market folly

Welcome to the latest iteration of our hedge fund and market guru news summary. We've made habit of compiling odds and ends in hedge fund land as of late in order to present them in easy to digest quick hits. You can check out our August hedge fund news here as well as our July update here. Moving on now to September, we see some interesting bits presented below.

Hedge funds: In general, we saw about $19 billion flow into hedge funds for the month of August. This is an increase of 2.56% as total hedge fund assets are now around $1.89 trillion. Also, according to hedge fund research, the number of liquidations declined in the second quarter, as only 292 funds closed (a decrease of 22%). It is cited that strong performance is a main contributor to this number dropping, which obviously makes sense. However, as evidenced with some other news items below, some funds are still having problems with redemptions. Some of the most notable closures include William von Mueffling's Cantillon Capital who will be converting to a long-only shop, Satellite Asset Management, as well as Art Samberg's Pequot Capital, all of whom we've covered on the blog before. Yet some of the major names have been receiving inflows including Steven Cohen's SAC Capital, Och-Ziff Capital Management, and Louis Bacon's Moore Capital Management. We also got word that Paul Tudor Jones' hedge fund Tudor Investment Corp has paid off some of its redeeming investors after suspending redemptions last year when they split the fund into two, to separate the illiquid assets. However, they still have more redemptions to meet. Lastly on the hedge fund news-front in terms of regulation, we see that the SEC will urge more public disclosure if Congress can push through plans to make sure all register with the regulatory body.

Peter Thiel's Clarium Capital: Tough times continue at this global macro hedge fund as we see they were down 8% for the month of September as of the first two weeks. Year to date as of that timeframe, Clarium has lost 15.6%. They recently cut leverage down from 4.2 : 1 to 1.4 : 1. We recently presented their August market commentary entitled, 'Save Now, Invest Later.' In that article we noted the continuing theme we see with Clarium: lack of performance. They have great research and seemingly interesting ideas, but they don't translate well into trading strategies. Their assets under management, which previously topped $6 billion, are now well below $2 billion. However, Clarium is still up 270% since inception. We'll continue to watch the developments with interest.

Goldman Sachs: They were out a bit ago with a report on possible strategies being used by hedge funds in this current market landscape. The report was dubbed 'best current long & short strategies' as they proposed shorting REIT equities, shorting the Japanese Yen, and shorting the crack spread amongst other ideas. We covered the entire set of strategies in our post on possible long & short strategies.

Sticking with Goldman for a second, they also released their hedge fund trend monitor report which examines the same thing we do here at Market Folly: hedge fund portfolios. They took a gander across hedge fund land and presented the most widely held stocks amongst hedge funds. A lot of the typical names like Apple (AAPL), Wyeth (WYE), Qualcomm (QCOM) appeared, but you'll be surprised at some of the other names that made the list. They also highlight the massive flux of hedge funds into financials over the second quarter, particularly into Bank of America (BAC).

Endowments: Big name endowments had a rough year as both Harvard and Yale reported losses over the past fiscal year. Harvard cited private equity and hedge fund problems as they lost 27.3% and now manage $26 billion. Yale lost almost 30% and now manages around $16 billion, as they were still finishing their tally. Harvard's decline is the biggest in 40 years and manager Jane Mendillo plans to use less outside managers and instead run more money internally. Matching up to their benchmarks, Harvard did well with their equity and real estate assets as those beat their benchmark. However, their allocations to private equity and hedge funds underperformed benchmarks significantly. University of Pennsylvania's endowment was down less than Harvard and Yale, but still lost 15.7%. While they have struggled like the majority of the market, endowments seemed to have outperformed over the long haul. As a primer on endowment investing, we highly recommend Mebane Faber's book, The Ivy Portfolio if you haven't yet checked it out.

Oaktree Capital Management: One of the widely monitored distressed debt firms out there previously sent out an investor letter in which they detailed their fondness for senior loans. Here is the letter embedded below:




Carl Icahn: We haven't covered him as much lately due to the influx of other activity we've seen so here's a good chance to take a brief look at recent moves. We see that Icahn has sold 12.7 million shares of Yahoo (YHOO) in the last few days of August and his ownership stake now sits at 4.5%. He sold the shares at prices of $14.74 and $14.93 and he originally bought his YHOO stake at around $25 per share. Icahn cited the sales as 'portfolio rebalancing' in terms of his technology holdings. He has also said that he remains optimistic about his YHOO position due to the Microsoft partnership and the managerial guidance of Ms. Bartz. For our previous coverage of Mr. Icahn, we've noted his purchase of Tropicana casino.

