London was the venue for the 5th edition of Hedgeweek’s Global Awards which was held on February 28th, 2014. The awards are bequeathed on the basis of peer review by the 41,000 readers of the hedge fund industry journal Hedgeweek. Those subscribers include institutional investors, wealth managers, fund managers and others in the industry such as fund administrators, prime brokers custodians, law firms, custodians and advisers.
Here are only a few of the winners:
• Best North American Hedge Funds Administrator – UMB Fund Services
• Best North American Prime Broker – Concept Capital Markets LLC
• Best North American Regulatory Advisory Firm – Oyster Consulting, LLC
• Best North American Law Firm – Proskauer Rose LLP
• Best Macro Manager – Blue Sky Capital Management
• Best Event Driven Activist Manager – Third Point LLC
• Best Event Driven Merger Arbitrage Manager – Paulson & Co
A new financial product is gaining in popularity and exciting Wall Street with its potential for lucrative client flows, “hedged mutual funds.”
Also referred to as “alternative mutual funds,” this new-style of investment vehicle promises to deliver exposure like a hedge fund, but with the structure and risk diffusion of mutual funds. These mutual funds use investment tactics which have in the past only been available from hedge funds, such as use of leverage, derivatives, and selling short. This is in contrast to the usual “long-only” strategy of mutual funds which just buy and hold assets, most often in public equities or bonds.
Due to the changes made over the past few years in the hedge fund industry and in their regulation a new thinking about the possibilities for mutual funds has been developing. Hedged mutual funds can utilize a large variety of investment strategies including merger arbitrage, convertible arbitrage, long/short equity, macro trading, and more. In addition, these funds represent a huge expansion in the potential client base for the hedge fund industry. The prospect of such expansion is exciting the imaginations of alternative asset managers.
Canadian hedge fund manager Michael Craig is heading south of the border to buy Mexican government debt. Craig, fixed income portfolio manager at Sprott Inc, sees the demand for Mexican oil is on the rise, weakening demand for the Canadian commodity. The move is part of an overall strategy that Sprott is embarking upon to strengthen its fixed-income portion in balanced funds up to 30 percent from its present 25 percent, says John Wilson, Sprott’s co-chief investment officer. Sprott made its fortune investing in gold and mining stocks.
“Over time a U.S. recovery is going to benefit Mexico far more than Canada,” Craig said in a Feb. 19 interview in his office. “They don’t have the sensitivity to a slowing Chinese economy; they’re much more plugged into the United States.”
Sprott was founded by gold aficionado Eric Sprott in July 2010 when he began investing in bonds. The fund manages about 7 billion in Canadian dollars. The 25 percent decline in gold over the past two years has helped to improve the popularity of bonds. Sprott, along with Craig and Scott Colbourne, co-chief investment officer, led their index of emerging markets and high-yield company bonds to a 17 percent yield during the same period.
Kenneth Griffin, who started first hedge fund from his dorm room in Cabot House when he was a student at Harvard, donated $150 million to his alma mater. The gift is the largest single donation Harvard has received in its history.
Griffin graduated from Harvard 25 years ago and then went to Chicago to create Citadel LLC, one of the largest, and most successful, hedge funds in the world. Forbes reported last year that Griffin’s net worth amounted to about $4.4 billion.
The donation will be used to support financial aid at Harvard. There will be 200 Griffin scholars who will benefit from the new money, and an additional 600 students will be provided with matching fund scholarships through a newly established financial aid program.
Griffin sees the donation as “an investment in the next generation of leaders as we continue to break down barriers to an outstanding education.”
Harvard is the richest university in the world, with an endowment equaling $32.7 billion. An education at Harvard can cost students as much as $65,150 per year but about 60 percent of their students receive some form of financial aid. Qualified students whose parents make less than $65,000 year can attend Harvard free of charge.
“Ken Griffin’s extraordinary philanthropy is opening Harvard’s gates wider to the most talented students in the world, no matter their economic circumstances,” said Harvard President Drew Gilpin Faust in the statement.
