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Clients get creative as hedge funds lose sex appeal

By Laurence Fletcher
LONDON | Tue Jan 11, 2011 3:17am EST
LONDON (Reuters) - Hedge funds may finally be losing their sex
appeal.

A small but growing number of investors believe these once-free
spirited portfolios, viewed as the cutting edge of finance for most
of the past decade, have become too conservative and boring.
Large and cautious pension fund and endowment clients are
increasingly calling the shots in the industry, and investors such as
funds of funds and rich individuals need to take matters into their
own hands if they want higher returns.

"Some managers ... over the past two years have become too dull and
the probability that they will become dead wood in the portfolio is
too high," said Morten Spenner, chief executive of funds of hedge
funds firm International Asset Management IAM.L.

Managers made 10.2 percent last year, according to Hennessee Group,
lagging behind the S&P's .SPX 12.8 percent gain and 17.5 percent at
the average stock mutual fund.

Having already lost around 20 percent in 2008, many funds opted to
cut back bets during last year's choppy markets when fears over
Europe's sovereign debt crisis dominated, rather than risk giving up
gains made during a rally in 2009.

Brevan Howard's $26 billion (16.7 billion pounds) Master fund, for
instance, rose just 1.5 percent in the 11 months to end-November
after shying away from more risky bets.

Many rich people were attracted to hedge funds by stories of George
Soros's $1 billion profit from his speculative attack on the Bank of
England or John Paulson's $3.7 billion earnings in 2007 betting on
the subprime meltdown.

But institutions -- who now account for over half of all hedge fund
assets -- often prefer lower-risk funds, targeting single-digit or
low double-digit gains.

"Steady, low double-digit returns are typically much better at
attracting institutional investors than higher but more erratic
performance," said Odi Lahav, vice president at Moody's alternative
investment group.

Gross hedge fund leverage globally fell to 1.81 times in November
from 1.93 times in August, according to Citi, also a sign the
managers have become more wary.

LACK OF SPICE
With the eye-catching gains of 20-30 percent a year often seen in the
1990s now a distant memory, some investors are taking matters into
their own hands.

Omar Kodmani, senior executive officer at Permal Investment
Management Services, has asked managers to build him tailor-made
portfolios riskier than the manager's main fund.

"In credit we asked for a portfolio that was only focused on one
sector of the mortgage market -- we wanted a pure play. It is up 100
percent in a year and a half, and we have now reconfigured it to a
broader mortgage special situations fund."
Source: Reuters.Com

Headstart Fund of Funds tops rankings

*The investable Headstart Fund of Funds, advised by Headstart
Advisers, has claimed its place at the top of the leader board of the
Investhedge rankings for multi-strategy funds of hedge funds over the
last three, six and 12 months.*

The fund has a year to date return of 13.94 per cent to the end of
November 2010.
Headstart's performance this year compares favourably with fund of
funds indices such as the HFRI Fund of Funds Composite Index (+3.43
per cent year to date), the Barclay Fund of Funds Index (2.85 per
cent) and the EurekaHedge Fund of Funds Index (2.6 per cent).
The fund has been advised by Headstart Advisers' chief investment
officer Najy Nasser since it began in November 1999.

Its 11 year track record has an annualised return of 6.82 per cent
with a volatility of 8.01 per cent per cent. An investment at the
inception of the fund would have approximately doubled by now, whereas
the S&P 500 index is down 13.18 per cent in the same 11 year time
period.

Since January 2009 the Headstart Fund of Funds has had an annualised
rate of return of 16.62 per cent with a volatility of 6.68 per cent.
Nasser says: "Our fund has performed consistently during 2009 and
throughout 2010 after what was a difficult 2008 for nearly everyone in
our industry.

"We are particularly pleased with our outperformance against the
indices we are most usually compared. In what has been a difficult
year for hedge funds with a wide disparity of returns, all of our
underlying positions are positive for the year to date which is a
strong testament to the quality of the funds within the portfolio."
Source: Hedgeweek.com

Macquarie hedge fund up 10 pct

By Nishant Kumar
HONG KONG | Thu Jan 13, 2011 4:51am EST
HONG KONG (Reuters) - Macquarie Group Ltd's (MQG.AX) market-neutral
long/short Asia hedge fund gained 10.3 percent and nearly tripled
assets to $640 million (406 million pounds) last year, its fund
manager said, while many hedge funds in the region were starved for
capital.

By comparison, the Eurekahedge Asia Long/Short equities index was up
7.3 percent, while the MSCI Asia Pacific Index in local currency
returned about 4 percent.

Andrew Alexander, who co-manages the Macquarie Asian Alpha Fund, said
the fund could have a soft close when assets reach close to $1
billion but had the capacity for about $1.25 billion.

"The pipeline is strong. We are seeing a number of British and U.S.
institutions that are interested in the product," Alexander told
Reuters in a telephone interview late on Wednesday.

Steadier returns with low volatility had lured institutional
investors who consider the fund a good way to achieve their asset
liability management objectives, said the veteran fund manager, whose
previous employers include hedge funds such as LIM Advisors and
Pacific Group.

He said Macquarie's global marketing presence and liquidity track
record during the financial crisis, when the fund honoured
redemptions worth about $500 million in 32 days, also helped in 2010
when flows into Asian hedge funds started to revive.

"I think investors remember them," he said, adding that lower
competition also helped the fund corner assets looking for
market-neutral hedge funds in Asia.

There are hundreds of Asian long/short hedge funds, but Alexander
estimated that only a handful offered market-neutral strategy and
institutional-grade services to attract insurance or pension funds,
which have become choosier since the financial crisis.

Market-neutral strategy is aimed at profiting from both rising and
falling prices to exploit market inefficiencies and targets the fund
beta, or market risk, to be equal to zero.

The Macquarie Asian Alpha Fund has returned 11 percent annually since
its launch in 2005 with volatility of about 5 percent. By comparison,
the MSCI Asia Pacific Index in local currency has given 0.7 percent
annually with volatility of more than 22 percent.

