Turns out maybe you CAN take it with you when you go … away from the office, that is. The proliferation of mobile devices with powerful computing technology means people really can work from anywhere. The Bring Your Own Device – or BYOD – movement potentially means more flexibility for alternative asset management employees, but it also raises security issues with respect to data, networks and corporate electronic infrastructure.
HedgeWorld and technology provider Gravitas are putting on a 45-minute lunchtime webinar on May 22 about the BYOD movement and the how to ensure secure remote access and file sharing. We’ll discuss the risks funds face in the BYOD world and some solutions that can allow safe remote data access for employees using their own mobile devices. I’ll be moderating the discussion with our speakers:
Patrick Mulvaney, executive director at Gravitas; Philippa Oats, cloud storage specialist at EMC; and Kevin Holl, chief technology officer at Evanston Capital Management.
In this clip from Robert Wolf’s 40-minute interview of William Ackman at the HedgeWorld East/PartnerConnect East event in Boston on Friday, Ackman discusses why he decided to go public about short selling Herbalife stock.
More interestingly, at least to me, toward the end of the clip Ackman says he was surprised by the personal animosity contained in the public back-and-forth. Ackman has notably been criticized for his Herbalife short by Carl Icahn, and the two got into a very public disagreement with each other on CNBC back in January.
Note Ackman’s use of the past tense when talking about the cooperative nature of the hedge fund industry.
“Now, did I think a group of hedge fund managers would take the other side of the trade and try to orchestrate a short squeeze? No. I didn’t think that. In fact, what I think is disappointing about that — again, it doesn’t bother me at all if someone takes the other side. Every investment we have there’s probably someone short … that’s how the markets work…. What’s sort of nice about the hedge fund industry is it was an industry where it was more a cooperative industry. I didn’t view my … people in the industry as competitors because we’d find value together, you know, ultimately you see partnerships in various investments. This was the first where [there was] a lot of sniping going on between managers which I think is just a negative for the industry.”
The first quarter of 2013 is nearing its end, and the investment community will be mulling over a plethora of returns in various asset classes. Companies will be judged on their abilities to meet, beat, or fall short of earnings expectations. Investors will parse corporate earnings and other financial data to determine who’s ‘winning’ so far this year- the sector stars and the enviable opportunists who not only guessed right, but avoided overexposure, and therefore posted the highest-performing stats. Talking heads will fill the financial media screens explaining who wins, who loses, and why. Everyone will be measured against this first quarter yardstick, and, inevitably, hedge fund managers will find themselves hemming and hawing over criticism from investors about fees if returns don’t measure up. Some managers will be the hero, and some will be the goat.
Let us revisit the ‘hot button’ topic of fees—and do so in the context of earnings, with a twist. Rather than trumpet the media perspective so often touted, that of investor angst, let’s look at it from the side of the alternative managers earning their keep.
Fees, fees, and more fees
Amid all this competitive posturing, the pushback question will undoubtedly surface: “Why are your fees so high?” Managers feel the pressure from wary investors holding the asset cards to lower these costs. Fees in general are not the problem; rather, let’s re-focus on the oft-overlooked nomenclature that accompanies hedge fund returns: ‘net-of-all-fees.’ Four words that level the playing field amongst returns, but are often ignored in a rising tide of aggravation over funds performing under par. Hard-working hedge fund managers who actually do what they claim to do, which is beat their appropriate benchmarks, should stand up and be counted. Let those returns, net of all fees, speak to the value you bring.
If I could do this myself, I wouldn’t be hiring you
It’s also time to reinforce the premise that alternative assets are meant to provide a means of obtaining performance above the levels obtainable through conventional, and generally less-risky, assets. To generate outperformance, a manager must either do only more of what’s positive, or mitigate the risky downside that often accompanies outsize returns. If downside risk counteracts upside gains, subpar performance results, which can include matching or marginally beating a benchmark. Managers who fall into this category will effectively be punished through redemptions or lack of new capital flows. If outperformance were easily achieved or obtainable from conventional investment sources, there would be a far smaller universe of alternative investment options, as investors would seek value within traditional sourcing.
