GLG Partners, Inc., Q4 2008 Earnings Call Transcript

Feb.12.09 | About: GLG Partners (GLG)

GLG Partners, Inc. (GLG) Q4 2008 Earnings Call February 12, 2009 9:30 AM ET


Shirley Chan - Associate, IR

Noam Gottesman - Chairman and Co-CEO

Jeff Rojek - CFO

Simon White - COO

Michael Hodes - Director of Public Markets


Roger Freeman - Barclays Capital

Craig Siegenthaler - Credit Suisse

Bruce Hamilton - Morgan Stanley


Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2008 GLG Partners, Incorporated. Earnings Conference Call. My name is Philanda, and I will be your coordinator for today. We will facilitate a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host, Ms. Shirley Chan, Associate of Investor Relations. Please proceed.

Shirley Chan

Hello everyone, and thank you for joining us for our fourth quarter and full year 2008 investor and analysts conference call. On the call with me today, is Noam Gottesman, our Chairman and co-CEO; Jeff Rojek, our Chief Financial Officer; Simon White, Chief Operating Officer and Michael Hodes, Director of Public Markets.

Earlier this morning, we issued a press release announcing our financial results for the fourth quarter and full year 2008. After our prepared remarks during this call, we will be happy to take your questions.

I would like to point out that during the course of this conference call, we may make a number of forward-looking statements. Forward-looking statements are subject to various risks and uncertainties and there are important factors that could cause actual outcome to differ materially from those indicated in these statements. Some of these factors are described in the Risk Factors section of our filings with the SEC.

I want to remind you that GLG assumes no obligation to update or revise the forward-looking statements whether as a result of new information, future events or otherwise unless required by law.

I would also like to remind everyone that in addition to financial results prepared in accordance with GAAP, GLG presents certain financial measures such as adjusted net income, non-GAAP weighted average, fully diluted shares and non-GAAP compensation, benefits and profit share that are not prepared in accordance with US GAAP.

GLG is providing these non-GAAP financial measures to enable investors, security analysts and other interested parties to perform additional financial analysis of the GLG's personnel related costs and its earnings from operations, and because GLG believes that they will be helpful to investors in understanding all components of the personnel related costs of the business.

A reconciliation of these non-GAAP financial measures to GAAP is included in our earnings release, a copy of which is available on our website and has also been furnished this morning to the SEC on our Form 8-K. Finally, I would like to point out that this is not intended to be an offer or solicitation for investment in any particular GLG fund.

Now, I would like to hand the call over to Noam for an overview of the quarter.

Noam Gottesman

Thank you, Shirley. Good morning. We are pleased to have the opportunity to speak with you today and provide an update on our fourth quarter and full year 2008 results, and the performance across our funds.

Our financial metrics were as follows. Our net AUM for the quarter stood at $15 billion, down $2.2 billion for the quarter. Performance related declines accounted for $2.6 billion in lower net AUM, while net inflows were a positive $0.8 billion inclusive of $1.6 billion mandate from Banca Fideuram and an approximately $3 billion sub-advisory mandate from SocGen. The long anticipated emerging market outflows were $2.5 billion in the quarter.

As to our performance, and not including our special assets funds in emerging markets special situations fund on a dollar-weighted basis in the third quarter, we averaged a net decrease of 12.4% across all our funds, and a net decrease of 9.7% for our hedge funds.

For 2008, on a dollar-weighted basis, we averaged a net decrease in performance of 28.5% across all our funds, and a net decrease of 24.6% for our hedge funds. These numbers compared to declines in major global industries for the quarter of 20% to 30%. and for the year are 30% to 45%.

Non-GAAP adjusted net income was $28.2 million for the fourth quarter, or $0.09 a non-GAAP weighted average fully diluted share. These metrics are down significantly year-over-year on lower performance fees levels and AUM, offset by materially low level to discretionary compensation benefits and profit share. For the full year 2008, non-GAAP adjusted net income was $128 million, or $0.41 to non-GAAP weighted average fully diluted share.

