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ISSUE 04 April 2012

Opalesques Emerging Manager Monitor

ISSUE 01 April 2012 ISSUE 04 September 2011

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EditOriAL EMAnAgErS indiCES

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SEEdErS COrnEr

A new series: the manager of a seeding fund speaks to Opalesque

March 2012 performance of Opalesques indices of emerging manager funds

SErviCErS SpOt

nEw fundS in thE dAtAbASE

A new series: a service providers take on the new manager landscape

funds that have registered in the Emerging Managers database in the last 30 days

47n SEriES LAunChES

A new series: current corporate governance issues

EMErging MAnAgErS: StAtiStiCS

peter urbanis quantitative analysis of emerging managers performance

fundAnA SEriES

A recapitulation of maiden launches in late March and early April

A new series: analytical observations on real investments in emerging managers

thE AnALytiCAL viEw pErSpECtivES

Outlook for the hedge fund seeding industry

fOCuS Q&A

A look at managed accounts

recent views on whatever is or could be related to new hedge fund managers

An investment manager describes his uCitS-compliant funds platform New Managers | Opalesques Emerging Manager Monitor -April 2012

prOfiLES

1 three emerging hedge fund managers speak to Opalesque

Editorial
welcome to the April 2012 issue of new Managers, Opalesques monthly monitor of emerging and re-emerging hedge fund managers. in Statistics, peter urbani examines the performance drivers of the Opalesque Benedicte Gravrand Emanagers Index (March results on page 3) by treating it as if it were a portfolio or a fund of funds. the results are instructive and give a fairly clear indication as to where the excess performance of the index has come from, he says. we have four new sections this month. fundana, an investment advisor to several funds of hedge funds, gives an analytical view of real past investments in emerging managers in the Fundana Series. 47 degrees north Capital Management, a pioneer in early-stage hedge fund investing, will tackle corporate governance in the 47N Series. Christopher Kelley of the harvest fund, a new seeding fund, talks to Opalesque in Seeders Corner, and so does Matt nelson of Omgeo LLC, a financial operations expert, in Servicers Spot. in Focus, we look at some findings and talked to a few industry insiders to uncover the mysterious structure that is called managed account and find it may be more mysterious than expected, as much of the assets in managed accounts are not reported. Cyril delamare of ML Capital, which manages a uCitS-compliant funds platform, describes the mechanisms in Q&A. See who has started out on his or her own lately in Launches. infovest sees opportunities for seeding funds in a harder terrain in the Analytical View. And a myriad of hot and current topics are discussed in Perspectives.

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in Profiles, meet the managers of Stonehenges newest multi-strategy hedge fund, Logicas u.S. equity long/short fund, and JJns event driven fund. i hope you enjoy our fourth issue of new Managers. please, do contact me if you have any related news. Benedicte Gravrand Editor gravrand@opalesque.com

Opalesque new Manager is edited by Benedicte Gravrand. based in geneva, Switzerland, benedicte also writes exclusive stories, special reports, co-edits Opalesques daily hedge fund publication Alternative Market briefing (AMb) and occasionally moderates Opalesque roundtables. benedicte is perfectly bilingual (french/English) and has lived in paris, geneva and London. She obtained a bA (honours) in philosophy from the university of London, worked in the publishing sector, the hedge fund industry and then joined Opalesque in 2007.

Peter Urbani

Peter Urbani is the former CiO of infiniti Capital, a now defunct hong Kong-based fund of funds group. prior to that, he was head of Quantitative research for infiniti, head of investment Strategy, head of portfolio Management, head of research and Senior portfolio Manager for number of buy-side firms. he started out in stock-broking as an open outcry floor trader in the late 1980s. Some of his vbA code was included in Kevin dowds Measuring Market risk and he specialises in risk Management and portfolio Construction.
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New Managers | Opalesques Emerging Manager Monitor - April 2012

Emanagers Indices
Emanagers Total Index up 0.36% in March (+3.79% YTD)
Emerging manager hedge funds and managed futures funds continued their positive performance last month, according to a first estimation based on the data of 288 funds listed in Opalesque Solutions Emanagers database. The Emanagers Total Index, tracking both hedge funds and managed futures funds, gained 0.36% in March, lifting its year to date return to 3.79%. Estimates for february and January were corrected to 1.37% and 2.02% respectively. Since January 2009, the index grew over 62% and outperformed both the global stock market and its hedge fund peers. with six positive and six negative months, the index has delivered a positive performance of 0.55% over the last twelve months but is still lagging its all time high at the end of April 2011.

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in contrast to the first two months of 2012, managed futures strategies were the performance drivers in March, while hedge funds performed only slightly positive. According to our first estimation, the Emanagers Hedge Fund Index gained 0.20% in March and 5.60% for the quarter. Managed futures funds tracked by the Emanagers CTA Index had their first positive month in March, gaining 0.74%. the index is down 0.50% for the first quarter. Emerging managers thus outperformed the all-funds group represented by the Eurekahedge hedge fund index and the newedge CtA index in March, in the first quarter and over the last twelve months. however, they failed to beat the stock market in the first quarter.

New Managers | Opalesques Emerging Manager Monitor -April 2012

Emanagers Indices
the Emanagers CtA index was less volatile and slightly negatively correlated to the stock market, which led to an MSCi-beta of -1.9%.

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volatility and correlation analysis gives approximately the same picture as last month: Emerging manager hedge funds were more volatile returns than Eurekahedge hedge funds, resulting in a higher MSCi-beta of 49% compared to 30%.

Performance (in %), Volatility and Equity Market Beta (in %)


Index Emanagers Total Index Emanagers Hedge Fund Index Emanagers CTA Index Mar 2012 0.36 0.20 0.74 YTD 3.79 5.60 -0.50 12m 0.55 -0.61 0.25 2011 -1.79 -2.83 0.51 2010 18.73 17.07 19.15 2009 34.51 37.59 20.52 Volatility 6.29 9.38 3.74 Beta (bm=MSCI) 32 49 -1.9

Eurekahedge Hedge Fund Index Newedge CTA Index MSCI World

-0.30 -1.96 1.02

3.95 -0.53 10.94

-1.61 -3.76 -1.71

-3.97 -4.52 -7.61

10.72 9.26 9.40

20.40 -4.31 27.07

6.07 8.57 18.66

30 -2.7 100

- florian guldner, Opalesque research

New Managers | Opalesques Emerging Manager Monitor - April 2012

New Funds in the database


new funds in Opalesque Solutions Emerging Managers database
(second half of March and first half of April 2012)
Fund name Oil Vision - LFP ENFA Vision Petrole Cornerstone Diversified Investment Fund, LP Strategy Equity long bias Equity long/short Manager Location france & uK Arlington heights, iL, uSA Singapore new york, uSA Los Angeles, CA, uSA new york, uSA new york, uSA new york, uSA port vila, vanuatu (South pacific) bermuda Malta vienna, Austria paris, france paris, france new york, uSA $8m Eur1m $0.6m Eur16.6m $10m Current Fund AuM Eur28m $450,000 $3.4m $18m $1.2m $6.8m $1.1m $1m $2.5m

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Launch date nov-11 Oct-10 Oct-11 Jan-09 dec-11 Sep-11 Sep-11 Jan-12 Mar-10 Mar-09 Jan-12 Oct-10 dec-10 Sep-10 Jan-10

First Degree Long Horizon Absolute Return Fund global macro Infrastructure Macro Income Fund, LP Logica Fund, LP Academy Quantitative Global Fund LP Academy Quantitative Global Fund Ltd JJN Capital Fund, LP FTM Limited EQC Global Opportunities Fund Limited The Maya Market Neutral Fund Multi-Strategy Equity long/short Statistical Arbitrage Statistical Arbitrage Event driven fixed income global macro Equity market neutral

Ithuba Macro Opportunities Fund (Class B3 EUR) global macro Aequam Diversified Fund S2 (USD) Aequam Diversified Fund I1 (EUR) Milman Capital LP CtA CtA Equity long/short

New Managers | Opalesques Emerging Manager Monitor -April 2012

New Funds in the database


the Opalesque Solutions Emerging Managers database is an extremely niche and specialised database of Emerging hedge fund Managers, and access is available for eligible investors such as funds of funds, family Offices, pension funds and uhnwi globally as well as academia and research analysts.

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for the sake of this database, we define an asset manager as emerging manager if, 1) the firm is less than 48 months old and 2) the AuM of the firm at the time of the firms inception is less than $600 million. if you want your fund to be in the Emerging Managers database, please send your details to: db@opalesque.com.

New Managers | Opalesques Emerging Manager Monitor - April 2012

Emerging Managers: Statistics Performance Drivers of the Opalesque


Performance Drivers of the Opalesque This month we Emanagers examine the performance drivers of theor fund of Index it as if it were a portfolio Emerging Managers Index by treating
this month we examine the performance drivers of the Emerging sub-indices mapped to the Dow Jones Credit Suisse Hedge Fund Managers index by treating it as if it were a portfolio or fund of funds Strategies. and performing an attribution analysis on the constituent sub-indices mapped to the dow Jones Credit Suisse hedge fund Strategies.

Emanagers Index.

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Emanagers ( Actual ) and ( Reconstructed ) versus Dow Jones Credit Suisse Blue Chip Hedge Fund Index ( Reconstructed )
65.92 62.78

70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 -10.00

funds and performing an attribution analysis on the constituent

The results are instructive and give a fairly clear indication as to where the excess performance of the Emanagers Index has the come from. results are instructive and give a fairly clear indication as to where
the excess performance of the Emanagers index has come from.

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index.

To the extent that the Index is a semi-passive portfolio whose Strategy that the index is a semi-passive portfolio whose Strategy to the extent Asset Allocation is largely determined by market forces one might is largely determined by market significant Allocation or Asset Allocationexpect that there would be aforces one might market timing effect a significant Allocation or market not the case expect that there would be driving returns. However, this istiming for the Emanagers Index and the allocation effects relative to effect driving returns. however, this is not the case for the Emanagers the benchmark portfolio are in fact -1.74% p.a. This probably index and the allocation effects relative to the benchmark portfolio are reflects the lagged momentum effect of new funds being in fact -1.74% p.a. this probably reflects the lagged momentum effect launched in recently strong performing areas.
of new funds being launched in recently strong performing areas.

