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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.

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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.

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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. portfolio, were frustrated to some extent.In general, clients are While the hedge fund returns were clearly better than the market, more sensitive to hedge fund operational issues and back office they didn’t provide overall the non-correlation and hedging controls.In 2007, we initiated a separate operational due benefits against the general markets that investors expected. diligence track so we can have an independent evaluation of Regarding performance,we needed to continue to address to our manager’s internal controls and back office.We are spending investors how we always try to run a hedged portfolio by more time with our clients on ongoing education to reinforce balancing our long event and short event positions to produce some of the benefits of including hedge funds in their portfolios. absolute returns in all markets.While it doesn’t always work perfectly,in 2008 our balanced portfolio allowed us to show What do you think the government could and positive returns for our investors even in the face of the severe should do, if anything, regarding regulation? market decline.Regarding the Madoff fraud,there are several best practices to implement that would eliminate Madoff type frauds PAULSON: Given the size of the hedge fund industry, the and almost all of the other frauds that have been reported to need for investor protection and the potential systemic risk date.They are:1) independent custodian; 2) independent posed by large, leveraged hedge funds, I believe it is important administrator; and 3) accredited auditors.We have all three.They to have mandatory registration with the SEC above a certain are simple to implement and we recommend that investors insist minimum size and limitations on leverage through defined that their hedge fund managers have these policies as well. margin requirements by investment category.

BARRETT: Most misperceptions have not impacted how we BARRETT: It’s a good idea to have hedge funds registered, work with hedge funds.We’ve always been careful with whom we but it’s not a panacea. No regulation or registration process will invest and always communicated with our board about strategies. detect all frauds.We have outside auditors who spend three We perform stress tests on our strategies to see what could days with our new mangers to take an in-depth look at their happen in a down market.Although we experienced losses like business. It is highly improbable that a fraudulent manager everyone,our understanding of our managers’strategies and would allow an in-depth internal operations review.Too many their potential risks helped us avoid surprises and in some cases sophisticated investors have not put the resources into the created opportunities for us to step up as investment partners basics of due diligence – in other words, the mundane with rescue capital for a couple of our managers that were facing operational reviews. Neither registration nor regulation can severe liquidity problems.One thing that has changed,unlike take the place of solid due diligence practices. before the credit crisis,is that we have increased our focus on looking at the manager’s investor base,structure and GOTTESMAN: As both an investor in hedge funds and a compensation.We want to know who the other investors are. hedge fund manager, I believe that regulation is incredibly important for investor confidence and for the continued GOTTESMAN: There is an increased focus on growth of the alternative investment industry. Many of the fears institutionalized infrastructure. Investors are more sophisticated associated with hedge funds could be alleviated quickly if third now and know they need hedged strategies as part of their party administration, custodian services and valuations were portfolio. One of the lessons from 2008 was that we learned enforced uniformly. Mandatory registration with the SEC is a that some hedge funds were over-leveraged and excessively- positive in my mind.This is all part of the industry growing up correlated. Now, there is an increased institutional focus on and becoming more institutionalized. performance and transparency and liquidity as a totality, as opposed to just seeking the best performance.This is a positive DODD: Our area of current focus is the proposed EU thing for GLG – we’ve always had an institutional infrastructure regulations.There is a desire in Europe to see hedge funds more aimed at providing these features. regulated, although reports like the Turner Report, say they played little role in the financial crisis.The UK government DODD: We haven’t really encountered any misperceptions. needs to work the details of the proposals at a higher level. Our client base is half fund-of-funds and half institutions, all of whom are extremely experienced professional investors with DUBROVAY : While we believe intelligent regulation is mandates to invest in hedge funds.They understand hedge beneficial for the industry, this is easier said than done and funds are a sector of a broad asset management industry and often leads to errors of omission that are hard to detect. We

