Regulatory Filings Reveal Massive Selling in Hedgistan

The rumors of major selling by hedge funds earlier this fall seem to be accurate; 13-F filings from September 30th indicate the selling was fast and furious as September came to a close:

Regulatory filings last week by 38 hedge funds with more than $1 billion in assets each show that selling and market declines cut the value of their reported holdings by about 30 percent to $273 billion. Bloomberg

He who panics first, panics best, and the hedgies stampeded out of stocks, trampling everything in their paths:

- At Tudor Investment Corp., the Greenwich, Connecticut, hedge-fund group founded by Paul Tudor Jones, 13F holdings fell to $453 million from $5.7 billion. Jones said markets face more selling from managers.

- Atticus Capital LP, based in New York, disclosed that its holdings declined to $510 million from $8.1 billion. The firm, run by Timothy Barakett, 43, sold out of 39 stocks while adding no new holdings. ConocoPhillips, MasterCard Inc. and Burlington Northern Santa Fe Corp. were the three largest positions he exited, with a combined market value of $2.68 billion as of Sept. 30.

- SAC Capital Advisors LLC of Stamford, Connecticut, said its holdings were $7.7 billion as of Sept. 30, down from $14.4 billion at June 30. Founder Steven Cohen, 52, had about half the firm's assets in cash in mid-October, after his main fund fell 5 percent through September.

- Jeffrey Vinik, who once ran the Fidelity Magellan Fund, disclosed that his Boston-based Vinik Asset Management LP held $1.8 billion at Sept. 30, down from $11.8 billion at June 30.

Selling by the big guns no doubt accelerated after regulators changed the rules of the game and tried to protect the nation's largest banks and brokers from the predators. Too, they were quick to pick up on the post-Olympic hangover and jettisoned resource equities they had ridden to big gains over the past few years.

As usual mutual fund investors were left holding the bag, and I would encourage Main Street to contact Hank Paulson with a list of grievances; the laundry list of unintended consequences from his actions are too numerous to list, but chasing capital out of the markets with his silly war against “bad hedge funds” tops the Webvan IPO on Hank’s List of Dubious Achievements.

The question now is what Hedgistan does next; we will know a bottom when we see it, and many charts are beginning to show tentative signs of improvement. Have the hedgies been slowly increasing their net and gross exposure?

I am too punch drunk to decide at the moment; the markets should stay choppy as traders wind things down going into year end.
The holidays will given those still left standing a chance to reflect on the past and the future; more regulation is a certainty, but fewer participants, and a corresponding decrease in liquidity, are here to stay. A daytraders delight, to be sure, but an environment less suited to steering a battleship in a bathtub.

The New Year will witness more than an Obama inauguration, perhaps old concepts like valuation will make a comeback. In any case the days of shooting against wounded hedge funds appears to be ending with a whimper, as the deleveraging process continues to wind down.
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Sixty some days to go....

Paulson’s swearing in...July 10, 2006
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Tepper, Barakett Abandon Stocks as Hedge Funds Shrink Holdings
Bloomberg

Be careful when it comes to stale 13-F filings...

Hedge fund hearings: More disclosure doesn’t always mean more clarity
Telegraph

September 16th
Falcone: Harbinger’s 13-F Doesn’t Mean Jack
1440 Wall Street

October 8th
Opportunity Knocks: Hedge Funds Done Puking?
1440 Wall Street
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