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Apr-16-2008

Paulson's $3.7 Billion Top Hedge Fund Pay, Alpha Says (Update2)

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CONTENTS:

The enormous riches being generated by hedge funds comes at a time of extraordinary distress in financial markets, as millions of homeowners face potential foreclosure and the U.S. plunges into recession. (More...)
No chief executive of a traditional Wall Street investment bank came even close. (More...)
Robert K. Steel leans forward, speaking in a rapid, excitable burst about the powers that a superregulator might wield over Wall Street one day. (More...)
Maybe New York real estate is more attractive: Alpha's No. 4 fund manager for 2007, Mr. Falcone, recently closed on a $49 million deal to buy the Upper East Side mansion that once belonged to Robert C. Guccione, founder of Penthouse magazine. (More...)
Policy makers acknowledge that stronger regulation of financial markets is needed in the aftermath of the $245 billion of asset writedowns and credit losses that financial companies have logged since the start of last year. (More...)
Mr. Hacking, executive director since August 2005, said because the fund had been highly concentrated in one sector — technology — the amount of risk taken then was “breathtaking. (More...)
February's collapse of a $2bn fund run by UK manager Peloton Partners illustrated the perils of borrowing to buy too soon. (More...)
Winton's $6.3 billion Winton Futures Fund gained 11 percent in the first three months of the year after rising 18 percent in all of 2007, according to data compiled by Bloomberg. (More...)
John Paulson took home 1.9 billion last year by betting on mortgages last year as the U.S. property market plunged into crisis, according to the New York Times. (More...)
The correct regulatory paradigm is founded on principles of professionalism. (More...)
The funds also offer far greater rewards to investors than are generally available through safer mutual funds and 401(k) retirement plans. (More...)
Mindich said the 10 firms represented on the asset committee meeting, which manage about $140 billion, have agreed to abide by the recommendations. (More...)
The push for more details on assets at risk of loss echoes the Group of Seven's call last week as policy makers seek to tighten supervision of capital markets. (More...)
Mr Smith called for a new rating structure that accurately reflected the different quality of scrutiny applied to a single security compared to a corporation. (More...)

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The enormous riches being generated by hedge funds comes at a time of extraordinary distress in financial markets, as millions of homeowners face potential foreclosure and the U.S. plunges into recession. Five of the managers on this year's list each made more in 2007 than the $1.2 billion that JPMorgan Chase & Co. agreed to pay for the almost failed 85-year-old Bear Stearns Cos. -- When the inaugural list was published in 2002, Soros led the way with $700 million, a showing that this year would have put him at No. 9. Back then it took $30 million to crack the top 25; this year, $360 million. -- The grand total earned by the top 25 in our 2003 ranking, almost $2.8 billion, was less than what any of the top three managers made this year and less than one fifth of what the top ten made altogether ($16.1 billion). -- Though the list doubled in size this year from 25 to 50, managers needed $210 million to qualify for the ranking. Eight of the managers are based in the U.K., including GLG Partners co-founders Noam Gottesman and Pierre Lagrange, who each made $350 million in earnings. (apart from the $1 billion they got in stock and cash when GLG went public on the New York Stock Exchange last year in a reverse merger). Alpha uses two components to calculate earnings: managers' share of their firm's performance and management fees, as well as gains on their own capital. We exclude, however, any proceeds from the sale of a firm or from a public offering, which is more a reflection of managers' business acumen than of their investment prowess. [1] London's top nine hedge fund managers shared an estimated $2.6 billion (£1.2 billion) pay bonanza last year as star dealers profited from the sub-prime mortgage meltdown. Top of the UK's hedge fund performers for last year was David Slager, who runs the European fund of Atticus Capital, which famously took out a $1 billion stake in Barclays and vowed to fight its planned mega-merger with the Dutch bank ABN Amro. Mr Slager collected $450 million in performance and management fees last year, according to Alpha magazine, a U.S. hedge fund title which has just published its survey of the world's 50 highest-paid managers. Mr Slager, who splits his time between London and New York, was rated 13th in a list that was topped globally by John Paulson, who received a staggering $3.7 billion.[2]

Hedge funds lost 2.8 percent in the first three months of the year after gaining 10 percent in 2007, according to Chicago- based Hedge Fund Research Inc. "Right now it's looking like 2007 was that peak year, but it's dangerous to make a 12-month assumption on one quarter,'' said Godden. Many funds may benefit from volatility this year, he said. Hedge funds managers make most of their compensation by keeping a percentage of profits, typically 20 percent. They get no performance fees unless their returns are positive, though they do typically keep a 2 percent management fee. Five of the managers on Alpha's list of 25 best-paid managers in 2006 didn't make it in 2007 because their funds underperformed or lost money. Edward Lampert, the 45-year-old hedge fund manager who is now chairman of Sears Holdings Corp., didn't make the list because he lost money in 2007, according to Alpha. Soros, 77, returned 32 percent in 2007 for his $17 billion Quantum Endowment Fund. Quantum's returns this year have ranged from up 3 percent to down 3 percent through the end of March. Some of last year's top paid managers are struggling this year as banks tighten lending standards and markets gyrate. At least a dozen funds, including the $4 billion Peloton Partners LLP, have liquidated or required cash infusions this year. Simons, 69, is down 12 percent since last May's peak at his $18 billion Renaissance Institutional Equities Fund, investors said last week. Stephen Mandel, 52, ranked eighth with $710 million in compensation last year, was down about 10.6 percent in his Lone Cedar Fund at the end of March from a high in December, according to people familiar with the fund.[3] Included in the ranks of the UK super-performers were Noam Gottesman and Pierre LaGrange, the co-founders of GLG Partners. The two men made $350 million each last year, according to Alpha, which based its calculations on managers' share of management and performance fees. It took no account of any proceeds from sales of hedge fund firms. Greg Coffey, GLG's star emerging markets specialist who is currently trying to exit the firm to set up on his own, took home an estimated $300 million. Mr Coffey quit on Sunday, but subsequently rescinded his notice while talks over a potential deal with GLG continue. GLG shares tumbled 10 per cent this morning as investors digested news that the man who managed about $7 billion of the firm's $24 billion in assets was likely to leave.[2]

The two committees, one comprising asset managers and the other investors, agreed that hedge funds need to abide by new standards of disclosure. The asset managers' report, which noted that there are close to 8,000 such funds managing about $2 trillion, said the industry should improve disclosure, improve valuation and risk management procedures, and overhaul business operations and compliance practices. "The robust practices set forth in these reports are critical to and consistent with the goal of reducing system risk,'' said Eric Mindich, chief executive officer of Eton Park Capital Management in New York and chairman of the asset managers' committee.[4] Eric Mindich, who chaired the first panel, is chief executive of Eton Park Capital Management, a $12 billion hedge fund. He said the 10 committee members committed themselves to the reports' proposals. He said he hoped other hedge funds would follow their example. "We agreed to do this not because anyone put a gun to our head but because we thought these recommendations are right and represented a step forward for the industry," he said in an interview. Hedge fund managers must take more responsibility for their role in the markets because they have become such a significant force on Wall Street, Mindich added. Hedge funds manage about $2 trillion in assets and represent the majority of trading on major stock exchanges, he said. Russell Read, chief investment officer of the California Public Employees' Retirement System, the nation's largest pension fund, chaired the second committee, which developed a guide to help investors determine whether they should invest in hedge funds and, if so, which ones. The panel also recommended that investors develop their own methods to evaluate the risks of investments made by hedge funds. In an interview, Read said it would have been "very difficult to implement these proposals in a regulatory framework" because hedge funds vary greatly in size and in the type of their investments. The report, he added, will lead to "healthier hedge funds, healthier investment practices in those funds, and for a healthier impact of hedge funds on the capital markets in general."[5] The report was prepared by an investors committee headed up by Russell Read, chief investment officer of California'''s $240.9 billion pension fund CalPERS, while the asset managers''' committee was led by Eric Mindich, founder of hedge fund firm Eton Park Capital Management. '''The hedge fund industry has a critical responsibility to adopt strong business practices that reflect both its growth and the important role it plays in global financial markets,''' said Mindich. Chip MacDonald, a partner in the capital markets group of law firm Jones Day, said that the report gave hedge funds and their investors "good guidance to operate under." "If it enables people who deal with hedge funds to evaluate them better, the better hedge funds will come out ahead, and we will have less hedge fund blowups," MacDonald said.[6]

In unveiling the recommendations of the advisory groups on Tuesday, Paulson said the administration was not endorsing the status quo but rather pushing for improvements that would keep U.S. financial markets competitive in a global economy. Sen. Charles Schumer, D-N.Y., a key voice on financial matters in the Senate, said that Congress was just beginning to examine what needs to be done in the wake of the severe credit crisis but "in the interim these best practices should strengthen the hedge fund industry and provide investors and regulators with better information." The credit crisis claimed its biggest victim last month with the near-collapse of Bear Stearns, the country's fifth largest investment bank, which was taken over by JP Morgan Chase & Co. in a deal in which the Federal Reserve provided a $30 billion loan. Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said in an interview with The Associated Press on Tuesday, that he expected Congress — not this year — but in the future to revamp financial regulations to better keep pace with financial innovations such as the growth in hedge funds.[7] U.S. hedge funds and investors on Tuesday joined a global effort to fend off tougher regulation of the industry'''s activities by setting forth '''best practice''' guidelines that ask asset managers and investors to adopt measures aimed at reducing systemic risk, reports the FT. The recommendations were issued Tuesday by two separate committees formed under the President'''s Working Group for Financial Markets.[8] The Asset Managers' Committee said hedge fund managers should adopt the key principles of U.S. public company disclosure standards, including quarterly and annual reports, timely disclosures of material events and audited financial statements compliant with accounting standards. The panel's report said hedge funds should adopt soon-to-be-implemented accounting standards that call for financial institutions to categorize assets into three levels based on how difficult they are to value. "This report calls on hedge funds to implement these rules and go beyond them by disclosing, on a quarterly basis, the portion of their assets and the performance attributable to each of the three levels," said Asset Managers' Committee Chairman Eric Mindich, chief executive of Eton Park Capital Management. "This will go a long way to help clarify the types of assets and risks in the fund." Adoption of the best practices is voluntary, and the Treasury will collect industry comments on them for 60 days.[9] We want to guard against systemic risk and keep the U.S. the most competitive financial marketplace in the world. As these committees were formed, their chairmen and the PWG believed that markets benefit when experienced and respected participants develop best practices and new accountability standards,' said Paulson. The asset managers' committee, chaired by Eric Mindich, CEO of Eton Park Capital Management, recommended a series of rules for comprehensive best practices for hedge funds in all aspects of their business, including disclosure, transparency, valuation of assets, risk management, business operations, compliance and conflicts of interest.[10] WASHINGTON, April 15 (Xinhua) -- Two U.S. Treasury committees Tuesday released a set of best practices for hedge fund investors and asset managers to increase their disclosure and risk management practices. The best practices for the asset managers call on hedge funds to adopt comprehensive best practices in all aspects of their business, including the critical areas of disclosure, valuation of assets, risk management, business operations, compliance and conflicts of interest, said a statement released by the Treasury.[11] Two blue-ribbon private-sector committees have released lists of best practices for hedge fund investors and asset managers, according to a government news release. The best practices for the asset managers call on hedge funds to adopt objectives in all aspects of their business, including the "critical" areas of disclosure, valuation of assets, risk management, business operations, compliance, and conflicts of interest, the news release said.[12]

