investments

How far will hedge fund woes spread?

Jim Kim — Fri, 24 Oct 2008 07:47:53 -0400

It's no secret that hedge funds both large and small are having a rough year. Is the pain about to spread to retail customers? Business Week certainly thinks so. "In the coming months, hundreds of hedge funds may shut their doors, sparking a massive fire sale on all sorts of investments. Just about anybody with a 401(k) or pension plan will feel the pain, since the sell-off will only exacerbate the plunge in stocks, bonds, and commodities--which make up the core of most people's portfolios." That's dire. My sense is that it will be a bit more orderly than an all-out asset dump. You can bet there's an awful lot of negotiating going on right now. Hedge fund execs likely have never been so humble. Big institutions would be wise to use the situation to gain leverage and better terms.

For more:
- here's the Business Week article

Picking winners and losers in the banking industry

Jim Kim — Tue, 21 Oct 2008 16:30:15 -0400

We've suggested here that the trickiest part of the entire TARP is the price at which the Treasury will buy specific assets. But the asset picking seems to have been put on the back burner in favor of direct investments in banks, which seems to be a good idea. Business Week suggests that the Treasury still has some tricky picking to do. It must decided which banks it will invest in, and which it will let die. Not every bank that applies will receive aid. The regulators have jointly come up with some objective criteria--embodied in a uniform application. Business Week notes there are other actions the Treasury could take. It may push some toward mergers. It may invest in some merged banks. The application deadline is Nov. 14.

For more:
- here's the article

Related Article:
TARP details emerge

Ackman tries a new tack

Jim Kim — Tue, 07 Oct 2008 13:38:46 -0400

The world knows William Ackman as one of several big-name fund managers who bet against top financial institutions. He's got some new long investments now, notably Wachovia and AIG, reports TheDeal.com. He discussed both in a recent conference. He's now the 12th largest shareholder of AIG. And he owns a 7 percent stake in Wachovia. We'll see how these bets end up for him. All in all, he's not having that bad a year. Other hedge fund managers who took big stakes against financial services firms are faring much worse, notably David Einhorn at Greenlight Capital. Ackman's Pershing Square is actually up 2 percent for the year. Here's a list of top hedge funds and their performance this year.

For more:
- here's an article from TheDeal.com on Ackman

Can Cerberus still save Chrysler and GMAC Financing?

Jim Kim — Wed, 03 Sep 2008 23:53:38 -0400

Cerberus Capital, run by Stephen Feinberg, is staring at the abyss right now regarding Chrysler and GMAC Financing. The New York Times characterizes the fund as "racing to salvage" its investments in the face of a severe downturn in the auto and home-lending industries. Until recently, the story was more upbeat: big name financier rides to the rescue of some big-name American brands. People thought Feinberg would turn both around and restore the luster. But the economy and credit markets--quite a one-two punch--simply have not cooperated. The turnaround of both are still far in the future. An indication of the environment: GMAC and its Residential Capital home loan subsidiary have announced that they will dismiss 5,000 employees (60 percent of Residential's staff) and close all 200 of its retail branches.

For more:
- here's the New York Times article

New York sues UBS over auction rate securities

Jim Kim — Fri, 25 Jul 2008 07:59:21 -0400

UBS has once again found itself the target of federal charges. This time, New York Attorney General Andrew Cuomo has charged the Swiss bank with illegally promoting auction rate securities as safe investments when executives knew they were anything but. According to the AP, investigators have identified seven UBS executives who sold personal stakes in auction rate securities to the tune of $21 million. Their emails paint of picture of worried execs. "I want to get out of arcs. Let's talk Monday," one executive wrote to his investment adviser, after receiving a company email warning of potential problems in the market. This will likely be the first of several actions against banks. We'll see more than one state get involved. As usual, email will likely be the main evidence.

For more:
- here's the article

Dividends, the best source of capital right now?

