Co-founder Daniel Lewis of Orange Capital announced to his investors that, after two years of poor returns, activist hedge fund Orange Capital will be returning funds to its investors.
“Our performance simply has not met our own high standards,” said Lewis in a message to investors.
The fund opened in 2005, and returned 12.1 percent yearly from its launch until 2013. Unfortunately, the last two years were disappointing because “shorter duration hedge fund assets have grown at a rapid pace even as market liquidity has deteriorated, particularly in the high yield and distressed debt markets,” Lewis said.
“Credit investing through traditional, liquid hedge fund strategies will prove challenging for investors as the credit cycle turns. This includes our own hedge fund structure.”
Lewis co-founded Orange Capital with Russell Hoffman. They ran the company together with four research analysts and a trader. The portfolio, which is worth about $1 billion, looked for event-driven opportunities, aimed at performance that was “idiosyncratic and uncorrelated to the overall markets.”
LCH Investments, a London-based fund of funds and a subsidiary of Edmond de Rothschild Capital Holdings Limited, just published its yearly list of the “most successful money managers” for the year 2015.
The list looks at the total net gains, after fees have been subtracted, of each hedge fund manager, since the launch of the fund. Taken as a group these superstars have hauled in for their clients/investors a juicy $199.5 billion since they started their funds. Just last year alone the group managed to profit by $5.1 billion. Sadly, two of the top fund managers did indeed accrue losses during last year.
- Ray Dalio of Bridgewater Pure Alpha: Net gains in 2015=$3.3 billion; Net gains since inception (1975): $45 billon.
- George Soros of Quantum Endowment Fund: Net gains in 2015=$900 million; Net gains since inception (1973) $42.8 billion.
- David Tepper of Appaloosa: Net gains in 2015= $1 billion; Net gains since inception (1993) $17.9 billion.
- Seth Klarman of The Baupost Group: Net gains in 2015: -$800 million; Net gains since inception (1983) $22.6 billion.
- Andreas Halvorsen of Viking: Net gains in 2015: $1.7 billion; Net gains since inception (1999) $22.5 billion.
Guillermo Osses has been hired by the Man Group PLC to be the new head of emerging-market debt strategies. He was formerly head of emerging market debt at HSBC Global Management. Neither Osses or a spokeswoman for Man Group chose to comment on the move. HSBC confirmed the hire, and said that Osses’ position has been filled internally.
Chief Executive Manny Roman of Man said last year that there is an abundance of attractive trades which are available to bet on both the rising and falling of corporate bond prices. He stated that credit “offers and enormous amount of opportunities around the globe.”
Man hired former fund manager at Perry Capital, Himanshu Gulati, to be its head of US distressed credit.
Mr. Osses, who is from Argentina, will be based in New York, as is Gulati. Man is hoping to build a money-making presence in the US market. Man manages $76.8 billion in assets.
In an effort to resuscitate China’s newly born financial markets which have taken a turn for the worse, China’s Securities Regulatory Commission has introduced a series of restrictions on those markets.
Together with the People’s Bank of China, the CSRC has been introducing the following measures: limiting stock index futures trading; banning short selling; cutting margin ratios; forbidding insiders from selling large blocks of stocks; and held a number of hedge fund managers for placing bets against the market.
The CSRC has also attempted to introduce a “circuit breaker” mechanism in order to curb the amount of losses the market can suffer. This experiment proved a failure par excellence when, only after three days with the “circuit breaker” in place the CSRC had to remove the “circuit breaker” in the wake of three days of heavy selling as investors all ran for the hills simultaneously.
The “circuit breaker” fiasco seems to have ended badly for the chairman of the CSRC, Xiao Gang. Gang, 57, was forced to resign when this measure proved inadequate to stem the tide of a continuing destabilization of the Chinese market. It is believed that the end of Gang could also mark the beginning of a new time of uncertainty for financial companies operating in China.
2015 was a challenging year for hedge funds. 2016 is also looking uncertain. One example of this was the recent drop by 6% of the S&P 500, making it “one of the worst weeks on record for the U.S. stock market.”
However, in China things have been looking quite different for hedge funds. According to Klaus Wille, in a Bloomberg article entitled, ‘Winners in 2015,’ “China-focused managers betting on rising and falling stocks returned 11 percent in 2015.” As well, according to Greenwoods Hong Kong-based partner, Joseph Zeng, “The $2 billion Greenwoods Golden China Fund returned 22 percent for 2015, with the fund making more money in the first half.” Plus, SPQ Asia Capital Ltd. enjoyed a “more than 30 percent estimated gain” last year.
In a seemingly counter article that appeared in ValueWalk, it was reported that “overall for 2015, hedge funds were up 1.56% (their lowest annual return on record since 2011) amidst a challenging market environment in 2015.” But in the same journal in a different article, staff wrote: “funds copying hedge-fund strategies to make money are on track to record their best ever net inflows this year as investors look for ways to escape volatile markets. These funds, known in the asset management industry as liquid alternatives, charge lower fees than hedge funds, allow investors to take out money on a daily or weekly basis, and provide better transparency on how exactly they make money. As a result, both retail investors and institutions have poured money in the funds, especially in Europe, helping them grow faster than the hedge-fund industry.”
