Change of Leadership at the “Chocfinger” Fund

March 25, 2015 James Heinsman Hedge Fund News

Cocoa farmer David Kebu Jnr holding the finished product, dried cocoa beans ready for export. Photo taken by Irene Scott for AusAID.

Cocoa farmer David Kebu Jnr holding the finished product, dried cocoa beans ready for export. Photo taken by Irene Scott for AusAID.

Lead manager John Tilney will be retiring from his position at Armajaro Asset Management LLP, a hedge fund based in London. The fund became known as the “Chocfinger” hedge fund due to its former purchasing of 7 percent of the world’s cocoa supply

Tilney, who is 60 years old, joined Armajaro in 2004. A former verteran commodity trader at Glencore, he came to Armajaro to establish the flagship Armajaro Commodities Fund. He plans on leaving his post and becoming an advisor this April. Oliver Denny, a co-manager at the fund, will take Tilney’s place.

Mr. Denny remarked: The next phase of the commodity cycle will be very interesting, and I believe it will provide some excellent investment opportunities for ACF.”

Founded in 1998 by Anthony Ward, the British press gave the fund the nickname “Chocfinger” in 2010 after it bought about 240,000 metric tons of cocoa from London’s NYSE Liffe exchange. At the time it was about 7 percent of the entire world supply.

The move comes after a time of loss. During the 15 months preceding the closing of 2013, the most recent year for which there are accounts available, the group holding company recorded a loss of $103.4 million after taxes. The accounts show that the shortfall was “predominately due to losses within the Armajaro Trading Limited subsidiary.” During that time frame the highest paid employee at Armajaro received $19.6 million in compensation.


Anthony Ward, Armajaro Asset Management LLP, Chocfinger Fund, John Tilney, Oliver Denny,

Hedge Fund Manager Having Bad Case of Déjà vu

March 18, 2015 PJ Moore Economic Barometer

Andy Redleaf, CEO of Whitebox Advisors, sent an internal memo last Sunday expressing worry that he sees signs of another crash on the offing, similar to that of 2007.

The memo, which was obtained by, quotes Redleaf as saying: “I think it is a truly scary time.” Whitebox manages $4.2 billion in assets.

Specifically, Redleaf is fearful that the stimulus to place new money in markets resembles too closely the lower credit standards that were in effect in the housing market right before that sector crashed and burned in 2007.

“We do not know exactly where all the credit creation of this cycle has gone. Certainly money sits idly as excess reserves, but just as certainly money that would not exist but for unconventional monetary policy has distorted prices and resource allocation,” Redleaf wrote.

Redleaf mentioned the oil market, which reached a high of around $100 a barrel before the price slid into the abyss of $43 per barrel today. He stated that the high price could have been caused by China “buying on easy credit” as well as other floods of money going oil producers who turned that money around into abundant supply, thus drastically lowering the price.
He noted additionally that the stock market might also be inflated in a similar way by sovereign wealth funds and the Swiss central bank’s ownership of large amounts of equities.

“There are some parallels with the collapse in home prices which preceded the financial crisis,” he explained.

Nine years ago Redleaf predicted the coming financial crisis, so it may be worthwhile to pay attention to his fears. In a letter he wrote to investors in December 2006 Redleaf stated:

“Sometime in the next 12 to 18 months, there is going to be a panic in credit markets. The driver in the credit market panic of 2007 or 2008 will be a sudden, profound and pervasive loss of faith in the alchemy of structured finance as currently practiced.”


Andy Redleaf, market crash, Whitebox Advisors,

Fund Guru Odey Warns Against China Dependence and Coming Recession

March 9, 2015 Debbie Jacobs Economic Barometer

Crispin Odey courtesy of Insider Monkey

Crispin Odey courtesy of Insider Monkey

Crispin Odey, one of the world’s most respected hedge fund managers expressed concern that economies that depend on China for their income are on the path towards recession. He further cautioned that central banks will not be able to save these economies since their supply of policy tactics have already been played out.

Odey is the founder of Odey Asset Management, a London-based firm, which has bought short positions on Australia in keeping with his bearish view of China’s growth potential for the near future. He has shorted Genworth Mortgage Insurance Australia and Fortescue Metals Group, a sign that he is anticipating a fall in their share values. He also expects the Australian dollar to plunge. Odey said that he is anticipating that banks in Australia are about to encounter “a bad time ahead of them.”

“China is everything to Australia in lots of ways,” Mr Odey told The Australian Financial Review.


Australia, China, Crispin Odey, recession, short positions,

What Funds are Betting On Now

March 3, 2015 James Heinsman Hedge Fund News

What are the most notable trends the smart money is betting on now? An analysis by one of the top investment firms in the country examined 850 hedge funds and more than 700 mutual funds which are actively managed and discovered the three following qualities of these investments.

