Friday, February 5, 2010

Market Folly Custom Portfolio: January Performance

As always, we're back with our monthly transparent performance update on the Market Folly custom portfolio we created with Alphaclone. Our goal is to replicate hedge fund portfolios by combining some of their holdings into a cohesive portfolio.

January 2010
MF: -3.4%
S&P: -3.6%

December 2009
MF: +4.0%
S&P: +1.9%

Backtested performance figures:

If you had been mimicking the holdings of these top hedge funds since inception in January of 2000, here's what your theoretical returns would have looked like:

Total Return
MF: +862.1%
S&P: -9.6%

MF: +24.9%
S&P: -1.0%

Alphaclone currently has a free 14-day trial so take advantage of it to see what positions the portfolio currently holds and to replicate hedge funds on your own. Keep in mind that our portfolio is set to rebalance here in a few weeks too. If you're unfamiliar with the premise of the portfolio, check out our introduction.

Hedge Fund Panel: Credit Opportunities In The Current Environment (Lasry, Altman, Eberts)

This is the last article in a series on the hedge fund panels that recently took place. Over the past few days, we've covered an introductory post that outlined key takeaways from the event and a separate post that detailed the "Case For Global Equities in 2010" from a panel of prominent long/short equity hedge fund managers. Additionally, we highlighted the hedge fund manager panel on the global investment landscape in 2010 as well as the discussion of alpha in asset allocation.

The last hedge fund panel we're covering includes thoughts from Anchorage Advisors' Kevin Ulrich, Avenue Capital's Marc Lasry, Goldman Sachs' Kenneth Eberts, and Owl Creek's Jeffrey Altman.

Credit Opportunities In The Current Environment: Where Do We Go From Here?

The panel agreed that 2009 was fueled by liquidity. They note that the easy money has been made and many situations actually played out very fast. The cycle is not over; there is more to come and there was disagreement as to where the most opportunity was: mid-caps or large credits that are restructuring.

Marc Lasry (Avenue Capital): Lasry thinks that the large cap opportunities are gone for 2010 and that mid-caps provide the best opportunity as there is still $1 trillion to be re-financed there. Avenue really likes restructurings and is adding to their staff to take advantage of it. Lasry thinks that middle market companies are discounted since there's not much liquidity (banks aren't providing them capital). He mentioned that in 2009 you "had" to be invested and you can tell who did well from a credit perspective by looking at the returns. Avenue's international fund was up 66% last year as detailed in our post on 2009 hedge fund performance numbers.

Jeffrey Altman (Owl Creek Asset Management): Altman and Owl Creek are contrarians by nature and think the opportunities will be in one-off's rather than entire sectors like it was in 2009. They see opportunity in finance and healthcare because many other investors aren't fond of those arenas as they are filled with volatility. Last year, they mainly focused on process driven trades and as those are maturing, they're interested in moving forward with LBO's that needed restructuring. Right now they have tail hedges on via S&P puts and CDS because they are worried that if there is another economic/financial problem that the government won't be able to do much since rates are already at 0%. Overall though, Altman sees opportunity for those with capital to deploy as private equity firms and banks are doing less in the arena.

Kenneth Eberts (Goldman Sachs): Eberts mentioned that Goldman Sachs Investment Partners was heavily invested in capital structure arbitrage in 2009 as they thought it was the best way to own the economic tails (buy equity, short debt). Moving to 2010, they are honing in on the short side in investment grade as they feel it is the 'worst priced' since it's the tightest. He notes that if everything is fine and dandy in the world, they won't move much. However, if we start to see problems again, these will be seen as mis-priced and will fall hard. Lastly, he thinks that if China doesn't buy the excess Treasuries supply coming to market in 2010 that you could see a credit widening.

Kevin Ulrich (Anchorage Advisors): Ulrich focused on how the liquidity-driven 2009 is a thing of the past and that there are still opportunities on the long side in the distressed segment. Anchorage likes cyclicals near-term as there is an opportunity to benefit from financial and operational leverage. He mentions that credit default swaps (CDS) are still the best way to short, but notes they have definitely become less liquid. However, he does think a clearing house would be an improvement.

That ends the coverage of the conference. Head to all the posts on the hedge fund panels including:

- The Case For Global Equities in 2010

- Is There Alpha in Asset Allocation?

