Losing Big: A Winning Wall Street Strategy
It never ceases to amaze me how hedge fund managers who suffer catastrophic losses are able to go out and raise money. But clearly I did not think it through; losing money of course makes them smarter, apparently:
Investors have a range of explanations for opening their wallets for failed managers. Sometimes, managers demonstrate that big losses made them smarter investors, or they offer to waive some of their hefty fees for those who got burned in previous funds. Some managers who had stumbled in the past, such as David Shaw of D.E. Shaw and William Ackman of Pershing Square, restarted their careers and generated big returns.
It can be helpful to have lost loads of money, rather than a smidgen of cash.
“It’s crazy, but the guy who’s down substantially often will have a lot more options versus someone smaller who hasn’t lost much money,” says Neal Berger, who runs Eagle’s View Asset Management, LLC and invests with funds. “Some investors will say ‘lightning doesn’t strike twice in the same spot,’ or, ‘there must be something smart about him that someone gave him the opportunity to lose so much money in the first place."’ WSJ
Investors might buy into failed managers spin jobs, but I am not. Wall Street is one of the few places lighting strikes twice.
Rebounds by Hedge-Fund Stars Prove ‘It’s a Mulligan Industry’
WSJ
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George Soros Looks for a Re-Test of Market Lows
George Soros has gotten beat up on his positions in Asian and Indian equities this year, but don't worry about his solvency. He should make back the losses, and then some, with his book, The New Paradigm for Financial Markets: The Credit Crash of 2008 and What It Means
Anything George writes is mandatory reading for the hedge fund set, although this one might not prove to be an instant classic, and seems to be rehash of the feedback loop known as "reflexivity":
In the midst of the most serious financial upheaval since the Great Depression, legendary financier George Soros explores the origins of the crisis and its implications for the future. Soros, whose breadth of experience in financial markets is unrivaled, places the current crisis in the context of decades of study of how individuals and institutions handle the boom and bust cycles that now dominate global economic activity. “This is the worst financial crisis since the 1930s,” writes Soros in characterizing the scale of financial distress spreading across Wall Street and other financial centers around the world. In a concise essay that combines practical insight with philosophical depth, Soros makes an invaluable contribution to our understanding of the great credit crisis and its implications for our nation and the world.
Soros has long believed that markets drive fundamentals, and the tome argues that a "super bubble" has burst, although George's track record predicting is spotty, given he was 0-2 coming into this.
Soros thinks the "acute phase" of the financial crisis behind us, which seem to be the consensus thinking, but he looks for the damage it has inflicted to take down the real economy, as opposed to the world of billionaires George lives in.
GLG Superstar Coffey Down 19% YTD
GLG Partners' (GLG-NYSE) stock has been weak for months now due, in part, to a poor start to the year in the assets under management. The selling pressure on the shares intensified when Greg Coffey, who has accounted for over half of the firms recent incentive fees, announced his resignation in mid-April.
No doubt the distractions are taking a toll on Coffey's and GLG's performance:
Performance of the group’s 40-plus funds had been “disappointing” overall since the beginning of the year, declining 7 per cent on average. “Some funds are below their high-water marks,” said Mr Gottesman, although the group “was still performance-fee positive”.
Assets under management were unchanged from December to March at $24.6bn (£12.6bn). Net inflows, including from new US clients, touched $700m and the group’s assets have risen 53 per cent since the first quarter of 2007. FT
But Coffey, who has likely been spending more time on setting up his new shop than paying attention to the markets, has been spanked for close to a billion dollars while a parade of analysts, prime brokers and assorted hangers-on come to him hat in hand:
GLG said that while Mr Coffey had been a top performer last year, his fund performance had tailed off. The $5bn GLG Emerging Market fund was down 19 per cent in the year to date.
GLG Chairman and CEO Noam Gottesman says he is facing "cross currents" which might be an understatement. Although half of the people on the SellSide might want to leave for the BuySide, the grass ain't always greener, and Bill Miller could certainly attest to.
Resignation and restatement cast shadow on GLG
FT
Legg Mason Spins the Bill Miller Disaster
For over a year now I have been questioning Bill Miller's judgment; it was a lonely endeavor in 2007, but the inevitable pile on has started:
But despite the dismal returns, Legg Mason's star manager still manages to create headlines as if investors should listen to him. Miller has been among the most outspoken Yahoo investors during Microsoft's three-month attempt to acquire it.
But his comments are beginning to smack of desperation. And it's not clear that increasing Miller's public relations is the right strategy to improve his investor relations. Portfolio
Maybe Bill should take a page from Gordon Crawford's book; his recent comments over Yahoo! are a good example of a prudent man. But Miller is starting to come off as a kook, and perhaps Bill might want to consider zipping his mouth, given he has been appearing clueless and out of touch. His comments on March 14th, just as his position in Bear Stearns picked up momentum to the downside, were classic:
GLG’s Stock Decaffeinated By Coffey’s Departure
Originally Published May 7, 2008 11:15 AM
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GLG Partners (GLG-NYSE) stock has been crushed by the pending departure of portfolio manager Greg Coffey. Has the stock overshot on the downside? That is what I am asking myself; Noam Gottesman’s comments today on the company’s conference call to discuss earnings would seem to indicate that GLG would only lose $4 billion of the $6 billion Coffey manages:
GLG said it expects clients to pull some of their assets from the firm that are managed by Greg Coffey, who announced his surprise plans to leave the firm later this year in April. Coffey manages about $6 billion of the roughly $24 billion in assets under management at GLG. “The noise and uncertainty surrounding Greg will have an impact as he managed $6.3 billion. I would expect the bulk of it to remain until his departure date,” GLG CEO Noam Gottesman said on a conference call Wednesday. He added that he hoped, over the long term, that the firm would retain at least $2 billion of the money Coffey manages. Earlier Wednesday, GLG reported that it swung to a first-quarter loss of $222.2 million, or $1.07 a share, from a year-earlier profit of $14 million, or 7 cents a share, due, in part, to the recognition of expenses related to the company’s merger with Freedom Acquisition Holdings in November Marketwatch
GLG’s valuation against its closest comp, Och-Ziff, appears to be excessively discounted, and if the Street gets comfortable with the situation stabilizing at GLG the stock might eventually recover some lost ground.
It is time GLG’s unheralded staffers to step up, certainly there has to be a superstar in the bunch, ready to assume Coffey’s throne.
GLG sees outflows following departure of Coffey
Marketwatch
