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Are investors better off with small hedge funds in times of crisis?
Hedge Funds
<p>Several years ago, AllAboutAlpha.com -- an online strategic information service for the asset management and hedge fund industries -- set out to answer a key question; do smaller Hedge Funds outperform larger peers?</p> <p>The study was confined to long/short equity hedge funds only and looked at the returns of nearly 3,000 funds over a ten year period. Funds were divided into two size groups, those that managed $50 million to $500 million (small) and those that managed more (large).</p> <p>AllAboutAlpha's study found that the group of small hedge funds outperformed their larger peers by an average of by 254 bps per annum over five years and 220 bps per annum over ten years.</p> <p>What's more, virtually all of the outperformance was due to alpha, not beta and the dispersion of returns among smaller funds was greater than those of larger firms. You can see the study in full here.</p> <p>AllAboutAlpha's return figures also showed that the outperformance of the small hedge fund group was more pronounced during preceding and following the financial crisis, especially during 2009.<br /> Small hedge funds produce the best returns<br /> Are investors better off with small hedge funds in times of crisis? This is the question Andrew Clare, Dirk Nitzsche and Nick Motson, from the Centre for Asset Management Research, The Sir John Cass Business School, City University, London, UK set out to answer in a research paper published earlier this year.</p> <p>The paper, aptly titled, "Are investors better off with small hedge funds in times of crisis?" looked at the relationship between hedge fund performance and size. This paper claims to be the most comprehensive study to date of the relationship between hedge fund performance and size. The data sample used spans the period from January 1994 to 2014 and encompasses two major financial market crises.<br /> "The results in this panel confirm...there is a negative relationship between hedge fund size and performance...the relationship does change from year to year, but that in all but three of the twenty years the relationship has been negative. More interestingly, three periods arguably stand out in particular: 1999 to 2000, 2003 to 2004 and 2008 to 2010. The Fama-MacBeth t-statistics for both of these periods show that the relationship was highly statistically significant. These periods were marked by financial market crisis. Other things equal, these results suggest, perhaps surprisingly, that investors would have been better off with small rather than big hedge funds over these crisis periods."<br /> This article was originally published by </p>
These ETFs have technology problems
Asset Management
<p>If someone an investor trusts were to tell that investor that over the past six months shares of Petrobras S.A. (NYSE: PBR) and PetroChina Co. (NYSE: PTR) were each down more than 31 percent, adding to the equation that shares of Ecopetrol SA (NYSE: EC) are off 43.3 percent and that the exchange traded fund that only holds Chinese banks is lower by 13.3 percent, the takeaway would logically be that this is another brutal year for state-owned emerging markets companies.</p> <p>That is what the aforementioned oil companies and most Chinese banks are. The problem is these companies still sport mammoth market capitalizations, meaning they play pivotal roles in charting the courses for well-known emerging markets ETFs such as the Vanguard FTSE Emerging Markets ETF (NYSE: VWO) and the iShares MSCI Emerging Markets ETF(NYSE: EEM). VWO and EEM, the two largest emerging markets ETF by assets, are down an average of 16.9 percent over the past six months.</p> <p>Read the full story at Benzinga. <br /> Photo: Will Clayton</p>
Pimco leaves Bill Gross in the dust
Asset Management
<p>Here’s something interesting. Pimco, the behemoth bond house once expected to wither away and die when its founder left, actually posted better returns than Bill Gross himself.</p> <p>And it’s not just that. While Gross’s old stomping ground – the Pimco Total Return Fund – saw its assets under management shrink by at least $120 billion, guess how much made its way back to the dethroned bond king? Barely $1 billion, according to the Financial Times.</p> <p>Gross, whose weird antics of late include writing TMI investment letters, calling trades he doesn’t even do, and losing 3% – in a bond fund – in a single day, may inadvertently be helping Pimco score more clients:<br /> “By underperforming, Mr Gross may be inadvertently helping Pimco make its own case: that the investment process, trading infrastructure and intellectual firepower across the asset management group count for as much, if not more, than any one individual’s investing talent.”<br /> Interestingly, that might actually be the case. Despite all the outflows, things have actually been working well for Pimco lately. Cash has been flowing to where they want it to be – their so-called “future platforms” – and Total Return’s new team have been making good bets on volatility and the greenback.</p> <p>As for Gross, he worryingly skipped his personal musings in his latest outlook. Instead of opening with thoughts on plugged toilets, steam showers, or how a 67-year old's midsection isn't a pretty sight (I'm actually paraphrasing him here), this month we get nothing but a dry analysis of interest rates and a Phillips Curve critique. Things might not be going so well for him.<br /> Photo: Defence Images</p>
