Hedge funds are looking to expand their offerings and enhance productivity in today’s economy, and one means for this is outsourcing.

The 24-page guidebook, A Guide to Technology Outsourcing for Hedge Funds, was created by Pershing Prime Services and Eze Castle Integration to serve as a roadmap for hedge fund managers looking to understand the various options that exist in outsourcing. The guide highlights recent trends and includes practical information to help you evaluate and choose outsourcing options.

This guidebook outlines:

• Laying the foundation of an outsourcing plan
• Cloud computing
• Hosted IT environments and managed services
• Co-location
• Outsourcing FIX connectivity
• Outsourced staffing options
• Pricing Models

Register to download.

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Holland & Knight - Effective September 30, 2011, the new Treasury International Capital (TIC) Form SLT is required to be filed by certain large investment advisers.  The first filing deadline will be October 24, 2011, for any investment adviser that has $1 billion or more of reportable securities (defined below) as of the last business day of the reporting month (to the extent not filed by the account’s or fund’s custodian).

Generally the reports relate to accounts of non-U.S. investors with U.S. investments and U.S. investors with non-U.S. investments.

U.S. investment advisers and fund managers must report:

1)      All securities issued by their U.S. Funds directly to foreign residents, including e.g., a U.S. master fund issuing shares to foreign feeder funds, or a U.S. fund issuing limited partnership interests to a foreign person; and

2)      All investments in foreign securities for their own portfolio or for the portfolios of their U.S. clients or U.S. Funds.

IMPORTANT: Any U.S. custodian for the above accounts has primary filing responsibilities.  Accordingly, it is expected that U.S. financial intermediaries (such as U.S. brokers and U.S. custodians) will do the majority of the reporting.  You should coordinate with your custodian to avoid duplicate reporting.

U.S. investment advisers using foreign brokers/custodians will have to report those holdings themselves.

In determining whether a U.S. adviser falls under the $1 billion reporting limit, the adviser should aggregate:

1)      All of its U.S. clients’ and U.S Funds’ reportable foreign securities, including directly held portfolio investments in foreign funds and foreign limited partnerships, that are not held by a U.S.-resident custodian, plus

2)      All securities issued by such adviser’s U.S. funds directly to foreign investors (without a U.S. custodian).

Long and short positions should not be netted and only the gross long position should be reported.

The following types of securities are specifically excluded from the reportable securities definition: short term securities, bankers’ acceptances, derivative contracts (including forward contracts to deliver securities), letters of credit, bank deposits and annuities.

Form SLT must be filed with the Federal Reserve Bank, no later than the 23rd calendar day of the month following the month of reporting. The form may be submitted electronically, by mail or fax.  For 2011, the form will be required only on a quarterly basis.  The Form SLT filings will be required on a monthly basis starting Jan. 31, 2012.  Treasury has stated that the contents of individual filings will be held confidential.

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The SEC recently released a National Exam Risk Alert outlining the various threats posed by master/sub-account relationships. These account types have gained in popularity within the institutional market, largely due to the ease of market access for the sub-account traders.

The master account is typically an entity with a LLC or LLP structure that provides the broker-dealer’s MPID to the sub-accounts in order to trade on platforms provided by the master account. These account arrangements can be used to dodge the recently effective Market Access Rule (Rule 15c3-5) if the sub-account owners are not known to the broker-dealer. Additional threats posed by the master/sub-account structure include:

• Money laundering
• Insider trading
• Market manipulation
• Data security risks
• Unregistered broker-dealer activity
• Excessive leverage

Regulators are looking closely at these account arrangements during routine examinations. The SEC is seeking proof from broker-dealers to ensure that they have the required controls and procedures in place to manage the additional financial and regulatory risks imposed upon them when they provide another person with market access via a master/sub-account relationship.

View the SEC’s National Exam Risk Alert

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The UCITS Alternative Index Team is delighted to present the latest edition of the UAI Quarterly Industry Survey for Q3 2011. Based on answers from market participants, the report provides insight information on the state and evolution of the UCITS hedge fund industry.

The study was sent to all market participants receiving the UCITS Alternative Index performance updates. We take this opportunity to warmly thank all respondents.

