Alternative Investment Management Association

AIMA JournalThe Global Forum for the Global Alternative Investment Management Industry

Q3 2010 www.aima.org No. 84

We have heard a lot about speculation recently. Whether it has been commodities, the Euro, or sovereign debt, policymakers and self-appointed experts have queued

up to attack “speculators” whose speculation is allegedly ruining markets and bringing down currencies and economies.

The rhetoric has been pretty tough. Some leaders talked of Europe being “under attack” from speculators. During the sovereign CDS crisis there were even reports that the intelligence services of various European states had been told to find out who the speculators were. One Greek newspaper reported that the Greek intelligence services had managed to “unravel the strands of speculation entangling the country,” and that they had identified the British and American sellers of Greek bonds.

Perhaps they would have been better employed looking closer to home. It has since emerged that some of the biggest buyers of protection in the Greek sovereign CDS market were Greek banks. Who were the other big players in Greek debt? French and German banks. In fact 95% of Greek debt is held inside the Eurozone (i.e not in the UK and US). So much for “Anglo-Saxon” speculation.

It’s all too easy to attack “speculation” because it is almost impossible to differentiate between speculation and trading in general. In fact the very use of the word “speculation” misunderstands the marketplace. Who in the marketplace is not there to profit? Either everyone in the marketplace is a speculator or the distinction is meaningless.

Unfortunately, policymakers have used “speculators” as a scapegoat to be blamed for any ill, regardless of the facts. And nor has their rhetoric been merely empty threats. There have already been very real examples of action taken – such as the recent unilateral German ban on naked short-selling. All this matters because when policymakers talk publicly about “speculators” they’re not talking about all financial market participants. They’re not even talking about the banks. They usually mean us – the global hedge fund industry.

There is a way to neutralise ignorant and prejudiced attacks like these, and it is education. Making people understand that our industry is not part of the problem, but part of the solution. Showing them that we genuinely contribute to the economies in which we operate and to the global economy as a whole. Not only in

terms of delivering returns to investors and price-discovery and liquidity to markets, although that is important, but in real tangible terms that people really understand.

Jobs are one important example of that, but perhaps even more important is the social dimension - the industry now is the guardian of many people’s pensions and savings and is the facilitator of their business loans and mortgages. In many instances it is hedge fund activity that enables pension funds, insurers and banks to offer the services that they do because they are niche operators capable of assessing and taking on risks that others are unwilling or unable to undertake.

Ultimately the best antidote to attacks on “speculation” is to demonstrate the social utility of financial services in general and our industry in particular. If our industry is perceived by policymakers as rich people using borrowed money to make more money for other rich people then they will not hesitate to impose punitive regulation. If they understand that we are a vibrant, creative and indivisible part of the asset management sector delivering real and important benefits to society, they might think twice.

AIMA, as the global industry body, is at the forefront of activities on behalf of the industry to demonstrate the importance and relevance of what we all do. We seek to provide a forum for all communications professionals in the industry to discuss and coordinate messaging so that we can deliver on our mission to educate. Please do contact our team if you’d like to be involved.

Speculation and social utility

Andrew BakerChief Executive Officer, Alternative Investment Management Association

Address froM the Ceo

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CoNteNts

Address froM the Ceo

SPONSORING MEMBERS OF AIMA

1 speculation and social utility

Press CLIPPINGs9 International press coverage of AIMA

AIMA CoMMIttees11 developments during Q2 with AIMA’s main committees

ChAIrMAN’s CoLUMN13 Institutionalisation of the industry

fIXed INCoMe16 seeking relative value at the long-end of the treasury yield curve

PIfs23 Malta’s ‘quasi-retail’ alternative investment structures

LAW26 US ‘ipso facto’ and UK ‘anti-deprivation’ - the Lehman ‘flip’ clause

INstItUtIoNAL INVestMeNt22 hedge fund investment by superannuation funds

CoNtACt Us31 how to reach us

GLoBAL NeWs4 recent regulatory, tax and other developments

fX trAdING18 New platforms enable smaller institutions to explore spot fX

PerforMANCe stANdArds20 how hedge fund managers can claim compliance with GIPs®

CAIA CoLUMN7 forming partnerships with top academic institutions

The AIMA Journal is published quarterly by the Alternative Investment Management Association Ltd (AIMA). The views and opinions expressed do not necessarily reflect those of the AIMA Membership. AIMA does not accept responsibility for any statements herein. Reproduction of part or all of the contents of this publication is strictly prohibited, unless prior permission is given by AIMA.© The Alternative Investment Management Association Ltd (AIMA). All rights reserved.

NeW MeMBers28 AIMA members who joined during Q2 2010

ANNUAL CoNfereNCe32 AIMA Annual Conference, AGM and 20th Anniversary reception

AIMA sPoNsorING MeMBer

Congratulationsto AIMA on its 20th anniversary

Simmons & Simmons is proud to be a Sponsoring Member of AIMA

Simmons & Simmons has a highly specialised international asset management and investment funds team. Across the globe we advise on the full range of legal and regulatory issues for participants in the asset management industry.

Acknowledged by the Legal 500 UK directory as the leading firm for hedge funds, the strength of Simmons & Simmons’ practice has also been recognised in a number of awards including the Funds Europe Award ‘European Legal Adviser of the Year’ 2006 to 2009 inclusive, The Hedge Fund Journal Award ‘Best Law Firm’ in 2007 and 2008, Global Investor Awards ‘Legal Firm of the Year’ in 2008 and 2010 and HFM European Hedge Fund Services Awards 2010 ‘Best Law Firm’.

To discuss how we can help your business, contact Iain Cullen or your usual contact at Simmons & Simmons.

Iain CullenPartnerT +44 20 7825 4422E iain.cullen@simmons-simmons.com

simmons-simmons.comelexica.com

Please note that some of the hyperlinks in this section are restricted to AIMA members.

GLoBAL

G20 leaders issue declaration at toronto summitFollowing their summit in Toronto in June 2010, the G20 leaders issued a declaration of the decisions agreed on the next steps they would take “to ensure a full return to growth with quality jobs, to reform and strengthen financial systems, and to create strong, sustainable and balanced global growth”. They said that their financial sector reforms rested on “four pillars” - the first of which is a strong regulatory framework, including “transparency and regulatory oversight of hedge funds, credit rating agencies and over-the-counter derivatives in an internationally consistent and non-discriminatory way”. The G20 leaders also acknowledged the significant work of the International Organization of Securities Commissions (IOSCO) to facilitate the exchange of information amongst regulators and supervisors, as well as IOSCO’s principles regarding the oversight of hedge funds aimed at addressing related regulatory and systemic risks. They additionally pledged to accelerate the implementation of over-the-counter (OTC) derivatives reforms, and reaffirmed their commitment to see trading of all OTC derivatives contracts on exchange or electronic trading platforms, where appropriate, and cleared through central counterparties (CCPs), by end-2012 at the latest.

CPss/IosCo consultationsThe Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of IOSCO published two reports for consultation on applying the 2004 CPSS-IOSCO Recommendations for CCPs to OTC derivatives CCPs, and on considerations for establishing trade repositories in OTC derivatives markets. AIMA submitted this response to both consultations, in which we supported the high-level principles in each report and commended the efforts to establish international standards and seek global coordination amongst national authorities in reforming OTC derivatives markets.

Chairman participates in IosCo ConferenceAIMA Chairman Todd Groome participated in a panel discussion entitled “Impacts of the

Proposed Regulatory Reforms on Unregulated or ‘Less-Regulated’ Market Segments” at the recent IOSCO Conference in Montreal. Other panellists included Tony D’Aloisio of the ASIC, Malcolm Knight of Deutsche Bank and Timothy Ryan of the Securities Industry and Financial Markets Association.

IMf tax proposals The International Monetary Fund (IMF) published a Report (26-page executive summary here) which proposed a Financial Stability Contribution Levy to be paid by all financial institutions - including hedge fund managers - and a Financial Activities Tax which would be levied on the sum of the profits and remuneration of financial institutions. (See the comment by AIMA’s Andrew Baker on this in the ‘Press Clippings’ section of the AIMA Journal.)

short selling notice boardAlready in 2010, there have been a number of new regulatory regimes introduced around the world to address perceived issues with the practice of short selling. This has included measures to address disruptive short selling (e.g. the US SEC’s ‘alternative uptick rule’) and new disclosure and reporting regimes (e.g. the BaFIN short selling disclosure regime). To keep AIMA members up-to-date with the developments, we have published on the AIMA ‘notice board’ publications summarising the various proposals, as produced by AIMA law firm and compliance consultant firm members. To access the page, click here.

New AIMA director of Policy and Government AffairsAIMA welcomed a new Director of Policy and Government Affairs, Jiri Krol, during Q2. Jiri is a Czech national who had been working at the European Commission in Brussels. He helped to run the Czech Presidency of the European Union in the first half of 2009. He is fluent in German, French and English as well as his native tongue. He took over the Policy brief from Florence Lombard, who stood down earlier this year.

New AIMA regulatory AssistantWe welcomed Daniel Measor to AIMA’s permanent staff as Regulatory Assistant. Daniel joined us from Allen & Overy, and is supporting Mary Richardson and Matthew Jones in the Regulatory & Tax Department of the Association.

eMeA

AIfM directiveAs the three-way (“trialogue”) discussions between representatives of the European Parliament’s ECON (Economic and Monetary Affairs) Committee, the Presidency of the Council of the European Union and the European Commission over the final draft of the Alternative Investment Fund Managers (AIFM) Directive got underway, AIMA produced this note that comments on the key provisions in the two different versions of the draft Directive that remain under discussion. The note had a clear focus on the European Parliament’s text, which we find more damaging. The issues taken up relate to third country (non-EU) issues; depositaries; delegation; leverage; remuneration; and short-selling. The trialogues were originally planned to conclude in time for a vote on the Directive to take place in the European Parliament on 6 July 2010, but they are currently deadlocked and are continuing into the third quarter of 2010.

eC consultation on derivatives and Market InfrastructuresThe European Commission published its long-awaited public consultation on Derivatives and Market Infrastructure, along with these FAQs. The consultation addressed a number of topics, including: clearing and risk mitigation of over-the-counter derivatives; requirements for Central Counterparties; interoperability; and reporting obligations and requirements for trade repositories. In addition the ECON Committee of the European Parliament published a report setting out the parliament’s views on the Commission’s formal legislative proposal. AIMA produced this short summary of the two documents.

eC consults on short selling and CdsThe European Commission published its Public Consultation on Short Selling, which set out options being considered by the Commission for a Europe-wide regime dealing with potential risks arising from short selling and CDS. A brief summary of the paper is available here.

Cesr MifId review consultationsAIMA submitted responses to three consultations published by the Committee of European Securities Regulators (CESR) which relate to

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Recent regulatory, tax and other developments around the world NeWs

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CESR’s advice to the European Commission in the context of the 2010 Markets in Financial Instruments Directive (MiFID) Review. The consultation papers covered topics on pre- and post-trade transparency in the European equities markets, questions on investor protection and intermediaries (including on phone taping and execution quality data) and transaction reporting.

Cesr consultation on transparency directiveAIMA submitted a response to the CESR consultation paper proposing to extend the European Transparency Directive notification and disclosure regime to encompass instruments which produce a similar economic effect to holding shares and entitlements to acquire shares, but without the contractual right to acquire voting rights.

Cesr UCIts guidance consultationAIMA submitted a response to a consultation on the Committee CESR Guidelines on Risk Measurement and the Calculation of Global Exposure and Counterparty Risk for UCITS. For a more detailed summary, click here.

Crd IV consultationThe European Commission published a consultation paper on the latest set of amendments to the Capital Requirements Directive (CRD) (2006/48/EC and 2006/49/EC), known as CRD IV. AIMA submitted this response.

solvency IISolvency II, which comes into effect in October 2012, will require European Union-based insurance companies to hold capital against certain risks, including market risk caused by their investment of policyholder funds with hedge funds. We prepared a detailed note on the issues surrounding Solvency II and the potential impact for the hedge fund industry.

fsA Client Assets regime The U.K. Financial Services Authority (FSA) published a consultation, CP10/9 - Enhancing the Client Assets Sourcebook, on proposed reforms to the UK client assets regime (the CASS regime), intended to protect clients and consider market stability in the event of a firm’s insolvency. The consultation took up many of the proposals from the HMT Treasury

paper Establishing Resolution Arrangements for Investment Banks. It is one of a series of consultation papers on enhancing the CASS regime to be published by the FSA in 2010.

U.K. financial services Act 2010The Financial Services Act 2010 introduced a range of new financial stability powers for the Financial Services Authority (FSA) and H.M. Treasury. The FSA published a consultation paper – CP10/11: Implementing aspects of the Financial Services Act 2010 – with proposals for use of some of the new powers and duties arising from the Act.

