Institutional Investor's Alpha Magazine - November 2008 - (Page 53)

proving the ﬁrm’s knowledge of managers outside of Chicago, but that hasn’t kept him from spending a lot of days on the road himself. Investment strategies have evolved and shifted, too, to keep up with market conditions. Meyer says that there are many fewer opportunities for short-sellers nowadays, for example, because too many competitors are pursuing the same bets — on disappointing earnings announcements and dying industries. “Strategies have become crowded,” Rowsell agrees, which means his staff has to work harder to uncover managers who offer true alpha. “You don’t want people just buying something because it’s exotic.” Going forward, Meyer says, funds of funds may see more competition from multistrategy hedge funds, in which a large firm sprinkles capital among in-house managers, each following different strategies, creating in essence on-premise funds of funds with a built-in edge: “You get the advantage of netting,” he explains. Investors in a multistrategy fund pay performance fees on the net return of the total fund; fund-of-funds investors pay performance fees on each of the underlying managers who make money, even if their gains are offset by losses by other managers. Still, defenders of funds of funds argue for their viability, noting the recent spectacular failures of two multistrategy hedge fund ﬁrms — Amaranth Advisors and Ritchie Capital Management — and Citigroup’s abrupt closing this year of Old Lane Partners, a multistrategy fund it acquired in 2007. Such funds have bigger risk management issues than do funds of funds — one trader can bring down an entire ﬁrm, as was the case with Amaranth. One risk funds of funds can’t get away from, of course, is the potential for panic-driven redemptions on underlying hedge funds, an issue of special importance of late. “I don’t mind taking a mark-to-market loss,” Rowsell notes. “I hate realizing a loss.” Which raises a question — and an answer — in the mind of Richard Elden, progenitor of the current generation of fund-of-funds managers: “What does an asset allocator do at this stage? Do you raise cash or remain fully invested? I would argue that you raise cash and trade up to better funds.” And then you wait. Although Elden says he doesn’t know how fast the government’s efforts to right the economy will work, he says they will eventually have an impact. And he says he believes in his heart that ﬁve years, ten years, 20 years from now, those shrewd enough to have diversiﬁed will have proved themselves prescient. His parting wisdom? “The only free lunch in economics is diversiﬁcation.” ITG’s broker-neutral trading applications offer you the freedom to choose among asset classes, liquidity sources, prime brokers, and algorithms as your trading needs evolve. Not to mention some of the fastest routing and processing times in the market. So you can be nimble whatever the symbol. For ITG’s latest thinking on electronic asset class convergence, please download our white paper at www.itg.com/multiasset. For more information, call us at +1 800 858 4907 or email info@itg.com. PORTFOLIO MANAGEMENT PRE-TRADE TRADE POST-TRADE Decision Support Data & Analytics Execution, Management, & Connectivity Algorithmic Trading POSIT ® Crossing Post-Trade Processing Measurement & Analytics www.itg.com ©2008 Investment Technology Group, Inc. All rights reserved. Not to be reproduced or retransmitted without permission. ITG Inc., Member FINRA, SIPC 052108-47149 http://www.itg.com/multiasset http://www.itg.com http://www.itg.com

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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