low, we
felt it would be best to cover the short position temporarily,” said
Melcher, who was an Olympic fencer at the Munich games. “We
expect to take short positions in these areas again in the future.”
Balestra has been long emerging markets and energy. “We
were very heavy in energy. It was a very big portion of the fund
earlier this year, but we reduced our holdings about two or three
months ago. Now about 12-13% of the portfolio is invested in
energy,” said Melcher. The firm also invests in Russia and India.
Until recently, Balestra invested in Brazil but pulled out of the
country when inflation and interest rates started rising.
Basswood Dips In First Quarter
Basswood Partners, which manages roughly $2 billion,
experienced a loss of 1.4% in the first quarter for its Basswood
Opportunity Partners fund. The long/short equity fund’s long
portfolio was down 3.8% for the quarter largely on the back of
its position in Countrywide Financial Corp., according to an
investor letter obtained by AIN. “Countrywide is one of our
largest positions and the stock was down 12.3%,” the letter says.
It also had a position in auto parts supplier Lear Corporation,
which suffered because it supplies parts to General Motors and
Ford Motor Company. The fund has since sold that position.
The fund fared better in its short portfolio for the quarter.
The largest contributor was Fannie Mae. “Investors continue to
worry about the depths of the company’s accounting
shortcomings and the likelihood of regulatory and/or legislative
action that may impede the company’s growth and/or curb
profitability,” the letter says. It also shorted shares of investment
bank Friedman, Billings, Ramsey Group, which was hurt by a
flattening yield curve, the departure of Co-Founder Manny
Friedman and a Securities and Exchange Commission inquiry.
Calls to Marc Samit, principal, were not returned.
Titanium Fund Dips In April
London-based Titanium Capital’s global event-driven arbitrage
fund was down 1.07% in April. Titanium took a hit on Apax
Partners’ withdrawal of its offer for U.K. retailer Woolworths
Group, according to an investor letter obtained by AIN. This event
delivered a major setback to the reputations of private equity
acquirers, the letter claims. “As a consequence, spreads widened
considerably on both agreed and pre-agreed deals,” the letter says.
The Titanium fund allocates 65% to merger arbitrage plays.
The fund, which is 82% long, made positive plays in the
confirmation of a refinancing and capital increase in Italian civil
engineering consortium Impregilo SpA, and the announcement
of a cash offer from a group of investors for U.K. retail insurance
company Cox Insurance Holdings.
Orarin Eiamamornpan, client marketing manager, referred
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inquiries to Philip Manduca, managing director, who was out of
the office and could not be reached.
Brick Capital Shorts Mining Stocks
Brick Capital Partners’ Brick Capital Fund is up 6% this year
and has made profitable short plays on Phelps Dodge and
other mining stocks, while also capitalizing on a long U.S.
Dollar position. Brian Batt, founding partner for the $10
million Chicago-based firm, said the dramatic rise in the cost of
commodities has pressured the profit margins of nearly all
miners over the past 12-18 months. The Phelps Dodge short
play, the fund’s largest position through April, was made
because the company is the largest copper producer, “so it’s a
proxy not only for copper but also for commodity cyclicals in
general,” said Batt. Since April, the fund has covered about half
of this position.
The fund positioned the portfolio to take advantage of the
GRAHAM TWEAKS
(continued from page 1)
communications.
Graham has responded by developing short-term trading
systems that it will gradually integrate into its trend-following
programs. The firm hopes these programs can perform during
market cycles that offer few opportunities for long-term programs,
according to the letter. “Our current intention is to phase in the
utilization of these short-term models over the next several months
with a modest weighting in each of our trend-following programs.”
The firm has also developed a model to adjust the strategies’
leverage to limit downside risk. When the model detects an
environment less favorable to the strategy, it decreases the
amount of leverage until market conditions are favorable.
The changes come as many of the firm’s strategies, which
historically have performed well, have taken a turn south. The
multi-strategy Proprietary Matrix program was down 4.99%
last month and is -9.35% year-to-date through April. The
Graham Diversified Program was down 5.47% for the month
and is -11.81% for the year through April. The two times
leverage version of the strategy is down 21.91% for the year
through April. This year has been difficult for managed futures
strategies in general as many funds were hit hard earlier in the
year (AIN, 2/7). The BTOP 50 Index, an investable managed
futures benchmark published by Fairfield, Iowa-based The
Barclay Group, was down an estimated 2% in April and is
down 4% for the year.
Graham’s trend-following programs represent about 60% of
the firm’s roughly $5 billion in assets. It also employs a clutch of
discretionary traders, which have fared better this year. This
Alternative Investment News
strengthening dollar in January after deciding the greenback’s
short- and intermediate term positive signs were too difficult to
ignore. Chief among these were narrowing interest rate
differentials and tighter fiscal and monetary policies, but Batt said
the dollar position was also a contrarian play. In December there
were several headlines about a continuing trend for a weak dollar
but the firm was not convinced, he added. Brick is still bullish on
the greenback in the short-term, but by later this year with the
leveling off of interest rates, Batt expects the dollar to enter a
downward trend.
The fund’s strategy is focused on three to six month minitrends. Its most profitable positions last month were shorts in the
oil sector and in the base metals space. But Batt reduced the base
metals shorts by roughly 50% in the last few days of the month
in light of a sell-off. Specifically, Phelps Dodge shares dropped
more than 20% in the span of a month. The fund was also short
United States Steel, but it completely covered the position after
it fell by more than 40% in two months, said Batt.
group includes its Fed Policy program, which is up 5.21% year to
date through April.
