Institutional Investor's Alpha Magazine - October 2008 - (Page 6)

There have been lessons in real life lately at the Darden School of Business at the University of Virginia. pected to learn all about the real-life problems of asset management. What they didn’t expect was to have much of their $6.2 million in assets frozen because of the Lehman Brothers bankruptcy. Joining the ranks of big hedge fund ﬁrms like U.K.-based GLG Partners and RAB Capital, some of whose assets were also at Lehman’s prime bro- kerage, the 19 student managers at Darden are now unable to invest part of the assets in the four funds run out of their Charlottesville campus. Only one of the four Darden funds — the Cavalier Fund — is a true hedge fund, with a long-short strategy and about $1.5 million in assets. Cavalier ﬁ nished the 2007–’08 school year up 5.21 percent, beating its benchmark, the Standard & Poor’s 500 index, by 10 percentage points. “We have taken over at a particularly interesting moment in time and look forward to managing the funds through this tumultuous market,” wrote Patrick Connell, the MBA student who is Darden’s chief investment ofﬁcer, in a quarterly fund newsletter this summer. Not nearly as interesting, though, as what has since transpired, what with the September 15 bankruptcy of Lehman and the ongoing makeover of Wall Street. The university will not say what percentage of its assets was with Lehman. But the school is “working on retrieving the investments that are stranded,” says Ken White, Darden’s vice president of communication and marketing. He adds, “While this is certainly unusual, it has proven to be a valuable learning experience for the students in DCM.” College students are managing a total of $407 million at 314 funds at U.S. colleges and universities, according to Edward Lawrence, a professor at the University of Missouri–St. Louis business school. The Cayuga MBA Fund at Cornell University’s Johnson School is the only other student-run hedge fund among those 314, which for the most part are either long-only funds or venture capital and private equity funds. Cornell fund adviser and associate professor of accounting Sanjeev Bhojraj says that Cayuga’s $14.5 million in assets reside safely at Smith Barney’s prime brokerage. Though the fund was down close to 6 percent in the third quarter, it is still up 1.74 percent for the year. Bhojraj says that all in all, regardless of the outcome, there’s nothing quite so educational as actually being in the market: “It’s a very exciting time to be a student running a fund.” — Frances Denmark INVESTORFORUM According to most polls, John McCain lags behind Barack Obama when voters are asked to judge which of them might be the best president for these troubled economic times. But institutional investors think McCain would be better for the hedge fund industry, according to our most recent survey. That, however, doesn’t mean they believe the industry should be less regulated — in fact, on this issue, institutional investors seem to mirror the new zeitgeist. What type of institution do you represent? Corporate pension fund 21.8% Public pension fund 36.4 Endowment 37.3 Foundation 3.6 Other 0.9 What is the size of your fund? More than $5 billion 19.5% $2.50 billion to $5 billion 15.0 $1 billion to $2.49 billion 15.0 $500 million to $999 million 10.6 $100 million to $499 million 20.4 Less than $100 million 19.5 Do you currently invest in hedge funds or funds of hedge funds? Yes 60.7% No 39.3 If you answered no, would you invest in hedge funds? Yes 33.3% No 66.7 If you do invest in hedge funds, how big is your allocation? 26 to 50 percent 9.6% 16 to 25 percent 15.1 11 to 15 percent 6.8 6 to 10 percent 50.7 Less than 6 percent 17.8 Is a Democratic or a Republican White House better for the hedge fund industry? Democratic 19.2% Republican 80.8 Which candidate is the most sympathetic to the industry? Barack Obama 14.9% John McCain 85.1 Should the presidential campaigns seek and accept advice from hedge fund managers? Yes 60.9% No 39.1 Should the Securities and Exchange Commission be more or less active in hedge fund oversight? More active 83.2% Less active 7.1 About the same 9.7 Should the U.S. Treasury take a more active role in hedge fund oversight? More active 49.6% Less active 15.0 About the same 35.4 Should the U.S. Federal Reserve take a more active role in hedge fund oversight? More active 35.4% Less active 12.4 About the same 52.2 Should nonproﬁt entities be barred from investing in offshore hedge funds? Yes 6.2% No 89.4 Don’t know 4.4 Should hedge funds be able to continue to invest their proﬁts tax-free offshore? Yes 42.5% No 47.8 Don’t know 9.7 Should hedge fund energy speculation be stopped? Yes 14.7% No 85.3 Is a Democratic or a Republican Congress better for the hedge fund industry? Democratic 13.9% Republican 86.1 Should Congress devote more or less attention to the activities of the hedge fund industry? More attention 33.6% Less attention 34.5 About the same 31.9 * Responses may not total 100 percent because of rounding. 6 • INSTITUTIONAL INVESTOR’S ALPHA • OCTOBER 2008 Photograph by Susan Wormington

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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