Fortress Macro Fund

January 18, 2017 James Heinsman Economic Barometer

The Fortress Macro Fund at the end of last year reported a median one-year price target of $5.88, implying that there still could be a rise in stock of more than 17 percent.

In 2014, in an effort to widen the investment management skills of the fund, Jeff Feig undertook two new roles there.  Feig became co-CIO as well as a portfolio manager, while at the same time branching out as co-President of the Fund’s Liquid Markets business.

In terms of future predictions for the fund, the predictions of earnings for Q4 16 analysts believe that earnings should be somewhere between $0.17 and $0.24, slightly higher than the $0.19 that was predicted by EPS reporting in 2015.


Fortress Macro Fund, Jeff Feig,

Managers to Watch this Coming Year

January 11, 2017 James Heinsman Hedge Fund News

Hedge funds took another beating last year with returns averaging between 4 and 5 percent, quite a bit below the S&P 500 Index. Although it’s true that these numbers are a bit better than in previous years, these results have not been quite good enough to halt the flow of money out of the hedge fund industry, wreaking havoc on many firms. The following top managers are poised to do their best to reverse these negative trends this coming year.

Alan Howard-As the head of Brevan Howard Asset Management, Howard has been able to improve the returns of his firm in the weeks following the US elections. With gains of 5.6 percent the fund is now in the black through November 2016 with total returns of 2.8 percent.

Scott Ferguson-Heading up Sachem Head Capital, Ferguson has been in the eye of the investment community for several years. After a stint with Pershing Square Capital Management, Ferguson set up his own firm in 2012.

Steven A. Cohen-Due to an insider trading charge Cohen was restrained from investing in outsider funds. He has, however, been managing his family fund, Point 72. Reports have been hinting that he is going to launch a new firm, Stamford Harbor Capital. He is also expected to begin his preparations for his return to the larger investing world in 2018.


Alan Howard, Scott Ferguson, Steve A. Cohen,

Crowd-Sourced Hedge Fund Gaining Interest and Profits

January 2, 2017 James Heinsman Hedge Fund News

Logo of Numerai courtesy of Rolly Jodger.

Richard Craib had a new idea: Perhaps high-tech’s “masters of the universe” can outperform the old-fashioned, finance guys who predominate on Wall Street?

To test his theory Craib, a former hedge fund manager, started Numerai last year. It is a crowdsourced hedge fund which hopes to bring over the best thinkers from places like Google, and remunerate them for their creative development of algorithms that tell the fund how to invest.

The first year Numerai had about 7,500 “data scientists” building its platform with new algorithms constructed with the help of historical data. Where the data comes from exactly is a secret Craib is not ready to share. Numerai received $6 million in funding from First Round Capital and Union Square Ventures which will be used to purchase that data and pay the scientists whose algorithms prove the most successful.

“We invested because Numerai is an open access hedge fund,” said Andy Weissman, a partner at Union Square Ventures. Anyone can participate, so it’s a “model built upon a set of principles that have open participation and anonymity at their core.”

The algorithm developers do not invest in or receive any income from the hedge fund directly. The scientists are motivated by the award of a $60,000 salary for the most accurate submission, while the top 100 users are all paid some amount of money. In order to maintain anonymity of the participants, Craib pays them with bitcoin.

The fund is managing about $1 million at the moment, with the biggest piece coming from Craib himself. He is hoping that Numerai’s success will help attract institutional investors, and that one day they will be able to charge performance fees.

So as not to violate SEC rules about marketing to the media, Craib could not say how well the Numerai is doing compared to the Dow Jones Industrial Average. But he was able to admit that the fund is “performing very well,” enough to allow them to raise new funding.


Andy Weissman, bitcoin, crowdsourcing, First Round Capital, Numerai,

Dalio’s Mind Encoded into Algorithms

December 26, 2016 James Heinsman Company Spotlight

The world’s largest, and most successful, hedge fund, Bridgewater Associates, is encoding its master’s methods into an algorithm designed to bypass the need for anyone to actually have to think. The fund is worth $160 billion, and presumably got there based on the management philosophy of its founder Ray Dalio. The goal of the project is to take the detailed book of principles which guide employees at Bridgewater, a famously high-pressure firm, and translate them into instructions, or algorithms, that will tell a computer how to act.

Known by several names, such as “The Book of the Future,” “The One Thing,” and the Principles Operating System, it will be much more than just a way to invest and manage money. Managing people is also part of “The Book of the Future.” The system will be loaded with all kinds of information, such as peer reviews and employee testing to decide on specific tasks for employees, handing them specific instructions for styles for management and time control. The system will also guide hiring, firing and promotions. The head of the project is David Ferrucci, famous for his involvement with the development of IBM’s Watson.

