Denver Post in Open Rebellion Against Its Hedge Fund Owner

April 8, 2018 James Heinsman In the News

Pulitzer Prize winning Denver Post finally decided to take action to improve what was becoming an increasingly untenable position for the 125-year-old newspaper. Over the weekend the paper went to its own opinion page declaring “News Matters- Colorado should demand the newspaper it deserves.”

This move was a response to a problem that effects newspapers all over the country as people get their news online instead of in print, creating revenue losses that are hard to replace.

Midsize newspapers like the Denver Post find their situation especially difficult. The decision was made to go public with their particular issue to try and avoid going bankrupt or just becoming irrelevant.

The main editorial blasts executives at Alden Global Capital, the paper’s hedge fund owner as “vulture capitalists.”

The editorial continued: “We call for action. Denver deserves a newspaper owner who supports its newsroom. If Alden isn’t willing to do good journalism here, it should sell The Post to owners who will.”

The Post has a weekday circulation of about 170,000 in a city of about 700,000 residents. Their website gets about 8.6 million unique monthly visits. It has won nine Pulitzer Prizes one of which was in 2013 for their coverage of the mass shooting in a movie theater in Aurora, Colorado. Alden Global Capital took control of the paper in 2010 when it bought its parent company, MediaNews Group after it went bankrupt. Alden runs the paper through a subsidiary, Digital First Media.

Readers showed support for the Post’s plight.

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Longtime Hedge Fund Pennant Cap Management Closing

April 2, 2018 James Heinsman Hedge Fund News

Alan Fournier’s 17-year-old Pennant Capital Management, with a $1.5 billion AUM is closing shop. The fund has been struggling since the 2008 financial crisis.

“While I take great pride in our long-term returns, especially in light of our consistent low risk portfolio structure, our recent returns have been disappointing,” Fournier told investors. “I have been frustrated by our inability to match our historical results and deliver appropriate returns for our investors.”

David Tepper, Fournier’s mentor, backed the establishment of the firm in 2001 with $12 million seed money. The letter to investors announcing the fund’s closing stated that the fund earned 11.9 percent annually over the life of the fund, compared to 6.4 percent growth for the same time period for the S&P 500 Index. But since 2014 until now the fund has earned only 2.4 percent.

Pennant will be converted to a family office dedicated to managing Fournier’s own sizeable wealth.

The stock market has been a frustrating place for Fournier, 56, who is a long-short stock picker, a strategy increasing difficult to make work in the brave new world of quantitative and passive investing. Others have fallen before Pennant: John Griffin closed his $6 billion blue Ridge Capital just last year after more than 20 years of management. Passport Capital, launched in 2000, was also recently closed down by founder John Burbank, saying he was facing “unacceptable” losses.

Pennant had its best year in 2007, right before the financial crisis, when it earned a whopping 42 percent. The following year Pennant lost just a bit under 2 percent at the beginning of the crisis. The fund bounced back in 2009 with a 23 percent ascent. In 2014 AUM reached a high point of about $7 billion.

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Alan Fournier, David Tepper, Pennant Capital Management,

February a Bad Month for Quants

March 26, 2018 James Heinsman Hedge Fund News

This past February marked the worst performance month for quantitative hedge funds in 17 years. These hedge funds, which rely on following trends and computer-based analysis were fooled by the steady upward movement of stocks ending in a sudden downturn, one of the fastest market corrections in history.

Commodity trading advisors” (CTAs) or managed futures funds, which surf the momentum of markets, made big bets in January based on last year’s rally, which ended in the best monthly equity fund inflows of money since 1987.

But in early February the sustained growth stalled suddenly, side-swiping trend-followers. It was the worst time for these systematic hedge funds since November of 2001.

“Trend-followers are either long or short equities on any given day. Obviously, after a significant upward move, they were likely to be long and therefore vulnerable to a quick downward move,” said Sushil Wadhwani, the head of Wadhwani Asset Management.

The reversal was so large that most quantitative trend-following hedge funds are now posting minus growth for the year. Despite the bad results some observers do not believe investors will be dissuaded from bets on CTAs.

“We don’t think investors who truly understand the strategy are nervous. They may hold off a little before allocating more to the space this year, but I’d be surprised if sophisticated investors meaningfully reduce their CTA exposure as a result of February performance,” said Marlin Naidoo, global head of capital introductions at Deutsche Bank.

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Paulson Hedge Fund Circling the Wagons

March 18, 2018 James Heinsman Hedge Fund News

The vast empire of funds under management by John Paulson’s management firm is continuing to dwindle in size with layoffs and redemptions.

