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NYC, NY, United States (AHN) – Giant asset manager Pacific Investment Management Co. attracted more cash than any of its rivals in 2011, even as its flagship PIMCO Total Return Fund, the world’s largest bond fund, suffered its first ever calendar year of outflows.

Pimco’s actively managed bond and equity mutual funds lured more than $ 38.8 billion in net inflows for 2011.

Bill Gross serves as co-chief investment officer at Pimco, a firm he founded, which is one of the world’s biggest investment shops with more than $ 1 trillion in assets under management.

Morgan Stanley trailed Pimco and took the second spot with its investment arm attracting $ 18.1 billion in 2011, and DoubleLine Capital finished third with $ 12.5 billion in net inflows.

JP Morgan’s investment arm, with $ 12 billion finished fourth, and Dimensional Fund Advisors, with $ 9.9 billion, rounded out the top five.

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Detroit, MI, United States (AHN Sports) – Orlando Cabrera passed the 2,000-hit career mark recently but the Cleveland Indian infielder wouldn’t mind adding significantly to that total before putting away his spikes.

He also wouldn’t mind seeing the Indians stay in the thick of the American League Central Division title race for the rest of the season.

Cabrera had three hits in Cleveland’s 6-4 win over the Detroit Tigers Wednesday night at Comerica Park. His third hit of the game, an RBI double in the top of the fifth, gave Cleveland a 5-4 lead.

It turned out to be the only win in a three-game series for Detroit. A big four-run fourth inning turned the fortunes around for an Indian team that entered Wednesday’s game having lost 10 of 12.

“We have not been playing our game,” he said. “One of big plays is when Asdrubal (Cabrera) advanced with the ball in the dirt. We got pumped up in dugout. We did it earlier in the season. We really got the momentum right there and put a couple of hits together and scored those runs. The bullpen has been terrific the whole year.”

The Tigers knocked the Indians out of first place by winning two games in a three-game series that ended Thursday.

“It’s good for us to do it right now, especially against Detroit,” Cabrera said. “It’s going to be a really, really interesting season. It’s going to be awesome. It’s going to be fun. It’s going to be a battle. Hopefully, we’ll have more games like (Wednesday’s).”

Cabrera was asked if the Indians had the potential to take it to the wire.

“I hope so,” he said. “There’s a lot of games left. I don’t think we can say the Central is going to be Detroit or the White Sox or Cleveland. It’s going to be interesting for the rest of the season.”

Cabrera notched his 2,000th career hit recently. In Detroit Tuesday night in the eighth inning, he smacked a single against Justin Verlander, who had been working on a no-hitter. He’s reached at least 490 at-bats in 10 of the last 12 seasons.

“The main thing on him has been his durability,” Cleveland manager Manny Acta said. “Every year he has 500 at bats or more. He’s been able to keep himself on the field. Probably last year was the only time where he’s been any significant amount of time on the DL. Back in the days when we were on Montreal, he plays every single game. He’s very smart, very savvy, very aggressive at the plate. If he stays healthy and plays every day as he has, he has a chance to keep doing what he’s done.”

The near 500 at bats is a figure Cabrera doesn’t mind seeing on his seasonal stat sheet.

“That’s what I’m looking for every year,” he said. “I spend a lot of time away from my family. It means a lot for me to be reliable or my manager and coaches and team to get up there every day and help my team win ballgames.”

The Indians have been in first place for most of the season and it would disappoint Cabrera if the Tribe isn’t somewhere in the vicinity of first place when September arrives.

“I don’t see any other way. If you’re not in first place or battling to get there, it’s a long season,” he said.

The 36-year-old Cabrera was rested in Thursday’s game against Detroit. In 15 seasons, which has included stops also at Montreal, the Los Angeles Angels, the Chicago White Sox and Cincinnati, he has a career batting mark of .273.

He’s now batting .251 with two homers and 30 RBIs, plus 24 runs scored this season.

“He’s a veteran player and he’s smart,” said Detroit manager Jim Leyland. “We made a couple of bad pitches on him and he looks for stuff like that.”

Cabrera, in the win over Detroit, “was huge for us, especially that double that put us ahead,” Acta said.

It was especially huge for the offense to produce six runs, Cabrera noted.

“That’s huge for us. We’ve been letting our pitchers down a lot,” he said. “They’ve been throwing the ball well. To bounce back against a team like Detroit, which is going to be there, is huge.”

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San Francisco, CA, United States (AHN Sports) – San Francisco 49ers president Jed York reached out to football mind Bill Parcells for his opinion on the hiring of a vice president of player personnel and new coach, according to ESPN’s Adam Schefter.

York will seek Parcells’ thoughts on the 49ers’ future and the direction the team should take.

The Niners have been without a general manager since Scot McCloughan’s abrupt departure last March. York has interviewed Tony Softli, a former personnel executive with the Carolina Panthers and St. Louis Rams, and former NFL executive Michael Lombardi.

