The Albourne Village is a UK-based interest community for the alternative investment industries.  Membership is free.  This letter was published last week in the Village’s hedge fund news area under the title, “Hedge Pride - An open Letter to the Financial Times From Simon Ruddick, Managing Director of Albourne.”

Albourne is not a hedge fund, but it helps pension plans, university foundations and charities and the like allocate money to them. We are hugely proud of this work because we are utterly convinced that hedge funds are good for our clients; good for the markets and good for the average man, and woman, in the street.

For all our sakes, discussion of the role and impact of hedge funds has to be disentangled from the populist politics of envy. For the record, although it should be completely irrelevant: I have never voted Conservative; I was the first in my family to stay in school after 15 and I am hugely proud of my family’s union roots; I am writing this from our offices, which are juxtaposed between a gas-works and a home for lost dogs. I feel compelled to “stand up and be counted” at this time exactly because it will be the vulnerable in society who end up bearing the brunt of the current meltdown in commonsense, if it continues on its current path.

The global credit binge was neither created, nor fuelled, by hedge funds. They are now being vilified for having played a role in bringing this madness to an end. Those investment banks running with 29 times leverage, or building societies lending out radically more money then they had received in deposits, were all fully regulated entities. Did the regulators blow the whistle: or the management or shareholders of those banks; or the journalists; or the politicians? Left unabated, just how much deeper into trouble could this inadvertent conspiracy of ignorance and negligence have got us? There needs to be quite a dark word beyond irony to describe why the FSA has initiated multiple enquiries about short-selling without having initiated a single enquiry directed at the officers of the firms that have actually failed. Even the Archbishop of Canterbury now seems happy to pontificate on short-selling, as if it were an ecumenical issue. Presumably he is also against wasps, rain, MMR jabs and a whole host of other things that appear very irritating to those who have absolutely no concept of how equilibrium within complex systems has to work.

For the avoidance of doubt, not a single dollar of tax payer’s money has ever been, nor ever will be, needed to bail out a hedge fund. Indeed, there is already a pool of $700bn waiting to rescue the world’s financial markets: it is called the hedge fund industry. Quite simply, it works because of an alignment of interests. Hedge fund managers put their own money, alongside that of their clients’, exactly where their mouth is. Of course, there will always be some who just find the rich intrinsically unattractive. They should vote for higher taxation. Many may then take that wealth, their taxes, their donations and the business that their consumption creates somewhere else, but at least London’s loss would be some other city’s gain. What would convert a crisis into a tragedy would be to regress to a state-managed economy where rules will always be “gamed” and where corruption fills the vacuum left by honest aligned god-fearing endeavour.

Hedge funds are not the problem. They are the solution.

Reprinted with permission. 

Before he was a managing director at the D. E. Shaw Group, and before he was president of Harvard University, Lawrence Summers was Secretary of the Treasury when Long Term Capital Management collapsed.

In mid-September, he spoke at the Global Alpha Forum in Greenwich, CT, firmly stating that, at that time, there was no consideration whatsoever of providing a government bailout to LCTM. He says, “We did have a sense that there was a tremendous coordination problem, and if everyone found a way to stand down and not rip all the assets out of LTCM, more or less everybody would be better off.”

Regarding the current crisis, Summers urges “humility” and notes: “Until March 2008, there had been no contingency plan for the unwinding of a major broker-dealer.”

Amid ongoing liquidations in the face of poor performance and difficult fund-raising, there has been quite a lot of hedge fund launch activity in the past few weeks.

Astra Investimentos (Sao Paulo, Brazil) has launched the Astra Credit Fund.
The Vallea Fund is a joint venture of Laven Partners (UK) and Vallea Capital.
The Venus Index Plus Fund is from Venus Capital Management.
FrontPoint Partners will soon launch a new tech fund.
Rosemount Capital Management (Dublin, Ireland) has launched a new fund.
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Deal Journal reports a few sobering industry statistics generated by Eurekahedge.  15% more funds have closed during the first half of this year, than during the same time in 2007, and launches have slowed as well.  Industry growth, in terms of number of funds, is nearly flat.

More seriously, data that is already almost two months old also shows severly inadequate performance, and things haven’t gotten easier since then.  Funds are not meeting their high water marks, the valuation threshold that allows a fund to collect the performance fees (20% of gains or thereabouts) that constitute its profit.  Only one in ten hedge funds is now earning performance fees.  One fund executive doubts that some funds — assuming they survive so long — will begin again to earn them before 2010.