Paulson’s company, once one of the largest in the sector, announced it will be returning money to investors in some of the firm’s funds including the Credit Opportunities fund. People with money in that particular fund will be able to transfer their capital to a separate holding area, or else they will have to redeem their funds. Several employees were let go as the firm cuts expenses.

About ten years ago Paulson leaped into financial stardom with a successful bet against the US housing market. That was ten years ago, today Paulson is going through a crisis which has cut his firm’s aum from a top $38 billion in 2011 to just about $9 billion today. And most of that money is Paulson’s own.

With about 90% of the money in the firm Paulson’s the question is whether he will close his firm to outside investors entirely. There are no plans underway at the moment to turn the firm into a family office, but the firm is switching its focus on to distressed debt and merger arbitrage strategies.

The loss of capital means there is less money to pay employees, and thus the flurry of lay-offs. In 2016 there were 128 employees, but today there are only 95.

“We are rightsizing the firm to focus on our core expertise in areas that are growing,” said a statement from Paulson’s office about the layoffs.

The headquarters is also being moved to the offices of Steinway Musical Instruments. Paulson bought the piano manufacturer in 2013.

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Citadel’s Aptigon Lays Off 34% of Staff

March 12, 2018 James Heinsman Hedge Fund News

One of the world’s largest hedge funds, Citadel, has shrunk the size of its stock-picking division, Aptigon.

The company fired 49 people between the end of February and early March from its two-year old unit, a loss of 34% of staff. Among the people who lost their jobs were portfolio managers, analysts, associates and others.

The downsizing is one of the largest in recent days. About half of those let go found employment elsewhere in the firm. Citadel employs about 1900 people in its hedge fund business, is headquartered in Chicago, and manages about $27 billion.

“We changed the leadership of Aptigon Capital because the prior leadership had failed to demonstrate it could generate the performance we expect from a Citadel business. We are committed to the success of Aptigon and will continue to recruit leading talent to the team,” a spokesman for Citadel explained.

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Einhorn’s Greenlight Hits Red Light in February

March 4, 2018 James Heinsman Hedge Fund News

Performing more poorly than the S&P 500 Index loss of 3.7 percent in February, David Einhorn’s main fund, Greenlight Capital, lost 6.2 percent during the same period for a total downturn of 12.3 percent for 2018.

Einhorn explained that his hedge fund was going through its worst performance in its history after losing 6.6 percent in January. Ever the optimist, Einhorn said that the situation was similar to what happened in March 2000. During that month the stock market grew by 10 percent, while Greenlight just sat, unmoving. But the next month Einhorn’s contrarian strategy began to reap benefits for his investors, while the rest of the market went through the tech bubble bust.

“While the environment has remained difficult with growth stocks accelerating their outperformance against value stocks this year including February, we think a reversion may finally be coming soon,” he told stakeholders in Greenlight Capital Re Ltd., a reinsurer that depends on Einhorn for investments.

Four out of five of Einhorn’s bets as of December 31st, 2017 have headed in the wrong direction. Two long bets, Brighthouse Financial and General Motors fell, 7.5 and 4 percent respectively. His short bets, on Amazon and Netflix are up, unfortunately for Greenlight, returning 29 and almost 52 percent.

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Amazon, Brighthouse Financial, David Einhorn, General Motors, Greenlight Capital,

Apple Snubbed by Hedge Funds

February 26, 2018 James Heinsman Hedge Fund News

Apple’s headquarters at Infinite Loop in Cupertino, California, USA. Courtesy of the author, Joe Ravi, using license CC-BY-SA 3.0.

According to an assessment of hedge fund holdings compiled by Goldman Sachs, Apple Inc, is the only “big five” tech company that is not also a “top five” stock holding among hedge fund investors.

The five most-owned companies by hedge funds are Time-Warner, Amazon, Facebook, Alphabet and Microsoft. The publication lists the 50 stocks that appear most often among the top ten holdings of basic hedge funds.

Apple turns out to be the eleventh most popular holding on the list as a top ten holding in 34 funds. Amazon is a top-ten holding in 80 funds, Facebook is a top ten in 70 funds, Alphabet in 54 funds, and Microsoft in 52 funds. However, this list of so-called VIP stocks does not consider the S&P 500, where Apples huge market capitalization towers over other companies.

Several other tech companies made it to the list for the first time, including supplier for Apple, Qualcomm, JD, Booking Holdings, and Activision Blizzard. The tech sector is the most popular on the GS list, with 24%, despite the fact that funds have been selling off their tech positions in favor of biotech and pharma stocks.

