Pruning the Thicket By John Ferry These challenges place due diligence beyond the expertise of most people. "If the high-net-worth individual comes from a background in the financial markets and has an interest in doing due diligence and devoting the time, that’s fine, but in general I think they are better served by delegating to someone else," says Leslie Rahl, president of Capital Market Risk Advisors, a New York-based consulting firm. "Due diligence is not rocket science, but it does require market expertise." Base Inquiries "Different funds value their positions differently," Rahl adds. Some funds engage in such exotic strategies that the positions in which they trade—certain types of derivatives or illiquid assets such as real estate, for example—may have no observable market price. In these cases, the funds "mark to model," meaning that they use their own financial model to value the position. How the manager structures the model and manipulates the data on which it relies will determine the values it assigns to positions. In these cases, the credibility of the fund manager is paramount. (However, as the Long-Term Capital Management crisis demonstrated, a pile of sterling resumes can also provide false comfort.)Even the funds that trade in liquid securities may use a variety of valuation techniques. Some funds mark their positions at the midmarket level, somewhere between the bid (the lower price at which we may sell a security) and the offer (the price to buy the security). Other funds may mark the positions they own at the bid, and those they have shorted at the offer. "Those are accepted methodologies, but if you are dealing with less-liquid instruments with fairly wide bid-offer spreads, you’re not only going to get different numbers, you’re also going to get a different pattern of volatility," or history of the behavior of the positions, Rahl notes. Two funds with similar portfolios may report significantly different results and histories, depending on which of these methods they choose. Long-term Commitments Rahl adds she covers everything from what the fund sees as its competitive advantage, to what its strategy is and how it adapts to various market conditions, to how it controls risks and ensures operational control. "I start by asking the hedge fund what it does and then probing more deeply to see if it does it well and covers all the bases I think should be covered, rather than imposing my own preconceived notions of what it might do. There’s a range of things that are perfectly acceptable, so I don’t have prepared questions—it’s a relative rather than an absolute discussion. “Even with this type of access (which most funds are loath to provide—after all, they are supposed to be spending their time trading), the latitude fund managers have to invest our capital means we cannot avoid making a qualitative judgment. "To me, the most important part of due diligence is sitting down eyeball-to-eyeball in a meeting room, and asking the fund managers probing questions about how they run their business," Rahl says. "You judge their personalities and the way they handle stress. Sometimes I ask, ‘Would I hire this person as a trader if I were running a trading desk?’" (December 2004)

New Jersey Bans Pay To Play By Matthew McCue The New Jersey Division of Investments' Investment Council, in anticipation of hiring external managers and consultants for the first time to handle a nearly $9 billion alternatives investment, has adopted a policy that will prohibit hiring or retaining any investment advisor that has directly or indirectly made a political contribution to any incumbent or candidate for state office over the prior two years. It will also require asset managers to disclose quarterly to the council any relevant contributions to state political entities. The comment period ran through last Friday. Proponents expect the policy to be in place before the alternative investment program starts….This is not in response to any impropriety but is a preventative measure to ensure high ethical standards….Capital Market Risk Advisors also refrains from political contributions, Partner Barbara Lucas said, and any policy that inserts objectivity into consulting is welcomed. "I think anything that keeps a level playing field is good for both consultants and the public funds," she said. (December 16, 2004)

Bite the bullet on governance By Leah Nathans Spiro The New Jersey Division of Investments' Investment Council, in anticipation of hiring external managers and consultants for the first time to handle a nearly $9 billion alternatives investment, has adopted a policy that will prohibit hiring or retaining any investment advisor that has directly or indirectly made a political contribution to any incumbent or candidate for state office over the prior two years. It will also require asset managers to disclose quarterly to the council any relevant contributions to state political entities. The comment period ran through last Friday. Proponents expect the policy to be in place before the alternative investment program starts….This is not in response to any impropriety but is a preventative measure to ensure high ethical standards….Capital Market Risk Advisors also refrains from political contributions, Partner Barbara Lucas said, and any policy that inserts objectivity into consulting is welcomed. "I think anything that keeps a level playing field is good for both consultants and the public funds," she said. (December 16, 2004)

