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Alternative Investment Management Association

AIMA Journal
The Global Forum for the Global Alternative Investment Management Industry

Q3 2010 www.aima.org No. 84

Address from the CEO Speculation and social utility

W
e have heard a lot about speculation recently. Whether terms of delivering returns to investors
it has been commodities, the Euro, or sovereign debt, and price-discovery and liquidity to
policymakers and self-appointed experts have queued markets, although that is important,
up to attack “speculators” whose speculation is allegedly ruining but in real tangible terms that people
markets and bringing down currencies and economies. really understand.

The rhetoric has been pretty tough. Some leaders talked of Europe Jobs are one important example of that, but perhaps even more
being “under attack” from speculators. During the sovereign important is the social dimension - the industry now is the guardian
CDS crisis there were even reports that the intelligence services of many people’s pensions and savings and is the facilitator of
of various European states had been told to find out who the their business loans and mortgages. In many instances it is hedge
speculators were. One Greek newspaper reported that the Greek fund activity that enables pension funds, insurers and banks to
intelligence services had managed to “unravel the strands of offer the services that they do because they are niche operators
speculation entangling the country,” and that they had identified capable of assessing and taking on risks that others are unwilling
the British and American sellers of Greek bonds. or unable to undertake.

Perhaps they would have been better employed looking closer to Ultimately the best antidote to attacks on “speculation” is to
home. It has since emerged that some of the biggest buyers of demonstrate the social utility of financial services in general and
protection in the Greek sovereign CDS market were Greek banks. our industry in particular. If
Who were the other big players in Greek debt? French and German our industry is perceived by
banks. In fact 95% of Greek debt is held inside the Eurozone (i.e not policymakers as rich people
in the UK and US). So much for “Anglo-Saxon” speculation. using borrowed money to
make more money for other
It’s all too easy to attack “speculation” because it is almost rich people then they will not
impossible to differentiate between speculation and trading hesitate to impose punitive
in general. In fact the very use of the word “speculation” regulation. If they understand
misunderstands the marketplace. Who in the marketplace is not that we are a vibrant, creative
there to profit? Either everyone in the marketplace is a speculator and indivisible part of the asset
or the distinction is meaningless. management sector delivering
real and important benefits to
Unfortunately, policymakers have used “speculators” as a society, they might think twice.
scapegoat to be blamed for any ill, regardless of the facts. And nor
has their rhetoric been merely empty threats. There have already AIMA, as the global industry body,
been very real examples of action taken – such as the recent is at the forefront of activities
unilateral German ban on naked short-selling. All this matters on behalf of the industry to
because when policymakers talk publicly about “speculators” demonstrate the importance
they’re not talking about all financial market participants. and relevance of what we all do. Andrew Baker
They’re not even talking about the banks. They usually mean us We seek to provide a forum for Chief Executive Officer,
– the global hedge fund industry. all communications professionals
Alternative Investment
in the industry to discuss and
There is a way to neutralise ignorant and prejudiced attacks like coordinate messaging so that Management Association
these, and it is education. Making people understand that our we can deliver on our mission
industry is not part of the problem, but part of the solution. to educate. Please do contact
Showing them that we genuinely contribute to the economies in our team if you’d like to
which we operate and to the global economy as a whole. Not only in be involved.
Contents

1 Address from the CEO Speculation and social utility

4 GLOBAL NEWS Recent regulatory, tax and other developments

7 CAIA COLUMN Forming partnerships with top academic institutions

9 PRESS CLIPPINGS International press coverage of AIMA

11 AIMA COMMITTEES Developments during Q2 with AIMA’s main committees

13 CHAIRMAN’S COLUMN Institutionalisation of the industry

16 FIXED INCOME Seeking relative value at the long-end of the treasury yield curve

18 FX TRADING New platforms enable smaller institutions to explore spot FX

20 PERFORMANCE STANDARDS How hedge fund managers can claim compliance with GIPS®

22 INSTITUTIONAL INVESTMENT Hedge fund investment by superannuation funds

23 pifs Malta’s ‘quasi-retail’ alternative investment structures

26 LAW US ‘ipso facto’ and UK ‘anti-deprivation’ - the Lehman ‘flip’ clause

28 NEW MEMBERS AIMA members who joined during Q2 2010

31 contact us How to reach us

32 ANNUAL CONFERENCE AIMA Annual Conference, AGM and 20th Anniversary Reception

SPONSORING MEMBERS OF AIMA

The AIMA Journal is published quarterly by the Alternative Investment Management Association Ltd (AIMA). The views and opinions expressed do not necessarily reflect those of the AIMA Membership.
AIMA does not accept responsibility for any statements herein. Reproduction of part or all of the contents of this publication is strictly prohibited, unless prior permission is given by AIMA.
© The Alternative Investment Management Association Ltd (AIMA). All rights reserved.

2 AIMA Journal Q3 2010


aima SPONSORING MEMBER

Congratulations
to AIMA on its
20th anniversary

Simmons & Simmons


is proud to be a
Sponsoring Member
of AIMA

Simmons & Simmons has a highly specialised international asset


management and investment funds team. Across the globe
we advise on the full range of legal and regulatory issues for
participants in the asset management industry.
Acknowledged by the Legal 500 UK directory as the leading firm for hedge funds, the
strength of Simmons & Simmons’ practice has also been recognised in a number of awards
including the Funds Europe Award ‘European Legal Adviser of the Year’ 2006 to 2009
inclusive, The Hedge Fund Journal Award ‘Best Law Firm’ in 2007 and 2008, Global Investor
Awards ‘Legal Firm of the Year’ in 2008 and 2010 and HFM European Hedge Fund Services
Awards 2010 ‘Best Law Firm’.

To discuss how we can help your business, contact Iain Cullen or your usual
contact at Simmons & Simmons.

Iain Cullen
Partner
T +44 20 7825 4422
E iain.cullen@simmons-simmons.com

simmons-simmons.com
elexica.com
GLOBAL NEWS

NEWS Recent regulatory, tax and other developments around the world

Please note that some of the hyperlinks in this Proposed Regulatory Reforms on Unregulated
section are restricted to AIMA members. or ‘Less-Regulated’ Market Segments” at the
recent IOSCO Conference in Montreal. Other EMEA
GLOBAL panellists included Tony D’Aloisio of the ASIC,
Malcolm Knight of Deutsche Bank and Timothy AIFM Directive
G20 leaders issue declaration at Ryan of the Securities Industry and Financial As the three-way (“trialogue”) discussions
Toronto summit Markets Association. between representatives of the European
Following their summit in Toronto in June Parliament’s ECON (Economic and Monetary
2010, the G20 leaders issued a declaration of IMF tax proposals Affairs) Committee, the Presidency of the
the decisions agreed on the next steps they The International Monetary Fund (IMF) Council of the European Union and the
would take “to ensure a full return to growth published a Report (26-page executive European Commission over the final draft of the
with quality jobs, to reform and strengthen summary here) which proposed a Financial Alternative Investment Fund Managers (AIFM)
financial systems, and to create strong, Stability Contribution Levy to be paid by all Directive got underway, AIMA produced this note
sustainable and balanced global growth”. financial institutions - including hedge fund that comments on the key provisions in the two
They said that their financial sector reforms managers - and a Financial Activities Tax which different versions of the draft Directive that
rested on “four pillars” - the first of which would be levied on the sum of the profits and remain under discussion. The note had a clear
is a strong regulatory framework, including remuneration of financial institutions. (See focus on the European Parliament’s text, which
“transparency and regulatory oversight of the comment by AIMA’s Andrew Baker on we find more damaging. The issues taken up relate
hedge funds, credit rating agencies and over- this in the ‘Press Clippings’ section of the to third country (non-EU) issues; depositaries;
the-counter derivatives in an internationally AIMA Journal.) delegation; leverage; remuneration; and short-
consistent and non-discriminatory way”. The selling. The trialogues were originally planned to
G20 leaders also acknowledged the significant Short selling notice board conclude in time for a vote on the Directive to
work of the International Organization of Already in 2010, there have been a number take place in the European Parliament on 6 July
Securities Commissions (IOSCO) to facilitate the of new regulatory regimes introduced around 2010, but they are currently deadlocked and are
exchange of information amongst regulators the world to address perceived issues with the continuing into the third quarter of 2010.
and supervisors, as well as IOSCO’s principles practice of short selling. This has included
regarding the oversight of hedge funds aimed measures to address disruptive short selling EC consultation on Derivatives and
at addressing related regulatory and systemic (e.g. the US SEC’s ‘alternative uptick rule’) Market Infrastructures
risks. They additionally pledged to accelerate and new disclosure and reporting regimes (e.g. The European Commission published its long-
the implementation of over-the-counter the BaFIN short selling disclosure regime). awaited public consultation on Derivatives
(OTC) derivatives reforms, and reaffirmed To keep AIMA members up-to-date with the and Market Infrastructure, along with these
their commitment to see trading of all OTC developments, we have published on the AIMA FAQs. The consultation addressed a number of
derivatives contracts on exchange or electronic ‘notice board’ publications summarising the topics, including: clearing and risk mitigation
trading platforms, where appropriate, and various proposals, as produced by AIMA law of over-the-counter derivatives; requirements
cleared through central counterparties (CCPs), firm and compliance consultant firm members. for Central Counterparties; interoperability;
by end-2012 at the latest. To access the page, click here. and reporting obligations and requirements
for trade repositories. In addition the ECON
CPSS/IOSCO consultations New AIMA Director of Policy and Committee of the European Parliament
The Committee on Payment and Settlement Government Affairs published a report setting out the parliament’s
Systems (CPSS) and the Technical Committee of AIMA welcomed a new Director of Policy and views on the Commission’s formal legislative
IOSCO published two reports for consultation on Government Affairs, Jiri Krol, during Q2. Jiri proposal. AIMA produced this short summary of
applying the 2004 CPSS-IOSCO Recommendations is a Czech national who had been working the two documents.
for CCPs to OTC derivatives CCPs, and on at the European Commission in Brussels. He
considerations for establishing trade repositories helped to run the Czech Presidency of the EC consults on Short Selling and CDS
in OTC derivatives markets. AIMA submitted European Union in the first half of 2009. He is The European Commission published its Public
this response to both consultations, in which fluent in German, French and English as well Consultation on Short Selling, which set out
we supported the high-level principles in each as his native tongue. He took over the Policy options being considered by the Commission for
report and commended the efforts to establish brief from Florence Lombard, who stood down a Europe-wide regime dealing with potential
international standards and seek global earlier this year. risks arising from short selling and CDS. A brief
coordination amongst national authorities in summary of the paper is available here.
reforming OTC derivatives markets. New AIMA Regulatory Assistant
We welcomed Daniel Measor to AIMA’s CESR MiFID Review consultations
Chairman participates in IOSCO permanent staff as Regulatory Assistant. Daniel AIMA submitted responses to three consultations
Conference joined us from Allen & Overy, and is supporting published by the Committee of European
AIMA Chairman Todd Groome participated in Mary Richardson and Matthew Jones in the Securities Regulators (CESR) which relate to
a panel discussion entitled “Impacts of the Regulatory & Tax Department of the Association.
(Continued on page 5)

4 AIMA Journal Q3 2010


GLOBAL NEWS

(Continued from page 4)

