Bret Barakett's Tremblant Capital Group has filed an amended 13G with the SEC due to their activity on January 28th, 2009. In it, they have disclosed a 5.71% stake in Chipotle (CMG) with 1,052,735 shares, up from their previous 558,000+ shares they showed back in their last 13F filing disclosing their entire portfolio. Chipotle shares have fallen a lot recently, and Tremblant obviously sees opportunity there. Keep in mind that this hedge fund typically doesn't take larger than 5% stakes in companies (which requires a 13G filing), so they definitely like this name, as this is the first major filing from them in quite some time.
If you're unfamiliar with Tremblant, here's what you need to know: This hedge fund is ran by Bret Barakett. If his last name sounds familiar, its because his brother, Timothy Barakett, manages fellow hedge fund Atticus Capital, whom we also track. Taken from their site, Tremblant Capital Group's objective is "to achieve superior risk adjust returns for our investors through our focused and disciplined investment process." Tremblant is a $4.1 billion hedge fund based in New York and is run by Bret Barakett, who is a former portfolio manager at Moore Capital Management (the hedge fund run by the great Louis Bacon, whom we also track). So, as you can see, despite having a great mind of his own, Barakett has worked with some of the best in the macro game. But, as we noted in September, Tremblant has had a rough year. In the past, Tremblant has also disclosed a 5.2% stake in Advanced Medical Optics (EYE) and a stake in PharmaNet (PDGI).
Taken from Google Finance,
Chipotle Mexican Grill, Inc. (Chipotle) "operates fast casual, fresh Mexican food restaurants serving burritos, tacos, bowls and salads. As of December 31, 2007, the Company had 704 restaurants in 33 states throughout the United States and in the District of Columbia."
Tuesday, February 10, 2009
Tremblant Capital Group Adds to Chipotle (CMG) Position
Hedge Fund Tontine Associates Sells Out Of 9 More Positions (Jeffrey Gendell)
Tontine Associates, the hedge fund firm ran by Jeffrey Gendell has yet again filed numerous amended 13G's with the SEC. Tontine has had a very rough year and will be closing two of its hedge funds, which is the reason behind much of the portfolio shuffling. As we've detailed before, Tontine has recently sold out of 15 positions, as well as filed amended 13D's to many of their holdings. They recently filed 9 more amended 13G's and have sold completely out of the following companies (in no particular order):
- Ceco Environmental (CECE)
- Champion Enterprises (CHB)
- Downey Financial Corp (DWNFQ)
- Insteel Industries (IIIN)
- Ecology & Environment (EEI)
- Graftech International (GTI)
- Columbus McKinnon Corp (CMCO)
- Emcor (EME)
- Hovnanian (HOV)
They had previously held positions in these companies but no longer own shares. All of the filings were made due to activity on December 31st, 2008. You can view their entire portfolio here. Do note that the next update of portfolio holdings (13F filing) is due in a week or so, and their portfolio will undoubtedly change again as they continue to liquidate positions as they close down 2 of their funds.
If you're unfamiliar with Tontine, they specialize in macro investing and take very large, concentrated positions in companies he feels will benefit from those macro themes. Additionally, he will take on an activist role when necessary, to ensure shareholder returns. The fund has posted returns in excess of 100% in both 2003 and 2005. Conversely, this year has been the year from hell for Tontine. Recently, they announced they would be closing two of their hedge funds: Tontine Capital LP and Tontine Capital Partners LP. Two of Tontine's funds will remain open: Tontine-25 and Tontine Financial.
It has definitely been an astonishing year for Gendell, whose Tontine firm is named after an annuity invented by Lorenzo de Tonti. In such an annuity, investors contribute and collect dividends. As investors each die off, their share is left to the remaining partners. Therefore, the last man alive receives all the money. Gendell's desire is clearly to be that 'last investor' remaining. Such a goal becomes slightly ironic when you consider his firm suffered monumental losses and almost 'died' this past year. Gendell explains the turmoil they faced in his October letter to investors (.pdf format).
Paulson & Co 2008 Year End Investor Letter & Report
If you've missed it, John Paulson's hedge fund sends out their report from the year that was 2008. Hat tip to NYT for posting it.
Paulson Funds Annual Report
Jim Rogers On Currencies
Jim Rogers recently gave his thoughts on various world currencies:
- Owns the Euro, Swiss Franc, Norwegian Krona, Danish Krona, Swedish Krona, Japanese Yen, Chinese Renminbi, Singapore Dollar, Australian Dollar
- Expects the Japanese Yen to rise another 10-15%
- The current dollar rally is a forced short covering - not a flight to safety
And here is the video:
Big hat tip to CommodityBullMarket for flagging this, which we somehow missed. For some of Rogers' recent commentary, check out his thoughts on British pound, on agriculture, on commodities, and more.
Monday, February 9, 2009
Bill Ackman's Pershing Square Letter to Investors (Re: Target)
The full text of Bill Ackman's letter to investors in his Pershing Square IV fund, which invests solely in Target (TGT).
"
February 8, 2009
Dear Pershing Square IV Investor:
A few further thoughts and an update on PSIV:
In my effort to get last week’s letter out promptly, I neglected to apologize. I am deeply disappointed by PSIV’s dreadful performance and I apologize profusely for the fund’s results to date. Over the last few days, we have spoken to both investors who wish to redeem and others who intend to contribute additional capital. We expect to be able to redeem any and all investors who choose to exit in March, in full and in cash. We will provide more details on the timing of distributions shortly.
I have spent the last few days thinking about what we can do beyond strong progress on Target and PSIV to somehow compensate you for PSIV losses to date. Approximately 90% of the investors in PSIV are also investors in the main Pershing Square funds. Substantially all of the overlapping investors have a larger investment in the main Pershing Square funds than in PSIV.
For those PSIV investors who are investors in the main Pershing Square funds, we will raise the high water mark, thereby waiving future incentive fees on your main Pershing Square fund capital account(s) and any additions to your capital account(s) until such time as you have recouped your PSIV losses.
By way of example, if you invested $10 million in PSIV and have lost $9 million of your capital, your high water mark on your main Pershing Square fund capital account(s) will go up by $9 million and you will not pay any incentive fees until you have recouped your entire $9 million PSIV loss. This commitment applies even in the event you remain an investor in PSIV and your PSIV investment increases in value. If you remain an investor in PSIV and your capital account declines further in value, you will receive an additional credit toward your high water mark in the main Pershing Square funds.
For the 10% of the investors that are not investors in the main Pershing Square funds, we offer you the following: We will raise the high water mark on any future investment you make in any Pershing Square fund or co-investment vehicle we subsequently offer so you will not pay any incentive fees until you have recouped your PSIV losses.
Our willingness to offer those investors not currently in the main Pershing Square funds a fee waiver is, of course, of little value if they make no future Pershing Square investment. To their credit, some of these investors, who are for the most part other hedge funds (that comprised approximately $1.3 billion of the original $2 billion of fund capital), have told me that they previously hedged a substantial portion, or in some cases 100% or more, of their exposure to Target through PSIV. Hopefully, this has helped to mitigate their PSIV losses in the event we are never able to recompense them.
Bottom line, PSIV has been one of the greatest disappointments of my career to date. That said, we continue to believe that we will ultimately be successful in our investment in Target. I am likely now the largest individual investor in Target through my interests in the various Pershing Square funds including my personal commitment of an additional $25 million of capital to PSIV. I and the rest of the Pershing Square team will work hard to achieve a successful outcome for all of us. On the pages which follow, we have attempted to answer investors’ most commonly asked questions. Please call me if you have any additional questions.
Sincerely,
William A. Ackman"
And, here's the .pdf version for those that want it.
