Institutional Investor's Alpha Magazine - November 2007 - (Page 5)

Longs Diamond Ambition & Shorts W ill Dow Kim’s new hedge fund be a dazzling gem or a sack of coal? This past May, Kim, then co-president of global markets and investment banking at Merrill Lynch & Co. — and the ﬁrm’s second-highest-paid executive — announced plans to leave Merrill and launch a hedge fund under the name Diamond Lake Investment Group. Merrill indicated it was prepared to provide Kim with seed capital. But then the credit crunch hit, the investment bank’s holdings of subprime mortgages and collateralized debt obligations tanked and Merrill abruptly severed relations with Kim. On October 3, Stanley O’Neal, the Merrill CEO who had championed Kim’s career, requested that the executive vacate his ofﬁce. A few weeks later the ﬁrm announced a massive $7.9 billion of credit write-downs (losses largely sustained by teams that had reported to Kim), and O’Neal resigned. Undaunted by the market meltdown, Kim is on track to launch Diamond Lake’s debut fund in the ﬁrst half of 2008, according to sources familiar with the situation. The multistrategy fund will invest in, among other things, long-short U.S. equities, long-short Japanese equities, long-short credit, equity volatility, Paciﬁc Rim special situations and real estate. It will have an investment ofﬁce in Singapore, in addition to a head ofﬁce in New York. Diamond Lake is still in discussions with investors but hopes to launch with $2 billion or more in assets, according to a source who has spoken to the hedge fund’s executives. Some of the money is expected to come from investors in Asia, where Kim first made his name. The 45-year-old South Korea native joined Merrill in Tokyo in 1994 and ran the ﬁrm’s foreign exchange and credit derivatives desk there before moving to New York in March 2000 and being appointed head of ﬁxed income in 2001. The record of senior executives who have left investment banks to launch hedge funds has been mixed, and, given today’s volatile market climate, (continued on page 16) Dow Kim isn’t letting Merrill Lynch’s subprime woes hinder his hedge fund plans. Japan Awakes U nderstated by nature, Japanese institutional investors don’t openly proclaim their attraction to hedge funds. But in a few short years, they have sunk trillions of yen into these vehicles — ¥7.4 trillion ($66.5 billion) as of March 2006, according to a 2007 survey by Japan’s Financial Services Agency — and the direction since then has only been up. Insurance companies are at the forefront, spicing up their huge portfolios of ten-year government bonds, which yield a mere 0.87 percent after taxes, with alternatives. In the FSA survey, out of 348 companies that had invested in hedge funds, 26 percent were insurance companies, 24 percent city and other banks, 15 percent trust banks, 15 percent regional banks and 20 percent other ﬁnancial institutions, including cooperative banks. “Just a half dozen years ago, Japanese institutions disNOVEMBER 2007 • INSTITUTIONAL INVESTOR’S ALPHA • 5 Illustration by John Cuneo for Alpha

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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