Jim Kim — Tue, 22 Jul 2008 08:30:33 -0400

We've noted that most big banks have fewer options when it comes to capital raising. Public offerings are increasingly hard, given concerns about dilution, among other things. Outside investors have been licking their wounds as their early investments have really tanked. So that leaves asset sales and dividend cuts. Asset sales can be a tricky, especially at a time when valuations are an issue. Just ask Merrill Lynch. And for the second time in three months, Wachovia has cut its dividend. It now will pay a nickel a share, compared with 37.5 cents earlier, and 60 cents a share at the start of the year. The move will effectively raise $700 million each quarter. This, of course, is bad for shareholders, but in this environment, what choice did the bank have? It's second quarter earnings were much worse than anticipated--a loss of $4.20 a share. Analysts were expecting 78 cents a share. Ouch. The fourth largest U.S. bank is also slashing 6,350 jobs.

For more:
- here's the AP article

Merrill Lynch was serious about BlackRock sale

Jim Kim — Mon, 21 Jul 2008 13:27:50 -0400

The Financial Times reports that Merrill Lynch was serious about selling its 49 percent stake in BlackRock back to the asset manager, revealing that Merrill CEO John Thain and BlackRock CEO Larry Fink held extensive talks on the issue over several weeks. Both sides hoped to reach an agreement before earnings were released. That didn't happen, as the talks snagged on price. But Merrill obviously was able to ink a deal to sell its Bloomberg stake. Interestingly, Merrill was apparently also in talks to sell some or all of its BlackRock stake to sovereign wealth funds Temasek and the Kuwait Investment Authority. Both funds have taken huge paper losses on their Merrill investments. It's unclear how those talks developed. This raises an interesting point. Suppose Merrill needs to raise more capital. We may seem them go right back to the three potential buyers and bargain from a weaker position.

For more:
- here's the Financial Times article

Institutions betting on 'core satellite on steroids'

Jim Kim — Tue, 08 Jul 2008 13:55:38 -0400

The notion of core-satellite investing seems to be regaining some of its old popularity, according to Pensions & Investments. More institutions, ever mindful of costs and ever in need of enhanced returns, are seeking to invest in funds that offer a core portfolio, essentially a passive-type product, coupled with various satellite investments in highly concentrated equity portfolios of perhaps 15 to 20 stocks each. Obviously, this is in keeping with the trend toward separating alpha and beta. All too many funds charge alpha-premised fees for beta-like returns. Not a good deal for investors. The risks may rise a bit but institutions know what they are doing, and what they are paying for.

For more:
- here's the article

And the biggest investors in hedge funds are...

Jim Kim — Wed, 02 Jul 2008 12:29:12 -0400

So here's a question for you: Who provides hedge funds with the most investment money? Most of us would answer--in knee-jerk fashion--institutions, of course. We would be wrong--and right. Pensions, endowments and foundations still provide a hefty chunk to the hedge funds on average at 13 percent, and an additional 23 percent via funds of funds, notes research from Greenwich Associates and Global Custodian, cited in FINalternatives. But high net worth individuals still provide the most at 37 percent. Still, when it comes to big hedge funds, institutions have indeed taken over. They account for 25 percent of assets, while individuals account for 22 percent.

For more:
- here's the FINalternatives article

Blackstone to make real estate play?

Mon, 19 May 2008 06:59:55 -0400

Recall that just before the credit crisis really hit home, the Blackstone Group was raising brows for its aggressive forays into commercial real estate; namely, its $36 billion purchase of the Equity Offices Properties Trust. It flipped a lot of profits and made a tidy one for itself (we were led to believe), even though a few properties were tricky to exit. Since then, real estate gains have been hard to come by. In the first quarter, revenue from real estate was down more than 90 percent. Now, the Financial Times reports that Blackstone is thinking about buying some of the properties it once sold at discounted prices, essentially betting that they will rise in price all over again. Its strategy may include buying the debt once used to purchase those assets. Lots of private equity firms are mulling distressed assets investments; it has to put its funds to work, somehow.

For more:
- here's the Financial Times article