Crypto Currencies Are Hot Now

September 3, 2017 James Heinsman In the News

Hedge funds can’t get into the cryptocurrency investor space fast enough, it seems. There are now at least 800 digital currencies, such as Bitcoin, which are not centralized, but rather rely on what is known as distributed ledger technology. These various currencies, when combined, have a marketcap of about $166 billion, and are attracting investors like bees to honey.

Financial technology analytics company Autonomous NEXT published a list of 55 cryptocurrency hedge funds last week, highlighting the growing appeal of the sector.

“Like wild mushrooms, crypto hedge funds have been taking root in the volatile and unregulated soil of the crypto economy,” Autonomous NEXT wrote on their website. “So we went digging, and digging and digging,” they stated.

One of the newer funds on the list, 1confirmation, was launched on August 22, 2017 and is backed by the high-tech billionaire and star of the reality TV show “Shark Tank,” Mark Cuban.

It is no wonder hedge fund managers are siting up and taking notice. Since 2016 Bitcoin’s value has grown by 700%. The 3300% rise of Ether during the same time span gives new meaning to “meteoric price rise.”

In addition, the market for initial coin offerings, or ICO’s is going gangbusters, with more than $1.8 billion raised since the early days of 2017. ICO’s use a novel method to raise funds based on blockchain technology, what else?

Traditional hedge fund managers have noticed the party.

“We have seen managers invest in the actual currencies and/or in the ICOs, and soon there will be derivatives as well,” Steve Nadel, a hedge fund attorney said. “Cryptocurrencies have garnered a fair amount of interest in the investment management space, primarily because of the returns they have recently shown.”

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Companies Trying to Attract Women to Hedge Fund Sector

August 24, 2017 James Heinsman Company Spotlight

The hedge fund space controls an estimated $3 trillion, and women manage about 1 percent of that. Of every 100 fund managers, only 20 are women. This data shows starkly the glaring gender imbalance is this exclusive club of hedge fund executives. This is contrast to the strides gender equality has made recently in other areas of the financial services sector.

A study done in 2015 by Northeastern University showed that the differences between men and women in the hedge fund industry is one of the worst in finance. There are 9,081 companies in the United States that employ male portfolio managers compared to a minuscule 439 that have women in the same job.

“There is a very strong negative stereotyping that occurs out there and it’s really destructive,” said Chief Executive Jane Buchan of PAAMCO, a fund of hedge funds. “Women are leaving asset management because they think it is too much of an uphill battle. They say ‘I’ll just go work in tech instead’.”

Some funds, like Man Group and DE Shaw, are finding ways to draw more women and keep them.

“It is hard enough to find great people without excluding half the population,” Man Group’s President Jonathan Sorrell comments. Man Group is the world’s largest publicly traded hedge fund, with about $96 billion in assets under management.

Man Group has instituted things like informal quotas of at least an equal balance of male and female candidates for each job opening; targeting more college-age women to employ for their graduate program to work in technology; and has instituted a “returnship” program to attract women who took an extended leave from work.

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Navigating the Complexities of Social Security Benefits

August 16, 2017 James Heinsman Economic Barometer

As people approach retirement age, they naturally need to become familiar with what are the most beneficial practices regarding Social Security payments. Financial advisory companies such as Connecticut-based Essex Financial, are good sources of help when navigating the particulars of this universal entitlement.

Everyone born after 1929 is entitled to Social Security benefits if they have worked for at least ten years in order to earn the mandatory 40 credits. But even if you have already earned 40 credits, the money cannot be paid until the recipient reaches the minimum age of 62. Every year, three months before a person’s birthday, the Social Security Administration mails a summary of every person’s benefits. The yearly statement includes a history of earnings, accumulated credits and an estimate of the benefits a person will be entitled to if he/she waits until full retirement age. Always check the statement is accurate, since your benefits are determined by lifetime earnings.

Until 1983 “full retirement age” was 65, but that year Congress voted to raise the age of full retirement to 67 for people born in 1960 or later. For someone born between 1938 and 1960, the full retirement age varies.

A new study done by the Boston College’s Center for Retirement Research showed that about 42 percent of men and 48 percent of women still take their benefits at age 62 with the average age being 64.

It is understood by most that the earlier a retiree begins to collect his/her benefits, the lower those monthly payments will be. What is not well understood is how large that difference is. For instance, if someone’s full retirement age is 66, if he begins to collect at age 62 ½, he nets a 25 percent lifetime benefit reduction, while waiting until age 70 will give him a 32 percent credit.

CEO Chuck Cumello of Essex Financial Services, along with many other financial services firms, are there to help clients navigate the complicated details of Social Security benefits, as well as other financial issues.

