BERLIN (Reuters)—Back in May, as the euro zone veered deeper into crisis, Nobel Prize-winning economist Paul Krugman penned one of his gloomiest columns about the single currency, a piece in The New York Times entitled “Apocalypse Fairly Soon.”

“Suddenly, it has become easy to see how the euro — that grand, flawed experiment in monetary union without political union — could come apart at the seams,” Mr. Krugman wrote. “We’re not talking about a distant prospect, either. Things could fall apart with stunning speed, in a matter of months, not years.”

Mr. Krugman was far from being alone in predicting imminent doom for the euro in 2012. Billionaire investor George Soros told a conference in Italy in early June that Germany had a mere three-month window to avert European disaster.

Then in July, Willem Buiter, chief economist at Citigroup and former Bank of England policymaker, raised the probability that Greece would leave the euro to 90 percent, even going so far as to provide a date on which it might occur. Mr. Buiter’s D-Day — Jan. 1 — falls next week.

And yet no one now believes a “Grexit,” or catastrophic implosion of the euro zone for that matter, is just around the corner.

Half a year ago the chorus calling an end to the euro reached a crescendo. Among the chief doom-mongers were some of the world’s leading economists and investors, many of them based in the United States.

Fast forward six months and their prophecies look ill-judged, or premature at the least. The euro has rebounded against the U.S. dollar. The bond yields of stricken countries like Greece, Spain and Italy — a market gauge of how risky these countries are — have fallen back.

Even the gloomiest of the gloomy are revising their forecasts, although they warn of more trouble ahead.

“Europe has surprised me with its political resilience,” Mr. Krugman admitted earlier this month in a blog post.

In October, Citi lowered its view on the likelihood of Greece exiting the currency area within 18 months to a still high 60 percent and there are plenty of economists who think that while a patchwork of measures have drawn some sting out of the crisis they have done little to address its root causes.

Messrs. Krugman and Buiter did not return mails seeking comment. Mr. Soros declined to be interviewed.

Political Will

With the benefit of hindsight, it seems clear that many simply underestimated the political will in Europe to keep the euro together, and the impact that a series of policy shifts in the second half of 2012 would have on sentiment.

The most important of these were European Central Bank President Mario Draghi’s July promise to do “whatever it takes” to defend the euro — which led to the ECB’s commitment to buy euro zone government bonds in sufficient amounts to shore up the currency bloc — and German Chancellor Angela Merkel’s late summer shift on Greece. After wavering for many months on the costs and benefits of a Greek exit, she finally came around to the view that the risks to Europe and her own political prospects of letting Greece go were far too great.

“There may be a logic to Greece leaving, but the mechanics are too disruptive for both Greece and its neighbors,” said Barry Eichengreen, an economist at the University of California, Berkeley, who has long argued that the euro is irreversible.

“An appreciation of European politics makes you realize that everything will be done to prevent a breakup of the monetary union. It would be intensely catastrophic, economically and politically,” Mr. Eichengreen said.

Capital Economics, a U.K.-based consultancy that forecast one or more countries would leave the single currency bloc by the end of 2012, now concedes that it underestimated the ECB’s determination to save the euro and the market’s faith in the bank’s promises.

“It may simply take longer,” Jennifer McKeown, senior European economist at Capital Economics said of a euro breakup. “It’s obviously not happening this year.”

Prominent investors have also paid a price for betting against the euro zone this year. Earlier this month celebrated U.S. hedge fund manager John Paulson blamed big losses suffered in 2012 on his bets that the sovereign debt crisis would worsen.

For those who placed their chips on the other side of the table, there were stellar returns of around 80 percent to be had on 10-year Greek and Portuguese government bonds this year.

Crisis Deferred

Nouriel Roubini, the New York University economist whose bearish forecasts earned him the nickname “Dr. Doom,” has been in the gloom camp from the beginning, predicting as far back as 2010 that countries would be forced to abandon the single currency. Now he says the risks of a near-term catastrophe have been reduced.

Reflecting the more cautious view of many of his colleagues, Mr. Roubini believes 2013 will be another year in which European politicians “muddle through,” avoiding catastrophe. But the euro’s day of reckoning will come, he believes, with the risks metastasizing over the course of 2013 and Greece, once again, posing the biggest threat.

At the height of the crisis in June, the euro zone dodged a bullet when the conservative party New Democracy narrowly beat anti-bailout leftists SYRIZA in the Greek election. Since then, Greek Prime Minister Antonis Samaras has been able to keep his three-party coalition together, and behind austerity measures needed to keep bailout money flowing. But as the country enters its sixth year of recession and support for the government wanes, his task will become harder. Recent opinion polls show SYRIZA with a five point edge, underscoring the risks of a political earthquake in Athens at some point in 2013.

“By late fall of next year, the Greek coalition could collapse and an exit may be back on the table,” Mr. Roubini told Reuters.

Even economists like Mr. Eichengreen are reluctant to declare the worst of the crisis over, pointing to deep recessions on Europe’s periphery and the risk of political complacency.