Q1 2012 Strategy Weights

Convertible Arbitrage Dedicated Short Bias Emerging Markets Equity Market Neutral Event Driven Hedge
Emanagers Q1 2012

In contrast the Selection effect is +4.18% p.a. suggesting a high in contrast the Selection effect is +4.18% index and thata it is not merely quality of funds coming into the p.a. suggesting high quality of funds coming intopastindex and that it is not merely dominated by dominated by the winners.
past winners. the Managed Futures ( 30.4% v.s. 16.4), Equity L/S ( to Managed Emanagers index has significantly higher weightings 33.9% v.s. 15.9%) futures ( 30.4% v.s. 16.4), Equity L/S ( 33.9%in Event Driven ( 3.5% v.s. and significantly lower weightings v.s. 15.9%) and significantlyand Emerging Markets ( driven ( 3.5% v.s. 21.4%) and 21.4%) lower weightings in Event 0% ) and Convertible Arbitrage. Emerging Markets ( 0% ) and Convertible Arbitrage.
New Managers | Opalesques Emerging Manager Monitor -April 2012

Fixed Income Arbitrage Global Macro Long/Short Equity Managed Futures Multi-Strategy

The Emanagers index has significantly higher weightings to

Dow Jones Credit Suisse Q1 2012

Dec-11

Feb-12

Over the 3.25 year period since Jan 2009 the Emanagers index Over the deliveredperiod since Jan 2009 the Emanagers index has versus has 3.25 year a +14.7% compound annual return (CAGR) delivered a +14.7% the benchmark Dow Jones Credit Suisse Blue Chip the +8.91% of compound annual return (CAgr) versus the +8.91% of the benchmark Index. Hedge Fund dow Jones Credit Suisse blue Chip hedge fund

Emanagers ( Actual ) Emanagers ( Reconstructed) Dow Jones Credit Suisse Blue Chip Hedge Fund Index ( Reconstructed )

Emerging Managers: Statistics versus Benchmark merging Manager Strategy weights


Emerging Manager Strategy weights versus Benchmark

ISSUE 04 April 2012

New Managers | Opalesques Emerging Manager Monitor - April 2012

Emerging Manager Strategy Returns and Attribution versus Bmk. Emerging Manager Strategy Returns and Attribution versus Bmk.

Emerging Managers: Statistics

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New Managers | Opalesques Emerging Manager Monitor -April 2012

Emerging Manager Quarterly Returns Heat Map versus Bmk.


Emerging Manager Quarterly Returns Heat Map versus Bmk.

Emerging Managers: Statistics

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As Short Strategies and lostthe on Emerging Markets exposure. above the Emanagersfixed income funds within the Emanagers index have generallyassociated can be seen from out two Returns Heat Maps both the Multi-Strategy and Index has benefitted from not having the drag perwith an allocation to Dedicated Short Credit Suisse index. lost out on Emerging Markets exposure. Both the Multi-Strategy and Fixed formed better than those within the dow Jones Strategies and Income Funds within the Emanagers Index have generally performed better than those with the Dow Jones Credit Suisse Index.
- peter urbani

As can be seen from the two returns heat Maps above the Emanagers index has benefitted from not having the drag associated with an allocation to dedicated

New Managers | Opalesques Emerging Manager Monitor - April 2012

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Interactive screening tool with funds sorted by M2

Interactive Screening Tool

ISSUE 04 April 2012

New Managers | Opalesques Emerging Manager Monitor -April 2012

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Fundana Series
the fundana series of articles discusses investments in Emerging Managers; it derives from the real world experience of the fundana team. fundana is the investment advisor to several funds of hedge funds and directs approximately half of its new investments to Emerging Managers. the investment process typically involves allocating a small amount day 1 or Early Stage (defined as less than 1y after the funds launch) to new managers who have strong pedigrees. the objective of this series of articles is to share thoughts around our key observations. it does not aim to be statistically significant but to create a dialogue around our observations. the Emerging Managers space is currently in vogue. following the 2008 credit crisis, allocators focused first on the opportunity to invest with previously hard-closed blue Chip hedge fund managers. now that most of those funds are hard-closed again, investors are taking another look at Emerging Managers. this article looks at the level of assets raised by the managers at the launch of their funds before the 2008 crisis and after the crisis. it focuses on the small and mid-sized launches (typical day 1 assets under management (AuM) of between $20m and $500m) as fundana does not invest in the very large new launches (>$1bn at launch). the dataset has been compiled from all the new investments made since January 2006, encompassing 66 new investments to date in the Long/Short Equity, global Macro and Event driven strategies.

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The median and average sizes of the new launches have been cut in half post 2008
What impact did the crisis have on Day 1 investments?
for the purpose of this article, we consider two separate periods: the first period runs from January 2006 to July 2008, hence before the industry crisis; and the second period runs from August 2008 to date. the team conducted 25 day 1 / Early Stage investments in the first period and 41 in the second period, for a ratio of 0.81 day 1 / Early Stage investments per month in the first period and 0.93 in the second period. total assets raised by the 66 managers amounted to 8.45bn$ at launch, for an average 128M$ per fund and a median of 100M$. table 1 presents the breakdown of the assets raised by the managers, in aggregate and for each period. (AUM) at launch Number of investments Maximum Average Median Minimum Total Since January Pre July 2006 2008 66 680M$ 128M$ 100M$ 4M$ 8.45bn$ 25 680M$ 184M$ 130M$ 30M$ 4.60bn$ Post July 2008 41 280M$ 94M$ 60M$ 4M$ 3.85bn$ -59% -49% -54% -87% Change

table 1: Evolution of the assets raised day 1 by the new hedge fund managers
New Managers | Opalesques Emerging Manager Monitor - April 2012

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Fundana Series
from this it is clear that the new launches after the crisis have been smaller than the ones before, raising on average half the assets that their predecessors raised. the median presents a similar result, indicating that the outliers of the database have had little impact. Looking at the breakdown of the assets of the new launches in figure 1, we observe a significant skew towards small asset base in the second period compared to a more evenly distributed asset base in the first period. External AUM at Since January Pre July launch 2006 2008 Maximum Average Median Minimum Total % of total AuM at launch 650M$ 75M$ 35M$ 0M$ 4.94bn$ 58% 650M$ 131M$ 67M$ 2M$ 3.28bn$ 71% 260M$ 41M$ 10M$ 0M$

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Post July 2008

Change

-60% -69% -85%

1.66bn$ 43%

table 2: External assets raised day 1 by the new hedge fund managers
As table 2 shows, not only has the asset base of the new managers shrunk by half post the 2008 credit crisis (as seen in table 1), but half of the managers have received $10m or less from external investors (a 85% decrease from before the crisis). After the crisis, investors have represented less than half of the money (~43%) invested day 1. in fact, only 5 managers raised more than $100m external money in the second period (~12% of the new launches we participated in) compared to 10 managers that raised that amount in the first period (~40%). this confirms a few trends which we have observed recently: 1) the median and average sizes of the new launches have been cut in half post 2008. 2) while the majority of day 1 money came from external investors pre13

figure 1: Level of assets raised by the new hedge fund managers


refining this analysis, we want to look at the effective external assets raised by the managers at launch, hence removing the seed deal investments (if any) and the personal investments from the portfolio managers. we classify as External AuM the assets invested by the other investors at launch.

New Managers | Opalesques Emerging Manager Monitor -April 2012

Fundana Series
2008, new hedge fund managers post 2008 rely a lot more on seed deals, anchor investors and their personal commitment in order to start with a meaningful asset base. 3) the tendency of new launches to be binary - a few winners (Azentus, Edoma) - attracts most clients, while the other managers have to wait longer than before to grow, despite having all strong pedigrees.

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bruno guillemin Senior Analyst - CAiA


www.fundana.ch

Fundana SA
geneva

Bruno Guillemin

New Managers | Opalesques Emerging Manager Monitor - April 2012

14

Focus
Managed accounts: an alternative structure worth considering
Managed accounts of hedge funds have been around since the 1990s, but really took off after the financial crisis of 2008, as investors then flocked to structures offering more control and more liquidity. the frenzy of 08 may be subsiding, but the fund structure remains popular nevertheless, even if (still) costly and complex to run. but as investors in managed accounts tend to be of the large and experienced institutional kind, this compensates. Opalesque looked at a few findings and talked to a few industry insiders to uncover this mysterious structure and found it may be more mysterious than expected, as much of the assets in managed accounts are not reported. in a managed account structure, a hedge fund manager is an investment advisor who is granted the authority to trade on the account, while the account holder has ownership and control of the assets, explains Moodys, the credit rating and research agency. this arrangement provides investors with more transparency and can also, depending on the type of managed account, generally insulate them from the knock-on effects of other investors pulling out of the fund.

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investors to look for fund offerings that gave them more control over their investments, and managed accounts filled this market need. At that time, managed accounts in the top ten platforms had around $41bn in AuM or 2% of the hedge fund industry assets. Managed accounts were not so popular before because they are a more costly structure than direct hedge fund investments, and they can pose operational complexities. investors and managers overlooked these negative aspects after the financial crisis, preferring to focus on the liquidity and the transparency advantages. however, as the market normalises, the negative aspects may become more evident again and that may slow down their growth, the Moodys report concluded. Opalesque found out from industry insiders that this is in reality not the case.

