Lone Pine Capital

Lone Pine Capital 13F Holdings Analysis

This post is being written as part of HedgeFundBlogger.com’s Investment Securities Tool which analyzes the holdings of hedge fund managers. Below are Q3 Holdings details as filed by Lone Pine. These are by there very nature outdated as they represent only some of the hedge funds holding at one point in time.

Please click on the image below to view a list of securities which Lone Pine Capital has purchased since their last filing.

Please click on the image below to view a list of securities which Lone Pine Capital has partially or completely sold since their last filing:

The securities listed within this most recent 13F filings included:

• America Movil Sab De Cv (AMX)
• Mastercard Inc (MA)
• Pricelinecom Inc (PCLN)
• Qualcomm Inc (QCOM)
• Sandridge Energy Inc (SD)
• Visa Inc (V)
• Weatherford International Ltd (WFT)
• Xto Energy Inc (XTO)
• Crown Castle International Corp (CCI)
• Dolby Laboratories Inc (DLB)
• First Horizon National Corp (FHN)
• Hansen Natural Corp (HANS)
• National City Corp (NCC)
• Precision Castparts Corp (PCP)
• Deltek Inc (PROJ)
• Amazoncom Inc (AMZN)
• Brookfield Asset Management Inc (BAM)
• Cb Richard Ellis Group Inc (CBG)
• Entergy Corp (ETR)
• Google Inc (GOOG)
• Illumina Inc (ILMN)
• Infosys Technologies Ltd (INFY)
• Monsanto Co (MON)
• Dicks Sporting Goods Inc (DKS)
• Eagle Materials Inc (EXP)
• Fastenal Co (FAST)
• Msc Industrial Direct Co (MSM)
• Saic Inc (SAI)
• Teradata Corp (TDC)

Source: SEC 13F Filing | MFFAIS

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Tags: Lone Pine Capital, Lone Pine Capital Partners, Lone Pine Capital Management, Lone Pine Hedge Fund Holdings, Securities owned by Lone Pine Capital, Stephen Mendel Jr., Stephen Mendel Junior Hedge Fund Manager

Investing Guide

Investing Guide | Hedge Funds

I get emails from HNW investors looking for more information on hedge funds. This page will serve as the long-term destination for hedge fund investing information for High Net Worth Investors. It is not a recommendation to invest in anything, follow any strategy or rely on advice found here. These are simply high-level introductions at a high level and no investments should ever be made without seeking competent licensed assistance from a wealth management professional and/or legal counsel.

Without further disclosure details here are the first few investor oriented resources which we have made available:

• Hedge Fund Due Diligence Tips
• What is a Hedge Fund? (Video Introduction)
• How To Invest In Hedge Funds
• Hedge Fund Investments (A Video Overview)
• Who Can Invest in Hedge Funds?

Please also feel free to download my free book on hedge funds by clicking here.

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Permanent Link: Guide to Investing
http://richard-wilson.blogspot.com/2008/10/guide-to-investing-tips-research-online.html

Tags: Guide to Investing, Guides to Investing, Investing Guide, Investing Guides, hedge fund, hedge funds, investing, investments, invest, invest guide, guide to invest, investment guide, guides

Hedge Fund News

Hedge Fund Video Notes

Here is a short video on recent hedge fund developments related to A to B Capital, The Children’s Investmetn Fund and Avenue Capital. If you are reading this via my daily hedge fund newsletter please click here to watch the video now.

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Tags: A to B Capital, Childrens Hedge Fund, Avenue Capital, hedge fund, hedge fund manager

Hedge Fund Blowups

Hedge Fund Vs. Bank Blowups

Last week a member of a hedge fund professionals networking group on LinkedIn asked a question about why we have seen more investment bank blow ups than hedge funds.

In the past 2 years there have, of course, been hedge fund blow ups starting with Amaranth in September 2006. Unlike troubled investment banks not all hedge funds suffering losses and closing downs receive press coverage. We have seen a few notable names, such as hedge funds managed by Bear Stearns, Sowood, Peloton and a few others mentioned in the papers. Many more troubled hedge funds managed to avoid major headlines. It’s not necessarily clear what exactly constitutes a hedge fund blow up. For the names mentioned above the loss was sudden and quick and resulted in eventual termination of the funds. Amaranth lost close to six billion dollars in just one week. Peloton earned a spectacular return of almost 90% in 2007 just two months before the blow up. These, however, are extreme cases. Many hedge funds suffer the slow death as they enter into periods of large draw downs. In this study we tried to identify hedge funds that have terminated since January 2008.

To analyze the rate of failure among hedge funds this year, we ran the analysis on the universe of hedge funds, fund o funds and CTA that report to Barclay’s Global Data Feeder database. To identify the blown up funds we first looked at the funds that stopped reporting performance to the database. We realize that there may be various reasons why a hedge fund would stop reporting to the database, but we believe that primary reason would be a significant drop in performance. To avoid double counting we focused primarily on the “On Shore” funds reporting performance in United States Dollars. There were 3,998 funds that reported performance at the beginning of the year. Of these funds 366 have not reported their performance since May 31, 2008. Chart 1 shows the distribution of the cumulative return of these funds since January 2007 (or later if the funds launched after January 2007).

Out of the 364 funds -156 funds or (43%) have had negative cumulative performance through their last reported date. Chart 2 shows the distribution of Maximum draw down achieved during the same period.

As we mentioned above we cannot be sure whether or not the funds that stopped reporting to Barclay’s database have indeed blown up. We do, however, consider it likely that hedge funds that stopped reporting after experiencing an extreme drawdown are in a “blow up” situation. Chart 2 shows that almost a third of the funds have experienced a drawdown of 15% or higher. This brings our estimate of defaulted funds to 2.5% or (100 out of 4,000).