- The Global Investment Landscape in 2010

- Key Takeaways From The Event

What We're Reading ~ 2/5/10

Lots of hedgies added PFE, so here's the case for Pfizer (PFE) [Contrarian Edge]

Falcone makes a killing on new Harbinger fund launch [Teri Buhl]

The gold supercycle [INO]

We're honored to be included in the top 6 resources for piggyback investing [New Rules Of Investing]

Hedge fund manager Peter Lupoff on confirmation bias [Distressed Debt Investing]

Mutual fund firm Vanguard files for hedge fund [FINalternatives]

Why you won't see interest rate hikes in 2010 [EconBrowser]

Top ten hedge fund launches of 2009 [HedgeCo]

Another 2010 market outlook [AlphaNinja]

Thursday, February 4, 2010

Buffett's Berkshire Hathaway Sells More Moody's (MCO)

In a SEC Form 4 filed just now, Warren Buffett's Berkshire Hathaway (BRK.A / BRK.B) has disclosed that they sold 6,201 shares of Moody's (MCO) on February 2nd at a weighted average price of $28.4566 per share. Berkshire still owns 31.8 million shares, where 16 million of those are owned by National Indemnity Company, and 15.7 million of which are owned by GEICO, both subsidiaries of Berkshire Hathaway.

This marks the umpteenth time that Buffett has sold shares and we detailed his sales as recently as late December. Additionally, Berkshire also sold shares in early December, had previously sold Moody's shares in late October, and in months prior as well. As you can see, he is obviously reducing his position size methodically and we've noticed a pattern with his sales. Each time shares of MCO hit the $25-$30 range, he unloads some. We'll have to see if this trend continues because keep in mind, he still owns over 31 million shares.

In Whitney Tilson and hedge fund T2 Partners' annual letter, we saw that they were short Moody's (among other names). Hedge fund colleague David Einhorn & Greenlight Capital are also short MCO. In Einhorn's recent investor letter, he mentioned how this short position has been causing them pain, but they still feel Moody's faces headwinds. Buffett has to be at least somewhat worried about the business going forward as he continues to shed shares on a frequent basis.

Taken from Google Finance, Moody's is "a provider of credit ratings and related research, data and analytical tools, quantitative credit risk measures, risk scoring software, and credit portfolio management solutions and securities pricing software and valuation models. The Company operates in two segments: Moody’s Investors Service (MIS) and Moody’s Analytics (MA)."

Hedge Fund Panel: Is There Alpha In Asset Allocation? (Och, Mindich, Singh & More)

We're moving along in coverage of the hedge fund panels that recently took place. Yesterday there was coverage of key takeaways from the event and the "Case For Global Equities in 2010" from a panel of prominent long/short equity hedge fund managers. Additionally, there was a hedge fund manager panel on the global investment landscape in 2010.

Next up are the thoughts of Eton Park's Eric Mindich, Highbridge Capital's Glenn Dubin, Highfields Capital's Jonathon Jacobson, Och-Ziff Capital Management's Daniel Och, and TPG-Axon's Dinakar Singh from the panel on:

The Art of Multi-Disciplinary Investing: Is There Alpha In Asset Allocation?

Overall, the panelists thought that multi-strategy was the best fund format to take advantage of all the attractive opportunities. They debated as to whether there would be further consolidation in the hedge fund industry, but agreed that if regulation becomes too onerous that more funds will close and managers will run their own capital. Larger funds are more aptly suited to provide the increased transparency that investors are requiring now. There was a consensus that letting fund managers focus on investing rather than administration was essential and this favored larger funds.

Daniel Och (Och-Ziff Capital Management): Och's outlook focused on a bottom-up basis where he noted that this is an extremely attractive period overshadowed by macro risks. He notes that interest rates are likely to rise and that we should expect a similar experience as in 1993-1994 when we saw global quantitative easing (i.e. a bumpy ride of up's and down's but overall a good environment for investors).

On the topic of hedge funds, Och felt that an alignment of interests and incentives at a firm is crucial to success. He favors multi-strategy because it allows access to many more research and deal flow resources. One interesting note on firm culture is he wants an environment where people talk about how they can be better, not how good they are. Regarding hedge fund consolidation, he thinks it is talked about too frequently and that in 5 years time there will be ample smaller firms finding success. Och Ziff's master fund was up 23% for 2009 as noted in our hedge fund performance numbers post. Their Asia master fund was up 33.6%.

Eric Mindich (Eton Park Capital): Mindich's market outlook focused on the deleveraging that is taking place. He said that this creates opportunity on a micro basis even though there are headwinds and signaled that merger arbitrage will pick up. Mindich also noted that there has been a reduction in prop capital that has allowed Eton Park to capitalize on new opportunities as hedge funds provide this transitional capital now. Eton Park is a part of our custom Market Folly portfolio that is seeing over 25% annualized returns, created with Alphaclone. In our recent portfolio coverage of Mindich's firm, we noted that Eton Park expanded its UK holdings.

