ffirs.indd vi 16/09/10 7:30 PM GUIDE TO HEDGE FUNDS Second Edition ffirs.indd i 16/09/10 7:30 PM OTHER ECONOMIST BOOKS Guide to Analysing Companies Guide to Business Modelling Guide to Business Planning Guide to Economic Indicators Guide to the European Union Guide to Financial Management Guide to Financial Markets Guide to Investment Strategy Guide to Management Ideas and Gurus Guide to Organisation Design Guide to Project Management Guide to Supply Chain Management Numbers Guide Style Guide Book of Obituaries Brands and Branding Business Consulting Buying Professional Services The City Coaching and Mentoring Corporate Culture Dealing with Financial Risk Doing Business in China Economics Emerging Markets The Future of Technology Headhunters and How to Use Them Mapping the Markets Marketing Successful Strategy Execution The World of Business Board Directors: an A–Z Guide Economics: an A–Z Guide Investment: an A–Z Guide Negotiation: an A–Z Guide Pocket World in Figures ffirs.indd ii 16/09/10 7:30 PM GUIDE TO HEDGE FUNDS What they are, what they do, their risks, their advantages Second Edition Philip Coggan John Wiley & Sons, Inc ffirs.indd iii 16/09/10 7:30 PM Copyright © 2011 by The Economist Newspaper Ltd All rights reserved Text Copyright © 2011 by Philip Coggan All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada Published in Great Britain and the rest of the world by Profile Books Ltd No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or 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incidental, consequential, or other damages If the book title or subtitle includes trademarks/registered trademarks (Microsoft, for example) that require a statement on the copyright page, please add here For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002 Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books For more information about Wiley products, visit our web site at www.wiley.com ISBN 978-0-470-92655-0 Printed in the United States of America 10 ffirs.indd iv 16/09/10 7:30 PM To Robin Coggan (1918–88), who taught me that there was always more to learn ffirs.indd v 16/09/10 7:30 PM ffirs.indd vi 16/09/10 7:30 PM Contents Acknowledgements Introduction viii Hedge fund taxonomy The players Funds-of-funds Hedge fund regulation Hedge funds: for and against The future of hedge funds 16 35 55 64 81 94 References 114 Appendices Glossary Hedge fund facts and figures Index ftoc.indd vii 121 134 141 15/09/10 12:19 PM Acknowledgements W riting a book on this subject is rather like painting the Forth Road Bridge As soon as you have finished, you probably need to start again The industry is growing and changing so rapidly that it is possible to give only a snapshot of its state at the time of writing I was greatly helped by many people within and without the industry, most of whom are individually name checked in the book All quotes are taken from direct conversations with the author, except where identified One or two sources have asked to be anonymous Special thanks