Seth Klarman's Baupost Group Buys More RHI Entertainment (RHIE)
Well, it certainly looks like Seth Klarman's hedge fund Baupost Group has a fondness for RHI Entertainment. In late January, we disclosed that Baupost had been buying RHIE and had filed an amended 13D on it, disclosing a 30% position. Fast forward a few weeks later and we are now writing a nearly identical post.
Taken from another amended 13D and Form4 SEC filings, we now see that Baupost Group has a 33.06% stake in RHI Entertainment (RHIE) with now 4,463,534 shares. As per the Form 4, Baupost was buying shares as recently as 2/4/09, where they picked up an additional 385,202 shares at $4.28 a share. You can view their most recent portfolio updates here, as well as their portfolio in its entirety.
If you're unfamiliar with Baupost, then here's what you need to know: Over the past 25 years, Baupost has seen an annual compound return of 20% and is ranked 49th in Alpha's hedge fund rankings. Klarman has always considered himself a value investor and has been patient through the market turmoil. The past few years they have had nearly half their $14 billion in assets in cash. But, with turmoil comes opportunity. And, as such, Baupost's cash has been gradually deployed by Klarman and Baupost's 100 employees, leaving them with around a fourth of assets left in cash. Klarman's investment process is detailed in his book Margin of Safety. In it, he lays out a "how-to" on risk-averse value investing. The book is no longer actively printed and is very hard to find. His take on recent market action can be viewed in his recent interview with Harvard Business School. For more information about Klarman, check out our post on hedge fund manager interviews.
Taken from Google Finance,
RHI Entertainment, Inc. "develops, produces and distributes new made-for-television movies, mini-series and other television programming worldwide. The Company also selectively produces new episodic series programming for television."
Hedge Fund Paulson & Co Files 13Gs on Rohm & Haas (ROH) and Boston Scientific (BSX)
John Paulson's hedge fund Paulson & Co has recently filed two 13Gs with the SEC due to activity on December 31st, 2008. Firstly, they have disclosed a 9.24% ownership stake in Rohm & Haas (ROH). The filing shows them owning 18,041,111 shares. ROH was set to be acquired by Dow Chemical (DOW), but the deadline recently passed. Paulson has decided to become more proactive with this position and has sent a letter to Dow Chemical regarding his stance on the merger. Obviously, as a large ROH shareholder, Paulson wants the deal to go through.
Secondly, Paulson & Co has also filed a 13G and has disclosed a 6.6% ownership stake in Boston Scientific (BSX). The filing shows them owning 99,135,000 shares in the company. You can view Paulson's entire portfolio here. Additionally, Paulson recently filed a 13G on Mirant (MIR) as well.
Paulson & Co has had back-to-back successful years, profiting from the sub-prime mess and overall chaos at financial institutions. Some of their funds finished 2008 up 24% and 37%, as we noted in our year end 2008 Hedge Fund performance numbers summary. Lastly, we also noted that one of Paulson's co-portfolio managers would be leaving to start his own fund.
Taken from Google Finance,
Rohm & Haas is "a specialty materials company. The Company operates through seven segments: electronic technologies, display technologies, primary materials, paint and coatings materials, packaging and building materials, performance materials group and salt."
Boston Scientific is "a developer, manufacturer and marketer of medical devices that are used in a b range of interventional medical specialties, including interventional cardiology, cardiac rhythm management, peripheral interventions, electrophysiology, neurovascular intervention, oncology, endoscope, urology, gynecology and neuromodulation."
Mohnish Pabrai Letter to Investors (Pabrai Investment Funds)
Just wanted to post up Mohnish Pabrai's letter to his Pabrai Investment Fund investors sent out in January 2009 detailing his 2008 year-end summary.
*Update: The letter has been removed per the request of the underlying firm.
Keep an Eye on Transports ($TRAN)
Stewie's post recently reminded me to keep an eye on the Transports. I like to watch this average for two reasons. Firstly, transports are an important gauge of economic activity. Secondly, transports typically are a leading indicator (for instance leading out of the recession). In addition to the transports, we've also looked at unemployment rates during recessions as a leading indicator, noting that the rate always skyrockets right before the worst is over.
Currently, the Transports average $TRAN is stuck in a very solid trading range, and has been for quite some time (as illustrated below). It has very strong support around the $2900 level and one should look to buy there. There seems to be a short opportunity setting up in transports as the average reaches resistance around the $3200 level. And, keep an eye out to see if the index breaks out of this past overhead resistance (as well as the 200 day moving average, which also acts as resistance). You can obviously play this by buying/selling various transport names like trucking companies, railroad plays and such.
A breakout over this heavy layer of near-term resistance would be obviously very bullish for transports. And, if this happens, it could be a signal that the recession is drawing nearer to a close, seeing as transports act as a leading indicator to economic activity. But, we unfortunately would expect the transports to fail at this resistance, setting up a nice short of the group. Because, after all, with the consumer in the house of pain, what has really changed with the economy? We would love to be proven wrong, though.
(click to enlarge)Also, keep your eye on the Baltic Dry Index ($BDI), which measures bulk shipping. This volatile index is also a gauge for economic activity around the globe. And, if shipping activity is weak, then the odds are that we probably aren't out of the woods yet. As you can see from the chart, the index just absolutely fell off a cliff back in August of 2008. We've seen signs of a rebound, and we will continue to monitor it. Noted trader and author of the Gartman Letter, Dennis Gartman has also advocated monitoring the BDI in his recent interview with Bloomberg where he discussed the economy and Gold (GLD), among other things.
(click to enlarge)Friday, February 6, 2009
CHP Designation - Certified Hedge Fund Professional (Part 2)
This is Part 2 of our conversation with Richard Wilson about the CHP Designation - Certified Hedge Fund Professional. The CHP is a designation similar to the CFA and CAIA, but specifically geared towards hedge funds. We are also pleased to announce a MarketFolly exclusive $50 discount off of registration (more details on that below). Since many of our readers are in the industry or desire to be in the industry, we figured this could be very useful. (Note: sign-up fast, because spots are very limited).
We asked him a ton of questions about the program and he gave us a great overview. We already presented Part 1 of the interview on Wednesday. Now, here's the rest:
7. Do you think credibility or prestige will be an issue being a new designation?
While media outlets such as the Financial Times, Alpha Magazine, and Institutional Investor have covered us a few times, many hedge fund managers and professionals are still learning about who we are and what we are trying to do. Some businesses and certification programs come and go so it will take 2-3 years to gain the trust and credibility that we will need to take our program from 300-400 participants a year which we are at now to 1,000+ participants a year. We are open to media interviews, input from hedge fund managers, and we constantly seek feedback from participants to help us continually improve the program itself and our image within the industry.
8. How many applicants are you expecting each year and how many do you think will pass?
In 2009 we predict having 400 total participants and we believe that roughly 250-300 of these will pass the exam to hold the Level 1 charter. A 70-75% pass rate is what we expect for 2009. We believe in making the exam very challenging but failing 50% of those who take the exam as some designations do sounded extreme to our team, especially when participants are forced to pay full registration fees for each exam they sit for.
9. Do you think its a bad time to launch such a designation given the consolidation and somewhat chaotic nature of the industry right now?
We believe it is needed more than ever. There has never been a more competitive time to be seeking new hedge fund clients, partners, or jobs. We believe the CHP Designation can act as a tool for those professionals who need to break new grounds in one of these three areas. I'm sure if we had started the designation several years ago we would be of a much larger size by now but we are fortunate to have the team and advisory board we have now and we are here to stay. Our program is well capitalized and there is no risk of discontinuation in the forseeable future.
10. What about those trying to break into the industry? Will it be beneficial to them and are they allowed to take it?
The CHP Designation program was initially aimed at those who were not yet in the industry or those who were in their first 2 years of entering the hedge fund world. What we found, however, was that many highly experienced professionals were enrolling for our program because of its well rounded learning objectives and focus on hedge fund strategies and due diligence. For example one trader who started a hedge fund in 2006 just enrolled into our CHP Level 1 program because while he is an expert at trading and runs his own hedge fund he wanted to learn more about fund of hedge funds and how to evaluate hedge fund performance. Around 80% Of the professionals who complete the program already work within the industry.
