Institutional Investor's Alpha Magazine - March 2008 - (Page 31) Profile Ivy Asset Management REGROWING S ean Simon and Michael Singer have a problem on their hands. As co-presidents of Jericho, New York–based Ivy Asset Management Corp., they run one of the alternative investment industry’s oldest, largest and at times most innovative fund-of-hedge-funds firms. From 2000 to 2004, Ivy grew its assets on average by more than 50 percent a year, capitalizing on the surge in investors’ interest in hedge funds following the bursting of the stock market bubble. But for the past three years, Ivy’s growth has been stunted. Early this decade, Ivy benefited from the decision of its founders — Sean’s father, Lawrence, and Howard Wohl — to sell the firm to the Bank of New York in 2000. Pension funds and other institutions making their first hedge fund forays were comforted by the solidity of its new parent. But as with many expanding investment management companies, growth came at a cost. Performance suffered as Ivy’s assets rocketed from $2.4 billion at the time of the sale to $15 billion by the beginning of 2005. Ivy’s Rosewood Associates — a low-risk fund marketed to institutions as an alternative to bonds — struggled mightily. The erstwhile flagship, which at its height had more than $2 billion under management, rose just 2.9 percent in both 2004 and 2005. By September 2006, Rosewood’s assets had dwindled to less than $300 million. That month, Rosewood fell 3.5 percent — a huge drop for a broadly diversified fund of funds — largely because of its investment in Amaranth Advisors, the Greenwich, Connecticut–based multistrategy firm that lost $6.5 billion as a result of a bad bet on natural gas. Rosewood was one of at least three Ivy funds that lost big on Amaranth. In total the firm suffered about $1 billion in redemptions, mostly from U.S. institutional investors that had come to Ivy through consultants. “Amaranth was sort of an ‘aha’ moment in the fundof-funds business,” says Singer, 41, sitting in his spacious office at Ivy’s 55,000-square-foot headquarters in a leafy suburban office park on Long Island, a 45-minute drive from Manhattan. “This was not some fly-by-night hedge IVY By Michael Peltz fund. This was a long-standing hedge fund run by some of the most talented people in the business who had put up terrific risk-adjusted returns for a number of years.” To be sure, Ivy was far from alone when it came to Amaranth. The $9 billion multistrategy manager had an impeccable pedigree and was a favorite of big funds of hedge funds because it could handle large allocations of capital. At least 20 funds of funds had money with Amaranth when it imploded, including Arden Asset Management, Deutsche Bank, Goldman Sachs Asset Management, Morgan Stanley Alternative Investment Partners and Union Bancaire Privée. For Simon and Singer the misfortunes of others provided little solace. Although they deeply regretted the Sean Simon and Michael loss — especially since Ivy had put Amaranth on its Singer of Ivy Asset watch list for possible termination months before Management have a plan the collapse — Ivy’s coto boost the longtime presidents saw the event as an opportunity to shake fund-of-fund manager’s things up at a firm whose assets had been stuck at assets, which have been about $15 billion for nearly two years (during which stuck at $15 billion for time the fund-of-funds inthe past three years. dustry had almost doubled in size). Ivy, which was founded in 1984 and as recently as 2004 was the world’s fifth-largest fund-of-funds firm, had dropped to No. 11. In December 2006, Simon and Singer embarked on a major restructuring of Ivy’s investment team, starting with its CIO, Adam Geiger, who left after almost a decade at the firm. By June 2007 ten more investment professionals were gone — nearly a quarter of the team. Simon and Singer say the restructuring was intended to fl atten Ivy’s organization and needed to be done reMARCH 2008 • INSTITUTIONAL INVESTOR’S ALPHA • 31
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