From the category archives:

Hedge Fund News

On February 3, 2017, President Trump signed an executive order that outlined his administration’s core principles for regulating the U.S. financial system. They are:

(a) empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;

(b) prevent taxpayer-funded bailouts;

(c) foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;

(d) enable American companies to be competitive with foreign firms in domestic and foreign markets;

(e) advance American interests in international financial regulatory negotiations and meetings;

(f) make regulation efficient, effective, and appropriately tailored; and

(g) restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.

Empower Americans

It is difficult to make a case against allowing Americans to make independent financial decisions based on informed choices, saving for retirement and pursuing individual wealth. This principle is closely linked to the broadened definition of an accredited investor, which failed to make it through the lame duck Congress and awaits action by the 115th United States Congress. There is little doubt that the proposed definition, which is more inclusive, would broaden the market of potential hedge fund investors.

Prevent Taxpayer Bailouts

There is only one federal bailout of a hedge fund on record—the bailout of Long-Term Capital Management (LTCM) in September 1998. It is fair to say that the hedge fund industry shares similar views on government bailouts as those shared by Americans in general. In short, the Trump stance on taxpayer bailouts is neither help nor hindrance to the hedge fund industry.

Foster Economic Growth

Promoting economic growth and vibrant markets based on a regulatory philosophy that targets systemic risk and market failure is music to the ears of the hedge fund industry. Current regulatory efforts are a “gotcha” cat and mouse game that serves no one’s best interests. While this is core principle lets no one off the hook, it does remove regulatory uncertainty and hold the promise of an end to “gotcha” regulation.

American Competitiveness

Hedge funds are wary of this, not because they disagree with the premise, but because the means of achieving this end are unspecified. The potential for trade wars and isolationism are real and concerning to the majority of hedge funds.

Advance American Interests

Again, no one decries the premise; the means by which this end is achieved is the over-riding concern for the industry.

Efficient, Effective and Appropriate Regulation

Hedge fund managers would like nothing more than efficient, effective and appropriately tailored regulation. The single greatest expense for any hedge fund is the expense associated with compliance. If this core principle is realized, hedge funds and their investors will benefit substantially.

Restore Public Accountability

This, the last of Trump’s eight core principles, will likely be the most difficult to achieve. Federal financial regulators are accustomed to their pedestal. They will vigorously resist being toppled from it. The transparency they demand from those they regulate is unlikely to be reciprocated. However, if achieved, it will accrue to the benefit of the hedge fund industry.

Hedge Fund Jobs

Empowered Americans, fostering economic growth and competition, while advancing American interests abroad, coupled with efficient, effective and appropriately targeted regulation and public accountability for the financial regulators bodes well for the hedge fund industry’s success. This success will necessarily be accompanied by increased employment opportunities in the hedge fund industry.

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According to a recent article published in FINtech, the Rhode Island State Investment Commission has announced its decision to redeem $534 billion invested in seven hedge funds.

This enormous sum does not include the $51 billion it plans to redeem from Viking Global. This reduces Rhode Island’s exposure in Viking Global by 50 percent and brings the total of hedge fund redemptions to a whopping $585 billion from eight firms. In comparison to the seven hedge fund firms from which the state is withdrawing all invested monies, this may be interpreted as a vote of confidence in Andreas Halvorsen’s Viking Global.

In as much as FINtech disclosed the identities of the hedge fund firms that the Rhode Island State Investment Commission will hit with a one-hundred percent redemption, drilling down into these seven firms may provide insights into the reason(s) behind this move.

Ascend Partners

Malcolm Fairbairn’s Ascend Partners is down just under five percent year-to-date. One probably needs to look no further than this.

Brevan Howard Fund

Brevan Howard’s Brevan Howard Fund is in the red, just below three percent year-to-date. Again, there is likely no reason to delve further into the reasons behind the Rhode Island State Investment Commission’s decision.

Brigade Capital Management

Donald Morgan’s Brigade Capital Management pursues a credit strategy, and although no specifics could be found with respect to year-to-date performance, it is widely acknowledged that hedge funds pursuing this strategy can usually be found near the bottom of the performance heap.

Emerging Sovereign Group

No derogatory information was unearthed regarding J. Kevin Kenny’s Emerging Sovereign Group. This redemption may boil down to philosophical differences revolving around Yum Brands Inc. (YUM), which the fund sold-off even as its market valuation was on the rise.

Och-Ziff Capital Management

Daniel Och’s Och-Ziff Capital Management found itself embroiled in an FCPA criminal investigation that resulted in a settlement of around $413 million. Apart from being the first hedge fund ever to be charged for a violation of the FCPA, the Och-Ziff African subsidiary acknowledged wrongdoing. These facts could offer sufficient motivation for the Rhode Island State Investment Commission to part company with Och-Ziff Capital Management.

Partner Fund Management

Chris James, limited partner and portfolio manager of Partner Fund Management is suffering a major distraction in the dust-up with Theranos after having invested just over $96 million in the company. Theranos has acknowledged being under criminal investigation by the U.S. Department of Justice and under civil investigation by the SEC. The Rhode Island State Investment Commission may feel this ongoing litigation will prove a distraction for the firm. It also is possible that Partner Fund Management’s judgment is in question…or both.

Samlyn Capital

Robert Pohly’s Samlyn Capital may be a similar case to that of Emerging Sovereign Group – one of philosophical differences. The fund sold off a substantial portion of its stake in Constellation Brands Inc. (STZ) as share prices were rising.

What Does This Mean for Hedge Fund Jobs?

It means that just as prospective employers vet you, so should you vet prospective employers. Be wary of signing up with under-performing funds and funds that stray from their chosen strategy. It is also a good idea to steer clear from those employers who have had an unsuccessful brush with the law.

 

 

 

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Who Will Make the Hedge Fund Industry Great Again?

October 17, 2016

Trump’s theme, “Make America Great Again,” has drawn its fair share of criticism. On the one hand, the slogan is interpreted as a slight by those who believe America is already great. On the other hand, many voters believe that America’s greatness is diminished and needs restoration. Parallels exist in the hedge fund industry. A […]

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Have Hedge Funds Arrived at a Crossroads?

September 5, 2016

When Paul Tudor Jones says adieu to roughly 60 employees, Pershing Square Capital Management shaves its staff by 10 percent and Citadel trims its headcount by more than a dozen souls, this is a fair question to ask. After all, these are some of the largest and, most successful, names in the industry. What’s Driving […]

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Hedge Funds Suffer 3 Consecutive Quarters of Net Outflows

August 8, 2016

If the subject were recession, defined by the media as two or more consecutive quarters of decline, then one would correctly view the past three quarters of declining hedge fund assets under management as akin to a recession in the hedge fund industry. However, economists can find no common ground for defining a recession. Obviously, […]

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Why Do Hedge Funds Continue to Under Perform?

July 11, 2016

This is a top-of-mind question for institutional investors and the answers are as varied as the hedge fund industry. Obviously, the answers offered can’t all be accurate. Furthermore, answers will necessarily differ from one fund strategy to another. Morgan Stanley conducted a survey at a recent conference of long/short fundamental equity hedge funds. Morgan Stanley’s […]

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Hedge Funds Face-Off with the 4 Horsemen of the Apocalypse

May 31, 2016

Who are these four horsemen? Pitiful performance, available alternatives, reduced fees, and impatient investors. Abysmal hedge fund performance has been the norm for the past five years. Hedge Fund Research reported the global hedge fund composite to be down almost 1.2 percent when averaged over the past five years. Contrast this with the S&P 500, which is up […]

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