VC-backed phone giant Xiaomi launches new service
Venture Capital
<p>Xiaomi made big waves in the smartphone industry when it introduced its first low-cost phone in 2011. Now the Chinese electronics firm plans to bring its unique brand of disruption to the laptops and telecoms space.</p> <p>This week Xiaomi launched its new telecoms service, Mi Mobile, alongside its latest Mi 4C budget smartphone. The company has been given a state license for a virtual telecoms network, which means it can lease infrastructure from one of China’s three big telecoms to offer self-branded services.  </p> <p>The fact that Xiaomi is bringing its brand to a fresh and potentially very lucrative sector should no doubt be welcome  to its venture capital backers which include IDG Capital, Morningside Group, GIC, DST Global, Hopu investments, and All-Star Investments.</p> <p>Tech in Asia reports that less than 1% of China’s mobile users subscribe to China’s virtual telecom operators. Xiaomi hopes to topple the existing but lackluster service providers by leveraging its brand and offering both pay-as-you-go and contract services.  </p> <p>And it’s not just China's virtual operators that are facing fresh competition. Xiaomi has confirmed it will be releasing a laptop. The details are sparcse at this point, but the firm is looking to launch in the second quarter of 2016.<br /> Photo: Kārlis Dambrāns</p>
People moves: Amundi bags ex-hedge fund economist; Credit Suisse names new Asia-Pac CIO
Asset Management
<p>Credit Suisse appoints new Asia-Pac CIO. John Woods, a 25-year veteran of the investment arena, has been named Chief Investment Officer Asia Pacific, Private Banking &amp; Wealth Management by Credit Suisse. He will be responsible for developing the unit’s investment views across all assets, and will also help expand the firm’s strategies for its clients.</p> <p>Prior to joining Credit Suisse, Woods was Head of Fixed Income Asia Pacific for Citi Investment Management, and held the role of Chief Investment Strategist for Asia Pacific at Citi Private Bank before that. He also held several key roles in HSBC, including Global Head of Credit Research and Strategy. He will report to Nannette Hechler-Fayd’herbe, the Swiss firm’s Global Head of Investment Strategy, and will be based in Hong Kong. Credit Suisse</p> <p>Amundi Hong Kong nabs economist from Azentus. Mo Ji, an economist who studied under Nobel Laureate Joseph E. Stiglitz, has been appointed Chief Economist, Asia ex-Japan by Amundi Hong Kong.</p> <p>She joins Amundi after four years at Azentus Capital Management – the global macro fund run by ex-Goldman trader Morgan Sze – where she held the role of Global Chief Economist. Before that, Ji spent almost two years Deutsche Bank, working as a research associate for the German firm’s Hong Kong and China research unit. She will report to Amundi’s Global Head of Research, Strategy and Analysis, Philippe Ithurbide. Asia Asset Management</p> <p>M&amp;G Investments Asia MD steps down. Andrew Hendry, M&amp;G Investments’ point man in Asia, will be leaving the British investment firm by the end of the year. This is what they had to say about it:<br /> “His departure follows the successful completion of the first phase of our expansion in the region. Under Andrew’s leadership, M&amp;G has opened offices in Singapore and Hong Kong, hired teams in both locations and manages over $4.5bn of assets for clients.”<br /> Singapore-based Hendry was M&amp;G’s Managing Director for Asia the past 4 ½ years, joining the firm back in 2011 after a two-year stint as a director for Marpac. He also spent 10 years at the Capital Group, taking on several roles including Vice President of Global Distributor Relations. FundSelectorAsia</p> <p>For Capital Markets moves, click here.<br /> Photo: Luke Ma</p>
Asia's bulging unicorn birth rate is close on US heels
Venture Capital
<p>When it comes to churning out unicorns - startups valued over $1 billion -  the US rides high, but the Asian stampede is growing. For now at least. </p> <p>Business Insider points out that while many expect a  unicorn extinction event soon, this does little to stop the rise in the number of unicorns coming into existence.</p> <p>CB Insights' Unicorn Tracker reveals that of the current 137 unicorns, 83  are in the US. The rest are found in Asia, Europe, and South America. China alone had 25.</p> <p>But the gap between Asia and the US is closing, In the second quarter of 2015, the US produced 12 new unicorns and Asia created nine, buoyed by several mega-financings. These included  Tujia, Panshi, and One97 Communications which each raised in excess of $200 million.</p> <p>A look over the past year shows that Asia has produced 20 unicorns, nearly two-thirds of the US's 34. This is impressive considering the relative infancy of Asia's start-up ecosystem compared with that of the US.  The only issue is whether Asia will maintain this kind of momentum in the face of slower economic growth in China.<br /> Photo: Owlana<br /> &nbsp;</p>
