Hedge Crunch FinancialHedge Fund Billionaire Wants to Redefine Capitalism
Paul Tudor Jones, billionaire hedge fund manager, says the 50-year-old definition of capitalism coined by Milton Friedman is outdated in today’s world of the mega-rich.
According to Friedman the “social responsibility of a company is to improve its profits.”
But Jones says that this definition needs updating.
“When Milton Friedman said that, tax rates had just come from 91 percent to 70 and income inequality was one-fifth of what it is today,” he said. “You can see how it was relevant at the time but fast forward to where we are today. It’s a different deal.”
Speaking on CNBC’s “Squawk Box,” in a rare interview, Jones said, “Capitalism may need modernizing. In 1985, 35 percent of nation’s wealth was owned by the bottom 90 percent. Today, they own 23 percent, and that 12 percent has gone to the top.”
Jones is the founder of the Robin Hood Foundation, a group that is working to end poverty in New York City.
One example of this re-thinking of capitalism is the upcoming launch of a new exchange-traded fund which focuses on social impact. The launch of the fund by Goldman Sachs uses a model from Jones’ own foundation, Just Capital. The model ranks businesses on parameters like employee conditions, environment and products. Just capital watches a selection of Russell 1000 companies, including Apple, Amazon and Bank of America.
Jones believes that the new ETF might one day challenge the benchmark US stock index.
Hedge Funds Making a Comeback
Photo courtesy of Alpha Stock Images,
As Mark Twain once so famously quipped after seeing his own obituary in a newspaper, “Reports of my demise are greatly exaggerated,” so too the reports of the end of hedge funds appear to be exaggerated. Quite the contrary, by the end of last year, and continuing into this year, hedge funds are on a definite rebound.
The industry is experiencing good news on two fronts: cash flowing into the numerous funds, as well as noticeably improved returns for investors. According to hedge fund researcher HFR, as of October 2017 the average hedge fund advanced 5.4% while $39 billion of new money entered the arena. The increase is the best its been since 2010, while in 2016 $112 billion exited the hedge fund sector. That turn around is giving many investors and managers something to smile about.
One example of a hedge fund riding this wave of good news is Brahman Capital Corp, a New York based firm that went mostly unnoticed for over thirty years. Two years ago, Brahman Capital reached its high point of over $5 billion in assets under management. Betting on a popular stock at the time, Valeant Pharmaceuticals, the fund traveled the storm down along with Valeant, which crashed from a high of $257 per share to $14 a share. This set-back forced Brahman to report losses to their clients, and some withdrew their money.
Brahman picked itself up, unloaded its shares of Valeant and, with its remaining $38 billion AUM, pulled itself up to bigger and better rewards. During 2017, the fund experienced a gain of 17% and expects the good news to continue while it rides the wave of better times along with the industry as a whole.
Top 25 Fund Managers Earned $15.38 Billion Collectively in 2017
Hedge funds seem to be rebounding from their years-long slump, with 2017 being spectacularly lucrative for the extremely lucky few.
Four hedge fund managers realized personal annual earnings topping the one-billion-dollar mark, an astronomically good years wages by anyone’s standards. Those four include James Simons of Renaissance Technologies with a sweet $1.7 billion; David Tepper of Appaloosa Management, who made $1.5 billion in 2017; Kenneth Griffin of Citadel made $1.4 billion; and Bridgewater Associates’ head Raymond Dalio banked $1.3 billion.
As a group, the top 25 hedge fund managers together brought home a cool $15.38 billion, more than the GDP of many independent countries, such as Bahamas, Nicaragua, Armenia, and many others. The average income of these 25 high-wealth individuals comes to $615 million per manager. That is a pay raise of 40% over 2016.
It is not just the managers that are doing great; the hedge funds are also doing better. The managers are bringing in better returns this year than in 2016, when about half of all funds lost money or only earned single-digit returns.
Hedge Fund Short Selling Favorites
Creative Commons 3 – CC BY-SA 3.0 Courtesy of Alpha Stock Images, Photo by Nick Youngson.
Betting that a company’s stock will lose value is called short selling, and hedge fund managers use this strategy as one more way to make their money work hard for them.
We usually look at the most popular investments hedge funds are making– its almost always bets on the belief that the company’s stock price will rise. After all, the great truth of investing in the stock market is its historical, inevitable rise in value over the long term. Betting on downturns is riskier, since it goes against a company’s objectives, and it is a short-term assessment rather than the recommended value investing where your money is in the market for the long haul.
Money managers look for companies that they think are overvalued and bet that the price of the company’s stock will drop. This is a list of companies that Goldman Sachs evaluated as the ones hedge funds have been short selling the most. The list is part of the investment bank’s latest “Hedge Fund Trend Monitor.”
• AT & T: This telecommunications giant has a total short interest of $6.3 billion.
• Intel: This giant in the computer industry makes semiconductors and is the second biggest shorted company with about $3.9 billion bet against the company.