11. The CHP offers networking and mentoring opportunities, which can be a great resource. Was it one of the goals to also build a community around the designation? Also, what are some of the other benefits?
The community really came first and helped seed the idea of starting the CHP Designation. The Hedge Fund Group (HFG) is the 17,000 person networking association which launched the CHP Designation. This group has members from every major city around the world, with over 4,000 hedge funds being represented by participants who have joined the group. The HFG holds networking events several times a year within the US and will soon begin offering these outside of the US as well.
12. There have been many different charters created over the years... Why will yours succeed and what gives it staying power?
--
Make sure you also check out Part 1 of the interview. Thanks again to Richard for answering our questions. It sounds like the CHP is ideal for both professionals already in the industry looking to advance their career, as well as those looking to break into the industry. (Note: sign-up fast, because spots are very limited). Also, a special thanks to him for helping to arrange the $50 discount exclusively for MarketFolly readers. Please note: The only way to be able to receive the MarketFolly $50 discount is by using the form below.
Submit your contact details to learn more about the CHP Designation program:
(Email & RSS feed readers: You have to come to the blog to submit your contact info)
Peter Thiel's Clarium Capital & Ken Griffin's Citadel: January 2009 Performance
Peter Thiel's Clarium Capital finished the month of January +6.7%. If you're unfamiliar with Clarium, we've covered them on the blog before.
Here is their breakdown:
(click to enlarge)And if that is too hard to read, here is the .pdf courtesy of Dealbreaker.
Additionally, Bloomberg gave us a glimpse as to how Ken Griffin's Citadel is performing in the new year. After being down 55% last year, their main Kensington and Wellington funds finished up 4.75% for January 2009. Don't forget that Citadel has opened one of its funds to investors as they try to purchase some of the equities held in their main funds.
You can view Citadel's portfolio here and Clarium's portfolio here (although do note that Clarium doesn't do much in long US equities).
What We're Reading (2/6/09)
John Paulson's advice to Dow Chemical re: ROH
Packaging debt for sale
Pershing Square Capital Management 2008 Report
John Meriwether (of Long Term Capital Management fame) tries to launch yet another fund
Thursday, February 5, 2009
Jeffrey Gendell's Tontine Associates Files 13G's, Sells Out of 15 Positions
Tontine Associates, the hedge fund firm ran by Jeffrey Gendell has filed numerous amended 13G's with the SEC. As we've covered before on the blog, Tontine has had a very rough year and will be closing two of its hedge funds. The problem with their struggles is that they are the largest shareholder of some 8 companies and are trying to figure out what to do with those positions. Additionally, they've been shuffling their portfolio all around. We recently covered their most recent portfolio updates prior to these filings and we've covered their entire portfolio here.
Tontine filed amended 13G's on the following 15 companies and all the filings are essentially the same. We went through each individual filing and they were all similar in that Tontine sold completely out of their positions in the companies listed below. All of the filings were required due to activity on December 31st, 2008. So, as of these latest filings, Tontine has 0% stakes in the following companies and now holds 0 shares in each, having previously held a position in them:
- PowerSecure International (POWR)
- TRC Companies (TRR)
- Pike Electric (PEC)
- Tetra Tech (TTEK)
- Ryland Group (RYL)
- YRC Worldwide (YRCW)
- Perini Corp (PCR)
- Powell Industries (POWL)
- U.S. Concrete (RMIX)
- SIFCO Industries (SIF)
- PFF Bancorp (PFFBQ)
- M/I Homes (MHO)
- Accuride (AURD)
- Michael Baker Corp (BKR)
- AZZ Incorporated (AZZ)
So, given that they are closing down 2 funds, we'll have to keep an eye out to see what other positions they may be liquidating and exiting. Gendell & Tontine specialize in macro investing and take very large, concentrated positions in companies he feels will benefit from those macro themes. Additionally, he will take on an activist role when necessary, to ensure shareholder returns. The fund has posted returns in excess of 100% in both 2003 and 2005. Conversely, this year has been the year from hell for Tontine. Recently, they announced they would be closing two of their hedge funds: Tontine Capital LP and Tontine Capital Partners LP. Two of Tontine's funds will remain open: Tontine-25 and Tontine Financial.
It has definitely been an astonishing year for Gendell, whose Tontine firm is named after an annuity invented by Lorenzo de Tonti. In such an annuity, investors contribute and collect dividends. As investors each die off, their share is left to the remaining partners. Therefore, the last man alive receives all the money. Gendell's desire is clearly to be that 'last investor' remaining. Such a goal becomes slightly ironic when you consider his firm suffered monumental losses and almost 'died' this past year. Gendell explains the turmoil they faced in his October letter to investors (.pdf format).
Information on the companies they sold out of, taken from Google Finance:
"PowerSecure International, Inc. (PowerSecure), formerly from Metretek Technologies, Inc., is a provider of energy management and conservation solutions to utilities and their commercial, institutional and industrial customers. The Company operates through its wholly owned subsidiaries, PowerSecure, Inc. (PowerSecure subsidiary), Southern Flow Companies, Inc. (Southern Flow), Metretek, Incorporated (Metretek Florida) and WaterSecure Holdings, Inc. (WaterSecure)."
TRC Companies, Inc. "is a national consulting, engineering and construction management firm that provides integrated services to the environmental, energy, infrastructure and real estate markets."
Pike Electric Corporation "is a provider of outsourced electric distribution and transmission services in the United States. It performs engineering, design, maintenance, upgrade and construction of electric distribution powerlines, sub-500 kilovolt (kV) transmission powerlines and substations for electric utilities, cooperatives and municipalities."
Tetra Tech, Inc. "is a provider of consulting, engineering, program management, construction and technical services focusing on resource management and infrastructure. The Company serves its clients by providing solutions to fundamental needs for water, environmental and alternative energy services."
The Ryland Group, Inc. "operates as a home builder and a mortgage finance company. The Company consists of six operating business segments: four geographically determined homebuilding regions; financial services, and corporate."
YRC Worldwide Inc. "is a holding company that through wholly owned operating subsidiaries offers its customers a range of transportation services. These services include global, national and regional transportation as well as logistics."
Perini Corporation (Perini) "is a construction services company, offering diversified general contracting, construction management and design-build services to private clients and public agencies throughout the world."
Powell Industries, Inc. (Powell) "develops, designs, manufactures and services engineered-to-order equipment and systems for the management and control of electrical energy and other critical processes."
U.S. Concrete, Inc. (U.S. Concrete) "is a producer of ready-mixed concrete, precast concrete and concrete-related products in select markets in the United States."
SIFCO Industries, Inc. (SIFCO) "is engaged in the production and sale of a range of metalworking processes, services and products produced primarily to the specific design requirements of its customers."
PFF Bancorp, Inc. "is a diversified financial services company. It conducts its business principally through its wholly owned subsidiary, PFF Bank & Trust (the Bank)."
M/I Homes, Inc. "is a builder of single-family homes. The Company sells and constructs single-family homes, attached townhomes and condominiums to first-time, move-up, empty-nester and luxury buyers under the M/I Homes and Showcase Homes trade names."
Accuride Corporation (Accuride) "is a manufacturer and supplier of commercial vehicle components in North America."
Michael Baker Corporation "provides engineering and energy services to public and private sector clients worldwide through its operating subsidiaries."
AZZ incorporated (AZZ) is "an electrical equipment and components manufacturer, serving the global markets of power generation, transmission and distribution, and the general industrial markets."
