alternative investments

Endowments setting the trend these days?

Jim Kim — Mon, 01 Sep 2008 07:25:10 -0400

So-called super endowments, epitomized by the Harvard and Yale endowments, have really turned heads in the asset management world as of late. Super endowments have bet big on alternative assets to spectacular results. Harvard's endowment is up 20 percent from the start of 2007. Yale's endowment rose 25 percent. So Gottex Fund Management may be on to something with its global, multi-asset investment program--which may seek to emulate the endowment style. According to FINalternatives, it will allocate about 60 percent or more to alternative investments. The funds will be actively managed and will pursue both strategic and tactical investment opportunities across many asset classes. Gottex argues that we're at the beginning of a convergence of alternative and traditional investment management, as more funds segregate beta and alpha and the emphasis is on risk adjusted returns.

For more:
- here's the article

High net worth customers can't get enough of alternatives

Jim Kim — Tue, 19 Aug 2008 12:52:57 -0400

We've noted the long-running debate about whether the accreditation requirements for hedge fund investors ought to be lowered. For many the rules strike a paternalistic note: The non-wealthy can't comprehend the risks. That has galled many over the years in part because they think most of the public is being denied access to really good investments. The latest from JPMorgan Private Bank, according to FINalternatives, is that clients are cutting equity allocations and boosting their share of alternatives, sometimes putting more than half their money into hedge funds, private equity funds and real estate. Within five years, most clients will have larger alternatives allocations than equity allocations. Does this reflect the superiority of alternative investments? Or aggressive sales practices? You can bet the advisers are making out well for pushing certain funds. Or a bit of both?

For more:
- here's the article from FINalternatives

Richard Bove: Sell Goldman Sachs

Jim Kim — Mon, 11 Aug 2008 18:45:51 -0400

Analyst Richard Bove has reiterated his sell recommendation on Goldman Sachs and cut his earnings estimates. For the year ending November 30, he now predicts $14.16 per share, down from his $15.45 estimate. That puts him firmly on the low side. The average estimate (Thomson Financial) is $16.77 per share. We'll see if others follow him. "Business has dried up," he tells clients in a memo reported on by the AP. He cited weakness in mergers as well as alternative investments and prime brokerage, which may be an ominous sign for the hedge fund industry. While currency and commodities trading has fared well, it will not generate enough to offset the slowdown in other core businesses. "At the moment, the light at the end of this tunnel is very dim," Bove wrote. "In near term, a turnaround in the company's earnings is not in prospect."

For more:
- here's the AP article

Ex-Citi hedge fund manager blames firm

Jim Kim — Wed, 30 Jul 2008 09:41:03 -0400

John Pickett, who ran a Citigroup hedge fund from 1999 until his resignation in December, has filed a sealed arbitration-like complaint in London. In it, he has some choice accusations against his former employer, notes FINalternatives. Pickett claims Citi's John Havens, who now runs Citi's alternative investment units, overruled him when he attempted to back out of a bid for $730 million in leveraged loans last summer. Pickett's move reflected what he saw at Morgan Stanley and the other banks changed the terms. But after Morgan Stanley complained, Havens ordered Pickett not to sue the banks. A settlement was reached that cost the hedge fund dearly, and helped secure a large loss for the year, according to Pickett (who says the firm put its own interests ahead of customers). Citi says the complaint is without merit. It halted redemptions at the fund in question in February.

For more:
- here's the FINalternatives article

Hedge funds on a hiring binge?

Jim Kim — Wed, 09 Jul 2008 13:54:59 -0400

We've noted before that lots of laid-off bankers, traders and analysts will have trouble finding a job. Some will have to transition into a new line of work. The lucky ones will find work in the alternative investments universe. And right now, there is reason for hope. The Financial Times reports that hedge funds are in active hiring mode. They are using the crunch to pick up some talent--star traders, top executives, even entire teams. Tudor, the article notes, hired a Bear Stearns distressed-debt team. Citadel has taken on three senior executives from JPMorgan. Many of the hires are people who remain employed. You indeed have to wonder whether a layoff marks you in a subtle way. It's clear to me, though, that hedge funds won't come close to absorbing all of the displaced.

