Take hedge fund exuberance with grain of SALT
By Jeff Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
A wave of hedge fund exuberance should be taken with a grain of SALT. At SkyBridge Capital’s so-named Las Vegas confab this week, a near-unanimous confidence emerged amid moans about conference fatigue. Long-anticipated opportunities in M&A, bargains in Europe and collapsing correlations have finally arrived all at once, if some of the world’s richest investors are to be believed. The consensus itself may, however, give reason for pause.
The “accidental conference” spearheaded by Anthony Scaramucci – the indefatigable founder of SkyBridge, a $10 billion hedge fund of funds – filled a post-crisis void left by chastened Wall Street prime brokers and is now in its sixth year. “The Mooch,” as the ringmaster is known, introduced most of the marquee names as his “friends” and used the event as an opportunity to announce plans to raise his profile further by reviving the once-beloved public television program “Wall Street Week” with him in the host seat once occupied by Louis Rukeyser.
Yet as around 1,800 delegates mixed with NBA legend Magic Johnson, astrophysicist Neil deGrasse Tyson and presidential adviser Valerie Jarrett at the opulent Bellagio, some privately grumbled about wanting to see more financial superstars like Appaloosa Management’s David Tepper on stage. And following the World Economic Forum in Davos, Michael Milken’s Beverly Hills jamboree, and the Ira Sohn and ISI gatherings in New York, SkyBridge may need to fight to keep justifying its slot in the rotation.
Along with some coveted investment tips, a live performance by Lenny Kravitz and a soiree with a masquerade theme that seemed off-key for an industry often criticized for opacity, SALT-goers this year were treated to a course in the language of finance. Oscar winner Kevin Spacey wondered if “one percent” better referred to their economic status or their investment returns, according to people who attended his off-the-record session. Tepper explained the origins of his firm’s name, an alphabetic advantage in the days of faxed news dissemination. Waterfall Asset Management’s Jack Russ called the fickle buyers and sellers of securitized products “tourists.”
When company directors do on their own what used to require the agitation of an uppity investor, John Bader of Halcyon Asset Management described it as “corporate proactivism.” And Jana Partners’ Barry Rosenstein coined a term for the new phenomenon of mutual fund bosses calling him with ideas: “RFAs” or “requests for activism.”
The topic of shaking up boardrooms was virtually inescapable, regardless of the program description. Capital is pouring into so-called event-driven strategies, as merger activity accelerates for the first time in five years partly on the back of cage-rattling by Dan Loeb, Bill Ackman and others. Bruce Richards, chief executive of Marathon Asset Management, highlighted another pervasive theme when he said there was a $1.2 trillion “fire sale” going on at European banks eager to shrink their balance sheets, providing a bevy of deeply discounted assets.
Finally, less dramatic swings in prices may have led to fewer securities moving in unison – another opportunity for market-beating returns, or alpha, cited by hedge fund managers at SALT. After the average hedge fund delivered just a 9 percent net return in 2013, following an even weaker 6 percent the year before, according to Hedge Fund Research, they need such flashes of hope for future investment performance.
If they’re right, it would mean the stars have aligned for an industry running $2.7 trillion of investors’ money and facing fresh scrutiny for its high fees and low returns. Such accord from a supposedly contrarian and uncorrelated bunch, however, carries a whiff of wishful thinking.
If they’re wrong, veteran metaphysicist and mortgage specialist Don Brownstein, CEO of Structured Portfolio Management, offered up an old notion often forgotten in the world of high finance. Asked for his best investment idea, he suggested people spend time with their children.