The first part of the survey focuses on recent performances while the second part concentrates on future allocation trends and investment opportunities.

Key Findings

• Fund of Hedge Funds and Long/Short Equity funds are the most disappointing strategies in 2011.
• Investors are most likely to increase their allocation to Macro and CTA funds, rather than decrease it, and are most likely to decrease their allocation to Event Driven and Long/Short Equity funds.
• 44% of respondents expect systematic strategies to perform better than discretionary strategies in Q4.
• 51% of respondents believe the current market environment will have either a positive impact or no impact at all on the growth of UCITS hedge funds.

However, 60.7% of respondents believe recent performances will have a negative impact on new UCITS hedge funds launches.

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The Credit Suisse Alternative Beta Strategies team today released Hedge Fund Investing: How to Optimize Your Portfolio . The report examines how hedge fund replication can be used to help mitigate risks that are inherent with hedge fund investing.

Dr. Jordan Drachman, Head of Research for Alternative Beta Strategies at Credit Suisse, summarized some key conclusions from the report (available here), “Over the past few years, exceptionally volatile markets have left hedge fund investors faced with a number of specific challenges, including a lack of transparency and liquidity, along with cash drag — the diminished performance that comes from holding too much cash. As a result, hedge fund replication, which aims to track the performance of hedge fund indices without investing directly in hedge funds, has grown in popularity as investors seek to manage their hedge fund allocations more efficiently.”

Peter Little, Head of Portfolio Management and Implementation for Alternative Beta Strategies at Credit Suisse, continued, “The daily liquidity profile of hedge fund replication strategies enables a range of applications, including liquidity management, tactical risk management and hedging. As market uncertainty has risen, we see clients leveraging these features in a number of ways. For example, we have seen a significant rise in the use of inverse exposure strategies, which seek to enable an investor to hedge against broad and strategy-specific risks without losing capacity with existing hedge fund managers. With continued uncertainty on the horizon, we expect interest in the space to intensify.”

The Credit Suisse Liquid Alternative Beta Index (“CSLAB”), which aims to reflect the performance of the overall hedge fund industry, finished down 3.41% in September. Overall, CSLAB is down 4.36% year-to-date versus a loss of 15.36% for the Dow Jones Global Index, a proxy for global equity markets.

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The UCITS Alternative Blue Chip Index is down -1.07% this week, ending the month with a negative performance of -1.47%. All strategies are down for the week, with Commodities (-7.49%) and Emerging Markets (-4.21%) the worst performers. This has been a rough month for those two strategies as they experience their worst drawdowns since the beginning of the year.

Apart from Commodities and Emerging Markets, Event-Driven is down -1.38% while other strategies lie between -1% and 0%. In total, only 10 out of the 50 constituent funds of the Blue Chip Index are positive this week.

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Date: September 22, 2011
Location: Thomson Reuters
3 Times Square, 30th Floor, 3XSQ
New York, NY 10036

For hedge fund firms, managing risk and complying with new regulations is mission critical, especially as firms adapt to expanded investor requirements and competitors enter the marketplace. To attract investors, managers need to establish institutional quality compliance programs and clearly demonstrate the edge of the investment team.

Thomson Reuters and HFA invite you to join us on September 22, 2011 for valuable insights from leading hedge fund experts and industry luminaries.

This HFA Symposium includes cocktails and hors d’oeuvres and is complimentary for Thomson Reuters clients and hedge funds and investors. This event is not open to service providers. This invitation is for the intended recipient and cannot be forwarded. Upon completing the registration page, you will receive a “pending confirmation” notice. The status of your registration will be sent via email. Space is limited, please RSVP now!

MODERATOR

Chrystia Freeland
Global Editor-at-Large, Reuters

PANELISTS

Ron S. Geffner
Partner, Sadis and Goldberg LLP
Vice President, Hedge Fund Association

Robert Hegarty
Global Head of Market Structure, Thomson Reuters

Robert W. Colby
Chairman, Chief Investment Strategist, Colby Asset Management

Simon Ruddick
Managing Director & Co-Founder of Albourne Partners

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The Hedge Fund Association (HFA) has announced the LatAm Chapter Symposium on October 6, 2011 at the Pierre – New York, NY. This symposium includes cocktails and hors d’oeuvres.