Lastly, in terms of results, I want to note, our GAAP net loss attributable to common stockholders was a loss of $142.7 million for the fourth quarter of 2008 and $629.7 million for the full year.

As we have previously disclosed, under GAAP accounting, the company expects to recognize for the next several years significant and largely non-cash compensation related expenses associated with GLG's November 2007 reverse acquisition transaction with Freedom Acquisition Holdings.

In the fourth quarter and full year 2008, the GAAP net loss resulted, primarily the recognition of these acquisition-related compensation expenses, which reduced GAAP net income by $170.8 million in the fourth quarter, and $753.3 million for 2008.

Now let me pass you over to Jeff Rojek our CFO who will cover the financial results in a little more depth.

Jeffrey Rojek

Thanks, Noam. I'm going to provide some details on what I believe are the key highlights for the quarter. From a revenue perspective, we saw significant decline year-over-year $72.7 million versus $446.5 million a year ago, and there are three primary factors that work.

A few of our funds and managed accounts had performance levels high enough to generate performance fees in the second half of 2008. Note, our second half performance is generally crystallized in fourth quarter and our first half performance is generally crystallized in the second quarter.

Our average net AUM totaled 36% year-over-year and 29% sequentially in the fourth quarter of 2008. This calculation is adjusted to exclude approximately $3 billion of the sub-advisory mandate with SocGen Asset Management UK, which was signed in December.

Also the mix of our AUM has changed over the last several months. Our mix is shifted more towards managed accounts more anomaly as we have taken our new assets and lost some high yielding AUM such area as emerging markets.

Management and admin fee rates are actually unchanged. The only exception really is, that asset that removed into side pockets, these assets appropriately carry materially reduced fees.

Our management and admin fee yield was 157 basis points in the fourth quarter, adjusted for the SocGen Asset Management mandate, versus 192 basis points from the third quarter of 2008 and 194 basis points in the fourth quarter of 2007.

On the expense front, I would like to address, how we are approaching compensation levels in the current environment. Internally, we view compensation using the measured non-GAAP compensation benefits and profit share, or non-GAAP CBP, which reflects GAAP compensation, benefits and profit share adjusted to exclude acquisition-related comp expense in connection with the reverse acquisition transaction with Freedom.

Fourth quarter 2008, non-GAAP CBP dropped 97% to $7.6 million, largely due to lower discretionary bonus accruals and reversal on accrued limited partner profit share. Non-GAAP CBP for 2008 dropped by 65.7% to $196.3 million, also due to lower discretionary bonus accruals and limited partner profit share.

Non-GAAP CBP as a percentage of net revenues was 10.5% for the fourth quarter of 2008, versus 56.9% for the year ago period. This brought the 2008 non-GAAP CBP to revenue ratio to 39.7%, versus 55% for the same period last year.

Since most of our compensation is discretionary, and performance levels have not met expectations, it's not surprising that we moved compensation accrual levels down significantly.

In terms of G&A, we are at $30.9 million in Q4 of 2008, which is up slightly 5.6% versus Q4 2007, and relatively flat from the last quarter. Increases in G&A from a year ago are largely a result of additional public company costs, and growth in the scale of our business in late 2007 and early in 2008.

We have taken decisive steps in the fourth quarter on the cost front to better align our expenses in AUM and are seeing the benefits of reduced run rate now. On the tax front, on a non-GAAP adjusted net income basis, the effective rate of tax for the fourth quarter of 2008 was 4.9%, versus 21% for the same period last year and 20.2% in 2008, versus 18.5% in a year ago period.

The year came in at the low end of our guidance range of 20% to 25%. We had been assuming an effective rate closer to 23% for the first nine months of 2008, but the full year rates based on actual results, which were as closer to 20%.

As for our debt covenants, at December 31, 2008, our leverage ratio, which is funded debt-to-EBITDA trailing four quarter adjusted EBITDA was 2.26 versus the max limit of 4.5% on the last day of each fiscal quarter.