At a December summit in Brussels, European governments delayed serious discussion on closer fiscal integration until mid-2013 and made clear that creation of a “banking union” would stretch into 2014 and beyond.

“What we have seen throughout this crisis is a cycle where steps are taken, politicians think the problems are solved, they sit on their hands and the situation worsens again, with spreads blowing out. I’m sure we’ll see more of this going forward,” Mr. Eichengreen said.

Mr. Krugman, while expressing surprise at Europe’s ability to avert disaster in 2012, isn’t backing off his predictions of gloom either. In his recent blog post “Bleeding Europe,” he likens the austerity imposed on countries like Greece, Portugal, Spain and Ireland to “medieval medicine” in which patients were bled to treat their ailments. When the bleeding made them sicker, they were bled some more.

Even if the euro has defied forecasts of its demise, the economics of austerity, Mr. Krugman says, are playing out “exactly according to script.”

By Noah Barkin

NEW YORK (Reuters)—One of hedge fund billionaire Steven A. Cohen’s largest outside investors, private equity firm Blackstone Group LP, appears inclined to keep its money with his SAC Capital Advisors, even as the U.S. government scrutinizes the fund in its ongoing insider trading probe.

Three sources said the asset management arm of Blackstone , which has $550 million invested with SAC Capital, is in no rush to redeem money from the Stamford, Conn.-based hedge fund. Blackstone has had at least three discussions with the $14 billion hedge fund’s executives about the insider trading investigation and talked to its own investors, which include state pension funds, endowments and wealthy individuals.

Seven current and former SAC employees have been charged or implicated in the insider trading probe into hedge funds and their sources of trading tips, and the firm itself — along with the 56-year-old Mr. Cohen — has been drawing renewed scrutiny.

“I am unaware of any representation by Blackstone that they are pulling out,” said Robert Klausner, a Florida attorney who represents a pension fund from Louisiana that is an investor in a Blackstone fund with money at SAC Capital.

A Blackstone spokesman and an SAC Capital spokesman both declined to comment.

Outside investors in SAC Capital, who can redeem four times a year, have until the middle of February to decide whether to pull out some money. So officials at Blackstone, which accounts for about 9 percent of the outside money invested in SAC Capital, could still change their view on the hedge fund in the event of a new development in the insider trading investigation.

Already Titan Advisors LLC has notified SAC Capital it intends to pull money from the hedge fund. Titan, which invests $3 billion of client money in more than 20 hedge funds, is one of Cohen’s longest tenured outside investors. It’s not known how much money Titan, which did not return a request for comment, has invested with SAC Capital.

The question of investor redemptions from SAC Capital has come up in the wake of charges brought last month by U.S. authorities against a former SAC Capital portfolio manager, Mathew Martoma. He is accused of using inside information to generate profits and avoid losses totaling $276 million in shares of two drug stocks, Elan Corp. PLC and Wyeth.

In a sign U.S. authorities are ratcheting up the pressure on Mr. Cohen, the Securities and Exchange Commission recently warned SAC Capital that the firm could face civil charges over the Martoma matter. Federal authorities also have expanded their investigation to look into trading by the hedge fund in shares of Weight Watchers International Inc and biotech company InterMune Inc.

Blackstone, whose chairman and chief executive is financier Stephen Schwarzman, is seen by some as something of a bellwether investor in the $2 trillion hedge fund industry because its popular so-called hedge fund of funds invests with more than four dozen hedge funds, including SAC Capital, Pershing Square Capital Management, Elliott Management and D.E. Shaw & Co., according to people familiar with the private equity firm’s asset management business.

Blackstone’s $550 million investment in SAC Capital is a big slice of the $6.3 billion in assets that SAC Capital manages for its outside investors, said sources familiar with SAC Capital and Blackstone. Roughly 55 percent of the dollars invested in SAC Capital is Mr. Cohen’s own personal fortune and money from his employees.

Don Steinbrugge, chairman of Agecroft Partners, a hedge fund consulting and marketing firm, said most institutional investors that have money with SAC Capital will make their own decision on whether to remain with the fund. But he said some investors “will look to leaders in the industry to help guide them.”

Mr. Klausner said an investment adviser hired by the Louisiana pension fund he represents said it is comfortable with Blackstone’s decision to stay with SAC Capital after doing its own research into the matter. Mr. Klausner said the decision by SAC Capital to pick up the tab for any legal costs and fines that might be levied by authorities against the hedge fund, gave his pension client comfort.

“The indemnification was a huge deal and the fact that the principals of SAC own 55 percent of the firm,” he said.

Several other Blackstone investors said they also are comfortable with whatever decision the investment firm makes about keeping money in SAC Capital.

William Einhorn, administrator for the Teamsters Pension Trust Fund of Philadelphia and Vicinity, which has money in a Blackstone fund that invests with SAC Capital, said he last had a communication with Blackstone about the investigation two weeks ago and he is not telling the investment firm what to do.

“I am relying on the actions of our fiduciary,” Mr. Einhorn said.