“In order to effectively engage in this dynamic region, it is critical for investors and hedge fund managers to gain an understanding of the Latin American hedge fund community. The LatAm Chapter of HFA is proud to bring you prominent expert speakers to address critical issues involved in working effectively at raising and retaining capital, navigating the regulatory landscape and communicating effectively with investors that are keen to increase allocations to LatAm. HFA invites you to join us on October 6, 2011 in New York for new insights.”

Keynote address by Anthony Scaramucci. Speakers include Tulio P. Vera and Antonio Miranda.

RSVP

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Hennessee Group LLC, an adviser to hedge fund investors, announced today that the Hennessee Hedge Fund Index declined –3.36% in August (-1.80% YTD), while the S&P 500 declined -5.68% (-3.08% YTD), the Dow Jones Industrial Average fell -4.36% (+0.31% YTD), and the NASDAQ Composite Index decreased -6.42% (-2.78% YTD). Bonds were mixed, as the Barclays Aggregate Bond Index advanced +1.46% (+5.90% YTD) and the Barclays High Yield Credit Bond Index fell -4.00% (+1.95% YTD).

“August was a very challenging month for hedge funds as they were once again ‘whipsawed’. Hedge funds were forced to reduce exposure in order to limit losses as the financial markets plummeted. They then underperformed as the markets rallied back strongly into month end,” commented Charles Gradante, Co-Founder of Hennessee Group. “Markets continue to be driven by fear, resulting in high correlation among asset classes. The result is one of the most challenging investment environments for hedge funds on record since inception of the Hennessee Hedge Fund Indices in 1987.”

“Hedge funds experienced their worst loss in August since October 2008. Directional strategies, such as long/short and event driven, were the hardest hit, while short biased and macro funds were the best performing strategies,” commented Lee Hennessee, Managing Principal of Hennessee Group. “For the year, hedge funds are down about -2% on average, but that masks the wide dispersion in individual hedge fund manager returns.”

The Hennessee Long/Short Equity Index declined -3.68% (-1.65% YTD) in August, its fourth consecutive negative month. August was a turbulent month in the equity markets as the S&P 500 declined -5.68% for the month and was down as much as -17% during the month. The combination of slowing global growth, intensifying European sovereign debt issues, the U.S. debt downgrade, and disapproval with the political process triggered a sharp selloff. Momentum selling exacerbated losses, resulting in a slow motion market crash. While a month end rally relieved some of the losses and masked monthly volatility, investor confidence was shaken and the likelihood of a double-dip recession has increased. This environment has been extremely challenging for hedge funds as the correlation between assets has increased to almost 80%, surpassing levels seen during the credit crisis of 2008. During the month, losses in many core positions were exacerbated as many hedge funds had overlapping holdings. Managers responded by taking down exposure levels and increasing their cash balance. Managers also shifted to higher quality, large cap names and traded out of more economically sensitive names for more recession-resistant ones. In addition, managers are using a variety of tools to hedge downside risk, while trying to maintain the ability to participate if we were to experience a sharp rally.

“The political stalemate and resulting uncertainty has become a major issue for the financial markets. The inability for the U.S. political system to make progress has caused consumer and corporate confidence to decline significantly,” commented Charles Gradante. “As a result, individuals and businesses are reluctant to spend, hire, or invest. While a recession seemed unlikely a few weeks ago, the probability of another recession has meaningfully increased over the last month.”

