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Leon Cooperman blames risk parity for market chaos
Hedge Funds
<p>Last week JPMorgan Chase &amp; Co. (NYSE:JPM) Chase &amp; Co. warned its clients that Volatility Target strategies, CTAs and Risk Parity portfolios could sell a combined total of $150 billion to $300 billion of equities during the next few weeks as momentum drives selling (Concerns Over Risk Parity Grow [Cont.])</p> <p>The report from JPMorgan came a few days after the Financial Times published an article on the risks that Risk Parity strategies posed to the global bond market. The Financial Times cited a new report from AllianceBernstein (Introduction to Tail Risk Parity an old copy of the paper can be found here), which estimates that risk parity is now a $400 billion industry. Assuming an average leverage ratio of 355%, these funds control around $1.4 trillion in assets.</p> <p>Leon Cooperman on risk parity<br /> Reports from the Financial Times, AllianceBernstein and JPMorgan all imply that Risk Parity is a disaster waiting to happen. And Leon Cooperman, the founder of Omega Advisors just joined the party.</p> <p>Within his August letter to investors, Cooperman blamed Omega's poor returns (year to date Omega's funds are down between 6% and 11% according to Omega's letter to investors reviewed by ValueWalk) on "price-insensitive" investors.</p> <p>Our investment process, grounded in fundamental company research, with a capital marketr overview designed to help us gauge appropriate risk asset exposure, has served us well since our inception 23 years ago, and we believe in its continued effectiveness. The firm has virtually no debit balance, and we like what we own.<br /> With respect to the investment outlook, we believe that shares in the U.S. will end the year higher. A slowing in China's economic growth, the surprise devaluation of the yuan in August, continued weak oil and commodity prices, and uncertainty as to the timing of the first Federal Reserve rate hike, all contributed to an initial weakness in U.S. and global equity markets in late August. However, these factors, we believe, cannot fully explain the maenitude and velocity of the decline in equity markets last month. We think that much of that decline can Ix attributed to systematic/technical investors that are price-insensitive and largely indifferent to fundamentals. Such investors include risk-parity funds, derivative hedgers, trend-following CTA's, and insurance variable-annuity programs.</p> <p>The month of August was a bad one for global risk markets and a bad one for Omega. The S&amp;P 500 dropped 6%, its worst monthly decline in over three years. Our various investment funds, excluding our Credit Opportunity Fund which eased just 1.4% last month, declined by between 9% and 11% in August. Year to date, our equity-focused funds are down between 6% and 11%; differential returns among our funds reflect </p>
A month of pain: Latest on hedge funds returns for big 5 activists
Hedge Funds
<p>August was the month of pain.</p> <p>In August, per HFR, the average fund lost 2.2% (versus the S&amp;P 500's 6% fall) and is down 1% for the year. Some big name factivists aren't so lucky.</p> <p>Bill Ackman's Pershing Square was down 9.2% in August, putting the fund down 0.1% for the year.</p> <p>Top holding Mondelez International Inc (NASDAQ:MDLZ) (MDLZ) was down 6% for the month of August, no. 2 holding Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX) (VRX) was off 10.5%, no. 3 Air Products was down 2%, no. 4 Canadian Pacific (CP) was down 10%, no. 5 Zoetis (ZTS) down 8% and no. 5 Restaurant Brands (QSR) off 11%. Collectively, eight make up the bulk of the long-only portfolio.</p> <p>David Einhorn's Greenlight Capital was down 5.3% in August and now down 13.8% for the year.</p> <p>Top holdings Apple Inc. (NASDAQ:AAPL) (AAPL) and GM (GM) were down 7% and 6.6%, respectively, in August. Everyone wants to talk about SunEdison, which was off 55% for the month, with Micron Tech and CONSOL also being down 11% and 8%, respectively, for the month. Einhorn was cutting some of his long and short bets in August, though.</p> <p>Dan Loeb's Third Point was off 5.2% last month, but still up 1.2% for the year.</p> <p>Third Point's top holding, Baxter (BAX) was off 4% in August, no. 2 holding Amgen, Inc. (NASDAQ:AMGN) (AMGN) was down 14% and no. 3 Allergan (AGN) was down 8.2%. Collectively, the three make up about 40% of the long-only portfolio.</p> <p>Barry Rosenstein's JANA Partners was down 4.3% in August and down 2.9% for the year.</p> <p>JANA's top holding, Qualcomm, Inc. (NASDAQ:QCOM) (QCOM), was down 12% in August. Other top holdings off big in August were Walgreen Company (NYSE:WAG) (WBA), down 10.4%, and ConAgra (CAG), down 5.4%.<br /> Other activists down in August were Cliff Robbins' Blue Harbour, off 2.6% for the month, and Scott Ferguson's Sachem Head Capital, down 2%.<br /> Jeff Ubben's ValueAct Capital, up 1.6% in 2Q, the standout of sorts - although it remains to be seen how he did in August. YTD through June, ValueAct is up 8%.</p> <p>Learn More about activist strategy</p> <p>By all accounts, it wasn't a prett</p>