The trailing four quarter adjusted EBITDA as of December 31, 2008 was $252 million, this includes $72 million of non-acquisition equity compensation, which is added back to arrive at adjusted EBITDA. Our fee paying or gross AUM of approximately $16 billion as of December 31st was above the $15 billion threshold required at year end.

And pro-forma for the SocGen Asset Management acquisition on fee paying AUM would have been roughly $21 billion. Lastly, in terms of capital deployment, our efforts remains inflexible and opportunistic.

In December, we announced an agreement to buy SocGen Asset Management UK, and our board opted to discontinue paying a regular quarterly dividend. Our stock and warrant repurchase program of, which already 44.8 million remains available today was extended by the board of directors until August of 2009.

Year-to-date through February 11, we have bought back 28.3 million share leaving a total non-GAAP fully diluted share count of 245.8 million common share and 58.9 million FA Sub 2 exchangeable shares outstanding.

Before I turn the call back the Noam for some additional comments, I want to highlight that we have updated our investor presentation and available on our website has also been furnished today with the SEC on our Form-8K.

Noam Gottesman

Before we open up the call to Q&A, I want to frame for you what we are seeing in industry, and how we are positioning GLG. While we view GLG as asset manger that combines alternative and traditional strategies, I wanted to first comment on the hedge fund industry in general.

There are estimated to be approximately 10,000 hedge funds. The top 100 account for approximately 75% of the industry's assets, the top few hundreds close to 95% therefore to look at the industry as 10,000 of opaque disparate entities as one.

Most of the large firms are regulated, either in the UK or in the US, and in our case by both. We view the institutionalization, and by default regulation is a good thing, both to the quality control mechanism that increases confidence for investors, and more selfishly, because it increases barriers to entry.

Markets are cyclical as are hedge fund the strategies. Some work better in certain environments, for that reason among others, we began like and continue to develop as a multi-strategy firm. Our clients have a choice of strategies and the breadth of our product offering has served us well over the years, as we encountered a myriad of different environments.

The transformation or perhaps more appropriately as we are so close to Charles Darwin birthday, the natural selection and evolution of hedge funds into multi-strategy companies is logical. Lot of firms will follow this model, and those that our superior within a narrow field will prosper, but the mainly average participant let alone the weak will perish.

The flexibility afforded to multi-strategy is the ability to be ambidextrous and to offer choices and structures more closely tailored to a particular investor's needs. Up to two or three years ago, hedge funds were largely focused on delivering uncorrelated superior absolutely returns.

The most common goal they had was a 12% to 15% net return regardless of the environment. This target however was increasingly abandoned by many as market opportunities and easy leverage encouraged managers to not only see capital return, but also to look to beat the underlying indices upside performance.

This led to a significantly longer buys as well as the greater concentrations of positions and movements into liquid investments. Hedge fund conferences and the multitude of our idea in it is resulted in never increasing crowding of positions and themes.

When the markets crashed last, the annihilation of financial intermediaries, such Bear Stearns Lehman Brothers, Fannie Mae, Freddie Mac, AIG and Merrill Lynch among other not only caused not only quote wide spread dislocations, but from hedge fund point of view, the most serious consequence was vastly reduce leverage from prime brokers that cost large scale unwinding of long and shorts, which let the plunging performance and subsequently to large scale redemption request.

As investor needed cash, hedge fund suffers the brunt for the alternative industry, due to the significantly greater liquidity they provided to investors relative to other alternative products.

In spite of this horrible backdrop, most hedge funds still liquidate themselves relatively well i.e. 11% to 15% better than the underlying benchmark. However, they supported little solace to investors who cared not at all about achieving relatively better negative performance.

Hedge funds I believe will now return back to the future. In a zero interest rate world, I expect they will focus on absolute, not relative returns and have the bravery to ignore the many hedge fund indices that lead to relative thinking and ultimately ill disciplined.

