Hedge Fund News: Soros, Citadel, Atticus, Caxton & More

We're back with our latest compilation of the most recent news out of hedge fund land. Our goal here is to give you all of the major hedge fund news in quick little hits. If you've missed some of our previous updates, we highly recommend checking them out our September update, as well as our July hedge fund news. Let's dive right into the latest updates from some prominent players:

George Soros, Soros Fund Management

Legendary investor and hedge fund manager George Soros 'bought the dip' in financial markets as he saw it as a buying opportunity to make some money. This just goes to show that no matter your economic thoughts, you have to play the market for what it is, as irrationality often abounds. He still thinks we are facing structural long-term problems, but that has not stopped him becoming more bullish for the short-term. His main concern is the deleveraging of the US consumer over a longer period of time which will hurt consumer spending and thus growth going forward.

While he 'bought the dip,' Soros is now cautious as he notes the market to be very overextended and at the risk of another drawdown. While he thinks a downturn is coming, he says that the market will be fine for the rest of the year. The problems, he says, will come in 2010 once the reality of weak global growth hits. In terms of recent portfolio activity, we highlighted when Soros adjusted three of his positions. To check out Soros' thoughts on financial markets in their latest iteration, we recommend checking out his latest book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means.


Ken Griffin's Citadel Investment Group

Investors can finally redeem their money out of Citadel's largest funds, Kensington and Wellington. After being locked up for almost an entire year, we wonder how many investors will pull their funds purely out of rage from being locked up so long. They probably will take at least a little consolation in the fact that after a horrendous performance in 2008, Citadel's funds have at least bounced back as they are up 57% this year. Citadel has $14 billion in assets under management and apparently Citadel's funds are positioned to "withstand a catastrophic market event" so they have learned from their mistakes. In terms of their recent activity, Citadel has been busy with their ETrade stake and we also noted their UK positions here. Bloomberg also has a recent in-depth profile of Griffin up here as well.


Timothy Barakett, Atticus Capital

While Barakett may have left the hedge fund manager game, he has not ceased being an investor. Apparently, Barakett is set to invest in the various new fund launches by former Atticus employees. Atwater is a hedge fund being launched by Lee Pollock and Kris Green who formerly plied their trade at Atticus. Atwater is supposedly planning to raise $500 million by the end of next year and will focus on merger arbitrage and special situations.

Another fund Barakett is set to invest in is being launched by former Atticus Capital analyst Ed Bosek and Noam Ohana, who previously invested Atticus' partner money in other hedge funds. They have founded Beacon Light Capital, a hedge fund that will trade global equities. Bosek will be portfolio manager while Ohana will be the chief operating officer of the fund. Whenever the time comes, we'll check out whatever SEC filings may come out of both these new ventures.


Hugh Hendry, Eclectica Fund

Our resident deflationist is hedge fund manager Hugh Hendry of the Eclectica Fund. His latest media appearances have him noting that markets are crowded right now and are "all one trade." He thinks that stocks and gold now have a risk that everyone could all want to exit at the same time, saying that now investors are either in the market or not at all. One interesting point he does bring up is the fact that the rally has been ramping higher on questionable volume. He notes the absence of typical volume associated with healthy rallies in this video interview embedded below (email readers come to the blog to view it):



Hendry's commentary is always good reading and you can read some of his recent letters here as well as here.


Jeremy Grantham, GMO

The resident perma-bear and 'grumpy old man' (we mean that with respect) Jeremy Grantham is out with his latest commentary and it is a good read as usual. Here's a notable excerpt from his latest piece where he chimes in on the current market:

“Corporate ex-financials profit margins remain above average and, if I am right about the coming seven lean years, we will soon enough look back nostalgically at such high profits. Price/earnings ratios, adjusted for even normal margins, are also significantly above fair value after the rally. Fair value on the S&P is now about 860 (fair value has declined steadily as the accounting smoke clears from the wreckage and there are still, perhaps, some smoldering embers). This places today’s market (October 19) at almost 25% overpriced, and on a seven-year horizon would move our normal forecast of 5.7% real down by more than 3% a year. Doesn’t it seem odd that we would be measurably overpriced once again, given that we face a seven-year future that almost everyone agrees will be tougher than normal?"