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Cryptocurrency Hedge Funds Growing Exponentially

August 10, 2017 James Heinsman In the News

Plate which indicates the location of a Bitcoin ATM. Graphic courtesy of Mrnett1974

According to a tweet by economist Tuur Demeester, “Hedge funds with crypto exposure exploding.” The article Demeester refers to says that there are more than 70 funds with such bets now coming up in the hedge fund pipeline.

The article also has a statement by Arthur Bell manager Corey McLaughlin:

“I’ve been in the hedge fund space since 1998, and I’ve never seen anything like it in volume of launches in a particular area. It’s just crazy.”

What is trendy among hedge funds is usually a sign of what vehicles have the best potential for quick ways to make money, without paying much attention to the exact sector the investment is betting on. The market for hedge funds is always changing since investment vehicles are always in flux and move like fallen leaves with the financial trends.

In recent months, the prices of cryptocurrencies have been on the rise, drawing attention to the market from hedge fund investors. Funds already invested in such currencies were considered edgy until they started showing nice profits as the market for Bitcoin and other similar currencies began to boom at the beginning of the year.

With prices and demand rising, managers want to cash in by creating new funds that link to cryptocurrencies. At the moment there are at least 70 funds coming up for investors to bet on Bitcoin and similar currencies.

 

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Discount Fees Attracts Money to BlackRock Style Advantage Fund

August 3, 2017 James Heinsman Company Spotlight

At a time when many, if not most hedge funds are losing assets, one fund has doubled its assets over the past six months.

BlackRock’s Style Advantage fund grew to $1.6 billion during the first half of 2017 doing something other funds have been fearful of doing: charging less than the almost sacred 1% management fee. Style Advantage took a risk and decided to charge its clients only .95% management fee, and nothing for performance. In addition, clients only need alert the fund three days in advance before withdrawing their funds.

BlackRock has already been charging super cheap fees on exchange-traded funds (ETFs), and saw that investors in hedge funds also want to save money. Style Advantage was launched in November 2015 as part of a group of strategies by Columbia University professor Andrew Ang. Style Ad is the most inexpensive fund of the 18 on the list.

Other funds have tried lowering their fees in response to the exodus of investors from the hedge fund market as a result of dissatisfaction with high fees and poor performance. In March Winton said it was going to cut its fee to 0.8% and 0.9%, depending on the size of the investment. Tudor Investment Corp and Brevan Howard have also lowered their fees.

 

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Bridgewater Fund Down in First Half of 2017

July 25, 2017 James Heinsman Hedge Fund News

Being the largest is not a guarantee that your funds will always rise, seems to be the lesson from the less than stellar performance of Bridgewater Associates’ Pure Alpha II Fund. Pure Alpha dropped by 2.5% during the first half of 2017, disappointing managers and investors alike.

The Pure Alpha Fund’s drop can be compared to the gain of 3.7 percent for the HFRI Fund Weighted Composite Index. This index fund tracks the greater hedge fund industry at large.

Looking at the bigger picture, which is anyway more relevant for pension funds, the 12-month period ending in June 2017 saw a net gain of 13.3 percent. Pension funds typically operate on a fiscal year which starts on July 1.

Bridgewater is the largest hedge fund in the world, and is a good indicator of how the industry is doing in general. Pure Alpha II is managed by Ray Dalio, the founder and head of Bridgewater. Alon with Dalio, Robert Prince and Greg Jensen hold the title of co-chief investment officer.

 

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Superstar Hedge Managers Facing Hemorrhaging Funds

July 16, 2017 James Heinsman In the News

The Wall Street Journal reported last week that David Einhorn’s Greenlight Capital lost $400 million from its investor base in response to a depressing 2 percent loss during the first half of 2017.

The return of $400 million represents 15 percent of all those who are able to withdraw their stakes in Greenlight, according to Einhorn’s rules for the fund. According to the WSJ Greenlight now has about $7 billion in AUM. The strict rules governing Greenlight allows only half of the fund’s investors to withdraw smack in the middle of the year. When the maximum withdrawals are reached, the rest of the investors must wait until the end of the year rolls around before they too can withdraw their money.

If misery loves company, then Einhorn has some other stars to moan about the state of hedge funds in recent months. John Paulson, according to reports from the New York Times earlier this year, is left with about $10 billion in AUM, down from a high of $36 billion back in 2011. Eric Mindich, who manages Eton Park, said his fund was closing down as his AUM shriveled by $2 billion in 2016.

Investors are cashing in their chips as hedge funds showed lackluster performance during the eight-year-long bull market. Hedge funds averaged 3.7 percent returns for the first half of 2017. Greenlight’s worst year in its history was 2015, posting losses in the double digits. Despite telling his investors that he “failed miserably,” he still did not honor requests to lower his relatively high fees. Greenlight gets a performance fee even when the fund does not “perform.”

