In This Issue:

• Adding Some Beef to Your Road Trips - Dennis Ford
• Relative Value Re-Emerges - CT McLean
• UCIT Funds in Focus - Grisha Maziya
• Conditions Offer Opportunities for Distressed Investors - Michael Calore
• Hot New Mandates
  

You have a list of potential investors to call on.  You have a team to work through the leads and set up face-to-face meetings. But who helps you make the most of your marketing trips? BHA.

Here’s a typical scenario: To meet ten investor prospects, your team has you traveling to at least six U.S. cities. You know there are other investors in these cities and you’d like to meet them. You’d like to make the most of your road trip, and not fly in and out of cities for only one or two meetings.

This is where BHA comes in. We can help you add extra meetings to your docket in one of three ways:

• Search the front-end BHA Investor Mandate Database. You can search our database of 7,000 investment mandates. By inserting simple geographical filters, you can yield a list of investors in a specific city/country that told BHA they are actively looking for a fund manager.

• Utilize your BHA Research Analyst. Give your trip schedule to your dedicated BHA research analyst and he or she will begin calling investors in BHA’s back-end database to source you new, qualified prospects. This back end database contains information on 35,000 additional investors. Some of these investors we haven’t spoken to in the last 90 days; others are unqualified, representing a depository of outdated and incomplete investor records we receive from 15 investor database subscriptions. Your analyst will then scour this list, reach out to investors, and attempt to qualify their current interests.

• Search the BHA databases for look-alikes. Your BHA analyst can find geographically desirable prospects that may be a fit for your fund by initiating the BHA marketing tactic called “look-alikes.” In short, BHA takes a look at the firms on your schedule and maps their characteristics in an attempt to source you with additional investors to meet with during your trip. For example, if you are meeting with family offices that have $500 million to $1 billion in assets under management, your BHA analyst will find comparable investors in small- and mid-size endowments, and regional, state or municipal pension funds. These firms will have similar characteristics, such as one to three decision makers at the top, the same fund management criteria, and the ability to make a fast investment decision.

In a tough economy, you have to make the most of every road trip. Have your team search our database or have your BHA analyst search for prospects and look-alikes in your destination cities, and start netting more meetings when you travel.

The recent resurgence of the equity market has been a welcome event to hedge funds, which have been able to take advantage of this rise and flourish. The improvement of credit spreads and favorable movement in the convertible market have helped relative value funds rebound from a 2008 that saw the HFRX Relative Value Arbitrage Index lose 37.6 percent. BHA analysts have witnessed a correlation between the recent strong performance and investors’ interest in relative value strategies during the past few weeks, particularly from pension funds.

An investment analyst at a multibillion-dollar North American pension fund spoke this week about the fund’s focus on convertible arbitrage hedge funds. Undoubtedly one of the worst performing strategies in 2008, convertible arbitrage has risen from the dust to post impressive gains through the first four-and-a-half months of the year. The strategy is currently the front-runner on all relative value indices on the HFRX platform, adding 14.16 percent year to date. This analyst felt that as recovery efforts persist, the continued contraction of credit spreads can yield impressive gains in his fund’s alternative investment portfolio.

Additionally, one major European pension fund will be making a large push towards relative value funds offering attractive liquidity terms. A research analyst in the pension fund’s consultant group mentioned that it is anticipating making allocations approaching $1 million to 35 to 50 managers. Due to the initial investment size of $25 million to $30 million per fund, the pension fund is looking to consider only well-established, brand name funds with extensive capital bases.

Following a dreadful performance last year, convertible arbitrage and relative value funds were caught up in large drawdowns that unfortunately led to their ultimate demise. This decrease in competition coupled with returning stability in the financial markets should prove valuable to relative value managers during the coming quarters.

Recent turmoil in global markets has encouraged institutional investors to reevaluate their current holdings. Many of these weary investors are seeking safer investments that can still deliver strong returns with a steady pace. Developed nations and regions such as Europe are perfect examples of areas to which savvy investors can feel comfortable committing capital in today’s uncertain global markets.

During the past several weeks, analysts at Brighton House Associates have noticed an increase in demand for Undertakings for Collective Investment in Transferable Securities (UCITS) funds. UCITS is regulation adopted by the European Union that allows collective investment schemes or funds to operate throughout the EU. It gives fund managers a sort of “European passport” that allows them to simplify their cross-border marketing efforts. This concept has created a single market for transferable securities across the European Union, reducing the cost for managers and increasing profitability for customers.

UCITS provide a well-regulated structure that makes these funds attractive to both European and U.S. investors. It also serves as a good platform from which EU managers can export their services globally. The UCITS 4 directive whose framework aims to provide greater transparency as well as more safeguards for investors was approved by the European Parliament in January 2009 and will be implemented in 2011. At this time, over 70 percent of the €5 trillion in collective investments in Europe are in UCITS funds. A collective investment scheme is a way of investing money with others, to participate in a wide range of investments that is unfeasible for most individual investors. This arrangement allows the investors to share the costs and benefits of the investments.

There are several other attractions of UCITS funds. They allow the use of shorting and up to 200 percent leverage. Daily liquidity and the use of derivatives are also appealing features. During a routine research call, one of the analysts at Brighton House spoke with a senior consultant at a large investment consulting firm in Europe. The consultant’s hedge fund mandate included specific details regarding UCITS funds. The firm has a base of institutional and private clients that are actively seeking out UCITS funds for potential allocations. The recent uptick in investor demand for this vehicle has resulted in an increased amount of Brighton House investor mandates with a UCITS designation.

During the past several weeks, BHA analysts have seen an increase in investor interest in distressed private equity opportunities. Due to the economic downtown, access to credit has been almost frozen, cutting off necessary capital to consumers and businesses. Otherwise solvent, growing companies have been severely compromised twofold: consumers are not spending and creditors are not lending, making it hard for some companies to continue operating, never mind develop and grow.

In the past, private equity firms have been one of the few saving graces distressed companies have had to successfully navigate injurious environments. It seems this may be true once more. Sophisticated investors that understand the growth potential of opportunities within the distressed space are again eager to allocate to funds that share their visions.

A large, North American-based corporate pension fund is actively evaluating private equity funds that are taking an equity stake and controlling role in distressed opportunities. The pension fund feels that an investment with an experienced team taking advantage of the current crisis—though more risky than its usual private equity commitments—will foster strong, long-term capital returns.

Similarly, a European government investment house is looking to invest in a fund focused on distressed firms by next year. The fund feels that distressed opportunities, specifically in the United Kingdom as well as Asia, will offer it the exposure that it is currently lacking in its portfolio. The pension fund is looking for an experienced team that has raised comparable funds in the past.

The credit crisis has brutally compromised previously flourishing companies. What private equity firms and investors believe is that this offers considerable opportunities for long-term, consistent returns. When credit becomes readily available to both consumers and corporations again, these struggling firms will begin to experience the tremendous growth they once had.

© 2009 Brighton House Associates, LLC. 4 Mount Royal Ave., Suite 140, Marlboro, MA 01752

The Investor Monitor is a general circulation weekly. No statement in this issue is intended as a recommendation to buy or sell securities or to provide advice. Reproduction is prohibited without the permission of the publisher.