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  • After Slow Start, CTAs are Back in the Black at Mid-Year
    Does FED Tapering Foreshadow a Return
    to Normalcy for Trend Following?

  • It’s no secret that, as a group, commodity trading advisors (CTAs) have had a difficult three and one half years. Since January 2011, The BarclayHedge CTA Index has declined by 5.4%. Things have been improving recently, and the Barclay CTA Index has gained in each of the past three months – not big gains but enough to put it into positive territory at mid-year, +0.68%. However, although the magnitude of the loss has been quite small compared to the large double-digit declines experienced during equity downdrafts, some investors are beginning to lose patience.

    Those CTAs whose performance was hit hardest, systematic and diversified traders, faltered – in no small part – due to unprecedented central bank intervention. The Federal Reserve’s stimulus program pushed interest rates close to zero, while the European Central Bank’s debate on bailing out ailing member nations lasted much too long and kept global markets on edge.

    But it appears changes are afoot. In June, the US Federal Reserve announced that, based on improving economic conditions, interest rates will be rising soon. On the other side of the pond, the European Central Bank reaffirmed its commitment to low interest rates to stave off deflation. With the Fed and the ECB moving in opposite directions, it becomes increasingly likely that recent crosscurrents in equity, fixed income, and currency markets will continue for a while.

    On the marketing side, a few firms have begun providing access to managed futures via a mutual fund format based on the Investment Company Act of 1940. Assets managed by CTAs in 40 Act funds have ballooned to approximately $20 billion. There is approximately $4.3 trillion currently invested in 401 (k) plans, and many industry participants believe that proper utilization of the 40 Act fund structure can provide investors with greater diversification and safety in their retirement portfolios.

    What do these developments bode for CTAs? Will 40 Act funds flood the industry with more money than futures markets can handle? As central banks scale back intervention, will trends reemerge? How have CTAs adapted to the difficult trading conditions since 2011? To explore these and other questions, we have assembled a panel of seasoned practitioners to share their views with us. Our panel of CTAs and asset allocators includes:

    Richard E. Bornhoft, The Bornhoft Group. Mr. Bornhoft is the founder, President and Chief Investment Officer of The Bornhoft Group which has almost 30 years experience as an investment manager specializing in the development and management of quantitative and discretionary global macro trading advisor and CTA portfolios for institutional clients. He was responsible for the first index-linked managed futures product — the MAR Trading Advisor Index Fund, launched in 1999, and was later a founding principal of Morningstar Hedge. Mr. Bornhoft is also a founder and Chief Investment Officer of Equinox Fund Management, the sponsor of the first US publicly registered managed futures fund with daily liquidity, as well as the sponsor of the first mutual fund employing CTA programs.

    Per H. Ivarsson, RPM Risk & Portfolio Management AB. Mr. Ivarsson serves as Executive Vice President and Head of Investment Management of RPM. RPM is a specialist investment manager focusing on directional investment strategies, managed futures and global macro, and provides services on investments of approximately USD 2.5 billion. Mr. Ivarsson joined RPM in 2003. Prior to joining RPM, he headed a team of consultants in the interest rate and credit derivative areas of investment banking. Mr. Ivarsson holds a Master of Science in Engineering Physics from Chalmers University of Technology and additional credits in financial economics from the University of Gothenburg.

    Sanjiv Kumar, Ph.D, FORT L.P. Dr. Kumar founded and has been a principal of FORT since 1993. From 1987 to 1992 he was a Senior Manager of Investment at the World Bank. During his tenure at the World Bank, Dr. Kumar managed various fixed income portfolios in the major currencies. At the time of his departure, Dr. Kumar was responsible for investing a multibillion dollar portfolio in US and Canadian dollar securities. From 1985 to 1986, he was a vice president of Free Market Inc., a Chicago-based economic and financial advisory firm for institutional money managers. Dr. Kumar has a Ph.D in Economics from the University of Chicago and a BA in Mathematics from the University of Delhi in India.

    Tom Weiye Tang, Splendor Capital Management. Mr. Tang cofounded SCM in 2007 and has been acting as Managing Director since then. Based in Hong Kong and mainland China, SCM employs a relative-value trading strategy and seeks commodity investment opportunities both in China and around the world, with a focus on spread trading opportunities between China and US markets. SCM has been running the Credence Oriental Program since 2008 and was ranked by BarclayHedge as No.1 in terms of Sharpe Ratio for CTAs with above 5-year history. SCM won the Best Asia-based CTA/ Managed Futures Awards from both Eurekahedge and Asiahedge in 2013. Mr. Tang holds an MA degree in Communication from Stanford University. Click here for full article

    Quarter 3, 2014

  • Fed by Mega Mergers, Deal Volumes Surge to Best Start Since 2011
    High Corporate Cash Levels, Low Interest
    Rates and Slow Growth Fuel M&A

  • Not since 2007 has merger and acquisition (M&A) activity been so vibrant. According to Dealogic, volume in the first quarter of 2014 was $623 billion, slightly lower than $715 billion for the start of 2007, but a more than 10% increase from the same period in 2013. Relative to the 2007 boom, today’s deals appear to be more grounded with large, healthy, well-capitalized companies doing strategic deals with logical synergies, and further incentivized by cheap financing options.

    While the number of deals is significantly lower, the heady numbers are being driven by a handful of megamergers such as Pfizer’s $106 bil bid for AstraZeneca and Valeant’s $45.7 bil offer to Allergan. One notable result of this shift in deal quality is that the stock prices of a number of acquiring companies have actually increased post announcement, contrasted to deals of years past where the prospects of an overstretched acquisition generally resulted in a drop in the acquirer's share price post announcement. This phenomenon presents an interesting strategic challenge to merger arbitrageurs that have traditionally gone long the target and short the acquirer to lock in a spread. Theoretically higher quality deals also should result in tighter spreads, another hurdle for arbitrageurs looking to generate attractive returns.

    On the positive side, the exodus of a number of participants in the space during the past several lean M&A years has left greater opportunities for those that have remained. So what does the future hold for the viability and profitability of merger arbitrage? In order to discuss the recent trends in M&Aactivity and to explore the investment landscape for merger arbitrageurs, we have assembled a panel of seasoned expert M&A practitioners. Our panel includes:

    Paul J. Glazer, Glazer Capital, LLC. Mr. Glazer founded Glazer Capital in 1998 and is currently its President and CIO. The firm manages private funds and managed accounts employing an investment strategy of merger arbitrage. Previously, he worked in institutional sales and trading for a total of nine years, including four years at Bear Stearns where he was a vice-president. His focus was covering merger arbitrage and other equity arbitrage investors. Mr. Glazer holds a BS in economics with majors in finance and accounting from The Wharton School of the University of Pennsylvania.

    Henri Jeantet, Syquant Capital. Mr. Jeantet is the Managing Partner and Chief Investment Officer at Syquant. He was a co-creator of the equity derivatives business line at Credit Agricole/Indosuez Group. In 1987, Mr. Jeantet joined Cheuvreux, De Virieu SA as the manager of French equity derivatives market activities. Between 1992 and 2000 he was head of European equity derivatives arbitrage and in 2000 became global head of equity derivatives trading for Credit Agricole. In 2004, he was appointed Global Head of Equity Derivatives Trading of CALYON. Mr. Jeantet is a graduate of the Ecole Superieure de Commerce de Paris.

    Mark Kassirer, CFA, Kassirer Asset Management. Mr. Kassirer is CEO and CIO at Kassirer Asset Management, a hedge fund management company focused on merger arbitrage for 14 years. Prior to his career as a hedge fund manager, Mr. Kassirer was President and CEO of Deutsche Bank Securities Canada Limited, and previously Executive Vice President of a large Canadian investment bank, responsible for all fixed-income businesses, equity trading, and risk management.

    Nicholas Walker, York Asset Management Ltd. Mr. Walker is Chief Investment Officer of York Asset Management and managing partner of York Group Limited. From October 1995 until August 2000 he was a senior vice president – investments at PaineWebber Inc. in New York. From October 1982 until September 1995 Mr. Walker was a senior vice president – investments at Prudential Securities Inc. in New York. Prior to 1982 Mr. Walker worked in the Merchant Banking division of Citibank N.A. in both New York and London, and at Sumitomo Finance International Limited in London in the eurobond syndication department. Mr. Walker holds a Masters degree in Jurisprudence from the University of Oxford. Click here for full article

    Quarter 2, 2014

  • FoFs Gain 8.80% in 2013 and Meet Target Expectations
    Avoiding Losing Sectors as Important as
    Allocating toWinning Strategies

  • Hedge funds of funds returned to the zone in 2013; the target return zone that is. With an 8.8% return for the year, funds of funds landed in the performance sweet spot of 8% to 10% that has long been expected of the asset class.

    With an equity market that jumped more than 30%, some may not get excited about this single digit achievement. In fact, some may question the extent to which funds of funds have ridden the wave of strong equity markets in order to achieve their results. In breaking down the sub-sectors, however, there were additional points of light outside of the raging equity markets that allowed fund of fund managers to maintain a diversified portfolio structure, while also producing attractive returns.

    In particular, a number of less directional strategies generated favorable results for the year including convertible arbitrage (+8.6%), equity market neutral (+8.5%), event driven (+10.7%) and multi-strategy (+9.6%). Where not to invest was also a critical factor facing fund of fund managers as dedicated short sellers, CTAs, and emerging markets focused strategies were in negative territory for the year. So how did the best fund of funds generate their results for the year? What opportunities and challenges lie ahead for managers? In order to understand the fund of funds landscape in more detail, we have assembled a panel of senior FoF portfolio managers. Our panelists include:

    Troy Gayeski, CFA, SkyBridge Capital. Mr. Gayeski is a Partner and Senior Portfolio Manager at SkyBridge Capital, a global alternative investment firm with approximately $9.5 billion in assets under management and advisory as of December 31, 2013. As Senior Portfolio Manager, he has oversight of the firm’s two flagship discretionary portfolios (SkyBridge Multi-Advisor Hedge Fund Portfolios - Series G and SkyBridge Legion Strategies) and institutional separate accounts.

    Michelle McCloskey, FRM. Ms. McCloskey is Senior Managing Director at FRM, the investment division at Man Group responsible for open architecture hedge fund and alpha strategy solutions for institutional investors. She oversees all FRM bottom-up processes globally, including the manager research team, an $8 billion managed accounts platform, and the seeding business. As a member of the Executive Committee, she also contributes to the leadership of Man, one of the largest alternative investment firms, with over $50 billion in client assets.

    Justin D. Sheperd, Aurora Investment Management LLC. Mr. Sheperd is a partner, Portfolio Manager, and Chief Investment Officer of Aurora. He is involved in every aspect of Aurora’s activities in alternative investments including portfolio management and the evaluation of current and prospective managers. Mr. Sheperd received a Bachelor of Science in Business Administration majoring in finance and accountancy from Miami University in 1994 and a Masters of Business Administration from The University of Chicago in 2003. He is a CFA Charter holder. Justin has been with Aurora since 1996. Click here for full article

    Quarter 1, 2014


  • Obamacare Ushers in New Era for the Healthcare Industry
    Hedge Funds Strive to Discern Promising
    Winners from the Potential Losers

  • The passage of the Obama Administration’s Affordable Care Act (ACA) has ushered in a new era for how health insurance and healthcare will be utilized and financed in the United States. With a multi-year rollout that has seen some stumbling blocks along the way, many questions remain as to how effective the plan will be for consumers at large and what the overall impact will be on all parties of the value chain within the healthcare industry.

    Judging by the healthcare sector’s 7.0 percentage point performance advantage over the broader S&P 500 Index for the latest 12 months, it would appear that the market may have previously discounted, or has altogether disregarded, any potential ill effects that the law may have on industry constituents. Healthcare and biotech managers tracked by BarclayHedge have also participated strongly, returning 22% over the past 12 months, significantly ahead of the broader universe of long/short managers and the composite hedge fund universe.

    But it remains to be seen if there is yet another shoe to drop in the story. If volatility lies ahead, are healthcare focused hedge fund managers poised to profit from both sides? What are the best opportunities in the sector going forward? To discuss these issues in more detail we have assembled a panel of expert hedge fund managers who specialize in the healthcare sector. Our panel includes:

    Michael Castor, Sio Capital Management, LLC. Dr. Castor is the Portfolio Manager at Sio Capital Management, a healthcare-focused hedge fund founded in 2006. Before Sio, Dr. Castor worked at Bernstein Investment Research (2001 to 2006) as the firm’s lead healthcare analyst. Prior to Bernstein, Michael worked in the investment banking/capital markets division at JP Morgan focusing on biotechnology and healthcare equity offerings. Before entering finance, Dr. Castor spent three years in clinical medicine, including two years of surgery and otolaryngology residency at Columbia Presbyterian Medical Center in New York. Michael earned his MD from The Ohio State University College of Medicine where he graduated summa cum laude.

    David G. O’Neill, Continental Advisors, LLC. Mr. O’Neill is a partner of Continental Advisors and joined the firm in 2001. He has served as Co-Portfolio Manager of the Continental Healthcare fund since its inception. From 1985-2001, Mr. O’Neill served as a partner and an equity research analyst at William Blair & Company, LLC. He was a principal of the firm from 1991-2001, and his primary research coverage focused on healthcare and pharmaceutical services and other select healthcare service and consumer and business service sectors. Mr. O’Neill received a BBA in finance from the University of Notre Dame and a MM in accounting and finance from the Kellogg School of Management at Northwestern University.

    Anthony Sterling, Visium Balanced Fund – HealthcareServices. Mr. Sterling is the Portfolio Manager of Visium Balanced Fund. He joined the Visium team in 2006. Prior to Visium, Mr. Sterling worked as sector head/analyst in healthcare services for Amaranth Advisors. He spent time as an investment banking associate in Merrill Lynch’s Global Healthcare Group and as an equity research associate in medical devices for Banc of America Securities. Mr. Sterling graduated with a BS in accounting from Lehigh University and received an MBA from Columbia Business School.

    Michael Weiss, Opus Point Partners. Mr. Weiss is the Cofounder of Opus Point Partners, an alternative investment firm focused on investing in publicly traded biotech companies. Mr. Weiss began his professional career as a lawyer at Cravat, Swaine & Moore. Upon leaving the practice of law, he began working with Dr. Lindsay Rosenwald, cofounder of Opus Point Partners, seeding and financing biotechnology companies. In 2009, Mr. Weiss and Dr. Rosenwald founded Opus Point Partners. Mr. Weiss earned his JD from Columbia Law School and his BS in finance from The University at Albany. Click here for full article

    Quarter 4, 2013

  • Long Equity Unhedged Funds See YTD Inflows of $7.3 bil.
    In Spite of Underperformance vs. S&P 500
    Investors View Strategy with Favor

  • The true definition of a hedge fund is often debated as the lines with traditional asset management have become blurred over the past decade. Does a fund truly need to hedge in order to qualify, or do structure (legal entity, lack of registration, liquidity terms, fees, etc.), strategy, and management expertise dictate the demarcation? The latter would seem to be the interpretation as the universe of unhedged “hedge funds” continues to grow. In spite of slightly underperforming the S&P 500 year-to-date through June, assets under management in long-only hedge funds saw net inflows of $7.3 bil.

    Breaking it down by asset class one may look at certain segments of the fixed income universe (for example high yield, bank loans, etc.) and justify the hedge fund label based on specific expertise and liquidity characteristics that dictate a legal and liquidity structure not conducive to the traditional mutual fund world. When it comes to long-only equity investing, however, the differentiation with the mutual fund universe becomes less perceptible. What is it about long-only equity hedge funds that warrant lockups, less-than-daily liquidity, and higher fees? Is there a distinct performance advantage or level of expertise not found among the throngs of mutual fund managers?

    In order to explore the long-only hedge fund universe in more depth, we have assembled a panel of seasoned equity hedge fund managers to provide some answers to our questions. Our panel includes:

    Brian K. Heywood, Taiyo Pacific Partners, LLC. Mr. Heywood is CEO and Founding Partner of TPP and a member of the Investment Committee. He graduated from Harvard University in 1991 with an honors degree in East Asian Studies. After graduation, he joined JD Power and Associates and aided in the establishment of the Japanese and Asian operations and development of the JDPA business model in Asia. Mr. Heywood served on the Board of Directors of JD Power Asia and JD Power Korea. In 1997, he joined a British firm, Belron International, as Director of Business Development and Operations for nine Asian countries, including Japan. In 1999 he joined Citibank as Vice President and head of sales for its 22 retail branches in Japan.

    Professor J. Carlos Jarillo, Strategic Investment Advisors, S.A. Prof. Jarillo is the founder and Managing Partner of SIA. Professor Jarillo holds a doctorate in business administration from Harvard University and a doctorate in economics from the Universidad Autonoma de Barcelona. He currently holds the Chair of Corporate and International Strategy at the University of Geneva, after having been on the faculty of IMD in Switzerland, the IESE, and the Instituto de Empresa in Spain, and having served as a senior research associate at the Harvard Business School. Prof. Jarillo currently serves on several boards of directors, and has served as director of corporate development with the Campofrio Group.

    Michael W. Masters, Masters Capital Management. Mr. Masters is the founder and managing member of Masters Capital Management. He is also the founder of Better Markets, a nonprofit, nonpartisan organization that promotes the public interest in policy reform in the financial markets. Masters Capital Management, founded in 1994, trades and invests in public US listed equities and derivatives. Mr. Masters is a 1989 graduate of the University of Tennessee, where he was an All-American swimmer. Click here for full article

    Quarter 3, 2013

  • 3-Years into a High Yield Rally Are Yields Still Below Fair Value?
    Low Default Rates and Rating Agency Upgrades
    Augur Well for Further Spread Compression

  • With the S&P 500 posting an impressive 12.7% compound annual return over the past three years, Treasury yields remaining at all time lows, and investment-grade corporate spreads trading at relatively tight levels, it's hard to imagine why investors would even bother with fixed income these days.

    But alas, not all fixed income market segments are created equally. Case-in-point; the broad high yield fixed income market generated a compound return of 11.2% over the same three year period, while the lowest quality segment of the high yield market returned 12.8%, just edging out the S&P 500. Not too shabby for an asset class that, while not totally devoid of risk, still offers an additional layer of seniority over equity investments.

    Let’s also factor in the continued strength of balance sheets among high yield issuers, earnings improvements, a decline in expected defaults, and spreads that remain attractive. Now we have something worth getting excited about.

    As with any asset class that has generated impressive results over an extended period of time, sooner or later the question comes up, “How long before closing time?” Do the fundamentals remain favorable enough to support further spread tightening? Will the asset class be able to sustain potential macro shocks including further developments in Europe, or another leg down in US economy? In order to explore the current high yield environment and the future prospects for this asset class, we have assembled a panel of seasoned practitioners. Our panel includes:

    George Muzinich, Muzinich & Co. Mr. Muzinich is the Chairman and CEO of Muzinich & Co. He founded the firm in 1988. Mr. Muzinich started his investment career in 1971 with Brown Brothers Harriman & Co., where he worked in that firm’s New York and Zurich offices and later opened and managed its Paris office. From mid-1984 through mid-1988, he was President of Hoguet, Muzinich, Keller & Co., a securities firm that was subsequently sold to a major European institution. He has a BA from Wesleyan University and an MBA from New York University’s Stern School of Business.

    Patrick M. Nolan, PENN Capital Management. Mr. Nolan is the Portfolio Manager for PENN’s Capital Structure Opportunities Fund. He began his career at the firm in April 2008. Most recently, Mr. Nolan was an equity product analyst at Raymond James. Previously, he served at JP Morgan as an options specialist and started his career as a financial advisor for AIG. Mr. Nolan received a BS in Finance from Robert Morris University in Pittsburgh, PA and an MBA from the University of Miami.

    Allan Schweitzer, Beach Point Capital Management. Mr. Schweitzer is Executive Managing Director at Beach Point. He has been in the industry for 20 years, most recently as Chief Investment Officer and Senior Portfolio Manager at Post Advisory Group where he specialized in high yield securities. Mr. Schweitzer received a bachelor's degree in business administration from Washington University at St. Louis and his MBA from the University of Chicago with a concentration in analytical finance and international economics. He currently serves on the Board of Directors for Bet Tzedek and FasterCures.

    Steven Shenfeld, MidOcean Credit Partners. Mr. Shenfeld, President of MidOcean Credit Partners, is responsible for managing and overseeing its operations. Prior to joining MidOcean, he was a General Partner and Founder of MD Sass Macquarie Financial Strategies, an asset management private equity fund for MD Sass, a $6 billion investment management organization.

    Previously, Mr. Shenfeld was a General Partner with Avenue Capital Group LLC, a multi- billion dollar distressed debt and credit investment platform. Mr. Shenfeld has a BA from Tufts University and an MBA from University of Michigan Business School. Click here for full article

    Quarter 2, 2013

  • Hedge Funds Unable to Keep Pace as Capital Markets Rally in 2012
    FoFs Able to Retain a High Degree of
    Credibility Among Investors and Consultants

  • “Fiscal Cliff”, “Debt Ceiling”, “Kick the Can Down the Road”, “GrExit”. While these colorful (and dreadfully overused) catch phrases painted a grim picture of the economy in 2012, the capital markets chose to ignore such irreverence and forged ahead. The S&P 500 turned in a 16% return for the year, while the lowest quality segment of the credit market returned more than 20%.

    With such heady results, it could be expected that many hedge fund strategies would have a strong year. Indeed there were some standout sectors posting double digit returns including the Barclay Distressed, Emerging Markets, and Healthcare & Biotech indices. By and large, however, a number of strategies were unable to meaningfully participate. Determining how to be in the right place at the right time proved to be particularly difficult for fund-of-funds managers in 2012, as the Barclay Fund-of-Funds Index generated a return just shy of 5% for the year.

    While the key attributes of the fund-of-funds model have always been diversification and risk reduction, investors have also traditionally come to expect annual returns in the 7% to 10% range. As a group, however, fund-of-funds have not achieved this target since 2009. In order to explore this trend in performance and to understand the current issues facing fund-of-funds managers, we have assembled a panel of experts to answer these and other questions. Our panel includes:

    Troy Gayeski, CFA, SkyBridge Capital. Troy Gayeski is a partner and the Senior Portfolio Manager at SkyBridge. SkyBridge manages approximately $4 billion in discretionary fund of hedge fund portfolios and institutional separate accounts. Mr. Gayeski is the Senior Portfolio Manager for these two sectors. His responsibilities include portfolio management, manager sourcing, research, and due diligence. Prior to Skybridge, Mr. Gayeski performed similar duties in the Hedge Fund Management Group at Citigroup Alternative Investments (CAI), Bank of America, and Yankee Advisers. Mr. Gayeski received a B.S. in chemical engineering from MIT and is a CFA charterholder.

    Justin D. Sheperd, Aurora Investment Management LLC. Mr. Sheperd is a partner, Portfolio Manager, and Chief Investment Officer of Aurora. He is involved in every aspect of Aurora’s activities in alternative investments including portfolio management and the evaluation of current and prospective managers. Mr. Sheperd received a Bachelor of Science in Business Administration majoring in finance and accountancy from Miami University in 1994 and a Masters of Business Administration from The University of Chicago in 2003.He is aCFACharterholder. Justin has beenwithAurora since 1996.

    Lance Teitelbaum, FRM. Mr. Teitelbaum is head of US Portfolio Management at FRM, a global hedge fund research and investment specialist which is part of Man Group and has $18 billion in client assets. He is also a member of the Investment Committee of FRM’s seeding business, FCA. Prior to joining FRM in 2003, Mr. Teitelbaum worked in the financial institutions group at Citigroup and was a fixed income trader focusing on relative value strategies at Lehman Brothers. He holds a BSc in economics with concentrations in finance and accounting from the Wharton School of the University of Pennsylvania and an MBA in finance from Columbia Business School. Click here for full article

    Quarter 1, 2013


  • Historic Low Yields Have Improved Outlook for Structured Credit
    Lack of Investor Interest Over Past Few Years
    Has Made Valuations More Attractive

  • If you consider the massive amount of regulation that has occurred in the financial sector since the 2008 market debacle, you would be hard pressed to believe that certain areas of the capital markets could survive. Dodd-Frank, in particular, tackled a number of key areas including agency oversight, derivatives regulation, investor protection, rating agencies, executive compensation, bank proprietary trading (Volcker rule), bank capital requirements, and last but not least, asset securitization and credit structuring.

    This last area warrants special attention due to the fact that the media and vote-seeking politicians alike have put the brunt of the blame for the 2008 crisis on certain areas of the securitized market, namely sub-prime mortgages and derivatives based on this market (think AIG). During the past couple of years the mere mention of securitization and structured credit may have earned you a big hush from the investment club crowd, and those not in the know would even argue that this market was all but dead.

    But alas, yesterday's pariah is today's pot of gold. Slowly but surely, securitized product and structured credit allocations are creeping up in traditional fixed income portfolios, and hedge fund managers specializing in these areas are back on the capital raising trail. No doubt the lack of investor interest over the past few years has made valuations attractive, but will increased regulation, lack of liquidity, and collateral quality keep risk levels elevated? To explore these issues and discuss the securitized and structured credit markets in more detail, we have assembled a panel of expert and experienced fund managers. Our panelists include:

    Dr. Lestor Coyle, III Associates. Dr. Coyle is a principal of III and portfolio manager for the III Credit Funds. He joined III in 2005 from Commerzbank where he was New York head of credit correlation trading. Dr. Coyle holds a PhD in mathematics from the University of Michigan and a BA in mathematics from Trinity College, Dublin. He is co-author of the book Lectures in Contemporary Probability and has published numerous articles in probability and finance.

    Michael Craig-Scheckman, Deer Park Road Corporation. Mr. Craig-Scheckman is President and Owner of DPRC. He has operated DPRC as an investment advisor, focused exclusively on deeply discounted fixed income securities, from July 2003 until the present. Prior to founding DPRC, he worked at Millennium Partners from 1993 where his focus was mortgagebacked and asset backed securities. Mr. Craig-Scheckman earned a BA in Physics at Queens College, New York, in 1975 and a MA in Physics at Columbia University, New York, in 1977.

    Hiram Hamilton, Alcentra, Ltd. Mr. Hamilton joined Alcentra in March 2008 and is Global Head of Structured Credit. He is the portfolio manager for the Structured Credit Opportunity funds and overseas investments in structured products across Alcentra’s funds. Previously, he was an executive director at Morgan Stanley and head of the CDO Group in London. Mr. Hamilton graduated cum laude from Bowdoin College with a dual major in philosophy and neuroscience.

    Leon Hindle, Oracle Capital Limited. Mr. Hindle cofounded Oracle in June, 2009. Previously he was Managing Director and Head of the Structured Credit and CDO Group for the Pan-Asia-Pacific region at Lehman Brothers. In addition, he served as a member of Lehman’s Global Credit Products Management Team and its Pan-Asia-Pacific Fixed Income Management Committee. Mr. Hindle qualified as a barrister at the London Commercial Bar.

    Gyan Sinha, KLS Diversified Asset Management, LP. Mr. Sinha is a partner and portfolio manager of structured products at KLS. Prior to joining KLS in 2008, he headed the Global Structured Credit Research group at Bear Stearns. Over the past decade, he was consistently one of the top ranked analysts in Institutional Investor’s (II) All-America Fixed Income Research survey for his work in asset-backed securities. Prior to his Wall Street career, Mr. Sinha was an assistant professor in the faculty of commerce at the University of British Columbia. He received a Bachelor’s degree in Economics in 1985 from Delhi University and a PhD in Economics in 1991 from Syracuse University. Click here for full article

    Quarter 4, 2012

  • No Optimal Solution is at Hand to Resolve Europe’s Credit Crisis
    Risks of a Eurozone Break Up Include Deep
    Recessions in the US, China, and Europe

  • If you haven’t heard of the Copenhagen Criteria, maybe now is a good time for brief lesson. In short, the Copenhagen criteria were established in 1992 to determine eligibility to join the European Union (EU). The criteria require that a state have the institutions to preserve democratic governance and human rights, accept the obligations and intent of the European Union, and have a functioning market economy.

    Until recently, these criteria have not been an issue for the 27 member nations, although now the functioning market economy criterion is certainly being called into question for many members. At present only 5 of the 27 member nations have not violated the Stability and Growth Pact criteria established to ensure economic stability across the region. When circumstances degenerate to this level, either criteria get relaxed or member nations need to decide if a continued Union remains viable. This is certainly the debate that rages on today as the strongest member nations evaluate whether continued bailouts of weaker member nations are best for the long-term viability of the region, or if these lifelines will ultimately worsen the drag on their own economies.

    At this juncture, no solution seems optimal, and the impact has had global implications. For investors in this region, elevated volatility has become the standard, and flexibility is paramount to success. To discuss the current state of Europe and the investment opportunity set, we have assembled a distinguished panel of expert practitioners. Our panel includes:

    Sven Bouman, Saemor Capital BV. Mr. Bouman is CEO and founder of Saemor. Previously he worked for ING as a portfolio manager and AEGON as head of Equities. Saemor Capital manages the Europe Alpha Fund, a quantitative equity market neutral fund focused on Europe. This year the fund won three awards from Hedgeweek, HedgeFundReview, and HFMWeek.

    Thijs Hovers, Lucerne Capital Management, LLC. Mr. Hovers has been a portfolio manager of Lucerne, a Registered Investment Advisor, since 2007. Prior to joining Lucerne, he was Head of European Small and Midcap Equity Research at ABN AMRO from 2006-2007. Mr. Hovers also served as Head of Benelux Equity Research from 2005-2006 and as Senior Equity Analyst at ABN AMRO, Dutch Equity Research in 2004. He has an MA in international finance, and a BA in economics from the University of Amsterdam, the Netherlands.

    Pieter Taselaar, Lucerne Capital Management, LLC. Mr. Taselaar has been a portfolio manager of Lucerne since 2002. From 1995–2001, he was Senior Managing Director – Head of European Equities at ABN AMRO in New York. From 1988–1995, he worked in Corporate Finance and Capital Markets at ABN AMRO in Amsterdam. Mr. Taselaar earned an MBA from Columbia University in New York and a law degree from Leiden University in the Netherlands. Click here for full article

    Quarter 3, 2012

  • Sovereign Debt Fears, Mid-East Concerns, and Fed Intervention
    Macro Funds See Large Inflows as Investors
    Seek Strategies to Benefit fromTurmoil

  • In the beginning many hedge fund managers executed their core competencies in a silo, whether it was stock picking, credit selection, statistical trading, etc. The world was different then, and opportunities were more compartmentalized within certain market niches.

    Pioneering macro managers in those days were few and far between, and investors viewed this strategy as one for risk-taking cowboys. Then globalization took hold, and rampant information flow began to blur the lines between the factors that impacted one asset class and strategy versus another. The most astute strategyspecific managers were prompted to start thinking more globally and to don their macro hats to determine how to continue to successfully execute their strategies. The most successful managers even began to expand their investment horizons to become the next generation of macro managers.

    While some investors have determined this investment style drift to be objectionable, many managers have found success in navigating a radically changing global investment environment that has devoured those resistant to change and fresh thinking. Be it the old or new guard participating in the macro investment universe, it is certain that the environment continues to become more challenging, yet offers rewards for those best equipped to capitalize on the wealth of opportunities across the global investment spectrum.

    Macro funds pulled in $9.8 billion (5.6% of assets) in the past 12 months, but lost 0.6% over the same time. Investors seem to be piling into macro hedge funds in anticipation of the strategy’s ability to benefit from political and economic uncertainty around the world. To review the current opportunities and challenges within the global macro investment universe in more depth and to answer some of the questions raised by investors, we have assembled a panel of seasoned veterans. Our panelists include;

    Renee Haugerud, Galtere Ltd. Ms. Haugerud is the Founder and Chief Investment Officer of Galtere, a registered investment advisor managing commodity focused products since 1997. She began trading in the global financial and commodity markets in 1981 for agriculture and food giant Cargill Inc. Ms. Haugerud is active in the community of women and business leaders and an active advocate for numerous global education initiatives, including the Galtere Institute at the University of Tennessee Chattanooga. She received her B.S. degree with Honors in Forest Resource Management from the University of Montana in 1980.