Consultant Profile: Leslie Rahl, Capital Market Risk Advisors Not all plan sponsors are experts in alternative investments, but that's where Capital Market Risk Advisors steps in. The 10-year-old firm is led by Leslie Rahl, founder and president, who assists and educates clients on alternative and traditional forms of investments. Recently, Rahl parlayed her 30 years of financial market expertise into a 750-page labor of love, Hedge Fund Transparency: Unraveling the Complex and Controversial Debate. The book speaks of the importance of transparency and properly addressing the needs of institutional investors and hedge fund managers, and presents insight on why hedge fund transparency is such a charged issue. Plan fiduciaries must find the balance between getting adequate information to understand their investments, while not seeking too much information about the individual positions in a hedge fund that they are unable or unlikely to use. Now that Rahl is back to solely focusing on her day job--after vowing to never again write a book from scratch--she is busy cultivating new business for the firm. (November 22, 2004)

First step: SEC employing task force for hedge fund regulation; Panel charged with creating risk-based oversight model By Christine Williamson Even if the hedge fund industry is extraordinarily cooperative, the SEC still has to grapple with some basic precepts, said Leslie Rahl, president of risk consultant Capital Markets Risk Advisors LLC, New York. ``The very first question is: Risk from whose point of view? Systemic risk? Risk of investor losses? Who are they trying to protect? The investor? The financial system? The SEC needs to decide who it is trying to protect. What they do next depends on the answer. Before you can define risk criteria, you need to define a lot of softer issues,'' she said. (November 1, 2004)

Hillsdale to sponsor Leslie Rahl at AIMA luncheon Leslie Rahl is the President of Capital Market Risk Advisors, Inc. CMRA and its predecessor firms have played an integral role in the evolution of hedge funds, derivatives, structured securities and risk management for more than 13 years. Mrs. Rahl was named one of the Top 50 Women in Finance by Euromoney in 1997 and was profiled in both the fifth and tenth anniversary issues of Risk Magazine. She was listed in "Who's Who in Derivatives" by Risk Magazine and was profiled in Fortune Magazine's "On the Rise" and Institutional Investor's "The Next Generation of Financial Leaders". (October 27, 2004)

Hidden risk: Investors skim over question of fund valuation By Christine Williamson ``With so much money rushing into hedge funds, people are very anxious about preserving capacity and that's when they begin to cut corners, when it becomes more of a seller's market. But it's the fiduciary responsibility of (institutional) investors to make sure that their fund-of-funds managers are asking all of the right questions about the process of due diligence and portfolio construction, including valuation. It's a bad assumption to think that all fund-of-funds companies are conducting the right level of analysis on the hedge funds they use,'' said Leslie Rahl, president and chief executive officer of Capital Market Risk Advisors LLC, New York, a hedge fund risk analysis firm and consultant. ``There is enormous interest in this area, but there is still a lot of education to be done of both investors and managers,'' said CMRA's Ms. Rahl. ``There are a lot of nuances that people are not fully comprehending. Questions have to be very carefully tailored for each kind of strategy. Valuation is an issue any time you have an instrument that's not traded in a transparent, liquid market. Intelligent, well-meaning people will often price the same securities very differently.'' The Investor Risk Committee of the International Association of Financial Engineers, Washington, for example, released a white paper on hedge fund portfolio valuation recommendations in early June. Ms. Rahl has served on the IAFE committee that worked on the recommendations for the past two years and co-chaired it last year. (July 12, 2004)

Ellington's Vranos says he won't crash again What's especially frightening for investors is when the Fed makes sudden, unexpected moves on rates. In 1994, for example, the Fed surprised most analysts by hiking rates four times from February to May. "It's not so much what happens that roils markets; it's when what happens is not what is expected," said Leslie Rahl, president of Capital Markets Risk Advisors Inc., a New York risk advisory firm. (July 11, 2004)

The Scorpion's Tail Banks crank up the trading risks, but will VAR protect them from disaster? By Bill Shepherd "Risk is a three-dimensional beast-maybe more than three dimensions; we don't know how to count them," says Leslie Rahl, a former Citibank derivatives expert who now heads Capital Market Risk Advisors in New York. (She has also just been elected to the board of Fannie Mae, to help ride herd on its risk management and hedging activities.) "No one metric can capture something as complicated as the financial markets. Sophisticated players use stress testing to complement a VAR-based methodology, because both tell you important things, but neither alone tells you the whole story." For all their limitations and weaknesses, value at risk and stress tests are big improvements on the past, when bank managers had no idea what the positions were, much less the possible day-to-day losses. "When I ran a derivatives business, we didn't have VAR," recalls Rahl. "I look back at what we did 10 years ago and laugh-it was so primitive. But I guarantee that 10 years from now, we'll look back and feel the same. We keep learning." (June 7, 2004)

