Saturday, October 3, 2009

Warren Buffett's Recommended Reading List

We're back with the latest iteration of our recommended reading list series. This time around we feature the favorite reads of none other than the Oracle of Omaha himself, Warren Buffett. Over time, he has recommended various books and here is the comprehensive list:

Warren Buffett's Recommended Reading List

Common Stocks and Uncommon Profits by Phil Fisher: Regarding this book, Buffett said that, "I sought out Phil Fisher after reading his Common Stocks and Uncommon Profits and Other Writings. When I met him, I was as impressed by the man as by his ideas. A thorough understanding of the business, obtained by using Phil’s techniques . . . enables one to make intelligent investment commitments."

The Smartest Guys in the Room by Bethany McLean: This was recommended in Buffett's annual letter from 2003 and details the rise and fall of Enron.

The Intelligent Investor by Benjamin Graham: This is an obvious choice as Buffett has said that this is "the most important investment book" and in particular has highlighted chapters 8 and 20 as essential.

John Bogle on Investing: The First 50 Years by John Bogle. This book is more aimed at the fund investing crowd given Bogle's expertise (Vanguard funds). In the past, Buffett has advocated investors who don't have much time on their hands to invest in index funds.

The Essays of Warren Buffett
by Warren Buffett & edited by Larry Cunningham: There's no better way to learn from Buffett than through his own words. Buffett would agree as he says "The most representative book on my thinking is what Larry Cunningham put together."

Sam Walton: Made in America by Sam Walton: Another read Buffett recommended back in 2003, this book details how Walmart was built from the ground up.

And while this next pick is not from Buffett, we wanted to add it to the list because it is an in-depth biography of him. Those of you interested in the investing legend himself should check out The Snowball: Warren Buffett and the Business of Life by Alice Schroeder.

New Recommendations From Buffett From 2012 Annual Letter

The Outsiders by William Thorndike Jr. - A book about CEOs who excelled at capital allocation.

Tap Dancing to Work: Warren Buffett on Practically Everything by Carol Loomis - Authored by Buffett's longtime friend.

The Clash of Cultures: Investment vs Speculation by Jack Bogle - On how certain things have altered the concept of long-term investing

Investing Between the Lines: How to Make Smarter Decisions By Decoding CEO Communications by Laura Rittenhouse - In an age of 'management speak' this helps you read between the lines.

That wraps up Buffet's favorite picks. Make sure to check out some other books recommended by great investors:

- Hedge Fund Blue Ridge Capital's Picks
- Recommendations from Third Point's Dan Loeb

And lastly, here's various lists we've compiled by category:

- Fundamentals & Valuation
- Technical Analysis & Charts
- Books by Stock Market Gurus

Friday, October 2, 2009

Market Folly Custom Portfolio: September Performance Update

It's that time again as we're back to bring the latest monthly numbers in from our Market Folly custom hedgefundesque portfolio created with Alphaclone. We've taken equity holdings from three prominent hedge funds in a unique strategy and have combined them with a 50% market hedge in order to provide downside protection. If you're unfamiliar with our MF portfolio, check out this post. To see what positions our clone invests in, check out the 14 day free trial to Alphaclone. Here are the latest numbers:


MF: +2.1%
S&P: +3.7%


MF: +11.4%
S&P: +19.3%

As you can see, our clone continues to lag the market, mainly due to the 50% market hedge we have employed. We also ran the performance numbers for our fund as if it was operating long-only and that iteration is outperforming the index. That's the great thing about Alphaclone is that you can pick and choose various strategies and degrees of hedging until you find the optimal combination. We selected the 50% hedge in order to limit drawdowns and to operate as a truly hedged investment vehicle.

After inspecting our longs, almost all of them are holding up just fine. So, as any truly hedged instrument is designed, we are capturing some, but not all, of the upward move. And, in downward trends, we severely reduce drawdowns. We'll be quick to point out that despite lagging the index for 2009, our portfolio didn't have much to do in the form of recouping losses. Case in point: The S&P was down 37% for 2008 while our portfolio was only down 5.6% for last year. So, we have already moved onwards and upwards while the S&P is still recovering massive losses from last year. Not to mention, our clone has only underperformed the market once (2005) ever since its inception back in 2000.

We need to reiterate that we are and always have been focused on the long-term. Everyone is so focused on month-to-month performance in the industry these days, and we're looking to distance ourselves from that in an attempt to generate alpha over a multi-year timeframe. And, so far, the clone has done just that. Since inception in 2000, the MF portfolio has a total return of 533% compared to -13.4% for the S&P. This equals annualized returns of 20.8% for our portfolio compared to -1.5% annualized for the index. Additionally, this was achieved with alpha of 17.1 and a Sharpe Ratio of 0.8. There's your outperformance right there. However, we must highlight that our clone does experience higher volatility than the S&P, but at the same time has suffered far less drawdown. We're merely posting up monthly numbers to give readers updates on our progress and to provide transparency.

Here is the current performance chart:

Additionally, for the first time we've included an Excel file that details our performance breakdown by various metrics. You can view the file on Google Docs here and we've embedded it below as well:

As always, head over to Alphaclone for a 14 day free trial to find out what positions our custom MF portfolio holds. Over the long-term, our hedged clone is definitely generating solid alpha and outperforming the index handily. We'll continue to provide monthly updates so stay tuned.

Quicken Discounts Are Back

A quick word from our sponsors at Quicken as they just let us know about a new set of discounts. Just posting it up if it is of interest to anyone as you also get free shipping or you can just download it. Here's a breakdown of the pricing with the offer:

MSRP Discount New Price
Quicken Deluxe $59.99 $20 savings $39.99
Quicken Premier $89.99 $30 savings $59.99
Quicken Home & Business $99.99 $30 savings $69.99
Quicken Rental Property Manager $149.99 $50 savings $99.99

Click the appropriate link above to receive the discount on the respective products. And don't forget you can get their Quicken Online for free.

The Sports Mortgage: Equity Seat Rights Are Latest Financial Concoction

Well, we thought we had seen it all. But just when you think financiers are done dreaming up crazy investment concoctions, we get this: The Sports Mortgage. It is exactly what it sounds like, a mortgage for your seat at a stadium. While this is far and away from our usual topic of hedge fund portfolio tracking, we found the topic intriguing and wanted to explore it further. This is a brand new model for sports economics and there a few teams implementing what they are calling 'equity seat rights' for their stadiums. This marks a possible trendsetting move away from traditional means of financing new stadiums, expansions, and renovations through a combination of corporate sponsorships, taxpayer dollars, and various other loans.

