Morgan Sze is closing in on launching a $1 billion fund.  Azentus Capital has registered with Hong Kong regulators.  Sze formerly headed Goldman Sach’s Asian Pacific Strategies group.  More here, http://reut.rs/fyShKQ

  ********  IvyPlus March 30th Pensions, Endowments and Alternatives Event –http://bit.ly/dRbtfR  ****** 

 The Financial Times reports that Goldman Sachs’ last significant proprietary trading team to leave the firm due to the Volcker rule has already raised $300 million for a new fund to be launched in the second quarter of 2011.  

FT reports "The launch will mark the final big set of departures from GSPS, which at its peak traded as much as $11bn of Goldman’s own capital and was one of the bank’s most lucrative operations.

It has not been viable as an internal trading operation since new US regulations, known collectively as the Volcker rule, were passed last year. These prohibit banks risking their own capital in speculative trades."

********  IvyPlus February 17th Fund Business Development Event – http://bit.ly/eEqTKO   ******

 Bloomberg reports that the Geneva fund of funds business is feeling the after-effects of the Bernie Madoff era.   Two years to the date after Madoff’s arrest, assets total $14.8 billion, a 60% plunge from 2008.  Will Geneva become less of a destination for fund managers looking for capital?  More from Bloomberg.

"Union Bancaire Privée, Banco Santander SA’s Optimal Investment Services and Notz, Stucki & Cie. are among at least seven Geneva-based firms that suffered $7 billion of losses from the Madoff fraud. The model the city’s banks helped pioneer in the 1960s is broken and faces competition from investments that charge lower fees, said Drago Indjic, project manager at the London Business School’s Hedge Funds Center.

“Funds of funds won’t explode or implode but slowly fade, death by a thousand cuts,” Indjic said."

More here, http://bit.ly/faYWVZ 

********  IvyPlus February 27th How to Run Your Hedge Fund as a Business Event – http://bit.ly/eEqTKO   ******

 Edoma Capital, launched by a former Goldman Sachs trader has raised more than $1 billion.  Pierre Henry Flamand, former head of GS Principal Strategies may have raised it’s capital from a large network of Goldman Sachs alum.  http://bit.ly/czKDrk

 ********  IvyPlus December 8th How to Run Your Hedge Fund as a Business Event –http://bit.ly/auce1t  ******* 

DE Shaw, a quant hedge fund famous for hiring math geniuses is laying off 10% of their workforce.  Zerohedge reports that AUM has fallen by $7 billion while institutional investor reports AUM is down from $30 billion to $21 billion.  Layoffs happen after gates have been dropped by DE Shaw to prevent investor redemptions as trading volumes have substantially decreased.  The New York Times reports that trading volume was down by 11% in July and 30% in August. Total AUM is down from $40 billion in 2008.  Fierce finance reports that "DE Shaw has been identified as a poster child for treating investors poorly in 2008 due to substantial gating that are expected to be drawn down over time." http://bit.ly/9pzT6F

The layoffs are seen as a sign of the times amid news that Wall Street bonuses will be reduced by at least 25% this year and layoffs are expected to surpass 40,000 worldwide.  

Meanwhile 3 Goldman Sachs alums: Eric Mandelblatt, Mark Carhart and Pierre-Henri Flamand expect to have raised at least $500 million each.  Bloomberg reports more here, http://bit.ly/axMjJC

  ********  IvyPlus December 8th How to Run Your Hedge Fund as a Business Event – http://bit.ly/auce1t  ******* 

Merlin Securities released their latest research article, this time focused on helping hedge fund managers identify, understand and market to the right investors.

The white paper, titled “The Spectrum of Hedge Fund Investors and a Roadmap to Effective Marketing,” analyzes the 10 most common types of hedge fund investors (from “Partners, Friends and Family” to “Sovereign Wealth”) along a spectrum from the least “institutional” to the most. The article then defines a four-stage marketing program designed to help funds identify and effectively reach the types of investors most appropriate for their respective funds.

The article includes two helpful charts and some interesting context on the current environment for hedge fund managers and their investors. Interesting reading as always from Merlin.

The full article is available here: http://merlinsecurities.com/pr/spectrum.pdf

  ********  IvyPlus October 19th Fund Business Development Event –  http://bit.ly/bED7IC  *******

Institutional Investor Magazine blogs Hedge Funds are outstripping PE firms in capital raising.  PE firms have only raised $50 billion in the last quarter while only investing $26.6 billion in that same period. Fundraising time lines now stretch from 12 to 18 months for mature funds. 

However, the two industries use different terminology to identify how much capital they have allocated.  Understanding that difference shows HF actively managed assets are far greater than PE actively managed assets.  You can find more info here, http://bit.ly/brcigz

The proper terms Hedge Funds use for the money they trade under their own account is Assets Under Management (AUM).  At times, hedge funds may be inactive in trading or be in a cash position but their assets are still held under their own account.  Again there is a secondary consideration which is how much of any hedge fund’s assets are "Managed Accounts" .  Managed Accounts encompass a broad array of assets held by an asset manager which may be traded by a hedge fund manager on a contractual basis.  In additions, there is proprietary trading which is done by major banks and other asset managers who separately trade their own book with potentially differentiated positions than those of their clients.  We assume the $2 trillion in AUM widely quoted for hedge funds comprises only assets actively managed in a fund by hedge funds and not Managed Accounts.

