Peter J. de Marigny
is Portfolio Manager of DITMo® Strategies, an Equity Hedge, Aggressive-Income Objective, Buy/Write Portfolio for an Aggressive-Income Objective used as an Enhanced Cash investment vehicle. Pj is also Head of Risk Alternative Strategies for Newport Beach, CA advisor Renovatio Asset Management.
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Ryan Conner is Principal at HedgeCo Securities. As an experienced industry veteran, Ryan Conner offers his opinions on the hedge fund industry and hedge fund strategies. » View Ryan Conner
Rashida Fleet is involved with consulting and working with managers during the fund launch phase. Her work includes; interviewing managers, collecting information for the HedgeCo database and contributing to the HedgeCo News feed.
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Tim Seymour is co-founder and managing partner of Red Star Asset Management, as well as Chief Operating Officer of the $116 million Red Star Double Alpha Fund. » View Tim Seymour
Richard Heller Richard Heller is a partner at the New York City law firm of Thompson Hine LLP. His experience is in the formation of private offerings for hedge funds as well as the formation of registered broker-dealers and RIAs.
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Cameron Hight, CFA, is an investment industry veteran with experience from both buy and sell-side firms, including CIBC, DLJ, Lehman Brothers and Afton Capital. He is currently the Founder and President of Alpha Theory™, a Portfolio Management Platform designed to give fundamental money managers the ability to create their own repeatable discipline to organize the complex process of portfolio management.
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This week we have a guest post by Matthew Reinhard, Member at law firm Miller & Chevalier
The tale of hand-bag mogul, turned Azerbaijan oil-speculator, turned felon, Frederic Bourke came to an end in mid-December when the Second Circuit Court of Appeals sustained his conviction on conspiracy to violate the Foreign Corrupt Practices Act (“FCPA”) and other charges. The next day the trial court denied Bourke’s motion for a new trial and ordered that he surrender himself to Federal Marshals on January 3, 2012 to begin serving a year and a day sentence in the federal penitentiary.
Bourke’s legal problem arose from a far-reaching private investment scheme designed to purchase and privatize the national oil company of Azerbaijan — SOCAR. Though the focus of much of this case has been on Bourke and the leader of the investment scheme Viktor Kozeny — the so-called “Pirate of Prague” (who has, to date, fended off attempts extradite him from the Bahamas to the United States to face charges) –the case also touched the hedge fund world. Clayton Lewis, a former partner at the Omega Advisors, Inc. hedge fund, pled guilty to FCPA charges arising from Omega’s investment in the scheme, but has yet to be sentenced as the Government still hopes to use him as a testifying witness against Kozeny if and when he is extradited. Omega, for its part, avoided criminal prosecution, but did agree to a civil forfeiture of $500,000.
In upholding his conviction, the Court of Appeals found the trial court correctly informed the jury it could find Bourke guilty of conspiring to violate the FCPA if it believed he “consciously avoided” gaining knowledge of the corrupt scheme. In rendering its decision, the Court emphasized that Bourke knew he was doing business in a country with a reputation for corruption (Azerbaijan) and that Kozeny — who was leading the investment syndicate — had a reputation for corrupt dealings (Kozeny). This decision only reiterates the importance of conducting anti-corruption due diligence of potential business partners, especially on deals involving countries with a reputation for corruption.
While the scope and details of such due diligence efforts may necessarily vary from deal to deal, the basics can oftentimes be integrated into existing due diligence modules. In general, due diligence efforts directed at potential partners should be focused on discerning the reputation of the investor and determining whether the potential-partner has any business or family ties with foreign government officials that could present FCPA risks. This may include asking the potential partner to answer detailed questionnaires, vigorously checking business and credit references, checking the partner against U.S. government and international “blacklists”, and personal interviews between the hedge fund manager and key personnel of the potential partner.
The bottom line take-away from the travails of Frederic Bourke, Clayton Lewis, Omega Advisors and their dealings with the Pirate of Prague, is that the U.S. government expects sophisticated investors to know their partners and recognize the risks of investing in markets with a reputation for corruption. The U.S. government and the courts have made clear that investors who fail to undertake robust due diligence or who knowingly chose to partner with unsavory advisors risk prosecution under the FCPA.
Miller & Chevalier is recognized as having one of the pre-eminent FCPA and international anti-corruption practices in the United States. For more than 20 years, our team has advised U.S. and non-U.S. businesses in every aspect of anti-corruption and FCPA issues. Since 2006, Miller & Chevalier lawyers have made more than 100 visits to over 35 different countries on five continents, including China, Russia, and several countries each in Africa, Latin America, the Middle East, and South East Asia, in connection with FCPA investigations and compliance assessments.
This morning a paper from researchers Andrew J. Patton, Tarun Ramadorai, and Michael Streat eld found it’s way to my desk. The paper takes over 14,000 hedge funds and analyses their results over the years. Their findings are pretty interesting.
Tracking changes to statements of historical performance recorded at different points in time between 2007 and 2011, we nd that historical returns are routinely revised. These revisions are not merely random or corrections of earlier mistakes; they are partly forecastable by fund characteristics. Funds that revise their performance histories signi cantly and predictably underperform those that have never revised, suggesting that unreliable disclosures constitute a valuable source of information for current and potential investors.