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believe that having managers register with the SEC will not events.With regard to high-water marks,managers who are necessarily produce more findings of fraud because generally serious about their businesses will build in more cash reserves to fraudsters will not register – it is the enforcement efforts that protect their businesses after a year of negative performance. we believe will provide stronger regulation. From a practical standpoint, institutional investors, and their advisors, have had What keeps you awake at night? a strong influence on improving the quality of due diligence performed on hedge fund managers. PAULSON: Our investment strategy is very focused on minimizing losses and downside volatility.While we strive to What do you think will be the major changes maintain a balanced portfolio,the markets don’t always to the industry, and hedge fund investing, in cooperate,leading to periodic negative swings in the portfolio. Most of the time,the market swings back in the other direction, the next five years? erasing the losses and producing gains,but other times the investment may go the wrong way due to either unexpected PAULSON : Generally, I think the industry will become more events or a miscalculation of the opportunity.In hindsight,it’s concentrated and somewhat more regulated.However, I do usually easy to diagnose the problem but when you in the middle believe hedge funds provide many investment benefits to clients of it,it’s not always easy to see.That conflict of whether to keep and I believe hedge funds as a group will continue to grow and the position,cut it back,or eliminate it can produce some anxiety. become a permanent part of the alternative investment arena. But with growth comes responsibility to not only investors but to BARRETT: Now that we are through a large part of the credit the overall business community and public. crisis, I sleep a little better. But the risk of government over- regulation and government intervention in the bankruptcy BARRETT: It will be a time of transition for the industry as a process concerns me greatly. If typical over-regulation occurs, it whole. Money managers are going to need to rebuild the will hurt the value proposition of hedge funds.They serve an confidence of investors over the next five years.The value add incredibly important role in making the capital markets more of fund-of-funds will be derived from a more consultative efficient. Intervention in the bankruptcy process has dramatic approach, with an emphasis on assisting plan sponsors to build impacts on distressed debt managers and on the markets in out satellite positions in hedge funds. Fees will continue to be general. If you cannot model downside risk and probable driven down on both a base and carry basis. Plan sponsors will recoveries due to interference with the basic tenants of also need to keep a careful eye on funds shutting down and re- contract law, bankruptcy and capital seniority, then the cost of opening new funds in an effort to avoid high-water marks. debt capital must increase and we are likely to face longer-term structural problems. GOTTESMAN: I think it will return back to basics with absolute return mandates.There will be a focus on capital GOTTESMAN: Everything! Principally, we’re concerned with protection. Funds will have to be nimble to take advantage of delivering strong performance for clients and ensuring the niche and opportune investments.There will be less leverage, team members enjoy working with GLG.We have well- fewer market participants and more regulation. Having both developed risk teams and things can’t get much harder than alternative and traditional investments will become more 2008, but we’re always keeping an eye out. I’m always awake common, GLG already does this.There will be a greater focus on and thinking about what may happen. asset - liability matching. DODD: We’re a well integrated financial system with multiple DODD: It will continue to be difficult for new entrants to launch good relationships. But we’re always worried about systemic funds in the hedge fund space.The expense of a launch will be risk; I think we all felt that post-Lehman. It’s worrying if there is greater with all the regulation and there is less availability of something going wrong in another company over which you capital and [the business] is much more institutionalized.People have no control. will still do it, but not in the same numbers.The industry won’t resume the growth rate of a few years ago.There will be a higher DUBROVAY : I’m still concerned about the few poor quality level of discipline.Investors won’t invest with managers who are managers still out there, and how they can dupe inexperienced investing outside their core strategy and there will be more investors and even experienced ones.We believe that common intense due diligence.Regulations will also make an impact. sense, coupled with constant validation of what the managers tell us, are the most useful tools to evaluating managers. Finally, DUBROVAY : Managers will focus on the two primary don’t fall in love with performance! vulnerabilities of hedge funds – the asset - liability mismatch and the high-water mark.On the first count,managers will adjust their redemption terms to more closely match the composition of their To read my interviewees’additional perspectives on risk, assets – perhaps a bit more than necessary given recent illiquidity compliance and prime brokers please visit emii.com/hfleadership

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SPONSORED ARTICLE

client service at the prime broker, preferably on a shared specifically charged with analyzing counterparty risk. platform.The arrangement should provide simplified collateral Technology also plays a leading role. As firms outgrow the management, flexible reporting and all of the financing options ad hoc spreadsheets that many have relied upon to manage risk the manager needs to effectively implement the fund’s strategy. and collateral, they are beginning to deploy more sophisticated in-house valuation tools, Tri-party arrangements currently vary complemented with widely in their ability to deliver all of The financial crisis has opened a independent third-party these benefits, and some careful “ solutions and services. consideration is warranted. Going window for change within the hedge forward, market trends will pressure Business processes, too, are many prime brokers and banks to fund industry. Once-trusted relationships becoming significantly more further enhance their tri-party are now regarded with caution. formalized, with consistent solutions. After all, short-enabled portfolio and risk funds are becoming more popular ” assessments, systematic daily among a much broader range of investors, and fund managers evaluation of collateral management and scheduled exchanges are expanding beyond the traditional U.S. equity universe in of financials and operational guidelines with counterparties. developing new offerings.The sheer growth of these funds will Firms are also finding that maintaining strong internal controls force the industry to streamline their management. requires constant vigilance of external events, ranging from structural market changes that might increase exposure, to new The rise of tri-party agreements is not the only industry response best practices proposed by such organizations as the President’s to concerns about counterparty risk.We are also seeing a Working Group in the U.S. and the Hedge Fund Working Group significant shift toward SMAs rather than pooled investment in the U.K. structures—with some analysts expecting a quadrupling of managed account assets in 2009.Few could have foreseen this The financial crisis has opened a window for change within the development just two years ago given that, until recently, most hedge fund industry. Once-trusted relationships are now hedge fund managers strongly resisted offering managed regarded with caution. Financing is down. Investors, especially accounts, and relatively few investors were in a position to press large institutions, currently are in a much stronger position for them.However, the financial crisis spread an epidemic of when negotiating more favorable structures for fees, accounts concern about counterparty risk, lack of transparency and fraud, and relationships. But, at some point in the future, that window while extreme market volatility left investors feeling trapped by of transformation will begin to close.The industry will adjust, gateways, lockups and redemption suspensions. demand will catch up with supply and the balance of power will shift back more from investors to managers. Hedge funds are To many investors, SMAs seem an ideal answer. First, they easily already starting to post record gains, and investors’appetite for allow institutional investors to diversify counterparty risk by risk is increasing from the dire days of last fall. However, it would leveraging their existing bank custodian and prime brokerage be naive to assume that simply because the window is only relationships. Second, they provide the transparency needed to temporarily open, that the actual changes being ushered in will protect against fraud: managed account investors can see full be transitory as well. Both investors and managers are now fully daily details on both long and short positions, not merely broad aware of the seriousness of both fraud and counterparty risk. sector and diversification information. Finally, managed accounts give investors the control and liquidity they now Transparency, diversification and financial strength will remain demand.To be sure, many of the largest managers still resist the watchwords of hedge fund industry relationships for a long requests for SMAs for a multitude of reasons in managing their time to come. Rather than stonewalling against such changes, businesses. And some strategies, such as investing in private leading fund managers are seizing upon them as an placements, may be ill-suited to separate account structures. opportunity to build stronger infrastructures for the future, and Nonetheless, many major institutional investors are now responding with innovation and creativity to capitalize on an demanding SMAs—and many are receiving them because of ever-evolving investment landscape. the current financial climate.

