CalPERS, the largest public pension fund in the US, is widely seen as an industry leader and its practices are emulated by other public pension funds. CalPERS has just announced that it is withdrawing from hedge fund investing entirely.
Ironically, the very first post on this website, on December 19, 2006, Fools and Their Money (Hedge Fund Edition), chided CalPERS for its continued loyalty to hedge funds.
Read more...You cannot make stuff like this up. New Jersey, in its attempt to diffuse a pension fund scandal that implicates Chris Christie (it roused him to respond in public), looks to have committed the classic crisis management blunder of a cover-up worse than the original crime.
Read more...David Sirota has carved out a much-needed niche lately by poking around in the unseemly deals between public pension funds and Wall Street predators, and he brings yet another scoop, this time in New Jersey:
Read more...A number of corporations have engaged in corporate tax “inversions” this year, which typically involves a large U.S. company merging with a smaller counterpart in a lower-tax country abroad, then moving the corporate billing address to the lower-tax country to reduce the overall tax burden. The actual headquarters and the executives go nowhere, but the nominal address changes so the company can avoid U.S. tax rates. A number of corporations in the pharmaceutical space have pulled this off in 2014, but it took the drugstore giant Walgreen to flirt with the idea (through a merger with the Swiss company Alliance Boots) for the non-financial press and the public to really catch on. Outcry actually stopped Walgreen from going through with the inversion; they merged with Alliance Boots, but kept their headquarters in the U.S. Clearly, it was easier to rally public scrutiny to a consumer-facing brand attempting to skip out on America while still using the public resources afforded any company selling their wares here.
Now, the same coalition that stopped the Walgreen inversion will get another chance with Burger King:
Read more...The post-crisis era is rife with band-aid-over-gunshot-wound approaches to deep-seated weakness in the financial system. Perversely, because the authorities were able to keep the system from falling apart, albeit via a raft of overt and covert subsidies to the perps, they’ve reacted as if all that needs to be done is a series of fixes rather than more fundamental interventions. One glaring example is a critically important funding mechanism, repo, for firms that hold large inventories of securities and/or enter into derivative positions, such as major capital markets firms like Goldman, Deutsche Bank, and Barclays, as well as hedge funds. Here, the authorities have been giving way to industry demands that will assure that repo, which was bailed out in the crisis, will be bailed out again.
Read more...NC contributor Michael Crimmins flagged a Bloomberg article yesterday that described the proliferation of complex synthetic structures, depicting it as return to some of the bad risk-shifting of the blowout phase of the last credit bubble.
The amusing bit is the headline was toned down after the post was launched (you can tell by looking at the URL, which almost certainly tracks the original). The current version is the anodyne “JPMorgan Joins Goldman in Designing Derivatives for a New Generation.” But the very first paragraph flags the troubling resemblance to the last hurrah of the pre-crisis credit mania:
Read more...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...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...Today is technically the drop-dead date for Argentina to work out an agreement to pay off vulture funds that long ago purchased their distressed debt, or else the country will go into default for the second time in thirteen years. 11th-hour negotiations with a mediator have yielded no results thus far. WSJ divines momentum from the length of the mediation session, which is pretty weak tea.
The default would actually be to the exchange bondholders who already hold agreements with Argentina for restructured debt payments going back to the 2001 default. Judge Thomas Griesa prevented the country from making a scheduled interest payment to the exchange bondholders without the vulture funds getting their $1.5 billion first (the vultures paid roughly $48 million for the distressed debt, so it’s a huge payday).
Read more...The Senate Permanent Subcommittee on Investigations released a report today that found that hedge funds have been using basket options to save billion in taxes. And when we say “billions,” the report indicates it’s more like tens of billions, since the paper estimates that the tax reduction achieved at one hedge fund, Renaissance Technology, operated by the famed James Simons, was $6.8 billion.
Read more...The protracted legal saga between Argentina and NML Capital, Paul Singer’s hedge fund, owner of a fraction of Argentina’s non-restructured, pre-2001’s default debt, went through a decisive moment last week, when the Supreme Court of the United States declined to hear Argentina’s appeal. With the “stay” order lifted after the Supremes Court’s decision, Argentina faced a huge conundrum that needs solving before June 30th, when an interest payment on its restructured debt is due.
Read more...Rob Johnson, political insider and executive director of INET, discusses the role of Big Finance in state and local budget woes.
Read more...In demanding tougher regulations, SEC commissioner Kara Stein is taking the unheard-of step of crossing swords with Mary Jo White, a chairman from the same party.
Read more...A new case filed against Deutsche Bank’s wealth management business shows that even money can’t buy safety from predatory finance.
Read more...No matter how you cut it, the Kentucky Retirement System hasn’t done well with its outsized commitment to alternative investments.
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