New U.K. regulatory structureThe U.K. Chancellor of the Exchequer, George Osborne, announced in a speech that the U.K. government would establish a new prudential regulator responsible for the prudential supervision of financial firms, including banks, investment banks, building societies and insurance companies, taking over many of the roles of the FSA, which would be disbanded. The prudential regulator will be a subsidiary of the Bank of England (initially chaired by the current chief executive of the FSA, Hector Sants), with the existing FSA becoming a new Consumer Protection and Markets Authority, responsible for regulating the conduct of all financial firms providing services to consumers and ensuring “good conduct of business” for UK retail and wholesale firms. An independent Financial Policy Committee at the Bank of England will be established to consider macro prudential issues. The changes will be put before parliament and are expected to be completed by 2012.

fsA fees and Levies PolicyThe FSA published a policy statement on the new fees and levies structure for 2010/2011. The FSA estimated that 40% of firms, including the largest firms of each category, would see an increase in fees whilst the rest would see a decrease over the year.

online system for applicationsThe FSA launched a web-based system for submission of regulatory applications for approved persons, appointed representatives, variations of permissions and similar purposes. The ONA (Online Notifications and Applications) system should make applications easier to submit and improve the FSA’s internal processing of the forms.

fsA mobile taping consultationAIMA submitted a response to the FSA consultation paper CP10/7: Taping: Removing the Mobile Phone Exemption, which proposes the removal of the current exemption from the telephone taping requirements in COBS 11.8 of the FSA Handbook for mobile electronic communications. We argued that the proposals would be unduly burdensome for a large number of AIMA members who would be required to comply with the requirements, and that the FSA should await the conclusion of the European Commission’s MiFID Review, which proposes to harmonise the taping rules across the European Union, before amending the rules.

fsA close link reportingThe FSA began requiring firms to report their close links (or cessation of existing close links) electronically using a new FSA template. Annual close links reports will still need to be submitted within four months of the firm or group’s accounting reference date. The provisions are contained in the FSA Handbook.

U.K. takeover disclosure regimeExtensions to the U.K.’s Takeover Panel disclosure regime (with some transitional provisions) took effect. The changes to the Panel’s Code were introduced as a result of PCP2009/1 and RS2009/1. In relation to Dealing Disclosures, new disclosure forms should be used to disclose dealings undertaken. Full details are available from the Takeover Panel’s website.

Notifying trading suspensionsFollowing its consultation issued in July 2009, HMT has now simplified the means by which the FSA notifies the market that it has suspended trading or removed a financial instrument from trading. A Statutory Instrument (SI 2010 No. 1193) which came into effect on 9 April 2010 gives the FSA the option of notifying firms of a trading suspension via a Regulatory Information Service (RIS), rather than by written letter.

U.K. offshore funds rulesThe finalised Offshore Funds Manual was published on the HMRC website.

taxation of ItCsWe received this letter from H.M. Revenue & Customs which outlined a change in their interpretation of one of the conditions that a company must meet to obtain approval as an

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Investment Trust Company (ITC) – an approved ITC is exempt from U.K corporation tax on chargeable gains and certain capital profits arising from loan relationships and derivative contracts. HMRC’s view is that part of the existing legislation is incompatible with EU law, and that a company should not be prevented from obtaining approval as an ITC where it invests more than 15% of its assets in a non-UK company which itself would satisfy the conditions for approval as an ITC (apart from the listing and the residence rules), and would not be a close company if resident in the UK.

U.K. capital gains taxThe Coalition Agreement between the U.K. Conservatives and Liberal Democrats confirmed the U.K. Government’s intention to tax “non-business capital gains at rates similar or close to those applied to income, with generous exemptions for entrepreneurial business activities”. Of particular interest was how a change to the U.K. capital gains tax rate on non-business assets might affect U.K. investors in alternative investment funds. Fund managers who are entitled to “carried interest” in the funds they manage may also be impacted.

German financial services reformThe German Ministry of Finance circulated the draft Act to Strengthen Investor Protection and to Improve the Operation of the German Capital Market, with proposals for significant reform of financial services regulation in Germany. The proposals included a prohibition on “naked” short selling; further regulation of covered short selling; an obligation to provide key information documents to customers prior to entering into trades; qualification requirements and registration with BaFin for investment advisers, individuals dealing with the distribution of financial instruments and compliance personnel; authorisation requirements and greater detail in fund prospectuses for close-ended funds; and additional redemption rules for German public real estate funds. Germany approves short selling legislationGermany’s two parliamentary chambers voted in favour of the proposed ‘Act to Prevent Abusive Securities and Derivative Trades’. The Act seeks to ban: • ‘naked’ short selling of all shares and equity derivatives of German companies traded on German regulated markets or foreign

companies’ shares and related derivatives traded exclusively on German regulated markets; • ‘naked’ short selling of Euro-zone country debt securities; and • all unhedged trading in CDS contracts where the underlying reference entity is a Euro-zone country.

AMerICAs

dodd-frank ActPresident Obama signed into law the Dodd-Frank Act. This came after Senate Banking Committee Chairman Christopher Dodd (D-CT) and House Financial Services Committee Chairman Barney Frank (D-MA) announced the conclusion of the conference committee, which had been working to reconcile differences between the financial reform bill passed in the House of Representatives in December 2009 and the financial reform bill passed in the Senate in March 2010. The committee approved what became known as the Dodd-Frank Wall Street Reform and Consumer Protection Act. Separately, AIMA created a noticeboard on aima.org which links to many of the latest law firm flyers and reports on the Dodd-Frank Act. The page is here.

seC Circuit Breaker rule proposalThe U.S. Securities and Exchange Commission proposed new rules to address the 6 May 2010 market disruption, which was purportedly caused by a number of contributing factors and exacerbated by high frequency trading practices. The rules include a mechanism to pause the market following unexpected market volatility – the ‘Stock-by-Stock Circuit Breaker Rule Proposal’. The proposed rules provide that if a stock on a U.S. equities exchange falls in value by more than 10% within five minutes, all trading of that stock on all U.S. equity exchanges would be suspended for the next five minutes. The rules will be tested via a pilot scheme in December 2010, and in the meantime will be subject to a short public consultation. The SEC and the Commodity Futures Trading Commission also published a report on their preliminary findings on the cause of the market volatility.

CftC position limits proposalThe U.S. Commodity Futures Trading Commission (CFTC) published for consultation proposals to

place new position limits on referenced energy contracts on regulated markets. AIMA submitted this response to the consultation. fCIC surveyThe Financial Crisis Inquiry Commission (FCIC) sent a Hedge Fund Industry Market Risk Survey to a large number of managers – seeking responses via the National Opinion Research Center (NORC), which would aggregate the data and submit it anonymously to the FCIC.

harmonised sales taxA Harmonized Sales Tax (HST), equivalent to a VAT, was implemented in the Canadian provinces of Ontario and British Columbia to replace provincial sales taxes. This change generally increased the taxes payable on investment management fees from the federal Goods & Services Tax (GST) rate of 5% to 13% in Ontario and 12% in British Columbia. Changes to the place of supply rules also meant that the domicile of the customer now determined the HST/GST rate to be charged, vs. the domicile of the supplier under the previous rules. Investment managers are required to obtain the provincial distribution of participants in institutional investor plans as at 30 September 2010 in order to determine HST/GST rates for 2011. This will be an annual requirement.

Matching tradesThe regulatory deadline for matching trades in Canadian securities (National Instrument 24-101) was set indefinitely at noon on T+1, or the day after the trade, pending industry developments. The deadline was previously planned to shorten over time.

reporting obligations in CanadaThe monthly reporting obligations related to terrorist financing were revised and standardised across Canada (CSA Staff Notice 31-317) and now require the electronic submission of the signed form. This regulation applies to international dealers and advisers exempt from Canadian registration, as well as Canadian registrants.

Canadian registration requirementsThe date of 28 September 2010 was set as the end of the transition period for a number of registration requirements introduced in 2009 under National Instrument 31-103. Under the requirements, non-resident international advisors, whose registration

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as an international adviser is revoked as of that date, must either have given a notice contained required disclosure to their Canadian clients and filed a submission to jurisdiction form with the applicable Canadian securities regulators, or applied for registration as a portfolio adviser.

AsIA PACIfIC

singapore regulatory regimeAIMA Singapore submitted this response to the Monetary Authority of Singapore (MAS) Consultation Paper (with appendix) on the Review of the Regulatory Regime for Fund Management Companies and Exempt Financial Intermediaries. AIMA expressed support for the principles of the new regime, which seeks to enhance regulatory oversight of entities

currently operating under the exemption regime and to raise the quality of the participants entering the fund management industry. The response also provides constructive comments on a number of issues in the proposed regime, which may still require further work by the MAS. Click here for more on the proposals.

Australian manager regimeAIMA Australia responded to the Australian Government’s IMR consultation paper, of particular importance to offshore managers seeking to establish a presence in Australia.

AsIC short selling disclosureThe Australian Securities and Investments Commission (ASIC) introduced a new short selling disclosure regime and commenced publishing data received (aggregated by product). It later issued a class order, modifying the definition

of “short position”. ASIC is now reporting short positions - see notes in ASIC Starts Reporting of Short Positions, with links to previously referenced Regulatory Guide 196, outlining the legal position as to what short sales are permitted, plus specific reporting and disclosure obligations, and Information Sheet 98, to help short sellers and systems developers prepare for the new short selling requirements.

Australian industry reportThe Australian Trade Commission published a study into Australia’s alternative investment management industry.

henry review reportThe Australian Government issued its final response to the Henry Review of the country’s tax system, which began in 2008. The report proposed a Resource Super Profits Tax.

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The Chartered Alternative Investment Analyst (CAIA) Association, which is dedicated to education, professionalism, and ethics in the alternative investment area, has established

a program to encourage academic institutions to incorporate alternative investment education into their mainstream curriculum.

Through the CAIA Academic Partnership Program, the CAIA Association forms partnerships with globally recognized, accredited academic institutions that agree to cover a significant portion of the subject matter addressed in the CAIA Program, including ethics and professional codes of conduct.

Academic institutions that participate in the program are able to offer students relevant programs in a rapidly changing market, make students more marketable when interviewing for jobs in the area of finance, economics, accounting, law, and related fields, and instil in them the concepts of professionalism and ethics. In addition, participating universities are able to present meritorious students with scholarships to sit for the CAIA exams after graduation. The CAIA Association offers scholarships to professors, as well.

In June 2010, the CAIA Association selected HEC Montréal as its inaugural academic partner. HEC Montréal, the first business school

in North America to hold triple accreditations in management education, was selected as a CAIA Academic Partner because of the importance it places on educating tomorrow’s investment leaders through a combination of academic rigor and practitioner relevant material. The CAIA Association will announce its second Academic Partner in September 2010.

The CAIA curriculum provides investment industry participants with an understanding of the risk-return attributes of alternative investments and their role in the asset allocation process. It is designed to teach candidates how to analyze and evaluate investments in hedge funds, private equity, real estate, managed futures, and real assets, and how to construct portfolios comprised of both traditional and alternative assets.

Under the CAIA Academic Partnership Program, academic partners are required to cover at least 60 percent of the CAIA curriculum. Students interested in earning the CAIA designation will be required to sit for the CAIA Level I and Level II examinations.

For more information about the CAIA Association and its Academic Partnership Program, please visit the CAIA website at www.caia.org.

forming partnerships with top academic institutions worldwide

CAIA AssoCIAtIoN NeWs

As a founding sponsor of the Chartered Alternative Investment Analyst (CAIA) Association, AIMA is able to offer member companies exclusive discounts on CAIA examination and membership fees. Employees of AIMA member companies are eligible for a 25% discount off the standard CAIA examination fees, and receive 60% off their first year of CAIA membership. Registration for the March 2011 CAIA exams opens 4 October 2010. For more information, see here.

AIMA sPoNsorING MeMBer

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Press CLIPPINGs

Please note that some of the hyperlinks in this section will be restricted to subscribers of the relevant publications.

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florence Lombard articleThe Financial Times’ FTfm section published a valedictory article by Florence Lombard, who stepped down from AIMA earlier this year, in which she reflected on policymakers’ tendency to launch unjustified attacks on the hedge fund industry.

Institutionalisation of the industryThe Hedge Fund Journal and Institutional Investor published a thought leadership article by AIMA Chairman Todd Groome on the institutionalisation of the hedge fund industry. The article appears on p13 of this issue of the AIMA Journal.

hfI columnAndrew Baker wrote a column for the HedgeFund Intelligence Global Review 2010 in which he outlined some of the global regulatory responses to the financial crisis.

G20 finance ministers meetingFollowing a meeting of G20 finance ministers, we issued this statement in which AIMA’s Todd Groome welcomed the group’s commitment to globally consistent hedge fund regulation.

Global regulationThis piece about the hedge fund industry for Australia’s Money Management magazine quoted Todd Groome.

IMf tax proposalsAndrew Baker was quoted commenting on the IMF’s tax proposals for hedge fund managers and other financial institutions in the Financial Times and City AM.

G20 on hedge fundsFollowing a G20 finance ministers meeting in Washington, the Wall Street Journal ‘Source’ blog quoted AIMA’s Todd Groome discussing the importance of globally coordinated hedge fund regulation. The news was also carried by Institutional Investor

eMeA

AIfM directivePossible compromise: We sought to encourage the process in the right direction through the press, with stories like these in EurActiv and European Voice laying the groundwork for a possible compromise.

U.s. coverage: This feature by U.S. magazine Absolute Return on the AIFM Directive quoted AIMA’s Andrew Baker.