CESR’s advice to the European Commission in paper Establishing Resolution Arrangements FSA mobile taping consultation
the context of the 2010 Markets in Financial for Investment Banks. It is one of a series of AIMA submitted a response to the FSA
Instruments Directive (MiFID) Review. The consultation papers on enhancing the CASS consultation paper CP10/7: Taping: Removing
consultation papers covered topics on pre- regime to be published by the FSA in 2010. the Mobile Phone Exemption, which proposes
and post-trade transparency in the European the removal of the current exemption from
equities markets, questions on investor U.K. Financial Services Act 2010 the telephone taping requirements in COBS
protection and intermediaries (including on The Financial Services Act 2010 introduced a 11.8 of the FSA Handbook for mobile electronic
phone taping and execution quality data) and range of new financial stability powers for the communications. We argued that the proposals
transaction reporting. Financial Services Authority (FSA) and H.M. would be unduly burdensome for a large number
Treasury. The FSA published a consultation of AIMA members who would be required to
CESR consultation on Transparency paper – CP10/11: Implementing aspects of the comply with the requirements, and that the FSA
Directive Financial Services Act 2010 – with proposals should await the conclusion of the European
AIMA submitted a response to the CESR for use of some of the new powers and duties Commission’s MiFID Review, which proposes to
consultation paper proposing to extend the arising from the Act. harmonise the taping rules across the European
European Transparency Directive notification Union, before amending the rules.
and disclosure regime to encompass instruments New U.K. regulatory structure
which produce a similar economic effect to The U.K. Chancellor of the Exchequer, George FSA close link reporting
holding shares and entitlements to acquire Osborne, announced in a speech that the U.K. The FSA began requiring firms to report their
shares, but without the contractual right to government would establish a new prudential close links (or cessation of existing close links)
acquire voting rights. regulator responsible for the prudential electronically using a new FSA template. Annual
supervision of financial firms, including banks, close links reports will still need to be submitted
CESR UCITS guidance consultation investment banks, building societies and within four months of the firm or group’s
AIMA submitted a response to a consultation insurance companies, taking over many of the accounting reference date. The provisions are
on the Committee CESR Guidelines on Risk roles of the FSA, which would be disbanded. contained in the FSA Handbook.
Measurement and the Calculation of Global The prudential regulator will be a subsidiary
Exposure and Counterparty Risk for UCITS. For of the Bank of England (initially chaired by U.K. takeover disclosure regime
a more detailed summary, click here. the current chief executive of the FSA, Hector Extensions to the U.K.’s Takeover Panel disclosure
Sants), with the existing FSA becoming a new regime (with some transitional provisions)
CRD IV consultation Consumer Protection and Markets Authority, took effect. The changes to the Panel’s Code
The European Commission published a responsible for regulating the conduct of all were introduced as a result of PCP2009/1 and
consultation paper on the latest set of financial firms providing services to consumers RS2009/1. In relation to Dealing Disclosures,
amendments to the Capital Requirements and ensuring “good conduct of business” for new disclosure forms should be used to disclose
Directive (CRD) (2006/48/EC and 2006/49/ UK retail and wholesale firms. An independent dealings undertaken. Full details are available
EC), known as CRD IV. AIMA submitted Financial Policy Committee at the Bank of from the Takeover Panel’s website.
this response. England will be established to consider macro
prudential issues. The changes will be put Notifying trading suspensions
Solvency II before parliament and are expected to be Following its consultation issued in July 2009,
Solvency II, which comes into effect in completed by 2012. HMT has now simplified the means by which the
October 2012, will require European Union- FSA notifies the market that it has suspended
based insurance companies to hold capital FSA Fees and Levies Policy trading or removed a financial instrument from
against certain risks, including market risk The FSA published a policy statement on the trading. A Statutory Instrument (SI 2010 No.
caused by their investment of policyholder new fees and levies structure for 2010/2011. 1193) which came into effect on 9 April 2010
funds with hedge funds. We prepared a The FSA estimated that 40% of firms, including gives the FSA the option of notifying firms of a
detailed note on the issues surrounding the largest firms of each category, would see trading suspension via a Regulatory Information
Solvency II and the potential impact for the an increase in fees whilst the rest would see a Service (RIS), rather than by written letter.
hedge fund industry. decrease over the year.
U.K. Offshore Funds rules
FSA Client Assets regime Online system for applications The finalised Offshore Funds Manual was
The U.K. Financial Services Authority (FSA) The FSA launched a web-based system for published on the HMRC website.
published a consultation, CP10/9 - Enhancing submission of regulatory applications for approved
the Client Assets Sourcebook, on proposed persons, appointed representatives, variations of Taxation of ITCs
reforms to the UK client assets regime (the permissions and similar purposes. The ONA (Online We received this letter from H.M. Revenue
CASS regime), intended to protect clients Notifications and Applications) system should & Customs which outlined a change in their
and consider market stability in the event of make applications easier to submit and improve interpretation of one of the conditions that a
a firm’s insolvency. The consultation took up the FSA’s internal processing of the forms. company must meet to obtain approval as an
many of the proposals from the HMT Treasury (Continued on page 6)

AIMA Journal Q3 2010 5


GLOBAL NEWS

(Continued from page 5)

Investment Trust Company (ITC) – an approved companies’ shares and related derivatives place new position limits on referenced energy
ITC is exempt from U.K corporation tax on traded exclusively on German regulated contracts on regulated markets. AIMA submitted
chargeable gains and certain capital profits markets; this response to the consultation.
arising from loan relationships and derivative • ‘naked’ short selling of Euro-zone country
contracts. HMRC’s view is that part of the debt securities; and FCIC survey
existing legislation is incompatible with EU law, • all unhedged trading in CDS contracts where The Financial Crisis Inquiry Commission (FCIC)
and that a company should not be prevented the underlying reference entity is a Euro-zone sent a Hedge Fund Industry Market Risk Survey
from obtaining approval as an ITC where it country. to a large number of managers – seeking
invests more than 15% of its assets in a non- responses via the National Opinion Research
UK company which itself would satisfy the Center (NORC), which would aggregate the
conditions for approval as an ITC (apart from AMERICAS data and submit it anonymously to the FCIC.
the listing and the residence rules), and would
not be a close company if resident in the UK. Dodd-Frank Act Harmonised Sales Tax
President Obama signed into law the Dodd- A Harmonized Sales Tax (HST), equivalent
U.K. capital gains tax Frank Act. This came after Senate Banking to a VAT, was implemented in the Canadian
The Coalition Agreement between the U.K. Committee Chairman Christopher Dodd (D- provinces of Ontario and British Columbia to
Conservatives and Liberal Democrats confirmed CT) and House Financial Services Committee replace provincial sales taxes. This change
the U.K. Government’s intention to tax “non- Chairman Barney Frank (D-MA) announced the generally increased the taxes payable on
business capital gains at rates similar or close conclusion of the conference committee, which investment management fees from the federal
to those applied to income, with generous had been working to reconcile differences Goods & Services Tax (GST) rate of 5% to 13% in
exemptions for entrepreneurial business between the financial reform bill passed in Ontario and 12% in British Columbia. Changes
activities”. Of particular interest was how a the House of Representatives in December to the place of supply rules also meant that the
change to the U.K. capital gains tax rate on 2009 and the financial reform bill passed in the domicile of the customer now determined the
non-business assets might affect U.K. investors Senate in March 2010. The committee approved HST/GST rate to be charged, vs. the domicile
in alternative investment funds. Fund managers what became known as the Dodd-Frank Wall of the supplier under the previous rules.
who are entitled to “carried interest” in the Street Reform and Consumer Protection Act. Investment managers are required to obtain
funds they manage may also be impacted. Separately, AIMA created a noticeboard on the provincial distribution of participants in
aima.org which links to many of the latest law institutional investor plans as at 30 September
German financial services reform firm flyers and reports on the Dodd-Frank Act. 2010 in order to determine HST/GST rates for
The German Ministry of Finance circulated the The page is here. 2011. This will be an annual requirement.
draft Act to Strengthen Investor Protection and
to Improve the Operation of the German Capital SEC Circuit Breaker Rule proposal Matching trades
Market, with proposals for significant reform of The U.S. Securities and Exchange Commission The regulatory deadline for matching trades
financial services regulation in Germany. The proposed new rules to address the 6 May 2010 in Canadian securities (National Instrument
proposals included a prohibition on “naked” market disruption, which was purportedly 24-101) was set indefinitely at noon on T+1,
short selling; further regulation of covered short caused by a number of contributing factors or the day after the trade, pending industry
selling; an obligation to provide key information and exacerbated by high frequency trading developments. The deadline was previously
documents to customers prior to entering practices. The rules include a mechanism to planned to shorten over time.
into trades; qualification requirements and pause the market following unexpected market
registration with BaFin for investment advisers, volatility – the ‘Stock-by-Stock Circuit Breaker Reporting obligations in Canada
individuals dealing with the distribution of Rule Proposal’. The proposed rules provide The monthly reporting obligations related to
financial instruments and compliance personnel; that if a stock on a U.S. equities exchange terrorist financing were revised and standardised
authorisation requirements and greater detail falls in value by more than 10% within five across Canada (CSA Staff Notice 31-317) and now
in fund prospectuses for close-ended funds; and minutes, all trading of that stock on all U.S. require the electronic submission of the signed
additional redemption rules for German public equity exchanges would be suspended for the form. This regulation applies to international
real estate funds. next five minutes. The rules will be tested via dealers and advisers exempt from Canadian
a pilot scheme in December 2010, and in the registration, as well as Canadian registrants.
Germany approves short selling meantime will be subject to a short public
legislation consultation. The SEC and the Commodity Canadian registration requirements
Germany’s two parliamentary chambers voted Futures Trading Commission also published The date of 28 September 2010 was set as
in favour of the proposed ‘Act to Prevent a report on their preliminary findings on the the end of the transition period for a number
Abusive Securities and Derivative Trades’. cause of the market volatility. of registration requirements introduced
The Act seeks to ban: in 2009 under National Instrument 31-
• ‘naked’ short selling of all shares and equity CFTC position limits proposal 103. Under the requirements, non-resident
derivatives of German companies traded The U.S. Commodity Futures Trading Commission international advisors, whose registration
on German regulated markets or foreign (CFTC) published for consultation proposals to
(Continued on page 7)

6 AIMA Journal Q3 2010


GLOBAL NEWS

(Continued from page 6)

as an international adviser is revoked as of currently operating under the exemption regime of “short position”. ASIC is now reporting short
that date, must either have given a notice and to raise the quality of the participants positions - see notes in ASIC Starts Reporting
contained required disclosure to their entering the fund management industry. The of Short Positions, with links to previously
Canadian clients and filed a submission response also provides constructive comments referenced Regulatory Guide 196, outlining
to jurisdiction form with the applicable on a number of issues in the proposed regime, the legal position as to what short sales are
Canadian securities regulators, or applied for which may still require further work by the permitted, plus specific reporting and disclosure
registration as a portfolio adviser. MAS. Click here for more on the proposals. obligations, and Information Sheet 98, to help
short sellers and systems developers prepare for
Australian manager regime the new short selling requirements.
ASIA PACIFIC AIMA Australia responded to the Australian
Government’s IMR consultation paper, of Australian industry report
Singapore regulatory regime particular importance to offshore managers The Australian Trade Commission published a
AIMA Singapore submitted this response to seeking to establish a presence in Australia. study into Australia’s alternative investment
the Monetary Authority of Singapore (MAS) management industry.
Consultation Paper (with appendix) on the ASIC short selling disclosure
Review of the Regulatory Regime for Fund The Australian Securities and Investments Henry Review report
Management Companies and Exempt Financial Commission (ASIC) introduced a new short selling The Australian Government issued its final
Intermediaries. AIMA expressed support for disclosure regime and commenced publishing response to the Henry Review of the country’s
the principles of the new regime, which seeks data received (aggregated by product). It later tax system, which began in 2008. The report
to enhance regulatory oversight of entities issued a class order, modifying the definition proposed a Resource Super Profits Tax.

caia association news

Forming partnerships with top academic institutions worldwide

T
he Chartered Alternative Investment Analyst (CAIA) in North America to hold triple accreditations in management
Association, which is dedicated to education, professionalism, education, was selected as a CAIA Academic Partner because of the
and ethics in the alternative investment area, has established importance it places on educating tomorrow’s investment leaders
a program to encourage academic institutions to incorporate through a combination of academic rigor and practitioner relevant
alternative investment education into their mainstream curriculum. material. The CAIA Association will announce its second Academic
Partner in September 2010.
Through the CAIA Academic Partnership Program, the CAIA
Association forms partnerships with globally recognized, accredited The CAIA curriculum provides investment industry participants
academic institutions that agree to cover a significant portion of the with an understanding of the risk-return attributes of alternative
subject matter addressed in the CAIA Program, including ethics and investments and their role in the asset allocation process. It
professional codes of conduct. is designed to teach candidates how to analyze and evaluate
investments in hedge funds, private equity, real estate, managed
Academic institutions that participate in the program are able to futures, and real assets, and how to construct portfolios comprised
offer students relevant programs in a rapidly changing market, make of both traditional and alternative assets.
students more marketable when interviewing for jobs in the area of
finance, economics, accounting, law, and related fields, and instil Under the CAIA Academic Partnership Program, academic partners
in them the concepts of professionalism and ethics. In addition, are required to cover at least 60 percent of the CAIA curriculum.
participating universities are able to present meritorious students Students interested in earning the CAIA designation will be required
with scholarships to sit for the CAIA exams after graduation. The to sit for the CAIA Level I and Level II examinations.
CAIA Association offers scholarships to professors, as well.
For more information about the CAIA Association and its
In June 2010, the CAIA Association selected HEC Montréal as its Academic Partnership Program, please visit the CAIA website at
inaugural academic partner. HEC Montréal, the first business school www.caia.org.

As a founding sponsor of the Chartered Alternative Investment Analyst (CAIA) Association, AIMA is able to offer member companies
exclusive discounts on CAIA examination and membership fees. Employees of AIMA member companies are eligible for a 25% discount
off the standard CAIA examination fees, and receive 60% off their first year of CAIA membership. Registration for the March 2011 CAIA
exams opens 4 October 2010. For more information, see here.

AIMA Journal Q3 2010 7


aima SPONSORING MEMBER

Ernst & Young London Hedge


Fund Symposium
Wednesday 17 November 2010
Contact: londonhfsymposium2010@uk.ey.com
www.ey.com/hfsymposium
© Ernst & Young LLP 2010. All Rights Reserved. The UK firm Ernst & Young is a limited liability partnership registered in England
and Wales with registered number OC300001 and is a member firm of Ernst & Young Global Limited. CGS_1014828 08/10

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PRESS CLIPPINGS

MEDIA EYE International press coverage of AIMA and the industry

Please note that some of the hyperlinks in this EMEA European finance ministers’ meeting (ECOFIN).
section will be restricted to subscribers of the News of the votes in ECON and ECOFIN,
relevant publications. AIFM Directive including comment by AIMA, was reported
Possible compromise: We sought to encourage by a range of outlets including Reuters. Our
GLOBAL the process in the right direction through the concerns over the Directive’s possible impact
press, with stories like these in EurActiv and on the Asian hedge fund sector were covered
Florence Lombard article European Voice laying the groundwork for a by these pieces on Bloomberg and in the
The Financial Times’ FTfm section published a possible compromise. International Business Times.
valedictory article by Florence Lombard, who
stepped down from AIMA earlier this year, in U.S. coverage: This feature by U.S. magazine Vote postponed: The ECON Committee had
which she reflected on policymakers’ tendency Absolute Return on the AIFM Directive quoted earlier delayed a vote on its Directive text. The
to launch unjustified attacks on the hedge AIMA’s Andrew Baker. news was reported by The Independent in a piece
fund industry. that included a comment by Andrew Baker.
German media interview: Andrew Baker
Institutionalisation of the industry commented on the Alternative Investment NAPF/AIMA/IMA letter: The Financial Times
The Hedge Fund Journal and Institutional Fund Managers Directive in this interview with referred to AIMA’s joint letter to Members of
Investor published a thought leadership German financial newspaper Boersen-Zeitung. the European Parliament with the U.K. National
article by AIMA Chairman Todd Groome on the His comments that the Directive could damage Association of Pension Funds (NAPF) and the
institutionalisation of the hedge fund industry. the German asset management industry were U.K. Investment Management Association
The article appears on p13 of this issue of the later picked up by Investment & Pensions (IMA). The letter received widespread media
AIMA Journal. Europe. coverage elsewhere.

