As many readers of the Toomre Capital Markets LLC ("TCM") blog may already be aware, the next Hedge Fund Executive Forum Series event entitled Real-Time Decisions & Risk Reduction: Technologies that Reduce Latency and Sharpen Business Intelligence to Drive Results will be held in New York City on Thursday November 29th 2007 and then repeated in Stamford, CT on Tuesday December 4th. Lars Toomre will be one of the speakers at this event. Both Aldon Hynes and Lars Toomre hope that you will be able to join the Incremax and Toomre Capital Markets team at either of these venues.

These Hedge Fund Executive Forum Series events are designed to help key investment decision makers quickly get beyond buzz words and learn which strategic technologies and solutions will help drive the best results from every aspect of their organization -- the front, middle and back-offices as well as client service functions. Designed for investment managers with more than $500 million in assets under management ("AUM"), the focus of this particular event will be on data, input/output ("I/O") and how "push vs. pull" can be implemented.

The key challenge this forum event will address is how to create better real-time decision opportunities that result from first transforming fast-moving data into information and then into knowledge that ultimately adds to economic value. Some of the key solutions and technologies from Advent Software, AMD, Cisco, Microsoft, Reuters and Streambase Systems will be highlighted for further discussion.

Please circle the appropriate date on your calendar and plan on attending. Advanced registration is required and can be completed at this web link. Aldon Hynes and Lars Toomre look forward to speaking with you directly on the 29th or 4th. Hopefully, we will see you then. Please feel free to contact TCM directly if you have any questions or comments.

As highlighted on Finextra.com, Chris Skinner has written an informative commentary on developments in cross-asset trading and the search for liquidity. Entitled The Quest for Alpha, this article should be a must read for all capital markets and risk management professionals who are interested in the subjects of liquidity risk, electronic and algorithmic trading, hedge funds growth (and influence), and the on-going technology transformation in a trading world where nano-sconds matter.

Alpha is that part of investment return that an asset manager or hedge fund produces that is uncorrelated with general market returns (often referred to as Beta). High Alpha returns generally also very richly reward "long/short" investment professionals under incentive compensation schemes such as hedge fund "Two and Twenty" fees arrangements. Toomre Capital Markets LLC ("TCM") previously has written about True Alpha and Hedge Fund Beta in highlighting two excellent articles written by Clifford Asness. Mr. Asness is currently the managing principal of AQR Capital Management LLC and previously headed the group that started Goldman Sachs Asset Management ("GSAM") quantitative strategies and its Global Alpha hedge fund.

Dr. Marianne M. Jennings, a professor of legal and ethical studies in business at the WP Carey School of Business at Arizona State University, has penned a noteworthy commentary in Financial Engineering News entitled An Ethical Breach By Any Other Name . . .. Her main argument is “Ours is an era of technicalities, literalism and labels. That last category of labels is a phenomenon of these times that serves as salve for the conscience. If we attach a lovely enough label to what we are doing, we can convince ourselves that something we propose or have done could not possibly be an ethical breach.” She continues

Labels have become so pervasive and commonplace that we may no longer even realize the ethical breaches that lie beneath the superficial beauty of a better name. There may be serious ethical breaches beneath our glib dismissals via language choices. A cab driver in Cincinnati taught me an important lesson about these labels and my grip on reality. The cab driver, one Big Jack, was a true entrepreneur who shared his story with me. He had driven his cab for decades and had saved and invested his money for his retirement. However, this cab ride with this colorful personal portfolio manager came on the heels of the collapses of Enron, WorldCom and Adelphia. Big Jack was not terribly pleased with Wall Street or the lack of ethics demonstrated in these collapses. His mood did not improve when I told him that I taught business ethics. He then asked me if I was familiar with a practice known as “earnings management.” Armed with my undergraduate degree in finance, I offered Big Jack my best support for the shareholder value that comes from smoothing out those earnings. Following my theoretical discussions, Big Jack thought for a moment and then commented, “I don’t really call it earnings management. I call it lying.”

Streambase Systems and Advanced Micro Devices are both clients of Toomre Capital Markets’ risk technology services. Earlier this week, both companies jointly announced that Streambase’s flagship Stream Processing Engine is now capable of running in 64-bit mode, fully taking advantage of advanced 64-bit high performance computer chips like the AMD Opteron™ processor. As noted in this previous TCM post, systems based upon AMD Opteron processors enjoy a highly scalable architecture that delivers next-generation performance with twice the power efficiency of Intel chips (according to Sun Microsystems’ Andy Bechtolsheim in eWeek). With this Streambase software release, enterprises can effectively eliminate latency in processing real-time data streams while penetrating the physical barrier that limits applications to 4 gigabytes (GB) when using 32-bit systems. As the press release StreamBase Extends Enterprise Adoption with Accelerated Real-Time, 64-Bit Performance Gains states, “enterprises using StreamBase can react to real-time data faster and execute right-time business decisions that capitalize on opportunities and reduce risks.”

