Institutional Investor's Alpha Magazine - November 2008 - (Page 14)

Battered in Sydney T DENNIS BRACK/BLOOMBERG NEWS Ben Bernanke, friend of commodities traders. bullish on commodities over the long term is the combination of population growth and the rise up from poverty of the BRIC countries — Brazil, Russia, India and China. “There’s going to be a huge demand for decades for all the building blocks of global development,” Asplund predicts, adding that heavy liquidation by big hedge funds has played a major role in the recent collapse of commodities prices. “We can count on a countercyclical rally,” he says. — Jay Akasie his year has been a tough one to be a listed investment fund on the Australian Securities Exchange, and hedge funds have been no exception. The publicly listed, Sydney-based fund-of-hedge-funds manager Everest Babcock & Brown Alternative Investment Trust, for instance, has performed so badly that its parent firm, Everest Capital Investment Management, has proposed delisting the trust and operating it as a wholesale fund. But Isle of Man–based Laxey Partners, one of two activist funds with a stake in Everest, wants the ﬁrm to get it over with, wind things down and reimburse investors. “Laxey believes that the majority of unit holders would simply like their money back in the most efﬁcient and timely manner,” said the fund in an October letter to investors. Everest Trust had about A$2.5 billion ($2.4 billion) in assets under management as of June 30, its last reporting date, down from more than A$3 billion at the start of the year. A vote on the proposal will take place in a late-November shareholder meeting. Laxey, a 17.1 percent shareholder, appears to have little chance of getting the 50 percent support it needs among shareholders. Management reportedly has the backing of at least 46 percent of shareholders. Jeremy Reid, co-founder and CEO of Everest Capital, says the ﬁrm is hunkering down for the long haul. “This is a patience game,” he notes, adding that the firm is focusing on “smart managers [and] long-term fundamental investors that have the ﬂexibility to go long or short. We don’t do a lot in leverage and arbitrage.” Ellerston GEMS Fund, another publicly listed Australian hedge fund, also plans to delist this month, little more than a year after joining the ASX. Shares in the $500 million long-short global equity fund sold for A$2.50 in July 2007 but have fallen to A$1.50. Ellerston is managed by Ellerston Capital, a company owned by the Packers, Australia’s richest family. It expanded into the hedge fund sector only in 2005 but has some A$3.5 billion under management. CLASSREVIEW Violation of Neutrality M arket-neutral strategies are supposed to enable a hedge fund to deliver positive returns in any market, but many managers — and investors — have found that this implicit promise has been broken. The HFRI equity market-neutral index slumped 2.24 percent in the 12 months ended in September, according to Chicago-based Hedge Fund Research. Still, things could have been worse. During the same period the HFRI fund-weighted composite index skidded 9.49 percent and the Standard & Poor’s 500 index plummeted nearly 22 percent. Despite the overall decline, a few of these funds have lived up to their promise. The $450 million Temujin fund was up 4.7 percent in September, handily outpacing the 3.23 percent monthly loss of the HFRI equity market-neutral index. Marco Battaglia, head of New York’s Temujin Holdings, says the trick is to master volatility. The ﬁrm follows a flexible strategy that is part quant-based and part fundamental stock picking. The market-neutral strategy followed by the former physicists at Thor Asset Management is purely quant-based, says Alexei Chekhlov, portfolio manager and head of research at the New York– based ﬁrm. The $244 million Thor Optima Fund, which invests in 24 equity index or currency futures and exploits high-speed trading 24 hours a day, six days a week across Asia, Europe and North America, returned 3.5 percent in September, according to HFR. That may not seem like much, but in this market investors appreciate any gains they can get. — Frances Denmark Market-Neutral Funds Return (%) One year Three years through through September September September * –3.23% –5.83 –8.90 –2.24% –9.49 –21.96 3.29% 4.28 0.22 Three-year annualized standard deviation 3.33 6.74 11.38 Benchmark HFRI equity market-neutral index HFRI fund-weighted composite index Standard & Poor’s 500 index *Annualized. Source: Hedge Fund Research. 14 • INSTITUTIONAL INVESTOR’S ALPHA • NOVEMBER 2008

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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