A VC - Latest Comments in Hedge Funds: The Third Quarter Report

Re: Hedge Funds: The Third Quarter Report

Druce — Wed, 03 Dec 2008 06:59:31 -0000

actually Renaissance killed it - http://bit.ly/FD83 . I have no idea what they do or how they do it. mean-reversion strategies like AQR and GS Global Alpha got hurt.

Re: Hedge Funds: The Third Quarter Report

Druce — Sun, 09 Nov 2008 20:09:26 -0000

very good question

http://www.loomissayles.com...

quotes 9/30 NAV was 11.89, 8.45% yield. that would mean a monthly distribution of .083, actual distribution was .0801 so there's a minor discrepancy but seems like current yield. not sure if they distribute based on actual coupons received which would be a little uneven. according to Investopedia the SEC Yield is a current yield.

using last price of 10.21 and last monthly distribution of .801 that would give 9.4% current yield. using .0845 * 11.89 / 10.21 I get 9.84%.

clearly holdings are mostly trading at discount ... so yield to maturity is higher when they mature at par.

Barrons article quotes a 9.78% yield, notes portfolio is invested mostly in corporates yielding 10 to 12%.

so I don't know for sure but based on this info and sanity check, looks like current yield is a bit under 10%, ytm is over 10%.

I own this little bloodbath, Dan Fuss has a pretty impressive long term record, will probably top it off in taxable account after the annual distribution which I think is second week in December, shouldn't matter for tax-free accounts.

one point he makes in the article is he expects some of the companies to be bidding to buy debt back at these prices which might make more sense than buying back stock. of course if companies can't roll over without paying through the nose or start defaulting then all bets are off.

Re: Hedge Funds: The Third Quarter Report

fredwilson — Sun, 09 Nov 2008 17:08:34 -0000

Hmm

Is that the current yield?

Are these trading at par or a discount?

Re: Hedge Funds: The Third Quarter Report

Druce — Sun, 09 Nov 2008 16:25:24 -0000

Barrons article on high yields in corporate space made me think back to this thread

http://online.barrons.com/a...

LSBDX - yield a shade under 10%, duration a shade over 6 years

I've heard of some crazy yields on bank debt - banks were trying to get it off the books - but impossible for most to participate in. (makes me wonder about bank debt mutual funds but seems like a complex situation to evaluate)

Re: Hedge Funds: The Third Quarter Report

Dan — Wed, 05 Nov 2008 23:43:57 -0000

Did your friend ever get back to you regarding this?

Re: Hedge Funds: The Third Quarter Report

Johnny LeHane — Fri, 31 Oct 2008 16:00:12 -0000

The core question of does not buying mean selling, I have to say no. You may decide you want to shift your asset allocation and want less exposure to a sector, fund or manager. To do so, you stop buying that sector or fund as you continue to buy other sectors or build your cash. Am I missing something?

Re: Hedge Funds: The Third Quarter Report

Johnny LeHane — Fri, 31 Oct 2008 15:51:57 -0000

occasional reader, first time poster. Love the blog Fred. . . and this is a great discussion. I think Jim confused satire and hyperbole, but that's ok [side note: it has been said that sarcasm is very hard to pull off in writing, so beware]...

Medium and Long term, increased energy prices leading to development of AltEng is great, but if we are lucky enough to see sub $70 oil for 3 or more months, we will get some consumer price relief across the board, as well as increased consumer spending because they will just feel like they have more money when they see those sub $3 gas prices. This will help soften this downturn further.

Re: Hedge Funds: The Third Quarter Report

Fri, 31 Oct 2008 03:12:47 -0000

Dude we know all that.

Listen to the 'activist' groups and they will not say ten words before mentioning that people in low-income neighboorhoods are often minorities.

If they say "banks are lending based on financial merit" people will say "of course banks are supposed to lend based on financial merit".

Re: Hedge Funds: The Third Quarter Report

Joshua — Thu, 30 Oct 2008 13:01:28 -0000

I'm reading FDR's biography right now. Hoover, Rockefeller, Schwab and other power players stated that after the market crash of 1929-1932, the fundamentals of the underlying economy was strong and that it was an opportune time to invest. Everything that has taken place up to this point is eerily similar to that period of time.