Alexander said the fund had no country, sector or currency biases and
applied quantitative strategies to filter out stocks and avoid active
risk in volatile Asian markets.

"People do want to believe in the Asian growth story and they do want
to believe that people can get them rich quickly. The stats are
however the markets have not delivered over reasonably long-term
period," he said.

The fund screens nearly 5,500 Asian stocks and places bets on
hundreds of them. It aims to generate returns through individual
stock selection by going marginally long or short on them.
Source: Reuters.Com

Corazon Capital fund of hedge funds to invest with hard-to-access managers

*_Corazon Capital, a Channel Islands- and Geneva-based specialist
investment manager, has launched a fund that aims to take advantage of
the circumstances that have led managers of previously closed or hard
to access hedge funds to offer limited capacity to new investors._*
The Corazon Argentum Fund will aim for steady capital growth with low
to medium volatility and will target institutional and high net worth
investors.

Performance data based on composite returns from each of the 16
managers shows an annualised return since October 1998 of more than 15
per cent with volatility of six per cent.

The fund, which has a total capacity of USD400m and has targeted a
soft close date of 31 March, is available in sterling, dollar and euro
share classes. The minimum investment is USD400,000 for share class A,
and USD100,000 for share class B.

Corazon Argentum will be offered in two forms, a Cayman-domiciled open
ended fund and a UK-listed medium-term note structure offered by
Nomura.

Corazon Capital director Paul Meader (photo) says: 'The Argentum Fund
comprises the cream of the crop in terms of hedge funds managers.
Their superior skills have allowed positive returns in even the most
hostile markets, making them some of the most sought after funds in
the market. It is for this reason that most have not been open to new
investors for several years, so we are understandably delighted to be
able to offer these managers to our investors. Simply put, this is a
unique, once-in-a-cycle opportunity to gain access to the very best
talent that the hedge fund industry has to offer.

Corazon Capital, established in July 2008 through the management
buy-out of Dawnay Day Milroy, has USD1.2bn of client assets under
management in discretionary portfolios, institutional mandates and
multistrategy funds of funds, and has offices in Guernsey, Jersey,
Switzerland and the UK.
Source: Hedgeweek.com

4 Funds to Ride Rebound in Auto Industry

NEW YORK (TheStreet) - Detroit is bustling this week as droves of
car-admirers flock to the annual North American International Auto
Show. At this event, top car makers from around the globe including
*Ford*(F), Porsche, Audi, BYD, and Volkswagon have managed to woo
Motor City crowds with new models and technologies which will help
prolong the global automotive industry down the path to recovery.

The revival of the auto industry has been one of the most exciting
developments throughout this global economic healing process. At the
height of the Great Recession in the U.S., we watched companies such
as Ford and *General Motors*(GM) flirt with collapse. However,
throughout the ensuing recovery, these same firms have staged a
dramatic comeback, marked most recently by GM's re-listing on the New
York Stock Exchange.

This sector clearly has further to go and will likely face hurdles
down the road. However, as highlighted this week in a _TheStreet_
interview with Ford CFO Louis Booth, confidence is on the rebound for
autos.

Given the dramatic nature of the auto industry's recovery, it is no
wonder that car companies and their parts suppliers make for
attractive investing opportunities.

Despite the car industry's attraction, there are only a limited number
of ways investors can gain concentrated access to the auto resurgence
outside of stock picking.

In early 2010, Direxion filed paperwork for the Direxion Auto Shares.
However, this fund is yet to launch and currently there are no ETFs on
the market which provide investors with direct pure play exposure to
auto industry players. Instead, funds such as the *Global X Lithium
ETF*(LIT), *ETFS Physical Platinum Shares*(PPLT) and *ETFS Physical
Palladium Shares*(PALL) may prove effective proxies.

Electric-powered cars have generated some of the most interest at this
year's AIAS with the Chevy Volt earning the title of North American
Car of the Year, and companies including Ford and *Honda*(HMC)
unveiling new battery-powered models.

Global X's LIT is one way investors can follow this exciting shift
towards electric powered cars. This fund gathers together a diverse
basket of companies which are dedicated to the production of lithium
and should see a lot of upside potential as more companies take a
green approach to automobile production.
Source: Thestreet.com

Chuck Jaffe: Trendy new fund is ‘Stupid Investment of the Week'

By Chuck Jaffe, MarketWatch
BOSTON (MarketWatch) — The investment world is filled with good
ideas that, when turned into a mutual fund, deliver bad performance.

For proof, look to RBS US Large-Cap Trendpilot
/quotes/comstock/13*!trnd/quotes/nls/trnd
(TRND
*26.39*,
+0.13,
+0.51%)
, an exchange-traded note that began trading early in
December and, fresh out of the box, is the Stupid Investment of the
Week.

!! Understanding The Irrational Investor !!
Greg Davies, head of behavioral finance at Barclays Wealth,
explains the role of psychology in private banking. WSJ's Mariko
Sanchanta reports.

Stupid Investment of the Week highlights the flawed thinking and
worrisome characteristics that make a security less than ideal for the
average investor, and is written in the hope that showcasing trouble
in one case will make it easier for consumers to avoid trouble
elsewhere. While obviously not a purchase recommendation, this column
is not intended to be an automatic sell signal.

The RBS Trendpilot situation is an interesting one because, on the
surface, the investment looks like a good way for individual investors
to follow a strategy that they might believe is fundamentally sound,
but difficult to implement on their own.

!! Paying A Service Fee!!
Simply put, Trendpilot
/quotes/comstock/13*!trnd/quotes/nls/trnd
(TRND
*26.39*,
+0.13,
+0.51%)
invests in the stock market when
the Standard & Poor's 500 Total Return Index (measuring the S&P
500-stock index's
/quotes/comstock/21z!i1:in\x
(SPX
*1,293*,
+9.48,
+0.74%)
actual return plus dividends) is above its 200-day
moving average, and it invests in cash — trying to get the return of
the 3-month Treasury bill — when its S&P 500 benchmark is trading
below the 200-day moving average.