It’s not easy
Hedge Funds
<p>Memo to: Oaktree Clients</p> <p>From: Howard Marks</p> <p>Re: It’s Not Easy</p> <p>In 2011, as I was putting the finishing touches on my book The Most Important Thing, I was fortunate to have one of my occasional lunches with Charlie Munger. As it ended and I got up to go, he said something about investing that I keep going back to: “It’s not supposed to be easy. Anyone who finds it easy is stupid.”</p> <p>As usual, Charlie packed a great deal of wisdom into just a few words. Let’s take the first six: “It’s not supposed to be easy.” While it’s pretty simple to achieve average results, it shouldn’t be easy to make superior investments and earn outsized returns. John Kenneth Galbraith said something similar years ago:</p> <p>There is nothing reliable to be learned about making money. If there were, study would be intense and everyone with a positive IQ would be rich.</p> <p>What Charlie and Professor Galbraith meant is this: Everyone wants to make money, and especially to find the sure thing or “silver bullet” that will allow them to do it without commensurate risk. Thus they work hard (actually, study is intense), searching for bargain securities and approaches that will give them an edge. They buy up the bargains and apply the approaches. The result is that the efforts of these market participants tend to drive out opportunities for easy money. Securities become more fairly priced, and free lunches become harder to find. It makes no sense to think it would be otherwise.</p> <p>And what about the next seven words: “Anyone who finds it easy is stupid”? It follows from the above that given how hard investors work to find special opportunities, and that their buying eliminates such prospects, people who think it can be easy overlook substantial nuance and complexity.</p> <p>Markets are meeting places where people come together (not necessarily physically) to exchange one thing (usually money) for another. Markets have a number of functions, one of which is to eliminate opportunities for excess returns.</p> <p>Ed calls me and bids $10,000 for my car. Then he offers to sell it to Bob for $20,000. If Ed’s lucky and we both say yes, he doubles his money overnight. To put it simply, anyone who expects to make money easily trading cars this way either thinks (a) Bob and I are idiots or (b) the market won’t function in a way that enables us to know about the fair value of my car. If these conditions were met, it would be an “inefficient market.”</p> <p>But if Bob and I have access to market data on used car pricing, Ed’s chances of pulling off this deal are greatly reduced. In most markets, transparency tends to reveal and thus preclude obvious mispricings. (Thanks to the incredible gains in access to data by way of the Internet, this is certainly more true today than ever before.) In my view, this is a good part of the basis for Charlie’s comment: anyone who thinks it’s easy to achieve unusual profits is overlooking the way markets operate. This memo is largely about the challenges they present.</p> <p>Second-Level Thinking</p> <p>I always thought that when I retired, I would write a book pulling together the elements of investment philosophy discussed in my memos. But in 2009, I got an email from Warren Buffett saying that if I’d write a book, he’d give me a blurb for the jacket. It didn’t take me long to move up my timing.</p> <p>Columbia Business School Publishing had been talking to me about a book, and when I told them I was ready, they asked to see a sample chapter. For some reason, I was able to sit down – without previously having given the topic any organized thought – and knock out a chapter about the importance of something I labeled “second-level thinking.” This is a crucial subject that has to be unders</p>
Odey: We are already in a deflationary downdraft amidst currency wars
Hedge Funds
