From the category archives:

Hedge Fund News

Several events, which occurred just this month, should have stock pickers quaking in their Salvatore Ferragamo’s.

According to the July 11, 2018, edition of the Financial Times, Facebook faces its first ever fine, which is a result of the Cambridge Analytica data scandal. Regulators in the United Kingdom’s Information Commissioner’s Office (ICO) accused Zuckerberg’s company of  breaking the law by failing to safeguard user data, coupled with its lack of transparency regarding third party sharing policies. Under UK law, the maximum fine allowed is 500,000 Pounds, roughly equivalent to 656,000 US dollars and the ICO is seeking the maximum penalty. Facebook has 28 days to appeal the ruling.

While this sounds like a steep penalty, it is around one thousandth of one percent of Facebook’s market cap…in short, much less than a slap on the wrist.

Ethical Investment Strategies

On the rise are funds with so-called ethical investment strategies. A recent example is Norway’s $1 trillion oil fund which dumped the bonds of PacifiCorp, a U.S. utility, and placed parent company, Berkshire Hathaway Energy on a watch list that has the potential of excluding them from the portfolio.

Warren Buffet’s companies are not alone. This fund is on its fourth iteration of exclusions for companies that earn more than 50 percent of their income from coal. Another U.S. (and Buffet) casualty is Tri-State Generation and Transmission, an electricity seller.

Coal is not the single criterion for exclusion. The world’s largest meat packer, Brazil’s JBS, was also dumped by the fund due to extensive corruption allegations. Norway’s oil fund is not unique in following an ethical investment strategy, and its approach is followed closely by many other investors.

Another Stock Pickers Nightmare

The European Union, citing antitrust violations, fined Google’s parent company, Alphabet, 4.34 billion Euros, or just north of $5 billion. That is roughly 40 percent of 2017 earnings. The EU has given Google 90 days to comply with its ruling. Failure to comply will result in fines that equate to around 5 percent of Alphabet’s daily turnover.

Of course there will be an appeal, but the handwriting is on the wall. Globalization has consequences, and they can be extremely costly.

What about Hedge Fund Jobs?

The events outlined above should make it clear that hedge fund jobs will become more diverse than ever before. Expertise in international law will be in great demand, as will expertise in the political and social sciences. While the events discussed here are unlikely to have a consequential impact on the value of these companies’ stock, the potential of this occurring in future cases is clear.

Laws promulgated by the EU, ethical investing strategies such as those practiced by the Norwegian oil fund, and punitive actions such as the one taken by the UK’s ICO are the tip of the spear. Another excellent example of foreign legislation with the potential to impact U.S. firms can be found here.

The important take away is that the hedge fund industry will increasingly require the services of the best and brightest from a variety of disciplines, which enhances opportunities for a variety of people to work in a hedge fund. The stock pickers will be relying on that expertise.

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Ten days into the second half of 2018, what are the prospects for a banner year in the hedge fund industry? After all, unemployment is at record lows, optimism for the manufacturing sector is at an all time high, and market volatility has increased, which traditionally provides an edge to hedge funds, yet HFR reports that hedge fund gains for June, 2018 are at -0.46 percent.

Of course, these things, though factual, do not comprehend the broader picture. For example, tariffs and a possible trade war, Theresa May’s bumbling efforts regarding Brexit’s implementation, Russian overtures by Turkey’s President Erdoğan, ongoing talks with North Korea’s Chairman Kim, and the potential of domestic political upheaval foreshadowed by the appointment of a new Supreme Court Justice, mid-term elections and contentious border policies, to name a few. Oh, and let’s not forget the upcoming summit with President Putin of Russia.

What Does This Have to Do with Hedge Funds?

A great deal, actually. Every investment is subject to ancillary events that have the potential to affect the investment’s value. For example, a particularly brutal hurricane season will necessarily exert a negative impact on the value of insurance company stock, which can then impact the performance of hedge funds that have taken positions in insurance company stock.

The point being, investment is inherently risky business. Many liken it to gambling and to a great extent, it is. In fact, it may be riskier than gambling because the odds of success are not as easily calculated as are the odds of drawing a straight flush in a poker game.

Investing has many more variables than does a friendly game of five card stud. This is why the hedge fund industry offers so many opportunities for job seekers from a variety of disciplines.

Hedge fund managers, portfolio managers, chief investment officers and others within the fund that carry any measure of responsibility for investment decisions, benefit from having wide-ranging knowledge, not only of the prospective investment opportunity, but also the ancillary forces that may affect said investment.

What About Hedge Fund Jobs?

Intelligent capital allocators, like those charged with managing pension funds and university endowments, turn to hedge fund managers to increase the value of their holdings, as do high net worth individuals. These are not stupid people, yet, almost daily, one encounters harsh criticisms of the hedge fund industry…in the press, in the media and from our political elites.

The fact is, hedge funds contribute equally, if not more, to people’s well-being than bankers, lawyers, doctors, accountants, and politicians. Those who love investing are driven and intellectually curious. It is this intellectual curiosity that fosters the broad knowledge base essential to successful investment strategies. Hedge funds operate as a meritocracy. Only the best survive.

The takeaway is that regardless of your educational background, if you love investing, there are opportunities in the hedge fund industry despite one’s educational background. One’s love for investing, in concert with an intellectual curiosity that gives one a broad overview of world events and their potential impact on a particular investment, is a sufficient basis for pursuing a career in the hedge fund industry.

A banner year in the hedge fund industry is dependent on bringing these types of individuals into the industry.

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Is this the First Hedge Fund “Man Bites Dog” Story?

June 25, 2018

Hedge Funds, long the whipping boy for the financial ills of the country, are witnessing one of their own grow a spine. Last Wednesday, Davidson Kempner Capital Management LP, politely informed Kentucky Retirement Systems (KRS) to withdraw the $68 million it has invested with the firm. Why? According to the statement given to the Lexington […]

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First Quarter Results Mean an Uphill Battle for Hedge Funds

April 30, 2018

Hedge funds were dealt a harsh hand in the first quarter of 2018, down 0.13 percent. However, to put things in perspective, the Dow was down 2.49 percent in its first quarter, ending at 24,719 the closing number for 2017, and falling more than 600 points to 24,103 on March 29, 2018, the last trading […]

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What Can Be Learned from 1st Quarter Hedge Fund Results?

April 3, 2018

Practically speaking, 2018’s first quarter hedge fund results are in the rear view mirror, and two trends are becoming clear. First of all, HFRX Global Hedge Fund Index reported modest gains of 19 basis points through mid-March, which does not comprehend the latter half of March’s sharp drops in the Dow Jones Industrial Average. Moreover, […]

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Disappointing February Returns Do Not Stall Job Opportunities

March 5, 2018

February appears to mark the end of 14 consecutive months of positive gains for the hedge fund industry, with HFRX weighted average returns posting a decline (- 0.35 percent) as the surge in market volatility worked its worst in hedge funds. While the HFRX is much narrower in its scope than the HFRI, which comprises […]

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What Do You Think About the S&P 500 as a Benchmark Now?

February 19, 2018

The January 2018 results for aggregate hedge fund performance have been published. According to HFR, the industry showed a 2.8 percent gain. In contrast, the S&P 500 gained 5.7 percent in January before plummeting in the wake of February’s correction. Year-to-date gains for the S&P 500 as of February 16 stood at 2.19 percent, 61 […]

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