The idea behind Trendpilot is simple: The trend is your friend. Invest
when it's going good and sit on the sidelines when it isn't.

It's so simple, in fact, you could do it yourself — and a whole
lot better. But for many investors, their reason to hire a money
manager would be for the personal discipline it takes to live with the
strategy; the fact that most investors would not have that wherewithal
actually also shows some of what's wrong with Trendpilot.

To see how that's possible, let's dig a little deeper.

First, exchange-traded notes (ETNs) are similar but different than the
standard exchange-traded fund, or ETF. Both types of securities track
an index, trade like a stock and are liquid, but ETFs are structured
so that the investor owns the underlying basket of securities. If the
ETF were to go bust, the shareholder usually would get cash for the
market value of the securities. (If an investor has a huge chunk of
the fund — say 50,000 shares — they might be allowed to take their
payout in stock.)

ETNs, by comparison, are debt instruments issued by big banks, Royal
Bank of Scotland in the case of RBS Trendpilot. As a debt instrument,
the ETN doesn't actually own anything; instead, it is making a
promise to track an index and pay out the way an investment in the
index would. If an ETN fails, an investor will not get the investment
back. The average investor probably should think of an ETF like buying
a stock, with the ETN like buying a bond.

The difference is important because an investor who wants to replicate
the Trendpilot strategy would not have a hard time doing it by making
the actual investments. They could use a Standard & Poor's 500 ETF
when they want to be in the markets, and Treasury bills or
money-market accounts when they want to be out.

At the very least, they would save money. Trendpilot charges 1% in
management fees when it is "invested" in the market, and a 0.5%
fee when it's in cash. An investor could make the same investments
for about one-tenth the cost, although they would have to pay
transaction costs for the trades they make.

!! Behind The Curve !!
Further, Trendpilot waits five days to confirm the buy or sell signal.
The market has to be above its average for five days before Trendpilot
turns positive, and below it for five days before "going to cash."
Money managers who use moving averages typically act when the line is
crossed; in fact, a do-it-yourself investor could use most financial
Web sites to track the moving average and send them alerts when a
trade should be triggered.

"If it really is trying to follow the trend, then it should move
when the trend changes," said Tom Lydon, editor of the ETF Trends
newsletter. "Give the trend a five-day cushion, the way this fund
does, and you will leave some money on the table on both ends, when
you are buying and selling."

Some people might be willing to pay that price, just for the ease of
having someone else make the trades, but there's a reasonable
question of whether Trendpilot can deliver on its promise.

While RBS is showing back-tested results for the index — which was
created only in mid-November — those numbers may have been helped
along by times that happen to make this strategy look good. In fact,
the back-tested results undoubtedly were boosted by the fact that over
the last half-decade, a flat market was followed by a huge downturn,
and then a rebound; plug in different results — and all we know
about future returns is that they will not exactly mimic the past —
and the back-tested "success" quickly turns to mud.

Moving-average strategies work best when the market has long,
substantial trends, either up or down; when the market has no real
trend, they tend to get whipsawed. That's why average investors have
trouble following them, because in a direction-less market they are
doing a lot of trading — potentially losing money in both directions
— hoping for something to materialize.

In the end, Trendpilot isn't likely to hurt investors — it's
built to reduce risk and it's not going to send anyone to the poor
house — but it's probably not going to deliver the kind of returns
they expect from the strategy either.

"I prefer strategies that work fairly well through most kinds of
market environments," said Mark Salzinger, editor of The
Investor's ETF Report, "so that investors can hold on to what they
have and not sell near bottoms or buy near tops."

Chuck Jaffe is a senior MarketWatch columnist. His work appears in
many U.S. newspapers.
Source: Marketwatch.Com

FrontPoint raises $1 billion for direct lending fund

FrontPoint Partners has completed its biggest-ever fund launch,
securing total commitments of over $1 billion for the FrontPoint-SJC
Direct Lending Fund (FSJC).

The launch provides a timely fillip for FrontPoint, which had seen its
asset under management decline after one of its portfolio managers
became embroiled in the US government's insider trading investigation
in late 2010.

FSJC is being run by a team led by portfolio manager Steve Czech, who
joined FrontPoint from Gottex Fund Management in January 2010.FrontPoint started raising capital for the fund at the end of March
2010 and completed its final closing on November 1. Investors include
pension funds, foundations, endowments, family offices and high net
worth individuals. Around 40% of investors are said to be existing
clients of FrontPoint.

FSJC provides privately negotiated senior secured loans to US
middle-market companies with annual revenue of $75-$500 million and
EBITDA of $7.5-$50 million, with a focus on companies in the
manufacturing, transportation and distribution sectors.

Czech said the direct lending strategy was set to benefit from
structural changes in the way companies access capital. "The way
credit is disseminated has changed drastically as a result of the
financial crisis. What we are seeing is a structural change as opposed
to a traditional credit cycle," he said.

"US middle-market businesses have been left with relatively few
financing sources as numerous middle-market direct lenders have either
exited the direct lending business or are gravitating towards larger
borrowers for both strategic and regulatory reasons."

"Credit has become more expensive, less flexible and increasingly
scarce. That creates an opportunity for organisations with clean
balance sheets, no legacy assets and locked-up capital to do very
well," said Czech.

FSJC is targeting returns in the low to mid-teens for loans in the
portfolio.
"On a risk-adjusted basis, we believe the returns from direct lending
are better than they have been historically. The leverage multiples we
are lending at are lower than historical standards and the returns are
the same or higher than in the past," said Czech.

The fund has been carefully structured to avoid the asset-liability
mismatch that undermined many direct lending strategies in the past,
Czech added. FSJC has a five-year life and income is distributed to
clients on a quarterly basis, rather than being recycled into new
investments.

"This is a self-liquidating, cash-generating vehicle. The structure
has considerable appeal for investors that are conscious of
liquidity," said Czech.

The fund started making investments in November and has already lent
around $165 million to US-based manufacturers that act as suppliers to
other companies.

