Which Way Next for Hedge Funds?

Content

• EXECUTIVE SUMMARY
• Credit crunch
• New investor groups
• The urge to merge
• Niche products
• Retail ventures
• Listed life
• Down the liquidity curve
• Can you lend me a dime?
• Exchanging places
• Speed is of the essence
• SECTION 01
• INTRODUCTION
• CHAPTER 01
  • The hedge fund industry a status quo
  • By David Smith, Chief Investment Director, GAM Multi-manager
  • Non-correlation an empty claim?
  • The first hedge fund
  • Growth of hedge funds
  • Illiquidity and the danger of gap correlation
  • Cyclical and structural correlation drivers
  • Seeking niches and best of breed
• CHAPTER 02
  • Investment banks a status quo
  • By David Walker
  • Reversal of liquidity
  • The great leverage unwind
  • Shifting relationships
  • Banks funds crumble
  • Changing the PB rankings
  • SECTION 02
  • INVESTORS IN HEDGE FUNDS
• CHAPTER 03
  • The changing face of capital introduction
  • By Jeremy Frommer, head of Global Prime Services, RBC Capital Markets
  • Capital introduction mirror of the hedge fund world
  • Regulation restricts activities
  • Brokers selective approach
  • How cap intro is changing for fund managers
  • Business infrastructure key
  • Institutional investors a broad church
  • Changing face of events
  • Viewpoint: Cap intro with an Asian flavour
  • By Peter Douglas, Principal, GFIA
  • Growth in Asian hedge fund industry
  • Broker events
  • Value of the cap intro function
  • Global investor interest in Asia
  • Room for improvement?
  • Viewpoint: European private placement regime
  • By Carmen Reynolds, partner, White and Case
  • Pan-European private placement
  • European Prospectus Directive
  • Markets in Financial Instruments
  • Directive (MiFID)
  • The UK FSAs approach
• CHAPTER 04
  • Sovereign wealth funds (SWF)
  • By David Walker
  • Asias long-term hedge fund growth
  • Local SWFs seek investments
  • Asian hedge funds outperform
  • Beyond equity long/short
  • Illiquidity danger
  • Future instrument growth
  • Focus: SWFs, Antipodean-style
  • Focus: SWF involvement in hedge funds
  • Intelligence gathering
  • Potential asset growth
  • Hedge fund implications of SWF involvement
  • Focus: SWF investment in alternative funds
• CHAPTER 05
  • Marketing your hedge fund
  • By Bruce Frumerman, Partner, Frumerman & Nemeth Inc
  • Numbers alone are not enough
  • Sales marketing and communications marketing
  • Case studies
  • Cap intro from an investors perspective
  • Third-party marketers
  • Keys to marketing success
  • Developing a storyline
• CHAPTER 06
  • Pensions: the future for consultants and investment banks
  • By Phil Irvine, Director of Advisory Services, Liability Solutions
  • Industry watershed
  • 1995 Pensions Act
  • Accounting for pensions
  • Controversial suggestions
  • Key reasons for banks involvement
  • Consultants gatekeepers no more?
  • SECTION 03
  • PRIME BROKING
• CHAPTER 07
  • Prime broking the current situation
  • By David Walker
  • New instruments in prime broking
  • Hedge funds demands
  • Regulatory challenges
  • Sub-prime meltdown
  • Algorithmic gymnastics
  • Ballooning haircuts
  • An uneasy relationship?
• CHAPTER 08
  • What hedge funds should look for in prime brokerage staff structures
  • By David Walker
  • Key questions to ask
  • Avoiding siloed approaches
  • Unravelling the acronyms
• CHAPTER 09
  • New frontiers in structured credit
  • By Onur Cetin, Business Analyst, Product Management, Codefarm
  • New investors, new rules
  • Short buckets and macro hedging
  • Active CDO management
  • Restructuring
  • Pricing, ratings and risk
  • New markets, new products
  • Defensive innovation
  • Key future risk factors
  • Viewpoint: Goodbye Cayman Islands, hello UK?