Though investors have been pulling money from hedge funds for many months, funds that retain credibility with investors may ride it through.  But since bonuses are often determined from performance fee earnings, hedge fund compensation is looking to be very tight this year, in any case.

To read the article from Deal Journal, click here.  For more on high water marks, read this lucid post.

Highlights from today’s Reuters article colorfully titled, “Lehman, Merrill to pound already bloody job market“:

• The total let go from Merrill Lynch may be around 24,000
• “The resume flow will start on Monday like there’s no tomorrow,” according to one recruiter cited
• It’s looking like 2008 job cuts in the financial sector may surpass the 2007 total
• “‘Hedge funds, money managers and family offices’ should benefit from the job losses at Lehman and Merrill”
• “The Middle East and Russia [are] regions hungry for U.S. financial professionals”

Identifying hedge fund recruiters with strong international presence may be an especially good move now, for those willing to relocate.

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A few recent clippings from the press.  And this article is worth a quick gander for some timely tips on career management.

UBS restructuring compensation.  A “phantom equity” scheme would reward employees according to the performance of their unit within the firm.  And the firm’s budget for employee compensation will shrink by one-third this year.

Investment banking jobs outsourced to India.  “How much of Wall St.’s work force could be shipped overseas for pennies on the dollar?”  A consultant in this blog report claims, “as much as 40%, mostly from the investment bank and trading divisions.”

Merrill Lynch freezes hiring through 2008.  Here is The City reproduces an internal memo.

Hedge funds continue hiring.  Citadel, SAC Capital and others, despite ongoing fund closures.

A slow time for hedge fund launches.

Citadel (Chicago) aims to launch a new global macro fund.
The Debt Market Opportunity Fund, investing in Australian mortgages, is run by Macquarie Funds Management.
The Global Opportunity Strategy Fund is from Advent Capital Management (London and New York).
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Hedge Fund Search Digest’s 2007 Hedge Fund Compensation Report concluded, “For hedge fund firms to attract and keep the best players, some changes need to take place. The study shows notable turnover in the smaller funds. It is well known that small funds don’t have the large management fees to support high compensation increases in years of low fund performance. The firms represented here are performing well overall and yet, they should still be concerned about turnover. It is time to take closer look at compensation packages and other employee retention methods.”

That was before the credit crunch. Since then, the industry has seen many small funds close, others launch in hopes of profiting from distressed markets, and a general trend toward consolidation in which assets have been increasingly directed toward large, well-established funds. Also, while employment at hedge funds has always been competitive (and of course still is), hiring in the industry has been brisk, with stable funds amassing human capital from among many desirable candidates, including whole teams, looking for work. One recruiter specializing in financial technology in the Northeast corridor says, “Everybody wants to go to a good hedge fund now. It’s easy to attract candidates. And hiring is good, there are definitely opportunities.” Tectonic shifts in the industry and the financial world as a whole make the price of talent a murky question this year.

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Intrepid managers, both veteran and green, continue to launch hedge funds despite uncertain market conditions and a challenging fund-raising environment. Here are hedge fund launches reported during the last two weeks.

Ansbacher Investment Management (New York) will launch a new strategy in equities this quarter.
James Pallotta will leave Tudor Investment Corp. to found his own firm next year.
The GAM Multi-Environmental (UK) is a clean-tech fund-of-funds.
Occam Asset Management (UK) will launch its Europe Focus and Asia Focus funds this Fall.
The Akamai Pan-Asia Fund is from Geomatrix (Hong Kong).
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Here’s where we note hedge fund launches from the last two weeks. New hedge funds are indeed appearing at a slower rate, at least in Europe, as the Financial Times reports based on numbers from EuroHedge.

Hiring at established firms is still strong, however. Click here to monitor the very latest intelligence on hedge fund jobs worldwide, from Hedge Fund Search Digest.

Three new funds from VCM Fund Management (UK) will invest in alternative energy, macro futures and emerging hedge fund managers.
A hedge fund from Paulson & Co. will invest in banks and other financial services firms.
The Noroton Event Driven Opportunity Master Fund (Connecticut) invests in corporate credit.
A real estate hedge fund from Donald Trump Jr. will invest in luxury properties in India.
The EFA Allenbridge Strategic Alpha Fund is a fund-of-funds from the Allenbridge Group (UK).
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