Archives for October, 2010

PAAMCo Plays the Gender Card, Flushed by SEC

October 31st, 2010

Women are no doubt outraged tonight as they learn, once again, how they have been taken advantage of by The Man.  In this case, Pacific Alternative Asset Management (PAAMCO).  Seems the fellows over there set themselves up, misleadingly, as  a “women-owned business” and structured a loan on that basis.

U.S. District Judge Richard Sullivan’s ruling that PAAMCo “may have been designed to mislead” about its woman-owned status, got the boys at the Securities and Exchange Commission a little curious about the fund-of-hedge-funds firm. PAAMCo admitted the scrutiny had sparked SEC interest in a letter to investors.

In the letter, PAAMCo disclosed that Sullivan in August granted Paloma Partners founder and PAAMCo backer S. Donald Sussman a 40% stake in PAAMCO Founders, the fund of funds’ parent company. Sullivan wrote in his decision that PAAMCo had structured Sussman’s investment as a loan so that it would “qualify as a women-owned business,” possibly misleading “a number of observers, from the tax authorities to the SEC to entities wishing to invest in women-owned businesses.”

PAAMCo has denied Sussman’s take on the situation, noting that it has never pursued mandates designed specifically for women- or minority-owned firms. However, there are reports the Susan B. Anthony is turning in her grave.

The fund of funds said it was cooperating with the SEC after it “determined it was important to proactively reach out to the SEC about the decision.” PAAMCo said it had met with SEC representatives in Los Angeles and “answered all of their questions about the case.”

Whether or not the SEC finds any wrongdoing on PAAMCo’s part, the Sullivan ruling has already cost it a $36 million mandate. The Los Angeles Water and Power Employees’ Retirement Plan fired the firm on Wednesday due to the uncertainty raised by the Sussman case.

“PAAMCo has made it clear that Donald Sussman’s equity ownership in PAAMCO Founders is a passive position and that he has no controlling interest,” Neil Rue of the pension’s consultant, Pension Consulting Alliance, wrote in a report to LAWPERP’s board. “However, after further review with staff and PAAMCo, PCA feels that the long-term implications of Mr. Sussman and the subsequent loss of expected revenue will detract from the value of the WPERP portfolio.”

Rue counseled the pension to launch a search for a new fund of hedge funds manager, but WPERP Chairman Javier Romero would not confirm that one had been authorized.

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The Prosecutors Strike Back in Galleon Case

October 29th, 2010

Raj Rajaratnam

For months now, Galleon Group founder Raj Rajaratnam has been fighting the government’s attempts to admit wiretaps into evidence in its never-ending insider-trading case. Now, Federal prosecutors have struck back, justifying the tapes in a strongly-worded brief to the court.

In early October, John Dowd, a lawyer for Rajaratnam, wrote to U.S. District Judge Richard Holwell, who is overseeing the trial, that “falsehoods and critical omissions pervade this affidavit.” Dowd also maintained that if prosecutors or the Federal Bureau of Investigation had given a more complete description of the Securities and Exchange Commission investigation that preceded the criminal probe, it “would have resulted in the denial of the wiretap application.”

The court filing from Assistant U.S. Attorneys Jonathan Streeter and Avi Weitzman alleged that Rajaratnam’s lawyers had shown no reason to exclude the 2,400+ taped conversations from the criminal trial. “Rajaratnam failed to prove that any Government representative deliberately decided” the federal judge who approved the wiretaps in March 2008, Gerald Lynch, “or had reckless disregard for whether they were deceiving the judge.”

According to Streeter and Weitzman, “Rajaratnam has not and cannot make this showing,” they wrote, noting that Lauren Goldberg, a former prosecutor who worked on the wiretap affidavit testified at a hearing earlier this month that the SEC probe had “hit a bit of a wall” and that the regulator had “developed largely ‘weak or nonexistent’ circumstantial cases involving stocks it was investigating.”

The prosecutors said they used the SEC’s best evidence to win the cooperation of former Galleon employee Roomy Khan, an alleged member of the insider-trading circle that has -ensnared 21 people, including Rajaratnam. Khan appears on many of the wiretaps. Streeter and Weitzman said their case would include testimony from some of the participants in the taped conversations in addition to the taps themselves.