Where Some Market Gurus Are Investing
Recently, some 'market gurus' spoke up about where they are investing in these challenging times and we wanted to highlight some of the results:
John Bogle, the founder of Vanguard
- Roughly 25% in stocks
- Says: "I earn my money and spend my money in dollars, and I don't need to take currency risk."
David Dreman, the contrarian and manager of Dreman Value Management
- Roughly 70% stock allocation
- Likes oil and gas exploration and production companies such as Apache (APA), Anadarko Petroleum (APC), & Devon Energy (DVN)
Burton Malkiel, economics professor at Princeton and author of A Random Walk Down Wall Street (which we highly recommend).
- Bumped up his allocation to tax-exempt bonds due to great yields
Jeremy Siegel, professor of finance at the University of Pennsylvania's Wharton School and senior advisor to WisdomTree
- Raised allocation to junk bonds
- Says: "Stocks and high-yield bonds will move together as the crisis passes."
- 1/4th to 1/3rd of foreign stock allocation in emerging markets: "They've gotten cheap enough to really give value now."
- Added U.S. real estate investment trusts to his portfolio
Muriel Siebert, founder of Muriel Siebert & Co
- Buying Pfizer (PFE), Altria (MO), & General Electric (GE)
- Says: "I don't mind buying a stock on the bottom and waiting. But I do think when you get a market like this, you should be paid while you wait" (hinting at the solid yields of those stocks).
Jim Rogers, founder of the successful, now defunct Quantum fund (along with George Soros). Also author of Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market
- Putting new money into Chinese shares, focusing on buying agriculture, water, infrastructure. Also focused on putting new money into commodities, particularly agricultural ones.
- Some of his other stances include: Bearish on long term US bonds/treasuries and also bearish on the British Pound.
Link: WSJ
Dennis Gartman Talks Gold
Dennis Gartman, noted trader and author of The Gartman Letter sits down with Bloomberg to talk gold, amongst other things. (Video)
Wednesday, February 4, 2009
CHP Designation - Certified Hedge Fund Professional
We recently sat down with Richard Wilson to interview him about the CHP Designation - Certified Hedge Fund Professional. The CHP is a designation similar to the CFA and CAIA, but specifically geared towards hedge funds. We are also pleased to announce a MarketFolly exclusive $50 discount off of registration (more details on that below). Since many of our readers are in the industry or desire to be in the industry, we figured this could be very useful. We asked him a ton of questions about the program and he gave us a great overview which we'll deliver in two parts: Part 1 today and then Part 2 on Friday. (Note: sign-up fast, because spots are very limited). Let's get right to it:
1. Tell us a little about the CHP: What is it? How did it get started? What's your affiliation with it?
The CHP Designation is an online certification program on the topic of hedge funds. It got started through a combination of factors which included our team's realization that every other designation out there was built for analysts or risk managers and at the same time our team had received over 1,000 emails asking us about how one could learn more about hedge funds or earn a degree relevant to hedge funds. We connected all of the dots and launched the program in June of 2008 with an advisory board of 10 professionals and a team of 3. Today we have a team of 6 professionals and an advisory board of over 60 hedge fund and fund of hedge fund professionals. I founded the Hedge Fund Group (HFG), a 17,000 person networking association which sponsors the CHP Designation program.
2. What's the one reason people should apply for the CHP designation?
Efficiency would be the one common reason. Whether you are starting a hedge fund, completing due diligence on hedge funds for a wealth manager, marketing a fund of hedge fund or hoping to eventually work for a hedge fund you will be more effective if you are up to speed on industry terminology, trends, norms, history, and popular hedge fund investment strategies. This specialized knowledge can be gained through our program and help professionals of all types.
3. Why should people choose the CHP over (or in addition to) the CFA or CAIA?
The CFA and CAIA are great programs but they are by their nature focused on minting new analysts and providing specific training on conducting types of analysis. The CHP Designation program is more conceptual and well rounded and built for traders, analysts, portfolio managers, accountants, lawyers, marketers and others who work with hedge funds such as wealth management professionals.
4. (Also) What are the main differences between the CHP and those other designations? How does the degree of difficulty for obtaining a CHP compare to those others in terms of rigor and thoroughness?
The main difference between the CHP and the other designations, besides the non-analyst centric foundation is that the program is offered 100% online. The registration, studying, and exam is complete over the internet; there are no testing centers or specific geographical requirements to completing the program. The CHP Designation is more thorough in covering the hedge fund industry as a whole but less thorough in covering the specific analytics involved in the analysis of securities, real estate, or commodities.
5. I see there are currently 2 levels of certification. Are there plans for a third? And along those lines, do you expect the program to evolve along with the hedge fund industry and how so?
Level 1 provides a foundation of hedge fund knowledge while Level 2 allows professionals to choose a specific area of specialization within the program. There are no plans for a third level to the designation. We initially attempted to keep the designation to one level to keep the program simple but found two levels were needed to really customize the program for each participant. We do expect the program to evolve along with the hedge fund industry. Between our team and board of advisors consisting of 60 industry professionals, we are constantly keeping a pulse on industry changes and long-term trends which will affect the entire industry in the next few years.
6. Who do you anticipate the most applicants to be? Hedge Fund analysts or whom?
Most participants work within the hedge fund industry or work with hedge fund professionals from time to time. Specifically, the most popular groups have included hedge fund managers, due diligence professionals, wealth management experts, graduate students, and consultants/service providers.
--
Thanks to Richard for taking the time to sit down and answer our questions. It sounds like the CHP is ideal for anyone looking to further advance their career, build their resume/CV, or develop their knowledge of the industry. (Note: sign-up fast, because spots are very limited). Also, a special thanks to him for helping arrange the exclusive MarketFolly $50 discount. Also check out Part 2 of the interview, which is now published. Please note: The only way to be able to receive the MarketFolly $50 discount is by using the form below.
Submit your contact details to learn more about the CHP Designation program:
(Email & RSS feed readers: You have to come to the blog to submit your contact info)
A Simple Conservative Fixed-Income Portfolio
Wanted to take a second and highlight a simple fixed income portfolio. For those who are too busy to actively manage their portfolio in this crazy market, there's a simpler, "set it and forget it" type of portfolio for generating income. Such a portfolio was just highlighted as a conservative option recently in Kiplingers. They write,
"William Larkin, fixed-income portfolio manager at Cabot Money Management, in Salem, Mass., says his portfolio was originally designed for conservative clients who wanted conservative investments.These days, though, he finds that many clients who hadn't considered themselves conservative in the past are now interested in fixed-income investing only. This portfolio represents all parts of the fixed-income market at the lowest possible cost, he says, and recently yielded 6.3%. It also has a healthy slug of inflation protection, which is particularly reassuring given all the money that's being printed for various government stimulus and rescue plans around the world.
Larkin's portfolio:
25% iShares Barclays Aggregate Bond ETF (AGG) (Tracks a broad index of high-quality U.S. bonds)
25% iShares iboxx $ Investment Grade Corporate (LQD) (Tracks an index of the most liquid, long-term corporate bonds)
10% Fidelity Floating Rate High Income (FFRHX) (Invests in floating rate bank loans that automatically adjusts to rising short-term interest rates. It offers additional inflation hedge)
10% iShares MBS Fixed Income (MBB) (Tracks a broad index mortgage-backed securities)
7.5% SPDR DB International Govt Inflation-Protected Bond (WIP) (Invests in an index of non-U.S., inflation-linked bonds)
7.5% PowerShares Emerging Markets Sovereign Debt (PCY) (Tracks an index of emerging markets government debt)
7.5% iShares Barclays TIPS Bond (TIP) (Tracks an index of inflation-protected, U.S. Treasury securities)
7.5% iShares Iboxx $ High Yield Corporate Bond (HYG) (Tracks an index of high yield bonds)"
We actually wouldn't change much up with this portfolio. We'd obviously alter the percentage weightings based on age, retirement date goal, and risk tolerance. But, overall, this is a pretty solidly constructed portfolio for a conservative yield-seeking investor. And, you could substitute some other vehicles in there for other exposure as well. We definitely advocate a position in TIP for those desiring protection from the (in our mind) impending inflation. Also, LQD offers a decent yield from corporate bonds of many blue chip companies that aren't as risky. Blend in the corporate bond exposure from LQD with some exposure to HYG for exposure to riskier, higher yielding corporate bonds as well. Those are definitely our three favorite instruments in this portfolio. Emerging Market debt is also a very interesting play that theoretically could be enticing here, but we haven't done enough work in that area yet to really comment further on it.
