Institutional Investor's Alpha Magazine - November 2008 - (Page 12)

folio management. There are two levels: One is an overview; the other delves into speciﬁc areas of expertise. Each costs $599, and both are required for certiﬁcation. Wilson says HFG’s board of advisers, made up of representatives from 30 hedge funds, ten funds of funds and ten hedge fund consultants, includes Stefan Nieborak, senior manager of information technology at Citigroup’s New York–based, $4 billion Old Lane hedge fund, and Johann Schwimann, chief ﬁ nancial officer of tiny ($86 million) Parisbased Seven Capital Management. — Janice Fioravante global recession can drive commodities prices down, but all the hungry people in the developing world eventually push them back up. That’s what commodities traders are telling Jason Trennert these days. “You’ve got billions of people consuming their fair share of protein and energy, and billions more wanting to do the same,” notes Trennert, chief investment strategist at Strategas Research Partners in New York. He points out that China and India have hundreds of millions of people on grain-based diets who are demanding more and better food, if better food means meat. But Trennert says that today’s fundamentally favorable play in commodities is not because of proteincraving consumers but because of a U.S. shift in monetary policy — Federal Reserve Board chairman Ben Bernanke’s “second act,” as he calls it. As central banks drop interest rates and theoretically fuel inﬂation, commodities become more appealing, goes this notion. “It’s in times of inﬂation that I’m more interested in holding hard assets,” explains Trennert, who predicts that the best commodities trades over People Gotta Eat A the next five years will come when markets move from being deﬂationary to becoming inf lationary (although liquidity remains frozen, at a certain point it must thaw). Jim Rogers, the Singapore-based creator of the Rogers international commodities index, agrees, insisting that it’s more important than ever to hold real assets: “I have never seen a period in world history when every central bank is printing money so aggressively. Higher prices will result. I’ve already started covering my shorts and buying more commodities of every type.” Rogers counsels patience, however, because there is typically a lag in matching commodity supply with demand: “You can’t exactly start a new zinc mine overnight in your garage.” This is the downside for hedge fund managers, who can’t always wait things out. “Guys like Warren Buffett and Wilbur Ross don’t mind taking the secular view and being wrong for six months,” says Trennert. “If the hedge fund guy took that approach, he could be out of a job in six months.” Some experts — like Richard Asplund, research director of the Chicago-based Commodity Research Bureau — say consumers drive commodities much more than any monetary policy. What makes him most UPDATE Frontier Fade P eople who invest in frontier economies often say they are drawn to these regions by their low correlation to such emerging markets as Brazil, Russia, India and China, or to more developed markets. But with frontier markets down 47.5 percent in the first ten months of this year, according to the Russell Investments frontier markets index, one wonders if the argument holds. There have been few safe harbors. In October alone the MSCI emerging markets index (which includes the BRIC nations), the S&P 500 index and the Dow Jones industrial average fell, respectively, by 27.1, 16.9 and 14.1 percent. Crude oil futures sank by 32.6 percent, and commodity-reliant frontier markets like Kazakhstan (see “At the Edge of the Earth,” September 2008) have been hammered. Clif f Q uisenberr y, founder o f In ve s t men t F r on t ier s R e s e ar ch , a U n i v e r s i t y P l ace , Washing t on – based ad v is or y firm, insists that these economies — places like parts of Africa and of the former Soviet Union — remain essen t ially decoupled from developed countries. Just back from a three-week trip to Africa, Quisenberry proclaims that now is “a great time to be getting into these markets.” He notes that the trailing priceearnings ratio of Kenya’s market is down from more than 20 to about 13. For example, “Cell-phone service provider Safaricom, the most liquid issue on the Kenyan market, is now trading at less than a 10 P/E,” he says. Quisenberry is launching a new frontier hedge fund for even-more-exotic places, though he declines to say where. Hans Humes, CEO and president of $600 million New York– based hedge fund Greylock Capital Management, says African banks are in good shape — partly because they didn’t chase much leverage to begin with. “What we’re seeing on the ground in Africa is nothing like the fear and loathing in places like China.” — Robert Rosenberg 12 • INSTITUTIONAL INVESTOR’S ALPHA • NOVEMBER 2008 Illustration by Joshua Gorchov

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - November 2008

Institutional Investor's Alpha Magazine - November 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Risk Rewarded The Good Guys: In the Here and Now Interview: Minister of Finance Cover Story: The Agony of Dan Zwirn Strategies: The Early Birds Are Awake Strategies: The Call of Shari’a Profile: Sweet Home Chicago Research Center: What Stampede? Alpha Bytes: Centralize the Data Unhedged: Commentary: Learning from the Wreckage

Institutional Investor's Alpha Magazine - November 2008

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