JUNE 23, 2010 Market Braces for Impact of ‘Volcker Rule’ Don’t expect to see a rash of “for sale” signs if banks are forced to dump their 6 ‘VOLCKER RULE’ TARGETS fund businesses under the financial-reform bill speeding toward passage in 3 Eyes Congress. Assuming it survives an 11th-hour lobbying blitz, a provision known as the 3 Cowen Secures Pledges for Ramius Volcker Rule would forbid banks from managing or investing in hedge funds and vehicles. But market players said banks such as J.P. Morgan, which 3 Meridian Pushes Board Oversight owns giant Highbridge Capital, and , which operates 3 Ex-Moore Staffers Prep Hedge Fund FrontPoint Partners, would be loath to sell the businesses to other hedge fund oper- ators. Instead, they’ll first look for ways to spin them off as free-standing firms, 4 Healthcare Funds Cut Long Exposure possibly financing sales to existing management. 4 Goldman Alum Preps Debt Vehicle By spinning off their hedge fund operations, banks would be able to keep strong profit generators out of the hands of potential competitors. And by financing such 5 Targets Hedge Funds See VOLCKER on Page 7 5 Citadel Expanding Equities Division Hefty Gains Help III Advisors Raise Capital III Advisors, whose main fund was nearly crushed during the financial crisis, THE GRAPEVINE has begun to attract fresh capital on the strength of recent performance. During the first five months of the year, Cliff Viner’s flagship III Fund gained Tim Adler joined hedge fund shop 7.2%, and two other funds performed even better — III Relative Value Credit Paradigm Capital in this Strategies Fund was up 7.7% and III Select Credit Fund gained 9.6%. The Boca month as a focused Raton, Fla., firm, which recently launched a marketing campaign in an effort to on the stocks of small and mid-size rebuild its investor base, already has landed a sizable commitment from an companies. He previously worked for a unidentified pension plan. decade in the asset-management divi- The firm still has a long way to go, however. After peaking around $5 billion sion of J.P. Morgan. before the downturn, III Advisors’ now stand at about $1.5 billion. And while III Fund has gained about 38% since the end of 2008, it Word has it that hedge fund marketer remains “under water” — meaning the fund hasn’t generated performance fees for Anne Popkin is about to join Symphony See GAINS on Page 5 , the alternative-invest- ment unit of Nuveen Investments. Symphony is a San Francisco-based credit Correlation Issues Plague Commodity Funds specialist that also runs two equity strate- Persistent correlation between commodity and equity markets has contributed gies. Until earlier this year, Popkin to wild performance swings for some of the top operators of commodity hedge worked as a senior executive at BlueCrest funds, including Aisling Analytics, BlueGold Capital and Clive Capital. Capital of London, where she led the $15 Returns of commodity-trading advisors usually are uncorrelated with broader billion firm’s New York operation and was financial markets, which is what makes them appealing to managers and investors a member of its global operating commit- alike. Since the economic downturn, however, the markets have moved largely in tee since 2007. Before that, she worked for unison, confounding investment strategies — and marketing efforts — employed and . by many commodity hedge funds. Popkin also is the president of 100 Women “Everything’s being dominated by macro variables, everything’s correlating to in Hedge Funds. an unusually high degree, and it’s unclear how long that will last,” one manager said. “The good [funds] are down 3%, and the bad ones are down 15-18%.” Fund operator Waterstone Capital of Aisling, a giant Singapore commodity-trading advisor, has had a particular- Plymouth, Minn., hired three key ly difficult year so far. The firm, which trades mainly in “soft” agriculture and investment staffers in the past month or energy futures, was up 9% in January but is now down around 15% year to See GRAPEVINE on Back Page See ISSUES on Page 10 500 million shares crossed 1,600 clients participating 0 information leaked One finding the other side