This is an absolute return business, and it is incongruous to group 10,000 hedge funds into relative performance buckets. Now I just want to spend a little bit of time in the opportunities for GLG in this environment, and I'll start with a short recap.

GLG was hit by alternative issues in 2008 with departure of major team the Lehman Brother bankruptcy and some poor positioning. All these factors hurt our performance and knocked client confidence which let to outflows.

However, we have not sat back be moaned on misfortunes, instead we have replaced and departed employee with an excellent season team of professionals and are delighted with their performance over the past three months.

The integration has been seamless, and is now complete. Lehman's bankruptcy was a big blow. We lost assets, hedges, positions and overall confusion surrounding the bankruptcy still exist.

Countless hours are being spent trying to entangle the various issues involved and we have joined the Creditors Committee in the UK to best position ourselves, to fight on our client's behalf.

The performance shortfalls unrelated to the proceeding two issues, have been addressed in multiple ways. And I'm pleased to say in January, our dollar weighted hedge funds returns were up approximately 2.5%, and February is off to a very good start as well.

All this has occurred and as GLG has managed to maintain a relatively low growth in that exposure firm wide. Even before the post (inaudible) of world, we had managed accounts for our larger investors and are extremely well positioned for this inevitable trend. In fact, our largest recent mandates such as the Banca Fideuram are managed accounts.

The benefits of scale that I discussed before in regards to multi-strategy funds is even more important here, with GLG has a best-of-breed infrastructure to meet investors' heightened requirements.

Additionally, our independent custodians, multiple prime brokers, first-class customer statements complimented by regulatory over site from the FSA and the SEC and our existence in the New York Stock Corporation, hopefully will make us a uniquely transparent company.

Our growth plans, which we highlighted last quarter, continue. We announced the acquisition of SocGen Asset Management UK, and expect to close the deal in the next 60 days. SocGen Asset Management is a business that we have been interested in for a considerable period of time.

It has some top notch investment talent, very good infrastructure and is a good filled with opportunity. We are aiming to leveraging and grow this platform in conjunction with our existing traditional products.

The founders of Pendragon are an example of the opportunities we are seeing and beginning to capitalize on. I am referring to very small people with the good long-term track record, who choose not to face the ever-increasing challenges pledging hedge funds alone, but rather prefer to enter larger firm with a better developed infrastructure. They foresee that they will strongly benefit from the real time information exposure to the many global asset classes that we manage.

One of our highest conviction themes is that, in the present economic environment individual global savings rates will increase. Once a portion debt is repaid inevitably, the question of return on savings will become more acute.

Similarly, there is mismatch that needs to address by the life insurance community. Clearly investment will have to grow and it's ultimately our view that real estate venture capital and private equity will not be the first quarter call, hedge funds might not be either. The traditional equity fund management will almost certainly be the first choice. With our existing products and the Société Générale U.K. acquisition, we are strongly positioning ourselves to capitalize on this theme.

We end the year with cash on our balance sheet and the currency albeit depressed we switch to position ourselves to take advantage of this environment. Both organic growth and acquisitions are being focused on, and we remain very ambitious in our vision for the future of GLG.

Finally, I began by describing GLG as an asset manager, that is essentially what we are. We employ talented investment professionals who look for opportunities, both long and short that will deliver investment returns.

It is worth remembering that GLG started offering, both traditional and alternative strategies. We have never set out to save a one particular trading strategy over another. And we have long held debut that alternative and traditional investing will converge with the winning firms are being those who employee the brightest and best this industry can offer.

Our commitment as we enter 2009 is twofold, to continue to position ourselves well for these convergence, and to work tirelessly to redress 2008 by providing solid returns for GLG fund investor and shareholders alike.

Operator, let's open up the call for questions, please.

Question-and-Answer Session


Your first question comes from the line of Roger Freeman with Barclays Capital. Please proceed.