You get what you pay for
So the value proposition for investing in alternatives remains—to provide a means of obtaining performance different from other assets, which complements or enhances an investor’s overall investment goals. Investors have the ability to define this in many ways, with essentially each alternative investment providing a unique component to a portfolio. The premium in paying up for this type of investment category is mitigated by the convention of measuring alternative investments by their net returns. At the end of the day, it shouldn’t matter to the end user if an alternative manager charges twice as much as a traditional advisor when, net-net, the alternative manager delivers on the return objective.
Of course sub-performing alternative managers deserve and receive criticism for failing to achieve these objectives. Yet the investment community has begun, over the past tumultuous years, to throw the alternative baby out with the bathwater in a rising cry of outrage about funding shortfalls, liquidity concerns, and a host of other bothersome issues. But is it fair to saddle the successful alternative manager with the sins of his underperforming brethren?
Net-net, it’s the bottom line that counts
The management and performance incentive fees charged by hedge funds now range more broadly than they did prior to 2008. There exists a 1 and 10 ‘value play’ for the most liquid and easily-traded strategies. There is a rising popularity of 1.5 and 20 for the majority of smaller managers looking to gain assets from disgruntled investors seeking to shift assets from their underperforming funds. The industry stalwart of 2 and 20 remains for established managers with a demonstrated performance record of beating their benchmarks. And, finally, there exists a pricey subset for an elite group of standouts who charge higher fees for superior abilities to achieve results.
Like life, hedge funds were not created equal
To those critics who clamor for alternative fees to come down across the board, and ‘level the playing field’ for investors comparing alternative investment options, I submit that the hedge fund universe, like most things in life, is not a level playing field. It’s a meritocracy, where quality of performance counts. Managers shouldn’t be afraid to defend their value. Investors should expect to pay for performance returns above the benchmarks. The competitive reality in which both sides exist will ensure that managers worth their salt will succeed, and those that are exposed for not adding value will fade away. But the fees are not the issue; perception is clouding the reality of the process.
Diane Harrison is principal and owner of Panegyric Marketing, a strategic marketing communications firm founded in 2002 and specializing in a wide range of writing services within the alternative assets sector. She has over 20 years’ of expertise in hedge fund marketing, investor relations, sales collateral, and a variety of thought leadership deliverables. A published author and speaker, Ms. Harrison’s work has appeared in many industry publications, both in print and on-line. Contact her at dharrison@panegyricmarketing.com or visit www.panegyricmarketing.com.
Our weekly newsletter is out, and no, this isn’t the start to a trite “inside baseball” financial joke. Don’t get us wrong – we love a laugh – but bad investing habits are no laughing matter. We’ve found that some investors become their own worst enemy, as reliance on familiar investing tropes mutates into a tunnel vision that handicaps their portfolio. No, this is no joke. This has to do with different types of investors and how they become interested in different managed futures programs.
What kind of investor are you? Do you chase returns? Look for bargains? Do you buy the hype of a brand new manager? Or stick with the “brand names” of the industry? Are you a sucker for low correlations?
It’s not that these metrics are unimportant. The problem comes when one metric is given all the power, and that’s the kind of investing we discourage. However, as the saying goes, talk is cheap, so we decided to put our money where our mouth was, and put some numbers to these different types of investors to show just how well – or poorly – they do relative to the average CTA. Click through to see what we found and why, sometimes, the results surprised even us.
Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.
The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts.
The mention of asset class performance is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.) , and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices: such as survivorship and self reporting biases, and instant history.
Managed Futures Disclaimer:
Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.
The hedge fund industry is being given greater regulatory scrutiny and a host of new compliance requirements. Against this backdrop, HedgeWorld, Labaton Sucharow and the Hedge Fund Association are together conducting a survey of ethics in hedge funds. We need your help.
In particular if you are a hedge fund executive or portfolio manager, but also if you work in risk management, compliance, marketing, administration – any hedge fund job, really – we ask that you take just a few minutes and complete this totally confidential online questionnaire. The answers you give us will give us the first real look at how those in the hedge fund industry view themselves, their coworkers and their firms from an ethical standpoint.
