Institutional Investor's Alpha Magazine - February 2008 - (Page 8)

back after the company agreed in August to be acquired by Thomas & Betts Corp., a Memphis, Tennessee–based electrical products manufacturer. Not all of Ramius’s activism has worked. In January it lost a proxy ﬁght with Houston-based restaurant chain Luby’s Cafeteria. Ramius later reduced its stake in Luby’s to 4.5 percent from 7.5 percent. And its proposal that the board of plastics manufacturer A. Schulman, of Akron, Ohio, consider strategic alternatives, including a sale of the company, was defeated. Smith says Ramius is more interested in the bottom line than in corporate intrigue: “We measure success by proﬁts, not winning proxy contests.” By that standard, Starboard was only mildly successful in 2007, returning 6.4 percent, which was more or less in line with most activist hedge funds. In 2006 it returned nearly 24 percent, and in 2005 — its ﬁrst year — it logged a 10.5 percent return, according to investors. Apparently, the hedge fund ﬁgures to be at least as active in 2008. It recently disclosed that it had taken 5 percent stakes in both Charming Shoppes and Federal Signal Corp. — Stephen Taub Locked Up such as BlueMountain Capital Management, Satellite Asset Management and Silver Creek Capital Management have turned to longer lockups as a preventive measure. “Fund managers want to tie investors down to enable them to generate what they believe are very attractive returns, in the 15 to 20 percent range,” says Victor Leverett, director of hedge funds for Tacoma, Washington–based consulting ﬁrm Russell Investments. “Longer lockups are catching ﬁre with hedge funds and funds of funds.” Although the average still tends to be between one and two years, lengthier lockups are not without precedent. When the credit market became volatile in the spring of 2005, fund managers at New York–based BlueMountain, which now has $4.8 billion in assets under management, realized that market ﬂuctuations would cause their ﬂ agship BlueMountain Credit Alternatives Fund — which invests in fixed-income credit derivatives — to take a hit. But with price movements in the synthetic collateralized debt obligation markets creating investment opportunities equivalent to buying investment-grade bonds at 20 cents on the dollar, they also saw a good chance for long-term proﬁts. BlueMountain warned investors that the fund would be down in the short run but noted that sticking around and taking advantage of depressed prices in the CDO market could pay off big. “We saw an attractive buying opportunity,” explains Stephen Siderow, BlueMountain’s co-founder and president. Though some of the ﬁrm’s investors jumped ship, pulling roughly $400 million from its then $2.4 billion ﬂagship portfolio in the second half of 2005, most stuck around — and are glad they did. The fund had strong returns starting in late 2005 and throughout 2006 and 2007. But realizing the threat of investor redemptions would always loom, the ﬁrm decided to introduce longer lockups. In May 2005, BlueMountain launched the BlueHorizon I Fund, which has a 12-year lockup, followed in January 2006 by the BlueMountain Timberline fund, with a six-year lockup. Following the success of these Photo by Stephen Aviano for Alpha BlueMountain Capital Management president Stephen Siderow: Looking out long term. T o avoid the possibility of investors bailing out at awkward times, a handful of hedge fund managers have taken a page from their private equity counterparts and introduced funds with lockup periods of ﬁve to 12 years. Following the decision by some investors to ﬂee their hedge fund holdings because of the summer’s subprime mortgage crisis — a stampede that wreaked havoc on the investment portfolios of many hedge funds — ﬁrms 8 • 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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