• Commentary: Stick To Your Guns, Mr. Donaldson
• Merrill Lynch serious about ramping up its efforts in prime brokerage
• Psst. Why Insider Trading Keeps Going
• Hedge fund market `overheated` - Greenwich
• Greenwich Associates study raises concerns about hedge fund leverage, over-leveraged hedge funds face regulatory clampdown
• Strong Capital agrees to $175m settlement; R. Strong permanently barred and fined $60m
• Grasso Pay Scandal Prompts SEC To Consider Rule Changes; NYSE asked to comply with their own listing rules
• Brazil Must Act to Attract Investment, Fraga Says
• Hedge funds an opportunity for Ireland
• Man Group Profits Surge 46% (JP)
• Hedge funds dip into British mid-cap stocks pool
• Asia Fund View: Early Stage Hedge Funds Offer Potential
• Yuan to rival yen in global currency league, to surpass sterling and Swiss franc

• 11th Annual Hedge Fund Forum New York City - Save up to $500
• Alternative Investment Roundup: three concurrent conferences on Hedge Funds, Private Equity & Real Estate
• 7th Annual Portfolio Management Conference Frankfurt/Germany
• Asset Allocation Summit London - 10% discount for subscribers
• Institutional Investor invites for second annual Hedge Fund Awards Dinner in NY on June 24, 2004
• gaim 2004 - ICBI`s 10th Annual Global Alternative Investment Forum
• Advertise in this newsletter
• Contact

Hedge Funds: Quantitative Insights
François-Serge Lhabitant
Hardcover
384 pages

Fresh off the press (published May 18th): “Quantitative Insights” from the bestselling author of “Hedge Funds: Myths and Limits”.

This primer on the analysis of hedge funds offers investors a more quantitative understanding of this topic, providing a complete guide to portfolio techniques, asset allocation, performance measurement and product selection in the alternative investment world.

• Hedge funds are the fastest growing sector of the financial industry, and yet the least understood, by market professionals.
• Examines and popularises the results of several quantitative studies that have so far been confirmed within academic circles.
• Written by a highly regarded and impartial financial practitioner and academic, this will provide an excellent follow-on to Hedge Funds: Myths & Limits (Wiley 2002).

To the Recommended Reading Archive

Originally from Businessweek.com: Silver-haired and soft-spoken, William H. Donaldson doesn't look like a wild-eyed radical. But to many corporate chiefs, the Securities & Exchange Commission chairman's agenda smacks of an extremist manifesto. Business is furious with his push to make it easier for shareholders to nominate directors to corporate boards, his plan to change the way mutual funds are governed, and his determination to oversee hedge funds. And Corporate America is going all out, lobbying Congress, the Administration, and other SEC commissioners to force the chairman to back down. Source

From Institutionalinvestor.com: Anyone doubting that Merrill Lynch is serious about ramping up its efforts in prime brokerage should look no further than the hire last March of David Barrett from Morgan Stanley to run capital raising and hedge fund origination. An 18-year veteran of Morgan Stanley, Barrett spent the past seven-plus years as the firm's global head of capital introduction. Source

From the NY Times: Arriving in Las Vegas for a board meeting of Interstate Bakeries, E. Garrett Bewkes Jr., a director, called his son, Robert, a broker at UBS, at his home in Darien, Conn. The two men talked almost every day, swapping bits of family and market gossip, and this day, in February 2003, was no exception.
The conversation occurred hours before the board meeting began. Mr. Bewkes, who had been given an internal report documenting the company's deteriorating financial condition, complained to his son that "business was lousy," according to regulatory filings. Mr. Bewkes, a former Paine Webber director, added that if his son owned any of the stock in Interstate, which makes Wonder bread and Hostess cakes, he should get rid of it. "I don't see the stock going anywhere for a long time," he concluded, according to the filings.
Ten minutes later, Robert Bewkes, a broker at UBS for 12 years, sold $230,000 worth of Interstate Bakeries stock for himself, his family and a few select clients, filings show. For the Bewkeses, what had begun as a father-and-son chat suddenly became something much more ominous, according to regulators: trading on inside information. Full article: Source

