Category Archives: Investment management

How Much of a Short Position Did Paul Singer Take in Argentina? And Who Were the Bagholders?

With the Argentine default, we are seeing a replay of a strategy that established Naked Capitalism readers will remember from the crisis: use a complex structure to disguise risk so that short sellers can place their wagers at far lower prices than they would be able to otherwise. And that raises the interesting question of how large a net short position Paul Singer, the instigator of the litigation that has undone Argentina’s restructuring deal and put the country in default, took against Argentina, as well as the relationship among the parties that put on the positions on behalf of short sellers.

Read more...

Hedge Fund and Private Equity Fund Rent Seeking: High Fees, Crappy Performance

We’ve written from time to time about the fact that alternative investments like hedge funds and private equity funds don’t live up to their marketing hype. For instance, hedge funds claim they deserve their outsized investment fees because they deliver “alpha,” meaning manager outperformance. In reality, it has long been known that at most what they really provide is “synthetic beta,” which is a return profile that investors find attractive because it is not strongly correlated with that of other investments, and therefore lowers portfolio risk. In reality, that “synthetic beta” is typical of the defective airbags all too regularly sold in finance: they fail when you most need them to work, which is in badly spooked markets.

Yet the marketing spin of wonky hedge funds touting intimidatingly complex strategies and slick private equity fund professionals with their cherry-picked success stories remain all too appealing to investors hungry for returns. And the most credulous and desperate are public pension funds, although many endowments and foundations and high net worth individuals are not far behind.

FT Alphaville has a devastating update on this front from Nomura along with other research findings.

Read more...

RI Treasurer Justifies Hedge Fund Secrecy With Need to “Minimize Attention” Re Pay, Protect Them From Poaching

Remember the infamous moment in The Untouchables, the PBS documentary on the failure to prosecute major financial firms for blowing the global economy, when assistant Attorney General Lanny Breuer made it clear that he was more worried about harm to banks than harm to the public? Rhode Island is updating Breuer’s playbook.

Read more...

Financial Times on Private Equity Firm Grifting and Arrogance

The Financial Times weighed in today with a long, well-researched piece, Private equity: A fee too far, on an issue we’ve discussed for some time, that of private equity firm oh-too-cleverness and too often, outright pilfering, in its dealings with investors, who include public pension funds, foundations, endowments, and insurers. This article is far more […]

Read more...

Former CalPERS CEO Pleads Guilty to Bribery, Fraud, Including Taking Cash in Paper Bags

Several readers sent accounts from the California press on the latest sordid chapter in a long-standing, large scale pay-to-play scandal at the giant California public pension fund, CalPERS. Earlier this month, state papers reported disclosed that the former CEO, Frank Buenrostro, had cut a plea bargain with Federal prosecutors and was turning evidence on his (alleged) former partner in crime, placement agent and former CalPERS board member Alfred Villalobos. We’d heard privately before that story broke that the charges against Buenrostro were about to be greatly expanded, which is likely what lead the former CEO to fold. But as a CalPERS insider told us, “It was a race to see who was going to cut a deal first.”

Read more...

Corporate Bond Trading a Casualty of QE and ZIRP

The Financial Times has an article on how corporate bond dealers are going to create a new trading hub to try to preserve their market position while “boosting liquidity” in the market. Narrowly speaking, there’s nothing wrong with the piece as a description of investor unhappiness and planned bank responses. But it curiously missed how Fed policy has helped generate conditions that are reducing corporate bond market liquidity.

Read more...

How Private Equity Investors Signed Up for Tax Trouble

How did supposedly sophisticated investors sign up for investments that have tax liability bombs in them? The seemingly arcane but actually important tax problem of UBTI, or “unrelated business taxable income,” illustrates how utterly outmatched private equity limited partners are by the general partners and their top-tier hired guns.

Read more...

The SEC’s Mary Jo White Punts on High Frequency Trading and Abandons Securities Act of 1934

SEC chairman Mary Jo White made clear in a new speech that she’s not going to do much about high frequency trading.

SEC chairman Mary Jo White spoke on Thursday about high frequency trading. She made clear that she not going to do much to curb it but will engage in more studies so as to look to be Doing Something.

Read more...