Opalesque NewManagers July 2012

ISSUE 07 July 2012
Opalesques Emerging Manager Monitor
ISSUE 01 July 2012 ISSUE 07 September 2011
2 3 5 6
EDITORIAL EMANAGERS INDICES

June 2012 performance of Opalesques indices of emerging manager funds.
25 Q&A
Rachel Minard: How to avoid the kiss of death when trying to raise assets
28 GUEST ARTICLE
NEW FUNDS IN THE DATABASE PETER URBANI STATISTICS

Intra-Horizon Value at Risk
Diane Harrison: It takes a village to raise a hedge fund
Funds that have recently joined Opalesques Emerging Managers Database.
31 SERVICERS SPOT 33 LAUNCHES
IMS: New funds must not be disheartened by the regulatory challenges
13 FUNDANA SERIES 17 FOCUS
Are emerging managers becoming more and more experienced?
A recapitulation of maiden launches and related developments in late June and July 2012 so far.
35 PERSPECTIVES 37 PROFILES
What emerging managers need to know: a review
Recent views and findings of interest to new hedge fund managers.
23 47N SERIES
Death of a Salesman
Three emerging hedge fund managers speak to New Managers about their funds: K.D. Angle of Angle Capital, Pace Goldman of Silvercove and Robert Robbins of everTrend.
New Managers | Opalesques Emerging Manager Monitor - July 2012
Editorial
Welcome to the July/August 2012 issue of New Managers, Opalesques monthly monitor of emerging and re-emerging hedge fund managers. In Statistics, Peter Urbani discuses Value at Risk; this risk measurement methodolBenedicte Gravrand ogy is inadequate for measuring longerterm risks, he says, since it does not take into account the intra-horizon risk. Fundana series asks whether emerging managers are in fact more experienced now than they were before 2008, and concludes that indeed they are, which is just as well since the current market is a little harder to navigate and requires therefore more experience. Our Focus section reports from IBCs recent Hedge Fund Startup Forum, giving a comprehensive roundup of what new managers need to know before starting. The 47N series outlines some hopefully helpful hints on how salespeople for early-stage funds can avoid the pitfalls of the initial pitch to investors, in an aptly-named article entitled Death of a Salesman. Two hedge fund veterans, authors and marketing firm owners warn emerging managers against complacency and urge them to run the extra mile; Rachel Minard speaks to Opalesque in Q&A, and Diane Harrison supplies a Guest Article. Peter Moore, head of compliance and regulation for the IMS Group, advises new managers to not lose faith when faced with regulatory and compliance requirements in Servicers Spot. Then we have the usual recapitulation of recent maiden Launches and a review of the latest views and findings in Perspectives.
ISSUE 07 July 2012
Finally, in Profiles, three emerging fund managers describe their new fund. K.D. Angle of Angle Capital and Robert Robbins of everTrend talk about their CTA programs and Pace Goldman of Silvercove about his multi-strategy fund. I hope you enjoy our seventh issue of New Managers. Please, do contact me if you have any related news. Benedicte Gravrand Editor gravrand@opalesque.com Past issues of New Managers can be found here: www.opalesque.com/Archive-New-Managers.html
Opalesque New Manager is edited by Benedicte Gravrand. Based near Geneva, Benedicte also writes exclusive stories and special reports for Opalesques daily hedge fund publication, the Alternative Market Briefing (AMB), and occasionally moderates Opalesque Roundtables. Benedicte is perfectly bilingual (French/English) and has lived in Paris, Geneva and London. She obtained a BA (Honours) in Philosophy from the University of London, worked in the publishing sector, the hedge fund industry and joined Opalesque in 2007.
Emanagers Indices Emanagers Total Index up 0.9% in June (+2.84% YTD)

Emerging manager hedge funds and managed futures funds had a strong month of June, according to a first estimation based on the data of 304 funds listed in Opalesque Solutions Emanagers database. The Emanagers Total Index gained 0.9% last month and is up 2.84% for the year 2012. Estimates for May and April were corrected to -0.42% and -0.75% respectively. Since inception in January 2009, the index posted compounded returns of 61.3% and outperformed both the global stock market and hedge fund indexes. Over the last 12 months, the index lost 0.22% in 7 negative and 5 positive months, and outperformed the Eurekahedge Hedge Fund Index (-3.06%) and the MSCI World Index (-7.17%).
ISSUE 07 July 2012
Hedge funds performed slightly better in June than managed futures funds. The Emanagers Hedge Fund Index gained 1.03% (+3.83% YTD) , while the Emanagers CTA Index gained 0.66% (-0.45% YTD). . Hedge fund strategies posted mixed results in June: Global macro funds performed best (+2.72%), followed by equity L/S (+1.06%) and eventdriven funds (+0.79%). Losing strategies were equity long-bias (-0.83%), relative value (-0.33%) and multi-strategy (-0.31%). Year-to-date, all hedge fund strategies are up and gained between 8.56% (event-driven) and 0.74% (equity long-bias).
Emanagers Indices
betas are 43% and -10%, respectively.
ISSUE 07 July 2012
12-month rolling performance data gives MSCI-correlation coefficients of 95% for Emanagers hedge funds and 50% for Emanagers CTAs. The resulting equity-market
Performance (in %), Volatility and Equity Market Beta (in %)

Index Emanagers Total Index June 2012 0.90 1.03 0.66 YTD 2.84 3.83 -0.45 12m -0.22 -2.20 1.29 2011 -1.79 -2.83 0.51 2010 18.73 17.07 19.15 2009 34.51 37.59 20.52 Volatility 5.89 9.48 4.37 Beta (bm=MSCI) 25 43 -10
Emanagers Hedge Fund Index
Emanagers CTA Index
Eurekahedge Hedge Fund Index Newedge CTA Index MSCI World
-0.11 -3.26 4.93
1.40 -0.83 4.49
-3.06 -1.33 -7.17
-3.62 -4.52 -7.61
10.90 9.26 9.40
20.62 -4.31 27.07
5.84 7.55 20.85
25 -20 100
- Florian Guldner, Opalesque Research
New Funds in the database

New funds in Opalesque Solutions Emerging Managers Database
Fund name DUNN WMA UCITS Fund - EUR Institutional Class A DUNN WMA UCITS Fund - EUR Retail Class Clinamen Financial VIX Portfolio Hedging (VXH) Program Metolius Diversified (Offshore Feeder) Fund Synaptic Medical Fund, L.P RSL Income Fund S.A., SICAV-SIF The ROW Diversified Program, LP (global macro) Tarpon Trading FX Program everTrend Global Silvercove Hard Asset Fund LP Ovington Fund Limited NoHo Asian Managed Futures Trading Program NoHo Managed Futures on Asian Equity Indices - Intraday Strategy CTA CTA CTA CTA Equity Long/Short Fixed income CTA Global macro / currency CTA Multi-Strategy Fixed income CTA CTA Manager Location Malta Malta New York, U.S. Wheaton, IL, U.S. Radnor, Pen., U.S. Singapore Fairfield, CT, U.S. Tampa, FL, U.S. Toronto, Canada London, UK Hong Kong Hong Kong Fund AuM 15m $0.09m $28m $4.3m $0.3m $28.06m $20m $2m
ISSUE 07 July 2012
Fund Launch date Feb-12 Jan-12 Dec-10 Jun-10 Mar-10 Jun-10 Nov-11 Jan-12 Jul-11 Oct-10 Feb-11 Apr-11 Apr-11
Newport Beach, CA, U.S. $3m
CA$21m
$71m $5M $2.5m
The Opalesque Solutions Emerging Managers Database is an extremely niche and specialised database of Emerging Hedge Fund Managers, and access is available for eligible investors such as Funds of Funds, Family Offices, Pension Funds and UHNWI globally as well as academia and research analysts. For the sake of this database, we define an asset manager as emerging manager if, 1) The firm is less than 48 months old and 2) The AUM of the firm at the time of the firms inception is less than $600 million. If you want your fund to be in the Emerging Managers Database, please send your details to our database team at: db@opalesque.com.
Peter Urbanis Statistics Intra-Horizon Value at Risk (VaR-I)

During the recent financial crises, many financial institutions suffered the losses much larger than their Value-at-Risk (VaR) During the recent financial crises, many financial institutions horizon models predicted and found that traditional end-of suffered risk losses are larger than their Value-at-Risk (VaR) models predicted measuresmuch inadequate for managing longer-term risks. and
found that traditional end-of horizon risk measures are inadequate for managing longer-term risks. There has been a considerable amount of literature on
ISSUE 07 July 2012
Intra-Horizon Value at Risk - An idea whose time has come
the measurement of financial risk; however, almost all the existing risk There has been a considerable amount of literature on the measures, either the popular Value-at-Risk (hereafter VaR) or measurement of financial risk; however, almost all the existing risk expected shortfall (hereafter ES), mainly focus on quantifying the measures, either the popular Value-at-Risk (hereafter VaR) or expected possible large losses at the end of the predetermined time shortfall (hereafter ES), mainly focus on quantifying the possible large horizon. Thisthe end of the predetermined time horizon. dealing with shortfocus may be appropriate when This focus may losses at term appropriate when dealing with short-term risks such as those Banking be risks such as those mandated by the Basel Committee. by the Basel Banking Committee. mandated But,But, this risk measurement methodology is inadequate for measuring for this risk measurement methodology is inadequate measuring longer-term it doessince it into account take into account longer-term risks, since risks, not take does not the intra-horizon the risk, i.e. the possibility that the losses incurred before the end of incurred intra-horizon risk, i.e. the possibility that the losses the before the time horizon might trigger other problems such as trigger other specified end of the specified time horizon might position rebalancing, early liquidation, margin calls. problems such as positionor rebalancing, early liquidation, or margin calls.
So far there have been only three main papers studying the measurement of intra-horizon risk: Kritzman and papers studying So far there have been only three main Rich (2002), Boudoukhthe et al.(2004), and intra-horizon risk: Kritzman and Rich (2002), measurement ofBakshi and Panayotov (2010). The standard VaR approach considers only terminal risk, completely The ignoring the sample path of portfolio values. In reality interim risk may risk, standard VaR approach considers only terminal be critical in a mark-to-market environment. Sharp declines in value completely ignoring the sample path of portfolio values. In reality may generate margin calls and affect trading strategies. Boudoukh interim risk may be critical in a mark-to-market environment. introduced the notion of MaxVaR, analogous to VaR in every way Sharp declines in value may generate margin calls and affect except it quantifies the probability of seeing a given loss on or before trading strategies. Boudoukh introduced the notion of MaxVaR, the terminal date rather than at the terminal date
Boudoukh et al.(2004), and Bakshi and Panayotov (2010).
analogous to VaR in every way except it quantifies the New Managers | Opalesques Emerging Manager Monitor - July 2012 probability of seeing a given loss on or before the terminal date rather than at the terminal date
Peter Urbanis Statistics

The formula for for MaxVaR Intra-Horizon VaR, VaR-I VaR, VaR-I and formula MaxVaR a.k.a a.k.a The formula for MaxVaR a.k.a Intra-Horizon Intra-Horizon and Continuous The VaR, VaR-I and Continuous VaR* is as: VaR* is given as:given given as: Continuous VaR* is
End-of-Horizon Risk Distribution Intra-Horizon Risk Distribution
ISSUE 07 July 2012
End-of-Horizon Risk Distribution Intra-Horizon Risk Distribution
Where :
Where :
And;
= cumulative standard distribution

