Institutional Investor's Alpha Magazine - October 2007 - (Page 14)

The Council on Foundations’ Janne Gallagher: Pushing Congress to rethink tax rules. shore when they invest in hedge funds,” said Levin in a statement issued after a hearing in early September. “These rules were never meant to apply to this kind of transaction, and there is little reason to fear abuse.” Gallagher says the bill is a step in the right direction. “It would remove the need to use offshore entities,” she explains. Lisa McGreevey, executive vice president and chief operating officer of the Managed Funds Association, agrees that the legislation is a necessary fix for an anomaly in the tax code. In early October she and several members of the MFA met with Levin’s staff to discuss the bill and some technicalities in the draft. In particular, she says, the MFA has concerns about the bill’s suggested expansion of the definitions of hedge funds and hedge fund investments. She believes the definitions need to be clearer to ensure that the tax-exempt hedge fund investors the bill targets are, in fact, shielded from UBIT. “The House is interested in getting this right,” says McGreevey, adding that she is encouraged by the fact that Congress is addressing the issue. “They want to ensure that tax-exempts continue to invest in hedge funds.” — Katie Gilbert Sparkling Future C ut, color, clarity, carat weight and . . . commodity? If the Rapaport Group — founder of the world’s largest diamond-trading platform — has its way, a regulated and completely price-transparent diamond futures index will be up and running by 2009. Martin Rapaport, chairman of New York–based Rapaport Group, whose Rapaport Diamond Report has been the primary source of diamond-pricing information for the international jewelry market since the late 1970s, says the index would remove the secrecy surrounding pricing and enable traders to trade the gems much as they would any other commodity. Hedge fund managers, however, are still on the fence when it comes to the idea. David Linsley, chief executive of London-based hedge fund ﬁrm Sirius Investment Management, says a diamond index would likely garner significant interest but thinks the industry’s complexity would make accurate pricing difﬁcult. “Demand is going one way at the moment, and the futures would be strong — not up and down like stocks,” says Linsley. “The problem would lie with the amount of different clarities, colors and shapes available on the market.” But he adds that if pricing could be done correctly, his ﬁrm would deﬁnitely be interested in starting a dedicated diamond fund. The diamond market has always been carefully priced, of course. Alex Wilkinson, who heads the global futures team for Toronto-based RBC Capital Markets, believes a futures product would face significant challenges. “If it’s a physical basket of stones of specific size and grade, with a percentage deviation, what is the rate of deviation and who decides that?” asks Wilkinson, who says there would have to be a way to ensure that the index remains transparent to attract traders. Adds Des Kilalea, RBC Capital Markets’ director of global mining research: “Unlike other commodities, there’s no traded price for diamonds, and the price of one carat can range from $1 to more than $45,000. So setting a benchmark for a futures contract will be a major difﬁculty.” Kilalea believes that it would be tough to generate the necessary liquidity to support a futures market in diamonds. The spot market for diamonds, he says, is currently worth $26.4 billion annually, less than half of the $55 billion market for gold. Despite doubts that an index could accurately price the wide array of shapes, sizes and colors of diamonds, Rapaport insists that diamond futures would ensure fairer pricing and provide the industry with better cash-market liquidity. Among the organizations backing plans for the index are London-based ICAP — the world’s largest interdealer derivatives brokerage — the London Metal Exchange and the Chicago Board of Trade. Rapaport Group wouldn’t buy or sell gems, which Photo by David Deal for Alpha 14 • INSTITUTIONAL INVESTOR’S ALPHA • OCTOBER 2007

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - October 2007

Institutional Investor's Alpha Magazine - October 2007 Contents Letter from the Editor Longs & Shorts Pension Corner: Applied Knowledge The Good Guys: Autism Advocate Interview: Nerves of Steel Cover Story: Ivy League Education Alpha Awards: Top Service Providers: Trying Times Strategies: Passage to India Profile: The Oracle of Irvine Alpha Bytes: Futurama Research Center: Funds of Funds 50 Unhedged: Commentary: Crisis? What Crisis?

Institutional Investor's Alpha Magazine - October 2007

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