For those who have capital, position yourselves very carefully...there will be opportunity, but don't expect a recovery for another 24-36 months. The ripple effect of unemployment resulting in even lower retail sales, increased commercial real estate vacancies and overall decreased production still has to work itself through the economy...and it has only just begun.

Re: Hedge Funds: The Third Quarter Report

Ted Murphy — Thu, 30 Oct 2008 10:52:05 -0000

Wow. This is an awesome post and self-response. Really, really good. Thank you!

Edit - I'm trying to find a chart of PCE that shows -3.1% -- can't seem to find it:

http:// research.stlouisfed.org/fre...[1][id]=PCE&s[1][transformation]=ch1

Re: Hedge Funds: The Third Quarter Report

Druce — Thu, 30 Oct 2008 10:34:22 -0000

if a hedge fund had cornered VW stock like Porsche did, Merkel would be flipping out and warrants would be out via Interpol...

all the hedge fund managers will have to switch from Cayennes to Beetles

Re: Hedge Funds: The Third Quarter Report

Druce — Thu, 30 Oct 2008 10:24:10 -0000

in the immortal words of Larry Wall... there's more than one way to do it.

hedge funds aren't just stocks, and some (horrors!) are even technical instead of/in addition to fundamental.

Re: Hedge Funds: The Third Quarter Report

Guest — Thu, 30 Oct 2008 10:09:53 -0000

Bad call on Q3! I am eating humble pie now.
Here's what I had assumed and what the advance release actually shows (category, my assumption, BEA data, comment):
PCE -2.5%, -3.1%, accounts for 71% of GDP
Investment: -2%, -1.9%, about right
net exports: -2.5%, +5.9%, that just can't be right and will likely be revised substantially. It's something of a statistical quirk, but the dollar got much stronger in the quarter, which should pull the "real" series down (should inflate real exports and deflate real imports)
Government: +2%, +5.8%. Wow! here's what saved the quarter. Real defense spending up 18.1%! This is what blindsided me, obviously...

Re: Hedge Funds: The Third Quarter Report

Andy Abraham — Thu, 30 Oct 2008 09:02:09 -0000

On Myinvestorsplace.com we have been speaking about Hedge Funds... We feel the most of the Hedge Funds that had problems because they used too much leverage...This leverage was their down fall... Are we thinking correctly?

Andy Abraham
Hedge Funds

Re: Hedge Funds: The Third Quarter Report

Druce — Thu, 30 Oct 2008 08:57:16 -0000

numbers up there look a little screwy...

at 2/20
0% pre-fee - manager gets 2%, investor gets -2%
6.66% - manager gets 3.33%, investor gets 3.33%
25% - manager gets 7%, investor gets 18%

at 3/30 (2/20 fund wrapped in 1/10 fund of funds, admittedly on the high side)
0% pre-fee - managers get 3%, investor gets -3%
15% - managers get 7.5%, investor gets 7.5%
25% - managers get 10.5%, investor gets 14.5%

how good would an entrepreneur have to be for you to back a capital intensive startup with that split? maybe if it's Steve Wynn and it's a guaranteed 20% return on equity and IPO at 3x book.

HFs can add return and diversification, but you want to get the real deal superstars or it can be a ripoff.

Re: Hedge Funds: The Third Quarter Report

fredwilson — Thu, 30 Oct 2008 07:33:03 -0000

Works for me

Although a hit in the head is good for people too

Re: Hedge Funds: The Third Quarter Report

fredwilson — Thu, 30 Oct 2008 07:32:55 -0000

Thanks for the comments and the link

I will check them out

Re: Hedge Funds: The Third Quarter Report

fredwilson — Thu, 30 Oct 2008 07:31:07 -0000

Oh, the satire was lost on me

Re: Hedge Funds: The Third Quarter Report

howardlindzon — Thu, 30 Oct 2008 00:10:21 -0000

I so agree and remember blogging that the worst thing for the environment was for oil to crash. I got berated for saying it on yahoo techticker.

