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THE VOICE OF THE ALTERNATIVE INVESTMENT INDUSTRY

LAUNCHES

15 March 2004
INDUSTRY

News in brief
Martin Keller has left Dresdner Kleinwort Wassersteins prime brokerage division and has been replaced by Paul Dackombe, who will oversee strategy and new business development, and Gary Francis, who will oversee client services and delivery. Keller, who headed up DrKWs prime broking office in London, is believed to have moved to the private banking arm of Deutsche Bank. Keller joined DrKW from ING Barings in 2001 to build up DrKWs prime broking capabilities. These have been expanded in the past month by the banks offering of covered warrants to its hedge fund clients. Walter Kraushaar in Frankfurt will retain overall responsibility for the banks prime brokerage effort.A DrKW spokesperson declined to comment on the reasons for Kellers departure, but said:the bank remains firmly committed to the prime brokerage business. London fund administrator DPM Europe has recruited Ramona Bowry as relationship manager for its expanding European client base. Bowry will report to Alan Tooker, managing director, head of European and offshore operations for DPM. DPM has $18bn assets under management. Bowry was a risk analyst from 2001-2003 for Bright Capital. Following its announced acquisition of Tyrell Green, Londons Titanium Capital has appointed Ian Tyler as partner and principal manager of Titaniums commodity fund management programme. Tyler has spent more than 15 years specialising in the commodity sector, managing both proprietary and client assets on a fundamentally research-driven process.The Titanium Capital Commodity Fund plans to launch in April 2004. Last month, Hedge Funds Review erroneously named John-Paul Temperly as manager of New Stars Japan hedge fund. He manages Martin Curries Japan hedge fund, with Michael Thomas and Keith Donaldson. Martin Curries fund had $264.5m at 2 February and was up 38.87% since its launch on 30 June 2000. New Stars Japan hedge fund, launched in December 1999, is managed by Michelle Sanders and Alastair MacGregor.

Orn Capital to open 3As Italian bond arbitrage fund Innovation

Londons Orn Capital is to launch a convertible bond arbitrage fund to be managed by David Keetley, previously of Zelengora Capital Management, Schroder Salomon Smith Barney, and BAII Asset Management. Focusing on Europe and Asia, the fund is slated for a May launch. Orn Capital is recruiting an extra team member for the fund. The convertible arbitrage product will join Orns existing distressed, long/short equity, credit, multistrategy and merger arbitrage funds. The latter has widened its remit from merger arbitrage to include up to 25% exposure to special situations.
FLOATATION

The fund was recently reopened from closure at $300m, with an extra $100m capacity, half of which has been taken up already. Lindsay Jones, head of business development at Orn, said the convertible fund would be a Bermuda-domiciled masterfeeder structure, administered by Citco. As Orn already had a credit fund, Jones added the convertible fund would not be a credit fund in disguise. While the firm currently has no definite plans to launch further products, Jones said launching an equity long/short fund with a distinct geographic or sector bias would be of interest to the group.

Thames floats on LSE

Londons Thames River Capital has launched its London-listed investment company, Thames River Multi Hedge PCC Limited, and its sub-fund, Thames River Hedge on the London Stock Exchange on 23 February. The products raised 45m. Hedge+ has been designed to have a low correlation to traditional equity and bond markets and its investment objective will be to maximise capital appreciation in all market conditions through hedge fund and related investments. RMF has sponsored a US credit arbitrage fund run by Panton Capital Group, through its Hedge Funds Ventures programme. Panton uses a relativevalue, credit-trading strategy to capitalise on pricing anomalies in the credit, structured credit and derivatives markets. Panton Capital Groups principal, Kassy Kebede, has more than 13 years of industry experience in the fixed income, credit and equity markets. At Deutsche Bank, he was head of European fixed income derivatives and global equity derivatives and held a variety of positions involving Asia and Latin America. His previous employers include Bankers Trust and Merrill Lynch. Panton Capital Group is the tenth fund sponsored by RMFs Hedge Fund Ventures programme.

3A is to launch a fund of hedge funds for the Italian market at the start of April called the Innovation Fund, mixing alternative investments and traditional equity and bond instruments. The launch follows the 150m insurance firm mandate win by 3A for Highway Insurance to manage alternative investments, with Swiss bank UBP. Tony Morrongiello, 3As chief executive, said 3A would start off with the Italian product using three funds of hedge funds a multi-strategy, low volatility and equity long/short. The unlisted, open-ended product will carry fees of 1.5% management and 10% incentive. The portfolio will hold 30% each in alternatives and equities, and 40%, and is expected to launch with about 20m. The portfolio will get some beta in, as well as alpha from the alternatives, Morrongiello said. The bond portfolio will probably be very low duration and will not push out past two and a half years, so it will be a lowduration bond portfolio returning about 4% in euro terms. The launch adds to 3As large stable of funds of hedge funds, from Swiss- and London-listed Altin AG, through to unlisted emerging managers and funds of funds in other strategies. 3A, which manages about $1.2bn, has found success by eliminating the discount to net asset value of its flagship listed vehicle, Altin. The alternatives portion of the new vehicle for Italian investors will broadly resemble the strategy allocation of Altin, Morrongiello said.