You can view the entire post: Three Simple Portfolios.
Full Disclosure: market folly was long LQD at the time of publication
Tuesday, February 3, 2009
Predicting Inflation Or Deflation?
MarketClub is out with a new educational trading video about an indicator that has predicted every inflationary and deflationary cycle since around 1957. They are referring to the Reuters-Jefferies CRB Index (NYBOT_CR) which is comprised of aluminum, copper, gold, grains, crude oil, wheat, and many more commodities.
Check out the video: The #1 predictor of Inflation or Deflation and let us know what you think about their take. For the record, we think inflation is in our future. The question is, just how far in the future?
Harbinger Capital Partners (Philip Falcone): Portfolio Update / 13D Filings
Philip Falcone's $13 billion hedge fund, Harbinger Capital Partners, has filed amended 13D's with the SEC recently. Firstly, they have disclosed a 20.9% stake in SeraCare Life Sciences (SRLS). They have 3,872,370 shares as per the latest amended 13D. You can view the rest of Harbinger's portfolio holdings here.
Secondly, in an amended 13G, Harbinger has disclosed a 13.5% ownership in Augusta Resources (AZC) with 11,991,339 shares.
Thirdly, they've disclosed that they've been selling some shares and now have a 10.63% ownership stake in Cliffs Natural Resources (CLF). We detailed the changes to this position before when we covered Harbinger's Form 4 and press release. They have continued to sell shares, with their latest Form 4 showing 10 large batches of sales on January 14th, 15th, and 16th at around $22 per share.
Fourthly, in an amended 13D, they've noted their current 7.5% stake in Cablevision systems (CVC).
Next, in an amended 13G, they've also shown their 9% stake in Navistar International (NAV).
Lastly, they have disclosed a 63.8% ownership stake in SkyTerra Communications (SKYT). In the filing, they may be deemed to beneficially own 43,466,176 shares. The filing itself is complex and full of many details, so we suggest reading it in its entirety to fully understand Harbinger's position in the company. You can view the rest of Harbinger's portfolio holdings here.
Taken from StreetInsider, Harbinger is "a disciplined value investor with an emphasis on intensive credit research. Its focus is on middle market companies that tend to be misunderstood or under-researched by the market. Investment approaches include: Restructuring/Bankruptcy, Turnaround, Liquidation, Event Driven, Capital Structure Arbitrage, Short Sale and Special Situations." At one point during 2008, they were up as much as 42%. But, their fortunes turned as they found themselves giving up those gains. One position that treated them nicely was their short of Wachovia (WB), which we detailed here.
Taken from Google Finance,
SeraCare "serves the global life sciences industry by providing products and services to facilitate the discovery, development and production of human and animal diagnostics and therapeutics. The Company’s portfolio includes diagnostic controls, plasma-derived reagents and molecular biomarkers, biobanking and contract research services."
Augusta Resource is "engaged in the acquisition, exploration and development of natural mineral resource properties. The Company does not produce, develop or sell any products. The properties that the Company has interests in are in the exploratory stage."
Cliffs Natural Resources "formerly Cleveland-Cliffs Inc, is an international mining company, a producer of iron ore pellets in North America and a supplier of metallurgical coal to the global steelmaking industry. It operates six iron ore mines in Michigan, Minnesota and Eastern Canada, and three coking coal mines in West Virginia and Alabama. Cliffs also owns 80.4% of Portman, an iron ore mining company in Australia, serving the Asian iron ore markets with direct-shipping fines and lump ore. In addition, it has a 30% interest in the Amapa Project, a Brazilian iron ore project, and a 45% economic interest in the Sonoma Project, an Australian coking and thermal coal project. It is organized into three business segments: North America Iron Ore, North American Coal and Asia-Pacific Iron Ore."
SkyTerra Communications is "a holding company that owns 99.3% of Mobile Satellite Ventures LP (MSV) and 11.2% of TerreStar Networks. Its subsidiaries and affiliates operate in the United States and Canada. The Company offers a range of mobile satellite services (MSS) using two geostationary satellites that support the delivery of data, voice, fax and dispatch radio services."
Cablevision Systems is "a cable operator in the United States. The Company operates through its subsidiary, CSC Holdings, Inc. (CSC Holdings). The Company operates cable programming networks, entertainment businesses and telecommunications companies."
Navistar International "is a holding company that operates through its principal operating subsidiaries, Navistar, Inc. and Navistar Financial Corporation."
Julian Robertson's Portfolio & Latest Thoughts
Julian Robertson recently sat down and gave us a peek inside his portfolio and mind. If you're unfamiliar with Robertson, he is a legendary hedge fund manager who ran Tiger Management. We cover many of his 'Tiger Cubs' on the blog: Fund managers who learned under Robertson at Tiger and then eventually started their own funds. We've covered Julian's portfolio and thoughts on the blog before. In his latest interview, he is decisively bearish on both the US and world markets. He thinks we have not solved the current problems and it could get worse. He likened the U.S.'s current situation to that of Japan in 1989, but thinks we are in worse shape.
In terms of his portfolio, Robertson is still long Visa (V) and Mastercard (MA), citing their lack of credit risk as part of his fondness for them. He has sold all of his Goldman Sachs (GS) and no other financials interest him except for MA and V (even though they technically aren't a 'financial' in the traditional sense). He is also buying puts on longer-term treasuries, as he thinks that rates will rise within 5 years or so. Robertson had said that he thinks rates could very easily hit 7% and that they could go as high as 18%. The easiest way to put on such a trade for retail investors in equity markets would be to buy puts on TLT, the 20 year treasury bond ETF. Overall, this echoes his thoughts and portfolio disclosures that he has talked about in his previous interview, as well as at a 'Tiger Cub' hedge fund panel, where hedge fund managers with ties to Tiger presented investment theses.
Consumer Loans & Credit Cards = House of Pain in 2009
Head of JPMorgan Jamie Dimon is not too optimistic for 2009. And, understandably so. He's right in the middle of the financial tsunami. After a year of re-shaping the industry, there is more pain ahead for financial institutions as consumer loans start to kick the financial landscape's collective ass.
Per the FT, Dimon goes on to say that,
“The worst of the economic situation is not yet behind us. It looks as if it will continue to deteriorate for most of 2009. In terms of our sector, we expect consumer loans and credit cards to continue to get worse. When we look back at industry excesses in areas such as highly leveraged lending and securitisation, it is clear that some of these markets will never come back.”
This is clearly not good news for institutions who have been trying to weather the year-long storm. They've faced waves of a credit crisis, subprime, and leverage. Now, a whole new tidal wave is about to hit their shores: consumer loans. The economic malaise that has plagued Wall Street for some time now has also been hitting Main Street. Consumers are not only defaulting on their mortgages, but also on their car loans and credit cards.
We've harped on this issue for a while now on the blog, as the warning signs have always been there. As the consumer deleverages, their savings rate will have to rise in order to get out of this mess. One of our darling shorts from the past year, Capital One (COF), has been quietly licking their wounds, hoping the eye of the storm passes them by. Unfortunately for them, it may now be time for them to face the storm head on. Here are some highlights from December:
- Credit Default: Annual net charge-offs were 7.71% in December, up from 6.98% in November.