    Matthew Luckett, Balestra Capital, Ltd. Mr. Luckett is a Partner and Co-Portfolio Manager at Balestra. He joined Balestra Capital in 2004 and is responsible for portfolio strategy, research, and portfolio risk supervision. Mr. Luckett began his career as an industry analyst at Gartner Group. In 2000, he was named to the Wall Street Journal’s “Best on the Street” analyst team. Mr. Luckett was a George F. Baker Scholar at Georgetown University where he graduated cum laude. He holds a Bachelor of Arts degree in American Studies with a minor in Japanese.

    Eric Peters, Grant Capital Partners. Mr. Peters is Chairman of the Partnership and Business Committee for Grant. He brings twenty-two years’ experience in the financial markets as a proprietary trader and entrepreneur. His career started in Chicago in 1989, as a floor trader in Treasury bond futures. In 1991, Mr. Peters joined Lehman Brothers where he held various roles that included proprietary trading in money markets and fixed income where he was promoted to the position of Director. This was followed by a position as Director of Fixed Income Proprietary Trading for Credit Suisse First Boston in London. Mr. Peters received his B.A. in Business Economics from Brown University. Click here for full article

    Quarter 2, 2012

  • Rising Correlations and Higher Vol Negatively Impact Returns
    FoFs Ponder Whether Headwinds Buffeting
    Global Markets are Temporary or Permanent

  • Does slow and steady always win the race? This is a key question that pops into investors' minds when viewing the hedge fund of funds universe. The proposition is certainly not new: give up some return in the short run in order to lower risk and protect capital during times of turmoil; and if all is right with the world, the long-term reward should be in line with, or better than, the higher-risk peers. The key to this equation, however, is that all is definitely NOT right with the world. A number of possible game changers may be afoot in global economies and capital markets that potentially call into question how best to play the game going forward in order to garner success.

    Hedge fund of fund managers, and certainly many of their singlestrategy counterparts, are currently faced with determining whether a number of headwinds are permanent or temporary including heightened market volatility, low interest rates, single security correlations, greater information flow, increased regulation, and a shift of institutional preferences for the way their alternatives are structured. How exactly are hedge fund of funds managers poised to deal with this changing environment, and how can they continue to successfully compete? In order to explore these issues in greater detail, we have assembled a panel of very seasoned fund of funds managers. Our panel includes:

    Henry P. Davis, Arden Asset Management, LLC. Mr. Davis is a Managing Director and member of the firm's Investment Committee. He is responsible for supervising the firm's research activities, and is also actively involved in manager selection and portfolio construction for each of the Arden funds. Mr. Davis is a graduate of Yale Law School and Cornell University.

    Scott Schweighauser, Aurora Investment Management, LLC. Mr. Schweighauser is a partner and Chief Investment Officer of Aurora. He is involved in every aspect of Aurora's activities in alternative investments including portfolio management and the evaluation of current and prospective managers. Mr. Schweighauser has been with Aurora since 1994.

    Lance Teitelbaum, Financial Risk Management. Mr. Teitelbaum manages the US manager research effort and serves as portfolio manager for US-managed diversified-style portfolios for Financial Risk Management (FRM), a global fund of hedge funds group managing $9 billion for institutional and other sophisticated investors. Previously he worked in the financial institutions group at Salomon Smith Barney and was a fixed income trader at Lehman Brothers. Mr. Teitelbaum joined FRM in April 2003 and is based in New York. He holds an MBA from Columbia and a BSc in Economics from Wharton. Click here for full article

    Quarter 1, 2012


  • Currency Investing Takes Center Stage as Euro Comes Under Attack
    Protectionism, Currency Devaluations, and
    Euro Zone Defaults are in the Spotlight

  • A currency is worth only as much as the country that backs it. That's a tough statement to decipher in the current market when the world economy is on eggshells and bankruptcies among developed European nations become increasingly likely. While the term "safe haven currencies" is often quoted with respect to the US and Japan, it's hard to justify using that label for any currencies in this environment. Theoretically, the US dollar should not be immune as the government continues to increase the country's debt load in order to shore up the economy. Paradoxically, Japan's safe haven status and resultant currency strength are what ultimately threaten this country's economic growth prospects. But what seems to make the most economic and academic sense doesn't always hold true in the realm of currency trading. The most astute traders not only look at what makes theoretical sense with respect to currency valuations, but they also take into account current macroeconomic factors and technical indicators that often leave the most hard-core fundamental traders scratching their heads. So which currencies will be the safe havens of the future, and what shortterm and long-term trends and fundamentals represent good opportunities for currency traders? To explore these issues in more detail, we have assembled a panel of highly regarded and successful FX traders. Our panelists include:

    Christopher Brandon, Rhicon Currency Management. Mr. Brandon is a principal and founder of Rhicon Currency Management. He began his career in 1995 at Swiss Bank Corporation in Geneva and thereafter in London as a foreign exchange dealer. Mr. Brandon relocated to UBS Warburg Singapore in late 1998 as a proprietary trader and the senior technical analyst for Asia. In mid 2000 he cofounded Rhicon Currency Management in Singapore. The firm currently manages approximately 400 million USD across two currency-only strategies. He is a portfolio manager of the Rhicon Strategic Program, the firm's main discretionary trading strategy. Mr. Brandon holds an MA (Hons) in Economics from the University of Edinburgh.

    Giuseppe Manieri, Premium Currency Advisors AG. Giuseppe Manieri, born 1968 in Zurich, obtained a degree from Zurich Business School and holds a Masters in technical analysis (MSTA). He ran various proprietary currency trading books for Credit Suisse and UBP (formerly Nordfinanzbank) in Zurich and Nordea (formerly Merita Bank) in London, New York, and Helsinki. After that he joined Evalor AG and served as Vice President of foreign exchange and head of technical trading. In 1999 he took over a new position within Swissfirst AG as head of foreign exchange, fixed income, and equity trading and was a member of the executive board. In May 2007 Mr. Manieri founded Premium Currency Advisors AG and since then is active as CEO and CIO. Within this position he runs his FX trading strategy, Premium Currencies, which he developed in 1999 and allows access to his strategy through several products.

    Paul O'Connell, FDO Partners, LLC. Dr. O'Connell is President and Partner of FDO Partners, LLC. He has 15 years of experience in the research and practice of international finance and capital allocation. He has written and published articles on a wide variety of related topics including exchange rate behavior, international capital flows and labor migration. From 1994 to 1997, he served as an international economics teaching fellow at Harvard University. He has also served as a member of the Editorial Board of the Emerging Markets Review, a member of the Review Board for the Research Foundation of the CFA Institute, and a referee to a number of academic journals. Dr. O'Connell received a BA from Trinity College, Dublin, in 1992 and a PhD in economics from Harvard University in 1997. He is Chair of the Board of the GAVI Fund, a non-profit organization based in Washington DC dedicated to expanding access to immunization in the world's poorest countries.

    Philip Simotas, FX Concepts. Mr. Simotas is President and Director of Investment Management. He joined FX Concepts in 1993. He heads up all aspects of the firm's investment management activities, which include trading, portfolio administration, client servicing, investment research, and marketing. In addition, he is Chairman of the Product Development Committee which directs the firm's research and model development efforts. Mr. Simotas began his career in derivatives at Dean Witter in 1986, where he was Foreign Exchange Strategist. From 1987 to 1993, he was Assistant Vice President and Senior Trader on Dean Witter's foreign exchange desk. He also served as Deputy Chief of the foreign exchange department. Mr. Simotas is a cum laude graduate of Yale University. Click here for full article

    Quarter 4, 2011

  • MBS Hedge Funds Gain 7% in H1 on Top of 2010's 21% Increase
    With Interest Rates at Historic Low Levels,
    Can MBS Price Appreciation Continue?

  • New housing starts down; existing home sales up; median home prices down; home construction spending up; mortgage applications down. There's a lot of data published every day by which investors attempt to make heads or tails out of the real estate market. Often the best gauge for most of us is how long our neighbor's house has been on the market and how much he's had to drop the price since initially listing. Unless your neighbor or millions of other home owners are flush with cash, then they likely have a mortgage on their house. Some may be underwater on their mortgage, others may have already defaulted and may be in the foreclosure process, and others may be in the enviable position of refinancing to a better rate.

    Notwithstanding the data and how the average consumer is vying in the current economy, banks are alive and continue to actively underwrite mortgages. Those mortgages with the most solid credit attributes are packaged and sold into the agency-backed markets, while those that remain below the most favorable standards, or are too big for the government's liking, are pooled, securitized, and sliced-anddiced into the non-agency markets. Add in a multitude of derivative instruments that base their performance on the underlying gyrations of the aforementioned mortgage pools and soon you have an asset class and numerous investment strategies that seem far removed from your neighbor's house and mortgage.

    In order to better understand the current state of the mortgage backed securities market and discuss the investment opportunity set, we have assembled a panel of expert fund managers that specialize in this sector. Our participants include:

    Andy Ball, West Side Advisors. Mr. Ball joined West Side Advisors in July 2009 as a portfolio manager. Prior to joining West Side he was a mortgage derivative trader for the UBS CMO desk. Mr. Ball traded trust and structured IO/PO as well as agency and non-agency mortgage derivative products. In 2009, he co-ran the mortgage derivative portfolio and oversaw the exit/liquidation of UBS's mortgage derivative business. Mr. Ball was responsible for co-managing over $1 billion of agency mortgage derivatives during this period. He built his career with a strong foundation in quantitative analysis, first as a financial engineer for the mortgage portfolio at Freddie Mac, and later building and implementing prepayment models at Wells Fargo Mortgage. He moved to UBS as the head prepayment strategist, writing prepayment commentary for the Mortgage Strategist and overseeing UBS's prepayment modeling operations. Mr. Ball was twice ranked the #2 prepayment strategist on the street in Institutional Investor magazine. Mr. Ball received a BA in Economics from The College of William and Mary.

    Yong Cai, The Midway Group. Dr. Cai is a partner and portfolio manager in charge of trading and research. Prior to joining Midway in 2008, he managed the derivative trading desks at Credit Suisse and Bank of America from 2005 to 2008 and from 2000 to 2005 respectively where he was responsible for mortgage derivative trading and CMO deal issuance. Prior to this, Dr. Cai worked in mortgage research at Lehman Brothers and Prudential Securities from 1996 to 1999 and 1993 to 1996 respectively. Dr. Cai graduated from Beijing University with a BS in Physics (1986) and received his MS in Electrical Engineering and PhD in Physics (1991) from Michigan State University. He spent two years as a post-doctoral research associate at Rutgers University before joining Wall Street in 1993.

    Karl Kolderup, Caspian Capital Management, LLC. Mr. Kolderup is a director and Senior Portfolio Manager at Caspian. He manages the high grade US fixed income portfolios. From 1998 to 2000 he performed the same duties at CDC Investment Management Corporation. From 1993 to 1998, he was a director at Merrill Lynch where he was in charge of the fixed income derivative group for the western US. Prior to this assignment he was an MBS and derivatives specialist for the Hedge Fund Coverage Group in New York. From 1988 to 1993, he was a VP at Bankers Trust, managing mortgage backed and US interest rate derivative portfolios. Mr. Kolderup holds an MS and a BS in Engineering from Stanford University. Click here for full article

    Quarter 3, 2011

  • Smooth Sailing for Hedge Funds During Two-Year Credit Rally
    How are Fixed IncomeManagers Repositioning
    Their Portfolios as Headwinds Arise?

  • It's hard to believe that in two short years the global capital markets have mostly dusted off the greatest financial crisis in history. Banks are lending again, corporations are profitable, and the capital markets continue to charge forward. Who would have thought the word "inflation" and an end to the easy monetary policy in the US would be upon us?

    Outside the US, particularly in the emerging markets, monetary tightening has already been implemented in earnest in order to prevent an overheating of some economies. Without a doubt, the end to easy monetary policies will be accompanied by higher interest rates which in turn will not bode well for fixed income instruments of all varieties. Furthermore, the confluence of positive economic data and inflation figures has obscured the fact that the US and developed European balance sheets still require a significant amount of cleaning up in order to prevent interest rates at the long end from rising materially. Then factor in what a more restrictive monetary policy may mean for corporations, their cost of debt, and the potential impact on credit spreads, and a very intriguing environment for fixed income investing emerges. But as we know, hedge fund managers in the fixed income space are not long-only investors, or at least they should not be. So with significant potential headwinds to global fixed income securities, how are fixed income and credit hedge fund managers positioning their portfolios in order to profit in such an environment? To explore this topic in more detail, we have assembled a panel of expert fixed income and credit hedge fund managers. Our panel includes:

    Garth Friesen, III Associates. Mr. Friesen is a principal and Co-CIO of III, as well as a senior portfolio manager. Prior to joining III in 1998, Mr. Friesen worked in London, UK as a trader for Merrill Lynch in their nondollar swap business from 1994 to 1996, and from 1996 to 1998 he was a director at Union Bank of Switzerland where he worked as a proprietary trader in the fixed income derivatives group. Mr. Friesen graduated with a BA (1990) in Economics from the University of Western Ontario. He also holds an MBA (1994) from the Ivey School of Business, University of Western Ontario. Mr. Friesen is currently serving on the Federal Reserve Bank of New York's Investor Advisory Committee on Financial Markets (IACFM).

    David C. Gottlieb, EMF Financial Products. David Gottlieb, Senior Principal and portfolio manager at EMF, has been employed in a trading capacity for much of his career. Prior to joining EMF in 2003 he spent 3 years as a managing director in the Fixed Income Division of Credit Suisse subsequent to having spent 7 years in a similar capacity at Donaldson, Lufkin and Jenrette. From 1986 through 1994, he was at what is now Citigroup where he spent 5 years on the government bond trading desk following 4 years in institutional fixed income sales. Mr. Gottlieb received a BS in Economics from the Wharton School of Pennsylvania in 1986. Gunther Stein, Symphony Asset Management. Mr. Stein, Chief Investment Officer and Chief Executive Officer, is responsible for overseeing Symphony's fixed income and equity investments. Mr. Stein has over 25 years of investment and research experience and is actively involved with the management of the firm's fixed income products. Prior to joining Symphony in 1999, Mr. Stein spent six years at Wells Fargo where he was most recently a high-yield portfolio manager after being in the firm's Loan Syndications & Leveraged Finance Group. Before joining Wells Fargo, he was a Euro-currency deposit trader at First Interstate Bank. He also worked for Standard Chartered Bank in Mexico City and Citibank Investment Bank in London. Mr. Stein received an MBA from the University of Texas at Austin and a BA in economics from the University of California, Berkeley.

    Bob Treue, Barnegat Fund Management. Mr. Treue launched and has managed Barnegat Fund Management since 1999. The investment vehicle, The Barnegat Fund, has been in existence since January 2001. Prior to launching the Fund, he worked at Litchfield Capital (one of the Paloma Funds) in London from 1998 to 1999. Additionally, from 1992 to 1997, Mr. Treue worked at Watermark Management/Parsec Trading. He attended the Honors School at the University of Michigan and graduated with Honors in 1991 with a degree in Business Administration. Mr. Treue is married with one young daughter and one young son. Click here for full article

    Quarter 2, 2011

  • A Profitable 2010 for FoFs Helps to Staunch Outflows
    Managers Weigh Implications of New Regs,
    Declining Fees and Greater Investor Scrutiny

  • "The reports of my death have been greatly exaggerated." If Mark Twain managed a fund of funds today, I suspect that his oft-quoted quip would have been repeated each time he spoke at a conference in the past year. Over the past two years, prices of US equities as measured by the S&P 500 Index increased by 45.5%. During this period, the average fund of funds returned 15.6%. The recent strength of the equity markets has made the relative performance proposition of well diversified hedge funds of funds a hard sell.

    However, given current levels of global economic uncertainty and the wide spread view that equity markets are trading at or near fair value, rational investors may be inclined to expect more subdued equity returns coupled with higher volatility. Such an environment may be more likely to produce greater opportunities for hedge funds and funds-of-funds to provide attractive risk-adjusted returns and diversification benefits more akin to pre-2008 levels. The road ahead for fund managers, however, may not be as smooth as in the past. Increasing regulation, competition from liquid replication products, and greater investor scrutiny of fund fee structures are casting up new challenges for managers.

    Some funds of funds have ventured into the hedge fund seeding business. Some have elected to expand their product offering to include consulting services relating to manager selection and portfolio construction. Has the industry been upended to the extent that wholesale changes may be necessary in order for funds of funds to survive, or once the dust settles, will the players be able to return to business as usual?

    In order to discuss the current trends and future prospects for the fund of funds industry, we have assembled a panel of seasoned practitioners. Our panel includes:

    Jeffrey Holland, Liongate Capital Management. Mr. Holland is a cofounder of Liongate Capital Management and, in addition to serving on the firm's Investment Committee, is responsible for client risk management at the firm. He previously worked with Deutsche Bank as Vice President within Investment Banking. Mr. Holland is a Certified Public Accountant (CPA) in the US. He studied at Baylor University in the US where he graduated summa cum laude. Mr. Holland holds a Master's in Finance from London Business School.

    Ernest A. Scalamandre, AC Investment Management LLC. Mr. Scalamandre received a B.S. in Economics from the University of Pennsylvania in 1985. He has worked in the alternative investment industry for over seventeen years and has managed a hedge fund of funds and its predecessor since 1993.

    Scott C. Schwieghauser, Aurora Investment Management LLC. Mr. Schwieghauser is a partner and Chief Investment Officer of Aurora. He is involved in every aspect of Aurora's activities in alternative investments including portfolio management and the evaluation of current and prospective managers. He has been with Aurora since 1994.

    Lance Teitelbaum, Financial Risk Management. Mr. Teitelbaum manages the US manager research effort and serves as portfolio manager for US-managed diversified-style portfolios for Financial Risk Management (FRM), a global fund of hedge funds group managing $9 billion for institutional and other sophisticated investors. Previously Lance worked in the financial institutions group at Salomon Smith Barney and was a fixed income trader at Lehman Brothers. He holds an MBA from Columbia and a BSc in Economics from Wharton. Lance joined FRM in April 2003 and is based in New York. Click here for full article

    Quarter 1, 2011


  • Global M&A Activity Up 25% Over Same Period in 2009
    Hedge Funds See Opportunity as SWFs, PE
    Funds and Corporations Seek Acquisitions

  • Take a healthy dose of government, corporate balance sheet deleveraging, and a revived trend of corporate profit growth, and before long corporations find themselves flush with cash. Add to that a hoard of cash that is sitting idly in private equity funds and increasing interest from sovereign wealth funds in corporate acquisitions. Put it all together and you may very well have the necessary conditions in place for a merger wave.

    So far in 2010 corporations have been putting cash to good work by increasing dividends, repurchasing stock, improving technology, and restocking inventory. No mode of cash utilization, however, has been as intriguing and buzzed about by Wall Street and Main Street more than the increased trend in merger and acquisition activity in 2010. Mergermarket reports that global M&A activity for the first three quarters of 2010 totaled $1.4 trillion, up 25% from the same period in 2009. And according to The Economist, global M&A grew by 40% and 43% in the first two years of recovery after the 2000-01 recession.

    This phenomenon has not gone unnoticed by the hedge fund community. Multi-strategy and event-driven managers have increased their activity in the space while a flurry of new funds has also launched to capitalize on the opportunity set. In order to discuss the recent trends in M&A activity and explore the investment landscape for merger arbitrageurs, we've assembled a panel of expert practitioners in the field. Our panelists are:

    Drew Figdor, TIG Advisors, LLC. Mr. Figdor joined TIG in 1986 as a senior arbitrage analyst and was appointed General Partner in 1990. He became the manager of the fund in 1993. Prior to his graduate work, Mr. Figdor worked for Gulf & Western in the strategic planning department (1984-1985). He was a financial analyst for Paine Webber from 1983 to 1984. Mr. Figdor earned a Bachelor of Arts from the University of Connecticut and earned a Master in Business Administration in Finance from New York University's Stern School of Business.

    Jeff O'Brien, Highland Capital Management. Jeff O'Brien has been a merger arbitrageur for over fifteen years and is the founder and managing member of Highland Capital Management L.P. Over the life of the fund, Mr. O'Brien has guided Highland to a 15.7% compounded rate of return with only eight losing months.

    Jonathan Spitzer, First Eagle Investment Management, LLC. Mr. Spitzer has been a merger arbitrage, event-driven, and special situations investor for the past 11 years. His arbitrage career began at Arnhold and S. Bleichroeder Advisers, LLC where he joined the Merger Arbitrage Group in 1999 as the junior analyst. In 2005, Jonathan was named Co- Portfolio Manager of the group, a position which he continues to hold today. The name of the firm was changed in 2009 to First Eagle Investment Management, LLC. Click here for full article

    Quarter 4, 2010

  • 2nd QTR Equity Losses Raise Specter of "Double Dip"
    Flexibility of L/S Equity Funds Facilitates
    Integration of Divergent Views

  • Following four consecutive quarters of positive returns, the S&P 500 retreated during the second quarter of 2010 reflecting a market reality check on the true speed of the global economic recovery. Data in the US continues to be mixed at best, with the high level of unemployment remaining the greatest concern along with wavering consumer sentiment.

    More disconcerting is that the US appears to be the shining star among the developed world with Europe roiled by the Greek debt crisis and Japan teetering on a similar fiscal path. And while the emerging markets appear decoupled from their developed counterparts in leading the economic recovery, market volatility remains elevated throughout the region.

    While this type of global market volatility poses obvious challenges to long-only investors, it would seem that the current opportunity set would be bountiful for long/short equity managers that have much more flexibility in the management of their market exposure. With a host of impending regulations on the horizon, both in the US and abroad, however, questions have been raised as to the ability of long/short equity managers to continue to add value on a non-correlated basis going forward. To discuss the equity market environment and opportunities within long/short equity investing in more detail, we have assembled a panel of experienced managers. Our panelists are:

    Brad Golding, Christofferson, Robb & Company. Mr. Golding is a managing director of Christofferson, Robb & Company and the manager of the CRC Financials Opportunity Fund. Prior to joining the firm, Mr. Golding ran the Americas operations for Societa Per Il Mercato Dei Titoli Di Stato S.p.A., a European bond exchange. Previous to this, he spent 8 years as an interest rate swaps trader and Head Trader at DKB Financial Products, Inc.

    Nico Y. Mizrahi, First Pacific Advisors, LLC. Mr. Mizrahi joined FPA in 2007 as a Vice President and is a Co-Portfolio Manager for the FPA Multi-Advisor Strategy. Prior to joining FPA, he served as an associate of Bear Stearns & Co., Inc., and was instrumental in structuring and subsequently launching Bear Stearns' first multi-manager hedge fund platform.

    Anna Nikolayevsky, Axel Partners, LP. Ms. Nikolayevsky is the founder and Chief Investment Officer of Axel Partners, LP, a long/short fundamentally driven hedge fund based in New York City. Prior to founding Axel in 2002, Ms. Nikolayevsky was an analyst at Zweig-DiMenna Associates, LLC, a multi-billion dollar hedge fund where she was responsible for sourcing and managing long/short equity investments in multiple industries. Click here for full article

    Quarter 3, 2010

  • Distressed Securities Funds Gain 31% in 2009, 6.5% in Q1
    Is the Easy Money Off the Table or Is this the
    Beginning of a New Multi Year Trend?

  • Chances are the world would just as soon forget the 2008 market turmoil that sent the global economy into a spiral and may have forever changed the way that global markets operate. The strong rebound that has ensued through the first quarter of 2010, along with an improving economic picture, certainly has gone a long way toward sending that episode into the history books.

    Healthy aftermath are words that are rarely uttered in tandem, but they may best describe where we are today because of 2008. Significant excesses have been removed from the markets, valuations of many securities have returned to realistic levels, and much needed regulatory reform may be on the way. As a corollary to healthy aftermath, weak companies with no prospects have been forced to disappear, while promising companies, albeit temporarily bruised, offer significant opportunities in the form of distressed investment strategies.

    Since declining by 31.70% in 2008, the Barclay Distressed Securities Index has gained 30.89% in 2008 and an additional 6.55% in the first quarter of 2010. Has the easy money been taken off the table or are we still in the early stages of a much larger trend?

    To the untrained eye, today's distressed environment may appear too complex and beyond the scope of ability for the average investor. To the experienced distressed hedge fund manager, however, the current opportunity set is unprecedented and ripe with profit potential. To discuss the current environment for distressed investing and review the opportunity set in more detail we have assembled a panel of expert managers.

    Our panel includes; Oren M. Cohen, Brownstone Asset Management, L.P. Mr. Cohen is the founder and Head Portfolio Manager at Brownstone. He has over 20 years of experience in the financial markets, mostly focused on the high yield and distressed securities markets. Mr. Cohen holds an MBA in finance from the Wharton School (1987) and a BA in economics from Columbia University (1981).

    Howard Golden and Kevin Wyman, Southpaw Asset Management, L.P. Messrs. Golden and Wyman are the founders and portfolio managers for Southpaw. Immediately prior to forming the Partnership, they served as Managing Directors of Ramius Capital Group, LLC for five years, during which time they cofounded and headed the RCG Carpathia Master Fund, Ltd. and its related assets. Mr. Golden received his BS in Accounting from New York University and his MBA in Finance from Cornell University's Johnson Graduate School of Management. Mr. Wyman received his BA in Economics from Brown University and his JD from the University ofWisconsin-Madison.

    Robert L. Rauch, Gramercy Advisors LLC. Mr. Rauch is a Partner and Director of Research of Gramercy. Gramercy is an event-driven hedge fund with US$ 2.6 billion of funds under management specializing in opportunistic corporate and sovereign investments in global emerging markets. Mr. Rauch oversees research and the corporate restructuring activities of Gramercy, chairs the Investment Committee, and serves as portfolio manager for several Gramercy funds. Click here for full article

    Quarter 2, 2010

  • FoFs Underperform Single Manager Hedge Funds in 2009
    Investors Still Need FoFs as Transparency and
    Managed Accounts Increase Complexity

  • By the looks of the capital markets' returns in 2009, it's hard to imagine that a material amount of shrapnel from the global market crisis of 2008 still remains. With a US unemployment rate hovering above 10%, banks still attempting to clean up their balance sheets and repay their government rescue funds, and a cornucopia of regulatory change on the horizon, the S&P 500 still managed to return more than 26% in 2009, and higherrisk assets, including high-yield bonds and emerging market equities, earned impressive returns of 58% and 78% respectively.

    Hedge funds, despite continued redemption queues, also rebounded during the year with the Barclay Hedge Fund Index returning 23.90%. Funds of funds, while earning a favorable 10.28% return for the year, trailed their single strategy counterparts by a wide margin. Given that both single strategy hedge funds, in aggregate, and funds of funds posted similar losses of approximately 22% in 2008, one might have expected the rebound in funds of funds in 2009 to have been healthier.

    In order to dissect this performance disparity and evaluate the future role of funds of funds within the alternative investment universe, we have assembled the following panel of experts:

    Jeffrey Holland, Liongate Capital Management. Mr. Holland is a cofounder of Liongate Capital Management and, in addition to serving on the firm's Investment Committee, is responsible for client risk management at the firm. He previously worked with Deutsche Bank as Vice President within Investment Banking. Mr. Holland is a Certified Public Accountant (CPA) in the US. He studied at Baylor University in the US where he graduated summa cum laude. Mr. Holland holds a Master's in Finance from London Business School.

    Scott C. Schweighauser, Aurora Investment Management LLC. Mr. Schweighauser is a partner and Chief Investment Officer of Aurora. He is involved in every aspect of Aurora's activities in alternative investments including portfolio management and the evaluation and analysis of current and prospective managers. He has been with Aurora since 1994.

    Lance Teitelbaum, Financial Risk Management. Mr. Teitelbaum is Sector Head of Relative Value strategies for FRM, a global fund of hedge funds group managing assets for institutional and other sophisticated investors. He also serves as Portfolio Advisor for FRM's US-based diversified portfolios. Previously Lance worked in the financial institutions group at Salomon Smith Barney and was a fixed income trader at Lehman Brothers. He holds an MBA from Columbia and a BSc in Economics from Wharton. Lance joined FRM in April 2003 and is based in New York. Click here for full article

    Quarter 1, 2010


  • Emerging Markets Funds Rally; Fair Value or a New Bubble?
    As Investor Risk Appetite Returns to Normal,
    Frontier Markets are Now Poised for Growth

  • Oh, what a difference a year can make! This time last year the global markets were on the verge of Armageddon, and investors could not pull their capital out of any risk-based asset class fast enough, let alone one of the riskiest asset classes, emerging markets.

    The aggregate emerging markets were hit particularly hard, with equity losses of more than 50% on $50 billion of fund outflows. It would seem that investors had finally had enough of the frivolous risk taking that has all too often driven many a market to bubbly proportions. Fast forward nine months, however, and emerging market equities have advanced more than 60% year-to-date through September, and fund inflows have returned to a breakneck pace. It's not overly evident where the steam for this recent rally is coming from - whether it's the few trillion dollars of global stimulus spending, a serious case of investor amnesia, or a sense of urgency to win back the investment losses from 2008.

    Perhaps the emerging markets were just simply oversold and may not be susceptible to the lingering economic downturn and eventual hangover effects of a few trillion dollars' worth of debt. Whatever the cause, it appears that the emerging markets are set to post spectacular returns for all of 2009, although a keen eye may be critical to determine the inflection point between fair value and a new and improved bubble. To review the opportunities and risks in emerging market investments, we have assembled a panel of experts with hands on experience in the sector. Our panel includes;

    Ajay G. Jani, Gramercy LLC. Mr. Jani is a managing director and portfolio manager at Gramercy, an emerging markets asset manager established in 1999 and currently managing $2.5 billion in assets. Mr. Jani manages the firm's emerging markets macro fund and additionally works on designing and implementing macro hedges for the existing emerging market credit portfolios. Prior to joining Gramercy, Mr. Jani managed emerging market macro portfolios at London Diversified Fund Management and at BNP Paribas. Mr. Jani holds a bachelor's degree in international economics from UCLA, and an MBA from Columbia University where he graduated Beta Gamma Sigma.

    Gavin Joubert, Coronation Fund Managers. Mr. Joubert heads up Coronation's Global Emerging Markets unit, which manages both a long-only and long/short global emerging fund. Coronation is based in Cape Town, South Africa and has been managing South African equities for 15 years since the firm was founded. It currently has over $20 billion under management. Mr. Joubert has been with Coronation for over 10 years and has 13 years of investment experience. At Coronation he managed a range of South African equity and absolute return portfolios before starting to focus on global emerging markets three years ago. He is a Chartered Accountant and a CFA charterholder.

    Ian McCall, MSc, Argo Group Limited. Mr. McCall is a Director at Argo. He began his career in emerging markets in 1989, financing trade between Western Europe and the former Soviet Union. He has also worked as a Tokyo-based investment analyst and a London-based portfolio manager and has held various sales positions based in Madrid and London. Prior to joining Argo, he was Senior Investment Advisor at Rainbow Advisory, and prior to that he was head of West European Emerging Market Debt Sales for ING. Ian holds bachelor's degrees in business administration and economics from the University of Regina, Canada. He also holds an MSc in finance from The London Business School. Click here for full article

    Quarter 4, 2009

  • Equity L/S Funds Outperform S&P by 2:1 Margin at Midyear
    L/S Funds Concerned About Health Care Reform,
    Financial Regulation, and US Stimulus Program

  • During the second quarter of 2009, the global equity markets staged a dramatic rebound and recouped a portion of the losses from the previous two quarters. The S&P 500 Index's return of nearly +16% represented its strongest quarterly return since the fourth quarter of 1998. An improved investor appetite appeared to be fueled by extremely attractive security valuations, however, the level of exuberance seemed to have overlooked the fact that all may not be completely well in the world.

    Economic figures, while improving, are still being hampered by a weak housing market. Oil prices are on the rise again as tension in the Middle East continues and the Obama administration tables alternative energy initiatives. Healthcare reform has become a front burner issue, but many questions remain as to how much reform will occur and what portions of the economy may be impacted by any major change. And finally, the specter of increased regulation within the financial industry and securities markets can be expected to have a wide ranging impact on investment opportunities.

