Jun. 29–A hedge fund — something that makes most small investors get a glazed-eye look or shrink in fear — is becoming more commonplace, but it’s not on Main Street in the investment world justyet.

Prateek Mehrotra, chief investment officer for Sumnicht & Associates, and Simone Fevola, CIO for Wealth Management, were brought to their respective firms last year to take advantage of hedge funds and other alternative strategy investments. The two firms are among the largest and most successful in the Fox Cities.

Fevola served 22 years as an investment portfolio manager in the equity and bond markets, including time as a research analyst. He has worked for Merrill Lynch and Citigroup’s predecessor, and had hedge funds experience before coming to Wealth Management last fall.

Mehrotra has 12 years of experience, most recently with a Palo Alto, Calif.-based venture capital fund looking for technology firm start-ups. He also managed investment portfolios for Middle Eastern investors before that.

Sumnicht has provided hedge fund opportunities for its investors for about 15 years, especially since 1997, and has four portfolios, one with assets of $85 million for a French bank and three with about $10 million each. Among them, the Sumnicht pool of investors gets the advantage of expert advice from 18 fund managers globally.

The two money managers say hedge funds and other alternative investment strategies are needed to meet investors’ higher expectations. With the latest market slump, in particular, high-powered investors no longer will tolerate losses, even in bad market years.

“To me, hedge funds are funds that are supposed to provide an absolute return, as opposed to a relative return,” Mehrotra said.

That means the funds should at least match the market on the upside and not lose money when things are down.

“We’re not willing to accept a negative sign (i.e., a portfolio loss year), a principal loss,” Fevola said.

To do that, hedge fund operators use various strategies, perhaps as many as a few dozen, to protect against losses while allowing the benefit of a positive market.

These strategies increase the chance of accomplishing that, said Mehrotra, because they have more flexibility, the ability to use leverage (or debt), or to go short (bet a stock will decline), as well as to use other strategies like options, derivatives and arbitrage.

One strategy might be to buy a company’s convertible bonds, bonds that a holder can chose to convert to common stock. If the stock goes up, the investor might do well by converting his bonds; if it goes down, he still has the bond value and interest. He may add to the investment by “shorting the stock,” i.e., protecting against a price decline, so he has further hedged his investment.

Compare that with the investor who just buys the stock or the company’s bonds, who has no flexibility regardless of what happens to values.

Said Vernon Sumnicht, owner and president of Sumnicht & Associates: “The dangerous side of hedge funds is these are not registered securities; they’re not regulated as highly as mutual funds, so there are opportunities for people with less character to mess with the numbers.”

The minimum requirements for investors are easing. Hedge funds still require $100,000 as a minimum investment and allow in only investors with $1 million in investable funds. But some more regulated hedge funds require only $25,000, or even as little as a few thousand dollars through a hedge mutual fund. Certain hedge funds aren’t available to small-dollar investors.

The risk hasn’t discouraged institutions like Yale University, which has successfully used alternative strategies for 62 percent of their investment portfolio. The alternatives include gas and timber, real estate and private equity.

Sumnicht said investors today have gotten too good at measuring traditional stocks and bonds, so it’s hard to find an undervalued stock to buy.

—–

To see more of The Post-Crescent, or to subscribe to the newspaper, go to http://www.postcrescent.com

(c) 2003, The Post-Crescent, Appleton, Wis. Distributed by Knight Ridder/Tribune Business News.

MER, C,

Jun. 29–A hedge fund — something that makes most small investors get a glazed-eye look or shrink in fear — is becoming more commonplace, but it’s not on Main Street in the investment world justyet.

Prateek Mehrotra, chief investment officer for Sumnicht & Associates, and Simone Fevola, CIO for Wealth Management, were brought to their respective firms last year to take advantage of hedge funds and other alternative strategy investments. The two firms are among the largest and most successful in the Fox Cities.

Fevola served 22 years as an investment portfolio manager in the equity and bond markets, including time as a research analyst. He has worked for Merrill Lynch and Citigroup’s predecessor, and had hedge funds experience before coming to Wealth Management last fall.

Mehrotra has 12 years of experience, most recently with a Palo Alto, Calif.-based venture capital fund looking for technology firm start-ups. He also managed investment portfolios for Middle Eastern investors before that.

Sumnicht has provided hedge fund opportunities for its investors for about 15 years, especially since 1997, and has four portfolios, one with assets of $85 million for a French bank and three with about $10 million each. Among them, the Sumnicht pool of investors gets the advantage of expert advice from 18 fund managers globally.

The two money managers say hedge funds and other alternative investment strategies are needed to meet investors’ higher expectations. With the latest market slump, in particular, high-powered investors no longer will tolerate losses, even in bad market years.

“To me, hedge funds are funds that are supposed to provide an absolute return, as opposed to a relative return,” Mehrotra said.

That means the funds should at least match the market on the upside and not lose money when things are down.

“We’re not willing to accept a negative sign (i.e., a portfolio loss year), a principal loss,” Fevola said.

To do that, hedge fund operators use various strategies, perhaps as many as a few dozen, to protect against losses while allowing the benefit of a positive market.

These strategies increase the chance of accomplishing that, said Mehrotra, because they have more flexibility, the ability to use leverage (or debt), or to go short (bet a stock will decline), as well as to use other strategies like options, derivatives and arbitrage.

One strategy might be to buy a company’s convertible bonds, bonds that a holder can chose to convert to common stock. If the stock goes up, the investor might do well by converting his bonds; if it goes down, he still has the bond value and interest. He may add to the investment by “shorting the stock,” i.e., protecting against a price decline, so he has further hedged his investment.

Compare that with the investor who just buys the stock or the company’s bonds, who has no flexibility regardless of what happens to values.

Said Vernon Sumnicht, owner and president of Sumnicht & Associates: “The dangerous side of hedge funds is these are not registered securities; they’re not regulated as highly as mutual funds, so there are opportunities for people with less character to mess with the numbers.”

The minimum requirements for investors are easing. Hedge funds still require $100,000 as a minimum investment and allow in only investors with $1 million in investable funds. But some more regulated hedge funds require only $25,000, or even as little as a few thousand dollars through a hedge mutual fund. Certain hedge funds aren’t available to small-dollar investors.

The risk hasn’t discouraged institutions like Yale University, which has successfully used alternative strategies for 62 percent of their investment portfolio. The alternatives include gas and timber, real estate and private equity.

Sumnicht said investors today have gotten too good at measuring traditional stocks and bonds, so it’s hard to find an undervalued stock to buy.

—–

To see more of The Post-Crescent, or to subscribe to the newspaper, go to http://www.postcrescent.com

(c) 2003, The Post-Crescent, Appleton, Wis. Distributed by Knight Ridder/Tribune Business News.

MER, C,