Institutional Investor's Alpha Magazine - May 2008 - (Page 54)

The Hedge Fund 100 in March 2007 with a $1.5 billion feeder fund called BH Macro, the ﬁrst such fund to list on the London Stock Exchange, where it traded in early May of this year at more than £1,400 ($2,723), up 34 percent in one year. That success has prompted Brevan Howard to consider listing a second fund, according to people familiar with the ﬁrm. BlueBay Asset Management, another London-based hedge fund ﬁrm, also grew notably in a further example of how established hedge funds are drawing enormous amounts of new money. At year’s end, BlueBay, which specializes in fixed-income credit strategies, handled $16.4 billion in assets, up from $9 billion. It was a modest showing compared with the funds at the very top, but BlueBay’s growth gives it one of the best improvements in ranking, from No. 44 to No. 20. “As with many ﬁrms, it was helped by continued inﬂows in the face of difﬁcult market conditions,” says a person with knowledge of BlueBay, adding that last year’s surge of new money into British hedge funds is fast being supplemented by a cyclical opportunity. “Large strategicfund investors are looking to raise their exposure to credit and are anticipating a two- to three-year period of equity-style returns being available for credit risk.” Put another way, the subprime play that worked for some of the most successful hedge fund managers in 2007 is being manipulated now from a different angle: Managers are putting money into discounted debt with the expectation that its underlying value will be unlocked by the end of the decade (see “Taking Credit,” page 42). In the U.S., Greenwich, Connecticut–based Lone Pine Capital and New York–based Avenue Capital Group show remarkable improvement in their ranks. Lone Pine, managed by Stephen Mandel Jr., increased its assets from $8.6 billion to $18 billion, moving it from No. 47 to No. 17. Some of its growth was fueled by new capital, but a great deal came from performance. The ﬁrm’s longshort funds, which held about $12 billion in assets at the end of 2007, were up a combined 57 percent on the year. The smaller Lone Cascade long-only fund was up 38 percent. The ﬁrm attributes much of its success to overseas bets in France, Germany, India, Switzerland, the U.K. and several Far East markets. Avenue Capital moves from No. 32 in the ranking to No. 19, increasing its assets from $10.6 billion to $16.5 billion by drawing on its reputation as a savvy investor in distressed companies. Avenue raised $1.8 billion for a fund aimed at distressed opportunities in the U.S. and $3 billion for one targeting similar opportunities in Asia. For two years, Marc Lasry, the co-founder and senior managing director, has been gearing up to take advantage of a boom in distressed credit and continues to raise money. This ranking was compiled by Research Specialist Timothy Roberts, with the assistance of Contributing Editor Stephen Taub and Researcher Lauren Bennett, under the guidance of Director of Research Operations Group Sathya Rajavelu and Senior Editor Jane B. Kenney. To request a questionnaire for next year’s Hedge Fund 100 ranking, e-mail your contact details to HF100@iimagazine.com. InvestorForum Size matters, you say? Well, it doesn’t. Or maybe it does — hard to know for certain. The pension funds, endowments and other institutional investors we recently surveyed were more or less evenly split when we asked them for their perspective. An additional thing most investors couldn’t agree on: Whether titanic funds are safer than small ones.* What type of institution do you represent? Corporate pension fund. . . . . . . 25.8% Public pension fund . . . . . . . . . 15.0 Taft-Hartley pension fund. . . . . . . 2.5 Endowment. . . . . . . . . . . . . . 40.0 Foundation . . . . . . . . . . . . . . . 5.8 Other . . . . . . . . . . . . . . . . . 