HFI column Depositaries article: In an article for BBC appearance: AIMA’s Andrew Baker was
Andrew Baker wrote a column for the Investment & Pensions Europe magazine, interviewed about the Directive on the BBC
HedgeFund Intelligence Global Review 2010 in Andrew Baker said the AIFMD could restrict News Channel’s World Business Report.
which he outlined some of the global regulatory choice and impose some unreasonable burdens
responses to the financial crisis. on depositaries. Geithner urges rethink: U.S. Treasury Secretary
Tim Geithner made a fresh plea to European
G20 finance ministers meeting Industry column by Andrew Baker: In a column governments to ensure that the AIFM Directive did
Following a meeting of G20 finance for HFM Week, AIMA’s Andrew Baker commented not “discriminate” against U.S. fund managers in
ministers, we issued this statement in which on the Alternative Investment Fund Managers a letter to several E.U. finance ministers. The
AIMA’s Todd Groome welcomed the group’s (AIFM) Directive trialogue process. news, and a response from AIMA’s Andrew Baker,
commitment to globally consistent hedge was carried by the Financial Times. The letter
fund regulation. Trialogue process: The trialogue stage of the itself was published here by the FT.
AIFM Directive process was analysed by this
Global regulation piece in HFM Week, which quoted from a recent G20 path on hedge fund regulation: We issued
This piece about the hedge fund industry statement by AIMA. this press release about the AIFM Directive
for Australia’s Money Management magazine ahead of the G20 finance ministers’ meeting
quoted Todd Groome. Texts compared: This assessment by Financial in Washington. It was reported by a number
News of the different versions of the AIFM of publications including FT Adviser. Following
IMF tax proposals Directive quoted from a recent AIMA statement. the meeting of the G20 finance ministers,
Andrew Baker was quoted commenting on the Meanwhile, writing in Financial News, this blog by the Wall Street Journal reflected
IMF’s tax proposals for hedge fund managers our statement welcoming the ministers’
and other financial institutions in the Financial Wider impact of Directive: In this press release, restatement of their commitment to globally
Times and City AM. we warned that the AIFM Directive would not consistent and coordinated hedge fund
only impact the hedge fund and private equity regulation. Meanwhile, Investment Executive,
G20 on hedge funds industries but also institutional investors such Business News Network and the Globe and Mail
Following a G20 finance ministers meeting in as pension funds and insurance companies, newspaper in Canada captured AIMA Canada’s
Washington, the Wall Street Journal ‘Source’ small businesses, development banks that concerns with the AIFM Directive.
blog quoted AIMA’s Todd Groome discussing invest in emerging economies, and real estate
the importance of globally coordinated hedge and infrastructure development. Directive special report: Andrew Baker wrote
fund regulation. The news was also carried by an article about the latest developments
Institutional Investor ECON and ECOFIN votes: We issued this media with the AIFM Directive for The Parliament
statement following the votes on the Directive magazine (page 35).
in the European Parliament’s Economic and
Monetary Affairs Committee (ECON) and the (Continued on page 10)

AIMA Journal Q3 2010 9


GLOBAL
Press Clippings
NEWS

(Continued from page 9)

AIMA letter to Directive rapporteur: The register with the SEC as a result of the Dodd- ASIA PACIFIC
AIFM Directive’s third-country provisions, Frank Act. The article quoted from an AIMA
if passed as currently drafted, “would press release on the subject (here). Hedge funds outperform equities
represent a serious and, in European financial Asian Investor quoted AIMA Hong Kong’s
services legislation, unprecedented attempt U.S. financial reform tax Christophe Lee saying that research has
at closing Europe’s borders”, Andrew Baker Before Dodd-Frank was passed, one of the showed that hedge funds outperform stock
said in a letter to Jean-Paul Gauzès, the AIFM proposals was to have introduced a tax on indices, and at lower levels of volatility.
Directive rapporteur. The news of our letter hedge funds to pay for the U.S. financial reform
was reported by the Financial Times and bill. We issued this statement expressing AIMA Hong Kong plans
The Observer. concern over the plans. It was reported by, AsiaHedge outlined some of AIMA Hong Kong’s
among others, Dow Jones. areas of focus in 2010, with responses to major
ESMT report: AIMA said a report by the regulatory changes, tax changes and investor
European School of Management and U.S. financial reform education among the key areas.
Technology (ESMT) that claimed hedge fund We issued this statement to the media on U.S.
investors required greater protection from financial regulatory reform legislation. It was Hong Kong short selling restrictions
regulators made “a number of elementary reported by Dow Jones, HFM Week, the Hedge An AsiaHedge Newsletter report about Hong
errors”. Our comments were reported by Fund Journal and Hedgeweek, among others. Kong managers’ concerns over new short selling
Reuters and HFM Week. Meanwhile, Reuters carried a comment by reporting thresholds quoted AIMA Hong Kong’s Jo
AIMA’s Todd Groome about the “Volcker rule” Orgill. A separate article by the Taiwan Economic
One year on: Andrew Baker wrote a column measures in the bill. Daily News about the ban on naked short-selling
about the AIFM Directive on the occasion of its in Germany quoted AIMA Hong Kong’s Christophe
one-year anniversary for HFM Week. Dual registration Lee noting the fact that Hong Kong hedge funds
AIMA issued this press release in which did not engage in naked shorting.
AIMA on OTC derivatives reform we expressed concern over the potential
Our press release in which we urged European duplicative registration of non-U.S. hedge fund Regulation in Hong Kong
Union policymakers to push ahead with managers in the U.S. where those managers The Hong Kong Economic Journal reported
reforms of OTC derivatives was picked up by are already registered and regulated elsewhere on the different regulation of hedge funds in
various news outlets including Bloomberg and was reported by a number of outlets. It was Hong Kong and other financial centres after the
European Pensions. reported by a number of outlets including HFM economic crisis. The article quoted AIMA Hong
Week and the Hedge Fund Journal. Kong’s Christophe Lee noting the effectiveness
New U.K. Remuneration Code of the Hong Kong regulatory system.
Andrew Baker was quoted in a piece in U.S. financial reform
Financial News about the U.K. Financial AIMA’s Todd Groome was quoted in the Singapore reform
Services Authority’s new remuneration code Washington Times following a pledge by House The Financial Times, quoting AIMA Singapore’s
for investment firms. Financial Services Committee chairman Barney Michael Coleman, welcomed proposals by
Frank that the eventual U.S. financial reform the Monetary Authority of Singapore (MAS)
EU proposes short-selling measures bill would be milder than the version passed to impose capital requirements and business
Andrew Baker was quoted in these pieces by recently in the Senate. conduct rules on funds that have been exempt
Reuters, the Financial Times and Bloomberg from regulation. Reuters quoted AIMA Singapore
after the European Commission’s draft short- IOSCO television appearance saying hedge funds could face higher operating
selling regulations were published. AIMA’s Todd Groome was interviewed about costs as a result of the changes. The Business
regulatlory issues by Reuters Insider television Times also cited an AIMA Singapore survey.
during the IOSCO conference in Montreal.
AMERICAS Singapore start-ups
Canadian television A Bloomberg article about growth among
Dodd-Frank Act BNN featured AIMA Canada Chairman Gary Singapore start-up hedge funds quoted AIMA
AIMA issued this press release in which we Ostoich, who was asked about how hedge Singapore’s Michael Coleman.
said we would be holding meetings with U.S. funds were faring and the challenges they
policymakers and supervisors regarding the face, and AIMA Canada Chief Operating Letter to Financial Times
implementation of the Dodd-Frank Act. It was Officer Corey Goldman, who was interviewed Michael Coleman, in a letter to the Financial
picked up by various news outlets including about the impact of the AIFM Directive on the Times, stressed that Singapore was no
Dow Jones and Hedge Funds Review. Canadian market. “regulatory soft touch”.

SEC registration for non-U.S. AIMA Cayman seminar Australian superannuation funds
managers Cayman Financial Review reported on AIMA Pensions & Investments reported a rise in
Hedge Funds Review reported on the likelihood Cayman’s seminars for independent directors. Australian superannuation funds’ average
of non-U.S. hedge fund managers having to allocations to hedge funds.

10 AIMA Journal Q3 2010


AIMA COMMITTEES

COMMITTEE WATCH A round-up of Q2 developments in AIMA’s committees

Tax Committee Q2 review with the coordination of communications


The committee provided advice to the private strategies across the industry and consults
Description: The Tax Committee provides sector initiative OPERA to help it to improve its with members on our communications
a forum for the exchange of ideas and template for reporting and analysis of individual activities. It provides leadership within the
information on issues of topical relevance, hedge fund performance as well as hedge fund PR/communications sector on behalf of the
and an opportunity to assess consultations on investor transparency. The committee also industry and keeps the sector updated on all
changes to tax legislation around the world. It supported similar demands from the industry our on-going activities.
meets approximately once every two months public sector and regulatory bodies, most
and has a 14-strong core committee and a 15- recently assisting the U.K. Financial Services Q2 review
member wider circle, all drawn from AIMA Authority with the publication of its recent The group met against a backdrop of the Greek
member firms. hedge fund survey (July 2010). sovereign debt crisis and delays over the AIFM
Directive, and discussions focused on the impacts
Q2 review A working group of the Research Committee of those issues on hedge fund industry PR. We
The AIMA Tax Committee was active in was created to produce an AIMA Guide to Sound circulated an AIMA report that underlined the
various jurisdictions in respective of tax Practices for managed accounts. The group’s comparatively small size of the Greek sovereign
issues affecting the hedge fund industry. In findings are likely to be published by the end CDS market and the equally small role played
particular: of 2010. by hedge funds within it. We highlighted a new
thought leadership article by AIMA Chairman
• A submission was made on 29 June 2010 to the The Research Committee also contributed to Todd Groome, into the institutionalisation of
US Treasury department and IRS in relation to the revised AIMA’s Illustrative Questionnaire for the hedge fund industry (published later in this
the interpretation and implementation of the Due Diligence of Hedge Fund Managers, which issue of the AIMA Journal). We also extended an
Foreign Account Tax Compliance Act (FATCA) was published in June 2010. invitation to member firms to contribute to the
provisions (disclosure regarding ‘US accounts’ AIMA Journal.
or withholding tax);
• Input was provided to a submission made Global Communications Group
by AIMA Australia in relation to the Australian Investor Steering Committee
Government’s Consultation Paper on Developing Description: The Global Communications
an Investment Manager Regime, which we hope Group acts as a forum for global communications Description: The Investor Steering Committee
will go some way to alleviating the current discussion and to co-ordinate common activities (ISC) was set up to ensure that the Association
FIN48 issues experienced in this jurisdiction around the world. The group comprises AIMA’s benefits from the input and opinions of hedge
network of people around the world and plays a fund investors, and continues to pursue
We also continue to monitor the following vital role in our global communications effort. objectives supported by the industry and all
issues and will make submissions as appropriate types of market participants. More recently,
in due course: Q2 review the ISC’s focus has involved issues related to
Our conference call in May came on the day we the increasing influence that institutional
• The possibility of “onshoring” hedge funds issued a media statement in response to the investors are having with regard to hedge fund
in the UK – we will be conducting detailed European Parliament and Council discussing activities and infrastructure.
interviews with various managers shortly, ahead their respective drafts of the AIFM Directive.
of consideration of further representations to We updated members on the progress of the Q2 review
the Government; Directive campaign. In conjunction with the AIMA Research
• The UK Bank Levy and proposed transactions Committee, the ISC assessed the merits of
tax and its application to hedge fund We also briefed the group on our media response leading hedge fund private sector initiatives,
managers; to the U.S. financial reform legislation. We and in particular the OPERA project, and
• Issues in relation to the application of s490 continue to give the group as much support offered its collective guidance regarding the
of the Corporation Tax Act in respect of “near as possible in terms of being kept up to date OPERA flagship template for reporting and
cash” assets with the latest communications planning and analysis of hedge fund exposures. The OPERA
receiving all the latest material we produce. and similar related projects are seeking to
develop more common and standard metrics,
Research Committee and project participants include both managers
AIMA Communications Group and investors.
Description: The Research Committee
was set up to create a forum for greater Description: The AIMA Communications A working group was set up to produce a paper
collaboration among hedge fund industry Group comprises communications/PR highlighting the infrastructure and operational
market participants including leading representatives of AIMA member firms and requirements a hedge fund manager should
academic researchers and representatives also members of leading PR agencies who expect from institutional investors. This paper
from regulatory bodies. represent hedge funds. The group assists is scheduled to be completed during Q4.