The summaries said best practices for hedge funds and investors should help contribute to a clarifying market conditions and reducing risk. 'No set of best practices can provide solutions to all of the complex issues facing the financial industry,' they said. Specifically, the Asset Managers Committee within the PWG called on hedge funds to improve disclosure in order to make it easier for investors to determine whether they should invest in a fund, and to monitor their investment. It also asked hedge funds to set up a system for assessing hard-to-value assets, and report each quarter on the profits and losses related to these assets.[13] Hedge funds should improve disclosure and risk management, and set up independent valuation committees, a pair of government-appointed panels have recommended, voluntary measures that have come under fire from some sectors. The twin panels, one composed of hedge fund industry leaders and the other of institutional investors, stressed the need for hedge funds to '''better evaluate and implement strong practices to better manage their businesses and reduce risk.''' '''The robust practices set forth in this report will be critical to and consistent with the goal of reducing systemic risk,''' the panels said in a summary of their report. The investor committee, led by Russell Read, chief investment officer of the California Public Employees''' Retirement Committee, called on hedge funds to aspire to '''comprehensive''' disclosure practices, in line with those of public companies, with quarterly and annual reports, disclosure of material events and audited financial statements.[14]

WASHINGTON (Reuters) - Hedge fund managers should improve disclosures of hard-to-value assets and give investors public company-style performance reports to bolster market stability, two U.S. Treasury committees recommended on Tuesday. The private-sector panels, in drafting best-practices guides, said hedge fund managers should set up independent committees for valuing assets and seek outside reviews when they base valuations of illiquid assets on models. Treasury Secretary Henry Paulson said the intent of the reports was to signal to markets that "heightened vigilance" was necessary and that they need to tighten up their practices so as not to endanger the financial system. With nearly $2 trillion invested in some 8,000 hedge funds, concerns over their holdings of largely illiquid, complex securities backed by mortgages has added to market uncertainty and turmoil.[9] "We want the world's highest investor protection standards," said U.S. Treasury Secretary Henry Paulson. The new guidelines were put together for the President's Working Group on Financial Markets (PWG) and encourage hedge funds -- essentially private investment pools -- to boost their disclosure, improve risk management strategies, and to adopt a written code of ethics among other measures.[15] U.S. treasury secretary Henry Paulson has called for 'increased vigilance' over the activities of hedge funds but has eschewed regulation. He said hedge funds should increase disclosure and strengthen risk management. His remarks follow the release of reports from two committees chaired by Paulson and meeting under the auspices of the U.S. president's working group on financial markets (PWG).[10]

Should hedge funds be more like investment banks? That seems to be the direction of a new set of best practices recommended by a group of fund luminaries backed by Treasury Secretary Hank Paulson. While many funds should improve their disclosure, asset valuation and risk management, even those with industrial-strength practices will remain exposed to the risks that have been roiling Wall Street. Despite their reputation for risk-taking, hedge funds have played only a minor role in the financial crisis.[16] WASHINGTON (AP) — Two advisory groups assembled by Treasury Secretary Henry Paulson proposed new "best practices" Tuesday for the hedge fund industry, designed to improve and clarify the operations of the giant pools of capital. The guidelines call on hedge fund managers to improve their operating procedures in such areas as disclosure, valuation of their assets, risk management and guarding against conflicts of interest.[17]

Read'''s group recommends that institutional investors, including pensions and endowments, should implement written procedures determining the appropriateness of hedge fund investing. '''This report calls on hedge fund to implement these rules and go beyond them by disclosing, on a quarterly basis, the portion of their assets and the performance attributable to each of the tree levels''' of assets, based on how difficult they are to value, according to Eric Mindich, the Eton Park Capital Management CEO who led the industry committee. '''This will go a long way to help clarify the types of assets and risks in the fund.''' Mindich added that the 10 hedge funds on his panel would adopt the voluntary guidelines in an effort to encourage others to do the same.[14] The guidelines will now enter a 60-day public comment period, after which the committees will review and possibly revise the standards. Among the recommendations, for example, is for hedge funds to implement new accounting standards where they reveal the nature of 'hard-to-value assets,' such as derivatives, by categorizing these assets in three levels'and then explain each quarter how much of their profit or loss is attributable to assets in each level. The UK industry body released its report in January, issuing guidelines that encouraged hedge fund managers to use independent values and issue more regular reports on portfolio risk.[18]

The best practices for investors include a Fiduciary's Guide and an Investor's Guide. The Fiduciary's Guide provides recommendations to individuals charged with evaluating the appropriateness of hedge funds as a component of an investment portfolio while the Investor's Guide provides recommendations to those charged with executing and administering a hedge fund program once a hedge fund has been added to the investment portfolio. "As we said when announcing these committees - we want the world's highest investor protection standards; we want to guard against systemic risk and keep the United States the most competitive financial marketplace in the world. As these committees were formed, their Chairmen and the President's Working Group (PWG) believed that markets benefit when experienced and respected participants develop best practices and new accountability standards," said Treasury Secretary Henry M. Paulson, Jr., who chairs the PWG, in the release.[12] The Treasury on Tuesday is due to release hedge fund best practices guides from two committees it commissioned last year -- one for hedge fund managers and one for hedge fund investors. They were among a number of steps that the Treasury-led President's Working Group on Financial Markets recommended in September 2007 to protect investors and reduce systemic risks posed by the growth of hedge funds while not restraining financial innovation. The two committees started their work as financial market stress from subprime mortgage defaults were gathering steam, creating worries about investments made by the nearly $2 trillion hedge funds sector.[19] "We must implement best practices and continually seek to strengthen our market and regulatory practices." Critics of the plan, such as Connecticut Attorney General Richard Blumenthal, say they believe it gives hedge fund managers, who helped devise the "best practices," a free pass. "This plan is one small step when giant strides are needed. The Treasury Department's proposals for greater transparency and risk disclosure must be mandatory or they are meaningless," Blumenthal said. "Nonbinding best practices or voluntary guidelines are an imaginary fence and virtual farce: They stop nothing." Many economists have warned that loosely regulated hedge funds pose a systemwide risk to financial markets, but so far they have emerged from the credit crisis in good shape. It has been the investment banks - their business partners - whose losses now pose risks to global finance.[20] WASHINGTON (Thomson Financial) - Two key committees of the President's Working Group (PWG) on financial markets today recommended a set of best practices aimed at requiring hedge funds to increase their disclosure and risk management practices, but industry representatives who helped develop the guidelines admitted today that the extent to which they will be followed is still an open question.[13] Russell Read, who chairs the Investors' Committee and is the chief investment officer of the California Public Employees' Retirement System, acknowledged that it is not a foregone conclusion that the guidelines will be followed. He tracking the extent to which hedge funds adopt the guidelines is 'one of the challenges' the PWG faces, and said he anticipates 'having to do a fair amount of missionary work' in the coming years to ensure they are followed. One possible hurdle is the cost of revamping risk management and disclosure practices for hedge funds and fiduciaries, who are asked in the guidelines to do a more thorough analysis of whether they should invest in a hedge fund.[13] The report says that hedge fund firms should institute strong disclosure practices, valuation and risk management procedures and address conflicts of interest. It also calls on investors to have a set of standards and guidelines to determine if a hedge fund is appropriate for the particular investor and to guide the due diligence process.[6] In the area of risk management, the report specifically asks that senior representatives of each fund have oversight in the area of designating and monitoring risk. The Investors' Committee report set up similar guidelines for those responsible for the investment decisions of other investors, and asks these fiduciaries to set up a range of investment standards and goals that must be considered before investing in a hedge fund.[13]

No chief executive of a traditional Wall Street investment bank came even close. Our top-ranked earner, hedge fund manager John Paulson ($3.3 billion), reaped much of his bounty from shorting the ABX Index, which tracks the strength of the subprime mortgage market. Paulson earned an estimated $2.3 billion from his share of fees charged to investors and $1 billion from the appreciation of his own capital invested in Paulson & Co. funds. Fund manager Philip Falcone, who ranked third with $1.7 billion, posted triple-digit returns by shorting subprime credit, resulting in $11 billion in growth for his two Harbinger Capital funds, excluding assets raised from new investors. [21] John Burbank, who runs San Francisco hedge fund Passport Capital, made $370 million last year, also in large part by shorting home mortgage companies and mortgage-related debt. Some members of our list, like Texans T. Boone Pickens ($1.2 billion) and John Arnold ($700 million) made their fortunes the old-fashioned way: betting on energy. Pickens' $2.7 billion BP Capital Equity Fund grew by 24% after fees, while his $590 million Commodity fund grew 40% thanks to large positions in Suncor Energy (nyse: SU - news - people ), ExxonMobil (nyse: XOM - news - people ), and Occidental Petroleum (nyse: OXY - news - people ). For hedge fund billionaires Pickens and second-ranked George Soros ($2.4 billion), whose own investments compose a significant portion of their funds, there's more to be made from asset appreciation than from fees. Soros made $2 billion from the growth of personal investments within his $17 billion Quantum Endowment Fund, which returned 32% for the year.[21] Details of the extraordinary pay on offer to hedge fund star dealers came as latest research from HedgeFund Intelligence, a publisher, calculated that global hedge fund assets stood at $2.65 trillion at the beginning of the year. This is 27 per cent higher than the previous year and defies prophecies that the alternative asset management industry would be holed by the sub-prime rout. Although New York affirmed its dominance of hedge fund activity last year, no fewer than eight of Alpha Magazine's high-earners were based in London, including Alan Howard of Brevan Howard Asset Management and David Harding of Winton Capital Management. The magazine set an entry level of $210 million for those hoping to appear on the list of "hedgies" to hit pay dirt for 2007.[2]

Ken Griffin, Citadel Investment Group, $1.5 billion. In the past year, Citadel has increased its assets to $20 billion from a little more than $13 billion and has been active in buying businesses in widely divergent areas. Citadel snapped up part of the credit portfolio of troubled (and now defunct) Sowood Capital Management and bought bankrupt mortgage lender ResMAE. It also moved into providing administration services for hedge funds and split off a market maker in derivatives from its main business.[22] The hedge fund and leveraged buyout bosses typically reap fees equal to 20% of profits and 2% of assets. Our paychecks are pretax and net of the firm's expenses, and exclude proceeds from selling shares in their own business. We count the $400 million that Stephen Schwarzman of Blackstone Group earned from annual salary, distributions of percentage fees and capital appreciation on his investments in Blackstone's funds, but exclude the $4.8 billion that he took out of the business when it went public.[21]

In one, Eric Mindich, a former Goldman executive who now runs the hedge fund Eton Park, will - with a group of supporting funds - propose nonbinding steps that hedge funds should take. They include publishing audited financial statements like public companies do, the establishment of conflict committees and disclosing on a quarterly basis the extent of their hard-to-value assets. The other report, directed by Russell Read, the chief investment officer of Calpers, the California state pension fund, will address the question of applicability of such funds to different classes of investors. As someone who reaped significant gains from his days at Goldman, and who further augmented his wealth from investments in some of Wall Street's most exclusive and successful hedge funds like Tontine Partners, Eton Park, TPG-Axon and Lone Pine Capital, Mr. Steel brings the practiced, experienced eye of the genuine participant to the task.[23] The committees' report takes aim at complex financial instruments, which were at the core of the credit meltdown. Many hedge funds and investment firms were overly optimistic about the value of mortgage-related securities and then suffered massive losses when such assets began to plummet in price last year. Investors lost confidence in all kinds of debt securities and pulled out of the credit markets, virtually shutting them down.[5]

