The third annual Hedge Funds Review's European Performance Awards dinner was held at London's Dorchester on 29 May this year to a capacity crowd. Our inaugural event in 2001 was the first time that there had been a formal celebration of excellence in the European hedge fund community and our annual awards dinner has maintained a loyal following year on year. Limitations of the size of the Dorchester's ballroom means that we cannot combine staying at the same venue and letting more people attend. The good news is that if you can get a ticket, you enjoy an intimate evening with your peers ' or as intimate as you want to get with 450 people from the hedge fund industry. When we started this event, we based our judging process on that used by our sister publication at Incisive Media, Investment Week, whose awards for fund managers of the year were started in 1996. We have a thorough and rigorous judging process that is designed to go beyond producing a snapshot of the top performers in any hedge fund category at any one time. The aim is to reflect the underlying consistency of a manager's approach to managing money, performance and style ' distinguishing each fund by the size of the assets under management. The judging process starts with the production of performance statistics from Tass Tremont for various periods of time and in various categories, dictated by the fund strategies in which the funds fall. Because of recent market conditions and the strength of hedge funds operating in the managed futures arena, we included a new category this year based on the Sortino ratio, in the happy belief that none of us minds volatility on the upside. Our awards this year were for global macro including currency funds; funds of funds; convertible arbitrage; event driven single manager funds; long/short equity funds investing outside Europe; equity market neutral funds; commodity trading advisor programmes; the Sortino ratio; Long/short funds in each of over, and under $100m in assets under management; best performing manager using the Sharpe ratio calculated both as 90 day T Bill and 0.05% as the risk free rate and the top performing newcomer single manager fund. The time periods for the fund strategies were from January 2001 to December 2000 and January 2002 and December 2002 for the top performing newcomer. An annualised risk free rate over three years was used for the category encompassing the Sharpe ratio. Within these categories or styles of hedge fund managers, Tass provided the judging panel with a shortlist of the top five performers. These firms were then sent a questionnaire, designed to give our judging panel a chance to add qualitative information and analysis to the weapons in their battery. Questions included in the questionnaire distributed to the shortlisted companies asked for the amount of assets under management; career history of both the fund and of the fund manager; the fund's performance criteria and aims; the use of leverage in the portfolio; key investment or portfolio decisions made or implemented over the last year and how these affected the portfolio's performance; and risk measurement ' how is risk measured, controlled and reviewed in the fund. Not every fund shortlisted filled in the questionnaire. While the judges attempt to judge each contender on his or her own merits, it is difficult to gain a complete insight without a completed questionnaire. Not filling in the questionnaire does not mean that you do not or cannot win, but it does make this less likely. Judging panel We are indebted to our judging panel every year. Our judges give up their valuable time to meet and debate the final awards. In putting the panel together, we are determined to find judges who are independent observers of the hedge fund industry and unlikely to turn up as potential winners in any of the categories. Our judges bring a high level of expertise and knowledge of the European hedge fund industry to bear on the judging process. The judges this year were Richard Allen from Tremont Advisers; Derek Doupe from Frank Russell and Jacob Schmidt from Hedgeinfo. They were joined by David Walker, the editor of Hedge Funds Review, and myself as unofficial advisers. This year we were further blessed with the analytical aid of Sunil Kumar of Hedgeinfo who ran out rolling returns and volatility charts for the shortlisted funds. The winners The first category was the global macro including currency funds. The clear winner in this sector was GAMut Investments Inc, which displayed an average annual return of 26.15% between January 2001 and December 2002. GAMut Investments is managed by Bruce Kovner from Caxton Associates, a firm with a long pedigree in the hedge fund industry. This long-running fund has $1,174.1m under management and has been going since July 1986. For this fund, the key investment decision over the last year was a diversification away from equities into financials, stocks, currencies, arbitrage strategies and commodities. This makes it a true example of a global macro hedge fund. The next category of hedge funds judged was the fund of funds award. For the third year, this was won by GAM Trading US$, managed in London by Nancy Skiest Andrews with a multi-manager team of more than 35 members. The judges did their best to award this to a different fund group but with a return of 14.07% from January 2001 to December 2002, it was as ever hard to argue with such quality. Well done to GAM ' again! Following funds of funds, our next potential winners came from the convertible arbitrage strategy. Here, the judges favoured the French contender Kallista CB Arbitrage Fund with its average annual return of 11.80%. This fund combined a consistency in returns with low levels of volatility. After the convertible arbitrage strategy category came the event driven funds category. In this category, Falcon Relative Value Fund with a smaller $45m under management was chosen by the judges. Again, its consistency of returns and its low volatility were the deciding point in the selection of this portfolio as the winner. Next, the category for European-based long/short equity funds that largely invest outside Europe. Here, the Zenit fund was the winner with a return of 17.6%, derived from a portfolio widely diversified beyond the European markets. Market neutral is a sector that has blossomed in the more difficult equity climate of recent years. Our winner in this sector was Barclays Global Investors (BGI) UK Equity Market Neutral Fund, managed by Jonathan Lamb, with a return of 12.35%. This fund had £85.2m under management as at the end of February. The commodity trading advisor (CTA) programmes category was refined down this year to include both single manager and system-based funds. The winner in this category was Transtrend whose Diversified Trend Program lay behind the Admiralty Fund, which achieved 45.61%, and its own entry as the Enhanced Risk program with 27.12% returns. Transtrend started trading in 1991 using a systematic programme to trade the world's managed futures markets. The next award was a new award this year designed to celebrate those of you who achieve volatility ' but only on the upside. Gauged over the period from January 2001 to December 2002, the AHL Alpha plc fund won this with a monthly Sortino of 0.53 and average annual return of 14.9%. Long/short equity funds have not had such an easy time over recent years. We divide our awards in this sector into two parts ' those with less than $100m under management and those with more than this. The award for long/short equity performance with assets under $100m went to Griffin Eastern European Value Fund, managed by Yuli Stein and Jurgen Kirsch, which achieved a return of 40.44%. The fund aims to achieve positive absolute returns on a quarterly basis, drawing on the nine years' investment experience of the management team in Eastern European markets. The fund has $62m under management and achieved those returns through running large core positions in Eastern European banks and being overweight in the telecom sector, particularly the Russian mobile operator, MTS. The managers describe the fund's style as 'opportunistic bottom-up stock picking with an absolute return bias'. The winner in the long/short equity with assets over $100m sector was Pegasus which returned 14.36% while maintaining impressively low levels of volatility in the portfolio. Turning to the Sharpe ratio award, this year Tass supplied the judges with the Sharpe ratio calculated according to two different criteria ' one using the 90-day T Bill, and the other 0.05% as the risk free rate of return. The winner here was GAMut Investments again ' simply because they achieved impressively consistent performance through the three-year period. Our final shortlist comes in the Newcomer awards. Here again, the rolling returns and volatility charts showed that the smoothest performer over the year was KBC Convertible Opportunities Fund with a return of 26.27%. We would like to thank all the sponsors of the European Performance Awards and all the contenders who filled in their questionnaires, and look forward to welcoming you back next year....
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