And; in the special case of the normal distribution and also the Except
Geometric Brownian Motion, are very few closed forms for GeometricBrownian Motion there there are very few closed forms for Z. In Z. the special case of theInspecial case of thethe Normal distribution and Brownian Normal distribution and Brownian -6.00% -4.00% -2.00% 0.00% 2.00% 4.00% 6.00% motion we motion we can appeal to the underlying symmetry of the normal can appeal to the the reflectionsymmetry of the normal distribution to distribution to invoke underlying principle to find it. In the table on the invoke the the special case of the normal distribution andthe standardnext page the MaxVaR in order to get Except in reflection principle to find it. also the VaR and we provide a comparison between Except in the special case of the normal distribution and also the
= cumulative standard distribution
Geometric Brownian Motion there are very few closed forms for magnitude of the adjustment which is some intuition for the Brownian motion with drift used in pricing Barrier Options. To get for set The result follows from theof the Normal distribution time in order to a Z.some the specialresult consider thesimpler case wherepassage and ofreturn on account-6.00% risk. Webe 0. In -2.00% 0.00% 2.00% 4.00% 6.00% In intuition for this case properties of the first m=0, required Brownian portfolio interim -4.00%m=0, i.e., the expected the is assumed to this case, i.e., when there is no expected drift in the (log) price process Brownian motion appeal used in pricing Barrier Options. of get some motion we can with drift to the underlying symmetry To the probability of seeing a return of -1.645 standard while the normal The MaxVaR to result, hitting Z the simpler before T to m=0, i.e., intuition for thisinvoke the reflection or case where deviations when distribution probability ofconsideror lower onprincipleis, find it. or worse at the end of period is 5%, there is a 10% probability of seeing this size move along the sample path prior interestingly, exactly twice the table there is horizon, T. i.e., thethe in In this simpler case the formula to the terminal date. To putIn differently, there ison the next page we provide a comparison no expected drift probability associated with hitting the (log) price process it In the table on a 5% next page, we provide a comparison between the Z at the VaR. the probability between than 1.645 standard of seeing an end-of period return of lessthe standard VaR and the MaxVaR in order to get The the MaxVaR is based on the well-known reflection principlepassage time of a for result follows from the properties of the first standard VaR and to probability of seeing for the MaxVaR in order of get some intuition for the a of -- for every motion a sample path Z touches on Barrier T is, the less the adjustment which Brownian process withwithof hitting that inlower the value Z deviations (VaR), and a 5%someonintuition the return of magnitude required in order to account for is To get The MaxVaR probability drift usedor pricingor beforeOptions. standard deviations or before end the magnitude of the adjustment which is and declines further there is one that rises from that z point on. than 1.960 to account for interim risk. We m=0, i.e., some could be exactly of asresultimage processes. simplerwith hitting Z m=0, required in orderset m=0, i.e., the expected return on set portfolio is the interestingly, thoughtthis mirror consider the period These intuition for twice the probability associated case where interim risk. We the expected return on the portfolio is assumed to be 0. In this case, i.e., when therei.e.,no expected drift in the (log) formula for the at the horizon T, is the VaR. In this simpler case the price process (MaxVaR). At the 5% level, the assumed VaR to 0. In this case, while the probability of seeing a return of ratio of the to be the MaxVaR is, To summarize, the z percent VaR is the 2Z percent MaxVaR. Of while the probability of seeing a return of -1.645 standard MaxVaR isdoes noton the well-known reflection principle -- for every That is, the standard VaR course, this based imply that the Z% MaxVaR is twice the Z% therefore, 1.960/1.645=1.192. -1.645 standard deviations or worse at the end of period is 5%, there is calculation VaR. The MaxVaR probability that hitting Zthe value Z and declines can be is, adjusted to accountworse fact that this size move along the sample patha 10% process with a sample path of touches or lower on or before T easily deviations or for the at the end of period is 5%, there is a 10% probability of seeing prior probability of seeing this size move along the sample path prior interestingly,isexactly twicefrom that z point on. These could be hitting further there one that rises the probability associated with to the terminal date. To put it differently, there is a 5% probability of the terminal date. To put it differently, there is a 5% Zthought of as mirror image the VaR. In this simpler case the formula to seeing an end-of period return of less than 1.645 standard probability at the horizon, T. i.e., processes. deviations for the MaxVaR is based on the well-known reflection principle of seeing an end-of period return of less than 1.645 standard (VaR), and a 5% probability of seeing a return of less than 1.960 -- for every process with a sample 2Z percent MaxVaR. Of course, Z deviations (VaR), and a 5% probability of seeing a return of less To summarize, the z percent VaR is the path that touches the value standard deviations on or before the end of the period (MaxVaR). and does not imply that there isMaxVaR is twice the Z%that z point on. than 1.960 standard deviations on or before the end of the this declines further the Z% one that rises from VaR. At the period 5% level, the ratio of the VaR to the MaxVaR is, therefore, These could be thought of as mirror image processes.
New Managers | the z percent Manager Monitor July 2012 To summarize,Opalesques EmergingVaR is the 2Z -percent MaxVaR. Of course, this does not imply that the Z% MaxVaR is twice the Z%
The result follows from the properties of the first passage time of a
(MaxVaR). At the 5% level, the ratio of the VaR to the MaxVaR7is, therefore, 1.960/1.645=1.192. That is, the standard VaR
ISSUE 07 July 2012
the barrier somewhere. So by invoking the principle of reflection, we 1.960/1.645=1.192. That is, the standard VaR calculation can be easily have turned a path-dependent joint probability into a path independent adjusted to account for the fact that value is observed continuously in the interim simply by inflating VaR by 19%. Thisby inflating factor, the to get to A one.have can calculate Intra-Horizon Expected Shortfall similarly using inflation A because you We to breach the value is observed continuously in the interim simply VaR of MaxVaR to VaR, does the depend on volatility or an iterative principle ratioby 19%. This inflation factor, not ratio of MaxVaR to VaR, thebarrier somewhere. So by invoking theprocess. of reflection we horizon, have turned a path-dependent joint probability into a path does but itnot depend on volatility or the horizon, but it declines as adjustment declines as the tail probability declines. Thus, the independent one. We can calculate Intra-Horizon Expected the tail probability declines. Thus, the adjustment grows smaller in grows smaller in as the tail event becomes less likely. Shortfall similarly using anThere are some very important implications that spring to mind iterative process. percentage terms percentage terms as the tail event becomes less likely. immediately when examining that formula. First of all, the second term There are some very important implications that spring to mind can never be zero or negative.
immediately when examining that formula. First of all, the second term can never be zero or negative. That means intra-horizon risk is always greater than end-of horizon risk. horizon risk.
That means intra-horizon risk is always greater than end-of
For example, even keeping the Normal distribution, prohibiting For example, even keeping the Normal distribution, prohibiting jumps, jumps, and setting the drift to zero: at 1% VaR-I = 1.1072 * VaR. At and setting the drift to zero: at 1% VaR-I = 1.1072 * VaR. At 5% its 5% its 19.16% bigger.
19.16% bigger.
Secondly, intra-horizon risk (probability) increases with time, whereas end-of-horizon risk (probability) decreases with time.
This adds fuel diversification. Various authors have argued that as the investment horizon increases (e.g. more years until This adds fuel to the argument against time diversification. Various retirement), the probability of loss declines and therefore an investor can afford to authors have argued thatfactthe investment horizon increases (e.g. be more aggressive. In as this is still taught in business more years until retirement), the probability of loss declines and schools, and forms a part of every investment planning questionnaire that I have seen; how old By using the concept from statistics of first-passage time (also time (also known therefore an investor can afford to be more aggressive. In fact this is By using the concept from statistics of first-passage are you?. known as first-hitting time) we can estimate the probability that still taught in business schools, and forms a part of every investment as first-hitting time), we can estimate the probability that our return our return will hit a particular hurdle e.g. -10% during the Samuelson (1963) argued against the benefits ofhave seen; how old are you? planning questionnaire that I time will hit a particular hurdle, e.g. maximum loss $X during the investment period, or estimate the -10% during the investment period, diversification, saying that although the probability of loss period at some given confidence level e.g. 99% the period at some given or estimate the maximum loss $X during declines, the magnitude of the potential loss increases. When we Samuelson (1963) argued against the confidence leveldrift, things are symmetric about the consider risk from an intra-horizon perspective, we see that not benefits of time diversification, In the absence of e.g. 99%. only does the magnitude of the potential loss increase, but so of loss declines, the magnitude saying that although the probability barrier.The really fun bit is that the path-dependent joint too does probability of breaching the barrier and arriving at about the barrier. The the probability of loss potential loss increases. When we consider risk from an intraof the In the absence of drift, things are symmetric A is equal to the path-independent probability of just ending at
Secondly, intra-horizon risk (probability) increases with time, whereas end-of-horizon risk (probability) decreases with time. to the argument against time
really fun bit is that the path-dependent joint probability of breaching the barrier and arriving at A is equal to the path-independent probability of just ending at A because to get to A you have to breach
horizon perspective, we see that not only does the magnitude of the potential loss increase, but so too does the probability of loss.

Intra-Horizon VaR (VaR-I ) is by no means a panacea to all the problems of Value at Risk. The simple closed form formulas shown here rely on the Normal distribution, which we well know to be inadequate in capturing the fat tails typically associated with financial assets. More complex versions require Monte Carlo simulations to derive the first passage probabilities. In addition, the method shown here assumes that the distribution of returns remains stationary throughout the time horizon which in the real world it would most certainly not do. Nonetheless, it is a helpful and useful addition the risk management armoury particularly for those for whom falling below a specified level at any stage may have adverse consequences.
ISSUE 07 July 2012
Intra Horizon, MaxVaR or Continuous VaR ( Normal ) without drift Method as per Boudoukh, Richardson, Stanton and Whitelaw 2004 http://www.faculty.idc.ac.il/kobi/ coded by Peter Urbani Function VaRINORMAL(Mean, sigma, Time, CL) M = 0 Mean - Sigma ^ 2 / 2 Drift term for geometric brownian motion VaRN = Application.WorksheetFunction.NormSInv(1 - CL) * sigma * Sqr(Time) + M * Time Inc = VaRN Initial = Application.WorksheetFunction.NormSDist((Inc - M * Time) / (sigma * Sqr(Time))) + (Exp(2 * M * Inc / sigma ^ 2) * Application. WorksheetFunction.NormSDist((Inc + M * Time) / (sigma * Sqr(Time)))) (1 - CL) Target = Initial While Target > 0# Inc = Inc - 0.000001 for faster calc reduce this by 10x
References:
Boudoukh, Jacob (Kobi), Stanton, Richard H., Richardson, Matthew P. and Whitelaw, Robert F., MaxVaR: Long Horizon Value at Risk in a Mark-to-Market Environment (March 2004) Kritzman, Mark and Rich, Don R., The Mismeasurement of Risk. Financial Analysts Journal, Vol. 58, No. 3, May/June 2002. Yen, Simon H., Lin, Shao-chieh, Re-examining the Contributions of Intra-Horizon Risk Measures *Due to possible confusion of abbreviations of Continuous VaR with Conditional VaR and I-VaR with Incremental-VaR I strongly suggest using either MaxVaR, VaR-I or Within Horizon VaR. The small VBA Code snippet on the right implements the MaxVaR or VaR-I of Boudoukh, Richardson and Stanton. Expected Shortfall measures can be similarly coded with an extra loop iteratively incrementing the CL and then taking the average of the values beyond the original Confidence level.
Initial = Application.WorksheetFunction.NormSDist((Inc - M * Time) / (sigma * Sqr(Time))) + (Exp(2 * M * Inc / sigma ^ 2) * Application. WorksheetFunction.NormSDist((Inc + M * Time) / (sigma * Sqr(Time)))) (1 - CL) Target = Initial Wend VaRINORMAL = (Mean * Time) + Inc End Function
Interactive Screening Tool
Interactive Screening Tool
ISSUE 07 July 2012
10
Opalesque Treemaps ( 30 Jun 2012 )

Top 1010 FundsCAGR and Std Dev Annualised ( 36 Months to end 30 Jun 2012 ) Top Funds by by CAGR and Std Dev Annualised
ISSUE 07 July 2012
Top New Funds by CAGR and Std Dev Std Dev ( < 12 Months Top 1010 New Funds by CAGR andAnnualised Annualised to end 30 Jun 2012 ) ( < 12 Months to end 30 Jun 2012 )
( 36 Months to end 30 Jun 2012 )
Infinium Global Fund CAGR 102.28 Std Dev Ann. 3.37
Logica Fund, LP CAGR 33.18 Std Dev Ann. 8.16
Kerrisdale Capital Partners LP CAGR 97.42 Std Dev Ann. 35.55

Top 10 Funds by CAGR and Std Dev Annualised ( Full 36 Months to end 30 Jun 2012 )
JJN Capital Fund, LP CAGR 29.59 Std Dev Ann. 6.99
Top 1010 Funds by CAGR and CVaR (Best Fit) ( 36 Months to end 30 Jun 2012 ) Top Funds by CAGR and CVaR (Best Fit) ( 36 Months to end 30 Jun 2012 )
Kerrisdale Capital Partners LP CAGR 97.42 Std Dev Ann. 35.55
Kerrisdale Capital Partners LP CAGR 97.42 CVaR ( Best Fit ) -9.23
11
Opalesque Treemaps ( 30 Jun 2012 )

Top Funds by CAGR CPTCE ( >12 Months to end 30 Jun 2012 Top Funds by CAGR andand CPTCE ( >12 Months toend 30 Jun 2012 ) )
ISSUE 07 July 2012
Top 10 Funds by YTD and Std Dev Annualised ( >6 Months to end 30 ) Top 10 Fundsby YTD and Std Dev Annualised ( >6 Months to end 30 Jun 2012Jun 2012 )
Infinium Global Fund CAGR 102.28 CPTCE 5.82
Noblesse Oblige Proprietary Account YTD 105.72 Std Dev Ann. 124.54
Kerrisdale Capital Partners LP CAGR 97.42 CPTCE 5.03
Peter Urbani
Peter Urbani is the former CIO of Infiniti Capital, a now defunct Hong Kong-based Fund of Funds group. Prior to that, he was Head of Quantitative Research for Infiniti, Head of Investment Strategy, Head of Portfolio Management, Head of Research and Senior Portfolio Manager for number of buyside firms. He started out in stock-broking as an open outcry floor trader in the late 1980s. Some of his VBA code was included in Kevin Dowds Measuring Market Risk and he specialises in Risk Management and Portfolio Construction.
12
Fundana Series
ISSUE 07 July 2012
Are emerging managers becoming more and more experienced?