This new model is obviously in its infancy but there are already two willing collegiate participants and possibly already one professional sports team. The University of California-Berkeley is funding their stadium expansion through equity seat right sales. Whoever buys these rights essentially owns their seat(s) in the stadium for up to 50 years, provided they make the payments with interest. It truly is a mortgage for your seat and once you pay for it, you own it. So, let's get this straight: you can now finance your purchase of a little 3 foot by 3 foot area with a seat in it. Upon hearing this, we jokingly thought to ourself, "Gee, does that mean I can just go in the stadium whenever I want and sit in my seat? I mean I own that seat, I can do what I want with it?!" Here's the proposed expansion at the University of Kansas:

(click to enlarge)

The other day the Wall Street Journal provided a new look at this possible phenomenon by writing, "Cal plans to sell about 3,000 seats under the plan and hopes to raise $270 million. The school's best seats cost $175,000 to $220,000 apiece over a 50-year term, while the cheapest sell for $40,000 per seat for a 40-year term."

And yet, even with the woes of subprime default literally right behind us, we can now look forward to the die-hard sports fan mortgaging their life away so they can own that one little seat where their beloved team plays. Obviously, fans will have to be approved for financing in order to secure their seat mortgage. But, athletic programs and teams will be touting this fact to lure potential buyers: you won't have to deal with price hikes. In fact, rising ticket prices would actually be to the buyer's benefit. As the Wall Street Journal writes, "During the life of the seat right, the owner can treat it like a house, selling it at a higher price than he paid. The right is tied to the franchise in any venue and would even transfer to a new city if the team moved, though the seat owner could sell in any situation." Oh, great, just what we need, people to start thinking of their stadium seats as a house with a price that will always rise! That doesn't sound like a recipe for disaster at all, does it? And here's what started it all: Mr. Weisbach, the original propagator of this idea in 2004 said, "Why don't we make seats into condominiums?" Right. A little 3 foot by 3 foot condominium with a seat in it can be yours as long as you pay for it with interest. But remember, prices will go up, up, up, remember? Mr. Weisbach, by the way, is leading the charge of these new equity seat rights as chief executive of the aptly named Stadium Capital Financing Group, which interestingly enough is a subsidiary of Morgan Stanley.

Putting our sarcasm aside for a moment, we had a few initial reactions to this news as it really only makes sense in a few scenarios. Firstly, if you know for a fact that you'll be going to those games for multiple decades, this can potentially make sense to lock-in. The main thing we're unsure of here is if the interest rate is fixed or not, as that would ultimately shift the equation around. Not to mention, you still have to account for price hikes/declines, inflation, and other factors. Secondly, the prime opportunity we see here is with storied teams/franchises that have rich tradition and a history of winning. Naturally, one would think that these seats will be the most highly sought after and the most likely prone to price appreciation due to either supply/demand imbalances or an inflated 'premium' due to the team involved. Speculators, anyone? While this 'buy your seat' setup can make sense to a specific type of fan dependent on the specific team, we can't but help to point out the looming recipe for disaster. Are they really going to market these things like houses that you can 'sell at a higher price than you paid'?

We don't mean to be too cynical or critical of the idea as it is still in its infancy and does offer additional stadium financing opportunity beyond the typical means. The positive here is that it allows athletic programs and teams to secure funding for stadium renovations that they've been seeking for years. Cal's football team has been trying to raise money for the past 25 years to overhaul their stadium. Not to mention, professional teams are always looking for new ways to generate revenue as many can't restructure debt or are losing credit lines due to the crisis. These new equity seat rights are a prime alternative to conventional funding methods. We also see that the University of Kansas is funding their new 3,000 seat luxury stadium addition by selling seats. The equity seat right program is cleverly not labeling interest 'interest,' but instead an 'annual administrative fee' that will tack on an extra 6% to the seat price. To get an idea of the pricing, a seat with 30 years worth of tickets will cost $105,000 each at Kansas, with prices becoming unfrozen after that term. Here's an example of their pricing structure of their premium product 'Gridiron Club':

(click to enlarge)

Yet, despite these high costs, Cal has already sold two-thirds of their available seats from this program and you can't knock that figure. Recession? What recession? While this could be a one-off data point, you can bet more schools and teams will be looking into this option going forward. What will be interesting is to see whether this catches on more in the college sector or in professional sports. The WSJ writes that, "The first professional sports team to try the plan could be Tottenham Hotspur, a London-based English Premier League soccer club that's awaiting government approval to build a new 60,000-seat stadium in pricey North London. The team is currently holding forums with fans to determine what amenities to offer and how much to charge. The mortgage idea is especially attractive in England, where many soccer teams are struggling under large debt loads and where public funding for sports venues is rare."

And that right there is a nice niche that equity seat rights can slide right into. When teams cannot secure funding for their stadiums, they can turn to this new model. It's interesting to see that Tottenham Hotspur could be the first professional team to try this as it reminds us of some very old posts we wrote here at Market Folly. In the past, we had detailed the possibility of investing in alternative sectors by buying publicly traded sports teams. And in a follow-up piece we specifically looked at Tottenham Hotspur as a potential candidate. Now that this sports mortgage model has popped up, it has reminded us of the topic of investing in asset classes investors typically don't have access to.

Unless you're a private equity fund or a billionaire, you typically can't buy sports franchises. While there are a few publicly traded franchises left overseas, the wild majority of teams are not open for the retail investor to go out and buy a stake in. While buying an equity seat right does not buy you a stake in the team directly, it essentially buys you a stake in the team's potential for success. After all, increased success typically would yield increased demand for tickets and would provide reason for price hikes. We are all for providing new asset classes for investors to diversify into. However, the problem here is we're pretty sure you shouldn't look at this as an investment. On one hand, it's technically a very very very tiny piece of real estate, but on the other hand its not an ownership stake in the team. It's probably best to just treat it like what it really is: season tickets to the games... for decades to come.

The main thing to take away here is that the game is possibly changing when it comes to stadium financing. It sounds a bit absurd at first pass, but this could very well catch on and pave the way for a new funding model for sports stadiums. We'll just have to see how well things turn out for the guinea pigs who have shifted to this model in the middle of a troubled economy. It looks like this offering can fill a niche, but only time will tell. Let's just hope the people buying these things aren't fairweather fans that will look to dump their seat should the team start doing poorly. At the same time, it makes us think that instead of shows like 'Flip That House' with mortgage interest rates, we'll start seeing a new series called 'Flip That Stadium Seat.' Hopefully not.