SAC alums are killing it in 2015
Hedge Funds
<p>Their padrino’s performance may have taken a hit and most of their peers may be deep in the red, but for three SAC Capital veterans, things could not be any better.</p> <p>The New York Times reports that SAC alums Jason Karp, Aaron Cowen, and Gabriel Plotkin are all set to post a banner year for 2015 as Karp’s $2.9 billion Tourbillon Capital Partners returns over 18%, Cowen’s $2 billion Suvretta Capital Management notches up a respectable 7% to 9%, while Plotkin’s $1 billion Melvin Capital posts nearly a whopping 20%.</p> <p>This is in stark contrast to how the activists are doing; Bill Ackman’s Pershing Square is down 9.2% in August, while Barry Rosenstein’s Jana Partners slumped 4.3% in the same period.</p> <p>That might not be a good comparison though. SAC Capital – or Point72 as it’s now called – has always been renowned for its ability to trade large positions tactically, allowing them to dash in and out of positions quickly compared to activists who are typically invested in their targets for a long-ish haul.</p> <p>There’s still three months to go in the year though, so stay tuned. Who knows what the rest 2015 will bring.</p> <p>Photo: Insider Monkey</p>
UBS settles with hedge fund over 'crap' CDO case
Hedge Funds
<p>Note to salesmen; if you’re selling crappy CDOs to hedge funds, try not to refer to them as such in your company emails, no matter how “kewl” it may be.</p> <p>According to Business Insider, UBS just forked over an undisclosed amount of money to Connecticut-based Pursuit Partners over allegations that the bank sold investment-grade collaterized debt obligations to the fund without disclosing that the notes were about to be downgraded.</p> <p>Apparently, Pursuit initially wanted $100 million from UBS, but brought the figure down to $35 million back in 2009, leading the Swiss bank’s legal team to say: “UBS is confident that it will prevail on the merits of the remaining claims.”</p> <p>Unfortunately for them, the bankers also had a lot to say about the notes, especially in their emails:<br /> “'Kewl', wrote UBS trader Evan Malik to Hugh Corcoran in an August 2007 email that began with the bankers talking over company email about wine purchases. ‘Sold some more crap to Pursuit.’</p> <p>In another email, UBS employee Tim Goodell said to Jared Menzel that the securities were ‘vomit;’ this was in September 2007.”<br /> The settlement came in just hours before a potentially scathing trial was about to take place.<br /> Photo: Frits Ahlefeldt-Laurvig</p>
Einhorn’s Greenlight reports August, down badly
Hedge Funds
<p>David Einhorn's Greenlight Capital revealed that its fund was down 5.5 percent in August, bringing the year to date loss to 14 percent, according to its web site. Looking for the silver lining, the hedge fund, known for its activism and finding value in the stock market with strong recent years past performance, did slightly outperform the S&amp;P 500 stock index at least on a monthly basis, which was down 6.3 percent in August.</p> <p>Greenlight under-performing on a yearly basis<br /> The August losses come as other hedge fund strategies had performed to various levels. Daniel Loeb's Third Pointhedge fund was down -5.1 percent in August, but remains higher on the year by a slim 0.02 percent. Balyasny Asset Management, meanwhile, adjusted its strategy parameters to hedge what they saw as the logical potential for volatility and were said to be near flat in August and up from 3 to 7 percent on the year, according to people familiar with the matter. (Additional report to come.)<br />  According to the most recent HSBC Holdings plc (ADR) (NYSE:HSBC) (LON:HSBA) Hedge Weekly performance ranking, through August the Equity Diversified / USA hedge fund category was up 0.88 percent year to date. The Multi-Strategy / Global category was up 1 percent while the Equity Diversified Long / Short category, which includes John Burbank’s Passport Special Opportunities Fund, was up 7.51 percent. It should be noted that some of the funds in the HSBC report had not reported their August performance. The Newedge CTA index, an benchmark of the largest algorithmic traders which requires firms to report performance on a daily basis, looked to close out August near a 1 percent loss.<br /> Greenlight asks questions, but likely not the questions that matter<br /> The sharp, unhedged losses come as the fund’s founder, David Einhorn, sent out a survey to his nearly 700 investors, according to a report in the New York Times. It is unclear It is unclear what the questions were, but below are a few questions that would have been most interesting for institutional investors to answer:</p> <p> When you invest in a “hedge” fund, do you expect that the fund will consistently “beat the market” on a multi-year basis, or do you expect that the fund will provide noncorrelated returns to a certain degree, help hedge a portfolio against negative stock market events?<br /> If a hedge fund c</p>