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Goldman jumps on ETF bandwagon
Asset Management
<p>It's official. Everybody's doing it.</p> <p>Goldman Sachs Asset Management has launched its first exchange traded fund in attempt to grab assets in the growing strategy's space, reports the Financial Times. Retail and institutional investors alike are pouring money into ETFs, as a cheap and easy option for tracking a market. GSAM's first ETF launched with $50 million and tracks the Goldman "ActiveBeta" index, which weighs equities according to value, earnings, and volatility. The firm plans to launch similar products "in the coming months."<br /> “Our clients asked us to apply our investment expertise to exchange traded funds,” Michael Crinieri, GSAM’s global head of ETF strategies, said in a statement.<br /> Moody's has called this "smart beta"-ETF space "the next battleground for asset management dollars." The ratings agency says that it expects the biggest passive asset managers and the most innovative managers to be the winners.</p> <p>Earlier this month OppenheimerFunds acquired VTL Associates to break into the ETF space. Legg Mason bought QS Investors last year, and Franklin Templeton is also eyeing the space. The multi-boutique Legg Mason requested regulator approval for its first four ETFs earlier this month.</p> <p>According to ETFGI, ETFs posted net inflows of $219.7 billion globally during the first eight months of 2015, a 16% increase from the same period in 2014.<br /> Photo: WorldSeriesBoxing</p>
When an easy Fed doesn't help stocks (and when it does)
Asset Management
<p>Last week, the Federal Reserve chose to do nothing to move short-term interest rates away from zero after nearly 6 years of extraordinary policy distortion. As detailed below, the inaction of the Fed, and the failure of the stock market to advance in response, follows the script that I detailed in February. Policy makers at the Fed actually appear to believe – contrary to historical evidence and contrary even to the recent experience of numerous countries around the world – that activist monetary policy has meaningful and reliable effects on subsequent economic activity. It’s lamentable that otherwise thoughtful policy makers, much less journalists who cover these actions, show no interest in how weak these correlations are in actual data, and seem incapable of operating even the most basic scatterplot. Despite the spew of projectile money creation around the world, the global economy is again deteriorating. The main defense of the Fed’s inaction seems to be that years of zero interest rate policy have been hopelessly ineffective, so continued zero interest rate policy is necessary.<br /> As we’ve demonstrated previously, there’s no statistical evidence in the historical record to suggest that activist monetary policy has any relationship to actual subsequent economic activity (see The Beauty of Truth and the Beast of Dogma). Historically, monetary policy variables themselves can be largely predicted by previous changes in output, employment and inflation. That “systematic” component of monetary policy does have a weak correlation with subsequent economic changes. It’s unclear whether that’s purely incidental, or whether those systematic changes in monetary variables (such as short-term interest rates) are actually necessary for the weak effects that follow. I should be careful to note that monetary policy also seems to weakly influence confidence expressed in certain survey-based questionnaires. But that correlation emphatically does not translate into changes in actual output, income, or employment. Put simply, massive activist deviations from systematic monetary policy rules provide no observable economic benefit, but instead create fertile ground for speculative bubbles and crashes.<br /> Despite its wild grandiosity, Fed intervention was not what ended the global financial crisis. Recall that the global financial crisis ended – and in hindsight ended precisely – on March 16, 2009, when the Financial Accounting Standards Board abandoned FAS 157 “mark-to-market” accounting, in response to Congressional pressure from the House Committee on Financial Services on March 12, 2009. That change immediately removed the threat of widespread insolvency by making insolvency opaque. This might not have meant much if regulators had continued to insist on mark-to-market when evaluating bank solvency. But with regulators willing to go along, the global financial crisis ended with the stroke of a pen.<br /> Those who hail the March 2009 replacement of mark-to-market with mark-to-unicorn as a “necessary” response miss the point (though Iceland has actually done quite well relative to the rest of the world, despite initial disruption, by insisting on massive bank restructuring rather than playing extend-and-pretend). The point is that Fed intervention did not end the </p>
