Here is a quick run-down of some of the world’s hedge funds that barely kept their heads above the flood of bad news coming from China and Greece this past year. US monetary policy doubts did not help the already bad situation for many managers.
The third worst performing fund in 2015 was Crispin Odey’s Odey European fund. Valued at €2.7 billion, the fund was down 14.8 percent in mid-July, according to an investigation of 500 funds by HSBC’s Alternative Investment Group.
Another poor performer, ranked among HSBC’s 20 worst funds, was New York-based Fortress Investment. Fortress’s $1.2 billion Macro fund lost 10.6 percent as of June 30.
Neither hedge fund manager offered a comment on the performance, although Mr. Odey did write in a letter to investors about the poor performance: “Nobody likes looking foolish. Nobody likes losing money,” he admitted.
The winner of the biggest loser award for hedge funds in 2015 is the Amsterdam-based manager HiQ Invest Market Neutral fund. At the end of May the fund had already lost 17.62 percent, losing almost half of its value since January. The fund is valued at $45 million.
“It will be difficult for them to recover,” Alper Ince, managing director at Paamco, a California-based fund of heged funds, said.
Former head of China investments at Och-Ziff Capital Management Group opened a health-care hedge fund based in Asia.
Frank Yu’s Ally Bridge LB Healthcare Fund will invest in opportunities created by Chinese reforms which began to go into effect in 2007. Li Bin, a former Merck & Company scientist, will lead the fund. Li Bin joined the fund in May after a stint as Morgan Stanley’s head of Greater China health-care research.
Managers that have their focus on global health-care have been growing as China continues to improve and expand its health-care system. The goals of the improvements are to increase coverage and make health-care more affordable. In order to accomplish this the Chinese government, which commands the second largest economy in the world, is projected to increase spending in this sector by close to 12 percent each year. By 2018 it is predicted that China will be spending close to $892 billion on health-care.
“It’s becoming an irreversible trend,” said Hong Kong-based Yu. “Chinese patients, doctors, companies, government and hospitals are in search of the most effective, safest and most affordable devices and drugs.”
Even the most sophisticated security systems can go awry. Case in point: In 2013 Thomas Meston, the chief of finance at London based Fortelus Capital Management received a phone call late one Friday afternoon. The caller said he represented the hedge fund’s bank, Coutts, and that there might have been some illegal activity on the fund’s account. Just in case, the caller said, he needed the CFO to use the bank’s smart card security system to generate the codes the caller needed to cancel 15 suspicious payments. Reluctantly Meston did what the caller said.
When Monday morning rolled around Meston was shocked to see that $1.2 million was gone from the fund’s account. There was no record of that Friday call at Coutts, a division of Royal Bank of Scotland. Meston had been hoodwinked.
Fortelus fired Meston, and is now suing him saying that the CFO breached his contract by not protecting the company’s assets. Meston insists he was not acting negligently, and his mistake was an honest one that anyone could have made.
“People are always the weakest link,” said Jason Ferdinand, a director at Coventry University who runs the U.K.’s first cyber security MBA course. Ferdinand added that employees “often assume that they do not have to think about security because a machine or software is doing it for them.”
The race for president in 2016 is getting underway, and some of the country’s most famous names in finance and the arts are putting their money where their beliefs are. Interestingly, support for Hillary Clinton’s candidacy seems to attract a wide variety of star material, uniting them in their belief that Clinton is the best woman for the job.
In the past three months the super PAC known as Priorities USA Action will have raised $15.6 million for Clinton. The information is made public when the PAC files its quarterly fundraising report with the Federal Election Commission. According to law, super PACs are allowed to accept donations of any size. The biggest donation to Clinton’s campaign during the last quarter was from the owner of the Spanish language Univision Network, Haim Saban, for $2 million.
Hedge fund heavy George Soros is also supporting Clinton. Other big names include film makers Steven Spielberg and Jeffrey Katzenberg, investor Donald Sussman and Boston-based political activist Barbara Lee.
The Priorities PAC was first established to raise money for the Obama re-election campaign in 2011. But the PAC was doing nothing until a former Clinton campaign aid, Guy Cecil, came along to revive it last May. The last four weeks saw about 80 percent of its contributions so far.
Former chairman of the Senate Finance Committee Ron Wyden introduced a proposal to put an end to Hedge Fund tax evasion through what he says is the illegitimate use of a loophole in the tax code. Apparently some hedge funds have been able to avoid paying taxes on their profits for several years utilizing a loophole exempting reinsurance firms from paying taxes. The Democratic Senator from Oregon claims that hedge funds have cost the US government millions, if not billions of dollars in uncollected taxes by placing their earnings in offshore re-insurers that they themselves set up for this purpose.
Hedge fund giants such as David Einhorn and Dan Loeb, to name only two of many, route their investments through reinsurers in locations like Bermuda in order to minimize, or indefinitely delay tax payments. The fund managers say that these are perfectly legitimate businesses that really do take on risks from primary insurers, and are not tax scams.
“For over 10 years now this loophole has allowed some hedge fund investors to avoid paying hundreds of millions of tax dollars,” Wyden said in a statement last Thursday. “It’s time we shut it down for good.”
to be his senior economic advisor. Spitznagel is known as a “libertarian” hedge fund manager.
Universa is a fund that is designed to protect its investors from sharp market crashes, or Black Swan events, with about $6 billion AUM.
“I am very grateful to have Mark Spitznagel serve as senior economic advisor to my campaign,” Kentucky Senator Paul said in a statement. “As I travel across the country, the top concern of the American people is our failing economy. I believe we can revitalize our economy by encouraging opportunity and entrepreneurship with lower taxes, a balanced budget, less Federal Reserve interventionism, and limited government spending.”