Trent Baalke, who worked under Parcells with the Jets, is considered the favorite and has been working in San Fran since McCloughan’s departure.

San Fran, which was figured to compete for the playoffs before the season started, fired coach Mike Singletary following a 25-17 loss at St. Louis that eliminated the 49ers (5-10) from playoff contention for the eighth straight year.

Parcells has been with the Miami Dolphins for the past few season, helping to turn that franchise around. He relinquished his power to general manager Jeff Ireland before the season began and took a leave of absence.

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There are primarily two forms of alternative investment management, hedge funds and managed futures. Hedge funds are invested in a vast number of products, both exchange listed and Over-the-Counter (OTC) derivatives. Managed futures are generally only invested in exchange listed commodity futures contracts, regulated by the Commodity Futures Trading Commission (CFTC). Be careful! If the wrong investment is chosen the investor may be left with a bad experience of alternative investment products. This article will focus on the very important issues of transparency, liquidity, lock ups, returns and taxes in regards to the alternative asset class. Readers should leave with a better understanding of a few of the primary issues involving any alternative asset investment.

TRANSPARENCY

Transparency is an issue with any investment. Most investors want to know exactly what their money is doing at all times. Giving money to someone who claims to have returns of X without knowing what the manager is actually doing is generally a bad idea. Transparency is becoming more and more of an issue as the universe of investable products grows exponentially. The recent hedge fund “blow-ups” are a case in point.

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Hedge funds are alternative investment vehicles that can be invested in anything from Johnson and Johnson common stock to over the counter derivatives based in Zimbabwe. The universe of products is virtually limitless. When an investor becomes a limited partner of a hedge fund, in most cases he/she is giving it free reign over the funds they have invested. If the manager chooses to, he/she could invest in waffles and chances are the investor would never have any idea. Hedge funds are not required to tell investors exactly where capital is being deployed. To make matters worse, many of the products do not have a closing value at the end of the day, so even if the investors knew what the funds were invested in they would have no idea what their investment was actually worth on any given day. There is absolutely no transparency. All the investors get is a quarterly statement informing them of gains or losses and maybe some commentary if the manager is not too busy. In some cases investors hear that, virtually overnight, more than 50% of their funds have been lost. Long-Term Capital Management is the most infamous case of a hedge fund “blowing up,” but recently there have been quite a few more that are going down in history, such as Amaranth’s $6 billion loss in 2006, Absolute Capital Groups’ 30-40% loss and Focus Capital’s 80% loss in early 2008.

The story is much clearer if the investor is involved in a managed futures product, or with a Commodity Trading Advisor (CTA). A CTA generally has a very specific strategy that is defined in the investor’s disclosure document, which is similar to a prospectus. The CTA is required to state exactly what products the investor’s money will be invested in as well as exactly how the manager plans to invest. What’s more, once invested with a CTA investors will receive a statement every time a trade is placed. At the end of every day the products in which investor capital is deployed are marked with a closing price determined by the exchange. This allows the investor to know exactly what his/her investment is worth.

It is really up to the investor as to what makes him or her comfortable. If one person does fine not know where his assets are invested then the transparency issue may not need to be considered, but for most of us it is of the utmost importance.

LIQUIDITY

Liquidity: a business, economics or investment term that refers to an assets ability to be easily converted to cash through an act of buying or selling without causing a significant movement in the price and with minimum loss of value. (defined by wikipedia.org)

Liquidity can be an issue with both hedge funds and managed futures, but a good manager will tend to avoid instruments that are illiquid or difficult to trade in and out of.

As stated previously, hedge fund managers can and do invest in a vast array of products. Many of these products are OTC derivatives or products that are traded between banks and the hedge funds directly. If the hedge fund buys an OTC derivative from a bank, and later decides it needs to sell that particular product back, the bank alone determines what they will buy it back for, or worse, if they can buy it back at all. In that case the hedge fund may not be able to get out of a losing position.

Liquidity is an issue that has gripped a number of hedge funds lately. Many have been forced to shut down because they were invested in highly illiquid derivatives linked to sub-prime mortgages. When the counter parties began to refuse to buy the products back the funds had no choice but to liquidate their portfolios at extremely discounted prices and shut their doors, or refuse investors’ requests to withdraw their money.

Unfortunately liquidity can be an issue for managed futures as well. Most managers only trade in highly liquid commodities; however, there are times when even the most liquid commodity can become illiquid very fast. Illiquidity can be caused by many factors, from politics to supply and demand imbalances to general investor fear and greed. A prudent manager will prevent investors from being too exposed to liquidity risks by implementing some sort of hedge, diversification or proper position sizing of the account.

When dealing in listed markets, as most managed futures products do, the counter party to any trade usually has a number of other counter parties willing to buy or sell at specified prices. This kind of open auction system generally allows for prices to be fair. To give investors even more comfort each account is guaranteed by the exchange clearing house through customer margin deposits, meaning that the chance of a counter party defaulting on any given transaction is drastically reduced. However, when dealing with obscure OTC markets, as many hedge funds do, most of the time there is only one counter party to the trade, meaning it is not guaranteed by anyone, which not only makes the chance of default higher but at the same time makes the likelihood of getting a fair price on any given trade much less.