What We're Reading 10/2/09

Interview with Michael Mauboussin: Author, Investor, & Multidisciplinary Thinker [Simoleon Sense]

Are hedge funds worth it? [zero hedge]

No wonder insiders aren't buying their own shares [Pragmatic Capitalist]

United States Oil Fund's (USO) valuation drift [Trader's Narrative]

Jeff Yass & Susquehanna using poker to recruit & train new traders [Texas Holdem Investing]

Some mainstream commodity ETFs diversify holdings [Index Universe]

The rising power of financial blog Zero Hedge [NY Mag]

A little bit older, but we somehow missed this: PIMCO's McCulley Says Bond Bull Market Has Peaked [Bloomberg]

Thursday, October 1, 2009

Dan Loeb's Third Point Files 13G on Energy Partners (EPL)

Hot off the SEC filings press we just saw that Dan Loeb's hedge fund Third Point LLC has filed a 13G on Energy Partners (EPL). In the filing, we see that due to activity on September 21st, 2009 Third Point now has a 9.1% ownership stake in EPL with 3,636,559 shares. This is a new equity position for them as they previously did not own shares as of June 30th, 2009 when we looked at their portfolio via 13F filing. However, this is most likely because they probably owned senior notes on EPL that were recently converted into equity as EPL emerged from Chapter 11. While we can't be 100% certain that this is how they obtained shares, it is the most logical explanation as numerous other hedge funds filed similar 13G's on the same date, implying that they all took part in the equity conversion. One other such fund was Thomas Steyer's Farallon Capital, who we disclosed yesterday now also owns EPL equity.

As noted in our hedge fund performance numbers post, Third Point was up 6.4% for August and 5.1% for September and are now up 27.8% year-to-date. Third Point is a multi-billion dollar hedge fund that has seen annual returns greater than 15% since inception. Manager Dan Loeb focuses on event driven and value oriented investments and recently said he feels "like a kid in a candy store" due to all the distressed opportunities. In his letter to investors, Loeb noted that he liked selective automotive debt plays. For more market insight, we highly recommend checking out Dan Loeb's recommended reading list.

Taken from Google Finance, Energy Partners is "an independent oil and natural gas exploration and production company. As of December 31, 2008, the Company had estimated proved reserves of approximately 90.8 billion cubic feet (Bcf) of natural gas and 21.6 million barrels (Mmbbls) of oil, or an aggregate of approximately 36.8 million barrels of oil equivalent (Mmboe). The Company’s operations are concentrated in the shallow to moderate-depth waters in the Gulf of Mexico focusing on the areas offshore Louisiana, as well as the deepwater Gulf of Mexico at depths less than 5,000 feet. As of December 31, 2008, the Company had working interests in 24 producing fields, primarily located in the Gulf of Mexico region."

Lastly, make sure to watch this video of a recent speech he gave where he details his background and walks us through how Third Point has handled the crisis.

Final Discount to the Value Investing Congress

This is the final discount to the Value Investing Congress so take advantage of it because it expires October 4th! Save $300 right now with discount code N09MF4 before it expires. After that, you'll be stuck paying full retail price for admission to the two-day event. We repeat: This is the final discount and you only have four days to take advantage of it, so act fast!

If you want to hear investment ideas from some of the best hedge fund managers out there, this is the event for you. We've said all along that if you enjoy reading Market Folly, the Value Investing Congress is THE must-attend event of the year. It's not often you get to hear presentations by this many prominent players in the hedge fund game. Once again, the list of confirmed speakers:

  • Julian Robertson, Tiger Management
  • Joel Greenblatt, Gotham Capital
  • Bill Ackman, Pershing Square L.P.
  • David Einhorn, Greenlight Capital
  • Alexander Roepers, Atlantic Investment Management
  • Eric Sprott, Sprott Asset Management
  • Sean Dobson, Amherst Securities
  • Lloyd Khaner, Khaner Capital
  • David Nierenberg, The D3 Family Funds
  • Paul Isaac, Cadogan Management
  • Candace King Weir & Amelia Weir, Paradigm Capital Management
  • William C. Waller & Jason A. Stock, M3 Funds
  • Zeke Ashton, Centaur Capital Partners
  • Kian Ghazi, Hawkshaw Capital Management
  • Whitney Tilson & Glenn Tongue, T2 Partners

Not to mention, it's a ridiculously good networking opportunity given the quality and amount of people that will be there. The Value Investing Congress takes place on October 19th & 20th in New York City. It's at the Marriott Marquis Times Square and they've also secured room discounts if you are coming from out of town, so take advantage of that as well. Remember, this is the final discount and it expires in 4 days. Click here to receive $300 off regular price (discount code: N09MF4).

Raptor Capital's Pallotta Invests In New Hedge Fund

Well, it certainly didn't take long for James Pallotta of Raptor Capital to get back in the hedge fund game. While he's back, it's not quite in the role we thought it would be. Pallotta has decided to invest $10 million in new hedge fund Northern Pines Capital as a limited partner. When he wound hedge fund Raptor down, he noted that he would be taking time away to formulate a new investment strategy. While we expected him to be back in the industry after a brief hiatus, this is a little bit different. Instead of hedge fund manager, Pallotta is now an investor.

While he himself is not going to be managing this money, he certainly knows those who will well, as they used to report to him at Raptor. Former Raptor Capital and Tudor Investment Corp traders Patrick Dunn and Dan Schiff will be opening Northern Pines Capital and will be trading a long/short strategy in public equities, typically holding between 30 and 60 positions. Dunn will focus on the consumer sector while Schiff will focus on basic materials and energy. Hedge fund Tudor Investment Corp was out calling the recent market action a bear market rally and so it will be interesting to see how Northern Pines allocates their initial portfolio given the managers' history at both Tudor and Raptor.

They will be charging a 1.5% management fee and a 15% performance fee, a slight discount from the industry norm of 2% and 20%. But, Northern Pines' performance fee will hit 20% should their fund generate a gross annual return of 10%. And, unlike their former employer Tudor, Northern Pines is avoiding illiquid investments and won't 'gate' investors from making redemptions. You'll remember that Tudor made waves earlier in the crisis for suspending redemptions so they could separate their illiquid investments. The ties between Raptor and Tudor (and now Northern Pines) run deep as Pallotta used to run equities for Tudor then spun-off Raptor for his own hedge fund. Raptor ran $9 billion at its peak and returned over 13.8% a year from October 1st, 1993 until May 2009, net of fees.

Since we like to track hedge funds that spin-off of successful existing firms, we'll follow Northern Pines for a bit and see what we might be able to glean if we get a glimpse of their portfolio. As always, we'll post our findings up in our hedge fund portfolio tracking series. And while Pallotta isn't back in the hedge fund manager seat quite yet, we'll watch the developments there as well.

Harbinger Executes Calpine (CPN) Offering

Our last post on Philip Falcone's hedge fund Harbinger Capital Partners noted that they were offering up shares of their Calpine (CPN) stake. They just filed another amended 13D with the SEC to disclose that the offering was consummated on September 28th, 2009. After the public offering, Harbinger now shows a 15.1% ownership stake in Calpine with 66,980,047 shares. Additionally, Falcone's fund filed a Form 4 with the SEC to disclose the sales of their shares. On the 28th of September, Harbinger sold 20,000,000 shares of CPN at a price of $11.40 in the offering.