    With so much uncertainty, where do we go from here? Is there enough good news to support higher equity valuations over the next several quarters, or are equities poised for another correction? Has the environment changed to the point where even the best and brightest hedge fund managers may be challenged to add value for their investors? To discuss the equity market environment and opportunities within long/short investing, we have assembled a panel of experienced and successful long/short equity managers. Our panel includes:

    Ellen Adams, CastleRock Management. Ms. Adams is a Managing Principal at CastleRock. Prior to joining CastleRock in 1998, Ms. Adams worked at Chancellor LGT where she had various roles including: head of North American Equities, where she oversaw $20 billion in assets; head of Chancellor's large-cap growth product area, where she directly managed approximately $7 billion for institutional accounts; and Director of Research. Additionally, Ms. Adams was a member of Chancellor LGT's Board of Directors. Prior to joining Chancellor, Ms. Adams worked with Mr. Tanico at both Omega Advisors, where they were founding partners, and at Neuberger Berman, where they managed equity portfolios.

    Jamie Horvat and Charles Oliver, Sprott Asset Management LP. Mr. Horvat and Mr. Oliver are co-managers of the Sprott Opportunities Hedge Fund Strategy. Jamie holds a diploma in Mechanical Engineering Technology (Honours), an Honours Bachelor of Commerce, and is a member of the International Research Association and a Licensed International Financial Analyst. Charles Oliver holds an Honours Bachelor of Science degree in Geology and obtained his CFA designation in 1998. Prior to joining Sprott Asset Management LP, Jamie and Charles co-managed several funds together at a large Canadian financial institution and were instrumental contributors to a number of structured products and institutional mandates.

    Jeffrey B. Osher, CFA, Harvest Capital Strategies. Mr. Osher is the Portfolio Manager for Harvest Small Cap Partners (HSCP), a $340M long/short equity hedge fund. Since inception, HSCP has had an average annual compound return of 24.3%. Mr. Osher was the 2008 recipient of the Hedge Fund Intelligence Absolute Return Award in the small cap equity category. Prior to joining Harvest Capital Strategies, Mr. Osher worked as a buyside analyst at The Dowd Company, as well as in equity research at Montgomery Securities. Click here for full article

    Quarter 3, 2009

  • In Midst of Market Meltdown, CTAs Gain 14% in Best Year Since 1990
    Investors Have Redeemed $40 Billion from
    Oct-08 toMar-09 in Spite of Robust Returns

  • 2008 was a year not soon enough forgotten as a continued global banking crisis and deepening recession propelled the financial markets toward near lockdown. With market volatility at historical highs and liquidity close to nonexistent, there were few places for investors to hide as the equity markets lost nearly one-third of their value, investment-grade and highyield credits both ended the year in negative territory, non-US markets followed suit, and even the once skyrocketing commodities markets plummeted. Obviously, directional investing was a painful experience, unless you were among the brave few to maintain a net-short portfolio. Arbitrageurs fared just as poorly, as every imaginable spread relationship was confounded by global deleveraging and a flight to safety. Yet through all of the chaos and value erosion, one segment of the alternative investment universe forged ahead, redefining the concept of uncorrelated returns.

    Enter Commodity Trading Advisors (CTAs), which as a group, earned a +14% return in 2008. While results varied, no matter how you sliced it and diced it - discretionary, systematic, focused, diversified, etcetera - most managers defied the investment universe and posted positive returns for the year. So with a phenomenal year behind them and some evidence of the beginning of normalcy in the world's capital markets, is there still a case for allocating to CTAs over the next 12 to 18 months? To answer this question and review the CTA landscape in more detail, we've assembled a panel of distinguished and seasoned practitioners. Our panel includes:

    Matthew Beddall, Winton Capital Management. Mr. Beddall is the Chief Investment Officer and a director of Winton. His responsibilities are principally focused on managing the investment process behind the Winton Futures Fund and overseeing a large section of the research department. He has a first class honours degree in mathematics and computer science from Southampton University and an MSc in applied statistics from Birkbeck College, University of London.

    Kevin M. Heerdt, Campbell & Company, Inc. Mr. Heerdt is the Chief Investment Officer at Campbell. He has served as CIO and Director of Research since July 2007, was Executive Vice President-Research from March 2003 to June 2007, and Chief Operating Officer from June 2005 to June 2007. His duties include risk management, research, and the development of quantitatively based hedge fund and options strategies. Mr. Heerdt has more than 20 years of experience in the industry. He holds a B.A. in economics and in international relations from the University of Southern California.

    Jaffray Woodriff, Quantitative Investment Management, LLC. Mr. Woodriff has 22 years experience trading financial markets using proprietary quantitative models that he has developed. In 2003, Jaffray cofounded QIM. He guides all aspects of QIM's business and is chiefly responsible for the constant innovation and improvement of the models and techniques that underlie QIM's predictions, trading, and risk management. Click here for full article

    Quarter 2, 2009

  • FoFs Lose 22% in 2008, Worst Year on Record Sparks Large Outflows
    Liquidity Issues, Redemption Gates, and High
    Profile Ponzi Schemes Spook Investors

  • For those who crave excitement in the form of financial market volatility,2008 was the year for you. We witnessed a crisis of historical proportions emanating from an overheated real estate market and snowballing into a mortgage and credit calamity that triggered a global liquidity freeze, which in turn impacted almost every asset class with any sort of risk premium. Exciting enough?

    Well, it seems that this was just the perfect recipe to unhinge every single Ponzi scheme that has been lying dormant for the last decade, and enough to shake the hedge fund industry to its core. For the year ended 2008, hedge funds lost 21.35% as measured by the Barclay Hedge Index, the worst annual loss in the recorded history of hedge fund performance. These losses, combined with a mass investor exodus from hedge funds resulted in a net decrease in assets under management of approximately$800 billion to $1 trillion for the year.

    As we view the universe today, there exists a great dichotomy between the recent market impact on single strategy hedge funds and funds of funds. In particular, most single strategy hedge funds have reported significant liquidations and have been instituting gates to cope with liquidations in an orderly fashion. Many institutional quality funds of funds, however, report little in the way of meaningful redemptions. How is it that funds of funds have weathered the storm? Is there another shoe left to drop in this segment of the market, or is the vast opportunity set that has been created by the market debacle enough to keep funds of funds investors on board? To address these and other critical issues presently facing fund of funds we have assembled the following panel:

    Rob Christian, Financial Risk Management. Rob Christian is the Sector Head of Directional Trading for FRM, a global fund of hedge funds group managing assets for sophisticated and institutional investors. Mr. Christian joined FRM in 2005 and manages investments in macro, commodity, and CTA hedge funds. He has nearly 20years investment and trading experience, including serving as a portfolio manager for Julius Baer and Graham Capital, a partner at Stonebrook Capital, and founder of Modoc Capital. He holds an MBA in Finance from New York University and a BAS in Biology and Economics from Stanford University.

    Fabio Savoldelli, Optima Fund Management. Mr. Savoldelli serves as Chief Investment Officer for Optima. Previously, Mr. Savoldelli was Managing Director and Chief Investment Officer at Merrill Lynch Investment Managers Alternative Strategies. Prior to that, Mr. Savoldelli was CIO for the Americas at the Chase Manhattan Private Bank. Mr. Savoldelli received a DBS from the London School of Economics and a BA in Economics from the University of Windsor in Canada.

    Scott C. Schweighauser, Harris Alternatives, LLC. Mr. Schweighauser is a partner and Chief Investment Officer of Harris Alternatives. He is involved in every aspect of Harris' activities in alternative investments, including portfolio management and the evaluation and analysis of current and prospective managers. He has been with Harris since 1994. Click here for full article

    Quarter 1, 2009


  • Bailouts and Privatizations of US Financial Firms Shift Landscape
    What is the Future of Traditional Banking &
    Investment Banking in an Era of Regulation?

  • Unprecedented - a word not lost on the investment world recently to describe the global capital turmoil as we have entered a new era of change, fear, illiquidity, selling, and volatility that has not been seen in decades. It may not be easy to exactly pinpoint where it all started, but it's safe to say that the heart of the problem was, and remains, within the financial sector. Inflated real estate values, a flood of new mortgages, overextended borrowers, highly levered securitizations, and tenuous bank balance sheets. All of the above seemed harmless, and routine, as long as the investment community continued to feed the liquidity machine. But once the music stopped, it didn't take long for things to unravel and spark a severe chain of events: mortgage delinquencies, defaults, margin calls, bank insolvencies, frozen lending, widespread global market sell offs, and government interventions. Where does it all end? As of the writing of this article, the events have only begun to unfold, and the light at the end of the tunnel remains hazy.

    From chaos and irrationality, however, comes great opportunity. Many a hedge fund manager has been uttering this sentiment for the last several weeks. No greater potential, for that matter, may be more prevalent than within the financial sector from whence the trouble started. Battered banks, high yielding REITs, severely discounted mortgage pools, stressed asset management organizations, and more. There is undoubtedly a great deal of profit to be made, but not without sidestepping some landmines.

    In order to better understand the current environment and opportunity set within the financial sector, we have assembled a panel of experts with experience trading equities in this troubled area. Our participants include:

    Len Riddell, Martin Currie Investment Management, Ltd. Mr. Riddell is the co-manager of Martin Currie Absolute Return Funds - Global Financials (launched June 2006). He began his career in 1996 in the banking division of PricewaterhouseCoopers in London. Prior to joining Martin Currie, he analyzed European banks for Merrill Lynch. Before that, he was an Irish financials analyst for Goodbody Stockbrokers in Dublin. Mr. Riddell joined Martin Currie in 2004 as a sector manager, researching and recommending global financial stocks.

    Mark A. Rosen, Jefferies Asset Management, LLC. Mr. Rosen is Managing Director and Portfolio Manager of Jefferies Asset Management, Dakota Division, and focuses on a long/short strategy within the financial services sector. Over his career of more than 20 years, his experience has included financials trading and portfolio management, as well as earlier experience as an institutional bond trader.

    Nick Watkins, Tenax Capital Limited. Mr. Watkins is a founder of Tenax. He was an Executive Director of European Research at UBS responsible for Pan-European banc assurance research (2002-2004). Mr. Watkins worked at Merrill Lynch as a vice president responsible for UK and Irish Banks and was previously a director responsible for UK Banks at UBS (1997-2001). In 2004 he was rated a 5-star Analyst by Starmine and in Extel 2003 was rated No. 2 European Banks Analyst by company management, out of a total of circa two hundred. Mr. Watkins graduated from Cambridge University in 1997 with a Masters Degree in Law. Click here for full article

    Quarter 4, 2008

  • Rise in Price Volatility Mirrors Increased Investor Uncertainty
    Can Fed Fight Recession & Inflation?
    Doubts Persist about Direction of US Economy

  • It seems that hardly a day passes without some breaking news story catapulting its way into the headlines and inducing turmoil in global financial and commodity markets. Daily oil price fluctuations have become a dominant force in setting the direction of equity and currency markets. Fixed income markets gyrate with ever-changing prognostications of rising inflation and deepening recession as investors grapple with whether or not Mr. Bernanke can successfully keep the ship afloat in these turbulent waters. And pandering politicians, ever determined to demonstrate to voters that they have their interests at heart, are falling over themselves in a rush to introduce new laws to protect us from unscrupulous mortgage brokers, bankers, speculators and short sellers. So what is an investor to do?

    Given so many daunting crosscurrents to navigate, it may come as somewhat a surprise that global macro hedge funds are one of only five profitable hedge fund sectors in 2008. The 13 sectors in the loss column include almost all of the most popular equity-based strategies including equity long/short and emerging markets. CTAs, who are mostly momentum-based macro traders, are having their best year since 2002 and have gained more than 10% through the end of June.

    In order to get a better read of how macro fund managers are viewing the impact that current events are having on the financial and commodity markets, we've invited a panel of distinguished and experienced practitioners to answer some of our more pressing questions and to hopefully shed light in some dark corners. Our panelists are:

    Michael Howell, CrossBorder Capital Limited. Mr. Howell founded CrossBorder Capital in 1996 as a London-based independent research firm. Previously he was Head of Research for Baring Securities and Research Director of Salomon Brothers, the US investment bank. Michael has been in financial markets since 1981 and is a regular conference speaker and media commentator. He graduated from Bristol and London Universities, and lives in Oxford with his family.

    Paul Lambert, Polar Capital Partners. Paul joined Polar Capital in November 2005 as director of currency/ macro strategies. He joined from Deutsche Asset Management (DeAM) where he was global head of currency and the senior investor on a wider global macro platform. Paul began his career in 1990 as an economist with the Bank of England. He has since held positions at UBS as a senior currency and proprietary desk strategist and with Citibank where he was the European Chief Currency Strategist. Paul holds a bachelors degree in Economics from Warwick University.

    Bo Thiara, Peninsula, LP. Mr. Thiara, Managing Principal and CIO, has over seventeen years experience in international financial markets focused on hedge fund management, trading and risk management. Mr. Thiara served as General Partner and Senior Portfolio Manager in the Global Macro Group at Omega Advisors, Inc. in New York. He graduated from UCLA with a degree in Economics and minor emphasis in Physics and Mathematics. He received an MBA from The Wharton School at the University of Pennsylvania with majors in Finance and Strategic Management. Click here for full article

    Quarter 3, 2008

  • Soaring Commodity Prices Coupled with Fed Easing Fuels Inflation
    Supply/Demand Imbalances May Only be Part of
    the Problem; Is the Weak Dollar Also to Blame?

  • Collateralized debt obligations, bespoke swaps, credit default swaps on the residual tranche of a sub prime mortgage collateralization. Confused? It's hard not be. This stuff may sound pretty interesting when dealers explain the great yields and frothy prospective returns. But what is really behind these investments? And as we've seen very recently, where is the liquidity when we need it?

    Contrast the above to the commodities markets where your investment is simply backed by wheat, gold, oil, cattle, etc. It's very simple in theory, non-correlated to many of the major asset classes, and historically very liquid. So are commodities the next great frontier for investors seeking returns? Those who have been invested over the past 12 to 18 months would certainly agree, as gold, oil, and wheat have skyrocketed to historical levels of $1,000, $125, and $12.75 respectively. And if you're invested via a fund manager, your results are likely to have been equally pleasing, as the Barclay Commodity Trading Advisors Index returned +7.4% during the first quarter of 2008 and +18.0% for the trailing 12 months through March 31, 2008.

    While the results have been fantastic, the question remains: How have we arrived at these levels? Do the supply and demand fundamentals justify the results? Are we witnessing the beginning of our next bubble, or is a favorable commodity market here for the long haul? To answer these questions and explore the case for commodities investing in more detail, we have assembled the following panel of experts:

    Sebastian Barrack, Macquarie Investment Management, Ltd. Mr. Barrack is an executive director at Macquarie and runs the Agricultural Commodities and Investor Products Division. This division is made up of 70 people across 4 continents and encompasses trading, risk management, financing, and physical transactions in the commodity space.

    Brad Cole, Cole Partners Asset Management LLC. Mr. Cole is President of Cole Partners Asset Management, LLC and Cole Partners LLC, overseeing all investment, management, and strategic activities of the firm. His professional career spans more than 20 years in the derivatives industry as a trader, portfolio manager, and investor. Cole Partners Asset Management manages the Tellus Natural Resources Fund, a multistrategy fund of hedge funds dedicated to the commodities/natural resources sector.

    Jodie Gunzberg, CFA, The Marco Consulting Group. Ms. Gunzberg joined the Marco Consulting Group in 2007 as Director of Research/ Manager Search, where she is responsible for investment research and manager selection. She has several years of investment experience across asset classes including equities, fixed income, real estate, hedge funds, and commodities. Prior to joining MCG, Jodie held various analyst, portfolio management, and risk management positions where she built security selection models and risk management systems, and engineered new strategies. She has also written publications on commodity and hedge fund investing.

    Hilary Till, Premia Capital Management, LLC. Ms. Till is a cofounder of Premia Capital Management, LLC, a proprietary investment and research firm. She is also the co-editor of Intelligent Commodity Investing, Risk Books (2007), is a research associate at the EDHEC Risk and Asset Management Research Centre, and is an advisory board member of the Tellus Natural Resources Fund. Click here for full article

    Quarter 2, 2008

  • FoFs Side Step Landmines and Post Market Beating Returns for 2007
    Will Funds Migrate Toward More Liquid Strategies
    as Liquidity Dries Up in Some Credit Sectors?

  • Judging by the robust performance of the hedge fund industry during the first half of 2007, it seemed as if we might be in for a year of smooth sailing and consistent positive returns. Alas, choppy seas were just over the horizon.

    In early summer, signs of a softening economy began to call into question high real estate valuations. This, in turn, heightened concerns regarding the excessive issuance of sub prime paper which had provided de facto support for these valuations. In June, mounting losses resulted in forced liquidations at several Bear Stearns structured credit funds. The bubble had burst.

    As the wave of credit liquidations gathered steam, many large banks and multi strategy hedge funds were forced to dip into the most liquid portions of their portfolios in order to meet margin requirements. This in turn reverberated into sizable drawdowns within the stat arb universe and thrust multi-billion dollar funds managed by Goldman Sachs and Renaissance into the headlines. Throw in $100 a barrel for crude oil and increased equity market volatility and even an astute market observer would be baffled as to how the average fund of funds manager would have been able to achieve an attractive +8.86% return for the year.

    Apparently it wasn't all bad out there. So what was the "secret sauce" employed by fund of fund managers that allowed them to side step the landmines and post market-beating returns for the year? To better understand 2007's performance and the outlook for 2008, we have assembled a panel of expert fund of fund managers. Our panel includes:

    John Beech, Financial Risk Management. Mr. Beech is Chief Investment Officer for Financial Risk Management, a global fund of hedge funds group managing $14 billion for sophisticated and institutional investors. He joined FRM in 2001 after serving as an executive director in fixed income at Goldman Sachs in London where he was responsible for the fixed income hedge fund business. He has 15 years of experience in the hedge fund industry and holds a degree in engineering (Hons) from the University of Cambridge.

    Scott C. Schweighauser, Harris Alternatives, LLC. Mr. Schweighauser is a partner and Chief Investment Officer of Harris Alternatives. He is involved in every aspect of Harris' activities in alternative investments, including portfolio management and the evaluation and analysis of current and prospective managers. He has been with Harris since 1994.

    Stephen C. Vogt, Ph.D., Mesirow Advanced Strategies, Inc. Dr. Stephen Vogt is the chief investment officer of Mesirow Advanced Strategies, Inc. and is a member of its investment, executive, and management committees. Additionally, he is a member of its parent company Mesirow Financial Holdings Inc.'s executive committee and board of directors. He is responsible for overseeing all aspects of research including portfolio management, risk management, manager due diligence, and manager monitoring. He is also active in managing the day to day operations of Mesirow Advanced Strategies, Inc. Prior to joining Mesirow Advanced Strategies, Inc., Dr. Vogt was an associate professor of finance at DePaul University. His research focused on empirical tests of financial theories and has been published in both academic and trade journals. Dr. Vogt received a B.A. in economics and mathematics from Bemidji State University and M.A. and Ph.D. degrees in economics from Washington University-St. Louis. Click here for full article

    Quarter 1, 2008


  • Sub Prime Rubble Puts New Shine on Investing in Distressed Assets
    Opportunities Present in Today's Environment
    May be Comparable to Enron Debacle in 2002

  • Armageddon is upon us! The phrase was uttered by many an investor as the sub prime mortgage sector began to unravel during the second quarter of 2007 and took many of its structured credit kin with it. But the avalanche kept on rolling through the third quarter as forced sellers frantically shed all investments, illiquid or liquid, in order to satisfy margin requirements and the mass exodus of fund investors.

    For one camp, there is certainly a 1998 style lesson to be learned regarding leverage and liquidity management. For another faction, however, this is the scenario that potential windfall profits are made of. Irrationality often breeds opportunity in the investment world, and as sure as we have not seen our last market debacle, we have also not seen the last of those well positioned to take advantage of such circumstances.

    Enter the distressed hedge fund. A pariah during boom times due to unwillingness to pile into overbought paper and large cash piles that investors may have felt would have been put to better use elsewhere. The method to the madness, however, seems all too clear now as distressed hedge funds emerge as the natural buyers of unduly beaten down distressed situations and high probability work outs.

    So given the activity over the past several months, have we reached the inflection point that will spark a rally for distressed hedge funds? Where are the greatest opportunities? How long will they last? To answer these questions and more we have assembled the following group of experts within the distressed hedge fund universe:

    Kurt Cellar, Bay Harbour Management. Mr. Cellar joined Bay Harbour in 1999, assuming the role of portfolio manager in 2003. He began his career at LEK Consulting, an offshoot of Bain & Co., where he advised companies in numerous industries on high level strategic issues. In 1995, Mr. Cellar joined REMY Investors, a principal investment firm with successful investments in oil and gas drilling. Mr. Cellar graduated from the University of California, Los Angeles with Phi Beta Kappa honors, where he also received Departmental Highest Honors in Economics. Additionally, Mr. Cellar holds a Masters in Business Administration from The Wharton School of Business and is a Chartered Financial Analyst.

    Jeremy Hedberg, Varde Partners, Inc. Varde Partners is a $3 billion alternative investment manager with expertise in credit, distressed, and special situation investing in a wide range of assets across the globe. Jeremy Hedberg is a partner in the firm and is responsible for Varde's U.S. corporate portfolio. He leads a team of investment analysts in the origination, management, and workout of publicly traded corporate investments. As Varde's head trader, he oversees all trading activity and manages Varde's relationships with Wall Street.

    George J. Schultze, Schultze Asset Management, LLC. Mr. Schultze is Managing Member and Portfolio Manager of Schultze Asset Management, LLC. He chairs the Schultze Research and Strategy Committees and, together with his team, makes the final decision on all investments for the portfolio. Mr. Schultze has been an active investor for over 14 years and has over eleven years of distressed experience. Mr. Schultze earned a B.A. from Rutgers College where he graduated with a joint major ineconomics and political science and earned the Henry Rutgers Scholar distinction. Click here for full article

    Quarter 4, 2007

  • CTAs Gain as Trending Markets in Q2 Increase AUM to $182 Bil.
    Long Vol Strategies Provide Attractive
    Returns if Investors Accept Higher Volatility

  • Managed futures investments are fundamentally different from other hedge fund investments. Many hedge fund strategies are arbitrage based and are said to be "short volatility" in that the fund manager is usually betting that the prices of two similar securities will converge. Commodity Trading Advisors (CTAs), on the other hand, are said to be "long volatility" in that each position within the portfolio is typically a directional bet on the price of the underlying futures contract.

    Directional or long volatility strategies tend to have a different return profile from arbitrage strategies. Directional approaches typically exhibit a higher percentage of losing periods, greater volatility, and higher perceived risk of ruin than arbitrage. Directional approaches can also deliver the higher rates of return so desired by investors. And therein lies the heart of the matter - whether to invest in a sector that will cause discomfort when fear and greed confront each other head on?

    After a slow start to the year, the Barclay CTA Index gained 4.47% during the second quarter. The Barclay BTOP50 Index, which measures the performance of the largest traders, did even better at +6.10%. Assets under management in the sector grew to $182 billion USD, an increase of $10 billion over the previous quarter.

    Will the increasing assets in the sector reduce profit opportunities for CTAs? Are you better off investing with emerging managers or with established firms? How much diversification within the sector should you have? In order to answer these and other timely questions about this oft misunderstood sector of alternative investing, we have assembled a panel of highly experienced managed futures investors in order to benefit from their years of hands-on experience. Our panel includes:

    John J. FitzGibbon, Lighthouse Investment Partners, LLC. Mr. FitzGibbon is a member of the investment committee and is the chairman of the Lighthouse Global Trading Committee as well as the portfolio manager of the Lighthouse Managed Futures Funds. Prior to joining Lighthouse Partners in 2001, Mr. FitzGibbon was a proprietary trader for Kottke & Associates, LLC, actively trading products across multiple asset classes both in the pits in the foreign currency quadrant and on the screen-based products in the equity index quadrant.

    Per H. Ivarsson, RPM Risk & Portfolio Management AB. Mr. Ivarsson is Executive Vice President and head of the investment management team at RPM Risk & Portfolio Management AB. RPM is a specialist investment manager focusing on managed futures and global macro investment strategies. Mr. Ivarsson has been with RPM since 2003 and previously headed a credit and interest rate derivatives R&D team within the SunGard group.

    Michael Spelman, Optima Fund Management, LLC. Mr. Spelman is a director and the sector head of Global Macro & CTA Strategies at Optima and is responsible for managing investment allocations for the firm's clients. Prior to joining Optima, Mr. Spelman worked in senior management and alternative investment research positions at RAI, Salomon Smith Barney Managed Futures, and Arnhold & S. Bleichroeder, Inc. Click here for full article

    Quarter 3, 2007

  • Creditworthy Firms Tap "PIPES" To Achieve Financing Objectives
    Insurance on the Rise as Regulators Clarify Rules
    and Investor Base Expands to Include Mutual Funds

  • One man's trash is another man's treasure. This oft repeated phrase resonates well with commonly held conceptions and misconceptions with respect to the PIPEs (Private Investments in Public Entities) investment strategy. Those companies often taking advantage of PIPE financing have historically been viewed by mainstream investment banks, lenders, and investors as the proverbial "trash" on the quality spectrum. To the astute investor willing to go the extra mile with respect to credit analysis, due diligence, and structuring, PIPE issuers are viewed as the ultimate "treasure".

    The PIPE investment strategy has experienced its share of ups and downs over the past decade highlighted by strong absolute and risk-adjusted returns, but marred by accounting, regulatory, legal, and structural problems (e.g., the "death spiral convertible" fiasco). Those brave enough to have disregarded the historical tribulations and stereotypes and seize the real opportunity in PIPE investments have been rewarded with above average returns during recent years.

    As regulators have become more involved in reviewing this form of financing and have increased scrutiny over those employing the investment strategy, it appears that past transgressions are starting to fade into the rear view mirror for an increasing number of issuers and investors. According to the PIPEs Report, issuance for the first quarter of 2007 is nearly double the issuance experienced during the first quarter of 2006.

    However, legitimate concerns on such issues as proper month-end valuation and naked shorting continue to vex potential investors. In order to explore the current state of the PIPEs market and understand the valueadded proposition of this asset class, we have assembled a panel of experts to address the issues. Our panel includes:

    Bradley J. Ackerman, Hull Capital Management LLC. Mr. Ackerman is a Director of Hull Capital which manages PIPE Equity Partners, a single strategy fund of funds that invests in PIPE fund managers. At Hull Capital, he is involved in research, portfolio management, and other investment related activities of the fund. Mr. Ackerman graduated cum laude from the Wharton School of Business at the University of Pennsylvania in 1991 with a B.S. in Economics and a concentration in Finance.

    Michael E. Fein, RAM Capital Resources, LLC. Mr. Fein is President and Founder of RAM. He is also Co- Portfolio Manager of RAM's two PIPE investment funds, Truk Opportunity Fund, LLC and Truk International Fund, LP. He is also Co-Portfolio Manager of recently launched Shelter Island Opportunity Fund, LLC, which focuses on secured lending. Mr. Fein holds a Bachelor of Science degree in Economics with a concentration in Finance from the Wharton School of the University of Pennsylvania.

    Michael Finkelstein, Whalehaven Capital. Mr. Finkelstein, C.A. is an officer of Whalehaven and is responsible primarily for evaluating and making investments on behalf of its US Limited Partnership, Offshore Fund, and Master Fund. He has over 20 years of experience investing in, advising, and financing companies. Mr. Finkelstein holds a Bachelor of Arts in Economics from McGill Universityand received his C.A. designation in 1980. He is a member in good standing of the Institute of Canadian Chartered Accountants.

    Click here for full article

    Quarter 2, 2007

  • 9.33% Return From FoFs in 2006 Mirrors Ten-Year Average of 9.40%
    Merger Arbitrage is on the Front Burner Once
    Again as M&A Activity is Fueled by Private Equity

  • It always seems that a strong stock market induces amnesia amongst those on the fence as to whether hedge funds really make sense as an investment. Sure, solid risk adjusted returns and diversification are keen features. Short-term investors, however, may find these attributes less compelling coming off of a year such as 2006 when the S&P 500 Index outpaced the broad index of hedge funds, as represented by the Barclay Hedge Fund Index, by nearly 400 basis points (15.8% versus 12.4%, respectively).

    Furthermore, the debate continues as to whether active, professional funds of hedge funds are the optimal choice for investors seeking hedge fund exposure. Subtract fees and throw in the realities of active allocation (e.g., closed funds, liquidity constraints, overall manager suitability, etc.), and the resulting 2006 return for the Barclay Fund of Fund Index was only 9.33%. What's more, as the gold rush continues to gather fund of funds assets and the legions of registered and listed products multiplies, the choices for investors can be head splitting. A recent tally of the Barclay database found more than 2,200 active funds of funds.

    Are more choices necessarily better for investors? Can strong absolute and risk adjusted performance still be garnered by active, professional fund of funds managers on an ongoing basis? What strategies and tactics are the most astute fund of fund managers employing to compete in this growing and seismically changing arena? In order to explore some of the critical issues facing fund of fund managers we have assembled a distinguished group of highly experienced fund management experts. Our panel includes:

    Andy Brindle, Financial Risk Management. Mr. Brindle is CEO of the North American operations and head of risk management globally for Financial Risk Management, a hedge fund of funds that manages $12 billion for institutional investors worldwide. Previously, he was global head of credit derivatives for JP Morgan, where he spent 18 years in trading, risk management, and business leadership roles in the interest rate, equity and credit derivatives groups.

    Scott C. Schweighauser, Harris Alternatives, LLC. Mr. Schweighauser is a partner of Harris Alternatives and Executive Vice-President and Portfolio Manager of Harris Partners, LLC, its alternative investment subsidiary. He is involved in every aspect of Harris' activities in alternative investments, including portfolio management and the evaluation and analysis of current and prospective managers. He has been with Harris since 1994.

    Stephen C. Vogt, Ph.D., Mesirow Advanced Strategies, Inc. Dr. Vogt is the chief investment officer of Mesirow Advanced Strategies, Inc. and is a member of its investment, executive, and management committees. Dr. Vogt oversees all aspects of research including portfolio management, risk management, manager due diligence, and manager monitoring. Dr. Vogt is also active in managing the day to day operations of MAS. Prior to joining Mesirow, Dr. Vogt was an associate professor of finance at DePaul University. His research focused onempirical tests of financial theories and has been published in both academic and trade journals. Dr. Vogt holds a B.A. in economics and mathematics from Bemidji State University and M.A. and Ph.D. deg-rees in economics from Washington University - St. Louis.

    Click here for full article

    Quarter 1, 2007


  • Currency Fund Returns Decline but Interest in Sector Increases
    Astute Investors Seem More Willing to Buy Low
    and Make Strategic Bet Rather That Case Returns

  • Give me control over a nation's currency and I care not who makes its laws," asserted Baron M.A. Rothschild (1744 - 1812). This seems to be an interesting point to ponder even in modern economic and political times. On one hand there are the major currencies, including the U.S. dollar, British pound, euro, and Japanese yen, that float freely and attempt to allow free market forces to control the currency. On the other hand, numerous countries, with the most notable being China, still maintain a currency peg allowing the government to maintain the balance of control. Then, of course, layer into the equation the slew of economic queues (e.g., interest rate differentials, balance of payments, money supply, etc.) that both traders and monetary authorities are deriving their decisions from. Figuring out which forces and factors will prevail in any one trading day is enough to make any currency trader consider going back to the gold standard.

    So who or what really controls the value of a nation's currency? In our attempt to cast light on this complex area, we've assembled a panel of highly successful currency managers and have put forth a few questions for them. Our panel includes:

    A. Paul Chappell, C~View Limited. Mr Chappell has been involved in the currency markets since 1974. In 1996 he established the Investment Advisory business, C~View Limited, which is an FSA registered company. C~View Limited and C~View International Limited, an NFA regulated CTA, act as investment advisor to currency funds and to special purpose managed accounts on behalf of major financial institutions and institutional investors. C~View also runs currency overlay programs alongside its other advisory business and has in excess of US $400 million under management.

    Sanford Jay Grossman, Ph.D., Quantitative Financial Strategies, Inc. Dr. Grossman is the Chairman and CEO of QFS. He earned his B.A., M.A., and Ph.D., all in Economics, from the University of Chicago. Since receiving his doctorate, he has held academic appointments at Stanford University, the University of Chicago, Princeton University (as the John L. Weinberg Professor of Economics, 1985-89), and at the University of Pennsylvania's Wharton School of Business. In addition, Dr. Grossman was an economist with the Board of Governors of the Federal Reserve System (1977-78), and was a public director of the Chicago Board of Trade (1992- 96). In 1988, he was elected a director, in 1992 served as Vice President, and in 1994 was President of the American Finance Association.

