Institutional Investor's Alpha Magazine - June 2008 - (Page 7)

Longs Feeling the Heat C ollusion. Manipulation. Deceit. Embattled corporate executives have been known to throw tough words like these around when the delicate subject of hedge funds comes up. The markets are jumpy, and every rumor or piece of news runs the danger of igniting a ﬁ re sale or rally. Lehman Brothers’ share price tanks after David Einhorn, manager of $6 billion, New York–based Greenlight Capital, makes his short position known. Amylin Pharmaceuticals is said to be a takeover target of Eli Lilly & Co. after activist investor Carl Icahn raises his stake. New York Times Co. stock bobs up and down, and up and down, as Philip Falcone takes aim at the company through $18 billion Harbinger Capital Partners. “These issues are going to mushroom, at least until we see the stock market bounce back,” says Barry Genkin, an attorney for Blank Rome, a Philadelphia law ﬁrm that caters to corporate clients and hedge fund managers alike. Isn’t Einhorn just exercising his right to free speech? Maybe, but the law can be tricky, as Christopher Hohn, founder of $13 billion, London-based activist ﬁ rm the Children’s Investment Fund (UK), learned in U.S. federal court during the trial this month of a case brought against TCI and New York hedge fund 3G Capital Partners by CSX Corp., the Florida railroad company against which the funds are waging a proxy ﬁght. At issue was whether TCI, which amassed its interest in CSX largely through equity swaps, and 3G had properly disclosed their interest in the company (the question being whether swaps should be subjected to the same disclosure requirements as the underlying securities). “What quite clearly went on here is that a very large position was assembled that was opaque to the broader public market,” said Judge Lewis Kaplan. Although the judge ruled that he couldn’t stop the proxy vote based on legal precedent, his tone — which may prompt regulators to take a look — was reproachful. “You made known to a select group of investors you were buying a position and suggested they do the same,” he said. & Shorts There’s usually nothing illegal about hedge fund managers talking to one another. In the equity markets it’s only a problem when they act in unison and when, collectively, their holdings total more than 5 percent of a company, at which point they must state their positions and intentions. It may be a fine line, but that doesn’t mean it can’t be walked. “What sophisticated hedge fund managers do,” Genkin explains, “is try to get support for their position without agreeing to act in concert.” — Imogen Rose-Smith David Einhorn (left) and Christopher Hohn have separately drawn ﬁre for activist investing. Here’s a Dream Job S teven Whittaker gets lots of calls from hedge fund managers in search of people willing to sit on their boards of directors. “The pool is actually quite ﬁnite and small,” says Whittaker, a lawyer at London-based Simmons & Simmons and author of a how-to-be-adirector guide for the London-based Alternative InvestIllustration by Joshua Gorchov for Alpha ment Management Association. He says he keeps a folder with about 45 names of willing directors, most of whom serve on more than one board and many of whom do so for a living. As the hedge fund industry booms, the law of supply and demand drives up directors’ fees. In recent years they have typically been paid about $5,000 a year. JUNE 2008 • INSTITUTIONAL INVESTOR’S ALPHA • 7

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

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.