As a thank you for your time, you will be entered in a random drawing to win one of 25 iPod shuffles.
Edward Lampert is one of the wealthiest people in America. He is the chairman of Sears Holding Corporation and the founder and CEO of ESL Investments, a hedge fund that is estimated to be worth more than $10 billion.
Up until last year, he brought most of his wealth to Greenwich, Conn. That changed as soon as the state raised its tax rates.
“When they did that, it forced out one of their wealthiest residents,” said Evan Rapoport, CEO of HedgeCo Networks. “Eddie Lampert was, I think, the fifth wealthiest person in Connecticut. He’s worth about $3 billion.”
For Lampert, “The jump in state taxes was one of the reasons that he moved out of Connecticut,” said Rapoport.
“Potentially he was a forward-thinker, as I think a lot of hedge fund managers are, and had the foresight to see this trend in increased taxation as a result of the large amount of debt we carry both as a nation and in certain states and municipalities,” he said. “Understanding that taxation was going to increase, by Eddie moving to Miami and relocating, he saved himself not only the state taxes, but of course any city taxes that would exist.”
Florida is not merely an alternative to Connecticut, however. It is also proving to be a popular alternative to New York.
“For a person that earns a million dollars, the difference in savings from someone that lives in New York versus someone that lives in Florida is $147,000 just from state and city taxes,” said Rapoport. “That’s 14.7 percent just in savings to live in Florida versus living in New York City.”
Best of all, financial professionals don’t have to be in Florida full-time. “You have to be here more than six months and have a residence here,” Rapoport explained. “But let me tell you, from saving $147,000, you could certainly rent a very nice house for over $10,000 a month or purchase a very nice house for over $10,000 a month and be down here and go back to New York when you need to.”
That, of course, is another benefit of being in Florida: the great accessibility to New York.
“If I need to be in New York City, I can hop on a flight from Palm Beach International Airport—which is 10 minutes away from us—and I can be in NYC in two-and-a-half hours,” said Rapoport. “I hop on a six-o-clock flight, I’m in N.Y. by 8:30, I’m in the city by 9:00 or 9:30 and I can start taking meetings. That’s very easy.”
“In fact, I would compare that to some commutes from people in Connecticut who have an hour-and-a-half to two-hour commute from door to door, maybe more,” Rapoport added. “It’s not that different.”
Like many financial firms located outside of New York, HedgeCo Networks has an office in NYC.
“What we do is, senior management and our headquarters are down here in Florida, but we still keep a sales office in New York City, and we come up to New York when needed,” said Rapoport. “I think that’s one of the better ways to play this, if you will, and still have the networking opportunities and the abilities to take multiple investor meetings in a single day.”
That said, there are some firms that would be better off in New York.
“There is no comparison relative to the investor base in New York City, especially the institutional investor base versus down here in Florida,” said Rapoport. “But if you’re a young, emerging fund that needs to get out there and spread the word, I think you’re better suited in New York than you would be down in Florida.
“But for those that are more established and can have multiple offices, it certainly is a huge benefit just to be down here from a taxation perspective.”
In addition to the tax benefits, Rapoport also praised the lower cost of living. “For fun, before I went on Fox Business the other night, I ran a cost of living calculator,” he said. “What I found was that someone that made $500,000 in Florida, the equivalent in New York City would be well over a million dollars. That’s a pretty big difference—almost double the cost of living (forgetting taxation, by the way, on top of that), to live in New York versus Florida.
“That is also another impetus behind people moving from New York to Florida—it’s simply more affordable. Property taxes are less, commercial real estate is less, so the operational expense of owning a business is less down here than it would be in New York City.”
Those who are looking ahead will also benefit.
“How about this: there’s no estate tax here in Florida,” said Rapoport. “So while we’ve talked about no state taxes, that also applies at the estate level. So if you’re estate planning, and if you’re thinking about your future, and God forbid you’re passing, when you’re planning you would save anywhere from six to 10 percent on your estate. That’s a big savings for your family.”
Rapoport also appreciates the access to Latin America, “Which is obviously enormous down here in South Florida,” he said.