The Fundana series discusses investments in Emerging Managers, derived from the real world experience of the Fundana team. Fundana is the investment advisor to several Funds of Hedge Funds and directs around half of its new investments to Emerging Managers. The investment process typically involves allocating a small amount Day 1 or Early Stage (within the first year after the funds launch) to new managers who have strong pedigrees. The objective of this series of articles is to share thoughts around our key observations. It does not aim to be statistically significant but to create a dialogue around those observations.
The Emerging Managers space is currently in vogue. Following the 2008 credit crisis, allocators focused first on the opportunity to invest with previously hard-closed Blue Chip hedge fund managers. Now that most of those funds are hard-closed again, investors are taking another look at Emerging Managers. This article looks at the experience of the fund managers when they launch their hedge funds, encompassing their previous experiences in the financial industry and in hedge funds specifically. The goal is to identify any differences between the pre-crisis and the post-crisis environments on the ability of emerging managers to join the ranks of their more celebrated peers and the career path they had followed to reach this elite group. We will focus on small and mid-sized fund launches (typical Day 1 assets under management (AUM) of between $20m and $500m) as Fundana
does not invest in the very large new launches (>$1bn at launch). The dataset has been compiled from all new investments made in our Funds of Hedge Funds since January 2006, encompassing 69 Day 1 / Early Stage investments in the Long/Short Equity, Global Macro and Event Driven strategies.
Are experienced emerging managers more sought after by investors compared to their younger peers?
For the purpose of this article, we consider two separate periods: the first period runs from January 2006 to July 2008, hence before the industry crisis; and the second period runs from August 2008 to date. The database contains 25 Day 1 / Early Stage investments in the first period and 44 in the second period. Looking first at the length of time a new fund manager has spent in finance prior to launching his fund, we define this experience in the financial industry as the number of years the manager worked either in an investment bank (most often as equity analyst, M&A analyst, credit / leveraged finance analyst, trader, private equity analyst or economist) or directly in a hedge fund. Quite intuitively, most of the managers had experience in both types of company, first learning analytical methods in an investment bank, followed by the subtleties of asset management in a hedge fund. Only nine managers in our dataset went straight into the hedge fund industry, either upon graduation or after a first successful experience at a blue chip 13
Fundana Series
consulting firm. Managers Financial Experience Prior to Launch Up to 5 years Between 5 and 10 years Between 10 and 15 years More than 15 years >400% Pre-July 2008 8% (2 funds) 60% (15) 28% (7) 4% (1) 7% Post-July 2008 Total funds 6% (4) 39% (27) 38% (26) 17% (12) 11%
ISSUE 07 July 2012
5% (2) 27% (12) 43% (19) 25% (11)
As we compile the data for the period post-crisis, we observe that our dataset has drastically drifted from the pre-crisis period with 68% of the new managers having worked in the financial industry for more than 10 years, and 25% for more than 15 years. Unfortunately we do not have data to confirm if this is consistent with what the overall industry experienced, but we are inclined to see a trend developing towards more experienced managers starting their funds. To take the analysis a step further, we now split the experience of the managers between investment banking and hedge fund. Investment Banking / Private Equity Experience Up to 3 years 4 to 6 years 7 years + 0 2 0
Pre-crisis
Hedge Fund Experience
Table 1: Years of experience in the financial industry for new hedge fund managers
Table 1 show that pre-crisis, it was common to find new fund managers with relatively less experience, with 68% of the new managers in our poll having worked less than 10 years in the financial industry before launching their hedge funds (2 managers had up to 5 years experience and 15 managers between 5 and 10). This confirms our expectations, as there are many examples where hedge fund legends started their successful ventures early in their careers (Ray Dallio, Ken Griffin, Paul Tudor Jones and Wayne Cooperman to name a few), and this links with the idea that a manager needed to be hungry and entrepreneurial to invest and to fight the market every day. It was almost suspicious to start your hedge fund late in your career!
Up to 3 years 4 to 6 years 7 years +
0 8 4
1 6 4
Table 2: Breakdown of experience for new hedge fund managers before the crisis
As can be seen in the Table 2, the largest category in the sample was 8 managers, which had up to 3 years experience in an investment bank, then between 4 to 6 years experience in a hedge fund before launching their fund. The typical career path for our new managers prior to the crisis was 2-5
14
Fundana Series
years in a bank, then 4-6 years in a hedge fund, and then the manager would set-up is own fund. We did already see long-term hedge fund analysts (7 years and more) joining the new manager list but it was more common for the managers to start sooner. We had few long-term investment bankers in the dataset, as investment banking was still a very lucrative activity. Investment Banking / Private Equity Experience Up to 3 years 4 to 6 years 7 years + 1 6 4
ISSUE 07 July 2012
Key takeaways
This article showed that post crisis, launches for emerging managers tend to see more experienced managers (10Yrs+ as opposed to less than 10Yrs pre-crisis). One would venture also that more experience means more maturity. In addition, whereas before the crisis, managers would spend only 4 to 6 years in a hedge fund before launching, they now spend about 7Yrs to hone their craft. It is probable that these data have drifted partly because of the following trends in the hedge fund launching space: 1. As the industry has matured, more and more new managers launching their fund have worked a long time in the industry compared to 5 years ago, where having 7 years experience would have meant that they joined the industry back in 2000. 2. The crisis motivated / forced talented senior analysts of successful funds to start their own funds, after they stayed a long time holding responsibilities and creating value for their past employers. 3. The external AUM (without seed deal) raised Day 1 shrank after the crisis as we have observed in a previous article in this series, meaning a large Day 1 commitment by the manager is mandatory, as launching with 5-10M$ is no longer viable. This requires time for the managers to create this needed wealth. The Emerging Manager space has never been so mature, considering the long and wide ranging experiences of the managers we are currently starting to invest with. It is welcome in the current market environment where the markets are difficult to navigate. But at the same time, the jury 15
Pre-crisis
Hedge Fund Experience
Up to 3 years 4 to 6 years 7 years +
0 6 12
1 5 9
Table 3: Breakdown of experience for new hedge fund managers before the crisis
As can be seen in the Table 3, the largest category in the sample was 12 managers, which had up to 3 years experience in an investment bank, then 7 years + experience in a hedge fund before launching their fund. Post-crisis, the two categories that rise the most are the 7 years + categories from both investment banking and hedge fund. We classified them as mature managers. Mature hedge fund experienced managers have accounted for 25 out of the 44 funds we invested in, hence 57% of the poll vs. 32% pre-crisis. Mature investment banking experienced managers totaled 11 out of the 44 new managers, hence 25% vs. 8% pre-crisis.
Fundana Series
is still out to see if those managers have the hungriness of their younger peers to take sufficient risk, so that they can outperform their peers and the industry in the long run.
ISSUE 07 July 2012
Bruno Guillemin Senior Analyst - CAIA
Fundana SA Geneva
www.fundana.ch
16
Focus What emerging managers need to know: a review

IIR and IBCs recent Hedge Fund Startup Forum in London, which Opalesque attended, gave a complete roundup of what emerging hedge fund managers should do and expect. It touched on asset raising, recent trends, the role of the prime broker and the administrator, tax issues, seeding, regulatory compliance, and what investors look for. Here are some of the key points that emerged.
ISSUE 07 July 2012
To get over the first hurdles, you need to see if there is a consultant you must deal with first, and if the pension scheme you want to connect with is private or public. The latter are more transparent but also more bureaucratic. You also need to do your homework; look into what the institution is looking to invest in, connect with the CIO and the consultant and try to get some contact with the trustees. As the adage goes you will not get a second opportunity to make a first impression, Morley noted. That is the case for both consultants and institutions. Therefore dont go and see them until you are comfortable that you will pass muster, he added. Furthermore, most institutions will not want to allocate more than 5% or 10% to a single manager, and will not want to be more than around 10% of the managers asset base. So if the managers fund has $50m in AuM and the institution has $5bn, the maximum the latter will give would be $5bn, i.e. 0.1% of the hedge funds assets. It is not worth their time. So unless you are well north of $100 million, you are better off with family, friends, family officers and although you may not like them, good old fund of funds, Morley concluded.
Want to raise assets from institutions?

The basic advice for start-up managers is, dont waste your time talking to institutions, said Ian Morley in the conferences opening remarks. Raise your initial seed money from friends, family, platforms and those of an unsound mind. Morley was the founding Chairman of AIMA, the hedge fund organisation, and headed various funds of funds. He is Chairman of Allenbridge HedgeInfo, a hedge fund rating and consulting company, and of Wentworth Hall Consultancy.
Ian Morley
However, for those who do decide to approach institutions, Morley suggested having the following boxes ticked: A proper business plan Could you run for three years on your initial capital? Will your operational infrastructure meet institutional standards? Do you have a unique selling point in your pitch?
European startup trends

