Alpha - September 2007 - (Page 3)

Letter from the editor Summer Blues EDITOR Michael Carroll EDITOR Michael Carroll EXECUTIVE EDITOR Michael Peltz MANAGING EDITOR David Schutt INTERNATIONAL EDITOR Tom Buerkle U.S. EDITOR Jeffrey Kutler EDITOR-AT-LARGE Firth Calhoun ART DIRECTOR Nathan Sinclair ART DIRECTOR Irene Ledwith ASSISTANT MANAGING EDITORS Tom Johnson (Research), William Loob (Editorial Production), ASSISTANT MANAGING EDITORS Lewis Knox Sathya Rajavelu (Director, (Global Technology and Research Operations Group), (Research), Jeffrey Kutler Justin Schack (Wall Street, Corporate Finance) Banking), Deborah F. McClellan (Editorial BUREAU CHIEF Kevin Hamlin (Hong Kong) Production), Barbara Rudolph (Money Management) SENIOR EDITORS Loch Adamson (London), EUROPEANBrull (LosTom Buerkle B. Kenney Steven EDITOR Angeles), Jane (London) (Editorial Research), Britt Erica Tunick, BUREAU CHIEF Kevin Hamlin (Hong Kong) JoWrighton (Paris) SENIOR EDITORS Steven Brull (Los Angeles), SENIOR WRITERS Frances Denmark, Andrew Capon (London), Jane B. Kenney Ben McLannahan (London), Michael Shari (Editorial Research) STAFF WRITERS Dan Freed, David Lanchner (Paris), SENIOR WRITERS Deepak Gopinath, Justin Schack SENIOR ASSOCIATE EDITOR Tucker Ewing STAFF WRITERS Rich Blake, David Lanchner (Paris) ASSOCIATE EDITORS Michele Bickford, Sivert SENIOR ASSOCIATE EDITOR Tucker Ewing (Research Hagen, John Livingstone, WeiQing Lu Specialist), Timothy Roberts (Research Specialist), ASSOCIATE EDITORS Emily Fleckner, Sivert Hagen COPY CHIEF David Wray COPY CHIEF David Wray SENIOR CONTRIBUTING EDITORS Fran Hawthorne, SENIOR CONTRIBUTING EDITORS Hawthorne, Pierre Paulden, Imogen Rose-Smith, Julie Segal Carolynn B. Tetro Harvey D. Shapiro, Stephen Taub Smith Hal Lux, Harvey D. Shapiro, Charles CONTRIBUTING WRITERS Pam Abramowitz, (Tokyo), Stephen Taub, Joan Warner CONTRIBUTING EDITORS Danielle Beurteaux, John Aidan Byrne, Colin Barraclough, Phil Davis, Udayan Gupta, Scott Martin, LucyO’Hara, Jaye Scholl, Irwin Speizer Neil Conger (Mexico City), Jonathan Kandell, Lois Madison Reamy, Copy Chief: COPY DEPARTMENT DeputyKazuhiko Shimizu Bill Christophersen; Copy Editors: Ingrid Accardi, (Beijing), Leah Nathans Spiro Ruth Hamel, Veronica Majerol COPY DEPARTMENT Deputy Copy Chief: Jeff Cranmer ASSISTANT TO THE EDITOR Elizabeth Simroe ASSISTANT TO THE EDITOR Elizabeth Simroe ART DEPARTMENT Deputy Art Director: Diana Panﬁl; Associate Art Director: Stephen Christensen; ART DEPARTMENT Deputy Art Director: Patrizia Bove; Senior Designer: Lee H.Wilson; Associate Sabrina Henley; Photo Lora; Daniella Nilva; Associate: Art Director: Stephanie Editor: Photo Editor: Associate Photo Editor: Alden Gewirtz; Anastasia Pleasant; Color Imaging Manager: Color Imaging Manager: John Miliczenko John Miliczenko CHAIRMAN & CEO Gary Mueller PRESIDENT & CEO Christopher R. Brown GROUP PUBLISHER Christine Cavolina Joy DeSanto PUBLISHER Christine Cavolina PUBLISHER, INTERNATIONAL Spencer Wicks PUBLISHER, INTERNATIONAL Lisa Traeger PUBLISHER, ASIA Wendy Gallagher ONLINE SALES DIRECTOR Chris DeAngelis PRODUCTION DIRECTOR Brian Gill EDITOR AND PUBLISHER, SPECIAL PROJECTS Ernest McCrary MANAGING DIRECTOR OF RESEARCH PRODUCTS PRODUCTION DIRECTOR Brian Gill Denise Murrell DIRECTOR OF FULFILLMENT Robert Tonchuk DIRECTOR OF FINANCE ANDDavid E. Antin CHIEF OPERATING OFFICER OPERATIONS David E. Antin Institutional Investor’s AlphaTM and Alpha,TM 225 Park Avenue South, New York, NY 10003; (212) 224-3300; Fax: (212) 224-3171. Institutional Investor’s AlphaTM and Alpha,TM 225 Park Avenue South, © 2007 Institutional Investor, Inc. No statement in this magazine is New York, NY 10003; (212) 224-3300; Fax: (212) 224-3171. to be construed as a recommendation to buy or sell securities. Neither this publication nor any part of Inc. (USPS 581-660) or transmitted © 2003 Institutional Investor, it may be reproduced No statement in this magazine is anybe construed as a recommendation including in any form or by to means, electronic