German media interview: Andrew Baker commented on the Alternative Investment Fund Managers Directive in this interview with German financial newspaper Boersen-Zeitung. His comments that the Directive could damage the German asset management industry were later picked up by Investment & Pensions Europe.

depositaries article: In an article for Investment & Pensions Europe magazine, Andrew Baker said the AIFMD could restrict choice and impose some unreasonable burdens on depositaries.

Industry column by Andrew Baker: In a column for HFM Week, AIMA’s Andrew Baker commented on the Alternative Investment Fund Managers (AIFM) Directive trialogue process.

trialogue process: The trialogue stage of the AIFM Directive process was analysed by this piece in HFM Week, which quoted from a recent statement by AIMA.

texts compared: This assessment by Financial News of the different versions of the AIFM Directive quoted from a recent AIMA statement. Meanwhile, writing in Financial News,

Wider impact of directive: In this press release, we warned that the AIFM Directive would not only impact the hedge fund and private equity industries but also institutional investors such as pension funds and insurance companies, small businesses, development banks that invest in emerging economies, and real estate and infrastructure development.

eCoN and eCofIN votes: We issued this media statement following the votes on the Directive in the European Parliament’s Economic and Monetary Affairs Committee (ECON) and the

European finance ministers’ meeting (ECOFIN). News of the votes in ECON and ECOFIN, including comment by AIMA, was reported by a range of outlets including Reuters. Our concerns over the Directive’s possible impact on the Asian hedge fund sector were covered by these pieces on Bloomberg and in the International Business Times.

Vote postponed: The ECON Committee had earlier delayed a vote on its Directive text. The news was reported by The Independent in a piece that included a comment by Andrew Baker.

NAPf/AIMA/IMA letter: The Financial Times referred to AIMA’s joint letter to Members of the European Parliament with the U.K. National Association of Pension Funds (NAPF) and the U.K. Investment Management Association (IMA). The letter received widespread media coverage elsewhere.

BBC appearance: AIMA’s Andrew Baker was interviewed about the Directive on the BBC News Channel’s World Business Report.

Geithner urges rethink: U.S. Treasury Secretary Tim Geithner made a fresh plea to European governments to ensure that the AIFM Directive did not “discriminate” against U.S. fund managers in a letter to several E.U. finance ministers. The news, and a response from AIMA’s Andrew Baker, was carried by the Financial Times. The letter itself was published here by the FT.

G20 path on hedge fund regulation: We issued this press release about the AIFM Directive ahead of the G20 finance ministers’ meeting in Washington. It was reported by a number of publications including FT Adviser. Following the meeting of the G20 finance ministers, this blog by the Wall Street Journal reflected our statement welcoming the ministers’ restatement of their commitment to globally consistent and coordinated hedge fund regulation. Meanwhile, Investment Executive, Business News Network and the Globe and Mail newspaper in Canada captured AIMA Canada’s concerns with the AIFM Directive.

directive special report: Andrew Baker wrote an article about the latest developments with the AIFM Directive for The Parliament magazine (page 35).

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10 AIMA Journal Q3 2010

GLoBAL NeWsPress CLIPPINGs

AIMA letter to directive rapporteur: The AIFM Directive’s third-country provisions, if passed as currently drafted, “would represent a serious and, in European financial services legislation, unprecedented attempt at closing Europe’s borders”, Andrew Baker said in a letter to Jean-Paul Gauzès, the AIFM Directive rapporteur. The news of our letter was reported by the Financial Times and The Observer.

esMt report: AIMA said a report by the European School of Management and Technology (ESMT) that claimed hedge fund investors required greater protection from regulators made “a number of elementary errors”. Our comments were reported by Reuters and HFM Week.

one year on: Andrew Baker wrote a column about the AIFM Directive on the occasion of its one-year anniversary for HFM Week.

AIMA on otC derivatives reformOur press release in which we urged European Union policymakers to push ahead with reforms of OTC derivatives was picked up by various news outlets including Bloomberg and European Pensions.

New U.K. remuneration CodeAndrew Baker was quoted in a piece in Financial News about the U.K. Financial Services Authority’s new remuneration code for investment firms.

eU proposes short-selling measuresAndrew Baker was quoted in these pieces by Reuters, the Financial Times and Bloomberg after the European Commission’s draft short-selling regulations were published.

AMerICAs

dodd-frank ActAIMA issued this press release in which we said we would be holding meetings with U.S. policymakers and supervisors regarding the implementation of the Dodd-Frank Act. It was picked up by various news outlets including Dow Jones and Hedge Funds Review.

seC registration for non-U.s. managersHedge Funds Review reported on the likelihood of non-U.S. hedge fund managers having to

register with the SEC as a result of the Dodd-Frank Act. The article quoted from an AIMA press release on the subject (here).

U.S. financial reform taxBefore Dodd-Frank was passed, one of the proposals was to have introduced a tax on hedge funds to pay for the U.S. financial reform bill. We issued this statement expressing concern over the plans. It was reported by, among others, Dow Jones.

U.S. financial reformWe issued this statement to the media on U.S. financial regulatory reform legislation. It was reported by Dow Jones, HFM Week, the Hedge Fund Journal and Hedgeweek, among others. Meanwhile, Reuters carried a comment by AIMA’s Todd Groome about the “Volcker rule” measures in the bill.

dual registrationAIMA issued this press release in which we expressed concern over the potential duplicative registration of non-U.S. hedge fund managers in the U.S. where those managers are already registered and regulated elsewhere was reported by a number of outlets. It was reported by a number of outlets including HFM Week and the Hedge Fund Journal.

U.S. financial reformAIMA’s Todd Groome was quoted in the Washington Times following a pledge by House Financial Services Committee chairman Barney Frank that the eventual U.S. financial reform bill would be milder than the version passed recently in the Senate.

IosCo television appearanceAIMA’s Todd Groome was interviewed about regulatlory issues by Reuters Insider television during the IOSCO conference in Montreal.

Canadian televisionBNN featured AIMA Canada Chairman Gary Ostoich, who was asked about how hedge funds were faring and the challenges they face, and AIMA Canada Chief Operating Officer Corey Goldman, who was interviewed about the impact of the AIFM Directive on the Canadian market.

AIMA Cayman seminar Cayman Financial Review reported on AIMA Cayman’s seminars for independent directors.

AsIA PACIfIC

hedge funds outperform equitiesAsian Investor quoted AIMA Hong Kong’s Christophe Lee saying that research has showed that hedge funds outperform stock indices, and at lower levels of volatility.

AIMA hong Kong plansAsiaHedge outlined some of AIMA Hong Kong’s areas of focus in 2010, with responses to major regulatory changes, tax changes and investor education among the key areas.

hong Kong short selling restrictionsAn AsiaHedge Newsletter report about Hong Kong managers’ concerns over new short selling reporting thresholds quoted AIMA Hong Kong’s Jo Orgill. A separate article by the Taiwan Economic Daily News about the ban on naked short-selling in Germany quoted AIMA Hong Kong’s Christophe Lee noting the fact that Hong Kong hedge funds did not engage in naked shorting.

regulation in hong KongThe Hong Kong Economic Journal reported on the different regulation of hedge funds in Hong Kong and other financial centres after the economic crisis. The article quoted AIMA Hong Kong’s Christophe Lee noting the effectiveness of the Hong Kong regulatory system.

singapore reformThe Financial Times, quoting AIMA Singapore’s Michael Coleman, welcomed proposals by the Monetary Authority of Singapore (MAS) to impose capital requirements and business conduct rules on funds that have been exempt from regulation. Reuters quoted AIMA Singapore saying hedge funds could face higher operating costs as a result of the changes. The Business Times also cited an AIMA Singapore survey.

singapore start-upsA Bloomberg article about growth among Singapore start-up hedge funds quoted AIMA Singapore’s Michael Coleman.

Letter to financial timesMichael Coleman, in a letter to the Financial Times, stressed that Singapore was no “regulatory soft touch”.

Australian superannuation fundsPensions & Investments reported a rise in Australian superannuation funds’ average allocations to hedge funds.

(Continued from page 9)

AIMA Journal Q3 2010 11

AIMA CoMMIttees

tax Committee

Description: The Tax Committee provides a forum for the exchange of ideas and information on issues of topical relevance, and an opportunity to assess consultations on changes to tax legislation around the world. It meets approximately once every two months and has a 14-strong core committee and a 15-member wider circle, all drawn from AIMA member firms.

Q2 reviewThe AIMA Tax Committee was active in various jurisdictions in respective of tax issues affecting the hedge fund industry. In particular:

• A submission was made on 29 June 2010 to the US Treasury department and IRS in relation to the interpretation and implementation of the Foreign Account Tax Compliance Act (FATCA) provisions (disclosure regarding ‘US accounts’ or withholding tax);• Input was provided to a submission made by AIMA Australia in relation to the Australian Government’s Consultation Paper on Developing an Investment Manager Regime, which we hope will go some way to alleviating the current FIN48 issues experienced in this jurisdiction

We also continue to monitor the following issues and will make submissions as appropriate in due course:

• The possibility of “onshoring” hedge funds in the UK – we will be conducting detailed interviews with various managers shortly, ahead of consideration of further representations to the Government;• The UK Bank Levy and proposed transactions tax and its application to hedge fund managers;• Issues in relation to the application of s490 of the Corporation Tax Act in respect of “near cash” assets

research Committee

Description: The Research Committee was set up to create a forum for greater collaboration among hedge fund industry market participants including leading academic researchers and representatives from regulatory bodies.

Q2 reviewThe committee provided advice to the private sector initiative OPERA to help it to improve its template for reporting and analysis of individual hedge fund performance as well as hedge fund investor transparency. The committee also supported similar demands from the industry public sector and regulatory bodies, most recently assisting the U.K. Financial Services Authority with the publication of its recent hedge fund survey (July 2010).

A working group of the Research Committee was created to produce an AIMA Guide to Sound Practices for managed accounts. The group’s findings are likely to be published by the end of 2010.

The Research Committee also contributed to the revised AIMA’s Illustrative Questionnaire for Due Diligence of Hedge Fund Managers, which was published in June 2010.

Global Communications Group

Description: The Global Communications Group acts as a forum for global communications discussion and to co-ordinate common activities around the world. The group comprises AIMA’s network of people around the world and plays a vital role in our global communications effort.

Q2 reviewOur conference call in May came on the day we issued a media statement in response to the European Parliament and Council discussing their respective drafts of the AIFM Directive. We updated members on the progress of the Directive campaign.

We also briefed the group on our media response to the U.S. financial reform legislation. We continue to give the group as much support as possible in terms of being kept up to date with the latest communications planning and receiving all the latest material we produce.

AIMA Communications Group

Description: The AIMA Communications Group comprises communications/PR representatives of AIMA member firms and also members of leading PR agencies who represent hedge funds. The group assists

with the coordination of communications strategies across the industry and consults with members on our communications activities. It provides leadership within the PR/communications sector on behalf of the industry and keeps the sector updated on all our on-going activities.

Q2 reviewThe group met against a backdrop of the Greek sovereign debt crisis and delays over the AIFM Directive, and discussions focused on the impacts of those issues on hedge fund industry PR. We circulated an AIMA report that underlined the comparatively small size of the Greek sovereign CDS market and the equally small role played by hedge funds within it. We highlighted a new thought leadership article by AIMA Chairman Todd Groome, into the institutionalisation of the hedge fund industry (published later in this issue of the AIMA Journal). We also extended an invitation to member firms to contribute to the AIMA Journal.

Investor steering Committee

Description: The Investor Steering Committee (ISC) was set up to ensure that the Association benefits from the input and opinions of hedge fund investors, and continues to pursue objectives supported by the industry and all types of market participants. More recently, the ISC’s focus has involved issues related to the increasing influence that institutional investors are having with regard to hedge fund activities and infrastructure.

Q2 reviewIn conjunction with the AIMA Research Committee, the ISC assessed the merits of leading hedge fund private sector initiatives, and in particular the OPERA project, and offered its collective guidance regarding the OPERA flagship template for reporting and analysis of hedge fund exposures. The OPERA and similar related projects are seeking to develop more common and standard metrics, and project participants include both managers and investors.

A working group was set up to produce a paper highlighting the infrastructure and operational requirements a hedge fund manager should expect from institutional investors. This paper is scheduled to be completed during Q4.

A round-up of Q2 developments in AIMA’s committees CoMMIttee WAtCh

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The institutionalisation of the hedge fund industry

ChAIrMAN’s CoLUMN

By Todd Groome, Chairman, AIMA

thoUGht LeAdershIP ArtICLe

The hedge fund industry has become increasingly institutionalised, as reflected in the operational “infrastructure” developed by managers, the increasing and now majority position of institutional investors among the industry’s capital base, and the continuing convergence of investment practices among traditional and alternative asset managers

The perception has long been that those who invest in hedge funds are high net-worth individuals. That was largely true when hedge funds first began many years ago, but it is no

longer the case. Today, investors in hedge funds are more likely to be institutions, such as university endowments, charitable foundations, public and private sector pension funds, and sovereign wealth funds.