Jeremy T.Todd is Director and Head of Client Relationship In addition to multiple custodians, tri-party arrangements and Management of Pershing Prime Services, a service of Pershing LLC, a separately managed accounts, a wide range of other best subsidiary of The Bank of New York Mellon Corporation. practices are now coming into favor with leading managers looking to mitigate risk. For example, many firms have become For more information, please contact Jeremy T.Todd at mindful of the principle that shared accountability means no [email protected] or visit www.pershingprimeservices.com. accountability, and have assigned independent oversight 1Aite Group (commissioned by Pershing LLC), Risk and Reward: Hedge responsibilities to one or more full-time staff members Funds Changing Views on Counterparty Relationships, 2009.

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THE

OF HEDGE FUNDS

This year’s Rising Stars and the winners of Alternative Investment News’annual hedge fund awards were honored at the 7th Annual Hedge Fund Industry Awards dinner and ceremony on June 22nd in New York City. For full coverage of the event, including photos and videos, please visit www.hedgefundindustryawards.com.

FRANK BARBARINO monitoring and client communications. His offered an established platform with good Consultant, Alternative Investments career goals for the near future remain research information, adequate capital and within the hedge fund sector,“I’d like to an opportunity to work again with mentor NEPC, Boston, MA continue to work with pensions, and boss Markus Mez, who has a AGE: 32 foundations and endowments as an complimentary skill set. EDUCATION: B.A. Economics and Music, investment consultant focused in hedge Berger’s long term plans are to focus on Union College, Schenectady, NY; funds and other alternative investments.” the success of the European Opportunity M.A. Business Administration, University of Fund.“I would like to be involved in further Rochester, Rochester, NY JAMES BERGER improving performance of the fund, Asset Manager, Portfolio Analyst growing assets under management and to deliver sustainable returns for investors” Frank Barbarino joined GLG Partners, London, UK the alternatives says Berger. AGE: 29 division of consulting firm NEPC in June EDUCATION: M.A. Land Economy, University KELLY CARDWELL 2008, advising the of Cambridge, Cambridge, UK Managing Partner institutional client Central Square Capital, Warrenville, IL base on complex At 29, James Berger has FRANK BARBARINO AGE: 34 hedge fund matters. already held positions With over seven years of experience in with three leading EDUCATION: B.A. Finance, Bradley University, researching and recommending hedge financial firms.From Peoria, IL funds, Barbarino is noted for having a 2001 to 2005 he strong advisory role with clients. Former worked for Goldman Central Square Capital colleague, Steve Turi, CIO, Riverview JAMES BERGER Sachs in equity hedge began trading on Advisors, noted Barbarino’s ability to lead fund sales.After two August 3rd, 2007, and and advise.“Frank began as a young years in a similar role at JPMorgan he joined saw assets under analyst, and was able to contribute quickly GLG Partners’portfolio manager, and former management grow to a team that included individuals with colleague, Markus Mez to help manage from $4.3 million to KELLY over 20 years of experience.What you see is money for the European Opportunity Fund. $35 million in just CARDWELL what you get with Frank.There are no Berger has been trading large cap stocks under two years. politics and he is genuinely a good guy.” for eight years, successfully utilizing his Cardwell is the only full-time employee Barbarino encourages his clients to take market experience to navigate the market of Central Square. He reduced operational advantage of the great dislocations in the downturn, avoid illiquid investments and costs by relocating from Boston to a credit space through the variety of strategies continue to focus on stock selection to Chicago suburb.“The reason I started with and instruments available and estimates that identify trading opportunities for short a small asset base and have worked to keep approximately 20-25 of NEPC’s clients have term alpha generation. Capital preservation operational costs low is that it eliminates successfully invested in credit opportunities. and appreciation are the two main goals of the pressure to swing for the fences.“He Barbarino is also advising clients to leverage the Mega-cap European equity strategy admits his long only manager background their hedge fund relationships to take which deploys $350 million.With a gross caused some initial investor concern.“The advantage of the dislocations in the real return rate of 15.5% for 2008, Berger fund has a net return of +107% from asset investment space. attributes the success of the fund to the inception through May 31, 2009. Hopefully Prior to joining NEPC, Barbarino acted as disciplined investment approach, which this puts to bed any concerns about my an independent consultant to a $3 billion focuses on a limited investment universe ability to manage through a bear market.” family office. Before that he was a senior combined with strict risk management. Cardwell explains his success by hedge fund analyst for Riverview Advisors Noted for his strong directional structuring the fund as simply as possible. for five years, involved in due diligence, risk knowledge, Berger joined GLG because it He says,“I use a fundamentally based,