Third Avenue: Marty Whitman's firm is shifting its focus partially to the distressed arena as they look to open a Focused Credit Fund. The fund will focus on credit, as well as distressed and value equity investing and will be run by Jeff Gary (former head of high-yield and distressed investments at BlackRock). Additionally, we've embedded below Third Avenue's latest shareholder letter where Whitman addresses market outlook, lessons learned, as well as the best places to invest in 2009. Here is Third Avenue's latest letter:




Alternatively, you can download the .pdf of the letter here. Hat tip to Todd Sullivan's ValuePlays.net for bringing this to our attention. Additionally, you can see Third Avenue's previous letter here.

Bill Hwang's Tiger Asia: One of the 'Tiger Cub' funds has been facing some insider trading accusations according to a Hong Kong regulator back in late August. Bill Hwang's hedge fund Tiger Asia was accused of insider trading and market manipulation as the regulators sought to freeze 29.9 million HK Dollars worth ($3.9 million) of Tiger Asia's assets. This is the amount equivalent to their gains from trading shares of China Construction Bank Corp. Apparently Tiger Asia was notified about a planned sale of Construction Bank shares by Bank of America and were told the size and discount rage of the share offering. Tiger then shorted 93 million shares of Construction Bank before this placement occurred. The courts were seeking to freeze these assets of Tiger's and we'll continue to update as court hearings dictate. While we don't track Tiger Asia in particular, we do track numerous other of these funds on the blog and you can see a 'Tiger Cub' family tree here.

Vicis Capital: Ex-Lehman trader John Succo has had it rough recently. He has halted withdrawals from his $2.9 billion fund after they received more than $540 million in redemption requests. What's shocking is that this still comes after they've already seen $2.7 billion redeemed back in the hedge fund redemption crisis. They are down 12% year to date and focus on volatility strategies.

Touradji Capital: Here's something you don't see everyday. Hedge fund Amaranth has sued Paul Touradji's hedge fund for what they claim to be 'breath of contract and misappropriation of trade secrets.' Amaranth of course blew up 3 years ago after a massive trading loss on natural gas, losing well over $6 billion. You can see Amaranth's previous investor letter on the blog as well.

Och-Ziff Capital Management: As we mentioned above, Och-Ziff has begun receiving inflows this year. This also comes on the heels of the news that the $22 billion firm has surpassed their high water mark and can now start earning their performance fee again. As of the end of August, their Master Fund was up 17.6% for the year after finishing 2008 down 15.9%. They received $200 million in inflows in August and received praise last year for not halting redemptions like many of their colleagues were forced to. Och's European fund was up 11.78% for the year as of August and their Asian fund was up 24% over the same timeframe.

Rothschild: They are planning on raising a $700 million (500 million euros) investment fund that will be run by managing director Marc-Olivier Laurent. They will seek to invest in companies valued between 100-500 million euros.

Stephen Feinberg's Cerberus Capital Management: While this is slightly older news (end of August), we never touched on it on the blog and wanted to make sure we highlighted it. Cerberus saw massive redemption requests over the past few months as over 71% of their investors in 2 of their funds wanted their money moved to a new vehicle that could liquidate hard-to-sell positions as the market moves along. It is understood that the vast majority of these requests came from fund-of-funds. Cerberus was down 24.5% last year, most notably due to its position in Chrysler as they manage almost $20 billion and focus on distressed investments. Clients who keep money with Cerberus won't have to pay performance fees until all the losses are recouped.

Julian Robertson: The Tiger Management founder and hedge fund legend was back on TV for his once-a-year marquee appearance and he was out talking about inflation and curve steepeners again. However, this time around, he has tweaked his play to focus only on long-term rates as he sees curve caps as the best way to play this. This brief paragraph is obviously too short to detail the extent of the investment and as such we've done so in an entire post on Julian Robertson's play here.



That wraps up this September edition of our hedge fund news summary. Be sure to also take a glance at our other post today on some hedge fund performance numbers too. And as always, check back daily for our hedge fund portfolio tracking series.