Dinakar Singh (TPG-Axon Capital): Singh's outlook focused on the fact that there is still policy risk, as well as funding and China risk. That said, he thinks that in the next 6-18 months that investors will underestimate the industrial improvements in America (TPG-Axon is currently finding many attractive opportunities there). He also noted that rates will go up over time and they will use credit to hedge equity. Lastly, the global world is more challenging than ever to invest in and that the alternative industry needs to be proactive in terms of regulation. They are not going to focus on every strategy, as they know when to say 'pass' on certain strategies.

Jonathon Jacobson (Highfields Capital): Jacobson reminded everyone of the old adage that investing is a marathon, not a sprint. The easy money has been made and markets are now more fairly priced. He thinks that the US is the most attractive geographic region and that the large cap, high quality names are the cheapest plays. This is sentiment we've seen out of many prominent hedge funds now. Bill Ackman & hedge fund Pershing Square recently started a large Kraft (KFT) position and is one of the many examples. The "high quality names are cheap" meme was echoed on the long/short equity panel we covered yesterday.

Highfields doesn't want to swing at every pitch, but rather just the big ones where they can hit home runs. They have 70 employees (25 investment professionals) and they like to keep the firm smaller. They note that the barriers to entry in the hedge fund industry are higher than in the past as investors want more transparency, counter-party management, and there will be a higher regulatory environment. This obviously favors larger funds that have the resources to let the investment team focus on the investments and the back office team focus on administrating.

Glenn Dubin (Highbridge Capital): Dubin's outlook centered on two major assumptions: that we will be in a churning economic environment for a while and that the last two years have been dominated by beta. He thinks 2010 will be more focused on alpha and that the amount of money allocated to event-driven strategies is the lowest he's seen in a while. Highbridge sees attractive returns there and also finds Asia very interesting. In terms of hedge fund culture, Highbridge says culture is critical and they spend a lot of time on interviews as they want team-players. Lastly, turning to the topic of investing in hedge funds, he said that allocators have to focus on the risk/reward of investing with experienced versus newer managers.

This wraps up the "Is There Alpha in Asset Allocation?" conversation. Head to the overview of the conference, the post on the long/short equity panel, as well as coverage on the global investment landscape in 2010. Check back tomorrow for summaries of the remaining hedge fund panels.

Hedge Fund Panel: Global Investment Landscape In 2010 (Druckenmiller, Singer, Dimitrijevic)

Yesterday, there was an introductory post that outlined key takeaways from the event. Then there was also a separate post that detailed the "Case For Global Equities in 2010" from a panel of prominent long/short equity hedge fund managers. The next panel discussed the Global Investment Landscape In 2010. Hedgies in this discussion included Duquesne Capital's Stanley Druckenmiller, Elliott Management's Paul Singer, and Everest Capital's Marko Dimitrijevic.

The Global Investment Landscape In 2010: The government's role, the global landscape, and monetary policy.

Paul Singer (Elliott Management): Singer talked about how government has always been a part of investing, but even more so now. He says that capital will flow to wherever it is welcome and wherever there are defined rules and laws. Singer honed in on some particular legislation that he feels will have damaging impacts. He focused on the Wall Street Reform and Consumer Protection Act of 2009. This would charge banks over $75 billion and hedge funds over $10 billion in open-ended assessment. He wonders why hedge funds would have to pay for the mistakes of 'highly levered and "mis-managed financial institutions'.

He also lashes out at the notion that this legislation designates institutions that are 'too big to fail'. He wonders how the government could identify those institutions ahead of time? Rather than forcing this definition on a few select companies, why not focus on making all of them NOT too big to fail. He thinks the way to do this is via margin requirements and regulations. Singer almost led a "call to arms" with his talk as his main point was that leaving capitalists worried about future punishment isn't the way to fix the system. On the topic of emerging markets, Singer actually thinks there is a "fair race" between the developed world and emerging markets going forward. Last year, we also covered Singer's thoughts at the Ira Sohn Investment Conference.

Stanley Druckenmiller (Duquesne Capital): Druckenmiller focused on monetary policy and asserted that it is not responsible for the financial crisis. He notes that zero and/or negative interest rates often cause dislocations that don't have anything to do with inflation. Instead, they affect other factors by discouraging saving, encouraging spending, and causing financial institutions to lever-up even more.

Druckenmiller did admit that cutting rates was appropriate as it truly was an emergency, but thinks an increase in rates is past due. (He disagrees with the assertion that low rates are needed for growth). Druckenmiller's thoughts overall could be summed up as bearish. In terms of investing, he mentioned that emerging markets offered much better balance sheets and faster growth. At the same time, he notes that the US dollar is the reserve currency and so monetary policy outside of America becomes less meaningful. We haven't covered Druckenmiller on the site much, but in the past have noted that he was on Forbes' billionaire list.