According to Chris Farkas, head of European hedge fund consulting at Deutsche Bank, the key themes among todays hedge fund launches is that there are fewer of them, but many are larger. Some raise between $250m and $1bn in Year One (Y1). Seed amounts have also increased in 17
Focus
the last years and can reach $75m to $125m. Jeroen Tielman, CEO of IMQ Investment Management, a Dutch-based hedge fund seeder, said during the same panel that his firm receives around 25 to 30 applications each month. He noted that the majority of applying funds comes from the U.S. This is where the seeding business is more mature and more accepted, and where the likes of Goldman Sachs, Resevoir Capital and Blackstone offer the biggest tickets.
ISSUE 07 July 2012
how to run a fiduciary business. Whereas at IMQ, they make sure the hedge fund managers understand risk management, segregation of duty and counterbalance. For a fund to survive with less than $50m in assets under management (AuM) is challenging, Farkas noted. He quoted a recent investor survey by Deutsche, which says: 65% of respondents plan to invest in firms with less than $1bn under management in the next 12 months; 67% of investors have either already made a D1 investment or would consider it. This is in contrast to 2004, when only 21% of respondents invested in early stage managers; 50% of respondents require at least $100mn in assets before they invest, compared to 2002 where only 15% required at least $100mn. The four key points about D1 investing that should be born in mind are (1) fees, (2) longer due diligence processes, (3) the minimum AuM requirement, and (4) risk management, according to Farkas. As far as where to look to raise money, U.S. is the largest source by far, accounting for 70% of the capital raised, followed by Scandinavia. The regulatory headwinds make Europe a difficult geographical area to raise money. Swiss and other European pension funds are still hesitant about allocating money to hedge funds although, Tielman said, Swiss money is not dead. The approach to marketing has to be more thorough as well. Who you are, your investment strategy and your risk management is no longer enough in a presentation. You should add more details, such as remuneration and structure, Farkas noted. And focus on performance. You should also differentiate your investment strategy, added Tielman. Explain how 18
Chris Farkas
The ex-prop desk traders who spin out of banks often come out in teams and the size of their startup therefore needs to be larger. But individual ex-prop traders have a harder time getting off the ground, Farkas said. At their banks, those prop-traders traded at VaR, and Jeroen Tielman they usually cannot get their numbers back for a track record. But teams on the other hand are more often actively supported by their banks on that front. It is a lot easier for ex-hedge fund staff to start a hedge fund than it is for ex-prop traders, Tielman commented. The former are more experienced in running a business, and are well versed in dealing with operations and risk management. It is better for those two main risks to be outsourced, as well as business development, anyway. Startups should concentrate on building a track record during the first year, he recommended. To help with business plans, at Deutsche, advisors are increasingly explaining to new hedge funds aspects of regulations, governance, and
Focus
logical your move is from your past experience to your present situation. Demonstrate the solidity and the maturity of the team. Beware of the way you present yourself. Dont try to sell, but instead, enter a dialogue with the investors, he warned. The jurisdiction of the fund will have a real impact on the funds trading alpha because of the costs involved, according to Farkas. At Deutsche, they are still seeing most funds being domiciled in the Caymans. Tielman recommended choosing a domicile according to the main pocket of investors. Track records are good, but not much worth it. IMQ focuses more on the engine room, i.e. ideas, trade execution, process analysis, than on track record. Service providers dont have to be expensive ones. The majority of UKbased management companies are audited by smaller firms, not the big four, Farkas said. And thats all right. The same applies to administrators, added Tielman. There are administrators out there who provide good structures for emerging managers. Farkas also noted a common complaint among investors that the big law firms that act on behalf of managers, focus on the interests of the managers rather than that of the investors, which is a point worth bearing in mind. Independent directors are a voice in case of misalignment of interest; they allow the side of investors to be represented. Although in the U.S., independent directors are not as common as in Europe.
ISSUE 07 July 2012
around 400 hedge fund clients. Here are Gevarters tips and recommendations for emerging managers: Managers should negotiate with multiple brokers to get the best deals. Use consolidation. In the 1980s, the idea Evan Gevarter of trading at your brokers of choice and consolidating clearance, custody, reporting, margin and stock borrow was a Eureka moment. Today, technology allows PBs to offer queries, P&L, research, rates of return, margin and client equity on one screen. Emerging managers must understand margin, he said. The best thing to do before you start: send a sample portfolio to your PB and well tell you how much margin well give you. Commissions are different among brokers. Emerging managers must research this aspect and tell their PBs they need access to analysts, research, etc. The PB can provide reports on attribution analysis, portfolio stress, portfolio analysis, P&L, global positions summary, portfolio exposures. The most important member of your prime brokerage team is you accounts rep, he said. He can supply all information about your account on a daily basis. PBs do not raise capital for emerging managers; however they often organise cap intro events and provide training in marketing. For investors, he recommends to always check the trinity (PB, auditor, administrator) behind each hedge fund. When you approach a prime broker, negotiate everything, he urged.
The role of the prime broker

The prime brokers (PB) main job is to help fund managers, said Evan Gevarter, managing director at Jefferies and Co. in New York. Jefferies has
19
Focus
Tax matters
There are some key points that emerging managers need to consider when seeing their auditor for the first time. The first thing to consider, said Lachlan Roos, UK hedge fund tax leader at PwC, one of the largest auditing firms, is, who will seed the capital. For us, its a big consideration, he continued. Because your structure will look different depending on what your seed capital is. A large seeder or an ex-hedge fund employer may want a different type of returns from what friends and family expect. The former may want a top slice of your gross income; in which case it would be easier to structure the startup into a partnership form. The second point is the domicile of the fund. The auditors also need to know about the subsidiaries, which will depend on what the rest of the structure will look like and what the manager is trying to achieve with them. Another important point is where the manager wants to live. London, New York, Switzerlandare not the only places to do business, Roos said. There are a number of places that have equivalence to the UKs Investment Manager Exemption. Being in a financial centre means being within investors reach, but there are other considerations to take into account, he added. Having a head-office in one country and a subsidiary in another will also have tax implications. The manager needs to decide what is located where at the outset in order to avoid tax leakages. The fund strategy is important from a tax perspective. Indeed, the auditors
ISSUE 07 July 2012
need to assess whether the new fund is a trading fund or an investment fund. This has a big bearing on the tax strategy as to how we set you up and the types of rules you need to satisfy. Other points to work out for tax matters are: where the target investors will be located; the risk appetite of the organisation; the long-term expansion plans; and the exit strategy. All those will have an implication on the structure the auditors will give the manager.
Regulatory compliance can help you gain investment

Jerome Lussan, CEO of Laven Partners, a global consulting firm, which recently published the FT Guide to Investing in Funds, thinks regulatory compliance can help managers gain investments. Self-regulation does not work, he said, and besides, better regulation is necessary to avoid a political backlash to financial mismanagement, as its aim is to provide a more efficient monitoring of systemic risks and, as always, to better protect investors.
Jerome Lussan
There are so many new laws that anyone in their right mind would not rationally contemplate starting a hedge fund business, he noted. Indeed, the number of laws that will affect asset managers, directly or indirectly, is astonishing: the latest UCITS rules; AIFMD; ICSD; PRIPs (Packaged Retail Investment Products); MiFID review; Shadow banking; EMIR; EU Supervisory structure; Short selling; the Financial Transaction Tax; and in the U.S., FATCA; Dodd Frank; and the Volcker Rule. Furthermore, other laws that affect asset managers from afar are: Basel III; Solvency II; IMD review; Revision of IORP; Single Market Act; White Paper on pensions; Credit rating agencies; and in the UK, the RDR ban in commissions. 20
Focus
Contrary to popular belief, regulatory changes have actually led to an increase in fund launches, Lussan added. Even if the new requirements on hedge funds makes it more expensive for them to operate. Compliance can be used as a management process and as a way of managing the operations of a business, therefore as a positive component of an overall business plan to attract investors and gain investor confidence, he said. Lussan warned emerging hedge fund managers about a few issues that will put investors off, namely: Lack of segregation of duties (upcoming regulation requires someone dedicated to compliance full time); An incompetent compliance officer (who will inevitably be interviewed by investors during the due diligence process); Lack of proper record keeping (keep evidence and records to illustrate how various decisions were made, e.g. corporate matters, pricing decisions, best execution, KYC/AML requirements and many more); Incompatible compliance systems (using your compliance infrastructure based on your previous employers is not OK); Misleading marketing literature (including diverging track records, enhanced biographies of people attending universities (but not graduating), lack of risk disclosures and simple grammar mistakes.) Pease do not put Greed is Good in your marketing presentation, he quipped, and make sure all materials are carefully screened prior to distribution.
ISSUE 07 July 2012
is a merchant bank headquartered in Sweden. It recently completed a merger with Key Asset Management (see Opalesque Exclusive here). It has been seeding hedge funds since 2003 with almost 100 managers, and extracts return from revenue share, not equity share. The primary objective is to capture liquidity premium. Pre-Lehman, liquidity was trading close to zero and post-Lehman, investors should Chris Rule look to pick up 200 to 400 basis points for providing liquidity, he said. The firm tends to go for more liquid strategies, and believes smaller and medium sized funds will outperform. Capital is usually locked up for two years minimum, and can stay invested for around five to eight years. SEB has two vehicles: MCF2, launched in Oct. 2012 with $300m from Nordic institutional investors, which is not yet fully invested; and MCF1, launched in April 2010. MCF1 has $250m in six funds, three of which have more than $400m in AuM by now, and three are still at the $50m level. SEBs four criteria for investing are (1) outstanding individuals, (2) portfolio construction, (3) economic deal, and (4) capital raising capacity. We look for outstanding individuals with passion and drive. We dont avoid key-man risk, he noted. Rule gave the following points to ponder for managers who are thinking about starting a hedge fund: 1. Do I have expertise and know-how to build my own business? A lot of managers do not have either the will or the knowledge to run a business, he added. 21
Using a hedge fund seeder

According to Chris Rule, CIO of SEB Alternative Solutions, which is part of SEB, the rationale for seeding is in the returns one can expect. SEB
Focus
2. The team must have a strong COO and marketing function. Without it, a fund manager should consider joining an established firm instead. 3. A manager must define what makes them different. The market is competitive and Darwinian and most will not succeed. 4. Most talented portfolio managers are not equipped to build a hedge fund franchise and underestimate the time and effort it will take. 5. The team members have preferably worked together for a long time and will have faced adversity together. 6. Staying power is important. The team should be able to fund the business for at least three, preferably four years. This allows them to have staying power even with a bad start. 7. They have to be able to prove that they can build a culture to recruit and retain the right people to build a lasting hedge fund franchise. 8. Investment ability does not always correlate with asset raising; distribution plans are central to the seeders evaluation. Were not investing for a quick buck, he noted.
ISSUE 07 July 2012
around it, Phillip Chapple, executive director at KB Associates, a boutique operational consulting firm, told the conference participants. Pierre-Emmanuel Crama, head of operational due diligence at Signet Capital, a fixed income funds of hedge funds house with $1.2bn in AuM, said that to differentiate itself from consultants and direct investments, Signet invests in emerging managers and does D1 investments. The firm is usually interested in getting access to the funds share class as a first point, and believes many startups outperform. Cohesion of the team is crucial to Signets managers, who also favour more liquid strategies. They also prefer second-generation managers as opposed to ex-prop trader-rising stars, as well as those with different strategies or uncommon instruments. Tushar Patel, CIO and managing director of HFIM, a London-based investment advisor to family offices, also focuses on emerging managers. The focus there is to try and capture the returns at the early stage, he noted. He believes every hedge fund goes through life cycles. The stage that follows the early stage, the maturing stage, where the managers have acquired a track-record and get more attention from investors, is a stage where they find it difficult to generate the returns they did in the past. HFIM tends to see managers before they start and Patel recommends an early approach. It is good to put your message out, and say what you want to achieve, and how youre going to go about achieving it I think approaching early is not a bad idea. Particularly if its a new or a niche strategy soft marketing is important for gauging what makes sense.
Views from investors

Investors dont tend to give feedback to managers after seeing them and turning them down, leaving fund managers clueless as to where they went wrong. However, investors dont mind giving advice to new comers when asked. The consensus on this panel was that investors are also attracted to strategies that are different from the humdrum, and tend to believe in early stage outperformance. Since Madoff, since Lehman, the power has definitely shifted to the investor base. It is very difficult to get feedback from investors and managers are struggling to raise assets. The reality is, there is money out there, and you have to look at it from an investors point of view. Investors are looking for something that is worth putting their money into. There needs to be a unique selling point. And there needs to be infrastructure
- Benedicte Gravrand
22
47N Series Death of a Salesman

