Institutional Investor's Alpha Magazine - October 2008 - (Page 12)

Some high-end hiring continues, however. In early October, for instance, $20 billion Citadel Investment Group snapped up three senior investment bankers from bankrupt Lehman Brothers as the Chicagobased ﬁrm added to its global ﬁ xedincome business. Citadel, whose two f lagship hedge funds were down nearly 30 percent this year through early October, also recently hired bankers from a number of other top ﬁrms, including JPMorgan Chase & Co. and Credit Suisse. One result of all the market and employment turmoil is that investment professionals have broadened SCOREBOARD Hedge fund returns by strategy, sorted by investment process, asset class and geographic focus, through August 31, 2008. August return Composite, equally weighted Composite, asset-weighted PROCESS GROUP YTD return –5.19% –3.64 1.17 7.36 –5.83 –2.62 –2.56 –5.54 –4.04 0.71 –2.76 –4.97 –9.30 –12.48 –12.48 –5.56 7.45 –3.36 –4.50 –2.58 –5.28 –5.65 –3.64 –8.16 –3.43 1.10 –0.04 –2.15 –3.08 –3.01 –7.56 2.40 –14.14 –16.32 –11.81 3-month 12-month return return –4.58% –3.89 –2.86 –1.27 –5.14 –2.50 –2.29 –4.08 –2.83 0.47 –4.07 –3.15 –6.64 –8.49 –8.49 –4.30 4.50 –2.24 –3.47 –1.17 –4.37 –4.67 –2.95 –5.98 –1.92 –2.45 –1.49 –2.79 –1.84 –3.02 –5.55 –1.99 –10.70 –10.03 –8.09 –1.63% 0.47 8.43 17.00 –1.07 –0.74 0.07 –3.70 –1.69 0.37 –2.91 –0.02 –6.01 –9.31 0.24 –0.97 13.67 –1.59 –2.19 –1.88 –3.48 –3.31 –3.22 –5.23 –1.89 7.51 3.79 0.90 –3.09 –0.49 –9.04 9.22 –7.70 –14.04 –7.62 Source: MSCI. –1.34% –1.21 –1.58 –1.09 –2.39 –0.68 –0.28 –1.15 –0.22 1.54 –2.65 –0.53 –1.66 –1.78 –1.43 –1.56 –1.50 –0.33 –0.51 –0.19 –1.21 –1.59 0.27 –1.59 –0.20 –0.80 –1.82 –0.48 0.29 –0.33 –1.75 –0.83 –4.58 –3.89 –2.87 Directional trading Systematic trading Discretionary trading Relative value Arbitrage Convertible arbitrage Fixed-income arbitrage Merger arbitrage Statistical arbitrage Multiprocess Security selection Long bias No bias Variable bias Short bias Specialist credit Distressed securities Long-short credit Multiprocess group Multiprocess Event-driven ASSET CLASS INDEXES Equity Fixed income Diversiﬁed Currencies GEOGRAPHIC AREA Developed markets Europe North America Japan Developed markets, diversiﬁed Emerging markets Combined Asia-Paciﬁc Global markets their geographic horizons, with those in the U.S. more inclined to consider possibilities in Asia, Dubai, Europe and other foreign locales. “Workers who’ve been on Wall Street for a decade or more and have reached higher levels now are considering India, China or Africa to grow their proven investment strategy in another marketplace,” Alpha’s Olman says. This is a two-way street, as foreign companies see the current U.S. job market as an opportunity to expand or gain a foothold in New York. “Two years ago, an overseas firm would have had to guarantee an executive, let’s say, $1.5 million, whereas that same person today says, ‘I’ll come on board, but you need to protect my downside and risk,’” says Olman, explaining that a cut in pay is sometimes exchanged for the promise of job security. Such arrangements come with other trade-offs. One of the obvious ones is that the executive doesn’t have to move. Part of the downside is trading the business card of a first-tier bank for one from that of a lesser-known and probably not as well-regarded ﬁrm. Conﬁdence seems as inherent as ever among salespeople, who remain in demand. “The retail end is still making money despite all the tumult,” says Howard Diamond, chief operations ofﬁcer of Chester, New Jersey–based Diamond Consultants. Sales professionals “are still making enormous amounts of money,” Olman adds. He also says some Wall Street employees remain in limbo following this year’s wave of failures and mergers, which included the September bankruptcy of Lehman Brothers and the February acquisition of Bear Stearns Cos. by JPMorgan Chase: “We’ve heard from current Lehman workers that they got a note from Barclays saying that the bank needs to assess and that there’s no commitment yet to who’s staying or going.” But search ﬁrms are still making placements. Jobs are available, just not as many as before. — Janice Fioravante Jon Huntsman, chairman of Huntsman Corp. Chemical Warfare H edge fund managers may want to take a close look at Salt Lake City– based chemicals conglomerate Huntsman Corp.’s legal victory over Leon Black’s Apollo Group in late September for clues about how hard it might be to get out of merger agreements that suddenly look less attractive. The Huntsman decision suggests it might be pretty difﬁcult. In response to a suit brought by Apollo, a Delaware Court ruled after a six-day trial that Apollo’s Hexion Specialty Chemicals unit must complete the $10.6 billion deal struck last year to acquire Huntsman for $28 a share even though current economic conditions present many obstacles to closing. Apollo faces a breakup fee that could exceed $325 million. “If [the court] had tried to draft a more favorable ruling for Huntsman, it could not have,” says Steven Davidoff, an associate professor of corporate law at the University of Connecticut and a former lawyer with New York–based global firm Shearman & Sterling. The decision was a blow to Apollo, which is planning a New York Stock Exchange listing this year. It was welcome news to Huntsman shareholders, which include hedge fund firms D.E. Shaw Group, Citadel Investment Group and Pentwater Capital Management. After Apollo tried to scotch 12 • INSTITUTIONAL INVESTOR’S ALPHA • OCTOBER 2008 MIKE MERGEN/BLOOMBERG NEWS

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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