Unstructured Finance

Natural (at) selection

The answer to the moderator’s question was a resounding: yes. The question, asked to several credit hedge fund managers during a conference on Thursday, was: did you make money last year? In fact, the managers from Pine River, BlueMountain, Cerberus and Brevan Howard made a lot. But 2013 is not going to be so easy, they said.

Hedge funds that specialize in credit, especially those who focus on mortgage-backed securities (MBS), blasted past their stock market competitors in 2012. One of those traders, Steve Kuhn, was on stage for the aforementioned credit panel at Absolute Return’s Spring Symposium. Kuhn, a portfolio manager for Pine River Capital Management, saw his fixed income fund rise 35 percent last year.

Kuhn doesn’t see a repeat of those monster returns in 2013. It’s all about security selection this year, he said and that that selection process is going to require a lot of work. It’s a view we reported in early March, and one that Scott Stelzer, a CMBS specialist for Cerberus Capital Management and David Warren, the CEO of DW Investment Management and CIO for a Brevan Howard credit fund also echoed at the conference in mid-town Manhattan.

So, where are these managers allocating capital this year? At the moment, Steve Kuhn likes convertible bonds in Asia. He said there’s still some alpha in the RMBS market, but the beta trade is now a now 6/10, whereas it was 10/10 a year ago. He’s also excited about opportunities to invest in new issuance as Fannie and Freddie begin to reduce their 95 percent mortgage-market footprint.

Cerberus’ Stelzer, who still likes the CMBS trade, emphasized that last year’s desperate yield search had seen a ton of players move into those securities where they probably should have stayed away. This style-drift has occurred as hedge fund managers moved outside of their specialties, desperate to boost returns in the a low-interest rate environment. We reported, for example, on the move into CLOs and CDOs in the second half of last year.

Essential reading: Senate votes on tax hikes in budget, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* As Senate passes spending measure, stark budget views are on display in House. Jeremy Peters and Jonathan Weisman – The New York Times. House Republicans brought to a vote the budget proposed last week by Senate Democrats in the hope that they could divide their opponents’ ranks and put them on record supporting its $1 trillion in tax increases. Link

* Rewrite of partnership tax rules could shake real estate. Richard Rubin – Bloomberg. The more dramatic of two tax proposals from Dave Camp, the top Republican tax writer in Congress, would remove some of the flexibility that has made partnerships attractive legal structures for real estate investors and hedge funds. Link

* Some Republican governors find a tax they’d like to raise rather than cut. The Associated Press. Although a break from the GOP’s anti-tax ideology, Michigan Gov. Rick Snyder’s gas tax increase proposal shows a dicey willingness among some Republican officials to begin raising more revenue. Link

Once-obese Goldman analyst becomes fitness evangelical, gym CEO

Wall Street is shrinking, but so are some of its bankers.

Eight years ago, Goldman Sachs Group’s Kishan Shah weighed 400 pounds and couldn’t find a suit that fit his 62” waist for a job interview. Now he’s 195 pounds, and he’s quitting Goldman to spread the gospel of healthy weight loss as chief executive of a chain of gyms for obese Americans.

“I made a vow that day to focus on diet and exercise, and I lost over 200 pounds – no surgeries, no fad diets, no trainers,” Shah said in a video chat this month with First Lady Michelle Obama.

Shah, who is 26 and works as an analyst in the Special Situations Group at Goldman Sachs, may not be representative of the typical bank employee who’s leaving.

The volubility index

By Matthew Goldstein

With money managers increasingly falling in love with their own voices and so many willing to give them a platform to air their thoughts, I’ve long thought it would be good if someone could come up with a Volubility Index that measured performance against the number of times someone was quoted or made some stock, bond, or market prediction.

It won’t be me because I’m not enough of a math geek or algo genius to even think about how to put something like that together–but it would be interesting to see the results. And given this year’s big surge in money managers spouting off–what with the Ackman-Ichan blood feud over Herbalife and and Einhorn trying to be ever so clever in trying to stop the slide in Apple shares with his iPrefers share class dividend proposal–may be it just will happen.

Anyway, the latest issue of Businessweek with its cover story on David Einhorn and the failure of the “Einhorn effect” to work its magic on Apple’s stock got me thinking again about the Volubility Index. The BW story is a long one and chronicles Einhorn’s long history of driving down the price of stocks he is shorting, but notes his plan to get Apple to unlock its big pile of cash is having limited impact on the stock–even after the Greenlight Capital manager held an unusual press conference to discuss his idea.

Essential reading: Tax reform spurs bipartisan lobbying, and more

 Welcome to the top tax and accounting headlines from Reuters and other sources.