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The New Wolves of Wall Street: Cooperating AI Entities

July 3, 2017 James Heinsman Hedge Fund News

According to Adam Smith, something called the “invisible hand” controlled the ebbs and flows of the free market. This so-called hand was the way Smith referred to the power which pushed the market towards equilibrium as huge numbers of self-interested individuals interacted with that free market.

This concept is about to take on a new type of “invisible hand.” San Francisco-based hedge fund, Numerai, is introducing a virtual currency which will be manipulated by artificial intelligence programs designed to cooperate, rather than compete, the traditional model Adam Smith based his theories upon.

Founded by South African technologist and a Cornell math major, Richard Craib, Numerai is an “open-source” hedge fund which has the potential to completely alter the singularly Darwinian approach to investing that has always characterized investing.

The currency is called Numeraire, and is a cryptographic token which will incentivize the modelling of the Artificial Intelligence that now guides the hedge fund’s trades.

The Numeraire smart contract was launched to Ethereum. Over 1.2 million tokens were deployed to a distributed network of 19,000 data scientists all over the globe. Numerai has already been trading for more than a year successfully, and now the company wants to tweak its methods. The company is hoping to come closer to the final goal of creating a completely decentralized, software-led hedge fund.

CEO Craib would like to see the Numeraire bring the open source philosophy to finance, similar to what the powerful effects networks have exhibited in such platforms as Facebook and Uber.

“Finance is totally competitive right now,” Craib said. “There’s no reason why you’d want to help your friend with a hedge fund if you have a hedge fund. But if you both held the same cryptocurrency, and it went up in value together, maybe there would be more collaboration.”

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Activist Hedge Fund JANA to Make a Bundle on Whole Foods Sale

June 26, 2017 James Heinsman In the News

Last Friday the giant online marketplace Amazon announced it was buying Whole Foods Market for $13.7 billion in cash. The price per share of the sale is $42, around 27% more than its Thursday evening closing price of $33.06

Barry Rosenstein announced last April that his activist hedge fund, JANA Partners, had a 9% stake in Whole foods. At the time the hedge fund had suggested that Whole Foods put itself up for sale.

At the end of May JANA owned about 26 million shares. Bloomberg estimated that the fund’s cost basis came to about $32.11 per share. Therefore the fund will be making a nice $260 million just by holding the shares for these few months.

Whole Foods’ CEO, John Mackey, referred to the owners of the hedge fund as “greedy bastards,” in an interview in TexasMonthly.

“We need to get better, and we’re doing that. But these guys just want to sell us, because they think they can make forty or fifty percent in a short period of time. They’re greedy bastards, and they’re putting a bunch of propaganda out there, trying to destroy my reputation and the reputation of Whole Foods, because it’s in their self-interest to do so,” Mackey told the TexasMonthly in late April.

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Castle Harlan Portfolio Company Acquires School Meal Supplier in Southern California

June 19, 2017 James Heinsman Hedge Fund News

Compliance company Gold Star Foods acquired A&R Wholesale Distributors, in what is the third buyout deal made by Gold Star since it came under the ownership of Castle Harlan, Inc, a New York private equity company.

Gold Star Foods helps local school districts all over the USA adhere to the many state and federal rules and regulations related to government funding for school meal programs. They also insure compliance with the many regulations that govern nutritional content of school meals. A&R is a supplier of foods to schools in Southern California, and has been  for over 30 years.

Castle Harlan Senior Managing Director David B Pittaway expressed his thoughts about the deal:

“Like Gold Star, A&R is experienced in dealing with the complexities of the USDA Child Nutrition Program and helps to create meals that adhere to USDA nutritional standards and commodity guidelines. The combination of Gold Star and A&R will allow customers to benefit from access to new product categories, an increased number of SKUs, and higher service levels.”

The monetary value of the deal was not released to the public. Jeff Kuriel will continue to lead A&R from its plant in Anaheim, California. Eventually the headquarters will move to Gold Star’s location in Ontario, also in Southern California. When the move is complete Mr. Kuriel will join the Gold Star executive leadership group.

During the first quarter of 2017 Castle Harlan invested over $40 million in Gold Star Foods, bringing the total of their investment to over $60 million during the past year. Part of Castle Harlan’s investment was used to purchase Colyar Technology Solutions. Colyar is a designer, developer and marketer of food distribution and compliance management software. A new distribution center was built in Dixon, California, to support the expansion of Gold Star into the Northern California market.

“The acquisition of Colyar furthered Gold Star’s strategic shift into providing technology-enabled national school nutrition solutions to both states and local school districts,” said Patrick Zyla, Vice President of Castle Harlan. “Colyar’s web-based tools help to simplify the complex regulatory burdens faced by food providers in lunchrooms across the nation. Colyar assists in managing federal dollars by providing a platform to manage the application and administration of claims to the USDA, providing a link among local school districts, states and the USDA.”

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