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Wells Fargo Eyes Prime Brokerage and other Ramius funds lost even more. The firm liquidated several vehicles, including Ramius Leveraged Multi-Strategy Wells Fargo wants to enter the prime-brokerage business. Fund, which lost 54%. The San Francisco bank — the only one among the top four At the time of its merger with Cowen, Ramius had about U.S. banks without a prime-brokerage unit — has been dis- $7.3 billion under management in hedge funds and other cussing such a move with industry veterans over the last few alternative-investment vehicles. Cowen, which is based in New months. A Wells executive was particularly vocal about the York, is now laying the groundwork for its first hedge fund bank’s plans during a recent Bloomberg networking event on a launch since the merger. The planned event-driven vehicle was party-boat cruise around Manhattan. the subject of recent discussions the firm held with prospective Market players who are privy to the bank’s thinking say investors. O Wells could follow one of two paths: It could either build a prime-brokerage unit from scratch or acquire an existing busi- Meridian Pushes Board Oversight ness, as Bank of New York did in 2004 when it bought Pershing from Credit Suisse. Fund administrator Meridian Fund Services will soon begin Wells’ timetable is unclear. One prime-brokerage veteran working with hedge fund clients on corporate-governance said the bank may want to take its time following an unsuc- issues. cessful attempt last year to launch a fund-administration busi- The Bermuda firm aims to help fund managers streamline ness. A Wells spokesperson declined comment. all aspects of corporate governance, from appointing inde- With $1.2 trillion in assets, Wells is the fourth-largest U.S. pendent directors and running board meetings to establishing bank after , and J.P. Morgan. Market more rigorous external controls. In most cases, the fee for the players said it’s only natural that Wells would want to compete added service will be built into the overall fund-administra- in the potentially profitable prime-brokerage arena. “Most tion package. established banks will covet a solid prime-brokerage business,” The recent financial crisis highlighted weak governance at said an industry insider. “It’s very lucrative when it’s done many hedge funds, including a widespread lack of independ- right.” O ent boards, according to Meridian. “Because of the lack of gen- erally accepted best practices for internal auditing and controls Cowen Secures Pledges for Ramius and, more importantly, external fiduciary controls, the basic hedge fund model has been called into question,” said Joyce A year after Ramius Capital agreed to merge with boutique Heinzerling, who oversees an advisory business for Meridian. investment bank Cowen Group, the combined firm has raised Meridian, led by chief executive Tom Davis, has assigned more than $425 million of fresh capital for hedge fund-related four staffers to spearhead the initiative. Part of their focus will investments. be to help boards stay abreast of risk and operational controls, A state pension system plans to invest in Ramius Value & as well as liquidity issues. The idea is to keep boards attuned to Opportunity Fund, Jeffrey Solomon, Cowen’s chief strategy the concerns of investors, who have been demanding ever officer, said during a recent conference call with Cowen share- greater transparency from fund managers. O holders. Though he didn’t identify the pension, it appears to be Florida State Board. The $139.7 billion retirement plan has said Ex-Moore Staffers Prep Hedge Fund it plans to allocate about $100 million to Ramius in the com- ing months. A former Moore Capital portfolio manager has hung out his Solomon also said another state pension has committed own shingle. $100 million for a managed account, and a fund-of-funds Sean Monaghan, who ran a long/ equity book for Louis manager is setting up a $225 million separate account on Bacon’s hedge fund firm, recently set up Cavoleph Partners of behalf of a large multinational financial institution. In addi- New York with plans to launch a stock fund early next year. He tion, Cowen is working with two other investors on “hedging is joined by another Moore alumnus, Matt Vigneau, who more solution assignments” designed to manage risk for portfolios recently worked at Soros Fund Management. with combined assets of $700 million, Solomon said. Monaghan and Vigneau have begun speaking with On the flip side, Cowen lost a large Ramius investor when investors who know them from their previous stints. Word has the Italian bank UniCredit asked to withdraw its $700 million it they want to launch their debut fund with at least $50 mil- investment earlier this year. The redemption was triggered by lion. declining assets in the Ramius Multi-Strategy Fund. In its first- First, Cavoleph plans to hire a marketer, an operations chief quarter earnings report, issued May 12, Cowen announced it and at least two stock analysts. The firm recently brought on was shuttering the multi-strategy fund along with another Stephen La Rosa as chief financial officer. He previously vehicle, Ramius Enterprise Fund. worked at Moore as a director. Like many hedge fund operators, New York-based Ramius Vigneau clocked six years at Moore as an analyst. He left the was hit by a wave of redemption requests amid sharp losses in New York firm in 2006 to join Soros, where he worked until 2008. Ramius Value & Opportunity Fund fell 20.8% that year, last month. O June 23, 2010 Hedge Fund ALERT 4