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bottom up process to identify attractive achieve better risk-adjusted returns and way to look at new strategies and pockets long and short equity opportunities.” reduce the overall cost structure of the of inefficiencies.We look at the Efficient Former colleague Brian Kennedy of program.We also wanted to eliminate Market Hypothesis (EMH) and find Fidelity Investments is not surprised at relationships that did not provide value to managers that violate as many of these Cardwell’s success.“Nobody I know works the program,”continues Carey. EMH assumptions as possible.” more diligently to uncover fundamentally Carey immediately took steps to initiate Chelo came across the Madoff scandal mispriced securities.The ever-shrinking the restructuring plan at New York with Harry Markopolis and Frank Casey in investment horizon of today’s investment Common.“We also developed a macro- the late 1990’s while working at Rampart market opens a plethora of opportunities economic view which is crucial to Investment Management. After taking their for Kelly’s skill set”he says. successful investing and which we believe findings to the SEC, Chelo continued to Cardwell plans to limit the fund to $300- contributed to our out-performance.”The swap notes with Markopolos on the fund. $400 million.“I have no intention of being a restructuring plan has resulted in lowering Says Markopolos,“Chelo, being an expert in $1 billion plus fund. Research has shown correlation to the public markets, equity derivatives, asked all the relevant that it is significantly more difficult for eliminating redundancy, and delivering a questions and, of course, the Feeder Fund these mega funds to post superior results.” cost savings in excess of one percent of the principals provided totally incorrect Prior to founding Central Square, hedge fund portfolio. Since Carey has taken answers to each question that was asked. Cardwell held the position of analyst at over, the program has outperformed the “He doesn’t tolerate anything less than the Fidelity Investments from 1997 until his HFRX by 400 basis points. absolute truth when it comes to integrity departure as portfolio manager in 2007. Prior to joining New York Common, and especially when it comes to investment Carey served in the United States Army as management.”Chelo has implemented the PETER CAREY an infantry officer in various positions of same strict due diligence processes within Director, Absolute Return Strategies leadership at the battalion and company Benchmark Plus, leading to the uncovering level. After resigning his commission, Carey of numerous cases of fraud. New York State Common Retirement Fund earned an MBA in finance and joined Bear New York, NY Stearns in the institutional fixed income LOÏC FERY AGE: 40 department. Managing Partner EDUCATION: B.S. Political Chenavari Credit Partners LLP, London, UK Geography/Systems Engineering, United NEIL CHELO AGE: 35 Director of Research States Military Academy West Point, NY; EDUCATION: MsC Finance, HEC, Paris, France MBA. Finance, University of Southern Benchmark Plus, Tacoma, WA California Business School, Los Angeles, CA AGE: 37 Loïc Fery is a well respected figure in the EDUCATION: B.S. Finance and M.S. Finance, New York State credit industry and a Bentley College, Waltham, MA Comptroller Thomas P. credit derivatives and DiNapoli hired Peter high yield expert.After Neil Chelo joined Carey to the New York 13 years managing Benchmark Plus as an State Common credit trading and analyst in October LOÏC FERY Retirement Fund in structuring activities PETER 2003, and rose to his the spring of 2007, within investment banks, in 2008 he applied CAREY current role as director and soon appointed of research. He his trading experience to the hedge fund him to head the absolute return strategies NEIL oversees a six-person industry, founding one of the best program.When Carey took the reins of the CHELO team responsible for performing credit hedge funds in Europe. program, 85% of the allocated capital was conducting operational due diligence and As of June 15th 2009, Chenavari Fund invested in seven fund-of-funds and the analyzing hedge funds.The firm has grown has had only positive monthly returns since remaining capital was in four large multi- from $350 million assets under its inception in September 2008, with an strategy funds.“Comptroller DiNapoli management to $1.4 billion today, with one annualized return of 32% for a 6% daily wanted to conduct a thorough review of of the longest audited track records for a volatility.This was achieved through the program and the merits of all of its Portable Alpha Fund-of-Fund. pursing corporate credit strategies.The 15 underlying investments. Our evaluation “Benchmark is a Hedged Fund-of-Fund” person firm expresses credit fundamental included all of the 184 underlying hedge says Chelo.“We create a customized views with a sophisticated risk fund investments which were included in benchmark to measure each manager’s management approach. Fery says “Most the portfolios of the seven funds of funds,” returns, isolating a manager’s returns that investors are currently looking for credit says Carey. are derived from systematic risk and the market opportunities. Our approach allows “We determined that a direct returns from manager skill.”Chelo says that them to capture dislocations in credit investment portfolio with a more Benchmark focuses on alpha, and selects markets while keeping a monthly liquidity concentrated number of funds would managers that have sustainable, on their investment. Additionally, we have a eliminate the redundancy in the portfolio, competitive advantages. “We go out of our credit-spread neutral approach, keeping