Calls for better industry disclosure have mounted following the collapse of several large funds in recent years, including the six-billion-dollar implosion of the Connecticut-based Amaranth hedge fund in late 2006 which left some investors nursing losses of tens of millions of dollars. The secrecy surrounding hedge funds and media headlines about the vast riches generated by "hedgies" have only added to their mystique. The new recommendations also urged hedge funds to produce independently audited financial statements, such as those used by publicly traded corporations, enabling investors to receive a more robust financial snapshot. Unlike public corporations, hedge funds do not have to disclose much information about their investments and business operations and as such are only lightly regulated. The Managed Funds Association says its more than 1,300 members manage a thick slice of the 1.3 trillion dollars invested in hedge funds worldwide.[15] WASHINGTON (Reuters) - The U.S. Treasury wants hedge fund managers to improve disclosure of hard-to-value assets and adopt audited public company-style performance reports for investors, a summary of recommendations, obtained by Reuters on Monday, shows. They did not propose any new regulation, but chose instead to rely on market-driven due diligence and improved disclosure.[19] Two U.S. private sector committees working alongside U.S. government officials have released a new set of best practices for hedge fund investors and asset managers that complement standards recently established in the UK, as institutional investors have been calling for more transparency and accountability.[18] Two committees appointed by the Treasury Department called yesterday for greater accountability within the secretive world of hedge funds and pressed fund managers to detail their investment activities, saying such moves would help the troubled financial markets. The two panels included senior executives of large hedge funds and major institutional investors such as pension funds. Under their proposals, hedge funds would set up independent bodies to oversee how fund managers are pricing hard-to-value financial investments and examine whether they are facing conflicts of interest.[5] Assistant Treasury Secretary for Financial Markets Tony Ryan also indicated today that there are no cost estimates for the program, and no method of ensuring hedge funds adopt the guidelines. Both sets of guidelines are open to public comment for 60 days, after which both committees will review comments received, revise the guidelines 'as necessary,' and then issue final guidelines. While the guidelines were requested before the mortgage and credit crisis took hold last summer, summaries of the two reports say these best practices are needed given recent market turmoil.[13] "Non-binding best practices or voluntary guidelines are an imaginary fence and virtual farce. They stop nothing." The Treasury Department unveiled on Tuesday guidelines for hedge fund best practices recommended by two private sector committees to ensure that the funds do not trigger systemic problems as their role on Wall Street increases. Hedge fund managers should improve disclosures of hard-to-value assets such as mortgage-backed securities, which have fueled the current credit crisis and market turmoil, the panels said.[24] The committee included representatives from labour organisations, endowments, foundations, corporate and public pension funds and investment consultants. Read said the intent behind the proposals was to encourage hedge funds to offer "adequate disclosure" so that pension funds and other fiduciaries would be able to assess whether they are an appropriate investment vehicle. The best practices were designed to be consistent with the recommendations issued by the Hedge Funds Working Group in the UK. Its successor organisation, the Hedge Funds Standards Board issued guidelines in February.[10]

The guidelines seek new standards governing disclosure, asset valuation and conflicts of interest, the Financial Times reports. One recommendation would have hedge funds disclose their portfolios' stake in derivatives. Another would have the funds break their assets down into three asset categories based on the ability to value them at market prices.[25]

The New York Times reports that the highest paid hedge fund manager, John Paulson, made $3.7 billion last year.[26] The top five on the list, based on Alpha's estimates, were John Paulson of Paulson Company, George Soros of Soros Fund Management, James Simons of Renaissance Technologies, Philip Falcone of Harbinger Capital Partners and Kenneth Griffin of Citadel Investment Group. As Jenny Anderson wrote in Wednesday's New York Times, some of these fund managers benefited from well-timed bets against the mortgage market. They include Mr. Paulson, whose $3.7 billion payout last year may have been the largest in Wall Street history.[27]

April 16 (Bloomberg) -- John Paulson, founder of New York- based Paulson & Co., was paid an estimated $3.7 billion last year, the most in the hedge fund industry, according to Institutional Investor's Alpha Magazine.[3] John Paulson, who correctly bet in favour of a downturn in the U.S. sub-prime mortgages, earned $3.7bn ('2.3bn) last year, making him the world's highest paid hedge fund manager, as per a survey by Institutional Investor's Alpha magazine.[28] Last year alone, at least five hedge-fund managers made more than that. Institutional Investor's Alpha magazine has released its annual ranking of the most highly paid hedge fund kingpins, and it wryly observes that several of them took home more than what Bear fetched in its fire sale.[27]

To make it into the top 25 of Alpha's list, the industry standard for hedge fund pay, a manager needed to earn at least $360m last year, more than 18 times the amount in 2002.[28] Altogether, the top 50 hedge fund managers last year made 14.6 billion ' and half the top ten were also at the top of the list for 2006. The industry is ending its richest year ever ' though major Wall Street banks have suffered losses worth billions of pounds.[29]

Outside the hedge fund industry, 2007 was a bad year for finance, with Citigroup Inc. and UBS AG recording a combined $232 billion in asset writedowns and credit losses. Merrill Lynch & Co. and Citigroup changed chief executives, while some surviving managers such as John Mack, chairman and CEO of Morgan Stanley, took no bonuses.[3] Cheap debt fueled growth for hedge and private equity funds in 2007, despite the late-year market slowdown. Hedge funds increased their assets by 14% to $2.2 trillion, while private equity funds raised a record $300 billion for $2 trillion in assets. Each hedge fund manager on our list returned more than the 10% industry average to their investors in 2007, including two based in London.[21] Union Bancaire Priv'e, which is one of the world's largest investors in hedge funds, launched two funds of funds last week to hunt for distressed opportunities, and is seeking to raise up to $1bn from institutional investors and wealthy individuals. One of the funds will invest across the troubled credit markets, putting 75% of its capital in hedge funds and the remainder in private equity funds. It will look for undervalued bank loans and corporate debt, asset backed securities, as well as opportunities in rescue or turnround situations.[30] Hedge funds, which operate with little government supervision, cater to institutional investors and very wealthy individuals. Millions of ordinary people have become unwitting investors in the funds through their pension plans. The credit crisis claimed its biggest victim last month with the near-collapse of Bear Stearns, the country's fifth largest investment bank. It was taken over by JP Morgan Chase & Co. in a deal in which the Federal Reserve provided a $30 billion loan.[31]

The investors' committee included representatives from institutional investors, labor organizations and non-US investors and was headed by Russell Read, the chief investment officer of Calpers, the largest public pension scheme in the U.S. with about $240bn. This committee split its recommendations into a fiduciary's guide for how to evaluate and decide the appropriateness of hedge funds as an investment, and an investors' guide for how to administer a hedge fund program after the decision to invest has been made.[18] The investors committee, headed by Russell Read, chief investment officer of California's $240.9bn pension fund CalPERS (California public employees' retirement system), recommended guides for individuals responsible for evaluating hedge funds as part of an investment portfolio.[10]

Although the average American cannot invest in hedge funds, which now boast more than $2 trillion in assets under management worldwide, state pension funds can and increasingly do. This has raised concerns about accounting practices, fees, transparency and risk-management practices, particularly after the spectacular September 2006 collapse of Amaranth Advisors LLC. It had such a large concentration of investment in contracts for future delivery of natural gas that it was later charged by federal regulators with price manipulation.[20] Firms being considered are fixed-income managers Fischer Francis Trees & Watts Inc., New York; Pacific Investment Management Co., Newport Beach, Calif.; and Western Asset Management Co., Pasadena, Calif.; GTAA manager First Quadrant ; hedge fund Benchmark Plus Management LLC, Tacoma, Wash.; and multiasset class firms Morgan Stanley Investment Management, BNP Paribas Asset Management Inc., and Goldman Sachs Asset Management, all of New York. First Quadrant's Mr. Roberts said the firm has expertise in providing both synthetic and physical beta exposure, and obtains alpha from “a pool of uncorrelated structures.[32] "The investor and manager reports, taken together, contain robust recommendations that will take a step towards improving confidence at a time when that has become the scarcest commodity of all,'' said Jim Chanos, founder of New York-based hedge fund firm Kynikos Associates Ltd. and chairman of the Coalition of Private Investment Companies.[4] The President'''s Working Group on Financial Markets issued its '''best practice''' recommendations for hedge fund firms, calling on both managers and investors to do their part to reduce risk and increase investor protection.[6] The release of the report "reinforces our belief that a combination of robust market discipline and regulatory policies best protect investors and mitigate systemic risk,'' Paulson said at a press conference today Washington. "Both market and regulatory practices will evolve from here, but this is certainly a logical step at this time.'' The panels said hedge funds must "better evaluate and implement strong practices to better manage their businesses and reduce risk,'' according to a summary of the recommendations released by the Treasury.[4] Paulson, Fed Chairman Ben S. Bernanke and the heads of the Securities and Exchange Commission and Commodity Futures Trading Commission in February 2007 judged that market discipline remained the best way to protect investors and guard against risks to the financial system. Asking hedge funds to adhere voluntarily to these practices "will make a lot of difference,'' Robert Steel, Treasury undersecretary for domestic affairs, said in an interview with Bloomberg Television.[4] U.S. Treasury Secretary Henry Paulson welcomed the release of the guidelines today as a way to reduce risk for hedge fund managers and provide more information for investors.[13] April 15 (Bloomberg) -- Two panels appointed by Treasury Secretary Henry Paulson advised hedge funds to adopt guidelines including increased disclosure and strengthened management of risk in the aftermath of the rout in credit markets.[4]

The plan, presented by Treasury Secretary Henry M. Paulson Jr., does not introduce new regulations. It depends instead on self-policing and good behavior by hedge fund managers - two qualities missing in recent years as Wall Street excesses have led to what former Federal Reserve Chairman Alan Greenspan recently called the worst global financial crisis since World War II.[20] The plan would provide a clear set of three federal regulatory bodies with authority over our entire financial system, from commercial banks to hedge funds to investment banks to public companies to insurers. This makes perfect sense to me. I prefer federal regulation to state regulation (if I move from one state to another, I want my new bank to follow the same rules as my old bank), and I think it's about time that highly leveraged, mysterious hedge funds were regulated. Except for some visibility into the public hedge funds like Blackstone (NYSE: BX ), these investment vehicles have been a complete black box. Though I like Paulson's proposed structure, I do fear that this regulatory system would encourage attempts to micromanage the economy.[33]

Alpha flags the looming social and policy issues by stating: "The enormous riches being generated by hedge funds comes at a time of extraordinary distress in financial markets, as millions of homeowners face potential foreclosure and the U.S. plunges into recession." The top ranks of the hedge fund industry reflect incomprehensible earnings, as fund mangers collected both huge performance fees and gains on personal investments in their funds.[34] Average earnings for the top 25 hedge fund managers was $892 million, up from $532 million in 2006, according to the magazine. Paulson'''s technique is no secret- he shorted the subprime mortgage market, and, according to Alpha Magazine '''led what may well prove to be the greatest display of individual wealth creation in any year in the modern history of finance.'''[35] The top earning U.S. hedge fund manager John Paulson earned a record $3.7 billion in 2007 to top Alpha Magazine's annual ranking of the 50 most highly paid hedge fund managers.[36] The record-setting salary places Paulson at the top of Alpha's seventh annual list of the 50 highest paid hedge fund managers. Paulson earned more than both George Soros and James Simons, who ranked second and third, respectively, weighing in at $2.9 billion and $2.8 billion.[35]

NEW YORK, April 16 /PRNewswire/ -- John Paulson, who labored for most of his career in merger arbitrage, earned a staggering $3.7 billion in 2007 shorting the subprime market. He needs every bit of it to lead Alpha's annual ranking of the best-paid hedge fund managers.[1]

Comptroller Thomas DiNapoli is considering a major shift in the New York Common Retirement Fund's $5.7 billion hedge fund portfolio to direct investment from funds of funds. Real estate is in its worst slump since the 1980s, but insiders say the market could hit bottom several times over the next 12 to 36 months.[32]

Presently, hedge funds do not have to register with the SEC. But hedge funds have been in the sights of regulators for a long time, and especially since the collapse and financial bailout of Connecticut based hedge fund Long-Term Capital Management, which famously lost $4.6 billion in one month in 1998.[37] The Treasury group's Asset Managers' Committee, headed by Eric Mindich, chief executive of Eton Park Capital Management, calls on hedge funds to put in place more robust procedures for the valuation of assets, including written policies, segregation of responsibilities and other measures.[19] Eric Mindich of Eton Park Capital Management, who chairs the Asset Managers' Committee, said there are no rough estimates for what implementation might cost, even though the guidelines would require hedge funds to undergo 'very significant' operational changes.[13] The asset managers' committee, which represents hedge fund managers, was headed by Eton Park Capital Management chief executive Eric Mindich.[18]