So with all of these conflicting perceptions and statistics, the question is, is now a good time to invest in hedge funds? According to Andrew Osterland, in an article in CNBC, very possibly yes. He ascertained that: “Money spent on the high fees that come with investing in hedge funds might seem to have been a waste over the last six years, considering the performance of traditional assets. But with the bull market in stocks now very long in the tooth and interest rates at historic lows, hedge funds are looking like an attractive alternative to investors worried about their portfolios.”
Seems like it’s time to take the bad news with a pinch of salt.
Pershing Square Capital Management, Bill Ackman’s hedge fund, has sold some of its many shares in Valeant Pharmaceuticals. Valeant is the drug company which Ackman valiantly defended in 2015, backing up his support with considerable quantities of money.
Last November Pershing owned close to 10 percent of Valeant, up from the 5.7 percent of shares it owned previously. Today, after selling off about 5 million shares, Pershing has a still considerable 8.5 percent of Valeant’s shares.
The year-end sell-off apparently had more to do with tax liability than concern about the stock’s volatility. Pershing stated in the regulatory filing that the shares were sold to “generate a tax loss for their investors.” That is to say that Pershing’s losses on Valeant shares can be used to offset taxes that might be owed on the fund’s other investments.
Seneca Capital Investments is disbanding after over 20 years of money management for its clients. Doug Hirsch, who is also one of the founders of the Sohn Investment Conference, informed his clients of his decision to return about $500 million after the fund posted a 6 percent loss this past year.
“I am no longer able to continue making the commitment and sacrifices required to run outside capital,” Hirsch wrote in a letter dated December 21. “Despite negligible redemption requests and increasing market opportunities that are the result of a challenging year in event-driven investing, I cannot in good faith start next year with the dedication required to manage your capital.”
Seneca placed its bets on corporate events like mergers, spinoffs and restructurings. This year was the worst year since 2011 for event-driven funds. These types of funds declined on average 2.3 percent through November. Seneca joins a long list of funds which have shuttered during the grueling financial events of 2015.
Hedge fund manager Kenneth C. Griffin has donated an unrestricted gift of $40 million to New York’s Museum of Modern Art. Museum officials announced the donation, which is the single largest in the history of the museum. In response to the generous gift the museum will name its most famous building for him- calling the black steel and glass East Wing after Griffin.
The Chicago-based founder and chief executive of Citadel already made the news this year, appearing in ARTnews’ “Top 200 Collectors List. He has donated previously to other museums and educational organizations in Chicago, and he sits on the board of the Whitney Museum. The lobby of the Whitney’s new meatpacking district building is also named for Griffin.
MoMA director Glenn Lowry said that Griffin’s “commitment to our mission and vision is truly extraordinary.”
Griffin told the New York Times that “It is my hope that visitors, artists and students from around the world will experience all that MoMA has to offer for generations to come.”
Earlier this year Whitney Tilson, head of the hedge fund Kase Capital, called Lumber Liquidators “evil.” Before his statement he had already begun a short campaign against Lumber Liquidators stock. All this coincided with a 60 Minutes spot about the poisonous Chinese laminate used on some of the flooring from Lumber Liquidators. That broadcast, and Tilson’s statement helped drive what had previously been one of Wall Street’s hottest stocks down from a high of $69 to a low of $12 this year.
That was March. Now, in December, Tilson seems to be regretting his words. Along with taking back what he said at least partly, he is also closing down his short position. In a post he wrote on Seeking Alpha Tilson said that he was in possession of information which implies that Liquidators are not so evil after all. Apparently, at least according to this new information, the senior management at Liquidators did not know that they were selling toxic, formaldehyde Chinese-manufactured floor coverings. Tilson wrote: “If this information is correct, then the company was sloppy and naïve, but not evil.”
The recant seems to have done the trick. Lumber Liquidators shares surged this week, climbing by 21 percent in early trading at an improved $17.11 per share. This seems to fly in the face of Tilson’s original prediction that Liquidators would end belly-up in the face of regulators and plaintiff lawyers now confronting the company.
Tilson won’t reveal, for now, the source of his information which led to his change of heart. He did assert in his post that Lumber Liquidators did indeed continue to sell the toxic laminate for 67 days after the broadcast of the 60 Minutes story when they should have halted sales immediately.
After 20 years of managing the $3 billion Seminole Capital Management Co. Inc., its co-founders have decided the time has come to step back and circle the wagons.
Michael Massner and Paul Shiverick wrote a blunt letter to their investors describing a list of troubles facing the fund. The combination of high-frequency traders, the increased popularity of passive investments like ETFs and the Feds prolonged low interest-rate policy have conspired to “change the game” of hedge fund management.
“We are not confident our model can maintain historical-like returns in the future,” without losing some extra baggage, they wrote.
The baggage that will be ejected will take the form of a $400 million return of assets to their shareholders. This is an unusual step for fund managers who are usually loathe to admit they may be standing on thin ice.
“This is a decision we have struggled with, yet we believe it is the right thing to do,” they said.