are required for those who gave extra help, notably Robb Corrigan, Peter Harrison, Dan Higgins, Narayan Naik and David Smith I would also like to thank my colleagues John Prideaux and Arun Rao for their comments after reading parts of the manuscript Thanks also to Stephen Brough of Profile Books for the original idea and to Penny Williams for her assiduous editing Finally, the greatest credit must go to Sandie for her constant love and support and her astute reading of the chapters If there are too many parentheses, it is no fault of hers Philip Coggan May 2010 viii flast.indd viii 15/09/10 12:18 PM GUIDE TO HEDGE FUNDS Table A1 Hedge fund performance % change in index Index 2004 2005 2006 2007 2008 2009 2010a Emerging Markets (Total) 18.42 21.04 24.26 24.92 –37.26 40.25 4.78 EM: Asia excl Japan 10.11 14.24 27.62 34.14 –33.48 37.53 2.62 EM: Global 15.69 13.29 18.15 20.39 –30.87 35.00 4.96 EM: Latin America 13.26 13.72 15.38 17.60 –28.99 47.07 –0.12 EM: Russia/Eastern Europe 32.03 52.65 38.71 24.81 –59.44 50.75 12.43 7.68 10.60 11.71 10.48 –26.65 24.57 4.32 Equity Hedge (Total) EH: Equity Market Neutral 4.15 6.22 7.32 –5.92 1.43 1.61 EH: Quantitative Directional 13.32 9.92 15.95 12.35 –22.94 14.32 2.95 EH: Sector – Energy/Basic Materials 34.91 23.40 16.13 16.40 –38.31 41.83 3.07 14.78 –16.73 25.76 3.89 EH: Sector – Technology/Healthcare 5.29 5.35 5.54 13.88 EH: Short Bias –3.83 7.28 –2.65 4.72 Event-Driven (Total) 15.01 7.29 15.33 6.61 –21.82 ED: Distressed/Restructuring 28.41 –24.03 –10.47 25.04 6.01 18.89 8.27 15.94 5.08 –25.20 28.14 6.80 ED: Merger Arbitrage 4.08 6.25 14.24 7.05 –5.37 11.65 1.85 ED: Private Issue/Regulation D 6.06 12.42 6.83 6.63 –10.12 –3.41 7.44 Fund of Funds Composite 6.86 7.49 10.39 10.25 –21.37 11.47 2.48 FOF: Conservative 5.83 5.13 9.21 7.68 –19.86 9.65 3.16 FOF: Diversified 7.19 7.46 10.18 9.72 –20.85 11.46 2.24 FOF: Market Defensive 3.27 5.87 8.97 6.01 3.40 0.47 FOF: Strategic 8.35 10.27 11.77 12.81 –25.16 13.25 2.40 Fund Weighted Composite ($) 9.03 9.30 12.89 9.96 –19.03 19.95 3.79 10.76 Fund Weighted Composite (7) 9.56 8.11 10.21 8.37 –19.17 19.70 3.82 Fund Weighted Composite (£) 12.15 11.03 12.19 10.30 –18.52 19.52 3.87 Fund Weighted Composite (¥) 7.14 5.72 7.36 5.00 –20.34 19.01 3.87 138 both.indd 138 15/09/10 12:51 PM HEDGE FUND FACTS AND FIGURES Index 2004 2005 2006 2007 2008 2009 2010a Macro (Total) 4.63 6.79 8.15 11.11 4.83 4.34 0.85 Macro: Systematic Diversified 6.42 14.40 16.84 10.34 18.06 –1.68 0.94 Relative Value (Total) 5.58 6.02 12.37 8.94 –18.04 25.81 5.38 RV: Fixed Income – Asset-Backed RV: Fixed Income – Convertible Arbitrage RV: Fixed Income – Corporate 11.86 7.86 8.70 –3.42 23.92 5.38 1.18 –1.86 12.17 5.33 –33.73 1.11 60.17 5.48 10.49 5.27 10.78 –0.74 –24.18 30.71 6.20 8.20 5.66 8.99 1.81 –20.30 24.67 7.03 18.44 5.37 14.39 –0.38 –25.70 25.55 5.87 Barclays Global Aggregateb – Government (£) – 4.98 –6.77 8.88 51.81 –8.05 4.32 Barclays Global Aggregateb – Government ($) – –6.13 6.29 10.74 9.65 3.28 –1.12 10.88 4.91 15.80 5.49 –37.00 26.46 7.05 RV: Multi-Strategy RV: Yield Alternatives S&P Total Return Note: EM = Emerging Markets; ED = Event Driven; EH = Equity Hedge; FOF = Fund of Funds; RV = Relative Value a End April b Lehman Brothers Global Aggregate until November 2008 139 both.indd 139 15/09/10 12:51 PM both.indd 140 1991 1992 21.22 1993 30.88 Source: Hedge Fund Research Inc 1990 5.81 32.19 1994 4.10 % change in index 1990–2009 1995 21.50 1996 21.10 1997 16.79 HFRI fund weighted composite index 1998 2.62 1999 31.29 2000 4.98 2001 4.62 2002 -1.45 2003 19.55 2004 9.03 2005 9.30 2006 12.89 2007 9.96 2008 -19.03 2009 19.95 –20 –15 –10 –5 10 15 20 25 30 35 2.1 A5 GUIDE TO HEDGE FUNDS 140 15/09/10 12:51 PM Index 130–30 funds 18, 102–4 A ABN AMRO 31, 52 Absolute Return fund 104 Absolute Return Tracker index 117 absolute value 114 academies 28 Accredited Home Lenders 42 Ackman, William 31–2, 49 active management 121 activist funds 31–2, 121 Adam, Michael 36 Adrian, Tobias 87 AHL 1, 27, 28, 36, 46, 99 Ainslie, Lee 53 Albertsons 39 Albourne Partners 16, 18, 92 alpha 11, 18, 28, 57, 92, 93, 105, 108, 110, 112, 116, 121 Alpha magazine 1, 38, 39, 41, 42, 44, 49 alternative assets 13, 42, 56, 121 alternative beta 33, 121 Alternative Investment Fund Managers Directive 65–6 Alternative Investment Management Association (AIMA) 73, 121 Alternative Investment Strategies (AIS) 92, 108 Amaranth 39, 55, 60, 86–7 American Enterprise Institute 38 American housing market 48 American mortgage market 5, 98, 107 annual fee 122 Anton supercomputer 41 AQR Capital Management 35–6 arbitrage 17, 20–5, 122 capital structure 22 convertible 20–2, 33, 44, 48, 124 equity volatility arbitrage index 10 fixed income 24–5, 126 merger 30–1, 48, 110, 129 players 17 regulatory 65, 67 relative value 114 riskless 20 sector capacity 113 statistical 22–3, 44, 50, 132 volatility arbitrage funds 32 Arjent 106 ARK foundation 102 Asness, Cliff 35 Aspect Capital 27, 36 Aspect Diversified 29, 36 asset allocators 33–4, 110 asset estimated growth 134, 135 Asymmetric Returns 92 ATM effect 47, 99 141 bindex.indd 141 15/09/10 1:53 PM GUIDE TO HEDGE FUNDS Atticus Capital 36 autocorrelation 91, 92, 122 Avenue Capital 96 AXA Rosenberg 104 B backwardation 122 Bacon, Louis 26, 47 Banerji, Arnab 45 Bank of America 41 Bank of England 86 banks during credit crisis 82 failure 82 G20 rules 65 see also individual banks and financial institutions Barakett, Timothy 36 Barclays Bank 31, 36 Barclays Global Investors (BGI) 36–7, 41, 103, 104 Baskin-Robbins model 60 Bayswater 59 bear markets 19, 28, 51, 93, 122 Bear Stearns 5, 25, 75, 76 Berkowitz, Howard 63 Bermuda 74 Bernstein, Peter 83 beta 11, 18, 33, 92, 109, 110, 121, 122 BH Macro 37 black swans see fat tails BlackRock 36, 43, 63, 104 Blackstone 56 blandness 60 Blue Bay Asset Management 107 Bluecrest Capital Management 37 BlueTrend 37 BNP Paribas Asset Management 59, 102 bond markets 47 bond spread 122 The Bonfire of the Vanities Bowie, Robin 98, 105–6 Braga, Leda 37 Brevan Howard 37–8 Bridgewater Associates 