Addendum to Hedge Fund China Bear Thesis

A few days ago we posted a summary of hedge funds' bearish China thesis.  Today we wanted to post up an addendum to that research from Patrick Wolff, entitled "Question Authority." 

This was written while he was at Clarium Capital in 2010 and covers the topic from a slightly different perspective.  Wolff now manages Grandmaster Capital.  Last year we highlighted Wolff's interview where he labeled China a debt-fueled investment bubble.

Embedded below is his China research:



And on an amusing note, we've also below included his parody on China via an imaginary press conference by President Obama.  Enjoy:



And for further research on the ever-important country, head to a summary of hedge funds' China bear thesis.

Global Macro Hedge Funds Lagging (Tudor, Moore, Brevan Howard, Clarium)

We've recently seen some performance numbers from some of the top dogs in the global macro hedge fund game. And, it's not what you'd expect. After all, these funds typically have free reign and can trade in interest rates, currencies, futures and sovereign debt... areas ripe with opportunity given the ever-changing dynamic of global economies. Yet, some of the world's largest hedge funds seem to be struggling.

As the FT notes, Paul Tudor Jones' flagship hedge fund Global BVI at Tudor Investment Corp was down 0.55% for 2010 as of the middle of March. Also, fellow global macro titan Louis Bacon seems to be seeing mixed results. His Moore Capital Management flagship fund is up 1.58% for the year. You'll remember that Moore Capital was recently raided by the FSA for alleged insider trading by one of their traders for his personal account (not for trades made on behalf of the fund). However, Moore's emerging markets fund was down 5.88% as of the middle of March. This fund is run by famed trader Greg Coffey (formerly of GLG). For more on Bacon's hedge fund, we've posted up some recent portfolio activity out of Moore, as well as some of their UK positions.

Even more shocking perhaps is that the downward spiral at Peter Thiel's hedge fund Clarium Capital has continued. ZeroHedge noted that Clarium lost 6.1% in the first three weeks of March and was now down 5.4% for the year. This all comes as US equity markets are up over 6.4% for 2010. We're not quite sure what's going on over there but after a fantastic start to the fund, the last few years have been quite rough on them, to put it politely. They were down 25% in 2009 according to our hedge fund performance numbers post. However, as of the recent performance data, they were still up 210% since inception.

In the past, we've posted up some of Clarium's research and have been impressed with the ideas and viewpoints expressed. However, it seems that they have had issues with market timing and converting those ideas into tradeable strategies. For more on this hedge fund, you can check out our Clarium coverage.

Additionally, we learn that Brevan Howard's flagship fund is down 0.53% year-to-date. As far as we're aware, it is Europe's largest fund at £13.3 billion. Keep in mind that many of these gentlemen of course graced the recently updated Forbes' billionaire list so they've certainly made plenty of money in the past. That said, their recent performance is not necessarily what you'd expect in an environment many have deemed as ripe with global macro opportunity.

Hedge Fund Clarium Capital's August Commentary: Save Now, Invest Later

Here's the latest from Peter Thiel's hedge fund Clarium Capital. Their August commentary is titled 'Save Now Invest Later' and makes for some interesting reading (as does typically all of Clarium's commentary). Through the end of June, Clarium was down 6% for 2009 as noted in a recent piece, 'macro hedge funds bet against recovery.' As of the end of August, Clarium is now -8.3% for the year. That article further goes on to divulge that Clarium is positioned for a bear market by betting on the US dollar, hypothesizing the currency will strengthen due to leveraged investors selling equities to pay down debt they used to finance the equity trades they were in. Additionally, they are keeping a steady eye on the unemployment rate among other indicators. Clarium was down another 4.5% in August and is now -8.3% for the year. The poor performance even reportedly had a normally calm Peter Thiel yelling at Managing Director Jack Selby. For the year of 2008, Clarium was also down 4.5%. Someone once told us it's almost as if they think that the fancier the idea, the bigger the potential profit. Somewhere along the line at Clarium there seems to be a disconnect between the idea and turning it into a successful trading strategy.

While Clarium continues to have interesting research, they still have yet to translate those ideas into solid performance. All the same, we'll gladly read their commentary as it's always prudent to evaluate all sides of an argument regarding the economy and markets, whether you agree or disagree with them. And as an avid lifelong supporter of Manchester United Football Club, we were caught a bit offguard (yet delighted) to see Clarium start off their letter with a quote from the great George Best.

