Institutional Investor's Alpha Magazine - October 2008 - (Page 3)

Letter from the editor Birthday Wishes EDITOR Michael Carroll EDITOR Michael Carroll EXECUTIVE EDITOR Michael Peltz MANAGING EDITOR David Schutt INTERNATIONAL EDITOR Tom Buerkle U.S. EDITOR Jeffrey Kutler EDITOR-AT-LARGE Firth Calhoun ART DIRECTOR Nathan Sinclair ART DIRECTOR Irene Ledwith ASSISTANT MANAGING EDITORS Tom Johnson ASSISTANT MANAGING EDITORS Lewis Knox (Research), William Loob (Editorial Production), (Research), Jeffrey(Director, ResearchTechnologyGroup), Sathya Rajavelu Kutler (Global Operations and Steve Rosenbush (Wall Street, Corporate Finance), Banking), Deborah F. McClellan (Editorial Tracy Tjaden (International) (Money ManageProduction), Barbara Rudolph BUREAU CHIEFS Loch Adamson (London), ment) Allen T. Cheng (Asia) EUROPEAN EDITOR Tom Buerkle (London) SENIOR EDITORS Steven Brull (Los Angeles), Karl CHIEF Kevin Kenney (Editorial Research), BUREAUCates, Jane B.Hamlin (Hong Kong) Jo Wrighton (Paris) SENIOR EDITORS Steven Brull (Los Angeles), SENIOR WRITERS Frances Denmark, Michael Shari Andrew Capon (London), Jane B. Kenney STAFF WRITERS David Lanchner (Paris), (Editorial Research) Imogen Rose-Smith, Julie Segal Schack SENIOR WRITERS Deepak Gopinath, Justin SENIOR ASSOCIATE EDITOR Tucker Ewing ASSOCIATE EDITORS Sivert Hagen, Julia Leikin Rich Blake, David Lanchner STAFF WRITERS(Research Specialist), WeiQing Lu (Research Specialist), Carolynn B. Tetro (Paris) COPY CHIEF David Wray SENIOR ASSOCIATE EDITOR Tucker Ewing SENIOR CONTRIBUTING EDITORS Fran Hawthorne, ASSOCIATED. Shapiro, Stephen Taub Sivert Harvey EDITORS Emily Fleckner, Hagen CONTRIBUTING WRITERS Pam Abramowitz, Udayan Gupta, Scott Martin, Neil O’Hara, Nick Rockel, Robert Rosenberg, Jaye Scholl, Hal Lux, Harvey D. Shapiro, Charles Smith Henry Scott Stokes (Tokyo), Stephen Deputy Copy Chief: COPY DEPARTMENTTaub, Joan Warner Bill Christophersen; CONTRIBUTING EDITORS Colin Barraclough, Copy Editors: Ingrid Accardi, Ruth Hamel Lucy Conger (Mexico City), Jonathan Kandell, ASSISTANT TO THE EDITOR Elizabeth Simroe Lois Madison Reamy, Kazuhiko Shimizu ART DEPARTMENT Deputy Art Director: Diana Panﬁl; (Beijing), Leah Nathans Spiro Associate Art Director: Anthony Scerri; Senior Designer: Lee Deputy Copy COPY DEPARTMENT H.Wilson; Chief: Jeff CranPhoto Editor: Katie Constans; mer Acting Associate Photo Editor: Frannie Ruch; ASSISTANT TO THE EDITOR Elizabeth Simroe Color Imaging Manager: John Miliczenko CHAIRMAN & CEO Gary Mueller ART DEPARTMENT Deputy Art Director: Patrizia GROUP PUBLISHER Christine Cavolina Associate Art Director: Stephanie Lora; Photo Editor: PUBLISHER Joy DeSanto Anastasia Pleasant; Color Imaging Manager: PUBLISHER, INTERNATIONAL Spencer Wicks John Miliczenko PUBLISHER, ASIA Wendy Gallagher ONLINE SALES DIRECTOR Chris DeAngelis PRESIDENT & CEO Christopher R. Brown EXECUTIVE DIRECTOR OF MARKETING Danielle David Wray COPY CHIEF Beurteaux, Phil Davis, Katie Gilbert, SENIOR CONTRIBUTING EDITORS Fran Hawthorne, Bove; PUBLISHER Christine Cavolina PRODUCTION DIRECTOR Brian Gill PUBLISHER, INTERNATIONALRobert Tonchuk DIRECTOR OF FULFILLMENT Lisa Traeger CHIEF OPERATING OFFICER David E. Antin PRODUCTION DIRECTOR Brian Gill Institutional Investor’s AlphaTM and AlphaTM, 225 Park Avenue South, New York, NY DIRECTOR OF RESEARCH 224-3171. MANAGING 10003; (212) 224-3300; Fax: (212)PRODUCTS Louis Cassetta KEN GRIFFIN IS GOING THROUGH A MIDLIFE CRISIS. Grifﬁn, the founder of Citadel Investment Group, turned 40 on October 15, but the stress he is now shouldering has nothing to