Healthcare Funds Cut Long Exposure economy. But with European governments looking to cut back on healthcare costs, some fear that prices for drugs and Several prominent hedge fund managers have significant- other healthcare products will fall. O ly reduced their exposure to the healthcare sector. Among the fund operators that dialed down their long Goldman Alum Preps Debt Vehicle exposure to healthcare stocks last month: Columbus Circle Investors, OrbiMed, SAC Capital and Visium Asset A former Goldman Sachs distressed-debt manager has Management. SAC has four healthcare portfolio management started marketing a planned hedge fund that would seek to teams at its Sigma Capital unit in New York, while Visium buy commercial loans at sharp discounts to their face value. invests in healthcare stocks via a $1.5 billion long/short equi- Salman Khan is looking to raise $100 million to $150 mil- ty fund, as well as a newly launched large-cap version of that lion for the strategy, which he will run from his newly estab- vehicle. lished Stabilis Capital of New York. Khan and his partners, Jon OrbiMed’s Caduceus Fund is a dedicated healthcare hedge Grossman and Steve Wilson, will target distressed commercial fund with about $1.2 billion under management. Caduceus’ loans from $1 million to $15 million that can be acquired at net long exposure — that is, the fund’s long positions minus discounts of 45-60%. its shorts — fell from a range of 82-87% in the February- Stabilis has just begun speaking with investors about the April stretch to 62% in May. closed-end vehicle, which would combine elements of a hedge Columbus Circle runs about $275 million in its CCI fund and a private equity fund. It would have a 3.5-year invest- Healthcare Fund and related managed accounts. The fund’s ment period, during which investor capital will be locked up. net long exposure dropped from about 65% to as low as 30% That’s an unusually long lockup for a hedge fund, but shorter for a few weeks in May, then rebounded to about 35%. than for most pure private equity vehicles. The “de-risking” was triggered by various factors. For Khan and his partners believe an abundance of distressed- OrbiMed, the debate over healthcare reform earlier this year debt opportunities remain more than a year after the credit created buying opportunities for depressed healthcare stocks. crisis began to ease. Stabilis expects to be able to pick up dis- But when the reform package passed Congress in March, counted loans from still-struggling banks, the FDIC and other healthcare shares rebounded, and hedge funds such as hedge funds looking to sell illiquid assets. The overall market Caduceus took profits in April and May. for distressed commercial loans amounts to several hundred Macroeconomic factors also have played a role. CCI billion dollars, according to the firm’s marketing documents. Healthcare Fund pulled back amid a high degree of correla- Khan spent 12 years at Goldman managing a portfolio of tion between healthcare stocks and the broader equities mar- distressed commercial loans. He then moved to Silver Point ket. Other factors included the European debt crisis and the Capital of Greenwich, Conn., where he clocked six years run- devaluation of the euro, which cut into profits for multina- ning a similar strategy. Grossman previously worked at Archon tional healthcare companies. Group, a Goldman subsidiary that manages commercial real Traditionally, large-cap healthcare stocks have been seen estate assets. Wilson continues to hold a position at New York- as good defensive investments — a sector whose business based Ciena Capital, where he oversees servicing of a $1 billion will remain steady regardless of the ups and downs of the portfolio of small-business loans. O

CALENDAR

Main Events Dates Event Location Sponsor Information June 28-July 2 Fund Forum International 2010 Monaco ICBI www.icbi-events.com Sept. 26-28 Hedge Institutional Investment Conference San Francisco www.marhedge.com Jan. 18-20, 2011 GAIM USA 2011 Boca Raton, Fla. IIR www.iirusa.com Jan. 30-Feb. 1 Network 2011 Palm Beach, Fla. MFA www.managedfunds.org

Events in US Dates Event Location Sponsor Information June 30 Alternative Assets Forum New York NYSSA www.nyssa.org June 30 Asset Management Thought Leadership Symposium New York RCA www.rcaonline.org July 1 Cap Intro: Emerging Markets Alternative Investing New York Catalyst Financial www.catalystforum.com July 13-15 Advances in Asset Allocation Seminar New York EDHEC www.edhec-risk.com To view the complete conference calendar, visit The Marketplace section of HFAlert.com June 23, 2010 Hedge Fund ALERT 5