RSS & Email readers will need to come to the blog to view the letter or you can try downloading the .pdf here:

Clarium Save Now Invest Later


We also recommend checking out their past commentary, as well as their piece, 'Macro Framework For Equity Valuation.' Lastly, you can also check out some brief thoughts from Peter Thiel from the Ira Sohn investment conference.

Macro Hedge Funds Bet Against Recovery

Interesting story out of Bloomberg yesterday citing our friends over at Tudor Investment Corp and Clarium Capital Management. Paul Tudor Jones and Peter Thiel's hedge funds are bearish on a macro level and think the true recovery will be delayed. We've already seen that Tudor has called this a bear market rally and Clarium has been net short US equities numerous times this year.

From Bloomberg,

“If we have a recovery at all, it isn’t sustainable,” Kevin Harrington, managing director at Clarium, said in an interview at the firm’s New York offices. “This is more likely a ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later.”

Tudor, the Greenwich, Connecticut-based firm started by Jones in the early 1980s, told clients in an Aug. 3 letter that the stock market’s climb was a “bear-market rally.” Weak growth in household income was among the reasons to be dubious about the rebound’s chances of survival, Tudor said.

Clarium watches the unemployment rate that accounts for discouraged job applicants and those working part-time because they can’t find full-time positions, Harrington said. July joblessness with those adjustments was 16 percent, according to the Department of Labor, rather than the more widely reported 9.4 percent.

Clarium, which oversees about $2 billion, is positioned for an equity bear market through investments in the U.S. dollar, Harrington said. Falling stock prices will strengthen the currency by forcing leveraged investors to sell equities to pay down the dollar-denominated debt they used to finance those trades, he said.

High unemployment, lower wages and potential missteps by policymakers around the globe may stifle economic growth in 2010, Tudor said. The firm, which manages $10.8 billion, is at odds with 55 economists projecting an average of 2.3 percent growth next year, according to the Bloomberg survey.

Macro managers’ pessimism is fueled in part by the U.S. government’s response to last year’s financial crisis, which they say fails to address the root cause. Banks still hold hard- to-sell assets on their balance sheets, the managers said.

Clarium, whose assets were mostly in fixed income, dropped 6 percent this year through June. Horseman’s fund slid 16.3 percent. Tudor’s BVI Global Fund Ltd. returned 11 percent.

The funds held up in 2008 amid the industry’s record 19 percent loss. Horseman’s Global Fund USD, which focuses on stocks, made HSBC’s private bank list of top 20 performers by gaining 31 percent. Tudor’s and Clarium’s funds fell 4.5 percent.

Macro managers are examining China for hints on how to place currency and commodities bets. Tudor said the country’s spending spree on raw materials inflated commodity prices and weakened the U.S. dollar.

The ultimate problem, as always, is to make money from such theses. A frequent disconnect during this crisis has been the ability for many to predict what will happen, only to fail to profit from their call. This just goes to show how difficult these markets have been. While we've agreed with a lot of Clarium's research and thoughts on the economy, they are still down for the year performance wise.

Peter Thiel & Clarium Capital's Huge Oil Services Play: 13F Filing Q1 2009

This is the 1st Quarter 2009 edition of our ongoing hedge fund portfolio tracking series. Before reading this update, make sure you check out the Hedge Fund 13F filings series preface.

This week is 'global macro week' here at Market Folly and we'll be covering some of the equity positions of the major global macro strategy hedge funds. We want to start off this week with a slight disclaimer. Since global macro funds trade all different types of asset classes, they're not an ideal bunch to track or to clone a portfolio from. However, they are some of the smartest minds out there in terms of secular themes, trading, and market timing. As such, we monitor their movements in equities to get a sense as to what sectors they like, when they're moving out of long equity positions, and to see if we can see any secular themes they might be playing. So, this week is not so much about tracking as much as it is about taking a step back and observing the 'bigger picture.'

Next up in our series of global macro funds is Clarium Capital Management, LLC ran by Peter Thiel, the co-founder of PayPal. Clarium is a $2 billion hedge fund that has had the majority of its holdings in the debt and currency markets. Keep in mind that the equity portion of their portfolio has always been minimal, so the stocks below only represent a small sliver of their overall holdings. While they have indeed boosted their equity holdings, they still have their portfolio primarily invested in other markets. Additionally, we must also add in a second disclaimer that Clarium has been net short US equities in previous performance breakdowns we've seen from them. So, keep all that in mind when viewing the information below. 2008 was a roller coaster year for Thiel and company, to say the least. Earlier in 2008, they were up over 45%. But, with a mistimed move into equities, they began to give back their gains and found themselves -4.5% for 2008 as we noted in our year end post of hedge fund performance numbers. The bulk of the losses were sustained in October, where they were down 18% for the month. Assets under management had recently ballooned to the highest amount in Clarium's history, but that didn't last long as redemption requests rolled in and markets continued to tank.

