State of the Hedge Fund Union Panel: Alpha Hedge West Conference

Next up in our series of notes from the Alpha Hedge West Conference is the State of the Hedge Fund Union with a talk featuring Jason Huemer (Visium), Bruce Richards (Marathon Asset), and Philip Weingord (Seer Capital).

Comments below: JH = Jason Huemer, BR = Bruce Richards, PW = Philip Weingord


State of the Hedge Fund Union 

Investors as shock absorbers.  Most investors want hurdle rate.  Funds haven't had "rogue" trader issues.  Big funds had inflows, small individual funds had outflows.  Cult of personality.

BR> Only need to get past cult of personality if you want to grow after founder passes.  Institutional key to growing.  Marathon manages over $11B in AUM.  Team of partners together over 18 years.  All that history makes for a strong team with collective wisdom.  

JH> Have tried to move from one star.  Investors looking for and want something beyond "one" guy.  Worked for Jamie Dimon and Steve Cohen.  They have 50 risk takers.  They have over $5B in AUM.  No one controls P&L.  5 years ago known only as health care...had to move model to multi-strategy.  It took 5 years of beating market by 1000 bps to convince people.

CH> Agrees with Joseph Brusuelas that we are in a structural break.  Means old trends + stats not reliable.

PW> Fed tightening will equal outflows from bond funds...probably for 2 years.  History says credit spreads normally come in during fed tightening.  Oppys are floating rate...swap fixed rate for floating rate.  Prefers stronger credit vs. High Yield Bonds.

JH> Has created alt mutual fund.  Brick Lake was early proponent of Alt Mutual Funds.  Log jam reason for delay.  So many funds did not want to move down value map... other folks missing tools to move up.  Sub-advisor in a couple mutual funds.  Big funds saw move from fees to like 50 BPS from 110 BPS.  Sees folks moving to multiple manager products and single manager products.  In time, 25% of fees from mutual funds will be Alt Mutual Funds.

BR> How do liquidity needs of Alt Funds impact types of strategies?  For example, can't offer liquidity in/out for say distressed debt funds.  Excited about JOBS Act.

PW> Closed end funds can address some issues of liquidity caused by open end Alt Mutual Funds.

CH> Regulation?

PW> Hedge funds least to blame for financial crisis.  If regulation increases confidence, then it is ok.  Increases some cost and takes time.  Form PF.  Lots of it is silly questions, not know what is meant by some questions.  Not al funds should have same questions.  Overall, ok.

BR> Been registered with SEC over a decade now.  Registered with numerous regulatory bodies.  Would prefer to have one strong regulator.  Look at JPM and recent announcement of hiring like 5,000 employees.  If there were consolidated regulation, it could be better and more efficient.

JH> Regulators have been unfair to hedge funds with high profile and heavy handed tactics.

PW> Market not overreacting to speculation of Bernanke replacement.

BR> If Yellen gets job, she'll be more Bernanke than Bernanke.

Be sure to check out the rest of our summary of the Alpha Hedge West Conference.

Structured Credit Panel at Alpha Hedge West Conference

Next up in our series of notes from the Alpha Hedge West Conference is the panel on structured credit featuring Richard d'Albert (Seer Capital, Christopher Hentemann (400 Capital), Amin Majidi (Premium Point Investments), and Rajesh Agarwal (Napier Park Global Capital).


Structured Credit Panel: Alpha Hedge West Conference

RD> Structured Credit now a sector in its own right for fixed income.  Usually accessed through private equity or co-mingled.

CH> Multi Sector structured finance.  RMBS, CMBS, CLOs, CDOs both US and Non-US.  Hedge fund and PE Style.  Looks for optionality and asymmetric risk.  More top down thematic.

AM> Residential only.  Over $2B in AUM.  Hedge and PE Style.  Fundamental analysis.  Credit risk and prepayment.  Mix of distress and new issue.  Beneficiaries of deleveraging on legacy side.  Before they had tactical investors looking for beaten stocks, now it is more strategic long term institutional investors.

RA> $6B in AUM.  Look at mortgage, Auto and credit card loan level data.  Have had a good run in mortgage.  Crash lead to short opportunity.  '09 and '10 long opportunity, '10, '11, and '12 refi opportunity.  IO's interest only mortgages.  Thinks IOs hedged for duration can be double digit.

DS> Impact of rise in rates?

AM> June was kick off of rate rise.  Rising rates has created opportunity in credit bonds.  Rising rates good for credit bonds at top of structure.  Must do homework.

CH> Markets are cyclical.  Going from low rates to high rates.  Rates will rise.  Will create volatility.  Need volatility sensitive structure.  Want Vega.  Be short duration.  Here you don't have to just shorten duration, can actually go short duration.  Overall tone is positive.  GDP is up.  Housing up.  Credit spreads likely to contract.  Assets that benefit from steeper yield curve.

RD> Banks no longer buyers in space.  Less liquidity, but more opportunity.

AM> New environment very good for improving credit quality in underwriting.  Only like hedge investors can buy.  Rating agencies also very conservative now.  Regulation hurting bank balance sheets.  Opportunity to buy mortgages is sustained.

RA> Not enough capital available for subordinated structure.  Newly issued debt easier to understand.

What keeps you up at night?

AM> Home prices.  Buy protection with out of the money puts.

RA> Affordability stands around 150.  Number was 200.  Further backup in rates will hurt prices.  Lots of cash buyers have been in, giving run up in home prices.  They may not be around going forward.

DS> Private Label MBS

CH> Loans more than $417K for Fannie and Freddie.  Market mostly has been closed.  Over 90% of loans are Fannie and Freddie.  Low home prices have also reduced need for jumbos.

AM> Freddie now releasing loan level data on loan performance.  Great for doing analysis.

Be sure to check out the rest of our summary of the Alpha Hedge West Conference.