AIMA Journal Q3 2010 11


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THOUGHT LEADERSHIP ARTICLE

CHAIRMAN’S COLUMN

The institutionalisation of the hedge fund industry


By Todd Groome, Chairman, AIMA

The hedge fund industry has become increasingly institutionalised, as periods; the Hennessee Hedge Fund Index gained 88% from 2000-
reflected in the operational “infrastructure” developed by managers, 2009, while the S&P 500 experienced a decline of 23%, the Dow Jones
the increasing and now majority position of institutional investors Industrial Average fell 9%, and the NASDAQ Composite Index declined
among the industry’s capital base, and the continuing convergence of 44%. Moreover, Hennessee’s annualised “volatility index” over the last
investment practices among traditional and alternative asset managers decade experienced a standard deviation of only 7% for hedge funds,
compared to 16% for the S&P 500 and Dow Jones Industrial Average,

T
he perception has long been that those who invest in hedge and 27% for the NASDAQ. Of course, such performance figures are even
funds are high net-worth individuals. That was largely true more pronounced in favour of hedge fund investments during specific
when hedge funds first began many years ago, but it is no down market periods.
longer the case. Today, investors in hedge funds are more likely to be
institutions, such as university endowments, charitable foundations, Pensions and other institutional investors view hedge funds as a
public and private sector pension funds, and sovereign wealth funds. growing part of their diversified investment portfolios. Pension funds
globally, for example, typically have allocated less than 5% of their
This investor transformation has been a gradual process that reached portfolio to hedge funds or funds of hedge funds (generally targeting
a material milestone last year when, according to research by AIMA, 8 -10%). While this share has increased over the last few years, many
institutions for the first time accounted for an absolute majority of analysts expect both pension fund allocations and targeted exposures
hedge fund assets under management. Research has also shown that to double or even triple in the years ahead.
during much of the past 10 years, institutional investors represented
the majority of net new investment capital in the industry. A recent This is a global trend. In the U.S., private sector pension funds look
survey by Pensions & Investments magazine also found that 75% of to allocate on average about 10% of their assets to hedge funds, a
assets managed by the largest hedge fund firms came from institutional little ahead of public sector pensions, which target 8% on average.
investors. And this is a trend we expect to continue. For example, In the U.K., some of the larger schemes have allocated up to 15% of
a Deutsche Bank study indicated that 68% of institutional investors their portfolio to hedge funds. In continental Europe, the allocation
intended to increase their allocation to hedge funds in 2010. to hedge funds by pensions has been more mixed, but pension funds in
some markets, such as the Netherlands, have embraced hedge funds
Such institutional interest is also evident among smaller hedge and other alternative investment strategies, particularly following the
fund managers - a strong endorsement of the industry and its adoption of new pension regulations and tougher risk controls and
entrepreneurial nature. Many institutional investors are attracted to funding requirements.
early stage managers and smaller funds, even start-ups, believing they
offer the opportunity for very attractive returns, preferred capacity The global economic crisis caused only a temporary interruption to the
arrangements as they grow, and the ability to influence portfolio growth of institutional capital in hedge funds, with inflows returning
structure and investment terms. Such investors however remain to healthy levels in the second half of 2009. Recent surveys by Credit
very demanding, and typically continue to require an institutional Suisse and Deutsche Bank suggest that the industry may attract $200-
“infrastructure.” As such, today smaller firms and even start-up funds 300 billion of net new capital this year. It also appears that a large
demonstrate world-class asset management systems and operations. portion of the redemptions during the 2008 – 2009 period were made
by high net worth individuals, rather than institutions, and that
Within the institutional investor base, pension funds are a very institutional investors continued contributing new capital throughout
important constituency. Of the total capital from institutions, AIMA’s much of 2009.
research suggests that about one-third comes from pensions. Pension
managers describe their interest in hedge funds as the ability to realize Growth of operational infrastructure
higher quality returns (i.e., lower volatility, and downside protection As part of its growth and maturation, and in line with greater
or capital preservation), as well as additional risk management institutional investor participation, hedge fund firms of all sizes
expertise and increased trading or market nimbleness (i.e., the ability have become more institutionalised in terms of their operational
to process market opportunities) - attributes which are particularly infrastructure and systems. This can be seen in the increased number
valued in recent markets. From a macro perspective, advanced and professional experience of non-trading staff, as well as the
economies across the world are facing demographic pressures, and the robustness of the risk management systems, compliance procedures,
funding positions of many pensions are challenged. Therefore, it is not performance and risk reporting (internally and externally), governance
surprising that hedge funds are valued for their superior risk-adjusted structures, and overall operational infrastructure employed today
and diversifying returns. throughout the industry. Institutional investors demand the highest
quality of operational and risk management systems from their
The evidence backs this up. Hedge fund managers have typically
outperformed equity and other indices over medium and longer term (Continued on page 14)

AIMA Journal Q3 2010 13


THOUGHT LEADERSHIP ARTICLE

(Continued from page 13)

investment managers, and therefore both to attract and in response asset management industry. More specifically, hedge fund managers
to investor feedback, hedge fund managers have developed among the should be viewed as providing an active style of portfolio management
most sophisticated asset management and trading infrastructures in – utilising a variety of hedging practices to reduce volatility, protect
the financial services sector. capital, and improve returns.

This high level of operational infrastructure and risk management was Hedge fund managers provide such investment skills through a variety
evident during 2007-2008, and later highlighted favourably in various of legal structures, products and strategies. In addition to a wide range
studies conducted by national and international regulatory authorities, of investment strategies, covering both very liquid and less liquid
including with regard to such issues as counterparty risk management. asset classes, many managers today offer long-only actively managed
Most simply, hedge fund managers have always understood that, unlike portfolios, attracting existing and new institutional investors, and
other institutions, they will not receive government support during a more recently have offered UCITS, ETF and various fund of hedge fund
crisis or market disruption, and therefore risk management practices products for institutional and individual investors.
and related systems must be of the highest quality.
This trend has been largely investor demand-driven. As a result,
Such infrastructure development has required significant investment traditional asset managers are also increasingly employing a variety of
by managers in technology and people. However, by any calculation, hedging tools, such as short selling and derivatives. Many traditional
the benefits to investors and managers clearly outweigh the costs. The asset managers also offer UCITS, ETF and fund of funds products to
growing emphasis by investors and policymakers on transparency, risk institutional and individual investors. We believe this is both a healthy
analysis and risk reporting will serve to reinforce this infrastructure and logical trend, and reflects the on-going convergence of hedge
build, and the industry is working closely with investors and regulators fund and traditional asset management practices.
on such issues. Indeed, beyond near term changes related to a new
regulatory framework, the most influential changes to our industry are Throughout its existence, the hedge fund industry and managers
likely to be driven by the private sector (i.e., initiated by investors have demonstrated an innovative and robust approach to asset
and managers). The industry has been and will no doubt remain management, and as such the industry has successfully responded to
very focused on investor requirements, and thus can be expected to changing market conditions and investor demands. The business model,
continue to develop world class investment platforms. product offerings, and investment practices of hedge fund managers
will undoubtedly continue to evolve, and given the growth of the
The relationship between institutional investors and hedge fund institutional investor base and the related operational infrastructure
managers has also been evident regarding regulatory reform. For developed by managers, the industry is increasingly viewed as an
instance, some of Europe’s largest and most sophisticated pension established and mature sector within the asset management and
funds have expressed concerns with the proposed EU Alternative financial services industry. Indeed, with increasing demand for higher
Investment Fund Managers Directive (AIFMD). Through letters quality returns from all types of investors, we expect more fund
submitted to the Commission and the European Parliament, several managers to employ hedging practices typically utilised by hedge fund
groups of pension schemes have outlined how they would likely managers. Interestingly, some investors have begun selecting external
experience less investment choice and lower investment income as managers unconstrained by whether they are a hedge fund or a long-
a result of the proposed Directive, and thus be forced to increase only manager, but rather seeking the best manager, strategy, and
contributions (in some cases materially). Said differently, while such portfolio exposure. This seems a sensible way to manage investment
investors support steps to improve financial stability, they do not portfolios, and to select the best investment partners.
desire product level regulation or other public initiatives that may
dramatically alter the business model or the investment framework, The institutionalisation of the hedge fund industry has been a developing
preferring private investor initiatives in this regard. theme throughout the past decade, and will no doubt continue.
Hedge fund managers of all sizes and from all regions are equipped to
Convergence of alternative and traditional asset professionally manage the capital from a growing and sophisticated
management practices institutional investor base. The operational infrastructures developed
Throughout much of the ongoing regulatory reform debate, it has been and evident across the industry today will also enable hedge fund
apparent that some policymakers lack a reasonable understanding managers to meet the emerging regulatory framework, as well as to
of the important role of non-banks, including hedge funds, and offer a growing variety of products to an expanding investor base.
the function of markets in today’s economy. This is of course a
concern, since the proposed reforms have important real economy Todd Groome is the Chairman of AIMA
implications. More broadly, hedge funds should not be viewed as a
distinct asset class, mere speculators (as distinct from investors), or An abridged version of this article appeared in the Financial Times’
a high risk group. Rather, hedge funds should be seen as part of the FTfm supplement

14 AIMA Journal Q3 2010


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FIXED INCOME

Seeking relative value at the long-end of the treasury yield curve


By Daniel Grombacher and Jonathan Kronstein, CME Group

F
or the last 20 years, institutional fixed income investors have faced specifications for Ultra Bond futures closely resemble those for the existing
increasing difficulty in obtaining long-term exposure in Treasury T-Bond contract (Exhibit 1). They are identical in terms of their $100,000
cash and derivatives markets. Beginning in the 1990s, as the U.S. notional size, contract expiry listings, contract critical dates (i.e., eligible
federal budget moved from deficit to surplus, the Treasury Department delivery dates, last trading day), and the 6% notional coupon yield that
took several steps to reduce the supply of long-dated Treasury bonds determines the conversion factors for delivery invoicing.
through fewer bond auctions, smaller issuance sizes, security buybacks,
and, finally, suspension of bond issuance altogether. BOB spread
With Ultra T-Bond futures, relative value traders have a new futures
At the same time, long-term Treasury yields have moved secularly lower contract at their disposal that can be used in combination with the original
by approximately 400 basis points from 8.% to 4.5%, causing the current Treasury Bond, or T-Bond, futures contract to create synthetic market
U.S. Treasury Bond (T-Bond) futures contract’s effective maturity to exposure to Treasury bond market yield spreads. The T-Bond-over-Ultra
shorten drastically to the point that many users of the contract found it T-Bond — BOB — futures spread gives traders a simple, cost-efficient and
to be unsuitable proxy for on-the-run 30-year Treasury yield exposure. standardized method to create synthetic market exposure that isolates the
These developments have left fixed-income investors such as hedge long-end of the Treasury yield curve.
funds with few avenues for gaining or shedding long-dated Treasury
yield exposure. Under prevailing market conditions, T-Bond futures tend to track yield
dynamics in the 15- to 20-year segment of the Treasury yield curve*. By
New development, new opportunity contrast, Ultra T-Bond futures are structured to track the yield dynamics of
With the U.S. Treasury Department fiscal policy shift toward greater 25- to 30-year Treasury bonds. As Exhibit 2 illustrates, the spread between
issuance of long-term bonds in April 2009, market participants needed them features two characteristics that are attractive to relative value
a tool that allowed them to manage very long-dated Treasury exposure. traders: secular stability and ample short-term volatility.
In response to that need, CME Group developed the “Ultra” Long-Term
U.S. Treasury Bond futures contract. Ultra T-Bond futures are a natural
complement to CME Group’s U.S. Treasury futures complex, providing
market participants with a more direct way to manage long-term
interest rate risk and add incremental value to their portfolios.

Since launching on 11 January 2010, Ultra T-Bond futures has established


itself as the most successful U.S. dollar interest rate futures contract in
CME Group history. In just five months of trading, Ultra Bond futures have
eclipsed all exchange volume and open interest records for new interest
rate futures contract with 19,567 contracts in average daily volume and
current open interest of 139,275 contracts.

Product design
The key design feature that differentiates Ultra T-Bond futures from its
T-Bond futures cousin is its relatively narrow range of deliverable terms
to maturity. Deliverable grade for Ultra T-Bond futures comprises Treasury
bonds with at least 25 years of remaining terms to maturity. By comparison,
deliverable grade for existing T-Bond futures admits bonds with remaining
terms to maturity of 15 years or more*. In all other respects, the contract Secular stability: Apart from the turmoil associated with the financial crisis
of late 2008, the BOB futures spread has typically traded between -200 and
-300 32nds of a price point. That is, over the last three years or so the price
of Ultra T-Bond futures has traded approximately 200 to 300/32nds above
the price of T- Bond futures. The spread data prior to 11 January 2010 has
been calculated using synthetic prices for the Ultra T-Bond.

(Continued on page 17)

* However, effective with the March 2011 expiry, the deliverable basket for the
T-Bond contract will include bonds with remaining terms to maturity of at least
15 years, but less than 25 years.

