Wednesday, October 21, 2009

Absolute Return + Alpha: Hedge Fund Symposium Discount

Fresh off the Value Investing Congress, we wanted to make readers aware of the Absolute Return + Alpha Hedge Fund Symposium taking place November 3 & 4 in New York City. We're proud to announce we've secured an exclusive discount for Market Folly readers so take advantage of it! Click here for the .pdf for all the details of the event as well as the sign-up form with the exclusive discount.

Why should you attend? How about this fantastic list of speakers from numerous prominent hedge funds that we cover on the site, including:

- Israel Englander, Millennium Management
- Laurence Fink, BlackRock
- Dan Loeb, Third Point LLC
- Kyle Bass, Hayman Advisors
- John Burbank, Passport Capital
- Peter Thiel, Clarium Capital
- Frank Brosens, Taconic Capital Advisors
- Edward Fishman, D.E. Shaw & Co
- Michael Hennessy, Morgan Creek Capital Management
- Ross Garon, SAC Capital Advisors

... and many more. As you can see, this is quite the lineup of speakers as they'll be covering numerous different topics at the event and we highly recommend attending as last year there were over 400 attendees.

Click here to download the .pdf that has the discounted sign-up form as well as tons of information about the event.

On the sign-up form, there are 2 Market Folly sign-up boxes. The first ($3,420) is for if you are a broker, administrator, lawyer, or system provider. The second MF sign-up box ($1,757) is for investors, hedge fund managers, fund of funds, etc. And here's the best part, if you are a pension fund, endowment, family office, or non-profit, you can ATTEND FOR FREE. Just fill out the sign-up form on the .pdf to attend. Send completed .pdf's to: or print it out and fax it to: +44 (0)20 7779 7331. Everything you need should be in that .pdf but please let us know if you have any questions.

Value Investing Congress: Notes From Day 2 (Ackman, Sprott, T2 Partners)

Yesterday we posted up a collection of notes from the first day of the Value Investing Congress where we detailed investment ideas from David Einhorn, Julian Robertson, and more. Today, we're back with notes from the second day of the conference with picks from Pershing Square's Bill Ackman, Eric Sprott of Sprott Asset Management, and Whitney Tilson's hedge fund T2 Partners. Let's get to the ideas:

Bill Ackman, Pershing Square Capital Management

Ackman has been focused a lot on REITs lately. Readers are well aware of his position in General Growth Properties (GGWPQ) and just recently he presented his short position in Realty Income (O). This time around, Ackman presented the long case for private prison operator Corrections Corp of America (CXW) as 'one of the best real estate businesses around.' And while he didn't structure it this way initially, he said that going long Corrections Corp and short Realty Income sets up as a good pairs trade. He likes CXW because there is strong demand for prison space coupled with limited supply. Not to mention, having the government as a major customer is always a good thing. Humorously, Ackman also said, "It's also a hedge against your hedge fund business, because as the SEC ramps up... *laughter* we shouldn't joke about that."

Delving into specifics, Ackman's presentation highlighted numerous points. Ackman says that private prison companies are able to build their jails cheaper than the state and federal governments, making them the more popular choice. "As long as people commit crimes and as long as we punish them" CXW should be just fine. Obviously then the catalysts for this play include higher crimes in a recession as well as the fact that governments are strained budget-wise and cannot build new facilities. Obviously then the catalysts for this play include higher crimes in a recession as well as the fact that governments are strained budget-wise and cannot build new facilities. Further catalysts include stock buybacks and the fact that gaining incremental prisoners leads to high operating leverage.

Occupancy is currently high in the industry as new facilities can't be built and the number of prisoners continues to increase. The supply/demand equation certainly seems to be in their favor with current industry occupancy at 94%. Ackman noted that only a slim margin of inmates are in private prisons (7.8% of the nation). This leaves them plenty of room for growth and the trend is in their favor as that has already started to occur as private prisons took 50% of the industry expansion in 2007. Other positives in the investment highlighted by Ackman include the fact that 5% of the equity is held by the Board, there is long-term secular growth, the government is a huge customer, it is basically an oligopoly, it has low maintenance capital expenditures, and there is a high return on invested capital.

In the end, Pershing Square thinks that the supply/demand equation outweighs any regulatory risk and they own 9.5% of the company at around $24.50 per share. Lastly, while Ackman can't trade in General Growth due to his position on the board, he did comment that he would be a buyer here, not a seller (obviously). For more ideas from Ackman, make sure to check out his recent presentation on Realty Income as well.

