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.
According to Friday’s mandatory regulatory 13F filings, top US hedge fund firms are reducing, or seriously divesting of their stakes in the wildly successful consumer electronics firm Apple Inc.
Philippe Laffont’s Coatue Management sold off 1.2 million shares over the past quarter, but Apple is still the fund’s single largest US holding, with 7.7 million shares still in its possession. Omega Advisors, run by Leon Cooperman, unloaded 383,790 shares of Apple during the first three months of the year. Rothschild Asset Management reduced its stake in Apple by 107,953, leaving 938,683 shares still invested. Another big Apple holder, David Einhorn’s Greenlight Capital sold off 1.2 million shares. They are still holders of 7.4 million shares, for now.
Apple has been a favorite stock for hedge funds, especially last year. Apple returned the favor by rising 38 percent points in 2014. According to analysts who looked at 850 funds with $2 trillion in AUM, 12 percent of the hedge funds included Apple among their top 10 holdings. The analysts point out that, due to its size as the largest publicly traded company in the US- that made it important for “both hedge fund and index performance.”
Not all hedge funds are on the same page, it should be noted. Carl Icahn left his 52.8 million stake in Apple untouched, while Ray Dalios’ Bridgewater Associates added 473,500 shares for a total of 732,997.
It is no secret that 2014 was one of the worst years in history for hedge fund returns. And don’t think the managers of these funds haven’t had to take some of the responsibility, in the form of lower wages.
As a group the 25 top-earning hedge fund managers collected what most of us would consider a (more than) respectable $11.6 billion in income, despite the poor showing of the funds they were managing. Sounds like a lot of money, right? And it is. But the managers, as a group, experienced their collective $11.6 billion take home pay as a pay-cut by half, compared to what they made in 2013.
Not to beat a dead (but rich) horse into the ground, but hedge fund managers believe that their earnings for 2014 were actually “paltry.” This is how they feel, and we know feelings are always valid. However, when those of us still living in the real world look at $11.6 billion, we see an amount of money which is larger than the GDP of Nicaragua, Laos or Madagascar. Not bad for 25 guys. (No woman has yet found her place on this list of 25 top-earners in the 14 years since the list’s inception.)
“How bad was ?,” Alpha magazine asked. “The 25 hedge fund managers on our 14th annual Rich List made a paltry $11.62bn combined, barely half of the $21.15bn the top 25 gained the previous year and roughly equal to what they took home during nightmarish 2008.Harsh memories of the global financial crisis pervaded Wall Street in 2014 – at least, for the highest-earning hedge fund managers.”
Sorry for the harsh memories. I wonder if Kenneth Griffin of Citadel, Renaissance Technologie’s James Simons, or Ray Dalio of Bridgewater Associates’ can sleep at night wondering if they can feed and house their families on a mere $1 billion take-home in 2014, which is what each of the top three earners made.
We suggest that these “Rich-List” dwellers save some of their pay from one year to the next in case another terrible year should haunt them once again.
(In case you were wondering, a person, or family, would have to spend $2.7 million every single day of an entire year to spend 1 billion dollars. That’s a heck of a lot of Cheerios.)
The month of April finished poorly for Winton Capital Management, a hedge fund that used computer algorithms to buy and sell. The $30.9 billion investment company had its largest monthly loss in seven years at its biggest hedge fund.
Winton Futures Fund, valued at $12.4 billion, lost 4 percent in April, slashing its yearly gain for 2015 so far down to 0.5 percent.
“There were some surprises in store for the last two days of the month, with a decent selloff in stocks, bonds and the dollar together with a rally in crude oil,” Matthew Beddall, Winton’s chief investment officer.
The sources of the downturn were mostly currencies and energy stocks. The dollar, which had been rising, fell in April, while the price of oil, which had been falling, and its best single month since May 2009.
April’s loss was only surpassed by its 4.6 percent loss in July 2008, making this the largest decline in almost 7 years.
According to data from the hedge fund tracking service HFR, and the London-based research firm , exchange-traded funds will soon overtake hedge funds in terms of total amount invested. The numbers show that within only a few months the 25 year-old ETF/ETP industry will overtake in popularity the 70 year-old hedge fund industry.
The fact that the ETF industry has been outpacing the hedge fund industry in its growth is surprising to many observers who note that the hedge fund industry has also been growing quickly, just not as quickly as ETFs. At the end of 2013 there was $230 billion more invested in hedge funds than in ETFs, compared to only $13 billion more in hedge funds at the end of the first quarter of 2015.
One explanation for this trend is the disappointment many investors have had in hedge fund returns, which often lag behind the returns realized by the S&P 500.
“With the positive performance of equity markets, many investors have been happy with index returns and fees,” the report said. This situation has had a positive effect on exchange traded products.