• Mutual fund reform loses momentum - Critics worry that attention has turned to Iraq, upcoming elections
• Bank of Bermuda/HSBC Targets Hedge Funds
• Do SEC Asset-Backed Rules Go Too Far?
• Structured products face best practice guidelines
• Reuters and CME to link up FX futures trading
• REFCO near buy-out deal?
• Oil market in a repeat of the 1970s; Opec ministers admit Oil price is out of their control
• Oil prices ease, Saudis determined to do whatever it takes to bring down prices
• ABP plans to allocate 20% to alternatives
• AHL is Man`s secret weapon – FT cautions
• FSA approval boosts Eurex US prospects
• LIFFE leads early in Europe`s U.S. futures quest
• UK: Board of Cazenove set to consider takeover talks with rivals banks
• Switzerland agrees to EU tax
• UNICO Asset Management launched first foreign Hedge FOF in Germany
• ADI launches NewAlpha incubator in Paris
• Funds flee Asian markets
• The end of a happy era for Asian borrowers
• Asian hedge funds set to grow

• 11th Annual Hedge Fund Forum New York City - Save up to $500
• NEW! : 2nd Annual Global Absolute Return Congress (‘Global ARC’) Boston
• 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
• 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

From The Baltimore Sun: Tainted employees have been fired, high-level executives charged with crimes, more than a billion dollars in penalties assessed and countless witnesses paraded before congressional panels. But eight months after widespread trading scandals rocked the $7.5 trillion mutual fund industry, many critics and insiders give the Securities and Exchange Commission a mixed grade for its efforts to clean up an industry that nearly half of American households rely on, saying too many of its proposals treat the symptoms and not the underlying disease. Source

The Bank of Bermuda, recently bought by HSBC, has expanded its relationship with SunGard's Reech unit to customize and rebrand its RiskHedge software product into a risk management engine for the bank's clients. Launched in January 2002, the Web-based RiskHedge allows fund managers and their investors to measure an array of risk--including value at risk, credit, market and beta risk, and scenario analysis. RiskHedge separately boasts about 30 direct--and 400 indirect--users, hence the deal with Bank of Bermuda is limited to the bank's hedge fund clients. Source

From Securitization News/Institutionalinvestor.com: The Securities and Exchange Commission has gone too far with its proposed rules for the asset-backed market, which in their current form could discourage some issuers from selling public transactions and make the entire financing process more expensive, according to members of the securitization industry. Among other elements, the 400-page document proposes forcing issuers to produce more detailed prospectuses, including information on sub-servicers and potential risks to the underlying pool for each transaction. Full article: Source

From MAR/Hedge: Five federal agencies, including the US Securities and Exchange Commission and four banking regulators, have invited comment on a proposed statement outlining sound practices for internal controls and risk management procedures for financial institutions involved in complex structured finance products. Instruments covered by the guidelines include financial derivatives for market and credit risk, asset-backed securities with customized cash flow features, and specialized financial conduits that manage pools of purchased assets. More: Source

From Reuters.com: Global information provider Reuters Group and the Chicago Mercantile Exchange said on Monday they had agreed a link offering the interbank foreign exchange market direct access to currency futures trading on the exchange. The link-up aims to give the professional interbank community now trading spot and forward products on the Reuters trading platform streamlined access to futures trading on the CME, the largest futures exchange in the United States. Source

Thomas H. Lee Partners is nearing a deal to buy a majority stake in Refco Group, the world's largest independent retail futures brokerage, The NY Post has learned. The Boston-based buyout firm is finalizing a definitive agreement to purchase a controlling interest in Refco in a deal that values the privately-held futures and options broker at around $2 billion to $2.5 billion, sources familiar with the situation said. Source

An analysis from Ameinfo.com:The reaction to high oil prices this summer is puzzling. Opec denies responsibility. And Western commentators now think their economies can live with higher oil prices. What does this mean? Answer: even higher oil prices, and we will probably see $50 per barrel and higher this summer. Full article: Source

From Reuters.com: Oil prices have fallen one percent after Saudi Arabia said it was raising oil output unilaterally above nine million barrels daily and pressed OPEC to lift production limits by as much as 11 percent. "It's early days yet, but I think the market is coming round to the fact that the Saudis are determined to do whatever it takes to bring down prices,"…More: Source

From IPE.com: Stichting Pensioenfonds ABP says its new strategic asset allocation targets an allocation of 20% to alternative investments such as hedge funds and private equity, adding that avoiding short-term risk is “not on option”. “In its strategic asset allocation, ABP has opted to allocate 20% of the portfolio to ‘alternative investments’,” the fund said. It defines alternatives as all investments other than equities and fixed-income investments, including real estate, private equity, commodities and absolute return strategies (hedge funds). Source

