Hedge Fund Figures Tallied for 2016

February 22, 2017 Debbie Jacobs Hedge Fund News

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.

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Daring Hedge Fund Bets on Mergers

February 16, 2017 James Heinsman Hedge Fund News

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.

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Arbageddon, Canyon Capital Advisors, Joshua Friedman, merger arbitrage, Mitchell Julis,

Trending: Hedge Funds Investing in the Film Industry

February 7, 2017 James Heinsman In the News

The Hobbit was a great success: For MGM and for Anchorage Capital. Photo courtesy of Jorge Figueroa.

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.

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Anchorage Capital, Andrew Rudd, Gary Barber, Kevin Ulrich, MGM,

Connecticut Governor Urges Lawmakers to Wait for Trump to Tax Hedge Fund Managers

February 1, 2017 James Heinsman In the News

Connecticut Governor Dannel P. Malloy. Photo by U.S. Navy photo by Petty Officer 1st Class Armando Gonzales/Released

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.

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Chinese Hedge Fund Superstar Xu Gets Jail Time for Manipulating Markets

January 24, 2017 James Heinsman Hedge Fund News

Courtesy of DrRandomFactor

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.

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Hedge Fund Brother Number One, Wang Wei, Xu Xiang, Zhu Yong,

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.

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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.

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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.

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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.

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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.”

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Joseph Rotter, Neuberger Berman, Principal Strategies Group,

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