    Philip Simotas, FX Concepts, Inc. Mr. Simotas is President and Director of Investment Management at FX Concepts. Mr. Simotas heads up all aspects of the firm's investment management activities, which include trading, portfolio administration, client servicing, investment research functions, and marketing. In addition, he is also chairman of the product development committee, which is responsible for directing the firm's research efforts with respect to enhancing and creating new tradingstrategies. Mr. Simotas began his career in derivatives at Dean Witter in 1986, where he was Foreign Exchange Strategist. From 1987 to 1993, Mr. Simotas was Assistant Vice President and Senior Trader on Dean Witter's foreign exchange desk. Mr. Simotas also served as Deputy Chief of the foreign exchange department. Mr. Simotas is a cum laude graduate of Yale University. Click here for full article

    Quarter 4, 2006

  • Merger Arbitrage Once Again A Top Performer After Years of Neglect
    As Interest Rates Rise and Acquisitions Abound,
    Returns to Sector Continue to Increase

  • Rarely in hedge fund history has a strategy been relegated to pariah status for such an extended period of time as has merger arbitrage. It's not that the strategy has been wrought with the fraud or impropriety that has plagued the likes of PIPEs or mutual fund timing managers.

    Rather, the returns have just not been as attractive to investors as have been those of other asset classes including long-short equity and emerging markets. Case in point, the Barclay Merger Arbitrage Index posted an annualized return of 4.4% from 2001 through 2005 while the more diversified Barclay Hedge Fund Index returned 9.0% annualized during the same period.

    Well, let's not get the funeral underway just yet. During the first half of 2006, the aforementioned Merger Arbitrage Index has returned 7.8% versus 5.7% for the diversified Hedge Fund Index. So is this the proverbial "dead cat bounce", or is the strategy geared for prolonged eminence? According to Dealogic, Global M&A activity in 2005 was close to the level transacted in 2000 (roughly $3 trillion) and these figures are expected to be exceeded for the full year of 2006. Bank of America's business capital division attributes numerous factors to this rise in activity including relaxed credit standards, demand from cash rich suitors, geographic and industry dispersion, more complex capital structures, and the increase in buyout funds and hedge funds. Furthermore, speculation surrounding the approval of high-profile mergers such as AT&T and Bellsouth, along with a rising risk free rate of return, has significantly improved the attractiveness of deal spreads for investors. The former, however, does bring the "risk" back into the game alternatively known as "risk arbitrage".

    In order to shed more light on the present and future of merger arbitrage as a strategy, we have assembled a panel of seasoned merger arbitrage practitioners. Our panel includes:

    Jason B. Dahl, Arnhold and S. Bleichroeder Advisers, LLC. Mr. Dahl is co-portfolio manager of the merger arbitrage strategy at Arnhold and S. Bleichroeder Advisers, LLC, with $315 million of assets dedicated to merger arbitrage. He joined the firm in 2000 from the merger arbitrage proprietary trading effort at RBC Dominion Securities, where he was a director and head of research for the strategy.

    Charles Marais, Shorewater Advisors, LLC. Mr. Marais is a founder of the company and a principal of the investment manager. In 1986 he joined James Capel in London, specializing in sales of European equity warrants and options. He joined Barclays de Zoete Wedd in London in 1990 as a director on the European Equity Warrants and Options desk and then in the Equity Derivatives Group in New York. From 1996 until 1998, Marais was employed as Global Equities Manager at Eagle Capital Management, Inc.

    Seth P. Washburne, Washburne Capital Management. Mr. Washburne has been a merger arbitrage manager since 1994, first atKidder, Peabody, then starting the first such desk at Banque Nationale de Paris in 1995 before founding Washburne Capital Management in 1997. He considers his approach to be style-pure. Click here for full article

    Quarter 3, 2006

  • Searching for Higher Returns, Investors Book Passage to India
    A Low Cost Structure Coupled with English
    Language Skills Provides Attractive Milieu

  • Many pundits speculate that the U.S. and developed European markets may be at a peak, particularly as the U.S. Fed may be poised for more rate hikes to quash inflation. So what is the next best bet for globallyminded investors? How about the fifth largest economy in the world and the third largest economy in Asia? Oh boy, here we go again - another long winded pitch on China. Well fret not. In fact, we're actually referring to India. According to research by Goldman Sachs, India has the potential to grow GDP by more than 5% annually over the next several decades, potentially surpassing a number of the world's current economic leaders including France, Germany, and Japan. Numerous variables exist to shape this potential economic juggernaut including: a young, well educated, predominantly middle class population; an entrepreneurial nature among current and prospective business leaders; a political regime that encourages foreign direct investment via favorable policies and incentives; and a common law, English-based legal system. Indeed, this all sounds too good to be true. So does India represent the proverbial "free lunch" with respect to investment opportunities, or does it remain fraught with risks that typify emerging markets? Could a lack of liquidity, continued protectionism, or ties to other emerging economies ultimately derail the 100%+ stock market rally forged over the past two years?

    To explore the investment climate in India and its potential investment opportunities in more detail, we have assembled the following expert panel:

    Ravi Chachra, Eight Capital, LLC. Mr. Chachra is the portfolio manager of Eight Capital and has strong experience in distressed markets. He was the portfolio manager of the distressed debt book at J. Goldman, a New York based investment fund. Prior to that, he was with the Chatterjee Group as a portfolio manager for Winston Strategic Technology Fund. Before that, he worked at Deutsche Bank's Proprietary Division where he managed the Asian Local Currency Bond Portfolio. Previously, he was an emerging markets Trader at J.P. Morgan Chase and Company. Ravi has an MBA from the Wharton School of Business.

    Janak R. Jethmalani, Avatar Investment Management. Mr. Jethmalani is a director of Avatar Investment Management, a Mauritius based India-centric fund manager. Avatar Investment Management currently manages an India fund, the Avatar India Opportunities Fund, a long/short public equity fund. In addition, he sits on various advisory boards involved in India-related strategic and portfolio investments. He also currently manages in excess of $116 million for various alternative investment strategies globally.

    Priyanka Kaul, Saffron Investment Management. Ms. Kaul is a founder of Saffron and portfolio manager for the Tricolor India Opportunities Fund. She has seven years of India investing experience in both long-only and absolute return strategies. Prior to Tricolor, she managed money in India for The Chatterjee Group, an international investment fund with a diverse portfolio of private and public equity investments. Ms. Kaul is a graduate of Sydenham College of Commerce & Economics, University of Mumbai, and holds a Masters in Business from the Symbiosis Institute of Management Studies, Pune. Click here for full article

    Quarter 2, 2006

  • Average FoF Gains 6.85% in 2005 Emerging Markets on Fire, + 22.3%
    Investor Risk Appetite on Rise as Money Moves
    From Low Risk to Higher Return Strategies

  • It was the best of times. At least that's what many non-U.S. equity investors must be thinking about the past three years. In 2005, Japan's Nikkei 225 Index extended its rally for a third consecutive year and gained 40.24%. It has now gained 102% in the past 33 months. In Germany, the Frankfurt DAX gained 27.07% in '05, and by year-end had increased 123% since the end of March 2003. By comparison, the techheavy NASDAQ in the U.S. increased by a miserly 1.37%, while the Dow Jones Industrial Average was unable to stage a "three-peat" and lost 0.60% for the year.

    It was also an excellent year for commodity markets. Fueled in large part by price increases for energy and metals, the Goldman Sachs Commodity Index surged 25.55%, while the Dow Jones-AIG Commodity Index returned a very healthy 21.36%.

    By comparison, returns for hedge funds and funds of hedge funds, while still rewarding, have been not as spectacular. The Barclay Hedge Fund Index, based on the performance of more than 2600 hedge funds, gained approximately 10.7%, and the Barclay Fund of Funds Index (more than 1700 funds of funds) gained approximately 6.85%. However helpful these averages may be in getting a clear picture of overall hedge fund performance, focusing on the broad averages obscures the fact that returns have not been homogeneous. Convertible arbitrage funds were the poorest performers, losing 3.20%, while emerging market funds had the highest returns, gaining more than 22%.

    Individual hedge fund returns last year seem to have been strongly impacted by sector participation. Will energy and commodity related investments do well this coming year? After three years of robust double-digit returns, can emerging markets continue to shine, or are we due for a hiccup? Can arbitrage strategies still deliver attractive returns, or has too much money been allocated to these niche strategies? In order to address these and other issues of concern for investors, we've assembled a distinguished panel of highly experienced and knowledgeable fund management professionals. Our panelists include:

    Roman Igolnikov, Union Bancaire Privée Asset Management LLC. Mr. Igolnikov is a Senior Managing Director and Chief Investment Officer of UBPAM. He leads the portfolio management effort for the $6.5 billion Selectinvest family of funds of hedge funds and privately managed accounts. He joined UBPAM in 2000 and has over fifteen years of experience in the financial services industry focusing on portfolio construction and management, assessment of investment strategies, evaluation and selection of investment managers, and risk management. Prior to joining UBPAM, Mr. Igolnikov was a director at Deloitte and Touche where he led a portfolio valuation and risk management consulting practice. Mr. Igolnikov holds a PhD in Physics and Mathematics with specialization in optimizationtheory from Russia's Academy of Sciences.

    Joanne Rosenthal, Kenmar Group Inc. Ms. Rosenthal joined Kenmar in 1999. Prior to coming to Kenmar, Ms. Rosenthal spent nine years at the Chase Manhattan Bank. From 1994 through 1999, she was a Vice President and Senior Portfolio Manager of Chase Alternative Asset Management, Inc., and from 1991 through 1994, she managed the trade execution desk. Ms. Rosenthal received a B.A. in Economics from Concordia University in Montreal, Canada and an MBA with a concentration in Finance from Cornell University.

    Scott C. Schweighauser, Harris Alternatives, LLC. Mr. Schweighauser is a Partner of Harris Alternatives and Executive Vice-President and Portfolio Manager of Harris Partners, LLC, its alternative investment subsidiary. He is involved in every aspect of Harris' activities in alternative investments, including portfolio management and the evaluation and analysis of current and prospective managers. He has been with Harris since 1994. Click here for full article

    Quarter 1, 2006


  • Energy Based Funds Attracting Investors as Oil Prices Rise
    Global Demand Continues to Increase Even
    as Replacement Reserve Growth Decreases

  • In the 1970s it was an oil embargo on the heels of the Arab-Israeli conflict, devaluation of the dollar, and an ensuing global race to control natural resources. Today, it's a war with Iraq, fear of depleted resources, and an angry Mother Nature. While the facts may be different, the end result remains the same - skyrocketing oil and natural gas prices.

    Oil prices touched a high of nearly $70 per barrel at the end of August, while natural gas hit a record high of $14 in October. The best constructed crystal balls, however, remain hazy as to which direction prices will go from here. For each economist and hedge fund pundit that is predicting $100 per barrel oil, there boasts a counterpart that can support a retreat back to $30. Only time will tell which camp represents the "smart money". What is certain, however, is the prevalence of numerous investment strategies available to investors in the energy space including long or short biased equity, discretionary and systematic managed futures, options volatility arbitrage, master limited partnerships, royalty trusts, and private debt and equity structures. To discuss the energy environment and possible investment opportunities in more depth, we've assembled a panel of industry experts. Our panel includes:

    Roger McOmber, McOmber Energy Fund. Mr. McOmber is the Portfolio Manager and brings both buy- and sell-side experience to the Fund, with five years as a fund manager for Sawtooth Investment Management, Nomura, and Carlson Capital, and ten years as a research analyst at Salomon Brothers, Oppenheimer, Brown Brothers, and Lehman Brothers. Mr. McOmber was twice voted "Best on the Street" Top Stock Picking award by The Wall Street Journal and top industry analyst by Institutional Investor Magazine.

    Lee P. Moncrief, Moncrief Willingham Energy Advisers, L.P. Mr. Moncrief is Chief Executive Officer at Moncrief Willingham. He had more than 25 years of experience in energy investment banking when he joined Mr. Willingham in late 1998. His broad experience ranges from providing project related debt financing to energy services companies in the 1970s to establishing and operating his own energy advisory boutique for 12 years, which provided merger and acquisition advisory services to energy companies.

    John Myers, Treaty Oak Capital Management. Mr. Myers and his partner, Aaron Stanley, founded Treaty Oak in 2002. Prior to founding the fund, he was an energy analyst for 17 years, four years in late 1980s on the buy-side, and 13 years as sellside analysts for a variety of regional firms covering the domestic exploration and production companies. Mr. Myers won the Wall Street Journal stock-picking contest for his sector three times as a sell-side analyst.

    Garrett Smith, Spinnerhawk Capital Management. Mr. Smith is the founder and Portfolio Manager of Spinnerhawk. He has more than twenty years of experience in energy hedge fund management and oil and gas operations and finance. Prior to founding Spinnerhawk, Mr. Smith served as a member of the BP Capital Investment Committee as the Portfolio Manager of the BP Capital Energy Equity Fund. Click here for full article

    Quarter 4, 2005

  • Rapid Growth in Assets Creates Capacity Issues for Investors
    FoFs Look to Emerging Managers & Startups
    to Increase Portfolio Returns and Add Alpha

  • Funds of funds have experienced explosive growth during the past several years. At year-end 1997, FoFs managed approximately $55 billion. As of month-end June 2005, we estimate that figure to be approximately $505 billion. The FoF industry has seen more than a nine-fold increase in assets during the past seven and a half years.

    FoFs are the largest source of assets for single-manager hedge funds. As FoF managers strive to allocate assets to funds most likely to achieve their investment goals, many fall victim to their own success as large waves of incoming assets quickly create capacity issues for niche strategies. Consequently, FoF managers are constantly on the lookout for experienced, successful hedge fund managers.

    Unfortunately, experienced alternative investment managers don't just fall from the sky. At some point in time every manager was a startup, then an emerging manager, before finally reaching maturity. Some have been more successful in that progression, while others have languished and eventually disappeared.

    As long as a steady stream of assets continues to flow into FoFs, managers have no choice but to continue their search for capacity. Given the flexibility, autonomy, and favorable economics of the alternative investment fund structure, there can be no doubt that more and more hopefuls will launch new funds. What should an investor look for when placing an investment with a newly launched fund? What are the necessary ingredients for long-term success?

    In order to answer these questions and to discuss the emerging manager arena in greater detail, we've assembled a panel of four industry professionals that includes promising managers as well as investors with experience in allocating to up-and-coming managers. Our panelists include:

    Jeffrey F. Kuchta, CFA, Ontario Partners. Mr. Kuchta is the Portfolio Manager for Ontario Partners, a fund of hedge funds that actively invests with emerging managers. He has several years of portfolio management, research, and seed capital experience having held previous positions at Hedge Advisors, Inc., Hedge Fund Launch, LLC, Grosvenor Capital Management, and Ennis, Knupp & Associates.

    Christopher J. Phelan, CFA, Phelan Capital LLC. Mr. Phelan is the founder and president of Phelan Capital, which manages the Phios Fund. Phios focuses on hedged investments in real estate securities at all levels of the capital structure. Previously, Mr. Phelan co-founded Cashel Capital, a successful real estate focused hedge fund. Mr. Phelan has also managed a derivatives trading desk for a reinsurance company and held senior positions on derivative desks at several Wall Street firms including Credit Lyonnais, Nomura, and DLJ.

    James A. Torrey, The Torrey Funds. Mr. Torrey is the founder of The Torrey Funds, a fund of funds group investing with hedge fund managers worldwide. Having started in 1990, The Torrey Funds now manage more than $650 million for wealthy individuals, endowments, and foundations, both in the U.S. and abroad. The funds employ both hedge fund generalists and specialists, with separate funds dedicated to Biotechnology and Health Science, Natural Resource, Asia, Europe, and Emerging Markets.

    David Ward, Bayside Capital LLC. Mr. Ward is the director of marketing at Bayside, a distressed asset backed securities fund that is launching to outside investors September 1st with at least $25 million in commitments. The Fund has been managing partner capital since January 2004. Click here for full article

    Quarter 3, 2005

  • Investors Search for Diversity as Fixed Income Spreads Compress
    CDOs Allow Investors to Specify Levels of
    Acceptable Asset Quality and Default Risk

  • In the midst of an environment of uncertain U.S. economic health, historically tight investment grade and high yield credit spreads, and historically low (and likely unsustainable) default rates, vanilla credit opportunities don't appear to possess the most robust opportunity set for yieldhungry investors. But let's give credit where credit is due - there may just be another fighting round left in credit, albeit in structured format. With issuance of nearly $100 billion in 2004 and 2005 issuance on pace for another record, the collateralized debt obligation (CDO) market remains poised for technical strength and favorable investment returns.

    In short, CDOs are securitized interests in pools of varying collateral. Security interests are tranched in order to offer investors various maturity and credit risk characteristics. In the event of underlying collateral impairment or default, payments to senior tranches take precedence over those of subordinated or equity tranches. It is the above, as well as many other structural complexities of CDOs, that create additional spreads over non-structured credit of comparable quality.

    In order to explore the intricacies of CDOs in more detail and to survey the potential investment opportunities, we have invited Ms. Julie Zola of ZAIS Group, LLC to answer a few questions for us.

    Ms. Zola is the investment analyst for the ZAIS Distressed CDO and Hedge Funds Group, which currently manages approximately $675 million of ZAIS' $7.7 billion total assets under management. She joined ZAIS in 2003 and previously worked for the NYC law firm Thacher, Proffitt & Wood as an attorney in its Structured Finance Group and for Merrill Lynch as an associate in its Asset-Backed Securities Group. Ms. Zola has an MBA from Columbia University's Graduate School of Business and a JD from Florida State University. Click here for full article

    Quarter 2, 2005

  • Large Hedge Fund Inflows Raise "Bubble" Concerns in the Media
    Some Arbitrage Strategies Fall Out of Favor
    While Others Post Double Digit Returns

  • Hedge funds of funds had a reasonably good year in 2004. Our Barclay/GHS Fund of Funds Index gained 6.58%, and while that return is roughly a third lower than the average annual return since 1997 of 9.99%, investors weren't complaining. Although we do not have reliable statistics in hand, by all accounts the massive flow of investor assets into FoFs continued. Some industry analysts have ventured that approximately one-third of total hedge fund industry assets are presently invested in FoFs.

    The continuing rapid flow of assets into hedge funds has had at least two noteworthy unintended consequences. In spite of vociferous arguments to the contrary by a myriad of notables, including Alan Greenspan, the SEC (by a 3 to 2 vote) ruled in favor of requiring hedge funds to be registered. Whether regulation will be able to provide protection for investors is an open question.

    Barton Biggs, while serving as Chief Global Strategist for Morgan Stanley, warned in early 2001 of a hedge fund investment bubble. (He subsequently left Morgan to start his own hedge fund and currently has approximately $2 billion under management.) Once reports began circulating that hedge fund assets had surpassed the $1 trillion level, the mainstream financial press ran several of their own bubble stories late last year. However, broad-based robust returns across most hedge fund sectors in November and December took much of the urgency out of these stories.

    That is not to say that all is rosy. Intelligent and knowledgeable industry participants have made compelling arguments that there may be too much money chasing limited opportunities in several of the more popular strategies. In order to address these and other issues of concern for investors, we've reassembled our distinguished panel of highly experienced fund management experts. Our panelists include:

    Marty Gross, Sandalwood Securities, Inc. Mr. Gross is the president of Sandalwood. Founded in 1990, Sandalwood advises approximately 1 billion dollars mostly in its funds of funds. It emphasizes distressed securities and long/short equity strategies.

    (Egidio) Ed G. Robertiello, CFA, Asset Alliance Corp. Mr. Robertiello is the Senior Managing Director of Investments and Research at Asset Alliance. He overseas the investments and research of the Company's multi-manager portfolios and is responsible for portfolio structuring and allocation, manager selection and due diligence, strategy and market analysis, and portfolio monitoring.

    Scott C. Schweighauser, Harris Alternatives, LLC. Mr. Schweighauser is a Partner of Harris Alternatives and Executive Vice President and Portfolio Manager of Harris Partners, LLC, its alternative investment subsidiary. He is involved in every aspect of Harris' activities in alternative investments, including portfolio management and the evaluation and analysis of current and prospective managers. He has been with Harris since 1994.

    Arthur Williams, Pine Grove Associates, Inc. Mr. Williams serves as President and CIO of Pine Grove. He was formerly Director of Retirement Plan Investments for McKinsey & Company, Inc. Prior to joining McKinsey, he served as the manager of Merrill Lynch's pension assets and the head of Merrill Lynch's fund consulting practice and employee private investment funds. He also served as in-house consultant to the central bank of a government fund that, at the time, was the largest pool of capital in the world. Click here for full article

    Quarter 1, 2005


  • Multi-Strategy Funds Continue to Attract Risk Averse Investors
    Ability to Rapidly Shift Assets to Exploit
    Pricing Inefficiencies is Considered an Edge

  • It seems like everyone wants to be an alternative asset allocator these days, and for good reason. As the hedge fund industry continues its meteoric growth, surpassing $1 trillion, the business of gathering assets and allocating to alternative investment strategies appears to be a veritable gold mine. Furthermore, some argue that the barrier to entry seems to be nothing more than a well-developed Rolodex. The multi-strategy hedge fund manager, who is somewhat of a precursor to the fund of funds contingent, operates at a level closer to the actual capital markets and promotes a value-added proposition based on this proximity to the markets. So has the influx of "expert" allocators over the past few years blurred the line between fund of funds and multi-strategy hedge funds, or does the multi-strategy manager still hold court as the superlative investor of alternative assets.

    To review the current issues facing today's multi-strategy managers, we invited the following panel of experts to participate in our roundtable discussion:

    Michael A. Boyd, Jr., Forest Investment Management. Mr. Boyd is the Founder, Chairman and CEO of Forest. He has over 37 years experience in various capacities within the convertible securities, options, arbitrage trading and investment management areas of the securities industry. From 1983 to 1992, Mr. Boyd was a general partner of McMahan Securities Co., a convertible securities broker-dealer. Mr. Boyd had principal responsibility for forming and directing McMahan Securities Co., L.P.'s presence in the convertible securities markets. Prior to this, Mr. Boyd worked at Goldman Sachs, Kidder Peabody and Dean Witter Reynolds. He has been a contributing editor to a leading financial publication in his areas of expertise and served as trustee for several charitable organizations.

    George E. Hall, Clinton Group, Inc. Mr. Hall is Clinton Group's founder, president and chief strategist. He is ultimately responsible for all final investment and trading decisions, risk management, and quantitative analysis. Prior to founding Clinton Group in 1991, he was a vice president at Greenwich Capital Markets Inc. and headed the mortgage arbitrage group. Mr. Hall holds a Bachelor of Science degree from the United States Merchant Marine Academy and an MBA from the Wharton School of the University of Pennsylvania.

    Michael A. Roth, Stark Investments. Mr. Roth is a Founding Principle of Stark Investments, overseeing all of the Firm's investment strategies. He has been trading arbitrage strategies with Brian Stark for more than sixteen years. Prior to joining Stark in 1988, Mr. Roth practiced law at Covington & Burling in Washington, D.C., where he specialized in antitrust and regulatory litigation. He earned his law degree from Harvard Law School in 1980 and also holds a B.A., summa cum laude, from the University of Wisconsin-Madison. Click here for full article

    Quarter 4, 2004

  • Asset Based Lending Strategies Currently Gaining in Popularity
    Focus on Asset Value Rather than Credit
    Quality Provides Additional Diversification

  • It's undeniable, banks do not lend to everyone. This has always been the case, but has become much more apparent over the past several years as a new wave of bank mergers has induced traditional lending institutions to clean up their balance sheets and focus efforts on their largest and most credit worthy borrowers. Not surprisingly, this development has created a dilemma for smaller, non-investment grade borrowers that are attempting to grow their businesses. So who's been picking up the slack? Enter the niche asset based lender.

    Niche asset based lenders exist in many shapes and sizes and structure deals in a variety of ways, but commonly loans are private and highly collateralized. Some of the more prevalent structures include receivables financing and factoring, purchase order finance, import/export finance, floor plan finance, distressed consumer receivables, sub-prime auto loans, leasing, and health care receivables. While organizations providing these financing structures have existed for decades, within the past few years deal flow has proliferated. More recently, managers have begun to provide investors access to such deals via hedge fund structures. And with many popular hedge fund strategies such as long-short equity, convertible arbitrage, and global macro posting disappointing results for the first half of 2004, investors are casting about for additional non-correlated strategies and making allocations to niche asset based lending strategies.

    In order to explore this unique alternative investment category in more detail, we have assembled a panel of experts to participate in our roundtable discussion. Our panel includes:

    Michael M. Druckman, Envision Capital Management, Ltd. Mr. Druckman is the founder, President, and Director of Envision Capital Management, an RIA since 1985. Envision provides portfolio management services for individuals, trusts, not-for-profit corporations, and pension trusts.

    William L. Gunlicks, Founding Partners Capital Management Company. Mr. Gunlicks is President and CEO of Founding Partners and manages three private investment hedge funds. One fund employs an asset based lending strategy with $130 million of assets under management.

    David Hu, IIG Trade Opportunities Fund N.V. Mr. Hu is the co-founder of The International Investment Group LLC, founded in 1994. He is Chief Investment Officer and serves as co-manager of the IIG Trade Opportunities Fund N.V. Prior to co-founding IIG, Mr. Hu served as Managing Director of Emerging Markets Fixed Income at Smith Barney, Inc. and Nomura Securities International, Inc. He also worked at American Express Bank Ltd. and Mellon Bank, where he started his banking career.

    John R. Rice III, Capstone Business Credit, LLC. Mr. Rice is a Founder, Managing Member and principal of Capstone and its affiliates. He oversees international marketing of Capstone's programs and services to investors, joint venture partners and various parties who originate business opportunities for Capstone. He is also responsible for capital formation for the Capstone group of companies. Click here for full article

    Quarter 3, 2004

  • Long/Short Japan Funds Attract Investor Interest and Assets
    End of Prolonged Bear Market Provides
    Undervalued Opportunities Across Sectors

  • The sun is not the only thing rising in The Land of The Rising Sun. Add stocks to that list as the Nikkei 225 Index, Japan's benchmark stock index, has risen 10% in 2004 through March and has increased a robust 55% since its lows in April 2003. With a cornucopia of economic data evidencing an improving economy, and a central bank satisfied with an easy monetary policy, both domestic and foreign investments into the Japanese capital markets have steadily mounted. Such a favorable investment environment and abundance of opportunities have not gone unnoticed by the hedge fund community.

    How long can such a good thing last? As many active investors in Japanese stocks remain cognizant of the potential impacts from events in other major markets, including the U.S. and Europe, it remains to be seen whether the gains in Japan will continue. Furthermore, with continued scrutiny and regulation of short selling activity, profit opportunities in a hedged portfolio might appear less abundant than in a long-only strategy.

    In order to explore the opportunity set in Japanese stocks in more detail we've assembled a panel of experts to participate in our roundtable discussion. Our panel includes:

    Matthew Bills, DB Absolute Return Strategies. Mr. Bills is a portfolio manager for DB Absolute Return Strategies, the global hedge fund management business of Deutsche Bank. He is based in Tokyo and co-manages $110 million in Japanese long-short equity portfolios.

    Nathan Gibbs, Schroder Investment Management (Japan) Ltd. Mr. Gibbs is Director of SIM (Japan) Ltd. He joined Schroders in Tokyo in 2000, with responsibility for managing Japanese equity portfolios including the Schroder Japan Alpha Plus Fund. Prior to the launch of the Schroder Japanese Long/Short Fund, he handed over all of his investment management responsibilities for institutional accounts, and now focuses only on mandates for concentrated portfolios and absolute return strategies.

    Toshiya Kimura, Village Capital Limited. Mr. Kimura is Managing Director and founder of Village Capital Limited, which advises Tiedemann Japan Equity Long/Short Fund. Prior to founding Village Capital, Mr. Kimura worked for Tiedemann Investment Group as a Japan analyst. Previously, Mr. Kimura worked for Tokio Marine & Fire as Chief Investment Officer of its New York subsidiary. Mr. Kimura has experience managing both Japanese and U.S. equity portfolios since 1988.

    John Stewart, Gartmore Investment Management plc. Mr. Stewart is the lead manager for the AlphaGen Hokuto Fund. He joined Gartmore in Tokyo as an investment manager on the Japanese Equities Team in 1995, and was promoted to Head of Japanese Equities in January 2000. Prior to joining Gartmore, John worked for Prudential Portfolio Managers in London as a Japanese equity fund manager. He has been managing Japanese equity portfolios since 1992. Click here for full article

    Quarter 2, 2004

  • Double Digit Returns and Record Inflows Boost FoFs
    Investor Appetite for Long/Short Strategies
    Increase Even as Share Prices Rise Sharply

  • Oh, what a difference a year makes. After three years of back-to-back losses, global equity markets rebounded with an exuberance not seen since the good ol' nineties. Although the NASDAQ Index gained a robust 50.01%, albeit from a low level, it was only slightly higher than the Russell 2000 Growth Index, which gained 48.54%.

    This rally however, was not confined to just technology and growth sectors. Broader indices such as the S&P 500 gained 28.68%, while the industrial sector as measured by the DJIA gained 25.32%. The markets of the G7 nations rallied as well. Lead by the Frankfort DAX, which gained 37.08%, and the NIKKEI 225, which gained 24.45%, double-digit returns were the order of the day, or shall we say "year".

    Alternative investments, such as Hedge Funds and Managed Futures, had a good year as well. The Barclay Global HedgeSource Hedge Fund Index gained 18.00% and the Barclay BTop50 Index, which measures the performance of the largest CTAs, gained 15.55% (see page 22 for a complete listing).

    Funds of funds, which had been profitable throughout the bear market years, continued to provide investors with attractive returns, +10.28% as measured by the Barclay/GHS FoF Index. Although this return was significantly lower than the major equity indices and the overall hedge fund indices in 2003, industry observers inform us that new asset flows into FoFs continue at very robust levels.

    At year-end 2002, the returns for the period as measured by many FoF indices were higher than their corresponding hedge fund index returns. By avoiding volatile sectors, FoFs were able to add value. But in 2003, these volatile sectors such as Emerging Markets and Equity Long-Biased provided outsized returns and FoFs underperformed their corresponding hedge fund index returns by a wide margin. Does risk-avoidance result in underperformance? Are hedge fund indices meaningful benchmarks for FoFs?

    In order to address these and other issues of concern for investors, we've reassembled our distinguished panel of highly experienced fund management experts. Our panel includes:

    Scott R. Metchick, E.I.M. Management (USA) Inc. Mr. Metchick joined EIM in 1998. He is now Partner and Chief Investment Officer, responsible for the global research effort and the management of portfolios for EIM. He is a member of EIM's Global Investment Committee which heads the hedge fund manager research and selection process.

    Howard M. Rossman, Ph.D., Mesirow Advanced Strategies, Inc. Dr. Rossman is a principal and founder of Mesirow Advanced Strategies, Inc. and a Senior Managing Director of its parent, Mesirow Financial. He is responsible for all aspects of fund management, including manager due diligence, strategy analysis, and asset allocation. Since 1983, he has been responsible for providing institutional consulting and advisory services in the area of nontraditional investments and for developing funds utilizing alternative strategies.

    Scott C. Schweighauser, Harris Alternatives, LLC. Mr. Schweighauser is a Partner of Harris Alternatives and Executive Vice President and Portfolio Manager of Harris Partners, LLC, its alternative investment subsidiary. He is involved in every aspect of Harris' activities in alternative investments, including portfolio management and the evaluation and analysis of current and prospective managers. He has been with Harris since 1994.

    Arthur Williams, Pine Grove Associates, Inc. Mr. Williams serves as President and CIO of Pine Grove. He was formerly Director of Retirement Plan Investments for McKinsey & Company, Inc. Prior to joining McKinsey, he served as the manager of Merrill Lynch's pension assets and the head of Merrill Lynch's fund consulting practice and employee private investment funds. He also served as in-house consultant to the central bank of a government fund that, at the time, was the largest pool of capital in the world. Click here for full article

    Quarter 1, 2004


  • Weather Derivatives & CAT Bonds Attracting Hedge Fund Interest
    Unique Set of Risks and Rewards Provides
    Exposures Uncorrelated to Financial Markets

  • What do earthquakes in Japan, hurricanes in Florida, and tornadoes in Oklahoma have in common with the performance of a diversified portfolio of hedge fund investments? Absolutely nothing. And as a growing number of well-heeled hedge fund investors come to this same conclusion, we are seeing an increase of interest in funds that invest in insurance-linked securities and weather derivatives.

