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Boaz Weinstein sued by Canadian pension fund
Hedge Funds
<p>Boaz Weinstein, the derivatives wunderkind known for such hits as making partner at Deutsche Bank at 27, losing $1.8 billion shortly after, and harpooning the London Whale, is currently accused of cheating one his largest investors.</p> <p>According to the WSJ, the Canadian Public Sector Pension Investment Board – which asked Weinstein’s Saba Capital for its money back – is suing the hedge fund for allegedly marking down “the value of its portfolio right before paying out the redemption request, and then marked the value back up shortly after the money was cashed out.”</p> <p>The lawsuit is massive blow for Saba. After reaching $5 billion in assets post-London Whale, the fund saw its assets shrink to $1.6 billion over the next few years – $500 million of which, belongs to the pension fund.</p> <p>For his part, Weinstein said that the whole thing is “utter nonsense,” adding that the accusations were “completely false,” and that he takes these allegations “very seriously.”</p> <p>With people itching to nail another hedge fund, this should be interesting to watch unfold. Stay tuned.<br /> Photo: StockMonkeys.com</p>
Harvard sees market froth, looks to non-correlated strategies
Asset Management
<p>&nbsp;</p> <p>Harvard University seeks strong noncorrelated investing talent as Stephen Blyth, the university endowment’s statistically minded chief executive, looks at the market environment and sees "froth." When making evaluations, perhaps the Harvard Management Company executive might want to consider statistically valid alternative investment criteria to diversify a portfolio to defend against a steep market decline.</p> <p>Harvard Endowment: With Private Equity and IPO valuations high, market appears frothy<br /> The problem, as Blyth sees it, is the market has become “frothy,” a sometimes imprecise description for a market environment that generally speaks to a high level of both market optimism and stock valuations. To make this determination the manager of the world’s largest university endowment at $37.6 billion looks to soaring private equity valuations and then a unique variable that has a limited data set.</p> <p>With IPO valuations in excess of $1 billion dotting the landscape for the first time, this is a breakout pattern that logically correlates to the loose “market froth” definition. But the $1 billion mark being the first test it is difficult to statistically determine that that exact level is the trigger point. However, a relative value analysis with 2001 might be interpretatively instructive when validating the concept.<br /> Harvard Endowment beats benchmarks but is concerned about market environment<br /> After returning 5.8 percent in the year ending June 30, getting hit by half a year of sluggish equity price appreciation and underperforming Hedge Funds who delivered just 0.1 percent, Blyth wants to reinvigorate a stale equity-based portfolio. This might be particularly the case as the Yale University endowment grew by 11.5 percent over the year ending June 30th. While both endowments beat the S&amp;P 500 during the period, which was up just 4.55 percent, and Blyth beat his returns target of five percent above inflation, the focus isn’t so much on competition with other endowments but understanding the market environmental challenges that could be on the horizon.</p> <p>"We are being particularly discriminating about underwriting and return assumptions given current valuations,” Blyth wrote in the report, an issue he might want to visit before the Fed starts raising rates and a government shutdown is placed in the hands of new leadership in the House.<br /> Blyth in process of overhauling investment approach, looks for long / short talent<br /> Blyth is in the process of overhauling Harvard’s approach to investing, eschewing traditional approaches for an alternative that performs well during both periods of equity market strength and weakness. In other words, the British-born fund manager has an eye for noncorrelated investing talent. "In addition, we have renewed focus on identifying public equity managers with demonstrable investment expertise on both the long and short sides of the market," he said.</p> <p>In taking this journey into noncorrelated investing, Blyth might consider some alternative benchmarks for performance evaluation, some of which are not available in textbooks, others which h</p>
$1billion plus hedge funds show strongest average returns
Hedge Funds
