Also you cite the potential of using “alternative investment money managers.” Could you explain this? $500,000 is the maximum listed, but it isn’t clear if this is for an individual investor or for the fund as a whole.
None of these requests would be out of the ordinary for any investor, who would ask to see, as do we, the report of an independent auditor. Also, we would like to know where the trading and investment records are kept, who actually administers the funds, computes returns (particularly in regards to the 25% incentive fee), and who audits each fund.
The part you and Mr. Caro play in this business remains unclear, as to the actual investments in particular. We would like to see specifics of both of your investment employment background, what actual investment companies you both have been employed at. It is our belief at this time that neither of you have in fact any such professional track record in finance. Mr. Plotkin’s resume as well has not been shown to include the requisite years of verifiable experience required to operate at the levels of success you purport. In fact, the sole entity he claims to have worked at, “ALTERNATIVA” has not been found in a search of Israeli businesses.
You should know that we are not alone in our general skepticism. A survey of business publications has yielded a number of statements critical of your operation as presented. If Genius expects to have credibility in this market and at this time, a greater level of disclosure is surely indicated.
Their reply was, “We are in the process of turning over your request to an attorney to assist us. We will have no comment until he has had a chance to review your allegations and request and discuss those issues with us. We believe it would be imprudent for us to act without first obtaining legal advice.”
Shortly thereafter Genius Hedge Fund
pulled down their website. An additional two weeks was given to them to respond. While we did receive a letter from Alex, it only reinforced our perception that Genius is not ready for prime time. Although it is not our place to pass ultimate judgement on the legitimacy of Genius Hedge Fund, we do feel enough concerns have been raised to issue a stern Caveat emptor—Let the buyer beware.
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uschess.org
GLOSSARY OF TERMS
Due Diligence—Formally it is an investigation of a potential investment. Generally, due diligence refers to the care a reasonable person should take before investing, independent of the information provided by the seller of that investment.
Options—An option is a contract that gives the buyer the ability (but not the requirement) to buy or sell (or “exercise”) an asset at a specific price at one or more specific dates.
Transaction fees—A combination of the fixed and variable fees charged by a broker or an exchange to facilitate a transaction.
Cherry-picking—A fund manager with multiple clients or strategies creates a com- posite track record that inappropriately ignores some of the poorly performing clients and/or strategies.
Survivor bias—Clients whose portfolios perform well tend to stick around and those with poor performance tend to leave. As a result, reporting the historical results of those still around while excluding those who have left tends to artificially ele- vate a manager’s track record.
Backtesting—Taking an investment strategy and applying it theoretically to past market pricing to create a hypothetical track record. While a good tool, it can be misused if it claims to be actual results. Both backtested and actual results are commonly accompanied by the disclaimer, “past performance does not necessar- ily guarantee future returns.”
GP—General Partner. The person or entity in a partnership who has unlimited lia- bility for the obligations of the partnership, including risk to their own personal assets.
LP—Limited Partnership. A type of business that allows for the limited partners to avoid personal liability if the investment fails.
Offering circular—A formal, legal document that discloses information about an investment vehicle, its managers, and service providers (lawyers, etc.). It will show the legal framework of the fund, explain risks, and provide the means for an inter- ested party to invest in the fund.
Prime broker—Hired by a hedge fund, a prime broker settles a fund’s financial transactions and provides any borrowing the fund may need to execute its invest- ment strategy.
Delivery-versus-payment—A transaction where the investor’s cash and the security offered are exchanged simultaneously (and vice versa). Allows for a fund to never be at risk of being “out” the money and the security.
Liquid—The existing cash of a fund plus the assets that can be converted to cash very quickly with minimal loss of value.
Leveraged—How much of a fund’s investment is based on borrowed money rel- ative to the actual value of the fund’s holdings. A heavily leveraged fund will have borrowed significantly to execute its strategy.
Hedge fund—A private, temporary pool of investment capital that typically employs some form of risk management or hedging to protect against market volatil- ity. The amount of regulation is limited because there is generally a requirement that investors in hedge funds be experienced, well-heeled investors who know what they are doing. Historically this involved “hedging” risk, i.e. taking positions that benefit in a down market, but today there are thousands of hedge funds that col- lectively employ a large variety of strategies.
Resources for deciphering “investment-speak” include
Investopedia.com, Investor
words.com, and
finance-glossary.com.
Chess Life — July 2011 41
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