    The most commonly used insurance-linked security is a Catastrophe bond (CAT bond). CAT bonds are notes that securitize all or part of a natural catastrophe exposure of an insurer or reinsurer. By selling these securities, insurers are able to remove unwanted exposures and balance their risks. Hedge funds specializing in CAT bonds assemble a portfolio that is diversified by geography as well as by type of event. A typical portfolio might include exposure to hurricane damage in Texas, earthquake damage in California, typhoons in Japan, and storms in Europe. Each of these events is obviously completely independent of and non-correlated with each other.

    Weather derivatives are options on a climatic variable such as rainfall or snow. These options can allow companies to hedge the climatic sensitivity of their core business in the same way as firms hedge their currency and interest rate risk.

    Trading and investing in this exotic arena is not without risk. In order to get a better understanding of the unique risks of this market, as well as to understand the opportunities presented by this truly uncorrelated class of securities and derivatives, we've assembled a panel of hedge fund managers who specialize in insurance-linked securities and weather derivatives. Our panel includes:

    Fabien Dornier, Systeia Capital Management. Mr. Dornier is the Weather and Insurance Derivatives Fund Manager at Systeia. Prior to joining Systeia, he held the same position at BAREP Asset Management. He holds a Master in Applied Math (Probabilities and Statistics) from the University of Toulouse.

    Greg Hagood, Nephila Capital Ltd. Mr. Hagood is a Principal and co-founder of Nephila. He and his business partner Frank Majors formed Nephila on November 1, 2003 when they structured a management buyout of Willis Asset Management from the Willis Group (NYSE: WSH). Willis Asset Management was a subsidiary of the Willis Group, the world's 3rd largest reinsurance broker, and Mr. Hagood and Majors co-founded that company in 1997. Nephila Capital Ltd. currently manages three investment funds dedicated to insurance-linked securities, the first of which launched in April 1998.

    Andrew Sterge, CooperNeff Advisors, Inc. Mr. Sterge is Chairman and CEO of CooperNeff Advisors, Inc. In his current position, Mr. Sterge directly supervises all research and oversees the daily operations of CooperNeff. In addition to these daily responsibilities, Mr. Sterge continues to develop and enhance the mathematical model that he has been refining for over eleven years and which serves as the foundation of CooperNeff's trading system. Mr. Sterge is also the assistant portfolio manager for the CooperNeff Advisors Risk-Linked Asset Strategy. Click here for full article

    Quarter 4, 2003

  • Cap Structure Arb Gains Acceptance as Stand-Alone Investment Strategy
    Increasing Complexity of Capital Structures
    Helps to Create Exploitable Inefficiencies

  • Capital structure arbitrage is not a new hedge fund strategy - convertible arbitrageurs have been doing it for decades. Recently however, it has become of increasing interest to a broader group of investors who are interested in capital structure arbitrage as a strategy encompassing the entire capital structure of a company.

    As the name implies, capital structure arbitrage involves the exploitation of inefficiencies amongst securities within the capital structure of the same issuer. As the menu of financing options available to companies has increased over time, along with accompanying derivatives structures available to the market (including credit default swaps and other related credit derivatives), capital structures have become increasingly complex. As such, the disparity amongst groups trading in these securities, coupled with their various motives for trading such securities, may often temporarily drive intra-issuer security correlations away from historical norms, thus creating arbitrage opportunities. While the strategy might appear straightforward on paper, many factors act to complicate the matter including: actual and expected correlations between securities; quantitative versus fundamental aspects of analysis; the proper securities to employ; the quality of companies involved; and the overall number of participants in the strategy and related liquidity concerns.

    In order to help shed some light on these and other issues related to capital structure arbitrage, we've invited a panel of seasoned practitioners to discuss the strategy in greater detail. Our panel includes:

    Marko Dimitrijevic, Everest Capital. Mr. Dimitrijevic is the President and founder of Everest Capital. Since inception in 1990, Everest Capital has always invested globally in capital structure arbitrage and other event-driven strategies and currently has over 50% of its arbitrage investments outside of the United States. Mr. Dimitrijevic has been a guest lecturer at the Darden Graduate School of Business at the University of Virginia and the Stanford Business School, and is featured in the book Investing with the Hedge Fund Giants. Alan M. Mark, LibertyView Capital Management. Mr. Mark is Senior Managing Director of LibertyView Capital Management, the alternative asset management division of Neuberger Berman, LLC. He is responsible for LibertyView's credit investments, which includes capital structure arbitrage.

    Ash Williams, Fir Tree Partners. Mr. Williams is a Managing Director and Head of Business Development at Fir Tree Partners, a value oriented hedge fund headquartered in New York City. Prior to joining Fir Tree, Mr. Williams was President of Schroder Capital Management, the US domestic asset management unit of Schroders PLC. Prior to Schroders, he was Executive Director of the Florida State Board of Administration. Mr. Williams holds a B.S. in Management and a MBA from Florida State University where he chairs the FSU Foundation Investment Committee. Click here for full article

    Quarter 3, 2003

  • Collateralized Fund Obligations Enhance Investment Alternatives
    Reduce Cost of Borrowing Coupled with
    Credit Ratings Create Attractive Options

  • Creative forms of structured finance have been in existence for more than a decade primarily in the form of Collateralized Debt Obligations (CDO). In the world of investments, on a non-structured basis, no segment has been more creative than the hedge fund sector. As such, recent innovations offering the marriage of hedge funds and structured finance, in the form of Collateralized Fund Obligations (CFO), should come as little surprise. In the most basic form, CFOs offer investors a menu of debt and equity tranches whereby the cash flows to each tranche are based on the performance of a diversified portfolio of hedge funds. Secured or debt tranche investors reap the benefits of a lower volatility cash flow stream with little or no correlation to traditional debt securities. Furthermore, perceived safety in secured tranches has increased as Standard & Poors has begun issuing ratings on these securities. Equity tranche investors receive leveraged exposure to a diversified portfolio of hedge funds while inherently exposing themselves to greater volatility.

    While the endorsement by ratings agencies and adoption by top-tier institutions has brought credibility to CFO structures, the details of this new sector may still be daunting to the prospective investor. In particular, many factors can significantly influence the viability of a CFO including the characteristics of the underlying collateral (e.g., return, risk, liquidity, manager experience and integrity, etc.), experience of the party selecting the underlying hedge funds and allocating assets, the quality of the institution designing the tranches and acting as guarantor, liquidity of the secondary market for these securities, and excess fees charged for access to such structures. To shed additional light on the subject of CFOs and address many of the aforementioned issues, we have assembled a distinguished panel if industry experts. Our panel includes:

    Tim Foxe, Norfolk Markets, LLC. Mr. Foxe is a Managing Director at Norfolk. Prior to his joining the firm, he was a Managing Director at Merrill Lynch in Hong Kong where he headed up the debt derivatives marketing and structuring operation for the Asia Pacific region. Previously, Mr. Foxe was a Co-Founder of General Re Financial Products Corporation in New York, a leading derivative products provider globally. Prior to General Re, Mr. Foxe worked in the Swaps & Derivatives Research Group at Manufacturers Hanover Trust, and in the High Yield and Fixed Income Research Groups at DLJ. Mr. Foxe holds a B.S. in Engineering and a Master of Engineering in Engineering Physics from Cornell University, as well as an MBA from Columbia Business School.

    Thomas Graham, CDC IXIS Capital Markets North America. Mr. Graham is Managing Director of CDC IXIS Capital Markets North America and Head of Portfolio Immunization. He is responsible for structuring and marketing of structured products linked to alternative investments. Prior to joining CDC, he was Managing Director of Zurich Capital Markets. He has also held positions at Bankers Trust, Security Pacific Merchant Bank, and Merrill Lynch Capital Markets. He holds a Ph.D. in Mathematics from Columbia University and a BS summa cum laude with distinction in Mathematics and English from Yale University.

    Richard V. Hrvatin, Fitch Ratings. Mr. Hrvatin is a Managing Director in the Credit Products Group at Fitch Ratings. He is responsible for the analysis, structuring, and rating of cash flow, market value, and synthetic CDOs backed by a variety of assets classes, including alternative investments, asset-backed securities, and corporate debt, as well as developing rating criteria and cash flow models. Prior to joining Fitch in 1998, Richard was at Financial Security Assurance, where he structured and analyzed transactions involving CDOs, trade receivables, other commercial assets, and perpetual bond repackagings. Prior to FSA, he was part of the structured finance group of Sakura Bank. Click here for full article

    Quarter 2, 2003

  • FOFs Deliver Absolute Returns During the 3-Year Bear Market
    Key Hedge Fund Sectors Incur Losses, yet
    Fofs Sustain Profitability for Another Year

  • Given that we have been through three years of an accelerating bear market for global equities coupled with an uncertain outlook for 2003, it should come as no surprise that investors are a bit weary. As of yearend, the S&P 500 has registered a cumulative three-year loss of 37.60%, while the tech heavy NASDAQ has lost 67.18%. Major industrialized markets are feeling our pain as well, with three-year losses of -43.14%, -48.57%, -54.69%, and -58.42% in the FT-SE 100, CAC 40, NIKKEI 225, and the Frankfort DAX respectively.

    During 2002 many of the major U.S. and European equity indices had their worst yearly declines of the past three years. The S&P 500 Total Return Index lost 22.10% versus losses of -18.86%, -24.47%, -33.75%, and -43.94% for the NIKKEI, FT-SE, CAC, and DAX respectively.

    U.S. Treasuries and managed futures investments were the brightest spots in an otherwise dreary ensemble of portfolio choices with returns of +17.17% for the Lehman Brothers Treasury Bond Index and +12.23% for our Barclay CTA Index.

    Hedge funds presented a mixed bag with many directional equity funds losing money (excepting short-sellers, who on balance had a very good year) and arbitrage funds usually making money. It is also interesting to observe that although several of the hedge fund indices, such as the HFR Fund Weighted Composite Index and the Van Global Hedge Fund Index measured small losses for the year, their corresponding Fund of Funds indices measured small gains.

    Typically, a fund of funds (FoF) index will underperform its corresponding hedge fund index. This underperformance is generally attributed to the additional layer of fees charged at the FoF level and serves as the basis of the argument put forth by proponents of investable hedge fund indices that active management does not add value. The investable index crowd has a compelling argument. But recent FoF performance seems to call their arguments into question. Can hedge fund performance be captured by an investable index? Do FoF managers add value? Which hedge fund sectors best avoided in these uncertain times? Which sectors currently have the most favorable risk-reward tradeoffs? In order to address these and other issues of concern for investors, we've reassembled our distinguished panel of highly experienced fund management experts. Our panel includes:

    John R. Frawley, Starview Capital Management LLC. Mr. Frawley is a founding partner, President and Chief Executive Officer of Starview. Previously, he worked with Merrill Lynch for over thirty years. From 1989 to 2000, Mr. Frawley was Chairman, Chief Executive Officer and President of Merrill Lynch Investment Partners Inc. (MLIP). From 1995 to 1998 Mr. Frawley served as Chairman of the Managed Funds Association, a national trade association that represents the managed futures, hedge funds and fund of funds industries. He has also served as a member of the CFTC's Global Markets Advisory Committee.

    Howard M. Rossman, Ph.D., Mesirow Advanced Strategies, Inc. Dr. Rossman is a principal and founder of Mesirow Advanced Strategies, Inc. and a Senior Managing Director of its parent, Mesirow Financial. He is responsible for all aspects of fund management, including manager due diligence, strategy analysis and asset allocation. Since 1983, he has been responsible for providing institutional consulting and advisory services in the area of nontraditional investments and for developing funds utilizing alternative strategies.

    Scott C. Schweighauser, Harris Associates, L.P. Mr. Schweighauser is a Partner Of Harris Associates and Executive Vice President and Portfolio Manager of Harris Partners, LLC, its alternative investment subsidiary. He is involved in every aspect of Harris' activities in alternative investments, including portfolio management, and the evaluation and analysis of current and prospective managers. He has been with Harris since 1994.

    Arthur Williams, Pine Grove Associates, Inc. Mr. Williams serves as President and CIO of Pine Grove. He was formerly Director of Retirement Plan Investments for McKinsey & Company, Inc. Prior to joining McKinsey, he served as the manager of Merrill Lynch's pension assets and the head of Merrill Lynch's fund consulting practice and employee private investment funds. He also served as in-house consultant to the central bank of a government fund, which was then the largest pool of capital in the world. Click here for full article

    Quarter 1, 2003


  • Managed Futures' Double Digit Returns Spark Investor Interest
    Hedge Fund Investors Reassess How to
    Enhance Portfolio Diversification Benefits

  • Fueled by the wealth creation of the greatest bull market in history coupled with a need for portfolio diversification, we have witnessed tremendous inflows of capital into alternative investments over the past 12 or so years. At year-end 1990, Hedge Fund Research estimates that money under management in hedge funds totaled roughly $39 billion versus our estimate of $10.5 billion for managed futures. Current estimates for hedge funds and managed futures industry assets are approximately $600 billion and $45 billion respectively.

    At year-end 1990, approximately 21% of investor capital in the most liquid alternative investment sectors (hedge funds and managed futures) was invested in managed futures. Today, this area accounts for only 7% of the total. Certainly, much of managed futures' loss of investor market share may be attributable to relative underperformance vis-à-vis hedge funds. From 1990 through September 2002, the Barclay CTA Index measured a compound annual return of +7.18% versus +10.39% for the HFR FoF Index.

    However, during the past three years, hedge fund investments have clearly under performed managed futures. From January 2000 through September 2002, the HFR FoF Index returned a compound annual return of 2.84% versus 7.52% for the Barclay CTA Index. Yet, in spite of this apparent role reversal, the managed futures industry continues an uphill struggle to improve its image among alternative asset investors.

    Perhaps as a consequence of the sector's more recent relative out-performance this year, +12.21% versus +0.70% for HFR, many traditional hedge fund investors are coming around for a closer look. In order to get a better understanding of the possible concerns that help guide the seasoned hedge fund investor's decision making process, we've assembled a panel of industry participants with significant expertise in both of these investment areas. Our panel includes:

    Bruce Cleland, Campbell & Company. Mr. Cleland is the President and Chief Executive Officer of Campbell & Company, an investment management firm located in Baltimore, Maryland. Campbell & Company has been in business since 1972, and currently manages assets of over $3.5 billion for institutional and private clients. The firm applies quantitative, systematic trading strategies to diverse portfolios of equities, futures and currencies with the objective of producing attractive risk-adjusted rates of return for its clients.

    Raymond T. Dalio, Bridgewater Group. Mr. Dalio is Founder, President and Chief Investment Officer of the Bridgewater Group. As CIO, he heads the Investment Committee that directs the firm's research effort. In this capacity he oversees inflation-indexed bond research, as well as all other research. Prior to founding Bridgewater, he was Director of Commodities at Dominick and Dominick, a Wall Street brokerage house and subsequently joined Shearson Hayden Stone where he was in charge of the Institutional Futures Department. Ray graduated with an MBA degree in Finance from Harvard Business School in 1973.

    Bruce H. Lipnick, Asset Alliance. Mr. Lipnick is the Founder, President, CEO, and Chairman of Asset Alliance. Asset Alliance, with offices in New York and London, has assets under management in excess of $5 billion. Mr. Lipnick has an extensive background in alternative investment management with over thirty years experience. He is regularly quoted in industry publications such as the Financial Times, Barrons, and Crains Investment News, and is a regular guest on Bloomberg TV and Bloomberg Radio.

    Thomas Weber, LGT Capital Partners AG. Mr. Weber is Founding Partner and Head of Hedge Fund Investments at LGT Capital Partners AG, a leading alternative asset and fund of funds manager in Europe, currently managing over EUR 3bn in private equity and hedge fund investments on a global basis. Click here for full article

    Quarter 4, 2002

  • Activist Investors Strive to Realize Value of Their Targets
    Improving Corporate Governance Results
    in Higher Share Prices for Investors

  • 2002 has clearly gotten off to an inauspicious start. At halftime, the S&P 500 is down 13.16% and NASDAQ is down 24.98%. If one is to believe what one reads, then this latest round of selling, triggered by a crisis of confidence resulting from corporate excess exemplified by such notables as Enron, WorldCom, Adelphia, and others, may still have a ways to go before a bottom is in place.

    Unlike the declines of the past two years during which hedge funds continued to post attractive absolute returns, the current market malaise has recently afflicted this previously profitable investment niche. Although several hedge fund sectors continue to register gains this year, the larger equity categories such as event-driven and long/short equities are showing losses. The notable exception is, of course, Dedicated Short-Sellers, category leader among virtually all hedge fund index providers with year to date returns ranging from +9.26% (CSFB) to +18.21% (Van Hedge).

    Partly the result of the increased interest in corporate governance issues, and partly the result of the rise in favor of value investing brought on by depressed equity prices, a group of long/short equity managers best described as activist investors may be in an excellent position to profit handsomely from current conditions. In simplest terms, activists can be described as deep-value investors who look to become the catalyst that will allow the stock price to ultimately reflect the value that they see in their target companies. Typically, their positions are concentrated and their investment arena is at the lower capitalization end of the spectrum.

    In order to get a better understanding of the issues associated with this very much hands-on approach to small-cap investing, we've put together a series of questions for our very experienced panel of veteran activists. Our panel includes:

    Russell Glass, Ranger Partners. Mr. Glass is the Co-Founder and Portfolio Manager of Ranger Partners, a value-oriented investment firm that invests in companies where a catalyst event can drive each investment to fair value in either a long or short situation. From 1998 to 2002, Mr. Glass was President and Chief Investment Officer of Icahn Associates Corp., and from 1996 to 1998 he was a Partner at Relational Investors, LLC.

    Mark Schwarz, Newcastle Capital Group, LLC. Mr. Schwarz is the founder of Newcastle, a Dallas-based hedge fund management firm that employs a value-based, private-market approach to investing in small-cap U.S. companies. In conjunction with his management of Newcastle, from 1993 through 1999 he served as an investment advisor to entities affiliated with Hunt Financial Group. He has considerable experience with control investments, going private transactions, and corporate governance matters.

    Andrew Shapiro, Lawndale Capital Management. Mr. Shapiro is President, Founder and Portfolio Manager of Lawndale, a San Francisco based investment manager that employs a strict value-style and research-intensive relational/activist approach towards a highly concentrated portfolio of micro- and small-cap companies. Mr. Shapiro's activist roots stem from the corporate raider era. Prior to founding Lawndale in the early 90's, Mr. Shapiro worked in the 80's for a leveraged buyout firm, a major LBO lender-Manufacturers Hanover, and then the Belzberg family's First City Capital.

    Warren G. Lichtenstein, Steel Partners, L.L.C. Mr. Lichtenstein is the Chairman of Steel Partners, a New York based hedge fund management firm known for its expertise in activist investing. From 1988 to 1990, he was the acquisition/risk arbitrage analyst at Ballantrae Partners, L.P., a private investment partnership formed to invest in risk arbitrage, special situations and undervalued companies. Click here for full article

    Quarter 3, 2002

  • Traditional Long-Only Managers Move into Hedge Fund Arena
    Lack of Experience with Short-Sales
    and Leverage are Major Investor Concern

  • Two years of falling equity markets have converted many who were previously benchmark investors into absolute return investors. With a 1% management fee and 20% incentive fee, the cost structure of a typical absolute return hedge fund is significantly higher than the 1% management fee cost associated with a traditional long-only manager. Yet, in spite of the significant cost difference, investors, including fee-conscious institutions, are continuing to queue up for hedge funds. This conversion process has not gone unnoticed by traditional investment managers.

    No doubt driven by rapidly growing demand as well as by significantly higher fee structures, a growing number of traditional long-only managers are trying to capitalize on current enthusiasm by launching their own hedge funds. In many ways, these established managers are in an ideal position to take maximum advantage of the very large increase in demand for institutional quality hedge funds. Coming off a decade long bull-market in equities, many of these firms have made considerable investments into necessary infrastructure, such as research, trading, investor relations, and legal departments. From a due diligence standpoint, they exude an institutional aura that many hedge funds ache to replicate.

    Yet, although their apparent advantages are legion, many investors have not rushed to embrace these new entrants to the alternative investment arena. What is the basis of this investor reluctance? Can it really be that difficult to run a long/short hedge fund after years of experience in the equity markets? In order to get a better idea of the challenges facing formerly long-only managers who seek to incorporate the prudent use of leverage and short-selling in their quest for superior risk-adjusted returns, we've assembled a panel that includes investment professionals who have gone on this quest both as manager and as investor. Our panelists include:

    Mark Anson, California Public Employees' Retirement System. Mr. Anson, Chief Investment Officer for CalPERS, is responsible for CalPERS domestic and international equity and fixed income investments, real estate investments, and private equity investments as well as CalPERS hedge fund program, currency overlay program, domestic long/short program, corporate governance, cash management, and manager development program.

    Previously, Mr. Anson was the Senior Investment Officer for Global Equity at CalPERS. Prior to joining CalPERS he held positions as a Portfolio Manager at OppenheimerFunds, Inc., a Registered Options Principal in Equity Derivatives for Salomon Brothers, Inc., and a practicing attorney specializing in securities and derivatives regulation.

    Jeffrey P. James, Driehaus Capital Management, Inc. Mr. James is the Portfolio Manager for the Micro-Cap Advantage Fund. He joined Driehaus in 1997. From 1990 to 1991, Mr. James was a retail representative for Lehman Brothers. He then worked as a manager and analyst for the Federal Reserve Bank of Chicago. Mr. James holds a B.S. in Finance from Indiana University, and an M.B.A. from DePaul University.

    Paul H. Wick, J. & W. Seligman & Co. Incorporated. Mr. Wick is a Managing Director of J. & W. Seligman, a New York based investment manager and advisor founded in 1864, and leader of the Seligman Technology Group. He is the Portfolio Manager of Seligman's flagship Seligman Communications and Information Fund. Established in 1983, it is one of the nation's first technology mutual funds, and one of the largest. Mr. Wick has been at the helm of this fund for more than a decade and based on the impressive results achieved during his tenure, he is recognized as a leading technology investor.

    Mr. Wick received a BA in Economics from Duke University and an MBA in finance from Duke's Fuqua School of Business. He divides his time between Seligman's New York and Palo Alto offices. He has more than 15 years of investment experience. Click here for full article

    Quarter 2, 2002

  • FOFs Deliver on Their Promise to Provide Absolute Returns
    Two Years of Falling Equity Markets
    Increases Investor Interest in Hedge Finds

  • For the second time in as many years, investors in long-only equity and equity index products were sorely disappointed as these investments sustained double-digit losses in 2001. The S&P 500 total return index lost 11.88% last year, while the tech-heavy NASDAQ lost approximately 21%. During the past two years, these indexes have lost 19.9% and 52% respectively. The broad-based Value Line index has now registered losses for each of the past four years. Global diversification did not provide much benefit in 2001 as the other major industrialized markets, U.K., Germany, France, and Japan, also sustained double-digit losses.

    Alternative investments in hedge funds and managed futures, for the most part, however did manage to provide their often touted and much needed diversification benefits. For the second year running, this class of investments, as measured by several of the Hedge Fund Research and Barclay indexes, was able to provide many of its investors with uncorrelated absolute returns in a down market.

    A key beneficiary of this fortunate divergence in performance has been the fund of funds (FOF) sector. Based on the expansion of assets invested in FOFs, it seems as if more and more investors are coming to the conclusion that an investment into a reputable FOF might be the most efficient and cost-effective way to gain access to a professionally managed and diversified portfolio of alternative investments.

    In order to get a better understanding of how FOFs manage their portfolios of hedge fund investments in light of current challenges including the rapid expansion of investor demand, we've assembled a panel of highly reputable fund management experts. Our panel includes:

    Howard M. Rossman, Ph.D., Mesirow Advanced Strategies, Inc. Dr. Rossman is a principal and founder of Mesirow Advanced Strategies, Inc. and a Senior Managing Director of its parent, Mesirow Financial. He is responsible for all aspects of fund management, including manager due diligence, strategy analysis and asset allocation. Since 1983, he has been responsible for providing institutional consulting and advisory services in the area of nontraditional investments and for developing funds utilizing alternative strategies.

    Scott C. Schweighauser, Harris Associates, L.P. Mr. Schweighauser is a Partner Of Harris Associates and Executive Vice President and Portfolio Manager of Harris Partners, LLC, its alternative investment subsidiary. He is involved in every aspect of Harris' activities in alternative investments, including portfolio management, and the evaluation and analysis of current and prospective managers. He has been with Harris since 1994.

    Arthur Williams, Pine Grove Associates, Inc. Mr. Williams serves as President and CIO of Pine Grove. He was formerly Director of Retirement Plan Investments for McKinsey & Company, Inc. Prior to joining McKinsey, he served as the manager of Merrill Lynch's pension assets and the head of Merrill Lynch's fund consulting practice and employee private investment funds. He also served as in-house consultant to the central bank of a government fund, which was then the largest pool of capital in the world. Click here for full article

    Quarter 1, 2002


  • Fixed-Income Arbitrage Has Appeal in Uncertain Market
    Steep Yield Curve Increases Returns to
    this Set of Market Neutral Strategies

  • During August and September of 1998, hedge fund investors in many of the fixed-income sectors awoke one morning and found themselves staring into the abyss. Several well-regarded funds in these sectors sustained significant double-digit losses; some had losses so severe that liquidation was the only option.

    Today, as we find ourselves once again face to face with uncertainty, many investors have turned toward fixed-income arbitrage managers for solace. The trades employed by these managers can be quite varied. They include, to name but a few, strategies that attempt to profit from perceived irregularities across the yield curve, futures' basis anomalies, corporate versus treasury credit spreads, mortgages and mortgage related derivatives, on-the-run versus off-the-run treasury discrepancies, global sovereign bond dislocations, options volatility inconsistencies, and swap and repurchase relationships.

    Although the strategies are varied, many of these trades have some basic similarities. Most require the use of leverage in order to generate attractive returns. As such, these strategies seem to operate more efficiently in steep yield curve environments, such as the present case, where the short-term financing costs are significantly less than the long-term returns of the instruments that are being purchased.

    Another attraction derives from the fact that the fixed-income arbitrage sector exhibits a low degree of correlation to traditional long-only equity and fixed-income holdings as well as to most other major hedge fund sectors. Consequently, this strategy continues to serve as an exceptional diversification tool that can improve the risk-reward profile of a diversified investment portfolio.

    Although the reasons for investing in fixed-income arbitrage in the current environment may seem compelling, we should not lose sight of the risks. In order to get a better understanding of some of the key issues within this complex sector, we have assembled a panel of managers who can call upon their many years of experience as they answer the questions that have been put to them. Our panelists are:

    Jack Barry, Beacon Hill Asset Management. Mr. Barry, founder and president of Beacon Hill, is responsible for client relationships, new product development and the overall management of the firm. Prior to founding Beacon Hill, he accumulated nineteen years of investment industry experience, most recently as Partner at Clinton Group, a specialty investment management firm.

    Bruce Richards, Marathon Asset Management, LLC. Mr. Richards is the President and co-founder of Marathon. Prior to opening Marathon in 1998, he was a bond trader on Wall Street for 15 years, 10 years of which he was a Managing Director and head of a trading department. Mr. Richards received his BA in Economics, summa cum laude, from Tulane University in 1982.

    David E. Smith, Coast Asset Management, L.P. Mr. Smith is the President, and founder of Coast (established 1991). He is primarily responsible for the trading activities of Coast and its various affiliates, and is also involved with financing and credit decisions for all trading activities. He has extensive experience structuring arbitrage trades utilizing cash securities, futures, options, and swaps. Click here for full article

    Quarter 4, 2001

  • Distressed Investing Gains Favor as Defaults Increase
    Distressed Securities Managers Discuss
    Tactics to Exploit Market Opportunities

  • The current economic slowdown has placed significant financial pressure on a growing number of publicly traded companies. Many have been pushed to the breaking point. According to Moody's Investor Service, the U.S. led the world in debt defaults in 2000, with defaults totaling $49.1 billion. Moody's expects the 2001 default rate to meet or exceed the record setting levels generated in 1991 during the high yield crisis. As of March 2001, the default rate for U.S. speculative grade debt was 7.5%. Moody's expects this figure to increase to 9.7% by March of next year.

    This glum economic news does have its bright side, however, by way of increased trading opportunities for hedge funds specializing in distressed securities. Distressed investing generally involves taking long and short positions in the equity and/or debt securities (senior notes, subordinated debt, secured paper, unsecured debt, trade claims, etc.) of companies near bankruptcy, in bankruptcy, in the process of restructuring, or experiencing a post bankruptcy turnaround. Positions may be purely directional based on the investment concept, or managers may hedge positions against general market, interest rate and/or credit movements.

    The Hedge Fund Research Distressed Securities Index measured a gain of approximately +8.58% for the six-month period ending June 30. These robust returns, set against a backdrop of a lackluster equity market performance, have not gone unnoticed. Consequently, current distressed players are raising and deploying additional capital into distressed situations, while many new players have also begun to adopt the strategy.

    In order to shed more light on the opportunities available to distressed securities investors and the tactics utilized by managers to exploit these opportunities, we have assembled a panel of several highly regarded and experienced distressed managers to participate in our roundtable discussion. Our panelists include:

    Jeffrey Dobbs, Turnberry Capital Management, L.P. Mr. Dobbs joined Turnberry in 1995 and was elevated to partner in 1997. Prior to joining Turnberry he had spent six years at Chemical Bank within that institution's leveraged loan syndication area and high yield sales and trading group. Turnberry, founded in 1989, is a money management that specializes in distressed securities investing.

    George Putnam, III, New Generation Advisors, Inc. Originally an attorney specializing in corporate, securities and bankruptcy law, Mr. Putnam has been working with distressed securities since 1986 when he founded New Generation Research, Inc., a publishing firm that follows bankruptcies and turnaround situations. Through New Generation Advisers, Inc. he has been managing money in the distressed securities area since 1990.

    Martin D. Sass, M.D. Sass Investor Services, Inc. Mr. Sass formed the M.D. Sass Group of Companies in 1972 where he is Chairman and CEO. He is also CEO and Co-Chairman of Resurgence Asset Management, which is exclusively involved in distressed securities investing. Mr. Sass has 38 years of investment experience. He holds a B.S. in Accounting from Brooklyn College and completed graduate studies at New York University and Baruch College, City University of New York.

    Steven S. Weissman, Longacre Management, LLC. Mr. Weissman is a partner and founder of Longacre, a New York-based money management firm with $200 million of assets under management. Longacre is primarily focused on investing in distressed private debt obligations such as bank loans, accounts receivable and trade claims. Mr. Weissman is involved in every aspect of Longacre's activities, including portfolio management and evaluation and analysis of current and prospective investment opportunities. Click here for full article

    Quarter 3, 2001

  • Investor Preferences Shift: Convertible Arb Gains Favor
    Four Respected Convert Arb Managers
    Share their Insights and Strategy

  • According to data gathered by Hedge Fund Research, Inc., hedge fund assets have increased more than twelve-fold over the past decade, growing from approximately $39 billion at year-end 1990 to roughly $490 billion at year-end 2000. Although there is some disagreement on specific projections for future growth, hedge fund insiders are in general agreement that the robust growth of assets is likely to continue, particularly as large U.S. and non-U.S. institutions become more active in the industry. If past is indeed a prologue, then it should be clear which fund sectors investors will find most appealing.

    The HFR data show that the single largest fund sector in 1990 was global macro - - with approximately 71% of the total assets in hedge fund investments. Ten years later, the percentage allocation to this directional sector had dropped to approximately 15%. Today, fully half of all hedge fund assets is allocated to sectors that can be broadly defined as non-directional and/or market neutral. Given recent levels of market volatility, coupled with large declines in the major stock indices over the past year, it should not come as a surprise that investor preferences have shifted toward these strategies.

    Upon closer inspection of the HFR data, we find that convertible arbitrage, a relatively small sector, has been a major beneficiary of this shift in investor preferences. In 1990, convertible arb strategies counted for less than 0.50% of the total hedge fund mix, representing assets of approximately $187 million. At year-end 2000, this sector comprised 3.13% of the total mix with more than $15 billion in assets, representing a roughly seven-fold percentage increase. Certainly, the recent robust performance of this sector has only served to fuel its continued growth. The HFR Convertible Arbitrage Index posted strong returns of 14.5% and 6.6% during 2000 and the first quarter of 2001 respectively.

