Jimmy John’s Promotes Franchise Owners on Twitter

November 22, 2016 James Heinsman Economic Barometer

More and more young people today are finding their expertise in unconventional fields. Not everyone wants to become a doctor or a lawyer, and people can find satisfying ways to make a living that aren’t your classic models. One such idea is to open a franchise. Franchise owners find a sense of satisfaction, creating their own restaurant or other store. And yet, there is a feeling of safety in the franchise since you aren’t starting from scratch and don’t have to completely reinvent the wheel.

Take, for example, the list offered by CNN Money of some of the best franchise opportunities out there.  All the way back in 2011, they featured Jimmy John’s Sandwich Shop and Jimmy John’s owner, Jimmy John Liautaud. They explain that “[Jimmy] John Liautaud’s recipe for a good food franchise: fresh ingredients, fast delivery and an irreverent sense of humor. “

If you’ve followed Jimmy John’s on any of the major social media platforms recently, you’ll know all about this sense of humor which has done a great job attracting the brand’s large millennial demographic.  That’s why it was so refreshing to see some more serious tweets recently which focus on Jimmy John’s franchise owners. One such tweet introduces a young entrepreneur who is turning a gas station into a Jimmy John’s.

And another features yet another Jimmy John’s that is opening soon.

These are just a few of the ways that Jimmy John’s supports its franchise owners. The company estimates that their annual sales for franchise owners can read $1.2 million and that net profits average around $280,000.  Even companies with carefully crafted “personalities” on Twitter could learn a thing or two from Jimmy John’s social team.  They didn’t hesitate to vary from their general script, and I think the value is clear.  Apparently I’m not the only one, because the company recently sold a majority stake to private equity firm Roark Capital Group.

Jimmy John Liautaud and his company are certainly proof that you don’t have to graduate from the top of your class or get an advanced degree in order to understand business and common sense. The opportunities are there – you just have to be ready to take them.  Their Twitter team seems to have received that message from their fearless leader loud and clear.  They are certainly a big part of why the company is celebrating their latest financial transaction.

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NYU Drop Out Starts Hedge Fund Worth $5 Million

November 21, 2016 James Heinsman Company Spotlight

Julian Marchese is one 20-year-old who knows what he wants. And what he wants is to succeed in the world of finance, and more specifically, in the world of hedge funds.

Last year, when Marchese was still a student, he launched Marchese Investments from his dormitory room. When Business Insider interviewed him last September Marchese said he had only $1 million under management and was planning to raise an additional $3 million. Therefore, $5 million AUM is above his own goal.

Since the firm runs separately managed accounts and is also too small to oblige it to file regulatory filings on its assets for the SEC, the numbers are hard to verify independently. Marchese says that most of his nest egg comes from one investor, whose name he declined to reveal.

One investment advisor, Chris Kohler, who works at Mercer, has been helping Marchese with his business plan. Kohler expects much from Marchese. Kohler pointed out that many of the hedge fund superstars of today started out with investing in high school and college. Yes, $5 million is not a lot in comparison to institutional investors with pensions and endowments who won’t even consider a fund unless it is worth $100 million or more. On the other hand, how many 20-year-olds are controlling $5 million with the goal of building that into a fortune?

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Hedge Fund Fees Falling as Investors Vote with Their Feet

November 16, 2016 James Heinsman Hedge Fund News

This has certainly been a tough year for hedge funds. Low returns married to high fees have set off alarms as clients re-evaluate the cost-benefits of sticking with alternative fund managers.

In response, some of the largest hedge funds have lowered their fees as added incentive to keep their customers in the fold. Brevan Howard, Tudor Investment Corp, Och-Ziff and Caxton Associates reduced their rates this year in hopes of retaining clients.

The average management fee, which has traditionally been 2 percent, fell from 1.45 in 2015 to 1.35 in 2016.

“Investors are demanding more and paying less. Adapt or lose out,” said one pension fund manager.

Yet some believe the fees are still too high. According to surveys, only about 1 out of 5 investors are happy with the amount they pay to their hedge funds. They would like to see improved performance in return for the fees that they pay. This year the average return for hedge funds was 3.7 percent. Subtract 1.35 percent, and not much gravy is left.

n the other hand, investors are basically satisfied with the 20 percent fee most funds charge on their profits, since that fee only kicks in after the funds reach or surpass profit targets.

Almost half of the investors that took part in the survey said they were most likely going to move their money away from hedge funds and put it into private equity, real estate, or other strategies. Investors who plan to stick with their hedge funds are looking to have separate accounts in order for them to have more control over their money and how it is traded.