From IPE.com – Greenwich Associates has warned of possible “overheating” in the hedge fund market – driven in part by a flood of pension capital. And it said the availability of cheap credit is making it easier for hedge funds to increase their leverage, which could increase “the likelihood of intervention by regulators already concerned about the huge flows of pension fund assets into hedge funds”. “None of these developments - a flood of pension capital, increasing leverage, declining haircut requirements or easier credit - would, on its own, be a cause for immediate concern,” said Greenwich consultant Peter D’Amario. “In aggregate, however, these trends bear serious consideration on the part of hedge fund investors, not only as possible indicators of an ‘overheated’ market, but also as potential harbingers of intervention by regulators in the United States and Europe.” More: Source

Hedge funds taking advantage of cheap credit from prime brokers are risking a regulatory clampdown by the SEC, a report by Greenwich Associates warns. The consultancy firm found that almost one-third of hedge funds have increased their use of leverage over the past twelve months – with around 25% of hedge funds surveyed reporting that their prime broker was extending more credit now than they were six months ago. Source

From Reuters.com - Mutual fund company Strong Capital Management Co. and its founder and main owner, Richard Strong, agreed to a $175 million settlement on Thursday to resolve securities fraud charges involving improper trading of mutual funds, according to state and federal regulators. The settlement is the latest in a year-old investigation of the mutual fund industry, but stands out from others because of the size of the penalty imposed on a single executive. Strong, 62, will pay $60 million in penalties and disgorgement, the largest of any individual in the probe so far. Strong and two others were also permanently barred from the securities business. Investigators say Richard Strong made profits of $1.8 million from improper trading practices. According to the NY Times it is not entirely clear whether he could work in some capacity for a hedge fund - private pools of investment capital that are not regulated by the SEC. Source

Federal securities regulators are developing proposals to tighten governance at U.S. exchanges, including the New York Stock Exchange, in the wake of controversy over lavish pay to former NYSE chairman Richard Grasso and scandals involving NYSE specialist firms. Securities and Exchange Commission market regulation division director Annette Nazareth is expected to outline the proposals at a securities industry conference in New York on Friday, and call for exchanges to abide by most of the requirements they set for companies they list. Source

From Bloomberg.com: Arminio Fraga, former president of Brazil's central bank, said the country should push ahead with legislation to attract investment as higher oil prices and global interest rates threaten economic growth. Fraga, a former fund manager for billionaire George Soros, has seen the value of the 600-million reais ($190 million) fund administered by his Rio de Janeiro-based Gavea Investimentos drop over the past month as Brazil's currency and bonds plunged. Source

The global hedge funds industry is worth over €1 trillion and represents a major opportunity for Ireland, a conference in Dublin heard today. 'Ireland is increasingly recognised as a centre of excellence for hedge fund administration,' commented Aidan Tiernan, Partner with Ernst and Young. 'Hedge funds have become an integral part of the investment funds industry in Ireland and are set to contribute further to its ongoing growth,' he added. Source

The Financial Times reports that Man Group continues to cash in on the hedge fund boom, with full-year profits up 46 per cent on the back of record sales. Stanley Fink, chief executive, said there was "very strong continued demand from institutions" Man's sales rose to $11.5bn (£6.5bn) in the year to March 31, compared with $6.7bn a year earlier, helping lift pre-tax profit to £435m (£297m). The net management fee income was up 50 per cent to £271m. The net performance fee income - the cut Man takes when its hedge funds deliver good returns - rose 21 per cent to £139m. Source

From Reuters.com - Hedge funds are seeking new profit opportunities in small and mid-cap British stocks, seeking to exploit pricing anomalies in these less frequently traded stocks, fund analysts said. This new interest has boosted revenues at smaller British brokers prepared to make markets in these lower profile stocks. Awareness of the potential of mid cap stocks is growing as hedge fund managers seek to find a profitable home for increasingly large inflows of money. Source