  • By Louise Verrill, Partner in Bankruptcy and Corporate Restructuring & Peter Declercq, Structured Resolution Group, Brown Rudnick Berlack Israels
  • Mark to market pain
  • Cayman law outdated, inflexible
  • COMI debate
  • UK the next safe haven?
• CHAPTER 10
  • Distressed debt
  • By Michael Goldman, Managing Partner, Mazuma Capital Management
  • Recent cycles of distressed debt
  • Reading the clues to opportunity
  • Credit crisis consequences
  • Reflections of the past?
  • Gloomy outlook brings opportunities
• CHAPTER 11
  • Next-generation platform: achieving transparency and governance-led marketing advantages through bounded rationality
  • By Miroslaw Izienicki, President and CEO, Fifth Capital
  • Transparency and good governance
  • Quant and qualitative a dangerous disconnection
  • The need for a next-generation platform
  • Cost downside?
  • A survey and its results
  • Accounting for the investment decision
  • Limitations of the 'classical'approach
  • Bounded rationality emphasises uncertainty
  • Appreciate your limitations
  • Normative cues
  • Brand management
  • Reputation
  • A note on implementation
  • Accounting for value added
  • A summary action plan
• CHAPTER 12
  • Liquidity products
  • By John Godden, Chief Executive Officer, IGS Group
  • Credit crunch highlights leverage provision
  • Providers exponential growth
  • Banks account for risk
  • Meeting Basel II demands
  • Custody arrangements and flexibility key
  • Helping banks help you
  • Price is not all
• CHAPTER 13
  • Management in the face of activism
  • By S. Randy Lampert, Managing Director, Head of Business Development and Activist Response Group, Morgan Joseph & Co
  • Activism in context
  • Convergence of factors
  • Market, regulatory, judicial factors
  • Financial character of activist targets
  • How activistm doubles expected returns
  • Target types
  • Management the rules for engagement
• CHAPTER 14
  • Freighting to the future
  • By James Leake and Erik Hansen, ICAP Hyde
  • The freight derivatives market
  • Forward Freight Agreements
  • Dry
  • Wet
  • Freight options
  • Recent market growth
  • Key drivers of the market
  • Dry
  • Wet
• CHAPTER 15
  • Agricultural derivatives: hedge funds drive market development
  • By Sebastian Barrack, Executive Director, Head of Agricultural Commodities and Investor Products, Macquarie
  • In the beginning
  • The involvement of hedge funds
  • The history of over-the-counter products
  • The investment bank players
  • Types of OTCs used by:
    • Hedgers
    • Hedge Funds
    • Investors
  • Where to now for OTC products?
  • Why this time is different for derivatives
• CHAPTER 16
  • Metals investment: seeking sustainable value in a cyclical sector
  • By Trevor Steel, Chief Investment Officer and Founding Partner, Baker Steel Capital Managers
  • Underlying case is intact
  • Finite mine life drives expansion
  • China, India drive demand
  • Know your fundamentals
  • Golds unique qualities
  • Demand remains robust
• CHAPTER 17
  • Emerging markets and securities lending
  • By Paul Wilson, Global head of Sales and Client Management for Securities Lending, JPMorgan
  • BRICs GDP soars, interest grows
  • Discretionary lending
  • Demand and risk
  • Lending models on offer
  • Countries are realising SBL benefits
  • EM lending hazards
  • Accessing new markets
• CHAPTER 18
  • The future of prime brokerage
  • By Sameer Shalaby, CEO, Paladyne Systems
  • Evolving relationship with prime brokers
  • Hedge funds in drivers seat
  • Multi-prime movers pros and pitfalls
  • Roadmap for prime brokers
  • Institutional pressure mounts
  • Hearsay reporting
  • SECTION 04
  • CONVERGENCE OF HEDGE FUNDS
• CHAPTER 19
  • Hedge funds and private equity: an interview with Jon Moulton, managing partner, Alchemy Partners
  • By David Walker
  • Jury out on hedge fund skill
  • Over-reliance on spreadsheets
  • PEQ experts enlisted
  • Valuations a sticking point
  • PEQ targets hedge funds
• CHAPTER 20
  • SPACs: opportunities and issues for alternative asset managers
  • By Tina Pappas, Managing Director, Head of SPAC Capital Markets, Morgan Joseph & Co. Inc
  • SPAC characteristics
  • Shareholder strength
  • Advantages over PEQ
  • Disadvantages
  • Investment flexibility
  • Cooling market
• CHAPTER 21
  • 130/30: extension strategies in a changing investment landscape
  • By Andrew Wilson, Managing Director, European Equity Finance, Merrill Lynch
  • 130/30 explained
  • US pensions buy in, Europe follows
  • Implementation of 130/30: challenges and considerations
  • The broader UCITS III opportunity
  • Asias future promise?