Marko Dimitrijevic (Everest Capital): Dimitrijevic focused on his niche topic of emerging markets and said they represent almost 13% of the MSCI index. He points out that this figure is misleading since nominally, emerging markets are a third of world assets. Additionally, emerging markets surged past developed markets on a purchasing power parity basis for the first time ever. One of Dimitrijevic's most intriguing points was the notion that the emerging market consumer overtook the US consumer and this shift seems to be overlooked. For more on Dimitrijevic, we've previously profiled Everest Capital.

This wraps up the "Global Investment Landscape In 2010" conversation. Head to the overview of the hedge fund panel and also coverage of the long/short equity panel. Check back tomorrow for summaries of the rest of the panels.

Kynikos Associates' Jim Chanos: China Overheating

Kynikos Associates hedge fund manager and renowned short seller Jim Chanos recently gave an hour-long presentation on China and below you'll find the video on his thoughts. Chanos wants to make it clear that they are not calling for an "impending crash" in China. They are merely concerned about the risks having taken a closer look at things.

The main point Chanos makes is that, "GDP drives economic activity in China, and not vice versa." He also goes on to note that while he doesn't want to focus on politics, you almost have to when it comes to China, as it has a direct impact on their economy. He also draws special attention to China's fixed asset investment as a percent of GDP growth. He notes that by this metric, no one has done more than 33% growth for 9 years and China is well on their way to blowing these records out of the water. This figure is growing at levels well above depreciation allowances. This means that all the projects they're creating better be economic, otherwise there is bound to be problems in the future.

Embedded below is the full video presentation from Chanos:

In terms of other recent insight from Chanos, we covered in December that he was shorting automakers. For other insight from the Kynikos manager, head to an in-depth interview with Chanos, as well as his presentation on ten lessons from the financial crisis.

John Paulson's Hedge Fund Adds To A Position

John Paulson's hedge fund firm Paulson & Co recently added to their holdings in food producer Premier Foods (LON: PFD). The London Stock Exchange disclosed that Paulson & Co have increased their stake to 11.8% of outstanding shares, up from their previous 8.9% stake. Originally, Paulson started buying into Premier Foods around the March 2009 bottom and shares of PFD have returned 22.5% over the past 52 weeks. In terms of other recent holdings, we also covered Paulson's SuperMedia (SPMD) position.

Paulson & Co's Advantage fund was up 13.75% for 2009, their Advantage Plus fund was up 21%, their Credit Opportunities fund was up 34%, and their Recovery fund was up 24.2% as noted in our post on 2009 hedge fund performance numbers. Then we also took an in-depth look at Paulson's new gold fund as well. For more background on Paulson and his big trade against subprime that made him billions, we highly recommend Gregory Zuckerman's book, The Greatest Trade Ever.

Taken from Google Finance, Premier Foods Plc is "a food producer, producing a range of category branded and retailer-branded food products. As of December 31, 2008, the Company operated in three divisions: Grocery, Hovis and Chilled & Ireland. The Grocery segment includes grocery products. The Hovis segment includes wrapped bread, morning goods and bulk and bagged flour. The Chilled & Ireland segment chilled and frozen meat-free products, operations in the Republic of Ireland, and its retailer branded chilled ready meal and cake businesses. In March 2, 2009, the Company completes its sales of Martine Specialites SAS and Le Pain Croustillant." For more about UK holdings, head to our primer on tracking a hedge fund's UK positions.

Wednesday, February 3, 2010

Hedge Fund Panel: Case For Global Equities In 2010 (Ainslie, Mignone, Robbins, & More)

We're continuing coverage of the recent hedge fund panels that took place at the Morgan Stanley Breakers Conference on January 25th & 26th, 2010. Earlier today, there was an introductory post that outlined key takeaways from the event. Next, let's look at the separate hedge fund manager panels and start with the long/short equity hedge fund panel featuring Bridger Management's Roberto Mignone, Carlson Capital's Clint Carlson, Glenview Capital's Larry Robbins, GLG Partners' Pierre Lagrange, and Maverick Capital's Lee Ainslie.

The Case for Global Equities in 2010: What Should Investors Expect?

- Lee Ainslie (Maverick Capital): Ainslie focused on how in 2008 and 2009, there was little differentiation between stocks as 90% of them were down in 2008 and 90% of them were up big in 2009. He notes that risk premiums are now back up to 2007 levels and that fundamentals aren't really responsible for the massive price gains and that needs to change. His best idea going forward is large cap technology companies.

