Tuesday, February 11, 2014

Hedge Fund Kings of 2013?

Mark Decambre of Quartz reports, George Soros’s fund killed it in 2013, but most hedge funds didn’t:
A handful of hedge funds are boasting their best-ever returns in dollar terms in 2013 according to a recent report by LCH Investments (paywall). Stephen Mandel of Lone Pine Capital generated $5.2 billion in returns for his investors last year; with the fund currently worth some $22.7 billion, that’s a roughly 30% return. George Soros’s hedge fund-cum-family-office Quantum Endowment returned $5.5 billion, its second highest dollar figure in 40 years, about a 24% return.

But on average, hedge funds returned only 9.3% in 2013, according to data compiled by Hedge Fund Research. (Though there are several hedge fund indexes that offer slightly different reads on how well the industry did last year.) That means they trailed the S&P 500, which returned roughly 30% last year, by the widest margins since 2005, according to Bloomberg. Bloomberg reported a 7.4% return for the hedge fund group last month, but noted that only 56% of the 2, 257 funds funds it tracks had reported returns, which may account for the difference in HFR’s return stats.

That means hedge fund investors might be better off throwing their money into an S&P 500 stock-tracking index or a similar basket of stocks. That way, investors could save themselves the roughly 2% management fees and 20% return fees that pricey managers charge to oversee client assets. Outside of heavyweights like Soros, lackluster hedge fund performance is more the norm than the exception over the past several years.

Jesse Westbrook of Bloomberg also reports, Mandel Tops Best-Earning Hedge Funds for Clients in 2013:
Stephen Mandel of Lone Pine Capital LLC made hedge-fund investors the most money for the second straight year in 2013.

O. Andreas Halvorsen, who runs Viking Global Investors LP, and Appaloosa Management LP’s David Tepper ranked second and third in a study published today by LCH Investments NV in London. Mandel earned an estimated $5.2 billion for clients last year, Halvorsen made them $4.5 billion and Tepper $4.2 billion.

The firms benefited from winning bets on companies such as Priceline.com Inc., Goodyear Tire & Rubber Co. and Delta Air Lines Inc. that outperformed U.S. stock market indexes, regulatory filings show. The average hedge fund was less successful in 2013, as the $2.5 trillion industry trailed the Standard & Poor’s 500 Index for the fifth straight year.

Mandel, 57, and Tepper, 56, were also among the top hedge-fund managers in 2012, making $4.6 billion and $3.3 billion for clients, respectively.

Mandel is known as a Tiger Cub because he worked at Julian Robertson’s Tiger Management LLC before founding Greenwich, Connecticut-based Lone Pine in 1997. He has made $20.5 billion for his investors since inception, according to LCH. The profits include returns from “long-only” funds that don’t make bearish bets on companies, LCH said.

Halvorsen also worked at Tiger Management, then started his own firm in Greenwich in 1999.
Tepper, Paulson

Tepper, a former high-yield credit trader at Goldman Sachs Group Inc., said at the start of 2013 that stocks were due to surge because they were historically inexpensive, debt was overvalued and risks to the global economy had waned. His main hedge fund at Short Hills, New Jersey-based Appaloosa rose 42 percent last year, said a person with knowledge of the matter who asked not to be identified because the firm is private.

The investment fund that had the biggest gains in 2013 was Soros Fund Management LLC’s Quantum Endowment fund, which made $5.5 billion, according to LCH. Since its inception in 1973, Quantum has made $39.6 billion, more than any other firm, LCH said. George Soros, 83, decided in 2011 to return outside money in his hedge-fund firm to clients, turning the company into a family office.
Paulson Rebounds

John Paulson returned to form in 2013 by netting clients $2.6 billion, according to LCH’s report. Paulson, who became a billionaire in 2007 betting against the U.S. housing market, posted gains in 2013 ranging from 18 percent to 63 percent at several of his strategies, a person with knowledge of the matter told Bloomberg News last month.

Paulson, whose New York-based firm manages $20 billion, made $200 million for his clients in 2012 after losing almost $10 billion for them in 2011 when he had his worst investing year, according to LCH.

LCH’s annual report on how much funds made for investors after charging performance and management fees is based on discussions with the fund companies, audited reports issued by the firms and confidential sources. The total typically includes a manager’s investment in his own firm.

The LCH research on the 20 most profitable hedge funds ever shows the firms earned clients a net $55.4 billion in 2013. Among funds that underperformed their historical track records last year were two of the world’s biggest, Ray Dalio’s Westport, Connecticut-based Bridgewater Associates LP and Alan Howard’s Brevan Howard Asset Management LLP, said LCH, a firm overseen by the Edmond de Rothschild Group that invests in hedge funds.

Bridgewater’s $79 billion Pure Alpha fund generated gains of $2.4 billion, while Brevan Howard, based in St. Helier on the island of Jersey, made clients of its $28 billion Master Fund about $500 million in 2013, LCH said.

Representatives of the hedge funds declined to comment on LCH’s analysis or didn’t respond to inquiries.
My thoughts on these articles? George Soros remains the undisputed king of hedge funds. He will go down in history as the best hedge fund manager ever, and with good reason. Unlike others, Soros has a much deeper understanding of the macroeconomic backdrop and his family office fund is a true global macro fund, making money in bonds, currencies, commodities and equities. There will never be another Soros, ever.