Family Office Targets Hedge Funds Gains ... From Page 1 A former Perella Weinberg portfolio manager is gearing up the past 18 months or so. Its 2008 loss was more than 50%. to launch a family office on July 1. Since then, Viner and his partners have retooled their strat- Caleb Sevian is setting up Focuspoint Capital of Boulder, egy, shifting the focus to quicker profit-taking by holding posi- Colo., as an investment advisor that initially will manage tions for shorter periods. They also dialed down leverage and money for one family. Once Focuspoint completes its registra- reduced their reliance on repurchase agreements, switching tion with the SEC, the firm is expected to take on two more instead to a self-financing mechanism. families as clients. Despite the turmoil, the firm has seen relatively little Between the three families, Focuspoint will manage more turnover in its investment staff. While III Advisors lost about than $100 million of hedge fund stakes, along with smaller 15% of its overall staff at the end of 2008, most of the key sums spread across other asset classes. Focuspoint eventually traders stayed on. That, along with the shift in strategy, has may work with other families, as well as institutional investors. allowed the credit-focused firm to post double-digit gains Sevian previously spent one year at Agility, a Perella across all three of its established funds since the end of 2008. Weinberg unit that manages about $1.3 billion for the At the beginning of this year, III Advisors began trading a University of Colorado, other endowments, foundations, pen- fourth vehicle dubbed III Futures Neural Network. The fund, sions and sovereign-wealth funds. Sevian and Agility’s chief, the firm’s first launch since 2007, invests in commodity futures Chris Bittman, worked for the university endowment directly via a program that is designed to mimic the workings of the before they were hired by Perella Weinberg last year. After human brain. they joined, Agility moved its offices from Austin, Texas, to The firm was founded in 1982 by Viner, a veteran bond Denver. trader, and economist Warren Mosler, who remains an investor. At Agility, Sevian managed several asset classes, including In late 2008, III Advisors suspended redemptions as investors hedge funds. His last job was overseeing a portfolio that sought to withdraw capital en masse. When the firm lifted the included real estate, commodities and inflation-linked securi- gates in mid-2009, a large volume of capital was pulled out of ties. the funds. The firm’s principals are now the largest investors in Sevian, who is chief investment officer of Focuspoint, is the funds. O looking to hire at least two portfolio managers and one or two analysts. O Citadel Expanding Equities Division Citadel laid off 10 staffers from its global-equities division this month, but now plans to add to the group’s headcount by hiring 18 investment professionals. Ken Griffin’s $12 billion firm already has hired seven traders to replace some of the people who were let go and is actively searching for 11 more equity pros. The plan is to expand the division to about 108 investment positions, from about 100 before the layoffs. The equities desk, which hasn’t had a down year since it was set up in 2002, runs portfolios for the firm’s flagship Kensington and Wellington funds. Separately, Citadel has made some staff changes at its two fund-incubation units, PioneerPath Capital and Surveyor Capital, both based in New York. Managers on those platforms receive seed capital from Kensington and Wellington. PioneerPath recently cut a manager and two analysts who had been running a fund focused on technology, media and telecommunications stocks. Surveyor, meanwhile, pruned two analysts — one covering financial stocks, the other healthcare stocks. At the same time, VPM. A clear PERSPECTIVE. Surveyor hired two staffers: retail-stock analyst Christina www.sungard.com/vpm/learnmore Short, formerly of Lombard Odier Asset Management; and Allon Hellmann, who previously was a portfolio manager at Plural Investments. Both started work on June 21. O June 23, 2010 Hedge Fund ALERT 6

‘Volcker Rule’ Targets: Units That Banks Might Have to Shed y s Assets t i d s u n d e t q u Under n f a e u t f f s Mgmt. e o t e e a g l d

3/31/10 v d a n i e e r u

Bank Unit ($Mil.) H P R F Comment Bank of America BAML Capital $5,000 • Formerly known as Merrill Lynch Global Private Equity, the unit Partners acquires controlling stakes in companies through equity and mezzanine-debt investments. BAML Global 16,600 • • • Makes direct investments and operates fund-of-funds unit Capital Strategic Capital Access Funds, which backs vehicles focusing on underserved markets in the U.S. In April, sold $1.9 billion portfolio of stakes in private equity funds to AXA Private Equity. Bank of America, BlackRock • • • • The three banks hold a combined 79% stake in BlackRock: 34.2% for PNC Bank and BofA, 24.6% for PNC and 19.9% for . BlackRock is the world’s Barclays largest asset manager, with $3.4 trillion across virtually all aspects of the investment world, including alternative investments. It’s unclear whether the Volcker Rule was intended to force banks to divest such holdings. BofA’s stake was reduced from 49% and PNC’s from 24.6% in December, when BlackRock completed its purchase of Barclays Global Investors from Barclays. Bank of New York BNY Mellon Asset 62,000 • • • Operates hedge funds, funds of funds and private equity vehicles Management through 20 investment units. Also seeds new fund managers wishing to establish track records before marketing to others. Mellon Global 3,500 • Holds 15% stake in Optima Fund Management, a $3.5 billion fund-of- Investing hedge funds operation. Citigroup Citi Capital Advisors 14,700 • • Even as financial-reform legislation threatens to force the divestiture of Citi Capital Advisors, the unit seeks to raise $3.5 billion for hedge funds and private equity vehicles. It employs nearly 170 investment staffers and manages $3.9 billion in hedge funds, $7.4 billion in private equity funds and $3.9 billion in infrastructure vehicles. Earlier this year, Citi sold two alternative-investment units. Apollo Management bought real estate division Citi Property Advisors in March and SkyBridge Capital bought Citi’s fund-of-hedge-funds operation in May. A third unit, Citi Private Equity, remains on the block. DB Private Equity 7,500 • • Deutsche formed the unit in April, combining the private equity operations of its wealth-management team, the private equity secondary-market part of its RREEF unit and the private equity fund- of-funds operations of newly acquired Sal. Oppenheim jr. & Cie. RREEF 54,000 • • The bulk of its assets are in real estate investments, but the unit also manages private equity infrastructure vehicles. DB Advisors Hedge Under • • In the final stages of shutting down a business that at one time Fund Group 1,000 oversaw $4.5 billion in funds of hedge funds. It also operates smaller, single-manager funds. Goldman Sachs Goldman Sachs Asset 147,000 • • • • The two units oversee $98 billion in private equity funds and $17 Management; billion-plus in hedge funds, which include Goldman’s well-known Merchant-Banking Global Alpha quantitative investment vehicle. Goldman’s merchant- Division banking division oversees its own private equity investments. HSBC HSBC Capital (USA) 1,000 • • The decade-old unit, formerly known as Midland Montagu Private Equity, is one of five private equity groups worldwide that the bank is thinking about selling. The other four are non-U.S. businesses not covered by the Volcker Rule. It invests directly in companies through buyouts and mezzanine financings. It also pursues real estate opportunities.

