For the first time in Blenheim Capital Management’s history ownership of the company is opening to new blood. Willem Kooyker, the 74-year-old pioneer in commodities investing, launched the fund almost thirty years ago, specializing in natural resources, such as oil, agriculture, metal and everything in between.
With about $1.5 billion assets under management, at its height in 2011 Blenheim was the world’s largest hedge fund focused on commodities. Recently the fund has been struggling with assets under management down by 85 percent from its record. With anemic returns for the past several years, Kooyker decided to bring into partnership several people who have worked at the New Jersey-based firm for years.
“My new partners will help me chart a new course for growth in an industry that has changed enormously in recent years,” Kooyker said. “Blenheim was a pioneer in commodity trading and investing and we aim to be among the leading managers in those markets for many years to come.”
In addition to Kooyker’s son Terence, Thomas Kopczynski, James Wohlmacher, and Gus Rossi will be joining the company as its newest partners. Willem will continue to act as head of the asset allocation committee and remain actively engaged in trading.
The HNA Group Co, a China-based conglomerate, has agreed to purchase a quarter stake in the US asset management unit of Old Mutual Plc. The deal is valued at about $446 million, and continues on the path of a busy year for HNA, which spent $30 billion last year in acquisitions.
The sale is part of Old Mutual’s break-up of its operations, selling off an almost 25 percent share in OM Asset Management, reducing its own stake to 25.9 in percent OMAM as a result of the sale.
The sale will take place in two stages: the first will be about 10 percent of the sale at $15.30 per share to be completed within 30 days of the agreement. The second stage will be comprised of 15 percent, at $15.75 per share.
HNA Group is controlled by Chinese billionaire Chen Feng. Last year he purchased shares in the hospitality giant Hilton Worldwide Holdings, as well as the electronics distributor Ingram Micro Inc.
OM Asset Management is a multi-boutique, US-based financial services business with about $240 billion worth of assets under management.
For some observers the appeal of hedge funds as investment vehicles seems a bit inexplicable. The news about these alternative funds is that they charge high maintenance fees and do not deliver returns commensurate with those fees. Yes, there has recently been an exodus of sorts from these funds, but they are still a powerful force in the investment industry, despite the bad press and bad outcomes.
A new study may shed some light on one small aspect of the appeal of these funds, at least why some funds seem to attract more money than others. It seems, according to a new study from a collaborative team of researchers from the University of Buffalo and the University of Oulu in Finland, that the mere name the fund goes by influences investors to put their money where the perceived power is.
That’s right, savvy investors are influenced by the appellation a fund goes by, and, you
guessed it, the more power the name evokes, the more money flows in, to the tune of $227,120 a year, on average.
The researchers devised a metric which measured what they termed the “gravitas” of the names of hedge funds which they collected from a number of databases. They found that just adding one “power word” to a name makes a big difference in the fund’s attractiveness to potential investors.
“Hedge fund investors chase hedge fund names containing a special combination of words related to economics and geopolitics, or that convey power,” the researchers said.
The most successful words were invested with meanings connected to weight, influence, seriousness and authority. The researchers saw that the increased flow of money in was not related to the fund’s performance, which was controlled for in the study. Rather than looking for high-performing funds, investors were seeking out funds with solid, power-evocative names.
Some names with gravitas are:
• Marathon Macro Strategic Allocation
• Manchester Alpha Fund
• Lionhart Aurora Venture Segregated Class A
And some without gravitas are:
• Hare Investment Fund
• Mullaney Investment
• LGT (CH) Cat Bond Fund USD A
The next question the researchers asked was whether or not the funds with the gravitas names outperformed those with neutral, or weaker names. To the surprise of the analysts, the opposite turned out to be true.
“We were surprised to see that funds with gravitas were not that hot in terms of performance,” said Cristian-Ioan Tiu, one of the co-authors.
Hedge funds with strong names had annualized alphas as much as 0.97 percent lower than those with weaker gravitas, according to the study. Annualized returns and Sharpe ratios concurred.
