Institutional Investor's Alpha Magazine - February 2008 - (Page 10)

funds, in March 2007 the ﬁ rm launched BlueHorizon II, with a 12-year lockup, and the Correlation Relative Value II Fund, which has a ﬁve-year lockup. “Raising these longer-term assets has allowed us to pursue the best ideas opportunistically,” says Siderow. “Because we have committed backing by our investors, we can also go out and hire the best talent to continue to build our competitive advantage in these markets.” So far, Leverett says, longer lockups have primarily been limited to credit strategies — particularly given the current market environment. But the trend is not limited to hedge funds. Distressed funds at ﬁrms like Newport Beach, California–based Paciﬁc Investment Management Co. are starting to follow suit, driven by the lengthy workout periods needed to restructure bankrupt companies. Pimco recently began adding funds with five-year lockups to its $10 billion stable of hedge funds. “These are strategies that require longer lockups,” says Wendy Cupps, managing director of product management, de- scribing funds that invest in distressed assets. “The way you earn your return is to be a buy-and-hold investor, until you realize the value.” — Frances Denmark Odds G Are Scoreboard Hedge fund returns by strategy, sorted by investment process, asset class and geographic focus, through December 31, 2007. Monthly return Composite, equally weighted Composite, asset-weighted Process group Directional trading Systematic trading Discretionary trading Relative value Arbitrage Convertible arbitrage Fixed-income arbitrage Mortgage-backed arbitrage Merger arbitrage Statistical arbitrage Multiprocess Security selection Long bias No bias Variable bias Short bias Specialist credit Distressed securities Long-short credit Multiprocess group Multiprocess Event-driven Asset class indexes Equity Fixed income Diversiﬁed Currencies Geographic area Developed markets Europe North America Japan Developed markets, diversiﬁed Emerging markets Combined Asia-Paciﬁc Global markets * Annualized. 0.38 0.32 1.02 –0.11 0.41 0.25 0.50 –1.23 0.76 1.21 –0.01 0.44 11.36 6.18 9.47 3.28 7.39 3.99 8.00 –0.94 8.95 18.48 15.07 18.15 0.52 0.30 3.13 0.91 0.82 –0.57 0.49 –2.32 2.94 3.68 –0.54 1.01 11.36 6.18 9.47 3.28 7.39 3.99 8.00 –0.94 8.95 18.48 15.07 18.15 11.18 7.48 8.74 3.97 8.28 9.57 8.38 5.97 7.67 16.36 13.63 15.10 5.19 2.07 4.80 4.64 4.10 4.69 4.14 6.52 4.76 6.69 6.03 6.09 Source: MSCI. 0.89 1.05 0.55 0.21 0.42 –0.62 0.86 –0.01 –0.86 0.02 0.61 0.47 0.42 0.60 0.62 0.43 0.26 0.50 –0.05 0.35 0.41 0.18 8.94 7.67 10.14 6.10 7.41 4.80 7.00 9.37 3.61 2.01 11.95 12.08 13.10 9.32 12.19 4.27 7.36 10.89 3.64 9.65 11.18 5.85 3.29 3.94 2.46 0.79 1.34 0.59 0.95 1.65 –1.42 –0.40 2.96 0.67 0.15 1.25 1.78 5.85 0.48 1.35 –0.76 –0.19 0.19 –1.15 8.94 7.67 10.14 6.10 7.41 4.80 7.00 9.37 3.61 2.01 11.95 12.08 13.10 9.32 12.19 4.27 7.36 10.89 3.64 9.65 11.18 5.85 7.88 6.23 9.59 6.19 5.98 5.26 6.45 7.16 6.37 5.26 9.48 12.02 13.33 9.17 12.14 1.76 9.24 12.77 6.10 9.87 10.52 8.61 5.32 7.33 3.96 1.92 2.07 3.64 1.63 1.27 3.36 2.34 2.35 5.87 7.22 3.36 5.61 7.57 2.98 3.53 2.84 4.15 3.98 5.00 0.49% 0.66 YTD return 9.81% 10.44 3-month return 1.10% 1.97 12-month return 9.81% 10.44 3-year return* 9.74% 9.94 3-year std. dev.* 4.41% 4.18 iven the near-daily spasms in the U.S. markets, an ambitious hedge fund manager might well be tempted to explore international investments by, say, trotting off to Central America to look for opportunities there. But what happens if that manager is kidnapped and held for ransom? Improbable, to be sure, but so are catastrophes like hurricanes or earthquakes that could destroy a hedge fund’s headquarters. Funds typically insure against the latter but rarely against the former, though the loss of a manager is potentially more damaging. Historically, hedge funds have been lightly insured — if at all — and many still have only basic types of protections, says Jon Kaye, a vice president for executive risk coverage in the New York ofﬁce of insurance brokerage Willis Group. Kaye says basic coverage consists of property/casualty, workers’ compensation and general liability insurance. He notes that basic coverage is what most businesses typically buy. What’s usually lacking in the hedge fund world is what he calls professional coverage. He places such coverage in six categories: directors’ and officers’ liability insurance comes into play if a hedge fund manager or partner is named in a lawsuit; errors and omissions coverage, which protects against investor lawsuits that allege missteps, such as making a mistake on a prospectus or misrepresenting investment acumen; employment practice liability insurance, which can come into play in wrongful-dismissal or discrimination suits against a hedge fund; ﬁduciary liability coverage, for 401(k)-related issues; ﬁdelity liability insurance, which protects against employee theft or malfeasance; and, of course, the most exotic coverage of all, kidnap and ransom insurance, used primarily by emergingmarkets funds. Of the six categories, Kaye says liability insurance is becoming particularly important, given the volatile performance some hedge funds have had over the past year and the anger a hedge fund’s poor return can incite among its investors. He notes that a number of New York law ﬁ rms, including Patterson Belknap Webb & Tyler and Pillsbury 10 • INSTITUTIONAL INVESTOR’S ALPHA • FEBRUARY 2008

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - February 2008

Institutional Investor's Alpha Magazine - February 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Alternative Perspective The Good Guys: A Simple Plan Cover Story: Energy and Commodities: Fueling Opportunity Regulation: Energy Trading: The Brawl on the Hill Interview: Master of Values Regulation: Hedge Fund Registration: Way Out West Research Center: Top Hedge Fund Analysts Alpha Bytes: Rocket Man Unhedged: Commentary: Structured for Success

Institutional Investor's Alpha Magazine - February 2008

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