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OPERATOR: Good afternoon, ladies and gentlemen, and welcome to the Dexion Absolute Q&A conference call hosted by Richard (sic) Bowie. My name is Louise. I will be your coordinator for today's conference. For the duration of the call you will be on listen-only. However, at the end of the call, you will have the opportunity to ask questions. (Operator Instructions)
I will now hand it over to Mr. Bowie to begin today's conference.
ROBIN BOWIE, CHAIRMAN, DEXION CAPITAL PLC: Hello, everybody, and thank you very much for joining us on this call. This is Robin Bowie from Dexion Capital. On the call, we have Roxanne, Scott, Anita, Justin, and Ron from Harris; and Ana and myself from Dexion Capital.
The principal reason for the call is to give you, as investors, a better understanding of the impact of the current market conditions on the Dexion Absolute portfolio and share price.
When preparing for the call and talking to investors, there have been three main areas that have come up. Firstly, the short and long-term impact of the current shortselling legislation. Secondly, the rising cost of funding and how that affects hedge funds. And thirdly, the share price, and its discount to NAV, and how we view that, and how we are likely to deal with it.
Each caller on the call will be initially limited to one question, so that everybody can get a chance to participate and ask questions. If for some reason we don't get round to your call, please feel free to either email us or pick up the telephone, and we will address any questions or concerns that you have.
We will start the call with a brief 10-minute introduction by Roxanne of what is going on in the portfolio and the markets; and then we will move straight on to a Q&A session. Roxanne?
ROXANNE MARTINO, PRESIDENT, CEO, HARRIS ALTERNATIVES L.L.C.: Thank you very much, Robin. World financial markets have responded to the near-daily significant events with historical levels of volatility. Year-to-date, the MSCI World Index was down 20%; the S&P 500 Index was down 18%; and the Morgan Stanley Emerging Markets Index is down 32%.
The Dexion Absolute Funds' NAV is down 8.25% year-to-date through September 19. Certainly while this is surely a disappointment to us, it has to be viewed against this broader financial backdrop.
While governments and regulatory bodies have sprung into action, many financial institutions have been impacted by the effects of this credit crisis. When institutions are forced to seek liquidity, many normally unrelated strategies feel the impact, as a domino effect of lower asset prices causes a greater need for liquidity.
We certainly saw this in 1998 when Russia devalued their currency and defaulted on their debt, which led to long-term capital failure. We also saw it in 1994 when there was a dramatic shift of US monetary policy, which triggered a similar flight to cash and a repricing of risk.
But we believe that these liquidity events often lead to dislocations that present outsized opportunities for our manager after the turmoil passes. For instance, as you know, we've been paying very close attention to the credit area to determine when to increase our long-short credit exposure, as we saw this was an area of future opportunities.
The liquidity crisis is creating that very opportunity we have been waiting for. In the past, when these types of dislocations have occurred in the credit area, we have been set up for multiyear cycles of extremely generous returns.
The volatility seen in this time period has been unprecedented, and the interest-stock correlations have been at the highest level that we have seen in 20 years. This interest-stock correlation -- this is when all things are going up at the same time, all things are going down at the same time. Really, it is when stocks are not trading based on fundamentals.
This makes it extremely difficult for our managers, who rely on their ability to determine the value of the underlying securities and the market's deviation from it to generate their return.
We believe that these unprecedented levels of correlation are unsustainable. The fundamental manners and ultimately the fundamentals will win out in the long run.
During this critical time period we have been actively engaged in conversations and on-site meetings with our managers …