News > Financial Services

Ken Griffin knows what makes Citadel work
Hedge Funds
<p>After 25 years, Citadel has become a $25 billion hedge fund. The firm took a hard hit during the financial crisis, but has since recovered, writes the New York Times.</p> <p>"In our firm's earliest days, our understanding of the power of great software engineering and quantitative analytics helped Citadel stand out," writes Griffin in a letter to investors. "But history is littered with companies started by entrepreneurs who failed to sustain such early bursts of success...What, then, has driven our longevity and our success? The answer is simple: Our sustainable competitive advantage doesn't just come from our technical prowess; it comes from assembling teams of extraordinary individuals who have the creativity, resourcefulness, ambition and tenacity to take on the world."<br /> Photo: Wikipedia</p>
This emerging markets ETF can deal with the strong dollar
Asset Management
<p>Much has been made of the strong dollar's impact on emerging markets equities and the relevant exchange traded funds. Price action bears out that impact.</p> <p>Over the past year, the Vanguard FTSE Emerging Markets ETF VWO and the iShares MSCI Emerging Markets ETF EEM, the two largest emerging markets ETFs by assets, are both down just over 15 percent while the PowerShares DB US Dollar Index Bullish Fund UUP, the U.S. Dollar Index tracking ETF, is higher by 10.2 percent.</p> <p>The declines of EEM and VWO do not paint the entire picture of the repudiation suffered by emerging markets ETFs at the hands of the strong greenback. From Brazil to South Africa to Turkey, scores of emerging markets funds have been pummeled by the rising dollar and speculation that higher U.S. interest rates could stoke a raft of credit ratings downgrades throughout the developing world.</p> <p>Read more at Benzinga.<br /> Photo: images money</p> <p>&nbsp;</p> <p>&nbsp;</p>
China’s QDII2 set to launch
Asset Management
<p>China’s policy makers take the long view. During the past five years the momentum for renminbi internationalization and increased cross-border investment has picked up, most notably with the introduction of the Shanghai-Hong Kong Stock Connect program late last year.</p> <p>On Friday, the People’s Bank of China (PBoC) approved the latest channel for private individuals – those with at least Rmb1 million ($158,000) – to diversify their portfolios with foreign assets.</p> <p>“The central bank gave the official nod to QDII2, the version of the qualified domestic institutional investment scheme for individuals to launch in the Shanghai Free Trade Zone (FTZ). This will allow eligible wealthy investors to invest in overseas real estate, financial assets and direct investments,” reports AsianInvestor. (paywall)</p> <p>In addition, the PBoC will allow onshore managers to set up index fund subsidiaries in the FTZ and has approved domestic managers segregated account subsidiaries to make cross-border investments.</p> <p>No implementation date has been announced yet, but these developments are a sign that its strategy of opening up China’s capital markets and fund industry remain on track.</p> <p>This is despite this year’s wild stock market fluctuations and a host of macroeconomic concerns.<br /> Photo: epSos .de<br /> &nbsp;</p>
The world's best guide to the ride share funding wars: The money behind Uber, Lyft, and Didi Kuaidi
Venture Capital
<p>In recent days it has come to light that Uber is looking to raise another $1 billion, just three months after its last mega round. It's no surprise that Uber is burning through cash. With local competition in almost every market it operates, the ride-hailing app has made a lot of enemies and needs a big war chest.</p> <p>In the U.S. it competes with Lyft; in China it grapples with Didi Kuaidi; in India it's up against Ola, and in Southeast Asia it has GrabTaxi to deal with. Now it seems these competitors are forming a global alliance to take Uber down. A recent example:  In September Didi and Lyft decided to link their apps. The Chinese firm also invested $100 million in Lyft to seal the deal. The pair are now expanding this tie-up to include GrabTaxi and Ola, squeezing Uber into a global four-way clustercuss.</p> <p>But who are Uber and its backers really up against? A look at the roster of investors on both sides offers a revealing insight on the corporate alliances behind the the battle for dominance in the ride-hailing app space:</p> <p>Main backers of Uber</p> <p> Baidu: This Chinese internet giant is a major rival of Alibaba and Tencent . It has led two rounds for Uber totalling $1.8 billion, including its most recent fundraise for Uber China.