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.
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.
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.”
Wall Street is notorious for the long work week it subjects its workers to. It is a simple fact that those on the Street that want to get ahead must stay at the office until the wee hours, and often take work home as well.
To get a better handle on just how hard the hedge fund managers work, The Hedge Fund Compensation Report for 2017 brings together information from “hundreds of portfolio managers” from more than 200 companies.
The report describes an increasing trend towards longer hours. Although the majority of managers work between 40 and 59 hours per week, there was a rise in the number of portfolio managers who work more than 60 hours a week. In 2015 9 percent worked over 60 hours, while this year 15 percent did.
It is logical that the pressure to work longer hours has increased. The industry is going through some hard times trying to recover from the low returns paired with high fees. The industry lost more than $106 billion in assets under management during 2016, the biggest exodus of funds since 2009.
The managers themselves are also feeling hassled, as their work life takes over their personal life. The report states that “the number of respondents who view their work and personal life balance as average to excellent saw a decline of five percentage points from last year.” Yet, the majority still assert that they are happy with their work/life balance.
Billionaire Trump supporter and US hedge fund manager Robert Mercer, not only helped finance the President’s campaign, but also played a crucial part in the UK’s vote to exit the European Union.
Owner of the right-wing news organization Breitbart, Mercer is suspected of using his data-analytics firm, Cambridge Analytica, to give expert advice to the pro-Brexit organization, Leave.eu.
Cambridge Analytica was paid £4.8 ($5.96) million by the Trump campaign to persuade undecided voters. Mercer also offered his firm’s help to Nigel Farage, the leader of the UK Independent Party, for free, said Leave.eu communications director Andy Wigmore.
“They were happy to help. Because Nigel is a good friend of the Mercers,” Mr Wigmore said. “What they were trying to do in the US and what we were trying to do had massive parallels. We shared a lot of information.”
Cambridge Analytica’s help to Leave.eu came in the form of harvested data from user’s Facebook profiles in order to figure out how best to target them with personalized advertisements. The electoral commission in Britain was not made known of Mr. Mercer’s contribution to the campaign despite the fact that according to UK law all services worth more than £7,500 ($9,319)has to be declared. Leave.eu did not explain why it refrained from declaring the donation of services.
Eurekahedge has compiled much of the data to evaluate hedge fund performance and fund flows throughout the challenging 2016 investing year.
Managers have reported a performance-based gain of $35.1 billion in 2016. Net asset outflows totaled $55.1 billion. The vehicle with the largest redemptions were long/short equities with an outflow of funds totaling $29.1 billion. European based funds lost total AUM by 5.47 percent, with redemptions coming to $27.0 billion.
Currently about 10 percent of all hedge fund assets are in the global long-only sector, which is also one of the industry’s best performing strategies. Long only funds are comprised mainly of small hedge funds with $100 million of less under management. About 80 percent of the sector are in this category.
Management fees have been coming down as many investors have been fleeing the sector. Between 2006 and 2016 the average management fee went from 1.41 percent to 0.99 percent. Average performance fees also plummeted, from 12.25 percent in 2006 down to 10.86 percent in 2016.
In the never-ending quest to find new sources for profits, one hedge fund manager is venturing where only the bravest, most risk-tolerant managers are willing to go: betting on corporate take-overs.
Los Angeles-based Canyon Capital Advisors told its investors in a newsletter in January that they have seen a “significant increase in supply” of potential deals “as companies having difficulty growing organically have instead sought to buy growth.”
The firm was founded by Joshua Friedman and Mitchell Julis, and manages $14 billion in assets.
These types of deals are not usually open to regular investors since they involve buying the stock of the company being acquired during a sale, while selling the stock in the acquiring company.
The strategy is called risk or merger arbitrage, and is quite risky since many deals have the annoying outcome of collapsing mid-deal. The Wall Street Journal coined the term “Arbageddon” for such deals in 2014, after several such failed deals wreaked havoc on hedge funds like JANA Partners, and Paulson & Co, which had been betting big on some buy-outs.
Nevertheless, Canyon announced to its investors this strategy, which can also yield big in good years for mergers. These kinds of strategies for investing are good ones for algorithm control, which are likely better able to predict outcomes than humans can.