“I look forward to working alongside Mark to solve our nation’s economic problem and to restore the American Dream,” he added.
Spitznagel wrote a book on investing called, “The Dao of Capital,” and has an organic goat farm which he runs in Michigan, Idyll Farms. He moved Universa’s headquarters last March from Santa Monica, California, to Coconut Grove Florida because of the “more hospitable business and tax environment.”
Founded in 2008 by Laurence Chang and Scott Sinclair, Cascabel Management L.P. announced that it was time to give up the ghost of the poorly performing stock-focused hedge fund. The news is especially bothersome as the fund was backed by Julian Robertson’s hugely successful Tiger Management LLC.
The news of the demise of one more hedge fund in what is looking more like an epidemic reminds the financial community that hedge funds are no place for the faint-of-heart. Indeed, there are a few at the top of the pile that are making a pile, but the thousands of others underneath are struggling, or getting crushed under the weight. According to researcher HRF Inc., as many as 10 percent of all hedge funds close each year.
In its heyday Cascabel was managing up to $350 million, and did well in its first few years, posting a 29 percent rise in 2009. It did not take long, however for the big gains to turn into massive losses. In 2011 the fund lost 18 percent, and in 2014 there was a drop of 17 percent. Overall since inception the fund gained a total of 5 percent.
The world’s most successful hedge fund manager, Steven Cohen, added another masterpiece to his already exceptional art collection.
It was revealed that Cohen, the founder and head of SAC Capital (now known as Point72 Asset Management), was last month’s the secret bidder for the 1947 classic sculpture “Man Pointing” by Alberto Giacometti. The exquisite piece, which is a life-size bronze, became the world’s most expensive sculpture when the bidding ended at $141.3 million in Cohen’s favor.
“Man Pointing” is not Cohen’s first Giacometti. In November, 2014 he paid $101 million for a 1950 piece called “The Chariot.” With the latest purchase it is estimated that Cohen’s extensive collection of modern art could be worth even more than $1 billion. In 2012 the successful hedge fund manager spent even more on a painting by Picasso. Cohen bought “The Reve” from millionaire Las Vegas mogul Steve Wynn for a cool $155 million, and had to wait 6 years to take possession while the painting was being repaired. Wynn had strangely damaged the painting by putting his elbow through it.
Cohen’s art collection could be a catalogue of the world’s most famous and lauded figures of the modern art world:Monet, Munch, Moons, de Kooning and Warhol all have an entry. Much of his work is housed in his own private museum that he built on land he owns in Greenwich, Connecticut.
Ranked as the world’s 106th richest person, he built his wealth with $20 million investment in 1992 when he launched SAC Capital. He made the money working for other Wall Street investment firms.
Jeffrey Smith, CEO and founder of Starboard Value, a hedge fund with the largest stake in the Olive Tree restaurant chain, rallied his investors to check out the premises from “the ground up.”
“Every single board member took a night and worked inside a restaurant,” said Smith. “I was waiting on tables, greeting guests, serving some food, in the kitchen,” he added. “All of us did that. It was an amazing experience because we felt as board members how are we going to make good decisions in the board room without really knowing what’s going on in the restaurants?”
The call to action came after last years heavy-handed criticism of Darden Restaurants (DRI) by Starboard and its co-hedge fund partner Barington Capital. But the investors didn’t stop with a critique of the bottom line, but made negative comments about the food. Especially bothersome to the board was the Olive Garden’s policy of serving an unlimited supply of bread sticks. This, the critics said, was “high food waste and a worse experience” since customers had too many breadsticks which just ended up getting cold.
Nothing was sacred, and the investors dissed the pasta dishes as well. “Overcooked with sauce simply ladled on top” they moaned, and the chefs didn’t even bother adding salt to the water. They called on the Olive Garden to embrace its “Italian roots,” even if the origin of the company is Florida.
Darden followed the criticism with the unloading of the Red Lobster brand for about $2 billion. Starboard Value also removed the CEO of Olive Garden, Clarence Otis, along with the board of directors, to good effect. Darden stock rose and sales at Olive Garden perked up.
Instead of losing the breadsticks the New Olive Garden is instead “embracing” them. The goal is to make their signature breadsticks worthy of a cult following, creating a new menu item, Breadstick Bun Sandwiches. The restaurant even launched a social media campaign called “Breadstick Nation.”
The basket of biotech stocks has been a good bet over the past five years, showing exponential growth hard to ignore. That group of stocks has done better than the S&P 500 for 66% of the quarters since 2001, based on 73 basis points.
So who are the hedge funds backing today? The following is the list of biotech companies most favored by hedge funds.
Pharmacyclics Inc. (PCYC): Over the past year this stock has doubled in price, ranging over the past 52 weeks from $82.51 to $260.47, with a consensus target price of $246.
Gilead Sciences Inc. (GILD): With a market cap of $164 billion, this biotech company was recently trading at $111 with a 52 week range of $78.50 to $116.83, with a consensus price of a little bit beyond $121.
The following three companies are short-selling positions.
Regeneron Pharmaceuticals Inc. (REGN): Trading now at $516, this stock as a 52 week range of $269.50 to $518.20. Its market cap is $52 billion, and the consensus target is about $503.
Amgen Inc. (AMGN): This stock sells today for $164, with a 52 week range from $113.01 to $173.60. With a market cap of $124, analysts have chosen a consensus target price of approximately $182.
Celgene Corp. (CELG): This biotech company was growing crazily from early 2012, but many believe Celgene reached the top of the mountain in early 2015. It has a market cap of $92 billion, and a 52 week range of $74.00 to $129.06. Consensus target price of $137, or a bit more.