<p>&nbsp;</p> <p>The latest research by Preqin into hedge fund performance finds that as of the end of August, large Hedge Funds – those with AUM of $1bn or more* – posted the greatest returns of any size category. They outperformed emerging, small and medium funds for the month (with -1.49% returns), as well as across the 12-month (+4.30%), 3-year annualized (+9.06%), and 5-year annualized (+8.52%) horizons. They also had the lowest 3-year volatility of any size class, of only 3.29%. Emerging hedge funds, those with AUM of less than $100mn, had the lowest returns across all horizons, as well as the highest volatility.</p> <p>Other Key Hedge Fund Performance Facts:</p> <p>Sharpe Ratios: The rolling 3-year Sharpe ratios for all size classes have been rising since mid-2014. As of the end of June, large funds had the highest ratio of 2.84. Strong performance in the past 12 months has seen their ratio overtake those of small and medium funds.</p> <p>Interquartile Range: While all fund sizes show a similar median performance, the interquartile range for emerging funds is 12.82%, compared to only 9.87% for large funds. The smaller number of large funds, as well as their lower volatility, mean that their performance is more concentrated around the median.</p> <p>Concentrated Capital: Although large hedge funds comprise only 9% of the total number of funds in the industry, they manage 82% of institutional investor capital committed to hedge funds. Small and emerging funds, which total 85% of hedge fund numbers, only contain 11% of capital commitments.<br /> Investor Thresholds: Of those investors that specify a minimum AUM requirement for hedge funds, only 22% will consider funds in the emerging bracket. These investors tend to be those with larger and more sophisticated hedge fund allocations. However, 52% of investors set their minimum AUM requirements in the small bracket, while 11% will only consider committing to large funds.<br /> Fees &amp; Redemption Periods: Small and emerging funds have lower mean management and performance fees than large and medium funds. While emerging funds charge an average of 1.55% and 18.84% respectively, that number rises to 1.63% and 19.70% in large funds. The average redemption frequency for large funds is 104 days, more than twice the average of 51 days for emerging funds.</p> <p>“The release of the Preqin’s new fund size benchmarks allows hedge funds to be compared more accurately with their peers. While benchmarking funds by geography or strategy can provide insight into macro-trends in the industry, the performance of the smallest and largest funds within those categories can differ wildly. Large funds, those with $1bn or more in assets under management, have consistently generated outperformance in both the short and long term when compared to smaller sized hedge funds. Furthermore, these funds have posted superior average returns while also maintaining lower volatility and higher Sharpe ratios over multiple time horizons. However, the highest performing funds of smaller sizes can generate returns greater than their larger counterparts, which means that smaller hedge funds can still hold much appeal for investors. ” Amy Bensted – Head of Hedge Fund Products, Preqin</p> <p>* Preqin’s definition of fund size classifications is based on AUM of funds: Emerging, &lt;$100mn; Small, $100-499mn; Medium, $500-999mn; Larg</p>
Cava Grill reports second multimillion dollar funding round
Venture Capital
<p>Cava Grill is serving up funding rounds and venture capitalists can't eat it fast enough.</p> <p>The fast-casual Mediterranean restaurant chain just raised $45 million in venture funding, reports the Washington Business Journal. This is the second multimillion dollar funding round Cava has had in just a few months. The group announced a $16 million raise in April.</p> <p>Previous investors The Invus Group and Swan &amp; Legend Ventures led the Series B funding. AOL founder Steve Case's Revolution Growth also participated.</p> <p>Cava Grill is primarily located in the D.C. area, but is expanding to Los Angeles and possibly other locations. The company says it isn't committing to specific numbers for restaurant openings to give themselves more flexibility.<br /> Photo: Steven Depolo</p>
For ETF investors, BRIC is really just India
Asset Management
<p>This year's failings of the Brazil, Russia, India and China quartet – commonly known as “BRIC” – are well documented.</p> <p>Of the four major single-country BRIC ETFs, the average 90-day return entering Friday was a loss of over 21 percent, more than enough to qualify as a bear market.</p> <p>Down 11 percent over the past three months, the WisdomTree India Earnings Fund (ETF) EPI 0.16% is not innocent in all this, but a drop of 11 percent is just a third of the decline experienced by the iShares MSCI Brazil Index (ETF) EWZ 0.6% and less than half the drop notched by the iShares FTSE/Xinhua China 25 Index (ETF) FXI 0.34% over the same period.</p> <p>While EPI's showing is not awe-inspiring, it is clearly less bad than equivalent BRIC ETFs, which could be a sign that the least bad offender could regain the leadership status it held last year. Fundamentals confirm as much.</p> <p>Read more at Benzinga, here.<br /> Photo: Kirill Tropin</p>
2015 VC unicorn report
Venture Capital
<p>PitchBook has published its inaugural VC Unicorn Report, which dives into the terms, conditions and trends affecting VC-backed companies worth $1 billion or more. For highlights from the report, which covers protection terms, liquidation preferences and much more.</p> <p>See charts and full report below:</p> <p>PitchBook_2015_VC_Unicorn_Report (1)<br /> Photo: Adam Selwood</p>
Cliff Asness on Trump: hedge funds getting away with murder
Hedge Funds
