Viking Global investors bought 4.5 million additional shares of Netflix and Tiger Global Management purchased 15.43 million shares for a grand total of 18 million. Soros has bets placed on Netflix worth $32.79 million, or 317,534 shares as of September 30.
Many investors are building up their stake in Netflix as a hedge against the tottering cable industry. Cable television is facing a threat to their incomes as more consumers make the switch to streaming services like Netflix and Hulu. The trend is so prevalent that it has triggered the nickname “cord cutting.”
PayPal has also become beloved of investors from July to September. Baupost Group added 10.9 million shares. Soros dived in with a purchase of 4.43 million shares worth a cool $137.5 million.
Carl Icahn seems to have lost his faith in eBay, selling his entire stake in the on-line e-commerce site.
Investors are interested in the information from 13F filings as a broad picture of what the hedge funds have been up to. However it should be noted that the information is not made public until 45 days after the end of each quarter so are not “real time” expressions of the actions of these high-profile investors. These filings also do not reveal short positions, and are not therefore a complete picture of what the managers did more than 6 weeks ago.
The ‘hot-shot’ trader Nehal Chopra with the meteoric rise in fame has finally been brought down to earth in what seems to be one of the quickest and severest money-losing streaks in what has been a pretty bad year for hedge funds.
Chopra acquired her stardom when the 21-year-old Wharton graduate found favor in the eyes of hedge fund mogul Julian Robertson of the Tiger hedge fund dynasty before she turned 30. With Robertson’s backing she became one of only a handful of women managing portfolios with over $1 billion.
Unfortunately she recently joined a new, and more populated club: that of hedge fund managers reporting losses. In the past three months Chopra’s Tiger Ratan Capital Fund lost about one third of its value, about $300 million. The loss erased over half of her profits for 2014 and all her gains for 2015.
The blame for the disaster has been place squarely on the shoulders of Valeant Pharmaceuticals International. Due to some questions about the company’s pricing strategies, accounting and business practices share prices of Valeant have tumbled by 43% this year. Other hedge funds, heavily invested in Valeant, have also experienced losses, including Lone Pine Capital and Pershing Square Cap Management, with no less a trading superstar than William Ackman at the helm.
After the economic crisis of 2008-2009, the US Federal Reserve lowered interest rates to help jump-start the economy. By providing inexpensive loans to businesses, the Fed hoped that the economy would get back on track. Unfortunately, growth continued to lag and the Fed decided more intense intervention was necessary. Thus was born the economic tool of Quantitative Easing.
QE1 saw the Fed buying $1.75 trillion worth of bonds in an effort to get more money into circulation without having to actually pull out the printing press. With the economy continuing to lag, the Fed instituted QE2 and bought an additional $600 billion worth of bonds. QE3 added $85 billion into the economy. In this way about $3 trillion was pumped into the US marketplace.
In December 2013, with the economy finally making strides towards a decent recovery, the Fed instituted its “tapering” policy which was designed to slowly reduce their stimulus to the economy. Since the end of tapering, the Fed has continued to support the economic turn-around by keeping interest rates at near zero. And now, not only in the US, but also worldwide, the financial world is anxiously waiting for the moment when the Fed will decide to increase interest rates and end their coddling of the US economy.
One investor and analyst, Marc Lasry, CEO and Chairman of Avenue Capital, said in a recent Bloomberg interview that the time has indeed come for the US economy to get back to “a little bit of normalcy.”
“The Fed can’t keep on pumping more and more stimulus into our economy. Our economy is fine. Let it grow. Let it do what it needs to do,” Marc Lasry said on Bloomberg Business.
It has been seven years since the Fed first cut interest rates to almost zero. Many believe if it hadn’t been for the turmoil caused by China’s economic slowdown in September, the Fed would have raised interest rates last month. It seems it is only a matter of time until Marc Lasry’s position is upheld by the Fed, and the modus operandi of the Fed will be less stimulus and not more.
A little more than ten years ago founder of Oaktree Capital Howard Marks, predicted that investors would rebel against the exorbitant rates their hedge fund managers were charging them.
