ain111008 6/11/08 19:18 Page 1 NOVEMBER 1O, 2008 LEHMAN/NOMURA PRIME BROKER VOL. IX, NO. 45 INTEGRATION HITS SYSTEMS SNAG Credit Suisse Cuts Combining the prime brokerage businesses of Nomura FoF Headcount Holdings and Lehman Brothers has reportedly hit a costly and The firm has trimmed 10 staffers from its fund of funds unit, with most of the unexpected snag that could delay full integration for an culled positions based in Europe. undetermined time, potentially stretching to several months or See story, page 9 over a year. An official involved with the merger integration plans told AIN that in Nomura’s acquisition of Lehman’s Asia, India and At Press Time European operations, it received the software for Lehman’s cash Zaragoza Likes Biotechs 2 prime brokerage system—which includes trading, analytics and (continued on page 19) The Americas Nonprofits To Add HFs 4 MELLON SUSPENDS SANCTUARY FUNDS Peloton Pro Sets Up Shop 4 Mellon Global Alternative Investments has suspended dealings on the $344 million Mellon RCG Bullish On Asia 6 Sanctuary Fund and the $426 million Mellon Sanctuary Fund II—its flagship event-driven Startup Readies Managed Account 7 and relative-value funds of hedge funds—as liquidity concerns have arisen from Europe unprecedented volatility in the markets. A number of the underlying funds “have invoked German Shop Revisits Launches 9 provisions that are intended for periods such as this where acute market illiquidity is coupled Pioneer Keen On Green 10 with extreme selling pressure,” stated an email sent to AIN by Spokesman Jamie Brookes. Mulvaney Sees Record Highs 11 (continued on page 20) Asia Pacific EX-FSA EXEC: SMALLER FUNDS NEED Infrastructure Firm Hires Trio 12 CLOSER SUPERVISION Japan Launch Pushed Back 13 The U.K.’s Financial Services Authority should monitor the behaviour of smaller hedge Middle East & Africa fund firms more closely because malpractice is more likely to go unnoticed in these firms. Godvig Hit By Bonds, Oil 13 At least that’s the view of Chris Rexworthy, who was responsible for supervising all hedge fund managers until he left the agency in 2006. He is now director of risk consulting at Departments IMS Consulting in London. Short Takes 14 Rexworthy told AIN that while there are nearly 450 hedge fund managers in the U.K., Data Zone 15 (continued on page 20) Mandate Scoreboard 16 Alternative Manager VAUGHAN-SMITH TO BUY UP FoF BOUTIQUES Search Directory 18 Gary Vaughan-Smith, the fund of hedge funds veteran who led ABN COPYRIGHT NOTICE: No part of this publication may Amro Asset Management’s alternatives group until 2006, is seeking be copied, photocopied or duplicated in any form or by any means without Institutional Investor’s prior written acquisitions for his London firm, SilverStreet Capital. He hopes to buy consent. Copying of this publication is in violation of the Federal Copyright Law (17 USC 101 et seq.). Violators up to three fund of hedge fund boutiques, taking advantage of the may be subject to criminal penalties as well as liability anticipated shake-out of the industry. Vaughan-Smith told AIN he is for substantial monetary damages, including statutory damages up to $100,000 per infringement, costs and not aware of any other fund of funds firms seeking to do the same, attorney’s fees. Copyright 2008 Institutional Investor, observing that larger players—including many of the Swiss Inc. All rights reserved. ISSN# 1544-7596 Gary Vaughan-Smith For information regarding subscription rates powerhouses—“have their own problems” brought on by poor and electronic licenses, please contact Dan Lalor at (continued on page 19) (212) 224-3045. Check www.totalalternatives.com during the week for breaking news and updates. ain111008 6/11/08 19:14 Page 2 Alternative Investment News www.totalalternatives.com November 10, 2008 At Press Time Pentium Replaces Metals EDITORIAL PUBLISHING TOM LAMONT BRISTOL VOSS With Biotechs Editor Publisher (212) 224-3628 Vicente Zaragoza, founder of Pentium Fund, has removed STEVE MURRAY Deputy Editor ARCHANA KAPUR exposure to precious metals from the Swiss firm’s natural resources hedge fund Associate Marketing Manager ROBERT MURRAY (212) 224-3421 Managing Editor and strategy and replaced it with biotechnology stocks. London Co-Bureau Chief JAMES MERRINGTON (44-20) 7303-1705 Asian and European Marketing The biotechnology sector has been least affected by recent price declines. Manager [London] DOUG CUBBERLEY (44-20) 7779-8023 “Cancer doesn’t go away because there’s a recession,” said Managing Editor-Asia and Hong Kong Bureau Chief VINCENT YESENOSKY Zaragoza, and there is constant demand for medical research (852) 2912-8052 Senior Operations Manager (212) 224-3057 and developments. By contrast, the metals sector is likely to HARRIET AGNEW Senior Reporter [London] DAVID SILVA (44-20) 7779-8261 Senior Fulfillment Manager suffer as aircraft makers such as Airbus cut production and (212) 224-3573 SUZY KENLY consumers rein in their spending on