“Miami, surprising to some, has the second-largest concentration of international and national banks here in the country,” he added. “It has become a large hub not only for Latin America but for Europe and for Asia.”
But it’s not just about taxes, cost of living expenses and other savings. Florida also provides its residents with an incredible lifestyle.
“On top of taxes you also have a lifestyle down here that is very good, in my opinion,” said Rapoport. “What I mean by that is, if you’re someone that likes the outdoors — we’ve always had great weather, but the ability to play golf year-round, tennis, go boating, fishing — those are all tremendous benefits to being here in Florida.”
The corporate lifestyle is also very good. “It’s not uncommon to walk into a hedge fund manager’s office in Florida and find everybody in khakis and golf shirts,” Rapoport added. “In the summer, find those same people in shorts and golf shirts and sandals. Being comfortable and coming to work and having a relaxed corporate lifestyle is also a huge benefit to being down here.
“One of the reasons I enjoy being here, certainly, is that lifestyle. It’s one of the reasons I made that shift. Frankly I got tired of being in NYC and spending my weekends either taking long travels out to The Hamptons or the Jersey Shore in the summers or in the winters going to the stores and shopping and spending and not really enjoying some of those outdoor activities as much as I could down here.”
Rapoport said that he can sum up the benefits of Florida in just six words: “Affordability, availability, no snow, no subways.”
This content originally appeared on StreetID, a financial career networking, matchmaking and news site. To learn more about StreetID, visit StreetID.com. StreetID’s financial career news can be found on its blog, streetid.com/newsblog/.
Here we take a look at December 2012 absolute performance for the top 5 equity market neutral funds in two categories - all funds and U.S.-only funds - as tracked by Lipper’s hedge fund database. To see more analysis, including assets under management and domicile information for the top 10 funds in each category, click here for all funds and here for U.S.-only funds. To be truly connected to all the Lipper analytics available on HedgeWorld, become a HedgeWorld Premium Plus member. To find out more about how to do that, visit hedgeworld.com/membership/.
NEW YORK (Reuters)—The U.S. government has objected to the reorganization plan of a group of bankrupt hotels owned by hedge fund Paulson & Co., saying it was an attempt to dodge taxes.
The MSR Resort group’s plan to sell itself to the Government of Singapore Investment Corp. creates tax liabilities of $331 million with no recourse for the Internal Revenue Service to recover them, Preet Bharara, U.S. attorney for the Southern District of New York, said in his objection filed on Wednesday [Jan. 9].
Mr. Bharara also objected to MSR seeking an injunction that bars the government from reviewing the tax consequences of the plan. The government has not had an opportunity to examine whether the plan is motivated solely to avoid taxes, which would disqualify it, he said.
The Government of Singapore Investment Corp. bid $1.5 billion for the hotels group, including the Arizona Biltmore Resort & Spa in Phoenix, Ariz., and Grand Wailea Resorts Hotel & Spa in Hawaii, in August. GIC is a sovereign wealth fund that manages Singapore’s foreign reserves and is a large real estate investor in the United States. The fund is a lender to MSR and made an offer for shortly after the group filed for bankruptcy protection.
The hedge fund, headed by John Paulson, bought the hotels from a Morgan Stanley real estate fund in January 2011 and put them into bankruptcy a month later, saying it planned to reorganize them.
Morgan Stanley Real Estate purchased the five hotels and three others in 2007 for about $4 billion. The hotels filed with $2.2 billion in assets and $1.9 billion in debt.
The case is In Re: MSR Resort Golf Course, case No. 11-10372, in U.S. Bankruptcy Court, District of Delaware.
SINGAPORE (Reuters)—A former portfolio manager at Tudor Investment Corp. who oversaw energy investing from Singapore for the giant hedge fund is setting up his own business with a handful of former colleagues, according to several people familiar with the matter.
Andrew McMillan is the latest among a growing number of hedge fund industry executives pursuing dreams to launch their own funds by spinning out from former employers.
One source said the split was friendly between Mr. McMillan and Paul Tudor Jones‘ $11.6 billion firm, where the fund manager had worked for a decade. Mr. McMillan will take five ex-Tudor people with him.