This investor transformation has been a gradual process that reached a material milestone last year when, according to research by AIMA, institutions for the first time accounted for an absolute majority of hedge fund assets under management. Research has also shown that during much of the past 10 years, institutional investors represented the majority of net new investment capital in the industry. A recent survey by Pensions & Investments magazine also found that 75% of assets managed by the largest hedge fund firms came from institutional investors. And this is a trend we expect to continue. For example, a Deutsche Bank study indicated that 68% of institutional investors intended to increase their allocation to hedge funds in 2010.

Such institutional interest is also evident among smaller hedge fund managers - a strong endorsement of the industry and its entrepreneurial nature. Many institutional investors are attracted to early stage managers and smaller funds, even start-ups, believing they offer the opportunity for very attractive returns, preferred capacity arrangements as they grow, and the ability to influence portfolio structure and investment terms. Such investors however remain very demanding, and typically continue to require an institutional “infrastructure.” As such, today smaller firms and even start-up funds demonstrate world-class asset management systems and operations.

Within the institutional investor base, pension funds are a very important constituency. Of the total capital from institutions, AIMA’s research suggests that about one-third comes from pensions. Pension managers describe their interest in hedge funds as the ability to realize higher quality returns (i.e., lower volatility, and downside protection or capital preservation), as well as additional risk management expertise and increased trading or market nimbleness (i.e., the ability to process market opportunities) - attributes which are particularly valued in recent markets. From a macro perspective, advanced economies across the world are facing demographic pressures, and the funding positions of many pensions are challenged. Therefore, it is not surprising that hedge funds are valued for their superior risk-adjusted and diversifying returns.

The evidence backs this up. Hedge fund managers have typically outperformed equity and other indices over medium and longer term

periods; the Hennessee Hedge Fund Index gained 88% from 2000-2009, while the S&P 500 experienced a decline of 23%, the Dow Jones Industrial Average fell 9%, and the NASDAQ Composite Index declined 44%. Moreover, Hennessee’s annualised “volatility index” over the last decade experienced a standard deviation of only 7% for hedge funds, compared to 16% for the S&P 500 and Dow Jones Industrial Average, and 27% for the NASDAQ. Of course, such performance figures are even more pronounced in favour of hedge fund investments during specific down market periods.

Pensions and other institutional investors view hedge funds as a growing part of their diversified investment portfolios. Pension funds globally, for example, typically have allocated less than 5% of their portfolio to hedge funds or funds of hedge funds (generally targeting 8 -10%). While this share has increased over the last few years, many analysts expect both pension fund allocations and targeted exposures to double or even triple in the years ahead.

This is a global trend. In the U.S., private sector pension funds look to allocate on average about 10% of their assets to hedge funds, a little ahead of public sector pensions, which target 8% on average. In the U.K., some of the larger schemes have allocated up to 15% of their portfolio to hedge funds. In continental Europe, the allocation to hedge funds by pensions has been more mixed, but pension funds in some markets, such as the Netherlands, have embraced hedge funds and other alternative investment strategies, particularly following the adoption of new pension regulations and tougher risk controls and funding requirements.

The global economic crisis caused only a temporary interruption to the growth of institutional capital in hedge funds, with inflows returning to healthy levels in the second half of 2009. Recent surveys by Credit Suisse and Deutsche Bank suggest that the industry may attract $200-300 billion of net new capital this year. It also appears that a large portion of the redemptions during the 2008 – 2009 period were made by high net worth individuals, rather than institutions, and that institutional investors continued contributing new capital throughout much of 2009.

Growth of operational infrastructureAs part of its growth and maturation, and in line with greater institutional investor participation, hedge fund firms of all sizes have become more institutionalised in terms of their operational infrastructure and systems. This can be seen in the increased number and professional experience of non-trading staff, as well as the robustness of the risk management systems, compliance procedures, performance and risk reporting (internally and externally), governance structures, and overall operational infrastructure employed today throughout the industry. Institutional investors demand the highest quality of operational and risk management systems from their

AIMA Journal Q3 2010 13

(Continued on page 14)

(Continued from page 13)

thoUGht LeAdershIP ArtICLe

investment managers, and therefore both to attract and in response to investor feedback, hedge fund managers have developed among the most sophisticated asset management and trading infrastructures in the financial services sector.

This high level of operational infrastructure and risk management was evident during 2007-2008, and later highlighted favourably in various studies conducted by national and international regulatory authorities, including with regard to such issues as counterparty risk management. Most simply, hedge fund managers have always understood that, unlike other institutions, they will not receive government support during a crisis or market disruption, and therefore risk management practices and related systems must be of the highest quality.

Such infrastructure development has required significant investment by managers in technology and people. However, by any calculation, the benefits to investors and managers clearly outweigh the costs. The growing emphasis by investors and policymakers on transparency, risk analysis and risk reporting will serve to reinforce this infrastructure build, and the industry is working closely with investors and regulators on such issues. Indeed, beyond near term changes related to a new regulatory framework, the most influential changes to our industry are likely to be driven by the private sector (i.e., initiated by investors and managers). The industry has been and will no doubt remain very focused on investor requirements, and thus can be expected to continue to develop world class investment platforms.

The relationship between institutional investors and hedge fund managers has also been evident regarding regulatory reform. For instance, some of Europe’s largest and most sophisticated pension funds have expressed concerns with the proposed EU Alternative Investment Fund Managers Directive (AIFMD). Through letters submitted to the Commission and the European Parliament, several groups of pension schemes have outlined how they would likely experience less investment choice and lower investment income as a result of the proposed Directive, and thus be forced to increase contributions (in some cases materially). Said differently, while such investors support steps to improve financial stability, they do not desire product level regulation or other public initiatives that may dramatically alter the business model or the investment framework, preferring private investor initiatives in this regard.

Convergence of alternative and traditional asset management practicesThroughout much of the ongoing regulatory reform debate, it has been apparent that some policymakers lack a reasonable understanding of the important role of non-banks, including hedge funds, and the function of markets in today’s economy. This is of course a concern, since the proposed reforms have important real economy implications. More broadly, hedge funds should not be viewed as a distinct asset class, mere speculators (as distinct from investors), or a high risk group. Rather, hedge funds should be seen as part of the

asset management industry. More specifically, hedge fund managers should be viewed as providing an active style of portfolio management – utilising a variety of hedging practices to reduce volatility, protect capital, and improve returns.

Hedge fund managers provide such investment skills through a variety of legal structures, products and strategies. In addition to a wide range of investment strategies, covering both very liquid and less liquid asset classes, many managers today offer long-only actively managed portfolios, attracting existing and new institutional investors, and more recently have offered UCITS, ETF and various fund of hedge fund products for institutional and individual investors.

This trend has been largely investor demand-driven. As a result, traditional asset managers are also increasingly employing a variety of hedging tools, such as short selling and derivatives. Many traditional asset managers also offer UCITS, ETF and fund of funds products to institutional and individual investors. We believe this is both a healthy and logical trend, and reflects the on-going convergence of hedge fund and traditional asset management practices.

Throughout its existence, the hedge fund industry and managers have demonstrated an innovative and robust approach to asset management, and as such the industry has successfully responded to changing market conditions and investor demands. The business model, product offerings, and investment practices of hedge fund managers will undoubtedly continue to evolve, and given the growth of the institutional investor base and the related operational infrastructure developed by managers, the industry is increasingly viewed as an established and mature sector within the asset management and financial services industry. Indeed, with increasing demand for higher quality returns from all types of investors, we expect more fund managers to employ hedging practices typically utilised by hedge fund managers. Interestingly, some investors have begun selecting external managers unconstrained by whether they are a hedge fund or a long-only manager, but rather seeking the best manager, strategy, and portfolio exposure. This seems a sensible way to manage investment portfolios, and to select the best investment partners.

The institutionalisation of the hedge fund industry has been a developing theme throughout the past decade, and will no doubt continue. Hedge fund managers of all sizes and from all regions are equipped to professionally manage the capital from a growing and sophisticated institutional investor base. The operational infrastructures developed and evident across the industry today will also enable hedge fund managers to meet the emerging regulatory framework, as well as to offer a growing variety of products to an expanding investor base.

Todd Groome is the Chairman of AIMA

An abridged version of this article appeared in the Financial Times’ FTfm supplement

14 AIMA Journal Q3 2010

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16 AIMA Journal Q3 2010

froM oUr MeMBers

For the last 20 years, institutional fixed income investors have faced increasing difficulty in obtaining long-term exposure in Treasury cash and derivatives markets. Beginning in the 1990s, as the U.S.

federal budget moved from deficit to surplus, the Treasury Department took several steps to reduce the supply of long-dated Treasury bonds through fewer bond auctions, smaller issuance sizes, security buybacks, and, finally, suspension of bond issuance altogether.

At the same time, long-term Treasury yields have moved secularly lower by approximately 400 basis points from 8.% to 4.5%, causing the current U.S. Treasury Bond (T-Bond) futures contract’s effective maturity to shorten drastically to the point that many users of the contract found it to be unsuitable proxy for on-the-run 30-year Treasury yield exposure. These developments have left fixed-income investors such as hedge funds with few avenues for gaining or shedding long-dated Treasury yield exposure.

New development, new opportunityWith the U.S. Treasury Department fiscal policy shift toward greater issuance of long-term bonds in April 2009, market participants needed a tool that allowed them to manage very long-dated Treasury exposure. In response to that need, CME Group developed the “Ultra” Long-Term U.S. Treasury Bond futures contract. Ultra T-Bond futures are a natural complement to CME Group’s U.S. Treasury futures complex, providing market participants with a more direct way to manage long-term interest rate risk and add incremental value to their portfolios.

Since launching on 11 January 2010, Ultra T-Bond futures has established itself as the most successful U.S. dollar interest rate futures contract in CME Group history. In just five months of trading, Ultra Bond futures have eclipsed all exchange volume and open interest records for new interest rate futures contract with 19,567 contracts in average daily volume and current open interest of 139,275 contracts.

Product designThe key design feature that differentiates Ultra T-Bond futures from its T-Bond futures cousin is its relatively narrow range of deliverable terms to maturity. Deliverable grade for Ultra T-Bond futures comprises Treasury bonds with at least 25 years of remaining terms to maturity. By comparison, deliverable grade for existing T-Bond futures admits bonds with remaining terms to maturity of 15 years or more*. In all other respects, the contract

specifications for Ultra Bond futures closely resemble those for the existing T-Bond contract (Exhibit 1). They are identical in terms of their $100,000 notional size, contract expiry listings, contract critical dates (i.e., eligible delivery dates, last trading day), and the 6% notional coupon yield that determines the conversion factors for delivery invoicing.

BoB spreadWith Ultra T-Bond futures, relative value traders have a new futures contract at their disposal that can be used in combination with the original Treasury Bond, or T-Bond, futures contract to create synthetic market exposure to Treasury bond market yield spreads. The T-Bond-over-Ultra T-Bond — BOB — futures spread gives traders a simple, cost-efficient and standardized method to create synthetic market exposure that isolates the long-end of the Treasury yield curve.

Under prevailing market conditions, T-Bond futures tend to track yield dynamics in the 15- to 20-year segment of the Treasury yield curve*. By contrast, Ultra T-Bond futures are structured to track the yield dynamics of 25- to 30-year Treasury bonds. As Exhibit 2 illustrates, the spread between them features two characteristics that are attractive to relative value traders: secular stability and ample short-term volatility.

Secular stability: Apart from the turmoil associated with the financial crisis of late 2008, the BOB futures spread has typically traded between -200 and -300 32nds of a price point. That is, over the last three years or so the price of Ultra T-Bond futures has traded approximately 200 to 300/32nds above the price of T- Bond futures. The spread data prior to 11 January 2010 has been calculated using synthetic prices for the Ultra T-Bond.

Seeking relative value at the long-end of the treasury yield curve

By Daniel Grombacher and Jonathan Kronstein, CME Group

fIXed INCoMe

* However, effective with the March 2011 expiry, the deliverable basket for the T-Bond contract will include bonds with remaining terms to maturity of at least 15 years, but less than 25 years.

(Continued on page 17)

AIMA Journal Q3 2010 17

froM oUr MeMBers

Short-term volatility: Over the same interval, the BOB spread has left a regime of reasonably stable volatility — prior to the arrival of the financial crisis in the fourth quarter of 2008, with monthly standard deviations of daily spread changes typically between 5 and 10 32nds of a price point — and has entered a regime of notably unstable volatility. In short, even as financial market conditions have stabilized, daily volatility in the BOB spread has remained well above pre-crisis levels, and is prone to seesawing between 10 and 35/32nds.

dV01-weighted BoB spreadThe BOB futures spread will be familiar to anyone who trades Treasury futures inter-market spreads either for risk offset or for relative value trading.

If you have a view on the slope of the very long end of the Treasury yield curve, then you can capitalize on it by combining opposing positions in Ultra T-Bond futures and T-Bond futures:

• If you expect the Treasury yield curve between 15 years and 30 years to maturity to steepen, then you would buy the BOB spread by buying T-Bond futures and selling Ultra T-Bond futures;

• Conversely, if you anticipate that the 15-to-30-year segment of the Treasury yield curve may flatten, then you could sell the BOB spread by selling T-Bond futures and buying Ultra T-Bond futures.

In either instance, gains or losses on the BOB spread should result from changes in the pitch of the yield curve, not from uniform changes in the general level of bond market yields.