For better or worse: Pension funds get closer with hedge fund managers; Benefits to both might not be certain, but funding gap makes for strange bedfellows By Christine Williamson Said Leslie Rahl, president and CEO of Capital Market Risk Advisors LLC, New York, a hedge fund risk analysis firm and consultant: ``The impact of the institutional investor on hedge funds has been huge. Institutional investors have specific requirements and hedge funds have had to change how they project themselves and to change aspects of their infrastructure to improve reporting and client service,'' Ms. Rahl added. The biggest change probably has been in the regularity and intensity of due diligence performed on hedge funds, Ms. Rahl said. ``It's been a big change for hedge funds. Institutional investors tend to have `a priori' notions based on the long-only world about the questions they ask and the answers they expect. Hedge funds have been learning about institutional investors and what they want to see and hear. There's been a little of both embracing the institutional investor and kicking and screaming to keep them away within the hedge fund community,'' Ms. Rahl said. She noted that many hedge fund executives came out of big companies with huge bureaucracies to establish hedge fund companies that are now large, mature businesses themselves. Many of them likely will never go back to providing the kind of standardization and clarity institutional investors demand. ``Having to write down an investment policy is culturally anathema to some hedge fund managers,'' Ms. Rahl said. (May 31, 2004)

Boxing for boys, hedge funds for girls In the US, there are at least 100 women working in hedge funds in senior positions. How do I know? Because they have formed a club, called (imaginatively) 100 Women in Hedge Funds. Who can join? The website (www.100womeninhedgefunds.org) says female hedge fund professionals, including portfolio managers, analysts, business directors, institutional investors, marketing executives, professional hedge fund investors and senior-level service providers, can become members. A leading light, Leslie Rahl, was appointed to the board of Fannie Mae a few months ago. I hope this helps to improve the situation at that US mortgage agency. My nomination for understatement of the year may well be the press release welcoming her, which said how useful her understanding of the derivative markets would be. You're not joking. The website provides lots of useful information for members to read in their spare time, presumably in case they are tempted to spend it shopping in Bergdorf Goodman. (May 22, 2004)

New fund rule could cost investors By Timothy Middleton The SEC wants funds to use fair-value pricing to keep prices up to date. but that means you could buy or sell fund shares on a day when guesses help make up a fund’s net asset value. Leslie Rahl, president of Capital Market Risk Advisors, a Wall Street consulting firm, says: “I have gone into the market for clients for a convertible bond and gotten prices as much as eight full points apart. When you get markets that wide, what is the fair value?” Any number of approaches can be used to find fair value, Rahl says. Possible pieces of the equation include the bid price, the offer, half the distance between the two, the median of most-recent trades or the judgment of the firm’s traders of the market effect of transactions they plan. More commonly it's some blend of all of these. (May 11, 2004)