An operational headache
Last summer, Sungard, a solutions provider, claimed in a white paper that even though institutional players had been showing more confidence in investing in alternatives strategies, they still wanted greater control of their investment capital. hence the increased demand for managed accounts within the hedge fund space in the past few years. this structure can offer transparency, liquidity, and by utilizing a segregated account, can achieve greater control over their assets while minimizing counterparty risk. for those investors seeking to minimise the risk of fraud, illiquidity and style drift, they are a great structure. Since 2004, managed account usage has nearly tripled, says Sungards 15

Popularity shot up after 2008


Although managed accounts have been around for a while, they enjoyed a surge in popularity after the market upheaval of 2008 due to the benefits they offer, such as access to liquidity and ownership of assets, says Joanne Job, a Moodys analyst in a 2010 report. the financial crisis coupled with many hedge funds imposing liquidity restrictions, prompted
New Managers | Opalesques Emerging Manager Monitor -April 2012

Focus
white paper; according to Citi, a global investment bank, some 85% of hedge fund managers have seen an increase in requests for managed account structures. but fund managers who offer managed accounts have to have better backoffice functionality and must produce more detailed and frequent reporting for their plan sponsors. they must also cater to those using multi-strategy, multi-currency, bank-debt and other types of products, necessitating the use of separate agreements for each account. furthermore, the relatively small asset size of the average managed account can make the operating costs as a percentage of assets look relatively high, Sungard quotes Citi as reporting. And keeping liquidity levels high can also prove to be expensive. but still, more investors are coming in that segment of the market, and managers are obliging even if some investors are more demanding and also ask for a fee discount. So rather than build internal platforms, fund managers have been looking at outsourced technologies. this is where Sungard comes in. And many other service providers, for that matter. in addition to having the right kind of infrastructure, offering systems that are fully scalable allows firms to capture the entire available market, which, from a fund managers point of view, makes a very compelling case for outsourcing these activities, concludes Sungard.

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single manager managed accounts (direct) currently comes from funds of funds (fof), family offices, sovereign wealth funds (Swfs), banks, and there is increasing interest from the pension sector. And the biggest investors in managed account funds of funds are banks, Swfs, and pension funds. below is preqins break-down of investors with money either in direct managed accounts or in managed accounts funds of funds. Source: preqin Investor Type Hedge Fund of Funds Family Office Asset Manager Government Agency Investment Company Bank Insurance Company Superannuation Scheme Sovereign Wealth Fund Endowment Plan Foundation Investment Bank Private Sector Pension Fund Corporate Investor Public Pension Fund Direct 93.9% 91.1% 81.0% 80.0% 78.8% 77.8% 72.9% 68.6% 66.7% 64.4% 62.9% 55.6% 50.2% 41.7% 39.8% MA Direct 19.2% 15.6% 7.3% 0.0% 12.1% 8.3% 2.1% 7.8% 14.3% 1.4% 1.5% 22.2% 2.7% 8.3% 5.0% FOF n/A 33.2% 52.6% 50.0% 39.4% 69.4% 68.8% 88.2% 85.7% 67.7% 69.3% 33.3% 75.3% 66.7% 87.6% MA FOF n/A 2.2% 2.9% 0.0% 0.0% 11.1% 3.1% 9.8% 14.3% 1.4% 2.3% 11.1% 5.1% 8.3% 8.3% 16

Larger institutional investors like managed accounts


According to preqin, a global research house, the bulk of the interest in
New Managers | Opalesques Emerging Manager Monitor - April 2012

Focus
Amy bensted, head of hedge fund research at preqin, told Opalesque that institutional investors who invest in managed accounts tend to be larger than their commingled counterparts (with mean AuM of around $39.4bn, versus $23.6bn for non-managed account investors), with larger allocations to hedge funds (typically investing 17% of their assets in hedge funds as compared to 15% to their peers just investing in commingled single manager funds). there has been a definite increase in interest in managed accounts over the past few years although growth in uptake of these is usually limited by the ticket size of the investor in question, as well as the sophistication of the institution, she notes. As a result (as the figures prove), it is still just the largest and most experienced groups of investors which are selecting a managed account version of hedge funds. Managed accounts offerings do not suit every ones needs. for many institutional groups, the daily position transparency that managed accounts can offer is not necessary for their portfolio requirements, she says. As a result, the added cost of implementing managed accounts across their hedge fund portfolios is not worthwhile. for those hedge funds which want to attract inflows from Swfs, preqin recommended in its latest newsletter a better understanding of the Swf space, as well as increasing the prominence of dedicated managed account platforms. the research house cited China investment Corporation (CiC), which preferred managed accounts when it started investing into hedge funds.

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focused on a specific niche in the market place as well as those which invested in new fund structures. in a report last month, Agecroft said that since 2008, investors had significantly added to seeder/accelerator funds and to mid-sized and emerging managers. Adopting a new fund structure early can increase your assets, and with little competition, says Agecroft. So funds of funds investing in the following structures have seen their assets surge: 1. 2. 3. 4. 5. 6. 7. 8. 9.

Managed Account platforms uCitS 40 ACt funds tax Advantaged Structures fund of One investor Segment niche insurance Companies regional focus retail financial Advisors

A great veil of confidentiality in that space


A u.S.-based managed account provider, hedgeMark, sees that the demand for managed accounts is much greater than is reported by the industry as most true managed accounts are simply not reported either by investors or by fund managers. Kenneth S. phillips, founder and CEO of hedgeMark, told Opalesque that the institutional demand for managed accounts is, in fact, unprecedented. fund managers are now far more open to the idea of setting up managed accounts for the larger investors; and the latter, in response to their fiduciary obligations for transparency and reporting, are increasingly 17

Wise funds of funds use new structures


According to Agecroft partners, an u.S.-based third-party marketer, those funds of hedge funds that thrived in the last four years are those which
New Managers | Opalesques Emerging Manager Monitor -April 2012

Focus
demanding structures with high transparency and governance, phillips explained. hedgeMark is an affiliate of the bank of new york Mellon Corporation, the worlds largest custodian of institutional financial assets with nearly $27tln under custody. Like preqin, phillips sees Swfs as key investors in the managed account structure. bny Mellon has relationships with 110 of the largest Swfs and i can tell you that more and more of them are investing, almost exclusively in managed accounts, he added. it is the same for the pension fund industry in the u.S. phillips points to important distinctions to make in the managed account world (another thing Kenneth Phillips missed by the reporting industry): first, managed accounts are not necessarily acquired through a platform. Second, managed accounts are not the same as managed funds; both have different business models and different types of investors. he explains: the managed funds platforms are growing at a very good rate, which you can see through the likes of the various bank-sponsored programs, for example. what is not available for public reporting is the amount of segregated managed accounts that are circumventing the managed funds platforms. And those assets are unprecedented. nobody has an interest in reporting managed accounts, including hedgeMark,
New Managers | Opalesques Emerging Manager Monitor - April 2012

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because they are done under the upmost secretive and confidential structure. So for example if hedgeMark provides the infrastructure for managed accounts for a superannuation fund in Australia, for a Swf in the Middle East, or for a pension fund in the u.S., there is no need for hedgeMark to report these assets. besides, fund managers want them to be confidential and prefer to report their proprietary funds; and investors do not wish to report publicly how much is out there or what, specifically, they are doing. there is a great veil of confidentiality surrounding that space.

A managed account is a fund of one, he further explains, a vehicle in which an investor owns 100% of the assets in that particular account and has a proprietary, principal relationship with the investment manager managing these assets. hedgeMark provides the infrastructure for those types of investments, but does not provide the investment vehicles for those investors. it is a relationship between a manager and an investor; it is a principal relationship.
what is reported is the managed funds business, which is basically co-mingled funds sponsored by banks through their platforms where investors co-invest in funds, and their assets are co-mingled with other investors assets. hedgeMark offers that business model also through the hedgeMark managed funds platform. hedgeMark has also grown to become the industrys second largest provider of holdings-based, risk analytics for hedge funds: that is the firms third business. whether or not new fund managers should consider going on a platform really depends largely on whether or not the managed funds platform can create demand for their product, phillips notes. 18

Focus
it is up to their distribution capabilities of the respective platforms, which differ greatly. Some platforms do a miserable job of becoming distributors while other platforms have a robust distribution capability. An emerging manager with a good product could do very well on a managed funds platform if that platform has a strong commitment for distribution. separately managed account.

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Bringing the structure to the masses with lower minimum investment


Ai Advisors, a boston-based provider of alternative investment strategies, launched in January a managed account platform and web portal. the firm initially engaged four alternative investment managers to serve as sub-advisors with respect to their strategies on this platform. Charlie hipwood, founder and Chief investment Officer, told Opalesque that Ai Advisors had launched the Charlie Hipwood new platform in an effort to bring the managed account solution to more investors interested in hedged equity strategies. As alternative strategy managed account minimums can be very high, Ai developed an operations platform (with patent-pending technology) that allows them to deliver long/short managed accounts at much lower minimums, so that many more investors may access hedge strategies. there is no commingling of client assets, he assures Opalesque. these are true separately managed accounts. investors can choose any strategy via Ais platform and Ai will trade the strategy directly in their account as a
New Managers | Opalesques Emerging Manager Monitor -April 2012

we believe that hedged equity strategies are important and the managed account structure is superior to any other structure out there, with regards to control of the underlying assets, liquidity and transparency, he explains. because there is no commingling of client assets, there is no additional risk associated with the managed account that you have with Lps, funds of funds, 40 Act products and other structures. Ai currently has seven sub-advisor strategies and expects to have 15 to 20 strategies by this summer. And the firm has a pipeline of more than 75 strategies that have expressed interest in joining. both institutional investors and hnwis are interested in managed accounts value proposition, he notes. being able to have access to strategies they might not be able to access normally because of the traditionally high minimums, and then getting those delivered with full custody, control, liquidity and transparency is very compelling. these strategies are attractive from a cost perspective as well, compared to fofs and 40 Act products. So those new hedge fund managers who received offers to join a platform should do their due diligence on the platforms too. its a two-way street. but the willingness of platform providers to grow their business and the interest that institutional investors have in the structure make for a truly promising area of work, even if an operational headache too. you cant have it all.