The three other top UK hedge fund managers were Michael Platt of BlueCrest Capital Management as well as George Robinson and Hugh Sloane of Sloane Robinson Investment Services. They ranked joint 47 on Alpha's list.[2]

Three quarters of the assets will be invested in underlying hedge funds but up to 25% will be held directly in debt securities, and there are likely to be redemption restrictions commensurate with an investment horizon of two to four years, Keijsers said. Managers such as the UK's Thames River Capital and Swiss-owned GAM, which run funds of hedge funds, have studied the prospects for launching funds to buy bank debt but are holding back for now.[30] Hedge funds are mostly private and unregulated pools of capital where managers can buy or sell any assets, participating substantially in the profits of the money invested.[3]

The committee included representatives from a diverse group of hedge fund managers, representing different strategies. "This report calls on hedge funds to implement these rules and go beyond them by disclosing, on a quarterly basis, the portion of their assets and the performance attributable to each of the three levels," said Mindich. "This will go a long way to help clarify the types of assets and risks in the fund."[10] Bradley Ziff, head of the hedge funds advisory practice at consultant Oliver Wyman, is the board's liaison to PWG. The UK group is urging fund managers to sign up to a voluntary set of best practices relating to valuation, disclosure, risk management and governance.[10] Only 14 hedge funds have committed to the guidelines. 'This is a significant enhancement in looking at the approaches to risk management, transparency, disclosure and leverage in the hedge fund industry. There is a symmetry and commonality in the way both groups have examined risk for hedge funds. They made significant steps forward.[10]

WASHINGTON (Reuters) - Critics blasted a Treasury Department call for the $1.8 trillion hedge fund industry to better police itself, saying voluntary guidelines did little to protect investors and regulate the pools of capital. The guidelines should be mandatory and federal regulations are needed to oversee the fast-growing hedge fund industry, they said. "This plan is one small step when giant strides are needed," said Richard Blumenthal, attorney general for Connecticut, where about a third of the world's hedge funds are located.[24] Connecticut Attorney General Richard Blumenthal called the guidelines '''a virtual farce.''' '''These measures leave hedge funds in a regulatory black hole,''' he told Reuters. Assistant Treasury Secretary Anthony Ryan defended the proposed guidelines, adding that his department will keep a close eye on the industry to determine their effectiveness. '''We'''re going to continue to monitor best practices, see how behavior changes,''' he said.[14]

Read told reporters at a briefing that Amaranth Advisors, which lost $6 billion in 2006 because of bad bets on natural gas prices, was the "poster child" for what the advisory groups were trying to guard against by proposing a set of best practices. "I think this represents a coming of age for the hedge fund industry," Read said.[38] Read told reporters at a briefing that Amaranth was the "poster child" for what the advisory groups were trying to guard against by proposing a set of best practices. "I think this represents a coming of age for the hedge fund industry," Read said. Associated Press writers Marcy Gordon and Jeannine Aversa contributed to this report.[7]

The two committees had separate but related tasks. The first, comprising managers who oversee 10 of the nation's largest hedge funds, developed a set of best practices for their industry.[5]

"Hedge funds have become too big and too important to remain outside the rules," Blumenthal said in a statement. Sen. Charles E. Schumer (D-N.Y.) said Congress was just beginning to examine what needed to be done in the wake of the current credit crisis but "in the interim these best practices should strengthen the hedge fund industry and provide investors and regulators with better information."[38] The hedge fund industry has grown dramatically in recent years as big U.S. pension funds have invested in the sector and calls have mounted for better disclosure on how investors' money is being allocated.[15]

Hedge funds, which operate with little government supervision, cater to institutional investors and very wealthy individuals. Millions of ordinary people have also become unwitting investors in the funds through their pension plans. In early 2007, a presidential working group headed by Paulson rejected the idea that the funds needed increased regulation and said what was needed was improved voluntary standards for both fund managers and investors.[7] Last month, a survey by accountancy firm PwC and research firm the Economist Intelligence Unit found that two thirds of institutional investors wanted greater transparency and accountability of hedge funds. Ziff, whose group at Oliver Wyman advised the UK working group, said the similarity between the standards announced today and those in the UK made sense, as it continues the progress of hedge fund investors and government bodies to work toward a global consensus.[18]

Investors also are required to have a minimum investment, matched by a small pool of partners, that can range from $250,000 to as high as $10 million. These hedge funds are closed to small investors under the premise that only the rich can afford the risk of high hedge fund losses.[20] Hedge funds require investors to have a minimum net worth of more than $1 million and prior-year income above $200,000.[20]

To make the list of the top 25 hedge fund managers you needed to earn $360 million last year. Thanks to them and a few others, income inequality in 2007 was at its most extreme since 1928, the year before the Great Depression began.[26] Four other hedge fund managers made more than $1bn last year, led by George Soros, who made $2.9bn, ranking second in a table of hedge fund managers, which will be released on Wednesday.[28]

You have to take notice when the respected magazine finishes calculating hedge fund manager compensation for 2007 and concludes that John Paulson's eye-popping $3.7-billion (U.S.) paycheque, along with the five managers who made more than $1-billion, "may well prove to be the greatest display of individual wealth creation in any year in the modern history of finance."[34]

By the end of 2007, Paulson managed $28 billion in assets, up more than four-fold from $6 billion in 2006. Many of the trends from which these hedge funds profit are coming out of your pocket.[26] Richard Blumenthal, attorney general of Connecticut, the home for many hedge funds, said the voluntary guidelines were a "virtual farce" that would do little to halt abuses in an industry that has seen explosive growth with assets now close to $2 trillion in an estimated 8,000 funds.[7] Get the latest news and information about the banking industry, venture capital, private equity, hedge funds, mutual funds, capital markets, asset management and SEC regulations.[25] WASHINGTON (AP) — Managers of hedge funds would have to improve the operating procedures of the giant pools of capital in such areas as transparency and risk management under new proposals offered Tuesday.[7] The interest highlighted in the Blueprint is how to prevent credit risks to the market as a whole. Hedge funds can become significantly leveraged and they often concentrate huge sums in single investments - as was the case with Long-Term Capital Management.[37]

WASHINGTON - With an eye toward shoring up shaky financial markets, Treasury Department officials unveiled a plan yesterday to provide greater transparency and management of risk in hedge funds.[20] The report recently released by the Department of the Treasury suggests that the federal government create a new regulator to oversee the "chartering and licensing" of hedge funds and other financial firms.[37] The Financial Times reports that Lehman Brothers ''is putting together a private equity-like fund, in which it will invest $1 billion, that will seek hedge fund firms.[39] The first company in the story is a technology firm; the second is a hedge fund. Mallaby hasn'''t lost any of his sense of irony with regard to the way society and the media view hedge funds. Hedge funds are having a rough month right now, but they have generally weathered the market chaos with relatively few losses. A smart player named John Paulson personally earned at least $3 billion by betting that the subprime bubble would pop; he did the whole world a favor, since his trading prevented the bubble from inflating even more than it might have otherwise.[40]

In a time of layoffs and huge losses on Wall Street, the top 25 hedge fund managers earned, on average, $877-million in 2007, up from $532-million in 2006.[34] The International Monetary Fund last week put the total cost of the credit squeeze to the global economy at almost $1 trillion ('640bn) and figures from BNP Paribas and Bank of America put the global backlog of unsold acquisition finance on banks' balance sheets'only a part of the overall opportunity'at about $282bn at the end of January. Even the most bullish hedge fund managers are proceeding with caution, suggesting in the short term they may not make much of a dent in the backlog, or ride to the rescue of asset-backed securities markets.[30] Hedge fund managers are poised to leap into the pool of distressed and incorrectly priced securities created by the credit crunch. Swiss private bank Union Bancaire Priv'e and Swiss manager Gottex Fund Management are launching funds that will invest in debt they believe is temporarily undervalued as a result of market conditions.[30]

U.K. -based Hasley Investment Management has launched the Halsey Diversifier Fund, which directly invests in other hedge funds and via investment trusts. The fund, which debuted last month, currently includes Fauchier Absolute Return, Dexion Absolute, Dexion Trading and FRM Credit Alpha, and onshore absolute return products BlackRock UK Absolute Alpha and Merrill Lynch Absolute Return Alpha, which the firm said has '''performed well and we will add to this position.'''[41] Two of the biggest industry associations representing hedge funds, the Managed Funds Association and The Alternative Investment Management Association, welcomed the new proposals.[15] Hot on the heels of last week???s spirited defense of hedge funds by the Alternative Investment Management Association ( see related posting ), a leading commentator has also weighed in on popular misconceptions about hedge funds. His analysis is generating a lot of buzz not because it contains some new and controversial research, but because his is one of the few pro-hedge fund voices in the non-hedge fund media.[40]

Institutional investors include Credit Suisse, RCP Advisors, Hartford Investment Management, Muller Monroe Asset Management, New York Life, National City Equity Partners, Portfolio Advisors, Equity Partners and 747 Capital. Calvin Neider, Clearview co-managing partner, said, 'With the completion of this fundraising we can now focus all of our efforts on finding, acquiring and developing great lower middle-market businesses. By putting in place committed capital and by reaching our hard cap, we have dramatically improved our ability to support all of Clearview's investing efforts.' With its new fund, Clearview continues to invest in mid-market companies that have cash flow of between $4m and $20m.[42] David Tepper, founder of hedge-fund firm Appaloosa Management LP, saw a negative 17% return last quarter in two funds with more than $6 billion in assets combined as bets on distressed debt went awry, according to fund documents. His Appaloosa Investment and Palomino funds gave up most of that ground in January and February, as declining prices for mortgage-backed bonds and other debt investments caused broad credit-market seizures. It marks a rough start to the year for Mr. Tepper, 50 years old, one of the industry's best-paid.[43] Two advisory panels Tuesday released separate reports for the President's Working Group on Financial Markets that call for new business practices in the hedge-fund industry, an industry that has grown to 8,000 funds with close to $2 trillion in assets. "As these recommendations.[44]

'''We must diversify our range of asset exposure. In the future, they should include private equity, hedge funds and real estate ''' all these so-called alternative investments.''' As the fund turns more global and proactive in outsourcing, Chu hopes that global asset managers will increase their presence on the island and help raise its financial sophistication and build up the local talent pool.[45] Satya Kumar, associate at Ennis Knupp, said the firm does not comment on clients. Mr. Brown divided possible master managers into four categories: the fixed-income shops, global tactical asset allocation firms, pure hedge fund firms, and larger firms that have expertise in both running money internally and hiring subadvisers in multiple asset classes. The plan would likely optimize allocations to master managers, but would probably avoid rebalancing because it's costly, Mr. Brown said.[32]

As examples, it asked hedge funds to create a risk profile for hard-to-value assets that considers whether assets may be hard to liquidate, at risk for losses due to market changes, or whether there are undue risks because of incompatibilities between a hedge fund and the operational set-up of a fund manager.[13]

Mr. Steel's office will bless the release of two reports that examine the issues of hedge funds, risk and investor protection.[23] The report also asked for improvements to risk management techniques, more checks and balances within the operating structure of hedge funds, and a 'written code of ethics and compliance manual' to address possible conflicts of interest.[13] Hedge funds should increase their transparency and improve their risk management, two advisory groups assembled by the Bush administration said Tuesday.[38]

The panel of hedge fund managers was led by Eric Mindich, head of Eton Park Capital Management.[38] The other set of recommendations for hedge fund operations was draw up by an advisory panel headed by Eric Mindich, the head of Eton Park Capital Management, a large hedge fund.[7]