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ETFs Growing in Popularity, Surpassing Hedge Funds

November 7, 2016 James Heinsman Hedge Fund News

S&P 500 Closing Values (1950-16) along with 1, 2 and 3 Year Moving Averages. Chart courtesy of Overjive

S&P 500 Closing Values (1950-16) along with 1, 2 and 3 Year Moving Averages. Chart courtesy of Overjive

Lower fees and better performance have helped exchange-traded funds (ETFs) to become more popular, dollar for dollar, than hedge funds.

The ETF industry now has over $3.2 trillion in assets, leaving behind the hedge fund industry which manages about $2.87 trillion. Investors are switching their bets to ETFs to save on management fees, and cash in on the better performance of the ETFs compared to hedge funds.

ETFs collect only about 35 basis points, on average, in fees, compared to hedge funds, which charge a 1.5 percent fee on assets managed, and a whopping 18.9 percent, on average, on profits generated.

In the past large investors, like public pension funds and sovereign wealth funds, were happy to pay for differentiated returns as well as protection from the vagaries of the market. This helped the hedge fund industry to grow from a back-water industry in the 90s to an industry with $3 trillion in investments in 2014.

In its early days the hedge fund industry performed well, better than investors who were exposed to market benchmarks (alpha). But with growth came also increasingly poor results. In 2011 hedge funds stopped providing excess returns, and since then have not done as well as the benchmarks.

Investors are pulling their money out of hedge funds and moving it to more active indexing strategies such as ETFs.

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Hedge Funds Facing Run on Their Money

November 2, 2016 James Heinsman Hedge Fund News

Yes, hedge funds seem to be closing faster than we can keep up, but is it just a perception, or is something really going on?

It turns out we are not imagining things at all. Far from it. A recent report from eVestment confirms our fears; investors withdrew a shocking $60 billion from hedge funds so far this year, with a crazy $10 billion in withdrawals just in September. Data like this suggest that hedge funds are suffering their worst investor push-back since the financial nightmare of 2008. The small recovery witnessed over the summer of 2016 did not put much of a dent on investor fears, and the withdrawal trend continues unabated.

The third quarter of 2016 was a tough one for hedge funds, which saw their industry lose $29.2 billion in investment money. It is the fourth quarter in a row in which the money flowed out of alternative funds, plus it was the quarter with the largest amount of total withdrawals since the beginning of 2009. The figures support the fears of analysts that hedge funds are going through a huge investor backlash in reaction to poor returns on their money combined with high management fees.

Before anyone thinks the sky is falling, it would be useful to remember that combined, hedge funds manage about $3 trillion, making a $60 billion outflow look like a drop in the bucket, if not the sea. (60,000,000,000/3,000,000,000,000=0.02, or 2 percent.) Yet, the trend is disturbing for money managers who much prefer to see money flowing in than flowing out. Investors could be just beginning to wake up to little known facts such as, on average, this year hedge funds returning a disappointing 4.19 percent while the S&P 500 Index has returned 7.8 percent during the same time.

Not all hedge funds are equal when it comes to bad returns. Perry Capital was forced to close one of its major divisions even though the firm has an amazing and long history of good results. Pershing Square, activist investment star Bill Ackman’s fund saw its own assets dwindle by almost half due to scandals and other problems, from $20 billion at the end of 2015 to only $11.4 billion today.

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Renaissance Technologies Beating the Odds

October 13, 2016 James Heinsman Hedge Fund News

In the midst of what to some observers looks like a shrinking of the hedge fund industry, Renaissance Technologies, LLC, seems to be an exception.

Renaissance uses closely held computer models and alogorithms to pick its bets. After a period of inconclusive results, the fund seems to have finally found its legs. For over a year already the firm has posted better than the market gains.

Their good results is attracting new money, to the tune of $7 billion this past year, mostly from wealthy clients of UBS Group AG, Citigroup Inc, and others. The fund now manages over $36 billion, up from $27 billion last year. That includes a $1 billion return to investors from its signature Medallion fund, which is now not taking new investors.

The success of Renaissance is one more bit of evidence that quantitative funds can, and do, beat traditional investing methodologies.

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Sohn San Francisco Offers Predictions for Investing

October 6, 2016 James Heinsman Hedge Fund News

Chamath Palihapitiya 2016, Photo courtesy of Cmichel67.

Chamath Palihapitiya 2016, Photo courtesy of Cmichel67.

The Sohn Investment Conference’s San Francisco branch held its seventh annual meeting this week. The conference is co-sponsored with CNBC, and is not only the first cousin of the prestigious Sohn New York gathering, but also raises funds to fight pediatric cancer.