It's always good to hear both sides of an argument and if you want your fair dose of pessimism, head Grantham's way (some his past commentary here). You can check out his full recent commentary via .pdf here.


Bruce Kovner's Hedge Fund Caxton Associates

Interestingly enough, we see that Caxton Associates has helped executives at the firm raise $500 million to launch new Lucidus Capital Partners. The new hedge fund will focus on high yield and will be managed by Darryl Green and Geoffrey Sherry. Caxton has taken a 25% stake in this new firm. What's interesting here is that Sherry will continue to run Caxton's $1 billion bond fund as well. We'll have to see if this new trend of hedge funds funding new funds spawned from inside their own walls continues. This can be quite successful, as evidenced by Julian Robertson's network of seeded 'Tiger Cub' funds. Back in our June performance update post, we noted that Caxton was barely up for the year at that time, at 2.21%.


Abu Dhabi Investment Fund (Aabar Investments)

This Abu Dhabi investment fund has taken a $328 million stake in a Spanish financial firm's new Brasilian arm, Banco Santander Brasil. Aabar has been one of the most active funds out of Abu Dhabi as they also have a 9.1% stake in Daimler, a 30% stake in Virgin Galactic, and a 4% stake in Tesla Motors. Aabar is controlled by the Abu Dhabi government through a majority stake in the International Petroleum Investment Company.


Paolo Pellegrini, hedge fund PSQR Management

We recently covered the ex-Paulson & Co hedge fund manager's trade ideas and we see that he is back in the media yet again. Pellegrini recently laid out the 'only attractive bet' for investors is to short long-term US debt. He says, "“I always like to think about assets that are likely to experience a breakdown; the only thing I’m pretty comfortable with right now is U.S. Treasury securities and U.S. agency mortgage-backed securities. I think that those are overpriced so they are attractive shorts ... The dollar has depreciated more than it should for the short term ... And if you ask me where am I putting my money now, I am on the sidelines.” Make sure to check out Pellegrini's recent thoughts on shorting treasuries and longing oil.


Bruce Berkowitz (Fairholme Funds)

Noted equity mutual fund manager Bruce Berkowitz of the Fairholme Fund (FAIRX) is launching a new bond fund that will invest over the entirety of the bond universe. While Berkowitz is unquestionably a good equity fund manager, it raises the question if he is also a good bond fund manager? His equity fund has an annual return of over 9% over the past 5 years. While many investors will undoubtedly jump on this fund due to the name recognition, be aware that it has a $25,000 minimum initial investment, over 10x his other fund. It will be interesting to see if Berkowitz can also prove his worth in the bond arena, as few managers out there can dabble successfully in both.


Stanley Fink, International Standard Asset Management

Former Man Group CEO Stanley Fink is releasing a new fund at his new firm. International Standard Asset Management will release a gold fund in December, even against Fink's liking, as he isn't fond of single commodity funds. However, you can never turn down an opportunity that investors clearly desire. Fink's fund will thus join a large cast of prominent hedge fund players in the gold trade including David Einhorn of Greenlight Capital and John Paulson of hedge fund Paulson & Co, amongst many others.


Thanks for checking out our latest edition of hedge fund quick-hits and make sure to check out our September hedge fund news as well.

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 ValuePlays.net 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.

Hedge Fund News Update

This is the latest edition in a new series of posts we're doing here at Market Folly entitled, 'hedge fund news summaries.' And, as as the title obviously states, the goal is to give you the quick hits of everything that is happening in hedge fund land. So far, reader response has been very positive and we thank you for the feedback. As such, we will continue posting them since many have found them useful. You can check out our most recent hedge fund news summary to catch up to speed as well.

Seth Klarman (Baupost Group) - The value master himself has recently been "up to no good." And, by that, we simply mean he has been active making investments. Intriguingly enough, Klarman's latest target has been CIT Group (CIT). Before you avid Klarman-ites become appalled and outraged at this move, settle down... this is a pretty good deal for him. (Obviously, right? Why else would he do it?) Klarman's hedge fund Baupost Group was part of the assembly of funds that provided financing for CIT. Baupost joined Centerbridge Partners, Oaktree Capital Management, Pacific Investment Management, and Silver Point Capital, among others. The reason this deal was so enticing to Klarman and others is that the deal was heavily over-collateralized. Supposedly, the loan is backed by $30 billion worth of assets. Additionally, Klarman and the others will be receiving an enticing interest rate of Libor + 10 points with a 3% floor. Later, it was also revealed that this group of lenders also received an upfront 5% fee. So, what's not to love about that deal? CIT was desparate for help, and they got it. We ponder if this is another situation where a prominent investor gives his 'stamp of approval' to a company in return for a great return on capital. While we think this specific situation is more-so due to CIT's dire situation, we're sure they don't mind being associated with Klarman & Baupost. In other recent Baupost news, we saw that they sold completely out of their Omnova (OMN) position. You can check out the rest of Baupost's portfolio here.