He and other Blackstone investors said they generally have been satisfied with the performance of Blackstone’s hedge fund offerings.

So far this year one of the Blackstone funds that invests with SAC Capital, the $4.3 billion BPIF Partners Non-Taxable fund, is up about 7 percent, according to an investor source. By comparison, hedge funds on average are up 5 percent for the year and SAC Capital’s flagship fund is up a little over 10 percent.

Still, the decision by Titan to pull money out, which was first reported by The Wall Street Journal, was a little surprising to some given that the investment firm told its investors in a September 2012 investment letter that SAC Capital was one of its “biggest gainers” in the third quarter.

And in a December 2010 investor letter, Titan told its investors it was not redeeming from SAC Capital after determining that neither the firm nor its principals were “the target of the investigations.” At the time, Titan told investors it would continue to “closely monitor” the matter.

Marisel Lieberman, assistant director for FIU Foundation Inc., which invests in the Titan Masters International Fund, said she was recently informed by Titan that it “has since fully redeemed out of SAC funds.”

A copy of the Titan letter informing investors of the decision to redeem from SAC Capital could not be obtained.

By Matthew Goldstein

TOKYO (Reuters)—Nippon Life Insurance and other Japanese financial heavyweights are scoring new business with corporate pension funds, recently burned by an investment adviser scandal and difficult domestic markets, by tailoring multi-asset funds to offer limited risk and steady returns.

Japan’s corporate pension funds, with more than ÂĄ70 trillion ($826 billion) in assets, are increasingly targeting minimum returns — typically 2.5 percent a year — instead of using relative performance benchmarks that for years have come up short as bond yields fell and equities markets remained volatile, pension fund sources and asset managers say.

Pension funds are also tending to shun smaller, independent asset managers and hedge funds, after a scandal over $1.3 billion in hidden losses at Tokyo-based independent asset manager AIJ Investment Advisors earlier this year.

This puts Japanese life insurers, trust banks, and big domestic and foreign asset managers in position to battle for new pension business, and multi-asset funds are proving an effective weapon.

“Multi-asset funds are increasingly gaining popularity among many pension funds that want to control their risks, while at the same time raise stable returns,” said Mitsuhiro Arakawa, an executive consultant at Russell Investments, a U.S.-based investment manager and pension fund consultant. “We’ve seen this growing trend in multi-asset funds over the past few years, although the lineup is getting bigger this year and this trend is expected to continue.”

Multi-asset funds had been a typical part of Japanese pension funds’ portfolios in the late 1990s and early 2000s, although declining returns encouraged them to take more direct control of their asset allocation decisions. Now the pendulum appears to be swinging back the other way.

“This new trend to buy multi-asset funds is just picking up. We need to see whether these funds actually perform well before more pension funds shift their money into that space,” said a senior corporate pension fund manager, who declined to be identified.

Nippon Life, Japan’s top life insurer, has a new multi-asset fund weighted heavily toward domestic debt, with about an 80 percent allocation, that aims for a 2.5 percent annual return. The fund, managed by Nissay Asset Management and also including foreign sovereign bonds and domestic and foreign equities, aims to attract about ÂĄ100 billion by the end of the year to next March, and ÂĄ300 billion within three years, said Masayoshi Tsuda, a Nissay Asset Management general manager.

The trust bank arm of Japan’s top lender Mitsubishi UFJ Financial Group also aims for a 2.5 percent return from a balanced fund it launched in October, which has attracted 12 pension funds and ÂĄ7.5 billion. It invests in conventional assets — domestic and foreign bonds and equities — as well as cash.

The trust bank unit of another big bank, Mizuho Financial Group, targets a more ambitious 4 percent return from a fund launched in September investing in conventional assets, emerging markets, and alternative assets, including gold and real estate investment trusts. It has gathered about ÂĄ15 billion so far from pension funds, said Kouji Shibata, senior portfolio manager at Mizuho Trust & Banking.

“Pension funds have been convinced, since these funds appear to offer realistic targets,” said Akihiko Ohwa, a veteran pension fund manager who now lectures at the Graduate School of Finance, Accounting and Law at Tokyo’s Waseda University.

Pension funds have been shunning risk since the 2008 Lehman crisis, shifting into fixed-income products from equities. Returns became increasingly meager, however, with the yield on the benchmark 10-year Japanese government bond holding near nine-year lows below 0.8 percent since the start of this quarter, although it has begun moving up on the prospects of aggressive policy measures to stimulate the economy.

Pension funds also remain wary of the domestic stock market, despite a 20 percent rally in Tokyo’s benchmark Nikkei average since mid-November as optimism rises that the new government of Shinzo Abe, who has pressured the Bank of Japan for easier monetary policy, can finally break Japan from decades of grinding deflation.

Mr. Ohwa said Japan’s pension funds remain keen to maintain or even lower the risk profiles of their portfolios as they focus on securing targeted returns, still smarting from the disappointing performance of Japanese equities for much of the past two decades.

