Institutional Investor's Alpha Magazine - June 2008 - (Page 12)

endowments. Morgan Creek is just one of many funds of hedge funds setting up specialty funds — another is the $15 billion alternative-investment ﬁrm Investcorp, listed in London and Bahrain — to take advantage of the distressedinvestment environment, with an emphasis on mortgages. Investors can choose from a growing number of such hedge funds. New ﬁrms, like One Williams Street Capital Management in New York, are opening. Old ones, like New York investment bank Goldman, Sachs & Co., have launched specialty funds. Others, including the now famous $4.2 billion Paulson Credit Opportunities Fund, founded by New York–based John Paulson, continue to play the mortgage market. Meanwhile, multistrategy hedge fund ﬁrms are building up their mortgage desks. But will making money on the way out of the mortgage crisis be as easy as making money on the way in? Paul Ullman, founder and CIO of $1.6 billion High- Scoreboard Hedge fund returns by strategy, sorted by investment process, asset class and geographic focus, through April 30, 2008. April 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. 1.43 1.81 1.70 1.78 1.43 1.81 2.23 0.48 –1.22 –2.45 –2.35 –3.86 –1.22 –2.45 –7.21 –4.87 0.84 1.04 0.13 –0.27 0.84 1.04 –1.40 –0.51 2.34 –3.56 1.11 –5.39 2.34 –3.56 1.56 5.90 8.32 8.04 8.19 3.72 8.32 8.04 10.45 12.95 4.38 5.34 4.45 7.12 4.38 5.34 7.76 7.09 2.11 1.47 0.14 –0.27 –4.07 –2.53 2.00 1.83 0.41 –1.37 1.82 1.78 1.81 –0.47 8.81 3.01 9.89 5.85 10.23 5.42 6.17 2.82 4.86 4.46 0.52 –0.64 1.96 1.31 1.53 1.84 3.02 1.08 1.84 0.83 0.21 2.19 2.83 0.77 1.76 –3.44 0.82 0.70 1.20 1.00 0.79 1.71 2.69 6.65 –1.56 –1.36 –1.71 –0.85 –3.06 0.81 –0.85 0.00 –2.13 –4.77 –6.34 –1.50 –3.26 3.77 –2.28 –2.40 –2.60 –2.59 –2.39 –2.93 2.55 4.64 0.85 –0.75 –2.02 1.59 –2.94 0.02 1.59 2.44 –1.30 0.18 –0.11 0.49 0.81 –0.40 –0.55 –0.44 –0.96 0.13 –0.11 0.92 10.45 14.69 5.95 1.26 1.88 –1.24 0.26 6.56 –1.24 0.04 4.69 1.51 0.04 3.79 3.98 9.47 –0.25 1.76 –3.03 0.85 2.72 –3.61 9.91 10.64 8.96 5.80 6.00 6.05 4.63 6.80 6.05 4.53 8.63 10.57 11.63 8.59 10.90 0.33 7.90 11.32 4.71 8.73 9.27 7.58 5.43 7.56 4.68 2.34 2.65 3.86 3.50 1.81 3.86 2.85 2.72 6.88 8.44 3.81 6.28 7.80 0.92 3.99 3.33 4.70 4.45 5.72 1.45% 1.25 YTD return –2.26% –1.49 3-month return 0.50% 0.50 12-month return 3.10% 4.04 3-year return* 9.24% 9.57 3-year std. dev.* 4.94 4.62 land Financial Holdings Group in New York, says that neither mortgages nor the housing sector will begin recovering until at least 2009. In fact, there is an entire school of thought that says the mortgage sector and, by extension, the banking and ﬁnancial services sector are far from being out of the woods. “We have the worst housing recession since the Great Depression,” said Nouriel Roubini, professor of economics at New York University’s Stern School of Business, during a recent panel discussion hosted by his research ﬁrm, RGE Monitor. “And it is not bottoming out; it is getting worse.” One obvious move is to short ﬁnancial services companies and banks, and there are plenty of hedge funds doing so, including Paulson & Co. and Pershing Square Capital Management. Others, like Angelo Gordon & Co. and Maverick Capital are looking at buying, or have bought, loan-collection companies. Trading the actual mortgages or asset-backed securities is trickier. It requires ﬁguring out the statistical likelihood of defaults and payments on mortgage pools that may vary by type, location and rating. All of which means that those unschooled in the sector can get burned. Firms like Morgan Creek and Investcorp appear to favor funds that did well last year and have developed expertise in the sector. Investcorp was a ﬁrst-day investor, and eventually became one of the biggest investors, in Paulson Credit Opportunities Fund. Another favorite among funds of funds is $5 billion fixed-income specialist MKP Capital Management in New York. Expertise notwithstanding, many mortgage experts lost money in 2007. “What was not apparent to many of us, myself included, was how fast things would — I. R.-S. unravel,” notes Ullman. Good-bye, Rainmaker J Source: MSCI. une is Todd Deutsch’s last month at the Galleon Group, the $7.2 billion New York–based hedge fund ﬁrm he joined in 2001 as a portfolio manager after a four-year stint as a market maker for Goldman, Sachs & Co. Deutsch’s departure seems to be a watershed moment for Galleon, which in trying to establish itself as a more institutional player is adopting an approach that may be at odds with Deutsch’s more aggressive trading style. “He was a big guy there, probably the No. 1 proﬁt center for 50 percent of his years with the ﬁrm,” says Philip Simon, a managing director with executive recruiting ﬁrm Long Ridge Partners in New York, who works frequently with hedge funds but does not currently represent Galleon. “When the history of Galleon is written, it will talk about the Todd Deutsch era and the post-Deutsch era.” Although the Galleon Captain’s Fund, the multisector, 12 • INSTITUTIONAL INVESTOR’S ALPHA • JUNE 2008

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

Investor's Alpha Magazine - June 2008 Contents Letter From the Editor Longs & Shorts Cover Story: Alpha Hall of Fame Bruce Kovner Michael Steinhardt Kenneth Griffin Louis Bacon Steven Cohen George Soros James Simons Seth Klarman Julian Robertson Jr. Jack Nash Leon Levy Paul Tudor Jones II Alfred Winslow Jones David Swensen Looking Ahead: Back to the Future Research Center: Europe Hedge Fund 50 Unhedged: Let the Sunshine In

Institutional Investor's Alpha Magazine - June 2008

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