Hedge Crunch FinancialNumber of Crypto Hedge Funds Growing Faster than Expected
A survey conducted by Crypto Fund Research revealed that cryptocurrency investment funds grew at a better than expected rate during 2018, hinting that the greater investment community is beginning to give legitimacy to the digital currency as an investment vehicle.
The study showed that there were 466 cryptocurrency investment funds in the US, the majority (255) are marketed as hedge funds. Of those 255, 195 are venture capital funds and 16 represent private equity funds.
According to the present rate of growth of these funds the study predicts that there will be 165 new cryptocurrency funds by the end of 2018, beating the 2017 figure of 156, a record.
Most funds of this variety have only $10 million or less in holdings. There are only 28 funds with over $100 million. This group of better endowed funds include: Arrington XRP, Novogratz’s Galaxy Digital Assets, Polychain Capital, and more. Together the funds control about $7.1 billion in assets.
Founder of Crypto Fund Research, Josh Gnaizda, says the large growth is unexpected considering the downturn of cryptocurrency prices:
“We expected a large number of new crypto funds to launch in 2018 to satisfy growing investor demand. However, the pace of new fund launches is a bit surprising given the dual headwinds of depressed prices and less than favorable regulatory conditions in many regions,” said Gnaizda.
Einhorn’s Greenlight Continues Decline
Iconic hedge fund manager David Einhorn continued to see his Greenlight Capital fund decline in value. During the second quarter of 2018 the fund lost 5.4% and an 18.3% loss this year to date. Much of the decline has been due to short bets gone wrong, including Netflix and Athena Health.
For a more in-depth understanding of Greenlight’s troubles, listen to the video below:
David Einhorn’s hedge fund suffers more losses, especially from shorting Tesla from CNBC.
Investors Take A Bite Out of FANG
Acronym lovers will most likely be searching for another letter to replace the “F” in “FANG” since Facebook’s 19% plunge in value last week. FANG is an abbreviation created by Jim Cramer of “The Street” several years ago as a quick way to refer to Wall Street’s best and brightest: Facebook, Amazon, Netflix and Google. These four giants have been among the best performing and best loved companies in recent memory, but now Facebook is shaking the boat.
According to analysts, Facebook was the most loved of the FANG Four. Of 848 hedge funds with $1.6 billion worth of bets, Facebook was in the top 10 holdings of 97 of them, says Goldman Sachs’ “Hedge Fund Trend Monitor.” Together the hedge-fund stake made up 5% of Facebook’s equity shares outstanding. The 19% drop in stock value translates to a total loss of close to $6 billion from the stock. The market cap loss totaled $119 billion.
Among the hedge funds most affected are:
- Viking Global: $390 million loss
- Lone Pine Capital: $330 million loss
- Appaloosa Management: $259 million loss
- Tiger Global: $207 million loss
The epic downturn was triggered by data leaks and fake news scandals going back to the news that Cambridge Analytica had access to and used information about Facebook users without their, or Facebook’s, knowledge, back in March 2018. Facebook announced that as many as 87 million users may have been wrongly shared with Cambridge Analytica, a British political consulting firm, which helped President Trump’s presidential campaign in 2016.
That news led to worry about Facebook’s broader oversight of its platform, and an FTC investigation into whether the company broke a 2012 settlement under which it’s required to give the social network’s users notice and obtain consent before sharing their information. Mark Zuckerberg, the company’s CEO and founder was called to testify to Congress in April.
In 2017 Facebook’s stock climbed 53%, easily outpacing the S&P 500’s 19.4% growth. After the crash Facebook is now unchanged for 2018 compared to 6.2% growth of the S&P. Nevertheless, even though hedge funds may have sold their position in Facebook during the months after the scandal, it is still likely to be a top holding, as it was going into the earnings report as the shared hit an historic high last Wednesday.
Castle Harlan Press Release: Launch of Titan Production Equipment
Exterran sells production equipment business, creating new local company
Titan Production Equipment has launched in The Woodlands, the company announced in a July 11 press release.
The company was created through the sale of Houston-based Exterran Corp.’s (NYSE: EXTN) North American production equipment manufacturing assets to an affiliate of New York-based private equity firm Castle Harlan Inc. The deal was announced in April but financial terms were not disclosed.
In an April press release, Exterran said the sale would help the company accelerate growth “by focusing as a systems and process company for oil, gas, water and power.” Exterran will continue manufacturing production equipment outside of North America and will offer production equipment in North America through Titan, Exterran’s preferred supplier for the region, per the April release.
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Human Nature Dictates How We Invest, Not Logic: New Study Shows
Despite the mounting empirical evidence that passively investing in exchange-traded funds and other index type funds, money continues to flow into managed hedge funds with active fund managers.
A research paper published in June concludes that the idea of realizing higher returns by doing less seems too good to be true to investors, and they therefore continue to give their money into the hands of stock-pickers, even if their fees and performance sucks out the value for their customers.
Authors of the report, J.B. Heaton- soon to be the law and business fellow at the University of Chicago Law School; and Ginger Pennington- an assistant professor at Northwestern University’s Department of Psychology, explain that people are simply pre-programmed to believe the well-advanced myth about active investing.