<br /> Goldman Sachs: A early investor in Uber's $37 million Series B, this venture capital tourist led a $1.6 billion debt financing for Uber at the start of the year.<br /> Tata: The Indian conglomerate made the decision to bet against local player Ola and invest $100 million in Uber in August.<br /> Microsoft: The Silicon Valley giant got behind Uber in July taking part in its $1 billion Series F.<br /> BlackRock: The asset manager was relatively early to the game, backing Uber's $1.2 billion Series D round.<br /> Google: The search engine behemoth backed Uber via its venture capital unit, taking part in the $37 million Series B round and leading the $258 million Series C in 2013.</p> <p>Main backers of the alliance (Lyft, Ola, Didi Kuaidi, GrabTaxi) </p> <p> Softbank: The mastermind behind the alliance. The Japanese telecoms company backed Didi Dache/Kuaidi Dache prior to their merger earlier this year. It also led a $210 million and $250 million Series D round for Ola and GrabTaxi, respectively, and re-upped with both this year. Softabank also owns an indirect share in Lyft via its stakes in Didi Kuaidi and Alibaba.<br /> Alibaba: The Chinese internet giant and Baidu rival was an early backer of Kuaidi Dache prior to its merger, and led the most recent $2 billion round for the newly formed Didi Kuaidi. It also took part in two rounds for Lyft, including the most recent.<br /> Didi Kuaidi: A taxi app with several VC-backers, its also in invested in GrabTaxi and Lyft.<br /> Temasek Holdings: The Singapore investment fund took part in Didi Kuaidi's most recent $2 billion round. It also led a Series A round for GrabTaxi via its subsidiary Vertex Ventures. It came back for the Series B round in May last year<br /> Tencent Holdings: This Chinese internet firm was an early backer in Didi Dache, prior to its merger. Also took part in Lyft'sSeries E round.<br /> Tiger Global Management: Backed the Didi Kuaidi merger.  Led the Series A round for Ola, and every round thereafter. Took part in two investment rounds for GrabTaxi.</p> <p>&nbsp;<br /> Photo: bfishadow</p>
Rogers: ASEAN ‘in better shape than most’
Hedge Funds
<p>Looking dapper in a white suit and speaking in his usual, cheery form, legendary investor Jim Rogers told Singapore’s Star Online that the U.S. is essentially toast and that the Fed is more or less run by total ninnies. He does have, however, pretty great things to say about the ASEAN region.</p> <p>Photo: Gage Skidmore</p>
Are late stage VCs really getting crowded out?
Venture Capital
<p>The creeping feeling that hedge funds and other traditional public market investors are pushing late-stage venture capitalists out of later funding rounds has been around for some time. But is this really the case?</p> <p>A recent report by CB insights takes a closer look at this phenomenon. Anecdotally at least it appears that the larger VC deals are becoming more competitive with players like Tiger Global Management, a hedge fund, and Wellington Management, a mutual fund manager, among those becoming increasingly active in VC.</p> <p>But the actual data offers a mixed picture. A look at first time deals involving four of the largest late-stage VC firms — DAG Ventures, Institutional Venture Partners (IVP), Meritech Capital, and Technology Crossover Ventures (TCV) — over the last two years shows that while DAG and Meritech have indeed participated in fewer late-stage deals, the reverse is true of IVP and TCV.</p> <p>The data also shows that late stage VCs are not fleeing to mid-stage rounds, as one might expect, but are instead remaining disciplined in spite of increasing competition from new entrants. That said, the rush to late-stage VC deals by outsiders, from both ends of the spectrum, shows no sign of slowing down. Y Combinator, a seed-stage accelerator, and KKR, which is historically a buyout shop, both now have growth funds, for example.</p> <p>Late stage VCs have on the whole have stuck to their the investment mandates, but if this trend continues they could be tempted to make some earlier bets</p>
Startups are in a bubble: Just look who's investing now -- mutual funds, hedge funds, and the hoi polloi
Venture Capital