For this reason, the legs of the BOB spread should be weighted so that for each leg of the spread the dollar value of a 1-basis-point change in yields (i.e., the DV01) is equal in size and opposite in sign to the DV01 of the opposite leg of the spread. To obtain the correct hedge ratio for the BOB spread — that is, the appropriate number of Ultra T-Bond futures toead against every T-Bond futures contract — simply divide the DV01 of T-Bond futures by the DV01 of Ultra T-Bond futures.

Impact of Ctd Changes on the BoB spreadBoth the Ultra T-Bond and T-Bond futures contracts call for physical delivery of cash bonds. For Ultra T-Bond futures, bonds with remaining term to maturity of 25 years or more are eligible for delivery. For T-Bond futures contract, the deliverable grade comprises bonds with remaining term to maturity of 15 years or more*. For each futures contract, the price tends to track the price of the deliverable-grade Treasury bond that is expected to be the most economical or cheapest, to deliver into that contract during its delivery month.

During the interval over which you hold the BOB spread position, the general level of bond yields may change, or the slope of the yield curve may shift, across the term-to-maturity span of deliverable grade for either T-Bond futures, or Ultra T-Bond futures, or both.

This, in turn, may cause the identity of the cheapest-to-deliver (CTD) bond to change, in either or both of the contracts. Shifts in the CTD bond in one or the other, or both, of the BOB spread’s legs may affect the profitability of the spread position.

Benefits of synthetic exposureThe BOB futures spread provides many important benefits to relative value investors compared to a spread position consisting of cash Treasury bonds.

Capital Efficiency: The BOB futures spread requires only modest amounts of performance bond – as little as 1%-2% of the gross notional value of the spread – to be reserved against the risk of adverse market moves. Hedge fund managers can pledge their existing Treasury or Agency securities as initial margin.

By comparison, traders who create a BOB spread position with cash Treasury bonds will have to contend with vagaries of term repo financing as well as with the inherent risks of delivery failure in the financing markets.

In addition, traders who use cash bonds will not have the benefit of paying lower performance bonds or receiving spread credits against market positions they already may have in other interest rate futures listed at CME Group exchanges.

Transparency: Ultra T-Bond and T-Bond futures are both transparently traded in a regulated market. Both are margined with reference to a transparently determined daily mark-to-market.

Position scalability: For many market participants, the transactional costs of entering, liquidating, or adjusting a BOB futures spread are apt to be low compared to a spread position consisting of cash Treasury bonds.

Flexibility of exposure for fiduciaries: Hedge fund managers may be prohibited from making short sales of assets, such as cash Treasury bonds. For many, however, the same plans permit holding of short open interest in exchange-listed futures contracts, such as Ultra T-Bond and T-Bond futures.

In addition, investment managers holding open market positions in Ultra T-Bond futures may not be subject to the inherent risks of delivery failure in the financing markets as they could be if they held similar positions in cash Treasury bonds instead. Daniel Grombacher is Director, Financial Research and Development, CME Group, and Jonathan Kronstein is Associate Director, Interest Rate Products and Services, CME Group

(Continued from page 16)

* However, effective with the March 2011 expiry, the deliverable basket for the T-Bond contract will include bonds with remaining terms to maturity of at least 15 years, but less than 25 years.

18 AIMA Journal Q3 2010

froM oUr MeMBers

New platforms enable smaller institutions to explore spot FX as an asset class

By CitiFx Pro Hong Kong

foreIGN eXChANGe trAdING

Foreign exchange trading has been attracting increasing attention over the years. It is highly liquid and relatively uncorrelated to the equities and fixed income markets, and consequently it has emerged as a distinct alternative asset class, and grown significantly. Over recent years, as global equity markets and interest rates have slumped, FX markets have provided a viable channel for generating returns. Additionally, the heightened volatility in FX markets resulting from the global economic crisis has proved very appealing to investors seeking alpha.

As a result, total daily volume has increased dramatically, from US$1.2 trillion in 2001 to an estimated US$3.2 trillion today. Foreign exchange is the largest and most liquid global financial market.

Historically, FX markets were generally available to large market participants – governments, banks and large institutional investors that traded through a bank. That has changed over the past decade as technology advances have opened up the market, allowing all investors and traders the opportunity to trade round the clock via online platforms.

The margin FX market, comprised of smaller institutional and individual clients who trade on a cash margin basis, has become a significant segment of the overall FX market. The market was originally pioneered by independent brokers who combined electronic trading technology with low-cost distribution models, enabling them to serve smaller institutions and individuals overlooked by larger banks. These traders would not traditionally qualify for a bank credit line or for the services of a prime broker. By placing margin with their provider, they were able to trade directly on provided FX interfaces and access aggregated liquidity channels. Suddenly, smaller traders could access deep liquidity pools with pricing competitive to that received by large institutional traders.

Additionally, smaller traders benefited from a vastly simplified and quicker application and approval process, as they did not require onerous standard credit documentation to trade. Furthermore, by trading on margin, investors could access the FX markets without having to set up the conventional infrastructure (including foreign currency accounts and an operations function), thereby dramatically opening up FX to a broader audience.

Greenwich Associates recently estimated that margin FX trading comprised 12% of worldwide FX trading volume in 2009. This segment can no longer be ignored – small institutional and retail investors drive a very significant, and growing, segment of global FX volume.

This is most true in Japan, where, according to Greenwich, a staggering 57% of the country’s FX trading volume is channeled through retail aggregators acting as brokers. Indeed, Asia represents the largest region for margin FX trading. The so-called “carry trade,” borrowing in a low-interest rate currency to invest in a high-interest rate currency, has historically been very popular in those Asian countries where domestic interest rates are consistently low and investors are hungry for yield.

Not surprisingly, as this market grew in importance, banks began to recognize the opportunity and entered directly. Today, a small handful of the top FX banks provide their own trading platforms, and they have been gaining ground.

The majority of margin FX providers offer the basic tools a trader needs: an electronic interface with streaming prices in currency pairs, order functionality, charting tools to monitor patterns and trends and access to streaming news impacting foreign exchange markets. Critically, these platforms calculate margin on a real-time basis, so investors can always understand where their exposure is in respect to their margin requirements.

For smaller institutions interested in trading FX on margin, banks can offer significant additional advantages. As FX remains an interbank market, clients can access liquidity directly rather than going to indirect sources. Banks typically offer superior security of funds.

The margin FX space has continually experienced increasing regulatory requirements to ensure capital strength; the balance sheets of the large bank participants far outstrip these levels. Furthermore, banks are core participants and often have long histories in FX markets; and, as highly regulated institutions, have developed ethical trading practices and standards around pricing and trade handling, along with sophisticated compliance and control functions.

While the vast majority of margin FX trading takes place in a few major currencies, certain providers offer trading in over 100 currency pairs, including exotic pairs such as the U.S. dollar / Mexican peso, allowing traders to make directional bets across all freely tradable currencies.

Banks providing margin FX trading platforms also provide access to economic and technical research that was formerly reserved for large institutions and is invaluable in understanding trends and making trade decisions. Of course, the online FX trading platforms are just that – platforms. Investors and traders must drive their own trading decisions, and must fully understand FX market dynamics and the risks of leveraged trading if they want to be successful.

Nevertheless, the margin FX market continues to evolve quite rapidly and continually attracts new participants. Increasingly competitive pricing as well as technological advances that facilitate trading are helping to fuel this growth. For instance, some providers offer trading interfaces that are web and mobile-based, including tailored iPhone applications. The use of algorithmic trading, which has proliferated quickly in the equity markets, has grown swiftly in the margin FX markets as well.

With the Internet providing an ideal distribution channel for a global, decentralized market, the spot FX business has been substantially democratized. With new technologies and effective trading platforms, smaller institutions now have both the means and the opportunity to participate in this important asset class.

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How hedge fund managers can claim compliance with the Global Investment Performance Standards (GIPS®)

By Coleman C. J. McKinstry, CIPM, ACA Beacon Verification Services

PerforMANCe stANdArds

Over the last several years, the Global Investment Performance Standards (GIPS) verification industry has seen a noticeable increase in the number of alternative, and specifically hedge

fund, managers expressing interest in claiming compliance with the GIPS. The GIPS are a voluntary set of best practices related to a firm’s calculation and presentation of investment performance results. Increased interest in the GIPS is a natural response to the regulatory scrutiny and level of due diligence to which hedge fund managers (HFMs) have recently been subject. As more institutional investors, such as pension plans and endowments, have increased their allocations to alternative investments over the last 10 years, HFMs have had to provide more transparency in their interactions with prospective investors. The recent fraud that has coursed through Wall Street also is a major impetus for this flight to transparency in the hedge fund space.

While HFM’s adaption of the GIPS has been welcome, it has also raised quite a few questions regarding the application of the GIPS to hedge funds. Because the GIPS were originally written with the institutional, long-only investor in mind, there are many considerations that HFMs face that the GIPS formally do not address. In April 2010, ACA Beacon Verification Services published a white paper whose goal was to address some of these questions and provide practical resolutions for the most common challenges. The paper is titled Compliance is Easier Than You Think: Challenges and Solutions for Hedge Fund Managers Considering the Global Investment Performance Standards (GIPS®). The remainder of this article will cover the most frequent topics brought forth in the paper.1

Compliance at the firm levelThe GIPS require that the claim of compliance encompass the entire firm. HFMs sometimes are under the impression that compliance can be claimed only with respect to one particular fund. Rather, the claim of compliance will include all funds, separately managed accounts, and any other assets which are under management of the firm. The firm should be defined by how it holds itself out to the public. This means a firm can be a distinct subsidiary of a larger, multi-service financial institution, or it can be a stand-alone firm itself.

Policies and proceduresA fundamental requirement of the GIPS is Standard 0.A.6 which requires all compliant firms to, “document in writing their policies and procedures used in establishing and maintaining compliance with all applicable requirements of the GIPS.2”

This document will address all aspects of a firm’s claim of compliance. While it is important for this document to be comprehensive, its creation is typically not an excessively arduous project. In addition, if a firm already has an existing operational policies manual, the GIPS policies can simply be added to the document in their own section.

ValuationThe GIPS currently require portfolios to be valued on the date of all large, external cash flows, and in the absence of any large, external cash flows, portfolios can be valued monthly. Because most HFMs only subscribe and redeem their investors monthly (or even quarterly), the possibility of a mid-month, large, external cash flow is typically non-existent. As a result, the monthly calculation can be as straightforward as a simple return using the monthly NAVs calculated by the fund’s third-party administrator.

The current edition of the GIPS (2005) requires all assets be valued at market value. The GIPS do realize this may be a challenge for some types of securities and have stated that, “in the case of thinly traded securities, the firm may use a reasonable method for valuation as long as the method is consistently applied.3”

The upcoming GIPS 2010 Edition, which becomes effective on 1 January 2011, requires assets to be valued according to fair value. In conjunction with the transition from market value to fair value, the GIPS 2010 Edition also includes the GIPS Valuation Principles. These Principles are meant to help firms develop their valuation policies which determine how to assign values to assets, specifically those that do not have observable market values.

CalculationWhen becoming GIPS compliant, the item that HFMs typically spend the majority of their time considering is how to present net-of-fees performance. Because funds generally have multiple feeders, share classes, and fee structures, ascertaining an appropriate net return can be somewhat challenging. While there are potentially many ways of determining an appropriate return, there are three methods which are the most common.

Method 1 - tracking the original, full-fee paying investorWith this method, a firm will “present [a] return for [the] initial

1 The comments and suggestions in this paper are not intended to replace or supersede any current or future formal or informal guidance issued by the CFAI, which may differ from the views and opinions expressed herein. Nothing in this paper should be relied upon as advice for any particular set of facts, nor as a substitute for the guidance of GIPS professional.

2 CFA Institute. Global Investment Performance Standards (GIPS) Handbook. Second Edition, 2006. 2 ed. Charlottesville: CFA Institute, 2006. (p.21)

3 CFA Institute. Global Investment Performance Standards (GIPS) Handbook. Second Edition, 2006. 2 ed. Charlottesville: CFA Institute, 2006. (p.78)

(Continued on page 21)

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series of [the] highest paying share class, which reflects the net return of [an] investor in the fund since inception, assuming no subscriptions or redemptions.4”

The intent of this method is to provide a return stream that is most representative of what a prospective investor would have achieved had he invested in the fund at the fund’s inception. Because this return is usually a close approximation of what a full-fee paying prospective investor would have achieved, this method is the most common. Its main drawback is that it cannot be used when there are multiple accounts in the same composite. In this case, a representative return from the fund could not be used as a proxy for composite performance. Rather the returns from all accounts would need to be aggregated to arrive at composite-level performance.

Method 2 - Aggregate approachThis method, as mentioned above, is most appropriate when the fund is not the only account in its composite. When multiple accounts are in a composite, the composite’s return must be an asset-weighted return inclusive of all the underlying accounts’ returns. When the fund is the only account in the composite, the aggregate return calculation includes all assets in the fund. The calculation will include all feeders, share classes, and types of fee structures. When aggregated, these different components can lead to a muddled net return that is not necessarily representative of what a full-fee paying investor would have achieved. For this reason, the aggregate approach is best used for circumstances when the fund is not the only account in the composite.