• Walmart: One of retails largest companies, there are $3.5 billion worth of short bets against this hugely successful company.
• Nvidia: This company makes graphics processors and semiconductors. Not long ago it was seen as a company going up. Now investors consider it one of the most overvalued stocks, betting against its rise with $3.3 billion in funds.
• CVS Health and Walt Disney: Both companies have $3.1 billion in bets against them, tying for fifth place.
NFL’s Panthers a Great Bet for Investor Tepper
David Tepper, billionaire hedge fund manager, is after the NFL’s Carolina Panthers for
Image of David Tepper of Appaloosa Management. Photo courtesy of Wikipedia and Appaloosa Management.
about $2.2 billion about double what Forbes says it was worth in 2007, about $957 million. Observers see his move as one with long-term promise. The deal is still not approved, the NFL has to sign-off before it is official, but if it does pass muster, it will be the largest amount ever paid for a football franchise. The previous record was set in 2014 when the Pegula family purchased the Buffalo bills for what was then an astounding $1.4 billion.
Forking over more than $2 billion seems outlandish, but analysts agree that the team should pay Tepper back, and then some. In just two years the Pegulas saw the price of the Bills climb to $1.6 billion in only two years, bringing in $200 million more than their original investment. But Tepper is likely looking at the industry and sees where it is heading: up.
As the way people enjoy sports, and especially football, evolves, more avenues for making money are presenting themselves. Football fans can now watch games online using several venues: Amazon, Facebook, Twitter and YouTube are all skirmishing for rights to broadcast games.
Also fueling the value climb will be the recent US Supreme Court decision to allow states to legalize sports gambling. One investor, Mark Cuban, said the decision was wonderful news for sports investors and the gaming industry.
“I think everyone who owns a top four professional sports team just basically saw the value of their team double,” the owner of the NBA’s Dallas Mavericks said in a “Squawk Alley” interview. “It can finally become fun to go to a baseball game again.”
Cryptocurrency Funds Coming Back to Life
In case you were wondering where all the noise over cryptocurrency retreated to, you need wonder no more. After garnering much excitement at the end of 2017, when the year long gain notched a mouth-watering 1700 percent growth, (yes that’s 17 with two zeroes), the first quarter of 2018 was a bit bumpier. Eurekahedge observed its Crypto-Currency Hedge Fund Index dropped 6.04 percent in January, 13.21 percent in February, and 34.11 percent in March. Not something to write home about.
April saw a change in direction for this sector worth singing about, with a climb in value for that month alone of 83.86 percent. Currently the price of one bitcoin hovers at about $8300, leaving analysts and observers to speculate on the probability of the digital coin to reach $10,000, where it hasn’t been since early March. However, compared to where bitcoin was on December 18, 2017 when it reached an all-time high of just under $20,000, getting to $10,000 does not seem like such a big deal.
Although bitcoin has been showing signs of better health in recent weeks, it could be other cryptocurrencies that are fueling the Eurekahedge index growth. The second largest cryptocurrency by market cap, ethereum, grew by 70 percent in April. But Bitcoin Cash more than doubled its value during that same time span.
It might be hard to get a real overview of how cryptocurrencies are behaving since at the moment there are a tiny number of funds dedicated to investing in them-just seven on Eurekahedge’s index. But if digital money continue to dominate from now on, there is a good chance investors will take more of an interest in their performance and value.
Hedge Funds Beat S&P First Time in Decade
For the past several years we have been watching hedge funds closing down and returning what’s left of their investors’ money. High fees and low yields have played fast and furious with the reputation of hedge funds, painting them as poor choices for savvy investors.
So it may come as a surprise to hear that in 2018 hedge funds are making a comeback, and doing better than they have in about ten years.
Hedge funds so far this year are outperforming the S&P 500 with about 0.4 percent returns. That is the first time since the 2008 financial crisis that the industry did better than the index.
The positive performance is attributed to a marketplace that has been highly volatile, a rise in energy prices and some other good bets by managers. Total return for the year for the $3.2 trillion investment sector was 0.39 percent, compared to S&P’s 0.38 for the first third of 2018.
“The industry continues the process of evolving transitional politics and economics creating long and short opportunities across a wide continuum of specialized exposures and industries, including Fixed Income/interest rate-sensitive equities, retail, M&A, technology and blockchain,” HFR President Kenneth J. Heinz said. “This powerful process is likely to continue to drive performance through mid-2018.”
Its Time to Invest in Oil Development Says Hedge Fund Manager
Drilling platform “Iran Khazar” in use on a production platform in the Cheleken of Dragon Oil Field (Turkmenistan). Photo courtesy www.dragonoil.com
One of the most respected hedge fund managers in the oil sector, Pierre Andurand, said that today’s general avoidance of investing in new oil production could lead to oil prices going to $300/barrel within just a few years.
Andurand tweeted his viewpoint on Sunday. Known for his usually bullish approach to investing, he explained that people are reluctant to invest in projects with long lead times due to the emergence of electric cars, which many view as eventually lowering demand for oil.