Dan Waters, co-CEO of FrontPoint Partners, said he was "particularly
pleased with the success of this fund given the current market and
fundraising environment."

Waters highlighted the attractive risk adjusted returns available in
direct lending and the structure of the fund as crucial factors in
securing commitments from investors.

The successful launch also vindicates FrontPoint's aggressive response
to the insider trading probe. In November, the Securities and Exchange
Commission charged a French doctor with providing confidential
information about clinical trials to a portfolio manager responsible
for FrontPoint's healthcare funds.

FrontPoint placed portfolio manager Chip Skowron on leave and
liquidated its healthcare funds, returning around $1.5 billion to
investors.

"We had a challenging issue relating to the healthcare funds," said
Waters. "We have been very transparent in dealing with the issue and
provided investors with continuous updates on what was happening with
those funds and the FrontPoint business more broadly. We have are
thankful to our investors who have been very supportive of this
launch."

FrontPoint's assets under management currently stand at $4.5 billion,
down from around $7 billion at the end of 2009.

Source: HedgeFundsReview.Com

Comment: Funds of hedge funds defy predictions of extinction

*Funds of hedge funds were widely predicted to become one of the
principal casualties of last year's annus horribilis for the hedge
fund industry. While most hedge fund indices reported average declines
in 2008 of up to 20 per cent, fund of funds benchmarks did even
worse.*

That double layer of fees, it turned out, did not buy sufficient
diversification to shield investors from hedge fund managers'
miserable performance; investors found themselves deprived of
liquidity because fund of fund managers' were unable to redeem
underlying investments; funds of funds that had leveraged up to boost
returns found it was losses that had been turbo-charged; and to cap it
all some managers had placed significant slugs of their investors'
money with Bernard Madoff.

The demise of funds of hedge funds has been forecast for years,
prompted by the lower fees and supposedly superior performance of
multistrategy funds as an alternative as well as the increasing
sophistication of institutional investors who, it was predicted, would
shift their capital from funds of funds to single-manager vehicles as
they became more comfortable and knowledgeable about alternative
investments. Surely last year's slump would deliver the coup de
grâce?

It remains early days, but it seems that the death of funds of hedge
funds may have been greatly exaggerated. Many funds of funds ran into
trouble last year, of course, but anecdotal evidence suggests that
investors are often willing to go along with restructuring proposals
rather than settle for grabbing what they can from the wreckage. Last
year's outflows of capital have slowed to a trickle, and there are
even reports of the odd new fund of funds being launched.

Why should this be? A lot of the lustre came off multistrategy funds
last year. By some reckonings they underperformed both funds of hedge
funds and single-manager funds; certainly there was little evidence of
consistent ability to reallocate capital successfully in response to
market conditions. At the same time, the events of 2008 did little to
reassure smaller institutions in particular about their ability to
make their own choices of strategy and manager.

So there still seems to be a place for funds that offer somewhat
diversified exposure to the hedge fund universe, although investors
will be demanding greater evidence of due diligence on underlying
managers and may well require fund of funds managers to get by on a
lower level of fees.

Put together, these trends point to consolidation in the sector, as
only managers with a substantial asset base will have the resources to
research and investigate underlying funds with the thoroughness that
will be required. Many members of Switzerland's substantial fund of
funds industry, much of which consists of vehicles with less than
USD100m in assets under management, will need to seek merger partners
to survive, according to Peter Meier, head of the centre for
alternative investments and risk management at the Zurich University
of Applied Science.

Swiss fund of funds do face problems that are not universal in the
industry; some of them have extremely low minimum investment
thresholds, which bring them within the ambit of more onerous and
constrictive retail investment regulation. Fund of funds managers as a
whole are facing up to significant changes to their business models as
they seek to regain investors' trust and also to start earning the
level of fees required for their firms to thrive. Still, it's better
than the alternative.
Source: Hedgeweek.com

Citi launches technology platform for funds of hedge funds

*Citi's global transaction services unit has launched a global
technology platform specifically designed for servicing funds of hedge
funds.*

The new service, which integrates into Citi's global operating
platform for hedge fund services, enables Citi to provide a suite of
fund of hedge fund solutions through a single front-to-back online
service.

"For the benefit of servicing fund of hedge fund managers around the
world, we have pulled together the entire client experience under one
seamlessly integrated, globally consistent platform," says Neeraj
Sahai, global head of securities and fund services, Citi. "Managers
have direct, on-line access to our custody services, our suite of
middle-office solutions and all standard administrative reports,
resulting in greatly improved efficiency, accuracy, transparency and
risk mitigation."

Citi's fund of hedge fund services product suite offers clients a
modular end-to-end solution, supporting the entire trade lifecycle:
middle office, custody, securities finance, back office, cash and
liquidity.

The new technology platform delivers the following types of customised
tools for portfolio managers:
• Analysis of liquidity terms of underlying hedge fund investments
• Ability to track and analyse underlying fund performance
• "What-if" trade scenario analysis
• Pre and post trade compliance reporting against investment
guidelines
• Real-time dynamic NAV reporting
• Automated FX hedging functionality for share classes denominated
in non-base foreign currency

Citi entered into an agreement with youDevise to license the platform.
youDevise is the developer of an online platform used by fund of hedge
funds and administrators for front, middle and back office management
information.
Source: Hedgeweek.com

Headstart Fund of Funds tops rankings

*The investable Headstart Fund of Funds, advised by Headstart
Advisers, has claimed its place at the top of the leader board of the
Investhedge rankings for multi-strategy funds of hedge funds over the
last three, six and 12 months.*

The fund has a year to date return of 13.94 per cent to the end of
November 2010.
Headstart's performance this year compares favourably with fund of
funds indices such as the HFRI Fund of Funds Composite Index (+3.43
per cent year to date), the Barclay Fund of Funds Index (2.85 per
cent) and the EurekaHedge Fund of Funds Index (2.6 per cent).