- Loans 30 days delinquent increased from 4.7% in November to 4.78% in December.
- Auto loan segment saw charge-offs of 5.93% in December, up from 5.6% in November.
- Auto loan delinquencies were up from 9.48% in November to now 9.91% in December.
- International charge-offs were 6.2% in December, up from 5.17% the month prior.
- International delinquencies rose to 5.51%, up from 5.44%
As you can see, charge-offs are rising. And, they have been for many months now. This is very problematic for a company that derives 75% of its earnings from credit card operations. As delinquencies and charge off rates continue to rise, the Economy is certainly not on their side. However, if the past is any indication, they do have the Government on their side, who has graciously given them a capital infusion in the past. Something to keep an eye on. Overall though, the environment in 2009 doesn't necessarily get any easier for financial institutions.
The credit card squeeze is upon us.
Monday, February 2, 2009
Farallon Capital Management (Thomas Steyer) Portfolio Update: 13D & 13G Filings
Farallon Capital Management, the $30 billion hedge fund firm ran by Thomas Steyer has filed a bunch of amended 13G's. Firstly, we'll cover the positions they sold out of completely. Farallon no longer shows a stake in these companies, having previously held a position. They no longer own:
- Airtran Holdings (AAI)
- TreeHouse Foods (THS)
- Energy Partners Limited (EPL)
- Sealy Corp (ZZ)
- The Medicines Company (MDCO)
- Exco Resources (XCO)
- Beacon Roofing Supply (BECN)
Now, on to the companies they have disclosed amended ownership stakes in. They have disclosed a 4.6% ownership in FreightCar America (RAIL) with 542,115 shares. You can view the rest of Farallon's portfolio holdings here.
They also filed a 13D with the SEC and disclosed a 15% ownership stake in CapitalSource (CSE). The 13D was filed due to their activity on January 1st, 2009 and they currently own 42,270,274 shares.
Next, Farallon has filed a 13G with the SEC and has disclosed a 4.8% ownership stake in GeoEye (GEOY). The 13G was filed due to their activity on December 22nd, 2008. They have decreased their position in GEOY and currently own 887,752 shares. This is down from their previous 13F filing which detailed their position as of September 30th, 2008, when they owned 1,041,500 shares.
Additionally, they filed an amended 13D on MI Developments (MIM) and has disclosed a 7.9% ownership stake in the company. Farallon now owns 3,413,787 shares of MIM, down slightly from their previous 3,939,400 shares. The filing was required due to multiple days of activity, including acquiring shares on January 1st, 2009 and then selling various amounts of shares on January 5th, 6th, 7th, and 12th.
Lastly, Farallon also filed an amended 13G on Knology (KNOL) and shows a 14.0% ownership stake in the company. Farallon owns 4,970,375 shares. The filing was required due to activity on January 1st, 2009.
Farallon invests in both public and private debt, equities, private investments, and real estate. For the year of 2008, Farallon was ranked 3rd in Alpha's hedge fund rankings. Farallon is a $30 billion firm and has recently suspended withdrawals from their largest fund after receiving redemption requests for around 25% of the fund's capital. The fund won't be charging typical management and performance fees, but instead will charge accounting fees. Farallon's recent portfolio performance is available here. Additionally, you can also read one of their recent investor letters.
Taken from Google Finance,
FreightCar America is "a manufacturer of aluminum-bodied railcars in North America, based on the number of railcars delivered. The Company specializes in the production of aluminum-bodied coal-carrying railcars."
CapitalSource is "a commercial finance, investment and asset management company focused on the middle market. The Company operates as a real estate investment trust (REIT), and provides senior and subordinate commercial loans, invest in real estate and residential mortgage assets, and engage in asset management and servicing activities."
GeoEye is "a provider of global space-based, and aerial imagery and geospatial information. The Company operates the IKONOS high resolution and OrbView-2 low-resolution satellites."
MI Developments Inc. "is a real estate operating company engaged in the ownership, management, leasing, development and acquisition of industrial and commercial real estate properties. The Company also own land for industrial development and own and acquire land that would be developed for mixed-use and residential projects."
Knology is "an integrated provider of video, voice, data and advanced communications services to residential and business customers in nine markets in the Southeastern United States and two markets in the Midwestern United States. The Company provides its services over its wholly owned, fully upgraded minimum 750 megahertz interactive broadband network."
George Soros Discusses His Portfolio From 2008
Hedge fund manager and legendary investor George Soros recently penned an article in the FT, detailing how the markets played out in 2008 when Lehman Brothers was allowed to fail. In the article, there is also a section entitled 'The Soros Investment Year,' where he details how his portfolio played out over 2008. He writes,
"Positions I took were too big for ever more volatile markets.
Although I positioned myself reasonably well for what was coming last year, one thing I got wrong cost me dearly: there was no decoupling between markets of the developed and developing worlds.
Indian and Chinese stocks were hit even harder than those in the US and Europe. Since we did not reduce our exposure, we lost more money in India than we had made the year before. Our Chinese manager did better by his stock selection; we were also helped by the appreciation of the renminbi.
I had to push very hard in my macro-account to offset both these losses and those incurred by our external managers. This had its own drawback: I overtraded. The positions I took were too large for the increasingly volatile markets and, in order to manage my risk, I could not go against the market in a big way. I had to try to catch minor moves.
That made it difficult to maintain short positions. Although I am an experienced short-seller, I got caught several times and largely missed the biggest down-draught, in October and November.
On the long side, where I stuck to my guns, I lost an enormous amount of money. I was impressed by the potential in the new deep-water oilfield in Brazil and bought a large strategic position in Petrobras (PBR), only to see it decline by 75 per cent at one point in time. We also got caught in the developing petrochemical industry in the Gulf.
We did get out of our strategic long position in Vale (RIO), the Brazilian iron ore producer, in time for the end of the commodity bubble and shorted the other big iron ore groups. But we missed an opportunity in the commodities themselves – partly because I knew from experience how difficult it is to trade them.
I was also slow to recognise the reversal of fortune for the dollar and gave back a large portion of our profits. Under the direction of my new chief investment officer, we did make money in the UK, where we bet that short-term interest rates would decline and shorted sterling against the euro. We also made good money by going long on the credit markets after their collapse.
Eventually I understood that the strength of the dollar was due not to people choosing to hold dollars but to their inability to maintain or roll over their dollar obligations. In a very real sense the strength of the dollar, like the fever associated with sickness, was a measure of the disruption of the financial system. This insight helped me to anticipate the downturn of the dollar at the end of 2008. As a result, we ended the year almost meeting my target of 10 per cent minimum return, after spending most of the year in the red."
Its interesting to see Soros speak about his portfolio so freely, as it gives you a rare look inside how a hedge fund manager's portfolio played out over a yearly time-frame. When we covered Soros' portfolio holdings, we had noted his large stake in Petrobras (PBR), one which he was immediately underwater on. We've also noted that he has been building up a large stake in fertilizer player Potash (POT) to coincide with his bullish stance on agriculture. It sounds as if he has stuck with his position, but we will see when the latest SEC filings come out here in the next few weeks.
Soros has been omnipresent in this crisis it seems, sharing his take on the current markets and what has happened. In fact, he's even written a book about the current financial landscape entitled, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. He sees vast problems with the financial industry and also sees a contraction in the hedge fund industry underway.
To further understand how Soros' mind works, we'd highly recommend reading his book, The Alchemy of Finance by George Soros. In it, Soros details his decision making process behind investing in the financial markets. Paul Tudor Jones has said that this book is, "a timeless instructional guide of the marketplace." In addition to covering Soros on the blog, we've also covered his old Quantum fund partner Jim Rogers' thoughts over the course of the year. He likes agriculture and commodities going forward on the long side. On the short side, he likes the US Dollar, the British Pound, and long term treasuries.