    Convertible arbitrage, in its most rudimentary form, involves the purchase of theoretically undervalued convertible securities and the simultaneous short sale of the issuers' publicly-traded common stock. Although the underlying premise is similar, the manner in which securities are valued, selected, hedged, and monitored varies widely among managers within the universe. Each manager, therefore, is susceptible, in varying degrees, to numerous risk factors including equity market direction and volatility, interest rate and credit spread fluctuations, market liquidity, and counter-party and financing issues.

    In order to better understand how convertible arbitrage managers execute the strategy and minimize the inherent risks, we have invited several highly respected managers to participate in our roundtable discussion. Our panelists include:

    John P. Calamos, Calamos Asset Management, Inc. Mr. Calamos is the President and Chief Investment Officer of the firm that bears his name. Mr. Calamos, author of several books on convertible investing and a pioneer in the field, founded the firm in 1989. He received his undergraduate degree in Economics and an MBA in Finance from the Illinois Institute of Technology.

    Gene T. Pretti, Zazove Associates LLC. Mr. Pretti is the Chief Executive Officer and Senior Portfolio Manager at Zazove. Prior to joining Zazove in 1989, he worked for First Boston Corporation where he specialized in institutional equity sales. He also has served as an analyst with CUNA Mutual Insurance Co. and Robert W. Baird & Co. He has an MBA from the University of Wisconsin.

    Ken Tananbaum, Arbitex Asset Management, L.P. Mr. Tananbaum is the Portfolio Manager for Arbitex. Prior to joining Arbitex, he was with the Lamar Hunt Family Office from 1997 where he managed a convertible arbitrage portfolio with emphasis on U.S. and Japanese convertibles. Prior to 1997, Mr. Tananbaum spent seven years at two of the premier arbitrage trading operations, HBK Investments L.P. in Dallas-Ft. Worth and O'Connor Associates in New York and Chicago. He graduated from Yale University in 1990 with a BA in Economics.

    Michael Vacca, Clinton Group, Inc. Mr. Vacca is involved in all aspects of the management of the Clinton Riverside Convertible Fund, including trading, hedging and analysis. Before joining Clinton in 1998, he was a vice president and senior trader at Deutsche Morgan Grenfell, where he co-managed the convertible securities group. He also developed and implemented convertible valuation models. Mr. Vacca has a BA in Economics from the University of Pittsburgh. Click here for full article

    Quarter 2, 2001

  • Hedge Funds Demonstrate Value-Added in Down Market
    Funds are Forced to Evaluate Capacity
    Constraints as Assets Continue to Increase

  • For many mutual fund investors and long-only stock-pickers, 2000 was a losing proposition. For the first time since 1990, the S&P 500 had a losing year. The DJIA also had its first losing year in a decade and the more volatile NASDAQ had the worst year in its history, losing a whooping 39.29%.

    In the face of widespread losses in the major equity indexes, alternative investments (hedge funds and managed futures) for the most part lived up to their marketing and delivered uncorrelated absolute returns. While certain sectors, such as technology and emerging markets incurred losses, the overwhelming majority of sectors ended the year in the black according to Hedge Fund Research in Chicago. Certain conservative market neutral sectors such as merger arbitrage and convertible arbitrage did especially well. The HFR Merger Arbitrage Index and the HFR Convertible Arbitrage Index posted returns of 17.62% and 14.41% respectively. Managed Futures, showing a loss for most of the year, staged a strong year-end rally and ended on a positive note as well.

    This recent successful performance has not gone unnoticed. As more investors migrate to alternatives, will demand overwhelm supply? Which sectors hold the most promise for the new year, which hold the most risk? In order to get the answers to these and other pertinent questions, we've assembled a distinguished panel of highly experienced fund management experts. Our panel includes:

    Howard M. Rossman, Ph.D., Mesirow Advanced Strategies, Inc. Dr. Rossman is a principal and founder of Mesirow Advanced Strategies, Inc. and a Senior Managing Director of its parent, Mesirow Financial. He is responsible for all aspects of fund management, including manager due diligence, strategy analysis and asset allocation. Since 1983, he has been responsible for providing institutional consulting and advisory services in the area of nontraditional investments and for developing funds utilizing alternative strategies.

    Scott C. Schweighauser, Harris Associates, L.P. Mr. Schweighauser is a partner of Harris Associates and Executive Vice President and Portfolio Manager of Harris Partners, LLC, its alternative investment subsidiary. He is involved in every aspect of Harris' activities in alternative investments, including portfolio management, and the evaluation and analysis of current and prospective managers. He has been with Harris since 1994.

    Shonda Warner, Montier Partners. Ms. Warner is the co-managing director of the London-based advisor to Montier Asset Management in Guernsey. The group is dedicated to a fund of funds approach to investing. Their business is split between the Cardinal Fund of Funds, an offshore vehicle, the Dakota Fund of Funds, a U.S. limited partnerships, and a variety of segregated accounts.

    Arthur Williams III, Pine Grove Associates, Inc. Mr. Williams serves as President and CIO of Pine Grove. He was formerly Director of Retirement Plan Investments for McKinsey & Company, Inc. Prior to joining McKinsey, he served as the manager of Merrill Lynch's pension assets and the head of Merrill Lynch's fund consulting practice and employee private investment funds. He also served as in-house consultant to the central bank of a government fund, which was then the largest pool of capital in the world. Click here for full article

    Quarter 1, 2001


  • Recent CTA Underperformance Tests Investor Patience
    Asset Allocators Are Working Overtime
    to Manage Portfolio Volatility

  • The past two years have been a trying time for the managed futures industry. In 1999, the Barclay CTA Index measured a loss of -1.19%, its worst yearly performance since inception in 1980. Year to date through the 3rd quarter, the Index is down another -1.83 %. Many of the large trend-following CTAs have underperformed the Index, and investors are skittish. The lack of performance has resulted in a steady flow of retail investor redemptions at the major wirehouses. Some of these wirehouses have seen their managed futures asset base decline by as much as one-half to two-thirds. Merrill Lynch's recent decision to suspend new sales of managed futures investment products was in large part a response to massive redemptions at their shop. However, in spite of the lack of performance and in the face of this steady outflow of funds, assets under management continued to grow for most of the period. At year-end 1998, we estimated that money under management stood at approximately $36 billion. Our most recent estimate at mid-year was $39.6 billion. So although significant numbers of investors have thrown in the towel, many other more patient investors continue to value the portfolio benefits borne of diversification, liquidity and transparency.

    Although these crosscurrents have taken their toll on all industry participants, asset allocators and commodity pool operators (CPOs) have perhaps come under the most pressure. The raison d'etre of this industry sector has always been to provide value-added to the manager selection process. Situated at the junction point between investor and investment, these professionals are called upon daily to bridge the chasm between the two, investors who are disappointed with performance results and an ever dwindling pool of CTAs whose performance has remained in the black during this most difficult of periods.

    In order to find out what asset allocators are doing to add value during this difficult market cycle, we've put together a panel of seasoned professionals who will share some of their thoughts and insights gleaned from many years of experience in this sector. Our panel includes:

    Ted Kingsbery, Liberty Funds Group, Inc. Mr. Kingsbery is Chairman of Liberty Funds Group, Inc., an alternative investment company that has organized and operated managed futures and hedge funds since 1981. Liberty Funds has a 19-year track record and manages approximately $50,000,000. Mr. Kingsbery has served on the Board of Directors of the National Futures Association (NFA) and on the Annual Conference committee of the Managed Futures Association (MFA).

    Aleks Kins, Carr Global Advisors. Mr. Kins is the Senior Investment Manager for CGA, an alternative investment asset management firm that specializes in creating multi-manager funds and structured products. He is responsible for CGA managed futures allocations, the head of the CGA research group, and responsible for overseeing the development and implementation of CGA risk monitoring systems.

    Peter Lamoureux, Everest Asset Management, Inc. Mr. Lamoureux is the president of EAM, a general partner and commodity pool operator registered with the CFTC since 1988. He has extensive experience as an asset allocator and currently oversees EAM's general partner responsibilities for their four managed futures funds and one hedge fund.

    Mark McSweeney, Capital & Asset Management International Ltd. Mr. McSweeney is CEO and a Director of Capital & Asset Management International Ltd (CAMI), a joint venture company he has with Chase Manhattan-Jardine Fleming Limited. He is also a consultant to Asset Allocation Advisory, SA, a British Virgin Islands domiciled company offering asset allocation advisory services to international banks and institutional asset allocators. Mr. McSweeney has eighteen years of experience in the managed futures industry. Click here for full article

    Quarter 4, 2000

  • Option Sellers Score High Sharpe Ratios, But No Equity
    Superior Risk/Returns are Unable to
    Overcome Investor Prejudice

  • In 1985, Volume Investors, a small clearing firm, brought the COMEX to the edge of the abyss when three of its customers were unable to meet a $14.8 million margin call. On March 19 of that year, gold rallied $35.70 and the three clients were short in a big way.

    Volume customers Jeffrey and Valerie Westheimer and James Paruch had been earning consistent profits by selling deep out-of-the-money gold options that would expire worthless. At the time, there were no minimum margin requirements established by the exchange for these types of transactions. They were short 12,000 gold calls when the market rallied.

    In October of 1997, Victor Niederhoffer had a large short position of deep out of the money S&P puts. When the market collapsed, Mr. Niederhoffer was unable to meet the margin calls, his funds were forced to liquidate and net asset value went to zero.

    Partly as a result of these well-publicized debacles, many managed futures investors today are reluctant to invest in options programs. Certainly their reluctance is understandable given the torrent of negative publicity accompanying the above mentioned episodes. However, as we all know by now, one should not believe all that one reads in the press.

    If we look at the performance of options traders as a group, two particular statistics prove illuminating. The average Sharpe ratio for the options traders in the Barclay CTA database is 1.42 versus an average Sharpe ratio of 0.56 for all CTAs. If we compare money under management for the median manager in both groups, we find that the options trader median is $1.6 million versus $8.2 million for the entire group. In other words, although the options traders as a group have higher Sharpe ratios, the percentage of assets allocated to them is disproportionately low.

    Why have options traders become the stepchildren of the managed futures arena? Certainly we have seen a few ill-fated CTAs self-destruct over the years. We've also seen very publicized cases of hedge fund demise in areas such as mortgage-backed securities, yield-curve arbitrage (remember LTCM?) and emerging markets, only to see investors rush back in within a year.

    In order to get a better understanding of the underlying rationale that supports the case for option selling as well as to better comprehend the risks associated with this often misunderstood investment sector, we've assembled a panel of experts who have many years of hands-on options trading experience. Our panel includes:

    Max G. Ansbacher, Ansbacher Investment Management, Inc. Mr. Ansbacher is president of AIM, a New York based CTA which manages money by writing uncovered options exclusively and has over $25 million under management. Mr. Ansbacher wrote America's first book on exchange traded options titled "The New Options Market" which is being republished in a new edition this August. He is a frequent commentator on Bloomberg Television, as well as the Fox News Channel, CBS and CNNfn.

    Neil Berman, Bernex Capital Management Corporation. Mr. Berman is president of Bernex, a CTA in Miami, Florida. He is a 1971 graduate of Boston University's School of Business Administration, and a 1974 graduate of the University of Connecticut School of Law. Mr. Berman began trading equity and index options in the 1980's. Beginning in 1989, he started trading futures and options on futures, and in 1995 organized the Bernex Option Income Fund, a commodity pool dedicated to selling options on stock index futures.

    Paul Gleeson, Arcanum Investment Management, Ltd. Mr. Gleeson founded Arcanum, an options based money management firm located in London in 1997. He began his career working for Rudolf Wolff & Co in 1973 as clerk on the LME. Prior to founding Arcanum, Mr. Gleeson served as marketing director for CAL Futures, (later Union Cal) where he was responsible for creating funds, selecting advisers and raising money.

    Martin Meier, Action Futures Trading Company. Mr. Meier is the president of Action Futures Trading Company, a CTA firm that trades options on S&P 500 futures. The program uses option combinations to minimize risk and volatility. Click here for full article

    Quarter 3, 2000

  • CTAs Begin Trading of Stocks for Customer Portfolios
    Momentum Approaches Start to Gain Acceptance Among
    Equity Investors; Advantages for U.S. Fund Investors

  • For the past year or more, the financial press has been telling us about momentum trading and how profitable it has been. Certain hedge funds and even some mutual funds are now specializing in applying a momentum approach to stock selection. Market timers have also gotten into the picture. In fact, several of the best performing market-timing funds are using momentum as a primary indicator for their signal generation.

    The irony of this is that while many CTAs incorporate momentum as part of their trend-following approaches, CTAs as a group have been having a difficult time of late because the commodity markets, with the notable exception of the energy complex, have not been providing enough trends to follow. It almost seems that if managed futures advisors would expand their portfolios to include, for example, NASDAQ stocks, then they might be even more profitable than many of the most profitable hedge funds.

    It is alluring to imagine what CTAs' returns might have been if their portfolios contained leveraged investments in stocks such as Cisco, Qualcomm, Oracle and Apple. Even without leverage, their returns might have been eye-popping. But is it really as easy as just simply allocating a percentage of portfolio assets to fast moving stocks? In order to look into the issues involved, we've assembled a panel of experts who all manage stock portfolios alongside and separate from their futures portfolios. Our panel includes:

    George E. Crapple, Millburn Ridgefield Corporation. Mr. Crapple is Co-Chairman, Co-Chief Executive Officer and a Director of Millburn Ridgefield Corporation. Millburn Ridgefield Corporation manages approximately $2 billion in currencies, financial and commodity futures, equities and funds of funds. Mr. Crapple is a member of the Technology Advisory Committee of the CFTC, a member of the Board of Directors, Executive Committee and Appeals Committee of the NFA, Chairman and a member of the Board of Directors and Executive Committee of the Managed Funds Association, and a former member of the Board of Directors of the Futures Industry Association and Financial Products Advisory Committee of the CFTC.

    John Hummel, AIS Futures Management LLC. Mr. Hummel is the president of AIS Futures Management LLC, a registered CTA and CPO and AIS Capital Management LLC, a registered investment advisor. He has thirty-three years of investment experience.

    Roy G. Niederhoffer, R.G. Niederhoffer Capital Management, Inc. Mr. Niederhoffer, founder and president of R.G. Niederhoffer Capital Management, Inc., graduated from Harvard University, magna cum laude, with a degree in Computational Neuroscience. RGNCM uses a primarily contrarian strategy to take advantage of major world fixed income, equity, foreign exchange and commodity markets.

    Richard Scully, Scully Capital Management, LLC. Mr. Scully is President of Scully Capital Management, an investment management firm providing equities, futures and hedge strategies to sophisticated investors. He began his investment management career in 1983 with PaineWebber. At PaineWebber, later at Scully Grain Company and at SCM, Mr. Scully has developed and traded quantitative investment models utilizing stocks, bonds and futures. Throughout his career, Mr. Scully has continued to dedicate much of his energy to research; developing and continually refining his investment strategies. Click here for full article

    Quarter 2, 2000

  • Better Benchmarks Promote Institutional Investment
    Long-only Indices and Manager Universes
    Provide Limited Relevance to Investors

  • Measurement, if it is to be meaningful, requires a standard. In the institutional portfolio management world, benchmarks are the standards used for selection and compensation of managers.

    Selecting an appropriate benchmark in order to evaluate the performance of traditional active managers in the mainstream asset classes, equities, fixed income and real estate, is usually a well-defined task that makes use of widely accepted benchmarks and standards of application. Since traditional asset managers are long only, relevant benchmarks can be identified or created based on an assessment of the assets typically held in the manager's portfolio.

    In an obvious oversimplification, if a manager's portfolio is comprised entirely of large cap stocks, then the S&P 500 Index is an obvious choice for a relevant benchmark. In this case, it would clearly represent a low cost, investable alternative to active management that captures the inherent return attributable to ownership of this asset class. Once we have identified a relevant index, then objective evaluation of the active manager's performance, either against the selected index or against other similar managers, becomes a fairly straightforward task.

    However, alternative managers are quite different from traditional managers. They are both long and short and therein lies the rub. How does one select or create a benchmark that adequately accounts for short positions in the manager's portfolio?

    The most commonly accepted benchmarks for managed futures investments presently fall primarily into two categories, long-only indices and manager universe indices. Although the performance of certain long-only indices may be useful to help understand the performance of investments that are primarily leveraged long, these same indices do not seem to be particularly relevant when trying to understand performance derived from being both long and short.

    Manager universe indices seem to have merit and also enjoy a good deal of acceptance within the investment community. However, there are some significant problems with using a manager universe index as a benchmark. (See pages 13 - 16.)

    Just how important is the issue of managed futures benchmarks to institutional investors? Would a widely accepted benchmark increase the flow of institutional funds into managed futures? In this issue, we have the honor of presenting these and other questions to our most noteworthy panel of distinguished experts in the field of alternative investments. All of our panelists bring their own set of unique perspectives based on differing backgrounds: academia, consulting, investment management and institutional investor. Our panel includes:

    Fernando Diz, Syracuse University School of Management. Professor Diz is an Assistant Professor of Finance in the Syracuse University School of Management. He has also been Visiting Professor of Finance at the Johnson Graduate School of Management, Cornell University, teaching Derivatives and Financial Engineering courses. Professor Diz specializes in trading, money management, market volatility and the use of derivative securities in investment and speculative portfolios. He received his doctorate from Cornell.

    Alan R. Kaufman, Trilogy Capital Management LLC. Mr. Kaufman is President and Chief Investment Officer of Trilogy Capital Management LLC, a registered investment advisory firm specializing in development of investment solutions geared to the needs of institutional investors. Mr. Kaufman has worked in the securities and futures investment field since 1977. From 1986 through 1995, he was a founder and officer of the Mount Lucas group of companies. Mr. Kaufman founded Trilogy in 1995.

    Gary L. Knapp, General Motors Investment Management Company. Mr Knapp is an investment analyst and derivatives trader for GMIMCo. He has a BS in Mechanical Engineering from Northwestern University and an MS in Financial Markets and Trading from Illinois Institute of Technology. Mr. Knapp holds a Chartered Financial Analyst designation and has been with GM for four years. GMIMCo manages approximately $120 billion in assets that include approximately $80 billion in pension assets.

    Jeanne B. Murphy, Watson Wyatt Investment Consulting. Ms. Murphy is a consultant in the Atlanta office of Watson Wyatt Investment Consulting. In addition to working directly with clients in establishing investment policies and objectives, and selecting and evaluating investment managers, she is responsible for coordinating the firm's coverage of the non-traditional asset classes, real estate, private equity, natural resource investments, and certain specialized equity strategies. Ms. Murphy has 20 years of investment experience and holds both the Chartered Financial Analyst and Certified Financial Planner designations. Click here for full article

    Quarter 1, 2000


  • Y2K Concerns Potentially More Disruptive Than Bugs Hoarding of
    Cash and Supplies
    Hoarding of Cash and Supplies Creating
    Risk of Bank Runs and Bottlenecks

  • What's in a name? That which we call a Millennium bug, Y2K, CDC (century date change), by any other name would smell as foul. More immortal than the classic words of Will Shakespeare, indomitable human nature stands as a constant in a world that is changing at an ever-increasing rate. For is it not human nature that lies not only at the heart of the Y2K problem, but also at its periphery?

    Once upon a time, as the story goes, clever software engineers and cost-cutting hardware manufacturers figured that they could save money by storing yearly dates as two-digit numbers rather than as four-digit numbers. At the time, they fully realized that this convention would cause a problem at CDC, but they operated under the assumption that ever-improving technology would offer up a quick fix. Wrong.

    It wasn't until 1998, the year of the task force, that full awareness of the major problem spawned a new growth industry, Y2K fear. As group after group reported in with grim statistics, the doom-mongers went into overdrive as they thrust their predictions and warnings into the competition for who could make the direst of forecasts. The curtain readies to come down on the 20th century. Fear has subsided and contingency planning has become the operative buzzword. As consumers and businesses prepare for the CDC by hoarding cash and necessary supplies, many well-informed Y2K bug watchers, including our own Alan Greenspan, are now more worried about the bug's effects on stockpiling and its possible spillover into financial markets.

    The Federal Reserve Board is sufficiently concerned about the hoarding of cash that it has established a Century Date Change Special Liquidity Facility to ensure that depository institutions have adequate liquidity in the period preceding and following CDC. This facility should enable banks to supply loans to businesses through the rollover period.

    As year-end approaches, many savvy investors are reevaluating the likelihood of a market meltdown, and instead are looking at the possibility of an end of year "Y2K melt-up" brought on by the anticipation of hoarded cash re-entering the market. In order to get a better understanding of the issues, we've assembled a panel of experts who've agreed to share some of their views with us. Our panel includes:

    Adrian D'Silva, Federal Reserve Bank of Chicago. Mr. D'Silva is the Director of Capital Markets at the Federal Reserve Bank of Chicago. He leads a team of examiners and researchers who specialize in capital markets activities of banks. Prior to joining the Fed about five years ago, Mr. D'Silva spent eighteen years trading for First Chicago, CRT and Morgan Stanley in Chicago, London, Singapore, Tokyo and Hong Kong. He has extensive experience in all of the major markets.

    Jerry Wayne Joyner, Jr., Ned Davis Research, Inc. Mr. Joyner is a Director for Ned Davis Research, an international financial market research firm located in Venice, Florida. He is primarily responsible for managing the Ned Davis Disciplined Fund, L.P., a long/short equity hedge fund.

    Alfred M. Marshall, IJL/Wachovia Securities, Inc. Mr. Marshall is the Senior Vice President/Fixed Income Strategies Private Client Group at IJL. He is responsible for formulating the firm's interest rate outlook and assisting in the development of appropriate investment strategies for IJL clients. Mr. Marshall is the author of Principal & Interest, IJL's monthly economic commentary. He graduated magna cum laude from Washington & Lee University in 1974.

    Kenneth G. Tropin, Graham Capital Management, L.P. Mr. Tropin is the founder and President of GCM, an investment advisory firm with over $550 million under management. Prior to founding GCM in 1994, he acted from 1989 as the President and CEO of John W. Henry & Co. Inc. Prior to managing JWH, Mr. Tropin was Senior Vice President and Director of Managed Futures and Precious Metals at Dean Witter Reynolds. Click here for full article

    Quarter 4, 1999

  • Electronic Trading Challenges Dominance of Open-Outcry
    US Futures Exchanges Follow Europe’s Lead &
    Move To Electronic Enhancements

  • Technology, with its implicit promise of increased efficiency, is the siren song of the new millennium. Coupled with the ability of the Internet to distribute the fruits of technological advance in an instantaneous, cost-effective manner, the allure of this seductive refrain would captivate mighty Odysseus himself. Whether or not this temptation will lead to shipwreck is open to discussion.

    Certainly, many middlemen have been rudely awakened by the fear of just such a shipwreck in their businesses as they are being forced to rethink their value-added while hordes of e-merchants chanting, "Remove the middleman" jostle for market share and visibility. No area of commerce is exempt from these wired usurpers. Even the most fundamental of free market institutions, the stock and futures exchanges, are caught up in this cyber-space turf battle.

    Futures exchanges developed as meeting places where commercial participants, using open outcry for the exchange of bids and offers would engage in the process of price discovery. In the U.S. today, the overwhelming majority of these transactions take place on the floor of the exchange. In Europe, however, the major futures exchanges have gone electronic.

    Certainly, electronic trading has some advantages. Clearly, it should be faster and cheaper. But open outcry has unique advantages as well, such as liquidity and the ability to continue functioning during extreme market volatility. In order to get a better understanding of the issues, we've assembled a panel of experts who've agreed to answer a few questions for us. Our panel includes:

    Irwin Berger, Sjo, Inc. Mr. Berger, vice chairman of Sjo, Inc., has been with the firm since February 1988. He has spent over twelve years developing proprietary trading, risk management, and asset allocation models for the futures markets and has written a number of articles on trading and risk management which have appeared in professional and trade publications.

    Heike Eckert, Deutsche Borse AG. Ms. Eckert is Head of the U.S. representative office of Deutsche Borse, also representing Eurex. Her primary responsibility is to promote the use of Eurex products and to increase Eurex membership in the U.S. Prior to that she worked in various departments at Deutsche Borse AG in Frankfurt, including business development for derivatives and cash markets.

    Norman E. Mains, Ph.D., Carr Global Advisors. Mr. Mains is President of Carr Global Advisors (CGA), a subsidiary of Credit Agricole Indosuez. CGA specializes in the creation and implementation of managed futures funds and multi-manager hedge funds. CGA also provides systematic risk management systems using proprietary techniques.

    James Oliff, Chicago Mercantile Exchange. Mr. Oliff is the Second Vice Chairman of the CME as well as the Chairman of the Strategic Planning Oversight Committee. Mr. Oliff, an attorney, has been in the futures industry for more than 25 years. He holds a B.A. from Brandeis University and a J.D. from Northwestern University School of Law. Click here for full article

    Quarter 3, 1999

  • Converting Fund Units into Equity Yields Tax Benefits Offshore
    Insurance Companies Provide Possible
    Advantages to US Fund Investors

  • If a taxable U.S. investor buys units in a managed futures fund, hedge fund or mutual fund, he/she will have to pay taxes each year on all or some of his profits. Purchases of stock by the same investor, if held for longer than a year, are accorded a more favorable tax treatment: no taxes are incurred until after the stocks are sold. Upon sale, the profits are taxed at the more favorable long-term capital gains rate. The resulting advantages of compounding that accrue to a tax efficient approach are significant to such an extent as to completely overwhelm the strategic rationale underpinning fund investing.

    The intellectual basis for granting tax subsidies to supposed long-term investors is based on the rationale that somehow a buy and hold strategy is more conducive to economic growth and capital formation than a short-term trading approach. While a discussion of the macro-economic merits of long-term versus short-term investing and the capital formation process is beyond the scope of this article, there is something in the works that might put fund unit holders on an equal footing with share owners vis-`a-vis tax treatment of their profits.

    An offshore insurance company is not taxed on its corporate earnings based on specific exemptions in the U.S. tax code. By owning stock in a well run offshore insurance company whose investment portfolio includes allocations to managed futures and hedge funds, an investor can possibly reap the benefits from these investments on a tax efficient basis. However, the issues are complex. In order to gain a better understanding of the issues involved, we've invited a panel of very knowledgeable participants to answer our questions. Our panel includes:

    Thomas F. Basso, Trendstat Capital Management, Inc. Mr. Basso is the CEO and founder of Trendstat, a money management firm founded in 1984. Trendstat manages over 250 million dollars in hedge funds, currencies, futures and mutual funds for clients worldwide. Mr Basso has authored Panic Proof Investing, which is dedicated to helping investors and was one of the traders featured in The New Market Wizards.

    Arthur F. Bell, Jr., Arthur F. Bell, Jr. & Associates, L.L.C. Mr. Bell is the founder and President of the CPA firm of Arthur F. Bell, Jr. & Associates, L.L.C. His firm has served the futures and hedge fund industry for over 20 years through audits, tax and consulting services. The firm is a member of the SEC Audit Practice division and is also an approved auditor in the British Virgin Islands and the Cayman Islands.

    Joseph K. Taussig, Financial Institutions Group. Mr. Taussig is the President and founder of FIG and of several other financial services firms. The companies are largely involved with corporate finance as financial advisors, as private placement agents, and as underwriters in public offerings, and have participated in more than $5 billion in financings, most of which were for the insurance industry. Other activities in the family of companies involve offshore finance, securities brokerage, trading, banking, life insurance and annuities, and investment funds. Click here for full article

    Quarter 2, 1999

  • Total Return Portfolios Raise Allocations to Alternatives
    Alternative Investments are Shown to
    Enhance Portfolio Risk/Reward Profiles

  • According to Pensions & Investments 1997 survey of U.S. Erisa and public pension plans, approximately 80% of pension assets are invested in U.S. stock and bond markets and investment results are measured against a benchmark portfolio of 60% stocks and 40% bonds. However, there are some notable exceptions to this rule.

    Harvard, MIT, Stanford, Yale and others have been implementing portfolios based on a total return performance objective. This strategy includes substantial investments in less "efficient" markets such as private equity, real estate and "absolute return" areas. Allocations to the more traditional markets, stocks and bonds, have been reduced accordingly.

    Yale's program has been operative for more than a decade and the results are impressive. Over the ten-year period ending June 1997, Yale's portfolio return of 13.5% placed it in the top one percent of SEI's rankings of large institutional investors.

    According to the December 1997 Harvard Business School Case Study, "The primary reason for Yale's superior long term performance record had been the excess returns generated by the portfolio's active managers." This argument seems to fly in the face of stock market research that demonstrates that most active managers under-perform a passive, benchmark such as the S&P.

    In order to gain a better understanding of these and other issues surrounding the efficacy of a traditionally benchmarked portfolio versus a total return portfolio, we've invited a distinguished panel of experts to answer some questions for us. Our panel includes:

    Karl V. Chalupa, Gamma Capital Management, LLC. Mr. Chalupa is President of Gamma Capital Management, an alternative asset manager specializing in fundamentally based quantitative investment strategies. Prior to founding Gamma Capital, Mr. Chalupa was Vice President and Manager of the Currency and Alternative Investment Strategies Groups at State Street Global Advisors. Mr. Chalupa graduated cum laude from Northern Illinois University with BAs in Economics and International Relations and received an MA in Economics from Brown University.

    James F. Tomeo, RXR Capital Management, Inc. Mr. Tomeo has been with RXR since 1986. He is an Executive Vice President and Director, and is responsible for the firm's alternative investment product development. He is an advisor to Institutional Investor on matters related to Japanese pension fund reform, is the former Chairman of the International Committee of the Managed Funds Association, and is the U.S. representative to the Education and Research Committee of the Alternative Investment Management Association based in Europe.

    Takanori Yokose, Mitsui & Company Commodities Corporation. Mr. Yokose is the President of Mitsui & Co. Commodities Corporation in New York, which is a manager of managers and the FCM of Mitsui & Co., Ltd. in Japan. He is responsible for structuring investment products, selecting investment managers for their portfolios and managing their risk. Click here for full article

    Quarter 1, 1999


  • Hedge Funds Stumble and Fed Takes Pre-emptive Action
    Four Experts Discuss Why Liquidity, Leverage and
    Transparency Are Crucial

  • The hedge fund, glamour child of alternative investments, is having its day of reckoning. August and September of this year bore witness to an unprecedented wave of hedge fund meltdowns across a broad swath of the investment spectrum. Emerging market debt and equity, mortgage-backed securities, distressed securities, convertible arbitrage, merger arbitrage, yield spreads, credit spreads and leveraged long players all took their lumps. At the same time, managed futures, the stepchild of alternative investments, is having its day in the sun as investors focus on issues relating to transparency, liquidity and counter-party risk.

    As year-end approaches, many in the alternative investment community are wondering what repercussions might lie ahead as the effects of credit tightening combine with investor redemptions and force possible additional selling into illiquid markets. Will the possibility of additional failures of the magnitude of Long Term Capital Management and D.E. Shaw prompt Congress to pass new legislation that increases the scope of investment regulation?

    In order to answer these and other pertinent questions, we've assembled a panel of distinguished experts to share their thoughts on the proper role of managed futures and hedge fund investments within a diversified portfolio. Our panel includes:

    Craig L. Caudle, Liberty Funds Group. Mr. Caudle is the President of Liberty Funds Group. His efforts are focused on business development and marketing. He graduated from Texas Tech University in 1983 with a B.S. degree in International Trade. Mr. Caudle currently serves as the Director of Development for the Foundation for Managed Derivatives Research. He is also the Chairman of the Trading and Markets Committee for the Managed Funds Association and serves on the MFA's Conference Committee.

    Mark Kassirer, Phoenix Research and Trading Corporation. Mr. Kassirer is a founder and Chairman of Phoenix Research and Trading Corporation located in Toronto, Canada. He was previously CEO of Deutsche Morgan Grenfell (Canada) and executive vice-president of Burns Fry Limited, an integrated Canadian investment bank, responsible for fixed-income, equity trading, and risk management.

