Institutional Investor's Alpha Magazine - May 2008 - (Page 8)

ties others do not have. Eventually, side pockets may create an industrywide scandal, some managers say privately. The managers’ report also concedes the potential for conﬂict when portfolio managers do not have their assets independently valued, a practice that can ultimately leave investors in the dark. “Valuation is the No. 1 risk factor” for hedge funds and their investors, says Julian Korek, a founding member of Kinetic Partners, the London-based advisory ﬁrm that is helping liquidate Bear Stearns’ bankrupt assetbacked hedge funds. Still, even if hedge funds were to offer complete transparency, not every ﬁduciary is going to have sufﬁciently sophisticated knowledge of ﬁ nance to follow what the funds do. “If you are requesting that boards understand everything that is going on, that is not going to happen,” says Michael Rosen, CIO of Angeles Investment Advisors, Scoreboard Hedge fund returns by strategy, sorted by investment process, asset class and geographic focus, through March 31, 2008. March 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. –1.86 –1.63 –2.00 –2.17 –1.49 –3.67 –4.09 –2.87 –2.60 –4.20 –4.03 –5.32 2.28 –6.44 –9.02 –5.56 –2.60 –4.20 –4.03 –5.32 2.28 –6.44 –9.02 –5.56 2.42 –3.94 0.79 –7.13 11.10 7.61 1.39 6.09 7.27 7.02 6.90 3.01 8.88 12.86 9.46 13.10 4.53 5.39 4.65 7.05 4.99 7.79 7.72 7.04 Source: MSCI. –2.75 –1.79 –1.54 1.36 –6.00 –3.92 1.91 2.16 –6.00 –3.92 1.91 2.16 1.52 –0.84 10.77 5.47 8.52 5.33 9.69 5.61 6.27 2.77 5.00 4.45 –1.50 –0.78 –2.13 –1.65 –2.22 –2.78 –3.18 –1.50 –1.06 –0.06 –1.69 –3.06 –3.78 –1.73 –2.25 1.70 –1.39 –1.62 –1.79 –2.08 –2.08 –2.09 2.43 7.49 –3.08 –2.57 –3.03 –2.94 –5.90 –0.10 –2.70 –0.92 –2.55 –6.82 –8.92 –2.20 –5.14 7.46 –3.20 –3.28 –3.94 –3.48 –3.11 –4.43 2.43 7.49 –3.08 –2.57 –3.03 –2.94 –5.90 –0.10 –2.70 –0.92 –2.55 –6.82 –8.92 –2.20 –5.14 7.46 –3.20 –3.28 –3.94 –3.48 –3.11 –4.43 12.06 18.47 5.26 0.79 1.22 –1.54 –2.15 6.05 –1.67 –0.38 5.34 1.19 –0.43 4.03 3.37 12.16 0.21 2.23 –3.16 1.82 4.04 –3.59 9.32 10.17 8.22 5.15 5.17 5.14 3.76 6.62 5.09 4.05 8.24 9.08 9.62 7.97 9.72 2.70 7.40 10.70 4.12 7.95 8.69 6.39 5.53 7.69 4.59 2.38 2.65 3.90 3.23 1.00 3.80 2.88 2.80 7.02 8.61 3.92 6.41 7.80 3.49 4.14 3.36 4.81 4.54 5.82 –2.29% –2.19 YTD return –3.61% –2.61 3-month return –3.61% –2.61 12-month return 3.35% 4.62 3-year return* 8.22% 8.67 3-year std. dev.* 5.07 4.74 a Santa Monica, California–based consulting ﬁrm whose clients are pension funds, foundations and endowments. Rosen argues that such standards are unfair because they discriminate against some investors, keeping them from the investment advantages of alternatives. And there remains the issue of how many secrets hedge funds are willing to part with anyway. Damon Silvers, associate general counsel to the AFL-CIO and a member of the panel that wrote the investors’ report, is wary of the information imbalance between hedge funds and investors: “What this document asks both ﬁduciaries and professional staff to do is to know the list of questions to ask. But it is also a recognition that investors have a limited ability to extract information from these funds.” Both reports leave a great deal unsaid, though there is much to read between the lines. Endorsing more accountability — through the adoption of independent valuations of assets, for instance — implicitly favors bigger hedge fund ﬁrms that have the means to meet such standards. For most managers, these are just two more chapters in the long good-bye the hedge fund industry has been saying to the little guy. — Imogen Rose-Smith José Pasqual, a Madrid lawyer, is among those who see promise in Spain’s tiny industry. Morning in Spain T he backwater Spanish hedge fund industry is ﬁnally coming into the government regulatory fold after a tedious reform process that began ﬁve years ago. The upshot: The market is showing signs of growth. Photograph by Ana Nance/Redux for Alpha 8 • INSTITUTIONAL INVESTOR’S ALPHA • MAY 2008

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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