From the FT:….Since 1991, AHL has returned an annualised 19.8 per cent, without a single calendar year where it lost money. Indeed, in only three years (1992, 1994 and 1999) did it earn less than 10 per cent. In 2002, a terrible year for most fund managers, it returned 11.1 per cent. So what does that tell us? It could be that AHL managers are the statistical outlier. Their record could simply be an example of the dangers of relying on anecdotal evidence (Defenders of technical analysis often say "Of course it works. So and so has made millions from it." But what matters is the performance of the average chartist. Otherwise, you might as well say that playing the lottery "works" because every week someone wins £5m.)
It could be that AHL managers are very, very clever. But there are clever people all over the financial sector and most cannot replicate its record. Indeed, some in the industry simply cannot understand how Man/AHL has delivered such returns. And when the industry cannot figure out how it is done, investors should be cautious. Full article: Source

Eurex US, the fledgeling Chicago-based arm of the Swiss-German derivatives exchange, has won approval from UK regulator the FSA to operate as an overseas investment exchange. The FSA's recognition is considered critical to Eurex's chances of building liquidity for its new marketplace, which has struggled to make headway against incumbent operators. With the green light from the FSA, UK traders will be able to participate in the US marketplace directly from their screens in London. UK finance houses currently generate more than half the trading volumes on the main Eurex exchange. Source

From Reuters.com: A few months into the European incursion into U.S. futures markets, LIFFE's Eurodollar contract has outpaced growth of Eurex US but dealers are keeping an open mind on both experiments. LIFFE is going up against the Chicago Mercantile Exchange's (CME.N: Quote, Profile, Research) huge Eurodollar contract while Eurex US has taken on the Chicago Board of Trade's domination in U.S. Treasury derivatives. "Both contracts have fairly low penetration rates, but these are just the first skirmishes in what will be a pretty long war," said Mark Aarons, managing director of City of London Options Ltd. Source

From the FT: The board of Cazenove, the City of London's oldest remaining independent investment bank, will tomorrow consider whether to enter serious takeover talks with a number of rivals. It has received proposals from Lehman Brothers of the US and a handful of others, including some with little or no presence in the UK market. Source

From Portfolio-international.com: The European Union’s long-awaited Savings Tax Directive moved closer to fruition after a deal was reached this week between Switzerland and the EU. The two sides ended years of wrangling after agreeing on a series of treaties wherein Switzerland will be allowed to retain a degree of banking secrecy in exchange for its cooperation in taxing EU residents' savings. Luxembourg was also assured that its banks can offer the same terms to savers as those in Switzerland. Source

Luxemburg based UNICO Asset Management S.A. – a fully owned subsidiary of Union Asset Management Holding AG, Frankfurt has received permission from German regulator BaFin do distribute the UNICO AI Multi-Hedge Strategy. This is the first foreign hedge FOF to be distributed publicly in Germany. In German: Source

ADI, an independent French alternative fund manager founded by Erich Bonnet and Christophe Bourret, has launched a new hedge fund incubator in Paris called NewAlpha Advisers. The vehicle is dedicated to provide capital to new talents. In French: Source

From The Standard: Foreign investors are pulling money out of emerging markets at an increasing pace, according to Emerging Portfolio Funds Research, a United States-based company that tracks international equity and bond fund flows, with the week ending May 12 the worst of the year.
The focal point of concern is so-called ``carry trades'', in which investors, particularly hedge funds, have been caught between falling Asian equity and bond markets on one hand and a rising US dollar and interest rates on the other, suffering serious losses. The funds borrowed heavily in US dollars, which they expected to continue to fall against other currencies, buying what they expected to be cheap Asian assets on the supposition that their value would continue to go up. However, interest rates have begun to rise, as has the US dollar, and Asian equity prices have stalled. Full article: Source

From the FT: Over the past two years international bond markets had been a happy hunting ground for Asian companies. With interest rates at historic lows, a strong appetite for risky assets from global institutions and hedge funds, and a willingness by the region's savers to invest their immense wealth, Asian borrowers found it easy to tap global capital markets. The prospect of interest rate rises in both the US and China, and fears of a "hard landing" in the latter's overheating economy have triggered a sharp turnround in the fortunes of the region's bond markets. More: Source

A total of 56% of hedge-fund managers are based in the US, with 38% in Europe and only 3% in Asia. But not for long. Eurekahedge, a global hedge fund provider, believes Asian hedge funds will grow by $43bn in 2004. According to Eurekahedge, from the start of 2002 to the beginning of this year, the number of assets in Asian hedge funds has more than doubled from $14bn to $33bn. The number of funds has risen from 162 to 350. 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

Pension/Endowment speakers include:

• from North America: ABP Investments • Alberta Revenue • CDP Capital • City of Philadelphia Public Employees • Emory University Endowment • George Washington University Endowment • MIT Endowment & Retirement Plan • New Hampshire Retirement System • Texas Teachers Retirement System • The Atlantic Philanthropies • University of California Endowment • University of Texas Endowment • Verizon Investment Management • Virginia Retirement System • World Bank Pension Plan
• from Europe: AP7 Pension Fund • Danish Lawyers & Economist Pension Plan • KLM Airlines Pension Plan • Pension Fennia • Skandia Liv
• from Asia and Australasia: Commonwealth/Public Superannuation Scheme • Mitsubishi Corporation Pension Fund • New Zealand Superannuation Fund • Retail Employees Superannuation Trust • Victorian Funds Management Corporation

For registration go to www.global-arc.net or contact David Stewart at david@global-arc.net

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

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