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Leon Cooperman blames risk parity for market chaos
Hedge Funds
<p>Last week JPMorgan Chase &amp; Co. (NYSE:JPM) Chase &amp; Co. warned its clients that Volatility Target strategies, CTAs and Risk Parity portfolios could sell a combined total of $150 billion to $300 billion of equities during the next few weeks as momentum drives selling (Concerns Over Risk Parity Grow [Cont.])</p> <p>The report from JPMorgan came a few days after the Financial Times published an article on the risks that Risk Parity strategies posed to the global bond market. The Financial Times cited a new report from AllianceBernstein (Introduction to Tail Risk Parity an old copy of the paper can be found here), which estimates that risk parity is now a $400 billion industry. Assuming an average leverage ratio of 355%, these funds control around $1.4 trillion in assets.</p> <p>Leon Cooperman on risk parity<br /> Reports from the Financial Times, AllianceBernstein and JPMorgan all imply that Risk Parity is a disaster waiting to happen. And Leon Cooperman, the founder of Omega Advisors just joined the party.</p> <p>Within his August letter to investors, Cooperman blamed Omega's poor returns (year to date Omega's funds are down between 6% and 11% according to Omega's letter to investors reviewed by ValueWalk) on "price-insensitive" investors.</p> <p>Our investment process, grounded in fundamental company research, with a capital marketr overview designed to help us gauge appropriate risk asset exposure, has served us well since our inception 23 years ago, and we believe in its continued effectiveness. The firm has virtually no debit balance, and we like what we own.<br /> With respect to the investment outlook, we believe that shares in the U.S. will end the year higher. A slowing in China's economic growth, the surprise devaluation of the yuan in August, continued weak oil and commodity prices, and uncertainty as to the timing of the first Federal Reserve rate hike, all contributed to an initial weakness in U.S. and global equity markets in late August. However, these factors, we believe, cannot fully explain the maenitude and velocity of the decline in equity markets last month. We think that much of that decline can Ix attributed to systematic/technical investors that are price-insensitive and largely indifferent to fundamentals. Such investors include risk-parity funds, derivative hedgers, trend-following CTA's, and insurance variable-annuity programs.</p> <p>The month of August was a bad one for global risk markets and a bad one for Omega. The S&amp;P 500 dropped 6%, its worst monthly decline in over three years. Our various investment funds, excluding our Credit Opportunity Fund which eased just 1.4% last month, declined by between 9% and 11% in August. Year to date, our equity-focused funds are down between 6% and 11%; differential returns among our funds reflect </p>
A month of pain: Latest on hedge funds returns for big 5 activists
Hedge Funds
<p>August was the month of pain.</p> <p>In August, per HFR, the average fund lost 2.2% (versus the S&amp;P 500's 6% fall) and is down 1% for the year. Some big name factivists aren't so lucky.</p> <p>Bill Ackman's Pershing Square was down 9.2% in August, putting the fund down 0.1% for the year.</p> <p>Top holding Mondelez International Inc (NASDAQ:MDLZ) (MDLZ) was down 6% for the month of August, no. 2 holding Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) (VRX) was off 10.5%, no. 3 Air Products was down 2%, no. 4 Canadian Pacific (CP) was down 10%, no. 5 Zoetis (ZTS) down 8% and no. 5 Restaurant Brands (QSR) off 11%. Collectively, eight make up the bulk of the long-only portfolio.</p> <p>David Einhorn's Greenlight Capital was down 5.3% in August and now down 13.8% for the year.</p> <p>Top holdings Apple Inc. (NASDAQ:AAPL) (AAPL) and GM (GM) were down 7% and 6.6%, respectively, in August. Everyone wants to talk about SunEdison, which was off 55% for the month, with Micron Tech and CONSOL also being down 11% and 8%, respectively, for the month. Einhorn was cutting some of his long and short bets in August, though.</p> <p>Dan Loeb's Third Point was off 5.2% last month, but still up 1.2% for the year.</p> <p>Third Point's top holding, Baxter (BAX) was off 4% in August, no. 2 holding Amgen, Inc. (NASDAQ:AMGN) (AMGN) was down 14% and no. 3 Allergan (AGN) was down 8.2%. Collectively, the three make up about 40% of the long-only portfolio.</p> <p>Barry Rosenstein's JANA Partners was down 4.3% in August and down 2.9% for the year.</p> <p>JANA's top holding, Qualcomm, Inc. (NASDAQ:QCOM) (QCOM), was down 12% in August. Other top holdings off big in August were Walgreen Company (NYSE:WAG) (WBA), down 10.4%, and ConAgra (CAG), down 5.4%.<br /> Other activists down in August were Cliff Robbins' Blue Harbour, off 2.6% for the month, and Scott Ferguson's Sachem Head Capital, down 2%.<br /> Jeff Ubben's ValueAct Capital, up 1.6% in 2Q, the standout of sorts - although it remains to be seen how he did in August. YTD through June, ValueAct is up 8%.</p> <p>Learn More about activist strategy</p> <p>By all accounts, it wasn't a prett</p>
