Institutional Investor's Alpha Magazine - October 2007 - (Page 6)

SPM founder Donald Brownstein: Looking to pounce as troubled investors unload quality paper. replicate that success, he launched the SPM Directional Mortgage Credit Fund, which seeks to beneﬁt from the current liquidity crisis by acquiring high-quality structured paper from ﬁrms that are badly in need of cash and forced to sell at deep discounts. But this time around, returns could be harder to generate for SPM, as a handful of major banks are preparing to launch what could amount to a $100 billion version of its newest fund. In mid-October, Citigroup, JPMorgan Chase & Co. and Bank of America Corp. announced plans for the MasterLiquidity Enhancement Conduit — a joint fund that will look to acquire assets rated AA or higher from structured investment vehicles forced to liquidate their holdings. The Citigroup-led initiative is expected to be up and running by December and is being supported by the U.S. Department of the Treasury, which fears that multiple forced liquidations among SIVs could lead to a meltdown. But Brownstein, who plans to cap the SPM Directional Mortgage fund at $500 million, isn’t too worried about the competition and believes Citigroup’s plan fails to address the core issues plaguing the credit markets. “The problems associated with the SIVs are not just ‘accounting’ problems,” says Brownstein, whose ﬁrm has specialized in mortgage-related issues in the decade since its launch. “Subprime paper that has not been fully marked to market — that is, marked way, way down — won’t be worth any more just because it’s owned by an off-balancesheet entity. This appears to me to be not as much a bailout as an ostrich act.” Though bonds have been readily available, Brownstein says there has not quite been the unlimited supply of discounted paper that some were expecting. “The assets that commercial-paper conduits have used to deleverage have InvestorForum Higher returns and diversiﬁcation are the two biggest attractions for institutional investors considering hedge funds. Of the respondents to our latest InvestorForum survey contemplating hedge fund forays, nearly 42 percent are looking for higher returns, and 39 percent want diversiﬁcation. Still, only half of those surveyed believe portfolios with hedge fund allocations have lower volatility than those without.* What type of institution do you represent? Corporate pension fund Public pension fund Taft-Hartley pension fund Endowment Foundation Other What is the size of your fund? More than $5 billion $2.50 billion to $5 billion $1 billion to $2.49 billion $500 million to $999 million $100 million to $499 million Less than $100 million Yes No 37.0% 18.5 2.5 35.8 2.5 3.7 40.5% 59.5 Lower volatility Diversiﬁcation Downside protection Other 8.3 38.9 5.6 5.6 degree of short selling)? Yes No Don’t know 28.0% 36.0 36.0 8.5% 13.4 22.0 17.1 22.0 17.1 If you do invest in hedge funds, how big is your hedge fund allocation? More than 50 percent 2.6% 26 to 50 percent 18.0 16 to 25 percent 15.4 11 to 15 percent 12.8 6 to 10 percent 23.1 Less than 6 percent 28.2 If you currently invest in hedge funds or funds of hedge funds, what is your main reason for doing so? Higher returns 23.1% Lower volatility 7.7 Diversiﬁcation 51.3 Downside protection 7.7 Other 10.3 If you do not invest in hedge funds or funds of hedge funds but are considering doing so, what is your main interest in hedge funds? Higher returns 41.7% Do portfolios with allocations to hedge funds generally have higher returns than those that do not have them? Yes 46.6% No 31.5 Don’t know 21.9 Do portfolios with allocations to hedge funds generally have lower volatility than those that do not have them? Yes 50.0% No 12.9 Don’t know 37.1 If you do not invest in hedge funds, do you have or are you considering making an investment in 130/30 or alpha extension funds (long equity funds that also include a controlled If you do invest or are considering investing in hedge funds or funds of hedge funds, do you use a separate portfolio allocation or a portable alpha approach? Separate allocation 65.0% Portable alpha 10.0 Both separate allocation and portable alpha 15.0 Other 10.0 Does private equity provide sufﬁcient diversiﬁcation beneﬁts to offset the need to invest in hedge funds? Yes 37.7% No 44.2 Don’t know 18.2 Do you currently invest in hedge funds or funds of hedge funds? Yes 46.3% No 53.8 If you answered “no” to the previous question, are you considering investing in hedge funds or funds of hedge funds in the future? * Responses may not total 100 percent because of rounding. 6 • INSTITUTIONAL INVESTOR’S ALPHA • OCTOBER 2007 Photo by Rayon Richards for Alpha

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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