  • Does 130/30 actually outperform?
  • The path to retail pros and cons
• CHAPTER 22
  • Asset-backed lending
  • By David Walker
  • Filling the lending gap
  • Higher quality deal flow
  • Regulation Basel II bites banks
  • Lure of non-correlation
  • ABL activities broaden scope
  • SECTION 05
  • RESEARCH AND INVESTMENT
  • BANKS ANCILLARY SERVICES
• CHAPTER 23
  • Research: opportunities for alternative providers
  • By Peter Molloy and Neil Shah, Directors, Edison Investment
  • Research
  • Now vs then
  • Spoiled for choice
  • Changing requirements
  • Tactical data still worth paying for
  • Researchs role in compliance
  • Research beyond the PDF
  • Crucial questions for providers
• CHAPTER 24
  • Sharia-compliant funds and investment banks' role in their making
  • By Dr Hussein Hassan, Director of Islamic Finance Structuring, and Manar Mahmassani, DeutscheBank UAE
  • Sizing the market and the opportunity
  • Identifying the key drivers
  • Rising sophistication
  • Managing Sharia-compliant hedge funds
  • Structural challenges
  • Sharia-compliant private equity: the next big thing
  • SECTION 06
  • LEGAL AND REGULATORY
• CHAPTER 25
  • Long-only and long/short an embedded conflict?
  • By Owen Watkins, Senior Consultant, Kaye Scholer
  • 130/30 and UCITS III conflict accidents waiting to happen?
  • The FSAs conflicts of interest requirements
  • MiFIDs requirements explained
  • Concrete steps to handle conflicts of interest
  • Where conflicts can arise
• CHAPTER 26
  • MiFID: truly best execution
  • By Roger Turner, Partner & Jamie Parkes, Manager, Financial Services
  • Regulatory Practice,
  • PricewaterhouseCoopers
  • MiFID and best execution
  • Drafting best execution policies the must-haves
  • Retail considerations
  • Investment bank considerations
  • Safeguards and annual review
  • SECTION 07
  • EXCHANGES AND IT
• CHAPTER 27
  • Dark liquidity
  • By Frdric Ponzo, Managing Director, NET2S
  • MiFID and locating dark liquidity
  • The challenge of best execution
  • How to achieve best execution in a fragmented universe
  • What does best execution mean for the buy-side?
  • Worst execution and best selection
  • Should funds turn to the dark side?
  • What of the proverbial wizards from the hedge-funds?
  • Is MiFID worth it?
  • Is fragmentation really happening?
  • MiFIDs costs 10-year breakeven?
  • Algorithms to the rescue
  • Best execution and investment banks
  • Conclusion MiFID has true value
• CHAPTER 28
  • Independent vendors versus bank platforms: new requirements for an increasingly sophisticated marketplace
  • By Ary Khatchikian, President and Chief Technology Officer, Portware
  • Limitations of broker execution management systems
  • Funds at brokers mercy?
  • Meeting demands of a dynamic trading environment
  • The benefits of being brokerneutrality
  • Why one size does not fit all
• CHAPTER 29
  • Intelligent algorithms: the next generation
  • By John Bates, Managing Director, Progress Apama
  • Market drivers
  • Customisation is key
  • Moving across asset classes
  • Moving across fragmented pools
  • Regulation policing the trade in real-time
  • Genetic algos future insight
• CHAPTER 30
  • Quant systems: where to now for systematic approaches after summer 2007?