- benedicte gravrand

19

Q&A
The comforts of a UCITS platform
the dublin-regulated MontLake uCitS platform was launched by ML Capital, a European fund distribution firm, in October 2010. it currently contains seven funds: Pegasus UCITS Fund (UK L/S Equity); which returned 4.25% YTD (est., to end-March) Skyline UCITS Fund (Global EM L/S Equity) ; 10.59% YTD (est.) Dunn WMA UCITS Fund (CTA/Managed Futures); -12.70% YTD (est.) Goldwinds Global Macro UCITS Fund (Discretionary Global Macro) RP Systematic Emerging Markets UCITS Fund (Systematic EM Macro); 0.34% ytd (est.) Wanger US Smaller Companies UCITS Fund (US Small Cap, Long Only) MontLake Wanger European Smaller Companies UCITS Fund (European Small Cap, Long Only) this is a platform, like many like it, that lets the fund managers focus on the running of their fund, while it gets busy with the multitude of tasks that must be met for a fund to be sustainable. Like a supermarket does with the products that it sells. So while managers stay busy doing what they do best; investors can sift through them (with ease, as there is good transparency) and chose what fund (uCitS fund, a safer structure) would be most suitable for their own portfolio. what is there not to like about being on or investing through a platform. Opalesque asked Cyril delamare, one of ML Capitals managing partners, to explain how it really works.
New Managers | Opalesques Emerging Manager Monitor - April 2012

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Question: why did ML Capital decide to start a platform? why uCitS rather than other fund structures? Answer: we set up ML to bring hedge funds to the mainstream and the best way to do this was through uCitS. we decided to launch our own platform as the funds Cyril Delamare available at the time where very few, and we wanted to control the products that we offered to our clients. we are very client-reactive and clearly they were looking for something else then the traditional Cayman island funds. the trend that seemed constant was a demand for much higher regulation and a demand for fiduciary responsibility over assets after the number of scandals that the industry had seen during the financial crisis. So, we looked at different options; a managed accounts platform, Qifs, uCitS. the latter became the natural choice for us for a number of reasons. first of all, ML Capital and the Montlake platform were set up to bring hedge funds to the mainstream and open up hedge fund strategies to a wider audience. uCitS was a perfect structure for us in the sense that we could talk to retail investors all the way up to the big institutional investors in Europe and also Latin American and Asia. that was something that we thought was really interesting, moving from where we were in the past, the offshore world, to the onshore European regulated world. 20

Q&A
but the main reason was that the uCitS-compliant fund structure offers investors a lot of benefits. And from a distribution perspective, it also offers us more flexibility as we can distribute openly to the wider market. Q: what is the separation of roles between the platform provider and the fund manager? A: the fund managers are given discretionary direction over the management of the portfolio. So, from a day-to-day basis, they run the portfolio. however, Montlake does the following things: ML Capital is the investment manager and promoter of the Montlake platform, which means that we have a number of fiduciary duties. On a day-to-day basis, we control that the fund managers are in line with uCitS rules at the portfolio level, and are in line with the mandate that they have been given. ML Capital also takes care of all the regulatory filings, all of the oversight, and the compliance from a uCitS perspective for the fund managers. Obviously, afterwards we take care of all the distribution, marketing, reporting, and client services. if you think about it, when a manager joins the Montlake platform, he will be running a managed account in a uCitS wrapper of his strategy. this is why at the ML Capital level, when we have a manager that comes on board, we have to make sure that the strategy will naturally fit inside a uCitS environment.
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Once we are at ease that the strategy can live in a uCitS environment, we then start working with that manager. for him, really, it will be pretty easy in terms of administrative burden, because we will take care of everything from regulatory filings, oversight, compliance, and post-trade risk management. Q: Must fund managers come in with a minimum AuM? does ML take care of the seed money raising? A: we work with experienced fund managers, which have a proven track record, have sufficient assets under management to sustain their business. when we start talking to fund managers, we want to make sure that the seed assets are in place either from the manager himself or from clients that have a need for the particular strategy -- we are not a seeding platform but we will assist the manager in capital raising. today before launching a fund we will require minimum commitments of $25 to $50 million of capital. the ML Capital uCitS barometer is a good tool to identify demands from investors and match the talent with the assets. Q: what other criteria does ML Capital have when choosing or accepting a fund manager onto its platform? A: the first criteria we look at is whether the strategy is uCitS-able. Secondly, we look at the corporate structure and the philosophy of the firm. what is very important for us is that the fund management company that we will work with is well-regulated in order to be nominated as subinvestment manager,and that it has enough AuM to sustain its business. One of the other important factors is that the company must have a clean 21

Q&A
record of running money over the years and good performance. Q: do you actually do background checks on each manager (to check their personal life or other things)? A: well, when we launch a manager we do extensive due diligence on them. Once they are on the platform, we also conduct ongoing due diligence which is anywhere from the daily risk management that we apply all the way to, on a quarterly basis, making sure that the operational structure has not changed and that there are no risks to the business. but before we launch a manager, we definitely do a lot of background checks and due diligence in order to make sure that we know who our clients are and that we know that we are working with people who have a proper background and that we wont get bad surprises. Q: why would investors choose to invest via a platform? A: i think investors who are looking at uCitS today, are looking at platforms because this is where the vast majority of the offering is coming from in terms of real hedge funds as opposed to just absolute return products. investors will look at platforms as an added risk and due diligence oversight from a managers perspective. before allocating to a manager, obviously, every investor has to do his own due diligence and make his decision according to his finding. however, having a structure like Montlake with ML being the investment manager, there is somewhat an extra due diligence layer and a risk management layer, which investors are seeing as more and more important.

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Q: what about the future of the platform and where you think assets will be coming from? A: today we have seven products on the platform. we are looking to add another one or two products between now and the end of the year. the reason why we are limiting ourselves is because we believe that offering a restricted number of quality funds is something that is extremely important to our client base and important to our sales team in order to cater for our investors as best as we can. the way the uCitS base is growing at the moment is today it is very much dominated by the big brand names and this is going to change. it is going to evolve to people looking much more for boutique-like fund managers where they will get a specific specialty strategy, which will first of all enhance their return and take them away from the absolute return type products which are out there that are not real hedge funds.

- benedicte gravrand

New Managers | Opalesques Emerging Manager Monitor - April 2012

22

Seeders Corner
A very clean offering
this month, Opalesque talks to the co-founder of the harvest fund. the harvest fund creates and manages private equity investments in emerging hedge fund firms. it is run by newly formed firm harvest funds Management, LLC (hfM), based in westport, Ct, an affiliated company of Moody Aldrich partners, LLC. hfM is supported by wilshire Associates inc., which advises on manager research and manages the managed account platform. Christopher Kelley, co-founder and managing partner of the harvest fund, brought in more than twenty five years of private equity and hedge fund seeding experience to the business. previously, he was co-founder and managing partner of weston Capital Managements hedge fund seeding business where he incubated over ten firms and grew the platform to $1.2bn. he was also founder Christopher Kelley and president of value Asset Management (vAM), a bank of America-backed private equity holding company that took majority interests in premier investment firms. the harvest fund is a strategic type of investment fund, he told Opalesque in an interview. what we want to do is both seed firms that have x amount of capital, and provide acceleration capital for, for example, a firm that has already a quarter of a billion in AuM and wants to start to new fund. the harvest fund has a three-year lock-up and so must attract sticky money. it has u.S. onshore and offshore feeders, and a master fund. there
New Managers | Opalesques Emerging Manager Monitor -April 2012

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is also a one-year liquidity lock share class targeted for high-net-worth individuals. the beauty is that we have no issues; it is a very clean offering; we invest in firms, he says. we do not take ownership interest in the gp or the LLC; so there are no book and tax issues with our offering. Any type of investor, whether it be family office, a retirement fund, a pension fund, a state fund, an insurance fund, can invest in our vehicles ... So, it is quite a multifaceted fund platform; a very open architecture. Kelley and his partners are currently raising around $300 to $400m, and plan to invest in up to eight funds, each with a different strategy, but most with the capacity to invest short. More than eight would be too many, Kelley notes. Each firm is seeded with $25 to $50m. harvests revenues come from the underlying firms. harvest will take a 25% gross revenue share of the underlying managers total fee and carry (gross, not at the EbidtA line). the second economic which distinguishes us from blackstone, goldman, frM in London and all these other seeders, is we market the firms post seeding, Kelley adds. we charge the firms a fee to support our marketing, our costs and our platforms. we negotiate with the firms and they all like it. harvests seeded funds end up in wilshires managed account platform. Also our firms will hopefully end up at Lyxor, hfr in Chicago, and the Carolinas and in all these platforms where we see best-of-breed managers, he explains. wilshire is just one of many. So the underlying managers will have their core fund, and they will also have a managed 23

Seeders Corner
account on a platform such as wilshires. And harvest will help them managed this. Kelley wants to pick the top managers that have these three attributes; they must already have significant capital in place in their strategy; they must be a team of partners who have worked together in the past; and their strategy must be large scale, such as global macro, distressed, commodities, uSA, etc. and not niche. the latter attribute is because harvest wants to grow its firms to around $1bn each. harvest recently provided acceleration capital to a London-based asset manager called Clearance Capital, which was founded three years ago by a South Africa-born trader and merchant banker named wessel hamman. his flagship is a European long/short fund with a rEit focus and a six-year lock-up. the new fund, for which capital was provided, mimics the flagship strategy but provides higher liquidity; it now has a managed account on wilshire. the private equity fund is negotiating three or four deals at the moment. it should have six to eight funds in its portfolio within the next twelve months. negotiation comes with what Kelley calls the bible: a 40-page long seed deal contract, which includes details such as the revenue shares, the marketing, the calls, the puts, the recycling, keying-in. the whole thing is beautifully structured, Kelley enthuses. Everything is done very much upfront because we are very experienced people. Kelley and his partners have a warren buffet type view that the markets will produce good returns to hedge fund players: right now, the pipeline we have is extremely robust, here is why: confluence of events, basel iii, dodd-frank, the volker rules, all the banks that are closing their prop

ISSUE 04 April 2012

desks. All this has caused talent to be available, which is all exogenous factors, and then you combine that with the uS stock market this quarter maybe being the best since 1998, and London which seems to be slowly coming back. it is a great time to be building a hedge firm and making money again.