38 brokers’ commissions 14 Browder, Bill 68 Buffett, Warren 41, 108 bull markets 18, 28, 93, 122 buy side 123 C Caffray, Gil 96 call option 123 cap differentials 109 Capital Ideas 83 capital structure arbitrage 22 carbon markets 112 Carmignac group 104 carry trade 88 catch two-and-twenty 113 Caxton Associates 26, 38–9 Cayman Islands 4, 65, 74 Cazenove 59–60 Cerberus Capital Management 2, 39, 94 Cerberus Partners 39 Chanos, Jim 45 Chen, Peng 90, 93 Cheyne Capital 107 142 bindex.indd 142 15/09/10 1:53 PM INDEX The Children’s Investment Fund 52 Chrysler 2, 39 Citadel 39–40, 42 Citigroup 78, 96 cloning 108–11, 117, 123 closed fund 123 Coffey, Greg 43–4 Cohen, Steven A 50 collateral 123 collateralised debt obligations (CDOs) 25, 123 Commodities Corporation 47 Commodity Futures Trading Commission 27, 115 commodity trading advisers (CTAs) 22, 27–9, 46, 53, 115, 124 compensation structure 94 Conservative Party 37, 40 constant proportion portfolio insurance (CPPI) 61–2 contango 123 contract for difference 124 convertible arbitrage 20–2, 33, 44, 48, 50, 124 convertible bonds 20–1 Cooper-Hohn, Jamie 52 corporate bonds 21, 109 correlation 8, 59, 110, 124 CQS 40, 78, 79 credit crunch (2007–08) default swaps (CDSs) 25, 124 derivatives 16, 25 ratings 76 risk 13 Credit Suisse First Boston 37, 40 crossing the wall 124 CTA see commodity trading advisers D Daimler Dalio, Ray 38 Davis, Harry 71 DE Shaw 40–1, 94 DE Shaw Investment Management 41 Deloitte 74 delta hedging 125 derivatives 10, 16, 25, 68, 73, 125 Deutsche Börse 36, 52 Dexion Absolute 105 Dexion Capital 98, 105 Dexion Trading Fund 107 Dillon Read Capital Management (DRCM) 98 DiMaio Ahmad Capital 96 directional funds 25–9 distressed debt 29, 125 diversification 7–8, 19, 29, 56, 83 Dixons 20 dotcom boom 9, 26, 35, 53, 85 drawdown 125 Drexel Burnham Lambert 39 Drobny Global Advisors 16, 101 Drobny, Steven 16, 26, 101, 108 Dubin & Swieca 45 Dubin, Glenn 45 E E.D & F Man 46 143 bindex.indd 143 15/09/10 1:53 PM GUIDE TO HEDGE FUNDS Edens, Wesley 43 E.F Hutton 45 efficient market theory 114 emerging markets 109, 125 Enron 20, 45 equity funds 17–20 risk premium 125 volatility arbitrage index 10 ESL Investments 41–2 Euronext 47 European Union protectionism 65 regulation 1, 65–6, 83–4, 104 event-driven approach 29–34 exchange rates 26 exchange traded funds (ETFs) 113 F Farallon 42 fat tails 91, 92, 116, 126 Fauchier Partners 19, 56, 59, 102, 114 Fed model 35 Federal Reserve Bank 3, 82, 86 feeder funds 74 fees 6, 13–15, 18, 92, 94, 107–8, 116, 117 Feinberg, Stephen 39 Fidelity 35 film finance 33 Financial News and Wealth Bulletin 37 Financial Risk Management 107 Financial Services Authority (FSA) 68, 69, 73, 95, 126 Financial Stability Forum 10, 79, 80, 87, 89 Financial Times 104 Fink, Stanley 46, 67, 71, 73, 106–7, 112 Fitch rating agency 86 fixed income arbitrage 24–5, 126 Forbes magazine 40, 50, 53 Forstman Little 48 fortress Europe idea 65 Fortress Group 42–3, 94, 105 fraud 1–2, 64, 65, 71–2 Freedom Partners 44 Freeserve 20 front-running 