Goldman`s take from NYSE merger exceeds $100m
Goldman Sachs Group Inc.'s financial rewards for arranging the New York Stock Exchange's purchase of Archipelago Holdings Inc. exceed $100 million.Source

Sweet Revenge
Wall Street’s antipathy for Goldman Sachs helps explain why Ken Langone’s bid for the NYSE is gaining strength. Source

NYSE CEO Thain Discusses Archipelago Deal With Mack
New York Stock Exchange Chief Executive John Thain spoke Tuesday with former Morgan Stanley (MWD) executive John Mack to discuss the exchange's plan to acquire Archipelago Holdings Inc. (AX), people familiar with the situation said. {literal}Source{/literal}

Richard Rosenblatt and Joe Gawronski from Rosenblatt Securities write:

Now that the basic facts are out in the newspapers, we thought we’d do a little analysis of the NYSE/Arca merger and attempt to identify implications. Of course, whether this is a “good” deal or “bad” deal (the most common question we get asked) depends on where you’re sitting and also can change over time in very unforeseen ways. For instance, when Goldman Sachs paid $6.5 billion for Spear Leeds back in 2000, seemingly they were buying a top OTC market maker. A couple of years later when the bubble had burst and the rise of ECNs had radically altered the OTC business and decimated market makers, it seemed like the specialist unit might be the hidden gem. Not long after that, in the wake of the Grasso debacle and specialist scandals, this analysis too proved misguided. Today, with all of the focus on controlling the desktop and electronic direct market access (DMA), it would seem that Spear Leed’s RediPlus front-end and its early penetration of this market space might prove the true crown jewel. We’ll see. With respect to comments on the merger, at minimum we’ll try to offer some insights that reporters can’t be expected to make without the proximity to the floor and the knowledge of markets a broker possesses.

Winners and Losers
Because so many unanticipated things can happen over time (as with Goldman’s Spear Leeds acquisition), we always hate to answer this question, but everyone always wants to know who are the winners and losers in a transaction (and what was each party’s motivation for entering the transaction and what do they get out of it). We’ll give it a shot with that caveat and an apology….

….Second, Arca and other ECN competitors have failed miserably at taking meaningful share in listed trading from the NYSE thus far. Regulation can at best only explain part of this failure. If the NYSE were to decide to switch platforms to cut costs and please shareholders, it could end up missing the forest for the trees. Such a business model change, from a system able to maintain 80% + market share to an all-electronic platform that has only been able to garner a couple of percentage points would entail a high risk of market share loss. It would potentially commoditize the market and allow a combined Nasdaq/Instinet to compete more easily in a battle of two similar fully automated systems. Utilizing Arca’s automation expertise to assist with the hybrid transition is a much safer, logical evolution than would be a radical switch, even if ultimately the market were to go fully automated.

Remember, despite being seemingly universally disliked, the NYSE is the choice investors make today for over 80% of listed trading. Empirically, transaction cost analysis (TCA) providers Plexus, Elkins/McSherry and Abel/Noser consistently rate the NYSE as having lower trading costs than the Nasdaq. Anecdotally, most of our quant clients who measure the difference between NYSE and Nasdaq execution quality also suggest that they find their executions on the NYSE either equal or superior to Nasdaq. While the human auction certainly can't win a contest on expenses, if the model offers real value to the investing public, particularly with respect to dampening volatility and in illiquid and semi-liquid names, shutting it down 5-10 years from now would be a bad thing for the markets.

Also, the popular solution to go “all-electronic” for the top couple hundred names and trade the remaining couple of thousand stocks via the specialist system (a solution even Thain has hinted he favors at times) would entail its own risks. Since specialists claim to make the vast majority of their profits in those high-volume names, they might not be able to survive with just the illiquid ones. More importantly, by rule specialists are only permitted to trade the firm account when they improve price or volume. This suggests that as long as the rules are being observed (which we expect they are now and will be going forward in light of the serious punishment meted out for much lesser violations as a result of the specialist investigations) there would always be a cost savings to the other side of the trade when the specialist uses his/her capital.

Full six page analysis: {literal}Source{/literal}

While the rest of Wall Street just can't seem to get enough of the oil market, energy analyst Tim Evans isn't afraid to go against the tide. Evans, a senior analyst at IFR Energy Services, a division of Thomson Financial, thinks that the current run-up in oil prices is much like the Internet bubble of the late '90s. While other analysts are calling for crude to hit upward of $100 per barrel in the next few years, he believes the bubble will burst in the next several months, bringing prices back down into the upper-$20s range. {literal}Source{/literal}

From the NY Times: …Looking at the Internet bubble 280 years after the South Sea bubble, Markus K. Brunnermeier of Princeton and Stefan Nagel of Stanford provide the first detailed study of the trading positions of hedge funds. Extracting quarterly information from Form 13F filings, which are required of large institutional investors, they are able to peek at the stock holdings of 53 hedge fund managers, encompassing hundreds of major funds, including Soros, Tiger and Tudor.