This rounds out an absolute flurry of portfolio activity and SEC filings from Harbinger. As always, we've covered them here on the blog and here's their latest slew of activity for those who might have missed some of it:

- Their SkyTerra holding is going private in a new entity that involves Harbinger

- They've sold shares of New York Times (NYT) and Leap Wireless (LEAP)

- Also they have filed a 13D on Spectrum Brands (SPEB)

And of course, they put up a portion of their Calpine stake up for sale, which has now been consummated as detailed above. For the rest of their holdings, check out our post on Harbinger's positions here. Harbinger is a $6 billion hedge fund ran by Philip Falcone. He has roots in distressed investing he likes to focus on proxy fights and bankruptcies by putting a large focus on intensive credit research.

Taken from Google Finance, 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."

PIMCO's Bill Gross Bets On Deflation

Bond manager Bill Gross of PIMCO clearly feels deflation is still a threat. His actions speak louder than any words he might speak given that he has been buying long-term treasuries over the past few weeks. Gross now has 44% of his Total Return Fund's assets in government related bonds, which is the most since August 2004. Back only 3 months ago, Gross had only 25% of the fund in these assets. In doing so, PIMCO and Gross sold some of their mortgage debt.

This is a notable shift because Gross plowed the Total Return Fund's assets into corporate debt earlier in the year as he liked buying debt of companies that had deals with the government as he felt security there. While one could speculate that maybe Gross was just 'taking profits' in corporates as the easy money there has already been made, the force of his move into long term bonds speaks volumes and stamps down an emphatic deflationary viewpoint. Gross feels that there will be a flattening of the yield curve due to deleveraging, deglobalization, and regulation. Such a move in yields would constitute short-term rates rising while long-term rates fall. And as the name implies, this is the complete opposite of curve steepening. In the past, we've covered how numerous hedge funds have had a stark difference of opinion by putting curve steepener trades on. In particular, we just last week focused on hedge fund legend Julian Robertson's curve caps play. So, it's interesting to see the 'battle' here between deflation and inflation, and respectively Gross and Robertson.

In Bill Gross' September commentary, he draws a few conclusions upon which he can focus his strategy around. PIMCO essentially feels that global interest rates will remain low for an extended period of time while markets and economies recover. Drawing on that point, they think that the duration and extent of quantitative easing as well as stimulation efforts will be a crucial factor in determining investment returns. PIMCO likes to 'play on the government's team' in this regard as they favor exploring investments that will benefit or remain secure from government policies. They also think that the dollar will suffer over a longer timeline. Gross is counting on long-term rates coming down as assets are substituted for cash on the sidelines. Basically, he is betting that institutions will look to sell some reflated assets and use cash to take care of debt or refinancing. So, definitely interesting conclusions and you can read the rest of PIMCO's thoughts here. The main thing to take away though is the fact that Gross has a deflationary viewpoint and sees an emphasis being placed on delevering, deglobalization, and regulation.

For more from PIMCO and Bill Gross, you can read his September commentary here and his August commentary here. And for the other side of the argument, make sure you check out our piece on Julian Robertson's inflationary wager. The deflation versus inflation debate continues as more and more warriors enter the ring, placing their bets on the outcome. It certainly will be interesting to see who wins because there are always two sides to a trade. However, the intriguing thing here is that both sides could technically win if the participants are patient through the gyrations in their respective positions and choose ideal exit points as rates and the markets continue to shift. At this stage of the game, anything's possible in these crazy times.

The Next Financial Mania - BCA Research Special Report

Embedded below is an interesting special report from BCA Research. This particular global investment strategy piece is authored by Francis Scotland who is currently Director of Global Macro Research at Brandywine Global Investment Management LLC, a boutique multi-product investment fund. Before Brandywine, Francis founded the publication you'll find below and was its editor from 1996 to 2005 where he provided investment ideas and strategy recommendations.

This 'Next Financial Mania' special report focuses on bubbles and tries to carve out possible candidates for the next bull market. After all, we've seen historically that new bulls arise from the bear market ashes. Francis goes on to depict that there have been various bubbles throughout certain decades such as gold in the 1970's, Japan in the 1980's, the Nasdaq in the 1990's and most recently, crude oil. (Make sure you check out the recent technical analysis video on crude oil we posted up a few days back). Focusing on what possibly could be the next bull market, Francis identifies a few candidates. Firstly, he starts with ideas that are not necessarily the best candidates as he singles out the 'Electrification Of Transport,' 'Gold and Inflation,' and 'Energy and Commodities'. However, he disregards them for the time for a tentative conclusion of possible bull markets in emerging market equities and real estate. This piece is macro thinking and research at its finest as speculators attempt to identify and profit from the next major shift in the world and subsequent markets. We highly enjoy reading macro research and have often posted up the thoughts of hedge fund Clarium Capital, including their most recent research commentary, 'Save Now, Invest Later.' This is the first time we've posted up anything from BCA Research, so hopefully you enjoy the document embedded below:

*Update, the report was removed per request of representatives from BCA Research

However, persistent readers can attempt to download the .pdf here or potentially find a copy of it on Scribd. While there is some prudent research included within the report, the idea of emerging market equities as the next bull market is by no means a new theme. However, Francis builds up his rationale nicely so it's an interesting read. Overall, it's intriguing to speculate what trends will arise from this bear market's remains when it is all said and done. While Francis has focused on future trends, we also posted up a report for those of you who might be interested in current trend and strategies. Head to our post on Goldman Sachs' current long & short strategies to check those out.

Wednesday, September 30, 2009

Hedge Fund Farallon Files 13G On Energy Partners (EPL)

Wednesday after market close, Thomas Steyer's hedge fund Farallon Capital filed a 13G on Energy Partners (EPL). In it, they have disclosed a 12.3% ownership stake with 4,903,423 shares. The filing was made due to activity on September 21st, 2009 and this is a brand new equity position for them. They did not hold an equity position in Energy Partners back on June 30th when Farallon disclosed their portfolio in their 13F filing. However, it is extremely likely that Farallon held senior notes that were converted into equity recently as EPL emerged from Chapter 11. While we can't be 100% certain of that, it is the most logical explanation as numerous other hedge funds have disclosed similar 13G's on the same date, implying that they all took part in the equity conversion a few days ago. This action comes right after we saw Steyer's hedge fund adjust their Capitalsource (CSE) position yesterday.

Farallon is a $1.5+ billion hedge fund founded by Thomas Steyer in 1986. They usually invest in equities, private investments, debt, and real estate. While they have a solid track record, 2008 was definitely a chink in the armor. After receiving redemption requests for almost 25% of their main fund's capital, they suspended withdrawals. Their poor 2008 also put them on the dreaded list of the top 10 asset losers. Read more about Farallon in our post about their background and positions.

Taken from Google Finance, Energy Partners is "an independent oil and natural gas exploration and production company. As of December 31, 2008, the Company had estimated proved reserves of approximately 90.8 billion cubic feet (Bcf) of natural gas and 21.6 million barrels (Mmbbls) of oil, or an aggregate of approximately 36.8 million barrels of oil equivalent (Mmboe). The Company’s operations are concentrated in the shallow to moderate-depth waters in the Gulf of Mexico focusing on the areas offshore Louisiana, as well as the deepwater Gulf of Mexico at depths less than 5,000 feet."

