Institutional Investor's Alpha Magazine - September 2008 - (Page 16)

But some experts say there is little risk that hedge fund firms in Latin America will suffer the fate of commodity-focused managers in the U.S. like Ospraie Management, whose once- $2.8 billion f lagship Ospraie Fund fell 26.7 percent in August. That’s because Latin American hedge funds use a lot less leverage than their U.S. counterparts do. “However, during the past few months, a signiﬁcant unwinding has taken place, and many funds have lost between 30 percent and 40 percent of their assets under management,” notes Alan Haidinger, head of funds of funds at UBS Pactual Bank in Rio de Janeiro. “Many investors have been disappointed by returns this year and are returning to more traditional investments, such as cash and government bonds. Haidinger adds that Brazilian hedge funds haven’t been helped by the fact that they were heavily invested in stocks closely tied to the country’s economy. Like the U.S., Brazil has seen its real estate values tumble in the face of the global credit crisis. Michael Hartnett, the New York– based chief emerging-markets equity Correction An article (“Staying Alive”) in the July/August 2008 issue inaccurately described the histories of two Berwyn, Pennsylvania–based hedge fund ﬁrms, Blueﬁn Investment Management and Redstone Investment Management. Redstone was established in January 2002 by Morgan Stanley alumni Arden Armstrong and Steven Chulik. Marc Balcer, Scott Burney, George Raupp and Matthew Todorow launched Blueﬁn in May 2007. Balcer, Burney and Raupp worked together at Redstone from 2002 to 2007; previously, they had been at Morgan Stanley. Todorow, who also had worked at Morgan Stanley, was a portfolio manager at Delaware Investments before joining his former colleagues to start Blueﬁn. strategist at Merrill Lynch & Co., conﬁrms Haidinger’s impressions. “During the third quarter, there has been relentless liquidation of emergingmarkets equities,” he says. According to UBS Pactual’s IFMM index, which tracks Brazilian hedge funds, year-to-date returns were 4.76 percent through early September, compared with 11.87 percent for all of 2007 and 20.04 percent in 2006. By comparison, certiﬁcates of deposit in Brazil have returned almost 8 percent percent year to date, underscoring the comparatively weak performance of hedge funds. “The funds’ disappointing returns are starting to make investors nervous,” says New York–based Eduardo Levy-Yeyati, head of Latin American research for U.K. invest- ment bank Barclays Capital. “During the past few years, massive ﬂows into [emerging-market] funds took place, but investors are now in the process of unwinding, and it has not come to an end yet.” Brazil is home to about 85 percent of all Latin American hedge funds, and hedge fund assets under management in the country total about $150 billion, according to UBS Pactual. The gloom down south may only increase. Given the growing f inancial crisis, it seems unlikely that investors will return to Latin American hedge funds with much zest until the dollar stabilizes, commodities prices begin to recover and international markets become less volatile. — Jason Mitchell CLASS REVIEW When Bears Earn Their Keep t has been a difficult year for hedge funds, and July only added to the misery. The hedge fund industry, as tracked by Hedge Fund Research in Chicago, was down 2.20 percent that month, as measured by the HFRI fundweighted composite index, sending the index down 1.29 percent for the year. The good news: Some managers, as usual, can be counted on to stay buoyant in choppy seas. Although macro funds as a group were down 2.63 percent in July, several of them relied on their multiasset investment expertise and bearish views to keep their funds above water. Roy Niederhoffer’s New York– based Negative Correlation Fund, for instance, uses strategies that I capitalize on bear markets. The fund did not disappoint in July, when the $772 million portfolio rose 4.69 percent, delivering a 12-month return of 37.29 percent compared with the HFRI macro benchmark gain of 8.38 percent. The fund, which makes high-frequency trades in equity, fixed income, foreign exchange and commodities (in that order), was designed to perform best in down markets. “Strategies like this tend to do better when there are high levels of short-duration volatility,” Niederhoffer says. Two former British Treasury economists, Adrian Owens and Andrew Snowball, also had a good July — and a good year, for that matter. Their $263 million London-based JB Global Rates Hedge Fund, which in- vests in interest rate and currency markets, produced a 4.49 percent return in July and exceeded 15 percent over 12 months. Owens says the fund, which is part of $14 billion Augustus Asset Managers, also based in London, has done so well largely by identifying overlooked currency and interest rate markets that outperform, rather than using oncepopular carry-trade strategies, in which funds sell low-interestrate currencies and use the proceeds to buy currencies yielding higher interest rates. Such trades backfired when global markets destabilized. — F.D. Macro Funds Return (%) One year through July 8.38% –1.29 –11.09 Three years through July* 9.41% 7.92 2.85 Three-year annualized standard deviation 5.27 5.56 10.06 Benchmark HFRI macro (total) index HFRI fund-weighted composite index Standard & Poor’s 500 index * Annualized. July –2.63% –2.20 –0.84 Source: Hedge Fund Research. 16 • INSTITUTIONAL INVESTOR’S ALPHA • SEPTEMBER 2008

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

Institutional Investor's Alpha Magazine - September 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Culling the Herd The Good Guys: Ending the Cycle Interview: Press Credentials Cover Story: Rethinking Chris Hohn Strategies: At the Edge of the Earth Profile: Alpha Femals Strategies: Tails, You Lose Research Center: The Top Equity Trading Firms Alpha Bytes: The Light Is On Unhedged: Commentary: Not-So-Dire Diagnosis

Institutional Investor's Alpha Magazine - September 2008

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