Tudor partners have promised to invest with Mr. McMillan, said the source.
With Asia remaining a key focus for investors, Tudor has no plans to leave Singapore, however.
The firm has hired Ai Ning Wee from the Government of Singapore Investment Corporation, one of the world’s leading sovereign wealth funds, to work in its Singapore office. The focus will be on macro investing, the very bet that made Tudor famous in the three decades since Mr. Jones, a former cotton trader, founded the firm.
Like other funds bruised during the financial crisis, Tudor reorganized in the last few years, including a high-profile split from former star trader James Pallotta who ran the Tudor Raptor fund.
In 2012, the firm’s flagship Tudor BVI fund returned 6.27 percent, less than half the Standard & Poor’s 500 gain of 13 percent.
The spinout from Tudor joins the likes of Alp Ercil, the former Asia head of New York-based Perry Capital, who raised $940 million for his Asia Research & Capital Management in the biggest hedge fund launch in Asia last year.
Others such as Tybourne Capital, launched by the former Asia head of hedge fund firm Lone Pine Capital, Eashwar Krishnan, and Maso Capital, started by two former managing directors of Och-Ziff Capital Management, Manoj Jain and Sohit Khurana, also joined the fray last year.
WASHINGTON (Reuters)—The top U.S. derivatives regulator will listen to banks and exchanges in a public hearing this month to find out if its rules are unduly forcing clients out of swaps markets.
The Commodity Futures Trading Commission, which regulates both swaps and futures, is also considering a rule for block trades that could accommodate some of the concerns aired by the industry, a senior executive said.
“We’re going to have this discussion and get some of these topics up there,” Scott O’Malia, one of five CFTC commissioners told Reuters in a telephone interview. “It’s better that we have that discussion before we make a bad decision, than after.”
The meeting, which had not been announced before, is set for Jan. 24.
Regulators across the world are setting the first-ever rules for the $650 trillion swaps market, where trading is largely executed over the phone and data is hard to find, two factors that were blamed for aggravating the 2007-09 crisis. Banks such as Citi, Bank of America and JPMorgan dominate the market and fear that clients will instead start using futures — a similar type of derivative — because the new rules make them cheaper to use.
Futures exchanges, such as the CME Group Inc. and its much-smaller rival Eris Exchange have grabbed the opportunity, launching products that promise the same features as swaps, but at a far lower cost.
One concern of the banks is that the new rules unfairly favor futures markets by making it easier to do block trades, which allow dealers to delay the reporting of a transaction if it is above a certain threshold, so as not to show their hand.
A proposed new CFTC rule for swaps trading imposes stringent requirements on block trades for swaps, which does not exist for futures. The plan is to introduce a similar restriction for block trades in futures regulation.
“It is a concern that, depending on the block rules, the existing rules (may) create a disparity in regulation,” said Mr. O’Malia, one of the two members of a Republican minority on the CFTC’s five-strong board.
“The staff is developing a proposed rule on futures blocks,” said Mr. O’Malia, who is often critical of the CFTC.
Both futures and swaps can be used to protect or hedge against the effects of a change in anything from interest rates, foreign exchange rates, the risks of default of companies or governments, or commodity prices.
The CFTC’s public hearing was called on concerns about a shift out of swaps and into futures, a process known as “futurization,” Mr. O’Malia said.
At a similar hearing in November, Asian and European regulators vented their anger over the brusque manner in which the CFTC plans to impose its rules on foreign banks. U.S. politicians later chided the agency over the plan.
The CFTC is drawing up rules for public data reporting and to bring swaps trading on to exchange-like platforms, with clearing houses standing in between buyers and sellers to protect against the risk of default.
Derivatives brokers such as ICAP, Tullett Prebon and GFI are expected to run these new trading platforms, known as Swap Execution Facilities (SEFs), but are still in the dark about the rules.
The Jan. 24 meeting would discuss the different rules for block trades between the two markets, Mr. O’Malia said, but it was not clear whether the new rule on block trades prepared by the CFTC’s staff would come up for discussion.
It was also still not clear when the CFTC would vote on the long-awaited SEF rules.
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