47 Degrees North Capital Management is a specialist alternative investment firm, and a pioneer in early-stage hedge fund investing. It was selected as one of three successful candidates out of 97 applicants to manage the emerging hedge fund managers program at CalPERS. 47N is a leading proponent of corporate governance in the hedge fund industry; so the objective of this series of articles is to discuss and inform on current corporate governance issues.
ISSUE 07 July 2012
to make money? Is it because of cheap underlying securities where you will run a long bias? If yes makes sure you have all the evidence at hand needed to convince the sceptical (not the cynical theyre past the point of trying to convince). And dont forget to figure out what youll do if they get even cheaper. Remember the three Ps; politeness, persuasion and persistence. When it comes to persistence, studies show its after the third contact that most salespeople drop a prospect when, in fact, its after this point that most sales are made. Were not advocating pestering investors but if you have a convincing value proposition and you sense an interest, by all means follow up with more data points. If you dont know something admit it. Its not a capital offence not even a corporal one. Its a lot worse to get caught obfuscating after some questioning by an investor. And dont be overly defensive if you have a skeleton in the closet dont go on a rambling explanation just state it plainly. Know your governing documents backward and forward. These include the offering memorandum and the due diligence questionnaire. Do you have management (aka control) shares? Who is on your board of directors? Are they independent? To cheer everyone up, immediately take out all adjectives and hackneyed phrases from your marketing documents. Banned words and phrases are; unique, robust, strong, going the extra mile, alpha (in most cases), dynamic, holistic, equilibrium, sophisticated, boutique (more for hair)
Arthur Millers character Willy Loman in his theatre play Death of a Salesman evokes the feeling of despair and dread that can come from the failure to achieve something we had hoped for. As specialists in early-stage hedge fund investing, we routinely see failure - although not often on the dramatic scale of Death of a Salesman. This article one in a series on issues and problems facing early-stage managers outlines some hopefully helpful hints on how salespeople for Fraser McKenzie early-stage funds can avoid the pitfalls of the initial pitch to investors. What are we looking for and whats important? We dont wish to play the armchair arbiter of sales skills or to try and make ourselves appear better than our applicants but the fact is we do sometimes see some howlers and, more commonly, oft-repeated avoidable mistakes. Firstly, make sure you have a clear value proposition; how are you going
23
47N Series
you get the idea. By the way, we still like smart beta as, in reality, its what hedge managers were always supposed to be aiming for - unless of course they found the alpha holy grail. And please avoid the big name associations weve never seen evidence of a big name advisor actually improving the performance of a fund. Quite the opposite it seems. Try to avoid over-stating the firms resources it all comes out in the end after some questions or onsite due diligence, so save yourself the embarrassment. Practice your telephone pitch. This is really a hard part because every person on the other end of the line will have a different preference in the way they are approached. Just avoid being too long-winded (this also applies to written communication) and allow some pregnant pauses which, unfortunately, could mean either they are thinking about what you said or rolling their eyes at a colleague next to them. Resist the temptation we all have when a bit nervous to simply blather on keep it brief. Above all, inform the listener with specifics. Finally, push back. Ask for and expect professionalism from your investment counterpart. Its sometimes surprising what a little polite prodding can do if someone is failing to respond in a professional manner after all, thats our job. In Arthur Millers classic play, Willy Lomans selling philosophy is that a smile and a shoeshine and plain dumb luck is the key to success. However, the moral of the story is, of course, that this gets you only so far and what is really needed is ambition and hard work. In the world of earlystage hedge fund selling we would add just one further point; listening and adapting to investor feedback unfortunately not so polite at times is the best way to being able to improve the probability of gaining interest in your fund and ultimately investment.
ISSUE 07 July 2012
- Fraser McKenzie, Managing Partner, 47 Degrees North.
24
Q&A
ISSUE 07 July 2012
Rachel Minard: How to avoid the kiss of death when trying to raise assets
Rachel Minard built four funds of hedge funds firms and sits on the Investment Sub-Committee for the Westover School Endowment, which allocates to hedge funds. After 20 years raising more than $10bn across 20 countries, she started, in San Francisco, Minard Capital in 2011, the first outsourced hedge fund marketing firm that is not a broker/dealer or third-party marketer. She is the author of two new books Rachel Minard coming out next year, The Art of the Institutional Sale, and Speaking in Thumbs: The Handbook of Empathy. She also sits on several industry boards and one of the founders and Executive Committee of the Association of Women in Alternative Investing. She shares with Opalesque her recommendations to emerging managers, warns about complacency and lack of preparation and explains the institutional investors perspective. She also talks about her two upcoming books: one about the sell cycle, and the other about empathy, a personal currency. Opalesque: What are your recommendations to emerging managers in terms of marketing strategy? Rachel Minard: Start-up hedge funds need to approach their growth in a pragmatic way. The first step is to do with a sober holistic assessment, which is to say do
I have a strategy that in and of itself is unique enough to secure market share? The next one would be who is the natural buyer for this type of fund and is there interest in this type of strategy? More importantly, who are my peers in that strategy and how have they done? You need some context to gauge where you would fit, where you could put a toehold into the business. Once you establish that, then it becomes a small business plan. It essentially is, what resources do I actually need to sustain the business? What are the avenues by which I can grow assets, i.e., am I looking at seeding, at potential JV or partnership with someone else? Do I have enough momentum through friends and family and smaller investors? Any time you are under $100-200 million, you really are selling yourself. You do not really have enough of an infrastructure to support an institutional quality sale. So, you have to demonstrate that you really do have a unique investment acumen and pedigree that warrants that interest. That would be the next step, do I want to do seeding, can I get capital right at the onset, is there initial groundswell interest? Then from there, the paramount is to be able to put up strong numbers, because it is still performance-driven. But this business plan would really look at the resources that I need, the distribution channels at the ready, whether existing, or through seeding or through some type of platform, something that gives me that early momentum for assets. Once that is established, this gives you the latitude to start slowly raising 25
Q&A
assets, to really think about a few things, one of which is capacity (how big do I actually want to grow), what type of investors are the natural buyers, do I want to stay with family office or do I want to matriculate to becoming an institutional firm, understanding acting fiduciary responsibility and what that actually means. Then there are the regulatory requirements to get registered as well as building the infrastructure and talent to be able to warrant natural growth. There really are not too many shortcuts in my opinion for small firms. Opalesque: You mention one of your books is a manual that walks you through the entire sell cycle. Can you tell me more about it? Rachel Minard: This book is called The Art of the Institutional Sales. It is around 150 pages long. The idea is to allow anyone, any type of firm or fund, to structure and build the business within that construct of what one has to do, in what order, and with what effect to warrant asset growth and business growth. Irrespective of the funds that they may have worked for in the past, the big challenge that people have is they rest on their laurels. They have either worked for a great firm or for another great hedge fund manager and that that alone would seemingly be enough to warrant interest and it is really not. It helps, but there are many criteria now around the infrastructure, the risk management, oversight, the operational stability, and the business acumen to really run a business. In a way, it is a bit sad. In the old days, the barriers to entry were still low and you could have a great track record and put your head down and put up strong numbers. Opalesque: Could you tell me about your other book, Speaking in
ISSUE 07 July 2012
Thumbs? Rachel Minard: The other book is one that I had started a little over two years ago and it is called, Speaking in Thumbs - like using a Blackberry, speaking using your thumbs. The subtext is The Handbook of Empathy. The premise of that book was specifically around the fact that two things can exist at the same time, which is empathy - not compassion, nor sympathy. Empathy itself can exist simultaneously to success, to success in your career, to success in building a business, and, in fact, it actually gives you an extraordinary advantage. I coined the term, the idea of personal currency. It is the ability to use your understanding of other people and the patience and genuine interest and authentic curiosity in other people, to be able to leverage that information, and use that information to have meaningful authentic discussions. This, in my opinion, prompts long-term success - growth in sales, growth in business, but it really does have to stem from an understanding of an appreciation of the people around you and an ability to listen well. I think we fail to do that. We are a culture where there are a lot of people talking. There is this is great adage that says that the opposite of talking is not listening, it is waiting. We are all waiting for the other person to stop talking so they can talk again. And I think what we fail to do is to listen well; when one listens well, you pick up nuances. It is a bit like behavioural finance, but you pick up nuances in what matters to someone else and what they value and what they care about. This is a way to have a much more authentic discussion, because you are not overriding someone with your own opinion, but you actually have 26
Q&A
the empathy and care to be able to speak to them in the context of what matters to them and what they value. Opalesque: Tell me more about the perspective of the investor. Rachel Minard: For those people who do make the mistake of going out to raise assets without having the message, it is the kiss of death. For they do not know who their competitors are at all, they put their head down and think, well, I am good at what I do, that is enough without understanding the context. The penultimate thing for this article is to understand the perspective of the investor. I sit on the endowment, and, as a trustee. Every single investment team or Board that I have ever experienced in 20 years in the industry thinks the following things: The first of which is did I like them? Do I trust them? Do they have credibility and integrating? Two; would I want to work with them? I may like them but would I enjoy working with them? The next is; do they have an investment process or product that is better than the ones that we already have? Do we want to go through the effort of exchanging a fund that we already have with this new fund or adding to it, and if so, where does that fund sit? What is it trying to do? What is the problem it is meant to solve? Is it a liability hedge, alpha generation, what is its job? Then, where do I take money from to put money into that investment and when? That is the life cycle of a question that every single institution typically asks when someone walks out of the room after getting a pitch.
ISSUE 07 July 2012
27
Guest article It takes a village to raise a hedge fund

Diane Harrison is principal and owner of Panegyric Marketing, a marketing communications firm founded in 2002 and specializing in a wide range of strategy and writing services within the alternative assets sector. She has over 20 years of expertise in hedge fund marketing, investor relations, sales collateral, and a variety of thought leadership deliverables. A published author and speaker, Ms. Harrisons work has appeared in many industry publications, both in print and on-line.
One of the hardest things to achieve is to be groundbreaking. Yet groundbreaking is what it takes to succeed today in the hedge fund industry. The competition is so fierce for both money and investment resources that only an exceptional few have a legitimate chance of making the leap from supporting cast member to headliner. There are new rules in formation not only as regards the regulatory landscape, which will affect most hedge funds and investors, but also concern operational issues, which will impact corporate governance of funds both large and small. Reflecting on perspectives from the past leads to some notable observations about the future of the hedge fund industrys business development. Diane Harrison
ISSUE 07 July 2012
Being an investment star is not enough in itself. Todays investors demand a complete organization to ensure that they arent signing on with a star whose light might diminish and leave them in the dark, so to speak. It takes a concerted effort and a cast of excellence to create the next generation of hedge fund talent. In short, it takes a village to elevate a unique idea into an established presence.
The mass of men lead quiet lives of desperation. Henry David Thoreau
Replace the word men in the quote above with hedge funds and you will be closer to the truth in todays alternative environment. Most of the 8,000 or so hedge funds in existence today are in some stage of desperation either from an inability to raise capital, achieve stated performance goals, or afford the level of talent necessary to propel the business to the next level. Accepting that a collaborative effort is required to succeed represents a shift from the traditional perspective of singular stars rising through the ranks of the hedge fund world on the strength of investment results. No one will argue against the merits of performance excellence being a top consideration for success, but the pendulum on weighting performance versus sustainable business practices has swung far in the opposite direction.
No man is an island, entire of itself; every man is a piece of the continent, a part of the main. John Donne
With a choice between two fund options: one with 15% annual returns, a jerryrigged infrastructure, and spotty investor relations
28
Guest article
versus a second with 10% annual returns, a robust operational structure, and regular, meaningful investor communications, an institutional investor will tend to the latter in seeking a long-term partnership with success.
No one can whistle a symphony. It takes a whole orchestra to play it. H.E. Luccock
In reviewing the basics of breaking through from concept to company, lets begin with the spark. Hedge fund managers express themselves through market mastery. Much like a painter, an elite athlete, or a concert violinist, the market master expresses artistry within his chosen medium of the investment space. The genesis of every successful fund is this creative push. If theres not something new to bring to the party, why attend at all? If a manager is indeed successful in identifying this spark, he must then be iconoclastic to achieve this breakthrough approach. Not only must there be a verifiable uniqueness to the fledging strategy, but it must be able to have its sustainable investment brilliance be cultivated.
ISSUE 07 July 2012
A new fund must showcase an investment approach that has the ability to become distinct, occupying a unique space in the investment field. This is deceptively simple to state, but extremely difficult to establish.
Teamwork is the ability to work together toward a common vision. The ability to direct individual accomplishments toward organizational objectives. It is the fuel that allows common people to attain uncommon results. Andrew Carnegie
Next, there must be a nurturing process to encourage the patronage and development of this new approach. Seeders, early-stage investors, strategic service providers, and core critical fund talent are required to coalesce around a concerted effort to create growth opportunities for the new fund. Developing a healthy dynamic and balance of these constituents is one of the hardest challenges within the early months of a new enterprise, but critical to the long-term successful evolution from start up to established business.
Coming together is a beginning, staying together is progress, and working together is success. Henry Ford
Finding the right partners for start-up growth is as important as securing additional investment talent for a new fund, but often is addressed as a second priority. The funding process has to be driven by the manager, but in many cases, this process is where managers find themselves unable to make the right connections. Consequently, they try to forge ahead with limited capital and a bootstrap approach, only to ultimately fail. 29
It is the long history of humankind (and animal kind, too) those who learned to collaborate and improvise most effectively have prevailed. Charles Darwin
The idea generation and trade execution of the approach must be robust, showing true legs in terms of future market opportunities beyond the current market situation, whether in single-sector, multi-sector, or some other segment. It also must be able to be articulated to the investor community in order to attract attention to its potential for growth.
Guest article
Gettin good players is easy. Gettin em to play together is the hard part. Casey Stengel
For the fortunate ones who are able to secure financing, they must identify and partner with the right combination of in-house and outsourced resources. As the fund evolves, this balance will flex and grow to reflect the changing needs of both the fund and its investor base. Reporting analytics, service providers, research generation, and a range of other issues will dictate where and how the fund adds to its staff or adds to its provider base.
ISSUE 07 July 2012
Also on the management radar is the pressing need to comply with evolving standards, some of which will be mandatory, based on fund size or investor base, and some of which will be necessary from a competitive stance. Investors are requiring that all of their investment options pass stringent compliance testing on a host of factors, both legal and operational. Regardless of whether or not a fund has formerly registered with the appropriate agencies from a legal standpoint, it must pass this investor scrutiny to meet todays allocation standards. Fund managers who are serious about building their business should consider joining the larger community in a number of ways. These might include engaging with trade associations, becoming an expert resource to promulgate information and trends to the investment audience, and forming a networking process that supports the funds objectives for positioning and growth.
Gone are the days where a smart fund can get away with massive spreadsheet-driven modeling and reporting that is arcane and managed by one or two investment analysts who become the guardians of the funds strategy execution.
If everyone is moving forward together, then success takes care of itself. Henry Ford
The industry has responded admirably to this evolution away from internal one-off structures to include a wide range of specialized and state of the art services for funds from inception through maturity. Over time, each fund must define its optimal mix of support that meets its needs and its budget, and revisit according to its growth path. It is a happy problem for a manager to address when the business has the ability to bring in-house some of the functions critical to the on-going growth of the business, and has acquired the financial means to do so.
The secret is to gang up on the problem, rather than each other. Thomas Stallkamp
Building a hedge fund has always been a job for only the most fearless. But the added challenges and pressures of the market today have created a barrier only a select few will rise above to join the ranks of elite independent talent. Encourage the entrepreneur who, with dedication and persistence, might grow to be a powerhouse.
30
Servicers Spot
ISSUE 07 July 2012
New funds must not be disheartened by the regulatory challenges