Valuing Hedge Fund Assets: What Is Best Practice? NEW YORK -Given the great diversity in what hedge funds do and the instruments they use, the task of finding common principles for valuing hedge funds is not easy. Yet the absence of an agreed-upon framework makes the industry vulnerable to attempts to impose uniformity from the outside, via regulation. Some industry people, such as Leslie Rahl of Capital Market Risk Advisors Inc., New York have been working to develop common hedge fund valuing criteria-or at least a set of due diligence questions. As a starting point, the basic issues are not terribly different from those faced by conventional asset managers. A recent Securities and Exchange Commission memo illustrates this point. Pricing of portfolios and calculation of net asset value is one of the areas under review, according to the memo by Lori Richards, head of the SEC's Office of Compliance Inspections and Examinations. The office is responsible for both mutual fund companies and investment advisers most hedge funds could soon be required to join the latter category, on the basis of a recent statement by Chairman William Donaldson. Many large hedge fund managers already are registered investment advisers and therefore subject to inspections. Indeed, one of the examples in the SEC memo is former Lipper & Co., New York, manager Edward Strafaci's alleged over-pricing of a convertible arbitrage portfolio by about US $300 million. Good Faith Some goals are so broadly applicable that it is hard to imagine exceptions. For instance, both the SEC and IAFE ask about conflicts of interest in marking portfolios. Everybody talks about the desirability of checks and balances. At the same time, those valuing illiquid assets have to understand these instruments. A need for good faith in pricing assets is not controversial. But there can be disagreement about other ideas. For instance, it might seem obvious that valuation policies should treat all investors equally. But that is not as straightforward as it sounds. Faced with more than one quote for an illiquid instrument, some funds take the lowest of the marks. There are arguments favoring this as a conservative approach. But it penalizes investors leaving the fund and benefits those coming in-the effects are not equal. Consistency In illiquid markets where there is no clear-cut price, managers have some discretion as to how to mark securities. Ms. Rahl found that many managers say they're trying to replicate the midpoint when asked what they want to achieve in marking securities that don't have a transparent price. Ms. Rahl, who recently was named to Fannie Mae's board of directors, said that managers need to be consistent with their method. They should not change the criterion when they don't like the answer, that is the key requirement. Practices differ across funds. According to Ms. Rahl, 60% of managers target a midpoint price. The remaining 40% of managers do not. Instead, when they have a long position they try to replicate the bid, whereas for a short position they try to price at the offer. There are pros and cons as to what the goal should be and these can be debated, said Ms. Rahl. But from the investors' perspective, variation among managers requires special attention. Comparison Consider two funds in the same strategy, with the same assets. But they are trying to achieve different ends in their valuation process. That affects performance measures-something investors need to recognize. In particular, when there is a fairly wide and changing spread between bid and offer, a fund that takes that spread into account is going to show more volatility and a higher standard deviation than a fund that assumes the difference away. If investors compare the funds without correcting for this effect, they may reach the wrong conclusion. Moreover, a fund of funds that adds together net asset values from managers that use different methods is in effect combining apples and oranges. It is important for funds of funds to make adjustments for this, said Ms. Rahl. That might be best practice for investors. Transparency requires a clear and straightforward explanation of how the portfolio is valued. If a portfolio consists of stocks traded on the New York Stock Exchange, this is easy. But with thinly traded instruments, it takes more work, not only by the manager but also investors. (March 26, 2004)

Fannie Mae appoints Leslie Rahl to board of directors US mortgage agency Fannie Mae has appointed Leslie Rahl to its board of directors, filling the seat Stephen Friedman vacated after he resigned to become assistant to the president for economic policy and director of the National Economic Council. "Leslie has a keen understanding of financial markets and an interest in the mission of Fannie Mae," says Franklin Raines, Fannie Mae's chief executive. Rahl is the president and founder of Capital Market Risk Advisors, a financial advisory firm specializing in risk management and capital markets strategy. Previously, she had her own consulting firm, Leslie Rahl Associates, which concentrated on swaps, options and derivatives, and she worked for Citibank in New York from 1972 until 1991, latterly as vice-president and co-head of the North America derivatives group. Rahl publications include Hedge Fund Transparency: Unraveling the Complex and Controversial Debate, published by Risk Books in March 2003. (March 12, 2004)

Fannie Mae of Washington has named Leslie Rahl to its board. Ms. Rahl is the president and founder of Capital Market Risk Advisors Inc., a financial consulting firm in New York. As a director at Fannie she fills the vacancy created when Stephen Friedman resigned in 2002 to become the assistant to President Bush for economic policy and the director of the National Economic Council. (March 3, 2004)

FANNIE MAE (Washington) -- The mortage-financing company elected Leslie Rahl to its board. Ms. Rahl, 53, succeeds Stephen Friedman, 66, who resigned to become assisstant to the president for Economic Policy and director of the National Economic Council. Ms. Rahl is the president and founder of Capital Market Risk Advisors Inc., a financial advisory firm. (February 24, 2004)

Risk Pro for Fannie Fannie Mae is adding former Citigroup Inc. banker Leslie Rahl to its board of directors, filling the seat formerly held by Goldman Sachs & Co. alum Stephen Friedman, who joined the Bush administration as the director of the National Economic Council in late 2002. As the president and founder of Capital Market Risk Advisors Inc., Ms. Rahl specializes in risk management and capital markets strategy. She previously ran her own consulting firm, Leslie Rahl Associates, which concentrated on swaps, options and derivative products. Her years at Citi stretched from 1972 through 1991; she rose to co-head of the company's North American derivatives group. She holds two academic degrees, including an MBA from Massachusetts Institute of Technology. "Leslie Rahl's experience in the financial markets and her understanding of the derivatives markets will bring us an extremely broad range of skills, which will benefit our board, senior management, and our company as a whole," said Franklin D. Raines, Fannie's chairman and chief executive, in a news statement. "Leslie has a keen understanding of financial markets and an interest in the mission of Fannie Mae, and we look forward to benefiting from her expertise." (February 20, 2004)