The firm has also increased its research department from six
to 12 staffers, and Tropin has personally assumed command of
that group. “I am the single largest investor in Graham’s trading
programs and accordingly my interests and objectives are
completely aligned with those of my clients,” Tropin wrote in
the letter.
—Mark Faro
HEDGE FUNDS BEMOAN
(continued from page 1)
everything down with it,” he added.
Marcos Camhis, head of business development at Genevabased fund of funds firm Capital Management Advisors, agreed
that the past few months could be the worst period since 1998.
“It’s a crisis because performance has been really abysmal, but it’s
not a systemic blow-up,” said Camhis. Dave Saunders, cofounder of fund of funds firm K2 Advisors, said the industry has
not seen the “great washout” yet and there will be some blow-ups
before the dust settles. “There are too many people chasing the
same opportunities. Anytime you continue to pour money into a
finite bucket, it’s only a matter of time before it overflows and
you have a big mess,” he noted.
Despite barbs being launched at hedge funds from various
government officials world-wide and returns deep in the red,
there may be some hope. “Look what happened after LTCM.
Performance afterwards was excellent. Look at 1999; it was
great,” said Camhis. There is also a sense among market
participants that the tough period will have a Darwinian effect
and weed out poor managers.
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Barry Cohen, director of alternative investments at Bear
Stearns Asset Management, said things are bound to turn
around but it is difficult to predict whether it will get worse
before they do. One fund of funds manager agreed, adding that
the biggest problem facing the industry right now is that no one
knows when things will bottom out. “You just don’t know if this
is as bad as it will get or if the worst is yet to come,” he quipped.
—Jennifer McCandless & Robert Murray
OSPRAIE TO
(continued from page 1)
managers will run independent funds and will not be on the
same research platform as Ospraie.
The platform will focus on seeding new fund managers
personally selected by Anderson, but established managers will
also be included. With one exception—a global macro fund
focused on Asia—all five underlying funds are commodities
pools using fundamental, bottom-up strategies.
Lehman Brothers, which bought a 20% stake in the firm
earlier this year, is helping to distribute the vehicle and will
provide operational support to the managers. The Wingspan
project was planned before Lehman bought a stake, however,
the bank’s presence has helped move the process along. Calls to
Lehman’s Hedge Fund Strategies Group were referred to a
spokeswoman, who declined to comment.
—Nathaniel Baker
HEDGE FUNDS ATTACK
(continued from page 1)
Lichtenstein has proposed an alternate slate of directors,
including himself, to stand for election at the June 9 meeting.
Calls to Levin and to other BKF employees were referred to
Norris Nissim, general counsel, who did not return calls.
Separately, Opportunity Partners, the hedge fund firm run by
Phil Goldstein, submitted a proposal for the board to engage an
investment banking firm to pursue a sale of the company.
Goldstein said he is not officially allied with Lichtenstein, even
though they happen to share a common goal. “A lot of people who
are Star Wars fans went to see the [new] movie,” said Goldstein.
“That doesn’t mean they coordinated it to go together.”
Mario Gabelli’s GAMCO Investors is also seeking to revoke
BKF’s poison pill policy, according to a proxy filing with the
Securities and Exchange Commission. The third largest
shareholder after Levin and Steel is hedge fund Owl Creek
Management in New York, and CFO Dan Sapadin told AIN he
supported the objectives put forth in Lichtenstein’s filing. Calls
to Gabelli were not returned by press time.
A concern to Lichtenstein, Goldstein and others is BKF’s poor
performance relative to other publicly traded asset managers, the
12
May 23, 2005
filing says. BKF had net losses of approximately $1.8 million in
2003 and $8.4 million last year. “Do you know any other money
managers with $13 billion [under management] who don’t make
any money?” quipped Goldstein. “Management’s not doing
anything, the stock is down,” he continued.
Lichtenstein is also upset at some of the compensation
arrangements at the firm, specifically for payments made to
Levin’s family. The filing cites payments of $175,000 to Levin’s
daughter Jennifer Levin Carter and $8.7 million to his son
Henry Levin, a senior portfolio manager for the event-driven
investment team. Carter’s work is described by the filing as
“consulting services rendered to various alternative investment
strategies of the company.” Carter could not be reached by press
time. Regarding Henry Levin, the filing questions how the
compensation “is aligned with the interests of the stockholders in
light of the $1.8 million in losses sustained by BKF in 2004.”
“They would make a profit if they didn’t take so much money
themselves,” said Goldstein. Calls to Henry Levin were referred
to the firm’s general counsel.
Lichtenstein was traveling overseas and did not return calls
and other Steel employees declined to comment.
—N.B.
The Long and Short of It
Going Short: Sometimes it does not
pay to act quickly. Galleon
Management, Oaktree Capital
Management and DB Investment
Managers recently settled with the
Securities and Exchange Commission
over alleged violations of Rule 105 of
Regulation M, which prohibits covering shorts using securities
obtained in a follow-on offering within five days of the short
transaction. On some occasions Galleon and Oaktree allegedly,
“created large short positions within the Rule 105 restricted
period, purchased shares in a follow-on offering and then
engaged in further transactions or trading practices to make it
appear that the trading complied with Rule 105, when in fact
it did not,” according to the SEC. The SEC is collecting a total
of roughly $2.4 million in disgorgement, penalties and prejudgment interest in the three cases. AIN is going short on the
firms’ shorting and long on the SEC for getting out in front of
New York Attorney General Eliot Spitzer on something.
Quote Of The Week
“Do you know any other money managers with $13 billion [under
management] who don’t make any money?”—Phil Goldstein of
Opportunity Partners on the unprofitable numbers posted by
BKF Capital Group (see story, page 1).
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