Most of the wealthy people at the head of the Forbes 400 list of America’s richest are in technology, retail and candy sales, hedge fund managers are also ranking well. Among the list’s 50 richest people there are seven alternative fund managers. But among those seven there are three that truly shine.
In first place among the hedge fund stars, and ranked sixteenth overall by Forbes is George Soros With a net worth of $24.5 billion, he dominates as one of the industry’s most influential investors, and has been for at least 40 years. Soros survived the Nazi occupation of Hungary, and relocated to England in 1947 where he studied economics. He founded Soros Fund Management in 1970, and is most likely best known for his short trade that “broke the back” of the Bank of England in the early 90s.
Not too far behind Soros is Carl Icahn. His net worth is valued at about $20.5 billion, making him 22nd on the Forbes list. Don’t let his close ranking to Soros fool you; Icahn’s investing style is worlds away from him. He does not buy and sell equities with abandon like Soros; instead Icahn will buy stock in a company that is ripe for a change. Icahn then acts as an activist and takes on the management to get them to make changes that the shareholders want to see. Icahn’s parents were both teachers, and he studied philosophy. He started in a brokerage firm in the early 1960s, and in 1968 launched his own company.
Ray Dalio is the third star in this constellation with a net worth of $15.3 billion, placing him in the 29th spot on the Forbes 400. He is the son of a jazz musician, and got his MBA from Harvard. In 1975 Dalio started Bridgewater Associates. He still manages Bridgewater, which is the largest hedge fund in the world, managing a heart-attack inducing $150 billion. Dalio’s investing style includes a more value-centered approach, looking for good companies and holding onto his assets longer.
Emerging markets hedge fund Gramercy is turning to Peru to pay up on the debt they owe as a result of a failed attempt at economic and agrarian reform in the late 60s and early 70s of the twentieth century.
The hedge fund purchased a series of bonds which were issued to landowners when their property was taken by the leftist junta led by General Juan Velasco. As the economy collapsed the government was forced to stop servicing the debts.
Courts in Peru have always held that the government must repay the bonds. But succeeding administrations hesitated due to the huge cost and continued to defer or reduce their payments.
Gramercy is now telling Peru to pay up, saying that the current repayment schedule is unfair to the creditors, which includes many Peruvians, and makes the country look bad as far as their credit is concerned.
“While recently seeking a consensual resolution, we were told point blank by a senior Peruvian official: ‘Make us care’,” said James Taylor, partner and chief legal officer of Gramercy. “Given Peru’s indisputable ability to pay a $5bn debt, this clearly is a voluntary and selective default.”
During the past week the Nasdaq Biotechnology Index has lost 18.7 percent, hitting sector investors, especially those in hedge funds, hard. However, although selling seems to be the more prevalent reaction, there are those managers taking advantage of the lower prices and adding to their portfolios.
The cause of the fall was a speech made by Democratic presidential candidate Hillary Clinton. On September 21 she promised to reign in exorbitant drug prices, and since the NBI’s high point on July 20, the index has lost a whopping 27 percent.
Helping the crash along was a general case of market volatile as investors are left hanging by the Feds delaying their decision to raise interest rates. The global economy and its uncertainty has also contributed to the sell-off.
“What you’re seeing is that generalist money is getting very worried and thinking that maybe the healthcare trade is over and they’re rotating into something else,” said John Fraunces, co- manager of Turner Medical Sciences Long-Short fund headquartered in Berwyn, Pennsylvania.
Not all hedge funds are in the doghouse these days. For example, Hao Capital, a small fund with an emphasis on Chinese-based companies, grew by 97.8 percent year-to-date, a feat not seen by many funds these days. Most of the winnings were the result of long positions on appliance companies and shorting on the solar industry. It also helped that Hao did not join the mob scene that jumped into China A shares before their crash in August.
The fund is run by electrical engineer Zhang Hao, who will likely take a long and loving look at the depressed Chinese stock market for some bargains in an attempt to finish off the last quarter of the year with more growth for his investors.
“We should be buying as the market falls,” he wrote. “Cheap valuations represent the greatest opportunity for the Fund.”
Since the fund was launched in August 2014 Hao’s fund has grown by 132.5 percent, attracting investor money which has ballooned the fund to triple its initial size with $212 million on August 31st, 2015. On February 28 this year the fund had $67 million aum.
In an interview with CNBC, Kyle Bass of Hayman Capital described what he said was the “real problem” with the Chinese economy in recent months.
“Loans past due 90 days grew by 167 percent in the first half,” said Bass,
explaining why he believes it’s the Chinese banking sector and its bad debts that is putting China’s economy, and the rest of the world’s, at risk.