Forum Global Opportunities up 107% YTD on big short yuan bet
Hedge Funds
<p>China’s losses have been one hedge fund’s gain – big time.</p> <p>Forum Global Opportunities Fund, the global macro hedge fund run by Ray Bakhramov, jumped 60.21% in the month of August. It is now up 106.71% year-to-date, putting it on track to post its first year in the green since 2011, according to a letter to investors reviewed by ValueWalk.</p> <p>The increase was driven by a 38.2% gain in the fund’s forex investments. The firm has a long-standing bet against China’s yuan, which the country devalued last month. It also won on short bets against the Taiwanese and Singapore dollars as well as the S&amp;P 500, DAX and Nikkei indices.</p> <p>&nbsp;</p> <p>The firm has operated in recent years under the belief that high levels of intervention from central banks has created severe distortions within financial markets, suppressing volatility and posing a flight risk to assets. It has held that at some point, the markets would enter a normalization phase in which distortions would correct – essentially, what happened in August. And Forum doesn’t think the ride is over yet.<br /> Forum Global Opportunities on yuan bet<br /> “Given our high conviction that certain asset prices had become massively inflated as investors piled into risk assets, volatility was suppressed to record lows, and underlying macroeconomic fundamentals continued to deteriorate, we heavily weighted our portfolio with long volatility, highly convex structures that would perform well as we moved into a normalization period that we believed would be characterized by sharp and abrupt adjustments,” the firm wrote in its August note to investors. “While our portfolio has been able to capture these recent market moves as evidenced by our recent performance, we believe the recent spate of volatility is merely the first adjustment in a longer normalization period for global markets. We expect to see continued heightened volatility in the current market cycle, punctuated by discrete waves of adjustment as these distortions correct.”</p> <p>Forum makes the argument that the current normalization process will be “significantly larger and longer” than previous cycles. It points to the acceleration of causal factors behind adjustments – slowing emerging market growth, commodity-led deflationary pressures and diverging global monetary policies – and uses China as an example:<br /> In China, intervention to slow the yuan’s depreciation has tightened financial conditions and accelerated capital outflows requiring further intervention. Cutting policy rates to offset financial tightening only increases fund flows to state-owned enterprises in over-supplied sectors, deepening deflationary pressures and pushing real rates higher. Across commodities, aggressive monetary easing has lowered cost curves via easy credit and local currency depreciation, boosting supply growth and negatively impacting pricing.</p> <p>Forum Global Opportunities on a changing market<br /> The fund also says market structure has transformed, with emerging markets nearly doubling their share of global GDP from 1997 to 2013, and that algorithmic and hedge fund trading “have changed market funding and behavior by linking multiple market segments into single trading strategies and amplifying ‘herding’ effects and liquidity-driven market imbalances during computer stampedes.”</p> <p>Founded in 2001, Forum is one of the leading investmen</p>
Raising money? There's a new entry fund-raising step -- 'pre-seeding'
Venture Capital
<p>After family and friends, hopeful entrepreneurs would go to seed funds to raise money. There's a new step now in the fundraising process. It's called "pre-seed."  Sarah Lacy writes in Pando.com (paywall):<br /> Welcome to the messy, inevitable collision of four trends: The series A crunch, bigger rounds later in a company’s life demanding higher pro-ratas, the rise and success of institutional seed rounds over the last 5+ years, and the increasing prices of building a company in San Francisco.</p> <p>Simply put: “Seed” is no longer seed. Pre-seed is seed. And even that’s not the earliest round: There’s friends and family before that. “Series A is actually the fourth round of funding,” says Manu Kumar, of K9 ventures, the best known pre-seed fund. “Before that there is seed, then before that there is pre-seed and then before that there is friends and family. We are the first institution in, but typically we are the second money.”<br /> Photo: Hartwig HKD</p>