Goldman Sachs Presentation: Market Structure Overview (September 2009)

The fine folks over at Business Insider have obtained a copy of Goldman Sachs' September presentation on the overall market structure these days. The topics covered include short selling, dark pools, high frequency trading, and more. (Primer on high frequency trading for those unfamiliar here). This is a broad overview of the markets and you can check it out embedded below or you can download the .pdf here.

This presentation comes in contrast with the other two we've covered on the blog. If you're looking more for strategy and analysis, we've covered the best long & short strategies for the current market from their perspective. Additionally, turning more to our focus on hedge fund portfolios, we've posted up Goldman's hedge fund trend monitor which looks at what positions have the highest hedge fund presence.

Here's the market structure overview:

Tuesday, September 29, 2009

Thomas Steyer's Farallon Sells Capitalsource (CSE) Shares

In an amended 13D filed with the SEC after the close yesterday, Thomas Steyer's hedge fund Farallon Capital has updated their stake in Capitalsource (CSE). The filing was made due to activity on September 17th, 2009 and they now show a 5.7% ownership stake with 18,576,341 shares. This is down from their previous stake as they have sold 8,084,981 shares (or about 2.5% of their ownership stake) since August 14th of this year. While we don't like to speculate as to why a fund might be selling a particular security, it wouldn't be out of the ordinary for them to solely be locking in some profits here as the stock has enjoyed quite a healthy run. CSE is interesting because as we've noted in the past, fellow prominent hedge fund player Seth Klarman has invested a lot of his Baupost Group's cash into Capitalsource as well. We'll continue to watch their movement in this name. In terms of other notable activity, we also saw Farallon update their position in Global Gold (GBGD). Additionally, head over to our post to check out the rest of Farallon's portfolio.

Farallon is a multi-billion hedge fund founded by Thomas Steyer in 1986. They usually invest in equities, private investments, debt, and real estate. While they have a solid track record, 2008 was definitely a chink in the armor. After receiving redemption requests for almost 25% of their main fund's capital, they suspended withdrawals. Their poor 2008 also put them on the dreaded list of the top 10 asset losers.

Taken from Google Finance, Capitalsource is "a commercial lender that provides financial products to middle market businesses. Through its wholly owned subsidiary, CapitalSource Bank, the Company provides depository products and services in southern and central California. It operates through three segments. The Commercial Banking segment comprises the Company’s commercial lending and banking business activities. The Healthcare Net Lease segment comprises its direct real estate investment business activities. The Residential Mortgage Investment segment comprises the Company’s remaining residential mortgage investment and other investment activities, in which it formerly engaged to optimize its qualification as a real estate investment trust."

Shumway Capital Partners Jumps Into Bank of America (BAC), Joining Other Hedge Funds in Q2 (13F Filing)

This is the second quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out our series preface on hedge fund 13F filings.

It's been a week or two since we last checked in on 13F filings and our apologies for those of you anxiously awaiting the next installment. Unfortunately, there has been such a slew of 13D and 13G filings from various funds we track that we have been swamped. However, we are here again to cover a few more funds via 13F to give you an entire portfolio snapshot of their long US equity positions. The last manager we covered in our 13F analysis was Bret Barakett and Tremblant Capital Group. This time around, we'll kick it back off with Chris Shumway's hedge fund, Shumway Capital Partners.

Chris Shumway runs a $5 billion hedge fund and is best known for intensive fundamental research to create long/short equity portfolios. He is a 'Tiger Cub' because he formerly served as Julian Robertson's right-hand man while at Tiger Management. Taken from our post on 'Tiger Cub' biographies, "Chris Shumway is the Founding Partner of Shumway Capital Partners (“SCP”), an investment management firm founded in 2001. SCP, which manages a multibillion dollar group of private investment funds, uses a private equity-like research model for public market investment on a global basis. Prior to forming SCP, Mr. Shumway was a Senior Managing Director at Tiger Management (1992-1999), an Analyst at Brentwood Associates (1990-1991), and an Analyst at Morgan Stanley & Co. (1988-1990). He received an M.B.A. from Harvard Business School (1993) and a B.S. from the McIntire School of Commerce at the University of Virginia (1988)." Shumway has an impressive track record since inception and has a rolling 3 year annualized return of well over 28%. Using this metric to rank hedge funds, Shumway's performance landed them at #11 in Barron's top 100 hedge funds for 2009.

That performance speaks for itself and we are proud to include Shumway in our custom Market Folly portfolio which invests in hedge fund holdings. Our unique hedge fund clone has seen a total return of over 500% since 2000, compared to a return of only -18.4% for the S&P 500. We created the portfolio with Alphaclone and combined 3 top hedge fund managers into one cohesive portfolio that is seeing fantastic results. Shumway is definitely a big part of those results and so let's see what their portfolio holds this time around.

The following were their long equity, note, and options holdings as of June 30th, 2009 as filed with the SEC. We have not detailed the changes to every single position in this update, but we have covered all the major moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated in the last quarter):
Bank of America (BAC), Apple (AAPL), Priceline (PCLN), Baidu (BIDU), Wells Fargo (WFC), Urban Outfitters (URBN), Research in Motion (RIMM), Allstate (ALL), Community Health (CYH), Universal Health (UHS), Monsanto (MON), Juniper Networks (JNPR), Waters (WAT), Entergy (ETR), Annaly Capital (NLY), Bank of America (BAC) Calls, D&B (DNB), Goldman Sachs (GS), Crown Castle (CCI), Equinix Bonds, Las Vegas Sands (LVS), Covance (CVD), Novo Nordisk (NVO), Cisco Systems (CSCO) Calls, Netease (NTES), & Blackboard Bonds.

Some Increased Positions (A few positions they already owned but added shares to)
NII Holdings Bonds: Increased by 130% - but still only 0.32% of overall reported assets
SBA Communications (SBAC): Increased by 100.6%
Partnerre (PRE): Increased by 96%
Union Pacific (UNP): Increased by 71.6%
Renaissance Re (RNR): Increased by 58.3%
Mastercard (MA): Increased by 41.2%
EMC (EMC): Increased by 27%
Equinix (EQIX): Increased by 22.7%
Cisco Systems (CSCO): Increased by 18.7%

Some Reduced Positions (Some positions they sold some shares of)
Wyeth (WYE): Reduced by 92.8%
Visa (V): Reduced by 60.6%
CVS Caremark (CVS): Reduced by 31.6%
Teva Pharma (TEVA): Reduced by 27.2%
Qualcomm (QCOM): Reduced by 21.3%

Removed Positions (Positions they sold out of completely)
Microsoft (MSFT)
American Tower (AMT)
Walmart (WMT)
Zimmer Holdings (ZMH)
Disney (DIS)
Costco (COST)
iShares Emerging Markets (EEM)
JPMorgan Chase (JPM)
Hudson City Bancorp (HCBK)
International Game Technology (IGT)
Potash (POT)
Equinix Bonds
SBA Communications Bonds

