Julian Robertson On Why Hedge Funds Are Underperforming

Tiger Management's Julian Robertson seems to be making his yearly media rounds.  Last week we highlighted his thoughts on what stocks he likes now.  Today we're posting up his interview with BloombergTV where he talks about why hedge funds are underperforming.


On Why Hedge Funds Have Had a Challenging 2012

The Tiger Management founder said that, “They are having a challenge because a lot of people in the hedge fund business have become so disenchanted with the economies of the world. Europe is a mess and we see the fiscal problems of the United States. Hedge funds -there are a lot of them that really are disaster funds now. In other words, they are really only going to be profitable in the event of a big disaster.”


On Hedge Funds That Are Underperforming

Robertson argues that, “I think right now they are really scared. They have made a mistake. They are now unhedged because they are so scared. They really will succeed only if we have rather disastrous period…We have to assume that a black swan event is very unlikely…They have gotten so bearish that some of them that that is what has happened. They will not get out of it without a black swan type event.

This is still the best place to run money. One reason the hedge funds are not doing as well as they used to is the competition is more hedge funds. And that the competition is so much better than any other form of competition.”

The latter comments he made are something he's expanded on previously where we highlighted Robertson on the hedge fund industry past & present.


Embedded below is the video of Robertson's interview with Bloomberg:



Be sure to also check out the other recent interview on what stocks Robertson likes now.

Presence of Hedge Funds in Chapter 11 Process & Effects on Bankruptcy Outcomes

Today we wanted to highlight a paper by Wei Jiang, Kai Li, and Wei Wang, entitled "Hedge Funds and Chapter 11" found via The American Finance Association, Publishers of the Journal of Finance.

The abstract of the paper reads as follows:

"This paper studies the presence of hedge funds in the Chapter 11 process and their effects on bankruptcy  outcomes. Hedge funds strategically choose positions in the capital structure where their actions could have a  bigger impact on value.  Their presence, especially as unsecured creditors, helps balance power between the  debtor and secured creditors. Their effect on the debtor manifests in higher probabilities of the latter’s loss of  exclusive rights to file reorganization plans, CEO turnover, and adoptions of KERP, while their effect on secured  creditors manifests in higher probabilities of emergence and payoffs to junior claims."


The paper finds that some of the biggest players in Chapter 11 are household names: Oaktree Capital, Appaloosa Management, Apollo Advisors, Cerberus Capital Management, and Silver Point Capital, among others.

And for those of you that might not have time to read an entire paper, it intriguingly concludes that:

"We find that hedge fund presence is associated with a higher probability of the debtor’s loss of  exclusive rights to file a reorganization plan, a higher probability of emergence, more favorable distributions to  the claims they invest in, greater CEO turnover, and more frequent adoptions of KERP.  We further establish the  causal effects of hedge funds, especially in their role as creditors, through instrumentation for hedge fund  participation.  Finally, we show that the favorable outcomes for claims in which hedge funds invest do not come  at the expense of other claimholders—they are more likely to result from value creation by alleviating financial  constraints and mitigating conflicts among different classes of claims."


Embedded below is the paper Hedge Funds and Chapter 11:




You can download a .pdf copy here.


For more on hedge funds and distressed investing, check out notes from Dan Loeb & Daniel Krueger's talk at a distressed investing panel as well as Marc Lasry's thoughts on distressed opportunities.

Has Gold Topped Out?

The guys over at MarketClub don't think so. They take a look at the gold chart and highlight why the recent dip is just a normal course of action for the longer-term uptrend. Here's their video on gold where they highlight support levels to buy at and identify price targets going forward. They note that gold clearing the psychological and technical resistance area of $1000 was a big deal (duh). However, even more important could be the fact that it has been able to remain above that threshold for over a month.

Lots of focus on gold over the past few months with hedge fund managers like David Einhorn singing its praises so we thought it prudent to examine how gold has been shaping up, so make sure to check out the most recent technical analysis video on gold.