This sentiment falls directly in-line with when we looked at Maverick's portfolio and saw they were betting big on technology stocks. Ainslie's hedge fund is one of the many funds that comprises the Tiger Cub Portfolio created with Alphaclone where you can replicate the positions and enjoy 15.5% annualized returns since 2000. To learn more about Maverick, check out our profile/biography on Lee Ainslie & Maverick.

- Roberto Mignone (Bridger Management): Mignone's best stock idea for 2010 was healthcare across the board as he says there is a huge margin of safety. He said you don't even need individual names, just an ETF. We of course will examine his holdings when the new 13F's are released soon in order to single out some names. Mignone also noted that there are a ton of mega cap multinational companies trading at low valuations. Many of them have massive cash flows and offer an attractive risk adjusted return. This is not the first hedge fund manager we've seen talk about this. Bill Ackman recently started a large Kraft (KFT) position and is one of the many examples.

Bridger Management now runs $2.4 billion and is closed to new investors, except for replacing redemptions. They don't want to increase their size as it then becomes nearly impossible to have the necessary short portfolio. Not to mention, Mignone likes to focus on investing rather than running a big organization. They have nine analysts (including Mignone) and have always had a large focus on healthcare. We recently covered Bridger's new position and previously looked at their portfolio as well.

Mignone is known for his sleuthing skills in identifying short positions. However, this worked against him in 2009 due to the massive rally. At the same time, he noted that shorting has changed due to an increase in news flow and transparency, and a shrinkage in the pool of capital to short.

- Larry Robbins (Glenview Capital): Like Mignone & Bridger, Robbins' Glenview has large healthcare exposure. His best idea was Express Scripts (ESRX). He notes that contrary to popular belief, this company won't be affected by healthcare reform. He thinks that ESRX will benefit from generic conversion and thinks they will see 30% earnings growth. With earnings of $7.10 to $7.25 in 2011 the company trades at 12x 2011 estimates and 16x 2010 estimates. He notes this company has a bright future with solid growth and high visibility. For other hedge funds that own this name, we saw that David Stemerman's Conatus Capital had a sizable ESRX position when we looked at their portfolio.

Robbins also thinks that 2010 will be akin to 2004 where stockpicking will return so managers can generate alpha rather than relying on beta like they did in 2009. We haven't covered Glenview much in the past and we did note that back in 2008 they were amongst the top 10 asset losers, but they have since bounced back.

- Clint Carlson (Carlson Capital): Carlson believes that the expectations of an interest rate increase will hang over the markets in 2010. He feels that event-driven strategies in the hedge fund arena will be very successful as M&A will pick up and he thinks the potential for takeovers is not priced into many stocks. We haven't covered Carlson before on the site and note that they run a series of hedge funds in Dallas, TX with over 130 employees focusing on relative value arbitrage, risk arbitrage, credit, and long/short equity.

- Pierre Lagrange (GLG Partners): Lagrange's best idea was essentially London pub companies. He notes these are crowded shorts and yet these companies have stable cash flow and are an enterprise value play. Punch Taverns (LON: PUB) fits the bill here and this is interesting as saw David Einhorn's Greenlight Capital selling shares of Punch Taverns back in November.

That wraps up coverage of the case for global equities panel. Head to the overview of the hedge fund panel and check back tomorrow for summaries of the credit panel, the 2010 investment landscape panel, and more.

Hedge Funds Continue To De-Risk: Trend Monitor Report

Bank of America Merrill Lynch is out with the newest iteration of their hedge fund monitor report and they highlight that hedge funds suffered heavy losses last week and ended January on a weak note. As such, hedge funds were looking to de-risk and BofA notes that global macro was by far the worst performing strategy for the month of January.

Turning to overall movements, they saw that long/short equity funds pared market exposure down to 29-30% net long, below the historical average of 35-40% net long. Market neutral funds also reduced equity exposure, having been pretty long the two weeks prior.

In terms of specific positioning, hedge funds sold SPX futures last week and even went net short. Additionally, they sold Nasdaq (NDX) futures to move out of a crowded long. Hedge funds also reduced their net long gold position while leaving their net long copper position unchanged. In forex, hedge funds added to their short of the Euro and covered the Yen, reversing the carry trade. Interestingly enough, BofA also saw hedge funds adding to a long position in the US dollar. In interest rate plays, hedge funds still were involved in the highly crowded curve steepener plays.