The fund has been advised by Headstart Advisers' chief investment
officer Najy Nasser since it began in November 1999.
Its 11 year track record has an annualised return of 6.82 per cent
with a volatility of 8.01 per cent per cent. An investment at the
inception of the fund would have approximately doubled by now, whereas
the S&P 500 index is down 13.18 per cent in the same 11 year time
period.

Since January 2009 the Headstart Fund of Funds has had an annualised
rate of return of 16.62 per cent with a volatility of 6.68 per cent.
Nasser says: "Our fund has performed consistently during 2009 and
throughout 2010 after what was a difficult 2008 for nearly everyone in
our industry.

"We are particularly pleased with our outperformance against the
indices we are most usually compared. In what has been a difficult
year for hedge funds with a wide disparity of returns, all of our
underlying positions are positive for the year to date which is a
strong testament to the quality of the funds within the portfolio."
Source: Hedgeweek.com

Macquarie hedge fund up 10 pct

By Nishant Kumar
HONG KONG | Thu Jan 13, 2011 4:51am EST
HONG KONG (Reuters) - Macquarie Group Ltd's (MQG.AX) market-neutral
long/short Asia hedge fund gained 10.3 percent and nearly tripled
assets to $640 million (406 million pounds) last year, its fund
manager said, while many hedge funds in the region were starved for
capital.

By comparison, the Eurekahedge Asia Long/Short equities index was up
7.3 percent, while the MSCI Asia Pacific Index in local currency
returned about 4 percent.

Andrew Alexander, who co-manages the Macquarie Asian Alpha Fund, said
the fund could have a soft close when assets reach close to $1
billion but had the capacity for about $1.25 billion.

"The pipeline is strong. We are seeing a number of British and U.S.
institutions that are interested in the product," Alexander told
Reuters in a telephone interview late on Wednesday.
Steadier returns with low volatility had lured institutional
investors who consider the fund a good way to achieve their asset
liability management objectives, said the veteran fund manager, whose
previous employers include hedge funds such as LIM Advisors and
Pacific Group.

He said Macquarie's global marketing presence and liquidity track
record during the financial crisis, when the fund honoured
redemptions worth about $500 million in 32 days, also helped in 2010
when flows into Asian hedge funds started to revive.
"I think investors remember them," he said, adding that lower
competition also helped the fund corner assets looking for
market-neutral hedge funds in Asia.

There are hundreds of Asian long/short hedge funds, but Alexander
estimated that only a handful offered market-neutral strategy and
institutional-grade services to attract insurance or pension funds,
which have become choosier since the financial crisis.

Market-neutral strategy is aimed at profiting from both rising and
falling prices to exploit market inefficiencies and targets the fund
beta, or market risk, to be equal to zero.

The Macquarie Asian Alpha Fund has returned 11 percent annually since
its launch in 2005 with volatility of about 5 percent. By comparison,
the MSCI Asia Pacific Index in local currency has given 0.7 percent
annually with volatility of more than 22 percent.

Alexander said the fund had no country, sector or currency biases and
applied quantitative strategies to filter out stocks and avoid active
risk in volatile Asian markets.

"People do want to believe in the Asian growth story and they do want
to believe that people can get them rich quickly. The stats are
however the markets have not delivered over reasonably long-term
period," he said.

The fund screens nearly 5,500 Asian stocks and places bets on
hundreds of them. It aims to generate returns through individual
stock selection by going marginally long or short on them.
Source: Reuters.Com

Hedge fund firm Polygon hires CEO to aid recovery

LONDON | Thu Jan 13, 2011 4:39am EST
LONDON (Reuters) - Hedge fund firm Polygon Investment Partners hired
its first ever chief executive to lead the restructuring of its
business following big losses in the credit crisis and the decision to
wind down its main fund.

Polygon, which managed $8.5 billion (5.4 billion pounds) before a 48
percent loss in its flagship fund in 2008 helped push assets down as
low as $3 billion, hired Jorge Villon as CEO and partner, it said in
a statement.

The move will allow founder and partner Paddy Dear to focus on
strategic initiatives, while Reade Griffiths will continue to devote
most of his time to fund management, a source familiar with the
matter told Reuters.

Villon was formerly the chief executive of MKM Longboat, where Mike
Humphries, who now manages Polygon's convertible arbitrage fund,
previously worked.

Hiring a chief executive who focuses on managing the business rather
than running a fund has become increasingly common for medium and
larger-sized hedge fund firms, where the founders often want to spend
their time running money.

Polygon has been trying to reinvent itself since the crisis and now
manages $5.5 billion in assets across a range of different funds.
Its European Equity Opportunity fund made more than 28 percent last
year while its Convertible Opportunity fund returned around 25
percent.

Meanwhile, its flagship fund, which began winding down after
investing in illiquid assets, is on track to be fully liquidated by
the end of the first quarter, the source said. (Editing by Sinead
Cruise and Sharon Lindores)

Source: Reuters.Com

Gartmore deal boosts Henderson's hedge fund business

Henderson Global Investors' acquisition of Gartmore Group has created
a company with £78 billion in combined assets under management, of
which over $6 billion will be in absolute return products.
Gartmore began searching for a buyer in November 2010 after its chief
investment officer and two of its top portfolio managers quit the
company earlier in the year, resulting in a sharp loss of assets under
management.

Portfolio manager Guillaume Rambourg resigned in July 2010 after he
was found to have breached internal compliance rules regarding
directed trades. Rambourg and colleague Roger Guy were co-managers of
Gartmore's flagship hedge funds, Alphagen Tucana and Alphagen Capella.Guy assumed responsibility for Gartmore's main hedge funds following
Rambourg's resignation only to announce his own resignation in
November 2010. Assets under management (AUM) in the funds managed by
Guy are reported to have fallen almost 90% on the news of his
departure.

Gartmore also lost its chief investment officer Dominic Rossi to
Fidelity in November last year.
Henderson said the acquisition of Gartmore strengthened its position
in the traditional long-only and absolute return businesses.