<p>It's been a rough year for Odey Asset Management's OEI Mac fund. Year-to-date the fund is down 15.8%, although, after a strong August, the fund has managed to regain some composure. according to a September 23rd letter to investors reviewed by ValueWalk.</p> <p>Odey Asset Management founder Crispin Odey’s flagship hedge fund slumped 19.3% during 'Bloody April' after it was caught out when the Australian dollar strengthened against the US dollar.</p> <p>During August, the OEI Mac fund's USD share class gained 6.8%. The performance is even more impressive when compared to the MSCI Daily TR Net Europe USD return of -6.9% and an MSCI Daily TR Net Europe GBP return of -5.3%. Over the past twelve months, the OEI Mac fund has gained 8.7%, a relative outperformance against the MSCI Daily TR Net Europe index of 16.9%.</p> <p>Odey OEI MAC Fund performance</p> <p>Odey's short book and active currency positions were the largest contributors to the fund's performance during the month. Active currencies made a positive contribution of +1.3% to performance; this was attributable to the short AUD/USD position. All other active currency positions made negative contributions.</p> <p>Odey OEI MAC Fund currency exposure</p> <p>Odey: Equity performance<br /> Moving away from currencies onto equities, Odey's short book made a sizeable positive contribution of +12.7% during August after accounting for currency hedging. Positions that contributed most to this performance, before currency hedging were Las Vegas Sands Corp. (NYSE:LVS) (+157bps), Sands China (+99bps) and Swatch (+84bps). A negative performance from Kellogg (-10bps), Antofagasta (-9bps) and Netflix, Inc. (NASDAQ:NFLX) (-9bps) detracted from performance.</p> <p>On the long side, the equity book made a negative contribution for the month of 6.7%. Positive contributions before hedging came from Pendragon (+44bps), Circassia<br /> Pharmaceuticals (+7bps) and TUI (+6bps). However, negative contributions far outweighed these gains. Holdings in Sky, LM Ericsson Telefon, and Barclays PLC (NYSE:BCS) (LON:BARC) detracted -142bps, -45bps and -39bps from overall performance respectively.</p> <p>Government bonds held by the fund returned -0.4%.</p> <p>Odey: Cloudy outlook<br /> Crispin Odey's uses his Manager's Report within the Odey OEI MAC Fund monthly newsletter to warn of further pain ahead for financial markets.</p> <p>The developed world averted a recession in 2008 by cutting rates to 0%, then embarking on QE. We all hoped we would get healing, then growth, then inflation, then rising rates. But we have experienced the distortions of QE without generating enough growth or inflation. Now central banks have ended up with the safe assets and driven pensions and savers into everything else. We haven’t achieved inflation, so we haven’t worked through our debt and the solution may ha</p>
11 European unicorns hit $1B valuation
Venture Capital
<p>The U.S. may be the unicorn kingdom, but Europeans are creating their own tech unicorns too.</p> <p>In the last 12 months, Europe has birthed 11 new startups with valuations of $1 billion or more, reports Business Insider. Most of the list comes from London or Germany, and three are finance related. Here they are:</p> <p> Farfetch-$1 billion- London-based fashion startup. Serves as a storefront for more than 300 global boutiques.<br /> Funding Circle- $1 billion- London-based peer-to-peer lending platform.<br /> TransferWire- $1 billion- London-based, with a background from Estonia, peer-to-peer money transfer service.<br /> Auto1 Group- $1 billion- German-founded car sale startup.<br /> Shazam- $1 billion- Music identification app with ambitions to move beyond just songs.<br /> Home24- $1.03 billion- Online German furniture store.<br /> Ayden- $1.5 billion- Netherlands' payments company.<br /> BlaBlaCar- $1.6 billion- European car sharing service.<br /> HelloFresh- $2.9 billion- German-based food delivery startup.<br /> Delivery Hero- $3.1 billion- German-based platform that allows apps and local websites to partner with local restaurants in other countries.<br /> Global Fashion Group- $3.1 billion- A compilation of fashion startups in emerging markets.</p> <p>Photo: Steven Depolo</p>
Ratan Tata: An archangel of Indian VC
Venture Capital
<p>This week Ratan Tata was listed by LiveMint as one of the “archangels of Indian e-commerce”, a title earned by his long list of investments in the space - but his investment activity goes far beyond that.</p> <p>If you don’t know Ratan Tata, you know his surname.  The 77 year old is chairman Emeritus of Tata Sons - the holding company for Indian mega-conglomerate Tata Group - and one of the leading lights of India’s business community.  He is also a prolific and enthusiastic angel investor.</p> <p>In short, Ratan loves India’s VC scene, and startups love to be associated with him, and his name. His  list of investments also shows he has a knack for picking winners:</p> <p> Altaeros Energies - Wind energy<br /> Snapdeal - E-commerce<br /> Bluestone - E-commerce<br /> Urban Ladder - E-commerce<br /> Swasth India - Healthcare<br /> CarDekho - E-commerce<br /> Grameen Capital - Finance<br /> Paytm - Fintech<br /> Ola Cabs - Ride sharing<br /> Ampere - Electric vehicles<br /> Kaaryah - E-commerce<br /> Infinite Analytics - Marketing analytics<br /> Holachef - Food delivery<br /> Xiaomi Mi - Electronics</p> <p>He is also an advisor to three India-focused VC funds: Jungle Ventures, Kalaari Capital, and IDG Ventures India. He only joined IDG this month, and  now the fund is hoping to to use some of that Tata magic to help raise $200 million for its  next fund.</p> <p>Photo: American Center Mumbai</p>