Roger Freeman - Barclays Capital

Hi, good morning.

Noam Gottesman

Good morning

Roger Freeman - Barclays Capital

I guess first on the performance, so, the January, February comments are encouraging particular January in light of the market having been down, I guess, Noam, what are your thoughts about, and those comments are consistent with your peers.

That's in contrast to returns being negative with negative market returns, and actually being more negative than the market in some recent months, so what are you seeing in terms of sort of the market relationships, hedge transactions or hedge trades performing better?

Noam Gottesman

Good morning, Roger, I think the last quarter and second-half, but certainly the last quarter of 2008 was an exceptional period, not necessarily because all hedge funds because stupid, but because there was a massive unwinding that was forced on them through a combination of prime brokers disappearing, the leverage disappearing and investor redemptions.

And so longs and shorts needed to be unwound, the exits were crowded and the losses were very much exacerbated I guess one of the best ways to see that visually Goldman Sachs and I think David Kostin at Goldman Sachs has a screen, which shows the 50 most highly owned hedged funds stock and the 50 least owned, or most highly shorted stocks and the returns of the longs, dramatically under performed the market in the fourth quarter and the return of the shorts massively outperformed the market in the fourth quarter as people sort unwind.

Leverage levels are much lower now. People are able to focus on trying to make money, as opposed to unwinding. And I think the positive returns and lack of correlation to the markets that we have seen the past should reemerge. I think that 2008 was as aberration the first six weeks of this year have been terrific, and I have to say it's across all of our funds, on really whether its long, short, whether it’s emerging market, whether its credit or convertible, so I don't think the people changed overnight, I just think that, their focus has turned to making money as opposed to unwinding.

Roger Freeman

Now if the first couple of months play out that way, what impact do you think that will have on redemptions in the first quarter, because we just got of the (inaudible) and they are not saying that the redemption cycle is not over yet?

Noam Gottesman

Listen, I don't know if the redemption cycle is over or not. We are slightly different from (inaudible) in a respect that our notice periods are somewhat shorter. And so if somebody wanted to redeem in late December say as a response to nervousness or anxiety about made of for any reason, for most US hedge funds, they wouldn't be able to take that money out until the end of March or April, where customer would have seen it in January.

We have actually seen a dramatic slowdown in the pace of redemption, and I am glad to say and I think that we borne the vast brunt of what we are going to bear. And listen people are sitting on cash, I think the biggest fear in the market right now on the part of hedge funds isn't the market is falling, that's what happens if the market really rallies.

I think institutions are sitting on massive amounts of cash, all the empirical data about money market, mutual funds are for vast amount of cash and we will know the cash is earning nothing. And so I think that once investors regain confidence, the first thing I think they will do is they will suspend or delay redemptions.

And it will take some time to win peoples' trust back, and I think that's appropriate. But eventually I think it will start, and it should and will need towards inflows. And to that point, our pipeline action is looking reasonably attractive and there has been some things that have moved around, but the US is still fertile, the emerging market teams that we have hired are now in the process of launching two funds, three already launched and are meeting a very encouraging demand.

And so I think that the redemption cycle is not over, but I definitely think it will pause and it will hopefully trickle. And unfortunately, we got hit early. Hopefully, we will come out of it sooner.

Roger Freeman - Barclays Capital

Can you remind how much AUM is in lockup in gates right now, and I guess when those gates come up. Yeah, go ahead with that.

Noam Gottesman

Well, I hope they come up as soon as possible, because we are charging radically reduced fees on those, and we don't own performance fees until everything is liquidated and the last investment is results and that applies to the main funds [high-volt] demand, but we have approximately a $1.5 billion of gated or special asset vehicles.

Roger Freeman - Barclays Capital

Do you expect there to be any sort of longer-term fall outs from a relationship standpoint with clients for having on those gates down?

