Institutional Investor's Alpha Magazine - September 2008 - (Page 6)

By selling a stake in Seoulbased Cosmo Investment Management to the Lotte Group, Shuhei Abe hopes to create some synergy. growth. Largely by shrewd and steady acquisition, the 54-year-old, Tokyobased titan has built Sparx, founded in l989, into by far the biggest Asian hedge fund ﬁrm, with current total assets under management of $12 billion ($8.13 billion in hedge funds). There was some surprise, then, when Abe (pronounced AH-bay) an- nounced this year that he was selling part of his controlling interest in $3 billion Seoul-based Cosmo Investment Management to the Lotte Group, one of Seoul’s five largest chaebol, the huge family-owned industrial conglomerates that have dominated South Korea’s economy for decades. But the deal would clearly beneﬁt Sparx by giving it a weighty local partner with an enormous retail following. Lotte, whose core business is department stores, boasts a customer base of 10 million credit card holders, and managers at Sparx and Lotte see the potential marriage as a deﬁning moment in selling the South Korean public on the possibilities of asset management and hedge fund investment. The proposal makes sense for Lotte too because South Korea is deregulating the ﬁnancial sector, making the chaebol fearful of up-and-coming rivals. Lotte, which has 38,000 employees in South Korea and Japan, sees the deal as a chance to get into the retail ﬁnancial sector in a big way, with a savvy partner at its side. Neither party will reveal much about the deal, but insiders at Lotte say the company is insisting on holding a 51 percent interest in the Cosmo stake it would share with Sparx. The size of the transaction is estimated at up to $500 million, and Lotte is hoping to close it by the end of the year, though recent declines in the stock market in South Korea have been a drag on talks. In 2005, Sparx bought a 68 percent stake in Cosmo as part of a larger overseas play that included the complete buyout of Hong Kong–based hedge fund ﬁrm PMA Capital Management in 2006. Cosmo performed well after Sparx bought its controlling stake; assets under management shot up sevenfold in less than three years, a fact that Sparx negotiators have no doubt mentioned to Lotte executives. Although Masatoshi Fukami, Sparx’ managing director in charge of strategy, said in June that he hoped to complete the deal by the end of August, negotiations continued to ebb and ﬂow as that date passed. If home ﬁeld is an advantage, Lotte may have the upper hand: The talks are taking place in Seoul. — Henry Scott Stokes InvestorForum Who’s to blame for this year’s run-up in commodities and oil is a hotly debated question lately, though prices had moved back down sharply by early September, shortly after this survey was conducted. Watercooler talk, as always, also touches on where to draw the line as to whether to put money in a hedge fund, whether to let pension funds do so and whether hedge funds should be allowed to inﬂuence energy prices as they do. What type of institution do you represent? Corporate pension fund 21.8% Public pension fund 36.4 Endowment 37.3 Foundation 3.6 Other 0.9 What is the size of your fund? More than $5 billion 19.5% $2.50 billion to $5 billion 15.0 $1 billion to $2.49 billion 15.0 $500 million to $999 million 10.6 $100 million to $499 million 20.4 Less than $100 million 19.5 Do you currently invest in hedge funds or funds of hedge funds? Yes 60.7% No 39.3 If you answered no, would you invest in hedge funds? Yes 33.3% No 66.7 If you do invest in hedge funds, how big is your allocation? 26 to 50 percent 9.6 16 to 25 percent 15.1 11 to 15 percent 6.8 6 to 10 percent 50.7 Less than 6 percent 17.8 Do you currently invest in commodities? Yes 33.6% No 66.4 If you do not invest in commodities, are you considering an allocation? Yes 38.7% No 61.3 If you do invest or are considering investing in commodities, how do or would you invest? Long-only commodities index funds 33.3% Hedge funds 48.5 Equities 33.3 Private equities 48.5 Other 30.3 Which of the following do you believe is most responsible for the rise in oil prices during the past year? Long-only investors 3.6% Hedge fund manager speculation 15.2 Energy companies 5.4 Demand from India, China and other emerging economies 50.0 Fall of the U.S. dollar 13.4 Lack of output by OPEC countries and other oil providers 5.4 Government policies 7.1 Should hedge fund managers be allowed to trade in energy futures? Yes 84.1% No 15.9 Should there be more oversight of hedge fund energy trading? Yes 73.1% No 26.9 Should hedge fund managers and other speculators be subject to a 50 percent margin requirement? Yes 47.3% No 29.5 Don’t know 23.2 Should pension funds be allowed to invest in commodities? Yes 84.8% No 15.2 Which of the following is the greater contributor to rising energy prices? Hedge fund managers 37.6% Long-only commodities indexes 62.4 * Responses may not total 100 percent because of rounding. 6 • INSTITUTIONAL INVESTOR’S ALPHA • SEPTEMBER 2008 Photo by Peter Blakely/Redux for Alpha

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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