A look at newly launched hedge funds seems to indicate Marks’ vision, at least partly, came to pass. New funds have performance fees which recently reached a seven-year low of 14.7 percent. Yes, management fees rose, but not by much, and hedge funds are still facing a reduction in income from their fees, at least for newly created funds.
Marks himself would disagree, saying that hedge fund fees have hardly budged in the past ten years from the traditional “2 and 20” structure. The average fund now charges 1.7 percent annual management fee, and they took 19.1 percent of the profits in 2014.
Yet he still believes one day hedge funds will be forced to lower their fees.
“If you go back 40 years, the number of [hedge fund] firms that were getting incentive fees was minuscule. Now it is ubiquitous, and [these fees are being charged by] 10,000 hedge funds, and many, many private equity firms, venture capital firms, distressed debt funds, timber funds, everything.
“The one thing I know is that 40 years ago all hedge funds were run by geniuses, and there [were not many of them]. Today I am sure there are not 10,000 geniuses. It just doesn’t make sense. Nobody deserves 20 per cent carry unless they are exceptional,” said Marks.
There is nothing new about following your favorite traders to plug into their winning investment strategies. Research services make a business out of following the trades of the celebrities of finance like Bill Ackman and Carl Icahn.
There is also the SEC’s gift to the copycat investing world, the Form 13F. This form is required by law to be filled out and filed with the SEC within 45 days of the end of every quarter, proclaiming the trading moves of large and influential money managers. An entire industry has arisen from mining these forms, using the information therein as actionable advice.
It is no surprise that there is now an app that has taken this idea to the next level. The manager of iBillionaire ETF, iBillionaire Capital has created a roboadvisor platform for the Apple iPhone and iPad which reveals the trades of the star hedge fund manager of your choice and allows the ordinary investor to make the same trades at a real brokerage account at a third-party custodian.
The idea behind the app is as simple as it is brilliant. First off, getting into a hedge fund is not for regular earthlings: it requires personal worth approaching and or exceeding 7 digits. And even if someone has that kind of money, many of the best-performing funds are closed to new money, and the ones that aren’t require an introduction by the right people to the fund manager(s).
And let’s say you’ve jumped through all those hoops; who wants to pay a crazy 2 percent management fee, and then an even crazier 20 percent fee on profits? Say hello to iBillionaire. For as little as $100, (yes I wrote that with all the zeroes it needs) a person in possession of this app can trade like the stars, and he will only have to pay a 0.9 percent annual management fee. There are no additional commissions or fees. The way iBillionaire puts it, this app gives ordinary investors the ability to “invest like the 1 percent for less than 1 percent,” and do it easily from their phone.
Before anyone flies into a fit of downloading this app, remember that it is impossible to follow your favorite investing guru exactly. The 13F filings only track long positions: there is no way to know what stocks your hero shorted. You also can’t replicate any options or futures bets they may have made. And let’s not forget that 45-day time lag, which might as well be an eternity for some of the more volatile trading giants out there. In many cases by the time the iBillionaire trader has purchased a stock, the guru has already sold it.
All in all, the idea seems to be a good one. For a minimal amount of money this app gives users access to the ideas and behaviors of some of the world’s most successful hedge fund managers, and as we say often: “Knowledge is power.”
The announcement that London-based hedge fund Liongate will soon be closing shop and returning assets to their clients comes only days after Fortress Investment Group made a similar declaration about their flagship fund.
Market volatility has wreaked havoc on the ability of hedge funds to stay afloat, causing many historically stable funds to falter and crash, forcing managers to abandon ship. Some analysts are saying that hedge funds are fast on their way to having their worst year since 2011.
When Principal Financial Group purchased Liongate in 2013 the fund had $2.1 billion AUM. Loss of their client base and shrinking of their AUM had “placed the business under significant pressure” during the last two years.
Liongate was started in 2003 by Randall Dillard and Jeff Holland, both of whom left the firm this year. Principal did not say how much the fund is worth now, but the Wall Street Journal said last week that the fund had shrunk this year to less than $500 million.
Most of the wealthy people at the head of the Forbes 400 list of America’s richest are in technology, retail and candy sales, hedge fund managers are also ranking well. Among the list’s 50 richest people there are seven alternative fund managers. But among those seven there are three that truly shine.