Like Hoare's Bank, hedge funds continued to invest in highly priced Internet stocks deep into the bubble. At the peak of the market, in March 2000, hedge funds held 31 percent of their stock portfolios in companies with the highest price-to-sales ratios, while such companies attracted 21 percent of the market over all. Hedge funds reduced their holdings of Internet stocks when the price fell, but their portfolios were still weighted more heavily toward highly priced stocks than other investors'.

Although hedge funds pursued diverse strategies, Professors Brunnermeier and Nagel found "no evidence that hedge funds as a whole exerted a correcting force on prices during the technology bubble." Riding the bubble and timing sales of individual stocks also paid off: hedge funds' investments in the technology sector outperformed market benchmarks.

Hoare's Bank and the hedge funds may have been lucky - indeed, there is no evidence that the hedge funds outperformed the market outside the technology sector - but their strategies still indicate that at least some highly skilled investors were riding bubbles instead of attacking them. Full article: {literal}Source{/literal}

Refco, the world's largest privately held brokerage, was on Tuesday scrambling to prevent the cancellation of a key software contract with Trading Technologies after the software provider threatened to stop offering software on which Refco relies for a third of its futures trading. The development is an embarrassment to Refco as it prepares to launch a $575m initial public offering. (Subscription required) {literal}Source{/literal}

MARHedge writes in a preliminary balance sheet filed alongside its latest report this week, receiver KPMG LLP said that Portus owes at least C$1.1 billion, but has assets of only C$664 million. KPMG noted that Portus owes C$750 million to Canadian-based investors, C$83 million to offshore investors and C$12 million to secured and unsecured creditors. The company also has C$238 million in "unexplained offshore transfers," the receiver said.

However, in a footnote, KPMG officials said they believed additional assets have yet to be identified or secured, meaning the numbers could change for the better - or worse...Full article: {literal}Source{/literal}

Bloomberg writes Boaz Manor, co-founder of hedge fund Portus Alternative Asset Management, agreed to speak with the Canadian unit of accounting firm KPMG LLP, which is investigating possible fraud at the fund, a lawyer said.

The hedge fund, whose customers invested C$717 million ($574 million), spent C$87.6 million of the hedge fund's assets on commissions, referral fees and other expenses, investor lawyer Greg Monforton said. Manor is the only person with knowledge of how the offshore transfers and accounts worked, Finnigan said. Manor hasn't agreed to testify under oath, he said. Full article: {literal}Source{/literal}

From Legalweek.com: Dublin is also continuing to build its financial services market. Hedge funds are the latest "very big business". With Dublin administrating 20% of the world’s hedge funds, it is increasingly being seen as the preferred European jurisdiction for the domiciling of regulated European hedge funds, says Mark Thorne, managing partner at Dillon Eustace. While the International Financial Services Centre’s special tax rates of 10% officially end this year, Brian McDermott of A&L Goodbody believes it will not make a difference as general corporation tax is now only 12%. "In fact Dublin is stealing a march on other offshore jurisdictions," he says. "Dublin has the advantage of being a centre for fund administration and this is complemented by the fact that it is also a fund listing centre for both Irish and non-Irish funds." {literal}Source{/literal}

From the FT: Investment banks financing the purchase of US data storage group SunGard, the largest leveraged buy-out since the 1980s, are struggling to find buyers for the debt, raising fears that the downturn in high-yield markets threatens a new class of large private equity deals...Early indications of interest in the bank loan and a $3bn bridge loan that will also soon be marketed, have been lukewarm... Nervousness about the SunGard financing comes as investors in high-yield markets, a main driver of LBOs, have become wary of taking on risk. If the banks fail to refinance the loans for SunGard, bought in March, they would be left with a large exposure. Full article: {literal}Source{/literal}

Reuters writes hedge funds, longstanding players in M&A deals, are now trying to beat private-equity firms at their own game by bidding for companies themselves to boost returns that are sagging elsewhere. The invasion of private-equity territory is well underway in the United States, and investment banks in Europe are already geared up to advise hedge funds on similar moves here. {literal}Source{/literal}

Collings Stewart Tullett, the stockbroker, and RAB Capital, the hedge fund manager, are close to launching a new fund that would give small investors exposure to a hedge fund where the entry-level investment is currently GBP50,000. Collins Stewart is preparing to float a GBP100 million fund on the lightly regulated Alternative Investment Market, which would give investors access to RAB’s highly performing Special Situations Fund.