For more:
- here's the Financial Times article

So who will run Wachovia?

Jim Kim — Mon, 30 Jun 2008 11:36:32 -0400

Wachovia chairman and interim CEO Lanty Smith is leading the search for the troubled bank's next CEO. Breakingviews suggests that he needs to hurry up. The delay, to be sure, does not speak well for the bank. Obviously, there was little in the way of formal succession planning. But the article suggests that the opening also represents a shocking lack of CEO talent right now in the banking industry. Those rumored to be in the hunt apparently include William Demcheck of PNC Financial, David Moffett of Carlyle Group, and Alvaro de Molina, a former CFO at Bank of America now with Cerberus. It's interesting that two of the three potential candidates currently are in the alternative investments industry. My sense is that Wachovia would be better off selling itself to a bigger bank. It's an option that board has to take seriously.

For more:
- here's the Breakingviews article

Separating the men from boys in private equity

Fri, 23 May 2008 06:59:54 -0400

These are tough times in the private equity industry. But it's time like these, one could argue, that the strong get relatively stronger as the weak fall by the wayside. The grizzled vets in this industry have seen it all before. They're know now is the time to plan for the next boom. So how are big boys playing the crisis? According to Fortune, they're moving on three fronts: by buying up distressed debts, often from the top banks; by proceeding with plans for a public offerings; and by moving on plans to become more than buyout shops. They aim for a broader menu of services, from various alternative investments to more traditional money management.

For more:
- here's the article

Can the alternatives boom keep on booming?

Wed, 14 May 2008 06:59:59 -0400

When you get down to it, the private equity and hedge fund industries were built on the backs of millions of hard-working folks earnings civil servants wages--police officers, teachers and others. Obviously, the main source of funding for many alternative investment firms were working the public pensions.

State governments are falling behind in their race to cover the retirement benefits they have promised, to the tune of $750 billion. Local pensions are likely in the same boat. (Corporate pensions, the ones that still exist, are faring a lot better. Still, the funded ratio dropped last year to below 100 percent.) The GAO has found that the percentage of public pensions that are severely underfunded has risen to 40 percent.

The kicker is that, according to the Washington Post, a lot of pensions use accounting methods that make the problem seem less severe. Many would argue that they use really rosy return assumptions.

So you've got to wonder what the answer is? I really don't see an obvious one. You can't just snap your fingers, change policies and expect everything to work out. I applaud the PBGC decision to allocate more to equities over the next decade or so. But is chasing the returns the answer? You can be a great hedge fund and private equity fund picker, but the returns aren't likely to bridge the gap meaningfully. There might have been a time when the prospect of better returns would have made a difference, but for a lot of pensions, even significantly higher returns won't matter all that much.

So at some point, we'll have to acknowledge reality, and have a serious national discussion about slashing benefits. Wall Street is no longer the answer; we're way beyond that now. - Jim

Hedge funds favoring Obama?

Wed, 23 Apr 2008 06:59:55 -0400

Despite some rhetoric about getting tough on the rich, candidates Hillary Clinton and Barack Obama have not sought to make an issue out of alternative investments and their tax treatments. But of all the candidates, Obama would seem to be the least likely for top hedge fund managers to support. The New York Times reports he favors the Stop Tax Haven Abuse Act, which would limit offshore accounts that top hedge funds rely on. Still, the big hedge fund kahunas are generally lining behind the senator from Illinois. George Soros leads the list. Hillary has her supporters, too. In the end though, this may be less about personal conviction and more about getting behind whoever wins.

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

C&L: Executive Moves

Wed, 02 Apr 2008 07:59:51 -0400

> Harvard endowment taps Jane Mendillo
> Ladenburg Thalmann names Brett Kaufman CFO
> Citigroup taps Jerome Anglade to start new credit fund
> Citigroup to hire Lloyd's Terri Dial
> Ilario Di Bon tapped as equities chief at Fidelity
> Lehman Brothers hires Mark Bourgeois for alternative investments