With respect to Private Equity the $1 trillion of capital commitments is different than AUM in that many cases the actual capital on call is not in a fund structure but can be called upon at a certain point when the PE firm needs the capital.  Under different legal terminology, capital on call can be called at different intervals of time.  Some contracts may stipulate such terms as being over a 3 – 5  year period, never to exceed 40% of the total capital committed over a 1 year period.   In other cases, the call period could be longer and investors may anticipated returns from their year 1 investment to feed a year 4 plus investment or follow on fund issuance.  Other times, capital on call could be capital with rights of first refusal such as in the case of search funds.  Moreover in most hedge funds AUM is constantly reinvested but with PE firms, other legal clauses can require that all assets invested are returned when a deal is exited.  There are few industry-wide figures on capital on call vs actual assets under management but we think PE firm capital call commitments have largely been upset by the massive post-2007 asset valuation decline and there are cases where PE firms are not making capital calls on Limited Partners if they have not returned capital to those same LPs in the same time frame.

When looked at side by side, HF actively managed AUM on a daily basis far outstrips PE actively invested AUM on a significant basis. 

 ********  IvyPlus June 15th Fund Business Development Event –  http://bit.ly/aToA1J  *******

A paper released by HEC Montreal Department of Finance professors analyzes the pure persistence of fund strategies and reviews the ability of different strategies to continually reach high water marks.  With more than 10,000 hedge funds globally (more hedge funds than Starbucks), investors should question the ability of strategies to continually perform.  With more than 80% of funds under their high water marks in 2008, investors need to consider (a) their fund strategies’ ability to return to their high water mark and (b) the strategies average time to return to that figure.  Using Markov analysis, the professors were able to derive average time for different strategy categories to return to prior highs and likelihood that those highs would be met.  You can download the paper and derivations here, http://bit.ly/ctEqW1

A discussion of the analysis in more layman’s terms occurs here, http://bit.ly/95KSXW

Conclusions are:

• It is more challenging to increase high water marks than to generate positive returns, because typical negative returns are greater in magnitude than typical positive returns.
• The bigger the difference between probability of positive return and probability of increasing high water mark (see the first chart below), the greater the time to recover from losses. Across strategy classes, the average time to recover a capital loss ranges from 2.49 months to 7.15 months.
• Strategy classes with greater persistence in reaching new high water marks (see the second chart below) tend to recover from losses more quickly.

********  IvyPlus June 15th Fund Business Development Event – http://bit.ly/aToA1J *******

SkyBridge Capital is in the process of closing out a deal with Citi to acquire three hedge fund businesses from Citi.  This is a diversification or forward integration from  SkyBridge’s core seeding strategy into the Fund of Funds business.  Scott Prince, the managing partner of SkyBridge Capital says that this acquisition will make SkyBridge the biggest hedge fund seeder and is estimated to quadruple their profit once the agreement is fully settled in June.  More info here,  http://bit.ly/9GdPA5 . 

As 2010 advances, the business for M&A in FOFs grows as uncertainty in the market continues.  Multiple reasons for FOF uncertainty include (1) the business may no longer be strategic to their financial supermarket owners such as CAI or Ivy Asset Management, (2) are under fee pressure even as returns have improved, or (3) are seeing more of their own institutional investors create investment groups that bypass FOFs. Other targets include, Rock Creek Group, Mesirow Advanced Strategies Inc., Pine Grove Associates Inc. and Archstone Partners. Ted Gooden of Berkshire Capital, a past speaker at Ivy Plus seminars, says "The growing list of acquirers is a sign that “the unrequited buyer-seller love” that characterized most of the past decade is over"  .  More info here, http://bit.ly/a2Re0m

********  IvyPlus June 15th Fund Business Development Event – http://bit.ly/aToA1J *******

With the rising need for transparency, there are obvious benefits for hedge funds naming their manager. With every benefit, there is also risk and more importantly the cost of that risk.

In the article from the Journal of Financial Economics, “When should firms share credit with employees? Evidence from anonymously managed mutual funds,” we see that in the early 1990’s into 2003 there was an increasing rate of anonymous management within hedge funds. This decision to remain anonymous, like the decision to name management, is entirely strategic and each hedge fund case varies.

Some benefits for investors in naming managers are the increase in joint surplus and positive media for the hedge fund. Hedge fund managers use their credibility to claim credit for the hedge fund, which can increase his or her incentive to perform well. With these benefits also come the costs that may be attached to the firm and the hedge fund manager. In terms of the cost to firms, successful named managers have increased bargaining power. In this, the manager also experiences a great amount of risk.

According to the article previously mentioned, “For fund managers, the route to stardom is generating high returns.” In terms of the current economic climate, it seems that more hedge funds have been leaning towards transparency in order to gain returns.

You can find more here, http://bit.ly/b7eGaE 

********  IvyPlus March 23rd  Fund Business Development Event, http://bit.ly/bW0DIt *******