Given the current market environment the estimate seems low. One factor that may account for relatively low blow up rate is the hedge fund liquidity. As an asset class, hedge funds enjoy the benefit of providing relatively stable asset base that is protected by long lock ups, strict redemption schedule, and withdrawal fees. Given these restrictions hedge funds that experience large losses are able to survive longer. It’s generally expected that the industry will experience significant redemptions at the end of the year, which may bring to the run on many hedge funds and lead to higher blow up rate. In the future issues of this newsletter we will attempt to examine the factors that may be helpful in identifying potential blow ups.

Guest post by Aleksey Matiychenko of Risk-AL, LLC

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Tags: Hedge Fund Blowups, hedge fund, hedge funds, investments, invest, investing, bank blowups, bail meltdowns, bank meltdown, hedge fund shut down, hedge fund closures

Investment Marketing

Investment Marketing Hurdles for Hedge Funds

I just read an interesting article on AllAboutAlpha discussing the challenges today in marketing hedge funds to new potential investors. Within the piece AAA discusses how the US has one of the most restrictive regulatory regimes in the world when it comes to the hedge fund industry. The countries of Australia, Canada, Japan and China are all less restrictive.

Here’s a short excerpt from the article:

An article in this month’s Journal of Financial Transformation illustrates why this is. The piece, titled “Hedge fund marketing in an era of regulatory uncertainty” covers many of the issues faced by those trying to raise money in the US. It’s a great update on the ebb and flow of SEC edicts over the past year and was co-authored by hedge fund personality James Hedges. Here’s some of what Hedges suggests:

• Avoid speaking to the media about your funds – even if you’re not actively selling, but just “conditioning the market”.
• Avoid “print, radio and television advertisements or solicitations regarding funding or investment matters”.
• When giving presentations, “address the risks associated with hedge funds in general as well as the specific risks associated with the hedge fund being offered.”
• When your fund has a great year, make sure you “disclose the reasons for extraordinary performance…”
• No “mass mailings” except to “individual investors, or a discrete group of accredited investors”.

Click here to read the full article.

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Tags: Marketing for Investments, Investment Marketing, Hedge Fund Marketing tips, Investment Marketing tips, Investment Marketing Regulations, Investment Marketing Group

Link Fest

Hedge Fund Link Fest

In case you have been reading up on bank failures and bail outs all week and missed much of the news on the hedge fund industry here is a link fest out to many of the events which recently occurred in the industry:

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Short Selling Ban

Short Selling Ban – How it has impacted Funds

The Boston Globe recently released an article on the short selling ban – it covers how different funds are being affected by the recent ban on the short selling of some securities.

While these are times when events seem to happen daily which should only happen bi-centennially I’m still surprised by how “business as usual” many professionals I work with and speak to in the industry seem to be. Even though many funds do have negative performance, often the worst since inception – I believe that many groups are confident that the losses may soon be regained. Many hedge fund marketers, consultants and niche service providers seem to be weathering the storm without too much pain yet.

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Tags: Short Selling Ban, Ban on Short Selling, Ban on Short Selling Stocks, What is the Ban on Short Selling Securities, Which Stocks are banned from short selling? what are the short selling rules now from the SEC?

How to Study – CFA

How to Study for the CFA Exam

I recently interviewed a Chartered Financial Analyst (CFA) Charter Holder to gain some insight into how to best study or prepare for a CFA exam. Here is what he told me:
______________________________________

1. Start early – CFA program tests are designed to test your breadth of your knowledge as opposed to the depth. Study guide provided by Chartered Financial Analyst Institute (the textbook you receive when you register) is over 2000 pages long. So, give your self good 6 months of preparation if you are currently working or going to school.

2. Get support- Create study group. Get support and motivation. Three years of dedication takes lots of patients and motivation, so get together with your fellow test takers and pull each other through this tough journey.

3. Study each book thoroughly- Every single page of it counts. No, every single paragraph counts. It seems CFA loves to test you on topics that majority of people think it is less than important. As you progress towards level II and III this principal becomes more significant.

4. Do lots of practice questions- Purchase question banks. Search online for past exams.
Just as SAT and GMAT, being smart and knowing material doesn’t necessarily lead to higher score. Practice tons of questions and be a good test taker.

5. Find balance between your life and CFA preparation- Everyone knows preparation for CFA designation is extremely time consuming. I’ve heard people complaining that they can’t find anytime for their family or leisure. Although, it is important challenge, it is never worth it if this challenge compromises quality of your life.

What CFA study materials do you use and why?

There has been many discussions about which materials are best to use. General opinion is that since most of publications are sufficient enough to get you through the program. However, third party publication such as Schweser and Stella are more consice and easier to digest compared to official CFAI textbook which is provided to you with your registration for free. Rule of thumb is to study with whatever you feel comfortable with, but make sure you do questions on CFAI textbooks and mock exams that is available on CFA website few weeks prior to test date, because it is better reflection of what real test will look like.

__________________________________________

Disclosure: I am part of the group who runs the Certified Hedge Fund Professional (CHP) Designation Program.

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CFA Study Guide

CFA Study Guide – Exclusive Notes

I have been receiving dozens of emails regarding the Chartered Financial Analyst (CFA), Certified Hedge Fund Professional (CHP), and Chartered Alternative Investment Analyst (CAIA) designations so I’ve had a guest blogger put together this one page CFA study guide for those looking for straight and simple answers on this topic. Hope this helps:
____________________________________

The CFA institute does not specifically provide a CFA Study Guide; the study information for each exam of the CFA, including study sessions, assigned readings, and practice problems, are included in the program curriculum. The CFA also provides additional study materials for the candidate.