Bass predicted that China is between two and three quarters away from an apex in non-performing loans. When that happens there will be mounting pressure on the Chinese government to raise the money it will need to re-capitalize the country’s banks.
China is not alone in this regard. Other emerging-market developing economies, like Malaysia, have similar issues with their own banking systems.
Forbes recently took a fascinating look at the top buys and sells that billionaires have made with their stock picks for the last quarter. Ending June 30th, these are the second quarter top trades that the world’s richest active hedge fund managers made. It’s certainly worth a look. Check out the entire article and see the choices that some of the most brilliant financial minds are making.
It seems nothing and no one is beyond Donald Trump’s ability to bombastically insult or single out for scorn. Last month it was immigrants, last week it was women, and this week its hedge fund managers. Trump says that he is ready to reform the tax code to get the managers to pay up their fair share.
Looking for some descriptions with just the right flavor, Trump chose to call hedge fund managers “paper pushers,” who can ease the tax burden of the middle class by just paying their taxes in a fair way.
“The hedge fund guys are getting away with murder. They’re making a tremendous amount of money. They have to pay taxes. I want to lower the rates for the middle class. The middle class is the one, they’re getting absolutely destroyed. This country doesn’t have—won’t have a middle class very soon,” Trump told CBS News.
Trump was even able to back up his comments with a real-life example of a loophole he is ready to fill if he gets elected president. Known as the “carried interest loophole,” this is a provision allowed by the tax code which lets private equity and hedge fund managers pay their taxes at the same rate as capital gains instead of at the rate of ordinary income. The difference is almost double: capital gains tax rate is only 20 percent, while the bracket many, if not most hedge fund managers would find themselves in is most like hovering around 39.6 percent.
On this subject Trump sounds more like a Democrat than a Republican contender. Hillary Clinton expressed a similar sentiment without the insults saying last May that, “something is wrong when CEOs earn more than 300 times than what the typical American worker earns and when hedge fund managers pay a lower tax rate than truck drivers or nurses.” Bernie Sanders has made tax inequality a cornerstone of his campaign rhetoric.
The chief investment officer, Michael Garrow, of the HS Group, a Hong Kong-based investment management firm, announced that Mohan Rajasooria will be launching a new hedge fund, Zaaba Capital.
Rajasooria left Morgan Sze’s Azentus Capital Management earlier this year, and hopes to open is new fund with a minimum of $250 million from institutional clients, founding partners of Zaaba, in addition to the HS Group.
Zaaba will also be based in Hong Kong, and plans to invest in equities, convertible bonds and corporate credit in the Asian marketplace. Garrow added that the hedge fund will be free to take large amounts of capital outside the usual Asian hedge fund key countries such as Japan, Korea and China.
“A lot of the pan-Asia funds are de facto northeast Asian funds,” said Garrow. “It’s pretty slim pickings in terms of funds that really address Asia outside northeast Asia. The intention is really to capture the major opportunity sets around the region.”
Citigroup Inc. agreed to a settlement of $13.5 million to end the class-action suit against its “Corporate Special Opportunities” (“CSO”) hedge fund. The preliminary settlement was filed in a Manhattan federal court and will still be subjected to court approval and a fairness hearing.
The plaintiffs in the lawsuit claimed that Citigroup and its wholly-owned subsidiary Citigroup Alternative Investments, LLC, had purposefully misrepresented the true risks involved in investing in the CSO hedge fund. They also accused the defendants of lying to investors in order to keep them invested in the fund in 2007. This deceit and persuasion led to great investor losses when the fund was forced to close in 2008.
Claims by the plaintiffs stated that investors were lied to about the quality of the fund’s portfolio, specifically in a letter from the company published in December 2007. Six weeks after stating that the CSO fund was “fundamentally sound” the company no longer permitted withdrawals from the fund to prevent further losses. Despite this action the fund had to be liquidated, resulting in huge losses of millions of dollars to investors.
In wake of huge losses for its Vermillion Asset Management LLC Viridian commodity fund, the private equity firm Carlyle Group LP split with the founders of its flagship hedge fund.
The fund shrank by about 75 percent from its peak of $2 billion down to only $50 million in assets.
The fund, which traded in oil, metals and agricultural markets, lost 23 percent in 2014. More recent investor bailouts began this past spring, causing the fund to plummet to its recent low point.
Christopher Nygaard and Drew Gilbert co-founded Vermillion in 2005. In 2012 they sold a majority equity stake to Carlyle. This past June the partners left the fund. The firm is now in retreat, reducing its investments in oil, natural gas, coal, iron ore and agriculture, and the traders and strategists involved in those investments are also leaving.
In a statement, Carlyle said it is “repositioning our commodities business, particularly in commodities finance, to capture an enormous global opportunity.”