Pav Sethi (Gladius Investment Group) - Pav formerly worked as the head of volatility arbitrage at Citadel Investment Group and will be starting his own firm Gladius. With Pav also goes Rajesh Kedia and Bertrand Divet as Citadel loses a few more team members. They will be focused on what they excelled in at Citadel: volatility.

Paul Tudor Jones (Tudor Investment Corp) - Back in 1987 a documentary was filmed on Paul Tudor Jones and his hedge fund entitled 'Trader: The Documentary.' This film has become scarce and almost a form of trader contraband as Jones reportedly bought almost all available copies in the 1990's since he didn't want the flick floating around anymore. But, as with all great information, this video wanted to be set free. As such, the film was recently leaked onto the web and we posted it up yesterday. So, if you missed it, you can watch and/or download the video here.

5:15 Capital - In our last hedge fund update we mentioned the formation of a new hedge fund by some Brevan Howard alums. Named after a song from 'The Who', 5:15 has recently gotten an injection of $50 million from Man Group, one of the largest hedge fund managers on the globe. As part of the setup, Man Group will take a portion of 5:15's revenue. The Man Group sees 5:15 stepping into a nice niche in terms of hedge fund strategies, as the crisis has left the field relatively empty in their type of arbitrage.

Warren Buffett (Berkshire Hathaway) - We aren't limiting our hedge fund updates to just hedge funds, as we're now also covering gurus and market strategists. Obviously, Buffett falls into this category. Buffett recently filed a 13D on Moody's (MCO) that disclosed he had sold 7,986,300 shares of the company ranging in prices from $26.59-$28.73. Despite the sales, Buffett still owns well over 40 million shares of the company. But, this filing is interesting to note because Buffett had previously championed the ratings agencies in public as solid investments. Has he had a change of heart? We'll continue to monitor the filings to see if he sells even more. Our immediate reaction was to wonder if he had been chatting with fellow value player David Einhorn of hedge fund Greenlight Capital. Einhorn recently presented the case for shorting Moody's at the Ira Sohn investment conference. It's always interesting to see a difference of opinion among smart minds, so that's why Buffett's selling becomes all the more curious. For further interesting reading, you can view Berkshire Hathaway's Annual Report here and investment ideas from hedge fund managers at the Ira Sohn conference here.

John Burbank (Passport Capital) - We just covered Passport's recent investor letter and saw some interesting developments in their portfolio. Most notably, we found out that they had been playing with interest rate bets including a curve steepener. Additionally, they have started to bet on the Japanese Yield Spread via 5-year CMS caps (calls), anticipating a rise in 10-year rates. Passport also likes Healthcare stocks as they are at the highest allocation in the fund's history. To read about the latest from Passport Capital, check out their latest investor letter update.

Jim Rogers (ex-Quantum Fund) - The market guru himself has been out and about in the media talking about his usual theses and positions. So, we don't really have a whole lot of new information to report in this regard. We just want to point out that (yet again) Rogers is very bullish on commodities.

Fortress Investment Group - The massive $27 billion hedge fund Fortress Investment Group is on the prowl for potential investments. However, they're not looking for market investments in the typical sense. Instead, they're looking to acquire other hedge funds and financial firms. Daniel Mudd, Fortress' new CEO, has said they will try to acquire money managers, banks, insurers, hedge funds, and the like. The industry in general has definitely seen a contraction as the weak fall by the wayside during the crisis. Since there have been many opportunities in the markets throughout the course of the crisis, it will be interesting to see if Fortress finds any 'deals' in the hedge fund landscape.