Top 15 Holdings by percentage of assets reported on 13F filing *(see note below regarding calculations)

  1. Bank of America (BAC): 7.2%
  2. Mastercard (MA): 6.95%
  3. Cisco Systems (CSCO): 6.65%
  4. Teva Pharmaceuticals (TEVA): 5.74%
  5. St Jude Medical (STJ): 4.6%
  6. Apple (AAPL): 4.43%
  7. Equinix (EQIX): 4.2%
  8. EMC (EMC): 4.2%
  9. Priceline (PCLN): 3.4%
  10. CVS Caremark (CVS): 2.97%
  11. Qualcomm (QCOM) Calls: 2.9%
  12. Baidu (BIDU): 2.8%
  13. Pfizer (PFE): 2.8%
  14. Union Pacific (UNP): 2.7%
  15. Wells Fargo (WFC): 2.7%

What sticks out right away about Shumway's portfolio is the fact that they added Bank of America (BAC) as a brand new position and brought it all the way up to their top holding. Not to mention, they also added call options on the name and even opened a position in Wells Fargo (WFC) too. With that, Shumway now joins the countless other prominent hedge funds involved in the financials trade over the past quarter. We want to insert a note of caution not to necessarily read too much into this for a few reasons. Firstly, this could have been purely a trade and they could possibly have already sold some (or all) of the position. Secondly, since their 13F shows their positions as of June 30th, a solid 3 months have elapsed since this disclosure and you need to be cognizant of this. Shares of BAC are up over 30% since the end of June. We're simply here to share the data and many are questioning as to whether or not many of these prominent hedge funds will just trade these financial positions or hold them for a longer period of time. Unfortunately, we'll just have to wait and see. They also added brand new positions in Apple (AAPL) and Priceline (PCLN) and brought those stakes up to the 6th largest and 9th largest holdings respectively. These names definitely fit the bill as part of a 'typical hedge fund portfolio' as noted when Goldman Sachs examined hedge fund holdings.

In terms of positions they already held, they boosted their #2 holding Mastercard (MA) by over 40%. Additionally, they upped their Union Pacific (UNP) stake by over 70%. On the selling side of things, they reduced their 4th largest position Teva (TEVA) by almost 30% and they cut their CVS Caremark (CVS) stake by over 30%. Other sales worth highlighting are their distribution of 60% of their Visa (V) position and the fact that they also dumped over 90% of their Wyeth (WYE) position. Their Visa movement is all the more interesting when you combine that with what they did with Mastercard. It appears that they favor MA over V, at least for now. This is intriguing because typically, the hedge funds we track have owned roughly the same amount of both the payment processors.

Some notable names they sold completely out of include former holdings Microsoft (MSFT), American Tower (AMT), and Walmart (WMT). Overall though, due to their increase in assets, Shumway was out adding a bevy of brand new positions in the second quarter. That about wraps up all the major moves in their portfolio. For more on Shumway's performance and how you can replicate their portfolio, check out our Market Folly custom portfolio.

*Note regarding portfolio percentages: Assets from the collective holdings reported to the SEC via 13F filing were $4.4 billion this quarter compared to $3.1 billion last quarter, so quite a noticeable uptick in holdings. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. In reality, the percentages are more watered down in their actual hedge fund portfolio. If you were to calculate percentage weightings in the actual hedge fund, they would obviously be lower since you would divide position sizes by their total assets under management (a larger number than the one reported on the 13F).

This is just one of the 40+ prominent funds that we'll be covering in our Q2 2009 hedge fund portfolio series. So far, we've already covered the holdings of Bill Ackman's Pershing Square Capital Management, David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Dan Loeb's Third Point LLC, and Stephen Mandel's Lone Pine Capital, George Soros (Soros Fund Management), Lee Ainslie's Maverick Capital, Philip Falcone's Harbinger Capital Partners, David Stemerman's Conatus Capital, Eric Mindich's Eton Park Capital, John Griffin's Blue Ridge Capital, Thomas Steyer's Farallon Capital, Boone Pickens' BP Capital Management, Ken Griffin's Citadel Investment Group, and Bret Barakett's Tremblant Capital Group. Check back each day as we cover prominent hedge fund portfolios.

Two Reasons It's Time To Short Stocks

The following is a guest post by Martin Hutchinson, Contributing Editor of Money Morning.


The stock market is up 51% from its March 9 lows. The leading economic indicators have turned sharply positive, showing gains for each of the last four months. Manufacturing is on the rebound. And banks are promising to pay record bonuses, as their earnings have rebounded.

With this recent rush of upbeat economic news, it’s no wonder commentators are trumpeting the rebound of the U.S. economy.

But I think it’s time to short U.S. stocks.


Don’t be.

What most experts see as a strengthening U.S. rebound, I see as an increasingly dangerous “false dawn” – for these two key reasons:

  • An overly expansive monetary policy that’s almost certain to spawn inflation.
  • And a record-level budget deficit that will cause interest rates to spike, crimping economic growth.

A Foundation for Trouble

U.S. policies that were intended to combat the financial crisis that broke last year – as well as the recession that’s been plaguing us since December 2007 – have actually inflicted a lot of weakness upon our economic system.

For instance, the federal government has made $11.6 trillion in financing commitments, many of which will saddle us with debt for generations – some of it forever. Outlays of that magnitude in a $14 trillion economy are bound to have lasting implications: Think of the consumer who has a series of maxxed-out credit cards – he’ll make the minimum payments, but the actual balance will never get paid down.

And the foundation for this financial fiasco was actually constructed several years ago.

After the bursting of the 1996-2000 “dot-com” bubble, the U.S. Federal Reserve re-inflated the money supply. That caused stocks to resume their upward march, and as we now know, also inflated a housing bubble of such enormous size that it caused a general financial-system crash when that real estate bubble burst in 2007-08.

This time around, the Fed has been even more expansive. The benchmark Federal Funds Rate was 1.0% in 2002-04. This time it is 0.25%. What’s more, this time around we’ve had a $2 trillion expansion of the Fed balance sheet, a doubling of the monetary base and $300 billion worth of direct central bank purchases of government debt. Given this orgy of Fed expansionism, it’s likely that the onset of inflation – whether it’s in consumer prices or asset prices – will be correspondingly worse. In fact, we’re already seeing that gold prices are once again making a run at their all-time high. And crude oil hovers at about $70 per barrel, a level that would have been unimaginable before 2004.

Now that he’s been nominated for reappointment, U.S. Federal Reserve Chairman Ben S. Bernanke says he will tighten monetary policy in good time. But why should we believe him? If he tries to tighten significantly, he will incur the wrath of the Obama administration and the Democrats in Congress.

