PIMCO on a roll

Jim Kim — Fri, 05 Sep 2008 13:46:31 -0400

It's been a good year for Pimco. On a relative basis, one could say it's been a great year for the fund giant. The Financial Times notes PIMCO is the only firm among the 25 largest fund groups that has posted a gain in stock and bond assets this year. That says a lot about the environment right now. The big differentiator for Pimco seems to have been a big move into agency bonds of the mortgage-backed variety earlier this year. Meanwhile, Mohamed El-Erian, who cut his teeth at PIMCO before heading the Harvard endowment, will return as CEO. Bill Thompson will step down at the end of the year.

For more:
- here's the FT article

Goldman Sachs says to sell Merrill Lynch

Jim Kim — Fri, 05 Sep 2008 13:45:53 -0400

Think Merrill Lynch has put the worst of the credit crunch behind it? Goldman Sachs analysts are not convinced. They are telling clients to sell. After a recent stock run that ended last week, Merrill traded at the highest price-to-book multiple in the brokerage group. This despite "some of the most significant exposures to troubled assets such as collateralized debt obligations, mortgages and leveraged loans." There is little justification for the stock move, the analysts argue. They boosted their loss prediction to $5.75 a share, compared to $4.75 previously. In somewhat of a contrast to Goldman Sachs, Sandler O'Neill rates Lehman a hold. The third quarter is shaping up to be more exciting than most of us would like. Merrill Lynch is generating lots of anxiousness. Lehman Brothers' earnings report has become a real cliffhanger.

For more:
- here's the article

How should reverse break-up fees be valued?

Jim Kim — Fri, 05 Sep 2008 13:44:43 -0400

If we were to assign reverse break-up fees an actual market value, such fees would constitute a bull market. How long would it be before banks started making markets in options and swaps on such fees? TheDeal.com notes that there are some who indeed think that target companies should value such fees more along the lines of a put for buyers. That put would be quite pricey in the current environment, and it might do a better job of dissuading buyers from walking away. Recall that Cerberus was able to walk away from its deal for United Rentals by simply by paying a $100 million reverse termination fee. So far, we haven't seen a rush by boards of selling companies to change the model. But lawyers in the field are more supportive of the put concept, and may be able to persuade more clients.

For more:
- here's TheDeal.com article

Long-short funds really delivering?

Jim Kim — Thu, 04 Sep 2008 13:36:39 -0400

The conventional wisdom at the moment is that long-short funds are in heavy demand. According to Morningstar, about 90 money management firms offer more than 200 products applying a 130/30 or 130/30-like approach to a host of products, hedge funds, mutual funds, SMAs, exchange traded funds and others. But a Morningstar analysis has also found that some funds are taking on a lot of risk for mediocre returns. The study analyzed the returns of 40 different 130/30 strategies over a 12-month period, and found a beta range from 3.5 to a negative 1.25, reports Investment News. Of course you would want a beta in line with the appropriate index. So the message here is that not all 130/30 funds were created equal. There is a lot of leeway, and managers that fall behind may be tempted to catch up with some additional risk.

For more:
- here's the article

Wall Street firms gearing up to make mortgage bets

Jim Kim — Thu, 04 Sep 2008 13:35:50 -0400

TheStreet.com suggests that Michael Nierenberg, who has been hired by Merrill Lynch to head up global mortgages and securitized products, could command up to $10 million in pay. Hedge fund D.E. Shaw made a big name hire as well, adding Richard McKinney from Lehman Brothers to buy asset backed securities. So it looks like a range of players are very serious about laying some massive bets on mortgage-related securities, for themselves or for clients. You've got a lot of funds that think there's significant value in these beat-up securities. At the same time, hedging products and services will likely play a significant role in the business. It all adds up to business.

For more:
- here's the article

Related Article:
Banks to follow UBS lead on bad loans

Why hedge funds are nothing special

Jim Kim — Thu, 04 Sep 2008 13:34:59 -0400

The hedge fund industry is alive and well. But can it live up to the collective marketing hype? Can it consistently deliver above market gains? In the past, the answer has been yes in many cases. But these days, some are growing a bit pessimistic. One critic points to two worrisome trends: 1) They are hiring a lot of analysts from the same sell-side firms, mutual funds and same b-schools that investment banks hire from. They should expect pretty much the same results. 2) They are showing signs of portfolio herding, which make them little better than mutual funds. These are good points. There are many funds that are undifferentiated. The key as an investor is to find those with a proprietary technology or method. They're out there. There will always be winners. You just have to find them.

For more:
- here's the item

GPs vs. LPs vs. shareholders

Jim Kim — Thu, 04 Sep 2008 13:34:26 -0400

Private equity companies make a strong case for going public. But everyone knows that there's always the possibility of complications. The news that Calstrs will invest much less in funds offered by the Blackstone Group--$250 million vs. the $1.7 billion it invested in the last Blackstone fund--has led to an interesting post at Portfolio. Calstrs Chief Investment Officer Christopher Ailman says this: "Money-management organizations are based around a culture, and being public changes the culture of the organization--the stock price now becomes the focus." And this: "I don't like seeing my GPs on the cover of Vanity Fair or bantered about on CNBC. I liked it when they were private." Wow. These are strong words via the media. The issue for the Blackstone Group is whether any of its other big investors are thinking along the same lines.

For more:
- here's the Portfolio item

Can Seoul save Wall Street?

Jim Kim — Thu, 04 Sep 2008 13:33:37 -0400

Well, a number of Korean banks want a piece of the Wall Street action. But there's been no deal announced yet, with Merrill Lynch or with Lehman Brothers. This could still end up being wishful thinking. Article