Eric Sprott, Sprott Asset Management

In the past, we've seen that Sprott likes gold and has taken a defensive portfolio posture. He continued on that meme at the congress as he presented Norseman Gold Plc (ASX: NGX) as his investment idea. Also, on a macro level, Sprott made interesting comments on the notion that if there is no tax credit extension we could see a 30% drop in home sales in January of next year. Sprott also warned that once quantitative easing ends, the world could be in for further trouble. He cited previous government programs like cash for clunkers that had a temporary positive impact but upon expiration led to further declines. Sprott then hypothesized that a similar outcome would arise once quantitative easing disappears. Like many of his other hedge fund manager colleagues, Sprott warned against the implications of the Federal Reserve's actions, particularly as it relates to Treasury bonds.

He also shifted his focus to banks as he pointed out that if they are leveraged 20:1, they have about 5% of equity supporting merely paper assets. If those assets were to fall in price even by the slightest bit, that would create a huge problem for these institutions. He proclaims that these banks should not be running such high leverage. He also cited the recent large bank failures of Colonial, Guaranty, and Corus which involved writedowns ranging from 11-25%. Clearly he has retained his pessimistic view and defensive portfolio positioning.

And while Sprott did not make these next specific comments at the Value Investing Congress, we thought they were worth mentioning. A few weeks ago in a speech at a University in Canada, Sprott said he was short Research in Motion (RIMM) due to increased competition in the smartphone industry and thinks it will be difficult for them to maintain and grow current profit levels. Also, Sprott said that he thought gold could reach $2,000 having recently breached the $1,000 level. Since inception, Sprott's hedge fund is up over 400%. For more from Sprott, check out their September commentary as well as their presentation on how gold is the ultimate triple-A asset.

Whitney Tilson/Glenn Tongue, T2 Partners

The presentation from T2 Partners centered on their extensive research on the housing crisis. They said another wave of losses is coming down the pipeline in the form of prime, jumbo prime, HELOCs, second lien, and commercial real estate as well. They noted that the giant wave of defaults has already occurred and so the worst is over. However, it will still be a painful process to work off the rest of the losses and they likened it to 'drip torture.' Most other loans are still defaulting and they see this taking place for the next 5 years or so. They said to be wary of the near-term stabilization as it is nothing more than a head fake. As such, their recommendation was to short homebuilders through the exchange traded fund ITB, the US Home Construction Index. For more insight from T2, you can check out one of their recent investor letters, as well as a recent interview Whitney Tilson did.

We also wanted to quickly mention that fellow value player Zeke Ashton of Centaur Capital Partners had three ideas: Allegheny, Lab Corp of America, and MVC. Make sure to also check out notes from day one of the Value Investing Congress as well where you can get investment ideas from David Einhorn, Julian Robertson and more.

Lastly, we also wanted to highlight excellent coverage on Wall Street Media from Todd Sullivan of where he sits down and talks about the various speeches from the congress. Here are some of the videos summarizing Joel Greenblatt's presentation, the speech from David Einhorn, as well as the powerful real estate presentation from Amherst Securities. Thanks to those guys for their added coverage.

Replicating Julian Robertson's Constant Maturity Swap (CMS) Trade

In a previous post we covered hedge fund legend Julian Robertson's updated play on higher interest rates. He calls them curve caps and they are essentially constant maturity swaps (CMS) that you can buy on an institutional level. He likened the trade to buying puts on long-term treasuries and so we showed how you could replicate that play on a retail investor level. However, there are obviously vast differences between that and the exact play Julian has put on. As such, we've got a great guest post for you that shows how you can replicate his play on an institutional level. Not to mention, fellow hedge fund manager David Einhorn recently revealed he is buying similar plays as well.

Various investment banks have been out pitching these plays for a while now, but you can be they've certainly been hitting the pavement even more now that Julian has been so vocal about his play. The following is a guest post from to explain how they are pitching a replication of Julian's play:

"It is no secret that Julian Robertson is not a huge fan of long-dated bonds. In his recent CNBC interview he had some downright nasty words about the back-end of the UST curve, especially if the "downside contingency" case of foreign purchases ceasing, were to pass. However, while many have known about his propensity for the bond steepener trade, his latest trade position is the so called Constant Maturity Swap trade. Moving away from an outright steepener makes sense as it can now only profit from a tail end widening, since the front end of the curve is at zero. Unless Bernanke follows Sweden into negative rates territory, the steepener upside potential has just been mechanically limited by 50%. As for his current preferred iteration of expressing Treasury bearishness, CMS, here is some recent commentary from JR on the topic:

"The insurance policy I would buy is called a CMS Rate Cap, which is the equivalent of buying puts on long-term Treasuries. If inflation happens the way it could, long-term Treasuries are just going to explode. Less than 30 years ago, long-term interest rates got to 20%. I can envision that seeming like a very low interest rate compared to what might occur in the future."

