Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

The financial sector has appeared more stable since the drama in March when the Federal Reserve intervened to stave off the collapse of Bear Stearns, feeding the hope of many observers that the worst effect of the credit crunch may be past. But that hope is dashed in a new report from Bridgewater Associates Inc., a large institutional manager that runs hedge funds and portable alpha programs, among other strategies.

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

While news of trouble at monoline insurers seems to have slowed since February, the municipal bond sector still faces critical challenges. At risk in particular is the market for so-called auction rate securities (ARS), which municipalities use to issue tax-exempt debt at a lower cost. Many experts agree that the troubled ARS market is more the result of a liquidity crisis—with banks pulling out of the auctions—than a credit issue, despite the fact that monolines have helped depress valuations for some time.

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

The challenging initial public offering market has given rise to a new trend among small private companies. Businesses that have been experiencing difficulty in going public and are finding it hard to raise money in the capital markets are now looking to reverse mergers combined with PIPE financing to get the capital they need. Hedge funds are capitalizing on this new opportunity, known as alternative public offerings, by getting involved in underwriting and financing these transactions, which some are already calling “the new IPOs.”

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

As existing hedge funds liquidate, there are always new products coming to market. Morgan Stanley Investment Manage- ment recently announced the launch of Morgan Stanley Global Long/Short Fund, a closed-end fund of funds with a $100, 000 minimum investment. Registered under the Investment Company Act of 1940, it is the second registered fund of funds aimed at eligible individual investors seeking to gain access to the hedge fund market. An initial registration statement was filed last summer.

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

In a year marked by high volatility in the financial markets, the 10 strategies tracked by the Credit Suisse/Tremont Hedge Fund Index outperformed major global equity indexes and experienced lower volatility than the overall markets.

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

Despite the growing popularity of 130/30 strategies, this market remains in its infancy and is likely to change in radical ways over the next few years. One potential transformation relates to who will eventually dominate the 130/30 space.

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

As headlines buzz with the news that the subprime mortgage-related turmoil did not, in fact, leave the hedge fund industry in smoking ruins, a report from Credit Suisse Index Co. looked back at the aftermath of previous market-shaking events.

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

August appears to have been the worst month for hedge funds since May 2006, when 70% of all hedge funds fell. The first two weeks of the month saw continued woes in subprime mortgage securities, and many long/short market neutral quant funds began to unexpectedly see their long positions fall, and their shorts rise precipitously.

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

August was a study in contrasts. Domestic equity and high-grade fixed income weathered the storm of global volatility to close mostly higher, but the loan market fell apart. Finding a bid on high-risk corporate bonds or subprime mortgages was even more difficult.

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

Squeezed between a credit panic and intense volatility in stock prices, some of the most highly regarded hedge fund managers have spilled huge amounts of red ink in the past few weeks. Some of these firms may be shutting down certain strategies while others are trying to use their quantitative models in new ways. Last month we wrote about collateralized debt obligations held by hedge funds and their effect on corporate leveraged loans. This month, let’s look at some specific hedge funds’ reactions to the subprime crisis.

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

Some hedge funds are actually profiting off of the subprime mortgage debacle and the market volatility that it has helped cause.

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

Hedge fund advisors continue to deregister from the SEC. During the past year, 732 hedge fund advisors (firms that advise at least one fund) have deregistered, according to the Investment Adviser Association (IAA) and National Regulatory Services (NRS) seventh annual report, Evolution/Revolution, which profiles the advisor profession.

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

Greenwich Alternative Investments reported July 12 that the Greenwich Global Hedge Fund Index and the Greenwich Investable Index were positive for the month of June, yielding +1.07% and +0.22%, respectively.

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

Separation of alpha and beta appears to be the mantra du jour in portfolio management, though long-time observers are aware that the concept is hardly a new one. Portable alpha and hedge fund replication indexes are among the common applications of the underlying idea. One investment tool at the heart of those variable applications is the “overlay.”

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

Greenwich Alternative Investments released its monthly Hedge Fund Index on June 11, which showed a 2007 YTD return of 6.84%, and a monthly increase of 2.18% for May, compared to an 8.76% YTD increase for the S&P 500 (3.49% for May) and a 1.27% increase (-0.76% for May) for the Lehman Brothers Aggregate Bond index.

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com

Over the years, a number of alternative investments have become increasingly available to RIAs and their high-net-worth clientele. Hedge fund of funds burst into the scene about 15 years ago, followed by mutual funds that utilize a plethora of market neutral strategies. Private equity may well be the next piece of the alternative puzzle to approach mainstream status.

Sponsored By:

DWS Scudder, the U.S. retail brand name of Deutsche Asset Management, provides financial advisors with a comprehensive selection of innovative investment strategies.
www.dws-scudder.com