To see the week over week change, check out the hedge fund exposure levels from last week where we saw that hedge funds were largely selling the S&P 500 and commodities. Embedded below is this week's iteration of Bank of America Merrill Lynch's hedge fund monitor report (RSS & Email readers will need to come to the site to view it):

We've covered more research from Bank of America, so check out their recommendation to overweight stocks and underweight bonds. For more insight as to what hedge funds are investing in, head to the list of top stocks held by hedge funds for a few ideas (or crowded trades if you look at it that way) as well as a look at a possible set of ten investment themes for 2010.

Hedge Fund Panel Report: Morgan Stanley Breakers Conference

Today we are delighted to begin a series of posts detailing the recent hedge fund panels that took place at the Morgan Stanley Breakers Conference on January 25th & 26th, 2010. This is an introductory post that outlines the key takeaways from the event and then progresses to separate summaries regarding the specific hedge fund manager panels.

In terms of outlook from the various hedge fund managers, many are bearish. While they don't deny opportunities still exist, they are concerned about macro factors and the massive equity gains we've already seen. They note that shorting was extremely difficult in 2009 as almost all their shorts went up. This was compared to the environment in 2003 where things were very similar.

Moving forward, managers think 2010 will require a lot of patience but will provide ample opportunities to generate alpha, contrary to 2008 and 2009 where beta drove most of the returns. Many hedgies think 2010 will be like 2004, a stockpicker's market. Hedge fund managers are anticipating a lot of mergers and acquisitions going forward and see the event-driven strategy as very attractive. Specifically focusing on credit, they think the easy money has been made. The majority of hedgies felt that mid-cap restructurings would be the most attractive area. Instead of seeing the credit cycle as 'over,' they think it has merely been extended since many companies have extended their debt.

In the alternative investment industry in general, there is less competition as there are few hedge funds and less capital competing with hedge fund managers. They are also seeing a trend of investors investing directly in hedge funds, bypassing fund of funds and that additional layer of fees. Many believe that large hedge fund firms have more difficulties ahead as they have to manage investor demand and regulations, but they see room for smaller firms to blossom as they have less to worry about and can focus on investing. Regulation was a big concern for many and they could see managers leaving the industry if it becomes too onerous to run a hedge fund, instead opting to manage their own capital.

This conference was absolutely loaded with big-name hedgies in the following panels:

The Case for Global Equities in 2010: What Should Investors Expect? Panelists included:

  • Roberto Mignone (Bridger Management)
  • Clint Carlson (Carlson Capital)
  • Larry Robbins (Glenview Capital)
  • Pierre Lagrange (GLG Partners)
  • Lee Ainslie (Maverick Capital)

The Art of Multi-Disciplinary Investing: Is There Alpha in Asset Allocation? Panelists included:
  • Eric Mindich (Eton Park Capital)
  • Glenn Dubin (Highbridge Capital)
  • Jonathon S. Jacobson (Highfields Capital)
  • Daniel Och (Och-Ziff Capital Management)
  • Dinakar Singh (TPG-Axon Capital)

Credit Opportunities in the Current Environment: Where Do We Go From Here? Panelists included:
  • Kevin Ulrich (Anchorage Advisors)
  • Marc Lasry (Avenue Capital Group)
  • Kenneth Eberts (Goldman Sachs)
  • Jeffrey A. Altman (Owel Creek Asset Management)

The Global Investment Landscape in 2010. Panelists included:
  • Stanley Druckenmiller (Duquesne Capital)
  • Paul Singer (Elliott Management)
  • Marko Dimitrijevic (Everest Capital)

First up (in a separate post): the long/short equity panel.

Cheyne Capital's Investor Letter

Let's get right to it: below is Cheyne Capital's January 2010 investor letter for your viewing pleasure. To download the .pdf, just click the 'download' button on the embedded document:

We've been posting copious amounts of investor letters as of late, so check out our daily updates of hedge fund investor letters and our exclusive coverage of Perry Partners' annual letter.

Tuesday, February 2, 2010

Hedge Fund Perry Partners' Annual Letter

Below you will find the annual letter from Richard Perry's hedge fund Perry Partners International. Perry seeks to achieve low correlations to the equity markets while still delivering strong returns. Their annual letter focuses both on their performance from the past year as well as their outlook going forward. Turning to some of their specific positions, we see that they have been active in both the credit and equity arenas.


They built a position in General Motors unsecured bonds, GM corporate bonds (issued by the parent entity) and GM Nova Scotia bonds over the past few quarters. They also purchased claims in Delphi late in the bankruptcy process. They made a lot of investments in the auto and auto parts sector as they felt the potential upside far outweighed the downside.