No surprise then, that Morgan Stanley's Govvy desk has started pimping this trade (including some hedged and Knock Out variants) to anyone who wants to imitate that original Tiger. In a recent version of their Interest Rate Strategist, the key proffered trade is precisely Shorting back-end rates, with the following summary recommendations:

  • Buy a 5 year Cap on 30 year CMS struck ATM (5.38%) for 105 bps
  • Buy a 5 year Cap on 30 year CMS struck ATM. Sell a 5 year Cap on 30 year CMS struck at 8.38%, for a net cost of 65 bps.
  • Buy a 5 year Cap on 30 year CMS struck at 5.38% that knocks out in 1 year if 30 year CMS is above 5.38% for 62 bps.

Here is MS' entire modest proposal:

In the past month, longer-dated volatility has declined and longer-dated rates have rallied (Exhibit 1). Getting short back-end rates – with defined downside – is becoming increasingly attractive. We maintain our long-held belief that, in the long run, the curve will steepen significantly, and we continue to believe that long-dated rate caps will benefit from the higher rates and higher volatility that will come from increased Treasury issuance and an end to the public stimulus programs.

Specifically, we propose a selection of the following trades:

  • Buy a 5y cap on 30y CMS struck ATM (5.38%) for 105bp
  • Buy a 5y cap on 30y CMS struck at 5.38%, Sell a 5y cap on 30y CMS struck at 8.38%, for a net cost of 65bp
  • Buy a 5y cap on 30y CMS struck at 5.38% that knocks out in 1y if 30y CMS is above 5.38%, for 62bp

Inflation and long-end supply remain substantial concerns, particularly for longer maturities. Our economists expect 10y UST gross issuance to more than double from 2008 to 2009, and for 30y UST gross issuance to more than triple. After 2009, we also project 10y UST issuance to increase by $40 billion per year, and long bond gross issuance by approximately $50 billion per year (Exhibit 2). This is while the Fed is projected to keep short-term rates on hold in order to stimulate the economy and maintain a steep curve.

We aim to target 30y rates. This is because we project 30y UST gross issuance to keep increasing at a faster pace than 10y gross issuance (Exhibit 2). Moreover, we expect the curve to steepen in periods of high inflation.

We also target longer expiries (3-5y). Two reasons behind this: first, we have been in a secular downward trend in longer-term rates since the mid 1980s (Exhibit 3). This is a trade for us to break out of that range – we expect such a shift to occur over a longer period of time as opposed to in the next year. Second, flows out of lower yielding money market funds into the belly of the curve are expected to keep longer rates bid, at least for the next couple of months, in our view. This is something that we can exploit by entering into a knock-out cap.

Investors looking to decrease the upfront cost of the option can accomplish this in one of two ways: either by limiting their upside, or by playing the timing of the sell-off in longer-dated rates.
Limiting the upside would involve selling an OTM cap against the ATM cap that the investor is long. For instance, if the investor sells a 300bp OTM cap against buying long an ATM cap, this cheapens the upfront cost of the option to 65bp, or by 38%. Note that OTM skew on longer tails has richened substantially over the past three months. Exhibit 4 graphs the spread between 100bp OTM 5y30y payors and 100bp OTM receivers, normalized by the level of at-the-money vol – the higher this spread, the more expensive payor skew is relative to receiver skew. Over the past three months, OTM payor skew has become increasingly expensive. This is why we prefer monetizing and selling it as opposed to moving the strike of the CMS cap that we’re long further out of the money.

Playing the timing of the sell-off in longer-dated rates would cheapen the upfront cost of the cap by selling a shorter-expiry option against the longer-expiry cap. Flows out of money market funds into the belly of the curve are likely to keep the long end somewhat bid in the near term, in our view. Investors can monetize this by entering into a 5y cap on 30y CMS rates that knocks out in 1y if 30y CMS is above a strike of their choosing. For instance, a 5y cap on 30y CMS struck ATM (5.38%) that knocks out in 1y if 30y CMS is above 5.38% has an upfront cost of 62bp; if investors move the strike of the knock-out to 6%, the cost increases to 79bp. Note that a 2y knockout cheapens the cap even more than the 1y knockout. The principal risks to the outright CMS Cap are either that rates continue to rally, or that vol falls. Note that both of these risks are mitigated with a 1x1 cap spread, or with a knock-out cap. In each of the three trades, however, the maximum downside for investors is equal to the initial premium invested.