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the strategy immune to bottom picking.” Macro Opportunities Strategy, a 400 clients, including sovereign wealth Despite a strong, long-standing track discretionary absolute return macro funds, public funds and private banks. Last record in the credit markets, Fery product, and the Alpha Risk Overlay, a year, while most funds suffered experienced the challenges of setting up as unique macro overlay strategy. redemptions, Liongate increased their an investment manager in the middle of a Penso Managing Principal, Ari assets by 67%. recession.“ Major allocators suffered Bergmann, notes Gross’s skills will Brian Altenburg, a managing director redemptions and there was no capital. But guarantee him a bright future in the hedge with Bank of America, has known Holland we started the fund in difficult times as we fund industry.“His ability to stay calm and professionally for over six years and were confident in our capabilities to focused in extraordinary market conditions, believes that Holland, and Liongate, will perform in a volatile environment,”says like 2008, and to balance risk and reward continue to see success.“I believe that Jeff Fery. will make him one of the top risk adjusted has the foresight and an understanding of Prior to founding Chenavari, Fery was money managers,”says Bergmann. the industry to see the opportunities for Global Head of Credit Markets for Calyon in The firm is currently in growth mode, growth and move [Liongate] forward. I can London, where he managed more than 200 aiming to grow from $400 million to $1-2 see Jeff further leading to develop Liongate credit traders and structurers. He was also billion, and focusing on increasing their over the coming years, and taking his place the youngest member of Credit Agricole investor base, much of which is made up of among the leadership of the alternatives “Cercle des Dirigeants”.Prior to that, he other hedge fund managers.“We are risk industry”says Altenburg. worked at SG in London and Hong Kong focused investors. Returns are the end Prior to founding Liongate, Holland held where he was a founding member of the result and risk management is the means the position of vice president at Deutsche Credit Derivatives product-line in 1997. He to that end,”says Gross. Bank in investment banking, before which is also co-author of several books on credit he was a manager consultant for derivatives and securitization. JEFF HOLLAND PricewaterhouseCoopers. Partner STEVEN GROSS Liongate Capital Management, London, UK JOE HOLMAN Principal, Co-Portfolio Manager AGE: 34 Founder and Managing Partner Penso Capital Markets, LLC EDUCATION: B.B.A Finance and Accounting, Columbus Avenue Consulting, LLC Cedarhurst, NY Baylor University, Waco, Texas; MSc. Finance, New York, NY AGE: 26 London Business School, London, UK AGE: 45 EDUCATION: B.S. Business Administration, Steven Gross began Jeff Holland is a co- Clarion University of Pennsylvania, Clarion, PA; trading option founder of Liongate M.B.A. Rutgers Graduate School of strategies in high Capital Management. Management, Newark, NJ school using money He is on the firm’s from his grandparents. Investment Committee At age 17, he took a and heads up the In 2004, Joe Holman founded his own fund TEVEN ROSS summer job at S G JEFF HOLLAND client risk Lightning Trading, the management and administration firm, proprietary trading arm of MBF Clearing investor relations function. Columbus Avenue Corp., one of the largest clearing firms at the Formed in 2003, Liongate’s flagship fund Consulting, LLC, to NYMEX, he ended up deferring college to of hedge funds has topped industry league advise managers on JOE accept a full time position in the fall. their internal tables, and the absolute and risk adjusted HOLMAN Gross later joined Millennium Partners returns have been in the top three best operations, accounting to develope statistical arbitrage trading performing funds, achieving just over an and fund structures.The New York based strategies.“There was a unique paradigm 11% annualized return rate. Says Holland, firm currently has $5 billion in assets under shift when the tech bubble burst and “we’re known in the industry as fairly active management, 45 employees worldwide, trading went from decimals to pennies.The in re-allocating [our] portfolio over time, and a primary client base of hedge funds opportunity set changed dramatically and looking at strategies within the macro and fund of funds. the stat arb business went through a economic environment and shifting these Holman discusses how the changing recalibration period,”explains Gross. allocations to best performing strategies.” demands of investors have impacted his The drop-off of equity statistical arbitrage Making investment decisions comprises business.“Managers and investors are opportunities prompted Gross to take a two thirds of Holland’s role at the firm, with looking for a validated depositary of more macro focus and to apply strategies the rest focusing on investor relations.“[We] information.They want access to this across asset classes.In 2002 he joined Penso opened the fund to outside investors in library on a regular basis and have it Capital Markets, a macro investment firm, as 2004, and by 2005 we were nominated for synchronized within their house.” Holman a partner.At Penso, he co-manages the firm’s an emerging manager award,”Holland says. also notes that the down market has macro strategies, which include the Global Liongate currently has approximately created a lot more competition, forcing