The study material for each level of the CFA exam comes from the Candidate Book of Knowledge (CBOK). The CBOK’s content comes from real world practice; thousands of current CFA professionals weigh in on the skills needed to succeed within the investment world. The surveys the CFA collects from these charter holders provide the framework for the study material and for the exams.

The curriculum for the study material for each level of the CFA exam is divided in multiple sections. Each section will contain assigned readings drawn from textbooks, journals, cases, and analyst reports. Learning Outcome Statements (LOS) are also another section of the study material for each level of the exam. A LOS is a description of knowledge, skills, and abilities (KSA) that each candidate should master before taking the CFA examination.

The main purpose of not having a CFA Study Guide is to teach each CFA candidate that the value of the test lies in its application to real world scenarios. The CBOK is drawn from surveys of charter holders to determine the knowledge, skill sets, and abilities, which are most relevant to the profession. These surveys also help determine what the appropriate weighting for each topic on the examination should be. A committee of practicing charter holders along with the CFA institute designs the curriculum for each level of the exam. The exams themselves are also written by charter holders, which further emphasizes the amount of study time that should be devoted to the practical application of the knowledge learned from the assigned readings and LOS’s.

The CFA does provide candidates with various tools to help their course of study for the examinations. These tools include sample questions, CBOK topic outlines, exam topic area weights, and the curriculum itself. Within the Curriculum, there are the learning outcome statements as well as sample and mock exams. For a more traditional CFA study guide, a candidate can use an outside study source such as Kaplan or Schweser, which will provide a more traditional approach to preparing for the examinations.

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Prime Brokerage Boston

Prime Brokerage Boston – Meeting Notes

Yesterday I had a lunch meeting with two prime brokerage professionals in downtown Boston and the conversation quickly turned to the high demand for cap intro services for hedge funds.

The main problem with capital introductions being made by prime brokerage firms is that many hedge funds are not competitive enough to market. Many managers with negative or sub-par performance would still like to grow their business but the fact is most investors won’t consider hedge fund managers who are both relatively small and have mediocre or poor performance, there is nothing engaging enough that will convince investors to look past those two facts, they hear hundreds of stories and see as many teams pitching their outlook on the markets each year.

This leaves prime brokerage firms with two choices – offer capital introduction services knowing that there is almost no chance of raising assets or tell the hedge fund manager that they will not be able to market their strategy. The best prime brokers will often help with pre-marketing activities such as operational and risk assessments, marketing material scrubbing, newsletter development, etc.

This may seem straightforward but it is often an unsaid thorn in the side of prime brokerage firms offering capital introductions for hedge fund managers. They want to provide this service to everyone possible but by nature only 10-25% of all clients really qualify for the service.

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Hedge Funds Explained

Hedge Funds Explained – Multiple Resources

I often get emails asking about hedge funds, asking for explanations on what hedge funds do, how they earn returns for investors and how they differ from mutual funds. Below please find several resources which help explain what hedge funds are:

• A short video answering the question: What is a Hedge Fund?
• A short Hedge Funds FAQ on HedgeFundBlogger.com: Hedge Funds FAQ
• A collection of over 30 videos related to the hedge fund industry: Hedge Fund Videos
• The free Hedge Fund Blog Book – online at http://HedgeFundsBook.com
• Free Educational Daily Hedge Fund Newsletter: Hedge Fund Newsletter

Free Daily Hedge Fund Newsletter

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Tags: Hedge Funds Explained, Explanation of what hedge funds are, Hedge Fund Managers Explained, Hedge Fund Explanation, Explain what a hedge fund is

Public Relations Strategies

Public Relations Strategies & Tips

I read a recent article by Bill Blasé within the Emerging Manager Monthly Newsletter. Here are the tips that I gleaned from this article:

• TV viewers and interviewers love contrarians, conflicting views make for interesting television
• Take a pass on issues where you are not an expert and don’t have any value-added insight on the issue
• Media appearances might not bring in a windfall of new business but a well coordinated PR plan combined with grass roots relationship develop and an online presence can be very effective
• Maintain eye contact with the interviewer and not the camera
• Speak slowly and match the interviewers tone and pace
• Short brief 30 second sound bites are ideal for TV appearances
• Michael Barron who is the CEO of Knott Capital Management commented in the article, “Everyone knows the Fidelitys, the Putnams and the rest of the larger firms in our industry. For some of the smaller firms, this is away you can build recognition and credibility
• Ignore the monitor and the audience, imagine speaking to a single viewer

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Fortis Investments

Fortis Investments & Hedge Fund Closures

While these closures might have come during a period when many people are questioning the future of hedge funds, they surely not the results of Fortis wanting to pull out of the hedge fund business because of the industry’s downfall. It looks like a specific case of bad performance and not enough talent to go around to market all of the firm’s products effectively. The end of hedge funds has been predicted at least 20 times since this HedgeFundBlogger.com was started.

The following piece on Psigma Investment Management is being published as part of our daily effort to track hedge fund events in the industry. To review other hedge fund related announcements please see our Hedge Fund Tracker Tool.
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Fortis has closed three small hedge funds following its takeover of part of ABN Amro and merger of the Belgian and Dutch banks’ asset management businesses. Fortis Investments said it had shut down half of its stable of six hedge funds due to personnel changes, the need to switch staff to the enlarged long-only business and, in one case, poor performance. The closures were first reported by HFM Week.

The closures – two of which took place at the end of June, and the third at the end of last year – come amid widespread predictions that poor performance and withdrawals by investors will lead to a shrinkage of the industry after a decade-long boom.

Fortis said it planned to set up new funds as and when it spotted opportunities and staff, and would seed launches with its own money. The Fortis European long/short fund, at €120m ($167m) the largest of the three, is being shut after the decision to bring in the ABN European equity team, headed by Andrew King. Mr King did not want to run a hedge fund, Fortis said. The fund was down about 4 per cent so far this year when it was shut, about in line with the average equity hedge fund.