If last week's pounding of the 30 year is any indication, Robertson may just be on the right trade yet again. The demonstratory selling of 30 years both into and after the Auction was obviously agenda driven, and it is doubtful it bypassed Bernanke's, and the PD's attention. Yet as China is increasingly boxed and realizes fully well it needs to buy some Treasuries (lest it sends the world a signal that it is willing to write off its $2.5 trillion in dollar reserves), it is conceivable that going forward it will merely focus in the 1-3/5 Year Tenor range, as it leaves anything 10 years and out to other, Fed financed chums. Some desks have in fact argued that what the ABX trade was for subprime, and CMBX was for CRE, the CMS trade will end up being for Treasuries. Although be careful: while your opponents in the first two were subprime borrowers and Cohen & Steers respectively (hardly admirable opponents), in the last trade you are taking on the Federal Reserve and the full faith and credit of the US head on. For if the Fed losses control of the 10-30 year span, it might as well go home, since that means 30 Year mortgages will skyrocket,maybe all the way into double digit territory, thus destroying all hopes of inflating the GSE bubble.

Yet as Soros showed in the 90's, Central Banks can lose. All that needs to happen to topple Ben, is for the bond vigilantes to come out in force and support Robertson's fatalistic view on USTs. Not even the worlds most overheating printing press can take on the combined power of all the bond vigilantes in the world. Although, it is arguable if one can take on the Fed via passive strategies such as CMS. Someone with real guts would have to be the first to go all out and short the back-end. If substantiated by a sufficient number of synthetic bearish positions, at that point it will be merely a matter of time before Bernanke is finally forced to fold his endless deck of Aces.
For some additional color on CMS, we recommend this paper from Goldman Sachs."

Thanks to ZeroHedge for the guest post on how to replicate Julian's play on an institutional level. Don't forget to also check out our post on how retail investors can replicate his play to some degree.

Julian's been quite active lately and we've just covered his market thoughts that he presented at the Value Investing Congress. For more of his insight, also check out his recent interview here (and another here). Lastly, if you're unfamiliar with the Tiger Management founder, check out our profile on him as well.

Poker Tips Applicable To Trading From Pro Player Annie Duke

The following is a guest post from

"I find that Annie Duke’s tips on poker are directly applicable to trading.

Skills needed to be a good poker player (trader)
-grasp of math, probability, and game theory
-have to have “a lot of heart.” The ability to understand not only what the right play is, but to follow through with it (when you have a good trading setup, GO FOR IT)
-what separates the good from the great, is that the good know the right answer, but they don’t follow through with it
-it’s not about winning right now, but making the right decision to win in the long-run (process over specific outcome)
-be a very good reader of people and bet pattern analyzer (read what the market is discounting)

What makes a successful poker player
-someone who manages their money really well (use rational position sizes and cut losses)
-bankroll requirement for certain game (asset size), how much you can risk in a certain game (position size)
-someone who has a lot of control over the emotional aspect of the game
-poker players lose a lot because there is variance to the game. Being able to emotional handle the losses and to not allow those to affect your play going forward is KEY (don’t get emotional over losses and then try to gamble/over-trade your way back to break-even)
-there are lots of players out there who have more talent in their pinky than my whole entire body, but they’re broke and I’m not
-you work with the skills that you have and recognize the games you should be playing in (what stocks and sectors do you know? what’s your circle of competence)
-don’t play in games where other players are better than you, which is ego-driven (trading sectors and stocks you don’t know)
-manage your money well and manage your emotions well will make you successful

-no-one wants to hear you moan. what productive thing is coming out of moaning? do something constructive. analyze your hand (trade), should I have been involved in first place? don’t focus on the one piece of bad variance (bad luck)
-don’t get emotionally invested on anything at the table (be rational in trading decisions)
-you take what the opponent has done in the past hands. are they conservative? are they wild? how have they bet good/bad hands? how did they behave? constantly update that based on what they do (look for patterns in the market after news)
-come up with best strategy to efficiently and precisely take someone’s chips. she is always willing to flirt with someone on the table (just win baby. making money is the only goal)

Annie Duke Big Think Videos


Thanks to for the great post as there are definitely a ton of parallels between poker and financial markets and you can often apply methodologies to either. And, as we've covered before on the blog, hedge fund manager David Einhorn of Greenlight Capital is a poker player and has competed in the World Series of Poker.

