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

hedge-fund-nominated candidates. In early April, Motorola struck a deal that lets activist investor Carl Icahn have two board seats. And TXCO Resources settled its proxy contest with Third Point by replacing two directors with nominees of the hedge fund, about 10 percent of whose $5.5 billion in assets could be characterized as activist investments. “We like to work in the background and talk to management teams,” says a Third Point analyst who declines to be quoted by name because he isn’t authorized to speak for the company. “Ultimately, we have similar goals and want to make money for shareholders.” The Conference Board’s mission statement, it may be worth noting, says the group “disseminates knowledge about management and the marketplace to help businesses strengthen their performance and better serve society.” — R.J.R. Fantasy? P ersistent efforts by the U.S. Congress to reduce the tax advantages of the offshore hedge fund system have some managers wondering if it may be best to eventually move the whole kit and caboodle back onshore. Legislation likely to be reintroduced this year or next will seek to prevent hedge fund executives from deferring income tax payments on management fees. These fees are typically kept offshore, thereby avoiding U.S. taxation, which from the point of view of U.S. managers and investors is the raison d’être of the whole arrangement. Congress tried to close the income tax loophole last year but came up short. “If the deferral issue is lost, as I believe it will be, the economic reasons for [U.S.] hedge fund managers to run offshore structures become a lot less,” says James Chanos, founder of New York–based, $3 billion hedge fund ﬁ rm Kynikos Associates and something of a political activist (see “Into the Light,” page 64). “Who is to say it will not be good for public policy, and coincidentally better [transparency] for the hedge fund industry, to dismantle the entire offshore structure and bring those funds back home?” The effects would be huge. Of the total $1.86 trillion invested in hedge funds, $1.25 trillion is kept in offshore domiciles that include the Cayman Islands, Bermuda and the British Virgin Islands, according to Chicagobased data provider Hedge Fund Research. Critics say the offshore system smacks of tax evasion and money laundering. Proponents point out that it protects pensions and endowments that invest in hedge funds from having to pay taxes on their returns. Congress, however, is pushing to allow such groups to invest tax-free in domestic hedge funds. Mark Lewis, a partner in Grand Cayman–based law ﬁrm Walkers, takes umbrage at the notion that the offshore hedge fund industry is unseemly. Lewis says the Cayman Island Monetary Authority, for one, upholds strict standards for the funds it oversees: “Cayman has completely led the way on providing a transparent ﬁnancial system.” And he says those in the industry who talk about bringing hedge fund money onshore are only dreaming. He notes that non-U.S. investors would probably not invest as heavily in U.S. onshore funds because of the tax burden, and that American ﬁrms would most likely maintain offshore entities for that reason alone. “The offshore system is not going anywhere,” he says. “We have heard this talk before.” — I.R-S. Offshore Scoreboard Hedge fund returns by strategy, sorted by investment process, asset class and geographic focus, through February 29, 2008. February 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. 1.32 0.79 0.44 0.39 3.54 0.22 0.82 0.49 –0.75 –2.69 –2.05 –3.23 3.89 –2.85 –5.12 –2.96 –0.34 –2.39 –1.57 –4.43 4.71 –1.59 –5.18 –2.58 4.94 –0.78 3.75 –5.86 12.53 13.09 6.23 11.57 7.78 7.53 7.41 4.00 9.29 13.59 10.68 12.86 4.34 5.24 4.45 6.91 4.88 7.47 7.23 6.82 Source: MSCI. 1.18 –1.11 3.38 0.98 –3.33 –2.28 3.57 1.03 –2.95 –1.95 4.64 0.98 5.53 1.67 12.27 4.74 9.24 6.00 10.14 4.95 6.00 2.46 4.87 4.48 3.86 6.44 1.27 –0.47 –1.37 0.42 –3.22 –0.18 0.77 1.55 –0.08 1.13 0.96 1.52 1.13 1.44 0.05 0.29 –0.30 1.41 1.31 1.70 4.00 8.49 –1.15 –1.08 –1.06 –0.17 –3.33 0.61 –1.66 –0.87 –0.92 –3.86 –5.33 –0.49 –2.95 5.68 –1.69 –1.69 –1.96 –1.34 –1.01 –2.18 4.94 9.63 –0.57 –0.90 –0.72 –1.01 –2.49 0.61 –2.50 –0.81 –0.32 –3.39 –4.90 0.10 –2.37 6.12 –1.49 –1.23 –2.14 –0.94 –0.50 –2.08 12.92 17.72 7.29 3.11 4.05 1.85 1.35 7.56 0.01 0.37 8.43 5.64 4.78 6.86 7.10 10.63 2.82 5.12 –0.34 5.14 7.24 –0.04 9.72 10.35 8.75 5.62 5.69 5.69 4.80 6.87 5.60 4.22 8.81 9.83 10.53 8.41 10.15 2.71 7.97 11.30 4.83 8.62 9.25 7.26 5.42 7.70 4.33 2.09 2.28 3.55 2.71 1.34 3.76 2.87 2.56 6.73 8.27 3.73 6.25 7.85 3.29 3.91 3.10 4.57 4.31 5.63 1.43% 1.72 YTD return –1.54% –0.29 3-month return –0.86% 0.33 12-month return 6.47% 8.20 3-year return* 8.84% 9.39 3-year std. dev.* 4.82 4.48 10 • INSTITUTIONAL INVESTOR’S ALPHA • APRIL 2008

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

Institutional Investor's Alpha Magazine - April 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Here to Eternity The Good Guys: Voice of Hope Cover Story: The Kings of Cash Where the Money Is Into the Light Interview: Proceeding with Caution Strategies: A Convenient Truth Alpha Bytes: Village Voice Unhedged: Commentary: No Time for Complacency

Institutional Investor's Alpha Magazine - April 2008

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.