foreign travel. Senior Reporter (212) 224-3978 SUBSCRIPTIONS/ Zaragoza is bullish on oil stocks. There are some healthy ELECTRONIC LICENSES CORRIE DRIEBUSCH One year - $4,595 (in Canada add $30 dividends to be had in the sector, such as Exxon Mobil, Reporter postage, others outside U.S. add $75). Vicente Zaragoza (212) 224-3271 DAN LALOR which is currently paying out dividends of about 10%. This VENILIA BATISTA AMORIM Director of Sales (212) 224-3045 looks particularly good when a turn of leverage is applied, said Zaragoza. London Co-Bureau Chief (44-20) 7303-1718 MATT COLBECK Despite the recession, demand for oil should remain stable as U.S. STANLEY WILSON Account Executive (212) 224-3568 Washington Bureau Chief infrastructure is reliant upon it. The process of converting to biofuel as an (202) 393-0728 AIDEN NEVILLE KIERON BLACK Account Executive [London] alternative to oil is both time-consuming and expensive, and so won’t affect (44-20) 779-8076 Sketch Artist levels of demand in the near future, noted Zaragoza. He hedges the strategy’s [email protected] PRODUCTION REPRINTS exposure by shorting the S&P500 Index. DANY PEÑA DEWEY PALMIERI Director Reprint & Permission Manager LYNETTE STOCK, DEBORAH ZAKEN (212) 224-3675 Investors Bet On PE In Spite Of Downturn Managers [email protected] MELISSA ENSMINGER, CORPORATE Institutional investors worldwide continue to have a long-term positive view JAMES BAMBARA, JENNIFER BOYD, DOUGLAS LEE GARY MUELLER of private equity investments despite the recent market downturn. Associates Chairman & CEO JENNY LO CHRISTOPHER BROWN “[Investors] fully understand the challenges facing markets generally and Web Production & Design Director President private equity in particular,” said Mark O’Hare, managing director at STEVE KURTZ ADVERTISING AND Chief Operating Officer BUSINESS PUBLISHING alternatives research firm Preqin. “Despite this, they are cautiously optimistic ROBERT TONCHUK JONATHAN WRIGHT Director/Central Operations & Fulfillment of the prospects for private equity and appear set to continue the longer-term Publisher (212) 224-3566 Customer Service: PO Box 5016, trend of making increased commitments to the asset class.” Brentwood, TN 37024-5016. ERIK KOLB Tel: 1-800-715-9195. Fax: 1-615-377-0525 According to a recent survey by Preqin, the prospect of achieving high Editor, Business Publishing UK: 44 20 7779 8704 (212) 224-3785 Hong Kong: 852 2842 6910 E-mail: [email protected] target returns is the primary motivator behind most institutions investing in PAT BERTUCCI, MAGGIE DIAZ, private equity. Around 81% of the institutions surveyed said this is the most LANCE KISLING, ADI HALLER Editorial Offices: 225 Park Avenue Associate Publishers South, New York, NY 10003. Tel: (44-20) 7303-1705 [London] BRIAN GOLDMAN important factor in a decision to invest. The survey took place during Email: [email protected] Advertising Production Manager September and October, studying 100 institutional investors globally. (212) 224-3216 Alternative Investment News is a general circulation weekly. No statement LESLIE NG The past five years have been a period of unusually high returns for private in this issue is to be construed as a Advertising Coordinator recommendation to buy or sell securities equity, said O’Hare. It is, therefore, not a surprise that a majority of the (212) 224-3212 or to provide investment advice. investors surveyed expect returns over the next five years to be lower. Despite Alternative Investment News ©2008 Institutional Investor, Inc. ISSN# 1544-7596 this general expectation, there is also a widespread appreciation that funds that Copying prohibited without the have held their investment periods during market downturns have often been permission of the Publisher. among the best-performing historically, he explained. In the U.S., pension plans are increasingly looking to the secondary market to make opportunistic investments and to offload illiquid holdings. With stock markets currently on multi-year lows, several investors think that “we may be entering a very attractive time at which to be making private equity investments,” said O’Hare. The median expected gross IRR is in the 15-20% range and the average expectation among the investors polled is for 17.4%. 2 ©Institutional Investor News 2008. Reproduction requires publisher’s prior permission. Project2 3/11/08 3:04 PM Page 1 Global multi-asset class execution. Advanced liquidity management tools. Innovative investment technologies. www.bnyconvergex.com Convergence works wonders. It all comes together at BNY ConvergEx Group: Sophisticated global liquidity and execution management solutions in over 90 markets to help you achieve your investment and trading objectives. Innovative, customized capabilities for equities, fixed income, options, futures and foreign exchange. Plus liquidity management and order management tools and strategies that ensure maximum performance. 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