Mohnish Pabrai's Hedge Fund Q3 Investor Letter

Here's the latest investor letter from Mohnish Pabrai and his hedge fund Pabrai Investment Funds. Pabrai is unique in that he has structured his fund similarly to the early Warren Buffett partnerships. Typical hedge funds charge a flat 2% management fee on assets and then a 20% performance fee incentive on top of that. Pabrai on the other hand charges no management fee and then no incentive fee until the fund reaches 6%+. After that threshold is reached, they can then charge a 25% incentive fee. So, his interests are aligned with the fund as he does not make money until investors do. Not to mention, he has 'skin in the game.'

Embedded below is the investor letter with Q3 2009 results and commentary:

You can also download the .pdf here.

Tuesday, October 20, 2009

Value Investing Congress: Notes From Day 1 (Einhorn, Robertson, Greenblatt)

The Value Investing Congress is finally here and it's time to hear some investment ideas from some of the most prominent hedge fund players in the game. Yesterday marked the first day of the 2-day extravaganza and attendees heard from David Einhorn of Greenlight Capital and Julian Robertson of Tiger Management among other notable speakers. Let's jump right into their thoughts.

David Einhorn (Greenlight Capital)

Einhorn spoke with prepared remarks regarding a few topics but he really went after Ben Bernanke, Timothy Geithner, and government policy in general. There are two main things to take away from Einhorn's speech. Firstly, he likes gold. A lot. A long time ago we covered his first foray into gold via the exchange traded fund GLD. Since then, he has moved into physical gold as he prefers the physical commodity to the ETF. Just a few weeks ago at another hedge fund symposium he confirmed his fondness for the precious metal. Yesterday he has said that his case for gold is not inflationary but instead is based on poor government policy. And, he even stated that his firm's 'horde' of gold is stored somewhere nearby in New York. Secondly, he focused on the potential for a currency crisis to cause a domino effect in terms of re-assessing credit risk of other fiat currencies. He has bought long-dated options that will profit if higher interest rates come to fruition in countries like Japan and other developed nations, noting that these are 4-5 year plays.

We want to leave our brief summary at that because below we have attached David Einhorn's speech from the Value Investing Congress in its entirety. It truly is a must-read, so embedded below is his presentation:

Alternatively, you can also download the .pdf here. For more ideas from Einhorn, also check out his short thesis on the ratings agencies. Lastly, you can view some more of Greenlight's portfolio holdings here.

Julian Robertson (Tiger Management)

Julian did not have prepared remarks and instead just fielded questions and talked markets. He again focused on the notion that the US cannot keep spending more than it is earning, something he's been harping on during his recent media appearances. Since Julian touched on a variety of topics, we'll just present his thoughts in quick hits below. He was bullish on solar but says that China 'could be a big bubble.' As he did in his interview with the FT, Julian again touched on his thoughts on gold. He thinks that shorting long-term bonds is a better inflation hedge than gold. He thought gold bugs to be 'certifiably crazy' and noted that it is essentially the same price it was 30 years ago as there is no real supply and demand, everyone just saves it.

Turning to equities, Robertson mentioned that he is still bullish on Mastercard (MA) and Visa (V) as we've noted many times on the blog before. Numerous Tiger Cub hedge funds have also accumulated large stakes in these names over the past year. He also revealed that he is bullish on Intel (INTC) and Google (GOOG) as they have a low price relative to their EPS (earnings per share) potential. Citing these plays, Robertson said that his approach as a value player has shifted to one that looks at if a stock is trading at a low price relative to the expected earnings for the next few years. His (and many Tiger Cubs') investment style seems to focus on value, but still tolerates growth-at-a-reasonable-price (GARP) plays. Also, he again mentioned he is bullish on the currencies of Norway, Czech Republic, and New Zealand while he is bearish on the UK Pound Sterling.

Since we often cover the Tiger Cub funds here in our hedge fund portfolio tracking series, we thought it was interesting that Julian could sum up their success very succinctly. Robertson credited the Tiger Cubs as smart, honest, and competitive. Those are qualities he has always looked for in fund managers and he continues to seed various funds with managers that exude these qualities. It's obviously a different role than what he'd been used to in the past (running Tiger Management). However, he's loving what he's doing and one can only imagine the think-tank of ideas that goes on in discussions amongst Julian and the Tiger Cubs. For more insight from Robertson, check out his play on higher interest rates, his recent interviews, and our profile on the Tiger Management founder if you're unfamiliar with him.