By Chikafumi Hodo

For several months hedge funds have been accused of luring top talent away from banks and other financial institutions. This is partially due to the fact that banks are not what they used to be; the salary, stability and bonus packages have greatly decreased. Hedge funds have been more than welcome to fill the void.

Thalius Hecksher, Global Head of Business Development at Apex Fund Services (an independent fund administrator), said that as the talent pool slips away from banks, it provides an “opportunity for Apex.”

“Top talent that has left banks is coming back to the market now, looking for new and alternative things to get involved in,” he said.

Apex recently opened a new office in Miami, Fla. “This is a small office,” said Vincent M. Sarullo, Managing Director of Apex Fund Services in the U.S. “We’re just starting out, and that’s how we grow our business globally—whenever we get into a new location, we start with an initial staffing and then grow as the business grows.”

Sarullo said that when he first arrived in Miami, Apex “had great assistance from the groups down there—the Chamber of Commerce and the FLAIA (Florida Alternative Investment Association)—[that helped us] make introductions into the universities in the area to attract staff, and it has been a wonderful experience.”

“We see that it’s definitely going to be an office that we will grow with quality staff,” he continued. “There are a lot of people that are graduating with finance and accounting degrees that don’t have an avenue to go and get hired. There’s not a lot of service providers that are hiring, so they’re looking to go and relocate and go to other places. Here I think we’ll have the pick of the litter of quality people coming from those universities to staff our office.”

Hecksher referred to the new Florida office as a “win-win” for everyone involved. “There’s a high-caliber of employment available in the Miami market,” he said. “In [the [past] they might have had to look outside of Florida for the right job, whereas we’ve opened a place locally. We’re giving the local students and graduates the opportunity to actually stay home and work in Florida for an international business.”

The branch may be small but Apex anticipates that it will grow in the not-too-distant future. When it does, Sarullo said that the company will look to fill “positions to perform the core job that we do.”

“So it will be accounting majors, finance majors, and then behind that of course the support staff—administrative people—to support the office function as it grows,” he said.

Desirable Candidates

One of the challenges Apex faces in hiring fresh talent is that it is very different from other companies. “Even from the accounting standpoint, people coming out of college, or even in industry, it’s a unique business,” said Sarullo. “It’s a unique type of accounting function in that even those who have had a few years in the hedge fund industry in some shape or form, those coming in have to start with a lot of learning. There’s a huge learning curve in not just our systems and how we do things but our overall operations of what we do. From hedge funds to private equity to real estate—we cover a lot of fund types and strategies within the alternative world.

“The thing that I value most in a candidate is their ability to demonstrate that they [know how to] think. Basically, a smart person who has the drive to learn more and add value and has a positive attitude—that is the most important thing to me.”

“We’re looking for folks who have good academics and a good background,” Hecksher added. “We also have folks who come up to us who basically demonstrate a very strong business aptitude. We want people on our staff to really understand the key objective of our client and their key strategies. We’re always thinking how we can better serve our clients. We look for entrepreneurialism and innovativeness in a [prospective hire].”

Further, Sarullo cited the differences between Apex and other administrators. “Our business approach—from the operational side—is a little different from a lot of administrators in that, if you look at most (not all) admin shops, you have different departments that handle different aspects of the fund,” he explained. “The way we have our service model, [we provide] one point of content where each of our fund accountants has six to eight funds that they’re responsible for and they’re responsible for the entire world of that fund.

“They have in-depth knowledge about everything that’s going on with those funds, and they do spend a lot of face time with the manager and the clients, so there’s a very tight bond that’s built between them. They really view themselves more as an extension of that manager’s team and not just someone who’s doing a process. It gives them the ability to learn about those managers’ positives and also their pain points to see an opportunity and identify an opportunity to help that manager grow and to help them with any of the struggles that they may be having.”

This content originally appeared on StreetID, a financial career networking, matchmaking and news site. To learn more about StreetID, visit StreetID.com. StreetID’s financial career news can be found on its blog, streetid.com/newsblog/.

Hedge funds are packing up and heading south. Is this a continuing trend or a brief part of the financial sector’s ongoing evolution?

Apex Fund Services—one of the world’s largest independent fund administration companies with more than $20 billion of assets under administration—recently opened a new office in Miami, Fla. Vincent M. Sarullo, Managing Director of Apex Fund Services in the U.S., told StreetID that his company was drawn to the “significant growth in the south, specifically the South Florida region.”

“And more recently, in the past year or so, having a bigger move of managers from Latin America coming into the area and setting up shop and having a presence there, either to attract U.S. investors to invest in Latin America, or bring Latin American investors into the U.S. to take advantage of the U.S. markets,” he said. “After seeing that spike, we thought it was only a natural fit to place an office there and serve our clients in the south, whether it’s the Carolinas, Florida, Texas. It seemed to be the right fit.”

Thalius Hecksher, Global Head of Business Development at Apex Fund Services, believes that the trend will continue and more hedge fund managers will move to Florida.