Peter Moore is head of compliance and regulation for the IMS Group, a global compliance group for the asset management and securities industry. Its clients include many of the worlds largest hedge fund managers, private equity firms, fund of funds managers, family offices and institutional pension fund managers. He talked to Opalesque about the regulatory and compliance challenges that new hedge funds are facing now, and advises them not to be discouraged by the new, demanding they be old or new regulatory challenges, are insurmountable. They all have a few basic themes which are: integrity within the financial market, the fair treatment of clients and investors and the supply of information. Despite all the regulation and the cost to comply with it, if a new firm has a business case for starting up a new venture, a new fund, it must not be distracted or disheartened by the regulatory challenges it faces. These are all surmountable with the right advice and the right resources. According to Moore, the best strategy a start-up can approach is to look at all the necessary components of its business, such as the back office, the support services, risk and compliance, and to ensure that it is allocating an appropriate and proportionate quantity and quality of resource to each of those important matters. As long as compliance is addressed to an appropriate and a proportionate degree, then the new firm should not find itself overly strapped and overly burdened with it, because compliance will apply to the new firm in a proportionate and pragmatic manner. I personally would be disheartened to hear of a firm that had identified a fund opportunity, but had decided that the cost of regulation outweighed the cost of actually pursing the business opportunity. His firm does not take on the role of the compliance officer. In his career, he has never seen such a level of change. But this is not a brick wall. The key message to any start-up is that none of the challenges, whether
Peter Moore requirements.
Over the last few years, column inches have been taken up by the many political and regulatory responses to the financial crisis, he said. We have the responses in the US with the Dodd-Frank Wall Street Reform and Consumer Protection Act, and then in the UK where there is a very large number of new initiatives and new directives coming from Europe in order to respond to the financial crisis, such as those relating to short selling, central clearing for OTC derivatives and a new regime for some managers and distributors of alternative funds.
Our role will be to support the firm as a whole, support the partnership, the directors of the organization, and support the nominated compliance oversight resource if in a small organization where compliance is not a 31
Servicers Spot
full time job, which is the typical model as to how small boutique firms resource themselves. These important roles will be apportioned, and we will be of support to that, bringing expertise and external advice and assistance, but also bringing an element of independence that the in-house resource is not able to lend themselves. Moore stresses that this is not an insurmountable challenge; new firms will need to work out what the appropriate allocation of resources is and then they may take expert advice on how they do that. Name: The IMS Group Headquarters: London Other offices in: New York, Boston and San Francisco Established in: 1997
ISSUE 07 July 2012
See recent articles from IMS on Opalesques AMB: - IMS Group head of regulation identifies lessons for AIFMD policy makers in dangerous dog legislation Source - Other Voices: Countdown to EU short selling regulation Source
Core service offering: regulatory compliance consulting to UK and US regulated financial services firms Related services: hosted regulatory permissions, due diligence, compliance training, risk management and recruitment Servicing how many investment businesses: 700 FuM: N/A Contact: sarah.donnelly@theimsgroup.co.uk Website: www.theimsgroup.co.uk
32
Launches
A survey published by AsiaHedge reveals that, despite tough market conditions, new Asian hedge funds raised $2bn in the first half of 2012, an increase of 50% over the capital they raised in the previous six months, reports Reuters. The number of start-ups also increased, rising to 32, from 30 in the second half of last year, according to the survey, with funds such as Asia Research & Capital Management by Alp Ercil, former Asia head of Perry Capital, and Kingsmead by former FrontPoint portfolio manager John Foo joining the fray.
ISSUE 07 July 2012
LLC. At Bowery, Mr. Jelisavcic will continue to manage the Longacre Opportunity Fund, a distressed-debt investment vehicle he started in 2009. Bowery, which has $100m in assets, is looking to raise capital. 5. Patrick Boyle is to launch Palomar Fund Management in September of this year, with $50m under management partly seeded by distinguished names from the hedge fund industry, an institution, a family office and from his own capital. 6. Two London-based companies, J8 Capital Management LLP and Pairstech Capital Management LLP, are launching the J8 Futures Fund, a CTA managed futures fund domiciled in Malta, in October. J8 started trading in February with a significant amount of capital from Tillman Sachs, its founder. 7. Rotella Molinero LLC, a joint venture formed by Rotella Capital Management Inc. and Molinero Capital Management LLP launched the Rotella Molinero MultiQuant Futures Program in mid June 2012 with $25m in seed capital. 8. Ex-Unigestions Head of Hedge Funds Philippe Gougenheim, who recently set up Gougenheim Investments near Zurich, confirmed he will launch his Glasnost Macro Fund in September. 9. Massimo Bertoli, the former head of event-driven investing at $29.3bn US manager Och-Ziff Capital Management, is planning to launch an event-driven new hedge fund in Q4 that will be backed by his old firm Goldman Sachs. He has teamed up with Stephen Sales, who previously ran the business side of London hedge fund manager Marble Bar Asset Management.
We recently heard of the following ex-hedge funders striking out on their own:
1. Kieran Goodwin, the former head trader at King Street Capital Management LP, plans to start a credit hedge fund in the fourth quarter. Panning Capital Management LP, Goodwins New York-based firm, will begin trading in mid-October with bets on and against securities from loans to distressed assets. 2. Joint-venture Ping An Russell Investments, which was established last year, will launch Chinas first multi-manager fund for domestic high-networth individuals early in the third quarter of this year. 3. Maso Capital hired former Mount Kellett Capital executive Allan Finnerty for a top role at the hedge fund being set up by former managing directors of Och-Ziff Capital Management, Manoj Jain and Sohit Khurana. Jain and Khurana are aiming to raise about $250m for their multi-asset class Asia-focused hedge fund. 4. Vladimir Jelisavcic, who started Longacre in 1999 with two other former Bear Stearns Cos. traders, told Longacre investors on Monday that he is launching a hedge-fund firm called Bowery Investment Management
33
Launches
10. Eashwar Krishnan, former Asia head of Lone Pine Capital LLC, raised $500m for his own Asia- focused hedge fund at newly formed Tybourne Capital Management Ltd., that bets on rising and falling stocks. Tybourne Equity Fund started trading in Hong Kong on July 2. 11. Scott Ferguson, a partner at New York-based Pershing Square, will leave by the end of the month to start a hedge fund that will use an activist strategy similar to Bill Ackmans.
ISSUE 07 July 2012
David Curtis, is preparing to launch his own hedge fund by October, the Northbridge Park Macro FX Fund, which will trade G10 and Asian currencies. Curtis set up Northbridge Park Asset Management in Sydney.
New seeding ventures and platforms:

16. Privium Fund Management and Vistra Fund Services launched a Cayman-based umbrella fund structure for emerging hedge fund managers. The seeding fund targets talent in Asia and the Middle East. 17. EMERGENCE, a seeding platform created in early 2012, invested around $40m in Diva Synergy UCITS, an event-driven fund managed by Bernheim, Dreyfus & Co, an asset manager based in Paris. Antoine Rolland, CEO of NewAlpha Asset Management, which manages EMERGENCE, talked to Opalesque for the May issue of New Managers.
Former bankers starting new funds:

12. Tony DAndraia, most recently with Morgan Stanley, and Justin Meadlin, previously with FBR Capital Management, are to launch their maiden hedge fund in July from New York-based Hyaline Capital Management, which they started in April. It is called Hyaline Capital Opportunity Fund and is a top-down macro-driven long/short equity strategy. 13. Former chief executive of Mizuho Securities Asia Ltd, John Paul Armenio, has joined Hong Kong-based hedge fund start-up Expedition Advisors as a managing partner. Craig James, Expeditions founder, was interviewed for New Managers in February. 14. Former Royal Bank of Canada and Bank of America Corp. proprietary traders plan to start a mortgage hedge fund at New York-based Tandem Global Management LP. Stuart Lippman, 40, CIO of the Tandem Mortgage Opportunity Fund, and David Liu, 43, chief strategist and portfolio manager at the new fund, managed portfolios in the global proprietary trading group at Bank of America. 15. The former head of foreign exchange in Asia Pacific for Credit Suisse,
34
Perspectives
Most asset inflows went to $5bn+ hedge fund firms in 2Q
Investors continued to allocate new capital to the hedge fund industry in 2Q12, exhibiting a clear and continued preference for strategies with characteristically low exposure to global equity markets, according to the latest HFR Global Hedge Fund Industry Report. Investors allocated $4.1bn in net new capital to hedge funds that quarter, bringing net inflows in 1H12 to over $20bn. Despite the inflow, total hedge fund capital declined by -1.3% from $2.13tln to $2.10tln due to poor performance (Dow Jones Credit Suisse says the industry saw estimated outflows of approximately $2.53bn in June, bringing AuM for the industry to approximately $1.73tln). Consistent with the trend from prior quarters, 2Q12 inflows remained concentrated in the industrys largest firms, with over $11bn allocated to firms with greater than $5bn in AUM, while firms with less than $5bn experienced a net redemption of approximately $6.9bn.
ISSUE 07 July 2012
come up with an entirely new firm structure that can get past the shortterm-ism of the present.
The beauty of new funds and higher fees

Singapore-based data provider Eurekahedge recently reported that in 2011 (largely deemed a poor year for the industry), fledging funds that had a track record of less than one year were flat for the year -- whereas funds that have a lifespan of greater than five years were down almost 7% on average. Does this suggest that emerging managers offer better protection during market downturns than more experienced managers, the report asks. Good question. Eurekahedge found other interesting pieces of information, such as: Luxembourg is now the third most popular domicile for funds in the world, after the Cayman Islands and Delaware, due to the popularity of the UCITS format; 75% of the prime brokerage business in the hedge fund industry is covered by six banks, whereas for administrators, only seven firms have a more than 5% market share with the top four controlling 35% of the market; finally, funds charging higher fees delivered better performance in June 2012 YTD and over the last four years (just as in 2008, when funds that charged 25%+ in performance fees generated 18% returns on average!) This suggests one should not sell oneself short if there is going to be performance. Tricky for new managers, though.
No more old-style hedge funds