or mechanical, to buy or photocopying, recording or by any information storage and retrieval sell securities. Neither this publication nor any part of it may be resystem, without the prior written permission of Institutional Investor produced or transmitted in any Dewey Palmieri means,224-3675; magazine. For reprints, contact form or by any (212) electronic or mechanical, including photocopying, recording or by any inforFax: (212) 224-3563; e-mail: dpalmieri@iinvestor.com. Submation storage and retrieval system, without(44-20) 7779 8999 scription hotline (800) 437-9997; Overseas the prior written permission of Institutional Investor magazine. ON SEPTEMBER 18, Federal Reserve Board chairman Ben Bernanke gave investors an unexpected gift — a 50-basis-point cut in the federal funds overnight lending rate. They had been hoping for such a bold move since mid-August, when the Fed slashed its discount rate by 50 basis points to inject liquidity into a U.S. financial system reeling from troubles that had begun in the subprime mortgage market. But Bernanke’s comments on August 31 at the Fed’s annual monetary policy conference in Jackson Hole, Wyoming — where he said the central bank would not be a backstop for falling equity or home prices — had many investors expecting a more modest reduction. U.S. equity markets soared on the news of the Fed rate cut, its ﬁrst since 2003. On September 18 the Dow Jones industrial average jumped 336 points, or 2.5 percent — its biggest one-day gain in ﬁve years. The euphoria spilled over into Asia and Europe, where most markets enjoyed 2 to 3 percent gains the following day. Hedge funds have undoubtedly profited from the surge in stock prices that followed the Fed rate cut. But the recent gains — however long they last — will not erase investors’ deep disappointment with the way many hedge funds performed the ﬁrst few weeks of August. As Senior Writer Loch Adamson notes in this month’s cover story, “Cruel, Cruel Summer” (page 32), hedge funds get paid to protect investors from outsize losses during difficult markets — and this summer a lot of them failed to do so. The huge losses at several bigname funds — including Goldman, Sachs & Co.’s vaunted Global Alpha, which after a 23 percent drop in August was down 32 percent for the year — have some experienced investors wondering whether the market is simply oversaturated with managers. “Pure alpha, as we once knew it, is becoming increasingly scarce,” says Mark Anson, president of Nuveen Investments and a former CIO of the California Public Employees’ Retirement System, one of the ﬁrst public pension funds to invest in hedge funds. The recent spike in volatility — and in trading volumes — is a powerful reminder of the dependence of hedge funds on brokerage firms and their electronic trading platforms. This spring and early summer, we asked nearly 300 hedge fund ﬁrms to rate their brokers. The result is our ﬁrst annual ranking of the world’s top equity trading ﬁrms. Turn to the story “Personal Touch,” beginning on page 78, for a full list of the winners. But if you want to know the name of the Wall Street firm that tops the list, here’s a hint: Its hedge funds suffered big losses in August. Knowing how to trade is apparently a different skill than knowing when and what to trade. MICHAEL PELTZ EXECUTIVE EDITOR mpeltz@iimagazine.com SEPTEMBER 2007 • INSTITUTIONAL INVESTOR’S ALPHA • 3

Table of Contents Feed for the Digital Edition of Alpha - September 2007

Contents Letter from the Editor Longs & Shorts Pension Corner: Keeping the Faith The Good Guys: Going Public Interview: Barry Bausano - A Delicate Balance Cover Story: Cruel, Cruel Summer Profile: Phil Cooper - Alternative Flight Plan Strategies: Marshall Wace - TOPS in Its Field Profile: Fortis Investments - Banking on Alternatives Research Center: Top Equity Trading Firms Alpha Bytes: Desktop Duel Unhedged: Commentary - The Taxman Cometh

Alpha - September 2007

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