Goodbye double fees: Sponsors staff up for hedge funds; Pension plans build in-house capabilities to help cut costs Calls for sensitivity Leslie Rahl, president and chief executive officer of consultant Capital Market Risk Advisers Inc., New York, said when fee issues are combined with the fact that most funds of funds don't provide customer service at levels to which institutional investors are accustomed, many plan sponsors might find the idea of do-it-yourself hedge funds appealing. But she warned it might not be clear to these investors that “hedge fund of funds, properly done, are expensive.'' Fund executives may gain control, but not save as much as they expected, Ms. Rahl added. (February 23, 2004)

Measurisk LLC has been acquired by Bear Stearns Asset Management Inc., New York, in a deal that saved the risk analysis firm from closing. ''I'm happy to see it's going to be reinvigorated. I think it was a tool that added value,'' said Leslie Rahl, president of Capital Market Risk Advisors, New York, which also provides risk analysis for institutional investors. She added that one edge Measurisk has is that it provides both valuation and risk information. ''Those are both very important and many systems only do one or the other,'' she said. (February 23, 2004)

CMRA's Rahl Named to Fannie Mae Board of Directors Leslie Rahl, president and founder of Capital Market Risk Advisors Inc., was named to the board of directors for the Federal National Mortgage Association, known as Fannie Mae. Ms. Rahl fills a vacancy on the 18-member board created when Stephen Friedman resigned in 2002 to take a job as assistant to the President for economic policy and director of the National Economic Council, according to a statement from Fannie Mae. Fannie Mae's board can appoint directors to serve unfinished terms, spokeswoman Janis Smith said. Mr. Friedman's term was to expire this year, and Ms. Rahl will stand for election to the board, along with the other 17 board members, at the company's May 2004 shareholders meeting. It was unclear why board members did not fill Mr. Friedman's open position sooner. Franklin D. Raines, chairman and chief executive of Fannie Mae, said Ms. Rahl's background would help the company down the road. "Leslie Rahl's experience in the financial markets and her understanding of the derivatives markets will bring us an extremely broad range of skills, which will benefit our board, senior management and our company as a whole," Mr. Raines said. New York-based CMRA provides myriad services, including fund of funds construction, hedge fund manager due diligence and selection, risk management, risk budgeting and information and training on derivatives and structured products. Ms. Rahl joins a board that includes Thomas P. Gerrity, professor of management at the Wharton School of the University of Pennsylvania, Philadelphia; Frederic V. Malek, chairman of private equity firm Thayer Capital Partners, Washington; Victor Ashe, mayor of the city of Knoxville, Tenn.; Donald M. Barron, chairman of UBS America Inc., New York; Anne M. Mulcahy, chairman and chief executive of Xerox Corp., Stamford, Conn.; and H. Patrick Swygert, president of Howard University, Washington. Fannie Mae is a public company that operates under a government charter. It buys residential mortgage contracts from banks and lenders and packages them into pools of mortgages. (February 23, 2004)

Fannie Mae appoints Leslie Rahl to board of directors US mortgage agency Fannie Mae has appointed Leslie Rahl to its board of directors, filling the seat Stephen Friedman vacated after he resigned to become assistant to the president for economic policy and director of the National Economic Council. “Leslie has a keen understanding of financial markets and an interest in the mission of Fannie Mae,” said Franklin Raines, Fannie Mae’s chief executive. Rahl is the president and founder of Capital Market Risk Advisors, a financial advisory firm that specializes in risk management and capital markets strategy. Previously, she had her own consulting firm, Leslie Rahl Associates, which concentrated on swaps, options and derivatives, and she worked for Citibank in New York from 1972 until 1991, latterly as vice-president and co-head of the North America derivatives group. Rahl’s publications include Hedge Fund Transparency: Unravelling the Complex and Controversial Debate, published by Risk Books in March 2003. (February 20, 2004)

