Institutional Investor's Alpha Magazine - December 2008 / January 2009 - (Page 6)

John Dufﬁeld’s New Star Asset Management Group is in trouble. Capital Management Group, GLG Partners and Fortress Investment Group — that followed New Star in going public. London-based New Star, which runs an array of money management services, was delisted from the London Stock Exchange in early December, four years after its IPO, when it became apparent that it was in tatters. The expulsion followed a remarkably difﬁcult few weeks. In late November, New Star management, led by founder and chairman John Duffield, asked the Financial Services Authority to allow the company to suspend trading in its battered shares, whose value had been halved in three weeks. The FSA refused, and a 43 percent one-day drop in share price followed. The ﬁrm’s bank syndicate — made up of HBOS, HSBC Bank, Lloyds TSB Group, National Australia Bank and Royal Bank of Scotland — seized control of the ﬁrm, canceling about $350 million of debt in exchange for a 75 percent equity stake and additional special shares. The banks are now said to be seeking buyers. A sale is likely after shareholders meet in late January, at which point Dufﬁeld may step aside. Redemptions fueled a precipitous fall in New Star’s assets, which had dropped to about $21 billion as of November 30; the ﬁrm’s share price had plummeted to about 2 pence by mid-December. All this is a long way from the end of last year, when the ﬁrm had $35 billion in assets under management and a share price of £2.44 ($4.87). The firm’s midcap strategy — the dominant tack used across New Star’s eight long-short funds and one hedge fund index product, which collectively had some $2 billion in assets under management — had led the ﬁrm to a pretax proﬁt of about $95 million on 2007 revenue of about $400 million. Hedge fund investors have proved particularly keen to exit: Of the $750 million in outﬂows in the ﬁrst half of November, $230 million was pulled from New Star’s hedge funds. Dufﬁeld and other New Star managers concede they went overboard in finance sector stocks and underweight in commodities. New Star’s advertising campaign stressed that it placed a premium on fostering individual managers’ independence, deemphasizing the coordinated ﬂow of information between them. It seems increasingly likely that CEO Howard Covington will replace recently ﬁred CIO Stephen Whittaker with someone who will keep a tighter leash on fund managers. — Hugo Cox INVESTORFORUM Suffering its worst year ever, the hedge fund industry by most expectations faces a shakeout in which only the ﬁt will survive. Yet most participants in our latest InvestorForum seem to think the worst is over. Hedge funds, according to our survey results, are no longer as widely considered a sure thing as before, but most respondents see either a return of stability or gains in 2009, and most plan to keep hedge fund allocations the same or increase them. What type of institution do you represent? Corporate pension fund 27.4% Public pension fund 34.0 Taft-Hartley pension fund 1.9 Endowment 34.9 Foundation 1.9 What is the size of your fund? More than $5 billion 13.5% $2.50 billion to $5 billion 12.5 $1 billion to $2.49 billion 20.2 $500 million to $999 million 10.6 $100 million to $499 million 26.0 Less than $100 million 17.3 Do you currently invest in hedge funds or funds of hedge funds? Yes 52.9% No 47.1 If you answered no, would you consider investing in hedge funds? Yes 16.2% No 83.8 EDDIE MULHOLLAND/NEWSCOM If you do invest in hedge funds, how big is your allocation? 26 to 50 percent 5.7% 16 to 25 percent 18.9 11 to 15 percent 11.3 6 to 10 percent 34.0 Less than 6 percent 30.2 If you invest in hedge funds, has their performance in the past year shaken your faith in them? Yes, entirely 2.7% Somewhat 52.7 Not at all 44.6 If you invest in hedge funds, do you plan to change your allocation in 2009? Yes, increase it 21.4% Yes, decrease it 1.8 No, keep it the same 76.8 How do you expect hedge funds to perform in 2009? Down 20 percent or more 2.4% Down 10 to 19 percent 3.5 Down 1 to 9 percent 22.4 Roughly unchanged 23.5% Up 1 to 9 percent 42.4 Up 10 to 19 percent 5.9 Which hedge fund strategies will perform the best? (Choose up to three.) Convertible arbitrage 21.1% Distressed, long-short credit, high yield 52.6 Emerging markets 17.5 Equity market-neutral 19.3 Event-driven and merger arbitrage .. 14.0 Fixed-income relative value 26.3 Long-short equity 28.1 Macro 7.0 Multistrategy 21.1 Statistical arbitrage 3.5 Which hedge fund strategies will perform the worst? (Choose up to three.) Convertible arbitrage 26.3% Distressed, long-short credit, high yield 12.3 Emerging markets 21.1 Equity market-neutral 3.5 Event-driven and merger arbitrage .. 26.3 Fixed-income relative value 12.3% Long-short equity 10.5 Macro 15.8 Multistrategy 10.5 Statistical arbitrage 28.1 How will U.S. equities perform? Down 20 percent or more 1.0% Down 10 to 19 percent 1.9 Down 1 to 9 percent 9.7 Unchanged 15.5 Up 1 to 9 percent 58.3 Up 10 to 19 percent 11.7 Up 20 percent or more 1.9 How will non-U.S. equities perform? Down 20 percent or more 2.0% Down 10 to 19 percent 5.0 Down 1 to 9 percent 13.0 Unchanged 21.0 Up 1 to 9 percent 47.0 Up 10 to 19 percent 7.0 Up 20 percent or more 5.0 Note: Responses may not total 100 percent because of rounding. 6 • INSTITUTIONAL INVESTOR’S ALPHA • DECEMBER 2008/JANUARY 2009

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

Institutional Investor's Alpha Magazine - December 2008 Contents Letter from the Editor Longs & Shorts Inside the Trade Pension Corner The Good Guys Interview: Stanley Fink Cover Story: The New Regulatory Reality United States: The Usual Suspects Europe: Flirting with Unity Asia-Pacific: What Asian Contagion? In Theory In Focus Strategies Research Center Alpha Bytes Unhedged Commentary

Institutional Investor's Alpha Magazine - December 2008

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