One set of the recommendations released Tuesday was prepared by hedge fund managers and the other by hedge fund investors.[38] WASHINGTON (AFP) — A U.S. Treasury-backed panel released a set of new guidelines Tuesday aimed at making the secretive trillion-dollar world of hedge funds more transparent for a growing number of investors.[15] Under the 2004 rule, the SEC could "look through" the pooled fund to find more than 15 clients, forcing more of the hedge funds to register. Phillip Goldstein of Bulldog Investors, a New Jersey hedge fund, challenged the SEC rule on the grounds that the SEC was changing the definition of "client" for this one issue and that the rule was therefore arbitrary.[37] In 2004, the SEC passed a rule that required a large portion of hedge fund advisers to register with the SEC. Hedge funds generally operate with two entities, a pooled fund that is labeled as a partnership or LLC, and a separate investment adviser company that will only have one client - the pooled fund. Investment advisers do not have to register with the SEC if they have less than 15 clients and the clients are qualified investors.[37] In comment letters and court documents, critics of the SEC rule claimed that registration would put hedge funds out of business for two reasons. If hedge funds disclose their strategies they will lose the opportunity to exploit price differentials across markets to other investors.[37]

The firm has reportedly been in the market for investors with hedge fund backgrounds since last year.[46] The Paulson Credit Opportunities Fund soared almost sixfold, helped by bets on slumping housing and subprime mortgage prices, according to investor letters obtained by Bloomberg. "Paulson made all that money because his returns were absolutely exceptional -- he called the market right,'' said John Godden, managing partner of IGS, a London-based hedge fund consultant. "The lucky people in his funds also made fabulous returns.''[3] Critics said the recommendations should have gone further to protect investors. The Securities and Exchange Commission currently has limited supervision over hedge funds, loosely-regulated pools of capital are able to take risky positions, such as selling short, which more conservative mutual funds avoid.[24] The "best practices" were drawn up by a panel of wealthy hedge fund managers for the PWG which also groups the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission.[15]

The top hedge fund managers made money in a variety of ways. They bet that prices of commodities like oil, wheat and copper would rise. Paulson made his money by wagering enormous sums on a decline in the value of subprime mortgage-backed securities known as Collateralized Debt Obligations (CDO). One of his funds making that bet returned 590% in 2007, and the other handed back 353%.[26] Paulson, 52, surpassed George Soros and 2006's top earner James Simons in a ranking of the 50 highest-paid hedge fund managers.[3]

In 2002 a hedge fund manager had to reap a relatively small 10 million to make it into the top 25 on Alpha's list - an 18th of the current figure.[29] While the country seems to be heading into tough economic times, guess who is not touched by them? Hedge fund managers, of course. Alpha magazine came out with its annual survey of hedge fund managers' yearly gains.[47]

NEW YORK, April 14 (Reuters) - Hedge fund professionals saw their pay climb 50 percent in 2007 despite the pain from the credit crunch and the increase in market volatility, a report from Alpha Magazine showed on Monday.[48] The Blueprint creates a specific charter and license for each financial service product including hedge funds. It also calls for a new regulator to cultivate information that would be useful in monitoring the market to avoid a credit catastrophe. Have a comment? Let us know what you think of this or another CCH Wall Street story by clicking here.[37] The Blueprint also calls for the creation of a new type of agency, the Conduct of Business Regulatory Agency ("CBRA"), to act as a regulator of a wide array of financial vehicles and organizations, including hedge funds.[37]

The CBRA would be charged with creating appropriate charters for hedge funds that would set "national standards, in terms of financial capacity, expertise, and other requirements, that must be satisfied to enter the business of providing financial services," according to the report.[37] A top Silicon Valley venture capital firm may be taking its first steps into hedge funds. Sequoia Capital may have begun raising money from its general and limited partners for its first hedge fund, Thompson Financial'''s pehub.com reports.[46]

"People have been shocked by the severity of the excesses caused by self-regulating mechanisms,'' said Robbert Van Batenburg, head of research for Louis Capital Markets, a broker whose clients include hedge funds, in New York. "It's going to be difficult for regulators to keep pace with the industry. It's extremely hard to regulate.''[4] Two advisory groups assembled by the Bush administration proposed new "best practices" for the hedge fund industry, but a leading critic attacked the effort as falling far short of the mandatory government regulations that are needed.[7] Reports Reuters, critics blasted the move, saying guidelines should be mandatory and federal regulations are needed for the fast-growing hedge fund industry.[8]

Hedge Funds Review is the market-leading publication for the alternative investment industry.[10] The movement to set private industry hedge fund ''standards took a step forward today.[25] The only ones left to advocate a more balanced view of the industry are the trade associations, think tanks and hedge fund blogs.[40]

The firm reportedly hopes to raise as much as $750 million for the hedge fund product.[46] Pay for senior traders was an average $819,000 at multi-strategy firms, and topped $1.6 million at single-manager hedge funds.[48]

Unlike Mallaby'''s technology firms and banks, the public'''s opinion of hedge funds is of little consequence to hedge fund managers.[40] Halsey also manages the Multi-Strategy Fund, which launched in August and has exposure to hedge funds, private equity funds and global equities. The firm is reportedly planning a best ides funds later on this year.[41] In the last two years, Mr. Steel has been co-chairman of one commission that claimed heavy-handed regulation was stanching financial innovation and another that argued that hedge funds could police themselves. His apparent conversion to the merits of regulation illustrates how the laissez-faire bones of the Bush administration have been rattled by the government-brokered rescue of Bear Stearns and the trauma of the credit crisis.[23] The nightmare that a wounded bank might actually go under terrifies regulators, which goes some way toward explaining last week'''s panicky decision by the Fed to slash short-term interest rates. On April 9, Mallaby updated his views for the readers of Foreign Affairs. Like AIMA, he takes direct aim at those who blame hedge funds for the credit crunch. He argues that while hedge funds may have been accomplices, the real instigators of the recent financial mayhem are the banks.[40]

The Blueprint proposes new Federal Financial Service Provider (FFSP) charters whereby the federal government would register heretofore-unregistered hedge funds.[37] If I win, I win, and if I lose, I spend $50 and start a new fund. God Bless Hedge Funds and the fools that invest in them.[22] In a spectacular hedge fund failure, Amaranth Advisors lost $6 billion in the fall of 2006 because of bad bets on natural gas prices.[7] A trio of hedge fund bosses made 4.6 billion from the credit crunch, it has been revealed.[29] Hedge funds are important to the market because t hey contribute substantially to market efficiency, price discovery, and liquidity. Many hedge funds are now heavily leveraged as they focus on timing trades, and as a result can pose a credit risk to the market.[37] Among other things, fiduciaries are asked to take basic due diligence steps, fully understand the risks involves, and have a sense of fees, valuation, tax considerations and other factors. Fees for hedge funds are often much higher than those charged by more traditional mutual funds that are subject to more regulation.[13]

More regulation for investment vehicles deep within the financial system, such as hedge funds and derivatives.[33] Hedge funds are large pools of investment capital owned by the wealthy. They are largely unregulated.[20] The recommendations, keeping with a long-standing position of the Bush administration, did not seek regulatory oversight for hedge funds, which are large pools of private money that can be used for a wide range of investments. Members of the panels said that the proposals were voluntary and acknowledged that they did not know how much it would cost to implement them.[5] The fund'''s portfolio currently also has a 36% exposure to investment trusts of hedge funds as well as 20% in cash.[41]

The higher commodity prices are squeezing the budgets of people who are paying more for food and energy -- for example, producer price inflation rose 1.1% in March. Hedge funds are among those driving up the prices that you pay for commodities through their leveraged bets. as I posted earlier, Paulson profited from the pain of homeowners who defaulted on their mortgages and foreclosed on their homes. The median family probably lacks the funds to bet on the trends enriching these hedge fund managers.[26] The hedge fund managers made money from investing in overseas stock markets and betting that prices of oil, wheat and other commodities would rise.[29]

The SEC might ask for a list of assets, but assets in hedge funds often change daily, so a list of assets is out of date as soon as it is written down.[37]

Paulson was a partner at New York-based investment firm Gruss Partners and a former managing director at Bear Stearns Cos. He has a master's degree in business from Harvard Business School. Alpha estimates managers' earnings based on assets under management, fees, returns, personal investments in the funds and ownership stakes in their firms.[3] The new standards were announced Tuesday by U.S. treasury secretary Henry Paulson, who heads the president's working group that established the two committees: an asset managers' committee and an investors' committee.[18] While the United States announces measures to revamp its financial system and a restructuring plan is unveiled for Canadian retail investors stung by debt vehicles, people are questioning how responsible investors should be for their own misfortunes. In the U.S., Treasury Secretary Henry Paulson has introduced reforms that would give its central bank, the Federal Reserve, more power over that country's financial industry, which has been reeling in the wake of the subprime mortgage housing disaster and the asset-backed commercial paper crunch. Purdy Crawford, the man in charge of cobbling together a plan to rescue Canadian holders of frozen non-bank ABCP, got a rough ride from retail investors who seem inclined to take their chances in court rather than get a portion of their money back now or wait seven years for full restitution.[49] U.S. Treasury Secretary Henry Paulson said: "Around the world, there is a focus on how do we limit, the impact of the stresses and strains and turmoil in the capital markets on the real economies and there was a universal feeling in that room among the central bankers and the finance ministers that we are all committed to stable orderly capital markets to whatever it took to protect that system." Trying to at least get a handle on the size of the problem, the G7 said banks and other financial institutions should - within 100 days - fully disclose all their risk exposure and writedowns.[50]

WASHINGTON -- Separate reports by two advisory panels, slated for release Tuesday by Treasury Secretary Henry Paulson, call for changes on the part of hedge-fund managers and investors to reduce systemic risks and give investors more information, including on hard-to-value holdings.[51]

"Investors and creditors should have darned good disclosure.'' Paulson appointed the outside panels to help the industry develop recommendations for fund managers and investors to ensure market participants understood risks and how to manage them.[4]

Some managers that ranked low on the 2007 pay list have started 2008 with some of the industry's biggest gains, benefiting from forced selling and timing market swings. Alan Howard, former head of proprietary interest-rate trading at Credit Suisse Group who founded Brevan Howard Asset Management in 2002, is up 16 percent in his flagship macro fund through April 11, according to a net-asset-value filing yesterday.[3] Requirements for fund managers include a minimum three-year track record above the fund'''s designated benchmark, assets under management of at least $25 billion, and a minimum three-person local service team.[45] Eight managers were interviewed, and anywhere from one to all eight could be hired, if the board approves the program, said CIO Rob Brown. Mr. Brown joined the fund Jan. 7 from Genworth Financial Asset Management, Encino, Calif., where he served as CIO.If approved, the move would shutter the plan's six-person in-house management operation.[32]