It is unclear when Holwell will rule on the legality of the wiretaps. Rajaratnam’s trial is set to begin in January; he faces decades in prison if convicted.

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TradeStation Prime Services, a division of TradeStation Securities, Inc. is proud to announce the Launch of TradeStation 9.0

October 28th, 2010

Plantation FL, October 28, 2010 – TradeStation Securities, Inc., the award-winning broker-dealer and futures commission merchant, and a leading provider of custom analysis and electronic trading solutions, recently announced the launch of TradeStation 9.0. The company expects that TradeStation 9.0 will reset the bar for trading platforms by empowering customers and developers to automate and test strategies in the equities, options, futures and forex markets unlike anything else currently available. TradeStation 9.0 is now being rolled out to new customers and is expected to be slowly rolled out to all existing TradeStation clients beginning next week.

“Traders in today’s markets demand access to information and the ability to act on it instantly,” said Salomon Sredni, the CEO of TradeStation Group, TradeStation’s parent company. “TradeStation 9.0 really expands the power of our platform. As an example, traders will be able to automatically monitor market depth and be alerted, or even place a trade, the moment the trader’s rule or trigger is met. Traders now may also have TradeStation monitor their open positions and continuously perform risk assessments, so that, in a fast market downturn or upturn, the appropriate action will automatically be executed. Also, traders now have the ability to execute code on a fixed time interval, access to all of the details for their orders and positions, and, on RadarScreen® (TradeStation’s state-of-the-art market scanning engine) access to multiple data streams.”

“TradeStation 9.0 also includes dozens of other popular enhancement requests for EasyLanguage, TradeStation’s industry-standard proprietary programming language,” added John Bartleman, TradeStation’s Vice President of Product Management.

TradeStation 9.0 also has a new look and feel. The company has improved the icons, enhanced some of the graphics and colors, and added a “Quick Start” to help new TradeStation users create an optimal workspace. Plus, TradeStation’s Options Development Team has in TradeStation 9.0 added another set of enhancements to OptionStation, the company’s highly-regarded automated research product for options trading analysis and decision-making.

For additional information about TradeStation 9.0 or TradeStation’s Prime Services offering, please visit: http://www.tradestationprime.com/ or contact Lance Baraker at 212-847-5950.

About TradeStation Prime Services, a division of TradeStation Securities, Inc.

TradeStation Prime Services, a division of TradeStation Securities, Inc., was founded to serve the needs of start-up to mid-sized hedge funds, registered investment advisers, professional traders and asset managers who need quality prime brokerage services, including execution and clearance, securities lending, capital introduction, and “incubation” services.  Clients are offered electronic trading and decision-support platforms, including TradeStation, to analyze their trading strategies and automate or manually place their orders, and may avail themselves of the firm’s NYSE floor membership, which allows it to execute trades on behalf of clients on the NYSE floor as well as in other market centers from its NYSE floor booth/outsourced trading desk. TradeStation Prime Services is located at 400 Madison Avenue, New York, New York.

TradeStation Securities, Inc. (Member NYSE, FINRA, SIPC & NFA) is a licensed, self-clearing securities broker-dealer and a registered omnibus-clearing futures commission merchant, and has memberships or similar approved status (as well as direct connectivity for both market data and order execution) with BATS Z-Exchange, Boston Options Exchange, Chicago Board Options Exchange, Chicago Stock Exchange, EDGA Exchange, EDGX Exchange, International Securities Exchange, NASDAQ OMX BX, NASDAQ OMX PHLX, The NASDAQ Stock Market, NYSE Arca and NYSE Amex.  For futures accounts, TradeStation connects directly (for both market data and order execution) with the CME Group, Eurex Group and ICE Group (U.S. and Europe) exchanges. TradeStation is a clearance member with DTCC and OCC for equities and options, serves its futures accounts on an omnibus clearance basis.  TradeStation Securities has offices in South Florida, New York, Chicago and Dallas, and an affiliated introducing broker (TradeStation Europe Limited) in London.

About TradeStation Group, Inc.