More……

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Link: Fortis Investments Hedge Fund

Tags: Fortis , ABN Amro, Fortis Investments, Investments, invest, investing, hedge fund, hedge funds, hedge-funds, asset management, money management, wall street, stocks, markets

Hedge Fund Resources

Top 10 HedgeFundBlogger.com Resources

If you are new to the blog and trying to figure out whether it is worth your time to poke around a little further here are some of the most popular resources provided here which keep some people coming back.

Top 10 resources & tools offered through HedgeFundBlogger.com

1. Free Daily Hedge Fund Newsletter
2. The Free Hedge Fund Blog Book
3. Hedge Fund Forum found at HedgeFundMessageBoard.com
4. Geographical Hedge Fund Guides
5. Hedge Fund Terms & Definitions
6. Hedge Fund Strategy Guide
7. Hedge Fund Marketing Guide
   
8. Hedge Fund Employment Guide
   
9. Over 25 Hedge Fund Videos
10. Hedge Fund Due Diligence Guide
11. Hedge Fund Tracker Tool

– Richard

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Investing Book

Free Investing Book on Hedge Funds

Free Investing Book: In addition to this blog on family offices I run a blog on hedge funds. This hedge fund blog contains over 500 articles on the hedge fund industry including hedge fund marketing, due diligence, employment, terms, videos, book reviews strategy definitions and geographical guides. All of these posts are now available for free within a free investing book that I created which simply hosts all of these blog posts within one easy to download package.

- Richard
HedgeFundsCareer.com

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Private Equity Funds

Private Equity Funds vs. Hedge Funds

I just found an interesting PowerPoint presentation describing the different types of private equity funds and hedge funds available today. This is pretty high level but within one presentation it covers much of both industries relatively well.

Here is a direct link to the PowerPoint.

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Germany Hedge Funds

Germany Hedge Fund Guide

Here is a short collection of articles on the hedge fund industry in Germany. I am always looking for more valuable online tools and resources to add to these geographical hedge fund guides to the hedge fund industry. If you have a white paper or PowerPoint that I can include here please send me an email and I will post it for everyone’s benefit.

• Germany to Step Up Hedge Fund Scrutiny. As a plan for German governemnt to place a greater scrutiny on country’s hedge fund investment, Barbara Hendricks, the deputy finance minister, said that Germany would force the funds to declare stakes in companies when they rise to three percent, comparing to the current threshold of 5% as in most European Union states.
• G8 HostGermany Fails to Convince on Hedge Fund Issue (8/06/2007). Germany had put hedge funds on top of the agenda of its year-long G8 presidency given its concerns that rapid growth in the increasingly powerful sector could destabilize the entire global financial system. But the world’s richest nations — Britain, Canada, France, Germany, Italy, Japan, the United States and Russia — have so far spectacularly failed to find a common line on the issue.
• Hedge Fund Opportunities in Germany: Practical Guidance Q&A. With the new German Investment Act and Investment Tax Act in force since January 1, 2004, new opportunities to access the German hedge fund market from abroad have opened up. The objective of this paper is to give practical, hands-on guidance to foreign hedge fund managers who are interested in targeting the growing German market.
• This advisory article briefly explains the taxation issues in Germany’s hedge fund industry for both fund managers and investors. The topics include the various tax structure, requirement and regulations.
• This special report (Aug. 2006) features several articles provide some recent development and oveview of German hedge industry and some decription of it legislatory structure and law regulations. :

German Market Growth Benefits from Master KAG Structure
An interview with Christian Benigni, one of the top three European hedge fund managers with approxiamtely USD 14 billion dollars under management, shared with readers his views on the propects and the potential future development of the German Hedge Fund industry.

Delivering Tax Transparency
When the new legislation governing alternative investment funds came into force in Germany in 2004. HSBC’s Alternative Fund Services (AFS) took a two-fold approach to capitalise on the development of the market. On one hand, in partnership with its software provider, Advent Geneva, and with advice from PricewaterhouseCoopers, AFS launched a project to deliver tax transparency to their clients to enable them to distribute their funds in Germany.

The Evolution of Prime Brokerage in Germany
Since the introduction of the 2004 German Investment Act, there has been debate on the potential growth of the local hedge fund market, and on possible ‘local’ prime brokerage solutions. However, as well as domestic hedge funds, the legislation deals also with another important area: the regulation and distribution of ‘foreign’ (non-German) hedge funds. Furthermore, the related Investment Tax Act enables local investors to obtain favorable tax treatment on investments in foreign funds, including hedge funds.

New ETFs Improve index Tracking and Reducing Trading Costs
Exchange-traded funds allow investors to track the performance of specific market segments more efficiently and reduce costs, helping institutions to create more efficient portfolios for use in core-satellite strategies. A new category of innovative ETFs recently introduced by Indexchange takes advantage of the European Union’s Ucits III directive to mirror the underlying index even more accurately while reducing trading costs.

Institutional Market Pised for Take-off
The change of the law in 2004 allowed hedge funds and funds of hedge funds to be launched under German regulations for the first time. Under the German rules, a Master KAG – service company for hedge funds – can take charge not only of the administration of a fund but its launch, registration and ongoing reporting, leaving the fund manager to focus on the investment management, marketing and the distribution.

Derivatives Take Larger Role with Hedge Funds
Surging flows of capital into hedge funds over the past few years have aroused fears that overcrowding in popular strategies will drive returns down and reduce the appeal of alternative investment approaches. However, the growth of sophisticated investment techniques involving the use of exchangetraded derivatives, with their high levels of liquidity and transparency, is offering managers and investors new opportunities to achieve higher returns, resulting in increased usage of futures and options worldwide.

