Institutional Investor's Alpha Magazine - November 2007 - (Page 8)

ket. His long-short Trident Paciﬁc Japan Absolute Return Fund has room to grow from its current $12 million — other, hotter Asian markets have attracted his interest. But for now, Trident’s exclusive focus on Japanese equities is paying off. For 2007 through early November, the fund scored a gain of 9.4 percent, versus a Tokyo Stock Exchange index decline of 5 percent, and McKinnon sees great potential in large, cash-rich Japanese institutions’ awakening to alternative strategies. McKinnon is strictly an adviser; his colleagues in Sydney, Australia, handle the fund’s trades. Offshore processing, often in Hong Kong and Singapore, is common among Japanese hedge funds. Required to register with the FSA, hedge funds don’t want to be exposed to the country’s strict regulatory environment more than is absolutely necessary. Yet Tokyo is growing as a hedge fund advisory center. “Honestly, the more the merrier,” says McKinnon, seeing growth in the community as an indication of the health of the market. “Japan has been very active in investing in alternative strategies,” says Tantallon’s Koll, who before joining the ﬁrm this year was chief economist of Merrill Lynch Japan for eight years. “Already many of the banks and securities companies here are very successful at managing a fundof-funds portfolio.” — Henry Scott Stokes Scoreboard Hedge fund returns by strategy, sorted by investment process, asset class and geographic focus, through September 30, 2007. Monthly return Composite, equally weighted Composite, asset-weighted Process group Directional trading Systematic trading Discretionary trading Relative value Arbitrage Convertible arbitrage Fixed-income arbitrage Mortgage-backed 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 * Annualized. 2.61% 2.32 3.77 4.93 2.36 1.05 1.29 1.59 1.04 0.66 0.93 0.24 2.13 2.95 3.47 1.58 2.93 –0.54 1.41 1.11 1.65 1.89 2.09 1.40 YTD return 8.61% 8.33 5.50 3.68 7.36 5.15 5.85 4.20 5.55 7.01 4.92 2.45 8.68 11.36 12.99 8.00 10.10 –1.98 6.86 9.44 4.45 9.70 10.88 6.78 3-mo. return 1.32% 0.78 0.79 –0.55 2.39 0.55 1.15 –0.31 1.22 1.88 –0.33 –1.19 2.67 2.14 2.41 1.55 1.86 –0.16 –0.43 0.45 –0.97 1.13 2.34 –1.81 12-mo. return 13.99% 13.96 10.25 8.28 12.50 7.63 8.30 7.13 8.03 9.38 8.24 4.05 12.78 18.36 21.46 12.16 16.68 –7.36 11.67 15.48 8.26 14.84 15.58 12.98 3-yr. return* 11.04% 10.92 8.66 7.45 9.80 6.31 5.74 5.13 6.39 7.09 8.01 5.75 9.06 13.82 16.01 9.85 13.10 –2.72 10.95 15.21 7.66 11.96 11.91 11.90 3-yr. std. dev. 4.09% 3.88 5.38 7.64 3.69 1.70 1.91 3.46 1.22 1.15 2.81 2.24 2.07 5.38 6.67 3.17 5.21 7.72 2.75 3.64 2.41 3.84 3.58 4.93 Dweller W hen Citigroup chairman Charles Prince III ceded leadership of the firm to former Treasury secretary Robert Rubin amidst massive losses at the investment banking giant related to subprime mortgages, it was a reminder of the power wielded by Saudi billionaire Prince Alwaleed bin Talal, Citi’s largest shareholder. Now, as Citigroup searches for a permanent replacement for interim CEO Sir Winfried Bischoff, one person who may have a say in the matter is hedge fund billionaire Edward Lampert, founder and chairman of Greenwich, Connecticut–based hedge fund ﬁrm ESL Investments. Lampert, who is best known for amassing a controlling interest in Sears Holdings Corp. and taking on the company’s chairman post, began building a position in Citigroup in the first quarter of 2006. At that time, Lampert owned 1.74 million shares of Citi stock, which was trading at $45 to $47, well above its recent price of about $36. As of September 30, the last time Lampert reported his holdings, his position had grown to 27.8 million shares. Lampert has lost more than $400 million on his investment in Citi since the end of June. But Lehman Brothers analyst Jason Goldberg says it would not be surprising if the savvy, value-driven, opportunistic investor were to boost his stake — currently worth about $1 billion — taking advantage of the depressed stock price and fat 6 percent dividend. Of course, Lampert won’t comment. And don’t look for him to show his hand anytime soon. He is not legally required to disclose his position in Citigroup to the Securities and Exchange Commission until he accumulates at least 5 percent of the bank’s stock, which would be roughly 250 million shares. And that’s highly unlikely. Lampert has also routinely taken advantage of an SEC provision that allows him to delay certain disclosures if he believes they could hurt his ability to build the full position he is seeking in a company — a clause he has utilized since he initially began Citi 2.64 1.14 3.16 2.84 10.77 5.73 6.22 2.36 2.08 0.06 0.44 –1.15 16.88 9.21 11.22 7.70 12.82 8.76 9.57 5.65 4.71 1.90 4.79 4.94 2.28 0.53 2.15 0.77 3.53 3.56 3.18 3.80 6.53 4.61 7.52 1.42 5.78 14.25 15.52 17.02 0.25 –1.98 0.79 –1.88 0.48 3.22 3.87 5.88 11.07 10.14 12.13 1.91 10.15 23.18 22.37 25.92 9.58 10.98 10.00 6.65 8.22 17.38 15.13 16.95 3.87 4.25 3.89 6.40 4.69 6.27 5.43 5.58 Source: MSCI. 8 • INSTITUTIONAL INVESTOR’S ALPHA • NOVEMBER 2007

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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