“The good funds should not need to convey to the world how awesome they are using their names,” Tiu said. “Performance and word of mouth should be enough.”
One of the largest hedge funds in the industry, Millennium Management, recently hired Ariel Masafy, an ex-portfolio manager for Steve Cohen’s alternative investment firm.
Masafy worked predominantly with consumer stocks. He worked for Cohen since 2011, managing about $11 billion.
Employment changes by portfolio managers is of great concern to Wall Street observers. Poor showings of many hedge fund managers through 2016 make the employment moves even more concerning, as certain changes could be indications of further future events.
Millennium is run by Israel Englander, and has many trading teams managing about $34 billion in assets. The firm’s leading fund did relatively poorly last year, with a 3.3 percent upward climb. Millennium has posted double-digit gains in recent years.
Three years ago, Cohen’s SAC Management pleaded guilty to charges of insider trading. The settlement forced Cohen to abandon investing for clients, and Cohen was never charged. In 2014 SAC became Point72 and limited its investing to the family fortune, taking no outsider money. At that time several of Cohen’s portfolio managers left to start their own fund managers.
In general, we all know that hedge funds are not doing well. But for the few among the hedge fund successes, those managers have a lot to be thankful for. And we do mean a lot.
The data tells us that between the high fees hedge fund managers charge and the lackluster returns, record numbers of investors are fleeing away from the alternative fund space. The $3 trillion industry saw the loss of $70 billion just last year, recorded as the largest downturn since 2009.
No need to feel bad, though. Hedge fund managers are still among the wealthiest Wall Street denizens.
The following is from Forbes list of the highest-earning hedge fund managers and traders from the past year, 2016. The list, as you can guess, shows that these men (are there any women among them, we wonder?) are still able to pay their mortgages.
The fifth highest earner last year was Kenneth Griffin, founder of Citadel. This fund ended the year in the black, with a return of about 5% net after fees. Griffin earned a cool $500 million. Begun in 1990, Citadel has an annualized net return since inception of 19%.
Forbes called Appaloosa Management’s David Tepper the “arguably the greatest hedge fund manager of his generation.” Nevertheless, his company only brought home middle digit returns. But that still did not hurt Tepper, unless you thing $750 million is simply not enough to live on.
Ranked with the third highest income, Raymond Dalio is the founder and co-chief investment officer of Bridgewater Associates. In 2016 Dalio earned an impressive $1.4 billion, yes less than the Mexican border wall will cost, but still, nothing to be ashamed of. Dalio seems to be slowing down a bit, though, announcing in March that he will no longer be managing the firm as of mid-April.
We have a tie for first place between Michael Platt, founder of BlueCrest Capital Management, and James Simmons, founder of Renaissance Technologies Corp. Both managers brought home the bacon to the tune of $1.5 billion. Forbes says about Platt that, “highly leveraged bets on interest rates paid off for Platt in 2016, as his supersized family office turned in a 50% return net of costs.”
As for Simmons, who retired from his firm in 2010 still brings in the dough via its “strong performance,” as Forbes describes Renaissance’s returns. The company’s largest fund, Renaissance Institutional Equities, “was up 21.5% net fees in 2016” according to Forbes.
In recent news, online jeweler Blue Nile announced the acquisition of the company by an investor group, which was comprised of Bain Capital Private Equity, Bow Street and Adama Partners. The transaction was approved by Blue Nile’s shareholders on February 2, 2017.
As the Blue Nile Chairman, CEO and President Harvey Kanter explained, “Blue Nile has disrupted and transformed the way consumers shop for and purchase diamonds and fine jewelry by creating price transparency while simultaneously providing value to suppliers. As we enter the next phase of growth, Blue Nile will continue to expand our vision and focus on putting the customer first by reaching them the way they prefer to shop whether it’s a computer, mobile device, or in one of our Webrooms.”
Wall Street is notorious for the long work week it subjects its workers to. It is a simple fact that those on the Street that want to get ahead must stay at the office until the wee hours, and often take work home as well.