The era of multi-billion dollar hedge funds with high fees, high portfolio, high turnover and short-term views, is over, claimed MarketWatch on July 18th, confirming what we already deduced. There are four structural reasons why the industry as we know it is dead, the article says: No. 1: The incentive structure; No. 2: The overhead; No. 3: The business model; and No. 4: No opportunity for unproven managers to get funded, as indeed big assets prefer established hedge funds. The article concludes on a hopeful tone for emerging managers, But thats not where the alphas going to come from in the current hedge fund model. The superstars of the next 10 years, in addition to excelling at investment management, will have to
Most U.S.-registered managers could consider other fund structures

Three months after SEC registration became mandatory for most hedge fund managers, industry lawyers say they see a silver lining to the DoddFrank edict, according to HFAlert.com. Until now, the majority of fund 35
Perspectives
operators had no choice but to structure their vehicles as private funds, which can be offered only to a limited number of wealthy individuals and institutions. But most managers of private funds are now in a position to consider other fund structures and theres evidence that an increasing number are doing just that.
ISSUE 07 July 2012
New home for new hedge funds: South Korea

A number of key changes were approved in 2011 to pave the way for the introduction of Korea-style hedge funds in order to meet the growing demand for alternative investment vehicles, comments the CFA Institute. A number of Koreans from Wall Street and London have returned home and have joined Korean hedge fund firms. Some are finding local clients (seed capital investors or institutional investors) rather difficult to deal with as the latter tend to ask about performance on a daily basis. Unfortunately, of the 15 Korea-style hedge funds currently in operation, about 80% are reporting negative performance with high volatility. A space to watch.
current environment, as new hedge funds are finding it hard to raise assets. Emerging managers are very hungry and determined and focused and they tend to outperform, he continued. He compared hedge fund seeding to venture capital, and said We are very patient, and we are very good at picking good managers. Emerging managers, take note: Stride Capital avoids illiquid strategies, quantitative, global macro, and anything that uses a lot of leverage.
Emerging FoHF in Asia should look East

20% of institutional investors surveyed by Preqin, a research firm, said that the returns were the most significant factor when deliberating over a fund. Furthermore, 13% of Asian investors have a preference for the Asia-based emerging manager fund of hedge funds, as opposed to 6% of investors in both North America and Europe.
Golden age for seeding

Don Rogers, managing partner and founder of Stride Capital Group, recently talked to Bloomberg about his companys strategy for seed investment in emerging hedge funds. He said seeding is great in the
36
Profiles
ISSUE 07 July 2012
Silvercove Hard Asset gains +17.24% since Oct-09 inception by protecting capital and lowering volatility
Silvercove Hard Asset Fund is an onshore Canadian LP with $21m of AuM, managed by Silvercove Fund Management. The multistrategy fund was launched in October 2009. In an interview with Opalesque, Pace Goldman, Business Development Officer at Silvercove, said the fund generated +17.24% gains net of fees since inception in October 2009 (+2.07% in June) because of the managers sharpened focus on protecting capital and lowering volatility. Silvercove Pace Goldman achieved double-digit returns compared to its benchmark, the S&P/TSX Composite (S&P/TSX) which gained +3.10% over the same period but with a standard deviation 64% higher at 12.5%. The Silvercove Hard Asset Fund is currently featured in Opalesque Solutions Emerging Managers Database. Goldman added, Our strategy is performing as expected during the current period and we are up +0.56% year-to-date through the end of June in 2012, while the S&P/TSX Composite is down -3.00% YTD. We remain quite cautious and have been managing the book between 10-35% net long and with a healthy amount of cash to deploy into mispriced opportunities. More importantly, Silvercoves investors earned +2.07% in June versus the S&P/ TSX at +0.72%. The fund outperformed in six of the nine sectors that it invested in
during the month.
Silvercove Hard Asset Fund LP, performance from October 2009 to May 2012.
With a net outperformance of more than 1400 bps, our fund is delivering more than 400bps of alpha per annum since October 2009, Goldman further said. To further validate our performance, we back-tested this strategy since July 2002 to see how it would fare over a full 10-year period and the net result was even more compelling, i.e. our strategy results in both increased overall returns as well as lower volatility which, when combined, would have resulted in both superior absolute as well as superior risk-adjusted returns over the period. Commenting on why the firm decided to choose the strategy, Goldman affirmed that his partners, Robert Waxman and Louis Goluboff, have been managing 37
Profiles
capital since 2003. The experience they learned has taught them that protecting capital when the market is volatile should allow for both outperformance and lower volatility over the long term.
ISSUE 07 July 2012
The managers at Silvercove do not use leverage, which reflects their views that leverage adds risk and is fundamentally contrary to what they are trying to achieve
While many investors opt for passive strategies due to the low attendant fees, 2011 validated that selecting the right active manager is worthwhile. Looking back at 2011, our performance of -3.93% vs the -11.07% decline of the S&P/ TSX Composite largely reflected the nature of our hedging process and its ability to reduce correlations between the investments and sectors in which we invest. Had an investor opted for a passive strategy versus our Fund in 2011, roughly half of their passive portfolio would have been comprised of investments that were highly correlated to each other resulting in virtually no diversification. Conversely, our hedging process resulted in lowering correlations across the portfolio with the proportion of highly correlated investments declining by 68%. Moreover, a full attribution of our 2011 returns revealed that our outperformance stemmed from a healthy mix of both stock selection and sector allocation, validating our abilities in both areas, Goldman explained.
to gain between 5% and 10% in 2012. This would prove to be more challenging if the fund was down dramatically YTD but, given our funds current position at +0.56%, we dont need to add much risk to the portfolio to achieve those numbers should the market gather steam. However, we still have 6 months to go and many uncertainties lie ahead so we remain cautious, he concluded.
- Komfie Manalo, Opalesque Asia.
The Silvercove Hard Asset Fund can be found in Opalesque Solutions Emerging Managers Database, which is available to Opalesque subscribers. You can subscribe here: www.opalesque.com/Subscribe-New-Managers.html If you want your fund to be in the Emerging Managers Database, please send your funds details to: db@opalesque.com.
Offshore version coming soon

Currently, Silvercove is in the process of launching an offshore version of its fund to be domiciled in the Cayman Islands and is seeking between $25m and $50m of offshore seed capital (from one or more investors) so they could launch the fund in the fall 2012. For more information, please contact info@silvercovecapital.com. This year, Goldman said the managers at Silvercove see the potential for the fund 38
Profiles
ISSUE 07 July 2012
EverTrend macro managed futures fund offers crisis alpha

EverTrend Global is a systematic macro managed futures fund that invests in the direction of medium and longer term trends in around 50 futures markets around the world. Robert Robbins, portfolio manager and president of everTrend, based in Tampa, FL, U.S., launched the fund in July 2011. One of the key differentiators between our macro CTA and others is that we have more of an exposure to commodity futures than Robert Robins most do, particularly the large funds, he told Opalesque in an interview. Simply by their very nature and the liquidity of markets, they are forced more heavily into financial futures, and we have more than 55% of our allocation towards physical commodity futures and 45% in the financial futures. The fund tends to diversify across the major seven sectors, namely currencies, bonds, stocks on the financial futures side, and grains, softs, metals, and energy on the commodity futures side. It currently features in Opalesques Emerging Managers database. The $2m fund returned 13.7% in May (19.7% YTD). The program in trend following in general is uncorrelated to markets, according to Robbins. It tends to be more negatively correlated particularly during crisis periods. In May, we had uptrends in bond markets as the global environment went to
a flight to safety trade and we had shorts in physical commodities tied to the economies, he said. It was an environment where we were short on many of the things that were dropping on the industrial side, and long on the flight to safety bonds; we were also short on emerging markets stocks.
EverTrend Global, performance from July 2011 to June 2012.
We will tend to provide crisis alpha during those corrective periods in markets.
Since the interview, the fund returned -9.88% in June (+7.89% YTD), and is up roughly 10% so far in July.
39
Profiles
As a trend-follower, Robbins participates in trends and does not predict them. However, he does try to stay aware of the macro environment. He believes that for trend-followers and for fund managers in general, the environment has gotten tougher as indeed the level of interventions from central banks and from the fiscal side has added another layer of complexity and volatility, which does not let managers trade as freely as they should.
ISSUE 07 July 2012
which is called Tactical Trend Trading: Strategies for Surviving and Thriving in Turbulent Markets, and which will be published at the end of August. One of the reasons I started everTrend is to be able to take advantage of what I think is going to be some pretty interesting global markets in the next three to five years, he concluded. I think it will offer good dislocations to take advantage of.
With more interventions, the trends are cut short due to fast policy responses.
We saw it again in June for example, coming out of the EU Summit, where policy makers are much more sensitive and nervous about the environments and are much quicker to try to interrupt downtrends from really taking hold, he noted. Robbins also sees a global imbalance within the sovereign bond market, lasting another three to five years especially in the developed world. Europe will be followed by the U.S., Japan and the UK. The difference is, today the [later] are allowed to print without any punishment by the markets and so they can keep yields artificially low, he said, while Spain and Italy, Greece, Portugal are confined within the EU structure from printing the way these other markets do. So, ironically the debt situation is worse in some of the more calm flight-to- safety markets today, but you are not seeing them in the yields. The yields are being artificially supported and pushed by central banks buying around the globe. Robbins started his career in technical research on the equity side in the early 90s; he then managed a long/short equity hedge fund for more than ten years. everTrend Global was in development for about two years before its launch. He is passionate about the technical and the systematic trend following side of investing, as well as the macro side. So much so that he wrote a book about it,
EverTrend Global can be found in Opalesque Solutions Emerging Managers Database, which is available to Opalesque subscribers. You can subscribe here: www.opalesque.com/Subscribe-New-Managers.html If you want your fund to be in the Emerging Managers Database, please send your funds details to: db@opalesque.com.
40
Profiles
Angle Capital Management LLC is a Carson City, Nevada-based fund manager that runs their AIP Program with two wholly owned sub-programs, each with their own company, by the name of Keck and Genesis. Both CTA sub-programs emerged strong winners in the volatile May markets with the +2.04% (+18.60% YTD) and +12.89% (+13.80% YTD) gains in May 2012. In an exclusive interview with Opalesque, K.D. Angle, CEO of Angle Capital Management, the portfolio manager of at Angle Investment Partners, clarified that each of the AIP Programs sub-programs are available as stand-alone products and are both available in a single allocation product known as the AIP Program and the Angle Investment Partners Fund. Alastair MacLeod The Genesis Program began trading on April 1st, 2000 and is available as a stand-alone investment product operated by Kelly Angle Inc of which K.D. Angle is President. The Keck Program began trading on December 1st, 2003 and is available as a stand-alone product operated by Keck Capital Management LLC of which K.D. Angle is the Managing Member. The minimum investment for each product in an individually managed account is $2m. In January 2010, Angle Capital Management LLC, a third CTA firm that Angle owns and operates, combined the two programs together and trades the Genesis and Keck Programs in a new combined program called AIP. In the same period, Angle added that we also created a fund called Angle Investment Partners which trades the Genesis and Keck programs in a single fund on an equally weighted basis. K.D. Angle was the primary designer of both investment programs.
ISSUE 07 July 2012
Angle Capitals two CTA sub-programs return double-digit gains in May