Andreas Halvorsen (Viking Global) - A few days ago we also covered Viking Global's latest investor letter. In the letter, we found out that they had lagged the market in the 2nd quarter of 2009 due to their short positions. More interestingly though, was the fact that they added a ton of new positions over the past quarter, 68 in all. They warned that all the new additions were not a bet on rising markets, but rather a result of their fundamental, bottom-up analysis. Their top 10 long positions as of the end of June were Invesco, Mastercard, Visa, Unilever, DirecTV, Google, JPMorgan Chase, Walt Disney, Bank of America, and Qualcomm. To find out what Viking Global has been up to, check out their portfolio update.

The Fine Violins Fund - No, we are not joking. Florian Leonhard is trying to raise capital for a Fine Violins Fund. Leonhard is a well-known violin restorer from London and has so far raised 16 million euros for the fund. He hopes to raise 60 million euros in total and seeks to invest in pre-19th century violins, primarily from Italy. Leonhard is targeting a portfolio of 50 violins and he will loan the violins out at no charge to musicians. In the past, we've touched on other obscure investment funds, such as a fund that invests in wine, a few funds that are investing in lawsuits, and another fund that invests in guitars. The musical instrument theme seems to be picking up steam and we'll have to see if a Trombone fund pops up next. Let us know if there are any other interesting funds out there that we might be missing out on. These types of funds are the definition of the term 'alternative asset class'.

David Rosenberg (Gluskin Sheff & Associates) - In our last article on Rosenberg, we noted his fondness for corporate bonds and his thoughts that the stock market in general already had a bunch of good news priced in. Rosenberg has been re-iterating his call on corporate bonds, this time saying that "they are still pricing in a very bad economic and financial market scenario. Moreover, the yield spread is still wider than at any point during the 2001 or 1990 recessions of the 1998 LTCM/Russian debt default freeze-up. In fact, history suggests that the corporate default rate would have to rise well above 7% for corporate bonds to deliver negative returns with yields as high as they are at around 7.25%." Additionally, in media appearances over the past month or so, we wanted to point out that Rosenberg indeed sees inflation as a threat. However, he says that threat is many years away. He also thinks we easily go through past unemployment levels of 10.8% and that from March to May, the stock market has essentially seen a 40% 'dead cat bounce'.

Hugh Hendry (Eclectica Fund) - Hugh is focused on the deflation versus inflation debate lately and he notes that he has never seen such a 'crowded trade' with people so confident that inflation is in our future. He favors bonds over equities and he thinks that deflation is the bigger risk here. Hugh says that, "It's almost as if we have this flood, but people are buying fire insurance." He is actually in favor of government bonds and notes that this is due to his contrarian nature. He is not too focused on the equity markets currently but says he will 'prod them' around August or September to see what is really going on there. We've covered Hugh's thoughts on the blog in the past and you can view his past investor letter here.

Michael Steinhardt (WisdomTree Investments, ex-Steinhardt Partners) - Hedge fund legend Michael Steinhardt sat down and talked with Bloomberg back in early June. While this is obviously not as recent as some of the other developments we've pointed out, we are highlighting it due to the excellent content in the interview. He talks about returns in equity markets going forward, the current stock market, the role of hedge funds, and what people should be investing in these days. We highly recommend watching the interview and you can view the video embedded below. (RSS & Email readers will need to come to the blog to view the video). In the past, we've also covered Michael Steinhardt's view on treasuries, as he says they are foolish.




Thanks for checking out our updates and stay tuned for more daily coverage of hedge fund land. In the mean time, make sure to also check out our recommended reading lists and our hedge fund portfolio tracking series.

Recent Hedge Fund News Summary

We're going to try out our hedge fund news summary style post again as readers seemed to like it last time. Except this time around, we'll focus not only on hedge funds but on prominent market strategists and gurus as well. In our previous shotgun hedge fund update, we touched on the latest from George Soros, Och Ziff, Taleb, and a few others. And now here's your daily double shot of hedge fund & market tequila:


Hedge Funds in general saw returns of 9.73% for the year as of around the end of June. This is on track to their best annual start since way back in 1999.