Kevin Ulrich is the head of the New York investment firm Anchorage Capital, the largest owner of the iconic Hollywood studio Metro-Goldwyn-Mayer. Anchorage was founded in 2003 by Anthony Davis and Kevin Ulrich. In recent years MGM has been the force behind such blockbusters as Hobbit, Hobbit: The Desolation of Smaug, and Skyfall, the James Bond film which featured Adele singing the title song.
Under the leadership of Gary Barber MGM has become one of the most consistently profitable movie studios in the industry. Barber has guided MGM to producing about 5-7 movies each year, plus 14 TV shows now running.
The strategy MGM uses to succeed so consistently through the years has been to focus on remakes, and branding. They have fostered success with such brands as Creed, The Pink Panther, The Magnificent Seven, Jump Street, Tomb Raider and Stargate.
That is not to say that there are not exceptions. Such films as Me Before You, is based on a British novel written by Jojo Moyes. Barber took a chance on the film based on the wide, international popularity of the book.
Just like all investing, there is a risk factor, but even more so when the vehicle is the film industry. Just ask Andrew Rudd, chairman and CEO of Advisor Software, a financial advisory firm in Lafayette, California.
According to Rudd, for every successful investment there are dozens more which never even see the light of day. Their projects are nixed in pre-production.
“It’s very risky,” says Rudd. “Everyone naturally thinks of “Avatar” and “My Big Fat Greek Wedding”, but for all of those that you know about there are literally hundreds of thousands that die.”
Not everyone can be as successful as
Kevin Ulrich or Gary Barber. The film industry is volatile, perhaps more so than the average business. Certainly money can be made there, but just as any investor or hedge fund manager will tell you, money can also be lost.
Governor Dannel P. Malloy of Connecticut, the nation’s second largest hedge fund state, urged law makers to hold off on eliminating the “carried interest” tax break, which benefits hedge fund managers. He told them it would be more prudent for the law’s liberal sponsors to allow the new President Trump to make good on his campaign promise to void the tax break through federal action.
“I don’t think it’s in the best interest of Connecticut to lead that discussion, because we have employers who have large number of employees in our state,” Malloy said, referring to a hedge fund industry the governor believes is crucial to the state economy. “I just don’t think that’s an area we should stake out.”
Malloy was addressing his concerns to a bill co-sponsored by 35 state legislatures and pushed by Working Families Organization, a union funded lobby group. The sponsors say the abolition of the tax break could result in a $535 million annual boost to the Connecticut treasury by placing a 19 percent surcharge on “investment management service fees.” Hedge funds in Connecticut manage $300 billion in assets, making it the country’s second largest home for hedge funds.
In order to side-step the fear that hedge funds will just move to another state if the carried interest tax break passes, the law states that it will not go into effect unless the nearby states of Massachusetts, New Jersey and New York adopt similar laws. Malloy, however, would like Connecticut to refrain from doing anything, believing that President Trump will handle the issue instead of the states.
“Let him do it,” Malloy said, referring to Trump.
Xu Xiang, also known in China as “Hedge Fund Brother Number One,” was sentenced to 5½ years in prison for market manipulation. The trial was one of China’s most high-profile since the 2015 collapse of the Chinese market.
Xu won his nickname for his record of winning bets on the stock market, but his luck did not hold out in Qingdao, the eastern Chinese city where the trial took place. Xu was charged with colluding to manipulate share prices from 2010 to 2015. Two other defendants were found guilty along with Xu; Wang Wei received a sentence of three years and Zhu Yong was given two years with a three-year reprieve on the same charges.
In addition to jail time the three investors were fined. They also had to turn over their ill-gotten gains to the court. Their fines are the largest ever in China for economic crimes committed by individuals; 12.05 billion yuan ($1.76 billion), with 11 billion yuan just on Xu. The trio used 40 billion yuan to manipulate the market, and illegally profited about 7 billion yuan.
Xu was born in 1976 and was already investing while still in high school in the eastern city of Ningbo. He did not go to university, but instead became a professional investor. Before his arrest, he was worth about 4 billion yuan personally and managed tens of billions of yuan for clients.