  • By George Nakou, Senior Investment Systems Advisor, Altis
  • Partners
  • Bad press for quantitative strategies
  • Surprising academic explanation
  • Curse of correlation
  • CTAs: The other quants
  • Managed futures dangerous growth
  • An unhealthy meeting of minds
  • Technology is (only part of) the answer
  • Market coherence the way forward?
  • SECTION 08
  • INDUSTRY ISSUES
• CHAPTER 31
  • M&A: hedge fund managers urge to converge
  • by Benjamin Phillips, Managing Director, Jefferies Putnam Lovell
  • Hedge funds still hold the talent
  • Industry M&A trend predictions
  • Reasons for consolidation
  • Accelerating convergence
  • How to play in the M&A game
  • Buyers become more selective
• CHAPTER 32
  • Incubation and start-ups
  • by Ian Morley, CEO, Dawnay, Day International Limited
  • The due diligence process
  • How to get it right
  • The psychology of backing startups
  • Managing the business
  • Hedge fund hotels on unstable foundations?
  • Incubation and prime brokerage
  • Minnows worth backing nevertheless?
  • Search for the Holy Grail
• CHAPTER 33
  • The hedge fund of the future
  • by Tom Brown, Partner and European Head of Investment Management Funds & Giles Drury, Senior Manager, Alternative Investments Group, KPMG
  • Will hedge funds become simply ideas machines?
  • Starting a fund moving barriers to entry
  • Why size (still) matters
  • Do funds create value just through ideas?
  • Could a hedge fund become an ideas machine?
  • Is there a risk of becoming a commodity?
  • Are prime brokers dependable bedfellows?
  • Regulatory concerns
  • Lessons learned how the future will look
• CHAPTER 34
  • Listing funds
  • By David Walker
  • Trends to watch in 2009
  • Boards step in
  • Funds favour London
  • Why some banks are failing funds
  • Favourable fees
  • Range of investors expands
  • Reasons to list
• CHAPTER 35
  • Cluster analysis: performance under pressure
  • By David Aldrich, Bank of New York & Rory Knight, Oxford Metrica
  • The rise of replication of returns
  • Correlation and covariance of returns
  • Hedge funds challenge indices
  • Cluster analysis useful for hedge fund classification
  • Risk/return plane charts performance
  • Funds of funds clusters
  • Surprising findings
• APPENDICES
  • Comprehensive data on hedge fund performance around the world.
• LIST OF TABLES
  • T4.1 Sovereign wealth funds
  • T12.1 Activist targets and associated demands
  • T12.2 Dealing with activists
  • T13.1 Annual fleet growth, Cape to Handy, 2008-2010
  • T13.2 Annual fleet growth, VLCC to Panamax, 2008-2010
  • T16.1 Percent change per annum in real GDP growth, 2005-2009
  • T20.1 Asset-based lending strategy returns correlation, 01/01/00-01/02/07
  • T20.2 Asset-based lending strategy returns correlation, 03/01/07-01/02/08
  • T24.1 Hedge funds vs. traditional funds
  • T30.1 Largest hedge fund and fund of hedge fund transactions by acquired AUM, 2007
• LIST OF FIGURES
  • F1 Hedge fund net flows and AUM, 19902007 (US$m)
  • F2 Fund of hedge funds net flows and AUM, 19902007 (US$m)
  • F3 Strategy by %
  • F4 Distribution of hedge fund assets (%)
  • F1.1 Total number of hedge funds / FoHFs, 19902007
  • F2.1 Comparative riskiness of prime broker portfolios
  • F3.1 Estimated number of hedge funds globally by regional investment focus, 2002Q1 2008
  • F3.2 Asia-focused hedge funds estimated asset growth, 2002Q1 2008 (US$m)
  • F3.3 Growth of hedge fund assets by regional investment focus, 2002Q1 2008 (US$m)
  • F3.4 Management firm location of Asia-focused hedge funds
  • F4.1 Return and volatility of equities and oil
  • F4.2 Top global fund managers (US$trn)
  • F4.3 High influence of SWFs vs. size