George Soros (Soros Fund Management): Legendary investor and former Quantum Fund manager George Soros was recently out saying that he thinks the US will see a "stop-go" economy for some time. Eventually, he feels fears of inflation will hike interest rates up and as a result, economic growth will suffer. He went on to say that, "The idea of self-correcting markets is a misconception. You cannot prevent bubbles from forming but prevent them from self-reinforcement." Apparently (unbeknownst to us at least), Soros went back into retirement earlier this year after the whirlwind of 2008. If he really is 'retired' again, then we wonder why he is gracing us with his typical dose of (realistic) cynicism. We'll have to find out more in this regard, as this is the first we've heard of it. We have previously covered Soros' holdings in our hedge fund portfolio tracking series.


Bill Gross (PIMCO): 'Mr. Bonds' over at PIMCO is out with his July 2009 outlook and in it he touches on a fact that many seem to have brushed off the market action as their eyes glaze over with 'hope' (whatever that word means). Gross says,

"I was impressed this weekend by an article in the Op-Ed section of The New York Times by staff writer Bob Herbert. “No Recovery in Sight” was the heading and his opening sentence asked, 'How do you put together a consumer economy that works when the consumers are out of work?' That is really all one needs to ask when divining our economy’s future fortune. Unless an optimist can prescribe how to put Humpty Dumpty back together again and shuffle him/her back to work then there can be no return to an 'old normal.' As unemployment approaches 10%, what is less well publicized is that the number of 'underutilized' workers in the U.S. has increased dramatically from 15 to 30 million. Those without jobs, as well as those individuals who only work part-time and have become discouraged and stopped looking, total 30 MILLION people. The number is staggering. Commonsensically, one has to know that many or most of these are untrained for the demands of a green-oriented, goods-producing future economy. Imagine a welding rod in the hands of an investment banker or mortgage broker and you’ll understand the implications quicker than any economist using an econometric model."

He also touched on a phrase we found a bit amusing. Instead of investors typically feasting on asset appreciations and going "Bon Appétit," they are now starving and are going “Non Appétit.” You gotta love silly old Bill with his crazy phrases. We read his outlooks because it makes for good reading, but we kind of gave up on ole Bill a long while ago. Simply put, he thinks that while greed is gone for now, it will certainly be back. You can read his full July outlook here.


Dwight Anderson (Ospraie Funds): This name should ring a bell for Market Folly readers for two reasons. Firstly, because his Ospraie fund blew up and we covered that back in September of 2008. Secondly, you will recall that Anderson was coming back in May and starting two new hedge funds. Well, we're back merely to report that Anderson's new funds went live last month with around $100 million. His new equity fund is focused on companies that are related to commodities and resources while his new commodity fund will invest in the various derivatives related to that asset class. Watch out, the 'bird of prey' is back in the game and they are in-it-to-win-it.


John Meriwether (LTCM, now JWM): Sticking with the hedge fund opening/closure meme, we're happy (?) to report that John Meriwether is shutting down yet another hedge fund. This is really starting to get ridiculous. For those of you unaware, John Meriwether was the founder of Long-Term Capital Management which imploded back in the 1990's and caused a huge ordeal. It was somewhat shocking to see him able to start another fund after such a blowup, but it happened. Yet, we have come full circle again and see that Meriwether's main fund at JWM Partners will be shutting down after it lost 44% between September 2007 and February 2009. Ouch. Oh, and double ouch for the fact that he's shutting down yet another firm. Will this guy ever learn? And, more importantly... will investors ever learn?!


David Rosenberg (Gluskin Sheff & Associates): The notorious market strategist was out with his usual market talk at his new outfit, Gluskin Sheff & Associates. However, he specifically focused on corporate bonds versus equities which intrigued us. He writes, "The comparable yield in the equity market, depending on whether one uses reported or operating P/E multiples on forward or trailing earnings, is little better than 6½%. So corporate debt still trumps stocks. And what this 200 basis point ‘yield gap’ is telling you is that either corporate bond prices will need to rally more down the road or we need to start seeing corporate earnings growth recover sharply enough to pull those multiples down to more attractive levels."

Overall, he thinks that stocks already have a ton of good news priced-in and sees a pullback to 800 on the S&P500. However, he would see that as a buying opportunity and thinks the March lows will hold. The trick here is dealing with an already massive rally in equities from the lows.