“Already we are seeing a lot of momentum behind what Florida can offer hedge fund managers,” he said. “It’s a clear indication—a lot of the major private banking names are there right now, both North American and South American. Florida and Miami truly is a little bit of a hotspot. We definitely believe it’s the right place for Apex to be.”

Apex was particularly attracted to the “huge amount of economic development” going on in Latin America. “Brazil has the 2014 Soccer World Cup and the 2016 Olympics,” said Hecksher. “It really is making a lot of noise there. In addition to that, the Bahamas has realized that their fund structure has become very attractive to high-net worth individuals based out of Brazil. Again, with the Bahamas being on our doorstep, we’re definitely going to see an awful lot of flow coming our way.”

Hecksher said that one of the key drivers for Apex is that it functions on a push-and-pull philosophy where its clients “pull us into a territory and we’ll push ourselves in.”

“Over the last 18 to 20 months we’ve noticed that we have a couple clients there, and Vince took the view that we could better serve them more locally,” Hecksher explained. “As a result of that, we have also [gotten some managers on board] from Brazil and other Latin American countries.”

After conducting a number of business trips to Latin America, Hecksher learned that many Latin American hedge fund managers see Miami as the “meeting of the Americas, or a gateway for North America to South America.”

“Miami is actually well-positioned for Europe as a very strong hub,” he added. “So through Miami, you pretty much get to North America, South America, Asia to a certain extent, and also back to Europe. Thus, it made absolute sense for us to come to Miami.”

But it’s not just the worldwide gateway that attracts hedge fund managers. “There are also very low taxes here in Florida,” said Hecksher. “So we see these as incentives for managers to relocate their business to Florida. We see the opportunity and have decided to take an early adopter’s approach in Miami and demonstrate that we have taken the step to serve this market.”

“Also, in the past couple years we have been working with the Florida Alternative Investment Association,” Sarullo added. “We found that the association, plus the state, has been making a conscious effort to attract investment managers to the area, assisting them in making that move. One of the things that I kept on hearing was that the need to have an adequate supply of service providers who specialize in the industry in the area in order to serve these managers. There are a limited number of service providers in Florida that fill that need.”

Looking ahead, Sarullo thinks that the Florida lifestyle could inspire the formation of new funds.
“I think you might see as a byproduct of the retirement side—people going there later in life—is that you’re gonna find a lot of asset managers that have been working in organizations for a long time,” said Sarullo. “[They] decide, ‘Well, I’m gonna cut back and retire or cut back my schedule,’ and go down there. Being the personality and nature of the people that they are, they’re gonna say, ‘You know what, I’m bored. I want to do something. I’m gonna go back to what I do and set up a small fund here.’”

“I imagine Miami will work as a launching pad for our next emerging market when we choose to launch another office,” Hecksher added. “It will, more than likely, be somewhere in the Latin American market. So it works for us as a very good hub and a very good foundation for managers.”

This content originally appeared on StreetID, a financial career networking, matchmaking and news site. To learn more about StreetID, visit StreetID.com. StreetID’s financial career news can be found on its blog, streetid.com/newsblog/.

Insurance companies, and life and annuity companies in particular, are adding to their alternative asset allocations, according to a new report from Patpatia & Associates. Insurance companies’ general accounts represent $4.7 trillion in assets. As they seek to further diversify assets to combat low interest rates and other negative factors, these companies are increasingly outsourcing their investments.

“Insurance general account outsourcing is the last underserved institutional asset management market, and now accounts for 7% of leading managers’ assets,” according to the Patpatia report, which was based on an analysis of more than 500 insurance companies and a survey of 62 investment managers that target insurance general accounts. “Alternative asset managers are now beginning to specifically target insurance companies as a discrete source of placements. It is an opportune time for alternative investment firms to pursue the business.”

For alternative managers spanning hedge funds, real estate, private equity, investment banks and other advisors in alternative investing, the Insurance Asset Management Survey provides valuable intelligence on how to capitalize on this growing business opportunity, including:

- Helping managers evaluate whether to enter the insurance market
- Trends in allocations from insurance companies to money managers
- Evaluations of the demand for different alternative products within specific insurance market segments
- Which high potential insurance segments are expanding their alternatives holdings
- What insurers’ unique needs are and how alternatives managers should sell to them
- What the drivers of success in the insurance market are, and which firms are already capitalizing on the opportunity

To download the executive summary, click here.

The regular price of the report is $1,195*. HedgeWorld subscribers can get a discount. For more information please contact Greg Winterton at greg.winterton@thomsonreuters.com, or (646) 223-6787.

* - Earlier we listed an incorrect price. The price is $1,195. Apologies for the confusion.

When investors think of hedge funds, they picture the bustling streets of New York City. They may also think of London, Chicago, or the growing community in Florida. But while many hedge funds have thrived in those locations, you don’t have to move to one of those cities in order to make it big.

“Obviously the vast majority are located in New York, London, or Chicago,” said Nathan Anderson, co-founder and CEO of ClaritySpring, a company that aims to bring efficiency and transparency to the hedge fund industry. “But I don’t think people need to pack up and move to New York to start a hedge fund. It’s a business that you can run from just about anywhere.”