If you're unfamiliar with Soros or would just like more of his thoughts, head over to our post on hedge fund manager interviews. And, here is the link to his January 28th article in the FT.
Hedge Fund Investor Letters & Other Good Reads
Some preliminary Hedge Fund January '09 performance numbers
GMO's Jeremy Grantham Q4 letter
Bill Ackman's Pershing Square Capital: Annual Presentation & recent portfolio updates
David Einhorn's Greenlight Capital investor letter & portfolio updates
Viking Global January Performance Numbers
Bridgewater Associates Year-End Letter
Atticus Capital European Fund Letter
Paulson & Co Year End Report (Scroll all the way down)
Bill Gross Investment Outlook February 2009
Perry Partners Q4 letter (.pdf)
Sunday, February 1, 2009
Popular Posts
Just wanted to take a second to highlight the ten most-popular posts here on MarketFolly.com:
- Wall Street Journal Discount: 75% Off
- Chartered Hedge Fund Associate (CHA designation) Part 1 & Part 2 ~ with MarketFolly exclusive $50 discount off registration
- Barron's Best Online Brokers
- Recommended Reading Lists
- Hedge fund portfolio tracking (Q3 2008) & tracking Q4 thus far
- 2008 Hedge Fund Performance Numbers
- How to play crude oil with ETFs
- How Contango Affects Crude Oil ETFs & ETNs
- $25 Bonus ING Direct Savings
- Where are the stock buybacks?
Friday, January 30, 2009
Barron's Best Online Brokers
Just was reading over Barron's annual 'Best Online Brokers' piece for 2008. As we await their list for 2009, I wanted to check out how the brokers stacked up against each other last time around. In it, they detail the pros and cons of all the retail brokerages, ranking them by various investing styles and then overall. Tradestation was the winner, with thinkorswim and Interactive Brokers close behind. Those are definitely some great names up at the top. But, I also noticed that yet again, TradeKing has made it in the top echelon of brokers (head to the bottom of the page for a $150 transfer discount). A year or two ago, I'd never heard of them, but their consistent top performance has me intrigued. Here's some interesting facts I noted from the Barron's rankings regarding TradeKing:
- They finished 6th overall out of 23 different brokerages for 2008.
- They received their highest scores in the categories of 'Research Amenities' and 'Portfolio Analysis & Reports.' (You'd expect that sort of stuff from the higher commission, full-service brokers like Schwab. But, TradeKing received great marks and has low commissions of $4.95 a trade).
- Ranked 3rd overall in the 'Best for Buy & Hold' category
- Ranked 6th overall in the 'Best for Options Traders' category
Barron's highlights some of the features such as, "A recent addition is Scivantage's Maxit, an automated cost-basis and portfolio-tax reporting system that not only tracks capital gains, but helps make better tax-related trading decisions."
It looks like they've got a current promotion running as well: Click the picture below to receive $150 for account transfers. It says you just open an account, fill out the ACAT transfer form, and fax your old broker account statement with the transfer charge on it to 561-988-0131.
Additionally, they were ranked the #1 discount broker by Smart Money in 2006 & 2007. Cheap commissions, reputation of good customer service, solid features, and a bunch of rewards/recognition for a discount brokerage. Sounds like they're doing things right.
To read more about the various brokers, check out the entire Barron's piece here. And look for their 2009 piece in the coming months.
What We're Reading (1/30/09)
Mark Cuban's advice for investing in start-up companies (All Things Digital)
Steven Cohen's (SAC Capital) shrink is in high demand (Portfolio)
Hedge fund back to basics (Alpha)
Hyperinflation survival guide (Value Plays)
Hedge funds help fund Obama inauguration (FinAlternatives)
Video: Ascent of Money (via Paul Kedrosky)
Jeff Rubin on Reflation/Deflation (.pdf via CIBC)
The life of a daytrader (NY Mag)
Peter Schiff was wrong (Mish) / Peter Schiff responds to critics
Is this the end of Warren Buffett? (Doug Kass, TheStreet.com)
Bid on a dinner with T. Boone Pickens (DallasMorningNews)
Peter Schiff Talks U.S. Debt
Peter Schiff recently wrote a piece for the Wall Street Journal, entitled, 'The World Won't Buy Unlimited U.S. Debt.' He writes,
"These nations, in other words, must never use the money to buy other assets or fund domestic spending initiatives for their own people. When the old Treasury bills mature, they can do nothing with the money except buy new ones. To do otherwise would implode the market for U.S. Treasurys (sending U.S. interest rates much higher) and start a run on the dollar. (If foreign central banks become net sellers of Treasurys, the demand for dollars needed to buy them would plummet.)In sum, our creditors must give up all hope of accessing the principal, and may be compensated only by the paltry 2%-3% yield our bonds currently deliver.
As absurd as this may appear on the surface, it seems inconceivable to President Obama, or any respected economist for that matter, that our creditors may decline to sign on. Their confidence is derived from the fact that the arrangement has gone on for some time, and that our creditors would be unwilling to face the economic turbulence that would result from an interruption of the status quo.
But just because the game has lasted thus far does not mean that they will continue playing it indefinitely. Thanks to projected huge deficits, the U.S. government is severely raising the stakes. At the same time, the global economic contraction will make larger Treasury purchases by foreign central banks both economically and politically more difficult."
We've covered Schiff's thoughs on the blog numerous times before. He talked about the treasury bubble here, as well as the current crisis and gold here. Also, interestingly enough, we've noted that there seems to be a grassroots campaign to try and convince Schiff to run for U.S. Senator (CT) in 2010: Schiff2010.com.
You can read his WSJ piece in its entirety here.
Thursday, January 29, 2009
Hedge Fund D.E. Shaw & Co Files Amended 13D on Orient-Express Hotels (OEH)
The $33 billion hedge fund D.E. Shaw & Co has filed an amended 13D with the SEC disclosing a 6.3% ownership stake in Orient-Express Hotels (OEH). Keep in mind this is an ongoing situation and is not a new filing, but merely an amended one. Their aggregate amount beneficially owned is 3,218,678 common shares. You can view the rest of their portfolio holdings here. The filing was made due to activity on January 12th, 2009. On that date as per the filing, D.E. Shaw,
"... filed a petition in the Supreme Court of Bermuda (the “Petition”) against the Issuer, the Issuer’s subsidiary Orient-Express Holdings 1 Ltd. (“OEH 1”) and the members of the Board alleging, among other things, that the Issuer’s current ownership and voting structure is unlawful under Bermuda law, and that the Board exercised its fiduciary powers for an improper purpose in causing or procuring OEH 1 to acquire, hold, and/or vote Class B Shares of the Issuer (the “Class B Shares”). The Petition requested, among other things, that the court issue orders (i) providing for the classification of the Class B Shares as non-voting treasury shares pursuant to Bermuda law, (ii) providing for the cancellation of the Class B Shares, (iii) restraining OEH 1 from exercising voting rights with respect to the Class B Shares, and/or (iv) providing such other relief as the court may deem proper."
D.E. Shaw was founded in 1988 by David E. Shaw and manages around $33 billion as of December 1st 2008. They focus on intertwining technology and finance and are a hedge fund, private equity firm, and technology development shop all in one. They employ mainly quantitative strategies and do a lot of statistical arbitrage. Shaw oversees strategic maneuvers at the firm, but no longer is active in the day to day operations. He received his Ph.D. from Stanford University. Some notable former employees include Jeff Bezos (before founding Amazon.com) and Lawrence Summers, who recently left the firm to serve on President Elect Obama’s economic team. In Alpha's latest hedge fund rankings, D.E. Shaw is ranked 6th in the world.
Taken from Google Finance,
Orient-Express Hotels is "a hotel and leisure group focused on the luxury end of the leisure market. The Company owns and/or invests in 51 properties consisting of 41 individual deluxe hotels, two restaurants, six tourist trains and two river cruise businesses. These are located in 25 countries worldwide."