    Barry S. Seeman, AXA Global Structured Products, Inc. Mr. Seeman is Managing Director and Co-Head of AXA-GSP. His responsibilities include the development of structured financial solutions for the AXA organization and the management of new investment products in alternative asset classes. Prior to joining AXA-GSP, Mr. Seeman has held the following positions: Head of Financial Institutions Derivatives Marketing at General Re Financial Products, Co-Head of Financial Institutions Derivatives Marketing at Citibank and Head of New Product Development at Swiss Bank Corp/O'Connor & Associates.

    Michael Simoff, Optima Fund Management. Mr. Simoff is the Director of Research for Optima Fund Management, a leading hedge fund management and consulting group with over $750 million under management. He joined Optima in 1998 after most recently serving as head of the family office of a private, European investor, where he supervised the identification, selection and monitoring of hedge funds, managed futures, private equity and venture capital investments. Mr. Simoff has over 16 years of experience in global asset management. He is a member of the Association for Investment Management Research and the New York Society of Securities Analysts. Click here for full article

    Quarter 4, 1998

  • Allocation to Discretionary CTAs Grow as Market Stalls

  • It should come as no surprise that the universe of managed futures trading advisors is composed primarily of CTAs who rely on systematic, computerized approaches to generate market-trading decisions. Given the complexity of the world economy, the myriad of inter-relationships affecting supply and demand on the global level and the confounding influences wrought by financial engineering, it is somewhat surprising to me that as many as 20% of CTAs can be classified as utilizing a predominately discretionary or judgmental approach to trading.

    There are clear advantages to a systematic approach. Freedom from the necessity of having to be continuously making countless trading decisions under duress is certainly a major advantage. Few people have the mental discipline required to keep the decision making process unfettered by the stresses and potential emotionalism of adverse price movement. Yet, in spite of the inherent difficulties associated with discretionary trading, a significant number of CTAs continue to prefer this approach.

    Many investors as well prefer discretionary traders. Europeans, in particular, prefer the CTA who makes his/her trading decisions based on an informed subjective opinion rather than the one utilizing a computerized black box. Japanese investors, on the other hand, prefer a more systematic approach.

    In order to try to understand the attraction to and the advantages of discretionary trading, we've invited a panel of distinguished discretionary CTAs to comment on some of the issues. Our panel includes:

    Nick Djivanovic, Light Blue Trading (Bahamas) Ltd. Mr. Djivanovic is the founder of Light Blue Trading (Bahamas) Ltd. He has been involved in the derivatives markets since graduating from Cambridge University in 1983. His training included stints at the Morgan Bank, the First National Bank of Chicago and Salomon Brothers. In 1988, he moved to Morgan Grenfell to establish a proprietary trading operation that specialized in fixed income markets. He founded Light Blue Trading in 1991.

    Robert Ecke, Marathon Capital Growth Partners, LLC. Mr. Ecke is a managing director at Marathon. He graduated from Amherst College with an A.B. in Mathematics and from Harvard with an M.A. in Mathematics Education. Mr. Ecke's experience includes researching and developing models for trading futures and options. He began managing futures portfolios with his short-term discretionary approach in 1995. He is solely responsible for management decisions with regard to Marathon's Discretionary Program.

    Ezra Friedberg, Friedberg Commodity Management Inc. Mr. Friedberg is a broker - analyst with the New York office of Friedberg Mercantile Group, Inc., a subsidiary of the Toronto-based Friedberg Mercantile Group. Friedberg Commodity Management Inc., a Commodity Trading Advisor, is a subsidiary of Friedberg Mercantile Group.

    Scott T. Ramsey, Denali Asset Management. Mr. Ramsey has been the president of Denali since its formation in 1994. He developed the Denali Trading System and has the principal responsibilities for directing trading of customer accounts. Click here for full article

    Quarter 3, 1998

  • Allocations to Short-Term CTAs Increasing at Rapid Rate
    Four Experts Discuss Investor Preferences,
    Risk Adjusted Returns and Capacity Issues

  • 1997 was a banner year for asset gatherers in the managed futures industry. Money under management grew by approximately $9.1 billion, a 37.9% increase to $33.1 billion. This increase is the largest single year increase in dollar terms to date, surpassing the previous record increase of $7.5 billion in 1993.

    For the most part, it seemed that money went to money, with the large, established CTAs being the main beneficiaries of the record inflow. However if we examine CTA rankings based on recent increases in money under management, we find a surprisingly rapid increase in assets managed by CTAs with short-term approaches to trading.

    Some of the more successful short-term traders have seen their asset base increase by three or four-fold during the past year. Certainly, this recognition of their abilities by investors is entirely justified and well deserved. But increases of this magnitude over a relatively short time period are sometimes an indication that other forces are at work besides investor appreciation. Several reasons are given by industry observers for this recent trend.

    The Barclay CTA Index, which is comprised largely of long-term trendfollowers, measures a gain of only 3.93% for the 12-month period ending March 31, 1998. Short-term traders have provided returns markedly higher during this same period, all the while keeping volatility levels lower than those usually found among the long-termers. Add to this outperformance a growing recognition among asset allocators that short-term approaches usually have fairly low correlations with the longer-term approaches and the picture becomes very clear.

    However, there are other factors that should be considered before jumping onto the short-term bandwagon. Are their superior risk-adjusted returns sustainable in different market conditions? Investors typically turn toward CTAs with shorter time horizons during periods characterized by market trendlessness. In the past, when trends re-emerged, the longer term approaches once again provided investors with superior returns and their popularity consequently re-bounded.

    Are capacity limitations becoming an issue? Short-term approaches necessitate much greater trading frequency. An average turnover rate for a long-term approach may be about 1000 - 1500 round turns per year per $1 million of equity versus 3000 or more for the short-term approach. As a result, short-term traders approach their capacity limitations at much lower equity levels than their longer-term counterparts. In fact several of the more popular short-term CTAs have already announced their plans to close shortly for precisely this reason.

    In order to clarify these and other issues, we've assembled a panel of distinguished CTAs representing both ends of the time horizon. Our panel includes:

    Scott A. Foster, Dominion Capital Management. Mr. Foster is president and Chief Executive Officer of Dominion, a global money management firm specializing in exploiting short-term inefficiencies in global financial markets. Dominion, organized in May 1994, currently manages approximately $250 million in assets for both institutional and private investors.

    Alexander Hyman, Hyman Beck & Company, Inc. Mr. Hyman is co-founder and president of Hyman Beck & Co., a money management firm based in Florham Park, NJ that specializes in the global futures and forward markets. Hyman Beck & Co. was founded in 1991 and originally utilized only long-term trend following trading strategies. Beginning in 1995, short-term trading strategies, which are not trend dependent, were added. The firm currently manages approximately $340 million for institutional and private clients worldwide.

    Roy G. Niederhoffer, R.G Niederhoffer Capital Management, Inc. Mr. Niederhoffer, the founder and president of R.G Niederhoffer Capital Management, Inc., graduated from Harvard University, magna cum laude, with a degree in Computational Neuroscience. RGNCM uses a primarily contrarian strategy to take advantage of major world fixed income, equity, foreign exchange and commodity markets.

    Clark Smith, Trendview Management, Inc. Mr. Smith is the President of Trendview Management, Inc., a CTA firm that he founded in 1979. Trendview specializes in the systematic approach to trading foreign exchange and futures markets. Click here for full article

    Quarter 2, 1998

  • CTAs Reposition Themselves to Compete with Hedge Funds
    Four Prominent Trading Advisors Discuss
    Their Reasons for Crossing Over

  • Since 1990, assets under management in managed futures investments have more than tripled, from approximately $10.5 billion to approximately $33 billion. During this same time period, hedge fund assets, according to Hedge Fund Research, Inc. (HFR), have grown from approximately $39 billion to approximately $370 billion.

    Most commentators on the subject attribute the higher growth rate of hedge fund investing to four primary factors. Hedge funds have had higher rates of return and their overlying reliance on traditional investment instruments translates into greater investor familiarity. Hedge funds have also been able to better articulate the reasons for their profitability, especially when compared to the black-box explanations of many trend-following CTAs. And many equity investors have the perception that hedge funds can provide shelter from a broad-based market downturn.

    Certainly, there can be little doubt as to the success of hedge funds in providing their investors with high absolute returns. Since 1990, the HFR Fund Weighted composite index has recorded a compound annual return of 18.80%. This compares very favorably with compound annual returns of 16.63% for the S&P 500 Total Return Index and 8.10% for the Barclay CTA Index during the same time period.

    However, it is extremely important to not lose sight of the fact that these hedge funds' returns were achieved during the greatest bull market ever seen. It is said that all ships rise when the tide comes in. Is the reverse also true, that the ships sink when the tide rolls out?

    To those hedge fund investors looking for true diversification, it might come as some surprise that the correlation between the HFR Fund Index and the S&P 500 during down periods is 0.69. If you account for the fact that the HFR Fund Index includes fixed income funds as well as equity funds, the correlation of equity hedge funds with down S&P periods is probably significantly higher.

    Be that as it may, investor infatuation with hedge funds is stronger than ever. In the past two years, hedge fund assets have doubled. The Managed Futures Association renamed itself the Managed Funds Association. EMFA, its European equivalent, is now called AIMA, Alternative Investment Management Association. Several CTAs have recently developed and are now marketing their own hedge funds. Others are trying to reposition themselves as global macro players. Has the managed futures industry developed an inferiority complex or is this a recognition of broader trends afoot? In order to gain a better understanding of the issues involved, we've invited a panel of distinguished CTAs who have recently entered the hedge fund arena to comment on some of the issues. Our panel includes:

    A.R Arulpragasam, ARA Portfolio Management Company, L.L.C. Mr. Arulpragasam is the president of ARA, a CTA/CPO with approximately $185 million under management. He is also the president of Arktos, L.L.C., General Partner of Beta Hedge, L.P., and trading manager for the Beta Hedge strategy, a market-neutral equity hedge fund with approximately $90 million under management. Prior to founding ARA in 1992, Mr. Arulpragasam spent eight years in yield-curve arbitrage and five years in private consulting. He received his B.S. in mathematics from the Massachusetts Institute of Technology in 1977, following which he pursued graduate studies in operations research at Stanford University.

    Michael P. Dever, Brandywine Asset Management, Inc. Mr. Dever is the president, principal and sole shareholder of Brandywine Asset Management, Inc. He has been actively researching and trading derivatives since 1979. Brandywine is a fully integrated research, trading and advisory firm using fundamentally driven systematic trading programs in global equity, interest rate, foreign exchange and natural resource markets. Mr. Dever is a business graduate of West Chester University in West Chester, Pennsylvania.

    Melissa F. Hill, Sabre Fund Management, Ltd. Ms. Hill joined Sabre in 1996, where she is responsible for client relations and marketing. Ms. Hill has extensive experience of the investment markets, having previously spent eight years in investment banking and two years in the pension fund industry.

    Patrick L. Welton, Welton Investment Corporation. Dr. Welton is the CEO and Chairman of WIC. He developed the mathematical analysis techniques and systems software employed by the firm in its trading and portfolio management. Dr. Welton has engaged in futures and equity market research since 1981. He is currently serving on the Board of Directors of the National Futures Association. WIC manages approximately $160 million for a variety of bank, institutional, fund and family office clients around the world. Click here for full article

    Quarter 1, 1998


  • EURO May Challenge the Dominance of US Dollar
    Three Experts Discuss the Implications
    of Economic and Monetary Union (EMU)

  • On January 1, 1999, Europe will undergo its most momentous change in economic policy arrangements since the creation of the common market in 1957. Economic and monetary union (EMU), if successful, will result in, among other things, a single currency for most of the nations of the European Union (EU).

    Adoption of the Euro by the major European countries will have a powerful impact on banks and other currency traders. Banks will probably lose a bundle as monetary union reduces the number of currencies they trade. According to The Economist, Union Bank of Switzerland estimates that EMU will kill anywhere between 10% and 35% of their forex business.

    On the CTA side, the analysis is not quite so straightforward. Certainly, less currencies to trade would translate into fewer profitable trading opportunities. However, many CTAs in the currency arena have already expanded their portfolios to include the currencies of 2nd tier European countries, Asian Tigers and emerging market nations throughout Eastern Europe, Asia and South America.

    The conventional wisdom at this juncture is that EMU will happen. However, almost every monetary union in history that extended across national borders has broken down. Will the Euro succeed, will it be strong or weak, will it rival the U.S. dollar as a reserve currency? In order to get a better understanding of the issues involved, we've asked a group of currency experts to share their views with us on this topic. Our panel includes:

    Gillian L. Manning, Toron Capital Markets, Inc. Ms. Manning is a political analyst at Toron, a financial risk management firm that designs and manages customized hedging solutions for corporate clients with currency and interest rate exposures. She has a Master's degree in international relations with a specialization in foreign policy analysis and systems theory.

    George V. Marcus, CRT Currency Exchange Ltd. Mr. Marcus is the President of CRT Currency Exchange Ltd., a proprietary based currency forecasting system. CRT specializes in trading the U.S. dollar vs. D. mark, Sterling, Swiss franc and the Japanese yen.

    Jon Percival, Chescor, Ltd., Mr. Percival is the currency trader at Chescor, the London-based CTA, which started trading in 1989. He also publishes the bi-weekly Currency Bulletin accompanied by a weekly fax service. He is the author of The Way of the Dollar. Click here for full article

    Quarter 4, 1997

  • Energy Traders On The Verge Of Extinction
    Four Advisors Discuss The Challenges Of
    Trading In The Energy Complex

  • At year-end 1990, there were 23 CTA programs that were devoted to trading energy futures exclusively. As a group, these energy specialist investment programs were managing approximately $275 million. Today, there are only five remaining active CTA programs that trade energy only. Their combined assets under management are a meager $3.4 million. What happened?

    Part of the problem is attributable to the fact that the performance of energy traders (as measured by the Barclay Energy Trader Index) has been disappointing. For the 77-month period from January 1, 1991 to May 31, 1997, the Barclay Energy Trader Index has measured a compound annual return of 0.01%, the lowest return of any of the Barclay indices. Most of the damage occurred in 1996 when the Energy Trader Index declined 17.92% while all of the other Barclay CTA indices measured profits for the year. However, even as the energy specialists were taking historically unprecedented losses, diversified traders were having good successes in wringing profits from the energy complex.

    At year-end 1990, the five largest energy futures trading firms were headed by people who had all come from cash-market operations. Savvy, intelligent risk-takers, these experienced oil-patch operators seemed like a sure bet to rise to the top. Today, none of these five firms remain.

    Are energy traders, who specialize in extracting profits from price changes of fossil fuels, in danger of becoming dinosaurs themselves? In order to get a clearer understanding of the issues involved, we've gathered a distinguished panel of CTAs with significant energy trading experience to help shed some light on the matter. Our panel includes:

    Ralph Adams, Lora Trading Company, Inc. Mr. Adams is President of Lora Trading, a CTA firm specializing in energy trading. He has 25 years of energy market experience including oil tanker chartering, physical oil trading and brokerage. Mr. Adams began his career in managed futures at Tricon (USA) in 1987. He founded Lora Trading in 1989 while still associated with Tricon and became independent in 1992.

    Douglas Bry, Northfield Trading L.P. Mr. Bry is President of Northfield Trading L.P., a Colorado based CTA managing $250 million. He has sole management authority over the day-to-day activities of Northfield and is primarily responsible for its non-discretionary, technical trading program. Mr. Bry earned a law degree in 1978 from the University of Colorado and a BA in Philosophy and Sociology from Beloit College in 1974.

    Bruce Cleland, Campbell & Co. Mr. Cleland is President of Campbell & Company, an investment management firm that has been in business since 1972 and currently manages assets of $700 million. The firm applies quantitative, systematic trading strategies to diverse portfolios of global futures and currencies. Mr. Cleland has served as a member of the Board of Governors of the Comex, and is currently a member of the Managed Futures Association, where he serves on the International Committee.

    Michael Schiff, Coast Energy Investments, L.P. Mr. Schiff is the Managing Partner of Coast Energy Investments which operates an energy fund, Coast Energy Partners, L.P. He is a Wharton MBA with a fundamental energy industry background. Mr. Schiff gained his experience with logistics, marketing, risk management and trading at Conoco, Cal Gas, and Amerigas before founding Coast Energy Group in 1989. Click here for full article

    Quarter 3, 1997

  • Structured Notes Offer Flexibility, Less Volatility
    Three Experts Discuss Why Institutional
    Investing in These Products is Growing

  • In 1988, Dean Witter introduced the Principal Guaranteed Fund. The offering raised more than $500 million in the first day. Unfortunately, the fund was only registered for $250 million and $250 million had to be returned to subscribers.

    Within a few months, virtually every major fund syndicator was selling a guaranteed fund and several billion dollars of new money found their way into managed futures. Although these funds provided the investor with protection from loss, many guaranteed funds were unable to deliver enough upside to maintain interest in the product. The most common reason cited for this failure to deliver has been high fees coupled with a deleveraged trading account.

    During the past several months, the managed futures industry has seen a resurgence of demand for products that guarantee the return of principal. Whereas in the past, this demand had come primarily from U.S. retail investors, this time around the demand seems to be coming largely from non-U.S. institutional investors.

    Rather than investing in futures funds, however, these sophisticated investors seem to prefer structured notes. These notes are securities which utilize a managed futures component in order to provide yield-enhancement to the underlying security.

    In order to gain a better understanding of how structured notes work and why they have been so popular, we've assembled a panel of three industry experts who have had hands-on experience in this new area of managed futures involvement. Our panel includes:

    Laurent Cunin, Société Générale FIMAT Trading Management. Mr. Cunin has been with SocGen for eight years and has been involved in the futures fund industry for more than three years as the President of Société Générale FIMAT Trading Management (SGFTM). Last year SocGen raised over $500 million USD through structured products in Japan. Prior to his assignment in Chicago, Mr. Cunin worked for FIMAT in Tokyo.

    John W. Fryback, Mount Lucas Management Corporation. Mr. Fryback has been responsible for institutional marketing of Mount Lucas Management Corporation's products for approximately four years. He has been a leader in the development of exchange-traded futures and options products for more than twenty years. He has held industry positions with Kidder, Peabody &Co. and Chemical Bank. Mount Lucas offers a wide variety of institutional products including the widely accepted, broadly based MLM Index and the Eurodollar Index which are available as part of structured transactions.

    Sarah Street, Chase Securities, Inc. Ms. Street is the Leveraged and Hedge Funds Team Executive at Chase Securities, Inc. Her current responsibilities encompass the development of Chase's "global client strategy" in this sector. Prior to joining her current group in 1991, Ms. Street worked in Chase's Global Risk Management group as part of the Commodity Derivatives Team. She started her career with Chase in London where, having successfully completed the graduate entry program, she joined the Metals and FCM Team for four years before transferring to the U.S. Click here for full article

    Quarter 2, 1997

  • 'Turtle' Founders Successful With Differing Approaches

  • Richard Dennis and William Eckhardt met in high school in 1964. Even at this time, trading was among their sundry shared interests. By the early1970s, they had recognized that technical trend-following enabled them to profit from speculative trading on a fairly consistent basis. Although contemporaries of early trend-followers such as Richard Donchian and Dinesh Desai, neither studied the work of others in this area. Instead, they concentrated on designing their own approaches.

    In 1978, Bill joined Rich's trading company, beginning an ongoing collaboration in the development of new trading ideas. The most famous and visible result of their collaboration during this period: the successful "Turtle" program.

    By the late 1980s, Bill and Richard had decided to go separate ways, although they continued to discuss trading ideas. Today, both continue to perform at the top of the charts, although they have developed rather different approaches.

    In order to get a better understanding of their current views of trading and markets, we've invited these two influential CTAs to answer a few questions for us.

    Richard Dennis, Dennis Trading Group, Inc. Mr. Dennis is the president of Dennis Trading Group and vice-president of C&D Commodities. His career in the commodities industry began at the age of 17 as a runner for a brokerage house. At 21, he held a seat on a small exchange, and at 27, New York Times Magazine profiled his success at the Chicago Board of Trade. His achievements have been described in the Wall Street Journal, Business Week, Fortune, USA Today, Barron's and Esquire.

    William Eckhardt, Eckhardt Trading Company. Mr. Eckhardt is the president of Eckhardt Trading Co. He has traded futures professionally for over 20 years. In conjunction with his trading, over the past 18 years Mr. Eckhardt has conducted extensive research into the nature of futures price action and has developed numerous technical trading systems. Along with Richard Dennis, he co-developed certain trading systems and subsequently co-taught such systems to a group of individuals that have become known as "the Turtles". Click here for full article

    Quarter 1, 1997


  • Options Usage For CTAs Goes Beyond Risk Management

  • The majority of CTAs are trend-followers. They do not try to anticipate market tops or bottoms, but rather look to find trends in motion and jump aboard. When these trend-followers use options, it is usually for purposes of risk management. However, there are other ways to utilize options that can provide the trader with the possibility of earning superior speculative returns.

    Options on futures are a derivative of futures and thus are able to provide the buyer/seller with certain unique trading characteristics not found in futures, such as skewed exposure to directional price risk, exposure to volatility, and choices of various strike prices and expiration dates. An understanding of these characteristics can unlock the door to highly active areas of the options market. Volatility trading, with either a directional bias or with a market neutral bias is just such an area, one largely ignored by CTAs.

    Concepts such as delta, gamma and market neutral are operands which combine to present the speculator with a tremendous array of trading opportunities that go far beyond long and short. In order to gain an understanding and an appreciation of the factors that must be considered for successful implementation of an options strategy, we've invited two expert options users to present their views.

    Angelo A. Calvello, Ph D., Analytic TSA Global Asset Management. Mr. Calvello is the Director of Client Relations and Business Development for Analytic TSA. He is responsible for the development of the firm's products and business in the alternative investment area. Previously, he was Executive Vice-President at Credit Agricole Futures, Inc., Vice-President of Product Marketing at the Chicago Mercantile Exchange, and an independent floor trader at the Chicago Board of Trade and the Chicago Board Options Exchange.

    Robert J. Sorrentino, Maricopa Asset Management, LLC. Mr. Sorrentino is the president of Maricopa Asset Management, and is a former member of the Chicago Board of Trade. Currently, Maricopa has managed futures, options and foreign exchange programs available with assets under management at $30 million. Click here for full article

    Quarter 4, 1996

  • Managed Futures Returns: Skill-Based or Inherent?

  • A hypothetical investor is examining his portfolio results for 1995. Among his investments, he holds shares in the ABC Fund, an equity mutual fund that invests in large capitalization stocks. At the end of the year, his shares have appreciated 20%. This investor also has units in a managed futures fund. At year-end, those units have also appreciated 20%.

    For the new year, our investor must decide whether or not to make changes in these sectors of his portfolio. Although a 20% return for the year is quite high for the mutual fund on an historical basis, he is reminded that the S&P 500 index measured a gain of 37.5% for the same period. As a result of this apparent under performance, he decides to switch from ABC Fund to another mutual fund and feels that he has made the right decision.

    However, when he tries to extend this line of reasoning to evaluate the performance of his shares in the managed futures fund, he finds that he is somewhat at a loss. Although this fund also under performed the S&P 500, he is not sure whether the comparison to the S&P index is relevant. Upon discovering that the Barclay CTA Index measured a 13.5% gain for the year, he feels somewhat more comfortable that the futures fund added value, but still isn't quite sure.

    Institutional investors find themselves in a similar quandary. While it is fairly easy for them to evaluate the source of returns of equity and fixed income managers, they are still somewhat at a loss when it comes to managed futures. It is unclear to them whether the returns from managed futures investments are the result of capturing an inherent return, manager skill, or some combination of the two. To better understand the underlying issues, we've invited two experts in the field to present their views.

    Charles A. (Tony) Baker, Trilogy Capital Management, LLC. Mr. Baker is Executive Vice-President and Director of Institutional Services at Trilogy, a registered investment advisor and CTA firm that specializes in the use of derivative-based investment strategies. He is responsible for all services provided to institutional investors including marketing and product development. Prior to involvement with the establishment of Trilogy, Mr. Baker held positions at SEI, Leland O'Brien Rubinstein Associates, Western Asset Management Company, and Union Bank.

    Richard A. Pike, RP Consulting Group, Inc. Mr. Pike is President and founder of RP Consulting. Established in 1990, RP Consulting is dedicated to the very specialized application of managed futures and derivatives to institutional investors' portfolios. The firm works with domestic and international banks and brokerage firms to develop client products, as well as with pension fund sponsors in there search, development and administration of their managed futures investment programs. Mr. Pike has been employed in the futures industry for 17 years and has been a member of senior management of four major Wall Street firms. Click here for full article

    Quarter 3, 1996

  • Currency Overlay Managers Utilize CTA Trading Skills

  • The amount of money under management in managed futures has declined from approximately $26 billion at the end of 1993 to $22.8 billion at the end of 1995. This decline in assets has been attributed--among other things-- to a decided cooling of U.S. pension fund interest due to several well publicized cases of heavy derivatives losses and to a stock market that continues to defy gravity. Yet, even as many industry participants bemoan the apparent departure of U.S. pension fund assets, other forward-looking participants see an opportunity to expand and extend their money management and trading expertise into the area of currency overlay management.

    According to the Pensions & Investments annual survey of the 1000 largest U.S. pension funds, pensions have an estimated $185.4 billion invested in foreign stocks and bonds. Although the pension fund community still debates whether the foreign exchange risk inherent in the ownership of these international stocks and bonds should be hedged, given the recent strength in the USD and the tendency to view portfolio returns over a shorter term time horizon, advocates of currency hedging and overlay management may be winning the day.

    The Barclay CTA database currently follows the performance of approximately 70 currency trading programs. Of this group, only about 10 have ventured into currency overlay management. Is this an investment area where CTAs with currency trading experience would be competitive? In an attempt to answer this and other related questions, we've asked two CTA/currency overlay managers to discuss some of the relevant issues.

    John R. Taylor, Jr., FX Concepts, Inc. Mr. Taylor is the chairman, chief executive officer and founder of FX Concepts. He has 25 years of experience in the foreign exchange and related fixed income markets. He is recognized as an expert in the management of foreign exchange and a pioneer in the analysis of the cyclicality of foreign exchange and interest rate markets.

    Thomas E. Zimmerman, Zimmerman Investment Management Company. Mr. Zimmerman, a chartered financial analyst, is chief executive officer, portfolio manager and founder of ZIMCO. Prior to founding ZIMCO, Mr. Zimmerman was chief investment officer of the$12 billion Teachers' Retirement System of the State of Illinois where he developed and managed an in-house foreign exchange operation utilizing proprietary overlay models to direct trading. Click here for full article

    Quarter 2, 1996

  • Derivatives: Separating the FACTS from the FEARS

  • In the beginning, there was volatility. Farmers, manufacturers, processors and other commercial interests needed some way to insulate themselves from the havoc that price volatility was wreaking on their businesses. Thus were born the first derivatives.

    During the past twenty years, the growth of derivatives activity has been truly dramatic. The creation of exchange-traded futures and options contracts on energy, currencies, stock indexes and global interest rates, coupled with the internationalization of U.S. pension fund assets, resulted in a bull market for traditional derivatives. Never one to miss an opportunity, Wall Street hired the brightest quants available and through securitization and financial engineering, developed a second generation of exotic derivatives that traded off-exchange. Demand for these products mushroomed as well.

    Then, as in a classic Greek tragedy where nemesis follows hubris, the financial press began reporting on case after case of institutions losing tens and even hundreds of millions of dollars in derivatives-based transactions. Although in most of the cases the losses clearly resulted from incorrect assessments on the future direction of interest rates, the press-and, as a result, the public-decided that derivatives were to blame.

    As a result, U.S. pension funds are shying away from adding new derivatives strategies. According to the January 8, 1996 issue of Pensions ~ Investments, "Pension executives are wary of getting burned and of the negative publicity surrounding derivatives." In addition, numerous state legislatures have introduced proposals to severely limit or ban the use of derivatives by state pension plans and municipalities.

    Is this a reasoned response or a rush to judgment? In order to get a better understanding of the issues involved, we've gathered a distinguished panel of experts to evaluate the risks and benefits of derivatives. Our panel includes:

    Charles Froland, General Motors Investment Management Corp. Mr. Froland is Managing Director of Fixed Income for GMIMCo. Prior to joining GMIMCo, he was Managing Director of Investments for the Stanford Management Company which is responsible for the financial affairs of Stanford University. He has published several journal articles and was a member of the Board of Editors of the Journal of Portfolio Management.

    Donald M. Horwitz, The Woodward Group. Mr. Horwitz is the Managing Director of The Woodward Group, a consulting service providing end users and dealers with expert advice on the management of derivatives risk. He has held legal, regulatory and management positions within the derivatives and financial services industry for more than twenty years. In conjunction with Professor R. Mackay, he has recently authored a study entitled Derivatives: State of the Debate. (A copy of this study is avail able from Barclay.)

    Dr. Thomas Schneeweis, University of Massachusetts at Amherst. Dr. Schneeweis is Professor of Finance and also Director of the Center for International Security and Derivative Markets at the School of Management, U.Mass. He has published numerous articles in academic and practitioner financial journals and is on the associate boards of editors of several nation al financial journals.

    Matthew R. Smith, Lotsoff Capital Management. Mr. Smith is Portfolio Manager at Lotsoff Capital Management. Prior to joining Lotsoff, he was a Senior Portfolio Manager for the Amoco Corporation Pension Fund. Mr. Smith designed innovative investment strategies using aggressive cash management combined with futures or swaps to achieve value-added performance over benchmark returns. Before joining Amoco, he was a Partner and Senior Asset Allocation Analyst at Brinson Partners, a global money management firm. Click here for full article

    Quarter 1, 1996


  • Emerging CTA Firms Must Overcome Unique Challenges

  • Every year, new CTA firms enter the managed futures arena and, not surprisingly, the mortality rate among these "emerging CTAs" is fairly high. Starting a new business in any industry is always risky and managed futures is no exception. Out of the 180 CTA programs managing less than $5 million on January 1, 1990, 57% were out of business five years later. However, of the 66 CTA programs managing more than $25 million on January 1, 1990, 77% were still in business five years later.

    Small CTA firms face many of the same challenges encountered by small firms in other areas of business. However, small CTA firms face an additional challenge that seems to be unique to money management firms. In most cases larger investors, before committing their capital, demand to see multi-year performance histories with significant assets under management. How can a CTA raise significant trading equity when having money under management is one of the prerequisites for raising that money?

    Given this daunting problem, it is surprising that any emerging CTAs break through into the mainstream, but many do. Ten years ago, there were approximately 22 CTA programs with assets under management in excess of $50 million. In 1995, there are 85 CTA programs with more than $50 million under management.

    In order to get a better idea of the issues and challenges faced by new firms with small equity bases, we've gathered a distinguished panel of CTAs who, until recently, may have been considered emerging CTAs. These firms have clearly emerged, and, in our opinion, will most likely be among the 77% still in business in the year 2000. Our panel includes:

    Craig Croman, Zimlev, Inc. Mr. Croman is the president of Zimlev and has traded futures contracts as a full-time professional since 1978. Zimlev currently manages approximately $40 million for clients.

    Hugh R. Haller, Webster Management Group. Mr. Haller is the president of Webster Management Group. Webster was incorporated in October of 1991 and currently manages approximately $50 million in domestic and foreign managed futures.

    John R. Hummel, AIS Futures Management, Inc. Mr. Hummel is president of AIS Futures Management, Inc. and AIS Capital Management, Inc. He has 28 years of investment experience. AIS currently manages approximately $77 million in the futures market.

    Holliston Hurd, Hill Financial Group, Ltd. Ms. Hurd is Director of Marketing for Hill Financial Group, and has been involved in trading futures and in market research since 1983.Hill Financial Group currently manages approximately $23 million in client assets. Click here for full article

    Quarter 4, 1995

  • Oldest CTAs in the Industry Have Survived and Thrived

  • More than twenty years ago--before the creation of the National Futures Association, before stock index futures, and before CTA databases--there existed commodity traders. Few in number and not managing much money at the time, many of these early firms are still trading today.

    In 1980, fifteen CTAs comprised the Barclay CTA Index, having been trading since 1976 or sooner. Since then Richard Donchian passed away, Dinesh Desai retired, and Marc Fishzohn gave up trading. The remaining twelve are still in business and most of them are doing very well. Since their inception twenty years ago or longer, several of these firms have posted compound annual rates of return in excess of 20%. (Of course, past results are not a guarantee of future results.)