Continued on Next Page June 23, 2010 Hedge Fund ALERT 7

‘Volcker Rule’ Targets: Units That Banks Might Have to Shed (continued) y s Assets t i d s u n d e t q u Under n f a e u t f f s Mgmt. e o t e e a g l d

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Bank Unit ($Mil.) H P R F Comment J.P. Morgan J.P. Morgan Asset $25,000 • • • Operates a 20-year-old fund of hedge funds business with $7.6 billion Management of assets and an $18 billion private equity fund-of-funds unit. One Equity Partners 8,000 • Invests directly in private companies, largely through an Asia-based team that pursues emerging-market opportunities. Highbridge Capital 21,000 • • Largest bank-owned hedge fund operation, which also has around $5 Management billion of private equity investments. In 2004, J.P. Morgan bought its first stake in Highbridge from founders Glenn Dubin and Henry Swieca. It completed the transaction in July 2009, when it bought its final stake in the unit. The bank is awaiting the outcome of the Volcker Rule debate on Capitol Hill before finalizing talks to purchase Gavea Investments, a $5 billion-plus hedge fund operation in Brazil. Morgan Stanley Morgan Stanley 24,000 • • Includes $15 billion of real estate assets and $4 billion of investments Asset Management in infrastructure projects. The investment bank only recently started re-establishing its presence in the private equity business after selling buyout unit to Citigroup’s Citi Capital Advisors in 2007. Morgan Stanley 43,000 • • Includes hedge fund-seeding unit FrontPoint Partners, which Morgan Alternative Stanley bought in 2006. In January, the bank said it was Investment contemplating the sale of FrontPoint, as well as its minority stakes in Management fund operators Abax Global Capital, Avenue Capital, Hawker Capital, Lansdowne Partners and Traxis Partners. Northern Trust Northern Trust Global 3,000 • • More than a dozen of the unit’s investment professionals run a fund of Advisors hedge funds. PNC Financial PNC Equity 1,000 • The largely autonomous unit runs buyout and mezzanine-finance Services vehicles capitalized by the bank and outside investors. PNC Capital Advisors Under • The unit operates three small funds of hedge funds assumed via its 1,000 2006 acquisition of Mercantile Bancorp. State Street State Street Global 6,300 • • • Manages a combined $6.3 billion on behalf of clients in hedge funds Advisors and private equity vehicles. US Bancorp Wealth Management 7,000 • • • • Its investments in hedge funds and private equity vehicles are “tiny by Group comparison” to the unit’s traditional holdings, a bank spokesman said.

M&A activity involving hedge fund assets may not materialize Volcker ... From Page 1 for years. deals, they could maintain some exposure to the businesses. In fact, it would be at least three years before the Volcker The Volcker Rule also would prohibit by Rule fully took effect. That’s because the legislation, as it’s cur- banks, which could lead to the sale or spin-off of prop-trading rently written, would give regulators six months to study the desks. “The folks I’ve spoken to have more targeted the prop- situation and another nine months to draft regulations. Banks trading businesses, as opposed to hedge funds or private equi- would then have two years to unload the targeted assets. ty,” said Jay Langan, a mergers-and-acquisitions specialist at In the nearer term, market players expect the Volcker Rule Deloitte. “But if Volcker comes out in a punitive form — if they to trigger a good deal of chaos and infighting between banks keep pushing on the derivatives front, for example — I think that operate hedge funds and the funds’ outside investors. For you will see a lot of M&A activity” involving bank-owned example: If a bank were forced to give up management of a hedge fund businesses. fund, would that trigger so-called key-man provisions that, in Even then, market players said, banks would likely consid- turn, would prompt institutional investors to pull out? er a sale of a hedge fund or private equity unit only after “No one on Capitol Hill is focused on the way the funds are exhausting other options, such as a management-led buyout. See VOLCKER on Page 8 June 23, 2010 Hedge Fund ALERT 8