TradeStation Group, Inc. (NASDAQ GS: TRAD), through its principal operating subsidiary, TradeStation Securities, Inc., offers the TradeStation platform to the active trader and certain institutional trader markets. TradeStation is an electronic trading platform that offers state-of-the-art electronic order execution and enables clients to design, test, optimize, monitor and automate their own custom Equities, Options, Futures and Forex trading strategies.  TradeStation Group’s other operating subsidiaries are TradeStation Technologies, Inc. and TradeStation Europe Limited.

Nature of this Announcement

This announcement is made on a limited basis through hedge fund and other institutional trader websites and similar media for promotional/marketing purposes, to educate potential customers of TradeStation Prime Services about its product and service offerings, and is not intended to be an investor relations or public disclosure document for TradeStation’s publicly-traded holding company (TradeStation Group, Inc.).

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At Last! EU Reaches Final Agreement on “Passport” Regulations

October 27th, 2010

We have been reporting on this ongoing saga for some time, but it looks like the curtain is finally coming down.  Following a year of battling, back-biting and bickering, the representatives of the 27-member European Union have reached agreement on new regulations for foreign alternative investments – the so-called “passport” controversy.

It was a week ago that France and the U.K. struck their own deal on the directive, paving the way for its approval by the EU’s member states.  Those states have reached a deal that assures its passage by the European Parliament. Approval by both institutions is required for the proposal to become law, which it is now expected to do early next year.

The European Commission’s agreement with the parliament contains a few changes from the draft approved by EU governments. But those are relatively minor; the real heavy-lifting on the compromise was accomplished last week by EU finance ministers after an increasingly isolated France agreed to drop its opposition to granting access to all EU markets to foreign hedge funds.

The directive will impose strict new reporting and custody requirements on hedge funds and private equity funds, as well as placing them under the authority of the new European Securities and Markets Authority. Private equity funds will also face new asset-stripping rules.

The controversial passport will not come into effect for EU firms until 2013, and foreign funds will not be eligible until 2015. Until then, the current regime that allows each EU country to decide which funds will have access to their markets remains in place.

The European Parliament is set to vote on the directive on Nov. 11.

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Fired Kingdon Capital Manager Fires Back

October 26th, 2010

Some people leave quietly. Marjorie Greenspan Kaufman is not one of them. Kaufman,no relation to former Federal Reserve Chairman Alan Greenspan, was let go last week from her position as managing director and head of investor relations at Kingdon Capital, which has $4.9 billion under management.  In response, Kaufman launched a photon torpedo in the form of an email.  Recipients were investors with positions of $100 million or more.  The message was not subtle: ABANDON SHIP!

The email from hell was revealed yesterday:

“All–

I am very proud of creating Kingdon’s “best in class” investor relations department. I am also proud of my role in transforming the firm from a boutique to an institutional asset management business. Over the years it’s been so gratifying to receive numerous compliments from investors like you regarding the thorough transparency we provided; the clarity and detail with which we presented portfolio positioning, risk and attribution; and the overall excellence of our communication efforts.

When I joined Kingdon in mid 2003 the firm had just experienced two down years, was suffering from the departures of many PMs and had lost half of its assets. I leave Kingdon 7 1/2 years later having raised over $5 billion in assets and reshaping the client base from what was predominantly individuals and Fund of Funds to a well diversified mix of public funds, insurance companies, family offices, endowments, foundations and sovereign entities.

Kingdon is now grappling with issues regarding its future viability. The firm faces difficult and sensitive challenges pertaining to succession. There is considerable management turmoil and uncertainty about the firm’s direction. In the past two years, six portfolio managers and numerous analysts have left the firm.

In the midst of this upheaval, I was informed last Thursday that Kingdon was terminating my employment without cause and without notice, in breach of our contract.

While I’m saddened by this sudden and very unexpected turn of events, I know that I leave behind a strong legacy.

I look forward to keeping in touch with you and hope that our paths will cross in the future.

With warm regards,
Marjorie Kaufman”

Kaufman has been employed at Kingdon since 2007. In a letter to investors, the New York-based firm said that COO Alan Winters would assume the role as interim head of investor relations.