Morris Sachs, E.G. Fisher, and Rob Wahl: While these three names might not ring any bells right now, we're here to report that the three gentlemen above will be opening a new hedge fund focused on government bonds named 5:15 Capital Management. The traders have a background at Brevan Howard and RBS Greenwich so they definitely have the credentials. They are starting with around $60 million, with plans to grow it to around $100 million. This hedge fund is intriguing in that its name is derived from a song from the band The Who. The track "5:15" was featured on the album "Quadrophenia" and the founders say they chose the name because they all love the song and band in general.

And, in mocking the hedge fund names typically selected by managers, Sachs said "What are we going to do, try to find another name for the Greek god of money?" Personally, we think someone else out there should create a fund with a name that flat out mocks another hedge fund, to get a little rivalry going. Suggestion: maybe Tontine, due to the irony there. (Confused? See this post).

Fair play to the trio at 5:15 for this random, yet refreshing development. We can't wait to see other new names that pop up now... perhaps 'Enter Sandman Partners'? Or, maybe, in tribute to the king of pop, 'Beat It Capital.' Hmm... we won't hold our breath.


Assan Din: Sticking with the "new-hedge-funds-by-people-you've-probably-never-heard-of" theme, we see that Assan Din is also set to start his own hedge fund after trading for Lehman Brothers. His SaKa Capital will be seeded with $25-50 million and will start trading corporate bonds and derivatives in Singapore in September.


Byron Wien: Just a few days ago, we posted up Pequot Capital strategist Byron Wien's latest commentary. However, this time around he did not deliver his usual dialect regarding the markets. Instead, he took the time to reflect on the closing of the hedge fund firm he was a part of: Pequot Capital. If you haven't read it, we posted up Byron's thoughts here.


Boone Pickens: Although we usually just cover Pickens' hedge fund movements here on Market Folly, this news is still market related in a sense. Remember the "Pickens Plan" and his quest for alternative energy change in the United States? Yea, most people probably don't remember after all this time. To give you a quick refresher, Pickens was seeking the use of various alternatives to replace our dependency on oil and was in the process of building a massive Wind Turbine Farm across Texas.

Well, times are tough because he is suspending plans to build such a farm. While he will still spend $2-3 billion on smaller farms, the grand-daddy plan will have to wait. The delays (per Pickens) were cited to be the drop in natural gas prices and a lack of transmission lines... not to mention the vast slowdown alternative energy companies have seen and the financial turmoil that has affected Pickens as well. After all, when his hedge funds started tanking, he lost a lot of money. So, it looks like we'll have to wait even longer before we see the massive plot of propellers sprawled throughout Texas. This just goes to show how a nice drop in the price of oil (From $140 down to $60) can start to cripple the alternative energy sector. For those interested in Pickens' hedge fund, we recently covered his portfolio here.


Cliff Asness (AQR Capital Management): Yet again, we repeat ourselves: this is starting to get ridiculous. AQR is going to introduce even more "hedge-fund-style mutual funds" starting next month. This is all in a move to continue their expansion into mutual funds in addition to the hedge funds they run. Their AQR Diversified Arbitrage fund launched back in January and this time around they apparently have an arsenal of funds to unleash at the retail investing crowd.

But, then again, this is nothing new as we have seen literally a slew of similar investment vehicles already released. Thus far, we've seen: mutual funds imitating hedge funds, ETFs imitating hedge funds, and even more mutual funds pursuing hedge-like strategies, and then even more ETFs pursuing 'hedgefundesque' strategies. We've covered them all in detail before and we sincerely wonder if this fad will ever cease.

Instead of trying to match hedge fund performances by buying and shorting various index ETFs like those new vehicles do, why not just clone the hedge fund equity portfolios directly like we here at Market Folly have done? After all, with the help of Alphaclone, we've cloned our custom hedge fund portfolio that is seeing 27.9% annualized returns. And no, we're not even joking; check it out.



That wraps up this edition of our hedge fund shotgun round-up, so stay tuned for future updates. In the mean time, check out our previous update, our portfolio tracking series, as well as our most recent profile of Bill Ackman of Pershing Square Capital Management. Also, we would gladly welcome more feedback regarding these 'shotgun' style posts of recent hedge fund news. Hit the comments below or send us an email.

