Institutional Investor's Alpha Magazine - December 2007/January 2008 - (Page 48)

Próxima Alfa launched within Anglian Commodities in July 2005 and spun off in May 2007. Mark Corigliano heads the fund, which employs a commodity-focused long-short strategy. He is a former portfolio manager with Durham, North Carolina–based Dumac, which manages the endowment of Duke University. The Anglian group invests an additional $230 million in private mandates. As a relative-value investor, Barrowcliffe tries to exploit price differences between securities. This strategy put him in the same camp as Amaranth Advisors, the Greenwich, Connecticut–based multistrategy hedge fund that lost $6 billion in September 2006 after energy trader Brian Hunter bet on the wrong side of natural-gas prices. Barrowcliffe got out of Anglian’s natural-gas positions a year before Amaranth ran into trouble, switching mostly to metals, and was up 3 percent that September. “Amaranth was an accident waiting to happen,” Barrowcliffe says. “The natural-gas market was very crowded, and it was quite obvious to us that someone was going to get hurt. I’d been trading energy too long to miss the signs.” Although Barrowcliffe is Próxima’s star player, his fund has an annualized return of just 9.69 percent since its inception. Mann says the platform was created to support a deep team rather than to hit home runs. Through November 2007 only two of Próxima’s ten funds had — TERRY MARSH, CEO, double-digit annualized returns QUANTAL INTERNATIONAL since inception: Corigliano’s Anglian Equity, up 26.6 percent, and the $340 million Nile Master Fund, a long-short equity strategy managed by quantitative trader Larry Seruma, up 25.4 percent. Mann argues that it’s too early to judge Próxima’s funds because many of them are so young, and others specialize in niches where even a mid-single-digit return is considered respectable. For example, Próxima’s Institutional LIBOR Fund, a cash management product that offers daily liquidity and has a Aaa/ MR1 rating from Moody’s Investors Service, has delivered an annualized 4.8 percent return since February 2005. Mann says Próxima’s patience goes only so far, and that its managers must prove they have staying power. “All of our traders looked great on paper when we brought them onboard, but the real test is to see their judgment during a slipup,” Mann says. “How do they act in a reversal?” The third quarter of 2007 delivered just such a challenge, as debt and equity markets reacted to the ﬁrst wave of U.S. subprime mortgage defaults. Most Próxima strategies weathered the storm. Anglian Commodities was up 2.8 percent in the third quarter, while Anglian Equity surged 15 percent, and Nile Master shot up nearly 17 percent. One casualty was the Linnaeus Fund, a $35 million global macro fund comanaged by Carlos Asilis and Darshan Bhatt. Asilis was ﬁrst hired by Vega as a global strategist in 1999 before leaving that same year for J.P. Morgan in New York, where he became chief U.S. equity strategist. By 2003 he was back in Madrid, running a global macro strategy within the Vega Global Fund. Bhatt, who had been working in M&A and equities at JPMorgan Chase & Co., joined him. Asilis and Bhatt netted an 18 percent return in his ﬁrst year, and Linnaeus launched on the VegaPlus platform in May 2004. The fund gained 28 percent in 2005 but lost 12 percent the following year. It was down an additional 1.8 percent through the ﬁrst six months of 2007; at the end of August, Próxima pulled the plug. “Unfortunately, we’re in an environment of decreasing global macro volatility,” Asilis explains. “With the behavioral ﬁnance point of view that investors will chase only the highest returns, it was simply hard to make the strategy work and raise enough assets.” After Linnaeus folded, its seed capital was allocated elsewhere on the platform, while its handful of outside investors chose another fund or simply redeemed. Two other Próxima strategies — Modus, a relative-value fund managed by ex–Goldman Sachs ﬁxed-income trader Linus Wright; and Emerging Alpha, an emerging-markets multistrategy fund led by Michael Georgiou and Miguel Mayo, both former currency specialists at Goldman — were closed for similar reasons early in 2007. As Próxima looks for more managers, the firm can’t afford any defections among its top performers. For those who are staying on, the question is whether they’re getting their money’s worth after the house takes its cut. “As in every negotiation, there is an optimal solution,” Nile Master’s Seruma says. “If we couldn’t ﬁnd that point, I would not be here.” Nile Master has grown 17-fold since Seruma launched it with $20 million in July 2004. Swiss fund-of-hedge-funds ﬁrm RMF Investment Management has found a way around the problem of sourcing new managers. Last fall RMF, a subsidiary of London-based Man Investments, launched a fund of funds that focuses on providing capital to experienced managers at big fund ﬁrms who are already running $20 million to $30 million. RMF helps them grow to $100 million and then rotates them through its own fund. To align both parties’ interests, RMF links revenue sharing to total return. “The costs of such a deal are clear and transparent,” says Hans Hurschler, RMF’s head of hedge fund ventures. “And for us, it means that we can realize embedded value earlier.” When asked whether he would abandon Próxima Alfa if he were to get to several billion dollars in assets, Barrowcliffe is noncommittal. “What to do when you have $3 billion under management is a nice predicament to be in,” he says. “Your fund has increased by 30 times its initial investment; you and your partner have made gobs of money together. It’s a nice bridge to cross when you get to it.” “At any asset management ﬁrm, when one portfolio manager continues to generate great returns, there are always incentives to keep him from walking out the door.” 48 • INSTITUTIONAL INVESTOR’S ALPHA • DECEMBER 2007/JANUARY 2008

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - December 2007/January 2008

Institutional Investor's Alpha Magazine - December 2007/January 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Liberal Returns The Good Guy: Inner-city MVP Cover Story: Marathon Men Interview: Rizk Management Profile: Living on Hostile Ground Profile: Buy and Hold In Theory: The Fallacy of Portable Alpha Strategies: Changing Course Alpha Bytes: Behind the Scenes Unhedged: Commentary: An Activist Alternative

Institutional Investor's Alpha Magazine - December 2007/January 2008

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