10.8 What is the size of your fund? More than $5 billion . . . . . . $2.5 billion to $5 billion . . . . $1 billion to $2.49 billion . . . . $500 million to $999 million . . $100 million to $499 million . . Less than $100 million . . . . . Do you believe there is a correlation between the size of a hedge fund management ﬁrm and its investment performance? Yes . . . . . . . . . . . . . . . . . . . 33.6% No . . . . . . . . . . . . . . . . . . . 33.6 Don’t know . . . . . . . . . . . . . . 32.8 What is the optimal size for a hedge fund ﬁrm? $10 billion or more . . . . . . . . . . . 2.5% $2.5 billion to $9.9 billion . . . . . . 12.6 $1 billion to $2.49 billion . . . . . . . 15.1 Less than $1 billion . . . . . . . . . . 4.2 Don’t know . . . . . . . . . . . . . . 65.6 What is the minimum amount of assets a hedge fund ﬁrm should have under management before an institution should consider making an investment with that ﬁrm? $1 billion. . . . . . . . . . . . . . . . 11.7% $500 million . . . . . . . . . . . . . . 20.0 $250 million . . . . . . . . . . . . . . . 9.2 $100 million . . . . . . . . . . . . . . . 5.0 $50 million. . . . . . . . . . . . . . . . 7.5 Don’t know . . . . . . . . . . . . . . 46.7 Do you think big, multibillion-dollar hedge fund ﬁrms are safer for institutional investors than smaller ones? Yes . . . . . . . . . . . . . . . . . . . 29.7% No . . . . . . . . . . . . . . . . . . . 47.5 Don’t know . . . . . . . . . . . . . . 22.9 Do you believe there is a correlation between the size of a fund-of-hedgefunds ﬁrm and its investment performance? Yes . . . . . . . . . . . . . . . . . . . 31.6% No . . . . . . . . . . . . . . . . . . . 38.5 Don’t know . . . . . . . . . . . . . . 29.9 What is the optimal size for a fund-of-hedge-funds ﬁrm? $10 billion or more . . . . . . . . $2.5 billion to $9.9 billion . . . . $1 billion to $2.49 billion . . . . . Less than $1 billion . . . . . . . Don’t know . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.6% 11.0 23.7 11.0 24.6 16.1 Do you currently invest in hedge funds or funds of hedge funds? Yes . . . . . . . . . . . . . . . . . . . 60.7% No . . . . . . . . . . . . . . . . . . . 39.3 If you answered “no” to the previous question, are you considering investing in hedge funds or funds of hedge funds in the future? Yes . . . . . . . . . . . . . . . . . . . 27.7% No . . . . . . . . . . . . . . . . . . . 72.3 If you do invest in hedge funds, how big is your hedge fund allocation? More than 50 percent . . . . . . . . . 1.4% 26 to 50 percent . . . . . . . . . . . . 8.1 16 to 25 percent . . . . . . . . . . . 23.0 11 to 15 percent . . . . . . . . . . . 20.3 6 to 10 percent . . . . . . . . . . . . 23.0 Less than 6 percent . . . . . . . . . 24.3 Do you believe there is a correlation between the size of a hedge fund and its investment performance? Yes . . . . . . . . . . . . . . . . . . . 34.7% No . . . . . . . . . . . . . . . . . . . 27.4 Don’t know . . . . . . . . . . . . . . 37.9 What is the optimal size for a hedge fund? $2.5 billion or more . . . . . . . . . . 5.0% $1 billion to $2.49 billion . . . . . . . 10.8 $500 million to $999 million . . . . . 12.5 Less than $500 million . . . . . . . . . 4.2 Don’t know . . . . . . . . . . . . . . 67.5 . . . . . . . . . . . 3.5% 13.8 14.7 . 6.0 62.1 On the Web Please visit www.alphamagazine.com for more Hedge Fund 100 data and rankings, as well as the list and proﬁles of the world’s 50 best-paid hedge fund managers in 2007. * Responses may not total 100 percent because of rounding. 54 • INSTITUTIONAL INVESTOR’S ALPHA • MAY 2008 http://www.alphamagazine.com

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

Institutional Investor's Alpha Magazine - May 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Send in the Clones The Good Guys: Outside the Box Cover Story: Welcome to Oz Interview: The Tipping Point Regulation: When Sentinels Go Astray Strategies: Taking Credit Research Center: The Hedge Fund 100 Book Excerpt: Shoot the Messenger Alpha Bytes: VaR Enough? Unhedged: Commentary: Not Your Father's Activist

Institutional Investor's Alpha Magazine - May 2008

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