“Despite clear evidence, it may simply be too difficult for a substantial number of investors to believe that superior returns are available by doing nothing but investing in an index fund rather than investing with active managers,” the paper says.
Yes, EFTs are the recipients of a surge in capital, as they should be, but hedge funds have been outdoing themselves lately. New money has been added to the hedge fund industry for four quarters in a row. The niche saw $1.1 billion of net influx during the first three months of 2018. In addition, new funds popped up on the scene more often than old ones closed for three consecutive quarters.
In a different study done by the British Psychological Society in 2003, 107 traders in London from four investment banks were tested. They were told to make the line on a graph go up as much as possible and were told that by pressing certain keys on the keyboard every one-half second might affect how the line grows.
In truth, the line on the chart developed randomly. But when the subjects were asked how much influence they thought they had on the line by pressing the keys, the traders who had earned the lowest bonuses and had the lowest profits for their firms were the very ones most convinced that their interventions had some effect.
Heaton and Pennington conclude that the marketing strategies for the asset management industry should be forced to add warnings, like those of cigarette ads. They suggest something like:
“Many active investment strategies under-perform more inexpensive alternatives. Ask your broker for more information.”
Activist investor Jana Hired Staff for New Socially Responsible Fund
Jana Partners LLC, the activist investment firm now taking steps into socially responsible investing, has hired a portfolio manager and analyst to help oversee its effort of pushing companies to become better corporate citizens.
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Torbillon Brings on Ross Berman as President
The headline-making hedge fund, Tourbillon Capital Partners, is hired a former hedge fund manager, Ross Berman, to be its president and chief strategy officer.
Lately known for its awesome negative returns, Tourbillon is run by Jason Karp, previously employed by Carlson Capital and SAC Capital, Steven A. Cohen’s fund manager. Karp launched Tourbillon in 2012.
For the past three years Berman has been consulting in the hedge fund industry. He also ran his own hedge funds twice. He helped to co-found BAM Capital Management, in business from 2002-2010. He ran Green Owl Capital from 2012 to 2016. Berman is replacing Amy Zipper as president and COO, a job she has held since 2012, at the company’s founding.
In its early days Tourbillon was making profits in the double digits, but has since fallen on harder times, along with many hedge funds recently. Two consecutive years of losses motivated some of the firm’s clients to pull their money. Today the fund is managing about $2 billion, down from $3.4 billion at the end of February. The fund lost 14 percent in 2017 and 9 percent in 2016. In 2013 the firm had a spectacular 21 percent growth rate, its best ever returns. So far in 2018 it lost 1.4 percent until May.
Hedge Fund Billionaire Wants to Redefine Capitalism
Paul Tudor Jones, billionaire hedge fund manager, says the 50-year-old definition of capitalism coined by Milton Friedman is outdated in today’s world of the mega-rich.
According to Friedman the “social responsibility of a company is to improve its profits.”
But Jones says that this definition needs updating.
“When Milton Friedman said that, tax rates had just come from 91 percent to 70 and income inequality was one-fifth of what it is today,” he said. “You can see how it was relevant at the time but fast forward to where we are today. It’s a different deal.”
Speaking on CNBC’s “Squawk Box,” in a rare interview, Jones said, “Capitalism may need modernizing. In 1985, 35 percent of nation’s wealth was owned by the bottom 90 percent. Today, they own 23 percent, and that 12 percent has gone to the top.”
Jones is the founder of the Robin Hood Foundation, a group that is working to end poverty in New York City.
One example of this re-thinking of capitalism is the upcoming launch of a new exchange-traded fund which focuses on social impact. The launch of the fund by Goldman Sachs uses a model from Jones’ own foundation, Just Capital. The model ranks businesses on parameters like employee conditions, environment and products. Just capital watches a selection of Russell 1000 companies, including Apple, Amazon and Bank of America.
Jones believes that the new ETF might one day challenge the benchmark US stock index.
Hedge Funds Making a Comeback
Photo courtesy of Alpha Stock Images,
As Mark Twain once so famously quipped after seeing his own obituary in a newspaper, “Reports of my demise are greatly exaggerated,” so too the reports of the end of hedge funds appear to be exaggerated. Quite the contrary, by the end of last year, and continuing into this year, hedge funds are on a definite rebound.
The industry is experiencing good news on two fronts: cash flowing into the numerous funds, as well as noticeably improved returns for investors. According to hedge fund researcher HFR, as of October 2017 the average hedge fund advanced 5.4% while $39 billion of new money entered the arena. The increase is the best its been since 2010, while in 2016 $112 billion exited the hedge fund sector. That turn around is giving many investors and managers something to smile about.
One example of a hedge fund riding this wave of good news is Brahman Capital Corp, a New York based firm that went mostly unnoticed for over thirty years. Two years ago, Brahman Capital reached its high point of over $5 billion in assets under management. Betting on a popular stock at the time, Valeant Pharmaceuticals, the fund traveled the storm down along with Valeant, which crashed from a high of $257 per share to $14 a share. This set-back forced Brahman to report losses to their clients, and some withdrew their money.
Brahman picked itself up, unloaded its shares of Valeant and, with its remaining $38 billion AUM, pulled itself up to bigger and better rewards. During 2017, the fund experienced a gain of 17% and expects the good news to continue while it rides the wave of better times along with the industry as a whole.