72 FrontPoint 96 FTSE 100 91, 127 fund-of-funds 15, 19, 34, 46, 55–63, 93, 95, 99, 102, 105, 107, 108, 111, 116, 126, 136, 137 Funds of Alternative Investment Funds (FAIFs) 73, 125 Fung, William 57, 91, 93, 100, 109, 110 G G20 64, 65 Galleon 43 GAM 20, 58, 93, 111 gamblers’ fallacy 24 Gartmore 10 gates 5, 98, 100, 126 Gentile-Williams, Patric de 78, 100–1 Givelichian, Sorina 58 Glazer, Malcolm 48 144 bindex.indd 144 15/09/10 1:53 PM INDEX Glenwood 46 GLG Partners 43–4 Global Alpha 44 Global Cool 46, 112 global macro see macro funds GMAC (General Motors) 39 go-go markets 51 Goldman Sachs 10, 35, 41, 42, 43, 44, 48, 56, 103, 109, 117 Gotham Partners 49 Gottesman, Noam 43 Green, Jonathan 43 Greenwich Associates 7, 12, 101 Griffin, Ken 39–40 Grosvenor 56 Gruntal 50 GSO Capital Partners 96 Guide to Sound Practices for Hedge Fund Valuation 73 H Harding, David 27, 36, 53–4, 102 Harrison, Peter 11 hedge fund indexes (Table A1) 138–9 Hedge Fund Industry Awards 38 Hedge Fund Journal 37, 47, 53, 56 hedge fund managers anonimity 35, 53 asset holding 72 and bonds 21 business locations earnings 1, 7, 10, 13–15, 89, 97 and illiquid securities 106 income capping 84, 109 and income tax rates 84 independence of 74–5 performance fees 89, 105 and permanent capital 105–7 power in financial markets and prime brokers 95 registration of 66 risks to 6, 78–9 selection 58–60 skill 93, 108, 109, 110 success rate 7–8, 34 and traditional bankers working day hedge fund regulation 1, 4, 5, 9, 64–80 and AIMA 73 Alternative Investment Fund Managers Directive 65 in America 65–7, 69–72 in Britain 68–9 by G20 64 and derivatives 73 derivatives control 68 in European Union 1, 65–6, 83–4, 104 in France 68, 104 and fraud 65, 71–2 and FSA 69 Guide to Sound Practices for Hedge Fund Valuation 73 and hedge funds structure 74–5 and increased costs 101 Investment Company Act 70 and leverage 65, 68 NURS system 73 pay control 65 political concerns 64–5 145 bindex.indd 145 15/09/10 1:53 PM GUIDE TO HEDGE FUNDS in Portugal 68 prime brokers 75–8 and regulatory arbitrage 65 Resolution Authority Fund 66 and risk management 78–80 in Russia 68 SEC registration 66 self-regulation 73 separation from banks 67 success of 70 and takeovers 84–5 tax havens 65 Hedge Fund Research 8, 10, 16, 17, 56 hedge funds advantages of as alternative financial system analysis of 58 anonimity of 3, 16, 35, 47 average returns 11 and banks 82 categories 17 characteristics consolidation 99–102 definition problems 2, 3–4, 16–17, 67 as destructive 81 directional 17 during credit crunch earliest 4–5 event-driven 17 exclusivity 2, 15 future of 95–113 G20 statement on 64 growth 10, 112–13 high earnings and illiquid assets 88 illiquidity of and investment banks 78, 95–6 launches 100 links to banks and markets 64, 93 market capacity 112 market split 106 offshore 106 opponents of 81–93, 102 performance 58, 89, 90–1, 93, 130, 138–9 political backlash against 102 regulation see hedge fund regulation returns 91–3, 99, 109, 110 and risk 5–6, 81–2, 85–9 role