They've been fond of managed care stocks but have scaled back their positions slightly to lock in gains. Managed care is still 5% of their portfolio though. They were also adding to their Palm (PALM) position on the fourth quarter sell-off. They believe Palm "has an excellent operating system and will continue to gain traction with the carriers. That being said, our fears around competitive pricing in the smartphone area led us to increase some of our hedges in this area." This is interesting as we've now seen Perry long Palm, and we had previously seen Whitney Tilson's hedge fund T2 Partners had been short Palm.

Perry Partners' investor letter in its entirety is a must-read. RSS & Email readers will need to come to the site to read the letter.

Great insight from Perry Partners and we look forward to following the developments of some of their positions. In the past, we had presented Perry's second quarter 2009 letter as well, so it's good to see their more updated insight. We've been posting a ton of hedge fund investor letters as of late, so make sure to check those out.

Is Steak 'N Shake The Next Berkshire Hathaway?

The following is a guest post from Chad Brand at, a stock market blog focused on value investing.

"The Steak n Shake Company (SNS), an operator of 485 burger and shake focused casual dining restaurants in 21 states, has recently been quietly transformed by a new management team into a small Berkshire Hathaway type holding company. The move is very Warren Buffett-esque, with a 1-for-20 reverse stock split aimed at boosting the share price to well above normal levels (above $300 currently) and a bid to buy an insurance company among the noteworthy actions taken thus far.

What I find almost as interesting as the moves made by new CEO Sardar Biglari (a former hedge fund manager who has gained control of the firm and inserted himself into the top management slot) is the fact that this move has largely gone unnoticed by the financial media. Granted, Steak n Shake is a small cap regional restaurant chain ($450 million equity value) but the exact same strategy undertaken by Sears Holdings chairman Eddie Lampert garnered huge amounts of press.

Continue reading the rest of the article at

East Coast Asset Management on the Deflation-Reflation Continuum: Investor Letter

Continuing our deluge of resources, we present East Coast Asset Management's fourth quarter 2009 investor letter below. Their in-depth market commentary focuses on the topics of recency bias, the deflation-reflation continuum, and their portfolio outlook going forward.

On recency bias, they highlight that investors have focused on the past decade of returns and are fixated on the fact that bonds have outperformed equities over that timeframe and investors all of a sudden think that stocks are "too volatile." East Coast points out that you simply have to draw back to the larger picture to see that from 1939 to present, stocks have seen a compound annual return of 10.63%, besting bonds (which returned 6.23% annualized).

Turning to the inflation versus deflation debate, they have concluded that inflation seems to be the bigger of the two concerns going forward. They highlight that the key indicator to watch will be the money supply. We've seen a massive expansion in the monetary base, but it has not yet materialized in the money supply. East Coast believes that as the economy recovers and as banks begin to lend again, we'll see an increase in the velocity of money, "a key catalyst for inflation." John Paulson of hedge fund Paulson & Co pointed to the money supply as a key indicator as well in his presentation for his new gold fund.

Overall, a great read and you can download the .pdf here. East Coast Asset Management's investor letter is embedded below in two formats. Firstly, here it is via Docstoc:

And here it is via Scribd:

We've been posting a lot of investor letters as of late that are chalk full of research, methodologies, and insight. Just yesterday, we posted up Grey Owl Capital Management's letter, hedge fund T2 Partners' annual letter, and we've compiled plenty of other investor letters so definitely check them out.

Raymond James' Jeff Saut: Selling Stampede?

Jeff Saut, Chief Investment Strategist from Raymond James, is out with his weekly market commentary. This week's edition is entitled, "Selling Stampede?" In his latest investment strategy, Saut re-iterates their cautious stance on the market and notes that selling 'stampedes' typically last 17 to 25 days and the market has only sold off for 8 or 9 days now. As such, they are cautious and note this old adage: "If the December low is violated any time in the first quarter of the new year, watch out!"

He also focuses on stocks that have shown relative strength amidst the weak market. In last week's commentary, Saut outlined a list of stocks that have fought off the negative market trend. This week, he specifically highlights Celgene (CELG) as a stock with the potential for a favorable future. For more of their favorite plays, check out Raymond James' analyst best stock picks for 2010.

Embedded below is Jeff Saut's weekly investment strategy from Raymond James via DocStoc:

And here it is via Scribd:

You can download the .pdf here.

For more from Jeff Saut, check out his recent thoughts on risk management, as well as his 2010 outlook.

Monday, February 1, 2010

Hedge Fund T2 Partners' Berkshire Hathaway Analysis (BRK.A/BRK.B)

We've come across a lot of resources as of late from Whitney Tilson and Glenn Tongue's hedge fund, T2 Partners. Below you will find their in-depth presentation on the bullish prospects for shares of Warren Buffett's Berkshire Hathaway (BRK.A / BRK.B). As we have detailed before, T2 believes Berkshire is undervalued. In fact, they are so confident in the opportunity Berkshire Hathaway presents that it is one of their largest positions which we learned upon reading T2's annual letter.