The vast majority of Gartmore's fund managers, around 84%, are
expected to join Henderson, including the investment teams responsible
for Gartmore's UK, European and Japanese long/short equity funds.
Gartmore's largest hedge fund, Alphagen Capella has over $1 billion in
assets. The fund has generated annualised returns of around 12% since
inception in 1999.

AlphaGen Capella, a long/short European equity fund, suffered large
losses in 2008 and is said to have underperformed the market in 2010.
AlphaGen Tucana, which focuses on large cap, liquid names in core
European markets, AUM plunged from over $1 billion at its peak to
below $300 million. Tucana has returned around 10% annualised since it
was launched in 2005.

The Capella and Tucana funds are now jointly managed by John Bennett,
Leopold Arminjon and Thomas Pinto.
The AlphaGen Volantis Fund, a UK small cap long/short equity fund, has
been one of Gartmore's better performing absolute return products in
recent years. Managed by Rob Giles and Adam McConkey, the fund has
posted annualised returns of 17% since inception in 2002 and has over
$300 million in AUM.

Henderson launched its first hedge fund strategy in 1999 and currently
manages over $3 billion in its range of single strategy hedge funds
and funds of hedge funds.

Henderson estimates around 21% of the combined company's AUM will be
in alternative investment products.
The all-stock deal values Gartmore at around £335 million ($527.4
million) and is expected to close in the next three months, subject to
regulatory approval.
Source: HedgeFundsReview.Com

SEC charges sub-prime loan hedge fund managers with fraudulent misuse of assets

*The Securities and Exchange Commission has charged two San
Francisco-based investment adviser firms along with their former chief
executive, former general counsel, and former portfolio manager with
defrauding investors in a USD100m hedge fund that invested in
sub-prime automobile loans.*

The SEC found that chief executive Benjamin P. Chui and portfolio
manager Triffany Mok – who managed the American Pegasus Auto Loan
Fund – together with general counsel Charles E. Hall, Jr., engaged
in improper self-dealing, misused client assets, and failed to
disclose conflicts of interest.

The firms – American Pegasus LDG and American Pegasus Investment
Management –and Chui, Hall, and Mok settled the SEC's charges by
agreeing to sanctions including bars from the industry and more than
USD1m in penalties and repayments to the fund.

"Fund advisers have a duty to disclose conflicts of interest and act
in the best interests of clients whose assets they are entrusted to
manage," says Marc Fagel, director of the SEC's San Francisco
regional office. "Instead, Chui, Hall, and Mok created a tangled
financial web, using investor funds for their personal benefit and
then attempting to paper over the misconduct by inflating the value of
fund assets."

The SEC's order instituting administrative proceedings finds that
unbeknownst to investors, in mid-2007, Chui used more than USD18m in
loans and advances from the Auto Loan Fund to buy the fund's sole
supplier of auto loans for himself, Hall, and Mok. This created a
pervasive conflict of interest as Chui, Hall, and Mok had a duty to
maximise the fund's performance while at the same time had an
interest in generating profits for the loan supplier they secretly
owned.

The SEC also found that Chui used millions in cash borrowed from the
Auto Loan Fund to prop up other hedge funds he managed. By late 2008,
roughly 40 per cent of the Auto Loan Fund's assets consisted of
"loans" to the fund managers' related businesses – with fund
investors being charged fees based on these undisclosed related-party
payments.

According to the SEC's order, Chui, Hall and Mok then essentially
wiped much of this debt to the fund off the books by selling assets to
the fund at a 300 per cent mark-up. Chui, with help from Hall and Mok,
purchased an auto loan portfolio for USD12m in February 2009 and then
sold it to the Auto Loan Fund the same day for more than USD38m. The
fraudulently inflated sale was used to erase money owed to the fund
for the various related-party transactions.

The Commission's order finds violations of multiple antifraud
statutes by Chui, Hall, Mok, and their two adviser firms. Without
admitting or denying the SEC's findings, the respondents agreed to
the following settlement terms. Chui agreed to pay a USD175,000
penalty and be barred from associating with an investment adviser for
five years. Hall agreed to pay a USD100,000 penalty and be barred from
associating with an investment adviser for three years and from
appearing or practicing before the Commission as an attorney for three
years. Mok agreed to pay a USD75,000 penalty and be suspended from
associating with an investment adviser for one year. The two adviser
firms must disgorge USD850,000 in management fees deemed improper by
the SEC.
Source: Hedgeweek.com

A fund with big bets on banks

By Carla FriedAugust 3, 2010: 8:43 AM ET
(Money Magazine) -- Manager Brian Rogers's knack for spotting
promising but beaten-down stocks has helped T. Rowe Price Equity
Income outpace more than 75% of its peers over the past 10 and 15
years. And since the March 2009 market lows, this $17.6 billion
portfolio has soared 80%, vs. 56% for the S&P 500 index.

That was partly due to the fund's big -- and some would say risky --
bets on problem-plagued financial shares. But now that those stocks
have rebounded, can Rogers continue his remarkable run?
An investment in Equity Income has trounced other market bets over
the long run.

Brian Rogers, 55, has been calling the shots at Equity Income longer
than some of his firm's employees have been alive. His 25-year tenure
is nearly five times as long as his average peer's, and it includes
three recessions, four bear markets, and an epic financial crisis that
is still playing out. Throughout that stretch, Rogers -- who is also
chairman and chief investment officer of T. Rowe Price -- has managed
to beat most large-cap value funds as well as the S&P 500.
"He cycles in and out of companies he has followed for years," says
Morningstar fund analyst Harry Milling. "He knows the managements so
well. That's experience you can't buy."

Despite the huge gains financial shares have enjoyed, this fund isn't
ready to sell yet. During the depths of the mortgage meltdown, when shares of a number of
blue-chip financial companies lost two-thirds or more in value, Rogers
was adding to Equity Income's stake in names like Bank of America
(BAC, Fortune 500), J.P. Morgan Chase (JPM, Fortune 500), and American
Express (AXP, Fortune 500). Since then, his dark-day bets have more
than tripled. Despite that, Rogers isn't looking to trim his financial
stake just yet.

