Category Archives: hedge funds

The Hedge Fund Money-Go-Round

Bill Ackman explains how hedge funds work, specifically with regard to investors in Pershing Square IV, his fund dedicated (disastrously) to going long Target: Some of these investors, who are for the most part other hedge funds (that comprised approximately … Continue reading

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Hedge Fund Datapoint of the Day

For most of 2007, Target stock was trading in the low 60s. If you’d bought $2 billion of stock at those levels, you’d have about $1 billion today, since the share price now is in the low 30s. That’s the … Continue reading

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The Broken Hedge-Fund Model

It’s becoming increasingly clear that the standard hedge fund incentive model breaks when a fund plunges in value. If the value of a hedge fund is rising, then 2-and-20 works as intended: the fund manager gets paid more the more … Continue reading

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10 Questions to Ask Your Fund-of-Funds Manager

If you were a client of Access International Advisors, which lost a lot of money with Bernie Madoff, then you would have been told that they "conducted thorough due diligence when selecting outsider fund managers". Which might have been reassuring, … Continue reading

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Using Software to Gauge Hedge Fund Risk

I had an interesting chat with Olivier Le Marois, the CEO chairman of Riskdata, a couple of days ago. His company has put out a couple of interesting reports: one on blow-up-prone hedge funds generally, and one on Bernie Madoff … Continue reading

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How Does One Audit a Fund Manager’s Risk Management?

I just got off the phone with Ken Akoundi, a civil engineer turned risk manager who just left fund-of-funds group Optima Fund Management after running its risk-management operations. He agrees with me that some kind of risk auditing function or … Continue reading

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Where are the Risk Auditors?

As Roger Lowenstein says, Ezra Merkin was (is?) "a Wall Street sage, noted philanthropist and professional money manager". And yet for all his protestations that he was risk-conscious and diversified and an expert at due diligence, he still ended up … Continue reading

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John Paulson, Proud Short

Gary Weiss has a profile of John Paulson in the February issue of Portfolio which I misread when I first came across it. He talks a bit about Paulson being "unrepentant" about the money he’s made during the market crash … Continue reading

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Quants: What Are They Doing These Days?

I was talking about quant funds this afternoon, and got to wondering what on earth they’re doing these days, given that their m.o., up until say the summer of 2007, was to find trading ideas, backtest them, try them out … Continue reading

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Madoff Fallout Datapoint of the Day

From Robert Peston: A well-known wealthy entrepreneur told me last night that he’d lost about 1% of his net worth on an investment in Madoff and is setting about getting his money back from every hedge fund that he’s invested … Continue reading

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Can Hedge Funds Be Fraudulent?

I’ll be on NPR’s Planet Money podcast today, trying my best to explain what a hedge fund is. As John Gapper says, it’s crucial to understand that Bernie Madoff did not have a hedge fund, and that hedge funds tend … Continue reading

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Madoff: The 0-and-0 Hedge Fund Manager

Reading Michael Ocrant’s 2001 profile of Bernie Madoff (via Greg Newton), one can see why fund-of-funds loved him so much: they got to keep all the associated fees! Madoff himself charged nothing: The acknowledged Madoff feeder funds — New York-based … Continue reading

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Stick a Spork in Him, He’s Done

Bernie Madoff: one of the biggest crooks of all time, but a boring name. If only he was called something straight out of a comic book. Something like Otto Spork. He’s a real person: a man who invested substantially his … Continue reading

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Jim Simons’s Incentives

Why would anybody invest with Jim Simons? Everybody knows where his love and attention and money is concentrated: in the $8 billion Medallion Fund, which charges 5-and-44 but which in any case is closed to outside investment and basically just … Continue reading

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When a Publicly-Listed Hedge Fund Blows Up

For the overwhelming majority of investors in hedge funds — and fund-of-funds managers, and hedge-fund consultants, for that matter — it’s really hard to get a solid grasp of any given fund’s risk management procedures. All funds will tell you … Continue reading

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Hedge Fund Datapoint of the Day

From John Paulson’s testimony to Congress (link fixed, sorry): Eighty percent of our assets under management come from foreign investors. Was this always the case? Or is it a relatively new thing, dating only to Paulson’s recent celebrity status?

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Contrarian Investing

Baruch has a corker of a post over at Ultimi Barbarorum on hedge funds, and why it is that they’ve unravelled so spectacularly this year despite largely escaping the bursting of the dot-com bubble unscathed. Go read the whole thing, … Continue reading

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New Yorker Blind Item Watch

Nick Paumgarten attended an election-night party with various hedgies: One hedge-fund trader, a Democrat, said that he’d recently reread (several times) John Kenneth Galbraith’s classic history “The Great Crash, 1929.” He quoted two passages from memory: “The singular feature of … Continue reading

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Lehman Europe and Prime Brokerage Counterparty Risk

Euromoney has allowed free access to its November cover story on Lehman Brothers Europe for this weekend only, so go there now and read it while you can. It starts off at much the same place as John Hempton’s blog … Continue reading

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Might Blackstone Go Private?

At lunch today with Mick Weinstein of Seeking Alpha, I wondered whether Blackstone, which currently has a market capitalization of around $2 billion, might not be a takeover candidate. After all, it would be something of a jewel for many … Continue reading

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Quitting the Hedge Fund Game

This I can understand: For some, the volatile market has been too much. Such is the case for Mark Sellers, who runs a small energy fund Sellers Capital. After posting eye-popping returns of 65 percent in the first half of … Continue reading

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Zero-Baseline Datapoint of the Day

The $9.3 billion Short Term Fund, offered as a place for schools and colleges to park their cash and get "returns slightly above U.S. Treasury bills", has now been frozen by its trustee, the stub of Wachovia which wasn’t taken … Continue reading

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Even the Shorts are Losing Now

How on earth did David Einhorn’s Greenlight Re contrive to lose 11.5% on its investment portfolio in September, the month that Lehman Brothers went bust? Einhorn has famously been short Lehman for many months, and the short-selling ban didn’t apply … Continue reading

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Hedge Funds: The Next Shoe to Drop

You think things are bad now? Just you wait: the chart above gives you a very good indication of what Christine Williamson calls the "bloodbath ahead" in the hedge-fund industry. No one wants to be invested in an underperforming hedge … Continue reading

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The End of the Chaos Trade

Nassim Taleb famously made his (first) fortune in the stock-market crash of 1987, and went on to an entire career based on using the derivatives market to bet on "black swan" events. Which raises the obvious question: what if the … Continue reading

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