News > Financial Services

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>
Infographic: The Narwhal Club is home to Canada’s $1 Billion tech startups
Venture Capital
<p>The Narwhal Club is going strong with plenty of recent news concerning prominent Canadian startups. Working with Brent Holliday from Garibaldi Capital Advisors, we got the latest scoop on the sector and have updated the narwhal list accordingly.</p> <p>The most recent notable event occurred in the summer of 2015, when Markus Frind sold his 100% owned Plentyoffish.com to Match Group for US$575 million. As a result, we have removed POF from the Narwhal list, and instead have inducted Markus to a new category called the Nar-Wall of Fame. Plentyoffish.com allowed Markus to amass a personal fortune from profits and sale of his business that makes his personal valuation Narwhal-esque.</p> <p>&nbsp;</p> <p>Courtesy of: Visual Capitalist<br /> This was originally published by ValueWalk.<br /> Photo: Matt Biddulph</p>
Video: Northern Trust- Why we’re launching a long bond ETF when rates seem likely to rise
Asset Management
<p>Northern Trust recently launched a new long duration bond ETF, right as it seems interest rates will rise. Counter intuitive? Ed Rosenberg, head of ETF Capital Markets and Analytics, says you'd be surprised at what really happens to some bonds when the Federal Reserve raises rates. Plus: Whether or not rates or high or low, investors need to match their long-term liabilities with their investments.</p>
Where to look for outperforming active managers
Asset Management
<p>&nbsp;</p> <p>So far in my series on selecting superior active fund managers, I’ve broken the most promising research into two very different areas of focus: 1) identifying which segments of the market, or which types of funds, are most promising; and 2) what characteristics to look at in the funds themselves. The most interesting research in category 1 was the “active share” analyses by Antti Petajisto, which concluded that closet index funds (which happen to hold a near-majority of assets in the fund industry) tend to be consistent losers on an after-fee basis, while high-active-share funds with a stock-picking mentality tended to beat their benchmarks by 126 basis points a year.</p> <p>But of course not all the stock-pickers were winners, and the winning funds tended to be scattered all over the various sectors of the market. Is there a way to analyze the different segments of the global opportunity set, and determine the best places to look for those outperforming managers?</p> <p>As it happens, this is exactly the research that is being conducted by Dan Kern, president of Advisor Partners in Walnut Creek, CA. Kern has an unusual background; he spent eight years as a portfolio manager on the U.S. Growth Equity team at Montgomery Asset Management in San Francisco, and then moved over to researching funds as the managing director of Charles Schwab Investment Management.</p> <p>“Having worn both hats,” he says, “I’ve learned that investment success is frequently a temporary state of affairs. Today’s high flier is tomorrow’s loser.”</p> <p>Today, before he looks for potential outperforming funds, Kern subjects different sectors of the market to three basic tests, which tell him whether he’ll even bother to look at the funds that operate in that space.</p> <p>Payoff: the performance spread</p> <p>Test one is something he calls “payoff.” Is the potential excess return (payoff) worth the risk you would be taking if you decided to invest with an active manager in that sector? Another way to describe this factor is the “performance spread”: Where is it tightest, and least tight?</p> <p>To answer that question, Kern identified the percentage return that would qualify a fund for the upper quadrant (25th percentile) in different asset sectors, and compared it to the return that a fund would have to achieve to fall into the upper 75th percentile. He also looked at the index return. This allowed him to calculate three derivative figures: the 25th percentile return minus the 75th percentile return, the 25th percentile return minus the index return, and the percentage difference between the 25th quartile fund return and the index.</p> <p>Figure 1 shows the results for certain foreign stock and bond sectors, plus one U.S. bond sector, for the five years ending December 31, 2014. As you can see, the highest 25th-minus-75th spreads can be found in the emerging markets equity funds sector (3.02% a year), followed by foreign small/midcap equity funds (2.81%). The spread is tightest in the intermediate-term bond category. In reverse order, those two asset classes also have the highest spread between the 25th percentile returns minus the index, and the emerging-markets equity funds have by far the highest percentage difference between the highest 25% of the funds and the index.</p> <p>Figure 1 – Active-Passive Payoff Analysis</p> <p>At the other end of the spectrum, the average emerging-markets bond fund loses to the index. The other lowest payoff categories</p>
People Moves: BlackRock hedge fund manager steps down; Highland Capital hires new director
Hedge Funds
<p>BlackRock hedge fund lead steps down. Tim Webb has resigned from his posts as managing director and CIO of the BlackRock model-based fixed income group, as well as the management of the Fixed Income GlobalAlpha Fund, BlackRock's biggest hedge fund. Webb will now focus on the international fixed income business with Rick Rieder and Kevin Holt. Tom Parker will act as CIO for GlobalAlpha and the model-based unit. Opalesque </p> <p>Highland Capital Management hires new managing director. Jeff Seaver has joined the firm from Loomis Sayles where he worked as co-head of the London office. At the Dallas-based Highland, Seaver will focus on institutional investor relationships, specifically with U.S. pensions and insurance companies.<br /> Photo: ©iStock.com/ooyoo<br /> &nbsp;</p>