In first place among the hedge fund stars, and ranked sixteenth overall by Forbes is George Soros With a net worth of $24.5 billion, he dominates as one of the industry’s most influential investors, and has been for at least 40 years. Soros survived the Nazi occupation of Hungary, and relocated to England in 1947 where he studied economics. He founded Soros Fund Management in 1970, and is most likely best known for his short trade that “broke the back” of the Bank of England in the early 90s.
Not too far behind Soros is Carl Icahn. His net worth is valued at about $20.5 billion, making him 22nd on the Forbes list. Don’t let his close ranking to Soros fool you; Icahn’s investing style is worlds away from him. He does not buy and sell equities with abandon like Soros; instead Icahn will buy stock in a company that is ripe for a change. Icahn then acts as an activist and takes on the management to get them to make changes that the shareholders want to see. Icahn’s parents were both teachers, and he studied philosophy. He started in a brokerage firm in the early 1960s, and in 1968 launched his own company.
Ray Dalio is the third star in this constellation with a net worth of $15.3 billion, placing him in the 29th spot on the Forbes 400. He is the son of a jazz musician, and got his MBA from Harvard. In 1975 Dalio started Bridgewater Associates. He still manages Bridgewater, which is the largest hedge fund in the world, managing a heart-attack inducing $150 billion. Dalio’s investing style includes a more value-centered approach, looking for good companies and holding onto his assets longer.
Emerging markets hedge fund Gramercy is turning to Peru to pay up on the debt they owe as a result of a failed attempt at economic and agrarian reform in the late 60s and early 70s of the twentieth century.
The hedge fund purchased a series of bonds which were issued to landowners when their property was taken by the leftist junta led by General Juan Velasco. As the economy collapsed the government was forced to stop servicing the debts.
Courts in Peru have always held that the government must repay the bonds. But succeeding administrations hesitated due to the huge cost and continued to defer or reduce their payments.
Gramercy is now telling Peru to pay up, saying that the current repayment schedule is unfair to the creditors, which includes many Peruvians, and makes the country look bad as far as their credit is concerned.
“While recently seeking a consensual resolution, we were told point blank by a senior Peruvian official: ‘Make us care’,” said James Taylor, partner and chief legal officer of Gramercy. “Given Peru’s indisputable ability to pay a $5bn debt, this clearly is a voluntary and selective default.”
During the past week the Nasdaq Biotechnology Index has lost 18.7 percent, hitting sector investors, especially those in hedge funds, hard. However, although selling seems to be the more prevalent reaction, there are those managers taking advantage of the lower prices and adding to their portfolios.
The cause of the fall was a speech made by Democratic presidential candidate Hillary Clinton. On September 21 she promised to reign in exorbitant drug prices, and since the NBI’s high point on July 20, the index has lost a whopping 27 percent.
Helping the crash along was a general case of market volatile as investors are left hanging by the Feds delaying their decision to raise interest rates. The global economy and its uncertainty has also contributed to the sell-off.
“What you’re seeing is that generalist money is getting very worried and thinking that maybe the healthcare trade is over and they’re rotating into something else,” said John Fraunces, co- manager of Turner Medical Sciences Long-Short fund headquartered in Berwyn, Pennsylvania.
Not all hedge funds are in the doghouse these days. For example, Hao Capital, a small fund with an emphasis on Chinese-based companies, grew by 97.8 percent year-to-date, a feat not seen by many funds these days. Most of the winnings were the result of long positions on appliance companies and shorting on the solar industry. It also helped that Hao did not join the mob scene that jumped into China A shares before their crash in August.
The fund is run by electrical engineer Zhang Hao, who will likely take a long and loving look at the depressed Chinese stock market for some bargains in an attempt to finish off the last quarter of the year with more growth for his investors.
“We should be buying as the market falls,” he wrote. “Cheap valuations represent the greatest opportunity for the Fund.”
Since the fund was launched in August 2014 Hao’s fund has grown by 132.5 percent, attracting investor money which has ballooned the fund to triple its initial size with $212 million on August 31st, 2015. On February 28 this year the fund had $67 million aum.