Hedge Fund Report: Betting It All on Russian Gas

Phil Flynn, senior market analyst with Alaron Trading, says people have been burned by such speculation before. "I'm not invested in Russia. I was very disappointed in Russia after Yukos. It was a step in the wrong direction," he says. With Gazprom, which is still majority owned by the government, the same dangers remain.

Tremont Capital Management's asset flow report shows that, for the third quarter, long/short equity, event-driven and emerging market hedge funds were the strategies that attracted the most money: $5.6 billion, $3.9 billion and $2.9 billion, respectively. The gains in emerging markets were due to the popularity of Eastern Europe, China and Brazil, said Tremont's CEO Robert Schulman.

Follow the Money

Wondering how to keep from getting burned in hedge fund implosions like Bayou and Wood River? "It's easy," says one fund of funds manager. "Check the auditor." Wood River's inaccurate claim that its books were reviewed by a unit of American Express wouldn't have been difficult to uncover, he says. Bayou's auditor allegedly was a "sham" company.

Audit is the new buzz word. "If it's not a Deloitte & Touche or an Ernst and Young, we don't even bother," says one hedge fund manager. Investors should also make sure that the fund administrator is independent from the hedge fund. It's common sense. But many times, the role of those administrators who value the assets is overlooked.

Friendly Competition

Societe Generale, the French investment bank, spun out its event-driven team into a new hedge fund called Amber Capital. The fund will be run by Joseph Oughourlian and Michel Brogard, who already oversee the 16-people team.

The spinout is part of a trend. As happened at Deutsche Bank, high-profile portfolio managers are occasionally leaving a bank's proprietary desks to create their own shop -- with the go-ahead of their bosses. The underlying reason is that talent would eventually leave the bank anyway and it's in the best interest of institutions to cut a deal with their best traders before it happens.