1.    Most funds seem to believe the stock market is continuing its upward climb for the near future. The research shows that 57 percent of the funds’ investments are betting that the stocks will go up, as opposed to shorting which bets that the stock will fall. That percentage is a record high, which is a good sign that at least the managers believe the market is not on the verge of crashing. The survey also showed that mutual funds have only 3.1 percent of their holdings in cash; lower than average over the past ten years. Another sign of a bullish market

2.    The survey showed that fund managers believe consumers will be spending their $750 savings on their gasoline. The largest single sector which managers are betting on is the so-called consumer discretionary stocks. Those are companies that manufacture consumer goods like clothing and furniture.

3.    The research also revealed an interesting fact: both hedge and mutual funds seem to be betting on 11 similar stocks, which were found in their top holdings. The investment firm calls these stocks the “VIP list.”

•    Actavis (ACT)
•    American International Group (AIG)
•    Citigroup (C)
•    EMC Corp (EMC)
•    Facebook (FB)
•    Gilead Sciences (GILD)
•    Google (GOOGL)
•    JP Morgan (JPM)
•    MasterCard (MA)
•    Medtronic (MDT)
•    Priceline (PCLN)


Investment trends,

Investment in Hedge Funds Shrinking

February 23, 2015 James Heinsman Hedge Fund News

According to data fom SS&C portfolios, the number of requests by investors to withdraw their money from hedge funds was up this month compared to February in 2014.

The SS&C GlobeOp Forward Redemption Indicator is a way to quantify the number of withdrawal requests compared to the amount of assets under management, expressed as a percentage. In February 2014 the percentage of withdrawal requests was 2.49 while this year, in February 2015 the amount was 3.64 percent of AUM.

SS&C Technologies is a fund administrator which collects the data which is provided by their fund clients. Those clients represent about ten percent of all assets invested in hedge funds.


Einhorn Adds Consol Energy to Greenlight Capital Portfolio

February 16, 2015 James Heinsman Hedge Fund News

According to regulatory filings required by the Securities and Exchange Commission, David Einhorn now owns 5.8 percent of Consol Energy. SEC rules obligate investors to report when they acquire at least 5 percent of a company.

Hedge fund manager Einhorn first invested in Consol during the third quarter of 2014. At that time he bought 2.7 percent of the energy company’s outstanding shares. At the end of this year Einhorn added to his bet, bringing his stake up to 5.8 percent as of December 31, 2014.

Einhorn is well known for his short bets on Keurig Green Mountain, Allied Capital and Lehman Brothers. He is also criticized Apple Inc publicly after they announced in March 2012 a plan to return to shareholders $45 billion of its enormous cash stash through share repurchases and dividends, saying that sum was not nearly enough money for their investors. Einhorn eventually got his way when Apple revised their plan in 2013. The return program was for shareholders to get back $100 billion over three years in dividends and repurchases.

Concomitant with his increased investment in Consol Einhorn also reduced his stake in Apple. His hedge fund, Greenlight Capital, sold off 566,500 shares of Apple in the last quarter of 2014, according to SEC filings. As of the end of 2014 Greenlight held about 8.6 million shares of Apple. That amounts to 12.6 percent of Greenlight’s portfolio, its second largest holding.


Stop Worrying about Leveraged ETFs, Say Feds

February 12, 2015 James Heinsman Economic Barometer

Many in the market have had concerns that leveraged exchange fund trades could create market volatility – a new study explains that these concerns are misplaced. As two Federal Reserve Board economists explain, capital flows actually reduce the need for ETFs to buy and sell assets to match movements that are happening in benchmark indexes. This counters the potential for ETF Volatility to be a problem in the financial markets, as the authors explain.

The study was done by Fed economists Ivan Ivanov and Stephen Lenkey. As they wrote, “These products have been heavily criticized based on the belief that they exacerbate volatility in financial markets. We show that concerns about these types of products are likely exaggerated.”

As they explain in their conclusion, “ETFs are generally considered to be inexpensive and tax efficient investment vehicles. Because both the ETFs and their underlying portfolio are traded, they provide an ideal platform with which to examine the benefits of liquidity improvement. The latter occurs when the ETF is more liquid than its underlying portfolio. In this paper, we document the extent of liquidity improvement across a large cross-section of U.S. equity funds. Importantly, we investigate the role of liquidity improvement (and its two components) on ETF flows and mispricing. Our findings have broad implications for investors and ETF providers world-wide, particularly in Europe where ETF liquidity is fragmented across multiple exchanges, not to mention across multiple cross-listings, and where much of the trading in ETFs occurs over-the-counter. Our results demonstrate that liquidity improvement is not something that every fund can claim to offer. While the average fund has a positive liquidity improvement in spreads and in turnover, the liquidity improvement in spreads and in price impact are negative for the median fund, implying a significant amount of skewness in the cross-section of funds. There is also a great deal of variations across sub-groups of funds based on size and sector.”