Hedge Fund News Summary (Soros, Och Ziff, Taleb, & More)

We've found a bunch of various hedge fund tidbits that aren't long enough to merit their own article, so we decided to collectively assemble them into this melting pot of a post. Without further ado, we present some of the news that has surfaced out of hedge fund land over the recent days:

- George Soros has called credit default swaps "instruments of destruction" and thinks they should be banned. Shorting via credit default swaps allows limited risk and unlimited profit potential in a sense. Soros argues that those selling CDS receive limited profit potential and unlimited risk, yielding a clear imbalance. Soros said, "People buy a CDS not because they expect an eventual default but because they expect them to appreciate in response to the adverse developments." He cites AIG as a major loser in this regard as they were a large seller of CDS and were on the receiving end of the negative reward spectrum. Lastly, in a separate conversation, Soros has said that the market, "may have further to go because there is a lot of liquidity, a lot of investors are on the sidelines. If the market keeps on going up, more of them may decide to join in. You never know how far the rally goes." His old colleague at the Quantum Fund, Jim Rogers, agrees with him, as we noted when we recently covered Rogers' portfolio & thoughts. Speaking on the topic of China, Soros also thinks that they have benefited from being isolated from the world and they are in better shape than the international banking system. He thinks that China's influence will grow faster than most people think. We just yesterday covered Soros' hedge fund portfolio.

- Hedge Fund Och Ziff had almost 35% of their assets in cash as of the first quarter as they expect markets to fall again. Currently, they manage around $20 billion in hedge fund assets, so you do the math. They believe the economic recovery will be a long drawn out process and it will not just bounce back immediately. Their main fund lose 15.5% last year and is up 6.3% for 2009 as of the end of April.

- David Einhorn's Greenlight Capital noted in his May investor letter that he has returned to financial and REIT shorts after those sectors have rallied heartily. We also learned that he has put on an options bet wagering that interest rates will rise. (We also recently covered a somewhat similar play: Julian Robertson's steepener play). Additionally, Einhorn still retains a large gold position, which we noted when we covered Greenlight's portfolio.

- Nassim Taleb associated Universa Investments is starting a fund based on the thesis of hyperinflation. Universa has ties to Nassim Taleb, the author of the (in)famous book, The Black Swan, which talks about how extreme events can impact the markets. And, it is also a part of our recommended reading list series. Universa was up more than 100% in 2008 due to their bearish stance. They started with $300 million in 2007 and now run around $6 billion. The new fund will be run by Mark Spitznagel and wagers on rising interest rates, among other inflation based plays (such as commodities and options). While Taleb himself does not run the firm, he has significant investments with them and is often associated with them. In the past, we've covered Taleb's explanation of the Black Swan.

- Boaz Weinstein will be starting a new hedge fund, Saba Capital Management. They plan to start trading in August and have raised around $160 million since the end of April. Weinstein has made headlines for the fact that he lost more than $1 billion last year at Deutsche Bank trading bonds. The fund is named Saba after the Hebrew word for grandfather. It is also the name of the credit unit Weinstein started while at DB. His bad performance last year is his only losing year out of 11 years. He felt pain from misteps in Ford (F) bonds and various credit default swaps. His DB unit last year was down around 18% and managed around $10 billion. We'll have to see if he can get back to his past winning ways with his new venture.

- Hedge Fund Balyasny Asset Management was using leverage of 20 cents for every dollar they had in net assets for their stock funds. Their long/short split is roughly 50/50 these days as well. Dmitry Balyasny said, "Economic numbers, housing data, earnings, risk appetite and credit have all gotten less bad. The question is, for how long?" Their main fund was up 0.5% for 2008 and is up 2% thus far in 2009. They are leaning towards the belief that stocks will drop in the second half of the year. Balyasny goes on to say, "The situation is quite fluid and we have to respect the probability that the market is going to continue discounting bad news and embracing every slight improvement, causing shorts to eventually capitulate." We will be covering Balyasny in our hedge fund portfolio tracking series here soon, so stay tuned.

- A pair of ex-Touradji Capital portfolio managers have launched a new commodities fund. Instead of playing directly in commodities market as Touradji typically does, their new venture will make relative value based bets via the equity markets. This new fund sounds like an excellent candidate for our hedge fund series as it will allow us to track commodity and macro experts via equities positions, which are very easy to track courtesy of SEC filings. We haven't covered Touradji yet in our Q1 2009 portfolio tracking series, but we'll be getting to them very soon, so stay tuned.

And with that, we conclude our quick wrap up of some various hedge fund news tidbits.