Thiel's fund is unique in that it employs a slightly different management fee structure than most of the hedge fund world. Typical funds charge a flat 2% management fee on assets and then a 20% performance fee. Clarium, on the other hand, does not charge a management fee, but charges only a 25% performance fee. They obviously have more incentive to perform well, to ensure they get paid. And, 2008 didn't go too well in that regard. Thiel recently sat down and opined on numerous macro topics, including whether the US is the next Japan. Clarium hasn't necessarily fared to their liking as they were -1.4% for the month of May and were down 1.7% for the year as of that time (as noted in our hedge fund performances post where you can also see Clarium's performance breakdown sheet).

We track Clarium because we feel they are at the forefront of global macro thought and we like to see what they are extrapolating on a macro level. Over the past few weeks, we've covered some of their latest investor letters where they deliver some excellent market commentary. Additionally, we also covered their addendum to such letter where they evaluated a 'Macro Framework for Equity Valuation.' In the addendum, they examine valuation in two ways: from typical Benjamin Graham valuation and then also from a positive/negative liquidity standpoint. Both concepts are described in the letter, but you can of course get a better understanding of Graham's valuation by reading his well-renowned book Security Analysis (a staple in our recommended reading list).

At the recent Ira Sohn conference where numerous hedge fund managers presented investment ideas, Peter Thiel presented plenty of his own thoughts. He has opined that we will see inflation in things we need (commodities) and deflation in assets we own. And, we've sort of already seen that. Make sure you check out all of Thiel's thoughts from the conference as well.

The following were Clarium's long equity, note, and options holdings as of March 31st, 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):
Oil Service Holdrs (OIH), McDonalds (MCD), Select Sector Energy (XLE), Oracle (ORCL), Nike (NKE), Reynolds American (RAI), Kimberly Clark (KMB), Fuel Systems (FSYS), Brigham Exploration (BEXP), Nexen (NXY), Post Properties (PPS), Best Buy (BBY)


Some Increased Positions (A few positions they already owned but added shares to)
Philip Morris International (PM): Increased by 80%
Procter & Gamble (PG): Increased by 50%
Diageo (DEO): Increased by 50%


Some Reduced Positions (Some positions they sold some shares of - note not all sales listed)
Walgreens (WAG): Reduced by 83%
American Express (AXP): Reduced by 69%
Altria Group (MO): Reduced by 69%


Removed Positions (Positions they sold out of completely)
SPDR S&P 500 (SPY), Schering Plough (SGP), Mastercard (MA), Playboy (PLA), Exxon Mobil (XOM), Teradata (TDC), Burlington Northern (BNI), NCR (NCR), Meadow Valley (MVCO), Interval Leisure (IILG)


Top 10 Holdings (by % of portfolio)

1. Oil Service Holdrs (OIH): 95.3% of portfolio
2. McDonalds (MCD): 0.83% of portfolio
3. Select Sector Energy (XLE): 0.72% of portfolio
4. Philip Morris International (PM): 0.30% of portfolio
5. Procter & Gamble (PG): 0.27% of portfolio
6. Microsoft (MSFT): 0.24% of portfolio
7. NRG Energy (NRG): 0.23% of portfolio
8. American Express (AXP): 0.23% of portfolio
9. Altria Group (MO): 0.17% of portfolio
10. Hewlett Packard (HPQ): 0.15% of portfolio
    

We were tempted to only list their top 5 portfolio positions here because, let's face it, that's the only meaningful part of their portfolio. They had a mindboggling 95.3% of their long equity portfolio invested in oil service stocks via OIH as a brand new position. While this is not out of the norm for Clarium to have a large portion of their equity portfolio tied up in one position, it has never been of this magnitude before. As such, we don't want to try and extrapolate too much from it as it could have merely been a shorter-term play. After all, last quarter they had 21% of their portfolio in the S&P500 via SPY and then this quarter they don't have it in their portfolio at all. As such, these quick moves must be noted when examining their portfolio.