- benedicte gravrand

Name: harvest funds Management, LLC (hfM) (an affiliated company of Moody Aldrich partners, LLC.) Headquarters: westport, Ct, uSA Other office in: Marblehead, MA, uSA Established in: 2011 Core offering: harvest fund (onshore and offshore feeders + master fund), a private equity hedge fund seeding fund Other offerings: a Liquidity Share Class How many funds have been seeded by the Harvest Fund: one, negotiating three more deals. Expected total funds in portfolio: six to eight Strategies / geographies: all (diversified) Typical seed amount: $25 to $50m each Ownership interest in seeded funds? yes, but not in Lp or LLC Economic interest: phantom style warrants. residual interest usually matches revenue share percentage. Post-seeding activities: Marketing Total AuM: About $75 million committed to Master fund. Expecting to raise $400 million by year end. Also, major co-investment available. Contact: www.moodyaldrich.com/harvestfund/contact/ Website: www.moodyaldrich.com/harvestfund/ 24

New Managers | Opalesques Emerging Manager Monitor - April 2012

Servicers Spott
Omgeo: Hedge funds need to think like traditional asset managers
Matt nelson, Executive director of Strategy at Omgeo LLC, a financial operations expert, warned in an article in March that the global regulations, including dodd-frank in the uS, and EMir (European Market infrastructure regulation) and the AifMd in Europe, would have a profound and widereaching impact on hedge funds and the unintended consequences on this industry may be severe.

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services essentially connect market participants and allow them to automate their post-trade processing - which includes the events that occur between the execution of a trade and clearing and settlement. Omgeos fastest growing part of the client community recently has been hedge funds. when asked about the operational challenges that emerging hedge fund managers are currently facing, nelson said that to attract investor capital, it is no longer sufficient for a hedge fund manager to be two people in a garage with a computer and an idea, as institutional investors have become much more demanding especially since the Madoff and Stanford scandals. that means [hedge funds should have] their own sound internal technology infrastructure, or rely on trusted and established business partners. in the hedge fund world, that is typically the prime broker, the fund administrator, and in some cases the specialty outsourced providers and technology providers, he explained. the focus on ensuring a sound operational infrastructure has been going on for a few years, not just as a result of the crisis or even specific to the scandals. i used to be a research analyst and when i was covering the hedge fund market at the time - we were talking about this five, six years ago if you wanted to get the big pension or endowment money, you really needed to start thinking like a big traditional asset manager. investment returns were very low during the crisis, and for institutional investors to meet their 7-8% target return became very difficult. this led them to increase investment in alternatives.

Matt Nelson

he cited a sizeable hedge fund firm, which had recently decided to return their investors money. Among their reasons for doing this were the daily challenges of dealing with global regulations, demanding clients and difficult markets. nelson expects more firms to exit. he also expects some to move to more lenient countries to avoid the stricter regulatory regimes of the uS and the Eu. theres also the possibility that more hedge funds will look to outsource their operations to specialty fund administrators, custodian banks or prime brokers, he added. but many firms, particularly those focused on growing and expanding their business, will invest internally in operations and technology and will be looking across the trade lifecycle for opportunities to automate and increase efficiency. Omgeo provide solutions to investment services firms including hedge funds, traditional long-only managers, brokers and custodians. those
New Managers | Opalesques Emerging Manager Monitor -April 2012

25

Servicers Spott
According to nelson, hedge funders looking for institutional capital need to think and behave like a larger traditional asset manager. So Omgeos services, which help fund managers achieve efficiency, cost reduction and lower risk in their operations, have been more in demand as a result. Still, operational demands, coupled with the regulatory changes, are placing a burden on the hedge fund business, he notes. And on top of that, there is a lot of competition in the hedge fund space, and some strategies may be working in a saturated marketplace with opportunities that are more difficult to find. Managers need to invest in technology, in people, in process, and policy as well as face the regulatory challenges in the uS and Europe. nelson expects the regulatory waterfall will eventually flow down to other regions. he would recommend emerging hedge fund managers to make their firm act and behave like a small traditional manager, in terms of technology and operations, reduce operational risk and promote automation. Name: OMgEO Headquarters: boston, MA, uSA

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Other office in: 16 offices in uSA, Europe, Asia and Australia Established in: 2001 Core offering: Operations expertise: enabling clients to accelerate the clearing and settlement of trades, and better manage and reduce their counterparty and credit risk. Related services: Omgeo ALErt for managing settlement and account instructions, Omgeo CtM & Omgeo OASyS-tradeMatch for the allocation, confirmation and matching process and Omgeo protoColl for collateral management Supporting how many investment businesses: Automating post-trade life cycle events between 6,500 financial services firms in 52 countries. FuM: not applicable

- benedicte gravrand

New Managers | Opalesques Emerging Manager Monitor - April 2012

26

47N Series
Corporate governance rests on three pillars
47 degrees north Capital Management is a specialist alternative investment firm, and a pioneer in early-stage hedge fund investing. it was selected as one of three successful candidates out of 97 applicants to manage the emerging hedge fund managers program at CalpErS. 47n is a leading proponent of corporate governance in the hedge fund industry; so the objective of this series of articles is to discuss and inform on current corporate governance issues.

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At 47n we look at corporate governance according to three pillars; alignment of interest, control of assets and transparency. we have found over the years that most of the issues we come across fall under one of these categories. they can be neatly summed up by an investor perspective; were in this together, its our money and, last but not least, give us what we need to know - even though it may be painful. what better way to control and understand the risk? we have found from experience that manager attitudes to corporate governance range from benign neglect (ill have to speak to our lawyer) to a Machiavellian effort to maximize manager profitability (early redemption penalties paid to the manager rather than the fund- ouch!). to be fair we see far more of the former than the latter. Over the next few months well attempt to set forth in this column some of the common corporate governance pitfalls for early-stage managers when drafting constituent documents and developing business. well do our best to avoid the evangelical and stick to the practical. At the end of the day the default setting of an early-stage manager wishing to develop business should be; give investors what they want and legitimately deserve. by all means haggle back and forth nobody is expecting a push-over for a manager but do make it as easy as possible for investors to invest. its the path of least resistance that maximizes the chances of investment.

Fraser McKenzie

when we were asked by Opalesque to write a monthly column on the subject of emerging managers or early-stage as we like to call them as some listeners tend to think emerging market managers we quickly turned to the connection between early-stage managers and corporate governance. Of course, corporate governance is not specific only to young managers but its true that, as investors, we have the most say on corporate governance matters early on in a managers development.

first of all, lets be clear about whom we are talking; early-stage managers are typically those with less than a 3-year track record and under $500m in assets under management although the definition may change under different circumstances. however, more important than a definition of track record and AuM is a managers corporate culture and the ethos of their organization. this tends to define their attitude toward providing corporate governance protection for investors.
New Managers | Opalesques Emerging Manager Monitor -April 2012

- fraser McKenzie, Managing partner, www.47n.com 47 degrees north, pfffikon, Switzerland


See Opalesques video interview of Claude porret, founder and CEO of 47 degrees north here (and the subsequent article here) 27

Launches
we now have an idea of how many hedge funds have been launched globally so far this year: more than 100 as at the end of March, claims Singapore-based data provider Eurekahedge. half as much as last years Q1, but lets wait till later in the year to get the final numbers.

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Karst peak Capital Ltd, which will bet on Asian stocks, with around $50m of capital, in Q2. 6. blue ridge Capital Management partner and portfolio manager david greenspan resigned and took three staffers with him. he is reportedly preparing to launch his own $1bn hedge fund soon. 7. Adam gold, formerly a portfolio manager at gilder gagnon howe & Co (gghC), has launched his maiden long/short equity hedge fund, after forming new york-based Espial Capital Management earlier this year. 8. paulson & Co and validus holdings launched $500m rated reinsurer paCre, that created a start-up vehicle which employs the hedge fund-style investment strategy espoused by greenlight re. 9. former traders at Millennium Management LLC plan to start new hedge funds that will mainly invest in Japanese equities; the terra grove Japan fund and the terra grove pan Asian fund will start in May with around $25m in total. (philippe gougenheim, former unigestion Managing director, had to postpone the launch of his highly liquid global macro hedge fund, the glasnost fund, from June to September, after a skiing accident.)

We recently heard of the following ex-hedge funders striking out on their own:
1. Steve Eisman, who left frontpoint partners LLC last year, raised $22.9m from friends and family for his new hedge fund, Emrys Onshore fund, which started trading March 1. 2. Athos Capital Ltd, backed by Ascalon Capital Managers, a unit of Australias westpac banking Corp, launched an event-driven hedge fund investing in Asia-pacific. Athos was founded by former tiresias Capital portfolio manager Matthew Moskey and trader Erik Senko, together with ex- blacks Link Capital fred Schulte-hillen. 3. thierry Lucas, Eaton park Capital portfolio manager until last year, will start his new fund, portland hill Capital, on 1 May. 4. Long/short technology hedge fund Lamond Capital partners began trading April 2 with at least $175m from institutional investors, including $150m in seed money from Meritage group. this is only the second hedge fund seeding deal for Meritage, the $8bn multi family office that mostly manages money for renaissance technologies executives, said Absolute return+Alpha. 5. Adam Leitzes, who helped assess investments for Julian robertsons tiger Management LLC in Shanghai, plans to start his own hedge fund,

Former bankers starting new funds:


10. Ex-Morgan Stanley neal Shear, and Jean bourlot, former commodities head at ubS Ag, started higgs Capital Management LLp, a commodities hedge fund in London. neville Atha also joins from Jabre Capital partners.