Joel Greenblatt (Gotham Capital)

Today Joel Greenblatt came out and unveiled Formula Investing, his new online management venture. The noted value investor and hedge fund manager of Gotham Capital sat down with CNBC to explain his value investing formula and how he's laid it out in model portfolios. Embedded below is Joel's interview:


Also at the Congress yesterday was Roger Nierenberg of D3 Family Funds. He took a 'learn from the past' approach and highlighted some of his battle wounds, highlighting the use of 13D and 13G filings. Nierenberg said, "Investing is not only about the numbers, it's also about the people and the process. Selling is not the only option when confronted by the issues of performance and governance. A lot of times, the dogs we decide to take home are improvable." He also went on to say that corporate governance movement can feel like a "faith based movement where people who advocate radical solutions often don't think things through." Thanks to for that great quote and make sure to check out their notes from day 1 as well.

In the end, interesting observations and insight from two of Wall Street's most watched hedgies. Einhorn has been touting the gold play for some time now and it appears that his conviction has steadily increased over time. Julian also shares Einhorn's concern over fiat currency and a ballooning deficit. Stay tuned for more updates from day two of the Value Investing Congress. In the mean time, make sure to also check out our notes from the Great Investors Best Ideas symposium where numerous prominent hedge fund managers recently presented investment ideas.

Jeff Saut's Weekly Investment Strategy (Raymond James)

We're back with the latest investment strategy from Raymond James' chief investment strategist Jeffrey Saut. This week Saut's commentary again focuses on the skepticism behind the ever-lasting market rally. He notes that while bears call this a sucker's rally, the bears themselves have been the suckers in the near-term as they've missed out on a hearty 7 month rally. Don't forget that you can also check out Saut's insightful commentary from last week entitled 'Direction Dictates' as well as two weeks prior where he examined historical market returns.

Embedded below is Saut's investment strategy for the week of October 19th, 2009:

You can also download the .pdf here.

Taking A Look At The S&P 500

No question, this market rally has been persistent. So today we thought it would be prudent to post up the most recent video from the guys at MarketClub examining the S&P 500 which could give cause to be cautious. Their quick technical analysis shows that from the highs in October 2007 until now, there is a definitive trendline to the downside that the market has rallied right up to. Conveniently, this same level serves as a 50% retracement if you draw out the fibonacci tool from those highs of October 2007 to the lows of March 2009. Check out the technical analysis of the S&P 500 for more.

The Loz 'N' Belly Weekly Podcast From Hedge Fund Manager GLC Ltd.

“Loz ‘n’ Belly” are Lawrence Staden and Steven Bell, the portfolio managers of the London based hedge fund manager, GLC Ltd. They provide a free weekly podcast about the state of the markets to anyone prepared to download it. Their presentation style is often humorous, light-hearted and at times they appear keener to talk football and cricket than interest rates and currencies. So are these hedge fund managers - turned radio entertainers - worth listening to? The answer is an unequivocal, yes.

You can download the Loz ‘N’ Belly podcast here. You can also subscribe to the podcast via a feed reader in the normal way as the download is located on their Blogger page linked above. New programmes are usually released on a Tuesday and the latest podcast is readily available now.

Beneath the veneer of banter listeners will find a lot of content and incisive thought. Their analysis of the market since March has suggested that equities would out-perform cash. It has also suggested that any economic recovery would favour the so-called "risk" currencies such as the Brazilian real, Mexican peso and Aussie dollar (Vs Sterling).

GLC, founded by Lawrence Staden in 1992, is one of the oldest hedge funds in London. Staden graduated from Cambridge University in 1982 with a Masters degree in mathematics and as you might expect, he has a particular interest in statistical arbitrage/quant trading. Following graduation, he joined Montagu Loebl Stanley, a UK stockbroker, as an analyst/salesman and later worked for Buckmaster & Moore in a similar capacity. In 1985, he moved to the market-making arm of Bankers Trust International where he traded UK Gilts. In January 1991 he became head of London proprietary trading and head of London analytic research. Staden left Bankers Trust in 1992 to establish GLC.

Steven Bell joined GLC in 2006 as Chief Economist and portfolio manager to launch the GLC Global Macro Fund. Bell holds economics degrees from the London School of Economics and Stanford University. Having been an economic adviser at the UK Treasury, he joined Morgan Grenfell in 1984 to become chief economist. Following the acquisition by Deutsche Bank he was appointed managing director and head of global markets research in 1995. He moved to Deutsche Asset Management in 1999 where his investment team contributed to the Global Alpha Platform (iGAP). Bell’s team was one of the highest weighted teams within iGAP, a reflection of its high investment performance and low correlation. Bell is a regular contributor on national TV and radio and has written a number of articles and books on finance and economics.