HK billionaire Li Ka-shing's tech fund is Israel’s biggest foreign investor for upstarts
Venture Capital
<p>Hong Kong billionaire Li Ka-shing’s Horizons Ventures Ltd, which invests in technology companies such as Facebook, Slack and Spotify, is the biggest source of foreign investment for a number of tech startups in Israel.</p> <p>Citing data from market tracker IVC Research Center, the WSJ says Horizons has invested in at least 28 tech startups in Israel including Corephonotics, designer of dual-lens system for mobile-phone cameras, and Kaiima, a seed-technology company. In fact, startups from Israel now accounts for more than a third of the tech venture-capital fund’s more than 60 portfolio of startups, it says.</p> <p>The latest information comes as no surprise as Li, ranked the second richest man in Asia according to Bloomberg, has been aggressively expanding his empire all over the world. Just this week, Li’s Hutchison Whampoa sealed a deal with Spain’s Telefonica to acquire its British mobile phone unit O2 for 10.25 billion pounds (US$15.3 billion).</p> <p>Hutchison has been active in Israel way ahead of Horizon. Hutchison has established its presence in the country for more than a decade while Horizon, the first major Asian investor to put up money in Israeli tech companies, only did so in 2011, the WSJ says.</p> <p>Hutchison owns stakes in Partner Communications, Israel’s No.2 mobile-phone company, and in SDL Desalination, a water company, the report says.<br /> Photo: Ron Shoshani</p>
Barclay hedge fund index drops 2.45% in August; emerging markets off 10.46% in past 3 months
Hedge Funds
<p>Here's a big whoopee: Hedge funds were down only 2.45% in August compared to a drop of 6.26%  for the S&amp;P 500. Of course, most broad stock market investors weren't paying huge upfront fees.</p> <p>Hedgies took smaller losses than the MSCI emerging markets index. In August the Barclay EM index fell 5.39% vs 9.04% for the MSCI EM index. In the past three months, the MSCI EM index tumbled an impressive 17.55% vs 10.46% for the funds in the Barclay universe.</p> <p>The Barclay Hedge Fund Index compiled by BarclayHedge is hanging on by its nails to a gain for the year, up 0.23%. Here's what the data collector had to say:<br /> “A surprise currency devaluation by the People’s Bank of China on August 11 was interpreted by investors as an indication of a weakening economy, and sparked a global sell-off of risk assets,” says Sol Waksman, founder and president of BarclayHedge.</p> <p>Fifteen of Barclay’s 18 hedge fund indices had losses in August. The Emerging Markets Index dropped 5.39%, its largest loss since May of 2012 when it dropped 5.39%. Emerging Markets have fallen 10.46% in the past three months.</p> <p>“Emerging markets were hit especially hard as concerns of a global slowdown provoked fears of contagion and triggered sell-offs in commodities as well as Asian currencies, credits, and equities," says Waksman.</p> <p>Healthcare &amp; Biotechnology lost 4.38% in August, Distressed Securities fell 4.28%, and the Equity Long Bias Index was down 3.37%.</p> <p>The Equity Short Bias Index was the big winner in August, with an 8.75% gain. Equity Market Neutral was up 0.42%, and Fixed Income Arbitrage added 0.12%.</p> <p>At the end of August, the Healthcare &amp; Biotechnology Index is up 9.96% for the year, Pacific Rim Equities have gained 5.19%, Merger Arbitrage is up 4.74%, and European Equites have gained 4.39%.</p> <p>The Distressed Securities Index has lost 5.63% year to date, Emerging Markets are down 3.15%. and the Event Driven Index has lost 0.53%.</p> <p>The Barclay Fund of Funds Index lost 2.10% in August, but is still up 0.92% in 2015.<br /> Photo: SteFou </p>
Why this China ETF should keep working
Asset Management