The high-risk, high-return fund, which is managed by Philip Richards and has about £500 million under management, has produced a spectacular return of 2,500 per cent since January 2003, largely by investing aggressively in small resources stocks....Full article: {literal}Source{/literal}

After five years of development, the partners at Amplitude Capital (www.ampcap.com) have put $12m at stake in terms of investments, infrastructure and operational capital since September 2004 when the team set up their shop in London. With effect from 15th April 2005, the company has been granted FSA approval to manage money on behalf of investors.

In terms of market development, the team started paper trading from Jan 2003. Prior to that was an optimization period from 1997 - 02. The first four live traded markets kick started roughly in November 2004. Seven more markets were introduced in December 2004 and four more in mid March 2005 which were the FX spot markets. Currently 15 markets are traded and 40 more monitored which will be added in due course.

Amplitude finds the commodity and energy markets very attractive. However, they do not trade them currently as the volumes on the electronic side are quite poor and it would be difficult to measure slippage since instantaneous execution is not possible. Those markets will be added as the volumes increase.

According to Head of Investor Relations, Stanley Marchon, the results of the live trading have been much better than the paper trading because the slippage has been much lower than the assumptions, which is a good sign. Obviously if those numbers converge it means the fund is either coming close to capacity or that liquidity has decreased. Slippage is measured as the difference between the signalled price and the actual executed price.

For the month of April, the proprietary managed account is net positive 1.6% as of 25th of April. Correspondingly for April, for indices where one can view daily performance the Barclay Calyon index was -1.87% (25th of April), S&P Managed Futures index is down -4.55% (25nd of April) where as the HFRX Macro Index is -1.86 (25th of April).

Marchon says the team hoped to start at the start of May but it is highly likely that they will start on June 1st. The fund’s return is anticipated to average 20% over three year cycles. No online Source

Exploiting Misperception: The Upside in Putin's Russia - William F. Browder, CEO Hermitage Capital Management
Wednesday, May 11, 2005 - The Lansdowne Club, 9 Fitzmaurice Place, Mayfair, London W1J 5JD, 6:30 PM for prompt start at 7:00 PM
Tickets: GBP15. Glass of wine upon arrival. Cash bar after the discussion.

The London Junto is a monthly meeting which focuses on a broad range of investment related issues of our day. Modelled on the Junto hosted by Benjamin Franklin in Philadelphia from 1727 to 1757, its objective is to bring together intelligent people to discuss current investment issues in a respectful manner.

Please RSVP Nicholas Vardy at info@londonjunto.com or call +44(0) 7780 677 360. Limited to 50 places! Late registrants will be placed on a waitlist.

Mr. Browder has agreed to join a core group of 15 for dinner at Benares Restaurant on Berkeley Square. Benares has kindly agreed to offer a discount to members of the London Junto for dinners following presentations. Please indicate your interest in joining this group. Please note the club has a dress code. No online Source

From the FT: A recent decline in the benchmark composite index of the Kuala Lumpur stock exchange, which made it Asia's worst performer for the first quarter of 2005, may be one indication that the "hot" money that flowed into Malaysia last year is now leaving. Foreign speculators bought Malaysian equities and bonds on expectations that the government of Abdullah Badawi might abandon the currency peg, which would result in foreign exchange gains for investors if the ringgit was revalued upward. Full article: {literal}Source{/literal}

Reuters reports institutional investors in Japan are ahead of their overseas counterparts in sinking money into hedge funds amid tepid returns from traditional assets, British fund manager Gartmore said on Wednesday.

"I think that Japanese institutional investors are leading the world at the moment," said Charles Beazley, head of institutional and alternative investments at Gartmore. Spearheading the drive in Japan towards more riskier investments are the nation's sprawling pension funds, which commanded $4.07 trillion in assets in 2004, according to the Japan Securities Investment Advisers Association. However, interest in hedge funds among large investors in Japan is not restricted to pension firms.