<p>Calls to tax Hedge Funds more have long been a staple of the Left and now appear in the tax proposals of several leading republican candidates, either explicitly, or implicitly by equalizing many tax rates. Advocates for this change have long had some fair points but occasionally try to cheat by slipping in some clearly unreasonable ex post wealth grabs along with otherwise reasonable proposals. Now Donald Trump has entered into the long-standing debate with the characteristically specific statement “hedge fund guys are getting away with murder.” He often goes on to mention that he is “friends” with some of the hedge fund managers he’s targeting, presumably to bolster our belief in his courage and honesty – I mean, he’s standing up to friends! We’re also assured, using his now familiar verbal tics, that his still forthcoming tax plan will end this unpunished murder, and do many other wonderful things. He says his plan will be “great” and “huge.” Again, much of this debate, ex-The Donald, is reasonable and it is indeed a difficult issue. But, as usual, The Donald is different, taking it up more than a notch in empty dangerous rhetoric. His amps definitely go to eleven.</p> <p>During his diatribes The Donald often adds in the standard populist canard against “paper pushers” in favor of people who “build things.” This accusation has a many-thousand-year pedigree (the Babylonians building Ziggurats said it about their Assyrian bankers) and has usually been wrong, always exaggerated, and occasionally downright ugly in its tone and targets – though admittedly often effective demagoguery. “Real” vs. “paper” is a topic for another day but I can’t help wondering whether Trump actually still “builds things” or mostly just licenses his name to things, ironically a form of “paper pushing.” Yes, I’m saying to The Donald “you didn’t build that Trump Eau de Toilette.”</p> <p>Of course, like most things The Donald weighs in on, this issue is way more complicated than he lets on. Complication is too often a casualty in the political arena but it’s even less Donald’s forte than most. In fact, with The Donald sometimes you have to struggle to even understand what he’s talking about! We will have to take some educated guesses. The main issue usually debated regarding hedge fund taxation is about what’s called “carried interest.” For the sake of sanity, I’m going to assume this is what he’s referring to, that he thinks the “carried interest loophole” should be closed. If, rather, he’s just using the words “hedge fund manager” as a proxy for rich people and engaging in some type of weird class warfare, things are even farther gone.</p> <p>The “loophole” (not everyone thinks it’s a loophole) is that right now some of a hedge fund manager’s remuneration, that part representing long-term capital gains structured as a carried interest, is taxed at the capital gains rate (people like Trump talk about “hedge funds” even though this is a far bigger issue for private equity funds). Some argue this capital gains treatment is appropriate as money is at risk, and beneficial as it encourages investment, and that it is consistent with taxation of employee incentive stock options and professional partnerships. Some counter that the first argument is bad accounting and the second “voodoo economics.” The third argument only interests tax nerds, because looking for consistency in the tax code is like looking for humility in The Donald.<br /> This is not an op-ed taking either side of this argument. In fact one could take either side particularly on the accounting. That’s exactly what makes this issue hard. As a matter of proper accounting theory (do I still have your attention after that grabber?) it’s not difficult to argue for either case. There are indeed </p>
Is bigger always best? A closer look at effect of size on hedge funds
Hedge Funds
<p>Is bigger always best? A closer look at effect of size on hedge funds by Preqin<br /> Using Preqin’s new fund size benchmarks on Hedge Fund Analyst, together with the results of our interviews with approximately 300 hedge fund managers, we analyze the effect that fund size has on the overall hedge fund industry by looking at performance, terms and conditions, and the fund sizes institutional investors are looking for.</p> <p>In July, Preqin added a new series of benchmarks to our Hedge Fund Analyst online service. These benchmarks, which assess the performance of Hedge Funds based on the size of the fund, can be used in tandem with our strategy, regional, structural and currency benchmarks. Following the launch of these benchmarks, Preqin has turned its attention to the effect of size on the industry, as we take a look at what size funds institutional investors look for, provide a breakdown of the industry by size and look at how the performance of hedge funds varies by fund size. The results found in this study are based on Preqin’s award-winning Hedge Fund Online service and June interviews with approximately 300 hedge fund managers.