<p>Mark Suster over at Upfront Ventures has recently released his 2016 view on the startup market. He answers the question on everyone's lips these days: Are we in a bubble? YES! But venture capitalists can't take full credit for this trend, he says:<br /> If “the market” is driving up prices beyond intrinsic value the main new entrants to the market that have taken a less rational view of historical prices are a series of “non VCs” including corporate investors, hedge funds, mutual funds and crowdsourcing. Note that I’m not absolving my industry, venture capital, from bad behavior. I’m merely pointing out that price drivers are more strongly correlated with outsiders. On the chart below, 78% of the rounds of 80 $1bn+ companies were led by non VCs.</p> <p>&nbsp;</p> <p>The numbers are astonishing: Suster says in the past 18 months, the number of companies worth more than $1 billion zoomed from 30 to 80.  "Either we’ve discovered magical beans and elixir or perhaps we’ve gotten ahead of ourselves on valuation."<br /> Chart: CB Insights</p>
Video: ETF specialist Ed Rosenberg addresses what the ETF market needs — and doesn’t need
Asset Management
<p>This past summer the market for ETFs -- exchange traded funds -- saw astonishing volatility. Investors aren't used to this in ETFs. Is more regulation needed? Ed Rosenberg, head of ETF Capital Markets and Analytics at Northern Trust, says more regulation won't help. Instead investors need to understand how these products were designed to behave. For better or worse, ETFs did just what they were supposed to do when the markets cracked late last August.</p>
Bill Ackman calls in ex-prosecutor to explain why it doesn't matter if Valeant broke the law
Hedge Funds
Unless you are a drug dealer or a securities lawyer, the odds are quite good that you have never heard of Jenna Dabbs. Jenna Dabbs is what I would call a bit player in the second best drama unfolding in the world of business (Theranos may be even better, but for very different reasons): The unraveling of Valeant Pharmaceuticals and
Hedge funds and the active management crisis
Hedge Funds
<p>Active management and hedge funds have suffered what amounts to a mini-meltdown in recent years as ambitious client expectations have collided with complex market conditions and slow, tectonic shifts in the finance landscape. James Bianco, CFA, president of Bianco Research, recently argued at this year’s 60th CFA Institute Financial Analysts Seminar in Chicago that a changing interrelationship between the stock and bond market alongside a plague of high correlations was responsible for recent weak performance of hedge funds and active managers.</p> <p>“In short, hedge fund performance as a group has been a complete disaster over the past five years,” Bianco said. “So, to earn the standard 2% and 20%, and outperform the index, managers have to be extraordinary. The problem is that there are probably only about 500 extraordinary managers in the world, but there are 11,000 hedge funds.” Active managers have also fared badly. “Over the past 10 years, 76% of active managers underperformed,” said Bianco, “It has been a struggle for most investors to understand how these relationships have changed.” Passive investment is increasingly the default response to such investor confusion.<br /> Performance – No Excuses<br /> While this year has been an embarrassing one for many hedge funds, longer term data suggests most hedge fund indexes perform better than stock and bond indexes and have lower volatility, according to one paper, “European Hedge Funds Industry: An Overview,” summarized in CFA Digest. The European hedge fund industry often outperforms in various strategies and rivals that in the United States, thereby giving investors access to global talents and strategic locations.</p> <p>Writing in the Journal of Index Investing, Benjamin McMillan of Van Eck Global, in another paper summarized in the latest CFA Digest, asks the question: When does active management add value? McMillan says that, contrary to what other authors claim, actively managed long-short equity hedge funds (currently the largest industry strategy) actually tend to earn negative alpha during periods of market instability. Furthermore, much of the outperformance many equity managers often claim is alpha can be explained as factors, according to Eugene Fama, Kenneth French, and fellow researchers. This seems to leave any remaining alpha attributable to some combination of momentum, fund cash management, and luck rather than any easily attributable skill. Tough times indeed for active managers and their marketers.</p> <p>More and more absolute return funds are seeing their exposures cloned when drivers of performance can be isolated and replicated. A Comprehensive Guide to Exchange-Traded Funds (ETFs) by Joanne M. Hill, Dave Nadig, and Matt Hougan identified 29 ETF-based absolute return clones and suggested that many hedge funds “lend themselves to factor-based approaches that can be offered within the ETF structure for competitive fees.” That said, the guide also points out that strateg</p>