The guiding principle behind the project is Dalio’s world view and his understanding of human behavior and the world at large, as working as a kind of complex machine. In his view human emotion only harms the ability of the “machine” to function at its optimum level. Due to his worldview Dalio carefully tracks the performance of his staff, and is a vociferous adherent to his ethic known as “Radical Truth and Transparency.” Employees at Bridgewater are encouraged to share their opinions about each other without restraint.

Bridgewater’s policy was, until recently, to share even the debates among upper-management staff with the entire company. That ended when a dispute between Dalio and his possible successor, Greg Jensen, was aired in public.

Who will take over the company was a major motivating factor in developing the Principles Operating System. The belief is that if Dalio’s worldview can be embedded in computer code Bridgewater will be able to continue its incredible performance, which has made its investors richer than any others in history.


Bridgewater Associates, David Ferrucci, Principles Operating System, Ray Dalio, Watson,

Ex-Citadel Exec Launches Hedge Fund with Neuberger Berman

December 18, 2016 James Heinsman Hedge Fund News

Former Citadel executive Joseph Rotter opened a new hedge fund at Neuberger Berman. The move is the newest for the money management firm to expand to alternative investments. Neuberger Berman used to be owned by Lehman Brothers.

Principal Strategies Group started trading at the end of October, and now has $209 million in assets under management. The information was sent out by Rotter in a letter to his clients last week, but did not make clear whether all the money is in just one hedge fund, or in several. Rotter explained that the fund has been doing well since it launched, but did not state any specific numbers. It should be noted that the S&P 500 has risen 5.5 percent since the launch of the fund.

Neuberger was bought out of the Lehman Brothers bankruptcy by its head executives. It has a debt hedge fund and another fund that invests in other hedge funds. The firm also has mutual funds and individual client accounts.

In his letter to his clients Rotter stated that he expects that President-elect Donald Trump will be good for hedge funds that place their bets on corporate deals.

“The potential for significant regulatory and tax reform may spur a new cycle of deals,” said Rotter. “We are excited about our opportunity.”


Joseph Rotter, Neuberger Berman, Principal Strategies Group,

Tiger Legend Robertson-Backed Fund Shutting Down

December 8, 2016 James Heinsman Hedge Fund News

As investors pull their money the Emerging Sovereign Group has decided to close one of its hedge funds. A manager of about $330 million including borrowed funds, the Emerging Sovereign Master Fund is closing shop.

The fund is a macro strategy and is one of 6 total funds in a filing. The other funds include emerging markets equities and macroeconomic hedge funds.

The Group was managing about $3.5 billion about half a year ago, which was about 26 percent less than last year at the same time.

The Emerging Sovereign Group was launched in 2002 by Kevin Kenny, Jason Kirschner, Mete Tuncel and a sum from Julian Robertson of Tiger Management fame. The Carlyle Group was also involved since 2011, but sold its stake back to the founders recently as part of its general move to withdraw from hedge funds.


Emerging Sovereign Group, Emerging Sovereign Master Group, Jason Kirschner, Kevin Kenny, Mete Tuncel Julian Robertson,

Jimmy John’s Promotes Franchise Owners on Twitter

November 22, 2016 James Heinsman Economic Barometer

More and more young people today are finding their expertise in unconventional fields. Not everyone wants to become a doctor or a lawyer, and people can find satisfying ways to make a living that aren’t your classic models. One such idea is to open a franchise. Franchise owners find a sense of satisfaction, creating their own restaurant or other store. And yet, there is a feeling of safety in the franchise since you aren’t starting from scratch and don’t have to completely reinvent the wheel.

Take, for example, the list offered by CNN Money of some of the best franchise opportunities out there.  All the way back in 2011, they featured Jimmy John’s Sandwich Shop and Jimmy John’s owner, Jimmy John Liautaud. They explain that “[Jimmy] John Liautaud’s recipe for a good food franchise: fresh ingredients, fast delivery and an irreverent sense of humor. “

If you’ve followed Jimmy John’s on any of the major social media platforms recently, you’ll know all about this sense of humor which has done a great job attracting the brand’s large millennial demographic.  That’s why it was so refreshing to see some more serious tweets recently which focus on Jimmy John’s franchise owners. One such tweet introduces a young entrepreneur who is turning a gas station into a Jimmy John’s.

And another features yet another Jimmy John’s that is opening soon.

These are just a few of the ways that Jimmy John’s supports its franchise owners. The company estimates that their annual sales for franchise owners can read $1.2 million and that net profits average around $280,000.  Even companies with carefully crafted “personalities” on Twitter could learn a thing or two from Jimmy John’s social team.  They didn’t hesitate to vary from their general script, and I think the value is clear.  Apparently I’m not the only one, because the company recently sold a majority stake to private equity firm Roark Capital Group.