<p>Over the past month, exchange-traded funds tracking Chinese A-shares, stocks trading on the mainland of the world's second-largest economy, figure prominently on the top 10 list of worst-performing non-leveraged ETFs.</p> <p>Of course, that is good news for the Direxion Daily CSI 300 China A Share Bear 1X Shares(NYSE: CHAD), a fund that has been highlighted multiple times in this space over the past two months.</p> <p>With Friday's gain of about 2.4 percent, CHAD is up nearly 7 percent over the past month and more than 21 percent over the past 90 days. Those are not staggering gains, but remember CHAD is not a leveraged ETF. In a perfect world, when China's widely followed CSI 300 Index falls 1 percent on a particular day, CHAD should rise by the same amount.<br /> What It Means<br /> As A-shares have tumbled in recent months, ...</p> <p>Full story available on Benzinga.com</p> <p>Photo: Dhi</p>
Video: The rise of the private IPO
Venture Capital
<p>Frederic Kerrest, COO and Co-Founder, of Okta, a unicorn and red-hot identity management company, sat down with Fortune journalist Dan Primack and Anand Sanwal, CEO and Co-Founder of CB Insights, the venture capital research company. First question: Would you invest in an index comprised of unicorns? How would you answer?</p>
UK asset managers are not happy with Yellen
Asset Management
<p>While fund managers in the U.S. were a little more simpatico with Janet Yellen’s decision to keep rates on hold, across the pond, British money runners were apparently not that happy.</p> <p>According to the Financial Times, several U.K.-based asset managers found the Fed’s recent decision not only “frustrating,” but also a blow to the central bank’s creditability.</p> <p>Luca Paolini, Pictet’s chief strategist, said that by keeping the status quo, the Fed has only made things worse: “The uncertainty is worse than a rate hike. A Fed hike could have been a major turning point for emerging markets. Now the concerns about global growth will intensify.”</p> <p>Kevin Adams and Kevin O’Nolan meanwhile both agreed that the move was “pretty frustrating,” with Adams – head of institutional fixed income at Henderson – adding that it “massively undermines [the Fed’s] credibility,” while O’Nolan – a portfolio manager at Fidelity – stated that this just means that “uncertainty [over emerging markets] will remain.”</p> <p>And they do have a point. While the buyside did push spoos higher after the announcement, fear and loathing eventually overcame the equity markets and bathed it in a sea of red. The only things bidding up right now are safe havens such as the swissie, the yen, and gold. Heck, even the euro – a currency not known for its stability and virtue – actually managed to post some gains.</p> <p>All is not lost however. While it did spike January Fed fund rates after she insisted on a 2015 rate hike, the market still hasn’t voted against Yellen in a real way. So while things may get a little choppy, it could be much worse.</p> <p>Her belief in the Phillips Curve should be of some concern though.<br /> Photo: Brookings Institute</p>
The rise of the ethical hedge fund
Hedge Funds
<p>Hedge funds, in the eyes of the general public, seem to be nothing but vehicles of cutthroat greed, tools for untold and unfair riches, or to quote former UK Prime Minister Edward Heath, “the unacceptable face of capitalism.” With investors pushing for more ethical investments however, that image might actually change.</p> <p>The Financial News reports that Deutsche Asset &amp; Wealth Management has just sealed a deal with an unnamed hedge fund to create a product that will “invest only in stocks screened using ethical, social and governance guidelines,” adding that it plans to create more of these vehicles in the near future.</p> <p>This isn’t the first time a fund decided to integrate ESG principles though, Jersey-based Auriel Capital has been doing so since 2009, and Lansdowne Partners have been running a version of its $10 billion Developed Markets fund using ethical guidelines for quite some time already.</p> <p>However, they’re quite miniscule compared to their unconstrained brethren. Lansdowne’s ESG fund runs a mere $212 million compared to its 11-figure big brother, while Auriel Capital’s ESG strategies seem to be a non-dominant slice of its total AUM.</p> <p>Still, Deutsche’s signing could mean a lot for the space in the longer term, and as their competitor Lyxor says, demand for such products have been growing at “a very fast pace” the past years. That, coupled with the industry’s current scramble to repackage itself, could mean that we might see friendlier, more socially and environmentally conscious hedge funds within the decade. Stay tuned.<br /> Photo: Julija Rauluševičiūtė</p>