Anderson said that the location ultimately comes down to strategy.

“The reason there are so many hedge funds in Connecticut is because they’re right down the street from their investors,” he said. “If there’s a wealthy family or cluster of high-net worth individuals that are your core client base, you want to stay as close to them as possible. If that means that there’s a group of clients out in Detroit, then stay close to them. If you’re a hedge fund running $50 million to $100 million for a family office based in Iowa, then you want to be out in the cornfields. I think that’s really what it boils down to.”

Anderson also said that hedge fund managers need “sound infrastructure that’s reliable and phone lines and Internet connections and a place that’s not prone to too many natural disasters.” Those things can be obtained almost anywhere.

Unconventional Thinking

Many hedge fund experts recommend that aspiring managers look to their family and friends for help, primarily for their initial investments. But they are not your only options.

“Tap into the community you live in and be part of that community,” said Anderson. “As a prospective hedge fund manager, you are presumably a financial expert. Those are skills that can be helpful for different charities, different non-profits, and as you tap into those organizations, a lot of time there are potential investors associated with that.”

Many aspiring managers join the boards of other firms, get involved with various investment communities, and do whatever they can to gain exposure.

“I think there’s dual motive there,” said Anderson. “Obviously there’s the philanthropic motive. In addition, it’s access to a different network—a different constituency and potential investors.

“Again, there [are] the events where high-net worth individuals tend to hang out, whether that be places in The Hamptons over the summer, or going to charity events or that sort of thing. To some extent it helps to have some money to be able to make money because a lot of these events are either costly or have some kind of barrier to entry. But volunteering for an organization does not have a cost.”

Charities are just the beginning.

“Get involved with the Chamber of Commerce,” Anderson added. “Through that there’s a network of business people and wealthy individuals. Some of my clients have signed up for different clubs around the city.

“Another is the alumni networks at schools. Most schools have databases of former alumni who have basically made it and have built businesses or established themselves. There’s a connection there. Think through your personal life and the community and what kind of a prospect those provide you.”

This content originally appeared on StreetID, a financial career networking, matchmaking and news site. To learn more about StreetID, visit StreetID.com. StreetID’s financial career news can be found on its blog, streetid.com/newsblog/.

Earlier this month, Daniel Strachman, a financial expert who serves as the Director of Research and Strategy for the GAIM Conference Series, told StreetID that if hedge funds want to attract more capital, they need to tell a good story. “[Make] sure that they’re succinct in their message about what they’re doing with the capital they’re investing,” he said.

Hedge funds that are just starting out, however, have a lot more work ahead of them. Before they get started, they need to be prepared to show their accomplishments. “Honestly, I think no amount of advertising will really work,” said Andrei Knight, hedge fund expert, founder, and Senior Currency Strategist at fxKnight.com. “People are jaded and they want proof.”

Knight told StreetID that new fund managers would have two options. “You work for a few years at an established fund and build your reputation as a trader within that fund and go solo on your own,” he suggested. “Take some of your clients with you. Or you trade your own money—your uncle’s and your dad’s money—and you build up a track record.”

Despite the excessive amount of money that financial firms, particularly hedge funds, are forced to spend on licensing and regulation, Knight said that his clients have never asked him to show his license. “What they care about is the result,” he explained. “Show me your past six months’ trading history. Now, since the financial crisis, people are asking for two or three years’ worth. But that’s what they want—they want to see a consistent track record more than anything. So either you build that track record trading your friends’ and relatives’ money, or you build that track record working at a fund.”

With regard to the potential pitfalls and challenges, Knight acknowledges that some companies make their employees sign an agreement stating that they are not allowed to poach clients when they leave. “Obviously you have to be in legal compliance,” he said. “You have to know what agreement you signed. Some companies might actually encourage it, by the way, [because] they’re overloaded.”

Knight benefited from a similar situation when he was starting out. “The company that I was involved with didn’t want to be in currencies anymore,” said Knight. “It was perceived by their clients to be a risky asset class. They didn’t want to lose those clients—there were still clients that wanted to invest in currencies. But they didn’t want to actively manage those clients themselves.”

Thus, the company encouraged Knight to start his own firm and “manage those particular clients’ money.”

“We worked out an agreement where I pay them a commission of the profits I make from those clients,” said Knight. “So if you work it right, there are actually some benefits for the company, too. For them, it’s free money.”

It really depends on how you structure the deal, Knight added. “The important thing is to be open and honest with people and find a deal that works for both parties,” he said. “The thing you never want to do in business is bite the hand that feeds you or go behind somebody’s back.”

Knight also had some tips for established hedge funds that are looking to raise capital. “I would say, first and foremost, being good,” he said. “Simply being good. Knowing that the customer comes first, that keeping their money comes first, as opposed to gambling and taking outrageous risks.

“Right now there is so much money looking for good management out there. We have not had to do any advertising. It’s all word of mouth. We treat people right, we make steady profits for them, and they come to us, and they send their friends to us. It’s business number-one — treat your client well.”