16 AIMA Journal Q3 2010


from our members

(Continued from page 16)

Short-term volatility: Over the same interval, the BOB spread has left During the interval over which you hold the BOB spread position, the
a regime of reasonably stable volatility — prior to the arrival of the general level of bond yields may change, or the slope of the yield curve
financial crisis in the fourth quarter of 2008, with monthly standard may shift, across the term-to-maturity span of deliverable grade for
deviations of daily spread changes typically between 5 and 10 32nds of a either T-Bond futures, or Ultra T-Bond futures, or both.
price point — and has entered a regime of notably unstable volatility. In
short, even as financial market conditions have stabilized, daily volatility This, in turn, may cause the identity of the cheapest-to-deliver (CTD)
in the BOB spread has remained well above pre-crisis levels, and is prone bond to change, in either or both of the contracts. Shifts in the CTD
to seesawing between 10 and 35/32nds. bond in one or the other, or both, of the BOB spread’s legs may affect
the profitability of the spread position.
DV01-weighted BOB spread
The BOB futures spread will be familiar to anyone who trades Benefits of synthetic exposure
Treasury futures inter-market spreads either for risk offset or for The BOB futures spread provides many important benefits to relative
relative value trading. value investors compared to a spread position consisting of cash
Treasury bonds.
If you have a view on the slope of the very long end of the Treasury yield
curve, then you can capitalize on it by combining opposing positions in Capital Efficiency: The BOB futures spread requires only modest amounts
Ultra T-Bond futures and T-Bond futures: of performance bond – as little as 1%-2% of the gross notional value of the
spread – to be reserved against the risk of adverse market moves. Hedge
• If you expect the Treasury yield curve between 15 years and 30 years to fund managers can pledge their existing Treasury or Agency securities as
maturity to steepen, then you would buy the BOB spread by buying T-Bond initial margin.
futures and selling Ultra T-Bond futures;
By comparison, traders who create a BOB spread position with cash Treasury
• Conversely, if you anticipate that the 15-to-30-year segment of the bonds will have to contend with vagaries of term repo financing as well as
Treasury yield curve may flatten, then you could sell the BOB spread by with the inherent risks of delivery failure in the financing markets.
selling T-Bond futures and buying Ultra T-Bond futures.
In addition, traders who use cash bonds will not have the benefit of paying
In either instance, gains or losses on the BOB spread should result from lower performance bonds or receiving spread credits against market
changes in the pitch of the yield curve, not from uniform changes in the positions they already may have in other interest rate futures listed at CME
general level of bond market yields. Group exchanges.

For this reason, the legs of the BOB spread should be weighted so that for Transparency: Ultra T-Bond and T-Bond futures are both transparently
each leg of the spread the dollar value of a 1-basis-point change in yields traded in a regulated market. Both are margined with reference to a
(i.e., the DV01) is equal in size and opposite in sign to the DV01 of the transparently determined daily mark-to-market.
opposite leg of the spread. To obtain the correct hedge ratio for the BOB
spread — that is, the appropriate number of Ultra T-Bond futures toead Position scalability: For many market participants, the transactional costs
against every T-Bond futures contract — simply divide the DV01 of T-Bond of entering, liquidating, or adjusting a BOB futures spread are apt to be
futures by the DV01 of Ultra T-Bond futures. low compared to a spread position consisting of cash Treasury bonds.

Impact of CTD Changes on the BOB Spread Flexibility of exposure for fiduciaries: Hedge fund managers may be
Both the Ultra T-Bond and T-Bond futures contracts call for physical delivery prohibited from making short sales of assets, such as cash Treasury
of cash bonds. For Ultra T-Bond futures, bonds with remaining term to bonds. For many, however, the same plans permit holding of short open
maturity of 25 years or more are eligible for delivery. For T-Bond futures interest in exchange-listed futures contracts, such as Ultra T-Bond and
contract, the deliverable grade comprises bonds with remaining term to T-Bond futures.
maturity of 15 years or more*. For each futures contract, the price tends
to track the price of the deliverable-grade Treasury bond that is expected In addition, investment managers holding open market positions in Ultra
to be the most economical or cheapest, to deliver into that contract during T-Bond futures may not be subject to the inherent risks of delivery failure
its delivery month. in the financing markets as they could be if they held similar positions in
cash Treasury bonds instead.

Daniel Grombacher is Director, Financial Research and Development,


* However, effective with the March 2011 expiry, the deliverable basket for the CME Group, and Jonathan Kronstein is Associate Director, Interest Rate
T-Bond contract will include bonds with remaining terms to maturity of at least
15 years, but less than 25 years.
Products and Services, CME Group

AIMA Journal Q3 2010 17


from our members

FOREIGN EXCHANGE TRADING

New platforms enable smaller institutions to explore spot FX as an asset class


By CitiFx Pro Hong Kong

Foreign exchange trading has been attracting increasing attention over Not surprisingly, as this market grew in importance, banks began to
the years. It is highly liquid and relatively uncorrelated to the equities recognize the opportunity and entered directly. Today, a small handful of
and fixed income markets, and consequently it has emerged as a distinct the top FX banks provide their own trading platforms, and they have been
alternative asset class, and grown significantly. Over recent years, as global gaining ground.
equity markets and interest rates have slumped, FX markets have provided
a viable channel for generating returns. Additionally, the heightened The majority of margin FX providers offer the basic tools a trader needs:
volatility in FX markets resulting from the global economic crisis has proved an electronic interface with streaming prices in currency pairs, order
very appealing to investors seeking alpha. functionality, charting tools to monitor patterns and trends and access
to streaming news impacting foreign exchange markets. Critically,
As a result, total daily volume has increased dramatically, from US$1.2 these platforms calculate margin on a real-time basis, so investors can
trillion in 2001 to an estimated US$3.2 trillion today. Foreign exchange is always understand where their exposure is in respect to their margin
the largest and most liquid global financial market. requirements.

Historically, FX markets were generally available to large market participants For smaller institutions interested in trading FX on margin, banks can offer
– governments, banks and large institutional investors that traded through a significant additional advantages. As FX remains an interbank market,
bank. That has changed over the past decade as technology advances have clients can access liquidity directly rather than going to indirect sources.
opened up the market, allowing all investors and traders the opportunity Banks typically offer superior security of funds.
to trade round the clock via online platforms.
The margin FX space has continually experienced increasing regulatory
The margin FX market, comprised of smaller institutional and requirements to ensure capital strength; the balance sheets of the large
individual clients who trade on a cash margin basis, has become a bank participants far outstrip these levels. Furthermore, banks are core
significant segment of the overall FX market. The market was originally participants and often have long histories in FX markets; and, as highly
pioneered by independent brokers who combined electronic trading regulated institutions, have developed ethical trading practices and
technology with low-cost distribution models, enabling them to serve standards around pricing and trade handling, along with sophisticated
smaller institutions and individuals overlooked by larger banks. These compliance and control functions.
traders would not traditionally qualify for a bank credit line or for
the services of a prime broker. By placing margin with their provider, While the vast majority of margin FX trading takes place in a few major
they were able to trade directly on provided FX interfaces and access currencies, certain providers offer trading in over 100 currency pairs,
aggregated liquidity channels. Suddenly, smaller traders could access including exotic pairs such as the U.S. dollar / Mexican peso, allowing
deep liquidity pools with pricing competitive to that received by large traders to make directional bets across all freely tradable currencies.
institutional traders.
Banks providing margin FX trading platforms also provide access to
Additionally, smaller traders benefited from a vastly simplified and economic and technical research that was formerly reserved for large
quicker application and approval process, as they did not require institutions and is invaluable in understanding trends and making trade
onerous standard credit documentation to trade. Furthermore, by decisions. Of course, the online FX trading platforms are just that –
trading on margin, investors could access the FX markets without having platforms. Investors and traders must drive their own trading decisions,
to set up the conventional infrastructure (including foreign currency and must fully understand FX market dynamics and the risks of leveraged
accounts and an operations function), thereby dramatically opening up trading if they want to be successful.
FX to a broader audience.
Nevertheless, the margin FX market continues to evolve quite rapidly and
Greenwich Associates recently estimated that margin FX trading comprised continually attracts new participants. Increasingly competitive pricing as
12% of worldwide FX trading volume in 2009. This segment can no longer well as technological advances that facilitate trading are helping to fuel
be ignored – small institutional and retail investors drive a very significant, this growth. For instance, some providers offer trading interfaces that are
and growing, segment of global FX volume. web and mobile-based, including tailored iPhone applications. The use of
algorithmic trading, which has proliferated quickly in the equity markets,
This is most true in Japan, where, according to Greenwich, a staggering 57% has grown swiftly in the margin FX markets as well.
of the country’s FX trading volume is channeled through retail aggregators
acting as brokers. Indeed, Asia represents the largest region for margin With the Internet providing an ideal distribution channel for a global,
FX trading. The so-called “carry trade,” borrowing in a low-interest rate decentralized market, the spot FX business has been substantially
currency to invest in a high-interest rate currency, has historically been democratized. With new technologies and effective trading platforms,
very popular in those Asian countries where domestic interest rates are smaller institutions now have both the means and the opportunity to
consistently low and investors are hungry for yield. participate in this important asset class.

18 AIMA Journal Q3 2010


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from our members

PERFORMANCE STANDARDS

How hedge fund managers can claim compliance with the Global Investment
Performance Standards (GIPS®)
By Coleman C. J. McKinstry, CIPM, ACA Beacon Verification Services

O
ver the last several years, the Global Investment Performance Valuation
Standards (GIPS) verification industry has seen a noticeable The GIPS currently require portfolios to be valued on the date of
increase in the number of alternative, and specifically hedge all large, external cash flows, and in the absence of any large,
fund, managers expressing interest in claiming compliance with the external cash flows, portfolios can be valued monthly. Because most
GIPS. The GIPS are a voluntary set of best practices related to a HFMs only subscribe and redeem their investors monthly (or even
firm’s calculation and presentation of investment performance quarterly), the possibility of a mid-month, large, external cash flow
results. Increased interest in the GIPS is a natural response to the is typically non-existent. As a result, the monthly calculation can
regulatory scrutiny and level of due diligence to which hedge fund be as straightforward as a simple return using the monthly NAVs
managers (HFMs) have recently been subject. As more institutional calculated by the fund’s third-party administrator.
investors, such as pension plans and endowments, have increased
their allocations to alternative investments over the last 10 years, The current edition of the GIPS (2005) requires all assets be valued at
HFMs have had to provide more transparency in their interactions market value. The GIPS do realize this may be a challenge for some
with prospective investors. The recent fraud that has coursed through types of securities and have stated that, “in the case of thinly traded
Wall Street also is a major impetus for this flight to transparency in securities, the firm may use a reasonable method for valuation as
the hedge fund space. long as the method is consistently applied.3”

While HFM’s adaption of the GIPS has been welcome, it has also raised The upcoming GIPS 2010 Edition, which becomes effective on 1
quite a few questions regarding the application of the GIPS to hedge January 2011, requires assets to be valued according to fair value.
funds. Because the GIPS were originally written with the institutional, In conjunction with the transition from market value to fair value,
long-only investor in mind, there are many considerations that HFMs the GIPS 2010 Edition also includes the GIPS Valuation Principles.
face that the GIPS formally do not address. In April 2010, ACA Beacon These Principles are meant to help firms develop their valuation
Verification Services published a white paper whose goal was to policies which determine how to assign values to assets, specifically
address some of these questions and provide practical resolutions those that do not have observable market values.
for the most common challenges. The paper is titled Compliance
is Easier Than You Think: Challenges and Solutions for Hedge Fund Calculation
Managers Considering the Global Investment Performance Standards When becoming GIPS compliant, the item that HFMs typically spend
(GIPS®). The remainder of this article will cover the most frequent the majority of their time considering is how to present net-of-fees
topics brought forth in the paper.1 performance. Because funds generally have multiple feeders, share
classes, and fee structures, ascertaining an appropriate net return
Compliance at the firm level can be somewhat challenging. While there are potentially many
The GIPS require that the claim of compliance encompass the entire ways of determining an appropriate return, there are three methods
firm. HFMs sometimes are under the impression that compliance can which are the most common.
be claimed only with respect to one particular fund. Rather, the claim
of compliance will include all funds, separately managed accounts, Method 1 - Tracking the original, full-fee paying
and any other assets which are under management of the firm. The investor
firm should be defined by how it holds itself out to the public. This With this method, a firm will “present [a] return for [the] initial
means a firm can be a distinct subsidiary of a larger, multi-service
financial institution, or it can be a stand-alone firm itself. (Continued on page 21)

Policies and procedures


A fundamental requirement of the GIPS is Standard 0.A.6 which
requires all compliant firms to, “document in writing their policies
and procedures used in establishing and maintaining compliance 1 The comments and suggestions in this paper are not intended to replace or
with all applicable requirements of the GIPS.2” supersede any current or future formal or informal guidance issued by the CFAI,
which may differ from the views and opinions expressed herein. Nothing in this
paper should be relied upon as advice for any particular set of facts, nor as a
This document will address all aspects of a firm’s claim of compliance. substitute for the guidance of GIPS professional.
While it is important for this document to be comprehensive, its 2 CFA Institute. Global Investment Performance Standards (GIPS) Handbook.
creation is typically not an excessively arduous project. In addition, Second Edition, 2006. 2 ed. Charlottesville: CFA Institute, 2006. (p.21)
if a firm already has an existing operational policies manual, the GIPS 3 CFA Institute. Global Investment Performance Standards (GIPS) Handbook.
policies can simply be added to the document in their own section. Second Edition, 2006. 2 ed. Charlottesville: CFA Institute, 2006. (p.78)