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Pension Fund Moving Assets from Madoff-Linked Hedge Fund

October 25th, 2010

The Dorset County Pension Fund (DCPF) has $2.23 billion in investments, 2% of which were tied up with Pioneer Alternative Investments, a Madoff-tainted hedge fund. It is now reallocating that money into International Asset Management (IAM), a long-established European fund of hedge funds (FoHF).

The pension fund is doubling the $25.6 million investment it has with IAM, according to Nick Buckland, investment officer at Dorset County Council.

It was only last year that DCPF  had investments with three FoHFs, IAM, Gottex Fund Management and Pioneer Alternative Investments, which each managed a portion of the pension fund’s hedge fund allocation.

“We decided to redeem from Pioneer last year due to the hedge fund’s exposure to Bernard Madoff,” stated Buckland, adding that the fund was now planning to re-invest the redeemed assets. “We are very happy with our remaining two managers, and all the redeemed assets from Pioneer are being reinvested with IAM,” he said.

However, it has taken over a year for the pension fund to receive the assets back from Pioneer, which had 10% of its assets entangled with the Madoff fraud, and the pension has not yet received its entire investment back.

Dorset County has a 6% target allocation to hedge funds, and currently has 5.5% invested. Buckland confirmed that the pension fund is unlikely to increase that target in the foreseeable future and is unable to make direct investments, as the council doesn’t have the resources to do so. “For now, FoHFs work for us,” he said.

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KKR OKs Hiring of GS Traders

October 22nd, 2010

Private equity colossus Kohlberg Kravis Roberts will be hiring top U.S. proprietary traders from Goldman Sachs next year. Trading chief Robert Howard is spearheading a team of nine Goldman Sachs Principal Strategies members as they finalize a deal with New York-based KKR.  The $13 billion asset manager won out against rivals Perella Weinberg Partners and Avenue Capital Partners.

KKR will set up a new hedge fund unit, its first liquid equities business, which Howard will manage. Howard will report to KKRs top asset manager William Sonneborn. The initial task of the new KKR unit starting in January will be to establish its trading operation and then start a long/short hedge fund later on.

In a change from their previous gig, Howard’s team will not manage KKR’s own capital, but will instead raise money from clients. KKR did not say what its fundraising plans or hopes for the new vehicle are.

“Our goal has been to add new capabilities and exceptional talent that allows us to strengthen our product offering and better service our clients,” KKR founders Henry Kravis and George Roberts said. “Bob and his team will be an ideal fit for that objective as we’ve been impressed with their investment experience and performance as well as their ability to manage risk.”

Goldman chose to shutter its Principal Strategies prop. trading unit following the passage earlier this year of new financial regulations that bar banks from trading with their own capital. The firm confirmed earlier this week that it had closed the group.

The Wall Street giant’s Asia prop. traders are expected to found a hedge fund of their own.

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Morgan Stanley Cedes Majority Control of $7 Billion Hedge Fund

October 21st, 2010

Morgan Stanley has, perhaps reluctantly, cut its ownership of FrontPoint Partners LLC, the $7 billion hedge fund that shorted the subprime mortgage bubble. FPP will now have a majority stake in its own firm. The move comes as Washington regulators have tightened their scrutiny of Wall Street as a result of the new Dodd-Frank Act.

The deal, due before the end of the year, will see FPP portfolio managers and senior managers take majority control. Among these FPP managers are co-Chief Executives Daniel Waters and Michael Kelly.

While Morgan Stanley Investment Management will retain an equity stake in FPP, the stake — purchased hedge-fund market was at its zenith – will be reduced to between 20% and 25%.

“It is challenging for institutions like us, for lots of reasons, including conflicts, to fully own 100% of hedge funds,” was how Morgan Stanley Chief Executive James Gorman tried to put a brave face on the deal. Banks like MS are now restricted by Dodd-Frank from deploying their own capital in hedge funds and other proprietary trading operations.

Gorman said the bank has $300 million in seed capital in FrontPoint, which it aims to “repatriate over a relatively short period of time.”

Talks of lowering Morgan Stanley’s stake in FrontPoint went on for months, when regulators started discussions on curbing banks’ investment with their own capital. Regulators hoped to avoid a repeat of what happened to Bear Stearns, whose hedge funds suffered huge losses. Bear Stears, near collapse, was eventually acquired by J.P. Morgan Chase & Co.