“So paradoxically these peak demand fears might bring the largest supply shock ever,” he wrote. “If oil prices do not rise fast enough, $300 oil in a few years is not impossible.”
He also expressed his view, contrary to the accepted standard opinion, that such high oil prices will slow the growth of demand for oil.
“So no, $100 oil will not kill the economy,” he tweeted. “And we need +$100 oil to encourage enough investments outside of the U.S”
Andurand’s viewpoint is similar to that of the Saudi Oil Minister Khalid Al-Falih. A few weeks ago, Al-Falih hinted that prices could keep rising above today’s $75/barrel and not do much damage.
“We have seen prices significantly higher in the past, twice as much as where we are today,” Al-Falih said. And the global economy absorbed the high price, keeping up until it hit $150/barrel, and then crashed.
Andurand met with Al-Falih last July in London, along with other top commodity hedge fund managers to discuss the situation in the oil market. OPEC, the Organization of Petroleum Exporting Countries, and its partners announced that they plan to keep production down this year, which has helped to increase prices.
Andurand’s fund lost almost 10 percent of its value during the first two months of the year due to unstable energy prices but made money in March. Launched in 2013, Andurand Capital Management LLP has made money every year since its inception.
Sohn Conference Stars are the “Little Guys”
Another year has passed since the last annual Sohn Investment Conference, the highly anticipated event in which managers big and small present their investment ideas for the coming year. Once again, the most successful investment ideas come from the more modest sources, while the higher profile investors’ ideas are not as profitable.
According to a Reuters analysis, Josh Resnick, the founder of Jericho Capital Asset Management of New York, had the best overall performance of all the 11 presenters at the 2017 Sohn Conference. Resnick recommended to attendees last year to short Frontier Communications Corp. His bet against the company earned him 61 percent payoff since May 8, 2017, the date he made his recommendation.
Coming in second place was Larry Robbins, manager of Glenview Capital Management. His recommendation was a bullish bet on DXC Technology Company, which earned 33 percent since last year’s announcement.
This year’s conference, the 23rd yearly, will be held on Monday, April 23rd at the David Geffen Hall at Lincoln Center. Among the presenters will be Glen Kacher of Light Street, Chamath Palihapitiya of Social Capital, and Li Ran of Half Sky Capital.
Investing superstar David Einhorn of Greenlight is one example of a big name whose prediction turned to little gain. His recommendation last year was to short Core Laboratories NV. Sadly, for Einhorn, and anyone who followed his advice, the company gained 7.3 percent since May 8, 2017 and now, resulting in a losing position for anyone shorting the stock, like Einhorn recommended. In Just the first quarter of 2018 Greenlight was down by 14 percent.
This year’s conference will feature a stock-picking game, the Ira Sohn Stock Game. For a $100 entry fee, participants receive one million tokens to build a fantasy investment portfolio. The player with the best performance during the coming year will be declared winner and will receive two free tickets to the 2019 Sohn Investment Conference. The $100 entry fee will be used to fund the Sohn Foundation’s mission, to treat and find a cure for pediatric cancer.
For more details about the contest, go to the Sohn Conference web site.
Is Tesla the New Enron?
Photo of Elon Musk courtesy of
OnInnovation.
Some analysts are wondering if high-flying Tesla will end up being the huge disappointment Enron turned out to be: one of the biggest failures in Wall Street history.
Harris Kupperman of Praetorian Capital has been wondering out loud if Tesla is on its way to oblivion. Short-seller Jim Chanos said something similar about Tesla near the end of 2017. Kupperman has some graphic evidence to support his prediction, an overlay chart comparing Enron’s spectacular fall during the year after it hit its all-time share-price high of $90 on August 23, 2000, with Tesla’s stock’s behavior since its all-time high on September 18, 2017 of $385 per share and now.
A casual observer not looking carefully at the overlay graph might indeed think something spooky is going on, but a closer observation of the two graphs is not particularly convincing.
Here is what Elon Musk, Tesla’s fearless leader, Tweeted about what one worry-wort at the Economist stated, that Tesla will need to raise $2.5 billion to $3 billion this coming year.
“The Economist used to be boring, but smart with a wicked dry wit. Now it’s just boring (sigh). Tesla will be profitable & cash flow+ in Q3 & Q4, so obv no need to raise money,” was Musk’s response.
Kupperman was not persuaded by Musk’s assertion, however:
“He hasn’t hit on any target or deliverable with any sort of reliability for years now. Why should I believe him now?” he writes. “Remember in 2016 when he said they’d be profitable and didn’t need any more money? Or when they said that in 2017? He’ll probably be saying the same thing at the bankruptcy hearing.”
Musk supporters like Global Equities Research analyst Trip Chowdhry informed his clients a week ago that Tesla is a rock-solid investment:
“Betting against Elon Musk is not only insane but total stupidity — equivalent to committing a ‘career suicide.’”