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Enron Mail |
Bob:
Our issues with hedge funds are somewhat complicated. The threshold issue is that they are severely limited by their fundamental documents (the prospectus will spell out what they can invest in) so we have to review those documents before trading. That is more than we do for run-of-the-mill domestic corporates and takes a lot of legal resources that so far have been spent elsewhere. The other issue is more difficult because it is hard to peg down and relates to regulatory uncertainty. About a year ago a major hedge fund (Long Term Capital) got into serious trouble and the regulators stepped in, orchestrating a bail-out. There was much wringing of hands and gnashing of teeth in Washington afterwards and since then there have been a variety of messages coming out of Washington relating to derivatives trading with hedge funds - none of them good. Our view is that the regulators will be paying much closer attention to hedge fund trading of derivatives than in the past and we don't want that spotlight shining on us. [In case you're interested: notwithstanding their name, hedge funds are speculators. Much of the federal regulation of derivatives has assumed that hedging -- as opposed to speculation -- was safer and therefore more palatable. The failure of a large hedge fund might result in damaging ripple effects throughout the financial markets. Hence the regulators' heightened scrutiny.] For both of these reasons, when EnronOnline was launched it was with the internally stated policy that we would not give access to hedge funds (or individuals - for similar reasons). Commodity Trading Advisors can not trade on EnronOnline on behalf of their customers just as Brokers cannot. Mark Bob Shults 12/12/2000 10:26 AM To: Andy Zipper/Corp/Enron@Enron, Mark Taylor/HOU/ECT@ECT cc: Daniel.Diamond@enron.com Subject: Hedge Fund and CTA list Andy as we discussed Harry will begin contacting the Hedge Funds. Caroline Abramo is starting to push the CTA's (for LME metals) and hedge funds (metals, energy etc) through the credit hurdles and legal. Mark, you have visited this one before any comments? ---------------------- Forwarded by Bob Shults/HOU/ECT on 12/12/2000 10:17 AM --------------------------- From: Harry Bucalo 12/12/2000 10:02 AM To: Bob Shults/HOU/ECT@ECT, Daniel Diamond/HOU/ECT@ECT cc: Subject: Hedge Fund and CTA list ---------------------- Forwarded by Harry Bucalo/HOU/ECT on 12/12/2000 10:02 AM --------------------------- Cai Palmer@MGUSA 12/11/2000 09:16 AM To: Harry Bucalo/HOU/ECT@ECT, Craig Young/NY/ECT@ECT cc: Daniel Diamond/HOU/ECT@ECT, Per Sekse/NY/ECT@ECT, TJ Pimpinelli/NYC/MGUSA@MGUSA, Paul Radous/Corp/Enron@ENRON, William S Bradford/HOU/ECT@ECT, Trena McFarland/NA/Enron@Enron, Vikas Dwivedi/NA/Enron@Enron, Fred Lagrasta/HOU/ECT@ECT, Caroline Abramo/Corp/Enron@Enron Subject: Harry, Further to our conversation last week, I have listed below, in two segments, the top CTAs who presently manage more than $100mill each, and the top Hedge Funds, based upon their likelihood to manage assets in diversified markets, that may include tangible commodities. My understanding of EOL is that it presently caters primarily to this latter group and offers only tangible commodity trading instruments. As I explained, the principle difference between a Hedge Fund and a CTA (Commodity Trading Advisor), is the manner in which they control the assets that they are contracted to manage. In the case of a CTA, the money can not be held by the CTA itself. The underlying investor will open a clearing account with a respective Clearing House, the assets will remain in this account and the CTA will trade based on the full monetary value of that account - in many cases an investor may well fund this account with Notional Funding. NF are 'abstract funds' not actually deposited at the Clearing House, but acknowledged as being available should variation or original margin be required. The CTA has no control over these funds. All monetary transactions must be executed by the Clearing House, and must be authorized by the investor. The CTA does have the ability to execute trades at an other trading house - such as Enron, through a contractual document called an International Uniform Give-Up Agreement. We have quite a few hundred of these agreements in NY. Essentially, all parties involved in the execution of a trade - the CTA, the Investor, the Executing Broker and the Clearing House, agree to allow the CTA to trade wherever he/she wishes and Give-Up that trade to the Investor's Clearing House. Since every regulated trade must ultimately clear the respective exchange, for a CTA to trade OTC and Swap agreements, would require prior notification to an investor that his/her money may be required as collateral against such a trade, and would be required to be deposited at Enron. A Hedge Fund has greater flexibility to trade such instruments since in the majority of instances a Hedge Fund does exert control over the funds it manages. A Hedge Fund typically structures its investment vehicles as Off-Shore limited partnership funds. As such the Hedge fund has direct control over the underlying assets and can move those assets to wherever they may be required - if investing via Enron On-Line, it would move the assets to Enron, for example. This first list, below, is comprised of the top flight CTAs : The following list is of Hedge Funds that I believe are trading Commodities and other non-security investments. It is by no means complete ! : I would be happy to make any introductions that I can to any of the above names. Some we know well, others we may have to network ourselves into. Caroline and I met a few weeks ago and I passed some names on to her - I am not sure where that has got to yet, but if you need any further information please call me. Regards Cai Enron Trading Services Inc 520 Madison Ave., 28th Floor New York, NY 10022 Tel: 212.715.5248 Fax: 212.715.2360 E-Mail: Cai.Palmer@enron.com
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