For more in-depth information, you can read their white paper.


Buffet Winning Bet Against Hedge Funds

February 9, 2015 James Heinsman Hedge Fund News

Back in 2008 Warren Buffet, known for his philosophy of “passive” investing, challenged hedge funds that a sum of money placed in an index tracker fund would outperform a conglomeration of five hedge funds during the course of ten years.

Now seven years have passed, and guess who is winning? That’s right, the “Sage of Omaha,” who is also one of the world’s most famous investors, seems to be proving correct.

Each year since the $1 million bet was negotiated, Fortune Magazine, which has been monitoring the bet, announces how the two sides are doing. Only in the first year of the bet did the hedge funds outperform the tracker fund- crashing by “only” 24 percent compared to the index fund which fell 37 percent. Since that first year the index fund did better, to the tune of 63.5 percent increase in value compared to the hedge funds measly 20 percent. In 2014 alone the tracker funds leapt up by 13.6 percent while the hedge funds lagged behind, rising only by 5.6 percent.

The five hedge funds were picked by New York money manager Protégé Partners. Buffet’s fund is a simple S & P tracker fund, cheap and available to any layman, not like hedge funds, which are only accessible to the wealthiest investors.

The terms of the bet, which were negotiated in 2007 by Ted Seides of Protégé, stipulate that the loser will pay at least $1 million to the charity which the winner chooses.

Even investors who support hedge fund investing have admitted that Buffet is almost sure to win this bet. Only a serious stock market crash could reverse what looks like a sure thing for Buffet.

Laith Khalaf of Hargreaves Lansdown, said: “This bet is so interesting because it started just as global stock markets were about to fall off a cliff, an environment which should have given the hedge funds a racing start. The lesson here is that if you bet against stock markets over the long term, you’re likely to be on the losing side of the wager.
“It also tells us that the hedge funds chosen haven’t done a great job with the capital invested in them.”


Gold Gains Favor with Hedge Funds

February 2, 2015 James Heinsman Economic Barometer

Gold’s allure is growing as hedge fund managers look with caution to slowing European and Asian economies, which in turn can freeze US economic growth.

Investors are turning to gold by the droves, with an 80 percent increase in their net-long position this year over last year. In addition, the economy’s growth during last year’s fourth quarter was less than had been expected. To top it off, officials of the Federal Reserve stated their recognition of global risks when their policy meeting ended last week.

This past month’s prices for gold topped even the largest monthly gain during the last three years. European and Asian policy makers are taking actions to stimulate their economies, and making currency alternatives more appealing while their currencies are being revalued. Slower expansion overseas has only stimulated speculation here in the US that the Fed will continue to wait it out before raising US interest rates.

“If we’re in a really bad global economy and we have more downbeat news here, the motivation for the Fed to raise interest rates isn’t there,” stated Marty Leclerc, the chief investment officer at Barrack Yard Advisors. “That would hence make gold more attractive if everyone is debasing currencies.”

During the week ending on January 27, the net-long position in gold climbed by 15 percent to 167,693 futures and options, according to the US Commodity Futures Trading Commission. This is the most long-holdings since 2012.


Anil Prasad Launching Macro Hedge Fund

January 26, 2015 James Heinsman Hedge Fund News

Former head of Citigroup’s foreign exchange division, Anil Prasad, has gathered together about $500 million in start-up capital to begin a macro hedge fund. The fund, Silver Ridge Management, is expected to launch in early April this year.

The fund is expected to set up offices in London and New York. Prasad will be leading a group of several other managers, including Farhand Mehregani, another ex-exec from Citibank.

Prasad’s goal is to top up the fund with $1 billion, excepting money thereafter only on rare occasions, and mostly from investors already in the fund.

Silver Ridge is getting underway as macro hedge funds are beginning to see a more favorable investment environment after close to four years of lackluster returns. Macro managers see the rise in global volatility and divergent economic policies as creating more investment opportunities.

In addition to Mehregani, who was the former chief investment officer of Sciens Alternative Investments, the fund is also employing Santa Federico, former Perry Capital executive, as global head risk; and Anil Joshi from Comac Capital as chief financial officer based in London.


Anil Joshi, Anil Prasad, Farhand Mehregani, Santa Federico, Silver Ridge Management,

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