Top Revenues for Hedge Fund Managers

May 23, 2017 James Heinsman Hedge Fund News

Despite the fact that investor returns for hedge funds were somewhat “disappointing,” hedge fund managers did not feel the pinch.  Indeed, over the last ten years the industry has encountered very bad returns with Daniel S. Loeb referring to it a “catastrophic period.”

Bringing home a staggering $11 billion, the top 25 hedge fund managers around the world.  between just two top earners (Renaissance Technologies founder James Simons and Bridgewater Associates founder Ray Dalio) a net of $3 billion was taken home.

How do they do it though exactly?  How are they bringing in these kind of bucks?  Simons himself recently pointed out that “Good performance, mediocre results or even downright ugly returns. When it comes to hedge funds, it scarcely matters.” So what is it that is making them so successful?  Later on in the article, Simons provides the answer.  He says:

“The key to these large paydays is the fee system known as 2-and-20. Hedge funds typically charge investors 2 percent of their investment annually, regardless of performance. So even in a disappointing year, managers still are paid a handsome sum. In the event they make a profit, the funds take 20 percent of that as well.”

The list – composed by Institutional Investor’s Alpha magazine – is generated on an evaluation of the percentage of hedge fund manager’s fund and performance fees, with a study of how they personally invested in the fund. When the list was first formulated back in 2000, compensation was half of what it is now.

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The Top Hedge Fund Earners of 2016

May 17, 2017 James Heinsman In the News

We mean who brought home the most money, and not necessarily had the best returns, although these often go together considering the fees managers charge for performance.

Broadly speaking the hedge fund industry had lackluster year, but at least the numbers are black. Hedge Funds returned 5.4 percent, kind of anemic compared to the robust 11.9 percent of the S&P 500.

We also are well-versed in the story of the high fees driving money out of the industry. There was about 70 billion fewer dollars working for their investors compared to the previous year, the biggest loss of cash since 2009.

Yet, as was hinted at in the opening line, these less than stellar results did not seem to hurt the best managers much. According to Alpha magazine, the recently published list of the top-earning hedge fund managers, the highest ranked 25 heads of hedge funds ‘earned’ $11 billion in total in 2016.

Who made it to this list? Here are just the top 5.

1.    James Simons, founder of Renaissance Technologies. His yearly take home pay equaled $1.6 billion.
2.    Ray Dalio, founder and co-chief investment officer of Bridgewater. Earnings= $1.4 billion.
3.    John Overdeck, co-founder and co-chair of Two Sigma Investments. He made $750 million.
4.    David Siegel, co-founder and co-chairman of Two Sigma Investments. Also $750 million.
5.    David Tepper, founder and president of Appaloosa Management. He earned $700 million.

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Investors Anticipating Sohn Conference Predictions

May 8, 2017 James Heinsman Hedge Fund News

Monday marks the opening day for the 22nd annual Sohn Foundation Conference. The event draws some of the biggest names in the investment community, and predictions made here can influence the market.

Bill Ackman is returning to the podium at Sohn after taking a break last year after being a fixture at previous Sohn conferences. Founder of Pershing Square Management, Ackman has a great long-term record, but has hit a few potholes along the way, apologizing to investors for his bad advice to bet on Valeant Pharm International, plus his short bet on Herbalife.

Sohn participants are eagerly waiting to hear from founder and chief executive of Social Capital, Chamath Palihapitiya whose advice last year to buy Amazon worked out well. He said Amazon had plenty of room to grow, well on its way to becoming a $3 trillion company. In the 12 months since Chamath made the call Amazon’s stock is up 40 percent.

Jeffrey Gundlach, bond trader guru and CEO of DoubleLine Capital, told people a year ago to watch out for the possibility of Trump winning the election. Expounding his well-known contrarian views he told Sohn attendees: “I think you need to prepare for a Trump presidency.”

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Owl Creek’s Asia Fund Closing as Head Leaves

April 27, 2017 James Heinsman Hedge Fund News

New York-based Owl Creek Asset Management will be divesting of its Asia assets in response to the departure of the Hong Kong branch’s co-manager, Chris Wang, voluntarily walking. The closure will shave about $360 million off of the AUM of the mother fund, valued at a total of $2.6 billion.

Owl Creek was launched by Jeffrey Altman in 2001 and invests in companies exposed to corporate events such as mergers and acquisitions. It takes bullish and bearish bets on stocks and credit. The firm has weathered many financial ups and downs of late. Last year its $1.1 billion Owl Creek Overseas Fund grew by 14 percent, ranking 42nd in performance for funds worth over $1 billion. But its assets had fallen from close to $5 billion since February 2012.