New Managers | Opalesques Emerging Manager Monitor - April 2012

28

Launches
11. former nomura holdings inc trader benjamin fuchs will launch a multistrategy hedge fund, bfAM partners (hong Kong) Ltd, on June 1 with backing from normura, Japans largest investment bank. 12. Oslo-located trient Asset Management AS and tiger Management LLC announced a strategic partnership to focus on investing in a global macro strategy. trient is a new investment company registered in 2011; each of the founding partners, Knut Kjr and dag Ltveit, previously took part in the formation and operation of norges bank investment Management, which manages the norwegian government pension fund and norways foreign reserves. 13. george Assaly, a former goldman Sachs prop desk chief, will launch an equity-focused quant hedge fund named Alcova Asset Management. he will be joined by russell hart, formerly COO at pCE investors.

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portfolio managers in new hedge fund strategies. it recently announced its first seeding project as that of a niche quantitative long/short strategy led by two former senior portfolio managers at Madison Square investors, a subsidiary of new york Life investment Management.

Recent seed investments


Maverick Capital Management Lp, the $9 billion investment firm run by Lee Ainslie, has made its first seeding investment in a start-up hedge fund, Sycamore Lane partners (founded in early 2011 in new york). Maverick had been planning to invest in new hedge fund managers since last summer. Stone toro Asset Management received a seed investment for its maiden hedge fund, the St Alpha Event strategy, launched in January 2011 and managed by Jeffrey russo, formerly of blackrock. the funds AuM is now about $40m.

New seeding ventures and platforms:


14. the Alpha Cooperative is new new york-based operational incubator for emerging hedge fund managers. we have created a shared platform where managers can get everything that they want in one place, but the cost is variable because the platform is shared between managers, explains Sara Malak, co-founder of the Alpha Cooperative. On one track, the firm provides a fully outsourced operational infrastructure that new funds can use to get started and meet investor demand. On the other track, the firm becomes a fiduciary partner, providing investors with fiduciary relationship that has been fully vetted. (full article). 15. new york-based investment firm fairhills group is expanding its principal investment operations to include the incubation of experienced

- benedicte gravrand

New Managers | Opalesques Emerging Manager Monitor -April 2012

29

The Analytical View


Rescuer funds
Many hedge fund investors require a hedge fund to have a minimum of $100m in AuM before they will consider investing in them. this is when seeder and accelerator funds come in. Seeders/Accelerators agree to invest a large amount of assets into the hedge fund and, in return, they receive both [or either] the performance generated by the fund on their investment and a quasi-equity position in the firm, usually by sharing in the revenues on all assets of the fund, explains Agecroft partners, a hedge fund marketer, in an article. Seeders can generate significant returns if they pick a fund that performs well and significantly grows its asset base. in a recent special report called Start-ups, Seeders and Strategic Stakes, infovest21 delves into the trends underway in the seeding community as well as the outlook for 2012. infovest21 is an information services company for the hedge fund industry. According to infovest21s report, half of the firms that seeded start-ups before 2008 have either left the industry or reduced the amount of seeding. the main challenges that seeders face are poor performance of seeded funds; strategies that are too crowded to raise money; short track records; the frontpoint experience (which put into question the platform business model if one participant has a problem (in this case an insider trading investigation) that endangers the whole platform); and state regulations. goldman Sachs petershill is an example of a seeder having to deal with major challenges. the petershill fund, founded in 2007 with $1bn, took minority investments in about 15 hedge funds, but many of them performed poorly or blew up. goldman is now trying to sell the fund. infovest notes the following new developments and outlooks for the hedge fund seeding industry:
New Managers | Opalesques Emerging Manager Monitor - April 2012

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1. Few large deals: there will be fewer large seeding deals (in the $100$200m range). the top-tier seeders remain blackstone, goldman and reservoir. 2. No increase in number of deals: the surveyed seeders said that four to six seeding deals is typical and is not expected to increase due to the amount of work that each deal generates and the limited amount of capital that is available. 3. Higher quality of deals: the quality of managers has increased, and so has the quality of the deals. 4. New seed ventures: due to the large supply of talent available, new seeders are springing up, from different types of businesses. 5. More joint ventures: As there are many components to a successful seed business, different players with different expertise join to start a seeding venture. 6. Broadening managers offerings: Seeders encourage hedge fund managers to offer other products. 7. Managed accounts: a natural extension and probably indicative of where youll see more seeders going. 8. More interest from institutional investors: which might come into fruition this year and next year. 9. Seeded registered products are at the point of becoming available to uS retail investors. 10. Asset raising has picked up so far in 2012, a year that is expected to be better than the last one. fewer, smaller, better quality deals with a more open view towards joint ventures, different products and structures; and money expected from institutions and elsewhere this year. this report draws the picture of a wiser (if poorer) industry with, still, much to look forward to. - benedicte gravrand 30

Perspectives
Only hedge funds with more than $5bn in AuM attracted net inflows in Q1-12
According to Chicago-based data provider hedge fund research, investors allocations, combined with a quarterly performance of almost 5%, lead to an increase in assets of $16bn in the first quarter (Q1) of 2012. total capital in the hedge fund industry is estimated to be at $2.13tln, surpassing the previous record of $2.04tln set at mid-year 2011. investor preference for the industrys most established managers continued to be pronounced in Q1, with $18.3bn in new capital allocated to firms with greater than $5bn in AuM, while firms managing less than $5bn experienced a combined net outflow of nearly $2bn.

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hedge funds. the SEC has 90 days to act on this amendment and until it does, the current rules remain in effect. the other start came from house Majority Leader Eric Cantor, who unveiled a $46bn economic stimulus bill that would cut taxes for small businesses - and offer a windfall for wealthy celebrities and hedge funds, huffingtonpost.com reported. the Small business tax Cut Act would grant a one-year 20% cut on taxes paid by small businesses, defined by the federal government as companies that employ fewer than 500 people.

SEC registration: A burden if you have more than $150m in AuM


hedge fund managers had to register with the u.S. Securities and Exchange Commission (SEC) by March 30th. the push to require hedge fund managers with $100m or more in AuM to register has been a long time coming, bloomberg comments in a March 28 article. An earlier registration rule was struck down by the courts in 2005. but the idea made a comeback after the financial crisis, as part of the dodd-frank financial reform act. On October 31, 2011, the SEC adopted rules (jointly with the CftC for dually-registered advisers) requiring advisers to hedge funds and other private funds to report information for use in monitoring systemic financial risk. the new SEC rule required investment advisers registered with the SEC that advise one or more private funds and have at least $150m in private fund AuM to file form pf with the SEC. the SEC is also expected to conduct surprise examinations of these managers. Mick Mcguire registered his San francisco-based Marcato Capital Management more than a year before the deadline. As a newer fund, 31

Rays of sunshine: JOBS Act, proposed Small Business Tax Cut Act
hedge funds may be facing more regulations, but here are a couple of stars out of pandoras box (both in the u.S.): the JObS Act, and the proposed Small business tax Cut Act. the former should allow hedge funds to market offerings to a much larger audience; the latter would provide some financial relief for those hedge funds that have less than 500 employees that is, most of them. president Obama recently signed into law the Jumpstart Our business Startups (JObS) Act which liberalizes the way private placements are conducted and allows general solicitation and general advertising, according to Kinetic partners, a global financial services firm. Specifically, the JObS Act amends the text of rule 506 on private placements and forces the SEC to lift the ban on general solicitation and advertising on

New Managers | Opalesques Emerging Manager Monitor -April 2012

Perspectives
we had the advantage of being able to establish these procedures at the very beginning and to capture all the information we need to meet the requirements, Mcguire told bloomberg. but for a multi-strategy fund that has been around for years and has eight offices around the world, i can see how the process might have been more cumbersome, he added. the cost of paying lawyers and adding compliance workers to meet the new requirement generally proved most burdensome for funds with less than $500m, bloomberg said. And all types of funds - large and small - had to commit hundreds of hours going through the process of checking boxes and writing narratives. Advisers with less than $150m in private-fund AuM are exempt from the reporting requirements and the firms in between would generally be required to file the information annually.

ISSUE 04 April 2012

that could one way for new entrants to avoid the upcoming hedge fund regulations

Some Canadian pension funds do invest in new managers


it was said late last year that quite a few Canadian hedge fund managers and traders who had made a career in new york or London and subsequently lost their jobs after 2008, were looking to come home and set up on their own. however, raising capital is very hard in Canada. A couple of hedge fund managers who had just launched there found that there are a couple of trillion dollars in Canada invested in mutual funds and pension funds, but very little capital available for startup asset managers. the hurdle is most often size and track record. And if you have neither, or one of, its very difficult, they told the globe and Mail, a Canadian daily. but some pension funds in Quebec went against that trend and together created a $175m fund to seed new managers: the SArA fund (fonds Stratgique rendements Absolu hrS), managed by hr Strategies. in Qubec, we have managers who are just as qualified as those of other major financial centres, said ren perreault, president of hr Strategies. (full article).

Family offices looking for hedge funds, hedge funds turning into family offices
family offices are plucking top-notch investment talent from hedge funds and private equity firms to work in-house, promising big paydays without the sales and marketing responsibilities, the new york times reports on April 4. they are also pooling their resources and making their own deals to buy companies or back start-ups. but an increasing number of hedge funds are going in the opposite direction. A rash of prominent managers, such as Stanley druckenmiller and mentor george Sorros, have turned their shops into family offices, hoping to evade onerous new regulations that will require hedge funds to disclose details about their strategies and operations.

Its tough to start a hedge fund


it takes more than ambition for would-be hedge fund managers to get the $100m or so needed for a chance to succeed in this mature and competitive environment, says reuters in an April 18 article.

New Managers | Opalesques Emerging Manager Monitor - April 2012

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Perspectives
A lot are going to established firms instead, said Jeff holland, co-founder of fof firm Liongate Capital. One large uS hedge fund manager picked up two heads of high yield trading at deutsche bank, who may very well have gone and set up their own fund if conditions had been easier. the superstars will go and set up on their own, although even for them this is becoming more difficult, but we are having a lot of conversations with high quality people below that, the CiO of a London-based hedge fund told reuters. One manager with more than 20 years experience told us, i was thinking about starting a hedge fund but im not going to, its too much of a hassle, said Sara Malak, co-founder of the Alpha Cooperative (see our Launches section for more on the Alpha Cooperative). there are indeed a lot of pessimistic grumbles around. do they reflect the real status quo? read on for a partial view.