"Some of the insurance companies have 4 or 5 billion dollars worth of assets in alternatives already in Japan," said Beazley. "Now, that's much greater than their European counterparts and is much greater than some of their counterparts in the U.S." Full article: {literal}Source{/literal}

Soros challenges Baltimore to contribute to his urban assistance programme
Billionaire financier George Soros - who has spent $50 million to combat urban ills such as drug addiction and juvenile delinquency in Baltimore over the past seven years - is challenging the community to come up with $20 million to continue the work of his Open Society Institute in the city.
If the community raises the money, Soros said yesterday, he will ante up $10 million for a total of $30 million that would allow the institute to carry on its work in the city for at least another five years. Soros, 74, said he will visit Baltimore next month to officially announce the challenge. He said he is pleased with the work the city's OSI office has done so far and wants it to continue. (Baltimoresun.com)

DuPont founded Wilmington Trust makes multifamily-office push
The bank founded more than 100 years ago by the illustrious DuPont family is stepping up its efforts to cater to wealthy families. (InvestmentNews.com)

Portable Alpha offers benefits, but timing is key
Endowments and defined-benefit pension plans gain advantages from a portable alpha strategy, but the cost can vary dramatically and the timing of the execution is critical, according to a Merrill Lynch research report by Gordon Latter and Shuaib Siddiqui. (HedgeWorld.com, subscription required)

Bryan Weeks joins Silver Creek Capital Management as President
Silver Creek Capital Management LLC, a leading manager of funds of hedge funds with approximately $3.7 billion in assets under management, today announced that Bryan Weeks, former Managing Director of Russell Investment Group's Institutional Relationship Management, has joined the Firm as President. Silver Creek also announced that R. Spencer Potts has joined the Firm from Merrill Lynch's Hedge Fund Origination Group. (home.businesswire.com)

Cadwalader loses City capital markets partner to hedge fund Cheyne
Cadwalader Wickersham & Taft’s London office has lost capital markets partner Jerry De Melo, who left the firm last week to become in-house counsel and finance director to the asset-backed structured finance team at hedge fund Cheyne Capital. (Legalweek.net)

Khodorkovsky verdict delayed until after Bush visit
A Moscow court delayed Mikhail Khodorkovsky's (Yukos) verdict on tax-evasion and fraud charges until May 16, after World War II victory commemorations that will bring U.S. President George W. Bush and other heads of state to Moscow. (Bloomberg) No online Source

The Third Annual US Private Equity & Venture Capital Summit
May 16-18, 2005 • The Roosevelt Hotel • New York City

INDUSTRY EXPERTS ADDRESS KEY CHALLENGES FACING THE INDUSTRY:

• Where Has The Private Equity Asset Class Succeeded & Future Expectations
• Identifying The Structure Of Funds And How The Private Equity Market Will Look In The Future
• LP Special Interest Debates
• Challenge Of Fundraising In Today's Market - Strategies For Differentiating Yourself As A Mainstream Player
• Sourcing & Investing In New Talent / Emerging Managers
• Future Of Opportunities In Middle Market Investments
• Current Trends In Pricing and Valuations In Secondary Deals And Transactions
• Global Survey of allocations With Special Emphasis On China And Other Key Emerging Markets

For more information, visit www.superreturn.com or call (+1) 888.670.8200

Upgrade to state-of-the-art tools for hedge fund investment with expert practitioner and internationally acclaimed author François-Serge Lhabitant – limited enrolment course

Showing how to incorporate the latest advances of alternative investment research into management processes in the practical and accessible style which characterises Lhabitant’s work, the course should appeal to fund of hedge funds managers and administrators; investment advisers; and institutional investors with hedge fund investment programmes and projects.

Topics covered in the course include:

• Finding your way in the maze of hedge fund databases and indices to create a representative benchmark
• Using the latest analytical tools to classify hedge funds in a meaningful way
• Measuring risk and managing hedge fund portfolios with Value at Risk
• Applying advanced techniques for risk budgeting and hedge fund allocation.

François-Serge Lhabitant is head of investment research at Kedge Capital (London) and professor of finance at EDHEC Business School and the University of Lausanne. He is the author of the best-selling Hedge Funds: Myths and Limits and the recent Hedge Funds: Quantitative Insights.

For further information and registration, email: AIeducation@edhec.edu or call Mélanie Ruiz on +33 493.187.819.
Link to download brochure

Renaissance Chicago Hotel, Chicago, IL
May 18 - 20, 2005

Endless possibilities and immense opportunities is what we deliver through our events. As the pioneer in orchestrating the first ever Emerging Managers Summit, Opal Financial Group has once again exceeded industry standards by delivering another highly successful event.

The Emerging Managers Summit aims to provide Institutional Investors the opportunity to meet a select group of up-and-coming managers to learn their various styles and strategies.