Method 3 - Model feeThis method can be used when the fund is the only account in the composite, but no appropriate representative investor stream can be identified. The mechanics of this method are fairly straightforward. The gross of fees return of the fund is netted down (typically in a spreadsheet) by the fund’s highest stated management and performance fee. The benefits of this method are its relative ease of calculation, while the biggest weakness is that a fund’s net returns may be understated if the fund’s model fees are significantly higher than the actual fees charged.

While each of these methods has their respective advantages and disadvantages, the overriding principle is to identify and present a return stream that is most representative from the prospective investor’s point of view. Of course, the decision and its justification should also be clearly disclosed in the composite’s compliant presentation.

Compliant presentationCompliant firms are required to provide a GIPS compliant presentation of the particular composite to which the prospective investor is being marketed. The compliant presentation consists of a set of required disclosures and statistics which are found in Section 4 and Section 5 of the GIPS. Required disclosures include the definition of the firm, definition of composite, and presence, use and extent of leverage or derivatives. Required statistics include annual returns, composite assets, and firm assets as of each year-end. This standardized presentation allows prospective investors to make an apples-to-apples comparison of the same investment strategies for different firms that are located all over the world.

side pocketsFor funds that have side pockets (whereby certain illiquid assets have been segregated from the rest of the fund), determining what performance to present can also take some consideration. Establishing what performance to present is not an exact science and there are multiple options a firm has. Firms can choose to present performance of either the entire fund inclusive of the side pockets, only the liquid portion of the fund where side pocket performance is excluded, or a firm can present both of these performance streams side by side.

The decision here should be viewed from the perspective of what is the most representative. For instance, are the majority of the fund’s investors exposed to the side pocket assets? If so, it likely makes sense to present the performance stream of the entire fund, inclusive of the side pockets. If only a small minority of the fund’s investors, perhaps just the internal investors, have exposure to the side pocket investments, then it may be more representative only to present the liquid portion of the fund that does not include the side pockets. An analysis of a fund’s underlying investor base is a good place to begin making this determination. Regardless of what option a firm chooses, the performance stream should be clearly disclosed as should the justification for the particular choice.

ConclusionAs noted, the hedge fund industry is in the midst of a significant evolution toward increased transparency, and as part of this transition, adapting the GIPS is a step many HFMs are taking.

While the GIPS do not address many of the characteristics unique to HFMs, the Standards are broad-based and flexible enough to allow HFMs to obtain compliance with considerably less effort than is commonly perceived.

This article has only touched briefly on the most common of issues related to HFMs. For a more in-depth discussion, please review our white paper, which can be downloaded here.

4 Lamanna, Valerie.“Applying the GIPS Standards to Hedge Fund and Other Alternative Strategies.” 2007 GIPS Standards Annual Conference. Session VI. Slide 17

(Continued from page 20)

22 AIMA Journal Q3 2010

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Hedge fund investment by superannuation funds

By Craig Roodt, Australian Prudential Regulation Authority (APRA)

INstItUtIoNAL INVestMeNt

While Australian superannuation funds were among the earliest globally to invest in hedge funds, the level of this investment has not increased at the same pace as in other jurisdictions.

Given recent developments in hedge fund practices and investment practices generally, it is opportune to examine superannuation fund investment in hedge funds, for the regulator to restate its expectations when hedge funds are part of a superannuation fund investment portfolio, and to review lessons from the global financial crisis.

expectations when investing in hedge fundsAPRA’s expectations of trustees, where they choose to invest superannuation fund assets in hedge funds, fall into the following areas:

• a well thought-out investment strategy addressing the needs of the superannuation fund;• consistency with that strategy, and a clear role for hedge funds within that strategy;• due diligence around specific hedge funds and their underlying investments; and• ongoing monitoring of hedge fund investments.

At its simplest, expectations of trustees of superannuation funds that choose to invest in hedge funds are no different to expectations in respect of any other investments they undertake. There are, however, some specific nuances due to the specific nature of hedge funds.

It is fundamentally critical that trustees understand what they are invested in, including how that investment is likely to behave in a range of market conditions (i.e. what drives risk and performance).

Investment strategyUnder law, trustees of superannuation funds are required to develop an investment strategy to meet the needs of the fund having regard to, amongst other things, diversification and liquidity. There is a clear need to determine the return objectives and the desired risk appetite, as well as determining the types of risks that the trustee is willing for the fund to accept.

Any investment in hedge funds needs to be consistent with this strategy and risk appetite. This extends to individual hedge fund investments that are being undertaken as well as to the aggregate investment in hedge funds.

While many superannuation funds have an allocation to ‘alternatives’ with a sub-allocation to ‘hedge funds’, a number of others include hedge funds as sub-categories within underlying asset classes. It is important that when this categorisation is made, it is reflective of the risk and return behaviour of the different hedge fund strategies.

Trustees need to determine the purpose of their allocation to specific hedge fund strategies and how those strategies are expected to behave

in various market conditions. This extends to how they are expected to interact with the broader investment portfolio of the fund as a whole. Critical to this assessment is an understanding of the strategies that the investee hedge funds are pursuing.

due diligenceOnce decisions have been made about which categories of hedge funds to utilise, trustees then need to select the actual hedge fund managers (or funds of hedge funds (FoHFS)) to invest in. Again, understanding the strategy (or strategies) being followed by individual hedge funds is critical. AIMA already provides guidance on factors to be considered when evaluating hedge funds.

These include:

• understanding the strategy, specifically how it generates returns and adds value;• understanding the risks inherent in that strategy;• identifying markets covered and instruments used;• research process;• track record of key investment staff;• performance through market cycles;• segregation (and effectiveness) of reporting and valuation;• operation of key service providers (eg prime brokers, administrators);• jurisdictional issues;• the use of leverage;• liquidity issues – given the strategy pursued; and• collateral management – where collateral is required for trading activities.

For FoHF investments, the ability of the investment manager to evaluate and monitor constituent hedge funds needs to be assessed, as does the manager’s ability to construct portfolios of hedge funds by considering multi-factor exposure and even complementarity analysis. FoHFs also need the systems and processes to be able to combine positions from hedge funds and to take action as needed; there needs to be a clear management process when investments are not meeting expectations.

One lesson from the global financial crisis is the criticality of understanding where money is actually invested, what the underlying exposures and risks are, and how they may behave in a crisis. This applies irrespective of whether an investment is in a structured investment (like a collateralised debt obligation) in a ‘traditional’ investment fund, or in a direct or intermediated hedge fund.

1 Categories will be based on the hedge fund strategy: e.g. global macro, equity long/short

(Continued on page 23)

AIMA Journal Q3 2010 23

(Continued from page 22)

The crisis highlighted the often opaque nature of hedge fund strategies and investments, and pointed out the benefit of greater transparency for investors.

MonitoringInvestment monitoring is critical as well; while historically there has been limited oversight by investors, this has changed in recent years. Trustees have an obligation to understand how funds are being invested. There is now much greater reliance by trustees on third party administrators to provide position, or at least exposure, data. However, this does not obviate the need for trustees themselves to understand what is happening. Related to this is the requirement to measure performance; the nature of hedge fund investing, frequently involving high-conviction strategies, often renders standard benchmarks of limited value. Trustees need appropriate benchmarks that reflect the investment universe and the market risk of the opportunity set.

While performance measurement will often be backward looking, effective performance measurement can often highlight areas of style drift or more insidious conduct. When performance does not make sense, given the underlying conditions and the declared strategy, this must be viewed by trustees as a flag for further investigation. This includes when performance is inexplicably good.

Additional risk information is often needed, highlighting exposure to specific factors, extent of leverage or details on liquidity. While deliberate decisions can legitimately be made by trustees regarding these parameters, it is important that they are constantly monitored. Trustees also need a clear process for acting on information received;

while knee-jerk reactions are counter-productive, action needs to be taken when responses are not forthcoming or when performance cannot be explained adequately.

Lessons from the global financial crisisRelated to investment decisions are some critical observations from the global financial crisis. These include:

• the importance of knowing, and understanding, the ultimate investment;• the criticality of understanding the sources of risk and return;• the importance of looking, not just at underlying assets, but through structures to understand embedded or downstream leverage; • consideration of the ‘funding’ side of the balance sheet. There is a need to understand the possible redemption behaviour of members as well as other pressure points for funding throughout the investment structure. This also applies in situations where, for example, member entitlement is based on underlying asset value but they have a right to redeem within a certain period of time; and• contagion risk where associated parties are subject to adverse media comment that affects market confidence.

Craig Roodt is Senior Manager, Market Risk at the Australian Prudential Regulation Authority (APRA)

APRA is the prudential regulator of the Australian financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry.

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Malta’s ‘quasi-retail’ alternative investment structures: Professional investor funds targeting experienced investors

By Dr Simon Tortell and Dr Katya Azzopardi, Simon Tortell & Associates

ProfessIoNAL INVestor fUNds

Professional Investors Funds (PIFs) are non-retail collective investment schemes which may offer their shares or units to three types of investors, namely “experienced”, “qualifying”

or “extraordinary” investors. A PIF established under Maltese law will require a licence under the Investment Services Act and is subject to the Standard Licence Conditions issued by the Malta Financial Services Authority (MFSA). Therefore it is a lightly regulated but flexible regime.

The PIF targeting experienced investors has the lowest minimum investment requirement. In fact by virtue of recent amendments, any investor who invests in such a PIF must invest a minimum of €10,000 only. Once the minimum investment has been made, any additional amount

may be invested but the total amount invested must not at any time be less than €10,000. PIFs targeting experienced investors are not available for investment by the general public but are only available to investors satisfying the applicable Experienced Investor criteria. An Experienced Investor is defined as a person having the expertise, experience and knowledge to be in a position to make his own investment decisions and understand the risks involved. An investor must state the basis on which he satisfies this definition, either:

1. by confirming that he is:

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a. a person who has relevant work experience having at least worked in the financial sector for one year in a professional position or a person who has been active in these type of investments; or b. a person who has reasonable experience in the acquisition and/or disposal of funds of a similar nature or risk profile, or property of the same kind as the property, or a substantial part of the property, to which the PIF in question relates; or c. a person who has carried out investment transactions in significant size at a certain frequency

or: 2. by providing any other appropriate justification.

Similarly to any other type of PIF, PIFs targeting experienced investors can be set up using a variety of structures. The SICAV structure, which is an open ended structure with variable share capital, is certainly the most popular and commonly used structure. However, one can also set up a PIF as an INVCO, which is an investment company with fixed share capital and which is close-ended, as a limited partnership, as a unit trust or as a contractual fund.

A PIF targeting experienced investors can be set up as a multi-class fund by the creation and issue of distinct classes of shares, which may be designated in different currencies. Alternatively it may be set up as an umbrella structure consisting of different sub-funds. The assets and liabilities of each individual sub fund constitute a patrimony separate from that of each other sub fund in the same umbrella so that the assets of one sub fund are available exclusively for the creditors of that particular sub fund.

The umbrella structure is very popular. It reduces costs because you only need to create one corporate structure with the first sub funds, then other sub funds are simply added on in the same umbrella. This also means that licensing such a sub fund becomes a very quick process where one simply submits a new Offering Document for approval. Interestingly one can also have different types of PIFs in the same umbrella. Therefore in an umbrella structure there can be, for instance, two sub funds targeting qualifying investors and three sub funds targeting experienced investors. Furthermore in the case of an umbrella structure the €10,000 minimum investment requirement may apply on a per scheme basis rather than on a per sub fund basis.

In view of the fact that the minimum investment required in the case of PIFs targeting experienced investors is rather low, this type of fund can

be seen as being “quasi retail”. For this purpose, unlike the two other types of PIFS, there are some investment restrictions contained in the Standard Licence Conditions to seek to protect investors and to ensure diversification. Therefore for example, direct borrowing for investment purposes and leverage via the use of derivatives, as in the case of UCITS, is restricted to 100% of the NAV of the fund. Where the fund enters into OTC derivative transactions, it must ensure that its exposure to a single counterparty is limited to 20% of its total assets. Also, the fund may only invest up to a maximum of 35% of its total assets in deposits held with a single body.

Aside of these restrictions, no other investment restrictions are imposed on this quasi-retail PIF. It remains a flexible vehicle and can also invest in Special Purpose Vehicles, enter into repurchase/reverse repurchase and stock lending or borrowing agreements.

A PIF may appoint any functionaries as it may deem necessary. Ordinarily, functionaries of PIF would include, amongst others, an Investment Manager and/or an Administrator, an Investment Advisor and/or a Custodian/Prime Broker.

However in the case of PIFs promoted to Experienced Investors, the appointment of a Custodian is obligatory. In these circumstances the role of the Custodian is twofold. The Custodian is responsible for the safekeeping of the assets of the fund and is also responsible for monitoring the extent to which the Investment Manager is abiding by the investment and borrowing powers laid out in the constitutional documents.

All service providers may be located in any jurisdiction, provided that the MFSA is satisfied with the regulatory status of any functionary and that the functionary is of sufficient standing and repute.

The fund must also have an Offering Document containing appropriate risk warnings, the names and details of all principal service providers, the investment objectives and policies of the fund and any investment or borrowing restrictions. This Offering Document enables potential investors make an informed investment decision prior to investing in the fund.

