market folly

We're back with our latest compilation of the most recent news out of hedge fund land. Our goal here is to give you all of the major hedge fund news in quick little hits. If you've missed some of our previous updates, we highly recommend checking them out our September update, as well as our July hedge fund news. Let's dive right into the latest updates from some prominent players:

George Soros, Soros Fund Management

Legendary investor and hedge fund manager George Soros 'bought the dip' in financial markets as he saw it as a buying opportunity to make some money. This just goes to show that no matter your economic thoughts, you have to play the market for what it is, as irrationality often abounds. He still thinks we are facing structural long-term problems, but that has not stopped him becoming more bullish for the short-term. His main concern is the deleveraging of the US consumer over a longer period of time which will hurt consumer spending and thus growth going forward.

While he 'bought the dip,' Soros is now cautious as he notes the market to be very overextended and at the risk of another drawdown. While he thinks a downturn is coming, he says that the market will be fine for the rest of the year. The problems, he says, will come in 2010 once the reality of weak global growth hits. In terms of recent portfolio activity, we highlighted when Soros adjusted three of his positions. To check out Soros' thoughts on financial markets in their latest iteration, we recommend checking out his latest book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means.


Ken Griffin's Citadel Investment Group

Investors can finally redeem their money out of Citadel's largest funds, Kensington and Wellington. After being locked up for almost an entire year, we wonder how many investors will pull their funds purely out of rage from being locked up so long. They probably will take at least a little consolation in the fact that after a horrendous performance in 2008, Citadel's funds have at least bounced back as they are up 57% this year. Citadel has $14 billion in assets under management and apparently Citadel's funds are positioned to "withstand a catastrophic market event" so they have learned from their mistakes. In terms of their recent activity, Citadel has been busy with their ETrade stake and we also noted their UK positions here. Bloomberg also has a recent in-depth profile of Griffin up here as well.


Timothy Barakett, Atticus Capital

While Barakett may have left the hedge fund manager game, he has not ceased being an investor. Apparently, Barakett is set to invest in the various new fund launches by former Atticus employees. Atwater is a hedge fund being launched by Lee Pollock and Kris Green who formerly plied their trade at Atticus. Atwater is supposedly planning to raise $500 million by the end of next year and will focus on merger arbitrage and special situations.

Another fund Barakett is set to invest in is being launched by former Atticus Capital analyst Ed Bosek and Noam Ohana, who previously invested Atticus' partner money in other hedge funds. They have founded Beacon Light Capital, a hedge fund that will trade global equities. Bosek will be portfolio manager while Ohana will be the chief operating officer of the fund. Whenever the time comes, we'll check out whatever SEC filings may come out of both these new ventures.


Hugh Hendry, Eclectica Fund

Our resident deflationist is hedge fund manager Hugh Hendry of the Eclectica Fund. His latest media appearances have him noting that markets are crowded right now and are "all one trade." He thinks that stocks and gold now have a risk that everyone could all want to exit at the same time, saying that now investors are either in the market or not at all. One interesting point he does bring up is the fact that the rally has been ramping higher on questionable volume. He notes the absence of typical volume associated with healthy rallies in this video interview embedded below (email readers come to the blog to view it):



Hendry's commentary is always good reading and you can read some of his recent letters here as well as here.


Jeremy Grantham, GMO

The resident perma-bear and 'grumpy old man' (we mean that with respect) Jeremy Grantham is out with his latest commentary and it is a good read as usual. Here's a notable excerpt from his latest piece where he chimes in on the current market:

“Corporate ex-financials profit margins remain above average and, if I am right about the coming seven lean years, we will soon enough look back nostalgically at such high profits. Price/earnings ratios, adjusted for even normal margins, are also significantly above fair value after the rally. Fair value on the S&P is now about 860 (fair value has declined steadily as the accounting smoke clears from the wreckage and there are still, perhaps, some smoldering embers). This places today’s market (October 19) at almost 25% overpriced, and on a seven-year horizon would move our normal forecast of 5.7% real down by more than 3% a year. Doesn’t it seem odd that we would be measurably overpriced once again, given that we face a seven-year future that almost everyone agrees will be tougher than normal?"

It's always good to hear both sides of an argument and if you want your fair dose of pessimism, head Grantham's way (some his past commentary here). You can check out his full recent commentary via .pdf here.


Bruce Kovner's Hedge Fund Caxton Associates

Interestingly enough, we see that Caxton Associates has helped executives at the firm raise $500 million to launch new Lucidus Capital Partners. The new hedge fund will focus on high yield and will be managed by Darryl Green and Geoffrey Sherry. Caxton has taken a 25% stake in this new firm. What's interesting here is that Sherry will continue to run Caxton's $1 billion bond fund as well. We'll have to see if this new trend of hedge funds funding new funds spawned from inside their own walls continues. This can be quite successful, as evidenced by Julian Robertson's network of seeded 'Tiger Cub' funds. Back in our June performance update post, we noted that Caxton was barely up for the year at that time, at 2.21%.


Abu Dhabi Investment Fund (Aabar Investments)

This Abu Dhabi investment fund has taken a $328 million stake in a Spanish financial firm's new Brasilian arm, Banco Santander Brasil. Aabar has been one of the most active funds out of Abu Dhabi as they also have a 9.1% stake in Daimler, a 30% stake in Virgin Galactic, and a 4% stake in Tesla Motors. Aabar is controlled by the Abu Dhabi government through a majority stake in the International Petroleum Investment Company.


Paolo Pellegrini, hedge fund PSQR Management

We recently covered the ex-Paulson & Co hedge fund manager's trade ideas and we see that he is back in the media yet again. Pellegrini recently laid out the 'only attractive bet' for investors is to short long-term US debt. He says, "“I always like to think about assets that are likely to experience a breakdown; the only thing I’m pretty comfortable with right now is U.S. Treasury securities and U.S. agency mortgage-backed securities. I think that those are overpriced so they are attractive shorts ... The dollar has depreciated more than it should for the short term ... And if you ask me where am I putting my money now, I am on the sidelines.” Make sure to check out Pellegrini's recent thoughts on shorting treasuries and longing oil.


Bruce Berkowitz (Fairholme Funds)

Noted equity mutual fund manager Bruce Berkowitz of the Fairholme Fund (FAIRX) is launching a new bond fund that will invest over the entirety of the bond universe. While Berkowitz is unquestionably a good equity fund manager, it raises the question if he is also a good bond fund manager? His equity fund has an annual return of over 9% over the past 5 years. While many investors will undoubtedly jump on this fund due to the name recognition, be aware that it has a $25,000 minimum initial investment, over 10x his other fund. It will be interesting to see if Berkowitz can also prove his worth in the bond arena, as few managers out there can dabble successfully in both.


Stanley Fink, International Standard Asset Management

Former Man Group CEO Stanley Fink is releasing a new fund at his new firm. International Standard Asset Management will release a gold fund in December, even against Fink's liking, as he isn't fond of single commodity funds. However, you can never turn down an opportunity that investors clearly desire. Fink's fund will thus join a large cast of prominent hedge fund players in the gold trade including David Einhorn of Greenlight Capital and John Paulson of hedge fund Paulson & Co, amongst many others.


Thanks for checking out our latest edition of hedge fund quick-hits and make sure to check out our September hedge fund news as well.