Hedge Funds Liberalisation Starts to Bear Fruit
When Germany liberalised its rules governing hedge funds and taxation of their income at the beginning of 2004 the initiative was hailed in some quarters as a new dawn for the sector. If Germany, with its tradition of conservatism in investment choices and reputation for pernickety rule-making, could embrace hedge funds and funds of hedge funds, the argument went, the rest of Europe and other markets around the world would surely soon be following suit.

• Hedge Fund Opportunities in Germany. With a new German Investment Act and Investment Tax Act in force since January 1, 2004, new business opportunities have opened up in the German hedge fund sector for foreign providers as well as those onshore. The focus of this artice is on the distribution of foreign hedge funds in Germany and with more detailed information on the provisions of the recent passed Investment Modernization Act
• Introduction and Regulation of Hedge Funds in Germany. On January 1, 2004 the German Investment Act and the German Investment Tax Act were enacted as the major parts of the investment Modernization Act. The focus of this article is to analyze the effect of these new tax provision and also some of the regulatory concerns.
• Hedge Funds and Retail Business: Comparing German, Italian, Swedish and English Law. The aim of this work is to compare the German, Italian, Swedish and English law as to see the principal policies and regulatory cornerstones that will lead us to understand and comprehend the way in which Hedge Funds and their relationship with retail investors is developing.
• This advisory article briefly describes the regulatory structure of Germany’s hedge fund industry; topics include authorization requirement and process of setting up the fund, capital requirements, and marketing restrictions.
• German Hedge Fund Legislation: Modernized but still old-fashioned. This report analyzes the legal framework of the newly passed new German Investment Act and its impacts on the current system. This analysis is conducted from three aspects: past (comparison to old laws), present (its current state), and future (need an up-to-date regulation?).

Conferences & Seminars:

• Pension Fund Investment World Germany 2008. 9/20/2008 – 9/22/2008, Germany – Frankfurt.
• 4th Annual European Conference. A full day of plenary, breakouts and roundtables with leading speakers from venture philanthropy, private equity community, foundations and professional service firms. 9/23/2008, Germany – Frankfurt.

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Emerging Markets

Emerging Markets – Investments

Emerging market investing started to take off when in the mid-1980s when the International Finance Corporation (IFC) set up the first mutual fund that invested solely in securities from emerging markets with a seed capital of around $50 million. Since 2002, assets managed by emerging market hedge funds have increased fourfold and in the first quarter of 2008, they managed approximately $110 billion, according to HFR.

Emerging market hedge funds are defined by the markets they operate in and not the strategies they follow. Thus, these funds are quite heterogeneous and adopt a variety of strategies such as equity long/short, event driven, global macro and fixed income arbitrage.

Emerging markets are defined quite broadly. Morgan Stanley describes an emerging market, as a country that is in the process of building a market-based economy. Others include ideas of large productivity gains from technological or political change. However, since the 1997-98 Asian financial crisis, the core characteristics of many emerging nations have changed fundamentally. Once, net importers of capital, emerging markets have now become net exporters of capital. Once heavily indebted, many emerging market governments have begun to reduce levels of external debt. These changes have contributed to the recent success and slightly lower volatility of many emerging market hedge funds. They have also resulted in the creation of entities such as sovereign wealth funds and have had a strong impact on international financial markets.

Emerging Markets Interview – Emerging Markets Research

Books Related to Emerging Markets

De Brouwer, Gordon. Hedge Funds in Emerging Markets. United Kingdom: Cambridge University Press, November, 2001.

• This book tries to understand the role hedge funds played in exacerbating the Asian Financial Crisis of 1997 and 1998. While this question may not be interesting to most market players, the book also contains several case studies of how the financial crisis unfolded. These give some insight into the strategies hedge funds deployed in Asia during this period. However, the book is not a fun read and if you are interested in hedge fund strategies rather than the market risk posed by hedge funds, you have to carefully sift through the book for information.

Lhabitant, Francoise-Serge. Handbook of Hedge Funds. West Sussex: John Wiley & Sons, Ltd., 2006.

• This is an excellent guide to the industry, with concise and informative descriptions on all of the major hedge fund strategies and primary methods to measure their risk and performance. Lhabitant also includes an overview of the legal environment of hedge funds and their organizational structure, while ending with a short guide to investing in them.

Emerging Market White Papers
Global Derivatives. Overview of Hedge Fund Strategies, November 2003.
Quick and dirty description of all major hedge fund strategies.

Odonnat, Ivan and Rahmouni, Imene. “Do Emerging Market Economies Still Constitute a Homogenous Asset Class?” Financial Stability Review, No. 9, Banque de France, December 2006

• This paper provides a good synopsis on how the current and capital accounts of emerging markets have changed since the 1990s and describes how the composition of emerging market debt holders has changed. It also argues that while investors show increased signs of differentiating between emerging economies when considering portfolio allocations, disruptions may still cause a contagion effect due to the narrowness of the emerging markets and their dependence on the decisions of non-resident investors.

Strömqvist, Maria. “Do Emerging Market Hedge Fund Mangers Lack Skills?” Stockholm School of Economics, October 2006.

• Strömqvist examines hedge fund returns from 1994 to 2004 and finds that emerging market hedge funds have underperformed non-emerging market hedge funds in terms of total and absolute return, while providing no diversification effects. The data is slightly outdated and includes the 1997-98 financial crisis, which significantly affects the results of the study. However, it provides an interesting statistics-based perspective on investing emerging market hedge funds.

Strömqvist, Maria. “Should You Invest in Emerging Market Hedge Funds?” Stockholm School of Economics, September 2007.