Asian hedge funds at the early stage of their investment cycle have the potential to offer better returns than their more mature counterparts, according to KE Absolute, a hedge fund services specialist. "Industry analysis points to superior absolute returns by hedge funds in the first two years of their investment cycle, when fund size is still low and managers are at their most driven to perform," he said. "There is a clear niche in the Asian market for this product." Earlier this month, KE Absolute launched a fund dedicated to investing in early-stage Asian hedge funds. Source

A free-floating Chinese yuan would surpass sterling and the Swiss franc in the league of major currencies and its status would elevate Asia as a foreign exchange trading region, industry experts say. Like the Japanese yen 40 years ago, the yuan is expected to emerge over the next decade as one of the world's most traded currencies, taking its place alongside the yen and behind the dollar and euro. It is currently pegged at 8.28 to the dollar but China, taking steps to relax currency controls gradually, says flotation is the ultimate goal. Source

From the team that brought you GAIM USA, the only must-attend event of the summer on key regulatory and investment issues in the heart of New York City. **Register Today and Save up to $500**

• Special track specifically for investors looking to make an early allocation to hedge funds - plus the opportunity to meet leading institutional investors including - Verizon Investment Management, Stanford Management Company & the Ford Foundation
• Opportunity to meet face to face with several leading consultants advising on major alternative investment mandates
• A mid year update on regulatory issues - registration, inspections, cap intro conflicts of interest, AML update, short selling rules and more.
• Expert advice on how to prepare for and manage an SEC inspection - unmissable information given the additional resources the SEC will be dedicating to inspecting hedge funds.
• Outlook for alpha roundtables - face to face time with leading managers to discover their perspectives on alpha opportunities in each of the major hedge fund strategies.

For more information, visit: www.iirhedge.com or contact Marc Weitzman at the Institute for International Research p: 212.661.3500 ext.3092

The Alternative Investment Roundup is three concurrent conferences at the same location covering the most important alternative asset classes-Private Equity, Hedge Funds, & Institutional Real Estate. The programs share networking events, offering you unmatched opportunities to meet a wide array of alternative investment professionals and investors. Over 750 decision makers attended last year's event.

10% discount for Alternative Market Briefing Readers for the Alternative Investment Roundup. Register by May 17, 2004 for additional Early Bird Discount. For more information, please visit www.srinstitute.com/air or contact Chris Petersen at CPetersen@srinstitute.com

The Conference for Institutional Investors

Key speakers: Prof. Harry Kat, City University, London
Prof. Ken Froot, Harvard University, U.S.A.

Topics include:

• What are the risk and return sources of Hedge Funds?
• „Absolute Return“: What are the opportunities for insitutional investors?
• Institutional investor behavior in the equity markets
• Best execution and transaction cost analysis for European bonds
• Demographic changes and its impact on future returns of stocks and bonds

At this critical juncture for the development of the world's equity and bond markets, this conference will be examining strategic and tactical asset allocation, current strategy and alternative investing. Our conference in October 2003 attracted over 300 participants to the Inter-Continental Hotel.

"THE BIG EVENT FOR THE BIG PICTURE"

The theory and practice of asset allocation is undergoing dramatic change. The dominant position of equities in pension schemes is under question and investment consultants are putting forward new ideas regarding the structure of asset allocation benchmarks. Multi-asset mandates are coming back into fashion. Asset allocators are grappling with uncertain economic and market conditions, and the correlation between equity and bond markets has reversed. Alternative Investments are seeing record new money flows. The Asset Allocation Summit features speakers at the very heart of these key developments. For anyone involved in asset allocation, this could be the most significant investment conference of 2004.