Email: info@opalgroup.net
Phone: (212) 532-9898 x230
www.opalgroup.net

11th Annual Global Alternative Investment Management Forum
6-10 June 2005, Beaulieu, Lausanne, Switzerland

Meet Over 1500 of The Most Influential Global Asset Allocators, Newest Launches & Innovative Players In Commodities, Hedge Funds & Esoteric Strategies

GAIM 2005: Your Winning Shortcut!
Not only is GAIM 2005 the world’s premier and most comprehensive global alternative investment event – it is simply the largest annual meeting place for the most influential and successful industry players.

Over 250 Speakers!
Independently researched and produced, GAIM is as ever committed to delivering you not only the newest funds, the freshest ideas & most innovative strategies but insights from some of the most experienced and serially successful players in the business. Just some of these include:

• Mark Anson, CalPERS
• Stanley Fink, MAN Group
• J. Morgan Rutman, Harvest
• Paul Gorman, Mayo Foundation
• Stephan Zimmerman, New Smith Capital Partners
• Dr Robert Shiller, Yale University
• Gavyn Davies, Prisma Capital Partners
• Art Samberg, Pequot
• Don Philips, Morningstar
• Sean Simon, Ivy Asset Management
• Avinash Persaud, GAM
• Jamil Baz, Deutsche Bank and many many more....

You will find the full programme and registration details on: http://www.icbi-uk.com/r.asp?uID=287

June 27 – 29, 2005, The Palace Hotel, San Francisco, CA

MARHedge's Mid-Year Institutional Investment Conference June 27-29 in San Francisco, presented in partnership with Pensions & Investments, will focus squarely on the opportunities and challenges stemming from the influx of institutional investors. How can funds and investors better communicate with their constituents, and with each other? Who are the market leaders of tomorrow? What strategies and markets are poised to explode?

With a speaker lineup packed with the best and brightest the industry has to offer, our program will identify the major issues and drill down to give participants specific actions plans for the coming months. Through general sessions as well as dedicated fund manager and investor tracks, our event will provide essential intelligence for professionals from all points of the alternative's world. Speakers include:
JOHN CALSTY – MUIRFIELD CAPITAL MANAGEMENT
BILL BEANE - OAKLAND ATHLETICS

Larry Smith, Third Wave Global Investors
Josh Feuerman, Btn Partners
Jim Burritt, Thomas H Lee Capital
Neil Selfe, Diversified Global Asset Management
Jon Thorn, India Capital Fund
Jamie Selway, White Cap Trading
Jack Selby, Clarium Capital
Bob McSweeney, New York Stock Exchange

Pension funds and non-profits attend FREE. All Opalesque readers receive 10% delegate rate. Simply register today www.marhedge.com/conferences/sanfran/sanfran_reg.htm, please use “Opalesque” for your promo code.

Build your brand and create new business with the intelligent marketing options of the Opalesque Alternative Market Briefing - the industry's favorite hedge fund newsletter! Please email me: knab@opalesque.com for details. Communication that works!

ISSN Number: 1450-1953
Alternative Market Briefing has been called the best news service on hedge funds. Our mission is to intelligently select and timely provide the most important daily news for professionals dealing with hedge funds. Alternative Market Briefing offers both a quick overview and indepth coverage of all subjects through the "Source" link that leads you to the publicly available online news sources. The concept that we follow is that of a "clipping service" - the added value for you is that we screen, intelligently select and efficiently present each day the most important hedge fund news. The majority of the news sources used do not require a subscription, however some may ask you to register. Once registered, you can access these news sources freely. Please mail us your feedback and suggestions to feedback@opalesque.com - we love to hear from you!

Opalesque Ltd.
8 Samou Street
St. Omologites
Nicosia 1640
Cyprus

+49-89-512668-68
info@opalesque.com
www.opalesque.com

This newsletter is edited by Matthias Knab (MK) for Opalesque Ltd. For more information about me and Opalesque Ltd. please use this link.

Did you know? Opalesque has a great newsletter archive - use this link.

Disclaimer: The information contained in this newsletter does not constitute an offer or solicitation to sell any security or fund to or by anyone in any jurisdictions, nor should it be regarded as a contractual document. Under no circumstances should the information provided on this newsletter be considered as investment advice, or as a sufficient basis on which to make investment decisions. The information contained herein has been gathered by Opalesque Ltd. from sources deemed reliable as of the date of publication, but no warranty of accuracy or completeness is given. Opalesque Ltd. is not responsible for and provides no guarantee with respect to any of the information provided herein or through the use of any hypertext link. Past results are no indication of future performance. All information in this newsletter is for educational and informational purposes and does not constitute investment, legal, tax or accounting advice.