• In this more recent paper, Strömqvist uses a the same data set from 1994 to 2004 to find that hedge funds were able to generate risk-adjusted return in the latter part of the period under study. She also finds that there is some differentiation in returns at the fund level, with successful funds continuing to generate above-average returns. However, she also finds that this does not result in increased capital inflows.

Information Sources

Emerging Markets Monitor

• The Emerging Markets Monitor covers the latest events in emerging economies across fixed income, FX, commodity and equity asset classes, with short pieces that include analysis, forecasts and trade ideas.

Financial Crisis in Emerging Markets, NBER

• Run by the National Bureau of Economic Research, this project examines the causes of currency crises in emerging market economies. As such, it contains a large selection of white papers that may be helpful to people interested in learning more about the financial markets in emerging economies.

HFR Emerging Markets Industry Report

The Institute of International Finance
Created in 1983, in response to the international debt crisis, the Institute of International Finance Inc is a global association of financial institutions. It collects a variety of data related to emerging markets and also generates independent research on the subject. Subscription is available only through registered member institutions and is not open to individuals.

The Journal of Emerging Market Finance, Sage Publications
This journal contains scholarly articles that cover practical and theoretical issues related to emerging markets.

Networking Events

Terrapin hosts an annual emerging market hedge fund conference

Tracking Tools

Credit Suisse Tremont Hedge Fund Index

• CS/Tremont tracks provides registered users with historical data on the performance of variety of hedge fund strategies.

Short List of Emerging Market Hedge Funds

• Axiom Investment Management (Hong Kong) – emerging markets hedge fund focused on Asia.
• Farallon Capital Management
• Horseman Capital Management
• Marathon Asset Management
• Moon Capital Management
• Moore Capital Management – Moore Emerging Markets
• Sloane Robinson – SR Global Fund Emerging Markets, SR Vista Emerging Markets
• Thames River Capital (United Kingdom)
• Tudor Investment

Guest Post by Sharini Kulasinghe

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Tags: Emerging Markets, Emerging Market, Emerging Market Fund, Emerging Market Index, Emerging Markets Funds, Emerging Markets Equity, Emerging Markets ETF, Global Emerging Markets, Emerging Market Bond, Emerging Markets Capital, Emerging Markets Investment

Atticus Capital

Atticus Capital Hedge Fund Notes

Record losses is not exactly what most hedge funds are seeking to be known for right now. Anyone keeping up with manager developments right now know that many managers are struggling. Some reports say 2008 is shaping up to be the hedge fund industry’s worst performance in 18 years. On some level this is needed, just as recently as last month many hedge funds are still touting their positive performance with barely mentioning their portfolio or business risk controls – over the long-term you must pay attention to more than a goal to return 16+% a year. I’m not saying Atticus is one of these firms, with their size they surely have many controls in place. In general though, I believe the industry needs a shakeout every 7-9 years.

The following piece on Atticus Capital is being published as part of our daily effort to track hedge fund events in the industry. To review other hedge fund related announcements please see our Hedge Fund Tracker Tool.

Story #1: Atticus Closes Two Funds, Barakett Bids Farewell

Atticus Capital has shut down is reducing its operations by closing two of its funds. After receiving less than 5% of redemptions from investors, Timothy Barakett, the founder of Atticus Global, decided to shut down Atticus Global, Ltd. and Atticus Global, LP. Barakett founded Atticus with $6 million and expanding to roughly $20 billion in assets under management in 2007. He is returning $3 billion back to his investors, in a letter to his investors he explained his decision:

I have used the market’s recent strength to begin liquidating a significant amount of our holdings. We currently expect that the portfolio will be fully liquidated by September 30th and that we will be in a position to return approximately 95% of your capital in early October. The balance of investor capital will be returned after the final audit is completed, which should be later this year….

Read Story

Story #2:

Atticus Capital, the hedge fund manager co-chaired by Nathaniel Rothschild, will be reduced to bare bones after announcing plans to return $4 billion to investors.

Timothy Barakett, the 44-year-old Canadian who founded Atticus with $6 million in start-up cash in 1995, wrote to investors today to tell them that he would close two of his funds – Atticus Global, worth $3.4 billion, and $600 million Atticus Trading.

Just one fund, Atticus European, worth $1.1 billion and managed by Mr Barakett’s partner David Slager, will continue to operate.

Atticus’s downsizing is another sign that the era high-profile, aggressive hedge funds, that publicly berated companies’ management and flaunted their connections to the rich and famous, has ended.

At its height in 2007, Atticus was worth $20 billion but in the year to the end of July returned a negative 13.3 per cent, under-performing the widely-recognised Credit Suisse Tremont Hedge Fund Index, which showed a –9.3 per cent return over the same period.

Mr Barakett is best known in the UK for attempting to scupper Barclays’ $64 billion offer for ABN Amro, for which he argued Barclays’ was offering too much. Read more…

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Story #3:

Atticus Capital, one of New York’s most powerful hedge funds, has lost more than $5bn (€3.4bn) this year, as its record as one of the world’s top performing money managers was damaged by the credit crunch.

The firm’s two flagship funds fell by a quarter and almost a third by the end of August, marking among the biggest losses in dollar terms ever recorded by a hedge fund. This was as a result of its strategy of taking large, concentrated bets and using few “short” positions betting on a fall in prices to lower risk. Atticus had $14bn under management at the end of July, according to letters to investors, down from a peak of more than $20bn last year.

The losses reflect widespread difficulties for Event Driven Hedge Funds, which aim to buy cheap stocks in the expectation of a catalyst that will boost their value. Atticus, co-chaired by Nathaniel Rothschild, son of Lord Jacob Rothschild, has been closely involved in several of the highest-profile deals of recent years, helping scuttle Deutsche Börse’s bid for the London Stock Exchange and Barclays’ bid for ABN Amro, among other activism.