To get a better handle on just how hard the hedge fund managers work, The Hedge Fund Compensation Report for 2017 brings together information from “hundreds of portfolio managers” from more than 200 companies.
The report describes an increasing trend towards longer hours. Although the majority of managers work between 40 and 59 hours per week, there was a rise in the number of portfolio managers who work more than 60 hours a week. In 2015 9 percent worked over 60 hours, while this year 15 percent did.
It is logical that the pressure to work longer hours has increased. The industry is going through some hard times trying to recover from the low returns paired with high fees. The industry lost more than $106 billion in assets under management during 2016, the biggest exodus of funds since 2009.
The managers themselves are also feeling hassled, as their work life takes over their personal life. The report states that “the number of respondents who view their work and personal life balance as average to excellent saw a decline of five percentage points from last year.” Yet, the majority still assert that they are happy with their work/life balance.
Billionaire Trump supporter and US hedge fund manager Robert Mercer, not only helped finance the President’s campaign, but also played a crucial part in the UK’s vote to exit the European Union.
Owner of the right-wing news organization Breitbart, Mercer is suspected of using his data-analytics firm, Cambridge Analytica, to give expert advice to the pro-Brexit organization, Leave.eu.
Cambridge Analytica was paid £4.8 ($5.96) million by the Trump campaign to persuade undecided voters. Mercer also offered his firm’s help to Nigel Farage, the leader of the UK Independent Party, for free, said Leave.eu communications director Andy Wigmore.
“They were happy to help. Because Nigel is a good friend of the Mercers,” Mr Wigmore said. “What they were trying to do in the US and what we were trying to do had massive parallels. We shared a lot of information.”
Cambridge Analytica’s help to Leave.eu came in the form of harvested data from user’s Facebook profiles in order to figure out how best to target them with personalized advertisements. The electoral commission in Britain was not made known of Mr. Mercer’s contribution to the campaign despite the fact that according to UK law all services worth more than £7,500 ($9,319)has to be declared. Leave.eu did not explain why it refrained from declaring the donation of services.
Eurekahedge has compiled much of the data to evaluate hedge fund performance and fund flows throughout the challenging 2016 investing year.
Managers have reported a performance-based gain of $35.1 billion in 2016. Net asset outflows totaled $55.1 billion. The vehicle with the largest redemptions were long/short equities with an outflow of funds totaling $29.1 billion. European based funds lost total AUM by 5.47 percent, with redemptions coming to $27.0 billion.
Currently about 10 percent of all hedge fund assets are in the global long-only sector, which is also one of the industry’s best performing strategies. Long only funds are comprised mainly of small hedge funds with $100 million of less under management. About 80 percent of the sector are in this category.
Management fees have been coming down as many investors have been fleeing the sector. Between 2006 and 2016 the average management fee went from 1.41 percent to 0.99 percent. Average performance fees also plummeted, from 12.25 percent in 2006 down to 10.86 percent in 2016.
In the never-ending quest to find new sources for profits, one hedge fund manager is venturing where only the bravest, most risk-tolerant managers are willing to go: betting on corporate take-overs.
Los Angeles-based Canyon Capital Advisors told its investors in a newsletter in January that they have seen a “significant increase in supply” of potential deals “as companies having difficulty growing organically have instead sought to buy growth.”
The firm was founded by Joshua Friedman and Mitchell Julis, and manages $14 billion in assets.
These types of deals are not usually open to regular investors since they involve buying the stock of the company being acquired during a sale, while selling the stock in the acquiring company.
The strategy is called risk or merger arbitrage, and is quite risky since many deals have the annoying outcome of collapsing mid-deal. The Wall Street Journal coined the term “Arbageddon” for such deals in 2014, after several such failed deals wreaked havoc on hedge funds like JANA Partners, and Paulson & Co, which had been betting big on some buy-outs.
Nevertheless, Canyon announced to its investors this strategy, which can also yield big in good years for mergers. These kinds of strategies for investing are good ones for algorithm control, which are likely better able to predict outcomes than humans can.