Assets from the collective holdings reported to the SEC via 13F filing were $527 million this quarter compared to $31 million last quarter. As you can see, there was quite a large jump in assets invested on the long side. At the same time, their $500 million or so invested on the long side still only represents one piece of their overall portfolio. We've covered in the past how Clarium has had the majority of its positions in the debt and currency markets. As such, this is the perfect example of an equity portfolio you would not want to clone or mimic. We use Alphaclone to clone hedge fund portfolios of value oriented, fundamental, long-term oriented funds as they are the easiest to track. Global macro or trading hedge funds are not ideal to track in this regard due to the fact that they have positions in other markets and their propensity to move in and out of positions faster. This is just one of the 40+ prominent funds that we'll be covering in our hedge fund Q1 2009 portfolio series. We've already covered:

- Gurus such as: Soros Fund Management (George Soros), and Jim Rogers.

- 'Tiger Cub' portfolios like: Andreas Halvorsen's Viking Global, Stephen Mandel's Lone Pine Capital, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, Shumway Capital Partners (Chris Shumway), Chase Coleman's Tiger Global,

- Outperforming funds like: John Paulson's hedge fund Paulson & Co, Eric Mindich's Eton Park Capital, Raj Rajaratnam's Galleon Group,

- Value and activist funds such as: David Einhorn's Greenlight Capital, Seth Klarman's Baupost Group, Whitney Tison's T2 Partners, Philip Falcone's Harbinger Capital Partners, Ricky Sandler's Eminence Capital,

- Concentrated funds that play secular/macro themes such as: Timothy Barakett's Atticus Capital, Bret Barakett's Tremblant Capital Group, Boone Pickens' BP Capital Management, John Burbank's Passport Capital

- Global macro firms such as: Paul Tudor Jones' Tudor Investment Corp, Louis Bacon's Moore Capital Management,

- And, newer funds on the scene: David Stemerman's Conatus Capital. Check back each day as we cover new fund portfolios.

Clarium Capital April 2009 Performance (Peter Thiel)

We're back with another installment of the latest performance from Peter Thiel's global macro hedge fund, Clarium Capital. In the past, we've also covered Clarium's January as well as their February performance if you're curious how their portfolio has shifted over the past quarter. They finished up 1.7% for April and are now -0.3% year to date. Some of their largest exposure currently is in the Forex Cross, net long foreign debt, and net short US equities. Overall, they are using 3.2 to 1 leverage.

We track Clarium because we feel they are at the forefront of global macro thought and we like to see what they are extrapolating on a macro level. Over the past few weeks, we've covered some of their latest investor letters where they deliver some excellent market commentary. Additionally, we also covered their addendum to such letter where they evaluated a 'Macro Framework for Equity Valuation.' In the addendum, they examine valuation in two ways: from typical Benjamin Graham valuation and then also from a positive/negative liquidity standpoint. Both concepts are described in the letter, but you can of course get a better understanding of Graham's valuation by reading his well-renowned book Security Analysis (a staple in our recommended reading list).

Since they are a global macro firm and typically have little equity exposure for us to ponder via 13F's (their equity exposure lately has been on the short side), these investor letters are necessary insight to their thoughts and investment process. Upon reading their commentary you can start to piece together why they have taken on certain exposures in various sectors and asset classes. Again, make sure you check out their market commentary as well as their addendum.

Here is their latest breakdown sheet with all the details:

(click to enlarge)

Clarium is a $2 billion global macro hedge fund that currently has the majority of its holdings in the debt and currency markets. Thiel's fund is unique in that it employs a slightly different management fee structure than most of the hedge fund world. Typical funds charge a flat 2% management fee on assets and then a 20% performance fee as well. Clarium, on the other hand, does not charge a management fee at all. Instead, they charge only a 25% performance fee. They have added incentive to perform well with this structure, otherwise they don't get paid. In the next week or two we'll be covering Clarium's long equity portfolio (however small it may be) when the new 13F filings are released, so be on the look out.

Clarium Capital Investor Letter: Macro Framework For Equity Valuation

This next investor letter from Peter Thiel's global macro hedge fund Clarium Capital is an addendum to the letter we posted last week. In their previous letter, Clarium outlined market commentary. In this letter, they address 'A Macro Framework for Equity Valuation.' In this unique piece, they examine a valuation derived from two analyses. They have first examined the fundamental process derived from Benjamin Graham's book Security Analysis (a staple in our recommended reading list). Secondly, they determine whether a given year is experiencing "positive liquidity" or "negative liquidity" (a concept explained in the letter).