The Event Driven Hedge Funds Sector – which includes activist investors – was among the most popular with hedge fund investors last year but has seen a race for the exit as investors switch to strategies seen as more likely to prosper during a bear market. Read more…
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Story #4:

According to a media report, Atticus Capital, one of New York’s most powerful activist hedge fund the largest investor in Deutsche Börse, has put its entire stake in the German exchange into a special limited vehicle to block redemptions by clients and boost its negotiating strength with management.

According to the report published by the FT.com, the stake of just over 11 per cent held through shares and derivatives, made up almost a fifth of Atticus’s funds under management at the start of the year but has since halved in value.

According to the report, the losses have caused concern among some Atticus clients, who have expressed concern about such a liquid stock being put into a “side pocket.” The report says that Atticus argues that it wants to be able to represent themselves as solid investors in the German exchange, but the decision has not gone down to well with some of the hedge fund’s clients. Read more…

__________________

Story Update #4:

NEW YORK (Reuters) – Hedge fund company Atticus Capital denied market rumors it was liquidating its positions and closing down and said it had a large net capital position and was looking for investment opportunities, the Wall Street Journal reported on Thursday.

Atticus’s two main hedge funds have been hit with losses of between 25 percent and 32 percent this year through August, but investors are largely sticking with it, according to unnamed investors cited by the Journal. Read more…

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Tags: Atticus Capital, Nathaniel Rothschild, Jacob Rothschild, Deutsche Börse, London Stock Exchange , Barclays, ABN Amro, hedge fund asset losses 2008 2009, low hedge fund performance, record asset losses in hedge fund industry

Hedge Fund Startup

Hedge Fund Startup Marketing Q & A

Question: I understand all the legalities…but at the inception of a hedge fund what kind of material should I have squared away as far as marketing decks and PowerPoint presentations. Value proposition of course, we have pretty tight and a good selling point, what other deliverables should I work towards at this early stage?

Brief Answer: As far as marketing materials go I would make sure you have a 1-2 page quick summary piece of your hedge fund or fund of fund as a whole, within another 1 pager on your holdings – both should be updated monthly. Also it would help to develop a 20-30 page PowerPoint presentation with top notch quality graphics, layout, etc. I would make sure you stress the depth of your team, how you manage both business and portfolio risk and how your returns will be repeatable and defendable due to your consistent investment process. Those are all points that investors look for and qualities your fund must have to really succeed in the long run. Hope these ideas help.

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Tags: Hedge Fund Startup Marketing, Hedge Fund Marketing Materials, Hedge Fund Marketing Plan, Materials for Hedge Fund Marketing, Power Point presentations, one pagers, performance

Hedge Fund Subscription

Premium Hedge Fund Subscription Website

I have recently had someone join my team who will help me create a premium content subscription-based hedge fund service.

This will be available in 2009 and at this point we are seeking your direct feedback as to what it should include or not include. What is missing in the hedge fund marketplace? What, if it existed would be very valuable to your business to receive on a weekly or monthly basis?

Please email your ideas to Richard@HedgeFundGroup.org

Thank you in advance for the feedback, much appreciated.

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More prime brokerage firms are adding on administration services to help attract and retain clients. I wasn’t sure how widespread of a trend this was but saw this mentioned within an article yesterday as noted below. I would be interested in discussing this further with hedge fund managers reading this article – if you have some insight – Richard@HedgeFundGroup.org.
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In recent years, the custodian banks that have acquired hedge fund administrators have sought to adjust client lists in favor of larger and more profitable hedge fund and fund of funds groups interested in a broader array of services. At the same time, prime brokers have recognized that providing administration services can help attract and retain clients and counter the shift among hedge fund managers towards multiple prime brokerage.

“It would be surprising if the hedge fund administration industry continues to support such a large number of providers, and there is now evidence that a renewed round of consolidation is in the offing,” says Dominic Hobson. “However, the appetite to sell may be offset as well as encouraged by the depressed prices available. In any event, the buyers are likely to be different from the banks which dominated the acquisition process in the early years of this century.” Read more…

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Here is an interesting article about the growth of prime brokerage services in Asia. I didn’t know that growth was so strong for these groups right now…

Citigroup expects the amount of assets serviced by its Asia Pacific prime brokerage arm to grow by more than 30 percent annually over the next three to five years, as more global hedge funds set up shop in the region.

Even with tumbling stock markets hammering Asia’s hedge fund industry, many large international managers are doing more business in the region, drawn by its long-term potential, said Hannah Goodwin, head of Prime Finance, Asia Pacific for the U.S. banking giant.

“We’re looking at a 30 to 50 percent growth every year,” she told Reuters in an interview. “That’s how aggressive we want to be with this business and how well we think this business is going to develop for us.” Read more…

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FAS 157

FAS 157 Implications & Notes

The hedge fund industry has significant concerns with recent best practices recommended by the President’s Working Group on Financial Markets regarding the disclosure of the valuation of managed assets centered on FAS 157 fair value accounting. In a letter to the Working Group, the Managed Funds Association said that the ambiguities of fair value accounting work against achieving a consensus on proper valuation of a hedge fund’s portfolio assets. The MFA also noted that the recommended disclosure goes beyond the requirements of FAS 157.

The Working Group issued complementary sets of best practices for hedge fund managers and investors in the most comprehensive effort yet to increase accountability for participants in the industry. The Working Group called on hedge fund managers to adopt comprehensive best practices in the critical areas of disclosure, valuation of assets, risk management, and conflicts of interest. Specifically, the Working Group said that fund managers should provide financial information supplementing FASB Standard No. 157 to help investors assess the risks in the valuation of the fund’s investment positions.