This content originally appeared on StreetID, a financial career networking, matchmaking and news site. To learn more about StreetID, visit StreetID.com. StreetID’s financial career news can be found on its blog, streetid.com/newsblog/.

Hedge funds can do a lot of things to raise more capital, but the best strategy might have more to do with communication than anything else.

“The way they can attract more capital is by telling a good story and making sure that they’re succinct in their message about what they’re doing with the capital they’re investing,” Daniel Strachman, a financial expert who serves as the Director of Research and Strategy for the GAIM Conference Series, told StreetID. “Number two, proving that what they say they’re doing is what they actually are doing, and meeting the expectations of their investors.

“Number three, it’s a communication issue—letting your investors know when you’re doing well, letting your investors know when you’re not doing well, and then reaching out to additional investors.”

Strachman, who authored nine books (including Getting Started In Hedge Funds and The Fundamentals of Hedge Fund Management), has managed money and helped build hedge funds all over the world.

“One of the things that I think most people fail to recognize is that they have this field of dreams scenario—an ‘if we build it, they’ll come’ kind of thing,” he continued. “That’s not true. The way to be successful in the hedge fund industry is to go out, come up with your story, your marketing message, make sure it’s succinct, make sure it’s accurate, make sure it explains in detail how the money is being managed, and then communicate that to existing and potential investors on a regular basis.”

Strachman said that the number-one thing that most managers forget is that it is the client’s assets they are handling. “Clients have a right to know what’s going on with their money,” he said. “That’s what they have to remember at all times. So if a client calls and asks what’s happening, they need to be willing to talk to them and be willing to explain what’s going right, what’s going wrong, and just have open dialogue.”

While the occasional bad apple is inevitable, many within the hedge fund industry are getting it right. “A lot of the big or medium-sized funds are growing and they are adding people,” said Strachman. “I know some small groups that are adding people as well. [Hedge funds] are always looking for marketers to help raise assets and increase assets under management. I think that’s where there’s always room for good people.”

Strachman also believes that they are seeking help in compliance and operations. “I think there’s opportunity on the asset management and the portfolio management side as well,” he added.

But don’t count out the technologists, who have become an important part of the financial sector. “I think there’s always going to be room for fundamentalists and quantitative managers in the marketplace,” said Strachman. “I think a lot of times you’ll see that there are [hedge funds] out there who are looking for good people—they just want people.”

This content originally appeared on StreetID, a financial career networking, matchmaking and news site. To learn more about StreetID, visit StreetID.com. StreetID’s financial career news can be found on its blog, streetid.com/newsblog/.

Starting a hedge fund is much different from launching other kinds of companies. Most significantly, there is almost no chance that you will be able to start this business out of a garage. No, to get a hedge fund up and running, you need buckets and buckets of cash.

“If you really wanna succeed, and you wanna manage a higher level of assets, out of the gate it takes you eating your own cooking,” said Mitch Ackles, President of the Hedge Fund Association and CEO of Hedge Fund PR. “What that means is you have to have some of your money invested at the outset. We’re not talking $500,000—it has to be several million.”

Ackles told StreetID that smaller launches tend to fail. “Let’s say you and I were to get together and launch a hedge fund with $10 million, we would probably stay at $10 million,” he said. “Raising assets, unless it’s from a very wealthy individual, will be very difficult. No institution will look at a fund of that size. So you have to have at least $100 million out of the gate. That means money that is committed, which is called seed capital.

“So let’s say I worked at a prop desk at Goldman Sachs. I may have people that are my contacts and they liked the strategy that I employed at that prop desk. While I may not be able to look back and say, ‘This was the track record I had,’ because this was the property of Goldman, they might know my pedigree, they might know my capability. I can say, ‘Look, this is the strategy I’m going to employ.’ It’s kind of like being first in line at an IPO. There are a group of people that will be seed capital providers. What that means is usually going to your Rolodex first. Who do you know that’s a wealthy individual. Even a small endowment or foundation or even a smaller institution.”

If you are wondering why someone would provide money to an unproven fund, Ackles said that it’s because of the advantages in being the first to jump on board. “You negotiate a deal where they get reduced fees,” he said. “So they pay less than the investors that come after them, so they get a sweeter deal.”

Launch Time

“Then after that I’ve got my $100 million and I launch,” said Ackles. “What it takes next is me creating the actual business, just like you and I would do for any [other business]. So I need to have the infrastructure; I need to pick a place for an office, I need to hire a team.”

That team could come from a bank if your hedge fund spun off of one. “It might be a portfolio manager at the top, but there are traders that work with him,” said Ackles. “And perhaps others—a compliance person, a legal person. You have to hire people.”

Next up: acquiring Bloomberg or Reuters terminals or whatever else you may need to take on the strategy. “After you’ve got it in place and you begin trading, you need the pieces to market the fund,” said Ackles. “So you need a pitch book, which is essentially a PowerPoint presentation that conveys your investment thesis that explains in detail your view on the market, what your strategy is about, why you believe you’re able to execute it, and who are the people that provide services to your firm.”