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Hedge Funds Lower Fees to Lure Investors

February 19, 2018 James Heinsman Hedge Fund News

Since the financial downturn of 2007-2008 hedge funds have been under increasing pressure to keep their clients. In 2016 disgruntled investors pulled $70 billion out of hedge funds in response to poor past performance exacerbated by immodest fees.

The average management fee paid for a hedge fund investment fell to 1.56 percent in 2017 and the average performance fee shrunk to 17.3 percent. The trend of falling fees sped up in 2014, dropping an average of .13 percent for management and .78 percent for performance.

Before the crisis the fee structure for hedge funds was almost universally the famed “two and 20,” standing for 2 percent management charge and a whopping 20 percent for performance. Although many hedge funds are lowering that formula, there are still others holding on.

Lowering fees seems to be having an affect on winning back investors. In 2017 hedge funds acquired $9.8 billion in new money, helping to bring industry wide managed assets to a record high of $3.2 trillion by the end of the year.

Multi-strategy hedge funds are still more expensive that other strategies which are less work intensive, while customized fees structures are also a possibility at some firms. In some cases managers will agree to lower fees if assets grow, or if they agree to keep their money invested for a longer time frame.

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History in the Making: Donald Sussman & David Shaw

February 19, 2018 James Heinsman Company Spotlight

It’s always fascinating to get a peek into the early days of the hedge fund industry and of the people who have helped to shape it. Certainly, Donald Sussman and David Shaw are shapers of the industry and the story of where their two worlds collided is one worth retelling.

In a recent article in NY Magazine, that’s exactly what was done. In the summer of 1988, David Shaw asked Donald Sussman if he might come to see him for some advice. Asking advice of the Paloma Partners founder, Shaw wanted to know whether or not to take an offer from Goldman Sachs. Donald Sussman had an incredible talent for recognizing talent. Shaw explained to Sussman that “I think I can use technology to trade securities.”

Donald Sussman, reading Shaw and his talent said, “If you’re confident this idea is going to work, you should come work for me.” Paloma Partners ended up investing $30 million with D.E. Shaw, and his certainly never regretted it. D.E. Shaw has grown into a company with an estimated $47 billion and Shaw is worth an estimated $5.5 billion.

Interestingly, in the early days, Sussman would visit Shaw’s office weekly. As Sussman recounted,

“Once they started trading, they started making money out of the box. These were very serious folks. I used to go and sit next to them watching them trade. They didn’t miss a goddamn thing. The atmosphere of the place was unlike any other investment firm. It was like going into the research room in the Library of Congress.”

Now, as D.E. Shaw gets ready to celebrate its 30th anniversary, Sussman will be celebrating along with him. Donald Sussman’s firm invested hundreds of millions of dollars with D.E. Shaw;  Sussman can say with certainty, “I never doubted him for a minute. I never envisioned that D.E. Shaw would be $47 billion, but I did envision how David would change the world of finance.”

The rest, as they say, is history.

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D.E. Shaw, David Shaw, Donald Sussman, hedgefunds, Paloma Partners,

New Appointments at George G. Hicks’ Värde Partners, Inc.

February 15, 2018 James Heinsman Hedge Fund News

Värde Partners, Inc., is a $13 billion global alternative investment firm which George G. Hicks co-founded in 1993.   As well as being a co-founder of the firm, Hicks also today holds the roles of: CEO co-CIO and Partner.

In recent news, the company at which George G. Hicks is at the helm, announced a new partnership between Värde Partners, Inc. and SS&C Technologies Holdings Inc., the latter of which is an international provider of fiscal services software as well as software enabled services.  SS&C Technologies is now offering services to its new client – Värde Partners – in the areas of operational administration, fund administration and other such technology applications for their new client’s various strategies and funds.

George G. Hicks brings a wide variety of expertise and experience to his current roles at the firm.  This gives him the ability to focus on Värde Partners’ capital equipment investment strategies, corporate securities and small balance loans.  He brings to the firm a background in the legal industry, most notably when he worked toward the facilitation of various restructuring matters.  Hicks also worked at Cargill Financial Services Corporation in the role of Senior Vice President and Manager, whereby he supervised international merchant banking matters. Vis-à-vis his official legal career, Hicks held the role of Senior Attorney and counsel at Cargill, in their legal department.

Värde Partners’ COO and MD, Brendan Albee, explained the company’s decision in selecting SS&C Technologies Holdings Inc.:

“Värde is committed to leveraging technology to digitize processes, support controls, and empower our organization with data. We are also keenly focused on partnering with service providers who can complement our efforts to meet the needs of our investors. We selected SS&C GlobeOp as our partner because of their unique combination of customized services and integrated technology solutions.”

 

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George G. Hicks, Värde Partners,

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