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firms to further differentiate their services. guys in a tiny office in Cambridge, and it hit and we remained more liquid than Before founding Columbus, Holman was snowballed from there.”Since inception in most fund-of-hedge funds”Levine says. a partner with accounting firm Rothstein, March 2007, the firm has grown from $30 Levine notes the challenges of Kass & Company, where he built up the million to $750 million in assets under maintaining investor confidence during the administration practice.Holman says the management, with a 25% annualized rate downturn.“It was a challenge to keep most surprising aspect of the hedge fund of return. having well constructed portfolios that do industry is how the strong personal business Richard Bornhoft, president and CIO of well in the market.We had a big picture for relationships intertwine with larger financial fund-of-fund,The Bornhoft Group, cites due diligence from early 2007.We got rid of systems,“[…] overlaying this small town Cantab as one of their premier up-and- everything that had an acronym, e.g. CDO, practice are the largest and most coming fund managers.“We expect them SIV etc and reduced this by June 2007 so sophisticated institutions.It is quite to develop into one the top tier CTAs within investors could get redemptions if they surprising how the bureaucratic nature of the managed futures sector.” wanted to.” institutions can coexist with the very Cantab’s strategy is diversified Carlos Valle, retired managing director personal nature of the hedge fund systematic global macro, trading in for Merrill Lynch notes Levine’s ability to community.” currencies, commodities, rates and apply technical advice to the client’s Former Rothstein colleague, Maury equities.Twenty employees carry out all benefit.“His true acumen comes from Cartine, believes Holman was distinctive research, modelling and analysis internally. taking technical knowledge and from early on.“Joe has distinguished himself As the business grows, Kirk is not certain of understanding how to put it to work for again as an industry leader with a vision for the fund’s ceiling.“It’s a relatively scalable clients in the context of the many other the future that is founded on a strong business and [I’m] not clear yet on where stresses associated with his client’s combination of technical skills, a the limit may be. Maybe some strategies individual situation.” commitment to the hedge fund and private can’t be scaled and have to be capped at equity fund industry and most importantly, $1 billion, but others will be developed JOHN MOODY a commitment to his clients”says Cartine. which will allow increased capacity”. CEO J E Moody & Company LLC, EWAN KIRK JOSH LEVINE Portland, OR CEO Senior Vice President AGE: 51 Cantab Capital Partners, Cambridge, UK Permal Group, Brooklyn, NY EDUCATION: B.A. Physics, University of AGE: 48 AGE: 35 Chicago, IL; M.S. Physics, & Ph.D. Theoretical EDUCATION: B.S (hons) Physics and EDUCATION: B.A. International Affairs, Physics, Princeton University, NJ Astronomy, University of Glasgow, Scotland; University of Colorado, Boulder, CO; MA Mathematics, University of Cambridge, M.I.A. International Economics Policy, Launched in 2006, J E UK; PhD Mathematical Physics, University of Columbia University, NY Moody & Company’s Southampton, UK commodity relative Josh Levine joined value program Formed in 2006, Permal Group in 2007 currently boasts an Cantab Capital annualized return of to help develop the JOHN 17% and was up Partners is a institutional vision of MOODY “systematically the company. Levine 12.4% for 2008. Its mathematical fund,” has quadrupled the founder, John Moody, who is a physicist heavily skewed JOSH institutional client and computer science professor, created towards math and LEVINE the firm in 2001 to put his research ideas DR.EWAN KIRK base of the alternative science. Ewan Kirk is asset management firm, growing it to into practice. He started by trading the one of the co-founders of Cantab, along include sovereign wealth funds, public financial markets on a directional basis, with Erich Schlaikjer (ex-Goldman) and funds,Taft Hartley funds and foundation and began developing relative value Chris Pugh (ex-KBC). Kirk is responsible for and endowments. strategies in 2003. the day-to-day research, strategic direction His responsibilities include running the With everything developed in-house and risk decisions.“[that’s the] good thing institutional team, executing strategies, by a team of eight, the strategy captures about your own firm, you do everything and making sure those strategies meet changes in relative price between related and it’s an exciting thing to do. Feels more the needs of the clients. Levine has commodity contracts. Currently at $200 personal and close to the metal”says Kirk. successfully steered the team to see million in assets under management, Kirk departed from Goldman Sachs after minimal investor redemptions of only a Moody believes the fund can handle 13 years as the Head of European few basis points and continued $300-$500 million total. Quantitative Strategy.“I thought about conducting thorough due diligence,“[we] Moody began his career in academia. what I could potentially be good at” navigated the market well, the portfolios After earning a PhD in physics from explains Kirk.“We started the firm with two were well constructed before the disaster Princeton, he became a member of the

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computer science and neuroscience ANNA NIKOLAYEVSKY performance and firm growth. faculties at Yale, and taught at Oregon Founder/CIO One of the most difficult things on Wall Graduate Institute, where he founded a Street is to maintain an out of consensus graduate program in computational Axel Capital Management, New York, NY opinion, yet that is precisely what Axel did finance. He is also the author of over 65 AGE: 39 in 2008. By capturing the mismatch scientific papers. In addition to his EDUCATION: B.S. Economics, New York between reality and corporate academic responsibilities, Moody has acted University, NY; M.B.A. Finance, Columbia management expectations, the strategy as a consultant for several hedge funds and Business School, NY outperformed, returning 30%. “We zeroed investment banks. in on companies susceptible to the Moody took leave from full-time Anna Nikolayevsky developing credit shock”explains teaching in 2003 to focus on building his founded Axel Capital Nikolayevsky. She sees further trading business. His successful transition Management in 2002. opportunities ahead.“There is still a great from academia to asset management has Focusing on deal of dislocation and fear in the equity come as no surprise to his former long/short large cap market, which will provide remarkable colleagues and peers. Peter Bolland, who US equities, the firm investment opportunities”Axel has ANNA worked with Moody while completing his continued to outperform in 2009 and is up NIKOLAYEVSKY currently has $110 Ph.D. notes “John’s key strength is being million in assets under over 25%. able to bring common sense and prudence management.“I have been interested in Prior to founding Axel, Nikolayevsky held to financial forecasting with state of the art stocks since my teens which made me a bit an analyst position at Zweig-DiMenna statistical models.” of a rarity. I’ve always liked analyzing Associates, LLC and before that, held a On June 1, 2009 his firm launched a new different businesses. There is great similar analyst position at Goldman Sachs investment vehicle, an offshore master intellectual satisfaction when our analysis Asset Management, focusing on a feeder fund, with the aim of achieving $300 is rewarded by an anticipated outcome.” diversified group of industries ranging from million in assets under management. With four employees, everything at Axel autos to semiconductors and software. Moody plans to continue building J E is carried out internally including all Nikolayevsky is also currently co-chair of the Moody & Co. through identifying profitable operations, financial modelling and Portfolio Manager Peer Advisory Council of trading opportunities in commodities research.The fundamentally focused firm is 100 Women in Hedge Funds and a member based on quantitative models. currently building on its historical good of the Economic Club of New York.

