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Hedge Funds the Of HF_LeadershipReport_09 7/24/09 9:32 AM Page 1 RSM McGladrey presents Opinions of the Hedge Fund Community Your opinions are reflected in a comprehensive survey of the hedge fund community. Portfolio managers and executives of U.S. hedge funds comment on the current economic environment, investment opportunities and future challenges. For a look at the state of the industry, your views on the future of the Your opinions… American economy and concerns about the Obama Financial Regulatory Plan call your McGladrey financial services professional or email [email protected] for a copy of the survey. The McGladrey survey is available electronically at www.rsmmcgladrey.com/hedgefund. Your perspectives… ©2009 RSM McGladrey, Inc. All rights reserved. RSM McGladrey, Inc. and McGladrey & Pullen LLP are two separate and independent legal entities. They operate in an alternative practice structure that enables them to work together to service clients’ business needs. RSM McGladrey Inc. and McGladrey & Pullen LLP are member fi rms of RSM International. Bleed Ads Template.indd 1 5/13/09 5:33:54 PM HF_LeadershipReport_09 7/24/09 9:32 AM Page 3 www.emii.com EDITOR’S NOTE EDITORIAL BUSINESS Welcome to Institutional Investor News’2009 Global Hedge JOANNA RANDELL PUBLISHING Editor of Business Publishing TRACEY REDMOND Fund Leadership Report. Never has the sharing of intellectual (212)224-3526 Business Publisher [email protected] (212) 224-3239 capital and effective, honest communication between the [email protected] industry’s stakeholders been more important than it is right PRODUCTION KEITH YU DANY PEÑA Business Publishing Manager now.This supplement set out to tap some of the industry’s great Art Director VINCENT YESENOSKY minds on today’s pressing issues and bring their thoughts and BRIAN GOLDMAN Senior Operations Manager Advertising Production Manager best-practices to our readers. I think it delivers. DAVID SILVA ADVERTISING Senior Fulfillment Manager Our report opens with exclusive interviews with John Paulson,Timothy Barrett, JONATHAN WRIGHT REPRINTS Advertising Director Noam Gottesman, Andrew Dodd and Jaeson Dubrovay.The variety of answers these (212) 224-3566 DEWEY PALMIERI industry leaders give to the same questions illustrate their different perspectives on, [email protected] Reprints & Premission Manager (212) 224-3675 and approaches to some of the most important challenges facing the industry today. ADRIENNE BILLS [email protected] Associate Publisher Be sure to visit www.emii.com/hfleadership to see my complete interviews. (212) 224-3214 [email protected] CORPORATE GARY MUELLER Jeremy T.Todd of Pershing LLC. follows-up with a thought provoking article on PAT BERTUCCI Chairman & CEO Associate Publisher emerging industry trends stemming from the financial crisis, including the growth of (212) 224-3890 STEVEN KURTZ [email protected] Director of Finance & Operations tri-party agreements as a means of reducing counterparty risk. ROBERT TONCHUK Director/Central Operations & Fulfillment Our report closes with profiles of 2009’s Rising Stars of Hedge Funds. Nominated by their clients, peers and mentors, these individuals have been selected by the Customer Service: PO Box 5016, Brentwood, TN 37024-5016 business editors of Institutional Investor News as up-and-comers in the industry. Be Tel: 1-800-715-9195• Fax: 1-615-377-0525 • UK: 44 20 7779 8704 Hong Kong: 852 2842 6910• E-mail: [email protected] sure to visit emii.com/hfrisingstars for complete profiles on each Star. Editorial Offices: 225 Park Avenue South, New York, NY 10003. Tel: 1-212-224-3526 • Email: [email protected] The Global Hedge Fund Leadership Report is just one of many Institutional A Publication of Institutional Investor, Inc. Investor News special supplements. Check out www.emii.com for our complete offering © Copyright 2009. Institutional Investor, Inc. All rights reserved. New York Publishing offices: 225 Park Avenue South, New York, NY 10003 • 212-224-3800 • www.iinews.com of breaking news, data products, web seminars and other information resources. Copyright notice. No part of this publication may be copied, photocopied or duplicated in any form or by any means without Institutional Investor’s prior written consent. Copying of this I hope you enjoy this year’s report and I welcome your feedback! publication is in violation of the Federal Copyright Law (17 USC 101 et seq.). Violators may be subject to criminal penalties as well as liability for substantial monetary damages, including statutory damages up to $100,000 per infringement, costs and attorney’s fees. The information contained herein is accurate to the best of the publisher’s knowledge; however, the publisher can accept no responsibility for the accuracy or completeness of such information or for loss or damage caused by any use thereof. From the publishers of: Joanna Randell Editor of Business Publishing TABLE OF CONTENTS Leading The Way: Risk and Reward: Emerging The Rising Stars of A View From All Sides Industry Trends Hedge Funds By Joanna Randell