Institutional Investor's Alpha Magazine - February 2009 - (Page 12)

Little Pig, Little Pig C Far right: Chronic winner James Simons has done it again at Medallion Fund. SCOREBOARD Hedge fund returns by strategy, sorted by investment process, asset class and geographic focus, through November 30, 2008. November return Composite, equally weighted Composite, asset-weighted PROCESS GROUP YTD return –16.99% –13.35 2.06 17.74 –14.33 –15.99 –21.28 –32.20 –24.43 –6.34 –6.91 –12.06 –25.34 –32.17 –9.42 –17.81 21.60 –19.39 –23.42 –16.31 –19.26 –20.08 –16.00 3-month return –12.31% –9.93 0.91 10.09 –9.25 –13.49 –18.89 –27.39 –21.21 –6.98 –4.04 –7.19 –17.53 –22.27 –7.20 –12.93 13.80 –16.41 –19.20 –14.27 –14.73 –15.27 –12.82 12-month return –16.58% –12.81 2.99 18.98 –13.82 –15.84 –21.01 –32.77 –23.77 –7.14 –6.85 –11.52 –24.97 –31.86 –8.88 –17.32 22.11 –19.22 –23.06 –16.47 –18.93 –19.67 –15.92 –1.64% –0.74 1.36 2.81 –0.12 –1.11 –1.80 –2.89 –1.10 –0.22 0.86 –2.08 –3.08 –4.30 0.13 –1.74 2.88 –3.51 –3.95 –3.13 –2.36 –2.53 –1.77 Directional trading Systematic trading Discretionary trading Relative value Arbitrage Convertible arbitrage Fixed-income 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 –2.40 –2.10 0.00 0.44 –22.45 –19.22 –1.67 1.88 –15.44 –16.20 –2.78 1.44 –22.14 –18.95 –0.66 1.83 Developed markets Europe North America Japan Developed markets, diversified Emerging markets Combined Asia-Pacific Global markets –1.66 0.00 –3.82 1.12 0.22 –2.65 –0.52 –0.75 –12.65 –11.54 –19.12 –13.94 –1.00 –32.81 –29.14 –23.77 –10.59 –8.62 –16.42 –6.89 –3.21 –21.36 –15.33 –13.67 –12.29 –11.27 –18.73 –15.02 –0.23 –31.93 –29.18 –23.47 Medallion Glitters J * Index values and returns before October 2008 were calculated by MSCI. Source: Morningstar. ames Simons’ 2008 performance deﬁes belief. In a year when most hedge funds lost money and scores closed, his renowned (and secretive) Medallion Fund surged 80 percent, its second-best annual performance. And that’s after Simons took his 5 percent management fee and 44 performance fee. As usual, Simons, 70, won’t talk about how he did it except to say it involved rapid electronic trading aimed at capturing tiny inefﬁciencies in price. The scant publicrecord insight into his activity shows the equity part of his holdings at the end of the third quarter of 2008 worth about $38 billion (with leverage), only half its worth just 15 months earlier (he sold a chunk). Few besides Simons, his partners and staff got to participate in the gains; the fund, which has made money for years, is closed to outsiders. Simons did show some mortality. Two relatively new funds — both open to outsiders — were losers. Renaissance Institutional Equities Fund was down 16 percent; Renaissance Institutional Futures Fund was off 12 percent. As a result, Simons recently agreed to waive his management fees on the futures fund. The parent ﬁrm, Renaissance Technologies Corp., had $25 billion in assets at year-end, but began 2009 with about $20 billion, suggesting that Simons either returned capital at year-end, suffered redemptions, or both. A spokesman would not comment. Even so, Simons probably earned substantially more than the $2.8 billion he made in 2007. And Renaissance isn’t shrinking: It recently expanded its Manhattan ofﬁces by 6,700 square feet. — Stephen Taub 12 • INSTITUTIONAL INVESTOR’S ALPHA • FEBRUARY 2009 JIN LEE/BLOOMBERG NEWS ogo Wolf Asset Management, an $850 million fund of funds based in San Francisco, is throwing a lifeline to struggling hedge fund managers willing to let it take control in exchange for allowing the managers to hang on to a piece of the action. It works like this: Clients and assets are moved from the hedge fund in question to Cogo Wolf, which promises to pay out a negotiable percentage (the ﬁrm won’t specify the range) of its fees to the battered hedge fund manager, who gets to stay on as adviser, receiving an annuity in perpetuity. “I jokingly call it the detox safe house,” says Rachel Minard, president of Cogo Wolf, adding that the idea is for her ﬁrm to act as more of a house sitter than a permanent overseer. Under certain circumstances the manager can eventually regain control. David Gold, head of hedge fund research for New York–based consulting firm Watson Wyatt Worldwide, calls what Cogo Wolf is doing “a kind of consulting or advisory position for portfolio managers who are in trouble.” The ﬁrm targets single-manager, single-strategy funds that are 100 percent employeeowned — outside partners complicate things — with less than $350 million in assets. Minard says the response has been strong but won’t disclose how many deals have been signed. More of these types of arrangements seem likely, given the high costs of operating a fund. “We’ve seen a maturation of the hedge fund market, and the downturn has accelerated that and made it harder for the smaller players,” notes Timothy Clark, a partner at New York–based law ﬁrm Proskauer Rose. John Godden (see “Moving on from Madoff,” page 56), CEO of IGS Group, a London-based advisory ﬁrm, has seen similar deals on both sides of the Atlantic — and says there is more interest on the part of acquirers than on that of the acquired. Cogo Wolf’s model, of course, begs the question of why an investor would follow a struggling manager. Godden says it could work only with funds of funds, “where the money’s slightly stickier.” — R.J.R.

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - February 2009

Institutional Investor's Alpha Magazine - February 2009 Contents Letter From the Editor Longs & Shorts Digging Out A Call to Mentor Dicey Detroit The Constant Skeptic Cover Story: The Undaunted What Were They Thinking? Dark Days in Greenwich True Stories from the Commodities Files Return of the Native The Quest for Cover Moving On from Madoff

Institutional Investor's Alpha Magazine - February 2009

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