The Fund ' s Board receives recommendations from UBS Global Asset Management (Americas) Inc., the Fund ' s investment advisor, periodically and no less frequently than annually will reassess the annualized percentage of net assets at which the Fund ' s monthly distributions will be made. The Fund ' s Board may change or terminate the managed distribution policy at any time; any such change or termination may have an adverse effect on the market price for the Fund ' s shares.[52] NEW YORK - (Business Wire) Strategic Global Income Fund, Inc. (the " Fund " ) (NYSE: SGL), a non-diversified, closed-end management investment company seeking high current income and secondarily, capital appreciation through investments in U.S. and foreign debt securities, today announced its performance for the fiscal first quarter ended and fiscal year-to-date ended February 29, 2008.[52] The committees, led by officials from Calpers, the biggest U.S. pension fund, and Eton Park Capital Management LP, were the product of a review by the Treasury, Federal Reserve and other regulators last year.[4] The survey of more than 800 people at nearly 600 firms found the chief executives of single-manager fund firms took home average compensation of $3.8 million last year. "Some managers have profited enormously from the collapse of the U.S. subprime mortgage market," the magazine said in a report published on its Web site.[48] Last week, U.S. private equity houses TPG, Apollo and Blackstone were in negotiations to acquire $12bn of leveraged loans from Citigroup, and the Carlyle Group has launched a fund to do similar deals. This is despite any possible conflicts of interest involved in these firms purchasing debt issued by their own portfolio companies. Private equity firms are better placed because they have the funds in place, as well as hundreds of billions of dollars in unused commitments from institutional investors'$176bn has been raised so far this year, according to analysts Preqin.[30] Our second annual look at the pay of folks who run hedge and private equity funds shows that the top 20 took home a collective $18.7 billion last year, 43% more than in 2006.[21] George Soros ' who made more than a 1 billion on Black Wednesday - came out of retirement last summer to earn almost 1.46 billion as property chaos spread, according to a report published today in Institutional Investor's Alpha magazine. On top of Mr. Soros's personal profits, his flagship Quantum fund returned almost 32 per cent, according to Alpha. James H Simon, a mathematician and former U.S. defence department code breaker who uses complex computer models to trade, earned 1.36 billion last year while his Medallion fund returned 73 per cent.[29]

Chu says his committee wants to increase its foreign exposure and bring the total allocation to 46.8%. Overseas allocation for the teacher'''s fund has been revised to 27% from 17% last year, he says. '''We plan to outsource an additional $1 billion this year,''' Chu says.[45] Soros's $17 billion flagship fund scored a 31.7% return last year. How is anyone's guess, but the fund did reduce its holdings in equities.[22]

Daniel Och was worth more than $4.5 billion the day after New York'''based Och-Ziff Capital Management Group went public last year. GLG Partners co-founders Noam Gottesman and Pierre Lagrange each made more than $1 billion by engineering an IPO of their London firm last summer through a merger.[36] At last week's AsianInvestor Annual Offshore Investment Forum, Chu Wu-Hsien, management board chairman of the $17.49 billion Public Service Pension Fund in Taiwan, said offshore investments and innovative tools will underpin future pension fund development worldwide.[45] The Public Service Pension Fund manages a combined TW$530 billion ($17.49 billion) in assets, made up of TW$400 billion ($13.20 billion) in civil service pensions and TW$130 billion ($4.29billion) in insurance contribution from public school teachers.[45]

” Each master manager would seek to provide an incremental return above that of a customized benchmark based on the median public pension fund's asset allocation.[32] Staff members are proposing restructuring the pension fund into an “index-plus master manager” program for up to 90% of assets, and an absolute-return portion for the remainder. The latter eventually could subsume much of the master manager program. If approved by the fund's board at its April 16-18 meeting, it would mark a dramatic change at the fund, 93% of whose assets were run internally as of Sept. 30.[32]

The set of guidelines for investors was drawn up by an advisory panel headed by Russell Read, the chief investment officer of the California Public Employees' Retirement System (CalPERS), the largest pension fund in the United States.[7] To date, the fund has outsourced overseas investments in three batches. The mandates it issued in 2003 have produced successful results, and set an example for the three other public funds in Taiwan to follow ''' they are, the Labor Insurance Fund, Labour Pension Fund and Taiwan Postal Fund later. These outsourced mandates have proven to be a rite of passage, as the fund graduates from the basic balanced portfolio to one than invests in global equities and fixed income products. '''We are expanding the scope of investment tools in both our direct and outsourced portfolios,''' Chu says.[45]

Robert K. Steel leans forward, speaking in a rapid, excitable burst about the powers that a superregulator might wield over Wall Street one day. "It will have the license to go everywhere: private equity funds, investment banks, hedge funds," Mr. Steel, the under secretary of the Treasury for domestic finance, said in an interview last week. By his words and demeanor, Mr. Steel could be mistaken for a midlevel policy wonk - someone hoping to let a little sunlight disinfect the dark corners of the financial world. He is a former vice chairman at Goldman Sachs, the big investment bank. [23] To determine Wall Street's 20 Highest Earners of 2007, we examined hedge, private equity and mutual fund principals and traders, as well as investment bankers.[21]

Mr Smith said it was not possible to stop people abusing laws. "But you need to create a framework which is a good environment in which to work," he said. Regulatory structures around the world had lagged the development of markets at times, he said, particularly of fringe players in those markets. "That's always where the problems come, from institutions that are not regulated but which are competing with those that are." Hedge funds and some private equity businesses at times came into this category.[53] Hedge funds, by comparison, have to spend time and money on the road raising fresh capital.[30]

Hedge funds activity in the public securities markets has grown substantially as it constitutes approximately 30 percent of all U.S. fixed income security transactions.[11] Hedge funds have been caught up in the turmoil as investors have grown worried about the solvency of funds that invested heavily in securities backed by subprime mortgages, where delinquencies have hit record levels.[7]

Despite the market turmoil, hedge fund employee compensation was strong in 2007 compared with previous years, Alpha said.[48] Khan, who will manage the hedge fund portion, believes net returns of 15% to 20% a year are possible without leverage. He said: 'It is not our objective to have leverage provide us the returns.[30]

Hedge funds are most profitable when market volatility is high, and 2007's roller coaster credit crunch certainly provided that. The glaring caveat is that hedge funds can reap profits in those roiling markets only as long as they can stay in business.[22] The hedge fund game ' likened by some to a "gigantic version of Las Vegas" remains a risky business.[29]

The multi-strategy fund will invest in a range of specialised hedge funds with''long track records and will use several investment strategies.[54] Several major hedge funds collapsed, further destabilizing the financial system.[5] Banks and brokerage houses have taken the brunt. It bears asking whether hedge funds should seek to embrace.[16] Addendum: Like Mallaby, the brains at Wharton are sanguine about the role of hedge funds in recent market turmoil. Responding to a recent NYT op-ed by Ben Stein accusing hedge funds of market manipulation, Prof. Jeremy Siegel says: '''He just believes that because one set of securities is under-priced, it'''s got to be manipulation and it'''s got to be the hedge funds.'''[40] Richard Blumenthal, attorney general of Connecticut, where many hedge funds are based, called the recommendations a "virtual farce" that would do little to halt abuses.[38] The reason, we surmised, was that few if any hedge funds have anything to gain by setting the public record straight.[40] The Bush administration's "best practices" proposal is voluntary, and fewer than two dozen of the more than 8,000 registered hedge funds signed onto the plan.[20] The other criticism was that SEC is not capable enough to understand what hedge funds actually do, and could not provide any meaningful oversight.[37] Increased paperwork and filing would slow down the transactions of hedge funds, and eliminate the opportunities to act on price anomalies.[37] Although it is comparable to a fund of hedge funds, Wegelin will charge a''lower performance fee of 1%.[54] As a footnote, we were recently asked by the media what we thought about AIMA'''s assertive stance with regard to media coverage of hedge funds. '''Why does this bias exist?''' we were asked.[40] As hedge funds have become larger and fancier, long-short almost seems a quaint relic, but Griffin scored a 65% net return in 2007 by just doing that.[22] Now that the bubble is history, other hedge funds are swooping in to recapitalize flailing corners of the market.[40] Hedge funds are so plentiful that people sometimes sniff that anyone can start one.[22]

Maybe New York real estate is more attractive: Alpha's No. 4 fund manager for 2007, Mr. Falcone, recently closed on a $49 million deal to buy the Upper East Side mansion that once belonged to Robert C. Guccione, founder of Penthouse magazine. [27] The markets are fickle, and the threat is that today's successful strategy can be tomorrow's liquidation, as the collapse of Peloton Advisors proved. As they say in those fund documents: Past results are no guarantee of future returns. Deal Journal took a look at Alpha's list and how the 10 highest-paid managers made their money. We ranked them below by name, firm and the amount of their yearly compensation in 2007. All the returns and compensation numbers below come from Alpha, and you can view the full list on their Web site. As you will see, no single strategy dominated.[22]

This material is the copyright material of Citywire Financial Publishers Ltd. No part of this material may be copied, reproduced, distributed or adapted in any form or by any means without our prior written consent. This includes but is not limited to all individual fund manager data such as rankings of fund managers and ratings of fund managers. Citywire Financial Publishers Ltd. is authorised and regulated by the Financial Services Authority no: 222178 to provide investment advice and is bound by its rules.[54]

Average compensation for the top 25 fund managers was $892 million in 2007, up 68 percent from the previous year.[3] The $17 billion fund returned 25 percent in 2007, earning Howard, 44, $245 million and ranking 41st on Alpha's list.[3] Prepare yourself: it is so obscenely high in some cases that it will look almost lurid. (As Alpha cheekily explains, five of the hedge-fund managers on the list earned more than $1.2 billion each last year, or more than J.P. Morgan Chase is paying for all of beleaguered Bear Stearns.)[22] You can feel the backlash coming, in the form of renewed scrutiny from policy markers and resentment from everyone who didn't make $210-million last year that was the cut off for Alpha's list of the 50 top-paid managers.[34]

Policy makers acknowledge that stronger regulation of financial markets is needed in the aftermath of the $245 billion of asset writedowns and credit losses that financial companies have logged since the start of last year. [4] The release of the guidelines comes at a time when a severe credit crisis has roiled financial markets with many large banks and investment houses being forced to declare billions of dollars in losses.[7]

WASHINGTON -- Treasury Secretary Henry Paulson called on the hedge-fund industry to implement new business guidelines released Tuesday, saying they will help improve ailing financial markets.[44] The new industry watchdog that Mr. Steel is trumpeting is the cornerstone of Treasury Secretary Henry M. Paulson Jr.' s controversial effort to revamp the regulatory apparatus of the nation's financial system. The plan may well fail to become law because some of its prescriptions, like diluting the power of the Securities and Exchange Commission, have drawn fire from those who have long believed that the Treasury has an antiregulatory bias. In Washington bureaucratese, the entity is called a market stability regulator, but there is nothing dull about its mandate.[23]

Unfortunately, it is comprehensive only if the interests of investors are deemed to be ancillary to the competitiveness of American financial institutions in global financial markets. It has precious little to do with the role of regulators in assuring that those same institutions meet their fiduciary obligations to the people who entrust their money to them. Perhaps this should come as no surprise given that the Paulson report originates from a conference on capital market competitiveness convened by the Treasury. I read this tome and came away with a sick feeling in my stomach that Mr. Paulson views investors as factors of production rather than as clients to be served.[55] Treasury Secretary Henry M. Paulson Jr. said the committees' report "sends a strong message that heightened vigilance is necessary." Speaking to reporters at the Treasury, he added, "Today's release reinforces our belief that a combination of robust market discipline and regulatory policies best protect investors and mitigate systemic risk."[5] Mr. Steel's enthusiasm may represent less a philosophical conversion than an acceptance of raw political facts. "Everybody likes to say I told you so, but we told them they were excessively deregulatory," Representative Barney Frank, the Democratic chairman of the House Financial Services Committee, said of the Bush administration. "I very much welcome this affirmation by Paulson and Steel that we need to regulate risk in ways that we haven't." Such a suspicion is in many ways rooted in Mr. Steel's own promarket sympathies, which were on display when he was co-chairman of the United States Chamber of Commerce's inquiry into the country's regulatory structure. He gave up that position when he joined the Treasury in 2006. "The blueprint is an attempt to weld together two contradictory ways of thinking," said Damon Silvers, an associate general counsel for the A.F.L. -C.I.O. "One is what Treasury has learned over the past year, and the other is the pre-existing deregulatory agenda coming out of the business community."[23]

