Institutional Investor's Alpha Magazine - November 2008 - (Page 8)

Barack Obama, Christopher Dodd and other Democrats will be in charge. ously we will have to have a lot more transparency in the ﬁnancial services sector — including hedge funds,” Senate Banking Committee chairman Christopher Dodd told Alpha magazine in early November, echoing what many of his Democratic colleagues are saying — and it’s the Democrats who will soon be running Washington. Richard Baker, president and CEO of the Managed Funds Association, the industry’s lobbying group, notes that the extent of whatever crackdown occurs may depend on how deeply the country falls into recession. “Everything is going to be focused on economic recovery, and we would make the case that our members’ innovative investment skills are essential to a rapid recovery,” he says. Baker adds that if Christmas retail sales are good — although that seems increasingly unlikely — and if oil prices continue to decline, the new administration may not be as regulatory-minded as it might otherwise be. This may be only wishful thinking. Denise Valentine, a hedge fund analyst for the Aite Group, points out that Obama has called for closer regulation of offshore funds. Speciﬁcally, he has questioned whether managers should be allowed to continue to pay the capital gains tax rate on so-called carried interest — the typical 20 percent performance fee they charge — rather than income tax rates, which are higher. He is also co-sponsor of the none-too-subtlynamed Stop Tax Havens Abuse Act, which has not passed Congressional muster but has implications for hedge funds and may well be enacted in some form in 2009. It’s worth remembering too that in an April debate with New York Senator Hillary Clinton, Obama cited Alpha’s 2008 ranking of the best-paid hedge fund managers, using it as an example of why the tax code should be changed. Obama has many like-minded allies. New York Senator Charles Schumer, for instance, chairman of the Senate Finance Committee, in October called for greater hedge fund transparency so that regulators can have a better idea of what’s going on. And Representative Henry Waxman, who presided over a mid-November hearing on the hedge fund industry in which the top five earners in Alpha’s ranking testiﬁed, has called for more regulation. Much of what happens will be inﬂuenced by Obama’s picks for Treasury secretary and Securities and Exchange Commission chairman. — Ted Knutson INVESTORFORUM Financial Accounting Standards Board Statement No. 157, which requires mark-to-market pricing for assets and liabilities, is more popular in some sectors of the ﬁnance industry than in others. Accounting ﬁrms say they like it and argue that the rule offers a more honest valuation of assets under management. Two thirds of the institutional investors surveyed here support its application to hedge fund holdings, but less than half think it will lead to portfolio markdowns. What type of institution do you represent? Corporate pension fund 21.8% Public pension fund 36.4 Endowment 37.3 Foundation 3.6 Other 0.9 What is the size of your fund? More than $5 billion 19.5% $2.50 billion to $5 billion 15.0 $1 billion to $2.49 billion 15.0 $500 million to $999 million 10.6 $100 million to $499 million 20.4 Less than $100 million 19.5 Do you currently invest in hedge funds or funds of hedge funds? Yes 60.7% No 39.3 If you answered no, would you consider investing in hedge funds? Yes 33.3% No 66.7 SAM MORRIS/REUTERS If you do invest in hedge funds, how big is your allocation? 26 to 50 percent 9.6% 16 to 25 percent 15.1 11 to 15 percent 6.8 6 to 10 percent 50.7 Less than 6 percent 17.8 If you invest in hedge funds or are considering doing so, do you or would you allow your managers to use side pockets for illiquid assets? Yes 35.7% No 33.9 Don’t know 30.4 Is investing in illiquid, hard-to-value assets a legitimate hedge fund strategy? Yes 73.5% No 13.3 Don’t know 13.3 To what extent is the issue of asset valuation a cause for concern in the hedge fund industry today? It is a huge concern 41.6% It is an issue but not more so than at any other time 55.8 It is less of an issue than it has been in the past 2.7 If you invest in hedge funds or funds of hedge funds, are you worried about achieving accurate asset-valuation ﬁgures on your portfolio? Yes 79.6% No 15.9 Don’t know 4.4 Should hedge fund managers be required to use a third party to value assets? Yes 71.7% No 22.1 Don’t know 6.2 Do you support the required application of Financial Accounting Standards Board Statement No. 157, fair-value accounting standards, to hedge fund portfolios? Yes 66.4% No 14.2 Don’t know 19.5 Will the required adoption of FAS No. 157 by hedge fund managers this year result in signiﬁcant portfolio markdowns? Yes 38.9% No 30.1 Don’t know 31.0 If an asset held by a hedge fund can’t be priced in the open market, should the holder mark it down to zero? Yes 6.4% No 84.5 Don’t know 9.1 Note: Responses may not total 100 percent because of rounding. 8 • 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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