Based on the research they find a tidbit that both investors and managers could find very useful in both determining which Hedge Funds to invest in as well as their own reporting practices:
We find that on average, revising funds significantly underperform non-revising funds, and there is a far greater risk of experiencing a large negative return when investing in a revising fund.
Which brings them to this conclusion:
Our analysis suggests that mandatory, audited disclosures by hedge funds, such as those proposed by the SEC earlier this year, could be bene cial to investors and not just regulators.
There is a lot more information in the paper and it’s certainly worth a read.
Groupon Inc, the daily deals company who has shot to fame in the last few years, is looking to raise $700 million in this IPO. The Company is selling 30 million shares, and will open at $20/share.
4 pm November 4th. GRPN Closes at 26.11 up 30% from it’s opening price.
3:16 pm November 4th. Fox Business does a round-up on the Groupon IPO in which it makes the supposition that “The level of demand Groupon’s IPO garners may serve as a good indicator for Wall Street’s current level of interest in new-age Internet companies.” Read full article.
2:33 pm November 4th. CNBC Discusses the Groupon IPO in this video
2:03 pm November 4th.Investor, CEO and Editor-In-Chief of Business Insider Henry Blodget pens an article called Enjoy The Ride, Groupon Investors, I’m Outta Here!!. Very pessimistic of the entire Groupon Business Model Henry Blodget says “There is NO WAY I would own Groupon’s stock for the next few quarters at this price, given the business transition Groupon is currently undergoing.”
1:40 pm November 4th. Hedge Fund Manager and CNBC Regular Doug Kass announces in a tweet that he is “short Groupon today”
12:57 pm November 4th.Blogger Paul Kedrosky criticizes Goldman Sachs in a tweet to his followers “Goldman already profitability facilitating other side of GRPN: Lending at high negative rate to short-sellers. Such pirates.” he later clarifies in a tweet and says that he was “amused, not angered”
11:37 am November 4th. Tom Taulli reminds us that there are Tech CEOs Who Actually Like Groupon The group includes Payam Zamani, founder and CEO of Reply!, Dave Scott, CEO and founder of Marketfish, and Scott Sellers, CEO & co-founder of Azul Systems
11:07 am November 4th. The Daily Beast Groupon’s No Bargain The Internet coupon guys are going public but would-be investors should stay away, because behind the scenes the company is a mess and the stock is risky, says Dan Lyons
10:54 am November 4th. GRPN opens at a market cap of about $18 billion. Chart via ZeroHedge
10:48 am November 4th. GRPN Surges 50% on open
10:41 am November 4th. NASDAQ annouces that GRPM will begin trading at 10:45
10:20 am November 4th. Another picture of the Groupon Team at NASDAQ (via @monsieurBowden)
10:10 am November 4th. Mutual Fund Blogger at FundMyMutualFundtweets “$GRPN in the end is paid by the business, hence their opinion matters most. Without new repeat customers this model eventually flails.”
5:51 am November 4th. ZDNet Blogger Larry Dignan give us the “Numbers to Know” editorial at the top of the piece summarizes the situation as “Groupon’s IPO will be closely watched because it’s largely a total crapshoot“
I’ve started a new blog which discusses the statistic calculation issues which hedge Funds have to deal with. I’m starting out with the most basic of statistics and then building up to the more complex ratios.
The most basic of all calculations a hedge fund will want to report to their investors is their Average returns.
Despite the simple nature of this calculation, the difference between the Arithmetic and Geometric averages as well as the difference between the terminology used to refer to these terms, for example Compounded Annual Rate of Return vs. Compound Annual Growth Rate, have lead to confusion as to what number is being displayed.
I was cruising through our archives today and found this valuable article on hedge fund trademarks, which is worth a read if you haven’t thought about trademarking your hedge fund.
Trademarks are invaluable assets. They are the primary means through which most companies identify themselves to the public, and the primary means through which the public identifies and distinguishes one company from another. Yet many hedge fund managers do not register their trademarks with either the United States Patent and Trademark Office or the trademark offices of other countries in which they conduct business. By failing to register their trademark rights, hedge fund managers are potentially losing out on some important benefits they would otherwise enjoy and in some cases may even be risking the loss of their trademark rights. Since trademark applications can be filed both before and after a hedge fund has launched, even managers of active funds who have not yet registered their trademarks should give serious consideration to filing a trademark application. Below we briefly discuss what a hedge fund trademark is and the factors fund managers should consider in deciding whether or not to register their hedge fund trademarks.
What is a trademark and why are trademarks important to hedge fund managers?
A trademark is generally a word, phrase, symbol or design, or a combination of words, phrases, symbols or designs, that identifies the source of a product or service and distinguishes the source of that product or service from the source of other products or services. In the case of hedge funds, the fund’s trademark is frequently the same as or comprises a portion of the fund’s name. For example, in the case of a hedge fund where the investment manager is ABC Capital Management, LLC, the general partner is ABC Capital, LLC, and the fund is ABC Partners, LP, the mark ABC may be considered the hedge fund’s trademark, since it is by this portion of the fund’s name that the fund is recognized by the public.