In a sign of the rising importance of Asia in the hedge fund universe, the annual Sohn Conference will be taking place in Hong Kong in June, 2014. The Conference is an anticipated event in which ten top management stars address 350 interested attendees. The conference brings together talks from the best and the brightest, radical investment ideas, and fundraising on behalf of cancer research.
The move from London, San Francisco and New York to Hong Kong was precipitated by the growth of investments in Asia. Hedge funds based in Asia total about $140 billion in assets under management. Although that is less than 10 percent of total money invested in hedge funds throughout the world, there are about 25 funds based in Asia with over $1 billion. Even more important, that number keeps going up.
“A few years ago, we started to see more managers flying in from Asia to attend our conference in New York and then we noticed even more flying into London, so we started to think about where to expand in Asia,” said Evan Sohn, who founded the conference in honor of his brother Ira, who died a little over 20 years ago of cancer at the age of 28.
This year the Sohn Conference Foundation will partner with the Hong Kong-based cancer non-profit organization Karen Leung Foundation. KLF was established in memory of a young Hong Kong trader who died in 2012 from cervical cancer. They held their first investor conference one year ago in Hong Kong, and raised $150,000 with only 140 people participating.
This year Karen Leung can expect an even more successful fundraiser than last year, according to Seth Fischer, head of the Hong Kong-based Oasis fund and an organizer of last year’s KLF event. Since the mid-1990s when the Sohn Conference began, it has raised over $50 million for cancer research. Fischer said that joining forces with Sohn would certainly result in substantially more money for cervical cancer research and treatment than last year’s event.
“Sohn has people giving you cutting-edge research that is extraordinarily relevant. It’s about time we had that out here in Asia,” he said.
“Every year people write the cheque [to the charity], but they come back year after year for the content,” said Mr Sohn.
After taking a beating last year and the first month of this year, one of the largest hedge fund managers in the world took the decision to close down their emerging markets portfolio with $2.3 billion aum.
The giant fund lost 15 percent in 2013 and continued to decline in January by 1.6 percent, prompting Brevan Howard to unload the losing fund before more damage was done. Fund manager Geraldine Sundstrom will be leaving Brevan Howard as well.
In contrast, in 2012 the emerging markets fund grew by 14 percent, but the upward movement could not be sustained in light of the sell-off in emerging markets stocks and bonds last year. The sell-off was sparked by worry over the slow-down in growth of the Chinese economy in addition to speculation that the Federal Reserve was going to begin to curtail their enormous bond-buying program known as quantitative easing.
Howard Brevan is a familiar name due to its star-quality Master fund. This macro hedge fund, with $28 billion aum, has never had a down year. Last year Master gained 2.7 percent.
According to a report on Nasdaq.com, Brandes Investment Partners founder Charles Brandes has had a positive year with numerous funds performing well. The Global Equity fund and International Equity fund both produced double-digit returns in 2013.
The report states:
“Over the fourth quarter, Brandes bought 18 new stocks bringing his total number of stocks held to 169. The guru’s portfolio is currently valued at over $8.1 billion. The guru’s largest holding is in America Movil where he owns 16,491,148 shares. His position in the company makes up for 4.8% of his entire portfolio as well as 0.43% of the company’s shares outstanding.”
Mexico-based American Movil is the largest wireless communication services provider in Latin America. It has more than 263 million mobile customers in 18 countries, and is capable of covering a population of 847 million people.
Brandes’ next largest holding is in Tim Participacoes. Formerly known as Tim Holdings Company, Tim Participacoes is Brazil’s largest mobile service provider. It has two subsidiaries: TIM Celular S.A. and TIM Nordeste S.A. Other than Brandes, only investors Jim Simons and Steven Cohen hold a position in the South American company.
Brandes holds shares in numerous other companies as well, including Petroleo Brasileiro SA Petrobras, Microsoft and TE Connectivity Ltd.
