Institutional Investor's Alpha Magazine - July/August 2008 - (Page 12)

cal due diligence may explore as few as 15 percent of mortgage-backed assets in a debt pool, Edeus analyzes every security, using criteria like the updated credit status of borrowers and automated valuation data to predict mortgage loss rates. Its clients include investment banks, private equity ﬁrms and hedge funds. “In this market investors are crying out for information, and our analysis is as granular as one can get,” asserts Edeus managing director Alan Cleary. Edeus was founded in 2006 as a specialist lender at a time when the mortgage business was still booming, but the abrupt shift in the climate last year pushed it to abandon its original business model in favor of credit analysis. Having a process in place that can help demystify mortgage-backed products is a step in the right direction, says Steve Wallace, associate director of industry relations for Europe, the Middle East and Africa at the Amherst, Massachusetts–based Chartered Alternative Investment Analyst Association. “If you can start to get a better feel for how things are priced and what’s behind it, you’re in a much better position as an investor, particularly should things begin to go wrong.” Might things have been different had these kinds of initiatives been tried before the current bust? “It’s very easy to sit here and say it didn’t seem all that risky,” Wallace notes. “But with every crisis there’s always been some important lesson learned as a result of what’s happened. And this time it’s the whole notion of transparency and price clarity — the idea of being able to assign a value to something.” — Dave Simons Ibrahim Hajjar of Credit Suisse Hedging-Griffo: Brazil is relaxing its rules. UPDATE Short-Circuited uring his ﬁrst ﬁve months as president of the Managed Funds Association, the hedge fund industry’s main lobbying group, former Louisiana Representative Richard Baker was quick to express his willingness to work with Washington regulators (see Alpha, April 2008). But in mid-July, when the Securities and Exchange Commission abruptly imposed 30-day restrictions on short-selling — a practice critical to most hedge fund strategies — Baker was also quick to voice his displeasure. “It is not clear why this extreme measure is warranted,” he said, echoing the views of many in the industry. He also criticized the manner in which it was issued. “[It] took the markets by surprise. And there was no opportunity for our industry to voice any concerns.” T he agency issued the prohibition in the face of steadily eroding confidence among investors in Richard financial stocks, esBaker peciall y mor tgage D giants Fannie Mae and Freddie Mac and investment bank Lehman Brothers, each of whose shares have fallen more than 75 percent since the credit crisis began a year ago. Baker says the SEC acted hastily against what is a tried-and-true practice that has historically offered an important check on overvalued markets. “The MFA is actively seeking clarity on the reasoning behind the emergency rule,” he explains. “Short-selling is a legitimate and valuable trading strategy.” The SEC order, which requires investors to have in place an agreement to borrow the shares before selling them short for the 19 ﬁ nancial ser vices companies designated as primar y dealers by the Federal Reserve Bank of New York , comes on the heels of SEC subpoenas to 50 hedge fund managers over trading in shares of Lehman and the now-defunct Bear Stearns Cos. — I.R.-S. Brazil Sees the Light T he biggest country in South America is beginning to loosen up. In a change that is expected to trigger a ﬂood of fresh money into hedge funds, Brazil has enacted new rules allowing managers to invest as much as 100 percent of assets outside the country, up from 20 percent. It applies to funds that are domiciled in Brazil and that do business in Brazilian reais. Miguel Abadi, a fund manager at GEMS Advisors, a London-based ﬁrm that specializes in Latin American investments, believes the impetus for the change is selfevident. “Funds that only invest up to 20 percent in foreign assets will probably not have fantastic returns,” he says. “I think we will see now a number of Brazilian mutual funds set up their own hedge funds.” GEMS itself recently found buyers for a $50 million offering in a Brazil-based hedge fund that will take advantage of the new rules, and Abadi said in June that GEMS would increase the offering by as much as $40 million. HSBC Investments, part of the venerable 12 • INSTITUTIONAL INVESTOR’S ALPHA • JULY/AUGUST 2008 Photo (left) David Deal; (right) Christian Tragni/WPN for Alpha http://www.nxtbook.com/nxtbooks/ii/alpha0408/index.php?startid=64 http://www.nxtbook.com/nxtbooks/ii/alpha0408/index.php?startid=64

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

Institutional Investor's Alpha Magazine - July/August 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Mr. Big Goes Small The Good Guys: Adopt This School! Interview: Man's Great Hope Cover Story: The Gentleman Activist Strategies: The New Bankers Profile: Staying Alive Research Center: The Best of the East The Asian Sensations Alpha Bytes: Into the Light Unhedged: Commentary: Speculating on Washington

Institutional Investor's Alpha Magazine - July/August 2008

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