Alpha - September 2007 - (Page 30)

Unlocking Hedge Fund Operational Potential - Impacting the Bottom Line edge funds have experienced phenomenal expansion in recent years – and are expected to enjoy even more as institutional investors scale up their commitments.According to the October 2006 Bank of New York Thought Leadership white paper,“Institutional Demand for Hedge Funds 2,” co-authored with Casey, Quirk & Associates, institutional investor capital in hedge funds will increase from around $360 billion to more than $1 trillion by 2010 – 50 percent of total projected inflows. By then, retirement plans alone will account for about 65 H Projected Cumulative Hedge Fund Net Flows from Institutions by Type 2006 - 2010 (Cumulative Net Flow: $510 billion) 15% 15% 65% 5% Retirement Plans Government Endowments & Foundations Bank & Insurance Source: The Bank of New York and Casey, Quirk & Associates analysis percent of new institutional assets invested in hedge funds. Already, a transformation is taking place as hedge funds focus on this new wave of investors. Institutions bring a demand for greater transparency and due diligence.They want the hedge fund to have a reliable infrastructure and to know that its processes are effectively streamlined and governed.They also want a well-regarded, independent financial institution to service the fund’s – often multiple – interfaces with prime brokers. Meanwhile, hedge funds are expanding into new and more complex areas of investment, including structured loans, derivative-based strategies and 130/30 strategies.The result is a greater need for such services as collateral management, cash management, loan servicing, derivatives margin management, corporate trust and fund administration. This creates a dynamic new role for firms that provide administration and banking services, adding the third side to a triad that also includes the prime broker and the hedge fund itself. Success in this role requires an ability to work closely with each of those two entities, anticipating their evolving needs and the future direction of the hedge fund investing practice. “Investors want hedge funds to take on more of an institutional profile by establishing relationships with third-party service providers that can bolster their valuation and reporting capabilities so that the hedge fund manager can concentrate on the investment process itself,” says Brian Ruane, Executive Vice President and Head of Financial Institutions at The Bank of New York Mellon. On July 2, 2007,The Bank of New York and Mellon merged.The combination includes the joining of two leading providers of banking and administration services to hedge funds and other alternative investment managers.With $170 billion in hedge fund assets under administration, this makes The Bank of New York Mellon one of the top-tier administrators in the hedge fund Marina Lewin Art Certosimo Brian Ruane Orla Nallen David Aldrich 1 • Alpha Sponsored Statement • September 2007

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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