do with the passing of youth. In what was a miserable September for most investors, Citadel’s two ﬂagship funds fell about 16 percent — their worst month ever — and by the second week of October were down close to 30 percent for the year. As word of the losses spread, rumors started to ﬂy that the $20 billion Citadel was in ﬁnancial trouble. Grifﬁn acted quickly to squelch the rumors. On his birthday he sent a letter to investors taking full responsibility for the losses but also assuring them that Citadel has stable “funding sources that extend, in many cases, to nine to twelve months.” He conceded miscalculating in his decision this summer to increase Citadel’s allocation to convertible bond arbitrage — the strategy he honed 20 years ago trading out of his dorm room at Harvard — which came undone when credit markets froze up and regulators instituted short-selling restrictions. “Regretfully, I did not foresee the ﬁnancial disaster that was to unfold in September,” he wrote. Grifﬁn’s mea culpa comes at a time of great upheaval for the hedge fund industry. Performance, frankly, has been abysmal. The HFRI index is down 10 percent for the year through September, and many hedge fund managers, like Citadel, have lost signiﬁcantly more than that. Redemptions, not surprisingly, are expected to soar. Analysts predict that as much as $500 billion could ﬂee the shrinking $1.9 trillion industry and that as many as 1,000 of the estimated 10,000 hedge funds worldwide may be gone by early next year. For many of the survivors, life will not be easy, because they won’t start collecting performance fees until they make up their 2008 losses. To shed light on how the hedge fund industry got into this mess — and how, if at all, it will be able to dig itself out — we put together a special report, “Under Siege,” which begins on page 39. In “The New Hedge Fund Economics” (page 40), Senior Contributing Editor Stephen Taub explores the challenges of operating in a world without performance fees. In “Good-Bye, Easy Money” (page 44), Staff Writer Imogen Rose-Smith tackles the issue of ﬁnancing, which has gotten a whole lot tougher for hedge funds. No tale illustrates that better than the collapse of Lehman Brothers, which London Bureau Chief Loch Adamson recounts in “Factoring In the Unknown” (page 46). Finally, in “Caging the Shorts” (page 50), Contributing Writer Dave Simons looks at the recent uproar over short-selling. Tough times, indeed. Grifﬁn and his investors are hoping “many happy returns” is more than just a birthday wish in the future. Denise Murrell © 2008 Institutional Investor, Inc. No statement in this magazine is to be construed as a recommendation to buy or sell securities. Neither this publication nor any part of it may be reproduced or DIRECTOR OF FINANCE AND OPERATIONS transmitted in any form or by any means, electronic or mechanical, David E. Antin including photocopying, recording or by any information storage and retrieval system, without the prior written permission of Institutional Investor magazine. For reprints contact Dewey Institutional Investor’s Alpha TM and Alpha,TM 225 Park Avenue Palmieri (212) NY 10003; (212) 224-3300; Fax: (212) 224South, New York,224-3675; Fax: (212) 224-3563; e-mail: dpalmieri@institutionalinvestor.com. Subscription hotline: 3171. (800) 437-9997; Overseas: (44 -20) 7779 8999 MICHAEL PELTZ EXECUTIVE EDITOR mpeltz@iimagazine.com OCTOBER 2008 • INSTITUTIONAL INVESTOR’S ALPHA • 3

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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