July 2012 Hedgeweek USA Awards 2012

Coverline 1 Coverline 2 Coverline 3 Contents In this issue…

03 Volatility the dominant theme for managers in 2011 By James Williams 04 Goldman Sachs AIMS Group Best UCITS-compliant Product 05 Lyxor Best Managed Accounts Platform 06 Anchin, Block & Anchin LLP Best North American Accounting Firm 07 Hedgeweek USA Awards 2012 results 08 Liquidnet Best North American trading venue 09 CurAlea Associates LLC Best risk management software firm 10 Titan Capital Group Best Relative Value Fund Manager 12 Meridian Fund Services Best North American fund administrator 13 Mohican Financial Management LLC Best Convertible Fund Manager 14 Agecroft Partners Best North American Third-Party Marketing Firm 16 Third Eye Capital Best Credit Fund Manager 17 HedgeOp Compliance Best North American regulatory advisory firm 18 Phalanx Capital Management LLC Best and Multi-Strategy Fund Manager

Publisher

Special Reports Editor: Simon Gray, [email protected] News Editor: James Williams, [email protected] Sales Managers: Simon Broch, [email protected]; Malcolm Dunn, [email protected] Marketing Director: Oliver Bradley, [email protected] Publisher & Editorial Director: Sunil Gopalan, [email protected] Graphic Design: Siobhan Brownlow, [email protected] Photographs: Soohang Lee GFM Ltd, 1st Floor, Liberation Station, St Helier, Jersey JE2 3AS, USA AWARDS 2012 Published by: Channel Islands Tel: +44 (0)1534 719780 Website: www.globalfundmedia.com

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Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 2 Overview

Volatility the dominant theme for managers in 2011 By James Williams

With a flood of new regulations set to as New York and Chicago, with the winning emerge over the next few months, US hedge managers demonstrating resilience and funds and service providers need to pay consistency in the face of tough markets. close attention to compliance and regulatory 2011 proved a tough year to be a hedge issues even as they battle to stay abreast of fund manager, unless you were trading their performance forecasts. volatility, fixed income or distressed asset Delivering the keynote address at the strategies. The HFN Aggregate Hedgeweek USA Awards 2012 held recently Index finished the year down 4.9 per cent; in New York, Jeffrey Rosenthal, Partner and BarclayHedge put the figure at -5.48 per head of the financial services practice at cent. Either way, significant performance was Anchin, Block & Anchin LLP, noted that with tough to attain at the industry level. the growing institutionalisation of the hedge Of particular concern was the funds market, managers need to build and performance of Long/ Equity strategies, maintain strong record keeping procedures which significantly underperformed market in areas ranging from compensation indices. For example, thanks to a late rally agreements to compliance. in October the S&P 500 index ended the Opening the event, held at the Gansevoort year flat. By comparison, long/short equity Hotel in NYC, Hedgeweek Publisher Sunil managers in the US, as a group, returned Gopalan noted that this year’s winners -3.5 per cent according to EurekaHedge, are a diverse cross-section of managers and -4.58 per cent (globally) according to and services providers from across North BarclayHedge. Whichever way you cut it, America, proving that the industry is performance just wasn’t there. thriving outside established centres such Without doubt, trading conditions for 7

Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 3 Goldman Sachs Asset Management Goldman Sachs AIMS Group Best UCITS-compliant Product

As part of the Goldman Sachs Alternative Specifically, the DASP portfolio focuses Investments and Managers Selection on four main hedge fund sectors: tactical Group (AIMS), Goldman Sachs Asset trading (), equity long/short, Management’s specialist hedge fund team – relative value and event driven. Currently it is AIMS Hedge Fund Strategies – has over 40 invested in 10 underlying managers, although years’ experience. With over USD22billion Mullane confirms that number will soon be in AUM, the team is one of the largest 12: “We’ve always felt that we wanted to providers of alternative investment solutions. get to between 12 and 15 managers in the One such solution is the GS Dynamic portfolio to be suitably diversified.” Alternative Strategies (DASP) Portfolio, a When asked why the portfolio targets Luxembourg-domiciled sub-fund of the GS Rob Mullane, Managing the above-mentioned four strategies, Funds II SICAV. As an UCITS-compliant Director, Goldman Sachs Asset Mullane says that they are the “four building multi-strategy FoHF product, which is only Management blocks that we use across all of our client available to investors in certain European portfolios”. Tactical trading is a critical jurisdictions, the portfolio aims to identify and component of DAS and perhaps in light of then invest in the best available hedge fund the macro risks dominating global markets, managers offering UCITS versions of their the portfolio has held an overweight position offshore Cayman funds. in this strategy for some time. The fund, which currently has “One of the issues you have with UCITS USD140million in AUM, was launched in funds is that it’s easy to run long/short March 2010. equity strategies, and therefore you’re likely Speaking with Hedgeweek, Rob Mullane, to get more at the portfolio level. What Managing Director, Goldman Sachs Asset we’re trying to do is find non-correlated Management, says that the team focuses strategies and tactical trading in particular purely on true hedge fund managers as lends itself to that. It is one of the higher opposed to simply considering anyone that’s allocations in the portfolio and has helped offering weekly liquidity. “One of our initial us survive some of the equity market focuses was to say ‘Who are the offshore drawdowns we’ve seen recently.” managers we already have money with who Through June 2012, the DASP portfolio are willing to offer their strategies using the is up 2.9 per cent. It has, says Mullane, UCITS structure?’ We soon got to a tipping been better able to weather some of the point where there were enough managers market drawdowns and limit losses in event- for us to be able to offer a product that was driven and long/short equity strategies as suitably diversified, and multi-strategy in compared to last year. While equity markets nature.” lost some 7 per cent in May, the portfolio Client demand prompted AIMS Hedge limited losses to 2 per cent. Fund Strategies to develop a fund of UCITS On winning the award, Mullane hedge funds as the group’s traditional FoHF comments: “We are very excited to be products, with their relatively limited liquidity recognised for an award for this product. It’s constraints, were not always the right fit. taken a lot of work to develop this product “Over the last couple of years we’ve seen and get it to market. For us to receive these increased demand from clients who want to kinds of awards is always appreciated invest in alternative strategies but to do so and hopefully it will be one of many going with a preference for investing in onshore forward as we look to continue dedicating structures,” explains Mullane. resources to the UCITS market.” n

Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 4 Lyxor Lyxor Best Managed Accounts Platform

2011 saw a total of 28 new funds join the also ranking in the top tier with respect to industry’s largest individual commingled performance YTD. managed account platform across a range As of May 29, the best performing of strategies including multi-strategy, special strategy is , up 5.06 situations, merger arbitrage, emerging market per cent, followed by distressed strategies, LSE, global macro and long/short credit. which are up 3.58 per cent,” says Keller. And this year is proving no different. One of the key strengths of Lyxor’s Two managers in the fixed income and MAP is that it uses an open-architecture global macro space have been onboarded: business model; an important feature when Concordia Advisors, the New York-based counterparty risk is top of investors’ minds. fixed income relative value fund (added Stefan Keller, Head of MAP It uses 11 prime brokers, three independent February), and Bladex, a Latin American Research at Lyxor fund administrators and 15 authorised global macro manager (added March). OTC counterparties. In volatile markets, As of May 29, 2012 the AUM for the MAP this rigorous approach equates to better stood at USD11billion. protection of clients’ capital. Stefan Keller, Head of MAP Research Transparency is another central pillar of at Lyxor, says that despite a difficult the MAP. Whilst risk aggregation has become environment, hedge funds on the platform de rigueur since 2008, Lyxor has been doing have still managed to perform. it since 1998. Says Keller: “Hedge funds on the Lyxor “We’ve developed our own internal way of platform are up 1.08 per cent YTD and the measuring risk across all internal managers. Lyxor Hedge Fund Index as of May 29 was A team of more than 20 risk analysts lie in positive territory in all but one investment behind the Panorama risk engine, which as strategy – basically 12 out of 13 strategies its name implies offers a panoramic view of have been delivering positive performance to portfolio risk. This all ends up in our secured investors in 2012.” website which allows investors to see a And as Keller is keen to stress, the Lyxor homogenous picture of risk in all our client Hedge Fund Index is an investable index holdings,” says Keller. based on live funds trading on the MAP; not One exciting development is a heat map, a theoretical construction. which highlights concentrations in each fund Three themes are emerging this year in by asset class, currency, country exposure Keller’s opinion. Firstly, like in 2011, it remains etc, giving investors a visual representation a risk on/risk off environment. This ties of risk. “Many of our investors have acquired in to the second trend, namely that pure an immediate addiction to this powerful equity strategies are somewhat out of favour analytical tool. It shows that our platform with investors. “We see this also in the risk is leading the way to help investors make budget allocated by CTAs or global macro better informed investment decisions.” managers to equities: trend followers are On winning the award, Keller says: “We keen to allocate more risk to FX, interest are particularly proud to have won this US rates and bonds,” observes Keller. award for the first time and feel happy that “The third trend is that long/short credit, Hedgeweek readers in the US appreciate our CB arbitrage, fixed income arbitrage, and value proposition. This award reflects our even event-driven strategies which have strategic objective of having a better footprint a credit element in their portfolio, are all in the US and will undoubtedly help us enjoying nice inflows this year and are consolidate our market leader position.” n

Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 5 Anchin Anchin, Block & Anchin Best North American Accounting Firm

Year after year, award after award, Anchin, three firms named as a repeat winner of Block & Anchin is recognised as a top-tier a Hedgeweek Award,” Rosenthal says. firm throughout the US in terms of its size, “Recognition as Best North American management, scope of services and work Accounting Firm affirms our place in the environment. financial services community and speaks With a staff of more than 350 and to the level of service that we provide numerous specialised industry and service our clients.” teams, the full-service accounting, tax and In a market crowded with accounting advisory firm provides investment companies, firms, Anchin sets itself apart from the privately-held businesses and high net worth competition in a number of ways. “We know individuals with a wide range of traditional Anchin, Block & Anchin who we are and who we want to be,” says and non-traditional services. Financial Services Group managing partner Frank Schettino. “Anchin Anchin’s expertise is readily apparent in partner-in-charge Jeffrey I. has not been, nor will it be, party to the Rosenthal its Financial Services Group, which includes merger mania that has affected the industry. nine partners and more than 50 dedicated It has never been our goal to be the biggest; professionals under the direction of partner- it is our goal to be the best.” in-charge Jeffrey I. Rosenthal. This philosophy and strategy has resulted “Navigating today’s complex economic in Anchin growing into the largest single- environment poses significant challenges office accounting firm in the US. The to financial services firms and other market consolidation of intellectual firepower under participants,” Rosenthal says. “Whether one roof directly benefits its clients. conditions are volatile or stable, the market Anchin is neither too big, nor too small. bull or bear, fund managers need the The firm is large enough to provide the support of experienced professionals. depth and breadth of services that clients “Our years of experience, extensive need, yet small enough to provide them with network, and deep institutional knowledge attention at partner level. Issues are solved allow us to offer our clients perspectives quickly; clients never wait for answers from and insights on the overall direction of their distant offices. business. More than tax specialists and There are no technical silos at Anchin; accountants, we see ourselves as strategic its culture is truly collegial. Partners work service providers whose role is to assist together, across industry lines and service clients and their investors achieve their long- specialties, to deliver a broad array of term and short-term objectives.” solutions. The Financial Services Group, launched Anchin’s professional retention rate is more than 35 years ago, works with more much higher than the industry average, than 400 investment partnerships, hedge which means clients see the same faces funds, mutual funds, private equity funds, year after year on their engagements. In fact, funds of funds, offshore funds, master- Anchin has repeatedly been named a Best feeder structures, broker-dealers, investment Place to Work in and New advisors, family offices, commodity advisors, York State, and a Best Accounting Firm to securities specialists and traders. Financial Work For in the United States. services is Anchin’s largest industry sector By offering superior service and a quality and it maintains a stellar reputation in the work product, Anchin has enjoyed long-term community. relationships with its clients, often across “We are pleased to be one of only multiple generations. n

Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 6 Overview

Hedgeweek 2012 USA Awards Winners List Best North American Hedge Fund Administrator Best Long/Short Equity Manager Meridian Fund Services CCI Technology Partners Best Offshore Hedge Fund Administrator Best Market Neutral Fund Manager Northern Trust Phalanx Capital Management LLC Best North American Prime Broker Best Relative Value Fund Manager Deutsche Bank Titan Capital Group Best North American Hedge Fund Research Provider Best Credit Fund Manager Lowry Research Corporation Third Eye Capital Best Managed Accounts Platform Best Fund Manager Lyxor Avenue Capital Group Best Seeding Platform Best Fund Manager Topwater Capital Partners Mohican Financial Management LLC Best Risk Management Software Firm Best Managed Futures (CTA) Manager CurAlea LLC Dunn Capital Management LLC Best Fund Accounting and Reporting Systems Provider Best Fixed Income Manager Tradar Rimrock High Income Plus Master Fund, Ltd Best North American Trading Venue Best Multi-Strategy Manager Liquidnet Phalanx Capital Management LLC Best North American Accounting Firm Best Manager Anchin Block & Anchin LLP MKP Capital Management, L.LC Best North American Regulatory Advisory Firm Best Global Macro Manager HedgeOp Compliance LLC Goldman Sachs Best North American Regulatory Advisory Firm Best Event Driven Manager ACA Compliance Group Jana Partners LLC Best Offshore Regulatory Advisory Firm Best Ucits-Compliant Manager PwC Goldman Sachs Best North American Law Firm Best Diversified Fund of Hedge Funds Manager Seward & Kissell LLP Wells Fargo Best Offshore Law Firm Best Specialist Fund of Hedge Fund Manager Walkers Wells Fargo Best Third Party Marketing Firm Agecroft Partners

3 fundamental pickers were highly equity strategist David Kostin, and referred challenging. Continued political headline risk to in the same article, pointed out because of the Greek debacle in Europe, that the poor performance of so many the tragic nuclear disaster in Fukushima in managers last year was surprising since the March, the US credit rating downgrade: all opportunity for stock picking wasn’t much of these macro events created substantial worse than in any other year over the past headwinds, fundamental valuations flew out three decades. of the window, and a pervasive risk on/ Not to say that all LSE managers hit the risk off sentiment dominated; and indeed skids. Chase Coleman’s Tiger Global Fund continues to dominate. was number one in Bloomberg’s 100 Top Whitney Tilson’s USD250million T2 Sol Waksman of BarclayHedge Performing Hedge Funds list published at Partners LLC has generally outperformed the end of the year. The fund returned an the major indexes but last year impressive 45 per cent through October the fund lost 25 per cent reported Reuters, 2011. Others that fared well included industry quoting Tilson in a letter to his investors as stalwart Philippe Lafont whose Coatue saying: “It has been an extremely frustrating Management returned 17 per cent, John – and humbling – experience.” Thaler’s JAT Capital, up 12.7 per cent, and A research note written by a team of Steve Cohen’s SAC Capital International, up Goldman analysts headed up by chief US 7 per cent. 11

Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 7 Liquidnet Liquidnet Best North American trading venue

New York-headquartered Liquidnet is a global against information leakage, traders can: institutional trading network that connects • manually negotiate their own order, or buy-side institutions to global equity markets. • automate the execution using a suite of Its global footprint includes subsidiary offices customisable algorithms, or in key financial markets including , • work with Liquidnet’s in-house team of , , and Toronto. traders who can trade on their behalf. The firm was founded by Seth Merrin in “Our growth over the past 11 years has clearly 2001. Prior to Liquidnet, institutional investors been both an endorsement of our unique looking to buy or sell a large block of stock business model and recognition that the had few options. Typically, it meant manually equities market needed to be two-tiered: one breaking large trades into small pieces and John Kelly, Chief Operating for retail; one for institutions,” comments Kelly. executing on the retail market, where price Officer at Liquidnet Last year saw solid global growth for the fluctuations and scarce liquidity were inevitable. firm, particularly in . “We experienced Merrin recognised that institutional rapid growth in Asia-Pacific during 2011 driven investors needed a wholesale market where by a rapidly growing Member base in the they could trade blocks of equities with region and a surge in trading activity and large maximum anonymity and price improvement. demand for trading of Indonesian equities. Liquidnet was established to meet that need. “Liquidnet’s growth was also marked by At inception Liquidnet had 38 US asset new partnerships and the expansion of other managers. Today, confirms John Kelly, Chief businesses. For example, in July 2011 Liquidnet Operating Officer at Liquidnet, it sources and SIX Swiss Exchange launched a landmark liquidity from more than “700 of the world’s platform for non-displayed equity block trading. leading asset management firms across 39 The platform allows SIX Swiss Exchange equity markets”, spanning five continents. members to execute large block trades Once the liquidity is secured, Liquidnet efficiently in Swiss and global equities through delivers it to the on their Liquidnet’s exclusive global liquidity network.” terms – protected, sizeable, anonymous and 2012 has seen the firm develop a series of ready-to-trade. commission management tools for Members As a result, Liquidnet has become the as it strives to eradicate inefficiency for leading global institutional trading network traders and protect the performance of their for the buy-side community who rely on off- portfolios. Kelly says that Members had been platform liquidity pools to protect against telling Liquidnet for some time about their price erosion and take reassurance from hassles of managing commissions and their having complete anonymity. In the US, broker commitments. Liquidnet’s average execution size is nearly “In response, Liquidnet developed an 50,000 shares – ten times larger than any online tool for institutional investors — other exchange, dark or lit. Liquidnet Select Aggregator—to aggregate, Aside from sourcing liquidity from its allocate, and track commission payments to 700+ Members, Liquidnet uses a number of brokers in one convenient location, saving supplementary protected channels to deepen time, money, and resources. Liquidnet Select the liquidity pool. Says Kelly: “We now source Aggregator is a game changing application large-scale liquidity from sources including that allows firms to seamlessly monitor brokers, exchanges, public companies, and manage all CSA, CCA and Soft Dollar private companies, and private equity and Accounts via one simple web application.” firms.” On winning the award Kelly comments: Clients who use Liquidnet have complete “We are fortunate that the hedge fund control over how they access liquidity. Across community recognises the unique value that a variety of sources, with robust protections Liquidnet delivers to the market.” n

Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 8 Curalea Associates CurAlea Associates Best risk management software firm

CurAlea Associates LLC was established by them select and implement third party risk Seb Calabro and Peter Ort in 2010 to provide management solutions. risk advisory services to hedge funds and Regarding CurAlea’s risk advisory service, other buyside clients. The firm delivers high Ort offers the following comments: “Our touch, high value-added services to clients approach is that there is no one right way via both quantitative portfolio risk analyses to manage money, construct a hedge fund and qualitative interpretations of portfolio risk. portfolio, or manage portfolio risk. CurAlea’s hedge fund clients typically employ “Different hedge funds have different fundamental investment strategies with a investment philosophies, risk/return focus on liquid securities. objectives, and loss tolerances. For a risk Prior to establishing CurAlea, Calabro Peter Ort, co-founder, management philosophy and process to and Ort spent many years at both hedge CurAlea Associates LLC be effective, they must be in sync with the funds and hedge funds of funds, giving them hedge fund›s investment philosophy. insight into hedge fund portfolio construction “Risk management should also be objective, and risk management and the ever growing which is why an outsourced solution works requirements and demands of hedge fund well for our clients. It’s also important to allocators. recognise that all quantitative analyses have CurAlea offers a customisable risk inherent flaws, which is why we provide solution and can work either in a qualitative interpretations of portfolio risks completely outsourced manner or can to suggest where specific models may be implement the CurAlea RiskSuite, an understating or overstating portfolio risk automated risk engine and reporting depending on the market environment.” software package to facilitate more frequent On winning the Hedgeweek Award as assessments of a client’s portfolio risk best risk management software firm, Ort profile. The firm has also been engaged says: “What’s most rewarding is that the for one time risk consulting projects to help selection process for the award was driven clients solve specific challenges or to help by our clients.” n

Peter Ort receives the award for Best Risk Management Software Firm from Oliver Bradley

Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 9 TITAN Capital group Titan Capital Group Best Relative Value Fund Manager

Titan Capital, founded by Russell Abrams in macro-type events that derive from political 2001, was one of the first pure play volatility interference, particularly in Europe, the fund managers in the hedge fund industry. markets can go from “complete bliss to total Prior to establishing Titan, Abrams was panic very quickly”, according to Abrams. co-head of US Equity Trading and Titan’s approach to volatility trading is Convertible Arbitrage at Merrill Lynch from based on two concepts: first that the world 1997 to 2000. is essentially stable and people looking for Titan trades volatility non-directionally yields will sell options to collect the premium; using a relative value strategy to exploit second, that when you have macro fear option arbitrage opportunities in both its factors causing markets to move sharply, funds: Titan Global Return Fund and Titan Russell Abrams, founder, Titan volatilities move up quickly. Asia Volatility Fund. Capital “Our strategy is one that tries to benefit As Abrams explains: “We’re comfortable from both of those environments. In quiet trading options against each other within times we’re collecting some money (from the same asset class. FX is interesting option premiums) and in panic mode we for us right now because volatilities have also do well. This worked well for us last been so low, a lot of the issues people are summer when panic kicked in. talking about are macro issues: once things “In the last quarter of 2011 and first move they tend to move very quickly out of quarter of 2012 we had a sharp equity rally nowhere, especially for many of the Asian that caused the biggest ever fall in implied currencies that are pegged to the US dollar. volatility in a six-month time period but our That makes for good asymmetric trades.” global fund was still positive during that As well as active period. We use a relative value approach to strategies in its two funds, Titan also drive returns in the portfolio. Long volatility uses passive strategies, trading options to exposure only kicks in if markets go down.” generate bond-like return streams across Abrams says that during benign markets asset classes. It categorises the subsequent the strategy seeks to limit how much money yield derived from this approach in two the portfolio’s long volatility positions lose if forms: ‘enhanced yield strategy’, which offers volatilities collapse. “That’s the biggest focus: investors 10-year annualised returns of 6.7 knowing what these long positions will lose to 13.2 per cent, and ‘conservative yield in such circumstances. A big part of what strategy’, which offers investors returns of 5.3 we do is deciding which options to own to to 10.2 per cent. maintain that exposure.” “This is a black box passive strategy As for where the opportunities lie in designed to generate a certain yield over a trading volatility this year, Abrams thinks that five or 10-year period with a high probability commodities and currencies are currently the of succeeding by looking at different option most attractive asset classes. premiums and deciding which to sell, based On winning the award, Abrams says: on where the implied volatility is, to generate “There’s always a great sense of fulfilment that yield,” says Abrams. when your peers vote to give you an award Volatility funds have become popular as they are the most in tune with what with investors in recent times and in today’s you’re doing. We’re extremely pleased to win world, which is driven by emotion and this Hedgeweek award.” n

Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 10 Overview

7 Looking at the wider context, fixed income strategies were one of the best performers, returning 5.14 per cent in 2011 and already up 4.85 per cent YTD according to EurekaHedge. Global macro returned 2.08 per cent, and although down 1.18 per cent last year, Relative Value strategies have found momentum and are up 6.04 per cent YTD. Speaking with hedgeweek, Sol Waksman of BarclayHedge says that while he was surprised by the volatility of global equity markets as markets moved from risk-on to risk-off and back again, “under those circumstances the returns to hedge funds were not that bad at all. As a group, they made the most of a very difficult situation.” Investors certainly appeared to keep faith, Jeffrey Rosenthal of Anchin, Chris McGuire is the CIO and CEO of Block & Anchin Financial reinforcing the fact that this industry has Chicago-based Phalanx Capital. The firm Services Group, delivering become far more institutionalised post-08; the keynote address at the manages a market neutral volatility multi- pension funds and endowments are happy Hedgeweek US Awards strategy fund that invests in Japan, Asia to take a longer-term view, which is no doubt ceremony ex-Japan and Australian markets. McGuire helping managers. And despite a tough notes that hedge fund returns across most year for finding , 2011 still managed to strategies “have, and continue to remain attract USD70billion of net new capital – the bifurcated. That being said, in a zero interest highest since 2007 - according to Hedge rate environment where equities have fallen, Fund Research. a return of a few hundred basis points above Waksman doesn’t think investors are risk-free should be appreciated a great deal especially happy these days no matter from investors.” what they are investing in: “In the hedge Last year was a favourable time for fund space, the big are getting bigger.” On volatility traders like McGuire, and 2012 the list of most investors are managers is proving no different. Phalanx focuses like Ray Dalio’s Bridgewater Associates. its strategy on Asia due to the magnified Which is unsurprising when you consider volatility and dislocation in the relative value that the firm’s Pure Alpha II – a macro fund space. Says McGuire: “We have increased – returned 23.5 per cent through October. Tom Davies receives the award our allocations to pure volatility strategies The biggest and the best not only have the for Best North American to over 50 per cent of our business as Hedge Fund Administrator operational infrastructure that institutions on behalf of Meridian from the opportunities are immense. We see demand, they deliver on performance. Oliver Bradley tremendous scalability and potential returns for the rest of the year.” Russell Abrams founded New York- based Titan Capital in 2001 and was one of the industry’s first pure play volatility fund managers. Titan trades volatility non- directionally using a relative value strategy to exploit option arbitrage opportunities in both its funds: Titan Global Return Fund and Titan Asia Volatility Fund. Like McGuire, Abrams is bullish in his sentiment: “You had every opportunity you could care to want as a volatility trader last year. “The main volatility trading opportunities were in equities and commodities: those are the ones where you saw really big price 15

Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 11 Meridian fund services Meridian Fund Services Best North American hedge fund administrator

Meridian Fund Services administers funds administrators to develop technology across all hedge fund structures (single solutions for hedge fund clients, Meridian strategy funds, master-feeder funds, FoHFs has focused its technology efforts on and separately managed accounts) and building a strong in-house team of skilled private equity funds. At present, the firm programmers located in Cambridge, has approximately USD15billion in AuA. It Massachussetts. The firm’s primary data services approximately 90 clients across 231 processing platform is PFS-PAXUS, which funds, which collectively have more than interfaces seamlessly with the systems of 5,700 separate investors. investment managers, prime brokers and Tom Davis, CEO, explains that the pricing services. main headwind affecting the firm last year Tom Davis, CEO, Meridian Fund Says Davis: “One of the reasons we’re was the fact that towards the end of the Services able to provide a high level of service at a summer some of its funds had performance reasonable cost to start-ups is because of difficulties. “AuM went down slightly and our entire IT platform. What we like about the new funds that we were getting in didn’t PFS-PAXUS is the fact that different modules offset the decreasing value of some of our are able to integrate with each other: that existing funds,” explains Davis. brings us huge savings in time. Also, it’s Unlike 2008, however, Meridian didn’t see very flexible. Our internally developed a huge wave of redemptions at the end of technology, called Meridian Reporting Tool 2011. “We had one major client give back (“MRT”) allows us to access information from their third party money and turn into a family PFS-PAXUS seamlessly.” office and a few smaller managers shut This allows Meridian to export data funds down, but at the same time we were directly from PFS-PAXUS and process it in able to get new funds on board,” says Davis, a customisable reporting format in MRT; noting that net-net the firm gained about 30 a middle-office value-add that managers new clients in 2011. are increasingly looking for from their fund Meridian prides itself in providing a high administrator. level of service to start-up managers. Davis “We’ll use other systems that we think likes to refer to what they do as offering “an suit our particular needs well; for example, institutional-quality service at an affordable we use a product called FASCET for security price”. And whilst the firm definitely has processing and daily reconciliations. We plans to expand into Europe and Asia, process this data outside of PFS-PAXUS and right now the core focus is on servicing US then feed it back in, which works well for managers. us. The governance tool we use – ViewPoint “In my opinion, the US is going to be - also integrates well in our technology the driver that gets everyone out of today’s platform,” adds Davis. He confirms that economic doldrums. We want to support Meridian is currently working closely with a lot of the managers that are spinning PFS-PAXUS on a Form PF solution as the out of prop desks to start their own funds. next major value-add to its clients. The entry barrier in terms of cost is getting On winning the award, Davis comments: higher so what we’re trying to do is lower “We’re thrilled to win this award, especially that barrier for these new managers,” as this is voted for by Hedgeweek’s states Davis. readership. We feel this vindicates our To stay ahead of the ever-growing decision to open a New York office back in demands being placed on fund 2004 in order to be close to our clients.” n

Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 12 Mohican Financial Management Mohican Financial Management Best Convertible Arbitrage Fund Manager