Establishing valid trademark rights is important because owning valid trademark rights entitles the trademark owner to prevent third parties from using the same or a confusingly similar mark for the same or related goods or services to those of the trademark owner. This can prevent the public from being confused between two or more funds with similar names or marks. Although hedge funds are generally precluded from advertising, and relationships with investors are developed primarily through personal connections, confusion can and frequently does arise through external sources. As one court noted in finding trademark infringement where both parties were in the investment business: “High-level investment business is commonly conducted based on trust and personal relationships among individuals. If any investor reads about a [Defendant] investment … and mistakes that transaction for a [Plaintiff] investment of which it was not aware, it may well feel ‘cut out’ of a potential lucrative deal. … [I]ts business relations with [Plaintiff] could be soured.” Morningside Group Ltd. v. Morningside Capital Group, L.L.C., 182 F.3d 133, 140 (2d Cir. 1999).
Trademark registration can provide fund managers with valuable benefits. If you have any questions about trademark registration, please contact Beth Alter at Seward & Kissel’s Intellectual Property Group at (212) 574-1427 or alter@sewkis.com.
Bart Mellon at the Hedge Fund Law Blog has been busy blogging about Insider trading.
His first article titled “Insider Trading Overview” gives a great summary of what everyone should know about Insider Trading.
In light of the recent focus on insider trading, we are publishing the SEC’s discussion on Insider Trading. The information below contains a broad overview of some of the important aspects which hedge fund managers should understand about the insider trading prohibitions.
In another article Bart goes on to list issues which are increasingly relevant after the Galleon hedge fund failure.
There is a lot of speculation regarding the proposals which are currently on the floor of Congress which would determine the future of hedge fund regulations.
SEC Chair, Mary Schapiro, recently pointed out that Reporting and open Books & Records were high on the regulatory priority list:
So we really need reporting. We need registration. We need the ability to examining their books and records, and understand how they’re conducting business. (source)
Many in house hedge fund marketers do not believe they have to be licensed. They are right, if they get paid a salary to raise assets. If however, they get compensated based upon the amount of assets raised (performance), then they too must be FINRA licensed. They are essentially selling a security, an LP investment. In addition, all hedge fund marketers including in house and third party must be licensed in the state in which the investor they are soliciting investors.
The blog entry goes on to discuss the more tricky aspects of finding the correct marketers and ensuring that they are properly supervised and follow all the FINRA regulations regarding marketing hedge funds.
See if you can pass the “How much do you know about hedge fund marketing” test
If you’ve talked to a hedge fund manager for any amount of time, the topic of prime brokers will come up. One of the fundamental issues when setting up a hedge fund is finding a prime broker who will fit your balance of price vs. services rendered.
In the world of prime brokerage, there are the Goldman’s, the Morgan Stanley’s, and the JP Morgan’s, and then there is everyone else. The big boys of the prime brokerage world offer the best of trading platforms and great customer service, if your hedge fund is big enough for them to turn a profit on your account. Hedge funds under $100 million in assets might have a hard time getting Goldman Sachs on the phone. Even if that fund was able to get into the Goldman customer book, what kind of servicing do you think they could expect?
Alex goes on to answer the following important questions regarding your prime brokerage relationship and specifically when is the right time for your hedge fund to use a mini prime.
Why Use a Mini Prime
Benefits of Mini Prime Brokers
How to Choose a Mini Prime Broker
The conclusion which is drawn is that if you choose to use a mini prime you should either get better pricing or better services. If you don’t get one or preferably both, then keep shopping!
Andrew Schneider has been appointed as Director of the HFA Southeast Chapter. In this role he will lead regional efforts to foster growth and development of the hedge fund community throughout the Southeastern U.S.
Andrew is founder and co-principal of HedgeCo Networks, a hedge fund research and services firm. At HedgeCo, he provides consulting services to new and existing hedge funds, and oversees a database of over 6,500 hedge funds, including a community of over 35,000 members. Andrew is often sought by major media outlets and industry publications for his expertise on the hedge fund industry. He appears regularly on CNBC and has been quoted in over 200 financial publications.
HFA Member programs are driven by Regional Chapters in Northeast, Midwest and now the Southeast. The Director of the HFA Northeast Chapter is Michael Scanlon, and the Director of the HFA Midwest Chapter is John Peterson.
HFA is also pleased to announce the addition of Anh Huynh as Manager of HFA Government Relations. Anh is based in Washington D.C., and will help expand efforts to educate the public, media and lawmakers to dispel myths and advocate for all industry participants.
If you’ve talked to a hedge fund manager for any amount of time, the topic of prime brokers will come up. One of the fundamental issues when setting up a hedge fund is finding a prime broker who will fit your balance of price vs. services rendered.
Andrew Schneider has been appointed as Director of the HFA Southeast Chapter. In this role he will lead regional efforts to foster growth and development of the hedge fund community throughout the Southeastern U.S.