The income of a PIF is exempt from tax as long as it is classified as a non-prescribed fund which means that more than 85% of the value of its assets is situated outside Malta. No stamp duty on share issues or transfers and no tax on the net asset value of the fund is levied. Furthermore there is no withholding tax on dividends paid to non-resident investors and no taxation on capital gains on the sale of shares in the fund.

(Continued from page 23)

Would you like to contribute to the AIMA Journal?We encourage all our members throughout the world to write for the AIMA Journal. Anyone wishing

to contribute is invited to contact either the coordinator of the AIMA Journal, AIMA Communications Officer Dominic Tonner, at dtonner@aima.org, or the editor of the AIMA Journal, AIMA director of

Communications Christen thomson, at cthomson@aima.org.

the deadline for submitting outline article proposals for the Q4 2010 issue is 30 september 2010. We look forward to hearing from you.

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26 AIMA Journal Q3 2010

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US ‘ipso facto’ and UK ‘anti-deprivation’ - the Lehman ‘flip’ clause

By Alastair Goldrein, Chadbourne & Parke (London) LLP

LAW

I. BackgroundOn 6 November 2009, the English Court of Appeal issued a judgment in the case of Perpetual Trustee Company Limited & another v BNY Corporate Trustee Services Ltd & another [2009] EWCA Civ 1160, an action commenced in the English High Court by the noteholders representative - Perpetual Trustee Company Limited. The case concerned a number of collateralized debt obligation (CDO) transactions structured and arranged by Lehman Brothers Inc and its subsidiaries, pursuant to which a number of SPVs (each an “Issuer”) had issued interest-bearing notes (the “Notes”) to investors. At the same time, each Issuer had entered into a credit default swap contract (each a “CDS”) with Lehman Brothers Special Financing Inc (LBSF), with the Issuer as credit protection seller, and LBSF as credit protection buyer. All of the relevant contractual documentation was governed by English law. LBSF was incorporated in Delaware with its principal office in New York and had filed for Chapter 11 protection on 3 October 2008.

The proceeds of the Notes had been invested and security in the form of fixed and floating charge had been granted in favour of BNY Corporate Trustee Services Limited (the “Security Trustee”), for the benefit of the Noteholders and LBSF (to the extent that amounts would become payable to LBSF as a result of the early termination of the CDS). The security documentation provided that LBSF would have priority over the Noteholders in respect of the Note proceeds unless an event of default occurred where LBSF was the defaulting party (which included the bankruptcy of LBSF or its parent). At the point at which the event of default occurred (LBSF entered into insolvency proceedings in October 20081), the order of priority of distribution of the security therefore changed or “flipped”.

Following the collapse of the Lehman Group, payments due to the noteholders were not made and Perpetual asserted claims against the Security Trustee, seeking orders that the Security Trustee make distributions in their favour and in priority to the claims of LBSF. LBSF did not accept that the noteholders were entitled to priority over LBSF in the security realisations waterfall (of the security trust deed) and asserted a claim in the New York Bankruptcy Court, seeking an order that the provisions under the trust deed were contrary to the “ipso-facto” provisions of the US Bankruptcy Code (see V below).

LBSF’s allegation in the US Bankruptcy Court was heard on 11 August 2009. Prior to this, Perpetual asserted claims in the English High Court against the Security Trustee to procure realisation of the collateral held by the Security Trustee pursuant to the trust deed and its application (i.e., payment to the noteholders in priority to paying the claims of LBSF). LBSF sought a temporary stay of the English proceedings pending resolution of the proceedings in the US Bankruptcy Court. The issue was whether the provision in the Security Trust Deed giving priority to noteholders over LBSF upon the occurrence of an event of default was valid as a matter of English law?

II. the english proceedings and anti-deprivation principleThe principle of “anti-deprivation” dates back to the 19th century. A long line of cases have, in different ways, expressed a rule that “there cannot be a valid contract that a man’s property shall remain his until his bankruptcy,

and on the happening of that event shall go over to someone else, and be taken away from his creditors” (Ex parte Jay (1880)).

The principle operates to support the fundamental rule that distributions in a winding-up must be made to creditors in the same category on a pari passu basis (s107, Insolvency Act 1986 and rule 4.181, Insolvency Rules 1986 (SI 1986/1925)). In essence, the anti-deprivation principle provides that a contractual provision is void if it provides for the transfer of an asset from the owner to a third party upon the insolvency of the owner. Attempts to avoid the anti-deprivation principle have been ruled void as a matter of public policy (British Eagle International Airlines Ltd v Cie Nationale Air France [1975]). Nevertheless, the application of this principle by courts in numerous judgements has given rise to some degree of uncertainty.

In Perpetual Trustee Company Limited v BNY Corporate Trustee Services Ltd, the issue arose as to whether the provision in the security trust deed which gave priority to noteholders over LBSF upon the occurrence of an event of default, fell foul of the anti-deprivation principle.

III. the decisionLBSF argued that such a provision in the trust deed that flipped the order of priority of distribution of the security was void under English law as it had the effect of depriving creditors of LBSF of an asset upon its insolvency. Perpetual responded that the clause was valid and relied on the distinction drawn by the courts between a contract which by reason of the insolvency seeks to remove assets from the estate of the bankrupt and a contract under which the insolvent’s interest in the asset is limited and determined upon insolvency (also referred to as a “determinable interest”). Perpetual contended that LBSF had a determinable interest because, under the terms of the trust deed, LBSF only ever had an interest, in respect of its payment in priority, which determined on an event of default in the event that LBSF was the Defaulting Party.

The judge had two separate reasons for concluding that the anti-deprivation principle did not prevent Perpetual from relying on the flip clause. The first reason was based on the nature of the right triggered by the insolvency event, and essentially turned on the extent of the anti-deprivation principle. But even if the flip constituted a deprivation, the court’s decision relied on a second reason, which was based on the alleged deprivation itself. The anti-deprivation principle was not applicable to a deprivation effected pursuant to the Chapter 11 filing of a different entity.

The judge held that the clause in the trust deed was valid and not contrary to public policy for the following reasons:

(Continued on page 27)

1 LBSF entered insolvency proceedings following the insolvency of Lehman Brothers Holdings Inc. which provided credit support to LBSF - each of these events was an event of default under all of the CDS.

AIMA Journal Q3 2010 27

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1. It was not possible to examine the “flip” clause in isolation, but rather the transaction should be analyzed as a whole: the collateral was bought by each Issuer with the note proceeds; it was not derived from LBSF as the swap counterparty;

2. It was clear that the intention of all the parties was that priority afforded to LBSF was conditional. The priority of LBSF did not continue after an event of default, where LBSF was the defaulting party; and

3. LBSF’s priority security interest in the collateral was always conditional and limited and could not pass to a liquidator free from those conditions and limitations.

The judge also expressed his view on the argument made by Perpetual that the anti-deprivation principle could not apply to LBSF as it was not the subject of an English insolvency proceeding and was only the subject of a Chapter 11 case in the U.S. On this point, the judge held that it could not be said that the English anti-deprivation principles would only apply in the context of an English insolvency proceeding. Under both common law and/or statute (Cross Border Insolvency Regulations 2006), English courts were obliged to recognise and provide assistance to the US courts and, if necessary, to apply this principle in the context of non-U.K. insolvency proceedings.

IV. the appealIn its judgment, the Court of Appeal unanimously dismissed LBSF’s appeal and upheld the decision in the High Court on the following grounds:

- The anti-deprivation principle only applies to arrangements which take effect at the date of insolvency of the insolvent where the estate is allegedly “deprived” of assets; disposals of assets made prior to the onset of insolvency are not affected, unless caught by specific statutory provisions affecting antecedent transactions; and- The priority which LBSF had to the collateral as provided by the issuers was contingent on there being no event of default. The effect of the “flip” provision was to vary the order of priorities in which the rights were to be exercised in relation to the proceeds of sale of the collateral (rather than divesting LBSF of assets vested in it and vesting those assets in the noteholders).

LBSF filed a further appeal on 26 March 2010, and the Supreme Court (the highest court in the United Kingdom) has decided to hear the case, with hearings provisionally set for March 2011.

V. Battle of Bunker hill?In the U.S., ipso facto clauses (provisions in an agreement that would deprive a party of a right as a result of its insolvency or its bankruptcy filing) are generally unenforceable in a bankruptcy proceeding (section 365(b)(2), US Bankruptcy Code). This represents the U.S. equivalent of the English “anti-deprivation” rule albeit the U.S. doctrine is wider than the English principle.

The U.S. Bankruptcy Court (Judge Peck) for the Southern District of New

York in the parallel proceedings (re: Lehman Brothers Special Financing Inc v BNY Corporate Trustee Services Limited (Case No: 09-01242) has declined to follow the decision of the English courts and has issued a memorandum decision finding that the “flip” was an unenforceable ipso facto clause. Consequently, the Security Trustee is currently trapped between two contradictory court decisions in two jurisdictions with one telling it to pay the noteholders first and the other telling it to pay LBSF first.

The U.S. court found that the English courts had not taken into account principles of U.S. bankruptcy law and in particular section 365 of the Bankruptcy Code. Judge Peck emphasised that “(U.S.) courts will not extend comity to foreign proceedings when doing so would be contrary to the policies or prejudicial to the interests of the United States.”

Despite the challenges posed by conflicting judgments Judge Peck concluded that the U.S. had a sufficiently strong interest in the circumstances to justify and require the application of U.S. bankruptcy law, noting in particular where the relevant provisions of the Bankruptcy Code would provide the debtor with greater protection than that available under English law.

It has been reported that “means to harmonise” the U.S. decision with the English decision have been postponed pending the outcome of the U.K. Supreme Court hearing in 2011. Reconciling the U.S. and English approach would appear at first glance to be problematic and one alternative might involve limiting the geographical reach of each judgment to their respective territorial assets. Another option might involve LBSF attempting to have the U.S. judgment recognised in England by means of the UNCITRAL Model Law on Cross-Border Insolvency, which has been adopted by both countries.

VI. ConclusionThe judgment of the Court of Appeal, certainly for the meantime, has limited the scope of the anti-deprivation principle. There also remains no small degree of uncertainty following the judgement of the Court of Appeal regarding the distinction between the grant of a proprietary interest in property which is determinable upon insolvency (and valid) and a provision providing for the transfer of property on terms that it shall be forfeited on insolvency (which is not valid). Meanwhile, the case is of enormous consequence to all English structured finance transactions (and particularly those which involve U.S. counterparties) that contractually provides for the order of priority of payments to secured counterparties to be changed in certain specified circumstances.

It is pleasing to see that the English courts have so far upheld the clear contractual intentions of the parties as determined in the transaction documentation and recognised the noteholders priority. The judgement may also represent a serious challenge for rating agencies when assessing the likelihood of timely or ultimate payment of principal and interest on rated notes.

Alastair Goldrein is an associate with Chadbourne & Parke (London) LLP

28 AIMA Journal Q3 2010

ALTIS PARTNERS (LONDON)Country: UKContact: John KingTelephone: +44 20 7529 2880Business activity: Hedge fund manager / adviserWebsite: www.altispartners.com

AN CAPITAL PTE LTDCountry: SingaporeContact: Chay Chang TanTelephone: +65 6225 6150Business activity: Hedge fund manager / adviserWebsite: www.an-cap.com

APS ASSET MANAGEMENT PTE LTDCountry: SingaporeContact: Poh Heng SimTelephone: +65 6333 8600Business activity: Hedge fund manager / adviserWebsite: www.aps.com.sg

ASPECT CAPITAL ASIA LTDCountry: Hong KongContact: Jan ChenTelephone: +852 2525 1590Business activity: Hedge fund manager / adviserWebsite: www.aspectcapital.com

ASPECT CAPITAL INCCountry: USAContact: Eddie DeschapellesTelephone: + 1 203 622 3917Business activity: Hedge fund manager / adviserWebsite: www.aspectcapital.com

AURION CAPITAL MANAGEMENT INCCountry: CanadaContact: Dennis Pellarin

Telephone: +1 416 866 2428Business activity: Hedge fund manager / adviserWebsite: www.aurion.ca

BANK JULIUS BAER & CO LTDCountry: SwitzerlandContact: Minka NybergTelephone: +41 58 888 11 11Business activity: Banking services (excluding PB), third-party marketing servicesWebsite: www.juliusbaer.com

BLACKROCK HONG KONGCountry: Hong KongContact: Weng Keong LokeTelephone: +852 3763 0000Business activity: Hedge fund manager / adviser

BLACKROCK SINGAPORECountry: SingaporeContact: Alasdair RiachTelephone: +65 6411 3000Business activity: Hedge fund manager / adviser

BLACKROCK SYDNEYCountry: AustraliaContact: Vincent Lo BlancoTelephone: +61 2 9272 2200Business activity: Hedge fund manager / adviser

BLUE RICE INVESTMENT MANAGEMENT PTE LTDCountry: SingaporeContact: Guan OngTelephone: +65 6838 0357Business activity: Hedge fund manager / adviserWebsite: www.brimasia.com

BREVAN HOWARD (HONG KONG) LTDCountry: Hong KongContact: Sennes KwongTelephone: +852 2100 5300Business activity: Hedge fund manager / adviserWebsite: www.brevanhoward.com

BREVAN HOWARD (ISRAEL) LTDCountry: IsraelContact: Sivan MatzaTelephone: +972 0 576 8400Business activity: Hedge fund manager / adviser

BREVAN HOWARD ASSET MANAGEMENT LLP (DUBLIN BRANCH)Country: IrelandContact: Dina MadanBusiness activity: Hedge fund manager / adviser

BREVAN HOWARD INVESTMENT PRODUCTS LTDCountry: Jersey, Channel Is.Contact: Paul HarrisTelephone: +44 (0)1534 605 400Business activity: Hedge fund manager / adviser

CITI HEDGE FUND SERVICES NORTH AMERICA, INCCountry: USAContact: Mike SleightholmeTelephone: +1 973 461 5353Business activity: Fund administration, accounting & custody servicesWebsite: www.transactionservices.citigroup.com

COMMODITY STRATEGIES LTDCountry: AustraliaContact: Dennis Stoller

Membership of AIMA is corporate, thereby entitling all of your company’s principals to enjoy the many benefits. For further details, please telephone John Stephens on +44 (0)20 7822 8380. Alternatively, you can email John at jstephens@aima.org. All information supplied in the following member profiles has been provided by the member company and its accuracy is not guaranteed by AIMA.