Public Disclosure of Short Positions is Probably a Bad Idea
A month or so ago, we saw that some of Obama's aides were pushing for a disclosure of hedge funds' short positions, similar to how funds disclose long positions with 13F filings. And, we thought it would be interesting to consider the pros and cons of such a maneuver.
While we would love this because it would give us even more to blog about in our hedge fund portfolio tracking series, we ultimately feel that it would be bad for the markets. Remember that massive drop-off in the markets back in October and November? Yea, part of the reason for the massive selling in certain equities was funds "front running" each other. When you 'front run,' you are basically shorting the long positions of other struggling funds that you figure they will be forced to sell. Initially, funds were forced to sell positions due to the fact that they were struggling due to weak performance and/or redemption requests. This situation was further amplified when the lions started to attack the wounded wildebeest. At the time, many funds were liquidating and/or seeing a large amount of redemptions.
Once other funds got wind of who the weak were, they went to feast. 'Only the strongest will survive.' By merely pulling up a 13F filing with the SEC or doing some poking around, you could get a general idea as to what some of that fund's largest holdings were... holdings that would typically take a few days to sell out of, if forced to liquidate. And, the front-running began.
Now, imagine a similar scenario where other funds 'front-run' weak funds' short positions. But, here's the difference: Those weak funds could only lose a finite amount of money on their longs they were forced to sell. If/when the stock goes to $0, the cycle is done. However, if a fund is short a stock and they get caught in a squeeze, they can lose an exponential amount of money (as there is no ceiling as to how high a stock can go - as recently illustrated in the Volkswagen short squeeze). So, imagine a weak fund that is short a ton of shares of XYZ company, one of their largest short positions. Everyone gets wind that they are weak and starts buying shares, squeezing the weak fund that is short, and forcing them to cover. After all, it doesn't take very long for a stock to skyrocket. The potential fund losses could be exponentially greater and trigger yet another wave of weak funds being forced to liquidate positions. The main point here is that such a disclosure could lead to even more volatility and even more chaos. There is one caveat with this theoretical scenario though: Its not as easy to figure out their short positions as it is their longs. Funds are required to disclose their long holdings to the public, but not their shorts. And, a fund's short book is often one of their closely guarded secrets. So, if you require public disclosure of such shorts, then other funds can quickly prey on the weak yet again.
This is just one tiny theoretical example, but there are many reasons to oppose this proposition. Throwing yet another wrench in the current system would give many funds pause about how they normally go about structuring their portfolios. Funds would undoubtedly try to find new, complex ways to short without having to disclose it. As we just mentioned, their short positions are often their prized secrets. And, shorting is an essential part of not only many hedge fund strategies, but also market liquidity. Remember the shorting ban? Yea, that worked well. /Sarcasm. While disclosing shorts is obviously not as extreme of a move as eliminating shorting altogether, there would definitely be repurcussions. Additionally, we wonder if disclosing the short positions could possibly have the 'Warren Buffett' effect, but in the opposite direction? Many investors piggyback Buffett's plays and when he discloses a position, the stock usually ramps up and gains more following. So, imagine a scenario where a couple of prominent hedge funds are required to disclose they are massively short XYZ company. You can bet that many people will piggyback that trade and possibly send that stock spiraling downwards. And, this is exactly what has happened in the past. For instance, take David Einhorn of Greenlight Capital. He laid out a short thesis for Allied Capital a couple of years ago at a charity investment conference one night. That next day, while other stocks opened for trading, Allied Capital remained closed because there were so many people trying to short it. Einhorn even wrote about this story and his encounter with Allied in his book, Fooling Some of the People All of the Time. The main point here is that such a disclosure proposition could have many unintended consequences and could possibly do more harm than good.
You can bet that nearly all hedge funds will be opposed to this disclosure if it will be available to the public. Most, however, have no problem revealing the positions in private to regulators. If it is revealed to the public though, that's where many hedge funds take issue. And, many prominent hedge fund managers shared this exact stance when they testified before Congress. And, we feel this is the correct move. By disclosing this information privately to regulators, we can (hopefully) have better risk management. That is, assumming, we have faith in regulators to do their job. Exactly how regulators will use this information, we're not entirely sure. But, we do know one thing: Disclosing such information to the public could potentially open a can of worms.
Wednesday, January 28, 2009
Art Samberg's Pequot Capital Management: Portfolio Update (13G Filings)
Art Samberg's hedge fund, Pequot Capital Management, has filed a few amended 13G's with the SEC, detailing changes to their portfolio made on December 31st, 2008. Firstly, they have disclosed a 0% ownership stake in Healthcare Services Group (HCSG). They have completely sold out of their position, having previously owned 2,500,199 shares. You can view the rest of Pequot's portfolio holdings here.
Secondly, Pequot has also filed an amended 13G and disclosed a 19.4% ownership stake in Akorn (AKRX). They currently own 17,293,857 shares, down from their prior holdings of 22,974,772 shares. So, they sold off a decent amount of their position.
Lastly, they also disclosed a 92.8% ownership stake in TrueYou.com (TUYU). This is a new holding for them, as they previously did not show a position in their last 13F filing. This is a slightly complex ownership stake. Taken directly from the 13G filing with the SEC, they hold,
"237,208,429 shares of Common Stock issuable upon exercise of a warrant to purchase 7,161,040 shares (the “Series B Shares”) of Series B Convertible Preferred Stock of the Issuer, par value $0.001 per share (the “Series B Preferred Stock”), which converts into Common Stock at the rate of one share of Series B Preferred Stock to 10,000 shares of Common Stock; (ii) 222,969,976 shares of Common Stock issuable upon the conversion of 223 shares (the “Series E Shares”) of Series E Convertible Preferred Stock of the Issuer, par value $0.001 per share (the “Series E Preferred Stock”), which converts into Common Stock at the rate of one share of Series E Preferred Stock to 1,000,000 shares of Common Stock; and (iii) 7,077,413 shares of Common Stock issuable upon the exercise of a warrant to purchase Common Stock (the “Common Stock Warrant”). The Series B and E Preferred Stock will automatically convert into Common Stock after the Issuer amends its Certificate of Incorporation to increase the number of authorized shares of Common Stock to enable (i) all of the shares of Series E Preferred Stock to be converted at the applicable conversion number, and (ii) all shares of Series B Preferred Stock to be converted in accordance with their terms (the “Authorized Share Increase”). If the Common Stock Warrant is exercised prior to the Authorized Share Increase, the Common Stock Warrant is exercisable to purchase an equivalent amount of Series B Preferred Stock."
Pequot was founded by Art in 1986 with $3 million in assets and peaked with $15 billion in assets around the tech bubble. Today, he manages over $4 billion. They have 150 employees and employ multiple strategies, including private equity and venture capital, as Art believes equity returns will decline over time. Art holds a S.B. from Massachusetts Institute of Technology, an M.S. from Stanford University, and he received his MBA from Columbia University. Pequot Capital Management was recently ranked 93rd in Alpha's hedge fund rankings.
Taken from Google Finance,
Healthcare Services Group "provides housekeeping, laundry, linen, facility maintenance and food services to the healthcare industry, including nursing homes, retirement complexes, rehabilitation centers and hospitals located throughout the United States. Healthcare Services Group, Inc. operates in two segments: housekeeping, laundry, linen and other services (Housekeeping), and food services (Food)."
Akorn is "engaged in manufacturing and marketing of diagnostic and therapeutic pharmaceuticals in specialty areas, such as ophthalmology, rheumatology, anesthesia and antidotes, among others."
TrueYou.com is "engaged in developing an over the counter (OTC) skin care line of products called Cosmedicine. The Company launched the products in January 2006 for retail distribution at Sephora stores, Home Shopping Network (HSN), JCPenney and their respective Websites."
