Institutional Investor's Alpha Magazine - June 2008 - (Page 14)

long-short equity fund that Deutsch ran, was down 26.6 percent last year, it was up 43.8 percent in 2006 and performed spectacularly when the 35-year-old Deutsch ﬁrst started managing it. The Captain’s Fund was up 53.9 percent in 2001 and 25.5 percent in 2002, two years when some other Galleon funds, speciﬁcally the former ﬂagship technology fund, struggled. Overall, the annualized return of the Captain’s Fund since its 2000 inception has been almost 19 percent, and Deutsch, who was made a partner at Galleon in 2004, ran it for most of that time. The reasons for Deutsch’s departure aren’t fully known (he and founder Raj Rajaratnam declined to comment). But, according to investors, the two have disagreed about how much leverage should be used in the Captain’s Fund; Rajaratnam wanted less than Deutsch did. As part of an effort to broaden the ﬁrm’s reach, Galleon is opening an ofﬁce in Singapore and launching an Asia-focused fund. Last year it hired a new chief risk management ofﬁcer, Sebastiano Calabro, a former partner at Rubicon Quantitative Fund Management and an ex–Goldman Sachs managing director. People familiar with Deutsch’s plans say he will launch his own ﬁrm, possibly with Richard Grodin, a former trader with $16 billion Stamford, Connecticut–based SAC Capital Advisors. — I. R.-S. Hong Kong Rules bined, they control barely $1.7 billion. The size of the much larger unregistered Hong Kong hedge fund market is difﬁcult to gauge. According to K.C. Chan, the secretary for Financial Services and the Treasury, Hong Kong has this — among other things — going for it: “It is actually one of the ﬁrst jurisdictions in the world that allows the offering of retail hedge funds to the public.” The minimum investment for government-certiﬁed hedge funds is $50,000; for funds of hedge funds, it’s $10,000. And Hong Kong will not license funds based in the usual locales — Bermuda, the British Virgin Islands, the Cayman Islands, the Channel Islands, Singapore or Switzerland. Many established hedge funds are located in such jurisdictions for tax purposes, and those places are well suited to provide the administrative services that hedge funds need. “I’m not against such a [regulatory] scheme,” says Edward Chin, a managing director at MDE Walters Capital, a Hong Kong hedge fund incubation company whose clients range from a $20 billion investor to a $5 million start-up. “We’re a more high-regulation environment, like the U.S. and U.K., and people know that,” Chin adds. “It’s baked into the prices of ﬁnancial products and services we buy, and there’s a certain assurance behind that.” Alexander Shaik, a director and general counsel to Hong Kong–based ADM Capital, which has $2.5 billion in assets under management and invests primarily in distressed companies, notes that Hong Kong’s regulations are “quite comprehensive and on a par with more-established centers” like London and New York. He says Hong Kong’s stringency assures investors of the integrity of the industry. He concedes some drawbacks, including relatively difﬁcult compliance requirements that have pushed some smaller managers to Singapore. Chin says the $100 million capital requirement in particular keeps small players out of the market: “You’re better off in Australia or Singapore.” But he points out that Hong Kong does have advantages. “Despite the cost, you get better access to fundraising in Greater China,” he explains. “What could be better than that?” — Ajay Shamdasani Illustration by Joshua Gorchov for Alpha Hong Kong, gateway to China, is still developing its hedge fund industry. F or all its reputation as a world-class ﬁnancial center, Hong Kong isn’t the friendliest of hedge fund venues. At least, not for those seeking government certiﬁcation and investment from the general public. Such funds must have at least $100 million in assets under management, for starters, and cannot be domiciled offshore. Regional rivals Australia and Singapore, by comparison, have fewer restrictions. Still, hedge funds are a growth industry in Hong Kong, mostly because the majority of them aren’t trying to get government certiﬁcation and aren’t aiming at small investors. As of October 1, 2007 (the latest ﬁgures available), only 14 funds had been granted licenses by Hong Kong’s Securities and Futures Commission. Com- 14 • 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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