GLC has about $1bn assets under management. The biggest fund is the GLC Diversified Fund which is an internal fund of funds consisting of the GLC Gestalt Fund (Long Short Equity); GLC Behavioural Trend Fund (CTA); GLC Directional Fund (CTA); GLC Global Macro Fund; GLC Managed Futures Fund and the GLC Carry Trade Programme. The Diversified Fund has produced outstanding returns (see table below). Unlike many other statistical arbitrage operators, GLC’s strategies proved to be robust during the credit crisis with a remarkable 25.7% return in 2008. Interestingly though, despite the outstanding performance, they still suffered redemptions. Staden says that hedge fund investors used GLC as an ATM cash machine during this period as many other funds locked up investments. GLC did not use any form of gate and provided monthly liquidity to all investors throughout the crisis.

GLC Diversified Fund Returns

2005: 6.5%

2006: 30.5%

2007: 18.9%

2008: 25.7%

2009: 10.8% YTD

That ends our first look at the London based hedge fund manager, GLC Ltd. Don’t miss their views on the market through the Loz ‘n’ Belly podcast, free every week. As always, we will be continuing our tracking series where we look at the positions that prominent hedge fund managers hold in UK markets. If you've missed some of our previous posts, make sure you check out the holdings of Harbinger Capital Partners, Stephen Mandel's Lone Pine Capital, Ken Griffin’s Citadel , Louis Bacon's Moore Capital Management and Paul Tudor Jones’s Tudor Investment Corp . If you're unfamiliar with our new series tracking UK positions, check out our preface here. We have also covered the potential for hedge fund activism in the UK investment trust sector.

Trading Setups Watchlist

It's been awhile since we last posted up the OptionAddict's technical analysis videos where he lists off some trade setups for the present week but we're back with his latest video.

Here are some of the charts and patterns he is eyeing for some near-term moves and they always make good watchlists. Video below, RSS & Email readers come to the blog to view:

Monday, October 19, 2009

Julian Robertson's Interview With The Financial Times

On his recent media escapade, Tiger Management founder and hedge fund legend Julian Robertson stopped off to chat with the Financial Times about many topics. He has been out talking a lot about his curve caps play lately where he essentially is buying puts on long-term treasuries as he expects prices to fall and yields to rise. Julian again touched on this position in this interview but we want to turn the focus to other topics that he hasn't previously discussed in his other recent media appearances. Here are some notable excerpts from the Tiger Management founder and hedge fund legend's interview with the FT:

"FT: Does this conservative bent mean you’re very interested in gold right now?

JR: I’m interested in gold but not for the reason that a lot of other people are interested. First let me say, I don’t believe in gold – no one has ever, since it was ever discovered, really ever used up any gold. So all of it is here, there’s no supply and demand situation; you can’t eat it. So I think it’s a psychological store of value and I think that probably a psychiatrist is better able to analyse gold than I am. But we do have here the world’s, I think, leading authority on gold – as a matter of fact, he’s giving a talk downstairs now – and I think that’s why we seated him was because I knew he was the world’s best in this.

FT: So who is your Babe Ruth of gold?

JR: You can check him out but he’s a terrific man, and probably has as good a record as anybody in the world over the last five years. And one of the other things about gold – not just the gold bugs who, generally speaking, are some of the craziest people on the face of the globe, but people like me who suddenly get worried and people like you who are concerned about inflation and you say, show me how do I get into gold? And our man will say, Julian, you don’t get into gold now; the price of mining gold, the cost of mining gold is going down very fast and it’s very possible that the companies can make a fortune on the planning price of gold, simply because the costs are going down. So the point is, to buy gold stocks instead of gold."

You can watch the rest of Julian's interview in this 3-part video series starting with part 1 here. At the end, they also played a game of 'long/short' where Julian identified some of his favorite plays at the moment.

He said he was bullish on the following: Google, Gold Stocks, Visa, Apple, Goldman Sachs, and the Australian Dollar.

And he was bearish on the following: The US Dollar and Copper.

Thanks to the FT for another great interview. We think another key point he touches on is the notion of focusing on avoiding big losses rather than gunning for big gains. That's what can truly set a fund manager apart from others an where the true talent shines. Generating returns in a market rally is one thing, but protecting from drawdowns is an entirely different beast. We also found it curious that Robertson avoided the question as to who his 'Babe Ruth of Gold' was. Anybody out there have any ideas as to which manager he might be talking about? Robertson has seeded a bunch of managers, so we can certainly narrow down the list but just found it peculiar he wouldn't outright mention the manager's name.