ISSUE 04 April 2012

it looks like the same may apply to Switzerland, a European country that is outside the Eu.

Switzerland is creating a more regulated environment


the Swiss regulator, finMA, made several proposals in order to increase governance and transparency within the Swiss financial market; the Swiss government is looking into it and so far, seems to be in favour. it wants to be on the same regulatory page as other major financial centres which are themselves starting to implement more restraining rules: maybe the Swiss government and regulator dont think it is always good to be neutral. if the rules pass, they should be implemented next year (see full article). in an April 16 article, the ft said that managers of small funds, of which Switzerland has many hundreds, are likely to be hit the hardest. the rules will require managers to hire dedicated compliance officers, for example. A colleague who runs a $500m fund did an assessment and they came to the conclusion that they would not be profitable when these rules come into place, Christian Sougel, the head of Ernst & youngs Swiss asset management practice told the ft. i dont think the industry has grasped the urgency of the matter. they are only just getting to grips with European regulations.

Fewer fund launches in Europe


Lipper research found that the number of fund launches in Europe had reached its lowest level in five years in 2011, reported ft Adviser. there were 2,749 new launches across the continent in 2011, down from 3,311 in 2010. Lipper said the net number of funds available for sale in Europe fell by 722 during 2011, as a result of consolidation of fund ranges. the figures follow a warning from Legal & general investments that the volume of regulation in the uK and Europe was slowing down the launches of new funds.

- benedicte gravrand

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Profiles
the $250m multi-strategy hedge fund, Stonehenge diversified iii, which was launched by florida-based alternative investment manager Stonehenge Asset Management, LLC on April 1, will commence trading on May 1, Stonehenges founder, principal and CiO Steven A. Michael told Opalesque. Stonehenge diversified iii is the third multi-strategy hedge fund to be launched by Stonehenge. the new fund will be domiciled in the u.S. and has appointed nAv Consulting inc. as its administrator.

ISSUE 04 April 2012

Stonehenges new $250m multi-strategy hedge fund to commence trading on May 1


As a multi-strategy hedge fund, Stonehenge diversified iii will trade using a variety of approaches.

Kenneth Goldring and Steven A. Michael

According to Steven Michael the subscription value set by Stonehenge has been reached. Stonehenge diversified iii will be offered continuously moving forward beginning June 1, 2012. Subscriptions for June will begin on May 1, 2012. the fund will have an extremely large capacity and the manager is looking to achieve its $250m target by years end. Stonehenge Asset Management manages two other funds, Stonehenge diversified i and Stonehenge diversified ii. Stonehenge diversified 1, their first multi-strat fund, is currently featured in Opalesque Emerging Managers database. Michael said that the new fund is an extension of the firms Stonehenge diversified i fund, although Stonehenge diversified iii may accept non-Qualified Eligible person (QEp) investors in the future.
New Managers | Opalesques Emerging Manager Monitor - April 2012

Stonehenge diversified 1 - performance since inception


Among these are both short-term and medium-term approaches to a statisticallybased volatility breakout, along with capital flow modelling and analysis to trade a broad base of commodities, while limiting the trade horizon to one week and targeting fixed profit and stop loss levels. Kenneth goldring, the firms co-principal and director of research, went on to describe an additional component of the firms systematic arsenal, weve added a futures curve realignment strategy which seeks to capitalize on the reversion to equilibrium of the futures curve following the distortions brought about by the 34

Profiles
rolling of established positions, primarily by long-index investors and speculators. this strategy goes both long and short in all markets in which it holds positions to minimize market impacts. we allocate to each strategy based on a proprietary volatility allocation system. we trade 25 different markets in the uS derivatives and are shortly adding European and Asian markets. Stonehenges existing clients and relationships provided the seed capital for the fund after the initial offering was announced. Michael also announced that its SCM trading program, the program used by the Stonehenge diversified i and ii, finished up over 5% last year. Stonehenge diversified i, which began trading in february of 2011, finished the year up 1.66%. Although not outstanding performance, we are very happy to have beaten our benchmark, newedge and barclays indices, which were all down last year. Stonehenge diversified ii which began trading in mid October of last year and is a principal protected fund, is up 1.24% over the last four months, Michael added.

ISSUE 04 April 2012

- Komfie Manalo, Opalesque Asia


their first fund can be found in Opalesque Solutions Emerging Managers database, which is available to Opalesque subscribers (you can subscribe here: Source). if you want your fund to be in the Emerging Managers database, please send your fund information to Opalesques database team: db@opalesque.com.

New Managers | Opalesques Emerging Manager Monitor -April 2012

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Profiles
American equity long/short, Version 2012
the Logica fund, Lp is an equity long/ short hedge fund with a long bias and a focus on American equities. it is run by Logica Capital Advisers, an asset manager launched last year in Los Angeles, California. the fund also features in Opalesques Emerging Managers database. wayne himelsein, Logicas portfolio manager, tells Opalesque that the funds strategy actually started 13 years ago but in another version. in 1995, i was a proprietary trader with a very strong quantitative background, and sat in a room with a group of many quant traders who were all trading different systems or utilizing different algorithms to profit from inefficiencies in the market, he recalls. i learnt that different parameters worked for different kinds of equities and at different times, depending on market cycles or economic environments. Some traders were big proponents of relative strength; some were big proponents of stochastics; and some traders loved moving averages. it was interesting to be on a floor full of these people who would all individually swear by the system that they personally used. Each one stuck to their own system and yet each one did well over time, but showed strength or weakness during different environments. himelsein had the idea of developing a system that looked at multiple parameters and then dynamically shifted according to the market environment.
New Managers | Opalesques Emerging Manager Monitor - April 2012

ISSUE 04 April 2012

he understood all the different parameters, mapped them out side by side, tested them individually, and found his thesis to be true; that different ones worked in different environments. So, in the end, i built one algorithm which includes a total of 12 parameters and then shifts the weighting of the parameters up and down depending on their utility in the current environment, he explains. in a bullish market environment that is more directional, the algorithm would look at things like where stocks are closing on their range of the day, or how strong they closed, he says. in a more sideways environment, or in a choppier environment, it would look at whether ranges are expanding or contracting, which gives an indication of potential follow through or the certainty of the movement (ranges that are expanding wider typically demonstrate more uncertainty amongst buyers and sellers). So the grand model became a set of twelve dynamically weighted parameters. to test the theory and the model, himelsein bought a lot of data from S&p 500 and tested them over ten years of history. then he started running money with this strategy in 1997, ran it for two years and beat the S&p by around a 1,000 basis points a year. that got the attention of some traders, who allocated money to him. his AuM went from a few hundred thousand to about $10 million. then, he left the prop trading firm and founded his own hedge fund, the hM Amethyst fund (not to be confused with f&Cs Amethyst fund), in 1999. he used the model but went long and short in a market-neutral format vs. long bias. during its five year of history, the fund did well initially, especially in 2001 when it was up 24%. but after the September 11th event, returns were in the 5%-10% range. And money started leaving the fund. At that time, himelsein came up with 36

Wayne Himelsein

Profiles
a different investment idea, involving arbitrage on actuarial and life inefficiencies. he closed hM Amethyst, launched a new fund in 2005 with assets of $10m (which went up to $300m) and closed it in 2011 when the inefficiencies he had bet on were no longer around. he wanted to go back to the old strategy and decided to look at it deeper first as it had showed weakness in 2002 and 2003. he bought 45 years of S&p data, did further historical testing, and understood that what was wrong was not the model in itself, rather it was the short side of it. the long portfolio always performed the way it was supposed to be, but the short side did not perform as well as it should have, he clarifies. the core issue was that on the short side, there was not as much follow-through with trading behavior as you see on the long side. it may be due to the asymmetric nature of stocks, where stock can be up 100% or 1,000% over a number of years, but you can only go down 100%. Especially with S&p names - when an S&p company is weak, it can tend to be weak for a few days or perhaps a few months, but once it goes lower it becomes a value-buy for a lot of traders and for a lot of investors, especially because it is an S&p 500 quality company. So, they do not tend to follow through on the downside, whereas, on the upside a company can go up and up and up. for example, a company like google or Apple can go up hundreds of dollars over years and years, and still after that, just continue a positive up trend. So he changed the characteristics of the short side to a shorter time frame system that traded in and out of the short portions on more of a weekly basis rather than a monthly basis on the long side. in addition, because there was more alpha on the long side than the short side, he switched the format from fully market neutral to long bias. the launch of the Logica fund in december 2011 is like a re-launch of this strategy, with the exact same system and model that was built in the mid-90s and
New Managers | Opalesques Emerging Manager Monitor -April 2012

ISSUE 04 April 2012

run from 1997 through 2004, but with multiple innovations on the short side. the fund is up 10% so far (to end-March). the hfri Equity hedge index gained 7.3% ytd, the best first quarter performance total for Equity hedge since 2000; the index gained +0.3% in March, completing the 3rd consecutive month of gains. Logica is not what we would normally call an emerging manager as both the fund manager is a well seasoned independent executive and the strategy has been researched, tried, tested and improved. himelsein believes this is the best version: it is best on a risk-adjusted basis. i have realized over the course of time, although i ran it as a market-neutral portfolio with equal dollars long and short, that it does not do its best as a neutral system. the real outperformance or the real alpha comes from the long side, it comes from being able to identify names that are much stronger than all the other names in the market. So he is committed to running it in this style for the foreseeable future.

- benedicte gravrand
the fund can be found in Opalesque Solutions Emerging Managers database, which is available to Opalesque subscribers (you can subscribe here: Source). if you want your fund to be in the Emerging Managers database, please send your fund information to Opalesques database team: db@opalesque.com.