But there are other excellent hedge funds. Stephen Mandel's Lone Pine Capital and Andreas Halverson's Viking Global Investors are two of my favorite funds and I track their equity holdings every quarter (Q4 2013 will be out soon). You can view Lone Pine Capital's portfolio here and Viking Global Investors' portfolio here. Mandel is making great money off Michael Kors Holdings (KORS). Halverson's fund is doing great with its top holding, Thermo Fisher Scientific (TMO).

I met Andreas Halverson back in 2002 when I was working as a senior analyst overseeing the directional hedge fund portfolio at the Caisse de dépôt et placement du Québec. He impressed me a lot. Well dressed, very polite and extremely sharp. I enjoyed that exchange (most meetings with hedge fund managers are dreadfully boring).

What about smaller hedge funds? Last week I introduced you to 2013's best hedge fund manager, Michael Castor of SIO Capital Management. I also told you about a little known fund based here in Montreal called LTK Capital Management. It returned over 200% in 2013 by adding to a few concentrated holdings which were discussed in hot stocks of 2013 and 2014.

Its astute manager writes the best blog on pensions and investments, doesn't charge 2 & 20 for leveraged beta, doesn't require the services of Tatiana at MCM Capital, and doesn't get compensated millions like some ridiculously overpaid pension plutocrats who regularly beat their bogus benchmarks. He basically eats what he kills and after 16 years of battling multiple sclerosis (MS), he still manages to go to the gym three to four times a week and train like an animal under the watchful eye of the great Lloyd Lawrence (that's Lloyd below, very nice guy but don't mess with him. At 58 years old, he's a beast and can crush tough guys half his age like a Chinese fortune cookie!!).

Unlike other trainers, Lloyd knows what he's doing. He has years of experience, cares about his clients and wants to see results fast. He keeps telling me there are other trainers with fancy degrees but they "don't know shit" and "all they care about is money." I told him the same shenanigans go on in finance where there are a bunch of arrogant assholes with fancy degrees who couldn't manage their way out of a paper bag.

That brings me to my final article. Becky Pritchard of Dow Jones Financial News reports, Canada Pension Plan starts ‘in-house hedge fund’:
Canada Pension Plan Investment Board is launching an “in-house hedge fund” in its London office with the hire of fund management veteran Dureka Carrasquillo from Tranberg Capital Management.

Alain Carrier, head of Europe for CPPIB, said the fund wanted to hire a team of “four to five professionals” that would build a long/short portfolio targeted at Europe, the Middle East and Africa.

Although a separate person familiar with the matter said the new team would, in effect, act as an “in-house hedge fund”, Carrier played down the use of such terminology, instead stressing that it was part of the firm’s wider strategy to invest in public markets.

Although various pension funds have built direct capability to do deals for private equity and real estate investments in London in recent years, it remains unusual for funds to adopt a strategy of investing in long/short equities. Most prefer to allocate money through hedge funds of funds rather than building up their own capability.

Carrier said: “There is a team in Toronto that does this. We think European equities remain very attractive. It is in the context of us building out our London office; the one set of our business that has not been present is the public side.”

Carrasquillo was previously at a private family office, Tranberg Capital Management, and before that worked at Invesco and Partner Fund Management, according to Carrier.

Toronto-based CPPIB, which oversees about C$193 billion ($175 billion) in assets, has offices in London and Hong Kong and last month opened offices in New York and Brazil. Its London office, which opened in 2008, now has about 60 staff and Carrier said he expects that number “will grow substantially”. The firm hired Mark Corbidge, the former co-head of private equity at Doughty Hanson, in December.
My advice to Mark Wiseman is to stop expanding in London or other 'hot spots' and open up an office here in Montreal. I will put together a team of experienced alpha generators who know what they're doing, have a proven track record but have fallen victim to bullshit pension politics and Quebec's lack of true diversity in the workplace (I like Mark a lot but he should stop listening to Gordon Fyfe and Derek Murphy and start listening to me).

Importantly, the best alpha generators are not working at CPPIB, PSPIB, the Caisse, Ontario Teachers, AIMCo, or any of Canada's top ten pension funds. I know who the best of the best are and I also know who the con artists are. Unfortunately, the latter are politically astute, great bullshitters and very good at presenting nice PowerPoint presentations which sadly has become the prerequisite to work at these places (that's why they're populated by useless investment consultants). If they are as good as they claim, let them start their own hedge fund (good luck with that, even the best pension fund managers cannot replicate their returns without the balance sheet of a large pension fund).

Below, former SAC Capital Advisors LP fund manager Mathew Martoma was found guilty in the most lucrative insider trading scheme ever as federal prosecutors racked up a seventh conviction in their six-year probe of the hedge fund and its billionaire founder, Steven A. Cohen. Former NY Federal Prosecutor Doug Burns speaks with mark Crumpton on Bloomberg Television's "Bottom Line."

Martoma is one of many lurking out there. Most hedge fund managers are honest but there are plenty of unethical scumbags looking to make money at all cost. The Feds may want to go after Steve Cohen but I doubt they have a solid case against the perfect hedge fund predator. These high profile cases are a circus show, distracting attention away from the real wolves of Wall Street.