Noam Gottesman

No, I think we spent a lot of time talking to client, so no one is happy about it, and as the biggest investor in our own funds were not happy about it either. But it was necessity, we have already started distributing some assets amounted the special asset fund. And we are going to try and manage it.

Part of these investments are last mile-type private equity in certain cases, or more concentrated positions were things we have had for a long time, people know about them. It's unfortunate, but it's nature of the business.

I think where we will get mitigated somewhat is in future, I think, certain clients might demand that there is nothing that is liquid. I think the trend towards managed accounts will be great and I think there you will see that being manifested.

The flipside is there are people and they are just an enormous amount of special opportunities out there and in the new fund that we are launching and some of the people that we were talking to lock up that people are willing to expect now are far greater than never, before the because understand the opportunity. But they also now understand the liquidly argument and so I think is going to cut both way.

Roger Freeman - Barclays Capital

Okay. Lastly just, Jeff, you talked about the expense cuts that you made in the quarter on the G&A side. How much of that is actually sort of filtered, it's really like when you look at the actual 4Q number and sort of the run rate. How much is left to filter through as we look into the first quarter?

Jeff Rojek

We didn’t really see significant amount of that trickle through in Q4. We will see a portion of it in Q1, and then I think the bulk of it will happen between, you will see a lower run rate Q2 through Q4 going forward.

Roger Freeman - Barclays Capital

Is there anyway to just sort of quantify what that number is?

Jeff Rojek

No, I don’t think we are prepared to talk about specific quantification at this point.

Roger Freeman - Barclays Capital

Alright. Thanks.

Jeff Rojek



Your next question comes from the line of Craig Siegenthaler with Credit Suisse. Please proceed.

Craig Siegenthaler - Credit Suisse

Thanks and good morning. Provide some commentary around your drive into the long only 130/30 worlds. And specifically, what clients you are really target in this region in terms of the region and also in terms of the distribution channel meaning, institutional or, like pension plans, and [Daimond's] foundation union. The reason really is, because this AUM growth potential could be pretty large.

Jeff Rojek

Listen, Good morning, Craig. I think that it could be very large, and I'll use life insurance companies as a perfect example. Clearly, this mismatch between assets and liabilities is not going to be addressed by fixed income instruments.

And I believe that equities will form a bigger and bigger part. We are actively pitching for that, we are talking too, as you know we managed already a fair amount of pension fund money in the longer and near arena, and we are just going to try and grow that very, very dramatically.

We think that the asset management business isn't going away. We think that hedge fund industry is going to shrink very dramatically. And we have the skill set to buy the longs from long/short there is no reason not to have use that skill set on longs-only, but we are seeing interest in this arena, and naturally interested in this arena from, both pension, public and private, sovereigns, we haven’t really seen much on the endowment side, but I think that's because there is issues there. But we think this could be a very, very interesting business and a very large business in the business of a very significant scale and we are actively looking in the area.

Craig Siegenthaler - Credit Suisse

Noam, what were the issues in the endowment side? What's preventing you from growing the US endowment?

Noam Gottesman

Well, I think there is a lot of liquidity issues right now in the US endowment market, and I think a fair amount of people have gotten coat with a large alternative exposure in the case of the non-hedge fund components most of that comes with ongoing capital calls that we will follow in the future.

And if you just think about it very simplistically, if you had an endowment which had X amount allocated to a portfolio, and that portfolio for simplicity sake would be 50% equities and 50%, alternative and let's simplified even further and say that the 50% in alternative for simplicity sake is only private equity and hedge funds.

So, let's assume that for a global mandate, the equity portion was down 50%. For the alternative side, let's assume that hedge funds were down 25%, and private equity and take the remarks the way you like to take them, but let's assume they are down 10%.

So on the one hand you have half the bucket down 50% in the other half bucket down 17.5% and to bare minimum you are going to have to try rebalance that towards equities. And unfortunately if you can't get out of the private equity and you are going to potentially have further allocations to make, the hedge funds industry has boon the brunt of those redemptions that I was alluding to. So again I think a lot of that has happened, but there is no doubt that long-term will be a beneficiary by default.