It's a very fascinating read and we highly recommend you digest their commentary, both in the form of their investor letter and the addendum listed below. We definitely consider Clarium to be at the forefront of global macro thinking, especially in a 'new generational' sense. RSS & Email readers may need to come to the blog to view the embedded document.

In the past, we've covered Clarium's (scarce) equity portfolio, as well as their February 2009 performance numbers in depth. Without further ado, the letter:

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Peter Thiel's Clarium Capital: Investor Letter (Market Commentary)

Just wanted to share this great read from Peter Thiel's global macro hedge fund Clarium Capital. Their latest investor letter is entitled 'The Wonderful Wizard of Oz' where they lay out some interesting market commentary. If you've missed it in the past, we've covered Clarium's equity portfolio as well as their detailed performance breakdown from February 2009. Enjoy:

(Email & RSS readers may need to come to the blog to view the slidedeck)

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Videos of Peter Thiel's Latest Comments (Clarium Capital)

Peter Thiel of hedge fund Clarium Capital recently spoke about numerous topics in videos linked below:

Video 1: On whether the US is the next Japan.

Video 2: Four theories on the bubble and bust economy

Video 3: What the decline of hedge funds means for main street

Video 4: On the history of economic bubbles

And don't forget to check out Clarium Capital's latest equity portfolio holdings changes, which we recently detailed here.

More Hedge Fund Performance Numbers

The NY Post has a graphic up which reveals a few more performance numbers for various hedge funds. Among them are Jim Simons' Renaissance Technologies. His Medallion Fund continues to dominate, up 49% as of the end of September. Peter Thiel's Clarium Capital is up 27.8% year-to-date thanks to winning bets in currencies and debt. Also, as we noted here, Clarium has recently shifted into equities. Tudor Investment Corp's Tensor Fund is also doing quite well, up 21.3% on the year. This fund is a recent quantitative addition to Paul Tudor Jones' arsenal.

(click to enlarge)

You can check out many more hedge fund performance numbers that I've listed here.



Source: NYPost

Peter Thiel's Clarium Capital Shifts to Equities

Recently, we got word of what Clarium Capital is doing to navigate the rough waters. Clarium is a $6 billion global macro hedge fund run by Peter Thiel, the co-founder of PayPal. Assets under management had recently ballooned to the highest amount in Clarium's history and I noted that it would be interesting to see how effective Clarium would be at deploying this new capital. And, with his most recent investor letter, we see that he actually was adding to his leverage, rather than decreasing it. In the week prior to September 19th, he was borrowing 40 cents for every dollar. This past week though, he was borrowing $1.40 for every dollar. Although Thiel undoubtedly changes his leverage on a daily/weekly basis, it is still worth pointing out, given the massive deleveraging we've seen over the past months and most likely will see in the coming months.

As I wrote about in my August performance update of Clarium, we had heard Thiel was shifting out of commodities. And, it looks as though that is exactly what he has done. We now see that he actually has short positions in commodities, to the tune of about 14% of assets. Also, in my analysis of Clarium's portfolio holdings, I noted that he only had a very small percentage of assets invested in equities at the time. But, this time around, he's beefed up his equity positions. Around 71% of his assets are now in equities. And, it looks as if he has been incrementally adding to equities, as he had invested 36% of assets in equities just the week prior. And, year-to-date, he is still up 27.8%. If you want a little more background on Thiel & his investment style, I first wrote about him here.

Also worth noting, according to Morningstar, hedge funds in general saw nearly $12 billion of outflows in July. And, given the recent market activity/volatility, you'd expect that number to have increased in August and/or September.


Source: Bloomberg

Clarium Capital (Peter Thiel) Down in August: Another Hedge Fund Update

Getting tons of news today so will get right to the point:

"Clarium Capital Management LLC, the $7 billion hedge-fund firm founded by Peter Thiel, fell about 13 percent in August, its biggest monthly loss, as it bet against the U.S. dollar."

"Before August, Clarium's biggest monthly loss was in March 2004 when it fell 11.4 percent, according to an investor letter."

You'll recall I covered Clarium in my hedge fund 13F analysis series here. And, this isn't the first tough month for Clarium. As I posted here, Clarium also was down 6.8% for the month of July. So, year to date, a rough estimate would now put them at +32% year to date. I'm also hearing they're almost completely out of commodities now. So, yet another macro fund gets its ass handed to them, what else is new? Will be interesting to see if Clarium shifts from commodities to equities, as the equity portion of their portfolio is typically minimal at best (and by minimal, I mean ridiculously tiny: 1% or less of total assets under management).

Source: Bloomberg