in society 82–5 secrecy/opacity of 5, 6, 16, 35, 47, 64 and small investors 73–4 structure 74–5 supporters of 81–93 taxonomy (classification) 16–34 total number estimate 136, 137 Winslow Jones style 17 Hedge Funds Review 54 Hedgetracker.com 42 Heinz, Steven 45 Hellman & Friedman 42 Hermitage Capital 68 HFRI fund weighted composite index 140 Higgins, Dan 19, 20, 21–2, 23, 28, 29, 30, 56 high water mark 126 146 bindex.indd 146 15/09/10 1:53 PM INDEX Highbridge Group 44–5, 97 Hintze, Michael 40 Hohn, Chris 52, 102 holding companies 74 Hollingsworth, Roger 66 Howard, Alan 37, 38 HSBC 56 Hsieh, David 93 Hutton, Will 81 hybrid funds 43 I Ibbotson Associates 57 Ibbotson, Roger 90, 93, 99 illiquid markets 24 illiquid securities 106 illiquidity premium 95 illiquidity risk 13 implied volatility 110–11 income tax rates 84 indexes, hedge fund (Table A1) 138–9 index-tracker 127 Ineichen, Alexander 92, 108 information ratio 127 Ingram, Guy 16–17 Inside the House of Money 26 insider trading 43 insurance and risk 83 International Asset Management 85, 102 International Association of Financial Engineers 49 International Organisation of Securities Commissions (IOSCO) 67, 68, 71, 72, 79, 127 Investment Company Act 70 investment trust 105 investor returns 89–91 investors 6, 12–13 J Jabre, Philippe 43 Jagannathan, Ravi 93 jargon 3, see also glossary JMW Partners 45 JPMorgan 37, 44–5, 75, 96, 97 Julius Baer 58 K Kabiller, David 35 Kat, Harry 57, 91, 110 Kauffman, Robert 43 Kinsey-Quick, Ken 60 Kleinwort, Dresdner 11, 14, 78 Kmart 2, 41 Kodmani, Omar 58, 90, 98, 113 Kovner, Bruce 2, 38–9 Krail, Robert 35 kurtosis see fat tails Kynikos Associates 45 L Lagrange, Pierre 43 Laminar Direct Capital 41 Lamont, Norman 88 Lampert, Eddie S 2, 3, 41–2 Lancaster Investment Management 108 Lansdowne Partners 45, 96 Legg Mason 56 Lehman Brothers 41, 75–6, 88, 96 147 bindex.indd 147 15/09/10 1:53 PM GUIDE TO HEDGE FUNDS leverage 18, 24, 64, 68, 78, 82, 86, 103, 127 leveraged buy-outs (LBOs) 95 Liew, John 35 limited partnerships 74 Lionhart 7, 113 liquid funds 43 liquidity 98–9 liquidity crises 1, 61, 79 Lo, Andrew lock-up periods 100, 128 Loeb, Daniel 52 London Business School hedge fund centre 102 London School of Economics 102 London Stock Exchange 36, 37, 52 Lone Pine 53 long-only 18, 92, 102, 103, 104, 105, 128 long-short 17–18, 47, 50, 102, 128 long-term bonds 25 Long-Term Capital Management (LTCM) 3, 12, 24–5, 45, 57, 81–2, 86, 92, 95, 114 look back straddles 109 low probability events 79 Lowe, Alex 59 Lu, Sa 57 Lueck, Martin 36 Lyxor 56 M McCarthy, Callum 95 McDonald’s 49 Mack, John 97 macro funds 25–7, 128 macro managers 25–7 Madoff, Bernie 1–2, 5, 46, 55, 56, 60, 65, 72, 86 Major, John 88 Malakhov, Alexey 93 Man Booker Prize 46 Man Global Strategies (MGS) 46, 59 Man Group 1, 28, 44, 46, 53–4, 55, 56, 62, 67, 102, 105, 106 MAN IP 220 46 managed accounts 75, 128 Managed Funds Association 66 managed futures see commodity trading advisers Manchester United 48 Mandel, Stephen 53 Mansi, Chris 13, 93, 103, 