Even back during the 2001-04 time frame – when there was an administration in place that claimed to believe in monetary stringency – the Fed didn’t tighten. Bernanke himself was among the most aggressive opponents of tightening. Back in 2002, in fact, when inflation was running at a perfectly respectable 2%, Bernanke actually spun myths about the imminent onset of “deflation.”

Given what we know, it seems that if the current economic bounce shows even the slightest signs of faltering, Bernanke won’t tighten – he’ll pump even more money into the U.S. financial system. Rest assured that the administration, Congress, and much of the media will be cheering his move.

Borrow Now, Hurt Later

If an overly expansive monetary policy was the only problem we faced, it might not be so bad. Unfortunately, there’s more.

Lots more.

Unlike in 2002 – in fact, unlike any other time in U.S. history – this country now has a budget deficit in excess of 10% of gross domestic product (GDP). For fiscal 2009, that was forgivable: We’ve had a major recession, and a shattering financial crisis, which the federal government has tried to battle with aggressive bailout programs.

Here’s the problem, however: The projected deficit remains above 10% of GDP for fiscal 2010, even though no additional bailouts are contemplated and the Obama administration is projecting a modest-but-steady economic recovery.

The result is harder to predict – this country hasn’t travelled down this particular path before. This strategy bears some resemblance to the position Japan found itself in during its so-called “Lost Decade” of the 1990s. But even Japan’s deficit never reached this 10% threshold.

In Japan, the effect seems to have been the gradual abandonment of small business finance, and the resulting starvation of the most critical factor in economic growth – entrepreneurship.

The small-business sector creates most of the new jobs in the U.S. economy. But in a challenging environment, it’s easy to see why this sector gets overlooked. Without political connections or large contracts to hand out, the small-business sector ends up being last in line in the financing queue when the economy faces strong headwinds. Why should banks or other people lend to small businesses when the U.S. government bond market stands as such as huge, safe parking place for their cash?

Interest rates will also become an issue. With the inflationary pressures we expect to see from the overly expansive monetary policy we’ve described, long-term interest rates are likely going to rise anyway. As was the case in Japan’s decade-long malaise, these forces will combine to spark high default rates in the banking system, low or zero economic growth, and a general downward trend in the stock market.

All of this will make it tough for small businesses to obtain the cash they need to grow, meaning this key job-creation engine will have to sputter along.

It’s still early in the game, and there are many factors to consider, so the future economic picture remains a bit murky right now. But my guess is that the bubble in asset prices will be largely confined to commodities, that economic growth after this current initial burst will relapse, and that U.S. stocks will prove to be the same generally unattractive investment that they were in 1970s – the era of the so-called “Nifty Fifty.” If the stock market bubble gets even more exuberant from here, the relapse will be correspondingly more painful.

Profitable Pockets

Despite this dour backdrop, three things are worth remembering:

  • First, all U.S. stocks are not created equal. Although I’m saying it’s time to short U.S. stocks, and I see tough times ahead for the key indices, there will always be individual stocks worth consideration, such as the “Alpha Bulldog” stocks I highlight in the Permanent Wealth Investor service.
  • Second, the best way to play this looming downdraft – either as a direct profit opportunity or as a way of hedging your current portfolio – is through the use of what I like to call “Stage 3″ investments. An example of one such investment is long-dated “put” options on the Standard & Poor’s 500 Index, which trade on the Chicago Board Options Exchange. If you buy these options when they are way “out of the money” with a strike price far below the current price, in a real bear market (like that of 2007-09), you will see them really zoom up in value as the S&P drops down closer to the strike price, or possibly even falls below it.
  • And third, understand that my pessimism about the U.S. market doesn’t apply to every other market around the world. While the monetary problems are more or less global, the budget-deficit problems are not. For instance, you might want to consider investments in Japan, where a recent election should spawn the kind of economic changes that will benefit savvy investors. Germany, too, looks to have avoided the contagion of “stimulitus,” which is why its economy is now viewed as one of the healthiest in Europe. Consider the iShares exchange-traded fund (ETF) entry for each of those two markets: The iShares MSCI Japan Index Fund (NYSE: EWJ) and the iShares MSCI Germany Index Fund (NYSE: EWG). They each warrant a look.

The above was a guest post by Martin Hutchinson, Contributing Editor of Money Morning.

Jeffrey Saut Investment Strategy (Raymond James) - 9/28/09

It's been a long while since we last covered the investment strategy of Jeffrey Saut from Raymond James and we thought we'd pick it up again. Here is his latest piece just released yesterday entitled, 'Zebras!?' While the title is a bit strange, it makes sense once you read his piece where he likens portfolio managers to Zebras just waiting to be eaten by the Lions. Saut is Raymond James' chief investment strategist and managing director.

Embedded below is his weekly note.

Additionally, you can download the .pdf here.

Monday, September 28, 2009

Crude Oil Breaks Trendline (Technical Analysis)

We haven't looked at crude oil in a while from a technical perspective so we figured it'd be worth a look as the guys at MarketClub analyze it in this crude oil video. They highlight a trendline in crude from the lows in March until September. They note a trend break here just recently which signals crude could trade lower in the near-term.

They also pull up a fibonacci retracement on crude oil from the lows of March until the highs in August and notice that the 50% retracement could be a pivot point for crude as it has already acted as support for the commodity once before back in July. Check out their analysis here. And if you're unfamiliar with fibonacci, learn about it in this video as it's a useful technical analysis tool).

Hedge Fund News Summary: September Edition

Welcome to the latest iteration of our hedge fund and market guru news summary. We've made habit of compiling odds and ends in hedge fund land as of late in order to present them in easy to digest quick hits. You can check out our August hedge fund news here as well as our July update here. Moving on now to September, we see some interesting bits presented below.

Hedge funds: In general, we saw about $19 billion flow into hedge funds for the month of August. This is an increase of 2.56% as total hedge fund assets are now around $1.89 trillion. Also, according to hedge fund research, the number of liquidations declined in the second quarter, as only 292 funds closed (a decrease of 22%). It is cited that strong performance is a main contributor to this number dropping, which obviously makes sense. However, as evidenced with some other news items below, some funds are still having problems with redemptions. Some of the most notable closures include William von Mueffling's Cantillon Capital who will be converting to a long-only shop, Satellite Asset Management, as well as Art Samberg's Pequot Capital, all of whom we've covered on the blog before. Yet some of the major names have been receiving inflows including Steven Cohen's SAC Capital, Och-Ziff Capital Management, and Louis Bacon's Moore Capital Management. We also got word that Paul Tudor Jones' hedge fund Tudor Investment Corp has paid off some of its redeeming investors after suspending redemptions last year when they split the fund into two, to separate the illiquid assets. However, they still have more redemptions to meet. Lastly on the hedge fund news-front in terms of regulation, we see that the SEC will urge more public disclosure if Congress can push through plans to make sure all register with the regulatory body.