The Angle Investment Partners Fund is currently featured in Opalesque Solutions Emerging Managers Database. The AIP Program uses the Genesis and Keck systematic investment programs on an equally weighted basis, as they have been employed since their commencement of trading. Both Programs are relatively non-correlated to each other and their combined results have a relatively low correlation to traditional stock and bond markets.
Angle Investment Partners LLC, performance from January 2010 to May 2012.
Due to the degree of non-correlation of the Genesis and Keck Programs, we are able to increase the leverage in the AIP Program by approximately 20% and still remain within the predetermined risk parameters that we employ, Angle said. 41
Profiles
Last year, only five out of the estimated 82 multiadvisor CTA funds in the U.S. made money. Angles programs were amongst those.
The AIP program was up +26.54% at the end of 2010 and posted a return of 23.39 in 2011. It is up 17.89% YTD (to end-May). Asked to comment on the funds outlook, Angle said, We are growing our three CTA firms predominately from trading the markets and not from marketing to new clientele. We expect this trend to continue. For example; from the summer of 2009 until now we have grown assets under management by 200%. However, only about one third of this growth is from new client money and two thirds of this growth is from trading profit that weve taken out of the markets. Very few firms in our industry can make similar claims about their growth. The AIP Fund in the U.S. has about $20m. In the aggregate, KD Angle programs manage about $70m with all three programs.
ISSUE 07 July 2012
hour trading desk. All aspects (trade entry, trade exit, leverage, risk management and portfolio design) of the investment approach are 100% rules based and then converted for use with computers. Both subprograms, the Genesis and Keck Programs, took years of research and development to create. Performance is reviewed each month, but as of to date there have been no material changes made in any of the Angle Programs.
Different priorities
According to Angle, The priority for most of the largest CTAs in our industry is to produce a return with low volatility so they can attract as much money as possible in order to produce revenue from management and incentive fees. However, our priority is to produce the highest alpha as possible in order to generate the strongest return possible within predetermined risk parameters from the markets. Angle has the majority of his liquid net worth in his fund and seeks to earn a return on his own funds as well as from clients. He continued, The things that most of the larger managers do in order to reduce volatility in performance to earn fee revenue costs them in potential alpha. In reality, we operate a different business model as compared to many other managers because for every dollar that we manage with third party capital, we make the same pre-tax income with only eight cents of my own money in these investment products. Our approach towards performance and volatility is different because our priority is on asset appreciation from the markets.
New Bermuda fund

He went on, We have created a Bermuda based fund for prospective nonU.S. clients who do not want to be in the United States. The structure for this AIP Bermuda Fund has been completed, the third party administrator has been selected and it will trade the AIP Program in the Bermuda based product exactly as we are trading it now. The only thing we need is the seed capital to get it up and trading, which is between $3.5 to $5 million. We will give anyone who seeds this fund some fee breaks to make it worth their while. After seeding the minimum investment will be $100,000 USD. Angle is the principle designer of all Angle-related investment product. His core expertise is in the design of systematic trading strategies for use with computers using 65 major futures and traded on 16 different exchanges worldwide with a 24
- Komfie Manalo, Opalesque Asia. Angle Capital Management LLC can be found in Opalesque Solutions Emerging Managers Database, which is available to Opalesque subscribers. You can subscribe here: www.opalesque.com/Subscribe-New-Managers.html If you want your fund to be in the Emerging Managers Database, please send your funds details to: db@opalesque.com.
42
Document Disclosure
This newsletter is designed to include a wide variety of industry voices and information. To participate, send your news, events and viewpoints to gravrand@opalesque.com. To be considered for inclusion information must be factual, not promotional in nature and ideally address deep industry issues and reveal insight into how strategies operate, all delivered from a balanced perspective that addresses risk frank terms.
ISSUE 07 July 2012
THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. YOU COULD LOOSE ALL OF YOUR INVESTMENT OR MORE THAN YOU INITIALLY INVEST. IN SOME CASES, MANAGED COMMODITY ACCOUNTS ARE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT AND ADVISORY FEES. IT MAY BE NECESSARY FOR THOSE ACCOUNTS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THE DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF THE PRINCIPAL RISK FACTORS AND EACH FEE TO BE CHARGED TO YOUR ACCOUNT BY THE COMMODITY TRADING ADVISOR (CTA). THE REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION (CFTC) REQUIRE THAT PROSPECTIVE CUSTOMERS OF A CTA RECEIVE A DISCLOSURE DOCUMENT WHEN THEY ARE SOLICITED TO ENTER INTO AN AGREEMENT WHEREBY THE CTA WILL DIRECT OR GUIDE THE CLIENTS COMMODITY INTEREST TRADING AND THAT CERTAIN RISK FACTORS BE HIGHLIGHTED. THIS DOCUMENT IS READILY ACCESSIBLE AT THIS SITE. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF THE COMMODITY MARKETS. THEREFORE, YOU SHOULD PROCEED DIRECTLY TO THE DISCLOSURE DOCUMENT AND STUDY IT CAREFULLY TO DETERMINE WHETHER SUCH TRADING IS APPROPRIATE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. YOU ARE ENCOURAGED TO ACCESS THE DISCLOSURE DOCUMENT. YOU WILL NOT INCUR ANY ADDITIONAL CHARGES BY ACCESSING THE DISCLOSURE DOCUMENT. YOU MAY ALSO REQUEST DELIVERY OF A HARD COPY OF THE DISCLOSURE DOCUMENT, WHICH WILL ALSO BE PROVIDED TO YOU AT NO ADDITIONAL COST. MUCH OF THE DATA CONTAINED IN THIS REPORT IS TAKEN FROM SOURCES WHICH COULD DEPEND ON THE CTA TO SELF REPORT THEIR INFORMATION AND OR PERFORMANCE. AS SUCH, WHILE THE INFORMATION IN THIS REPORT AND REGARDING ALL CTA COMMUNICATION IS BELIEVED TO BE RELIABLE AND ACCURATE, PFG BEST CAN MAKE NO GUARANTEE RELATIVE TO SAME. THE AUTHOR IS A REGISTERED ASSOCIATED PERSON WITH THE NATIONAL FUTURES ASSOCIATION. No part of this publication or website may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher.
User agreement and confirmation of Qualified Eligible Person status

The user acknowledges and agrees to all of below: User confirms that they are a Qualified Eligible Person as defined under the (CFTC) Regulation 4.7., because they are: Registered investment company; Bank; Insurance company; Employee benefit plan with >$5,000,000; Private business development company Organization described in Sec. 501(c)(3) of the Internal Revenue Code with >$5,000,000 in assets; Corporation, trust, partnership with >$5,000,000 not formed to invest in exempt pool; Person with net worth >$1,000,000; Person with net income >$200,000 each of last 2 yrs. or >$300,000 when combined with spouse; Pool, trust separate account, collective trust with >$5,000,000 in assets; User also confirms they meet the following Portfolio Requirement: Own securities with a market value >$2,000,000; Have had on deposit at FCM, in last 6 months, >$200,000 in margin and option premiums; Have combination of securities and FCM deposits. The percentages of required amounts must = 100%.
Opinions: User represents themselves to be a sophisticated investor who understands volatility, risk and reward potential. User recognizes information presented is not a recommendation to invest, but rather a generic opinion, which may not have considered all risk factors. User recognizes this web site and related communication substantially represent the opinions of the author and are not reflective of the opinions of any exchange, regulatory body, trading firm or brokerage firm, including Peregrine Financial Group. The opinions of the author may not be appropriate for all investors and there is no warrantee relative to the accuracy or completeness of same. The author may have conflicts of interest, a disclosure of which is available upon request.
RISK DISCLOSURE
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU.
43
accurate
professional reporting service
Opalesque Islamic Finance Briefing delivers a quick and complete overview on growth, opportunities, products and approaches to Islamic Finance. Opalesque Futures Intelligence, a new bi-weekly research publication, covers the managed futures community, including commodity trading advisers, fund managers, brokerages and investors in managed futures pools, meeting needs which currently are not served by other publications. Opalesque Islamic Finance Intelligence offers extensive research, analysis and commentary aimed at providing clarity and transparency on the various aspects of Shariah complaint investments. This new, free monthly publication offers priceless intelligence and arrives at a time when Islamic finance is facing uncharted territory.
ISSUE 07 July 2012
No wonder that each week, Opalesque publications are read by more than 600,000 industry professionals in over 160 countries. Opalesque is the only daily hedge fund publisher which is actually read by the elite managers themselve
Alternative Market Briefing is a daily newsletter on the global hedge fund industry, highly praised for its completeness and timely delivery of the most important daily news for professionals dealing with hedge funds. A SQUARE is the first web publication, globally, that is dedicated exclusively to alternative investments with research that reveals approach, fast facts and investment oriented analysis. Technical Research Briefing delivers a global perspective / overview on all major markets, including equity indices, fixed Income, currencies, and commodities. Sovereign Wealth Funds Briefing offers a quick and complete overview on the actions and issues relating to Sovereign Wealth Funds, who rank now amongst the most important and observed participants in the international capital markets. Commodities Briefing is a free, daily publication covering the global commodityrelated news and research in 26 detailed categories. The daily Real Estate Briefings offer a quick and complete oversight on real estate, important news related to that sector as well as commentaries and research in 28 detailed categories. The Opalesque Roundtable Series unites some of the leading hedge fund managers and their investors from specific global hedge fund centers, sharing unique insights on the specific idiosyncrasies and developments as well as issues and advantages of their jurisdiction.
44
ISSUE 07 July 2012
PUBLISHER Matthias Knab - knab@opalesque.com EDITOR Benedicte Gravrand - gravrand@opalesque.com ADVERTISING DIRECTOR Greg Despoelberch - gdespo@opalesque.com CONTRIBUTORS Peter Urbani, Florian Guldner, Komfie Manalo, Fundana, 47 Degrees North FOR REPRINTS OF ARTICLES, PLEASE CONTACT: Greg Despoelberch - gdespo@opalesque.com
www.opalesque.com
Copyright 2012 Opalesque Ltd. All Rights Reserved.
45

Opalesque NewManagers July 2012

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Opalesque NewManagers July 2012

Uploaded by

Copyright:

Available Formats

ISSUE 07 July 2012

Opalesques Emerging Manager Monitor

ISSUE 01 July 2012 ISSUE 07 September 2011

EDITORIAL EMANAGERS INDICES

NEW FUNDS IN THE DATABASE PETER URBANI STATISTICS

Diane Harrison: It takes a village to raise a hedge fund

Funds that have recently joined Opalesques Emerging Managers Database.

31 SERVICERS SPOT 33 LAUNCHES

IMS: New funds must not be disheartened by the regulatory challenges

13 FUNDANA SERIES 17 FOCUS

Are emerging managers becoming more and more experienced?

What emerging managers need to know: a review

Recent views and findings of interest to new hedge fund managers.

New Managers | Opalesques Emerging Manager Monitor - July 2012

ISSUE 07 July 2012

New Managers | Opalesques Emerging Manager Monitor - July 2012

Emanagers Indices Emanagers Total Index up 0.9% in June (+2.84% YTD)

ISSUE 07 July 2012

New Managers | Opalesques Emerging Manager Monitor - July 2012

ISSUE 07 July 2012

Performance (in %), Volatility and Equity Market Beta (in %)

Emanagers Hedge Fund Index

Emanagers CTA Index

Eurekahedge Hedge Fund Index Newedge CTA Index MSCI World

-0.11 -3.26 4.93

1.40 -0.83 4.49

-3.06 -1.33 -7.17

-3.62 -4.52 -7.61

10.90 9.26 9.40

20.62 -4.31 27.07

5.84 7.55 20.85

- Florian Guldner, Opalesque Research

New Managers | Opalesques Emerging Manager Monitor - July 2012

New Funds in the database

ISSUE 07 July 2012

Newport Beach, CA, U.S. $3m

New Managers | Opalesques Emerging Manager Monitor - July 2012

Peter Urbanis Statistics Intra-Horizon Value at Risk (VaR-I)

ISSUE 07 July 2012

Intra-Horizon Value at Risk - An idea whose time has come

Boudoukh et al.(2004), and Bakshi and Panayotov (2010).

Peter Urbanis Statistics

ISSUE 07 July 2012

End-of-Horizon Risk Distribution Intra-Horizon Risk Distribution

= cumulative standard distribution

= cumulative standard distribution

Peter Urbanis Statistics

ISSUE 07 July 2012

That means intra-horizon risk is always greater than end-of

Peter Urbanis Statistics

ISSUE 07 July 2012

Interactive Screening Tool

Interactive Screening Tool

ISSUE 07 July 2012

New Managers | Opalesques Emerging Manager Monitor - July 2012

Opalesque Treemaps ( 30 Jun 2012 )

ISSUE 07 July 2012

( 36 Months to end 30 Jun 2012 )

Infinium Global Fund CAGR 102.28 Std Dev Ann. 3.37

Logica Fund, LP CAGR 33.18 Std Dev Ann. 8.16

Kerrisdale Capital Partners LP CAGR 97.42 Std Dev Ann. 35.55

JJN Capital Fund, LP CAGR 29.59 Std Dev Ann. 6.99

Kerrisdale Capital Partners LP CAGR 97.42 Std Dev Ann. 35.55

Kerrisdale Capital Partners LP CAGR 97.42 CVaR ( Best Fit ) -9.23