FrontPoint, founded in 2000, had 219 employees as of Sept. 30, including 119 investment professionals.

While the firm was extremely profitable in 2007, it wasn’t in 2008 and assets under management suffered.

The firm has attracted $1 billion in new assets so far this year. Though its current assets of $7 billion are below the $10 billion it managed at its peak, they exceed the $5.5 billion managed when it was purchased by Morgan Stanley in 2006.

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Ex-Citadel Exec Sanctioned for Destroying Evidence

October 20th, 2010

A former Citadel Investment Group executive, Mikhail Malyshev, left Citadel to start up a high-frequency trading firm.  Citadel sued. Now, Malyshev has coughed up $1.1 million in sanctions for destroying evidence.

Chicago Judge Mary Rochford ordered Malyshev to fork over the money for “scrubbing” his computers despite her order to preserve documents in the case. Malyshev trotted out the porno defense:  he was only trying to destroy pornography and not any evidence related to the case.  But he admitted irretrievably deleting the files protected by the judge’s order.

Judge Rochford wasn’t buying it, calling Malyshev’s actions “more egregious than anything” she had ever seen before.

“Malyshev has acted in disregard of the orderly administration of justice,” she wrote. “He improperly and significantly disrupted the discovery practice and impaired the truth-seeking process for all parties.”

Despite the harsh words, the sanction she imposed was fairly light-handed, covering only legal fees and costs. Citadel had asked for a $15 million penalty, which Rochford rejected as punitive.

At Citadel’s request, the $1.1 million has been donated to two Chicago charities. The mega hedge fund did not explain how it came to hire a trader who kept pornography on his computer.

Last October, Rochford entered an injunction against Malyshev and Jace Kohlmeier, another former Citadel high-frequency trader, barring them from working on their newly-founded Teza Technologies until their non-compete agreements expired. She also barred them from hiring Citadel employees for a year, but refused to extend the non-competes.

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Canadian Prime Broker Snaps Up BlueBay Asset Management

October 19th, 2010

BlueBay Asset Management's London headquarters

The Royal Bank of Canada is acquiring the U.K.-based BlueBay Asset Management PLC for $1.5 billion.  RBC will thus gain access to a valuable network of wealthy customers and institutional clients.

At midyear, BlueBay boasted C$34.3 billion in assets, 62% of which stemmed from institutional investors – a 2% smaller portion as compared to that of the previous year.  Wealthy private clients and third-party distributors are a growing segment of business, representing 30% of assets as compared to 26% the previous year.

“Much of BlueBay’s offering and RBC Global Asset Management’s offering is particularly suited for the high-net-worth and ultra-high-net-worth clients,” said George Lewis, head of RBC Wealth Management.

The acquisition of BlueBay enables RBC to initiate a greater number of institutional fixed-income solutions for retail clients who provide high revenues. One of the largest independents in Europe, BlueBay manages fixed-income debt funds, long-only funds, and alternative investment funds that span the full-range of fixed-income credit asset classes.

RBC’s acquisition follows an intensive search for hedge funds and private equity funds to purchase.  The strategy is to increase offerings to high-net-worth customers. Mr. Lewis indicated that it favors liability-driven investing — gaining assets to meet current and future liabilities – as an area of growth for pension plans and wealthy clients.

“Bringing an institutional approach to both retail and ultra-high-net-worth will be the trends that we will continually see,” John Montalbano, chief executive of RBC Global Asset Management, said in a call with analysts Monday.

He said he sees the quest for customized solutions on the institutional side spilling over to the ultra-high-net-worth customers, a niche that RBC has been aggressively going after.

RBC’s acquisition of BlueBay, valued at C$1.56 billion, is set to close at the end of December. The move follows RBC Wealth Management’s decision to set up standalone U.K. and Emerging Markets businesses, in addition to Canada and the U.S.; set up a trust business; and appoint a deputy chairman for Ultra High Net Worth – International.

UHNW, which RBC categorizes as those with at least C$25 million in net worth, represents 25% of RBC Wealth Management’s revenue, though they make up only 5% of the unit’s client base, Lewis said in an earlier interview.

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