New members of AIMA who joined during Q2 2010

(Continued on page 29)

NeW MeMBers

AIMA Journal Q3 2010 29

NeW MeMBers

Telephone: +61 2 9252 7565Business activity: Hedge fund manager / adviserWebsite: www.commodity-strategies.com

COMPLIANCE SHERPA, LLCCountry: USAContact: Jared SchneidTelephone: +1 860 434 5775Business activity: Consultant (compliance)Website: www.compliancesherpa.com

COSMOS INVESTMENT MANAGEMENT PTE LTDCountry: SingaporeContact: Teh Chai SiangTelephone: +65 9365 0245Business activity: Hedge fund manager / adviser

CYGNUS ASSET MANAGEMENT SGIIC SACountry: SpainContact: Isabel SerraTelephone: +34 91 789 22 58Business activity: Hedge fund manager / adviserWebsite: www.cygnus-am.com

DL CAPITAL PARTNERS AGCountry: SwitzerlandContact: Thomas LeupinTelephone: +41 41 500 16 80Business activity: Hedge fund manager / adviserWebsite: www.dlcapital.com

E.C. ELBRUS CAPITAL INVESTMENTS LTDCountry: CyprusContact: Anton KhmelnitskiTelephone: +357 22 458 773Business activity: Hedge fund manager / adviserWebsite: www.elbrus-capital.com

ENEA INVESTMENT MANAGEMENT SACountry: SwitzerlandContact: Ermanno D’AscanioTelephone: +41 91 910 08 30Business activity: Hedge fund manager / adviserWebsite: www.eneaim.ch

FIRST WESTERN CAPITAL MANAGEMENTCountry: USAContact: Steve MichaelsTelephone: +1 310 229 2940Business activity: Hedge fund manager / adviser

FMO ASIA LTDCountry: Hong KongContact: Paul LemphersTelephone: +852 3488 1242Business activity: Other service providersWebsite: www.fmo.asia

HARCOURT ALTERNATIVE INVESTMENTS (HK) LTDCountry: Hong KongContact: Hugo van KattendijkeTelephone: +852 3655 3900Business activity: Fund of hedge funds managerWebsite: www.harcourtalternative.com

HARCOURT ALTERNATIVE INVESTMENTS (US) LLCCountry: USAContact: Matthew MerdingerTelephone: +1 212 371 4340Business activity: Fund of hedge funds managerWebsite: www.harcourtalternative.com

HARCOURT INVESTING CONSULTING ABCountry: SwedenContact: Erik EidolfTelephone: +46 8 670 6576Business activity: Fund of hedge funds

managerWebsite: www.harcourt.se

HARCOURT INVESTMENTS AV SACountry: SpainContact: José Luis EzcurraTelephone: +34 91 520 9595Business activity: Fund of hedge funds managerWebsite: www.harcourt.es

INVENIO COMMODITY FINANCIALS PTE LTDCountry: SingaporeContact: Manvinder SinghTelephone: +65 6339 4100Business activity: Hedge fund manager / adviser

IT LABCountry: UKContact: Sebastian GrayTelephone: +44 (0)845 359 0033Business activity: It/systems/software servicesWebsite: www.itlab.com

JONES DAYCountry: SingaporeContact: Dennis BarskyTelephone: +65 6538 3939Business activity: Legal servicesWebsite: www.jonesday.com

JP MORGAN ASSET MANAGEMENTCountry: UKContact: Peter HiscockTelephone: +44 (0)20 7742 2600Business activity: Hedge fund manager / adviserWebsite: www.jpmorganassetmanagement.com

LAPLACE CAPITAL PARTNERS LTDCountry: Cayman IslandsContact: Franck RislerBusiness activity: Hedge fund manager / adviser

(Continued on page 30)

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30 AIMA Journal Q3 2010

NeW MeMBers

Website: www.laplacecapitalpartners.com

LYONROSS CAPITAL MANAGEMENT LLCCountry: USAContact: Bruce CataniaTelephone: +1 212 218 3950Business activity: Hedge fund manager / adviserWebsite: www.lyonross.com

MAGNETAR FINANCIAL (UK) LLPCountry: UKContact: Alan ShaffranTelephone: +44 (0)20 7514 5411Business activity: Hedge fund manager / adviserWebsite: www.magnetar.com

MARBLE BAR ASSET MANAGEMENT (HK) LTDCountry: Hong KongContact: Radek BarnertTelephone: +852 3512 4702Business activity: Hedge fund manager / adviser

MARBLE BAR ASSET MANAGEMENT SINGAPORECountry: SingaporeContact: Jake KeeTelephone: +65 6595 4280Business activity: Hedge fund manager / adviser

MERRILL LYNCH PORTFOLIO MANAGERS LTDCountry: UKContact: Steve JonesTelephone: +44 (0)20 7996 1000Business activity: Hedge fund manager / adviserWebsite: www.ml.com

MORGAN STANLEY FUND SERVICESCountry: UK

Contact: Michele SamuelsTelephone: +44 (0)20 7425 5728Business activity: Fund administration, accounting & custody servicesWebsite: www.ms.com

OMNIUMCountry: Hong KongContact: Alexis FoslerTelephone: +852 3667 5507Business activity: Fund administration, accounting & custody servicesWebsite: www.omnium.com

PACIFIC ALLIANCE INVESTMENT MANAGEMENT (HK) LTDCountry: Hong KongContact: Derek CraneTelephone: +852 3719 3301Business activity: Hedge fund manager / adviserWebsite: www.pacific-alliance.com

PARIDON ASIA PTE LTDCountry: SingaporeContact: Poh-Kuan TanTelephone: +65 6603 5188Business activity: Hedge fund manager / adviser

POLARIS INVESTMENT ADVISORY AGCountry: SwitzerlandContact: Claus HilpoldTelephone: +41 44 365 7080Business activity: Manager / advisor otherWebsite: www.polaris-investments.ch

PRICEWATERHOUSECOOPERSCountry: AustraliaContact: Darren RossTelephone: +61 2 8266 0000Business activity: Accounting, audit, tax & related servicesWebsite: www.pwc.com

PRUDENTIAL INVESTMENT MANAGEMENT INC

Country: USAContact: Edwin WilchesTelephone: +1 973 802 6000Business activity: Hedge fund manager / adviser

QARUN ADVISORY PARTNERS GMBHCountry: SwitzerlandContact: Courtney MalcameyTelephone: +41 41 710 7807Business activity: Hedge fund manager / adviserWebsite: www.qap.ch

REDWOOD INVESTMENT MANAGEMENT (ASIA) LTDCountry: Hong KongContact: Iris YuTelephone: +852 3757 9792Business activity: Hedge fund manager / adviserWebsite: www.redwood-inv.com

REED SMITH LLPCountry: UKContact: Dale GabbertTelephone: +44 (0)20 3116 3000Business activity: Legal servicesWebsite: www.reedsmith.com

REICHMUTH & CO INVESTMENTFONDS AGCountry: SwitzerlandContact: Ricardo CorderoTelephone: +41 41 249 4999Business activity: Hedge fund manager / adviserWebsite: www.reichmuthco.ch

RIDLEY PARK CAPITAL LLPCountry: UKContact: Ian BickerstaffeTelephone: +44 (0)20 7529 5200Business activity: Hedge fund manager / adviserWebsite: www.ridleyparkcapital.com

(Continued on page 31)

(Continued from page 29)

AIMA Journal Q3 2010 31

SAIL ADVISORS LTDCountry: Hong KongContact: Vincent DuhamelTelephone: +852 2525 1211Business activity: Fund of hedge funds managerWebsite: www.sailfunds.com

SIX TELEKURS LTDCountry: SwitzerlandContact: Adam WorrickerTelephone: +44 (0)20 7550 5175Business activity: Other service providersWebsite: www.six-telekurs.com

THE FAIRSKY GROUPCountry: SwitzerlandContact: Markus FederleTelephone: +41 (0)41 720 1563Business activity: Other service providersWebsite: www.fairskygroup.com

TMF FUND SERVICES (AUSTRALIA) PTY LTD PART OF TMF GROUPCountry: AustraliaContact: Eric KoolenTelephone: +61 2 8988 5880Business activity: Fund administration, accounting & custody servicesWebsite: www.tmf-group.com

TORA TRADING SERVICESCountry: Hong KongContact: Chris JenkinsTelephone: +852 3983 5000

Business activity: IT/systems/software servicesWebsite: www.toratrading.com

TORA TRADING SERVICESCountry: SingaporeContact: Laura RyanTelephone: +65 6823 6804Business activity: IT/systems/software servicesWebsite: www.toratrading.com

TQ CAPITAL PARTNERS LTDCountry: UKContact: Tobias QueisserTelephone: +44 (0)20 7355 6225Business activity: Hedge fund manager / adviserWebsite: www.tq-cp.com

UNIGESTION (GUERNSEY) LTDCountry: Guernsey, Channel IslandsContact: Christopher HillTelephone: +44 (0)1481 812 608Business activity: Fund of hedge funds managerWebsite: www.unigestion.com

UNION BANCAIRE PRIVEE (ASIA) LTDCountry: Hong KongContact: Robert WoodTelephone: +852 3713 1111Business activity: Hedge fund manager/adviserWebsite: www.ubp.ch

VALOREM INVESTMENT MANAGEMENT Country: Isle of ManContact: Mark AskewTelephone: +44 (0)1624 690 950Business activity: Hedge fund manager / adviserWebsite: www.valorem.im

YORK CAPITAL MANAGEMENTCountry: USAContact: Jeffrey WeberTelephone: +1 212 300 1300Business activity: Hedge fund manager / adviserWebsite: www.yorkcapital.com

YORK CAPITAL MANAGEMENT (HK) ADVISORS LTDCountry: Hong KongContact: Feng HsiungTelephone: +852 3718 5888Business activity: Hedge fund manager / adviserWebsite: www.yorkcapital.com

YORK CAPITAL MANAGEMENT UK ADVISORS LTDCountry: UKContact: Christian ReyntjensTelephone: +44 (0)20 7190 0890Business activity: Hedge fund manager / adviserWebsite: www.yorkcapital.com

NeW MeMBers

(Continued from page 30)

Contact

The Alternative Investment Management Association Ltd,2nd Floor, 167 Fleet Street, London EC4A 2EATel: +44 (0)20 7822 8380 Email: info@aima.org

Registered in England and Wales at the above address. Company No. 4437037 – VAT No. 577 5913 90

32 AIMA Journal Q3 2010

2010 Annual Conference, AGM and 20th Anniversary Celebrations

Programme and Annual Report

sponsored by:

Celebrating 20 years of global leadership

Confirmed speakers:

• Jacques Attali, Chief Executive Officer, A&A; President, PlaNet Finance• Andrew Baker, CEO, AIMA

• Philip Coggan, Capital Markets Editor, The Economist• Josh Dambacher, Partner, Schulte Roth & Zabel

• Christopher Fawcett, Senior Partner, Fauchier Partners• Todd Groome, Chairman, AIMA

• David Harding, Managing Director, Winton Capital• Syed Kamall, Member of the European Parliament

• Robert De Rito, Head of Investment Control, APG Asset Management• Huw van Steenis, Managing Director and Head of EMEA Bank and Diversified Financials, Morgan Stanley

• Dan Waters, Sector Leader for Asset Management, Financial Services Authority• Martin Wheatley, Chief Executive Officer, Securities and Futures Commission, Hong Kong

Millennium Hotel, London / 23 September 2010 / AGM from 2pm / Annual Conference from 2.30pm / 20th Anniversary Drinks Reception from 6pm / AIMA members may contact Ali Coles at acoles@aima.org to reserve a place; space is now extremely limited

AIMA’s new flagship Annual Conference featuring leading international speakers from the hedge fund industry, regulators and policymakers

2010 Annual Conference, AGM and 20th Anniversary Celebrations

Programme and Annual Report

sponsored by:

Celebrating 20 years of global leadership

EVENT SPONSORED BY