Streambase and AMD make a great combination in solving real-time Enterprise Risk Management issues and improving Economic Value Added (“EVA”). Toomre Capital Markets LLC assists enterprises to customize these tools to measure, monitor and manage each individual organization’s specific risk portfolio. Please contact Lars Toomre at TCM, Bill Hobbib at Streambase Systems or Dio Dipasupil at AMD for further information on how your organization can move to world-class, real-time Enterprise Risk Management.

In its January 23, 2066 cover story, Businessweek is reporting that those mathematical quantitative types – the “quants” -- are at it again. After a generation earlier when quants (like Lars Toomre with his MIT engineering education) turned the field of finance on its head, now quants are mapping out ad campaigns and building new businesses from mountains of personal data. As James R. Schatz, chief of the mathematics research group at the National Security Agency says: "There has never been a better time to be a mathematician."

The Businessweek article Math Will Rock Your World written by Stephen Baker, with Bremen Leak in New York, really hit home to this son of MIT applied math professor Alar Toomre. Hence, TCM is reproducing a significant portion of the article below for future reference (with markup and links added by Toomre Capital Markets). However, TCM strongly recommends that reader access the entire article on the Businessweek website. A podcast of the article is available through this link. The first section of the article reads:

Professor Perry Mehrling has written an excellent book entitled “Fisher Black and The Revolutionary Idea of Finance” (ISBN 0471457329). Lars Toomre had the pleasure of receiving a copy of this book for Christmas and heartily recommends it to anyone interested in the field of options, derivatives, portfolio insurance and/or global asset allocation models. As the book jacket states Fisher Black was “the high priest of modern finance, who saw the big picture that linked up all the smaller developments, both theoretical and practical. The big picture was all about risk and about a sea change in our understanding of the place of risk in modern society. Fisher Black learned the Capital Asset Pricing Model (“CAPM”) that teaches a scientific approach to risk, telling when and how to avoid it, but also when and how to embrace it. Fisher Black lived his life the dictates of that model, treating risk as nothing more than the price of reward.” This is an excellent story about the birth of quantitative finance and financial engineering, and a highly recommended addition to the TCM reading list.

Campion Walsh writes on Dow Jones Newswires on December 1, 2005 in a story entitled “U.S. Comptroller Warns About Exotic Mortgage Types” that Comptroller of the Currency John Dugan said Thursday he has grown increasingly concerned by risks to both borrowers and lenders from relatively exotic negative-amortization and payment-option mortgages. Regulatory guidance on mortgage lending, now in the works by the Office of the Comptroller of the Currency and other bank supervisors, will give a focus to negative-amortization mortgages and payment-option adjustable rate mortgages, or ARMs, considering the "payment shock" these loans can carry for unwitting borrowers, Mr. Dugan said.

With interest rates rising and the end of the initial low-two year payment period coming for many of the recently originated option mortgage products, Toomre Capital Markets has likewise been very concerned about the “payment shock” that the primary mortgage obligors will experience. Since so many of these types of loans have been securitized or sold in one form or another to the capital markets, such payment shock is also likely to ripple through both the mortgage-backed securities (“MBS”) and collateralized debt obligation (“CDO”) market sectors. TCM has previously written about this mortgage credit risk problem here.

The Financial Engineering News Inside the Black Box column entitled “February 1, 2006: The Hedge Fund Registration Stakes” is a noteworthy article on the issue of hedge fund registration. Toomre Capital Markets would suggest that people who are interested in how the markets may be influenced by requirement that hedge funds register with the SEC as investment advisors read the complete article.

The article starts off by stating: “February 1, 2006, looms as the deadline for hedge fund registration in the U.S. By that date, domestic advisers to hedge funds with 15 or more investors and lockup periods of less than two years will have to register as investment advisers under the 1940 Investment Advisers Act. That will subject them to an assortment of compliance obligations and allow the Securities and Exchange Commission to conduct inspections to ensure that they’re complying with federal securities laws. Hedge funds’ two-year caterwaul of distress over registration faded when the SEC announced its decision last fall. With the uncertainty about whether hedge funds would have to register removed, the interested parties have been gearing up for February.