The company opened its Hong Kong division in 2007, and Wang joined in February 2008 and opened the Hong Kong office, heading the Asian operations. The office received its license from Hong Kong’s Securities and Futures Commissions in May 2011.

The Owl Creek Asia Fund was launched in July 2007, and as of February 2016 was valued at $364 million. The fund returned a yearly, on-average pay off of 9.4 percent between its birth and February 2016. It made it through a 21 percent decline in 2008, and a 2 percent loss in 2016, and an overall loss of 5.5 percent in the first two months of 2017.

 

 

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Old Fund Opening to New Owners

April 20, 2017 Debbie Jacobs Company Spotlight

For the first time in Blenheim Capital Management’s history ownership of the company is opening to new blood. Willem Kooyker, the 74-year-old pioneer in commodities investing, launched the fund almost thirty years ago, specializing in natural resources, such as oil, agriculture, metal and everything in between.

With about $1.5 billion assets under management, at its height in 2011 Blenheim was the world’s largest hedge fund focused on commodities. Recently the fund has been struggling with assets under management down by 85 percent from its record. With anemic returns for the past several years, Kooyker decided to bring into partnership several people who have worked at the New Jersey-based firm for years.

“My new partners will help me chart a new course for growth in an industry that has changed enormously in recent years,” Kooyker said. “Blenheim was a pioneer in commodity trading and investing and we aim to be among the leading managers in those markets for many years to come.”

In addition to Kooyker’s son Terence, Thomas Kopczynski, James Wohlmacher, and Gus Rossi will be joining the company as its newest partners. Willem will continue to act as head of the asset allocation committee and remain actively engaged in trading.

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Chinese Group Buying Majority Stake in Old Mutual

April 4, 2017 Marcus Black In the News

The HNA Group Co, a China-based conglomerate, has agreed to purchase a quarter stake in the US asset management unit of Old Mutual Plc. The deal is valued at about $446 million, and continues on the path of a busy year for HNA, which spent $30 billion last year in acquisitions.

The sale is part of Old Mutual’s break-up of its operations, selling off an almost 25 percent share in OM Asset Management, reducing its own stake to 25.9 in percent OMAM as a result of the sale.

The sale will take place in two stages: the first will be about 10 percent of the sale at $15.30 per share to be completed within 30 days of the agreement. The second stage will be comprised of 15 percent, at $15.75 per share.

HNA Group is controlled by Chinese billionaire Chen Feng. Last year he purchased shares in the hospitality giant Hilton Worldwide Holdings, as well as the electronics distributor Ingram Micro Inc.

OM Asset Management is a multi-boutique, US-based financial services business with about $240 billion worth of assets under management.

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What’s in a Name? Could be Big Bucks

March 30, 2017 Maria Morales In the News

Is this your hedge fund? Photo by Tambako the Jaguar

For some observers the appeal of hedge funds as investment vehicles seems a bit inexplicable. The news about these alternative funds is that they charge high maintenance fees and do not deliver returns commensurate with those fees. Yes, there has recently been an exodus of sorts from these funds, but they are still a powerful force in the investment industry, despite the bad press and bad outcomes.

A new study may shed some light on one small aspect of the appeal of these funds, at least why some funds seem to attract more money than others. It seems, according to a new study from a collaborative team of researchers from the University of Buffalo and the University of Oulu in Finland, that the mere name the fund goes by influences investors to put their money where the perceived power is.

That’s right, savvy investors are influenced by the appellation a fund goes by, and, you

Or this?

guessed it, the more power the name evokes, the more money flows in, to the tune of $227,120 a year, on average.

The researchers devised a metric which measured what they termed the “gravitas” of the names of hedge funds which they collected from a number of databases. They found that just adding one “power word” to a name makes a big difference in the fund’s attractiveness to potential investors.

“Hedge fund investors chase hedge fund names containing a special combination of words related to economics and geopolitics, or that convey power,” the researchers said.

The most successful words were invested with meanings connected to weight, influence, seriousness and authority. The researchers saw that the increased flow of money in was not related to the fund’s performance, which was controlled for in the study. Rather than looking for high-performing funds, investors were seeking out funds with solid, power-evocative names.

Some names with gravitas are:
•    Marathon Macro Strategic Allocation
•    Manchester Alpha Fund
•    Lionhart Aurora Venture Segregated Class A

And some without gravitas are:

•    Hare Investment Fund
•    Mullaney Investment
•    LGT (CH) Cat Bond Fund USD A

The next question the researchers asked was whether or not the funds with the gravitas names outperformed those with neutral, or weaker names. To the surprise of the analysts, the opposite turned out to be true.