    It is enlightening to compare the performances of some of these seasoned CTAs with their equivalents in the stock market. The top-performing, long-term mutual fund in the U.S. is the Fidelity Magellan Fund. Since its inception in 1964, it has recorded a compound annual return of approximately 20%. Warren Buffet, considered by many to be the greatest investor of all time, has been able to increase per-share book value of Berkshire Hathaway at a compound annual rate of 23% since he took over management in 1965.

    It's almost as if there is a barrier for investment returns over longer periods of time--a junction point where skill meets reality--and it seems to lie slightly north of 20%. For more than two decades, a handful of commodity trading advisors have continued to bump up against that outer limit. In order to gain a better understanding of the challenges faced by the earliest firms, we've invited comments from a distinguished panel of CTAs, all of whom have broken the 20/20 barrier: 20%-plus compound annual return over at least a 20-year period. Our panel includes:

    D. Keith Campbell, Campbell & Company. Mr. Campbell is the president of Campbell & Co., which has been trading since 1972 and currently, manages approximately $325 million for clients in managed futures.

    George E Crapple, Millburn Ridgefield Corporation. Mr. Crapple is vice-chairman of Millburn which has been trading since 1971 and currently manages approximately $500 million for clients.

    Steve DeCook, Fundamental Futures, Inc. Mr. DeCook is the president of FFI, which has been trading since 1975 and currently manages approximately $55 million for investors in the agricultural and meat markets.

    William A. Dunn, Dunn Capital Management, Inc. Mr. Dunn is the president of Dunn Capital Management which has been trading since 1974 and manages approximately $400 million for clients. Click here for full article

    Quarter 3, 1995

  • Dollar's Drop Puts Pressure on Overseas Futures

  • For many non-U.S. investors an investment in managed futures is partly an investment in the U.S. dollar. This results from the fact that most U.S. and many off-shore funds maintain their non-margin cash balances in U.S. dollar deposits. Unfortunately for these investors, the U.S. dollar has declined 26.3% against the D-mark, 31.8% against the Swiss franc and 28.7% against the yen during the fifteen-month period ending March 31, 1995. These declines, while recently providing excellent trading opportunities, have resulted in very large losses for foreign investors.

    During this same fifteen-month period, the Barclay CTA Index measured a total return of 3.81%. While this modest return put U.S. investors in the plus column, European and Japanese investors have taken large net losses.

    The impact of the currency loss may have a significant effect on the managed futures industry as a whole. In large part, the growth of managed futures has been fueled by off-shore participants. At the end of 1994, approximately 55% of the assets under management in managed futures were from non-U.S investors.

    In order to gain a better understanding of the alternatives as well as possible solutions, we've invited a distinguished panel of industry experts to comment on how to structure managed futures investments with minimal risk of foreign exchange loss. Our panel includes:

    Paolo G. Cugnasca, Emcor. Mr. Cugnasca is a founder and managing director of Emcee. Emcee is a recognized leader in the field of foreign exchange risk assessment, hedging, and international derivative products development.

    Madanda G. Machayya, ML Futures Investment Partners, Inc. Mr. Machayya is vice-president and manager of the research and product development department of MLFIP. Prior to joining Merrill Lynch in 1988, he worked for two years as an analyst in the economics department of Chase Manhattan Bank.

    Shakil Riaz, Chemical Bank. Mr. Riaz is vice-president, Global FX Managed Funds Group at Chemical. The primary responsibilities of the Managed Funds Group include marketing of FX/interest rate execution services, portfolio management for proprietary capital invested with outside managers and management of client funds in the FX and interest rate areas.

    Didier Varlet, Indosuez Carr Futures. Mr. Varlet is president and CEO of Indosuez Carr Futures, a global FCM, and Carr Asset Management, a trading manager for offshore alternative investment funds. Carr Asset Management currently manages 12 funds trading in the financial futures and currency markets. Click here for full article

    Quarter 2, 1995

  • Turtles Outperform Industry In a Challenging Year

  • In 1983, C&D Trading Co. ran a classified advertisement in the Wall Street Journal looking for individuals who would be willing to learn how to trade futures. These individuals, upon completion of a training program, would be given trading capital by C&D. Compensation would be a percentage of their trading profits.

    C&D Trading, owned by Richard Dennis, received approximately 2000 responses to this advertisement. Mr. Dennis and his partner William Eckhardt, using a process that included reviewing written applications, evaluating exam results and interviewing finalists, selected a group of thirteen. Upon completion of a two-week training period, this group was funded and sent off to trade. Thus were born the Turtles. This curious name supposedly had its origins in a trip to the Orient taken by Dennis. Upon visiting a turtle farm, he felt that he could grow traders as easily as one could grow turtles.

    This initial group was so successful that C&D decided to start a second group of eight in 1984. By the time the program ended in early 1988, C&D had made approximately $120 million on its share of the Turtles' trading profits. After the program ended, many of the Turtles went into the CTA business. And while a few have dropped by the wayside, many of the original group continue to earn attractive rates of return for their clients.

    On balance, 1994 was a difficult year for the CTA community. The Barclay CTA Index measured a loss of 0.66% and many traders in the industry lost money. Among Turtles, however, we found that eight of nine made money in 1994.

    In order to get a better understanding of what is behind their successful trading, we invited a panel of former Turtles to comment. Our panel includes:

    Mike Carr, M.C. Futures
    James P. DiMaria, J.P.D. Enterprises, Inc.
    Paul Rabar, Rabar Market Research
    Howard Seidler, Saxon Investment Corporation. Click here for full article

    Quarter 1, 1995


  • Institutions Assess Commodity Baskets and Indexation

  • 1994 has seen a tremendous growth in interest concerning the potential role of a commodity investment in an institutional investment portfolio. This interest has been aroused by a combination of factors including the increased expectation of inflation and the search for higher returns in the face of lackluster performance in the traditional market sectors (i.e. stocks and bonds).

    Some of this interest will ultimately translate into increased institutional participation in actively managed futures programs. Increasingly, however, some institutions are opting to gain exposure to commodities by investing in a passive, indexed approach. Pension & Investments' Annual Survey of Pension Funds found that, among the 200 largest pension funds, of the approximately $1.04 trillion of pension assets that are invested in equities, $264.5 billion (approximately 25.4%) are invested using an indexed approach rather than active management. It would not be surprising if a similar strategy evolves with regard to managed futures.

    The first investable commodity index was the CRB Futures Index, an index of 21 commodities futures contracts, equally weighted and geometrically averaged. Although originally introduced in 1974, the CRB Index has not been able to attract an institutional following. Current open interest is just under 5,000 contracts.

    The next entrant was Mount Lucas Management Corp. In 1986, they introduced the MLM Index, a volatility based index which attempts to capture the inherent returns available to managed futures investors through the use of a naive moving average algorithm. Currently known as the BARRA/MLM Index, it is unleveraged, equally weighted and free of manager skill.

    1991 brought us two new investable indices, the Goldman Sachs Commodity Index and Intermarket's Investable Commodity Index. In 1994, the floodgates seemed to open with the introduction of the J.P. Morgan Commodity Index, the Bankers Trust Commodity Index and the Merrill Lynch Energy and Metals Index.

    In order to get a better understanding of the issues concerning passive indexed approaches, we invited a distinguished panel of experts to comment on the issues. Our panel includes.

    Vincent J. Bailey, BEA Associates. Mr. Bailey is vice-president and Portfolio Manager at BEA. His responsibilities include research on futures, options and currencies. He is currently working on derivative strategies for international equities and commodities. He received a BA in economics and mathematical statistics from Columbia University and an MBA from the Graduate School of Business at Stanford University.

    Alan Kaufman, Mt. Lucas Management Corporation. Mr. Kaufman is a founder and senior vice-president at MLM. MLM is the developer of the BARRA/MLM Index and was the first firm to offer a managed futures program designed specifically for pension funds.

    Blythe Masters, J.P. Morgan. Ms. Masters is product manager of the recently launched J.P. Morgan Commodity Index. She is currently responsible for J.P. Morgan's global investor commodity derivatives business. Ms. Masters is a graduate of Trinity College, Cambridge, with a Masters Degree in Economics.

    Click here for full article

    Quarter 4, 1994

  • Price Moves Rekindle Interest In Physical Commodities

  • After years of languishing in relative obscurity in the shadows of the more glamorous (and more profitable) financial futures and foreign currencies, physical commodities have roared back to life during the first half of 1994. Some of the physicals such as coffee have demonstrated dramatic price trends as strong as any seen in any futures instrument in recent years. A combination of growing demand coupled with a freeze in Brazil caused the price of coffee to soar from less than $1.00 per pound at the end of April to nearly $2.50 by mid-year.

    Coffee has not been the only trending physical futures contract this year. Crude oil, which began the year trading near $13.00 per barrel has risen to nearly $20.00. Copper and cotton have also seen sharp upward moves in their prices.

    In light of the recent dramatic decline in the value of the U.S. dollar versus the yen and other major foreign currencies, 1994 is developing as the first year in many in which major price trends have occurred in both the physical and the financial futures markets. The added trading opportunities and diversification benefits to CTAs (and to managed futures investors) are obvious.

    The critical issue, however, is whether these recent trends in some of the physical commodities reflect simply microeconomics supply/demand imbalances or rather a broad-based and sustainable appreciation of physical commodities in general (as has been suggested by leading analysts at the World Bank). In order to shed light on this and related issues, we invited a distinguished panel of CTAs to comment on the resurgence of the physical commodities. Our panel includes:

    Owen Brown, Owen Brown Capital Management Inc. Mr. Brown is the president and trading manager for OBCM. Prior to OBCM, he spent fifteen years trading for banking institutions and on his own as a floor trader on the Chicago Mercantile Exchange.

    John Demaine, Sabre Fund Management Ltd. At Sabre, Mr. Demaine is primarily responsible for product development and marketing and is also the finance director. He is a qualified Chartered Accountant. Before joining Sabre in 1988, he worked at Arthur Anderson & Co., specializing in derivatives.

    Tom Northcote, CCA Capital Management, Inc. Mr. Northcote is responsible for all business development for CCA and has over 21 years of experience in managed futures. He serves as director of the Managed Futures Association and is the author of Major Events in the History of the Managed Futures Industry which is published by the MFA.

    Gregory S. Oberholtzer, Intermarket Management, Inc. Mr. Oberholtzer is IMI's managing director. IMI has been active in commodity indexed portfolios since 1986 and is the publisher of the Investable Commodity Index, a broad-based measure of the total return performance of an investment in commodities through the use of collateralized futures. Click here for full article

    Quarter 3, 1994

  • Growth of International Assets Increases Currency Exposure

  • Over the past ten years U.S. and European institutions have increasingly invested in international equities and fixed income instruments. Currently U.S. pension funds alone have invested an estimated $260 billion in foreign stocks and bonds, a more than four-fold increase since 1987.

    Global investment strategies involve two key components of risk: the market risk of the core security and the foreign exchange risk between the home currency and the foreign currency.

    The importance of foreign exchange fluctuations relative to global investment returns is substantial. By some estimates, over the past 20 years as much as 30% of the return on international stocks and more than half of the return on international bonds has been due to currency fluctuations. The issue currently being debated within the pension fund community is whether, and to what extent, this currency risk should be hedged.

    There are four basic schools of thought. The first argues that currencies over the long run provide no real return (i.e., gains or losses wash out); they are not therefore an asset class and should not be hedged. The second argues that even if currencies are not an asset class, an institution should not have to bear the volatility of currency fluctuations and that currency risk should be fully hedged on a continuous basis.

    The third school argues that currency risk should be hedged but only during periods when it is advantageous to the hedger. They advocate a strategy known as "dynamic hedging". The fourth school argues that currencies can provide a real rate of return over long periods of time (e.g, the pound sterling has been in a sustained decline for some 400 years). They suggest that institutions view currencies as a separate asset class which can be traded either from a technical or fundamental perspective.

    We have invited the following currency overlay specialists to comment on this controversial subject:

    Sheri Gorin Baker, KB Currency Advisors, Inc. Ms. Baker joined KB Currency Advisors as Senior Vice-President in 1991 and oversees KB's foreign currency hedging and overlay programs. Prior to joining KB, Ms. Baker was a Vice-President in the Foreign Exchange Advisory Group of J.P. Morgan & Co. where she specialized in the usage of foreign currency options as hedging vehicles for corporate and institutional clients.

    David G. Depew, TSA Capital Management. Mr. Depew is a Director of Trading and Senior Investment Strategist at TSA Capital Management where he directs futures, options and equity trading. He supervises the implementation of the firm's asset allocation strategies for all clients and he additionally serves as product manager for currency management.

    John R. Taylor, Jr., FX Concepts, Inc. Mr. Taylor is the President and founder of FX Concepts. His prior positions include Vice-President at Citibank, where he headed marketing and advisory services in foreign exchange, and Chemical Bank, where he headed Chemical's foreign exchange service.

    Ezra Zask, Ezra Zask Associates, Inc. Mr. Zask is the President and founder of Ezra Zask Associates. Formerly, Mr. Zask was Global Foreign Exchange Manager for Mellon Bank and European Foreign Exchange Manager for Manufacturers Hanover Trust Company and Mellon Bank. He is currently an Adjunct Finance Professor at Carnegie-Mellon University. Click here for full article

    Quarter 2, 1994

  • Yield Enhancement Programs: Greater Returns, Less Risk?

  • In managed futures, the return to an investor usually has two components: trading profits and interest income. For more than a decade, we have witnessed a decline in short-term interest rates. In 1981, 90-day U.S. T-bills provided an annual yield of approximately 14.72%. In 1993, the yield was 3.02%. This has obviously had a negative impact on the overall yields available to investors who depend on interest income, as well as to managed futures investors.

    During the decade of the `80s, the compound annual return for the Barclay CTA Index was 23.33%. In this environment of robust returns, investors were not overly concerned with the relatively small loss of incremental return due to lower interest rates. The last three years, however, have provided a rate of return for many managed futures investors that is below the historical norm. As the absolute level of return has decreased, the relative importance of the interest income component has increased.

    The last several years have also seen increased institutional interest in managed futures products among pension funds and endowments. This "institutionalization" has resulted in an attempt to provide investors with a moderate rate of return that is coupled with a correspondingly moderate level of volatility.

    It should then come as no surprise that the concept of "yield enhancement" has recently gained significant attention in the managed futures industry. While no universally accepted definition of "yield enhancement" exists, the concept is generally understood to include investment management programs whose objective is to achieve moderate incremental yield improvements above the risk-free rate or other indexed benchmarks, such as the S&P 500 or the Libor rate, while at the same time maintaining minimal downside volatility.

    A yield enhancement program will often invest in a cash market instrument such as government treasury notes or bonds and will utilize derivatives, including futures and options, to hedge exposure against unexpected interest rate moves. Because these programs trade in the cash markets, they can be used to complement a managed futures portfolio which uses only a small portion of its total account equity for margin purposes. The yield enhancement program effectively takes the place of treasury bills, the normal risk-free haven for the nonmargined cash in a managed futures portfolio. A typical return objective for a yield enhancement program might be in the range of 100 to 600 basis points above the risk-free or benchmark rate. Downside volatility varies, but a "good" yield enhancement program might be expected to maintain a standard deviation of monthly returns approaching or below 1.0% per month.

    Unfortunately, as with other terms such as "arbitrage" which imply little or no risk, the name "yield enhancement" has sometimes been applied to programs which are in fact quite risky. However, a number of excellent yield enhancement programs have emerged which utilize a variety of sophisticated cash and derivatives market trading strategies. Our roundtable discussion this month explores the world of yield enhancement with four leading investment managers including:

    David C. Areson, Chancellor Capital Management. Mr. Areson is a vice-president and member of the Client Service and Sales Group at Chancellor. Managing $27 billion in client assets, Chancellor offers investment strategies in four product areas-equity, fixed income, investment technology and alternative assets.

    Kenneth D. Brown, Barclay Capital Management, Inc. Mr. Brown is president and chief investment officer at Barclay. Formerly, as senior vice-president of Mitchell Hitchins Institutional Investors, Inc., he managed $1.5 billion in assets. Barclay, founded in 1977, provides global and domestic fixed income management of pension and 401(k) plans for corporations, public funds and Taft-Hartley plans.

    Dr. Sanford J. Grossman, Quantitative Financial Strategies, Inc. Dr. Grossman, the founder and director of QFS, is the Steinberg Trustee Professor of Finance at The Wharton School, University of Pennsylvania. He has been an economist with the Board of Governors of the Federal Reserve System and has also taught at Stanford University, the University of Pennsylvania and the University of Chicago.

    Daryl L. Hudson, Consistent Asset Management Company. Mr. Hudson is the chairman of CAMCO. Previously, he was the senior portfolio manager at Wilmington Trust Co. Camco currently manages approximately $1 billion in client assets. Click here for full article

    Quarter 1, 1994


  • Dealing with the Challenge of Unfavorable Markets

  • Investors have observed that there are periods of time in which many CTAs seem to have a relatively easy time achieving profits. On the other hand, there are also periods in which market conditions make it very difficult for all but a few CTAs to realize gains.

    CTAs deal every day with the realization that a "good time"--such as the sustained rising trend of the Japanese yen versus the U.S. dollar during the first seven months of 1993--can quickly give way to a "bad time", as occurred in September when the yen unexpectedly reversed against the dollar.

    How a CTA deals with the bad times may, in the long run, prove to be a much more critical success factor than how the CTA performs during favorable market conditions. In this issue, four leading CTAs explain how they deal with the "bad times", i.e., those periods of choppy, non-trending market conditions during which the critical objective may be breaking even or containing losses to a minimum.

    Ranga Nathan, Waldner Financial Corporation. Mr. Nathan is the executive vice-president of Waldner Financial Corporation, a wholly-owned subsidiary of Waldner & Co., a financial research and management firm that provides foreign exchange and interest rate exposure management information to multinational corporations.

    Bruce I. Nemirow, John W. Henry & Co., Inc. Mr. Nemirow is president of JWH. Prior to joining JWH, Mr. Nemirow was senior vice-president and national sales manager for Capital Market Products at Shearson Lehman Hutton. JWH currently manages in excess of $1 billion for individual and institutional investors.

    A. Thomas Shanks, Hawksbill Capital Management. Mr. Shanks is the president and founder of Hawksbill Capital Management. Mr. Shanks began his futures trading career as an apprentice to Richard Dennis in the well known "Turtle Program". Hawksbill currently manages more than $100 million for investors.

    John R. Taylor, Jr., FX Concepts, Inc. Mr. Taylor is the president and founder of FX Concepts. His prior positions include vice-president at Citibank, where he headed marketing and advisory services in foreign exchange, and Chemical Bank, where he headed Chemical's foreign exchange service. FX Concepts currently manages approximately $5 billion in currency exposure for institutional clients. Click here for full article

    Quarter 4, 1993

  • Looking Ahead to the Year 2000
    An In-Depth Discussion with the President of Colorado
    Commodities Management

  • You don't have to be a rocket scientist to trade futures and derivatives. On the other hand, it doesn't hurt either. Tenny Lode, Ph.D., president of Colorado Commodities Management Corporation (CCM), is living proof of that. Prior to founding CCM, Dr. Lode served as a research specialist with Honeywell and 3M. He has a Ph.D. in Physics from the University of Wisconsin (1972) and holds 65 patents, primarily in the computer and electronics fields.

    Since 1977 Dr. Lode has devoted virtually all of his time to the trading of futures and options. His wife Sherry holds a law degree and has held key corporate marketing positions. Together, they have built CCM into one of the leading money management firms in the managed futures industry. The company is based in Boulder, Colorado and has a staff of more than 40 persons.

    CCM currently manages more than $200 million. Of the more than 400 CTA programs included in the Barclay CTA Database, CCM ranks as the 12th largest firm. CCM's performance has also ranked it among the industry's leaders. For the five years ending March 31, 1993, CCM's Currency and Financials Program ranked fourth in compound annual return among those CTA programs having at least $10 million under management.

    We recently asked Dr. Lode to respond to a series of questions regarding the direction of the managed futures industry. His answers are provided in full below. Click here for full article

    Quarter 3, 1993

  • Systematic Approaches Apply Method to the Madness

  • Many academicians have taken the position that the futures markets are highly efficient with respect to price discovery. If you accept this hypothesis, you've taken a step towards the conclusion that it's not possible to make money trading the futures markets.

    Our research and experience do not support this conclusion. The Barclay CTA Index has been profitable in 12 of the past 13 years. The compound annual return for the index over this time period is 19.57%.

    Of the more than 550 managed programs in the Barclay CTA Database, almost two-thirds could be categorized as having a systematic, as opposed to judgmental or discretionary approach to trading. Six of the ten largest firms, as measured by amount of money under management, are systems traders.

    In order to understand how a system approach that takes human judgment out of the equation is able to deal with what is considered by many to be a random and unpredictable market, we invited a distinguished panel of CTAs to comment on the subject. Our panel includes:

    Barbara S. Dixon, Spackenkill Trading Corp. Ms. Dixon is the president of Spackenkill Trading Corp. Ms. Dixon began trading in 1973 and is a senior vice-president at Smith Barney.

    William Eckhardt, Eckhardt Trading Co., Inc. Mr. Eckhardt is the president of Eckhardt Trading Company, Inc. Mr. Eckhardt began trading in 1974 after four years of doctoral research at the University of Chicago in mathematical logic.

    Stig E. Ostgaard, Sjo, Inc. Mr. Ostgaard is a vice-president and director of research for Sjo, Inc., a Chicago-based CTA firm which was founded in 1982. Sjo currently manages approximately $137 million in three programs.

    Rutherford R. Romaine, RXR, Inc. Mr. Romaine is a director and executive vice-president of RXR, Inc. RXR was founded in 1983 and is one of the ten largest CTA firms. Click here for full article

    Quarter 1, 1993


  • How Will Inflation Effect CTA Performance in the 90s?

  • During the late 1960s and early 1970s the use of technical analysis as a predictor of U.S. stock market movement generally fell into disfavor among equities traders. Today, however, a number of CTAs who incorporate technical analysis in their trading methodology have been able to trade stock index futures contracts with favorable results. These CTA programs may be an ideal introduction to managed futures for institutions and individuals who are sophisticated stock market investors.

    In addition, the development of non-U.S. stock index contracts such as the Nikkei 225, the FT-SE 100 Index (London) and the DAX 30 Index (Germany) enables U.S. investors to participate in global stock markets with minimum currency exposure.

    In order to assess the importance of stock index futures contracts, we invited a panel of CTAs to participate in this month's roundtable discussion. Our panel includes:

    G. Richard Horton, Noddings Investment Group, Inc. Mr. Horton is president of Noddings, a CTA firm that utilizes a seasonality approach to trade stock index futures.

    Albert L. Hu, CTA. Mr. Hu earned an M.S. in Applied Mathematics from the University of Santa Clara. He manages commodity trading accounts as a sole proprietor, specializing in stock index futures.

    Jeremy S. Lefkowitz, Chancellor Trust Company. Mr. Lefkowitz is a managing director of Chancellor. He is the senior portfolio manager responsible for equity index products and a specialist in derivative securities.

    Lon Witter, Witter & Lester, Inc. Mr. Witter is president and co-founder of Witter & Lester, where his primary responsibility is research. Formerly, he was vice-president and trust investment officer of First Alabama Bank. Click here for full article

    Quarter 4, 1992

  • How Traders Interpret Recent Industry Performance

  • Although many CTAs, including technical trend followers, experienced a strong performance rebound during June 1992, the industry had relatively weak performance during most of 1991 and the first five months of 1992. This extended drawdown cycle has led many industry observers to question whether the managed futures industry is experiencing a cyclical downturn or a permanent structural shift.

    In order to explore this important issue, we invited a panel of leading CTAs to share their views with us. Our panel includes:

    Keith Campbell, Campbell & Company. Mr. Campbell is president and founder of Campbell & Company which currently manages approximately $300 million. Campbell & Co. boasts the country`s longest continuously operating commodity fund.

    Robert S. Duich, Duich Investment Company, Inc. Mr. Duich is president of Duich Investment Company based in San Francisco. Previously Mr. Duich traded government securities for Pacific Securities, Inc. in San Francisco.

    William Dunn, Ph.D., Dunn Capital Management, Inc. Dr. Dunn heads a Florida-based CTA firm which manages approximately $190 million.

    Alan Kaufman, Mt. Lucas Management Corporation. Mr. Kaufman is senior vice-president at Mt. Lucas Management, one of the leaders in futures money management for institutions. Mt. Lucas currently manages approximately $350 million. Click here for full article

    Quarter 3, 1992

  • European CTAs Look at US Economy and Global Markets

  • As the managed futures industry has become global in scope, increasing numbers of CTAs have formed in countries around the world. In this issue we invite four leading non-U.S. trading advisors to share with us their perspectives and predictions regarding the U.S. economy and its impact on global markets. Our panel includes:

    Richard P. Grace, R. Grace & Co., Ltd. Mr. Grace heads a London-based CTA firm together with his partner Gerard Shama. Mr. Grace traces the roots of his fundamental trading approach to his early work as an OECD economic analyst. He joined ContiCommodity-London in 1979 and subsequently worked with Balfour Maclaine International U.K. Ltd. and Shearson Lehman Brothers-London prior to founding his firm in 1991.

    Mr. Gerard Grimes, Gandon Fund Management Ltd. Gerry Grimes is a director of Dublin-based Gandon Fund Management. Prior to joining Gandon in 1988, Mr. Grimes worked for ten years with the Central Bank of Ireland. As Chief Foreign Exchange Dealer for the CBI, he was responsible for the currency allocation of Ireland's external reserves and the management of the Irish Pound in the European Exchange Rate Mechanism.

    Dr. J.T. Ross Jackson, Gaiacorp Ireland Limited. Dr. Jackson is Chairman of Gaiacorp and its Danish parent, Gaiacorp A/S. Canadian by birth, Dr. Jackson is now a naturalized Danish citizen. He holds a B.Sc. in Physics from Queen's University, an M.S. in Industrial Management from Purdue, and a Ph.D. in Operations Research from Case Western Reserve University. Gaiacorp currently manages more than $100 million.

    Samir Jalaleddine, Comfitrade, Inc. Mr. Jalaleddine is President of Comfitrade, Inc. based in Memphis and its Geneva-based affiliate, Comfitrad S.A. Prior to founding Comfitrade in 1985, Mr. Jalaleddine worked for eight years as a manager in the Research and Development department of Proctor & Gamble A.G. in Geneva, Switzerland. Mr. Jalaleddine holds a B.S. in Chemistry from the American University of Beirut and an advanced degree in Chemical Engineering from the University of Manchester, England. Click here for full article

    Quarter 2, 1992


  • Financial Futures Trading Expands to Worldwide Arena

  • Ten years ago 95% of all futures trades were cleared in Chicago, and agricultural commodities such as corn, soybeans, and pork bellies accounted for a large percentage of global futures trading. Today the world of futures and options trading has a distinctly different flavor.

    Two significant changes have occurred in recent years. First, the volume of trading and the number of contracts traded in financial futures and options contracts (including interest rate instruments, currencies, and stock indices) have grown rapidly, especially when compared to traditional physical commodities. Second, a large portion of that growth is taking place at exchanges outside the U.S.

    A look at global trading volumes during the month of July 1991 is quite revealing in both regards. Of the 15 most actively traded futures and options contracts during July, 12 were in the financial futures and options markets as opposed to the physical commodities markets. The most actively traded list included the U.S. T-bond, S&P 100 option, Eurodollar, Nikkei 225 stock option, 10-year French government bond, Euroyen, Japanese government bond, and the German bund. The only physical commodities represented on the list were crude oil, corn, and soybeans--whose combined volume was less than that of the U.S. T-bond.

    The second change apparent in the July figures is that six of the top 15 contracts were traded on foreign exchanges, including the Osaka Securities Exchange, Matif (Paris), Tokyo International Financial Futures Exchange, LIFFE (London), and Tokyo Stock Exchange.

    In order to assess what opportunities and challenges these changes will present to CTAs and investors, we asked a distinguished panel of CTAs to comment on the growth of global financial futures. Our panel includes:

    Douglas Bry, Northfield Trading, L.P. Mr. Bry is a former trial attorney. In 1987, together with Philip Spertus, he formed Northfield Trading Co., which today manages $53 million.

    R. Parker Crowell, Chang-Crowell Management Corporation. Mr. Crowell joined Hayden, Stone, Inc. in 1967. In 1982, he began working with Richard Donchian, one of the earliest futures trading advisors. Today he and his partner, Nelson Chang, have over $100 million under management.

    Robin Edwards, Sabre Fund Management, Ltd. Mr. Edwards and Mr. Peter Swete formed their U.K.-based company in 1982. Sabre, one of the most successful non-U.S. based CTA firms, manages $95 million.

    Brian Gelber, Gelber Management, Inc. Mr. Gelber was recently featured in the widely read book Market Wizards by Jack Schwager. He heads the trading activities of GMI which he founded in 1985 and which has approximately $20 million under management.

    Henry Luk, Luck Trading. Mr. Luk, who specializes in cash-futures bond arbitrage, previously traded financial futures with Becker-Paribas, Commodities Corporation, and Renault Credit International of France. Mr. Luk today manages $20 million. Click here for full article

    Quarter 4, 1991

  • Technical vs. Fundamental: How Do Traders Differ?

  • Among the various approaches to trading utilized by leading CTAs, the most basic distinction is between "technical" and "fundamental" analyses of the markets. Fundamental traders generally rely upon an analysis of factors which affect the supply/demand relationship for specific commodities (e.g., government crop reports, interest rates and money supply, geopolitical news). Technical traders, on the other hand, rely upon an analysis of a commodity's prior price movement to predict future trends, believing that a commodity's price already incorporates the effects of knowable fundamental information. In this issue our roundtable features a point/counterpoint discussion regarding the strengths and limitations of technical and fundamental approaches. Our panel of distinguished CTAs includes two fundamental traders, Steve DeCook and Gary Gerstein, and two technical traders, Jerry Parker and Allen Weiss.

    Steve DeCook, Fundamental Futures, Inc. Mr. DeCook has traded the agricultural futures markets from a fundamental standpoint for more than 20 years. Today his firm manages approximately $41 million.

    Gary Gerstein, Red Oak Commodity Advisors. Mr. Gerstein has been active in the investment management field for 24 years, primarily in the area of fundamental analysis of equities. He founded Red Oak in 1989 and currently manages approximately $50 million.

    Jerry Parker, Jr., Chesapeake Capital Corporation. Mr. Parker began his career as a CTA in 1983 under the tutelage of Richard Dennis. In 1988 he formed Chesapeake, which today manages $92 million.

    Allen Weiss, AZF Commodity Management, Inc. Mr. Weiss founded AZF in 1984 and utilizes a long-term diversified trend-following system. AZF currently manages $102 million. Click here for full article

    Quarter 3, 1991

  • What's in store for 1991

  • '91 promises to be a challenging year for investors. The Gulf war and its economic aftermath, the accumulated burden of the 80's debt binge, the possibility of recession and a weak dollar--these are but a few of the major economic issues which will impact the markets in the coming months. In order to assist our readers in identifying investment priorities, opportunities, and strategies during these rapidly changing times, we invited a panel of five leading commodity trading advisors to share with us their market insights for 1991.

    Participating in this special roundtable discussion are the following CTAs:

    Elizabeth M. Cheval, EMC Capital Management, Inc. - Ms. Cheval uses a diversified technical trend-following approach in her trading.

    Peter F. Matthews, Mint Investment Management Company - Dr. Matthews is the chief portfolio strategist for Mint, one of the world's largest CTA firms with approximately $1.1 billion under management.

    Paul Rabar, Rabar Market Research, Inc. - Like Ms. Cheval, Mr. Rabar has been one of the most successful "turtles," the name collectively applied to the students of Richard Dennis.

    Kenneth G. Tropin, John W. Henry & Co., Inc. - Mr. Tropin has been the president and CEO of JWH since March, 1989. Previously he was senior vice-president and director of managed futures and precious metals at Dean Witter Reynolds, Inc. JWH currently manages approximately $450 million.

    Monroe Trout, Trout Trading Company, Inc. - Former captain of the Harvard basketball team, Mr. Trout has emerged as one of the most successful and innovative young traders. Trout's volatility has historically ranked among the lowest of leading CTAs. He currently manages approximately $200 million. Click here for full article

    Quarter 1, 1991


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