Keeping Up with the (Paul Tudor) Joneses: a Hedge Fund Industry Update

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TODAY’S CHAT

1. What’s different about hedge funds?

2. Current state of the industry

3. Prospects at hedge funds

4. Hedge funds and philanthropy

FIRST OF (W)ALL (OF TEXT)

Hedge funds are private partnerships in which the manager or general partner (GP) has a significant personal stake in the fund and is free to operate in a variety of markets and to utilize investments and strategies with variable long/short exposures and degrees of leverage.

DIFFERENT HOW?In search of absolute returns

Exotic investment strategies;

outsized returns (but big risks)

Not for everyone, literally

Lock-up period & redemptions

Also…

HIGH-WATER MARKS

Almost all hedge fund performance fee arrangements include a

high-water mark provision performance fees only apply to

profits after losses in previous years have been recovered

FOR INSTANCE…In 2011, an investor gives $500K to a

HF. By year’s end, the investment’s

value falls to $300K. In 2012, the HF

realizes returns of 100% so the

investment is now worth $600K.

HWM provision means the investor

must only pay performance fees on

the gain between $500K and $600K.

CITADEL INVESTMENTS

HF INDUSTRY AUM

$2.05T in AUM at end of 2012

Flat (marginal uptrend) from 2011

But BIG bounceback from 2009’s

$1.29T

AUM BY STRATEGY

Helpful to familiarize

yourself with various

strategies

Chart from BarclayHedge#1

#2

#3

HF PERFORMANCEHFs returned 8% on average

in 2012

5% returns through 5/10/13

(635 HFs closed in 2012)

While…S&P returned 16% in

2012 and 15% thru 5/10

STRATEGY RETURNS

BarclayHedge

TO KEEP AN EYE ON

Real Estate (MBS)

Event Driven (Herbalife)

Currency (Euro debt crisis,

Yen)

LANDSCAPE

New York City and London still tops

Other Euro countries enticing HFs:

Monaco, Malta, Switzerland

Brazil is Latin American “beachhead”

VIEW FROM FUND MANAGER’S WINDOW

DOMESTIC REGS

Dodd-Frank Act (Volcker

Rule)

JOBS Act (crowdsourcing

investment opps)

Carried interest?

OVERSIGHT/DISCLOSUREGPs with >$150M must

register with SEC

Large HFs must publish

brochure in “plain

English”

Smaller firms to feel $$

pinch of compliance

EUROPEAN REGSAlternative Investment

Fund Managers

Directive (AIFMD)

vs.

Undertakings for Collective

Investment in

Transferable Securities

(UCITS)

UPCOMING EU CHANGES

Harder to country shop

Leverage and compensation curbs

Affects non-EU funds operating in the

EU

UCITS-compliant funds

underperforming

WHERE TO FIND THE 411

Queued up for your viewing pleasure:

SEC Investment Adviser site (adviserinfo.sec.gov)

Schedule 13F SEC filings (whalewisdom.com)

Investor letters (marketfolly.com)

COMP EVALUATION

Management fees (1% of

AUM)

5% or “skin in the game” rule

Deep dive

HFs GIVING GLOBALLY

Hedge Funds CareRobin Hood FoundationRobertson FoundationBlackstone Foundation

RICE (Cambodia, India)Man Group (Japan)China Care Foundation (Bridgewater)

Hintze Family Charitable Foundation (UK)

Children’s Investment Fund Foundation

Open Society Institute (Soros)

CASE: ROBIN HOOD FDNLargest private poverty-fighting organization in NYC

$326M in assets in 2011

Over $1B in charitable giving over 24 years; $154M in

2011 alone

CASE: 100 WOMEN IN HEDGE FUNDS

Mentoring (2013), women’s

and family health (2014),

education (2015)

US, UK, and Switzerland

Raised close to $30M to date

CASE: HEDGE FUNDS CARE

Operations in NYC and the

Caymans

International giving with

focus on child abuse

$45M raised for charity since

1988

CASE: CHILDREN’S INVESTMENT FUND FDN

Targeting $100M in charitable investments in 2013/14

Active since 2009 with US and UK boards

Impact areas: child survival, hunger

alleviation/nutrition, educational attainment,

climate

DONE! QUESTIONS?

Thanks to Bill Powers, the

AFP, and Alex Cocleaza ’12