Institutional Investor's Alpha Magazine - March 2008 - (Page 10) “Few municipalities are prepared to have their interest rate costs double or triple,” notes Robert Fuller, a principal at Hopewell, New Jersey–based Capital Markets Management. Fuller advises health care, higher education and municipality issuers, and expects ARS debt to be refi nanced in the next few months. “The rate push on the rest of the muni market should be substantial,” he says. Meanwhile, high muni yields have attracted buyers like insurance companies and fixed-income specialist Pacific Investment Management Co., which do not depend on the credit market. Although muni rates may have bottomed relative to taxable securities, hedge fund managers caution that more turbulence may be coming, given the wave of muni refi nancings, uncertainty about monoline insurers and, in particular, the bank balance-sheet problems. “It’s very difficult to get leverage right now,” says one New York hedge fund manager who spoke on condition of anonymity. “We had a bank tell us they couldn’t give us any repo lines because they were all being used by their more profitable equity fund clients.” — Robert J. Rosenberg Africa I n advance of hard times, investors once looked to South Africa as the hot spot for gold. And clearly, South Africa — which accounts for about 11 percent of the world’s gold production — has been a big beneficiary of the huge run-up in the price of the precious metal. But Africa’s largest economy is far more diverse these days, and the country’s homegrown hedge fund business is betting on a host of newer industries, including textiles, electronics and financial services. “We invest largely in the fi nancial field,” says Carl Isernhinke, chief investment officer of Cape Town– based Clade Investment Management, noting that his fi rm does not focus on mining, the industry for which South Africa has been traditionally known. Clade — established in 2005 by Carl Liebenberg as an offshoot of Catalyst Innovation (founded in 1997) — started with only 30 million rand ($4.3 million). Clade Investment’s parent company, Clade Group, has R8 billion in assets under management and has garnered attention for its South African investable hedge fund index, which invests in 34 domestic funds. The index returned 12.66 percent in 2007, says Isernhinke, who designed derivatives-based investment products at Escher Structured Products and held a similar post at Abvest Associates before joining Clade three years ago. Clade offers a line of structured products tied to the index. Investment comes mostly from South African institutions. Funds of funds provide the majority of backing; insurers and pension funds are smaller players. The index breaks out its components by strategy: 57 percent of assets under management are long-short equities, and the remainder are a mix of market-neutral, fi xed-interest and quantitative plays. It is a conservative approach born of governmentimposed exchange controls introduced in World War II and strengthened during the country’s debt crisis in 1985 and again during the advent of majority rule in 1994. The restrictions limit hedge funds mostly to long-short investing, though in February allowances were made for trades in currency-future options. The rules also prevent South African hedge funds from in- Into Scoreboard Hedge fund returns by strategy, sorted by investment process, asset class and geographic focus, through January 31, 2008. January 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. –4.52 –1.21 0.26 0.03 –2.05 –3.55 –2.46 –3.63 0.27 –4.94 –5.85 –4.60 –4.52 –1.21 0.26 0.03 –2.05 –3.55 –2.46 –3.63 0.27 –4.94 –5.85 –4.60 –6.74 –1.98 0.61 –0.02 –3.34 –5.71 –4.07 –6.28 0.47 –5.42 –8.82 –7.00 5.05 3.92 8.64 2.63 3.96 –1.30 4.17 –5.79 8.11 12.02 6.90 11.42 9.46 6.83 9.38 4.64 7.72 7.67 7.71 4.36 8.33 14.15 11.13 13.18 6.05 2.32 4.63 4.47 4.34 5.20 4.46 6.90 4.59 7.59 7.24 6.94 Source: MSCI. 0.18 1.87 –2.29 –0.54 0.37 –2.41 –0.04 0.81 –2.41 –2.23 –0.74 –4.99 –6.32 –1.93 –4.06 4.19 –1.92 –2.08 –2.00 –2.75 –2.33 –3.87 0.18 1.87 –2.29 –0.54 0.37 –2.41 –0.04 0.81 –2.41 –2.23 –0.74 –4.99 –6.32 –1.93 –4.06 4.19 –1.92 –2.08 –2.00 –2.75 –2.33 –3.87 0.63 2.81 –2.57 –1.17 0.16 –5.37 –0.19 1.50 –5.37 –3.32 –0.27 –7.32 –9.49 –2.46 –5.61 9.92 –3.23 –2.86 –4.19 –4.60 –3.85 –6.54 8.20 8.59 6.80 4.38 6.75 –0.50 6.05 9.43 –0.50 –1.28 9.41 5.28 4.60 6.35 6.34 8.82 4.02 6.78 0.67 4.97 7.20 –0.53 8.67 8.19 8.82 5.93 6.19 5.49 6.27 7.18 5.49 4.10 9.06 10.16 11.06 8.33 10.52 2.37 8.40 11.79 5.25 8.79 9.53 7.20 5.10 6.95 4.31 2.00 2.02 3.76 1.66 1.27 3.76 2.77 2.50 6.79 8.35 3.70 6.31 7.82 3.30 3.95 3.10 4.62 4.38 5.64 –2.78% –2.05 YTD return –2.78% –2.05 3-month return –4.20% –2.97 12-month return 5.56% 6.89 3-year return* 8.84% 9.21 3-year std. dev.* 4.83 4.47 10 • INSTITUTIONAL INVESTOR’S ALPHA • MARCH 2008
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