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to Columbus Avenue Consulting's Founder JOE HOLMAN, named one of the "2009 Rising Stars of Hedge Funds" by Institutional Investor Joe Holman Founder & Managing Partner

NEW YORK TORONTO DALLAS 152 W. 57th Street 150 Consumer Road 2651 N. Harwood New York, NY 10019 Toronto, ON M2J 1P9 Dallas, TX 75201 212.500.6200 416.499.9600 214.635.4500

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JARED PERRY were early investors and contributors to KEVIN P. S CANLAN Managing Partner/CIO their success.” Partner Stonehorse Capital Management, JOSHUA PRESS Financial Services Group, Dechert LLP Boston, MA Partner/Head Trader Chappaqua, NY AGE: 32 GoldenTree Asset Management, AGE: 38 EDUCATION: B.S. Business, Wake Forest Rye, NY EDUCATION: B.A. Classics & Economics, University, Winston-Salem, NC AGE: 38 Fordham University, NY; J.D. Fordham University School of Law; LL.M. Taxation, New EDUCATION: B.A Sociology, University of Fund-of-fund, York University Pennsylvania, PA Stonehorse Capital focuses on emerging Joshua Press was the Kevin Scanlan is a managers in the first external hire for specialist in hedge long/short equity and leading alternative fund law for event-driven space. JARAD asset management international law firm, Jared Perry co- PERRY firm GoldenTree. Since Dechert LLP.Focused founded the fund in on US-based fund joining the firm in EVIN 2008 with Joshua Gold.They made JOSHUA K 2000, Press has served SCANIAN managers, he advises contacts in the emerging manager field PRESS as the head trader for on transactions, and saw a real need for this type of GoldenTree’s multiple funds, growing the compliance, regulatory issues, product. Gold notes that Perry had the firm from $60 million to over $9 billion in restructuring and, for some clients, acts as necessary prime experience to make the assets under management. an outside in-house counsel advising on venture a success.“Jared started and all aspects of their business. He also managed probably the most sophisticated Working closely under CIO/CEO, Steve advises institutional investors with respect emerging manager platform for Duke Tananbaum, Press is responsible for to their investments in private investment University’s endowment through their ensuring best execution of trades and for funds. management company (DUMAC) with everything going in and out of the Since joining the firm in 2008, Scanlan over $1 billion of notional exposure in portfolio, with a specialised focus on high notes how the key concern of his clients are concentrated LP investments within the yield and credit derivatives.Tanabaum the issues revolving around the tightened emerging manager space.We felt we says that Press is an integral member of credit markets.“[They] are trying to figure could help evolve the industry and focus the GoldenTree team.“He is the out how to get liquidity, trying to get out of on smaller, newer funds that hadn’t had consummate professional and leads by illiquid investments and struggling to sell the operational or performance issues of example. He is someone you want in your assets at a reasonable price to satisfy larger funds.” bunker when you go to war; he has helped January through August of last year create an excellent culture at the firm”says investor redemptions.” was spent structuring and raising assets Tananbaum. One of the many solutions to for the fund which launched on August 1st, Like most financial firms, 2007-2008 redemption pressures that Scanlan has 2008. At approximately $15 million in presented some of the largest challenges utilized includes restructuring the fee assets under management, Perry is for Press.“[The industry] clearly has a lot of structure of a fund to entice investors to aggressively trying to raise more capital. work to do to regain the trust and keep their capital in the fund in return for “We would likely close the fund between confidence from investors that reduced fees. The recent slowing of $500 million and $1 billion, as that’s the experienced significant losses through redemption issues is paving the way for maximum capacity for this strategy”Perry this unprecedented period of time”says Scanlan to focus more on the pending says. Press. He notes that the pain of 2008 is regulatory developments and Perry conducts extensive due diligence starting to come to fruition,“on the flip governmental programs. processes on new managers.“We look at side of the coin we are seeing incredibly Former colleague and current senior managers who are transparent in their attractive investment opportunities with vice president at Neuberger Berman, Dana strategy and have reasonable fee structures high margins of safety. Nowhere is this Pawlicki, commends Scanlan for the and terms.We look primarily at plain vanilla more apparent than in the credit commitment he provides to his clients and equity strategies and appropriate markets.” his work.“He approaches legal issues and strategies for the environment.” Press started his career on the floor of his clients with a balance that is not Perry concludes,“I would like to see the New York Stock Exchange with Floor commonly seen in many corporate Stonehorse help redefine the perception Broker Network. After two years he joined lawyers.”Current Dechert partner, George of fund of funds.Ten years from now, I the MBS desk of Credit Suisse First Boston Mazin, concurs on Scanlan’s abilities.“Kevin hope to look back at a long list of and then moved to First Dominion Capital has begun to attract his own client accomplished hedge funds in which we LLC as a vice president. following, including both start-up