Craig Siegenthaler - Credit Suisse

All right, thanks Noam and two are numbers questions for Jeff. Jeff on the $8.5 billion SocGen Asset Management, which should close in the first quarter, is that X or including the $3 billion, with that X or including the $3 billion of mandate wins in the fourth quarter.

Jeff Rojek

Yeah, the $8.5 total US dollar assets under management at SocGen UK, and there is $3 billion of that $8 billion, which is part of the sub-advisory mandate.

Craig Siegenthaler - Credit Suisse

Got it, and then I had one other number question. On the comp expense, when we think about non-incentive are just pure salaries, how can we think of a good run rate for the first quarter of '09 versus what you think the fourth quarter expense was?

Jeff Rojek

Just salaries alone?

Craig Siegenthaler - Credit Suisse

Yes, salaries alone.

Jeff Rojek

Yeah, I don’t think we are typically going to guide on breaking out just the salary or just the discretionary comp. I think it's safe to say that we will stay within and sort of historical comp to revenue ratios probably more towards the low side.

Craig Siegenthaler - Credit Suisse

Okay, got it. And then actually one more quick question on the debt covenants, I guess, can you just run through the AUM and debt-to-EBITDA covenant again?

Jeff Rojek

The AUM covenant is $15 billion of fee paying AUM for 2008, and 15.5 billion of fee paying AUM for December 31, of 2009. We finished 12/31, 2008 at approximately $16 billion fee paying AUM. And our leverage ratio for the fourth quarter was 2.26, which is on an adjusted EBITDA number of 252.

Noam Gottesman

Okay, just one in other word, I actually wanted to come back on the G&A question that Roger asked before just to be perfectly clear. We take this very seriously, and we reviewed our entire expense structure in the fourth quarter.

And while we continue to opportunistically hire and we will absolutely continue to do that. And while we will continue to pay our best people and pay them well, during November, we reduced headcount by approximately 15%, we lowered the payout rates on temporary and contract staff by about 15% to 20% on average, and we began to reengineer our G&A cost base.

And based on the cost reduction initiatives that we put in place, we would expect the total positive annual benefit in access of $35 million to begin accruing in the first quarter of '09 with the full benefits arriving from the second quarter onwards.


Your next question comes from the line of Bruce Hamilton with Morgan Stanley. Please proceed, sir.

Bruce Hamilton - Morgan Stanley

Yeah. Hi guys, thanks. Just a follow-up question, I'm trying to get very useful color on sort of your view on the long end equity versus sort of private equity hedge funds and all that.

But within the hedge funds space, would you distinguish between especially, do you think it more likely to be win as we look at them in the second-half or into 2010, versus ones which will be tougher in, I mean going back to the previous conference call I'm not going to be saying certain credit stress you have made those much, much tougher. I mean is your sense that liquid that's long/short maybe okay, but loss to the credit world will be tougher or is that too simplistic?

Noam Gottesman

No, no. I don't think it's simplistic at all. I think it’s absolutely right. I think that if you think back this was 80s, early 90s, the predominant strategies were equity long/short and macro, and I think those strategies will be the large beneficiary this year in addition to some CTA activity.

You are going to be able to make I think very good money in convertibles, very good money in convertible arbitrage and very good money. In Distress it's just going to be with considerably less leverage and given the opportunity rich environment in those sectors right now, there will be money to be made.

Once the glaring on opportunities disappear, those areas will be hard, because the leverage I don't believe will be as readily available, but I expected long/short and macro will continue very much to be in the forefront.

Bruce Hamilton - Morgan Stanley

Great, thank you.


And at this time, there are no additional questions in the queue. I would now like to turn the call back over to Mr. Gottesman for closing remarks.

Noam Gottesman

Thank you very much and have a good day.


Thank you for joining today's conference. This concludes the presentation. You may now disconnect and have a wonderful day.

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