 * In shift, lobbyists look for a bipartisan support to repeal a tax. Eric Lipton – The New York Times. Lobbyists across Washington are redoubling their efforts to build bipartisan coalitions — not just on the 2.3 percent medical device excise tax, but other hot topics, like the possible rewriting of corporate tax laws. Link

* With west flat, big brewers peddle cheap beer in Africa. Paul Sonne, Devon Maylie and Drew Hinshaw – The Wall Street Journal. One of the main ways brewers are expanding market share in Africa: specially negotiated tax deals, now in place with at least seven African governments. Link 

Essential reading: NY State near budget, tax cuts, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Albany near deal on budget, taxes. Erica Orden and Laura Nahmias – The Wall Street Journal. Gov. Andrew Cuomo and legislative leaders were close to reaching a deal to pay for about $700 million in new tax cuts or credits proposed by Republicans. Among the options debated: extending the so-called millionaires tax to raise money for other tax cuts. Link 

 * Those returning to school can find help in the tax code. Walecia Konrad – The New York Times. Some of the existing tax credits and deductions for education that were extended as part of tax legislation passed in January are particularly well suited to continuing education students. Link    

* Texas House’s top tax writer hopes to even out business margins levy. Robert Garrett – The Dallas Morning News. The House’s chief tax policy writer says eliminating some inequities in Texas’ business margins tax is his top tax relief priority this year. Link    

Essential reading: Tax breaks versus spending, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

 * Tax credits or spending? Labels, but in Congress, fighting words. Annie Lowrey – The New York Times. In budget proposals put forward last week, both Democrats and Republicans called for scrubbing billions of dollars’ worth of the popular deductions, loopholes and credits that litter the tax code. But the two sides are sharply divided what should happen to any revenue raised. Link    

 * Republican Sen. Corker opens the door to new tax revenue. Sean Sullivan – The Washington Post. Republican Sen. Bob Corker of Tennessee said Sunday that he believes Republicans would consider adding new tax revenues by closing loopholes if Democrats show a willingness to embrace “true” entitlement reform. Link    

* It’s a lonely quest for land-tax fans, but, by George, they press on. Ianthe Jeanne Dugan – The Wall Street Journal. Only about 20 towns in the U.S. have adopted the land value tax. In Australia the concept is widespread, and it has surfaced in Taiwan. Link 


Some important tax and accounting dates in the week ahead:

 Sunday, March 17 – Wednesday, March 20

Tax Executives Institute mid-year conference features speakers including E. Ray Beeman, tax counsel and special adviser for tax reform to the U.S. House of Representatives Committee on Ways and Means, former U.S. Senator Olympia Snowe, and tax experts from the Organisation for Economic Co-operation and Development and the Internal Revenue Service. Washington.

 Monday, March 18

Former congressional tax aides address an American Institute of Certified Public Accountants briefing on the ongoing effort to reform the federal tax code and how current efforts compare to the last major overhaul in 1986. 9 a.m. ET, Willard Hotel Office Building. Washington.

 Monday, March 18 – Friday, March 22

American Bar Association Section of Taxation and the Institute for Professionals in Taxation seminar series on income, sales and property tax. The Ritz-Carlton. New Orleans.

Essential reading: Congress begins tax reform talks, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Congress begins meetings on tax reform. Zachery Goldfarb and Lori Montgomery – The Washington Post. Members of the Senate Finance Committee from both parties met for the first time Thursday to start laying the groundwork for legislation to overhaul the tax code, as the House Ways and Means Committee engages in a similar bipartisan effort. Link

* Mining austerity era is bad news for the tax collector. Tom Gara – The Wall Street Journal. The mining industry boom is now coming to an end, and governments that grew accustomed to healthy tax and fee revenue from miners are feeling the pinch. Link 

* Tax refund deadline nears. Laura Saunders – The Wall Street Journal. Tax refunds totaling over $900 million may await an estimated 984,400 people who did not file a federal tax return for 2009, the Internal Revenue Service said. Half the potential refunds are more than $500. Link

Essential reading: Senate Democrats propose new taxes, and more

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Democrats’ budget mixes tax increases, spending cuts. Kristina Peterson – The Wall Street Journal. Senate Democrats will propose on Wednesday raising $975 billion in new taxes over the next decade in the budget they will release this week, setting up a sharp contrast with a House Republican plan to balance the budget over 10 years without new tax increases. Link 

* Ryan sets stage for a budget duel, targets healthcare law. Lori Montgomery – The Washington Post. The Obama administration official acknowledged that the dueling budget blueprints illustrate the immense challenge of trying to forge a compromise between a president and Republicans, who refuse to consider any additional revenue beyond the relatively modest tax increase adopted Jan. 1. Link    

* Guide: Why the budget process matters. John McKinnon – The Wall Street Journal. It’s worth remembering that it’s highly unlikely the House and Senate will reach agreement on a budget this year, given how far apart they are on spending and tax issues. Link