Mohican Financial Management LLC, based we feel comfortable with the balance sheet, in Cooperstown, New York and Wilton, business plan and management team we’ll Connecticut, was established by two brothers, then look at the convertible security and gauge Eric and Dan Hage in October 2002. Between where it is being priced in the market versus them, the brothers have over 35 years of our judgment of where it should be priced. experience trading convertible securities. “If the convertible trades at an implied The Mohican VCA Master Fund focuses credit spread that is significantly wider and/ on convertible securities of US small- and or a volatility that is low relative to our mid-cap companies. In many ways, the firm expected future volatility we’ll research the is closely aligned with the niche market in security further and add it to our portfolio if it which it trades and prides itself on being Eric Hage, co-founder, meets our criteria.” nimble, focused and specialised. Mohican Financial Risk in the fund, which is , Management LLC There are many benefits to focusing the is controlled, says Hage, by maintaining fund’s investment strategy on small- and a well-diversified portfolio across industry mid-cap companies. Since 1 January 2005, exposures with strict limits on individual these companies have issued approximately position sizes per company. “The portfolio 80 per cent of all new issuances in the is also closely monitored from a top-down convertibles space. This means that the basis with regards to all macro exposures supply and variety of buying opportunities such as vega, rho and credit spread risks.” are far greater than in the large-cap space. As for market opportunities in 2012, Hage Moreover, the fact that these securities says that the recent volatility in the markets are often inefficiently priced and offer higher has created some “interesting individual yields means that there’s significant arbitrage buying opportunities in US convertibles”, potential and, from a risk management especially in “off-the-radar” companies that perspective, less dependence on using Mohican has researched for years. leverage: the Mohican fund typically only “Despite all of the negative macroeconomic uses about 1.7x leverage. news, first quarter earnings for our small and Sean Nelen, Marketing Manager, tells mid-cap US companies were generally solid Hedgeweek: “Our focused research process and corporate balance sheets continue to enables us to get to know these companies look very healthy with plenty of excess cash. in-depth and our versatile approach to “We see the current environment as one arbitrage allows us to profit from different that is solid for the convertible arbitrage types of arbitrage opportunities.” trade – going long/short duration debt of The aim of the portfolio is to generate solid balance sheet small and mid-cap US returns to investors that exceed the implied companies at relatively wide spreads while median credit spread of the small- and mid- simultaneously going long equity volatility at cap US convertible coupon and low implied volatilities in an ever-changing the interest rate of like-for-like maturity US macroeconomic news cycle,” says Hage. treasuries. Most positions in the portfolio On winning the award, Hage comments: are held for years as opposed to weeks or “We feel proud. It is gratifying to receive months. outside recognition for our efforts. We’d On selecting positions, Eric Hage explains: like to thank our clients for trusting us “We use bottom-up research with a primary with managing their money. We take that focus on the credit quality of a company. If responsibility very seriously.” n

Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 13 Agecroft Partners Agecroft Partners Best North American Third-Party Marketing Firm

Agecroft Partners specialises in consulting clients among investors. Says Steinbrugge: and third-party marketing for the alternative “We use quantitative screens to narrow the investment industry, with a particular focus universe of hedge funds and prioritise further on hedge funds. The firm raises assets research efforts. globally for institutional-quality managers by “We look for at least USD75m in assets utilising a consultative approach within the within the strategy, performance near the top institutional investor community. Its approach of the strategy’s peer group, high relative is to develop in-depth product knowledge of Sharp and Sortino ratios and low historical the funds the firm represents and to be able performance drawdowns, low correlation to articulate their investment processes as to a major market index, and performance well as the hedge fund managers. Agecroft Partners managing characterised by quantifiable alpha and its Agecroft was founded by Don partner Don Steinbrugge repetitiveness.” Steinbrugge, who has 27 years of experience Agecroft’s qualitative screening reflects in the institutional investment management the questions asked by investors, including sales industry, including serving as head of a top-down analysis of the strategy and sales for one of the world’s largest hedge assessment of whether it is likely to fund firms as well as for a leading global be successful in the current economic institutional investment manager. environment. It will also assess the Overall, the firm’s partners have strong quality of the investment team in terms of investment and industry knowledge, which pedigree, industry knowledge, experience gives them credibility with major institutional and reputation, the management firm’s investors. They average more than 15 years infrastructure and commitment to ongoing of industry experience, and a majority have reinvestment in operational resources, risk previously worked for multi-billion dollar controls, service providers and fund terms. alternative investment firms. The screening processes are Agecroft is highly selective in choosing the complemented by on-site visits and firms it represents – around half a dozen at any conference calls involving the potential one time – and uses an institutional-quality due client’s portfolio manager and senior diligence process to sift through the thousands members of the Agecroft team, as well of managers in the marketplace. It develops as the checking of references and other client relationships through 1) direct contact sources, including service provides, to from hedge fund managers, 2) referrals from confirm good standing and reputation. institutional investors, prime brokers and other The process does not stop when the service providers, 3) research using industry manager becomes a client. “Once they join publications and conference attendance, and our platform we receive constant feedback 4) screening of multiple hedge fund databases. from the many investors we reach out Agecroft Partners can raise assets for to each month,” Steinbrugge says. “This its clients either on a global basis or as a feedback is communicated to managers complement to a hedge fund firm’s existing to help improve their offering, but we also marketing strategy, focusing on a particular review this information constantly for any geographic region or investor segment. The sign of potential issues with a manager.” senior partners typically are in contact with He adds: “We’re continuously focused more than 1,000 investors and hold face-to- on ensuring that our brand remains strong, face meetings with up to 100 every month. which is why we are honoured to have won The thoroughness of Agecroft’s screening this award and to have earned the votes process not only helps it stand out from the of industry members both in the USA and competition but boosts the credibility of its worldwide.” n

Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 14 Overview

11 movements. Right now, FX is interesting for that the inflation and deflation of options us because volatilities have been so low. A prices as well as significant moves in the lot of the issues people are talking about are Hang Seng and Nikkei provide “incredible macro issues: once things move they tend to absolute moves and trading opportunities move very quickly out of nowhere, especially associated with those moves. We are more for many of the Asian currencies that are bullish on return prospects than we have pegged to the US dollar. That makes for been in quite some time.” good asymmetric trades.” Although volatility traders like market People who made money in 2009 and dislocations, the prevailing risk-on risk-off 2010, says Abrams, did so from being environment presents certain challenges. short volatility. When the markets went into Volatilities change rapidly, making for much meltdown in the summer, a lot of these smaller margins for error when building volatility funds gave back returns to the positions. Abrams admits the firm has had market. “That’s a statistical fact. From August to tweak its systems given that implied to September they didn’t perform well volatilities have become unstable. because they were collecting time decay “Whenever we get any type of vega (theta) in short volatility.” exposure (implied volatility) from the market Titan’s strategy when building long moving we have to adjust it very quickly. You volatility positions is to optimise where they have to rebalance fast because volatilities hold them so that when they’re wrong, today move so quickly,” states Abrams. the losses are well mitigated. “We’re trying Macro headwinds have meant that the to limit the losses when nothing happens best-performing strategies have involved (in benign markets) and volatility is low,” trading in McGuire’s view. “That is, owning says Abrams. and holding positions for the long term has McGuire thinks that headline risk will been a risky position. Remaining nimble, continue to promote volatile moves. He says active, and able to take profits relatively 19

Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 15 Third Eye Capital Third Eye Capital Best Credit Fund Manager

Toronto-based Third Eye Capital was have proven their ability to generate established in 2005 by Arif N. Bhalwani and consistent, above-average returns, even Dr. David G. Alexander with their own capital during hostile environments like today.” and a CAD300million mandate from one of A significant difference between Third Canada’s largest pension funds. Eye and other hedge funds is that it looks The firm originates and manages privately for investment opportunities with one- to negotiated secured loans to predominantly three-year time horizons rather than trading Canadian small- to mid-cap companies opportunities that need to be recycled in that are unable to access credit from seconds or minutes. Having an all-weather conventional sources. strategy has allowed the firm to avoid a In 2008, it launched the Third Eye Capital Arif N. Bhalwani, co-founder, single loss in the portfolio since its inception. Credit Opportunities fund, an umbrella fund Third Eye Capital “The fund has generated annualised that allows non-Canadian investors to benefit returns of 14 per cent over the last four years from the firm’s specialised expertise in direct so our organic growth has been extremely lending. Investments made by the Fund strong and reinforces a virtuous cycle of new require a high degree of analysis and due and existing investor inflows.” diligence that banks are not necessarily well The recent trading debacle at JP Morgan equipped to handle with Bhalwani explaining has put operational risk management back that “our returns essentially come from in the spotlight but the likelihood of a major exploiting this inefficiency in analysis”. loss in a private credit fund is limited by the The primary focus is on companies fact that a privately negotiated loan has a where capital needs range from USD1million capped exposure, says Bhalwani. to USD30million, the sweet spot being “We make collateral-dependent loans. USD10million to USD15million. The loan amount can never exceed a pre- Today’s environment of global bank determined margin of the collateral securing deleveraging makes it hard for SMEs to it. Our risk management infrastructure access financing. Credit markets for these emphasises capital preservation through companies “have not yet thawed” says constant monitoring of this loan-to-collateral Bhalwani but larger borrowers have been value relationship.” able to access high yield and other corporate As for new opportunities in 2012, bond markets to refinance and grow. Bhalwani says that credit has been severely “Smaller borrowers have been forced constrained in certain industries, particularly to either postpone capital plans or reduce the alternative energy sector “due to massive working capital which retards growth. We losses suffered by banks during the 2008 see a huge flow of lending transactions in excess capacity-induced collapse of the the SME space,” says Bhalwani. ethanol industry. Now, good companies with 2011 was a good year for the firm. sustainable revenue models are unable to Total AUM doubled to approximately access traditional capital.” USD300million, primarily due to its domestic On winning the award for the second advisory relationship with Sprott Asset consecutive year, Bhalwani comments: Management, a Canadian investment “We’re grateful to Hedgeweek’s readers and manager with USD10billion in assets. excited to win this award during a time when Bhalwani says they could be at investors are more mindful about evaluating USD500million given investor demand but credit opportunities. Direct lending is an have capped subscriptions until the right important strategy because it has tangible, lending opportunities arise. “Our strategy is immediate effects on SMEs that drive gaining more prominence among investors economic growth. We share this award with because successful private credit managers those companies.” n

Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 16 Hedgeop Compliance HedgeOp Compliance Best North American regulatory advisory firm

CEO Bill Mulligan founded US regulatory compliance officers create a workflow for advisory firm HedgeOp Compliance LLC in documenting and reporting on various 2001, since when it has built a reputation compliance tasks. With the Volcker Rule, for servicing its clients – large and small – FATCA and other Dodd Frank-related in a comprehensive, proactive manner. Its regulations bearing down on hedge funds, team of about 50 in the US have a wide Mulligan says “we are always looking array of hedge fund, legal and compliance to make our systems work better based experience, not to mention IT software upon feedback from users”, when asked if development experience. Earlier this year, HedgeOp Compliance is having to upgrade HedgeOp combined forces with IMS out of and evolve its systems to keep pace with London and now has a combined team of Bill Mulligan, CEO, HedgeOp regulatory change. about 100 working at offices in New York, Compliance LLC “We are always looking at new Boston, San Francisco and London. regulations to see how we could modify/ HedgeOp Compliance has built its expand EvenWheel’s software tools to business model on three core pillars. play a role. We anticipate releasing several These include: compliance/regulatory new developments on those systems in consulting, compliance software, and due late 2012.” diligence support. Based on feedback from its clients, Speaking with Hedgeweek, Mulligan Mulligan says that the biggest challenge confirms that the lion’s share of business facing CCOs today “is the ability to growth in 2011 came from all three areas. stay on top of all the changes on the “Clearly our registration support projects regulatory front”. related to the Dodd-Frank deadline were a The objective of the firm’s consulting really busy area for us, but to be honest service is to provide managers with a high we were busy across all parts of the firm,” level of hands-on compliance and operational confirms Mulligan. support so as to enable the CCO to make The firm enjoyed strong growth in the the bigger picture decisions and focus number of hedge fund clients it advises more time on other core responsibilities. If year-on-year, with Mulligan adding that “we ever they needed a weight to be lifted off have also seen a tremendous amount of their shoulders to allow them to focus on growth in providing services to private equity the key issues it’s now: this pervasive level fund firms”. of compliance, is, after all, a whole new ComplianceTrak and Compliance ELF ballgame for hedge fund managers. (Employee Level Filing), developed by the So why does Mulligan think HedgeOp firm’s software arm, EvenWheel Solutions, Compliance won this award? He responds are the two core software tools offered to by admitting not to have a precise answer the market. Compliance ELF allows users to to this but stresses: “Our focus is always on build a comprehensive compliance intranet providing proactive, practical support to our and connects electronically to over 2,800 clients and I would imagine that this focus brokerage institutions. It also has a powerful played a role (in our winning the award).” compliance reporting engine – something On winning the award, Mulligan that hedge funders are going to have to comments: “The firm is honoured and embrace in the new age of regulation. humbled to win this award. The further drive/ ComplianceTrak is essentially an incentive for us is to focus on meeting our interactive compliance calendar to help clients’ needs on a daily basis.” n

Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 17 Phalanx Capital management Phalanx Capital Management Best Market Neutral and Multi-Strategy Fund Manager

Phalanx Capital Management LLC is a trades in convertible arbitrage strategies Chicago-based hedge fund firm running include asset swaps, CDS, approximately USD93million in AUM. The arbitrage and distressed convertible bonds. firm manages a market neutral volatility For volatility arbitrage it uses correlation/ multi-strategy fund that invests in Japan, Asia dispersion and classic arbitrage with a CB ex-Japan and Australian markets; launched risk overlay. Opportunistic opportunities in April 2005, it currently has around include the likes of IPO and equity offerings USD56million in AUM. and event-driven. Christopher S. McGuire, CEO and CIO, With investors paying closer attention manages the trading of the Japanese and to the overall robustness of hedge funds, Asian portfolio. Prior to establishing Phalanx, Christopher S. McGuire, Phalanx places strong focus on operational McGuire managed the Japanese multi-strategy CEO and CIO, Phalanx Capital risk. At least one independent position Management LLC portfolio for Daiwa Securities America. tracking system is used to monitor trade McGuire has over 17 years experience in the execution systems so as to both guard Japanese and Asian markets. Masahide Hoshi against fat tail events and profit from them. is senior portfolio manager and operates out McGuire confirms that volatility and of Phalanx’s Hong Kong office. convertible arbitrage – the fund’s core The investment strategy aims to generate strategies – both performed positively last uncorrelated absolute returns by utilising year, even though, apart from seven days a variety of volatility and arbitrage trading of volatile trading following the Japanese strategies, at the same maintaining a flexible earthquake, the first half of the year approach with respect to asset allocation. “remained void of volatility”. “The peril All strategies are fully integrated to allow the that existed in Japan created tremendous investment team to react quickly to market opportunities for Phalanx due to heightened conditions and dynamically allocate risk volatility. The volatility in August to October capital to an asset class that provides the produced three months of positive returns best risk/return profile at any given time. which were welcomed by our investors,” This multi-disciplinary approach allows confirms McGuire. the firm to move quickly to exploit new Hedge funds continue to use low leverage opportunities as they arise and avoid strategy in response to the risk on/risk off mentality categories when no advantage is perceived. in 2012 but as McGuire states: “We’ve The fund is weighted 80% towards Japan, seen spectacular market moves offering 20% towards Asia ex-Japan. It attempts tremendous opportunities for the Phalanx to extract alpha from convertible bonds, market neutral volatility arbitrage strategy. volatility and opportunistic strategies. Heightened prices in implied volatility and Despite various macro events in 2011 CDS spreads are presenting extraordinary like Libya, the tsunami in Japan and the US relative value opportunities in options pricing. credit ratings downgrade, McGuire notes that We are bullish about our prospects for the equity market volatility “remained relatively second half of the year.” low for most of the year”. “In my opinion, On winning the award, McGuire hedge funds should welcome volatility, which comments: “We are grateful to be recognised often comes from falling equity markets, and by the Hedgeweek readership, for three produce positive returns for their investors. years in a row, for our accomplishments in Dislocations never actually blew out to performance. We attribute our success to the extreme levels, says McGuire: “The year was, uncorrelated year-on-year returns, extremely and continues to be, a true ‘traders market’.” low downside volatility, and continual positive The types of instruments Phalanx performance.” n

Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 18 Overview

15 quickly has been the prudent mechanism to generate hedge fund returns.” As if finding new sources for alpha wasn’t hard enough, US managers are having to embrace massive regulatory change into their operational models. Dodd-Frank and EMIR are pushing managers towards centralised clearing of OTC derivatives, quarterly/annual filings under Form PF are to become mandatory, and then there’s the small matter of FATCA to contend with. Tom Davis, CEO of Meridian Fund Services, says that, like other administrators, the firm is busy looking at Form PF and how to provide a value-added service. However, he also notes that another major push is occurring on the governance side. “We are ramping up our governance Kent Clark receives the award up to review by an institutional investor. It’s services capability for clients and being for Best Global Macro Fund on better to get everything in place at the start behalf of Goldman Sachs from pro-active: not waiting for clients to say can and have a shop that meets the standards Oliver Bradley you do this or that but developing our own rather than rushing to put it in place when best practices for hedge funds and we’ve an investor comes along and expresses hired some good people in this area of the an interest.” business,” confirms Davis. Offshore clients Some worry that increased regulatory have long had AML procedures in place, for and compliance costs will raise barriers to example, but for onshore US managers it’s entry and prevent talented managers from always been more difficult because of the getting their firms off the ground. But this way hedge funds are structured: as LPs or isn’t a view shared by Bill Mulligan, CEO of LLCs the investment manager basically has HedgeOp Compliance. the same control that a board of directors “I truly don’t think that regulatory and has in the offshore world. compliance costs will rise to a level where “US managers are being pushed by it will be a “true” barrier to entry. At the end institutional investors who are saying they of the day, I think the opportunities posed need something more robust and similar to by the private fund marketplace are good what managers have, from a governance Ingrid Martin da Costa enough to allow qualified participants to perspective, in the offshore world,” says receives the award for Best make decisions on costs versus benefits and Managed Accounts Platform Davis. “We want to make sure that our move forward.” on behalf of Lyxor from clients, particularly smaller ones, can stand Oliver Bradley Looking ahead, McGuire believes the industry will continue to see a rise of smaller, boutique-like money managers who recognise that generating returns is what ultimately makes a hedge fund business most successful. It’s not all about launching a fund with stars in your eyes and dreaming of reaching USD1billion in AUM. Says McGuire: “Striving to manage billions will ultimately limit returns. Offering investors [a strategy] with a nimble ability, while having more prudent controls on risk management will be the best area in which investors can achieve needed returns. “The primary goal is making money for investors. Period. Without that a hedge fund business is worthless.” n

Hedgeweek USA Awards Special Report Jul 2012 www.hedgeweek.com | 19