20 AIMA Journal Q3 2010


from our members

(Continued from page 20)

series of [the] highest paying share class, which reflects the net return Compliant presentation
of [an] investor in the fund since inception, assuming no subscriptions Compliant firms are required to provide a GIPS compliant presentation
or redemptions.4” of the particular composite to which the prospective investor is being
marketed. The compliant presentation consists of a set of required
The intent of this method is to provide a return stream that is most disclosures and statistics which are found in Section 4 and Section 5
representative of what a prospective investor would have achieved had of the GIPS. Required disclosures include the definition of the firm,
he invested in the fund at the fund’s inception. Because this return is definition of composite, and presence, use and extent of leverage
usually a close approximation of what a full-fee paying prospective or derivatives. Required statistics include annual returns, composite
investor would have achieved, this method is the most common. Its assets, and firm assets as of each year-end. This standardized
main drawback is that it cannot be used when there are multiple presentation allows prospective investors to make an apples-to-apples
accounts in the same composite. In this case, a representative return comparison of the same investment strategies for different firms that
from the fund could not be used as a proxy for composite performance. are located all over the world.
Rather the returns from all accounts would need to be aggregated to
arrive at composite-level performance. Side pockets
For funds that have side pockets (whereby certain illiquid assets
Method 2 - Aggregate approach have been segregated from the rest of the fund), determining
This method, as mentioned above, is most appropriate when the fund what performance to present can also take some consideration.
is not the only account in its composite. When multiple accounts are Establishing what performance to present is not an exact science and
in a composite, the composite’s return must be an asset-weighted there are multiple options a firm has. Firms can choose to present
return inclusive of all the underlying accounts’ returns. When the performance of either the entire fund inclusive of the side pockets,
fund is the only account in the composite, the aggregate return only the liquid portion of the fund where side pocket performance is
calculation includes all assets in the fund. The calculation will excluded, or a firm can present both of these performance streams
include all feeders, share classes, and types of fee structures. When side by side.
aggregated, these different components can lead to a muddled
net return that is not necessarily representative of what a full-fee The decision here should be viewed from the perspective of what
paying investor would have achieved. For this reason, the aggregate is the most representative. For instance, are the majority of the
approach is best used for circumstances when the fund is not the fund’s investors exposed to the side pocket assets? If so, it likely
only account in the composite. makes sense to present the performance stream of the entire fund,
inclusive of the side pockets. If only a small minority of the fund’s
Method 3 - Model fee investors, perhaps just the internal investors, have exposure to the
This method can be used when the fund is the only account in the side pocket investments, then it may be more representative only to
composite, but no appropriate representative investor stream can be present the liquid portion of the fund that does not include the side
identified. The mechanics of this method are fairly straightforward. The pockets. An analysis of a fund’s underlying investor base is a good
gross of fees return of the fund is netted down (typically in a spreadsheet) place to begin making this determination. Regardless of what option
by the fund’s highest stated management and performance fee. The a firm chooses, the performance stream should be clearly disclosed
benefits of this method are its relative ease of calculation, while the as should the justification for the particular choice.
biggest weakness is that a fund’s net returns may be understated if the
fund’s model fees are significantly higher than the actual fees charged. Conclusion
As noted, the hedge fund industry is in the midst of a significant
While each of these methods has their respective advantages evolution toward increased transparency, and as part of this transition,
and disadvantages, the overriding principle is to identify and adapting the GIPS is a step many HFMs are taking.
present a return stream that is most representative from the
prospective investor’s point of view. Of course, the decision and While the GIPS do not address many of the characteristics unique to
its justification should also be clearly disclosed in the composite’s HFMs, the Standards are broad-based and flexible enough to allow
compliant presentation. HFMs to obtain compliance with considerably less effort than is
commonly perceived.

4 Lamanna, Valerie.“Applying the GIPS Standards to Hedge Fund and Other


This article has only touched briefly on the most common of issues
Alternative Strategies.” 2007 GIPS Standards Annual Conference. Session VI. Slide related to HFMs. For a more in-depth discussion, please review our
17 white paper, which can be downloaded here.

AIMA Journal Q3 2010 21


from our members

INSTITUTIONAL INVESTMENT

Hedge fund investment by superannuation funds


By Craig Roodt, Australian Prudential Regulation Authority (APRA)

W
hile Australian superannuation funds were among the earliest in various market conditions. This extends to how they are expected to
globally to invest in hedge funds, the level of this investment interact with the broader investment portfolio of the fund as a whole.
has not increased at the same pace as in other jurisdictions. Critical to this assessment is an understanding of the strategies that the
Given recent developments in hedge fund practices and investment investee hedge funds are pursuing.
practices generally, it is opportune to examine superannuation fund
investment in hedge funds, for the regulator to restate its expectations Due diligence
when hedge funds are part of a superannuation fund investment Once decisions have been made about which categories of hedge funds
portfolio, and to review lessons from the global financial crisis. to utilise, trustees then need to select the actual hedge fund managers
(or funds of hedge funds (FoHFS)) to invest in. Again, understanding
Expectations when investing in hedge funds the strategy (or strategies) being followed by individual hedge funds
APRA’s expectations of trustees, where they choose to invest is critical. AIMA already provides guidance on factors to be considered
superannuation fund assets in hedge funds, fall into the when evaluating hedge funds.
following areas:
These include:
• a well thought-out investment strategy addressing the needs of the
superannuation fund; • understanding the strategy, specifically how it generates returns and
• consistency with that strategy, and a clear role for hedge funds within adds value;
that strategy; • understanding the risks inherent in that strategy;
• due diligence around specific hedge funds and their underlying • identifying markets covered and instruments used;
investments; and • research process;
• ongoing monitoring of hedge fund investments. • track record of key investment staff;
• performance through market cycles;
At its simplest, expectations of trustees of superannuation funds that • segregation (and effectiveness) of reporting and valuation;
choose to invest in hedge funds are no different to expectations in • operation of key service providers (eg prime brokers, administrators);
respect of any other investments they undertake. There are, however, • jurisdictional issues;
some specific nuances due to the specific nature of hedge funds. • the use of leverage;
• liquidity issues – given the strategy pursued; and
It is fundamentally critical that trustees understand what they are • collateral management – where collateral is required for trading
invested in, including how that investment is likely to behave in a range activities.
of market conditions (i.e. what drives risk and performance).
For FoHF investments, the ability of the investment manager to
Investment strategy evaluate and monitor constituent hedge funds needs to be assessed,
Under law, trustees of superannuation funds are required to develop as does the manager’s ability to construct portfolios of hedge funds
an investment strategy to meet the needs of the fund having regard by considering multi-factor exposure and even complementarity
to, amongst other things, diversification and liquidity. There is a clear analysis. FoHFs also need the systems and processes to be able to
need to determine the return objectives and the desired risk appetite, combine positions from hedge funds and to take action as needed;
as well as determining the types of risks that the trustee is willing for there needs to be a clear management process when investments are
the fund to accept. not meeting expectations.

Any investment in hedge funds needs to be consistent with this One lesson from the global financial crisis is the criticality of
strategy and risk appetite. This extends to individual hedge fund understanding where money is actually invested, what the underlying
investments that are being undertaken as well as to the aggregate exposures and risks are, and how they may behave in a crisis. This applies
investment in hedge funds. irrespective of whether an investment is in a structured investment
(like a collateralised debt obligation) in a ‘traditional’ investment fund,
While many superannuation funds have an allocation to ‘alternatives’ or in a direct or intermediated hedge fund.
with a sub-allocation to ‘hedge funds’, a number of others include hedge (Continued on page 23)
funds as sub-categories within underlying asset classes. It is important
that when this categorisation is made, it is reflective of the risk and
return behaviour of the different hedge fund strategies.

Trustees need to determine the purpose of their allocation to specific 1 Categories will be based on the hedge fund strategy: e.g. global macro, equity
hedge fund strategies and how those strategies are expected to behave long/short

22 AIMA Journal Q3 2010


from our members

(Continued from page 22)

The crisis highlighted the often opaque nature of hedge fund strategies while knee-jerk reactions are counter-productive, action needs to be
and investments, and pointed out the benefit of greater transparency taken when responses are not forthcoming or when performance cannot
for investors. be explained adequately.

Monitoring Lessons from the global financial crisis


Investment monitoring is critical as well; while historically there Related to investment decisions are some critical observations from the
has been limited oversight by investors, this has changed in recent global financial crisis. These include:
years. Trustees have an obligation to understand how funds are being
invested. There is now much greater reliance by trustees on third • the importance of knowing, and understanding, the ultimate
party administrators to provide position, or at least exposure, data. investment;
However, this does not obviate the need for trustees themselves to • the criticality of understanding the sources of risk and return;
understand what is happening. Related to this is the requirement to • the importance of looking, not just at underlying assets, but through
measure performance; the nature of hedge fund investing, frequently structures to understand embedded or downstream leverage;
involving high-conviction strategies, often renders standard benchmarks • consideration of the ‘funding’ side of the balance sheet. There is a
of limited value. Trustees need appropriate benchmarks that reflect the need to understand the possible redemption behaviour of members as
investment universe and the market risk of the opportunity set. well as other pressure points for funding throughout the investment
structure. This also applies in situations where, for example, member
While performance measurement will often be backward looking, entitlement is based on underlying asset value but they have a right to
effective performance measurement can often highlight areas of style redeem within a certain period of time; and
drift or more insidious conduct. When performance does not make • contagion risk where associated parties are subject to adverse media
sense, given the underlying conditions and the declared strategy, this comment that affects market confidence.
must be viewed by trustees as a flag for further investigation. This
includes when performance is inexplicably good. Craig Roodt is Senior Manager, Market Risk at the Australian Prudential
Regulation Authority (APRA)
Additional risk information is often needed, highlighting exposure
to specific factors, extent of leverage or details on liquidity. While APRA is the prudential regulator of the Australian financial services
deliberate decisions can legitimately be made by trustees regarding industry. It oversees banks, credit unions, building societies, general
these parameters, it is important that they are constantly monitored. insurance and reinsurance companies, life insurance, friendly
Trustees also need a clear process for acting on information received; societies, and most members of the superannuation industry.

PROFESSIONAL INVESTOR FUNDS

Malta’s ‘quasi-retail’ alternative investment structures: Professional investor funds


targeting experienced investors
By Dr Simon Tortell and Dr Katya Azzopardi, Simon Tortell & Associates

P
rofessional Investors Funds (PIFs) are non-retail collective may be invested but the total amount invested must not at any time be
investment schemes which may offer their shares or units to less than €10,000. PIFs targeting experienced investors are not available
three types of investors, namely “experienced”, “qualifying” for investment by the general public but are only available to investors
or “extraordinary” investors. A PIF established under Maltese law will satisfying the applicable Experienced Investor criteria. An Experienced
require a licence under the Investment Services Act and is subject to Investor is defined as a person having the expertise, experience and
the Standard Licence Conditions issued by the Malta Financial Services knowledge to be in a position to make his own investment decisions and
Authority (MFSA). Therefore it is a lightly regulated but flexible regime. understand the risks involved. An investor must state the basis on which
he satisfies this definition, either:
The PIF targeting experienced investors has the lowest minimum
investment requirement. In fact by virtue of recent amendments, any 1. by confirming that he is:
investor who invests in such a PIF must invest a minimum of €10,000 only.
Once the minimum investment has been made, any additional amount (Continued on page 24)

AIMA Journal Q3 2010 23


from our members

(Continued from page 23)


a. a person who has relevant work experience having at least worked in be seen as being “quasi retail”. For this purpose, unlike the two other
the financial sector for one year in a professional position or a person who types of PIFS, there are some investment restrictions contained in the
has been active in these type of investments; or Standard Licence Conditions to seek to protect investors and to ensure
b. a person who has reasonable experience in the acquisition and/or diversification. Therefore for example, direct borrowing for investment
disposal of funds of a similar nature or risk profile, or property of the purposes and leverage via the use of derivatives, as in the case of UCITS,
same kind as the property, or a substantial part of the property, to which is restricted to 100% of the NAV of the fund. Where the fund enters into
the PIF in question relates; or OTC derivative transactions, it must ensure that its exposure to a single
c. a person who has carried out investment transactions in significant size counterparty is limited to 20% of its total assets. Also, the fund may only
at a certain frequency invest up to a maximum of 35% of its total assets in deposits held with a
single body.
or:
Aside of these restrictions, no other investment restrictions are imposed
2. by providing any other appropriate justification. on this quasi-retail PIF. It remains a flexible vehicle and can also invest in
Special Purpose Vehicles, enter into repurchase/reverse repurchase and
Similarly to any other type of PIF, PIFs targeting experienced investors stock lending or borrowing agreements.
can be set up using a variety of structures. The SICAV structure, which
is an open ended structure with variable share capital, is certainly the A PIF may appoint any functionaries as it may deem necessary. Ordinarily,
most popular and commonly used structure. However, one can also set functionaries of PIF would include, amongst others, an Investment
up a PIF as an INVCO, which is an investment company with fixed share Manager and/or an Administrator, an Investment Advisor and/or a
capital and which is close-ended, as a limited partnership, as a unit trust Custodian/Prime Broker.
or as a contractual fund.
However in the case of PIFs promoted to Experienced Investors, the
A PIF targeting experienced investors can be set up as a multi-class fund appointment of a Custodian is obligatory. In these circumstances the
by the creation and issue of distinct classes of shares, which may be role of the Custodian is twofold. The Custodian is responsible for the
designated in different currencies. Alternatively it may be set up as safekeeping of the assets of the fund and is also responsible for monitoring
an umbrella structure consisting of different sub-funds. The assets and the extent to which the Investment Manager is abiding by the investment
liabilities of each individual sub fund constitute a patrimony separate and borrowing powers laid out in the constitutional documents.
from that of each other sub fund in the same umbrella so that the
assets of one sub fund are available exclusively for the creditors of that All service providers may be located in any jurisdiction, provided that the
particular sub fund. MFSA is satisfied with the regulatory status of any functionary and that
the functionary is of sufficient standing and repute.
The umbrella structure is very popular. It reduces costs because you only
need to create one corporate structure with the first sub funds, then other The fund must also have an Offering Document containing appropriate
sub funds are simply added on in the same umbrella. This also means that risk warnings, the names and details of all principal service providers,
licensing such a sub fund becomes a very quick process where one simply the investment objectives and policies of the fund and any investment
submits a new Offering Document for approval. Interestingly one can or borrowing restrictions. This Offering Document enables potential
also have different types of PIFs in the same umbrella. Therefore in an investors make an informed investment decision prior to investing in
umbrella structure there can be, for instance, two sub funds targeting the fund.
qualifying investors and three sub funds targeting experienced investors.
Furthermore in the case of an umbrella structure the €10,000 minimum The income of a PIF is exempt from tax as long as it is classified as a non-
investment requirement may apply on a per scheme basis rather than on prescribed fund which means that more than 85% of the value of its assets
a per sub fund basis. is situated outside Malta. No stamp duty on share issues or transfers and
no tax on the net asset value of the fund is levied. Furthermore there
In view of the fact that the minimum investment required in the case of is no withholding tax on dividends paid to non-resident investors and no
PIFs targeting experienced investors is rather low, this type of fund can taxation on capital gains on the sale of shares in the fund.