After publication of this analysis, it appears T2 has become even more bullish on the prospects for Warren Buffett's company. Recently, the 'B' shares of Berkshire (BRK.B) underwent a 50:1 stock split and it was also announced that they would be joining the S&P 500 index. This creates an influx of natural buyers as index funds will need to buy $38 billion worth of BRK.B, or around 23% of the shares outstanding.

Below you'll find hedge fund T2 Partners' analysis of Berkshire Hathaway:

You can download the presentation via .pdf here.

There you have it, an in-depth look at Warren Buffett's behemoth, Berkshire Hathaway. T2's Whitney Tilson and many other prominent hedge fund managers will be presenting investment ideas at the Value Investing Congress May 4th & 5th in Pasadena and we highly recommend attending. We've secured a discount to the event for our readers who can use discount code: P10MF5.

For more insight from Whitney Tilson and Glenn Tongue, head to our coverage of hedge fund T2 Partners.

Grey Owl Capital Management: Investor Letter (Q4 2009)

In our quest to present you as many resources as we can, today we present you Grey Owl Capital Management's fourth quarter 2009 letter to investors. In the commentary, they address current market valuation and the possibility of range bound markets. It also delves into the concept of buying 80-cent dollars versus waiting for 50-cent dollars, a quandary often found in value investing.

Embedded below is Grey Owl's fourth quarter commentary:

You can download the .pdf here.

We've been posting a bunch of market commentary up as of late, so head to all our coverage of investor letters for more insight.

Jeremy Siegel: 2010 Good For Stocks, Bad For Bonds

Wharton finance professor Jeremy Siegel last month sat down for an interview in the Knowledge @ Wharton newsletter. The talk delves into his view on the markets for 2010 and he believes it will be a good year for equities and a bad year for bonds. He also believes interest rates will go up. Once investors get over their initial fear and realize that such an increase would mean the economy is recovering, Siegel thinks we could see 10% equity returns.

His pessimism on bonds is due to risk premium dissipating, interest rates rising (causing bonds to lose value) and he does not like any long-term bonds in 2010. However, he did like corporate bonds and 'risky corporates' a little bit as well. This is not the first time we've seen this overall stance as Bank of America was out saying to overweight stocks and underweight bonds.

Below you'll find Siegel's thoughts and his market outlook for 2010:

You can download the .pdf here.

Siegel also recently sat down with Bloomberg to talk about the recent pullback in the markets. Here's the video:

Siegel definitely feels stocks are the superior choice to bonds for this year. With that in mind, head to the list of top stocks held by hedge funds for a few ideas (or crowded trades if you look at it that way).
For more outlook and insight regarding the markets for this year, head to the ten investment themes for 2010.

Apple (AAPL): Are The Market Generals Falling?

That's the question on a lot of people's minds as the market has sold off and some of the market leaders have been hit hard. The guys at MarketClub take a look at the technical picture in their recent video on Apple (AAPL). While it's one thing to look at the stock market as a whole, many like to watch the market leaders for the next clue. Apple has undoubtedly been one of the market leaders, having skied from $80 to north of $200 per share.

However, Apple has started to sell-off recently amidst the announcement of its new iPad media device. Apple is aiming to revolutionize the book/media space with the iPad & iBookstore like they did music with the iPod and iTunes. The fact that shares of AAPL sold-off is not really a big surprise though, given that it has almost always been a "buy the rumor, sell the news" kind of stock. Not to mention, it's had a monstrous run. Lastly, practically everyone already owned it, as it was the sixth most popular holdings amongst hedge funds.

The chart is starting to show some definite weakness and they outline $185 as a key level in AAPL. If it breaks down below that, things could get ugly:

Check out their technical analysis on AAPL for a possible 'tell' from the market generals. It doesn't look good right now because as we mentioned on Friday, the Nasdaq broke a major trend line too.

Wall Street 2: Money Never Sleeps (Trailer)

Here's the first trailer out of Oliver Stone's new film, Wall Street 2: Money Never Sleeps. It's the sequel to the original film Wall Street. It stars Michael Douglas, Josh Brolin, and Shia LaBeouf. We've previously covered details of the film before and are anxious to see the film's reception.

Video embedded below:

Before the sequel comes out, be sure to brush up on the original movie, Wall Street (on Blu-ray) or Wall Street (20th Anniversary DVD).

Gordon Gekko is back.