Peter Thiel's Clarium Capital: Tough times continue at this global macro hedge fund as we see they were down 8% for the month of September as of the first two weeks. Year to date as of that timeframe, Clarium has lost 15.6%. They recently cut leverage down from 4.2 : 1 to 1.4 : 1. We recently presented their August market commentary entitled, 'Save Now, Invest Later.' In that article we noted the continuing theme we see with Clarium: lack of performance. They have great research and seemingly interesting ideas, but they don't translate well into trading strategies. Their assets under management, which previously topped $6 billion, are now well below $2 billion. However, Clarium is still up 270% since inception. We'll continue to watch the developments with interest.

Goldman Sachs: They were out a bit ago with a report on possible strategies being used by hedge funds in this current market landscape. The report was dubbed 'best current long & short strategies' as they proposed shorting REIT equities, shorting the Japanese Yen, and shorting the crack spread amongst other ideas. We covered the entire set of strategies in our post on possible long & short strategies.

Sticking with Goldman for a second, they also released their hedge fund trend monitor report which examines the same thing we do here at Market Folly: hedge fund portfolios. They took a gander across hedge fund land and presented the most widely held stocks amongst hedge funds. A lot of the typical names like Apple (AAPL), Wyeth (WYE), Qualcomm (QCOM) appeared, but you'll be surprised at some of the other names that made the list. They also highlight the massive flux of hedge funds into financials over the second quarter, particularly into Bank of America (BAC).

Endowments: Big name endowments had a rough year as both Harvard and Yale reported losses over the past fiscal year. Harvard cited private equity and hedge fund problems as they lost 27.3% and now manage $26 billion. Yale lost almost 30% and now manages around $16 billion, as they were still finishing their tally. Harvard's decline is the biggest in 40 years and manager Jane Mendillo plans to use less outside managers and instead run more money internally. Matching up to their benchmarks, Harvard did well with their equity and real estate assets as those beat their benchmark. However, their allocations to private equity and hedge funds underperformed benchmarks significantly. University of Pennsylvania's endowment was down less than Harvard and Yale, but still lost 15.7%. While they have struggled like the majority of the market, endowments seemed to have outperformed over the long haul. As a primer on endowment investing, we highly recommend Mebane Faber's book, The Ivy Portfolio if you haven't yet checked it out.

Oaktree Capital Management: One of the widely monitored distressed debt firms out there previously sent out an investor letter in which they detailed their fondness for senior loans. Here is the letter embedded below:

Carl Icahn: We haven't covered him as much lately due to the influx of other activity we've seen so here's a good chance to take a brief look at recent moves. We see that Icahn has sold 12.7 million shares of Yahoo (YHOO) in the last few days of August and his ownership stake now sits at 4.5%. He sold the shares at prices of $14.74 and $14.93 and he originally bought his YHOO stake at around $25 per share. Icahn cited the sales as 'portfolio rebalancing' in terms of his technology holdings. He has also said that he remains optimistic about his YHOO position due to the Microsoft partnership and the managerial guidance of Ms. Bartz. For our previous coverage of Mr. Icahn, we've noted his purchase of Tropicana casino.

Third Avenue: Marty Whitman's firm is shifting its focus partially to the distressed arena as they look to open a Focused Credit Fund. The fund will focus on credit, as well as distressed and value equity investing and will be run by Jeff Gary (former head of high-yield and distressed investments at BlackRock). Additionally, we've embedded below Third Avenue's latest shareholder letter where Whitman addresses market outlook, lessons learned, as well as the best places to invest in 2009. Here is Third Avenue's latest letter:

Alternatively, you can download the .pdf of the letter here. Hat tip to Todd Sullivan's for bringing this to our attention. Additionally, you can see Third Avenue's previous letter here.

Bill Hwang's Tiger Asia: One of the 'Tiger Cub' funds has been facing some insider trading accusations according to a Hong Kong regulator back in late August. Bill Hwang's hedge fund Tiger Asia was accused of insider trading and market manipulation as the regulators sought to freeze 29.9 million HK Dollars worth ($3.9 million) of Tiger Asia's assets. This is the amount equivalent to their gains from trading shares of China Construction Bank Corp. Apparently Tiger Asia was notified about a planned sale of Construction Bank shares by Bank of America and were told the size and discount rage of the share offering. Tiger then shorted 93 million shares of Construction Bank before this placement occurred. The courts were seeking to freeze these assets of Tiger's and we'll continue to update as court hearings dictate. While we don't track Tiger Asia in particular, we do track numerous other of these funds on the blog and you can see a 'Tiger Cub' family tree here.

Vicis Capital: Ex-Lehman trader John Succo has had it rough recently. He has halted withdrawals from his $2.9 billion fund after they received more than $540 million in redemption requests. What's shocking is that this still comes after they've already seen $2.7 billion redeemed back in the hedge fund redemption crisis. They are down 12% year to date and focus on volatility strategies.

Touradji Capital: Here's something you don't see everyday. Hedge fund Amaranth has sued Paul Touradji's hedge fund for what they claim to be 'breath of contract and misappropriation of trade secrets.' Amaranth of course blew up 3 years ago after a massive trading loss on natural gas, losing well over $6 billion. You can see Amaranth's previous investor letter on the blog as well.

Och-Ziff Capital Management: As we mentioned above, Och-Ziff has begun receiving inflows this year. This also comes on the heels of the news that the $22 billion firm has surpassed their high water mark and can now start earning their performance fee again. As of the end of August, their Master Fund was up 17.6% for the year after finishing 2008 down 15.9%. They received $200 million in inflows in August and received praise last year for not halting redemptions like many of their colleagues were forced to. Och's European fund was up 11.78% for the year as of August and their Asian fund was up 24% over the same timeframe.

Rothschild: They are planning on raising a $700 million (500 million euros) investment fund that will be run by managing director Marc-Olivier Laurent. They will seek to invest in companies valued between 100-500 million euros.

Stephen Feinberg's Cerberus Capital Management: While this is slightly older news (end of August), we never touched on it on the blog and wanted to make sure we highlighted it. Cerberus saw massive redemption requests over the past few months as over 71% of their investors in 2 of their funds wanted their money moved to a new vehicle that could liquidate hard-to-sell positions as the market moves along. It is understood that the vast majority of these requests came from fund-of-funds. Cerberus was down 24.5% last year, most notably due to its position in Chrysler as they manage almost $20 billion and focus on distressed investments. Clients who keep money with Cerberus won't have to pay performance fees until all the losses are recouped.

Julian Robertson: The Tiger Management founder and hedge fund legend was back on TV for his once-a-year marquee appearance and he was out talking about inflation and curve steepeners again. However, this time around, he has tweaked his play to focus only on long-term rates as he sees curve caps as the best way to play this. This brief paragraph is obviously too short to detail the extent of the investment and as such we've done so in an entire post on Julian Robertson's play here.

That wraps up this September edition of our hedge fund news summary. Be sure to also take a glance at our other post today on some hedge fund performance numbers too. And as always, check back daily for our hedge fund portfolio tracking series.