The Hennessee Arbitrage/Event Driven Index declined in August, falling -2.98% (-0.79% YTD). Bonds were mixed as investors sold risky assets and fled into safe havens. U.S. Treasuries benefited from the flight to quality and yields declined substantially, while investment grade and high yield spreads increased substantially in August. Trading in the high yield market, which is seasonally slow in August, was essentially non-existent. The limited liquidity was challenging for managers looking to reduce risk in the declining market, helping to exasperate mark-to-market losses. Managers responded by adding short exposure in highly liquid instruments in order to protect capital. That said, after a painful August, managers are selectively adding to attractive opportunities, but remain cautious. The Hennessee Distressed Index decreased -6.01% in August (-2.22% YTD). Distressed managers suffered significant losses as investors increased risk aversion in a flight to quality. Core long positions declined more than the market as investors sold risky assets indiscriminately. Hedges provided some relief, but distressed managers were hurt by their traditional long bias. Managers also suffered from a lack of catalysts as tumultuous markets prevented companies from pursuing refinancing, IPOs and other events. The Hennessee Merger Arbitrage Index declined –1.77% in August (+0.31% YTD). Merger arbitrage mangers experienced losses as spreads in even the most solid merger arbitrage transactions widened dramatically. As a result, managers are finding opportunities to selectively add to positions at very attractive levels. The Hennessee Convertible Arbitrage Index returned -1.95% (+0.60% YTD) in August. Convertible securities sold off along with other risk assets. As a result, the Merrill Lynch CB index cheapened to 0.52%. There was no new issuance.

“Long positions in gold have been a key source of profits for hedge funds this year. Despite the strong performance this year, managers continue to be bullish on gold,” commented Charles Gradante. “As the developed economies approach a period when they cannot issue new debt and cannot raise taxes, the only option is to print money, which is bullish for gold.”

The Hennessee Global/Macro Index declined -2.91% in August (-3.07% YTD). Negative macroeconomic data, widening sovereign credits in Europe, and the S&P downgrade of U.S. debt drove markets lower and set an extremely negative tone for the month. Financial markets across the globe declined with the MSCI All-Country World Index falling -7.53% in August (-6.05% YTD). Europe was hit especially hard as the Euro Stoxx 50 ended the month down -13.8% and was down -22% at its month low. International hedge fund managers experienced losses as the Hennessee International Index declined -5.97% (-4.43% YTD). Emerging markets also fell as the MSCI EM Index declined -9.19% (-10.27% YRD). Hedge fund managers outperformed as they were positioned cautiously with the Hennessee Emerging Markets Index falling -3.30% (-2.18% YTD). Managers remain optimistic on emerging markets long term as many have stronger balance sheets, higher growth, and increasing consumption. The Hennessee Macro Index was one of the best performing indices, advancing +0.60% in August (+0.11% YTD). The flight to quality resulted in losses to almost all asset classes except for precious metals. Gold was a top performer in August, up +12.2%, while silver (+4.2%) and platinum (+3.7%) also performed well. In terms of currencies, the conflicting headwinds of greater risk aversion versus the U.S. downgrade by S&P resulted in the U.S. Dollar remaining largely range bound in August (+0.3%). Managers did experience losses in their long Swiss Franc positions on intervention by the Swiss National Bank. Oil was also weak given the fears around slowing global growth and pending resolution of the Libyan civil war.

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Hedge Fund Association (HFA) members and their guests are meeting for the fourth event of the HFA Golf League taking place Thursday September 15th, 2011 at Doral Arrowwood in Rye Brook, NY. Bring your talent, make valuable connections, entertain clients, and win prizes for closest to the pin (par 3’s), longest drive, and low round of the day.

More about the HFA Golf League & Championship:

• Monthly events May – September. Great networking, in an informal and relaxing outdoor setting.
• The newly renovated and expanded practice facilities at the Doral Arrowwood golf club include a driving range, practice bunker and professional putting green.
• Little Blue Monster – Critically acclaimed as one of the most challenging nine-hole courses in the country, our signature Doral Arrowwood golf course presents the renown Robert von Hagge’s trademark mounds, shadows, bunkers, and water hazards. The 3,200-yard, par 35 course presents a challenge to every level of play — from beginner to professional.
• Mulligans – Westchester’s favorite seasonal outdoor bar and grill overlooking the picturesque ninth green featuring variety of specialty drinks and micro brewed beers as well as live music.
• HFA Corporate Golf Championship (10/3)- A 18 hole end of summer spectacular event with the HFA Perpetual Trophy awarded (location TBD).

Final 18 hole championship is being planned for October 3rd.

Registry

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