The 20 Rising Stars of Hedge Funds 2008

Looking Great for 2008 Last year’s historic performance sets the stage for hedge funds to power through the current downturn By Gregory Morris A up well relative to other investments. Furthermore, Friedland noted that pure hedge funds may have done better than the overall industry metrics indicate. “Some strategies have done well and some not so well, but some of those that have not done well are longonly funds disguised as true hedge funds,” he said. In effect, hedge funds literally can’t win for losing: investment strategies that called David Friedland, president of the Hedge Fund Association themselves hedge strategies to borrow some of the glamour are now bringing down the average. To be sure, Friedland stressed that, with global macroeconomic trends so choppy, it will be difficult for even truly hedged investment funds to do well in absolute terms in 2008. Instead, the emphasis will be on relative performance. “Investors do not like to hear that,” he said. “They are paying big fees, so they want absolute returns.” In the long run, funds have to deliver returns to their investors, especially the big institutional players that take large positions. But for this year, relative performance will likely have to do. “To the institutional investor, I suggest sticking to the prudent strategy and remaining committed,” Friedland said. “Don’t be spooked by short-term trends.” With refreshing frankness, he added, “Investors should be willing to suffer through a little bit of a rough market and be prepared to jump in when the time is ripe.” To bolster his argument, Friedland noted that the dreaded credit crunch that has felled some big financial names has only been a problem for hedge funds that made a habit of borrowing. “We have seen some funds become forced sellers because their lenders pulled the plug, but that is not the case across the board,” he said. MAY 2008 FTER A FEW HIGH-PROFILE problems over the past couple of years, hedge funds became poster boys for a financial sector out of control and out of touch. Somehow elected officials and the media were able to simultaneously paint them as being irresponsibly rapacious and clumsily destructive. The reality, however, is much different. Hedge funds recorded outstanding performance in 2007, both in terms of returns on assets under management and inflows. Moreover, fund managers and industry watchers contend the performance came from fundamental execution, not from creative financing. Just to be sure, however, renewed emphasis is being put on compliance and communicating the sector’s role in the wider economy. Institutional investors expressed their confidence in the health of the hedge fund industry by continuing to pump dollars into the sector. Hennessee Group, based in New York, estimated that hedge fund assets increased by $462 billion in 2007 to almost $2 trillion. That increase in assets represents 30% growth since the beginning of 2007. Preliminary results indicate that the hedge fund industry experienced net inflows of $278 billion in 2007, a gain of 18% year over year. The remaining $184 billion, a gain of 12%, was the result of positive performance, as evidenced by the Hennessee Hedge Fund Index, which advanced 11.6% last year. Furthermore, these figures do not include assets invested in funds of funds. The amount of inflows, $278 billion, represents the largest amount of annual inflows into the industry in its history and is a 75% increase over the amount of inflows in 2006, according to Hennessee. That year, the sector gained $159 million. The percentage increase in assets due to inflows, 18.1%, represents the highest level of inflows since 2001. It’s All Relative David Friedland, principal of Magnum Funds and president of the Hedge Fund Association, acknowledged that hedge funds got a bit of a bad rap and have since been overshadowed by the general economic downturn. However, he remains confident that, once the dust settles, people will see that hedge funds have held 6 HEDGE FUND RISING STARS

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The 20 Rising Stars of Hedge Funds 2008 Contents Looking Great for 2008 A Matter of Supply and Demand Return Performance Highlights Challenging Period 20 Rising Stars of Hedge Funds Mentors' Page

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