Would you like to contribute to the AIMA Journal?


We encourage all our members throughout the world to write for the AIMA Journal. Anyone wishing
to contribute is invited to contact either the coordinator of the AIMA Journal, AIMA Communications
Officer Dominic Tonner, at dtonner@aima.org, or the editor of the AIMA Journal, AIMA Director of
Communications Christen Thomson, at cthomson@aima.org.

The deadline for submitting outline article proposals for the Q4 2010 issue is 30 September 2010.
We look forward to hearing from you.

24 AIMA Journal Q3 2010


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from our members

LAW

US ‘ipso facto’ and UK ‘anti-deprivation’ - the Lehman ‘flip’ clause


By Alastair Goldrein, Chadbourne & Parke (London) LLP

I. Background and on the happening of that event shall go over to someone else, and be
On 6 November 2009, the English Court of Appeal issued a judgment in the taken away from his creditors” (Ex parte Jay (1880)).
case of Perpetual Trustee Company Limited & another v BNY Corporate
Trustee Services Ltd & another [2009] EWCA Civ 1160, an action commenced The principle operates to support the fundamental rule that distributions
in the English High Court by the noteholders representative - Perpetual in a winding-up must be made to creditors in the same category on a
Trustee Company Limited. The case concerned a number of collateralized pari passu basis (s107, Insolvency Act 1986 and rule 4.181, Insolvency
debt obligation (CDO) transactions structured and arranged by Lehman Rules 1986 (SI 1986/1925)). In essence, the anti-deprivation principle
Brothers Inc and its subsidiaries, pursuant to which a number of SPVs (each provides that a contractual provision is void if it provides for the transfer
an “Issuer”) had issued interest-bearing notes (the “Notes”) to investors. At of an asset from the owner to a third party upon the insolvency of the
the same time, each Issuer had entered into a credit default swap contract owner. Attempts to avoid the anti-deprivation principle have been ruled
(each a “CDS”) with Lehman Brothers Special Financing Inc (LBSF), with void as a matter of public policy (British Eagle International Airlines
the Issuer as credit protection seller, and LBSF as credit protection buyer. Ltd v Cie Nationale Air France [1975]). Nevertheless, the application of
All of the relevant contractual documentation was governed by English this principle by courts in numerous judgements has given rise to some
law. LBSF was incorporated in Delaware with its principal office in New degree of uncertainty.
York and had filed for Chapter 11 protection on 3 October 2008.
In Perpetual Trustee Company Limited v BNY Corporate Trustee Services
The proceeds of the Notes had been invested and security in the form of Ltd, the issue arose as to whether the provision in the security trust deed
fixed and floating charge had been granted in favour of BNY Corporate which gave priority to noteholders over LBSF upon the occurrence of an
Trustee Services Limited (the “Security Trustee”), for the benefit of the event of default, fell foul of the anti-deprivation principle.
Noteholders and LBSF (to the extent that amounts would become payable
to LBSF as a result of the early termination of the CDS). The security III. The decision
documentation provided that LBSF would have priority over the Noteholders LBSF argued that such a provision in the trust deed that flipped the order
in respect of the Note proceeds unless an event of default occurred where of priority of distribution of the security was void under English law as it
LBSF was the defaulting party (which included the bankruptcy of LBSF or its had the effect of depriving creditors of LBSF of an asset upon its insolvency.
parent). At the point at which the event of default occurred (LBSF entered Perpetual responded that the clause was valid and relied on the distinction
into insolvency proceedings in October 20081), the order of priority of drawn by the courts between a contract which by reason of the insolvency
distribution of the security therefore changed or “flipped”. seeks to remove assets from the estate of the bankrupt and a contract
under which the insolvent’s interest in the asset is limited and determined
Following the collapse of the Lehman Group, payments due to the upon insolvency (also referred to as a “determinable interest”). Perpetual
noteholders were not made and Perpetual asserted claims against the contended that LBSF had a determinable interest because, under the terms
Security Trustee, seeking orders that the Security Trustee make distributions of the trust deed, LBSF only ever had an interest, in respect of its payment
in their favour and in priority to the claims of LBSF. LBSF did not accept in priority, which determined on an event of default in the event that LBSF
that the noteholders were entitled to priority over LBSF in the security was the Defaulting Party.
realisations waterfall (of the security trust deed) and asserted a claim
in the New York Bankruptcy Court, seeking an order that the provisions The judge had two separate reasons for concluding that the anti-deprivation
under the trust deed were contrary to the “ipso-facto” provisions of the US principle did not prevent Perpetual from relying on the flip clause. The first
Bankruptcy Code (see V below). reason was based on the nature of the right triggered by the insolvency
event, and essentially turned on the extent of the anti-deprivation principle.
LBSF’s allegation in the US Bankruptcy Court was heard on 11 August 2009. But even if the flip constituted a deprivation, the court’s decision relied on a
Prior to this, Perpetual asserted claims in the English High Court against the second reason, which was based on the alleged deprivation itself. The anti-
Security Trustee to procure realisation of the collateral held by the Security deprivation principle was not applicable to a deprivation effected pursuant
Trustee pursuant to the trust deed and its application (i.e., payment to the to the Chapter 11 filing of a different entity.
noteholders in priority to paying the claims of LBSF). LBSF sought a temporary
stay of the English proceedings pending resolution of the proceedings in the The judge held that the clause in the trust deed was valid and not contrary
US Bankruptcy Court. The issue was whether the provision in the Security to public policy for the following reasons:
Trust Deed giving priority to noteholders over LBSF upon the occurrence of
(Continued on page 27)
an event of default was valid as a matter of English law?

II. The English proceedings and anti-deprivation principle


The principle of “anti-deprivation” dates back to the 19th century. A long
1 LBSF entered insolvency proceedings following the insolvency of Lehman
line of cases have, in different ways, expressed a rule that “there cannot be
Brothers Holdings Inc. which provided credit support to LBSF - each of these
a valid contract that a man’s property shall remain his until his bankruptcy, events was an event of default under all of the CDS.

26 AIMA Journal Q3 2010


from our members

(Continued from page 26)

1. It was not possible to examine the “flip” clause in isolation, but rather York in the parallel proceedings (re: Lehman Brothers Special Financing Inc
the transaction should be analyzed as a whole: the collateral was bought v BNY Corporate Trustee Services Limited (Case No: 09-01242) has declined
by each Issuer with the note proceeds; it was not derived from LBSF as the to follow the decision of the English courts and has issued a memorandum
swap counterparty; decision finding that the “flip” was an unenforceable ipso facto clause.
Consequently, the Security Trustee is currently trapped between two
2. It was clear that the intention of all the parties was that priority afforded contradictory court decisions in two jurisdictions with one telling it to pay
to LBSF was conditional. The priority of LBSF did not continue after an the noteholders first and the other telling it to pay LBSF first.
event of default, where LBSF was the defaulting party; and
The U.S. court found that the English courts had not taken into account
3. LBSF’s priority security interest in the collateral was always principles of U.S. bankruptcy law and in particular section 365 of the
conditional and limited and could not pass to a liquidator free from Bankruptcy Code. Judge Peck emphasised that “(U.S.) courts will not
those conditions and limitations. extend comity to foreign proceedings when doing so would be contrary to
the policies or prejudicial to the interests of the United States.”
The judge also expressed his view on the argument made by Perpetual that
the anti-deprivation principle could not apply to LBSF as it was not the subject Despite the challenges posed by conflicting judgments Judge Peck
of an English insolvency proceeding and was only the subject of a Chapter concluded that the U.S. had a sufficiently strong interest in the
11 case in the U.S. On this point, the judge held that it could not be said circumstances to justify and require the application of U.S. bankruptcy
that the English anti-deprivation principles would only apply in the context law, noting in particular where the relevant provisions of the Bankruptcy
of an English insolvency proceeding. Under both common law and/or statute Code would provide the debtor with greater protection than that
(Cross Border Insolvency Regulations 2006), English courts were obliged to available under English law.
recognise and provide assistance to the US courts and, if necessary, to apply
this principle in the context of non-U.K. insolvency proceedings. It has been reported that “means to harmonise” the U.S. decision
with the English decision have been postponed pending the outcome
IV. The appeal of the U.K. Supreme Court hearing in 2011. Reconciling the U.S. and
In its judgment, the Court of Appeal unanimously dismissed LBSF’s appeal English approach would appear at first glance to be problematic and
and upheld the decision in the High Court on the following grounds: one alternative might involve limiting the geographical reach of each
judgment to their respective territorial assets. Another option might
- The anti-deprivation principle only applies to arrangements which involve LBSF attempting to have the U.S. judgment recognised in England
take effect at the date of insolvency of the insolvent where the estate by means of the UNCITRAL Model Law on Cross-Border Insolvency, which
is allegedly “deprived” of assets; disposals of assets made prior to the has been adopted by both countries.
onset of insolvency are not affected, unless caught by specific statutory
provisions affecting antecedent transactions; and VI. Conclusion
- The priority which LBSF had to the collateral as provided by the issuers The judgment of the Court of Appeal, certainly for the meantime, has
was contingent on there being no event of default. The effect of the limited the scope of the anti-deprivation principle. There also remains no
“flip” provision was to vary the order of priorities in which the rights small degree of uncertainty following the judgement of the Court of Appeal
were to be exercised in relation to the proceeds of sale of the collateral regarding the distinction between the grant of a proprietary interest in
(rather than divesting LBSF of assets vested in it and vesting those assets property which is determinable upon insolvency (and valid) and a provision
in the noteholders). providing for the transfer of property on terms that it shall be forfeited
on insolvency (which is not valid). Meanwhile, the case is of enormous
LBSF filed a further appeal on 26 March 2010, and the Supreme Court (the consequence to all English structured finance transactions (and particularly
highest court in the United Kingdom) has decided to hear the case, with those which involve U.S. counterparties) that contractually provides for
hearings provisionally set for March 2011. the order of priority of payments to secured counterparties to be changed
in certain specified circumstances.
V. Battle of Bunker Hill?
In the U.S., ipso facto clauses (provisions in an agreement that would It is pleasing to see that the English courts have so far upheld the clear
deprive a party of a right as a result of its insolvency or its bankruptcy contractual intentions of the parties as determined in the transaction
filing) are generally unenforceable in a bankruptcy proceeding (section documentation and recognised the noteholders priority. The judgement
365(b)(2), US Bankruptcy Code). This represents the U.S. equivalent may also represent a serious challenge for rating agencies when assessing
of the English “anti-deprivation” rule albeit the U.S. doctrine is wider the likelihood of timely or ultimate payment of principal and interest on
than the English principle. rated notes.

The U.S. Bankruptcy Court (Judge Peck) for the Southern District of New Alastair Goldrein is an associate with Chadbourne & Parke (London) LLP

AIMA Journal Q3 2010 27


NEW MEMBERS

New members of AIMA who joined during Q2 2010

Membership of AIMA is corporate, thereby entitling all of your company’s principals to enjoy the many benefits.
For further details, please telephone John Stephens on +44 (0)20 7822 8380. Alternatively, you can email John at
jstephens@aima.org. All information supplied in the following member profiles has been provided by the member company and its accuracy
is not guaranteed by AIMA.

