Institutional Investor's Alpha Magazine - November 2007 - (Page 38)

Maverick Capital questions: If they ran Maverick, what would they change? And, if they were to start their own firm today, what would they do differently? In January 2006, Ainslie reconvened the group to consider the answers and come up with a plan of action. Most of the senior team thought Maverick’s fundamental longshort equity investment strategy was sound. The problem, as they saw it, was that the ﬁrm needed to improve its focus. In particular, the sector heads needed to be bolder and cut back on their number of positions. “The number of positions they had in their books had drifted up,” recalls Commonfund’s Gillespie. “They had a lot of extraneous stuff in the book. No one individual position looked like it was doing damage, but when you added them all up, they had an impact on returns.” In total, Ainslie and his team outlined 11 changes to improve Maverick’s performance, including promoting better communication between sector heads and reducing the number of investments in the portfolio by almost 20 percent, from about 220 to 180. And a key commitment was to make Maverick more international. During the past two years, the ﬁrm has opened, or signiﬁcantly expanded, ofﬁces in London, Shanghai and Taipei. A sharpened Maverick showed better results. Maverick Fund USA ended 2006 up 12 percent, powered by a 5.6 percent gain in the fourth quarter, thanks to good calls in the media and telecom, industrials and ﬁnancials sector. Though the fund did not beat the S&P 500, it was at least on the right track. “Smart people don’t get stupid overnight,” says Gillespie. “Smart people stay smart and they make some errors. There was always a sense that Maverick would go through the process of self-examination and sort out their issues.” Although this year Maverick has done well in every sector in which it invests, Ainslie and his team needed something big to show that what they do still makes sense. The volatility that ripped the markets this summer, which took down some macro and quantitative managers by 20 percent or more, did precisely that. While many hedge funds — including Goldman’s vaunted Global Alpha — were scrambling to get out of losing positions, Maverick was enjoying the results of its hard work. In particular, the fund reaped the rewards of a short that financial sector head Overstrom began researching in 2004. Overstrom and his team believed that the shares of subprime lenders, which offer loans to borrowers with little or no credit and then repackage them for sale to Wall Street, were ripe for a fall after in some cases doubling or tripling in price in 2003. AFTER A FRENETIC DAY, ONE BY ONE MARKETS AROUND THE WORLD CLOSE. BUT AS COMPLEX MARKET STRUCTURES CHANGE THE DYNAMICS OF THE TRADING DAY, WE KEEP OUR MINDS OPEN AND WORKING. FROM THIS, OUR CLIENTS GET: MORE INNOVATIONS. MORE SCALE AND CAPACITY. MORE LIQUIDITY. AND MULTIPLE CHOICES IN MULTIPLE ASSET CLASSES. THE SCIENCE OF TRADING. THE STANDARD OF TRUST. MORE THAN WORDS, THEY ARE THE PRINCIPLE OF KNIGHT. TO LEARN MORE ABOUT KNIGHT CAPITAL GROUP (NASDAQ: NITE) GO TO KNIGHT.COM. © 2007 Knight Capital Group, Inc. All rights reserved. http://KNIGHT.COM

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - November 2007

Institutional Investor's Alpha Magazine - November 2007 Contents Letter from the Editor Longs & Shorts Pension Corner: Patriot State The Good Guys: College Connection Interview: Currency of Change Cover Story: Comeback Kid Strategies: Masters of Art Research Center: Alpha Awards: Top Technology Providers Top Analysts Alpha Bytes: Critical Choice Unhedged: Commentary: Banking on a Bubble

Institutional Investor's Alpha Magazine - November 2007

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