Pension Questions Hatteras Results And what if a fund’s legal documents require the managing partner to remain invested? In that case, other investors New Orleans Employees is having second thoughts about would likely sue the bank, potentially dragging out the one of the funds of hedge funds it invests in. divestiture process for years. Since allocating $5 million to Hatteras Investment three “In processing withdrawal requests, the general partner or years ago, the $312 million pension system has seen the value investment advisor must balance fiduciary duties to the of its investment drop to $4.3 million. Pension officials now redeeming bank and the remaining limited want to talk to their investment consultant, Morgan Stanley, partners,” said Cheri Hoff, a hedge fund lawyer with Bracewell about whether to replace the Raleigh, N.C., manager. & Giuliani in New York. “The general partner or investment New Orleans Employees is expected to conduct a full review advisor must not cherry-pick the liquid assets . . . to satisfy the of its relationship with Hatteras in the coming months. The redeeming bank holding company and leave the illiquid assets question for pension officials is whether the firm has merely for the remaining limited partners.” hit a rough patch or is incapable of meeting the pension’s Said another market player: “You can see this turning into return goals. Vietnam real fast.” The pension’s fund-of-funds portfolio also includes a $5.3 President Obama has said he wants a financial-reform bill million investment with French bank Societe Generale, $3.2 on his desk by the end of this week, ahead of the G-20 summit million with K2 Advisors of Stamford, Conn., $2.5 million with in Toronto on Saturday. By all appearances, the exact dimen- Silver Creek Capital of Seattle and $3.1 million with Meridian sions of the Volcker Rule will remain in flux up until the last Capital of New York. minute. Assuming it isn’t removed altogether, the provision At the same time, New Orleans Employees is considering would apply to all U.S. bank holding companies, whether whether it’s time to shake up its portfolio of single-manager American- or foreign-owned. Thirteen of the largest banks hedge funds. The pension has direct investments with 15 fund operate 20 asset-management units overseeing some $450 bil- managers. A decision on that issue is due by yearend. lion of assets largely in hedge funds and private equity vehi- The pension system allocates 20% of its overall assets, or cles that the institutions could no longer be affiliated with (see about $62 million, to hedge fund investments. It has been list on Pages 6-7). investing in hedge funds since 2002. O Banks have mounted a Herculean lobbying campaign to take much of the bite out of the Volcker provision, which is the Plural May Open for New Investors brainchild of former Federal Reserve chairman and Obama advisor Paul Volcker. While most Congressional observers Matthew Grossman’s Plural Investments, which closed its believe it will survive in some form, bank executives are con- doors to new investors even before it began trading in early fident the final version will allow them to continue managing 2009, plans to accept fresh capital starting next year. hedge funds as long as they don’t invest any of the banks’ own The New York firm also may ease liquidity terms for capital. investors, including shortening the current four-year lockup But the banks have had a hard time keeping up with the period. “A four-year lock was extreme, even for somebody with developments on Capitol Hill. Earlier this month, a Grossman’s pedigree,” one fund-of-funds manager said. “A spokesperson for Highbridge Capital said the $21 billion hedge greater number of investors will be willing to sign the check fund operator wouldn’t be affected by the Volcker Rule today, if only he offers easier liquidity.” because Highbridge doesn’t manage money for parent J.P. Grossman, who previously managed a large book of invest- Morgan. But last week, a bank spokeswoman seemed to do an ments for SAC Capital, began trading his Plural Investments about-face, though she declined to elaborate. hedge fund in January 2009 with $450 million of capital. And Citigroup said last week that it plans to raise another Despite the lengthy lockup, the fund was one of the largest $3.5 billion in hedge fund and private equity assets, regardless launches during the financial crisis. The Plural fund gained of what happens in Congress. 7.3% last year but was flat during the first quarter of 2010. The Volcker Rule could prove to be especially tricky for At SAC, Grossman was chief investment officer of the firm’s banks that own stakes in firms whose business entails manag- CR Intrinsic unit. Earlier in his career, he covered energy stocks ing hedge funds. Bank of America, for example, has a 34.1% at Tiger Management. O stake in asset-management giant BlackRock, while PNC Financial owns a 24.6% stake and Barclays holds a 19.9% stake. Volcker ... From Page 7 On a smaller scale, Bank of New York owns a piece of structured and operating,” said Lawrence Kaplan, a lawyer in Optima Fund Management, a $3.5 billion fund-of-funds man- the bank-regulatory group at Paul Hastings in New York. “If ager. The bank also provides seed capital to emerging hedge they are forced to liquidate, you could get fire sales, but there fund managers. Market players said the Volcker Rule, if it are so many possible unintended consequences it’s hard to forces banks to stop making seed investments, could further say.” dampen an already-difficult capital-raising environment. O June 23, 2010 Hedge Fund ALERT 9 SeeSee itit

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COMPANY: L Identifies shifts in investor ADDRESS: allocations.