Jimmy John Liautaud and his company are certainly proof that you don’t have to graduate from the top of your class or get an advanced degree in order to understand business and common sense. The opportunities are there – you just have to be ready to take them.  Their Twitter team seems to have received that message from their fearless leader loud and clear.  They are certainly a big part of why the company is celebrating their latest financial transaction.


franchise owners, franchises, Jimmy John Liautaud, Jimmy John's, Jimmy John's Owner,

NYU Drop Out Starts Hedge Fund Worth $5 Million

November 21, 2016 James Heinsman Company Spotlight

Julian Marchese is one 20-year-old who knows what he wants. And what he wants is to succeed in the world of finance, and more specifically, in the world of hedge funds.

Last year, when Marchese was still a student, he launched Marchese Investments from his dormitory room. When Business Insider interviewed him last September Marchese said he had only $1 million under management and was planning to raise an additional $3 million. Therefore, $5 million AUM is above his own goal.

Since the firm runs separately managed accounts and is also too small to oblige it to file regulatory filings on its assets for the SEC, the numbers are hard to verify independently. Marchese says that most of his nest egg comes from one investor, whose name he declined to reveal.

One investment advisor, Chris Kohler, who works at Mercer, has been helping Marchese with his business plan. Kohler expects much from Marchese. Kohler pointed out that many of the hedge fund superstars of today started out with investing in high school and college. Yes, $5 million is not a lot in comparison to institutional investors with pensions and endowments who won’t even consider a fund unless it is worth $100 million or more. On the other hand, how many 20-year-olds are controlling $5 million with the goal of building that into a fortune?


Chris Kohler, Julian Marchese, Marchese Investments, NYU,

Hedge Fund Fees Falling as Investors Vote with Their Feet

November 16, 2016 James Heinsman Hedge Fund News

This has certainly been a tough year for hedge funds. Low returns married to high fees have set off alarms as clients re-evaluate the cost-benefits of sticking with alternative fund managers.

In response, some of the largest hedge funds have lowered their fees as added incentive to keep their customers in the fold. Brevan Howard, Tudor Investment Corp, Och-Ziff and Caxton Associates reduced their rates this year in hopes of retaining clients.

The average management fee, which has traditionally been 2 percent, fell from 1.45 in 2015 to 1.35 in 2016.

“Investors are demanding more and paying less. Adapt or lose out,” said one pension fund manager.

Yet some believe the fees are still too high. According to surveys, only about 1 out of 5 investors are happy with the amount they pay to their hedge funds. They would like to see improved performance in return for the fees that they pay. This year the average return for hedge funds was 3.7 percent. Subtract 1.35 percent, and not much gravy is left.

n the other hand, investors are basically satisfied with the 20 percent fee most funds charge on their profits, since that fee only kicks in after the funds reach or surpass profit targets.

Almost half of the investors that took part in the survey said they were most likely going to move their money away from hedge funds and put it into private equity, real estate, or other strategies. Investors who plan to stick with their hedge funds are looking to have separate accounts in order for them to have more control over their money and how it is traded.


Brevan Howard, Caxton Associates, fees, Och-Ziff, Tudor Investment Corp.,

ETFs Growing in Popularity, Surpassing Hedge Funds

November 7, 2016 James Heinsman Hedge Fund News

S&P 500 Closing Values (1950-16) along with 1, 2 and 3 Year Moving Averages. Chart courtesy of Overjive

S&P 500 Closing Values (1950-16) along with 1, 2 and 3 Year Moving Averages. Chart courtesy of Overjive

Lower fees and better performance have helped exchange-traded funds (ETFs) to become more popular, dollar for dollar, than hedge funds.

The ETF industry now has over $3.2 trillion in assets, leaving behind the hedge fund industry which manages about $2.87 trillion. Investors are switching their bets to ETFs to save on management fees, and cash in on the better performance of the ETFs compared to hedge funds.

ETFs collect only about 35 basis points, on average, in fees, compared to hedge funds, which charge a 1.5 percent fee on assets managed, and a whopping 18.9 percent, on average, on profits generated.

In the past large investors, like public pension funds and sovereign wealth funds, were happy to pay for differentiated returns as well as protection from the vagaries of the market. This helped the hedge fund industry to grow from a back-water industry in the 90s to an industry with $3 trillion in investments in 2014.

In its early days the hedge fund industry performed well, better than investors who were exposed to market benchmarks (alpha). But with growth came also increasingly poor results. In 2011 hedge funds stopped providing excess returns, and since then have not done as well as the benchmarks.

Investors are pulling their money out of hedge funds and moving it to more active indexing strategies such as ETFs.


ETFs, Hedge Funds,

« Previous Posts