Institutional Investor's Alpha Magazine - October 2008 - (Page 10)

lion Children’s Investment Fund’s Master Fund (UK) returned more than 40 percent in 2006 and 37 percent in 2007. This year TCI was down more than 26 percent through September. Then there’s London’s Absolute Return for Kids (ARK), set up by several London hedge fund executives, including Arpad Busson, founder of $14 billion London-based fundof-funds ﬁ rm EIM Group. Some of the charity’s big backers have been hurt in these rough ma rket s. Rona ld Beller, co-founder of Peloton Partners and a major ARK supporter, was one of the early victims of the credit crisis. Beller and partner Geof f re y Gra nt closed Peloton in February after the h ig h ly le vera ged fund suffered billions in losses on bullish bets on the U.S. mortgage market. A R K ra ised $50 million at its gala in June, about $3 million less than it did in 2007. Not all the news is weepy. Some managers who are shutting down funds as they pass through the twilight of their years continue to contribute their own money through a family office or charitable foundation, as Julian Robertson Jr. did after he closed his $21 billion New York–based Tiger Asset Management in 2001. And many of the old guard may now have more time to devote to philanthropy. — I.R.-S. Personnel Is Swamped A s money ﬂows out of hedge funds lately, résumés pour in. Not that it’s all that attractive a job sector. Most hedge funds are down this year, which means they’re not making their all-important performance fees, which in turn means that employees won’t be getting anywhere near the kind of remuneration they had hoped for. “What will that pool percentage be — 2 percent?” asks Robert Olman, founder and president of Alpha Search Advisory Partners, a Roslyn, New York–based search ﬁrm for hedge funds, funds of funds and other investment managers. Getting a bonus, of course, assumes you aren’t laid off, which raises another question: Where do you go if that happens? The U.S. Department of Labor reported that in September alone 17,000 ﬁ nancial-services jobs were lost (172,000 have vanished since December 2006). “They’d ﬁ nd it impossible to get hired,” says Greg Friedman, CIO at Pittsburgh-based Greycourt & Co., a wealth management ﬁrm that evaluates alternative-investment managers. Nolop, from Pitney Bowes. It revised its mortgage loss assumptions from $1 billion to $1.5 billion to an unspecified number. The Citadel executive who arranged the E*Trade deal, Joe Russell, left the firm, and the dismal state of the Dow scared a lot of E*Trade’s brokerage customers out of the market. The bottom line, says an October 3 research note from Citi analyst Prashant Bhatia, is that E*Trade will ultimately endure $2.8 billion in mortgage losses. Citadel, meantime, has its own troubles — losses, investor redemptions, leverage woes — and rumors of an IPO have faded. It seems the markets have a headache and aren’t in the mood. — Ann Logue UPDATE Buying E*Trade (Ouch) t’s a quaint tale in hindsight: A big hedge fund/quasi-investment bank swoops in to bail out an ailing online brokerage in hopes of turning it into a proﬁ t-churning dynamo. That’s what happened in November 2 0 0 7, w hen Chicago based Citadel Investment Group came to the rescue of E*Trade Financial, which was collapsing under the weight of mor tgagerelated losses in a $3 billion assetbacked securities portfolio. With help from money manager BlackRock , Citadel infused E*Trade with $1.6 billion in capital, paid another $800 million for its ABS I por t folio and took over much of its equity or der vol ume and all of its options trades. When the deal was announced, Citadel brought in Donald Layton as chairman; the former JPMorgan Chase vice chairman became CEO of E*Trade in March 2008. For the first six months of this year, Citadel’s intended turnaround of E*Trade seemed on track. New television ads were running, debt was falling, balance was being restored. At the end of June, E*Trade held $8.2 billion in mor tgagebacked and availablefor-sale securities, $27 billion in loans and $330 million in Fannie Mae and Freddie Mac holdings that all looked reasonably redeemable sooner or later. Then came September, when E*Trade unloaded its Fannie and Freddie stakes at a $150 million loss. It hired a new CFO, Bruce 10 • INSTITUTIONAL INVESTOR’S ALPHA • OCTOBER 2008 Illustration by Joshua Gorchov

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

Institutional Investor's Alpha Magazine - October 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Process of Evolution The Good Guys: Israel's Champion Interview: Fast Lessons for Hard Times Cover Story: Industry Under Siege The New Hedge Fund Economics Good-Bye, Easy Money Caging the Shorts Strategies: Bottom Fishing Profile: Cult of Personalities Research Center: Alpha Awards: Eye of the Storm Alpha Bytes: Funneling the Chatter Unhedged: Commentary: Attention, Hedge Fund Shoppers

Institutional Investor's Alpha Magazine - October 2008

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