Lastly, we found it intriguing that Robertson finds gold stocks more appealing than gold itself. Many other prominent hedge fund managers we cover have entered gold plays over the course of the past year so it's always good to find someone who has a bit of a different opinion regarding the precious metal. For more recent insight from hedge fund legend Julian Robertson, make sure to check out his Bloomberg interview, as well as our detailed post on his curve caps play which he has been talking about a lot recently. If you're not familiar with Robertson, then read up on him here.

Source: FT interview

Hedge Fund Harbinger Capital Partners: Portfolio Update

In typical Harbinger fashion, we've been avalanched with a slew of SEC filings after the market close on Friday in which they reported changes to many of their portfolio positions. In all, Philip Falcone's hedge fund filed notable amended 13D's on Solutia (SOA), Terrestar (TSTR), and Calpine (CPN).

Harbinger's amended 13D on Calpine shows them owning a 13% ownership stake with 57,639,402 shares. Their activity in CPN comes after Harbinger executed their offering of shares. The amendment was made to reflect the fact that in Harbinger's recent share offering, the underwriters exercised their option to purchase an additional 3,000,000 shares from Harbinger in addition the 20,000,000 shares already sold. The rest of this purchase is expected to be consummated today (the 19th) at a price of $11.40 as noted in the Form 4.

They also filed an amended 13D on TerreStar now shows Harbinger holding a 47.8% ownership stake with 87,673,303 shares. This is down slightly from their previous 48.6% stake. Lastly, Harbinger also filed an amended 13D on Solutia (SOA) where they disclosed they now have an 8.1% ownership stake with 9,601,118 shares. This is down from their previous stake of 9.4% as Harbinger continues to sell shares of SOA as they have been doing for many months now.

Harbinger has been busy with a plethora of SEC filings over the past few weeks as they rebalance their portfolio. We've noted their sales of shares in both New York Times (NYT) and Leap Wireless (LEAP). You can also find the rest of their assorted portfolio moves here. For those of you interested in some of Harbinger's holdings in UK markets, we've also covered those as well. Philip Falcone runs his $6 billion hedge fund Harbinger Capital Partners with a focus both on equity plays and distressed plays. Read up more on him and his portfolio here.

Taken from Google Finance, Terrestar is "in the integrated satellite wireless communications business through its ownership of TerreStar Networks and TerreStar Global. TerreStar Networks is the Company’s principal operating entity. In cooperation with its Canadian partner, 4371585 Canada, it plans to launch wireless communications system to provide mobile coverage throughout the United States and Canada using small, lightweight handsets similar to mobile devices."

Calpine is "an independent wholesale power generation company engaged in the ownership and operation of natural gas-fired and geothermal power plants in North America. The Company sells wholesale power, steam, capacity, renewable energy credits and ancillary services to its customers, including industrial companies, retail power providers, utilities, municipalities, independent electric system operators, marketers and others."

Solutia is "a global manufacturer and marketer of a variety of chemical and engineered materials that are used in a range of consumer and industrial applications. The Company maintains a global infrastructure consisting of 25 manufacturing facilities, six technical centers and over 29 sales offices globally, including 14 facilities in the United States."

Ackman & Pershing Square's Realty Income (O) Presentation

Below is hedge fund Pershing Square Capital Management's presentation on their short position in Realty Income (O). We've covered the basics of their short earlier on and now here's your chance to see more specifics as to why they think Realty Income will eventually have to cut their dividend; an action that could potentially send their large retail investor base fleeing. Ackman will be presenting at the Value Investing Congress which is taking place in New York both today and tomorrow so we'll have to see if he further elaborates on this short or whether he presents a different investment idea. Ackman's presentation of his short in 'O' comes from the Great Investors Best Ideas conference and you can see what other hedge fund managers presented here.

Embedded below is Pershing Square's short case for Realty Income (O):

Alternatively, you can download the .pdf here.

Hedge Fund Galleon Group September Commentary

Courtesy of Dealbreaker, here is the September commentary and exposures from hedge fund Galleon Group. We thought it would be goo to post these up given the recent insider trading charges surrounding Raj Rajaratnam's fund. It will be interesting to see how these charges effect the firm as a whole and in particular, their portfolios.

Embedded below is their investor letter (September commentary) which you can also download here (.pdf):

And embedded below next is their September exposures sheet, which you can also download here (.pdf).

We'll continue to monitor the developments in the insider trading case.