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L To order by phone, call 201-659-1700 Reveals fund managers’ Or mail to: Hedge Fund Alert strategies for capitalraising 5 Marine View Plaza, #400, Hoboken NJ 07030 and product offering. You can also start your free trial at HFAlert.com June 23, 2010 Hedge Fund ALERT 10

ING Prop Trader Seeks Spin-Off Lance Larsen is Gray Cove’s chief operating officer and director of business development. He has been at ING since The manager of an event-driven hedge fund within ING’s 2005, having previously worked at Merrill Lynch. proprietary-trading operation plans to spin off the fund as an ING Global Investment Strategies has an investment staff of independent business. 14 working in New York and . O Geoff Arens has been running the Gray Cove fund for 13 months as a unit of ING Global Investment Strategies, which Issues ... From Page 1 manages about $500 million of proprietary capital for the Dutch bank. About $114 million of the overall capital is invest- date. ed in Gray Cove. BlueGold started out the year with an 11% loss in January, Arens is in advanced negotiations with ING about breaking prompting the London firm to send a letter to investors off Gray Cove, which, like the rest of ING Global Investment quashing rumors that it was unwinding. It turned things Strategies, is based in New York. ING may be open to such a around in February and March, then suffered another sharp move as it looks to shed riskier assets. loss — of 12.5% — in May. London-based Clive fell 6% in May Gray Cove seeks low volatility via of — its worst monthly decline since 2008. distressed-credit and special-situations investments. Its pre- The woes of each firm can be blamed at least in part on ill- ferred strategies include capital-structure and the timed trades and other portfolio missteps. But market players purchase of bankruptcy claims and nonperforming loans. It is see broader macro-economic factors changing the dynamics 65% invested in U.S. assets, and corporate debt accounted for for commodity-trading advisors generally. more than half of the portfolio at the end of April. Historically, commodity prices have correlated with the The fund gained about 12% in 2009 and another 7% during broader markets only during recessions, which clearly was the the first four months of this year. pattern in late 2008 and early 2009. Witness the S&P 500 In addition to running Gray Cove, Arens oversees ING index versus the Goldman Sachs Commodity Index: In the Global Investment Strategies. Before joining ING 15 years ago, years leading up to the financial crisis, they often moved in he worked at Canadian investment advisor Argosy Securities, a opposite directions. But since late 2008, they’ve been in lock- unit of CIBC. step. Most commodity portfolio managers expected their mar- ket would uncouple from the beginning in late 2009 or early 2010, but that hasn’t happened. Indeed, during the past six weeks or so, commodities have been more closely FAAMILYMILY OFFFICEFICE & correlated with equities than at any time during the past eight PRRIVATEIVATE WEEALTHALTH years, with the exception of June 2009, according to hedge fund services firm Newedge Group. MAANAGEMENTNAGEMENT FOORUMRUM Some market observers fear that pattern is here to stay. JUULYLY 21-23,21-23, 20102010 Why? In a word, uncertainty. Across most asset classes, man- HYYATTATT REEGENCYGENCY, NEEWPORTWPORT, RHHODEODE ISSLANDLAND agers have been preoccupied with the same set of macroeco- nomic trends, including Europe’s sovereign-debt crisis and lingering concerns about the strength of the global economy and governmental responses to the last credit crisis. This is Opal’s premier conference for high net worth “There’s been tremendous connection between markets individuals and family oces in North America. Private that in the past have been entirely unconnected,” another investors and money managers from around the globe will return to this picturesque setting for three days of engaging manager said. “Things that should have very little relation- discussions on the latest investment trends. ship to one another are getting caught up in it.” The upshot: The market has become significantly harder to The Forum will explore the challenges and opportunities associated with investing in emerging markets, alternative read for commodity managers. Newedge researcher James investments, distressed real estate, direct energy and Skeggs said quantitative traders have had a particularly diffi- numerous other asset types. cult time. One portfolio manager said the past six months have been “the rockiest, most testing months I can remember.” Persistent correlation also is raising concerns among investors that have long seen commodities as a hedge against To register, visit us online at www.opalgroup.net or email us at the broader financial markets. “The reason some people [email protected] wanted to be in commodities was the diversification,” the REF CODE: FOPWA1003 same manager said. “If you believe that 2008 and 2009 is the new norm, then there is no diversification story anymore.” O June 23, 2010 Hedge Fund ALERT 11

LATEST LAUNCHES

Equity at Portfolio managers, Launch Fund Management company Strategy Service providers Launch (Mil.) Spotlight Catalyst Fund Terry Lally Long/short: equity, Prime broker: Jefferies July 1 $5 Domicile: U.S. Spotlight Funds Management, catalyst-driven Law firm: Giordano Halleran Laguna Beach, Calif. Auditor: Rothstein Kass 949-715-4030 Administrator: ALPS Price Meadows