For better or worse, investors will want to see some big names attached to your fund. “Having [big names] is essentially showing that you are quality enough that they took you on as a client,” Ackles explained. “So you need the service providers, and it’s an administrator, an auditor, an accountant, a prime broker, and those types of people will give you further credibility.”

Software

“Many people will need to have a software system online or installed locally that will allow them to benchmark their performance,” said Ackles. “So if you and I were to invest in Vanguard, there would be a performance sheet that we can download that would show how well the performance of that fund did versus the indices it’s benchmarked against. It will show a brief commentary on what the manager thinks about what’s going on in the performance and what’s going on in the overall economy. It will have other sorts of data points that might be able to help you evaluate qualitatively the performance of that fund.”

Ackles said that a hedge fund is no different.

“You may launch and you may have seed money, but it may be a year or two before outside investors want to come in because they really want to see a track record,” Ackles warned. “They want to see consistent performance. And they want that benchmark that you’re navigating against or that performance measure to have meaning, and it requires a certain number of data points for that to become meaningful.”

Ultimately, Ackles said that technology goes beyond a hedge fund’s performance reports.

“Just like you and I, they need backup systems and redundancies and things that are more infrastructure-related to their technology,” he said. “They need to have insurance. This is a big one that a lot of people don’t know about. You need to have specific insurance in place — not only health insurance for your employees if you want that perk in place to attract the best talent — but you have to have insurance on the managers.”

Though no one wants to think about the worst-case scenario, it is important for you to ask yourself, “What if the manager dies in a plane crash? What if the manager is 70 years old and then retires?”

The answer to those questions is why insurance is so important.

Raising Capital

“Let’s say you’ve got all of those pieces,” Ackles continued. “Now you need someone to help you raise the money. While an investor wants access to the portfolio manager, the portfolio manager has the day job of watching the trades. Typically they will hire marketing people, so there’s going to be someone in-house or external that is charged with bringing investors to the table.”

Managers still have to come to the meeting, Ackles said, “because you won’t give anyone a check for millions of dollars without seeing their face and looking them in the eye.”

“But there’s someone that has to do all of the legwork and get the meeting and make sure that those things happen, and even help report the fund’s performance to databases so that those investors might call them.”

Build Your Brand

A hedge fund could have all the pieces in place. But if investors don’t know it exists, it won’t go anywhere.

“If you don’t have a website and you don’t speak at events, how are you going to be known?” Ackles questioned. “I may be two blocks from you and have money to allocate to the type of strategy you have, but if I don’t know you’re there, and we don’t meet each other, I’m never gonna write you the check. So you have to have some amount of publicity.”

Ackles said that the other thing you need is a brand.

“It’s not just your investment thesis and what you are and who you are, you need imagery to support it,” he said. “If you have something interesting to say and comment on about what’s going on in Greece or where the industry is heading or about regulation or even where the election is, if you have an opinion and it’s legally okay to share it, you should, because you never know who’s watching or reading, and that person might be qualified and reach out to you.”

Clean Your Google Image

If you don’t know what your Google results are, you could be in trouble.

“When people perform due diligence, the first step is Google,” said Ackles. “So what do the search engines say about you? Managers have to worry about a lot of things they don’t think about until it’s too late. They have to worry about what their teenage daughter is posting to Facebook.”

In his crisis work, Ackles said that he has “cleaned up some Facebook pages for some multi-billion-dollar managers’ daughters.”

“[Hedge fund managers] have to worry about the perception of their family,” Ackles insisted. “If you get large enough, you have to worry about security. There was a hedge fund manager that was kidnapped once—at least one. So you have to worry about where you’re going and who’s protecting you. The larger you get, the more you’re a target, just like any super-wealthy person might be.”

Your Ethics, Your Hires

Hedge fund managers are also responsible for the ethical and moral conduct of their employees.

“A lot of the recent banking scandals, they weren’t the senior people that were aware of them, or at least that’s not what we’ve read or seen, they were people several [rows] down,” said Ackles. “But [the senior employees] are the ones that have to take the hit and resign and all that. So you have to pick the right staff.”

Ackles said that oftentimes a key aspect in all of this “is getting someone to screen and vet them.”

“Getting a recruitment firm or going to a specific website that really digs through and determines, ‘Is this person all they say and claim to be?’ Because you are judged by your team,” Ackles warned. “Just like in a bank, you want to make sure that the ship doesn’t go down because someone lower in the management structure made an error in judgment or broke the law.”

“These are all aspects you have to worry about in running a hedge fund,” Ackles concluded. “Running a fund is not easy. A lot of managers spin off of other funds or other entities, and it’s a shock to the system when they realize no one’s putting coffee in the break room. They have to make sure that certain things happen that they may be used to other people handling.”

This content originally appeared on StreetID, a financial career networking, matchmaking and news site. To learn more about StreetID, visit StreetID.com. StreetID’s financial career news can be found on its blog, streetid.com/newsblog/.