“We were surprised to see that funds with gravitas were not that hot in terms of performance,” said Cristian-Ioan Tiu, one of the co-authors.

Hedge funds with strong names had annualized alphas as much as 0.97 percent lower than those with weaker gravitas, according to the study. Annualized returns and Sharpe ratios concurred.

“The good funds should not need to convey to the world how awesome they are using their names,” Tiu said. “Performance and word of mouth should be enough.”

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Former Cohen Manager Snagged by Millennium

March 23, 2017 Marcus Black In the News

One of the largest hedge funds in the industry, Millennium Management, recently hired Ariel Masafy, an ex-portfolio manager for Steve Cohen’s alternative investment firm.
Masafy worked predominantly with consumer stocks. He worked for Cohen since 2011, managing about $11 billion.

Employment changes by portfolio managers is of great concern to Wall Street observers. Poor showings of many hedge fund managers through 2016 make the employment moves even more concerning, as certain changes could be indications of further future events.
Millennium is run by Israel Englander, and has many trading teams managing about $34 billion in assets. The firm’s leading fund did relatively poorly last year, with a 3.3 percent upward climb. Millennium has posted double-digit gains in recent years.

Three years ago, Cohen’s SAC Management pleaded guilty to charges of insider trading. The settlement forced Cohen to abandon investing for clients, and Cohen was never charged. In 2014 SAC became Point72 and limited its investing to the family fortune, taking no outsider money. At that time several of Cohen’s portfolio managers left to start their own fund managers.

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The Five Highest Hedge Fund Earners for 2016

March 16, 2017 James Heinsman Hedge Fund News

In general, we all know that hedge funds are not doing well. But for the few among the hedge fund successes, those managers have a lot to be thankful for. And we do mean a lot.

The data tells us that between the high fees hedge fund managers charge and the lackluster returns, record numbers of investors are fleeing away from the alternative fund space. The $3 trillion industry saw the loss of $70 billion just last year, recorded as the largest downturn since 2009.

No need to feel bad, though. Hedge fund managers are still among the wealthiest Wall Street denizens.

The following is from Forbes list of the highest-earning hedge fund managers and traders from the past year, 2016. The list, as you can guess, shows that these men (are there any women among them, we wonder?) are still able to pay their mortgages.

The fifth highest earner last year was Kenneth Griffin, founder of Citadel. This fund ended the year in the black, with a return of about 5% net after fees. Griffin earned a cool $500 million. Begun in 1990, Citadel has an annualized net return since inception of 19%.

Forbes called Appaloosa Management’s David Tepper the “arguably the greatest hedge fund manager of his generation.” Nevertheless, his company only brought home middle digit returns. But that still did not hurt Tepper, unless you thing $750 million is simply not enough to live on.

Ranked with the third highest income, Raymond Dalio is the founder and co-chief investment officer of Bridgewater Associates. In 2016 Dalio earned an impressive $1.4 billion, yes less than the Mexican border wall will cost, but still, nothing to be ashamed of. Dalio seems to be slowing down a bit, though, announcing in March that he will no longer be managing the firm as of mid-April.

We have a tie for first place between Michael Platt, founder of BlueCrest Capital Management, and James Simmons, founder of Renaissance Technologies Corp. Both managers brought home the bacon to the tune of $1.5 billion. Forbes says about Platt that, “highly leveraged bets on interest rates paid off for Platt in 2016, as his supersized family office turned in a 50% return net of costs.”

As for Simmons, who retired from his firm in 2010 still brings in the dough via its “strong performance,” as Forbes describes Renaissance’s returns. The company’s largest fund, Renaissance Institutional Equities, “was up 21.5% net fees in 2016” according to Forbes.

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David Tepper, James Simmons, Kenneth Griffin, Michael Platt, Raymond Dalio,

Blue Nile Announces Acquisition

March 16, 2017 James Heinsman Company Spotlight

In recent news, online jeweler Blue Nile announced the acquisition of the company by an investor group, which was comprised of Bain Capital Private Equity, Bow Street and Adama Partners. The transaction was approved by Blue Nile’s shareholders on February 2, 2017.

As the Blue Nile Chairman, CEO and President Harvey Kanter explained, “Blue Nile has disrupted and transformed the way consumers shop for and purchase diamonds and fine jewelry by creating price transparency while simultaneously providing value to suppliers. As we enter the next phase of growth, Blue Nile will continue to expand our vision and focus on putting the customer first by reaching them the way they prefer to shop whether it’s a computer, mobile device, or in one of our Webrooms.”

The media contacts included the following. Josh Holland is the contact for Blue Nile, Stanton and Alex Stanton is the contact for Bain Capital Private Equity.

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