"Financials have gone from severely depressed to just somewhat
depressed," says Rogers. "We are still early in the game."
Isn't he concerned that Europe's debt crisis could trigger another
global credit panic? "The magnitude of what we are seeing now," he
says, "is far less than what we just came through."
At times Equity Income ventures into sectors that its peers often
avoid.

Rogers is a classic value manager, who seeks out stocks that are
trading below what he thinks the underlying companies are actually
worth. But unlike some of his peers, who tend to stick to traditional
value sectors such as financials and energy, Rogers is willing to go
wherever he thinks the opportunities are.

That means his portfolio can at times be a bit eclectic. For example,
after the Internet bubble burst in 2000, Equity Income made some bets
on technology stocks (like Hewlett-Packard (HPQ, Fortune 500)) that
were beaten down.

Today his fund has small positions in tech stocks including Applied
Materials (AMAT, Fortune 500) and eBay (EBAY, Fortune 500). That's
classic Rogers: being willing to go where most of his value peers fear
to tread.
Source: CNN.Com

Gartmore deal a boost for Henderson's hedge fund business

Henderson Global Investors' acquisition of Gartmore Group creates a
company with £78 billion in combined assets under management, of
which over $6 billion will be in absolute return products.
Gartmore began searching for a buyer in November 2010 after its chief
investment officer and two of its top portfolio managers quit the
company earlier in the year, resulting in a sharp loss of assets under
management.

Portfolio manager Guillaume Rambourg resigned in July 2010 after he
was found to have breached internal compliance rules regarding
directed trades. Rambourg and colleague Roger Guy were co-managers of
Gartmore's flagship hedge funds, Alphagen Tucana and Alphagen Capella.Guy assumed responsibility for Gartmore's main hedge funds following

Rambourg's resignation only to announce his own resignation in
November. Assets under management in the funds managed by Guy are
reported to have fallen almost 90% on the news.
Gartmore also lost its chief investment officer Dominic Rossi to
Fidelity in November.

Henderson said the acquisition of Gartmore strengthened its position
in the traditional long-only and absolute return businesses.
The vast majority of Gartmore's fund managers - around 84% - are
expected to join Henderson, including the investment teams responsible
for Gartmore's UK, European and Japanese long/short equity funds.
Gartmore's largest hedge fund, Alphagen Capella has over $1 billion in
assets. The fund has generated annualised returns of around 12% since
inception in 1999.

AlphaGen Capella, a long/short European equity fund, suffered large
losses in 2008 and is said to have underperformed the market in 2010.
AlphaGen Tucana, which focuses on large cap, liquid names in core
European markets, has seen its assets under management plunge from
over $1 billion at its peak to below $300 million. Tucana has returned
around 10% annualised since it was launched in 2005.

The Capella and Tucana funds are now jointly managed by John Bennett,
Leopold Arminjon and Thomas Pinto.
The AlphaGen Volantis Fund, a UK small cap long/short equity fund, has
been one of Gartmore's better performing absolute return products in
recent years. Managed by Rob Giles and Adam McConkey, the fund has
posted annualised returns of 17% since inception in 2002 and has over
$300 million in assets.

Henderson launched its first hedge fund strategy in 1999 and currently
manages over $3 billion in its range of single strategy hedge funds
and funds of hedge funds.

Henderson estimates around 21% of the combined company's assets under
management will be in alternative investment products.
The all-stock deal values Gartmore at around £335 million and is
expected to close in the next three months, subject to regulatory
approval.

Source: HedgeFundsReview.Com

AIS launches web portal for hedge fund document management

*AIS Fund Administration has launched AIS IR Manager, a secure
document management and investor relations web portal designed
expressly for the firm's hedge fund clients.*

AIS Fund Administration provides outsourced middle and back office
support and fund administration to the alternative investment
industry.

The AIS IR Manager allows managers to post fund documents, newsletters
and marketing materials.

IR Manager is hosted by both the hedge fund manager and AIS on a
restricted, password protected website.

Financial statements are uploaded directly by AIS to ensure that all
information is secure and confidential. Managers are able to authorise
their investors and prospects with access to their available
information and track how information is being used by activity logs
and a secure tracking encryption.

"We've seen tremendous demand from our clients for such a platform
on two fronts," says Paul Chain, AIS president. "First, compliance
minded CFOs want a way to satisfy regulatory scrutiny, maintain a high
level of confidentiality and demonstrate control over the fund's
marketing efforts. Second, managers want an efficient and secure way
to distribute newsletters, offering documents, marketing materials and
statements to existing and potential investors. IR Manager ensures
that only the intended party views the material they are permitted to
view. Answering both needs on one platform, controlled by AIS as the
third party administrator, provides a valuable solution for our
clients."
Source: Hedgeweek.com

Fund partners bring female power to M&A hedgies

By Martin de Sa'Pinto
ZURICH | Tue Jan 11, 2011 9:32am EST
ZURICH (Reuters) - Three female fund partners are making inroads into
the male-dominated world of hedge funds with a merger-focused
investment strategy and a charter passing 25 percent of performance
fees to children's charities.

CIAM (Charity Investment Asset Management) co-founders Anne-Sophie
d'Andlau and Catherine Berjal met in 2003 when both managed merger
arbitrage funds, while Berjal knew the third co-founder Frederique
Barnier-Bouchet from when they worked at French banking giant BNP
Paribas (BNPP.PA).

"We had been talking for many years, and in 2009 we decided to launch
the fund. It seemed the right moment to create a new business, I
think we got the timing just right," said d'Andlau.
D'Andlau said mergers will be spearheaded by Europe's top 500
companies, which have amassed $500 billion (320 billion pounds) in
cash.

She said CIAM only invests in announced deals rather than hunting for
merger targets, which can tie up money and reduce returns if deals
are delayed or fail to materialise.
"We think focusing on announced deals is the only way to be totally
decorrelated from the markets. Trying to bet on merger targets
exposes funds to other risks," said d'Andlau.