I dont think $60 oil will last long, but this is not a good price for anybody

Re: Hedge Funds: The Third Quarter Report

howardlindzon — Thu, 30 Oct 2008 00:03:17 -0000

absolutely. if you aint buying you are sellling. i disagree about the fundamentals though. You are assuming these hedge fund managers 'know' what fundamentals are and that the numbers they are looking at are real.

the stock market is more mood than fundamentals.

Re: Hedge Funds: The Third Quarter Report

Guest — Wed, 29 Oct 2008 21:40:32 -0000

Here's how I can help you, Fred. 3rd qtr GDP is out tomorrow. If you look at various surveys (for example CBS MarketWatch publishes consensus predictions) the "experts" are looking at -0.6%. An WSJ articles quotes Macroeconomic Advisers to be at -0.6%, too.
I am no economist, but just a very simple number crunch of data that is out there says that this is extremely unrealistic. I think the very best case will be -2.0% (3rd Q real GDP). At very best!
If you think that the market is pricing in a -0.6% 3Q GDP and a total peak-to-through of around of around -2% to -3%, then you should sell all your equity exposure. If you think that you friend talking about stable "double-digit yields on debt" assumes a corresponding sub-10% aggregate default rate on corporate bonds, then don't listen to him.

On the other hand if you think that the market has priced in a 8-10% peak-to through drop in GDP and your fixed income friend assumes ~20% corporate debt default rates, then you may be right that the market is bottoming out. It's your call. The economy is easy to predict (for me at least, I don't know what these Macroeconomic Advisers and other experts are smoking), the data is galore. Market sentiment, what is priced-in and what not is the tough call...

Re: Hedge Funds: The Third Quarter Report

Guest — Wed, 29 Oct 2008 21:23:21 -0000

Robert Samuelson has an interesting proposal: increase the gas tax by a penny each month for 4-5 years. This way you are not hitting everyone on the head right away, yet you make everyone know that prices are going up, so you better think what kind of car you buy, etc... I like it.

Re: Hedge Funds: The Third Quarter Report

Yule Heibel — Wed, 29 Oct 2008 21:22:10 -0000

Fred, sorry to intrude as I know beans about hedge funds, but when you wrote, "...in my market, private equity, you cannot trade and you cannot be a momentum investor. You must build value the old fashioned way, building cash flow and strong balance sheets," I was reminded of something I just read on Richard Florida's "Creative Class" blog (see "Builders vs. Traders," 10/28, http://tinyurl.com/6hx7wv).

Florida references an article in Canada's Globe & Mail by Geoff Beattie, "What we need are more builders," 10/27, http://tinyurl.com/5kwrgp. Beattie discusses the role of government and regulation ("...trader mentality has crept beyond Wall Street and the business world and infiltrated government policy") and asks how can we recover the builder orientation.

Not sure that this adds anything to finding an answer to the question you posed, but I wanted to mention the builder / trader analogy, as it appears appropriate. You seem to be a builder, in it for the long(er) term. That's good, yes?, and it makes you a leader, too.

Now, having read through all the comments, I'm guessing that the Canadian-style "socialism" (haha) of Geoff Beattie and the Globe & Mail will rub a couple of readers the wrong way, but as the comments by Teags showed (he's the developer who explained that gentrification -- downtown condos in formerly minority neighbourhoods -- isn't some weird affirmative action by government to get minorities into homeownership), this complex story just doesn't work in black and white anyway.

Re: Hedge Funds: The Third Quarter Report

Guest — Wed, 29 Oct 2008 21:04:56 -0000

I cannot imagine a single rational, civilized person who has considered the crisis for more than about five minutes who would take Andy's position seriously. It is pure ideology and that's what my comments were attempting to satirize.

Re: Hedge Funds: The Third Quarter Report

fredwilson — Wed, 29 Oct 2008 20:06:21 -0000

WTF?

This blog is supposed to be for rational, civilized discourse