Last Friday afternoon, while many a financial services employee was dealing with the fallout of receiving a bonus they did not believe to be commensurate with the work they put in for 2011, Bridgewater was dealing with a far weightier issue. The hedge fund had a thief in its ranks and said thief’s jig was up. Read more »
It probably speaks well of the overall state of human rights in Europe that the European Court of Human Rights devotes a lot of its time to compelling moral issues like George Soros’s insider trading conviction. (Fine, there’s some torture too.) But how good is this:
Hedge funds have been known to use hardball tactics to make money. Now they have come up with a new one: suing Greece in a human rights court to make good on its bond payments. The novel approach would have the funds arguing in the European Court of Human Rights that Greece had violated bondholder rights, though that could be a multiyear project with no guarantee of a payoff. And it would not be likely to produce sympathy for these funds, which many blame for the lack of progress so far in the negotiations over restructuring Greece’s debts.
You … you think? You think that might look bad? Hmm.
More specifically the potential human rights violation here is the retroactive introduction of a collective action clause into the Greek-law bonds, which represent some 90% of the outstanding Greek debt. The idea here is along the lines of add CAC, scrape together a majority of the bondholders to agree to the exchange, and then force the holdouts to exchange on the same terms. Because Greece’s bonds do not currently have a CAC, people who bought the bonds would understandably feel a bit miffed to have one added retroactively, and some of them might replace the words “feel a bit miffed” with the words “have their human rights violated.” At the very least, though, retroactively and unilaterally adding material terms to the debt agreements seems pretty shady.
But one can have a little bit of perspective on this. I think there are about four things that Greece could do with its Greek-law bonds: Read more »
For months now, Greece has desperately been trying to persuade its private-sector creditors that it is in their interest to exchange their existing Greek bonds for longer-term securities and accept about a 50 percent loss as part of the bargain. The negotiations are known as the private sector involvement, or P.S.I.
A few months ago the deal looked doable, as the large European banks that held must of this debt, estimated to be around €200 billion, recognized that it was probably a better alternative than default, which could cost them everything. Moreover, the banks were sensitive to political pressure from their home countries, where they have a big stake in remaining on good terms with the government and key officials.
But as the talks have dragged on, many of these banks, especially big holders in France and Germany, have sold their holdings. Among the buyers have been hedge funds and other independent investors who are now questioning why they should accept a loss, known as a haircut, if, as it turns out, the deal remains voluntary in nature and Greece keeps paying interest on its debt.
And as the number of such hedge funds holding Greek debt has grown, so has their ability to forestall a restructuring agreement, thus bringing them closer to being able cash in on their high-stakes gambit.
From the Journal:
There are many potential pitfalls, each, in a way, leading to another pitfall-strewn path.
Ha! Also ha! on the Times’s sort of strange description of what the hedge funds are up to, though what they’re up to doesn’t itself sound strange. If I were a hedge fund here is what I would do:
1. Not buy bonds and then later “question why I should accept a loss”;
2. rather, buy bonds because I plan to get a gain;
3. specifically because I’m planning to be all “oh, man, I must have lost that consent solicitation in the mail, could you send it again” and otherwise generally stall on this voluntary offer until my bonds come due and are paid off with bailout money (maybe?);
4. or, alternatively, because I’ve got CDS against those bonds and have no intention whatsoever of voluntarily exchanging them and voiding my protection.
