Institutional Investor's Alpha Magazine - July/August 2008 - (Page 16)

the relationships and the ability to provide hedge fund managers with a true understanding of what is going on in the market. They can offer a lot more than just best execution.” The rise of the boutiques has not gone unnoticed by big investors. In January, Menlo Park, California–based private equity ﬁ rm Sequoia Capital took a $20 million stake in Merlin. In May, Goldman Sachs bought a minority stake in BTIG, a capital injection that is fueling BTIG’s global expansion drive. The ﬁrm opened an office in Hong Kong in April and has plans to be in London and Sydney by the end of the year. Of course, the banks and bulge-bracket ﬁ rms will continue to command the lion’s share of the hedge fund brokerage market. But when the dust settles from the credit crunch, the boutiques of the world — ﬁ rms like BTIG, Shoreline, Conifer, Merlin and the Stamford, Connecticut–based Williams Trading — will have bene ﬁted from the new friendships cemented in these troubled times. — I.R.-S. Shari’a 101 I n the developing world of Islamic ﬁnance, success isn’t as much about creating alpha as it is about creating alpha within the conﬁnes of shari’a law. The issue is especially relevant of late as hedge fund managers hunt for ways to capitalize on the ever-growing pools of petrodollars pouring out of the Middle East. In June, London-based Barclays Capital and New Canaan, Connecticut–based Shariah Capital launched a shari’a-compliant platform called Al Safi (Arabic for “pure”). Its first five U.S. offerings, each seeded with $50 million from the government-sponsored Dubai Multi Commodities Centre, include four funds managed by New York–based ﬁrms — Tocqueville Asset Management (gold), Zweig-Dimenna Associates (natural resources), Ospraie Management (agriculture) and BlackRock (metals and minerals) — and one overseen by Red Bank, New Jersey–based Lucas Capital Management (energy). Shari’a, the code by which devout Muslims live, encourages prudent investing but bars certain Western conventions like charging interest and short-selling. “Hedge funds are a controversial area for Islamic scholars, and there is much debate,” says Atif Hanif, a London-based senior associate at global law ﬁrm Allen & Overy. “There is an appetite from many in the Middle East to make their money go further than [in] traditional equity investing, but there is also a reluctance to invest in something still being debated.” Al Saﬁ’s approach is to offer an “arboon” — an optionlike contract rooted in Islamic law that allows for indirect investment. Shaykh Yusuf Talal DeLorenzo, chief shari’a ofﬁcer and board member at Shariah Capital, says demand for such deals will eventually create acceptance. “But you cannot underestimate the importance of the scholars — they can move markets,” notes Mohammed Amin, the London-based Islamic ﬁnance leader for PricewaterhouseCoopers. “The modern Islamic ﬁnancial industry is in its beginning stage. As more professionals join its ranks, the intellectual capital of the industry will grow, and when that happens better decisions will be made, better processes will be developed, and the quality of every aspect of the industry will improve.” — Kira Nickerson CLASS REVIEW Russia’s Rich Spigot he global surge in oil and gas prices gave a big lift to longbiased Russian equity hedge funds in May. Russian oil companies (and their investors) benefited as well from a series of tax policy changes instituted by Moscow. Hedge Fund Research in Chicago reported a 4.95 percent return for its Russia/ Eastern Europe index (demand for consumer products was up along with oil), compared with 1.88 percent for the overall HFRI fund-weighted composite index. The Standard & Poor’s 500 index was up only 1.3 percent in May. “We’ve been increasingly bullish on the [Russian] market since late April,” reports Stephen Cohen, chief executive of the hedge fund T business at $10 billion, Moscowbased investment bank Troika Dialog. The Troika Russia Fund, with $222 million in assets at the end of May, produced a 16.48 percent return for the month, mostly on the strength of oil and gas positions. The fund was up more than 25 percent for the year through May, and for the three-year period ended that month had an annualized return of just under 43 percent. The story is much the same at Tradewinds Investment Management in Sausalito, California. Though half a world away from Russia, the $100 million Tradewinds Russia Partners I fund returned slightly more than 15 percent in May, 60 percent over 12 months and an annualized 58 percent over three years. “Oil and gas are the drivers of wealth creation,” says Spencer Rhodes, managing director of the $300 million emergingmarkets hedge fund ﬁrm. Rhodes is bullish on the future of Russian oil and gas development because of the inﬂuence of Russia’s new president, Dmitri Medvedev, the former chairman of state-owned energy behemoth Gazprom. — F.D. Russian Funds Return (%) One year Three years through through May May Three-year annualized standard deviation Benchmark May HFRI emerging-markets Russia/Eastern Europe index HFRI fund-weighted composite index Standard & Poor’s 500 index 4.95% 1.88 1.3 14.63% 3.03 –6.70 33.73% 10.59 7.56 13.81 5.25 8.79 Source: Hedge Fund Research. 16 • INSTITUTIONAL INVESTOR’S ALPHA • JULY/AUGUST 2008

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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