Citadel Opens Fund & Bill Fleckenstein Closes Short Fund ~ market folly

Tuesday, December 9, 2008

Citadel Opens Fund & Bill Fleckenstein Closes Short Fund

Two interesting tidbits in the hedge fund world we've seen recently. Firstly, Bloomberg is out reporting that Citadel is looking to open up its $2 billion Tactical Trading Fund to investors again, in hopes of raising around $500 million in capital. The fund is up 40+% this year and will aim to purchase the stocks currently held in Citadel's 2 main funds, Wellington and Kensington. Those two funds are down considerably this year, which we noted in our November hedge fund performance numbers update.

Secondly, notable short-seller and hedge fund manager Bill Fleckenstein will be closing his short only hedge fund. Taken from Todd Sullivan's Value plays, Bill writes,

"After considerable thought and deliberation I have decided to make a major change in my life: I am going to close my hedge fund. I have several reasons for no longer wishing to run a short-only fund as I have for the past 12 years. First, my original reason for starting the fund was because of developments I saw occurring in the late 1990s that I wanted no part of. I felt that Greenspan was fomenting an environment that would lead to disaster, as consultants, financial advisors, and the public at large were losing all respect for risk. Of course, the reckless behavior carried far higher and lasted much, much longer than I ever imagined it could. However, the recent carnage in the stock market, real estate market and the financial system (as well as the job losses) has washed away those excesses to a large degree and it has violently demonstrated the risks associated with investing.

A future goal of mine, when I set up the fund in 1996 -- as I attempted to step aside from the madness -- was to return to the long side of the business at some point in time when I felt that investors had become more rational regarding risk and stocks offered a more favorable risk/reward proposition. I considered this option very briefly in 2002 after the stock bubble imploded, but the cleansing process was postponed due to the burgeoning real-estate bubble.

Second, though I think that the stock market still has unfinished business on the downside, I believe that 2009 is the year to prepare for a return to managing money in a more balanced fashion, with longs (and some shorts), as there are currently plenty of interesting ideas that appear to offer a margin of safety. On the flipside, compelling opportunities on the short side are not as abundant as they were just a few months ago (though there still are plenty.)"

Such words and actions could provide reason for investors to get a little bit bullish. After all, if a noted short seller is switching teams, he's got to be intrigued by something, right?

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