ALTIS PARTNERS (LONDON) Telephone: +1 416 866 2428 BREVAN HOWARD (HONG KONG) LTD
Country: UK Business activity: Hedge fund manager / Country: Hong Kong
Contact: John King adviser Contact: Sennes Kwong
Telephone: +44 20 7529 2880 Website: www.aurion.ca Telephone: +852 2100 5300
Business activity: Hedge fund manager / Business activity: Hedge fund manager /
adviser adviser
Website: www.altispartners.com BANK JULIUS BAER & CO LTD Website: www.brevanhoward.com
Country: Switzerland
Contact: Minka Nyberg
AN CAPITAL PTE LTD Telephone: +41 58 888 11 11 BREVAN HOWARD (ISRAEL) LTD
Country: Singapore Business activity: Banking services (excluding Country: Israel
Contact: Chay Chang Tan PB), third-party marketing services Contact: Sivan Matza
Telephone: +65 6225 6150 Website: www.juliusbaer.com Telephone: +972 0 576 8400
Business activity: Hedge fund manager / Business activity: Hedge fund manager /
adviser adviser
Website: www.an-cap.com BLACKROCK HONG KONG
Country: Hong Kong
Contact: Weng Keong Loke BREVAN HOWARD ASSET
APS ASSET MANAGEMENT PTE LTD Telephone: +852 3763 0000 MANAGEMENT LLP (DUBLIN BRANCH)
Country: Singapore Business activity: Hedge fund manager / Country: Ireland
Contact: Poh Heng Sim adviser Contact: Dina Madan
Telephone: +65 6333 8600 Business activity: Hedge fund manager /
Business activity: Hedge fund manager / adviser
adviser BLACKROCK SINGAPORE
Website: www.aps.com.sg Country: Singapore
Contact: Alasdair Riach BREVAN HOWARD INVESTMENT
Telephone: +65 6411 3000 PRODUCTS LTD
ASPECT CAPITAL ASIA LTD Business activity: Hedge fund manager / Country: Jersey, Channel Is.
Country: Hong Kong adviser Contact: Paul Harris
Contact: Jan Chen Telephone: +44 (0)1534 605 400
Telephone: +852 2525 1590 Business activity: Hedge fund manager /
Business activity: Hedge fund manager / BLACKROCK SYDNEY adviser
adviser Country: Australia
Website: www.aspectcapital.com Contact: Vincent Lo Blanco
Telephone: +61 2 9272 2200 CITI HEDGE FUND SERVICES NORTH
Business activity: Hedge fund manager / AMERICA, INC
ASPECT CAPITAL INC adviser Country: USA
Country: USA Contact: Mike Sleightholme
Contact: Eddie Deschapelles Telephone: +1 973 461 5353
Telephone: + 1 203 622 3917 BLUE RICE INVESTMENT Business activity: Fund administration,
Business activity: Hedge fund manager / MANAGEMENT PTE LTD accounting & custody services
adviser Country: Singapore Website:
Website: www.aspectcapital.com Contact: Guan Ong www.transactionservices.citigroup.com
Telephone: +65 6838 0357
Business activity: Hedge fund manager /
AURION CAPITAL MANAGEMENT INC adviser COMMODITY STRATEGIES LTD
Country: Canada Website: www.brimasia.com Country: Australia
Contact: Dennis Pellarin Contact: Dennis Stoller

(Continued on page 29)

28 AIMA Journal Q3 2010


NEW MEMBERS

(Continued from page 28)

Telephone: +61 2 9252 7565 ENEA INVESTMENT MANAGEMENT SA manager


Business activity: Hedge fund manager / Country: Switzerland Website: www.harcourt.se
adviser Contact: Ermanno D’Ascanio
Website: www.commodity-strategies.com Telephone: +41 91 910 08 30 HARCOURT INVESTMENTS AV SA
Business activity: Hedge fund manager / Country: Spain
adviser Contact: José Luis Ezcurra
COMPLIANCE SHERPA, LLC Website: www.eneaim.ch Telephone: +34 91 520 9595
Country: USA Business activity: Fund of hedge funds
Contact: Jared Schneid manager
Telephone: +1 860 434 5775 FIRST WESTERN CAPITAL Website: www.harcourt.es
Business activity: Consultant (compliance) MANAGEMENT
Website: www.compliancesherpa.com Country: USA
Contact: Steve Michaels INVENIO COMMODITY FINANCIALS
Telephone: +1 310 229 2940 PTE LTD
COSMOS INVESTMENT MANAGEMENT Business activity: Hedge fund manager / Country: Singapore
PTE LTD adviser Contact: Manvinder Singh
Country: Singapore Telephone: +65 6339 4100
Contact: Teh Chai Siang Business activity: Hedge fund manager /
Telephone: +65 9365 0245 FMO ASIA LTD adviser
Business activity: Hedge fund manager / Country: Hong Kong
adviser Contact: Paul Lemphers
Telephone: +852 3488 1242 IT LAB
Business activity: Other service providers Country: UK
CYGNUS ASSET MANAGEMENT SGIIC Website: www.fmo.asia Contact: Sebastian Gray
SA Telephone: +44 (0)845 359 0033
Country: Spain Business activity: It/systems/software
Contact: Isabel Serra HARCOURT ALTERNATIVE services
Telephone: +34 91 789 22 58 INVESTMENTS (HK) LTD Website: www.itlab.com
Business activity: Hedge fund manager / Country: Hong Kong
adviser Contact: Hugo van Kattendijke
Website: www.cygnus-am.com Telephone: +852 3655 3900 JONES DAY
Business activity: Fund of hedge funds Country: Singapore
manager Contact: Dennis Barsky
DL CAPITAL PARTNERS AG Website: www.harcourtalternative.com Telephone: +65 6538 3939
Country: Switzerland Business activity: Legal services
Contact: Thomas Leupin Website: www.jonesday.com
Telephone: +41 41 500 16 80 HARCOURT ALTERNATIVE
Business activity: Hedge fund manager / INVESTMENTS (US) LLC
adviser Country: USA JP MORGAN ASSET MANAGEMENT
Website: www.dlcapital.com Contact: Matthew Merdinger Country: UK
Telephone: +1 212 371 4340 Contact: Peter Hiscock
Business activity: Fund of hedge funds Telephone: +44 (0)20 7742 2600
E.C. ELBRUS CAPITAL INVESTMENTS manager Business activity: Hedge fund manager /
LTD Website: www.harcourtalternative.com adviser
Country: Cyprus Website: www.jpmorganassetmanagement.com
Contact: Anton Khmelnitski
Telephone: +357 22 458 773 HARCOURT INVESTING CONSULTING
Business activity: Hedge fund manager / AB LAPLACE CAPITAL PARTNERS LTD
adviser Country: Sweden Country: Cayman Islands
Website: www.elbrus-capital.com Contact: Erik Eidolf Contact: Franck Risler
Telephone: +46 8 670 6576 Business activity: Hedge fund manager /
Business activity: Fund of hedge funds adviser

(Continued on page 30)

AIMA Journal Q3 2010 29


NEW MEMBERS

(Continued from page 29)

Website: www.laplacecapitalpartners.com Contact: Michele Samuels Country: USA


Telephone: +44 (0)20 7425 5728 Contact: Edwin Wilches
Business activity: Fund administration, Telephone: +1 973 802 6000
LYONROSS CAPITAL MANAGEMENT accounting & custody services Business activity: Hedge fund manager /
LLC Website: www.ms.com adviser
Country: USA
Contact: Bruce Catania
Telephone: +1 212 218 3950 OMNIUM QARUN ADVISORY PARTNERS GMBH
Business activity: Hedge fund manager / Country: Hong Kong Country: Switzerland
adviser Contact: Alexis Fosler Contact: Courtney Malcamey
Website: www.lyonross.com Telephone: +852 3667 5507 Telephone: +41 41 710 7807
Business activity: Fund administration, Business activity: Hedge fund manager /
accounting & custody services adviser
MAGNETAR FINANCIAL (UK) LLP Website: www.omnium.com Website: www.qap.ch
Country: UK
Contact: Alan Shaffran
Telephone: +44 (0)20 7514 5411 PACIFIC ALLIANCE INVESTMENT REDWOOD INVESTMENT
Business activity: Hedge fund manager / MANAGEMENT (HK) LTD MANAGEMENT (ASIA) LTD
adviser Country: Hong Kong Country: Hong Kong
Website: www.magnetar.com Contact: Derek Crane Contact: Iris Yu
Telephone: +852 3719 3301 Telephone: +852 3757 9792
Business activity: Hedge fund manager / Business activity: Hedge fund manager /
MARBLE BAR ASSET MANAGEMENT adviser adviser
(HK) LTD Website: www.pacific-alliance.com Website: www.redwood-inv.com
Country: Hong Kong
Contact: Radek Barnert PARIDON ASIA PTE LTD
Telephone: +852 3512 4702 Country: Singapore REED SMITH LLP
Business activity: Hedge fund manager / Contact: Poh-Kuan Tan Country: UK
adviser Telephone: +65 6603 5188 Contact: Dale Gabbert
Business activity: Hedge fund manager / Telephone: +44 (0)20 3116 3000
adviser Business activity: Legal services
MARBLE BAR ASSET MANAGEMENT Website: www.reedsmith.com
SINGAPORE
Country: Singapore POLARIS INVESTMENT ADVISORY AG
Contact: Jake Kee Country: Switzerland REICHMUTH & CO INVESTMENTFONDS
Telephone: +65 6595 4280 Contact: Claus Hilpold AG
Business activity: Hedge fund manager / Telephone: +41 44 365 7080 Country: Switzerland
adviser Business activity: Manager / advisor other Contact: Ricardo Cordero
Website: www.polaris-investments.ch Telephone: +41 41 249 4999
Business activity: Hedge fund manager /
MERRILL LYNCH PORTFOLIO adviser
MANAGERS LTD PRICEWATERHOUSECOOPERS Website: www.reichmuthco.ch
Country: UK Country: Australia
Contact: Steve Jones Contact: Darren Ross
Telephone: +44 (0)20 7996 1000 Telephone: +61 2 8266 0000 RIDLEY PARK CAPITAL LLP
Business activity: Hedge fund manager / Business activity: Accounting, audit, tax & Country: UK
adviser related services Contact: Ian Bickerstaffe
Website: www.ml.com Website: www.pwc.com Telephone: +44 (0)20 7529 5200
Business activity: Hedge fund manager /
adviser
MORGAN STANLEY FUND SERVICES PRUDENTIAL INVESTMENT Website: www.ridleyparkcapital.com
Country: UK MANAGEMENT INC

(Continued on page 31)

30 AIMA Journal Q3 2010


NEW MEMBERS

(Continued from page 30)

SAIL ADVISORS LTD Business activity: IT/systems/software VALOREM INVESTMENT MANAGEMENT


Country: Hong Kong services Country: Isle of Man
Contact: Vincent Duhamel Website: www.toratrading.com Contact: Mark Askew
Telephone: +852 2525 1211 Telephone: +44 (0)1624 690 950
Business activity: Fund of hedge funds Business activity: Hedge fund manager /
manager TORA TRADING SERVICES adviser
Website: www.sailfunds.com Country: Singapore Website: www.valorem.im
Contact: Laura Ryan
Telephone: +65 6823 6804
SIX TELEKURS LTD Business activity: IT/systems/software YORK CAPITAL MANAGEMENT
Country: Switzerland services Country: USA
Contact: Adam Worricker Website: www.toratrading.com Contact: Jeffrey Weber
Telephone: +44 (0)20 7550 5175 Telephone: +1 212 300 1300
Business activity: Other service providers Business activity: Hedge fund manager /
Website: www.six-telekurs.com TQ CAPITAL PARTNERS LTD adviser
Country: UK Website: www.yorkcapital.com
Contact: Tobias Queisser
THE FAIRSKY GROUP Telephone: +44 (0)20 7355 6225
Country: Switzerland Business activity: Hedge fund manager / YORK CAPITAL MANAGEMENT (HK)
Contact: Markus Federle adviser ADVISORS LTD
Telephone: +41 (0)41 720 1563 Website: www.tq-cp.com Country: Hong Kong
Business activity: Other service providers Contact: Feng Hsiung
Website: www.fairskygroup.com Telephone: +852 3718 5888
UNIGESTION (GUERNSEY) LTD Business activity: Hedge fund manager /
Country: Guernsey, Channel Islands adviser
TMF FUND SERVICES (AUSTRALIA) Contact: Christopher Hill Website: www.yorkcapital.com
PTY LTD PART OF TMF GROUP Telephone: +44 (0)1481 812 608
Country: Australia Business activity: Fund of hedge funds
Contact: Eric Koolen manager YORK CAPITAL MANAGEMENT UK
Telephone: +61 2 8988 5880 Website: www.unigestion.com ADVISORS LTD
Business activity: Fund administration, Country: UK
accounting & custody services Contact: Christian Reyntjens
Website: www.tmf-group.com UNION BANCAIRE PRIVEE (ASIA) LTD Telephone: +44 (0)20 7190 0890
Country: Hong Kong Business activity: Hedge fund manager /
Contact: Robert Wood adviser
TORA TRADING SERVICES Telephone: +852 3713 1111 Website: www.yorkcapital.com
Country: Hong Kong Business activity: Hedge fund manager/adviser
Contact: Chris Jenkins Website: www.ubp.ch
Telephone: +852 3983 5000

Contact
The Alternative Investment Management Association Ltd,
2nd Floor, 167 Fleet Street, London EC4A 2EA
Tel: +44 (0)20 7822 8380 Email: info@aima.org
Registered in England and Wales at the above address. Company No. 4437037 – VAT No. 577 5913 90

AIMA Journal Q3 2010 31


²

WK
$11,9(56$5<

2010 Annual Conference,


AGM and 20th Anniversary
Celebrations
Programme and Annual Report ²

WK
$11,9(56$5<

2010 Annual Conference,


AGM and 20th Anniversary
Celebrations
Programme and
Celebrating 20 years Annual
of global Report
leadership

AIMA’s new flagship Annual Conference featuring leading international


speakers from the hedge fund industry, regulators and policymakers
sponsored by:

Confirmed speakers:
• Jacques Attali, Chief Executive Officer, A&A; President, PlaNet Finance
• Andrew Baker, CEO, AIMA
• Philip Coggan, Capital Markets Editor, The Economist
• Josh Dambacher, Partner, Schulte Roth & Zabel
• Christopher Fawcett, Senior Partner, Fauchier Partners
• Todd Groome, Chairman, AIMA
• David Harding, Managing Director, Winton Capital
• Syed Kamall, Member of the European Parliament
Celebrating 20 years of global
• Robert De Rito,leadership
Head of Investment Control, APG Asset Management
• Huw van Steenis, Managing Director and Head of EMEA Bank and Diversified Financials, Morgan Stanley
• Dan Waters, Sector Leader for Asset Management, Financial Services Authority
• Martin Wheatley, Chief Executive Officer, Securities and Futures Commission, Hong Kong

Millennium Hotel, London / 23 September 2010 / AGM from 2pm / Annual Conference from 2.30pm / 20th Anniversary Drinks Reception from 6pm /
AIMA members may contact Ali Coles at acoles@aima.org to reserve a place; space is now extremely limited

sponsored by:
EVENT SPONSORED BY

32 AIMA Journal Q3 2010

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