</p> <p>Preqin’s Hedge Fund Manager Outlook recently revealed that 66% of capital in the industry today is sourced from institutional investors. As shown in Fig. 1, over four-fifths of institutional capital is invested in hedge funds which have at least $1bn in assets under management (AUM). Although the large majority of institutional capital is concentrated in the largest funds, investors retain an appetite for smaller funds. Fig. 2 shows the breakdown of investors by their minimum AUM requirements of hedge funds before they will consider investing in them. Just 11% of investors will consider investing exclusively in funds with more than $1bn in AUM. Although a relatively small proportion (22%) will consider investing in funds with less than $100mn in AUM, over half (52%) have a minimum requirement that lies between $101mn and $499mn.</p> <p>Looking at the minimum AUM requirements by investor type (Fig. 3), again, excluding funds of hedge funds, it is private wealth organizations or those institutions that have larger or more sophisticated hedge fund portfolios that are most likely to invest in smaller funds. Fifty percent of wealth managers and 38% of both endowments and family offices will consider investment in the smallest funds (those with less than $100mn in AUM). In contrast, only 6% and 7% of private sector pension funds and foundations respectively will consider emerging funds, in terms of minimum AUM.</p>
Goldman Sachs' startups to watch
Venture Capital
<p>Goldman Sachs is edging its way into the hearts and minds of startups looking for funding and support, particularly the unicorns. The investment firm examined some of the up-and-coming firms for a list of the top 10 startups to watch, reports Business Insider.</p> <p> Appear Here- $9.4 million, London- finds pop-up shop storefronts to rent, much like booking a hotel room.<br /> EquipmentShare- $2.2 million, Missouri- allows contractors to rent and lend construction equipment.<br /> Getaround- $43 million, California- lets you rent your car in advance or on demand.<br /> Mast Mobile- $5.4 million, New York- combines your business and personal mobiles into one device.<br /> Narrative Science- $32.4 million, Illinois- automates simple reports and journalistic stories.<br /> Nutmeg- $37.3 million, London- customized financial portfolios to replace traditional advisors.<br /> Plated- $56.4 million, New York- food delivery services that provides the exact ingredients and recipes needed to cook.<br /> TradeBlock- $2.8 million, New York- bitcoin data provider.<br /> Vestorly- $2 million, New York- automated content marketing for businesses and leveraged use of online connections.<br /> Yhat- $2.6 million, New York- tool to make big data implementation more efficient.</p> <p>Photo: George Redgrave</p>
JPMorgan’s Kolanovic slams HFT, says it stepped back during crisis
Hedge Funds
<p>High Frequency Trading (HFT) is the opposite of human liquidity providers in a trading pit and HFT is in large part responsible for the August 24 market crash, J.P.Morgan’s Global Head of Quantitative and Derivatives Research, Marko Kolanovic, said in a research note dated September 24.<br /> J.P.Morgan's Marko Kolanovic weighs in on the controversial topic of human vs robotic led markets<br /> Commenting on “Derivatives Gamma, HFT Liquidity and Market Dislocations,” Kolanovic drew significant distinctions between how human market makers managed liquidity during crashes and the disappearing influence of HFT during market crisis.</p> <p>“HFT is fully engaged in stable market regimes but tend to dial down or completely step away during periods of high volatility or large market dislocations,” he wrote, touching on a hot topic, one that has been actively debated.</p> <p>August stock market sell-off was a “Flash Crash” similar to October 2015 “Flash Crash”<br /> Kolanovic casually terms the August 24 event a “Flash Crash,” one he compares to the October 15, 2014 bond market “Flash Crash.” He observes that on each of the 3 days prior to the crash, end of the day momentum becoming increasingly larger and starting earlier in the day. “A rates crash happened around the same time on the morning of Oct 15th and was also equivalent to a ~8 standard deviation move based on trailing 1M volatility,” then he compares it to the most recent market value adjustment. “Similar to the S&amp;P 500 on August 24th, the crash largely reverted in a ~30 minute period, and there was also an end of the day rebalance impact.”</p> <p>While some have said the performance drivers between the market sell-offs are different, Kolanovic cuts off such debate using clear if somewhat aggressive verbiage. “The striking similarity between the two events is not a coincidence,” he declares, “they were both driven by hedging of short gamma (convex) positions.” Citing Risk magazine and Joint Staff Report (The U.S. Treasury Market on October 15th, 2014), Kolanovic points to a large short gamma exposure in the Treasury market that emerged as certain US asset managers exited bond option selling programs. He says that hedging in a low liquidity environment was “a significant driver of price action.”</p> <p>“Good to see others are recognizing August 24 for what it is: a devastating real flash crash,” HFT critic and president of Nanex, Eric Hunsader, said. “Contrast that to some HFT firms crowing about having their best trading day ever - sure wasn't from providing liquidity or catching knives.”</p> <p>Kolanovic: Reasons HFT stands aside during crisis<br /> Kol</p>