Posted: December 29th, 2011 | Author: Wayne Weddington | Filed under: Opinion | Tags: emerging managers, hedge funds, investing | Make a Comment »
The institutionalization of the hedge fund industry has forever changed the business. In the early days, speculative investment in the nascent hedge fund stratosphere consisted of the individual rogues. The outsiders. The CTAs. The floor traders. The CPOs.
They used various techniques: technical analysis, stochastics and momentum…. More often than not they traded “paper”, taking positions in a commodity knowing that other natural hedgers were taking a position.
But the pension funds caught return envy, particularly when comparing their own returns to their counterparts who were early adopters of alternative investment strategies…. executed deftly by Harvard University endowment, or Marvin Damsma at Amoco Corporation.
And so the also-rans increased their allocations to alternative strategies, exposing their constituents to risks they did not always understand. And when they did not, they would use the compulsion of their gorilla size to impose upon a manager’s investment style.
What has happened to absolute returns is that as institutional investors started to enter the game, and as hedge funds managers were happy to clip coupons in management fee, the institutions demanded risk controls that make the large hedge funds look a lot more like mutual funds.
The hedge funds’ “victim” in the early days used to be the plodding, long-only, slow-moving institutional players; and to some extent retail investors. Now the predators have become the prey. The ultra-big hedge funds have become the market participants that they used to take advantage of…. slow-moving, plodding, ‘market-noisy.’ Now that the majority of the $2 trillion in hedge fund assets is controlled by 300 hedge funds, the new, new “smart money” is allocating to the smaller hedge funds, where they are the beneficiaries of nimbleness and an out-performance on average 3% – 4% annually.
Posted: January 15th, 2009 | Author: Wayne Weddington | Filed under: Opinion | Tags: covered calls, covered puts, hedge funds, Strategy | Make a Comment »
By now, we have all made our New Year’s resolutions. This, despite the fact that the correlation between that which we promise ourselves — “This year I will be more [giving], [healthy], [sober], [straight], [creative], [adventurous]…..” — and the downstream reality is usually low. I suspect this year, for millions of ordinary people, the resolutions are going to be far simpler. “This year I resolve to survive.”
Standing here in January, you must wonder which asset classes look good for the year.
Not many. There is always cash of course but with treasuries paying 2.5% on the 30-year the prospect is not so enticing. (It is better than a negative return, of course.)
Let us consider some very sobering facts. First, that bailouts are even necessary is a stark signal that things are desperately bleak in the economy. The Fed has largely shot its load with its aggressive reduction in interest rates in order to stem (delay?) the pain, on top of enormous “stimuli” to the economy in the trillions. These are tactics that have not worked well historically in stimulating stable growth. In fact, they intensified the problems.
Easy money has been the life blood of America’s economy since the eighties. The growth was great and now the spigot is dry. Like the carnivorous extra-terrestrial plant in The Little Shop of Horrors, the same stimulus to our growth is now sucking blood from our fingertips. “Must be blood… must be fresh…”
So in terms of themes or asset classes this year, unfortunately there is not much to like. But I do like strategies that benefit from volatility such as intra-day equity futures trading, inter-day covered calls and covered puts, each for as long as the VIX remains high (and it will). I like distressed debt (yielding 10% or more), and I like healthy dominant companies with substantial dividend payouts. Some investors are buying Asian currencies, knowing that they must continue to rise relative to the debtor-USDollar. I have not… yet. I do not like consumer cyclicals, industrials, mining and drilling, or financials…. (sounds like everything, doesn’t it?). Be wary that short selling is going to be volatile.
2009 will be a year for alternate measures.