NYT shines some sunlight on the worst of Wall Street

The NYT has been all over Wall Street lately: criticizing its product offerings (SPACs), mocking its hedge fund managers (too arrogant), trashing a well known mutual fund manager (excessively piggish).

If the NYT reports are accurate, we are not a pretty lot. While its tough to objectively label someone as too arrogant or piggish — these are such visceral emotional issues — the Times does not paint a pretty picture.

Consider these three tales:

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Mario Gabelli is revealed as an overpaid fund manager, and gets trashed as a greedy majority shareholder who treats his minority shareholders exceedingly poorly.

Litigation to follow . . .

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Daniel S. Loeb runs the $3.6 billion hedge fund Third Point, and the NYT rakes him over the coals. Since I don’t know the man, I cannot attest to how accurate/fair the Times piece is; they seem to go out of their way to paint him as a pompous ass.

Citadel comes in for the wrecking ball also, with the NYT pointing out their unusual managment fee fluctuate, running as high as 6% (the typical hedge fund management fee is 2%).   

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SPACs: The latest Wall Street product are expensive and risky — but the tradeoff is that most are unlikely to succeed.

My experience is that Wall Street is filled with both heroes and goats, with pigs and weasels. While the Times is focusing on the seamy underside as of late, I know too many Wall Streeters who are conscientious, charitable, humble fellows.

Indeed, several firms dedicated a day of trading profits to Katrina victims (Cantor, Jeffries & Co, Rob Fraim, etc.). And of course, Todd Harrison’s Investing Rock Stars Guitar is a terrific charitable venture.    

I guess for every Bull there’s a Bear, and for each of them there’s a pig . . .


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Yale Endowment Manager: Index

Among individual investors, David Swensen isn’t a household name. But he is an icon in the world of big institutional money managers such as endowments and pension funds.

Mr. Swensen’s fame comes from his oversight of Yale University’s $15 billion endowment fund, which, since he was hired 20 years ago, has returned an average of 16% a year, far outpacing the market and other funds run for universities. Before arriving, Mr. Swensen had never overseen an institutional portfolio, and he brought to the job an unconventional approach for dividing up the portfolio among different asset classes. He is now Yale’s chief investment officer.

Five years ago, Mr. Swensen set out to write a book that would bring the lessons he learned to individual investors. Instead, he says he found that the option most accessible to individuals — mutual funds — often makes it impossible to beat the market. And even when they do find good managers, individuals end up shooting themselves in the foot, he says.

So while Yale relies on actively managed portfolios, Mr. Swensen says individuals should just stick to index funds, especially those run by not-for-profit companies. He also likes exchange-traded funds, which trade on exchanges like stocks, but says "buyer beware."

Excerpts from an interview with Mr. Swensen follow:

WSJ: You had hoped to give small investors a road map for beating the market based on Yale’s approach to investing. What happened?

Mr. Swensen: I found when I started down that path that individuals just don’t have the same set of investment opportunities available to them that we do here at Yale. In fact, the evidence showed me that the mutual-fund industry has completely failed to provide reasonable active-management returns to individuals.

WSJ: To say that it completely failed — that’s a pretty harsh statement to make.

Mr. Swensen: I think the evidence is there. The crux of the failure is with the for-profit management of funds for individuals. Mutual-fund managers have a fiduciary responsibility to investors. Obviously, if they are operating in a for-profit mode, they have a profit motive. When you put the profit motive up against fiduciary responsibility, that fiduciary responsibility loses and profits win.

continued below . . .

Yale Manager Blasts Industry
THE WALL STREET JOURNAL, September 6, 2005



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Category: Investing, Markets