111 market neutral funds 5, 18–19, 129 Markopolis, Harry 72 Marks, Michael 48 Marshall, Paul 47 Marshall Wace 46–7, 99 master funds 74 Master multi-strategy fund 37 Maverick Capital 53 Medallion fund 49, 50 Mercer 12 merger arbitrage 30–1, 48, 110, 129 Meriwether, John 24, 45 Merrill Lynch 48, 76, 93, 96, 101, 109, 110, 111 Meyer, Frank 39 MIBA 49 Mirsky, Robert 74 148 bindex.indd 148 15/09/10 1:53 PM INDEX Moore Capital Management 26, 43, 47–8 Morgan Stanley 41, 45, 60, 96, 97, 99 Morgan Stanley Investment Management 96 mortgage-backed securities 23, 48–9 MPC Investors 11 MSCI Investable Hedge Fund Index 90 multi-strategy funds 33–4, 48, 50, 62–3, 129 mutual funds 85, 129 N Naik, Narayan 57, 91, 93, 100, 109, 110 Nardone, Randal 43 negative skew 92 net asset value (NAV) 73, 129 New City Investment Managers 40 New York Federal Reserve 87 New York Stock Exchange 42, 48 NewSmith Capital Partners 48 No Bull 51 Novikov, Dmitry 93 NURS (non-UCITS retail scheme) system 73 O Obama, Barack 67 O’Brien, Mike 36, 103, 104 Och, Dan 48 Och-Ziff 48 offshore hedge funds 106 offshore holding companies 74 Old Lane 96 Orr-Depner, Nathaniel 7, 113 Osborne, George 38 over-the-counter 129 Oxford-Man Institute of Quantitative Finance 28, 102 P Pacific Alternative Asset Management Group (PAAMCO) 56 Pandit, Vikram 96 Paragon Capital Appreciation 60 passive management 129 Paulson & Co 48–9 Paulson, John 48–9 PCE Investors 78, 100, 101 Pelligrini, Paolo 48 penny stock 24–5 pension funds 12, 13, 16, 57–8, 65, 102 Perdon, Geoffrey 106 performance fees 89, 96, 105, 130 performance indices 90–1 Permal 56, 58, 90, 98, 107 permanent capital 105–7 Perry Capital 52 Pershing Square Capital Management 31, 49 Platt, Michael 37 Ponzi schemes 72 portable alpha 130 prime brokers 75–8, 79, 95, 130 private equity 94–5, 130 149 bindex.indd 149 15/09/10 1:53 PM GUIDE TO HEDGE FUNDS protectionism 65, 84–5 Pure Alpha 38 put option 130 Pyramis 104 Q quant manager 130 Quantum fund 51 Quayle, Dan 39 Queen’s Walk Investment 107 Robin Hood foundation 102 Roe, Nicholas 78 Roman, Manny 43 Roy, Paul 48 Royal Bank of Scotland 31 Ruddick, Simon 18, 21, 23, 31, 34, 92 Ruddock, Paul 45 Ruppert, Todd 103 Russell Investment 58 S R Rajaratnam, Raj 43 Ramadorai, Tarun 93 realised volatility 111 redemptions 53, 61, 98, 106, 130 Reeves, William 37 reflexivity 51 regulatory arbitrage 65, 67 rehypothecation 131 relative return relative value arbitrage 114 Renaissance Capital 22, 102 Renaissance Institutional Equity 50 Renaissance Technologies 49–50 replicating fund 110 replication 131 Resolution Authority Fund 66, 67 rich definition 70 risk 5–6, 81–2, 85–9, 101 and insurance 83 management 78–80 riskless arbitrage 20 RMF 46, 55 Robertson, Julian 6, 16, 25–6, 53, 59 S&P 500 58, 91, 92, 93, 109, 127 SAC Capital Partners 50 Salomon Brothers 24, 37, 45 Schroder fund management 45 Schulte Roth & Zabel 71 Sears 2, 41 Securities and Exchange Commission (SEC) 3, 18, 66, 69–70, 72, 131 securities mispricing 20 securitised assets 89 Seeking Alpha