Mr. Hacking, executive director since August 2005, said because the fund had been highly concentrated in one sector — technology — the amount of risk taken then was “breathtaking. ” That heavy tech-stock emphasis largely explains why Arizona lost 36% of plan assets in the two years ended Sept. 30, 2002. [32] Pursuant to the policy as currently in effect, the Fund makes regular monthly distributions at an annualized rate equal to 8% of the Fund ' s net asset value, as determined as of the last day on which the New York Stock Exchange is open for trading during the first week of that month. To the extent that the Fund ' s taxable income in any fiscal year exceeds the aggregate amount distributed based on a fixed percentage of its net asset value, the Fund would make an additional distribution in the amount of that excess near the end of the fiscal year. To the extent that the aggregate amount distributed by the Fund based on a fixed percentage of its net asset value exceeds its current and accumulated earnings and profits, the amount of that excess would constitute a return of capital or net realized capital gain for tax purposes.[52] Monthly distributions based on a fixed percentage of the Fund ' s net asset value may require the Fund to make multiple distributions of long-term capital gains during a single fiscal year.[52]

From time to time, the Fund may project that a portion of a monthly distribution may consist of a return of capital based on information available at that time. Such an estimate is subject to change based on the Fund ' s investment experience during the remainder of its fiscal year.[52] The actual sources of the Fund ' s regular monthly distributions may be net investment income, net realized capital gains, return of capital or a combination of the foregoing and may be subject to retroactive recharacterization at the end of the Fund ' s fiscal year based on tax regulations.[52]

For the fiscal first quarter ended February 29, 2008, the Fund's earnings from net investment income (excluding short-term capital gains) were $2,315,464, equal to $0.13 per share. During this period, the Fund paid monthly distributions (which may be comprised of net investment income and/or net realized capital gains) of $4,186,749, equal to $0.23 per share.[52] Source: AltAssets. U.S. lower mid-market private equity firm Clearview Capital has closed its first institutional private equity fund, Clearview Capital Fund II, on $250m, the hard cap of the fund.[42] The majority of the fund's capital was provided by institutional investors, and also comprises many of Clearview's original individual and high-net-worth family backers, the firm said in a statement.[42] The industry, which operates with little government supervision, cater to institutional investors and very wealthy individuals. Millions of ordinary people have also become indirect investors in the funds through their pension plans.[38] AMMAN, Jordan (MarketWatch) -- Top hedge-fund managers had the greatest payday in the modern history of finance in 2007, according to Institutional Investors' Alpha Magazine, which released its ranking of the top-paid managers on Wednesday. The top 25 managers averaged $892 million in earnings, up 67% from the $532 million they earned on average in 2006.[56] The top 25 on the list earned an average $892 million, up from $532 million in 2006. The magazine says that Paulson rocketed to No. 1 in Alpha's seventh annual survey by shorting the subprime mortgage market - making his money as the market spun downward.[36] The top 25 on the list earned an average $892 million, up from $532 million in 2006. Of course, their secrets include getting ahead of the news in the markets. John Paulson, for example, predicted the decline in value of those flaky mortgage-backed securities back in 2005.[47]

February's collapse of a $2bn fund run by UK manager Peloton Partners illustrated the perils of borrowing to buy too soon. Peloton took out $7bn of debt from its bankers in order to buy a $9bn portfolio of mortgage-backed securities, but when they fell further in value, the bankers declined to extend their loans. Other managers are looking to exploit the credit market turbulence using strategies that are less bold. [30] Shoaib Khan, a senior portfolio manager at UBP, said: 'While the basket of bank loans trading at stressed and distressed levels may not be attractive, there are situations within the basket that are attractive. The funds will be unleveraged, though some of the underlying managers may borrow temporarily to fund their positions.[30]

Fund managers can freely design the portfolio based on the benchmark requirement without avoiding the regulator'''s detection anymore.[45] In an interview, co-founder Roderick Collins said the fund'''s portfolio will hold 12 to 15 managers when fully invested.[41]

Winton's $6.3 billion Winton Futures Fund gained 11 percent in the first three months of the year after rising 18 percent in all of 2007, according to data compiled by Bloomberg. [3] The FT notes Lehman still owns minority stakes in Spinnaker Capital and DE Shaw, the $35 billion quantitative and multi-strategy fund.[39] James Simons, Renaissance Technologies Corp., $2.8 billion: Renaissance's flagship Medallion fund was up 73% in 2007.[22]

Paulson, Soros and Simons are among five managers who had more than $1 billion in earnings last year in what may well prove to be the greatest display of individual wealth creation in any year in the modern history of finance.[1] Mr Paulson's firm, Paulson & Co, made an estimated $1.5 billion from shorting America's sub-prime mortgage markets that last year presaged a seizure in the international banking market that eventually led to the intervention of a host of central banks.[2] John Paulson, chief executive of Paulson & Co., earned $3.7 billion last year, according to Alpha Magazine.[35]

One of Paulson's credit funds earned a 590% return last year, according to Alpha; another racked up a 353% return.[22] Over the next two years, Paulson established two funds to focus on the credit markets. One of those funds returned 590% last year, and the other handed back 353%, Alpha said.[28]

John Paulson took home 1.9 billion last year by betting on mortgages last year as the U.S. property market plunged into crisis, according to the New York Times. His jackpot is thought to be the largest in Wall Street history. He was not the only financier to win out. [29] Paulson made $3.7 billion last year, mostly by shorting, or betting against, subprime mortgage securities and collateralized debt obligations.[22] Legendary investors George Soros and James Simons (last year's leader with $1.7 billion) are nipping at Paulson's heels, each earning nearly $3 billion in 2007.[1]

By the end of last year, Paulson sat atop $28bn in assets, up from $6bn 12 months earlier.[28]

Gottex is raising money for a fund to invest in 'recovering' assets, which it defines as high-quality debt that it believes is undervalued by the market. This fund will be unleveraged, and Gottex says it will specifically eschew distressed situations. Andre Keijsers, a managing director at Gottex, said: 'The recovery fund will look for depressed assets, such as mortgages, that have been hammered down together with the rest of their sector but should have higher valuations. 'Out of 100 securities in the sector there might be two or three interesting opportunities, but if you can hold them for the long term, perhaps two to three years, you can ride out the market troubles.[30] Lehman's new fund will address that, and hopefully deliver some assets fairly cheap. It has bought and sold funds in the past.[39] Wegelin Asset Management has strengthened its fund of funds offering with the''launch of''a multi-strategy fund.[54] As investment markets become more international and grow deeper, sticking with outdated risk management and restrictive asset allocations translates to low returns, Chu says. Drawing examples from pension managers in the U.S. and Canada, Chu says Taiwan should set its sights on opportunities in offshore investments and expand the set of investment tools available to its pension managers.[45] The new proposal calls for transferring the “lion's share” — the figure was been pegged at 90% at a March investment committee meeting, but Mr. Brown said the proportion could change — to one or more index-plus master managers whose combined assets would comprise a “relative protection portfolio.[32] Reproductions and distribution of the above news story are strictly prohibited. While portfolio managers adjust to a higher level of stock market volatility, some say opportunities exist for those who stick to tried and true stock-picking. Executives at Janus Capital Group bought another piece of Enhanced Investment Technologies, or INTECH, late last month, raising its stake to 89.5%.[32]

The top five is rounded out by Philip Falcone of Harbinger Capital, who made $1.7bn, and Kenneth Griffin of Citadel Investment Group, who made $1.5bn. Steven Cohen of SAC Capital just missed out on a place in the $1bn club, earning $900m at SAC Capital Advisors as he posted his worst net return in almost five years.[28] The minimum compensation included in the ranking was $210 million, Alpha said. That's more than triple the $67.9 million awarded Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein. Those salaries may be a high-water mark for the $1.9 trillion industry, which had its worst start in nearly two decades this year.[3] The acquisition values the quant manager at $2 billion. Concerns about the economy, home values and health costs continue to sap workers' confidence that they will have enough cash for a comfortable retirement. In the latest sign of escalating tensions between CME Group and some of its big customers, the Chicago exchange stopped sponsoring the futures industry's annual convention and is launching a confab of its own.[32] Money managers — most of them alternatives managers — are betting that Sen. Barack Obama, D-Ill., will be the next president of the United States. Or at least they are hedging their bets in case he prevails. Led by James Hacking, officials at the Arizona Public Safety Personnel Retirement System are considering a radical shake-up of its $7 billion investment portfolio.[32] Halverson manages $9 billion and scored a 41% return. Last year, he expanded his focus on financial stocks such as Invesco, according to Alpha.[22] The bar was lower than last year's $220 million but the magazine had to double the list because of the high number of qualifiers.[2] Put another way, on a pretax basis Paulson made 30.6 times more in one hour -- $1.9 million -- than the median family took in all year.[26]

Chief executives at fund of fund firms took home an average $1.8 million, including bonuses, while the total compensation of CEOs at multi-strategy funds was more than $5.3 million, the study showed.[48] Ennis Knupp is the plan's general investment consultant, according to the fund's annual report and fund officials, though Mr. Brown said the firm had “no involvement with (development of the proposal) whatsoever.[32] Defined contribution plans increasingly are turning to global equity funds as an investment option, while a relative handful are starting to adopt enhanced indexed equity options.[32]

The next step is working toward a harmonisation of the two documents,' Ziff told HFR. In a joint statement, the Alternative Investment Management Association and the Managed Funds Association called the guidance "comprehensive and substantive" and said they looked forward to submitting formal comments.[10]

Reacting to the spike in capital markets risk touched off by the credit crunch, and seeking to protect against a long period of higher risk, more European pension funds are planning to use LDI and alternatives.[32] PWG asked the committees, selected in September 2007, to develop a set of best practices. Their work was based on the PWG's principles and guidelines regarding private pools of capital issued in February 2007. This sought to enhance investor protection and systemic risk safeguards.[10] 'With the two distinct sets of practices released today, we now have a comprehensive approach to implementing the principles and guidelines put forth by the PWG in February 2007,' Paulson said today. 'The PWG principles have already been put into practice, and today's release reinforces our belief that a combination of robust market discipline and regulatory policies best protect investors and mitigate systemic risk,' he said.[13]

The correct regulatory paradigm is founded on principles of professionalism. Investors must rely upon people and institutions they can trust. People trust those who are bound by an obligation to subordinate their own financial interests to those of their clients. Of course, not all financial service entities are fiduciaries held to such high standards of responsibility, but certainly those who provide financial advice or take discretion over client assets are. These professionals are heavily relied upon by investors to help select non-fiduciary providers. They are much better equipped to decipher complicated disclosures and unravel conflicted affiliations than are most end investors. The brief segment of the blueprint that substantively addresses fiduciary standards of care includes the following statement: "Broker-dealers, while subject to strong standards of conduct and'suitability' requirements, generally are not fiduciaries of their clients and thus are perceived by some as having weaker obligations to customers." [55] The Treasury panels urged that firms disclose hard-to-value assets and approve "comprehensive'' investor disclosure in the same manner as public companies.[4]

ANZ chief executive Mike Smith says ratings structures confuse investors, and need changing. He applauds the Australian regulators as "the best in the game" - and backs U.S. Treasury Secretary Henry Paulson's move to extend the powers of the Federal Reserve.[53] Not everyone was pleased with the PWG's recommendations for self-regulation. Connecticut Attorney General Richard Blumenthal said in a statement that if the proposals were not mandatory, they would be "meaningless." The committees were formed before the credit crunch took hold this past summer. Treasury Secretary Henry Paulson referred to current market conditions as the report was released Tuesday when he said, '''These best practices are coming at the height of robust discussions about the need for stronger market discipline.'''[6] Treasury Secretary Henry Paulson said the recommendations would send "a strong message that heightened vigilance is necessary and appropriate and that all stakeholders have an important role to play."[7]

Now that I've had two weeks to think about it, I like Treasury Secretary Henry Paulson's blueprint for overhauling the regulation of our financial institutions. I don't think it's perfect, but many of its aspects get a thumbs-up from me.[33]

Treasury Secretary Henry M. Paulson Jr. said the voluntary guidelines proposed by the panels would send "a strong message that heightened vigilance is necessary and appropriate and that all stakeholders have an important role to play."[38]