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14 GLOBAL HEDGE FUND LEADERSHIP REPORT JULY 2009 HF_LeadershipReport_09 7/24/09 9:32 AM Page 15

managers and institutional clients.” JEAN-FRANCOIS TARDIF investments, beating all related Prior to joining Dechert, Scanlan worked Senior Portfolio Manager benchmarks for these portfolios. for other large, international law firms. Sprott Asset Management, Toronto, Canada HARRY WULFSOHN EMMA SUGARMAN AGE: 40 Director Managing Director EDUCATION: B.A. Business Administration, Stenham Advisors Plc., University of Sherbrooke, Quebec, Canada Capital Introduction, BNP Paribas London, UK New York, NY AGE: 39 Jean-Francois Tardif AGE: 39 EDUCATION: B.Sc University of Manchester, joined Sprott Asset United Kingdom Management (SAM) in Promoted to November 2001. managing director in Joining to open an Recruited for his stock office in South Africa, February, Emma picking ability and JEAN-FRANCOIS Harry Wulfsohn set up Sugarman transferred portfolio management to New York to grow TARDIF the institutional skills, he created and business division of BNP’s prime brokerage led the Sprott Opportunities Funds, which space. Stenham and was EMMA SUGARMAN currently has approximately $400 million in HARRY charged with building Providing strategic WULFSOHN assets under management. up the client base, advice to hedge funds and institutional Tardif explains his strategy as buying investors, Sugarman concentrates on raising assets globally and establishing the stocks he likes and shorting the ones he Group’s profile in new markets. infrastructure, developing marketable doesn’t.“It’s extremely simple, with no Wulfsohn outlines how he attracted new strategies and administration issues for options or derivatives. I look for free cash clients.“[We] started with bottom-up cold fund managers and examining portfolio flow, growing sales, margin expansion and calling, attending events, networking and management and strategies for buying at low multiples”says Tardif.“I invest also building our profile by writing articles institutional investors. Ascend Capital, LLC only in companies I understand and and speaking at conferences.”Wulfsohn and CFO, Ben Slavet, praises Sugarman’s advice. everything is about risk and return. If you his growing team are currently focusing “She is someone I can always count on to don’t understand the business, then you their attention on developing the brand get an informed view of trends in the can’t assess the risk well and can’t assess the further in South Africa and throughout hedge fund industry and an objective view risk profile.”Tardif focuses on most Europe, Latin America and the Middle East. of our strategy”says Slavet. industries with the exception of biotech Over the past two years, Stenham has Sugarman manages a 13 person team, and technology. seen only 10% redemptions and an who advise between 350-400 hedge fund Before investing,Tardif spends time institutional asset increase of 60-70%. Firm- clients with a regular base of 700-800 researching and analyzing the industry, a wide assets under management are at institutional investors. Client John process which can take between a few days US$4.9 billion, split between diversified Quintanar, managing director for Beach and a few months – depending on the hedge fund portfolios and commercial real Point Capital Management notes Emma’s industry. estate funds.The diversified hedge fund dedication to providing clear information. Tardif has adjusted his funds to handle portfolios have a ten year annualized rate “She is extremely thoughtful, provides the tumultuous markets.“We’re not as of return of 10% with a volatility of 4%. amazing guidance and time and time again aggressive as we used to be, we’ve started Wulfsohn is working closely with clients has demonstrated her ability to be most to invest in convertibles, [they have] very to ensure their investment goals match their effective in capital campaigns”he says. attractive yields and features”Tardif says. current portfolio strategies for the current Sugarman also organizes events for the Currently in the process of capital environment.They have also increased their investing community, including an annual preservation, the Sprott Opportunities client education, providing ‘detailed and hedge fund investor symposium. Sugarman Hedge Fund LP has an annualized return non-jargon’information.Michael Fienberg, is also one of the founding members of rate of over 21% since inception in 2004. group managing director for Stenham Association of Women in Alternative 90% of the clients are Canada-based, praises Wulfsohn’s investment approach and Investing (AWAI), the west-coast based including financial advisors, high-net-worth expertise.“He bridges the gap between the organization stemming from the specific individuals and institutions.The remaining technical investment side of the hedge fund needs of women working in alternatives on 10% are offshore clients, consisting of high- industry and that of servicing and the west coast. net-worth individuals and institutions such addressing the needs of investors.” Before joining BNP (formerly Banc of as fund-of-funds and family offices. The Peregrine Group, a leading provider America Securities), she held positions with Before joining Sprott Asset of wealth and alternative asset administration firm BISYS Hedge Fund Management,Tardif worked for ING management solutions, recently acquired Services and Olympius Capital, a start up Investment Management, Inc. as a portfolio 51% of Stenham. Peregrine is listed on the fund-of-funds. manager, overseeing all of the small cap Johannesburg Securities Exchange.

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