Funniest Tom Brady tweets
Lifestyle, 4:01
<p>Patriots quarterback Tom Brady may be cleared in the eyes of the law, but he certainly isn't for thousands of football fans in the U.S. Here are some of the best tweets about Brady:</p> <p>&nbsp;</p> <p>...And let the Tom Brady Internet reaction fun begin!<br /> — SundayNight Football (@SNFonNBC) September 3, 2015<br /> Some are witty zingers. </p> <p>Aside from Malcolm Butler, Judge Richard Berman has now forced the most significant turnover in Patriots franchise history.</p> <p>— Field Yates (@FieldYates) September 3, 2015</p> <p>#tombrady didnt see his shadow (may not even have 1) either way, 4 more weeks of coworkers hacky, deflated balls, jokes<br /> — Dolph Ziggler (@HEELZiggler) September 3, 2015</p> <p>Tom Brady is a hall of fame quarterback, but when someone asks to see his phones he's like</p> <p>— Eric Rosenthal (@ericsports) September 3, 2015</p> <p>Celebs have reacted to:</p> <p>A stoned Snoop Dogg is not thrilled about Tom Brady's overturned suspension:<br /> — SB Nation (@SBNation) September 3, 2015<br /> But Pats fans, of course, couldn't be happier. </p> <p>This is all I have to say. #TomBrady</p> <p>— Mary Georgantopoulos (@marygeorgant) September 3, 2015</p> <p>Tom Brady out here like<br /> — FutureHendrixs (@AINTTHATSHAWN) September 3, 2015</p> <p>God bless the American Justice System #PatsNation</p> <p>— JTE (@SchmoesJTE) September 3, 2015</p>
What Wall Street can learn from Tom Brady
Lifestyle, 4:01
<p>New England Patriots' golden boy, Tom Brady, is back for NFL's opening week after a Federal judge overturned Brady's four-game suspension for his role in "deflate-gate." Allegedly deflating footballs isn't exactly like allegedly messing with the markets, but Brady's victory in court can teach Wall Streeters a few things about how to survive an investigation.</p> <p> Destroy your cell phone every few months. No one will question it if you break your old phone every time you get a new one, which you should do at least twice a year. Texts to colleagues and friends? Gone.<br /> Come up with awesome nicknames for you and your friends. The Patriots' ball boy called himself the "deflator" because he wanted to lose weight. Why not dub yourself something like "the flash [crasher]"?<br /> Have your super model wife stand behind you at your press conferences. Sorry, is someone accusing you of something? We got distracted by those long legs behind you.<br /> Have an inept regulator. Oh, wait...<br /> Be incredibly awesome at your job. No one wants to lose their star quarterback, literally. Be the office QB. And maybe line up some high powered endorsements while you're at it.</p> <p>Photo: Keith Allison</p>
Wall Street recruiters go casual
<p>Being buttoned-up won't always get you in the door, even on Wall Street.</p> <p>Wall Street's biggest, young recruitment firm is taking a casual approach to a formal career path, reports the New York Post. Traditional recruiters have high fees, and old-school approaches to finding candidates and selling them to firms. But Vettery is the OKCupid to their yenta ways.</p> <p>Vettery, founded by Adam Goldstein and Brett Adcock, puts candidates on an online platform. Clients can access the platform free of charge while looking at as many as 100 potential hire profiles each week. Vettery then charges 15% of a hire's base salary, where traditional recruiters normally take 30% of a salary plus bonus.</p> <p>But Vettery isn't open to just any candidate. Less than 5% of its 82,000 registrants have been deemed fit enough for a profile. Candidates are from top-tier schools, with stellar experience.</p> <p>The system is working for them. Vettery says it's connecting more than 150 first-round interviews a week, and placements are looking to hit 500 in the next 12 months, and outstanding placement pace for the industry.<br /> Photo: uberof202 ff<br /> &nbsp;</p>
Daily Scan: US stocks have mixed Thursday; Jobs data due out Friday
Capital Markets