By Jeremy T. Todd, Pershing LLC By Joanna Randell Three leading hedge fund managers,4 Todd examines the impact the financial7 Nominated by their clients, peers9 and an institutional investor and a crisis has had on the relationships mentors, this year’s Rising Stars consultant share their unique between hedge funds, bank custodians represent up-and-comers from all perspectives on the same pressing and prime brokers, and the emerging areas of the hedge fund community. issues facing the industry today. trend of tri-party agreements. JULY 2009 GLOBAL HEDGE FUND LEADERSHIP REPORT 3 HF_LeadershipReport_09 7/24/09 9:32 AM Page 4 Leading the Way: A View From All Sides —By Joanna Randell My interviews with Timothy Barrett, CIO, San Bernardino County Employees’ Retirement Association; iconic hedge fund manager, John Paulson, President, Paulson & Co; leading European hedge fund managers Noam Gottesman, Co-Founder, GLG Partners and Andrew Dodd, CFO, BlueCrest Capital Management; and award winning consultant Jaeson Dubrovay, Senior Strategist, Hedge Funds, NEPC reveal and compare their different perspectives on the same pressing issues. Following are excerpts of their answers to my questions. To see their complete responses, please visit www.emii.com/hfleadership Specifically, how have the events and changes in the market over the last year changed your due diligence processes? PAULSON: Managements of public financial companies and ratings by rating agencies have proven to be unreliable in assessing the outlook for companies. Management of Lehman, for John Paulson Tim Barrett Jaeson Dubrovay instance, continued to maintain they were overcapitalized right up to the day they filed for been, and continue to be, focused on counterparty risk, our use bankruptcy. In the structured finance area, hundreds of of independent administrators and auditors, and with the billions of formerly AAA rated securities are now worthless, or increased requests for managed accounts, we are growing our close to it.What this means for us, is that we have to rely on our legal, compliance and operational team to further improve the research in making investment decisions and not on the efficiency of our response time. questionable conclusions of supposedly expert third parties. DODD:Big firms like us who have been in the business a long BARRETT: We have been refining our due diligence process time and have been marketing a wide array of processes for a over the last five years, with most of our changes taking place long time,already have a good due diligence process.We’re one of prior to the credit crisis.We’re responsible for investing the the few successful managers from the past 12 months.Things retirement monies for almost 30,000 members, so the safety have changed for other managers,but not for us.In general, and security of our investments are of utmost importance to us. investors are more focused on counterparty risk and counterparty We adopted a multi-prong strategy with comprehensive due risk management post-Lehman.In the wake of Madoff,people are diligence, covering operations, legal and investment.We split keen to make sure their assets are actually there.The model in the process into pre-hire and monitoring, including visiting Europe is to use an independent administrator,which is not the managers and discussing strategies. However, with the case in the U.S.,so a number of US funds self-administer. challenges and events of the past year, we have worked to enhance our due diligence processes further. DUBROVAY: We heightened our sensitivity to manager business models and the impact that the stress in the markets GOTTESMAN: The events of the past year haven’t changed would have on them going forward. The main areas of focus were our fundamental business.We’re still interviewing managers, strategy; asset - liability match; staffing and retention; and the performing customer valuation auditing, etc.The increased manager’s plan for navigating the volatile markets. In addition,we regulatory scrutiny, however, has made the market harder for looked at the liquidity of the assets on the balance sheet; whether smaller players to enter.There is a need to be more transparent. leverage is used in the strategy; the stability of the leverage Due diligence is a core component of GLG’s work.We have provider and the composition and stickiness of their client base. 4 GLOBAL HEDGE FUND LEADERSHIP REPORT JULY 2009 HF_LeadershipReport_09 7/24/09 9:32 AM Page 5 How have the changes in attitudes or needed to manage the wealth of the world. It may help that we misperceptions about hedge fund investing were extremely successful in 2008; all our flagship funds achieved positive returns. affected your business? How are you addressing it? DUBROVAY: Clients that were invested in hedge funds and didn’t need liquidity have maintained their conviction to hedge PAULSON: The two negatives for the hedge fund industry were funds.Those that needed liquidity, from any source in their the negative returns in 2008 and losses due to the Madoff fraud.
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