Editor's letter

It's been a difficult year for hedge funds. First they got hammered from being wrongly positioned in correlation trades as the autos downgrades roiled the markets in May. Then a spate of bankruptcies - Delta, Northwest and more recently Delphi - as well as renewed problems lurking below the surface at GM and Ford, have hit indices and CDOs and sent mark-to-market credit derivatives positions haywire. And as if the markets weren't inflicting enough pain, now hedge funds are finding themselves blamed for the biggest source of operational risk in the markets - the much-discussed backlog of credit derivatives confirmations.

One hedge fund that has emerged relatively unscathed from all these shocks is the AlphaGen Credit Fund, from heavyweight asset manager Gartmore. In our cover feature for this issue, we get up close and personal with its manager Mark Wauton, who explains how the fund's fundamental reliance on rigorous analysis has helped it weather some of these storms. "We admit we were wrong-footed," explains Wauton, referring to the correlation blip in May, "but at least we had the dexterity to unwind a large proportion of the short book quickly."

We also tackle the issue of the credit derivatives backlog, which is causing hedge funds, as well as some of the top asset managers, some angst. While the industry recognises that immediate action is needed to resolve the backlog, the buy side feels that the response - Isda's Novation Protocol - has been developed with more concern for the sell side's needs than its own. "The dealers came up with their plan without any input from us and then gave us a very short deadline to comply," says Pimco portfolio manager James Keller. Strong words. Read the rest of the industry's response in the feature starting on page 32.

I hope you enjoy the issue.