Opinion

Felix Salmon

More silly hedge fund coverage

By Felix Salmon
June 16, 2009

What is it with Bloomberg’s Singapore bureau? Not content with a ridiculous article suggesting that US inflation might approach Zimbabwe levels, they’re now running a silly story about a shop by the name of “36 South Investment Managers Ltd” (me neither, but the only AUM datapoint I can find is that one of their funds has an extremely underwhelming $11 million under management.)

36 South is setting up a fund which will buy out-of-the-money call options on stocks and commodities, in the hope/expectation that if we enter a world of global hyperinflation, it will make lots of money:

The Excelsior Fund targets returns that will be five times the average annual rate of inflation of the Group of Five economies — France, Germany, Japan, the U.K. and the U.S. — should the rate exceed 5 percent.

This is just daft. France, Germany, and Japan between them account for 60% of the basket: is anybody anticipating hyperinflation in Japan? Besides, given the leverage they’re employing, how much time needs to elapse before they run out of money? As Vincent Fernando says, anybody thinking of investing in this fund would be much better off buying options on Treasury ETFs. And as Ryan Avent says, 5% isn’t hyperinflation anyway.

But more to the point, why is Bloomberg writing about these guys, given that they have zero demonstrated ability to get taken seriously by anybody with real money to invest? The reporter, Netty Ismail, quotes the co-founder of the firm as saying with a straight face that $100 million would be a “good” amount to raise, despite the fact that there’s no indication whatsoever that he’s raised anything like that sum in the past. If a well-known fund manager with a proven track record came out with a fund like this, that might be interesting. But this looks like little more than a marketing gimmick, designed — successfully, it would seem — to get press.

Incidentally, it would be nice if anybody writing about small and startup hedge funds did a bit of due diligence on them first. Before writing about firms like this as though they’re legitimate, any reporter should first confirm that they are legitimate — perhaps by asking to speak to their prime broker or asking to see some audited accounts for prior years. Otherwise, what’s to stop any old fraudster from calling himself a hedge fund, getting a couple of credulous Bloomberg stories, raising a few million, and retiring to the beach?

Comments
11 comments so far | RSS Comments RSS

That “5% isn’t hyperinflation anyway” is a point in their favor, right? Hyperinflation is presumably sufficient but not necessary for them to make money.

 

Seems like the venerable DealBook has picked up the story as well.

(Bravo Felix for doing some work on the story. And you have to congratulate a fund that has less AUM than my PA for their brilliant PR.)

 

Poor Bloomberg. The edict is “only report something when it’s been announced”, which, coupled with the Eye of Sauron monitoring journalists’ productivity, tends to encourage slow news day clunkers like this.

 

From reading the BB article, the writer talks about their “Black Swan” fund and also writes about Taleb even though there is no relationship between the two whatsoever (at least that’s what it appears to me). It is one of the most read articles in BB today therefore I don’t think people realize this and its making the rounds as something legitimate.

Posted by Cortes the Banker | Report as abusive
 

If you pay 1/4 of a cent for the option, then go ahead. If real money is involved, the word “daft” doesn’t go far enough. It’s more like betting on a horse race but on the horse that’s not running.

Posted by jonathan | Report as abusive
 

These guys recently launched a london office and had a fund that last year returned 234% in 2008.

I think this journalist may need to do a bit more research.

Posted by David | Report as abusive
 

Mr Salmon should be ashamed of his own ill-researched and opinionated “reportage”. 36 South is exactly the sort of highly experienced and skilled niche hedge fund manager that serious investors should be seeking.
After observing the returns on databases for one of their suite of funds as far back as 2004, I took the trouble to talk to the managers and then travelled to their offices in Auckland, New Zealand to conduct due diligence on them, as well as their non-exec directors and their well regarded service providers on the audit, legal and administrative side. (Actually the audited track record of their first New Zealand onshore fund goes back to 2001).
I (along with a number of serious professional and institutional investors I know) invested in their offshore flagship Kohinoor Series Two Fund, and have been delighted by the +7% return in 2007 and the +73% return in 2008 and +4% so far in 2009. I also invested in thier offshore Dresden Green Fund which was up +4% in 2007, +14% in 2008 and +9% so far in 2009. Their other funds, such as the Black Swan Fund and Regent Fund were strongly positive last year.
With several tens of millions of dollars of external investor capital deployed across the various funds, as well as significant amounts of their own disposable cash invested, I know that the managers have significantly increased their own personal worth over the last few years – and deservedly so. They now have offices in London too and are regulated by the Financial Services Authority… and have protected and continue to increase significantly the value of my investments in their funds throughout the continuing market turbulence of the past few years.
I am confident that they posess the multi-business cycle experience, specialised skills and systematically applied processes to capture opportunities that are not evident to many professional investors. I understand these processes and can see exactly how it may be possible for 36 South to make extremely good returns from the refinement of their strategy as it will be applied within the Excelsior Fund over the coming years. I will certainly be investing more of my capital with the manager. Good luck with your career in journalism Mr Salmon.

Posted by Jonathan Lee | Report as abusive
 

I do the PR for 36 South and am amazed by this post. There is so much to rebutt, I can’t even begin to do it in a comment. As a starter though, readers might like to know that, despite Felix’s thoughts on Bloomberg’s poor due diligence and hence negligence in writing about 36 South, Reuters has in the last month covered 36 South’s London launch and the launch of this very fund. These two (well-balanced) articles came after a meeting between 36 South and the London hedge fund correspondent and his subsequent research and would have been uncovered by even a cursory web-search.

Felix – I’ll drop you an email now. We should set up a face to face with you and 36 South next time you are in London or a call sooner. We can talk AUM, strategies, team track records etc and you can draw your own conclusions thereafter.

Posted by Dillon | Report as abusive
 

Shill posts, self-proclaimed PR responses, oh my! I wait with bated breath for the response.

(Tens of millions of dollars does not a fund make.)

 

Incidentally, for anybody following this thread, I’ve told Dillon that there are no space constraints on comments and he’s more than welcome to rebut as much as he likes right here — and that if he does I’ll link to his rebuttal. Why should I get to talk to him about AUM offline when he can just give us the numbers online?

Posted by Felix Salmon | Report as abusive
 

Well done, Felix.

It’s not the first time this Bloomberg reporter has published gloryfying articles on start up funds without track record or verifiable claims.

Check out this other ‘gem’ where Alan Howard is compared to a random Singaporean trader.

http://www.bloomberg.com/apps/news?pid=2 0601087&sid=aiKUyLXPdY4c

Posted by Eye of Sauron | Report as abusive
 

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