Posts filed under “Hedge Funds”
This week was the 19th annual Ira Sohn conference. It is an opportunity to raise money for a good cause (pediatric cancer research and treatment), and hobnob with rock star hedge-fund managers. It has become a must-attend event.
Just remember one important thing: Ignore the stock tips.
It is true that the picks and pans at the Sohn conference can move individual stocks 10 percent or more. Yet, as a number of folks have pointed out, the picks of the pros typically underperform the broad market or even lose money. Traders don’t seem to care.
James Bianco, proprietor of eponymously named Bianco Research LLC, explains how the conference became such an important event:
“We would argue the Ira Sohn conference was made famous from David Einhorn’s June 2008 presentation arguing for shorting Lehman Brothers. A little more than three months later the bank filed for bankruptcy, netting Einhorn a 99.8% return (more if leveraged). Of course, Bill Miller’s Freddie Mac long that lost 96.9%, Michael Price’s Allied Irish long and Forest City longs that lost 91.7% and 82.7% respectively, as well as Richard Pzena’s Citibank long that lost 82.4% have been conveniently forgotten.
Ouch. Indeed, in 2008, Einhorn’s recommendation to sell short Lehman Brothers Holdings Inc. was the sole winning trade that year.
Stock pickers in subsequent years fared better, but still underperformed. As Bianco pointed out in a note to clients yesterday, the Sohn conference typically lags behind a simple index fund. That’s right, Vanguard’s John Bogle beats the collective wisdom from the best and the brightest hedgies.
A simple average of all the trades offered, the Ira Sohn panelists’ 2010 calls returned 21.85% versus a return of 25.01% for the S&P 500 over the same period. The 2008 calls underperformed as well. The Sohn panelists’ 2008 calls returned -42.05% in the ensuing year versus an SPX return of -35.40%.
The 2013 results were similarly disappointing: a 3.8 percent loss for the conference’s best picks versus the Standard & Poor’s 500 Index gain of 15.2 percent. The pattern was the same in 2012: a 19 percent gain for the Sohn picks versus 22 percent for the S&P 500. (Note the gains are calculated conference to conference, and not on the calendar year).
By coincidence, in addition to the Sohn conference, this week also saw the release of Institutional Investor’s Alpha Rich list. It details the top funds, not in terms of performance, but in terms of manager compensation. They are:
1. David Tepper (Appaloosa Management) – $3.5 billion
2. Steven Cohen (SAC Capital Advisors) – $2.4 billion
3. John Paulson (Paulson & Co.) – $2.3 billion
4. James Simons (Renaissance Technologies) – $2.2 billion
5. Kenneth Griffin (Citadel) – $950 million
6. Israel Englander (Millennium Management) – $850 million
7. Leon Cooperman (Omega Advisors) – $825 million
8. Lawrence Robbins (Glenview Capital Management) – $750 million
9. Daniel Loeb (Third Point) – $700 million
10. Paul Tudor Jones II (Tudor Investment Corp.) – $600 million
These hedge-fund managers are all very bright, skilled guys (and yes, they are all men). There is a modest overlap between the list of Sohn conference presenters and the highest-paid managers.
But it isn’t just their individual picks that underperform; the HFR Equity Hedge Fund Index — a basket of long and short positions — also would have cost you money, declining 5.9 percent since 2010 compared with a 61 percent gain in the S&P 500.
One can’t help but look at these results, and wonder: If the skill set isn’t stock-picking, then what is it?
Ever wonder what motivates various pundits, strategists and fund managers to spout off about whatever it is they are yammering on about? Step back and examine all of the various words spilled on markets. Scratch a little beneath the surface, and you quickly realize that not all participants are in a relentless search for the…Read More
Earlier this week, Greenlight Capital hedge fund manager David Einhorn reignited the bubble debate that we have spilled so many pixels dissecting. The shorter of Lehman Brothers and the New York Mets fan said in a quarterly letter to clients “we are witnessing our second tech bubble in 15 years.” The Bubble Chatter is nothing…Read More
Larry Swedroe, research director for BAM Advisor Services LLC, noted earlier this month that total hedge fund assets under management, or AUM, reached $2.63 trillion. This represents a sizable increase, despite fund performance generously described as lackluster. The increase in assets under management led to some interesting discussions. Lots of readers had e-mailed me with…Read More
How Important Are Hedge Funds in a Crisis? Reint Gropp Federal Reserve Bank of San Francisco April 14, 2014 Before the 2007–09 crisis, standard risk measurement methods substantially underestimated the threat to the financial system. One reason was that these methods didn’t account for how closely commercial banks, investment banks, hedge funds,…Read More
I have been fairly fascinated by hedge funds for quite some time. I began studying them earlier last decade. It has been an intriguing field for investigation for a number of reasons: 1) Alpha Generators: In the early days of hedge funds, they created a ton of Alpha. Like pre-expansion sports leagues, there was a…Read More
A quick note this morning on anonymously stock tips, one I hope will be less cranky than yesterday’s screed. Greenlight Capital hedge-fund manager David Einhorn last month filed suit against the Seeking Alpha website, demanding to learn the identity of an unidentified blogger who had revealed that Greenlight was acquiring shares of Micron Technology Inc….Read More
Have a look at the tables above showing the performance of various investments during the five years leading up to the financial crisis lows, and the five years after. It leads us to a rather fascinating exercise, looking at complexity, cost and performance. Let’s start with the worst performers pre-crash: US Real Estate and…Read More
This weekend, I found myself in the rather unusual position of defending hedge funds. Before I explain why that is so unusual, allow me to explain what I was defending them against. Last week, Forbes released its annual score card of top-earning hedge fund managers. The usual gang was there: Soros, Tepper, Cohen, Paulson, Icahn,…Read More