Compliance with gigantic reporting regulations too hard using external funds

Germanys new reporting rules deter funds of funds

Some hedge fund firms are baulking at offering funds of external hedge funds in Germany due to onerous reporting rules under the new laws, with which some feel it too difficult to comply using external funds. Christian Wrede, chief executive of Axa (Germany) said Axa was planning a fund of internal hedge funds for launch by the second quarter of 2004. He dubbed the reporting requirements under Germanys new investment law gigantic, necessitating the decision to offer a fund of inhouse hedge funds. Axa is planning to register its funds of hedge funds in Luxembourg, investing in six to 10 underlying strategies and targeting annualised returns of 8-12%. Axa has four single-strategy hedge funds convertible arbitrage, statistical arbitrage, credit equity volatility arbitrage and managed futures. The group also has equity long/short products under the Axa Rosenberg banner. Wrede said requests for products have come from retail distributors and the institutional market and, while he feels the latter will prove the larger market, he said many people had underestimated retail demand. Groups accessing institutional buyers in Germany may not have to convince consultants to recommend them, as Wrede said only 10-20% of sales to pension funds there went through consultants, against 8090% in the UK. Nor may time be a consideration, with German regulators committing to approving appropriate products within one to two months, providing that applicants meet all legal requirements. But Wrede said finding quality external managers for funds of hedge funds who would fulfil reporting obligations could be difficult for some. Nevertheless, few firms are ignoring Germany completely, with Merrill Lynch Investment Managers, Credit Suisse Asset Management, Threadneedle and Templeton among those preparing hedge funds for the German market. Wrede said German investors would look for risk profiles of products. They want to understand what is the maximum loss they could incur, he said Klaus Esswein, managing director at State Street Global Advisors (Germany), said risk-focused products could prove the most successful in Germany for both institutional and retail investors. SSGA could initially use hedge fund provider Saris, in which it has a majority stake, to distribute products into the German market, however Esswein said SSGA would likely view how appetite for different types of product developed before launching into the market on a full scale.

Commodities bull run set to last

The commodities bull market has at least 10 years to run, making CTA hedge funds profitable investments, according to a commodity market expert. James Rogers, who founded a commodity fund in 1998 and also established the Rogers International Commodities Index, said commodity bull runs occurred as a simple function of supply and demand, and supply was currently undershooting supply of raw materials. The bear market in commodities has come to an end, he said. You have long periods when supply and demand get out of whack and you have major bull markets. In 1980s and 1990s, people were calling you with hot new stock and hedge funds but no one called up and said they had a sure thing in a lead mine or sugar plantation. No one was investing in commodities or productive capacity for commodities. In the 1970s, there were dozens of offshore oil rigs built every year. Since 1981, there have been a handful of offshore drilling rigs built because no one wanted to invest in productive capacity. Only one lead mine has opened in the last 25 years. So supply has fallen and demand has grown for 25 years. Rogers said the bull run would end when commodities hit all-time highs and although gold and copper have recently hit year-long highs, they have not reached all-time peaks. Jones is part of Lausannes Diapason Commodities Management, which launched a commodities fund in February tracking the 35-commodity Rogers index. All commodities in the index trade on public markets, and are reweighted annually according to their relative importance in the global economy and peoples lives. The third positive about commodities on top of demand is inventory, Rogers said. Up to the last bull market in commodities in the 1970s, everyone built up huge inventories in stock and because of the Cold War huge inventories were built up in the world. In the 1980s, for example, there was an inventory of stocks to sales ratio for foodstuffs of about 35%. That inventory to sales ratio is now down to the mid teens. That, throughout history, has led to a bull market in commodities.

Industry

Bayes to launch uncorrelated equity index futures fund

Bayes Capital has set 30 April as D-Day for its systematic G5 equity index futures fund to start trading. Bayes is taking subscriptions as of 1 April for the portfolio, which will aim to return 20% net to investors, with a maximum downside risk of 7% and maximum drawdown of 13%. Carl Moss, Bayess head of quantitative research, said the Dublin-listed fund would have virtually no correlation with other asset classes, but would have similarities with macro, CTA and equity-based strategies. Bayes could apply the systematic model further down the track to a fixed income, low-volatility portfolio, and to a fund going long and short hedge funds as hedge fund indexed products developed, he added. Moss and Jaspal Sian, Bayess head of research, managed about $18bn while at Kleinwort Benson Asset Management (KBAM), including KBAMs quantitative equity funds. Bayess new product will pick positions on a one-month horizon, an intermediate timescale that Bayes feels is underused by the wider asset management community. Daily inputs will trim positions, with adjustments limited to 10% of net asset value (NAV). It will trade market-specific index futures, rather than pan-European indices. As we have worked in asset management, it has become obvious the big institutions for various reasons tend not solely to pursue profit as an objective of their allocation, Moss said. Tax and regulatory constraints and benchmark-hugging may distort decision-making, Moss said, as may cultural biases or actuarial input in pension funds case. Moss said he did not expect the inefficiencies to be arbitraged away for the next 10-15 years, a situation Bayes would exploit. Stop-losses trigger if there is a loss exceeding 10% in a month and if the loss is sustained over three successive days, or if monthly loss exceeds 12%. Gearing can go up to 2.6 times NAV.