website 47, 52 Seifert, Werner 52 sell side 131 senior debt 22 seven pillars of risk assessment 79 seven-factor returns model 109 share prices quotations 23 shareholder voting 32 Sharpe ratio 29, 131 Shaw, David 40 Shirazi, Sahar 71 short volatility 91–2 short-selling 8–10, 18, 19–20, 21, 77, 84, 103, 131 150 bindex.indd 150 15/09/10 1:53 PM INDEX side letter 131 Simons, Jim 22, 49–50 skewness 132 Slager, David 36 Smith, David 20, 58–9, 93, 111 Smith New Court 48 Snow, John 39 social responsibility 102 Sociéte Générale Asset Management 43 Soros Fund Management 51 Soros, George 3, 16, 25–6, 35, 51, 59 Sortino ratio 132 Spokes, Andrew 42 Staley, Jes 96–7 standard deviation 132 State Street 103, 104 The State We’re In 81 statistical arbitrage 22–3, 44, 50, 132 Steenis, Huw van 60, 99 Steinhardt, Michael 6, 25–6, 51–2, 90 Steinhardt Partners 51–2 Sterling Stamos 96 Steyer, Thomas 42 stockmarkets 14, 17, 93 stop loss 132 stress tests 79 structured products 61–2, 88, 133 subordinated debt 22 subprime mortgages 5, 98, 107 Swenson, David 27 Swieca, Henry 45 Swiss Re 37 T T Rowe Price Global Investment Services 103 takeover bids 30 tax havens 4, 65, 74, 84, 106 TCI 31, 36, 52, 102 technical analysis 133 ten-year bonds return 109 Thames River Capital 60 Third Point Capital 52 ticket fee 78 tiger cubs 53 Tiger Fund 16, 53 Todd, Anthony 27, 28, 29 Tops 47 Treasury bonds 24 Tremont Partners 18 Trew, Pat 78, 79 Tudor Investment Corporation 53 Tudor Jones, Paul 26, 27, 53 U UCITS funds (undertaking for collective investments in transferable securities) 10, 73, 104–5, 106, 133 UK political climate 66 Union Bancaire Privée (UBP) 55, 56 Union Bank of Switzerland (UBS) 43, 56, 98 V value-at-risk (VAR) 80, 133 Vanguard 35 Vega Asset Management 35 151 bindex.indd 151 15/09/10 1:53 PM GUIDE TO HEDGE FUNDS Vix index 111 volatility 21, 30, 57, 59, 80, 107, 110–11, 133 volatility arbitrage funds 32 W Wace, Ian 47, 99 Walmart 42 Wall Street Journal 39 Watson Wyatt 13, 93, 103 Wells Fargo 36 Wendy’s 49 Whittier, John 71 Willis, Hugh 107–8 winner’s curse 30 Winslow Jones, Alfred 4–5, 17 Winton Capital 27, 28, 36, 53–4 withdrawal notice 100 Wolfe, Tom Wong, Tim 28 Wood, Matthew 108 Wood River Partners 71 WorldCom 20 Wyser Pratt, Guy 32 Wyser Pratt Investments 32 Z zero coupon bonds 61, 62 zero fund game 16 zero weighting 103 Ziff brothers 48 Zimmerman, Stephen 48 152 bindex.indd 152 15/09/10 1:53 PM ... Indicators Guide to the European Union Guide to Financial Management Guide to Financial Markets Guide to Investment Strategy Guide to Management Ideas and Gurus Guide to Organisation Design Guide to. .. Negotiation: an A–Z Guide Pocket World in Figures ffirs.indd ii 16/09/10 7:30 PM GUIDE TO HEDGE FUNDS What they are, what they do, their risks, their advantages Second Edition Philip Coggan John Wiley... 7:30 PM GUIDE TO HEDGE FUNDS Second Edition ffirs.indd i 16/09/10 7:30 PM OTHER ECONOMIST BOOKS Guide to Analysing Companies Guide to Business Modelling Guide to Business Planning Guide to Economic