Summation Sigma Fund 1 Mark Levin Event-driven: special Prime broker: BTIG April 1 $8 Domicile: U.S. Summation Capital, situations and Law firm: Sadis and Goldberg Los Angeles distressed Auditor: Rothstein Kass 818-222-2001 Administrator: ALPS Price Meadows

SPAG I Brian Shapiro and George Boyan Multi-strategy Prime brokers: BNY ConvergEx and May 1 $100 Domicile: U.S. Specialized Performance NorthPoint Trading Advisory Group, Law firm: Hutner Klarish New York Auditor: J.H. Cohn 917-621-3351 Administrator: Nottingham Investment Administration

To view all past Latest Launches entries, visit The Marketplace section of HFAlert.com

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Aksia LLC Guide Dogs for the Blind Rogerscasey Albourne America LLC Helmsley Charitable Trust Roubini Global Economics Ashford Consulting Hermitage Advisors, Ltd. Royal Bank of Canada AssetCounsel Inc. Hewlett Packard SCA Paper & Hygiene Netherlands Aveon Management ICG Advisors SFG Asset Advisors Ball State University Foundation Jacksonville Fire & Police Sharp Electronics Blennemann Family Investments Juilliard School Southern Marin Fire District Callan Associates Maryland Supplemental Retirement Plans SSARIS Advisors, LLC CalPERS MetLife Investments State Street Strategies College of William & Mary Foundation National Grid Telesis Capital LLC Commonwealth Fund New Orleans Employees’ Retirement System SACRS Connecticut Investments LLC Oce of Hawaiian Aairs University of VA Co. Doris Duke Charitable Foundation Optima Fund Management, LLC Utah Retirement System Drobny Global Advisors Pacic Alternative Asset Management Company Van Nunen & Partners Federal Street Partners, LLC Protégé Partners Virginia Retirement System FQS Capital Partners (U.S.) L.P. R.V. Kuhns & Associates, Inc. Wells Fargo Family Wealth Group George Washington University Rabobank Pension Fund Wilshire Associates Guggenheim Investment Advisors RGE Monitor Register today! www.ii-alphahedge.com or www.marhedge.com June 23, 2010 Hedge Fund ALERT 12

at $7 billion Magnetar Capital in a simi- joined the New York office of invest- THE GRAPEVINE lar role. Paul Smith will continue as ment firm GWI Group earlier this Magnetar’s chief legal officer. Wachter’s month. Tsang will head research of ... From Page 1 arrival coincides with the SEC’s ongoing financial firms for GWI, a Sao Paolo, so. Sergio Castellon left Sandelman review of Magnetar and other sponsors Brazil, firm that oversees about $1 bil- Partners of New York to join $1.5 bil- of collateralized debt obligations. lion of investments in hedge funds, real lion Waterstone as a portfolio manager Citadel Investment alumnus Alec estate vehicles and private equity funds. specializing in capital-structure arbi- Litowitz set up Magnetar in 2005. trage. David Duback arrived from Stark Newedge hired Christina Qian this Investments, a St. Francis, Wis., firm John Roglieri is starting work this week month to work in the prime-brokerage where he served as a senior credit ana- as a director in the prime-brokerage unit sales area. She previously led business lyst for six years. Duback is working of BNP Paribas. He is working under Tom development and investor relations at with Kevin Cavanaugh, portfolio man- Mahala, deputy head of prime-brokerage Parametrica Asset Management, a sta- ager for distressed investments. Finally, sales in North America and South tistical-arbitrage shop in New York. Bimal Shah came aboard from America. Roglieri was previously co- Qian reports to Jonathan Gane, who Macquarie Securities as a financial- head of U.S. hedge fund transactions at works in Newedge’s New York office stock analyst. HedgeBay, an online secondary-market overseeing the sales, origination and trading service based in the Bahamas. structuring functions for the U.S., Robert Bryan started June 15 as a senior Canada and South America. credit analyst at distressed-investment Retail-stock analyst Angelique Dab specialist Bay Harbour Management of rejoined the New York office of hedge Prime-brokerage veteran Rob Davis is New York. He previously headed the fund manager Dawson Capital within the selling “Together,” a CD of his original credit unit of New York hedge fund firm past two weeks. She left the Southport, songs. Davis, a managing director at Colbeck Capital. Bay Harbour has about Conn., firm in August 2008. Dawson has New York mini prime broker Concept $1.5 billion under management in hedge about $450 million under management, Capital and founder of the charity funds and private equity vehicles. down from the $3.2 billion it was man- Hedge Funds Care, sings 14 “folk-coun- aging when Dab departed. try-rock” tunes on the album. The CD Karl Wachter, who previously worked as is available for $20 online, with some general counsel of now-defunct Alan Tsang, formerly an analyst at of the proceeds going to Hedge Funds Amaranth Advisors, last month arrived Basso Capital of Stamford, Conn., Care.

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