<p>Updated throughout the day</p> <p>September 3</p> <p>Good evening,</p> <p>U.S. stocks had a mixed day, starting slow gains in the morning before fading in the afternoon. The Dow closed up 0.1%, as did the S&amp;P 500. The Nasdaq lost 0.4%. The Stoxx Europe 600 ended Thursday up 2.4%. Oil is sneaking its way back up before the holiday weekend, closing just short of $47/barrel. Wednesday afternoon, the Federal Reserve released the Beige Book, its survey of businesses. Bottomline: Things are looking good. Investors will be examining same-store sales today to measure just how robust the American consumer is. Of course, Friday brings the mother of all economic datapoints -- the monthly jobs report. Survey says: nonfarm payrolls in August will edge up to 223,000 from 215,000 in July. Stay tuned.</p> <p>Here's what else you need to know:</p> <p>The Reunion debris is definitely from missing flight MH370. French investigators have confirmed that the debris found on an island in July is without a doubt from Malaysia Airlines Flight 370. The French were the last group holding out on a certain confirmation of the debris. CNN</p> <p>Kentucky clerk headed to jail. Kim Davis, the Kentucky clerk refusing to give out marriage licenses since same sex marriage was legalized, was found in contempt of court and jailed Thursday. Her office will start processing paperwork for same sex marriage licenses Friday. USAToday</p> <p>Dewey &amp; LeBoeuf defense rests. The lawyers for three former Dewey &amp; LeBoeuf executives plans to formally rest Tuesday without calling a single witness. The lawyers will also renew a request to dismiss the case, which accuses the execs of defrauding lenders and creditors. New York Times</p> <p>U.S. government extends healthcare nondiscrimination to transgender people. Health insurers and medical providers must treat all patients equally, regardless of sex. Earlier this year, a study found that 42% of female-to-male transgender adults reported verbal harassment, physical assault, or denial of equal treatment in a doctor's office or hospital. Reuters</p> <p>Images of dead child put face to migrant problem. Photos of a 3-year-old Syrian Kurd boy who drowned near Turkey are tugging heart strings everywhere. The horrible images of the child show how desperate the migrant situation is, as thousands have perished this year alone. The boy's mother and 5-year-old brother also died, and his father is in the hospital. Wall Street Journal</p> <p>Donald Trump will sign GOP loyalty pledge. A Trump associate says that the presidential candidate will sign the pledge to endorse the Republican nominee, preventing a third-party run. The move will help put Trump on Republican primary ballots more easily, and will undermine his opponent's attacks on the possibility of him running as an independent. </p>
Time for Indonesia to walk the talk
Capital Markets
<p>It is crunch time for Indonesia’s reform-minded administration. The imminent award of a highly contested new railway contract and confusion about a big foreign investment in a factory are a test of its resolve to put words into action.</p> <p>Any day now, Indonesia will announce the winner of a race between China and Japan to build the first high-speed railway in Southeast Asia's biggest economy. It has been an “unprecedented battle”, writes Reuters, to build the 150-km (93-mile) link between the capital, Jakarta, and the textile hub of Bandung.</p> <p>But, the decision has already been delayed a week. Ominously, a cabinet member said that the two proposals will be examined by an independent consultancy – which indicates more foot-dragging. That would be a pity. As anyone knows who has tried to move around in Jakarta or anywhere else in the sprawling archipelago transportation is a headache for individuals and a pounding migraine for businessmen.</p> <p>Separately, there are mixed signals about whether or not Taiwan's Foxconn Technology Group, the world's biggest electronic components maker, will go ahead with plans to build a large factory in the country.</p> <p>One government official said that the Apple supplier had abandoned the project, another denied it; Foxconn hasn’t commented.</p> <p>This is depressing for foreign investors eager to take advantage of Indonesia’s vast potential. It has a population of more than 250 million that is getting richer. Protecting domestic industries seems to be President Joko Widodo’s priority</p> <p>“Jokowi” was elected last year amid a wave of optimism that he would clean up government, reduce poverty, cut red-tape to attract foreign businessmen and fix the country’s dilapidated infrastructure.</p> <p>So far he has upset human rights campaigners by executing drug peddlers and alienated regional allies such as Australia with gauche foreign policy stances.<br /> Photo: Oktaviono</p>