That or “stay the hell away from this situation.” But, like, the above is at least a strategy. Now, if I were a French or German bank here is what I would do: Read more »
John Paulson, the billionaire money manager who’s vowed to restore his hedge fund to profitability after the worst year of his career, may have to take a cue from rival Ken Griffin. Paulson’s $28 billion firm, Paulson & Co., will need to generate a 104 percent return to recoup a 51 percent drop in one of his largest funds after wagers on a U.S. recovery went awry. Until he hits that mark, Paulson will have to forgo his 20 percent performance fee, and will collect only his 1.5 percent management fee. It has taken Griffin, the billionaire founder of Citadel LLC, three years to recover most of the 55 percent he lost for investors in 2008. “With Paulson’s assets, size and longer-term investing style, it’s going to be difficult for him to make money back,” said Vidak Radonjic, managing partner at Beryl Consulting Group LLC in Jersey City, New Jersey, which advises clients on investing in hedge funds. “He has large, concentrated stock positions and the market isn’t really rewarding those with holdings like that.” [Bloomberg]
1. Tiger Global, YTD total return: 45% (assets, in billions: 6.0)
2. Renaissance Institutional Equities, 33.1% (7.0)
3. Pure Alpha II, 23.5% (53.0)
4. Discus Managed Futures Program, 20.9% (2.5)
5. Providence MBS, 20.6% (1.3)
6. Oculus, 19.0% (7.0)
7. All Weather 12%, 17.8% (4.4)
7. Dymon Asia Macro, 17.8% (1.6)
10. Citadel, 17.7% (11.0)
11. Coatue Management, 16.9% (4.7)
12. Stratus Multi-Strategy Program, 16.6% (3.7)
13. OxAM Quant Fund, 16.4% (2.0)
14. SPM Core, 15.7% (1.0)
15. Pure Alpha I, 14.9% (11.0)
16. Autonomy Global Macro, 13.9% (2.1)
17. BlackRock Fixed Income Global Alpha, 13.8% (2.4)
18. SPM Structured Serving Holding, 13.5% (1.6)
19. GSA Capital International, 13.0% (1.0)
20. JAT Capital, 12.7% (2.5)
And for those who judge themselves by how many bags of hundos they’ve got to strip naked and roll around in: Read more »
We struggle with how bad of a grade to give ourselves for 2011 because in some ways it’s too early to tell. Yes, many of our stocks took beatings during the year, but only time will tell whether we were wrong or just early. We think in most cases the latter, given that we still own meaningful positions in 8 of our 10 (and 15 of our 20) biggest losers on the longside in 2011. If even a handful of these stocks perform like we think they will in the next 1-3 years, we won’t look as dumb as we do today– and thus we might give ourselves a C for 2011. If these stocks don’t recover then we deserve a D. Why not an F? Because an F is reserved for blowing up- and we didn’t…We feel badly about our recent performance and obviously wish we’d done many things differently, but we are not at all discouraged, as we’ve been through this before. If you look at our performance table at the beginning of this letter, you will see that we’ve lost more money, much faster, on two other occasions: we were down 27.4% in eight months from June 2002 – January 2003, and down 32.8% in five months from October 2008 – February 2009. In both of these cases, by playing a strong hand and buying more of our favorite stocks as they plunged, we made back all of the losses (and then some) remarkably quickly: in only nine months in 2002-03 and a mere seven months in 2008-09. We could not be more confident that we will rebound strongly from our latest losses [-24.9 percent for 2011] as well. Read more »
December performance: two very enthusiastic whiteboard markers up. Read more »
Are you a Connecticut-based hedge fund employee, perhaps living and working in Stamford and unable to imagine life getting much better than that in the 06901? Well don’t get too comfortable. According to a report in the February issue of Bloomberg Markets Magazine, it’s not entirely out of the realm of possibility that your bosses may soon force you to relocate to Malta, where many a firm has been “lured by low taxes, cheap labor and a coveted address inside the European Union.” If the idea of giving up all this [gestures towards the ashes of Hula Hanks Island Grille & Bar, I-95, the gleaming, glittering UBS building, freezing your ass off walking from house to car and car to office] for a “sun-drenched island in the middle of the Mediterranean Sea” that gets 300 days of sunshine per year sounds like a trade you’re somewhat unsure about, you’re not alone. Erik Nelson was once in your shoes, too.
Erik Nelson was working in Stamford, Connecticut, as a research analyst at FMG USA LLC, the U.S. arm of FMG, a fund of funds specializing in emerging and frontier markets, when his bosses called him into a meeting in September 2009. They had recently moved FMG’s corporate headquarters to Malta fromBermuda and now they wanted Nelson, 27 at the time, to head up the new office. “I’ll have to think about it,” Nelson replied.
Three months later, Nelson did end up making the trip, like the other hedge fund employees who’ve helped Malta increase the number of funds with a local presence by 30 percent since 2010. And in a crazy plot twist no one saw coming, is actually having a pretty okay time. Read more »