Depending upon the extent to which the fund manager invests in illiquid and difficult-to-value investments, noted the Working Group, the disclosures should occur at least quarterly and include the percentage of the fund’s portfolio value that is comprised of each level of the FAS 157 tripartite valuation hierarchy. Level 1 is comprised of assets with highly liquid market prices, while Level 2 assets have no quoted prices but there are similar assets with quoted prices. Level 3 is for illiquid assets that have to be priced using models.

The group also said a best practice would be to set up a Valuation Committee with ultimate responsibility for reviewing compliance with the fund manager’s valuation policies. Further, the group said that independent personnel should be in charge of the valuation of the fund’s investment positions. While broadly agreeing that investors would benefit from disclosure of hedge fund valuation policies, the MFA noted that there is much ambiguity and a lack of consensus among managers, counterparties and accounting professionals as to the appropriate treatment of a number of products under FAS 157 such that the Working Group’s recommendations may not be achievable. Further, the lack of consensus is likely to result in inconsistent disclosure across the industry, which could be both confusing and potentially mislead investors.

Thus, until a greater consensus exists with respect to implementation of FAS 157, the MFA asks that this recommendation be deleted. The MFA noted that fund managers will still be required by their independent auditors to follow the procedures specified in FAS 157, as the industry continues to develop consensus on the implementation of those procedures.

The committee also recommended that hedge fund managers disclose the percentages of a fund’s portfolio value for which a manager relied on one dealer quote and multiple dealer quotes. The MFA believes that this disclosure could also be misleading to investors since there are certain types of products for which one dealer quote is used in valuing the asset, even though there is a liquid and deep market for the product, such as certain types of OTC products. There may also be products for which multiple quotes are available, but for which there is not a particularly liquid, active and deep market. While the availability of multiple dealer quotes may be an indication of the level of market activity for an asset, said the MFA, it may be misleading in certain instances. As such, the group was urged to delete this recommendation.

While agreeing that the valuation function should be independent of the portfolio
management function in order to reduce conflicts of interest, the MFA believes that
the recommendations are confusing when read in conjunction with the make-up of the proposed Valuation Committee. The Working Group said that the Valuation Committee may include members of senior management who have portfolio management responsibilities. However, the recommendations also discuss segregation of valuation personnel from portfolio management personnel. To the extent that a Valuation Committee is partially comprised of senior portfolio managers, reasoned the MFA, then the desired segregation of personnel does not seem possible.

Guest post by James Hamilton

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FIN 48

FIN 48 + Implementation & Disclosures

A growing chorus of hedge fund and private equity groups has asked FASB for an exemption from FIN 48, a FASB interpretation of a standard on accounting for income taxes. In a letter to FASB, the Managed Funds Association said that the sophisticated investors that invest in hedge funds do not need the enhanced disclosures that FIN 48 was designed to provide. In its letter, the Private Company Financial Reporting Committee stated that private company financial statement users find the accounting matters and disclosures encompassed by FIN 48 to be largely irrelevant to their decision making. The committee’s also noted that FASB and the IASB are working on a convergence project on accounting for income taxes and that this may significantly affect FIN 48. Thus, if FASB is unwilling to grant hedge funds an exemption from FIN 48, the private fund groups ask that the Board at least postpone the effective date of FIN 48 pending completion of the convergence project.

FIN 48 was adopted to provide for increased relevance and comparability in financial reporting of income taxes and to provide enhanced disclosures of information about the uncertainty in income tax assets and liabilities. The genesis of FIN 48 is FASB Statement No. 109, which established financial accountants and reporting standards for the effects of income taxes that result from an enterprise’s activities during the current and preceding years. It requires an asset and liability approach to financial accounting and reporting for income taxes

While acknowledging the need for FIN 48-type disclosures in the case of companies offering securities to the investing public, the MFA pointed out that the institutions and individuals that invest in private investment funds do not fall within this category. Hedge fund investors typically conduct extensive due diligence assisted by their own lawyers, accountants and other advisers, noted the MFA, and they often request, and receive, additional information, including tax information, if they believe that such information is material to their investment decision.

Moreover, private investment funds with U.S. investors are treated as partnerships for Federal income tax purposes. As a result, a private investment fund is not itself a taxpayer. It files an annual information return with the IRS, said the MFA, and each investor in the fund pays tax on its pro-rata share of the income of the fund. Thus, while fund personnel have historically focused substantive attention on issues surrounding the proper allocation of taxable items in a partnership environment, explained the MFA, it has been unnecessary for them to devote substantial time to traditional FAS 109 accruals.

For this reason, private investment funds are incurring significant costs in preparing to comply with, and complying with, FIN 48. Even more, many private investment funds make investments outside the United States, said the MFA, and FIN 48 will require them to make an additional layer of judgments concerning uncertainties in the tax laws of other countries.

Finally, the MFA noted that hedge funds need to determine NAV with reasonable frequency, both to establish a price for investments and redemptions, and also for other purposes. As a result of the fiduciary nature of the NAV calculation, and economic fairness to investors that subscribe and redeem at that amount, the MFA believes there are substantial questions whether FIN 48 analyses should be reflected in the NAV of a private investment fund.

The MFA is aware that SEC has concluded that FIN 48 analyses should be reflected in NAV in order to give investors more disclosure. Significantly, however, the SEC said its guidance was limited to assessing tax positions reflected in NAV calculations subject to the Investment Company Act and should not be applied by analogy in other cases.

The MFA believes that there are differences between public and private investment companies that warrant a different conclusion with respect to private investment funds. The MFA stands ready to make a more comprehensive submission on this point if the FASB believes that it would be of assistance.

Guest post by Jim Hamilton

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