The conference opened with the “Next Wave” panel discussion in which rising stars in the hedge fund industry who have recently begun new ventures discuss their latest picks. Included as recommended bets were a languishing jewelry chain and a biotech company.

Chamath Palihapitiya, founder and CEO of Social Capital, said that he was supporting an enterprise cloud software company known as Workday.  He predicted that the $18 billion company will be worth $100 billion in ten years.

Carson Block, a short seller, said he is placing a bet against a “quite aggressive” small cap construction contractor. The company, Tutor Perini, based in Los Angeles, is headed by ex-Miramax studio investor Ronald Tutor. The market value of the company’s stock is worth $1 billion now, up more than 30 percent this year.

“From our perspective nothing has fundamentally changed from this company since it was bouncing around at $15 a share,” said Block. Tutor Perini’s stock has been selling for $22.20 a share.

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Rising Star in Hedge Fund Galaxy Just 28 Years Old

September 26, 2016 James Heinsman Hedge Fund News

At a time when many hedge fund firms are closing shop, it is noteworthy when a new one enters the marketplace. It is even more eye-catching when the founder is a mere 28 years old. Harvard Business graduate Jamie Sterne launched Skye Global Management with $75 million back in July, after doing a two-year stint at Dan Loeb’s Third Point as an equity analyst.

Sterne was previously employed by Greenmantle as a macroeconomic analyst, and at BeaconLight Capital as a long-short equity analyst.

In addition to his MBA, Sterne also has a degree in history from Harvard which he earned in 2010. His first job was at Maverick Capital of Lee Ainslie.

Most hedge funds are launched by managers with much more experience who are at least in their late 30s or early 40s. One other exception however is David Einhorn, who started his Greenlight Capital when he was only 27.

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Funds in Singapore and Australia Outperform Asian Rivals

September 21, 2016 James Heinsman Hedge Fund News

The Singapore Merlion at the Bay. Photo courtesy of Erwin Soo.

The Singapore Merlion at the Bay. Photo courtesy of Erwin Soo.

Funds based in Singapore are showing better results than their Asian-based counterparts, according to data collected by Eurekahedge Pte. The reason is that Singapore puts more focus on India and global markets, while Hong Kong and Japanese based funds lean more towards Chinese and/or Japanese securities.

During the first seven months of 2016 funds headquartered in Singapore rose by 2 percent. Hong Kong based funds shrunk by an average of 2.3 percent. Australia-headquartered funds also rose, by 1.9 percent, but those based in Japan declined by 2.5 percent.

Comparing the indices of India with those of China also show the reason for the discrepancy. India’s S&P BSE Sensex Index grew by 9.4 percent so far this year, while China’s CSI 300 Index lost 13 percent, and Japan’s Topix declined by 15 percent.

“Singapore has the most diversified hedge fund industry in Asia with regard to managers’ strategic and regional mandates,” said Mohammad Hassan, head of hedge fund research at Eurekahedge. “Diversification has helped the domestic industry post the best overall gains in Asia, while China and Japan equity-focused centers such as Hong Kong and Japan are in the red.”

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Chanos Shorting Tesla as Musk Attempts to Buy SolarCity

September 14, 2016 James Heinsman Hedge Fund News

Elon Musk at the 2015 Tesla Motors Annual Meeting. Photo by Steve Jurvetson

Elon Musk at the 2015 Tesla Motors Annual Meeting. Photo by Steve Jurvetson

The hedge fund manager who became famous for predicting the fall of Enron and then cashing in on his prediction, Jim Chanos, is now forseeing that Elon Musk’s Tesla is poised for a similar fall.

Chanos explained his position at the CNBC Institutional Investor Delivering Alpha conference held on Tuesday. Placing his short bet on Tesla, the Kynikos Associates hedge fund manager, reiterated his opinion expressed in June that Musk’s plan to acquire SolarCity is a “shameful example of corporate governance at its worst.”

Only now Chanos is even more convinced of Tesla’s inescapable fall since Musk released new information about his planned purchase. That information helped him realize “just how crazy this merger is and the damage it’s going to do to shareholders.”

Chanos’ basic argument is that both Tesla and SolarCity are in desperate need of capital. Both companies are dealing with a serious cash shortage, and both have announced that they are looking to raise additional funds this coming year. Together the companies are spending about $1 billion every quarter, and will therefore need constant access to capital markets.

“And when you need that amount of money just to run your business model, you put yourself at risk,” Chanos proclaimed.

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