For the sake of efficiency, the Treasury secretary is willing to sacrifice truly independent regulatory oversight. This is further evidence that the best interests of investors are deemed to be subordinate to those of the industry.[55]

The report was prepared over the course of the past year and isn't some hastily drafted response to the credit market meltdown and growing crisis of investor confidence in financial markets. It is a serious document intended to be the basis for comprehensive regulatory reform.[55] A number of people feel financial institutions should not be bailed out by governments with taxpayer money for participating in, and in some cases creating, what has resulted in the worst housing and financial crisis in decades. Many observers feel people should have to live by the rule "investor beware," whether they are homebuyers who took on mortgages they knew they couldn't pay off or people who invested in asset-backed vehicles they didn't understand. I have as little sympathy for homeowners who were lured by low "teaser" mortgage rates as I do for people who buy a houseful of furniture and "make no payments for a year," then have their sofa set repossessed. I do feel for investors who trusted the advisers at their financial institutions, salespeople who said and perhaps even believed that ABCP was as solid an investment as a high-yield bond.[49]

The funds also offer far greater rewards to investors than are generally available through safer mutual funds and 401(k) retirement plans. [20]

Private equity firms, some of which have run credit funds for years, are joining in the bargain hunting.[30] As of Sept. 30, the fund's asset mix was 62.9% U.S. stocks, 20% U.S. bonds, 10.4% international stocks, 2.8% real estate, 1.4% private equity and 2.5% cash.[32] There are now more than 8,000 funds with close to 2 trillion U.S. dollars in assets.[11]

Mindich said the 10 firms represented on the asset committee meeting, which manage about $140 billion, have agreed to abide by the recommendations. [4] FierceFinance is the finance industry daily monitor, with news covering the banking industry, asset management, capital markets and SEC regulations.[25] Wegelin Asset Management, which''forms part of Swiss private bank''Wegelin & Co, is a single hedge fund''specialist with an''active quant approach.[54] '''We have had numerous discussions with global banks and asset management houses. Few have been able to tell me whether the crisis is over, and whether they expect to make or lose money this year,''' he adds.[45]

Mr. Brown borrowed the “master manager” term from Richard Ennis, principal at Ennis, Knupp & Associates, Chicago, who came up with it four years ago, but the Arizona CIO's concept is very different. While Mr. Ennis relies on a single index or overlay manager overseeing beta management and potentially doling out money to various “alpha” managers, Mr. Brown's concept has multiple master managers running both the alpha and beta portions of each portfolio.[32] David Harding, the 46-year-old founder of Winton Capital Management, made $225 million in 2007, ranking 44th, according to Alpha.[3] In December 2007, the Fund paid year-end distributions of long-term capital gains of $1,433,318, equal to $0.08 per share.[52] Gottex has no formal target for the size of the fund but says it has capacity for as much as $6bn.[30]

To date, Clearview Capital Fund II has completed three platform and three add-on investments.[42] In early 2007, a presidential working group headed by Paulson rejected the idea that the funds needed increased regulation, calling instead for improved voluntary standards.[38] "What we have to do is find a better balance between market discipline and regulation,'' New York Federal Reserve President Timothy Geithner said in Washington during meetings of the International Monetary Fund April 12.[4] Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms.[48]

The committee made recommendations in five areas'disclosure; valuation; risk management; trading and business operations; and compliance, conflicts and business practices.[18] "We need regulations with real teeth that require registration, increased disclosure and strict standards for risk management," said Rich Ferlauto, director of pension and benefit policy for the American Federation of State, County and Municipal Employees union.[24]

The push for more details on assets at risk of loss echoes the Group of Seven's call last week as policy makers seek to tighten supervision of capital markets. [4] With sharply diminished assets and ever-growing liabilities, plan officials realized a new tack was needed, which resulted in the index-plus master manager proposal.[32] No job losses are expected; staff would be shifted to researching investments for the absolute-return portfolio and to overseeing new external managers, said Executive Director James Hacking.[32]

Total net realized and unrealized gains from investment activities were $7,056,179, equal to $0.39 per share, for the fiscal first quarter ended February 29, 2008. This compares to earnings from net investment income of $2,767,485, equal to $0.15 per share; monthly distributions paid from net investment income and/or net realized capital gains of $4,294,476, equal to $0.24 per share; and total net realized and unrealized losses from investment activities of $(843,049), equal to $0.05 per share, for the fiscal first quarter ended February 28, 2007.[52] Timothy Barakett, Atticus Capital, $750 million. Barakett made his money, and reputation, on derailing the Deutsche Borse from buying the London Stock Exchange. Atticus also pushed Barclays to drop its bid for the Dutch bank ABN Amro.[22] The top 50 did so well that Alpha raised the bar for yearly compensation to $210 million from $200 million, locking out two perennial favorites. Those who know the hedge-fund business won't be particularly surprised that there were so many outsize successes.[22] The top spot went to John Paulson of Paulson & Co., who earned a record $3.7 billion by shorting the subprime mortgage market.[56] The Paulson & Co. head overtook George Soros and James Simons, who ranked second and third, at $2.9 billion and $2.8 billion, respectively.[36] Paulson & Co., which oversees about $28 billion, made money betting on the collapse of subprime mortgages in 2007.[3]

He, Soros, Simons and the others who earned more than $1 billion ''' Philip Falcone and Kenneth Griffin ''' led what may well prove to be the greatest display of individual wealth creation in any year in the modern history of finance.[36] To even make the list you needed minimum earnings of $350 million, which is $90 million higher than the year before.[21] James Simons, head of Renaissance Technologies, took third place in the table with earnings last year of $2.8bn.[28]

A Treasury-led market regulators' group ordered the guidelines last year in lieu of proposing new rules for the sector.[9] "Best practice" guidelines, from two committees formed by the President's Working Group on Financial Markets have been issued.[25] As the markets brace for this week's quarterly results from troubled U.S. big banks, finance chiefs from the Group of Seven industrialised countries have demanded greater transparency and better supervision for financial markets. However they failed to outline concrete measures to tackle the global economic slowdown and credit crunch.[50]

Financial markets evolve much faster than regulators can. Was anyone even talking about Structured Investment Vehicles a year ago? This speedy, consistent change has made our financial regulatory system a confusing morass of various overlapping state and federal regulators, each developed to deal with previous innovations.[33]

A former chief executive officer of investment bank Goldman Sachs & Co., Paulson did not rule out the possibility of future regulation. "Both market and regulatory practices will evolve from here, but this is certainly a logical step at this time," Paulson said.[20]

The committees will continue to meet to discuss raising the standards for industry participants after the best practices are complete, the agency announced.[12] Financial services firms will have less to fear than investors because recent events and the perspective reflected in the blueprint suggest that the government will come to the aid of the industry by tapping into another exploitable resource ' taxpayers.[55] What if the blueprint's model, which treats investors as an exploitable resource, is adopted and proves inadequate to the task of protecting investors' interests? The financial services industry will suffer right along with investors.[55] The financial services industry exists to serve investors, not the other way around.[55]

Mr Smith called for a new rating structure that accurately reflected the different quality of scrutiny applied to a single security compared to a corporation. "To have a AAA security suggests it's the same as a AAA company, to an investor," he said. It is not the same, he said. "A company's history, its management, the quality of its earnings and receivables, are all assessed. It's a huge thing. [53] Investors have already begun to ax active quant managers hurt by the credit crisis and are putting the brakes on searches for quantitative strategies, consultants say.[32]

Not everyone, however, can be the Roger Federer or Tiger Woods of investing. Just as Roger and Tiger have their techniques, so do hedge-fund managers, who used widely divergent strategies to capitalize on the market turmoil of last year. Says Alpha Magazine, which today released its annual listing of the 50 richest hedge-fund managers in the world, ranked by their compensation.[22]

SOURCES

1. Alpha Magazine :: John Paulson With $3.7 Billion Tops Alpha Magazine's 7th Annual Ranking of the Most Highly Paid Fund Managers
2. Top UK hedge fund managers share $2.6bn - Times Online
3. Bloomberg.com: U.S.
4. Bloomberg.com: Exclusive
5. Hedge Funds Need More Oversight, Transparency, Treasury Panels Say - washingtonpost.com
6. HedgFund.net: Public news from HedgeNews
7. The Associated Press: New 'best practices' urged for giant hedge funds
8. FT.com | Critics hit US hedge fund guidelines
9. U.S. Treasury: hedge funds should boost disclosures | Reuters
10. Hedge Funds Review - US rejects tight control of hedge funds
11. U.S. Treasury panels proposes new guidelines to improve hedge fund disclosure_English_Xinhua
12. planadviser - Panel Releases Best Practices for Hedge Fund Investors and Asset Mgrs.
13. President's group on finance sets guidelines for hedge funds, investors UPDATE - Forbes.com
14. Hedge Funds Set To Improve Disclosure'''Voluntarily | FINalternatives
15. AFP: US panel urges hedge funds to be more transparent
16. Free Preview - WSJ.com
17. The Associated Press: Best practices urged for operations of giant hedge funds
18. Financial News and Information from Financial News Online US
19. Treasury wants better hedge fund asset disclosure | Reuters
20. Hedge funds transparency plan unveiled -- baltimoresun.com
21. Wall Street's Top Earners: Your Pain, Their Gain - Forbes.com
22. Deal Journal - WSJ.com : How The 10 Richest Hedge Fund Managers Got That Way
23. Wall Streeter Converts to a Fan of Regulation - New York Times
24. U.S. hedge fund oversight needs teeth, say critics | Reuters
25. Hedge funds to set standards - FierceFinance - Financial industry, finance industry, financial newsletter, financial news online
26. Hedge fund manager made 31 times more in one hour than you did in all of 2007 - BloggingStocks
27. Hedge Fund Heavyweights of 2007 - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times
28. Financial News and Information from Financial News Online US
29. Revealed: The hedge fund bosses who made '4.6 billion from the credit crunch | the Daily Mail
30. Financial News and Information from Financial News Online US
31. Voluntary Hedge Fund Rules Proposed -- Courant.com
32. Arizona fund considering huge revamp - Pensions & Investments
33. Why Paulson's Plan Works
34. globeandmail.com: Streetwise - Huge hedge fund comp may bring backlash
35. Hedge Fund Manager Brings in $3.7B in 2007
36. Top earning US Hedge Fund Manager made $3.7bn in 2007 from Subprime Crisis; Top 25 earned average $892m - up from $532m in 2006
37. Treasury Report Calls for Hedge Fund Registration
38. Groups suggest that hedge funds need greater transparency - Los Angeles Times
39. Lehman Brothers to invest in hedge fund firms - FierceFinance - Financial industry, finance industry, financial newsletter, financial news online
40. Sebastian Mallaby Valiantly Defends Hedge Funds - Seeking Alpha
41. Halsey Launches Fund of Hedge Funds | FINalternatives
42. Clearview closes $250m fund
43. Free Preview - WSJ.com
44. Free Preview - WSJ.com
45. Taiwan'''s public pension fund to invest more offshore - Institutions & Pensions - www.AsianInvestor.net - The network for Asian investment management in Asia Pacific
46. VC Giant May Launch $750 Million Hedge Fund | FINalternatives
47. Marketplace from American Public Media
48. Hedge fund compensation up 50 percent in 2007 | Markets | Markets News | Reuters
49. Protection? Investor beware
50. EuroNews EuroNews : G7 finance chiefs push for financial market transparency
51. Free Preview - WSJ.com
52. Strategic Global Income Fund, Inc. -- Reports Earnings
53. Overhaul ratings system: ANZ | The Australian
54. Wegelin launches multi-strategy fund | Fund Selector | Citywire
55. Paulson's plan forgot the investors - InvestmentNews
56. Hedge-fund managers have biggest payday in history - MarketWatch

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