Pimco's Total Return is not the fund it once was
Asset Management
<p>Oh how the mighty have fallen. Data disclosed on Wednesday reveals Pimco’s Total Return Fund has now sunk below the $100 billion mark to $98.5 billion - a third of its size just two years ago.</p> <p>The shriveling titan has now chalked up 28 consecutive months of outflows since April 2013 when it peaked at $293 billion.</p> <p>The departure of co-founder and "Bond King" Bill Gross - who shocked the investment world by shimmying over to rival Janus Capital last year - has not helped.</p> <p>The last time the fund was this small was in 2007 before it attracted mountains of cash from investors clamoring for the safety of bonds in the wake of the financial crisis.</p> <p>On plus side the outflow has slowed. The firm said investors yanked around $1.8 billion in assets from the fund in August, compared to $2.5 billion the previous month.</p> <p>The hemorrhaging is nowhere near as bad as it was in January when the fund had cash withdrawals of $11.6 billion. The fund has also delivered returns of 0.72% so far this year, beating 85% of its category peers, Reuters reports.<br /> Photo: Eli Christman</p>
SAC alums are killing it in 2015
Hedge Funds
<p>Their padrino’s performance may have taken a hit and most of their peers may be deep in the red, but for three SAC Capital veterans, things could not be any better.</p> <p>The New York Times reports that SAC alums Jason Karp, Aaron Cowen, and Gabriel Plotkin are all set to post a banner year for 2015 as Karp’s $2.9 billion Tourbillon Capital Partners returns over 18%, Cowen’s $2 billion Suvretta Capital Management notches up a respectable 7% to 9%, while Plotkin’s $1 billion Melvin Capital posts nearly a whopping 20%.</p> <p>This is in stark contrast to how the activists are doing; Bill Ackman’s Pershing Square is down 9.2% in August, while Barry Rosenstein’s Jana Partners slumped 4.3% in the same period.</p> <p>That might not be a good comparison though. SAC Capital – or Point72 as it’s now called – has always been renowned for its ability to trade large positions tactically, allowing them to dash in and out of positions quickly compared to activists who are typically invested in their targets for a long-ish haul.</p> <p>There’s still three months to go in the year though, so stay tuned. Who knows what the rest 2015 will bring.</p> <p>Photo: Insider Monkey</p>
MBK set to out-bid rivals for Tesco Homeplus
Capital Markets
<p>The battle for Tesco’s loss-making Korean discount retail stores is reaching its climax. Private equity firm MBK is set to ink the $6 billion deal, seeing off rivals KKR, Affinity Equity Partners and Carlyle to complete the biggest-ever private equity buy-out in Korea.</p> <p>Tesco Homeplus insiders leaked the word that the MBK consortium, which includes the state-run National Pension Service, Singapore’s Temasek and the Canadian Pension Plan, is the preferred bidder, according to FinanceAsia.</p> <p>Tesco’s exit follows a disastrous year for its domestic supermarket operations in the UK where it has built a mountainous £21.7 billion ($33.2 billion) of debt and has been forced to make £7 billion of asset writedowns.</p> <p>However, it would be a landmark purchase for MBK after a series of hit-and-miss investments.</p> <p>The leading Korean firm, set up by former-Carlyle manager Michael Byungju Kim, won the auction for ING Life Insurance Korea in 2013 and in the previous decade for gained controlling stakes in Taiwan’s China Network Systems and Japan’s USJ. But it lost a fight with KKR and Affinity for Oriental Brewery in 2009 and it has struggled to make much of its holdings in clothing firm Nepa and cable TV company C&amp;M.</p> <p>Homeplus is Korea’s second biggest discount store chain after Shinsegae’s E-Mart with more than 900 outlets. But MBK faces a harsh environment to make this investment pay off.</p> <p>The country’s sluggish economy and government curbs on weekend opening hours to protect mom-and-pop businesses means it will struggle both to reverse the company’s operating losses and also pay back the chunky loans it has secured to make the acquisition</p> <p>Even more worrying is MBK’s exit strategy. Losses last year by Homeplus tend to confirm that the country is a rather unhappy place for foreign retailers. Walmart and Carrefour pulled out after years of dismal performance.<br /> Photo:</p>