Hedge Fund Specialist Leslie Rahl Selected to Fannie Mae Board of Directors  Fannie Mae, the nation's largest source of financing for home mortgages, announced that the Board of Directors has selected Leslie Rahl to its Board of Directors. "Leslie Rahl's experience in the financial markets and her understanding of the derivatives markets will bring us an extremely broad range of skills, which will benefit our Board, senior management and our company as a whole," said Franklin D. Raines, Fannie Mae's Chairman and Chief Executive Officer. Rahl is the president and founder of Capital Market Risk Advisors, Inc., a financial advisory firm that specializes in risk management and capital markets strategy. Rahl is the author of Hedge Fund Transparency: Unraveling the Complex and Controversial Debate published in March 2003 by Risk Books and the editor of Risk Budgeting: A New Approach to Investing published in November 2000 by Risk Books. (February 19, 2004)

Fannie Mae, the largest buyer of U.S. housing loans, named Leslie Rahl to its board of directors. Rahl, president of Capital Market Risk Advisors, was selected to replace Stephen Friedman, who resigned when appointed to head the Bush administration's National Economic Council, the company said. (February 19, 2004)

Leslie Rahl Selected to Fannie Mae Board of Directors WASHINGTON, DC -- Fannie Mae (FNM/NYSE), the nation’s largest source of financing for home mortgages, announced that the Board of Directors has selected Leslie Rahl to its Board of Directors to fill the seat vacated when Stephen Friedman resigned to become assistant to the President for economic policy and director of the National Economic Council.  Ms. Rahl will be included on the company’s slate of directors and will stand for election at the company’s 2004 annual meeting of shareholders in May 2004. “Leslie Rahl’s experience in the financial markets and her understanding of the derivatives markets will bring us an extremely broad range of skills, which will benefit our Board, senior management and our company as a whole,” said Franklin D. Raines, Fannie Mae’s Chairman and Chief Executive Officer. “Leslie has a keen understanding of financial markets and an interest in the mission of Fannie Mae, and we look forward to benefiting from her expertise.” Rahl is the president and founder of Capital Market Risk Advisors, Inc., a financial advisory firm that specializes in risk management and capital markets strategy. Prior to that she had her own consulting firm, Leslie Rahl Associates, which concentrated in swaps, options and derivative products.  From 1972-1991, Rahl was employed by Citibank in New York where she served as vice president and co-head derivatives group – North America. Prior to that, Rahl served in various positions of increasing responsibility in financial control and operations management. (February 18, 2004)

Institutional boom, capacity, regulation to be felt in industry The hedge fund industry is bracing itself for an enormous influx of assets from institutional investors in 2004 and beyond. Another sore spot for hedge funds and their institutional clients will be portfolio valuations, said Leslie Rahl, president and CEO of hedge fund consultant, Capital Market Risk Advisers LLC, New York. ``Valuation issues keep rearing their ugly heads. Most (institutional investors) don't have a true depth of understanding of this issue, of how complex it is and how difficult it is for managers to evaluate some of the securities they hold, even when they are trying very hard to be honest and accurate. A whole new level of education of investors is needed, but it's hard to see where it's going to come from,'' Ms. Rahl added. (January 12, 2004)

Public announcements made by pension funds over recent months show that a growing number of schemes are dedicating even larger proportions of their assets to alternatives. This includes greater allocations into hedge funds, absolute return funds, private equity, as well as structured products, such as collateralized debt obligations (CDOs) and other asset-backed securities (ABS). These shifts are part of larger plans to enhance yields, considering that negative equity returns and smaller contributions over the past three to four years have made it more difficult for them to meet liabilities (i.e. deliver pension payments). Such funding pressures have put retirement schemes at the top of many politicians' agendas. Indeed, pension risks in general have become a higher priority for corporate treasuries around the world given new controversial taxation rules in various countries. (A prime example is the UK's FRS 17, which can make it more costly for British companies to offer pension schemes, particularly defined benefit ones.) Leslie Rahl, founder of Capital Market Risk Advisors in New York, says alternative asset allocations are something pensions have been working on for the past 18 months to two years. "There is a major focus on alternative assets among pensions, and I think you will begin to see this materialize into new types of allocation strategies in the beginning of 2004." She says most pensions in the United States are taking the hedge fund route first. Endowments and foundations are the farthest along in terms of executing strategies. Public planned sponsors have a lot more to consider given the public scrutiny they are naturally exposed to as public funds, but this does not mean that they are not cooking up alternative asset plays to help them achieve higher yields. "Pensions have a lot of explaining to do to their trustees. They have to make them understand the products they are investing in. They also have to decide whether to invest in hedge funds via fund of funds (which provide an intermediate level of expertise but also adds at least one percent to the fees) or via their own individual hedge fund selection." More seem to be opting for a customized fund of funds approach, she says. (January/February 2004)