Oppenheimer And Tremont Launch Hedge Fund For Institutions

Investors Offshore, New York

20 January 2003

OppenheimerFunds (OFI) and Tremont Advisers announced last Friday the launch of two SEC-registered funds of hedge funds available exclusively to tax-exempt, institutional investors. The funds are part of a new OFI Tremont Institutional Hedge Fund Series, providing institutional investors with a convenient way to invest in hedge funds by delivering the research and risk management skills of Tremont within a registered structure.

OFI Tremont Core Diversified Hedge Fund and OFI Tremont Market Neutral Hedge Fund, which opened for investment last week, are based on strategies that Tremont has offered clients on a fully discretionary basis for several years. These funds of funds are available to tax-exempt institutions such as endowments, foundations and public and private pension funds that qualify as accredited investors and qualified institutional clients.

According to Tremont, the new funds break ground in that they are structured as US regulated investment companies (RICs) under the Internal Revenue Code and thus avoid unrelated business taxable income (UBTI), for which tax-exempt investors may be liable if they invest in hedge funds through domestic limited partnerships. The Funds are registered with the SEC as closed-end management companies.

“The launch of the OFI Tremont Institutional Hedge Fund Series for the tax-exempt institutional market signals an important point in the evolution of hedge fund investing,” said John Hock, Head of Global Sales at Tremont. “Many tax-exempt investors have been looking to alternative investments such as hedge funds, but, until now, there have not been registered investments offering the degree of risk transparency required by these institutions. We believe that, by providing the convenience of a registered RIC, combined with Tremont’s comprehensive manager research and industry-leading risk management practices, that institutional investors will have a uniquely attractive vehicle through which to invest.”

“These new funds further expand the range of investment capabilities OFI Institutional brings to the institutional marketplace,” said Chuck Mckenzie, Chief Marketing Officer for OFI Institutional Asset Management, Inc. “The OFI Tremont Institutional Hedge Fund Series is a turnkey solution that addresses the specific needs and concerns of domestic, tax-exempt institutional investors.”

Tremont estimates that there is $550-600 billion invested globally in hedge funds. Less than 25% of that total likely stems from institutional investors, although institutions are expected to make up a larger percentage of new asset flows to the business in the next several years.

The new funds of funds take advantage of Tremont Advisers’ nearly 20 years of expertise advising on alternative investment portfolios. Tremont advises on more than $8 billion in hedge fund investments, employing a top-down allocation strategy that involves comprehensive hedge fund manager research and due diligence. Each fund of funds will invest in approximately 15 managers and will receive risk transparency via RiskMetrics Group’s Hedge Platform. RiskMetrics Group’s Hedge Platform enables Tremont Advisers to measure, evaluate and aggregate risk at the manager and fund of funds level while RiskMetrics keeps the position level detail confidential. Tremont was the anchor member in RiskMetric’s Group’s Hedge Platform and named RiskMetrics Group as its exclusive service provider in the risk management arena.

“These new funds are truly a breakthrough development for the market because of the new levels of information and risk transparency they offer while avoiding UBTI,” said Robert Rosenbaum, Senior Vice President and Director of the Investment Advisor Group for Tremont. “Not only will the new funds be making required reports as SEC-registered funds, but they will offer unparalleled levels of risk reporting to provide Tremont with the necessary information to help analyze managers’ investment activities more effectively. Tremont believes that rigorous analysis and stress testing of risk exposures, including prices and volatility of equities, interest rates, credit spreads, foreign currencies and commodities, are critical to effective portfolio oversight and ongoing evaluation of hedge fund managers in the Funds.”

OFI Tremont Core Diversified Hedge Fund is geared toward equity-oriented investors. The Fund seeks annualized returns of 10-12% over a market cycle with significantly lower volatility than the broad equity markets. The Fund includes a mix of relative value and directional strategies such as long/short equity, event driven and global macro. OFI Tremont Market Neutral Hedge Fund is geared toward investors who seek a return similar to those achieved in the fixed income markets. This Fund aims to earn an 8-10% annualized return over a market cycle. The component strategies will largely be arbitrage-based.

Both Tremont and OppenheimerFunds, through its OFI Institutional and other units, will market the new funds of funds. The Funds require a minimum $1 million initial investment with additional investments in $100,000 increments. Purchases may be made monthly, and there is a 1% fee for shares repurchased by the Funds within 12 months of an investor’s initial investment. The first share repurchase by the Funds is scheduled for December 31, 2003.

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