Much of the United States has been suffering through a long, cold winter, with the end still months away. Natural gas, a prime fuel for heating households has been flowing at record rates to cope with what some are saying was the coldest winter since 1990, the year gas futures came into being.
Speculation that there could be a shortage of natural gas before the warmer days of spring arrive is fueling a surge in prices for gas across the country.
“It’s been a relentless cold,” says Eric Bass, managing partner at Velite Benchmark Capital Management, a Houston gas hedge fund. “This market has slowly started to realize there could potentially be an inventory problem.”
Checks against shortages have been implemented. Dry gas production in the US rose by 25 percent over the last six years using a new technique which releases gas from shale. But due to the severity of the winter demand for domestic gas is catching up to the supply. According to Bentek Energy the US used an average of 102 billion cubic feet per day, a record. That number dwarfs the 65 billion cubic feet per day that is produced.
“If inventories fell below 1 trillion cubic feet there really could be some deliverability issues in specific places,” says Brison Bicerton of Freepoint Commodities, a trading house based in the US.
Some experts say that the price increases that we are already seeing could be at least partially due to rationing.
“We witnessed a marked increase in spot prices for every consuming region—this is new—suggesting that utilities might be rationing limited inventories by purchasing gas off the market,” says Teri Viswanath, gas analyst at BNP Paribas.
Hedge funds have woken up to the possibility that the possible gas shortage could present itself as a money-making opportunity. One method hedge funds can bet on very low inventories is by taking a stand on the price difference between gas delivered in March and in April, when the demand for gas lessens. This however is far from a sure bet: The March-April gas price spread in 2006 led to the $6 billion collapse of the Amaranth hedge fund.
Large changes in prices could spell danger for aggressive traders. Hedge fund managers, however, are happy to have the excitement of speculation thrown at them As Eric Bass, of Velite Benchmark Capital puts it,
“Generally speaking, the more volatility the better. On any given day volatility can be your friend or your enemy.”
When young bankers who are also founders of non-profit organizations discuss the whys and wherefores of their foundations they inevitably use the language of finance. Andrew Harris, vice chairman of the Resolution Project and advisor for private-equity firms with Forum Capital Partners in New York, describes the project as if it’s another investment.
“We get good yield,” said Harris. “We think it’s very different and, to use a Wall Street term, very differentiated.”
The newest generation of young bankers who are giving back to the world are approaching their dreams in a new and more engaged way. Instead of dropping out of the Wall Street world of high finance to pursue good works, they say they are using the philosophy of capitalism to fix the problems of the world. This new breed of philanthropist does not condemn capitalism, it rather believes in the power of dividends, due diligence, leverage and efficient allocation of resources as the means to help those less fortunate.
“Among this generation — our generation — is a deep passion and interest in learning, earning and returning simultaneously,” said Andrew Klaber, 32, an analyst at hedge fund Paulson & Co. “You just see an unmet need in your research, and research is what we do on Wall Street.”
Klaber is the founder of the non-profit Even Ground, which provides education and health care to children in Africa who are affected by AIDS. The fund has already delivered $800,000 in aid according to IRS filing data.
Climbing the Wall Street ladder to the top does not have the same meaning for these young investment bankers cum philanthropists as it used to have.
“The first time I felt like I made it wasn’t when I made director,” said Julissa Arce, 30, a derivative developer at Merrill Lynch and co-founder of Even Ground. “I felt like I made it when I launched this fund.”
After just one year since its launch date Canosa Capital seems about to triple its AUM, reaching $1 billion.
The fund was founded by two former Rubicon Fund Management managers, and started with $272 million last May. Canosa rose by 9.4 percent until the end of 2013, reaching an AUM of $635 million as of January 20, 2014. The fund is expecting to receive an additional $115 million by February 3 and $250 million more to arrive by March or April.
Canosa was founded by Tim Attias and Santiago Alarco, 48 and 50 years old, respectively. The partners launched with about $250 million of the $271 million from a Stockhom-based hedge fund manager, Brummer & Partners.