  • F6.1 Prime broker share of the global market
  • F6.2 Usage of prime broking services by hedge funds
  • F9.1 Bankruptcy cycle
  • F9.2 Annual corporate defaults by number of issuers, 1981- 2007
  • F9.3 Quarterly global corporate defaulting debt amount, Q1 2000-Q3 2007
  • F9.4 12-month US speculativegrade default rate is expected to rise to the historical average level
  • F9.5 Yearly rate of return, Dec 1990-Dec 2007
  • F12.1 Success rate of seven most common activist demands
  • F12.2 Activist strategies and alpha creation
  • F12.3 2007 Proxy fight analysis: composition by target type
  • F13.1 Baltic time charter averages
  • F13.2 Baltic 5yo prices
  • F13.3 Most liquid dry freight derivative contracts
  • F13.4 Baltic tanker indices
  • F13.5 Baltic 5yo prices
  • F13.6 Most liquid tanker freight derivative contracts
  • F14.1 Corn non commercial futures-only contracts, 1995-2008
  • F14.2 Over the counter transactions: agriculturals markets are still at early stages
  • F14.3 Investment in commodity index funds are soaring, 1993-2008f
  • F14.4 Index position of agricultural commodities (US$), Jan 2006-Mar 2008
  • F14.5 The oil share, 02/01/08-23/04/08
  • F14.6 Energy versus agriculture correlations, 01/07/04-01/07/07
  • F15.1 Emerging economies beginning to dominate demand for metal
  • F15.2 Decreasing supply, 1993-2007f
  • F15.3 Mining M&A activity, 2000-2007ytd
  • F15.4 Value to be found in mining equities (HSBC GlobalMining Index and Copper Price), 2000-2008
  • F15.5 Gold mining industry supply challenges similar to other commodities
  • F16.1 Real GDP growth (% change per annum), 2005-2009: World, high-income and developing countries
  • F16.2 Real GDP growth (% change per annum), 2005-2009: World, high-income and developing countries, plus selected others
  • F19.1 130/30 structure
  • F19.2 Swap-only option
  • F20.1 Hedge fund strategy performance
  • F23.1 The Islamic asset management opportunity lies mostly within the GCC
  • F23.2 MENASA countries exhibit the best blend of economic parameters
  • F23.3 MENASA real GDP growth, 2002-2006
  • F26.1 The liquidity tunnel
  • F27.1 A closer look: algorithmic trading requirements
  • F27.2 Broker EMSs: the swivel chair problem
  • F27.3 Advanced EMS: consolidated liquidity
  • F28.1 Market factors influencing algorithms
  • F28.2 Complex event processing market growth in capital markets
  • F29.1 Historic versus forecast correlations showing buildup and dissipation of market coherence
  • F30.1 Historical transaction activity involving asset management targets, 1997-2007
  • F30.2 Jefferies Putnam Lovell Global Asset Management Index Performance, 2002-2007
  • F30.3 Cross-border transactions in asset management: US versus ex-US, 2000-2007
  • F33.1 Growth in assets by type (m), Dec 1996-Dec 2006
  • F33.2 Growth in assets by listing exchange (m), Dec 1996-Dec 2006
  • F33.3 Dexion Absolute Ltd (gross assets in m), Dec 2002-Dec2007
  • F33.4 Average discounts of LSElisted fund of hedge funds, Dec 2001-Dec 2008
  • F33.5 Monthly traded volume of LSE-listed hedge funds (m), Apr 2001-April 2007
  • F34.1 Cluster analysis process
  • F34.2 Fund dimension 1 of 3019
  • F34.3 Stable clusters total risk and return
  • F34.4 Stable clusters risk composition
• APPENDIX:
  • A1 Top 25 funds in each investment strategy, ranked by past 36-month performance
  • A2 Top 25 funds in each region of fund managers' location, ranked by past 36-month performance
  • A3 Top 30 funds ranked by performance over the past 36 months
  • A4 Top 30 funds ranked by fewest negative months over the past 36 months
  • A5 Top 30 funds ranked by lowest annualised volatility over the past 36 months
  • A6 Details of closed-ended funds