David Faber reports that Jeffrey Gandell will be liquidating and closing Tontine Capital and Tontine Partners, which sort of makes sense, considering their performance of late. But don’t worry! Because of its relatively stellar returns–October: -30.60%, YTD: -53.90%–Tontine 25 will be kept open, as will Tontine Financial, which is said to be down 83.3 percent for the year. Letter after the jump.
Tontine [PDF]
This guy was a genius one year ago. Today he’s lost over half his investors’ money and is closing up shop. Unbelievable.
What, exactly, was this guy doing over his history to garner such great compound returns only to blow himself up at the end?
The first thing that comes to mind is selling out of the money put options on the S&P 500.
Wow. Did they go catatonic? I am pretty sure my mom can do a better job.
Deleting comments, what is the USSA?
@4- if you hadn’t noticed, comments announcing ‘first’ etc are no longer tolerated.
It might be more informative to look at exactly what craptacular assets Jeff Gendell had been stuffing into his funds. Huge positions in overhyped (hello, Jim Cramer, talking about you) thinly traded OTCBB crap. Anyone who could read a 13F filing could have seen this coming. Sadly, getting a borrow on any of the Gendell house stocks was next to impossible.
What, exactly, was it that this guy was doing while racking up such great compound returns – only to blow himself up in the end?
The first thing that comes to mind is selling out of the money put options on the S&P 500.
Jeff’s a smart guy… just ask him to tell you. I remember his bloomberg header read “when people start comparing homebuilders to boeing… then i’ll be worried”
I didn’t get it at the time, still don’t know what he was getting at, but that was march 06… maybe it had something to do with a plane crash and a housing crash?
It might be more informative to look at exactly what craptacular assets Jeff Gendell had been stuffing into his funds. Huge positions in overhyped (hello, Jim Cramer, talking about you) thinly traded OTCBB crap. Anyone who could read a 13F filing could have seen this coming. Sadly, getting a borrow on any of the Gendell house stocks was next to impossible.
From Wikipedia:
A tontine is an investment scheme which combines features of a group annuity, group life insurance, and a lottery.
The scheme is named after Neapolitan banker Lorenzo de Tonti, who is generally credited with inventing it in France in 1653. Some sources claim that similar schemes already existed in Italy, but there is no dispute that the popularity of the form was due to Tonti.
The basic concept is simple. Each investor pays a sum into the tontine. The funds are invested and each investor receives dividends. As each investor dies, his or her share is divided amongst the surviving investors. This process continues until only one investor survives. Originally, the last surviving subscriber received only the dividends: the capital reverted to the state upon his or her death and was used to fund public works projects, which often contained the word “tontine” in their name. In a later variation, the capital would devolve upon the last survivor, effectively dissolving the trust and usually making the survivor very wealthy; it is this version that has often been the plot device for mysteries and detective stories.
While once very popular in France, Britain, and the United States, tontines have been banned in Britain and the United States due to the incentive for investors to kill one another, thereby increasing their shares. Geneva, in Switzerland, was known for its active market in tontines in the 17th and 18th centuries. Nevertheless, there are underground organizations in the US that still use the tontine, and ownership of a business or property by joint tenancy with right of survivorship has much the same effect.
@10- so in summary, some serious malafagool happened here
Are they going to be at the dealbreaker party tonight?
Was talking to one of their guys once about one of their portfolio companies, and I told him I didn’t think the business was terribly impressive. Later found out this person was in fact the chairman of the board of said company. Eh, I stand by my statement. Nice guy, though.
on their long 13F posits alone they are down -47.85% since end of the half. Industrial Goods and Basic Materials were the (bad) bet being 55.9% of the portfolio. He is the smartest guy out there and if this is any barometer, HF world as we know it is gone///oh and BESS- FOURTEENTH
Of course HF world is gone. Cut in half at least and regulation pending in Washington.
@8: I think he was getting at cyclicality. Homebuilders are highly cyclical, Boeing is not. Therefore, he was saying he wasn’t going to worry that housing was at a peak until “they” started saying that there was a paradigm shift & the construction business was no longer cyclical, e.g. is was like Boeing.
Let me guess – the losses weren’t caused by decisions of the portfolio managers, they were the result of “a perfect storm.”
His problem was that he was leveraged and in a lot of illiquid stuff, but if you look at the underlying holdings some are very, very cheap now, esp as people anticipate him blowing out his shares
@15, There will be no need to regulate HF’s as the bulk of them will be gone by December. The few that are left will have so little leverage available and will be so much smaller that they will resemble your regular run of the mill mutual fund, and thus will wither away in 5 years. Hedge Funds as an asset class are dead. Long live the Griff.
Hello…. Citadel. So vewwy vewwy quiet.
And yet Tosca continues to overhang…
Suits, it sounds like you’re talking about a private equity firm, not a hedge fund like Tontine. Unless there was more mixing of investment strategies than I realize, no employee of Tontine should have been the chairman of one of their investments, and they don’t have “portfolio companies”
This was a unique situation. 5 minutes with their SEC filings and it should be pretty apparent who I’m talking about.
@14
Don’t know whether you guys remember that Alexsey Veyner video CV passed around a few years ago, but as an attachment to it, he included a hack paper he wrote called “Hedge Fund Managers Disguising Beta as Alpha”.
I guess what I’m asking is, given what 14 is saying about Gandell, was aleksey veyner actually right, and, if so, do we want to live in such a world?
Give them credit — Tontine Financial preserved 16.7% of its capital. That’s something.
24- is it really confusing beta with alpha…
@26, meant insofar as Tontine seems to be pretty exposed to systematic risk, which they’ve been benefiting from until recently (and with the pm getting the credit).
Also meant it as kind of a joke.
#24:
Hedge funds disguising beta as alpha is a common criticism against many hedge funds. While Vayner was certainly correct in arguing this fact, he is by no means the first person to notice it.
Most hedge funds are literally mutual funds on steroids – meaning that they will easily outperform in up markets but fail spectacularly in down ones. Most managers are actually afraid of short-selling, and do so very rarely.
A tragic consequence of bad hedge funds imploding is that even the good ones suffer, as everyone faces redemptions. The massively leveraged long-only funds are scummy deadbeats in my opinion, who deserve none of the rewards they have reaped.
there are some horrifying examples of HF blow-ups this yr — tontine, tosca, etc — but it is the case that the ave fund is at least outperforming the market. They are posting -ve returns in general but in terms of capital preservation investors have been better served by exposure to HF than to long only funds. Unless you are exposed to a market neutral fund which is posting big -ve numbers and therefore not delivering on its promised performance template the majority of investors haven’t been badly served by the HFs this yr.
Gendell’s Bloomie header now reads:
“WHEN THE DOW HITS 14,000 THAT LOUD NOISE WILL BE THE DEATH OF THE CLANG BIRDS”
random
not really a fitting epitaph