M&A CONTRARIANS
Launched in September 2010, CIAM was seeded by its founders and
around a dozen investors, and takes a contrarian approach.
"If we believe a transaction will go through, we watch for the spread
(between the market price and the bidder's offer) to widen, maybe
because shareholders expect a better offer or the antitrust ruling is
taking longer than expected," said d'Andlau.

"These things can scare the market and widen the spread. We look to
invest when there is some negative news."
CIAM saw an opportunity in Swiss drugmaker Novartis's (NOVN.VX)
disputed bid for U.S eyecare company Alcon (ACL.N). It shorted Alcon
stock and bought Novartis, closing both positions when Alcon's
independent directors finally approved the tie-up.
"We loved that deal. We were convinced there was no reason for
Novartis to improve its original offer under Swiss law, so we took a
contrarian position to many who were trading the Novartis ADRs
(shares traded on U.S. exchanges)," said d'Andlau.

The company rarely invests on the day a deal is announced, a tactic
used by many other arbitrageurs, as d'Andlau said this tightens
spreads and can increase downside risk.
"Merger arbitrage is a dish you have to eat cold. You can only rush
out and buy into a deal if you think there is a higher offer in the
air; then you have to be quick."

Another of the company's recent successes was the General Electric
(GE.N) acquisition of Britain-based flexible pipeline systems maker
Wellstream (WSML.L).
Source: Reuters.Com

UPDATE 5-JBS may join funds for Sara Lee bid -source

Tue Jan 11, 2011 3:15pm EST
* JBS does not rule out joint bid, source says
* Buyout firms pursued JBS on Sara Lee deal, source says
* Funding for deal not a pressing issue, source says
* JBS interested in Sara Lee's coffee, meat unit
* Sara Lee shares recoup some of their early losses (Adds details on
JBS, no company comments so far, background
in paragraphs 1, 6-9)

By Roberto Samora
SAO PAULO, Jan 11 (Reuters) - JBS, the world's top beef
processor by revenue, could team up with a group of buyout
firms as it seeks alternatives to win control of Sara Lee Corp
(SLE.N), a source with knowledge of the plans told Reuters on
Tuesday.

Private equity firms have pursued Sao Paulo-based JBS
(JBSS3.SA) since reports about a potential bid for Sara Lee
arose late last year, the source said. No accord over a joint
bid has been reached, said the source, who declined to be
quoted by name because the talks remain private.

Asked whether JBS could join with private equity funds for
the purchase, the source said, "it is certainly an
alternative."

"They have pursued us, but there are no preferences or
signed commitments at this point," the person said, adding
that the Brazilian beef company is interested in Sara Lee's
retail and food service business, which includes coffee and
meats.

Shares of Sara Lee (SLE.N) rose more than 2.5 percent on
Monday on reports that a group of private equity firms is
interested in a buyout of its coffee and meat unit.
The group includes Apollo Global Management [APOLO.UL], a
source familiar with the situation said on Sunday.

The Wall Street Journal reported earlier in the month that
a consortium of buyout firms also includes Bain Capital and
TPG Capital [TPG.UL].

Sara Lee shares recouped some of their losses. The stock
fell 0.3 percent to $18.16 on Tuesday on the New York Stock
Exchange, after losing as much as 1.6 percent earlier in the
day. The stock gained 17 percent since the start of December.
Voting shares of JBS rose 0.7 percent in Sao Paulo to 7.04
reais. The stock shed about a third of its value in the past
year.

A spokeswoman for Apollo in New York did not have an
immediate comment. The media office of JBS declined to
comment.
Source: Reuters.Com

Clients get creative as hedge funds lose sex appeal

By Laurence Fletcher
LONDON | Tue Jan 11, 2011 3:17am EST
LONDON (Reuters) - Hedge funds may finally be losing their sex
appeal.

A small but growing number of investors believe these once-free
spirited portfolios, viewed as the cutting edge of finance for most
of the past decade, have become too conservative and boring.
Large and cautious pension fund and endowment clients are
increasingly calling the shots in the industry, and investors such as
funds of funds and rich individuals need to take matters into their
own hands if they want higher returns.

"Some managers ... over the past two years have become too dull and
the probability that they will become dead wood in the portfolio is
too high," said Morten Spenner, chief executive of funds of hedge
funds firm International Asset Management IAM.L.

Managers made 10.2 percent last year, according to Hennessee Group,
lagging behind the S&P's .SPX 12.8 percent gain and 17.5 percent at
the average stock mutual fund.

Having already lost around 20 percent in 2008, many funds opted to
cut back bets during last year's choppy markets when fears over
Europe's sovereign debt crisis dominated, rather than risk giving up
gains made during a rally in 2009.

Brevan Howard's $26 billion (16.7 billion pounds) Master fund, for
instance, rose just 1.5 percent in the 11 months to end-November
after shying away from more risky bets.

Many rich people were attracted to hedge funds by stories of George
Soros's $1 billion profit from his speculative attack on the Bank of
England or John Paulson's $3.7 billion earnings in 2007 betting on
the subprime meltdown.
But institutions --- who now account for over half of all hedge fund
assets --- often prefer lower-risk funds, targeting single-digit or
low double-digit gains.

"Steady, low double-digit returns are typically much better at
attracting institutional investors than higher but more erratic
performance," said Odi Lahav, vice president at Moody's alternative
investment group.

Gross hedge fund leverage globally fell to 1.81 times in November
from 1.93 times in August, according to Citi, also a sign the
managers have become more wary.

LACK OF SPICE
With the eye-catching gains of 20-30 percent a year often seen in the
1990s now a distant memory, some investors are taking matters into
their own hands.

Omar Kodmani, senior executive officer at Permal Investment
Management Services, has asked managers to build him tailor-made
portfolios riskier than the manager's main fund.

"In credit we asked for a portfolio that was only focused on one
sector of the mortgage market --- we wanted a pure play. It is up 100
percent in a year and a half, and we have now reconfigured it to a
broader mortgage special situations fund."
Source: Reuters.Com

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