OVER 300 DELEGATES IN 2003

ASSET ALLOCATION SUMMIT 2004 features presentations on:

• Current investment strategy
• Dynamic asset allocation strategies
• Liability driven benchmarks and risk budgeting
• Tactical asset allocation
• Using style analysis
• Investing in hedge funds
• Investing in private equity
• Gold, commodities and other alternatives
• Portable alpha strategies
• Currency overlay strategies
• Derivative overlays and structured products
• Implementation tools and strategies

This gala, black tie affair – held in conjunction with Institutional Investor’s Spring Hedge Fund Investment Roundtable, June 23-24, 2004 – will bring together the hedge fund industry to recognize and applaud the achievements of their peers. The awards dinner will include key industry players – hedge fund managers, funds of funds, endowments, foundations, and corporate and public pension funds.

Nominees for the awards are selected by the editorial team of Alternative Investment News. Subscribers, readers and other industry members are encouraged to visit our website to offer their input and comments on the nominations. Winners will be selected by the editorial team of Alternative Investment News. Winners will be announced at the event.

2004 Alternative Investment News’ Editorial Advisory Board:
Leroy Cody, American Express Alternative Investments
Joel Katzman, J P Morgan Alternative Asset Management
Richard Lindsey, Bear Stearns Securities Corp
Nick von Speyr, Optima Fund Management
Kent Clark, Goldman Sachs Hedge Fund Strategies
Joe Pescatore, UBS
Martin Phipps, Gartmore Investments

Award Categories: Hedge Fund Leader of the Year, Fund of Funds Leader of the Year, Institutional Manager of the Year, Emerging Manager of the Year, Institutional Investor of the Year

To find out who is nominated and to register for the event contact: Nazneen Kanga nkanga@iinews.com

With 1200 attendees in 2003, Gaim 2004 is the largest global hedge funds event around. Gaim is also known for its extensive and objectively researched programme to find the very latest and most successful talent in the industry. Over 200 speakers are on the 2004 programme - including Cutting-Edge Academics & Leading Thinkers, The Most Significant & Groundbreaking Institutional Investors, The Most Successful FOF And Multi-Manager Houses, Leading Economic Strategists, and Over 100 Of The World's Top Performing Open, Emerging & Established Hedge Fund Managers, some of which you will never have seen anywhere else! To enhance your learning & networking opportunities there are several new features for 2004 including:

• The live global hedge fund industry electronic survey - see what the industry really thinks
• Institutional investor panel of leading North American institutional investors
• Enhanced GAIM Absolute Winners? Gallery - 2004's emerging top performers
• 6 Streams - moving from four to six streams offers more choice to tailor your individual programme
• Glamorous 10^th Anniversary Gala Dinner at the splendid Porte Des Irises, Chateau de Vullierens
• New venue in Beaulieu, Lausanne in Switzerland - only 35 minutes from Geneva with state-of-the-art facilities
• Asia - Special focus on the Far East - GEMS & Japan
• Longer sessions - More extended sessions = more information and discussion on major issues

Contact ICBI: +44 20 7915 5103, or email info@icbi.co.uk, website: www.icbi-gaim.com

Opalesque Ltd.
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This newsletter is edited by Matthias Knab (MK) for Opalesque Ltd. For more information about me and Opalesque Ltd. please use this link.

Jeff Posner (JP), a Chicago based PR specialist and free lance writer focussing on the financial industry, is a contributing editor of this newsletter. He can be reached at Geoffp7@juno.com.

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Disclaimer: The information contained in this newsletter does not constitute an offer or solicitation to sell any security or fund to or by anyone in any jurisdictions, nor should it be regarded as a contractual document. Under no circumstances should the information provided on this newsletter be considered as investment advice, or as a sufficient basis on which to make investment decisions. The information contained herein has been gathered by Opalesque Ltd. from sources deemed reliable as of the date of publication, but no warranty of accuracy or completeness is given. Opalesque Ltd. is not responsible for and provides no guarantee with respect to any of the information provided herein or through the use of any hypertext link. Past results are no indication of future performance. All information in this newsletter is for educational and informational purposes and does not constitute investment, legal, tax or accounting advice.