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Profiles

ISSUE 04 April 2012

Now is an interesting time for event-driven strategies; there is still a bit of hangover in the market
the new JJn Capital fund, L.p. targets event-driven opportunities and special situations, with an emphasis on liquid securities. Jeffrey J. naumowitz, who founded new york-based JJn Capital Advisors in 2011 and launched the fund in January 2012, explains the fund strategy to Opalesque. the fund, by the way, can be found in Opalesques Emerging Managers database. the fund also looks at opportunities in the distressed space, in the bankruptcy space and invests in liquid securities, in both debt and equity.

Jeffrey J. Naumowitz

the investment strategy is event driven, which means that most of its investment positions depend upon the timing of a specific corporate finance related transaction. there can be what we call hard event driven trades, where there is a specified date which serves as a trigger, such as the closing of a merger or bankruptcy liquidation, naumowitz says we also focus on soft events where an event is anticipated, but the precise timing is not yet identified. Examples include expected re-financings, expected initiation of dividends or other transformative corporate events. we have done some trades recently where businesses have taken advantage of the market liquidity to reduce the cost of their capital and freed up capital for shareholders, which drove a favorable outcome for equity values.

JJn Capital fund, Lp performance since inception


naumowitz has more than 13 years of relevant experience and his investing style is very fundamentally based, corporate finance driven. he believes now is an interesting time in the market because there is still a bit of hangover where there are some distressed names lingering, and that is an area which Jnn likes to focus on. but the uS economy is gradually improving and so that opens the door to take advantage of more consolidation plays and shareholder friendly actions, he noted. 38

New Managers | Opalesques Emerging Manager Monitor - April 2012

Profiles
the fund will look at both long and short investments and try to keep the portfolio balanced, with market exposure relatively low on a net basis through a blend of shorts and some index hedging. One of the opportunities that naumowitz sees is in a thematic trade that relates to a consolidation play in the u.S. with television stations. there is a very diverse pool of locally owned television stations and over the years private equity sponsors have bought quite a few of them, and there are a few that are publicly traded as well, he explains. in recent years, you have had a lot of negotiations, sometimes contentious negotiations going on between the television stations and the cable stations over economics, he continues. And because of the fact that the television stations business model is more cyclical, in terms of being advertising-based, they have been playing defense over the past few years. in the last year or two, as things have gotten better in the uS, as they have benefited from some political advertising, they have generated a lot of cash and improved their capital structures. it seems like the time is right for continued consolidation there, which is driven by creation of synergies as well as creation of just scale so as to be able to better negotiate against the cable companies and the satellite companies. Another opportunity relates to a semiconductor business in taiwan, which is was very underfollowed but is doing well. in the distressed space, there was an arbitrage play in a gaming name in the u.S., where he invested in the companys bonds. the way we think about event driven is it really does work in all markets, he notes. in a more challenging economic times, you will spend more time focused on distressed opportunities, but as things get better as is the case currently, there
New Managers | Opalesques Emerging Manager Monitor -April 2012

ISSUE 04 April 2012

are more corporate finance driven non-distressed activities: consolidation plays, spinoffs, initiation or re-initiations of dividends. prior to JJn, he was at trian Credit partners, a special situations fund. the fund launched in late 2008; 2009 was an exceptional year because there were a lot of distressed opportunities and a lot of opportunities that conventional investors did not know what to make of and sold in a panic; this created opportunities for distressed funds and event driven funds. Coming out of the downturn in 2010, event-driven investors employed a more blended strategy, including shareholder activism. his small firm launched the fund with $1m of his own money. the fund is now up 7% (to end-March), compared to the hfrX Event driven index which was up 5.8%. Event driven funds benefitted from strong equity and credit markets in 1Q, with the hfri Event driven index gaining 4.5% for 1Q, concluding the quarter with a gain of +0.2% in March; similar to Equity hedge and relative value strategies, Event driven funds were positive in all three months of 1Q12, says u.S. data provider hedge fund research. naumowitz is now beginning the marketing process, and hopes to raise a few more million by the end of the year.

- benedicte gravrand
the fund can be found in Opalesque Solutions Emerging Managers database, which is available to Opalesque subscribers (you can subscribe here: Source). if you want your fund to be in the Emerging Managers database, please send your fund information to Opalesques database team: db@opalesque.com.

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Document Disclosure
this newsletter is designed to include a wide variety of industry voices and information. to participate, send your news, events and viewpoints to gravrand@opalesque.com. to be considered for inclusion information must be factual, not promotional in nature and ideally address deep industry issues and reveal insight into how strategies operate, all delivered from a balanced perspective that addresses risk frank terms.

ISSUE 04 April 2012

thE uSE Of LEvErAgE CAn LEAd tO LArgE LOSSES AS wELL AS gAinS. yOu COuLd LOOSE ALL Of yOur invEStMEnt Or MOrE thAn yOu initiALLy invESt. in SOME CASES, MAnAgEd COMMOdity ACCOuntS ArE SubJECt tO SubStAntiAL ChArgES fOr MAnAgEMEnt And AdviSOry fEES. it MAy bE nECESSAry fOr thOSE ACCOuntS thAt ArE SubJECt tO thESE ChArgES tO MAKE SubStAntiAL trAding prOfitS tO AvOid dEpLEtiOn Or EXhAuStiOn Of thEir ASSEtS. thE diSCLOSurE dOCuMEnt COntAinS A COMpLEtE dESCriptiOn Of thE prinCipAL riSK fACtOrS And EACh fEE tO bE ChArgEd tO yOur ACCOunt by thE COMMOdity trAding AdviSOr (CtA). thE rEguLAtiOnS Of thE COMMOdity futurES trAding COMMiSSiOn (CftC) rEQuirE thAt prOSpECtivE CuStOMErS Of A CtA rECEivE A diSCLOSurE dOCuMEnt whEn thEy ArE SOLiCitEd tO EntEr intO An AgrEEMEnt whErEby thE CtA wiLL dirECt Or guidE thE CLiEntS COMMOdity intErESt trAding And thAt CErtAin riSK fACtOrS bE highLightEd. thiS dOCuMEnt iS rEAdiLy ACCESSibLE At thiS SitE. thiS briEf StAtEMEnt CAnnOt diSCLOSE ALL Of thE riSKS And OthEr SignifiCAnt ASpECtS Of thE COMMOdity MArKEtS. thErEfOrE, yOu ShOuLd prOCEEd dirECtLy tO thE diSCLOSurE dOCuMEnt And Study it CArEfuLLy tO dEtErMinE whEthEr SuCh trAding iS ApprOpriAtE fOr yOu in Light Of yOur finAnCiAL COnditiOn. yOu ArE EnCOurAgEd tO ACCESS thE diSCLOSurE dOCuMEnt. yOu wiLL nOt inCur Any AdditiOnAL ChArgES by ACCESSing thE diSCLOSurE dOCuMEnt. yOu MAy ALSO rEQuESt dELivEry Of A hArd COpy Of thE diSCLOSurE dOCuMEnt, whiCh wiLL ALSO bE prOvidEd tO yOu At nO AdditiOnAL COSt. MuCh Of thE dAtA COntAinEd in thiS rEpOrt iS tAKEn frOM SOurCES whiCh COuLd dEpEnd On thE CtA tO SELf rEpOrt thEir infOrMAtiOn And Or pErfOrMAnCE. AS SuCh, whiLE thE infOrMAtiOn in thiS rEpOrt And rEgArding ALL CtA COMMuniCAtiOn iS bELiEvEd tO bE rELiAbLE And ACCurAtE, pfg bESt CAn MAKE nO guArAntEE rELAtivE tO SAME. thE AuthOr iS A rEgiStErEd ASSOCiAtEd pErSOn with thE nAtiOnAL futurES ASSOCiAtiOn. no part of this publication or website may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 united States Copyright Act, without either the prior written permission of the publisher.

user agreement and confirmation of Qualified Eligible person status


the user acknowledges and agrees to all of below: user confirms that they are a Qualified Eligible person as defined under the (CftC) regulation 4.7., because they are: registered investment company; bank; insurance company; Employee benefit plan with >$5,000,000; private business development company Organization described in Sec. 501(c)(3) of the internal revenue Code with >$5,000,000 in assets; Corporation, trust, partnership with >$5,000,000 not formed to invest in exempt pool; person with net worth >$1,000,000; person with net income >$200,000 each of last 2 yrs. or >$300,000 when combined with spouse; pool, trust separate account, collective trust with >$5,000,000 in assets; user also confirms they meet the following portfolio requirement: Own securities with a market value >$2,000,000; have had on deposit at fCM, in last 6 months, >$200,000 in margin and option premiums; have combination of securities and fCM deposits. the percentages of required amounts must = 100%.

Opinions: user represents themselves to be a sophisticated investor who understands volatility, risk and reward potential. user recognizes information presented is not a recommendation to invest, but rather a generic opinion, which may not have considered all risk factors. user recognizes this web site and related communication substantially represent the opinions of the author and are not reflective of the opinions of any exchange, regulatory body, trading firm or brokerage firm, including peregrine financial group. the opinions of the author may not be appropriate for all investors and there is no warrantee relative to the accuracy or completeness of same. the author may have conflicts of interest, a disclosure of which is available upon request.

riSK diSCLOSurE
pASt pErfOrMAnCE iS nOt indiCAtivE Of futurE rESuLtS. thE riSK Of LOSS in trAding COMMOditiES CAn bE SubStAntiAL. yOu ShOuLd thErEfOrE CArEfuLLy COnSidEr whEthEr SuCh trAding iS SuitAbLE fOr yOu in Light Of yOur finAnCiAL COnditiOn. thE high dEgrEE Of LEvErAgE thAt iS OftEn ObtAinAbLE in COMMOdity trAding CAn wOrK AgAinSt yOu AS wELL AS fOr yOu.

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ISSUE 04 April 2012

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New Managers | Opalesques Emerging Manager Monitor - April 2012

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