When investing in a hedge fund or managed futures product it is important to understand how liquidity can affect the investment. If a manager is using too much leverage or is consistently involved in thinly traded OTC products that are less liquid it may be a sign that investing in that vehicle at that time is not wise.

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LOCK UP PERIOD

A lock up period is the time after the initial investment in which the investor is not allowed to withdraw funds from that particular vehicle. After the specified lock up period investors are free to withdraw funds as defined in the disclosure document of each hedge fund.

Almost all hedge funds have a lock up period. This period can range from as little as three months to longer than two years. Generally the more established the fund the longer the lock up period. A lock up period is generally good for managers and not so good for investors. If a manager has a lock up period of one year and immediately after making an investment the trading starts to go poorly, that manager has a right to continue trading that money until the lock up period is over; because the investor has previously agreed to the terms and conditions in the disclosure document he or she is not able to request redemption until the specified time period is up.

Managed futures products are different. Most managed futures products do not have lock up periods. There are a few that have lock ups ranging anywhere from three months to a year, but this is not the status quo in the industry. If an investment in a managed futures product needs to be redeemed it can generally be taken care of within a few hours. This is very beneficial if you have taxes due, college tuition that needs to be paid or any unexpected expenses that comes up.

Lock up periods will be foreign to most investors who have not invested in alternative investments before. Make sure when reading the disclosure document that the lock up and withdrawal periods are properly discussed. Also, note that in many cases the lock up period is an area that can be negotiated to the investor’s benefit.

RETURNS

Returns are returns, right? Wrong! Returns are a very deceiving form of analysis for any alternative investment. Most investors make investment decisions based on previous returns, but this is a flawed concept. The main issue is that past returns have absolutely nothing to do with future returns. This has been proven time and time again as managers that were once out-performing begin to under-perform and managers that were struggling rise to the top. Wise investors will not base their investment decisions on past returns or assumptions made about future returns.

The fact of the matter is that no manager really knows what returns will be from year to year. Managers can target a certain return but there is absolutely no guarantee that the goal will be achieved. If any manager, whether hedge fund or CTA, specifically promises a return that is a sign to seek a different manager. Likewise, if a manager touts his/her past returns it is a sign he/she does not fully understand that returns are completely unrelated to each other and have no bearing on the future.

There are numerous databases in which managers can post monthly returns and potential investors view them, but this is completely the wrong way to make any investment decision. Chasing returns leads investors down the wrong path and can have devastating effects on their capital (see “Transparency”).

What investors need to do is search through these alternative investment managers by strategy, not by returns. The investor should pick a few advisors from each category after reading about the managers’ approach to the market. Once a few are decided on, the investor should call each manager and request more information and/or a meeting. All managers will have a disclosure document and possibly some marketing material that can be given to potential investors. Meeting the manager of a hedge fund can be a difficult task unless the investor is placing a very large sum. CTAs, however, are generally much more open and willing to meet with investors, so getting a meeting with them is entirely possible.

Once the proper due diligence is done and the investor likes the manager’s strategy and approach, an investment can be made. Be careful not to invest too many assets with any one manager or specific style, as that is not proper diversification. It is wise for the investor to build a portfolio of alternative asset managers over a wide range of strategies, as this may reduce the risk of any one particular manager or style.

TAXES

Hedge funds often provide the investor with very unfavorable tax treatment because they are invested in many different products all over the world. This may have a vast array of consequences on the investor’s overall taxes. Hedge funds uniformly report investors’ gains or losses in August after each tax year, forcing an extension of filing. Additionally, the tax returns are very complex, often over 30 pages for each fund invested in. To try and explain all the possible tax consequences of a hedge fund would probably require an entire book. In the interest of time the entire spectrum of hedge fund tax accounting simply cannot be delved into at this point.

For managed futures products the tax accounting is very simple. Since most trades take place within Regulated Futures Contracts (RFC) regulated by the CFTC, contracts receive Internal Revenue Code Section 1256 treatment. In this case 60% of profits are taxed at the long-term capital gains rate and 40% are taxed at the short-term capital gains rate. For a profitable managed futures product this effective tax rate of 23% provides a 12% advantage over hedge funds that trade frequently. This can, however, be a stumbling block in the case of large losses. When a loss is recorded and 60/40 treatment has been elected the investor is only allowed to carry forward $3000 of those losses every year. If the investor’s loss is large this can be a real headache, as he/she will be carrying forward losses indefinitely. There is a bright side, and that is if the investor has created a portfolio of managed futures products and another manager has produced gains the investor can write off the loss against the gains of that other manager.

In the end calculating taxes for a managed futures product is much simpler than for a hedge fund. For some investors this may not be an issue, as their CPAs will manage everything, but it would be important to consult with the CPA prior to investing to make sure he/she fully understands the implications involved with the new investment.

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