Unstructured Finance

Ray Dalio’s all seeing reputation takes a hit

There are storm clouds on the horizon at Ray Dalio’s $150 billion Bridgewater Associates.

Yeah, excuse the weather imagery but it’s hard to resist given the sudden sharp reversal of fortunes with Bridgewater’s $70 billon All Weather portfolio. As Jenn Ablan and Katya Wachtel first reported, the portfolio that Dalio has long marketed to pension funds as an innovative investment strategy for navigating storm markets, isn’t doing so well in this stormy market.

The fund, as of last Friday, was down 6% for the month and down 8% for the year.

Bridgewater’s other big portfolio, Pure Alpha, which has about $80 billion in assets, also is suffering of late but not as much. The Pure Alpha II portfolio was down 1.12 percent as of June 18. But it’s the plunge at All Weather that’s the big story given how long and hard Dalio has worked to spread the  religion of the portfolio’s risk parity strategy as a way for pensions to protect themselves from a sharp sell-off in stocks or bonds.

On Bridgewater’s website there are whole sections devoted to telling the story of the All Weather strategy and white papers on using risk parity to construct an investment portfolio.

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.

Ray Dalio went into this year even more bullish than we thought

By Matthew Goldstein

Hedge fund titan Ray Dalio is really bullish on stocks and all things risky–at least he was in early January.

A few weeks ago, our competitors at Bloomberg and The Wall Street Journal did a good job reporting on Dalio’s macro market thesis for 2013 when they got a transcript of an investor call (Bloomberg) and a sneak peak at Bridgewater Associates’ year-end report to investors (WSJ). But after taking my own recent look at Bridgewater’s year-end investor note–book is probably a better description for the 300-page plus bound treatise–you realize that bullish just doesn’t describe Bridgewater’s stance going in 2013.

Here’s a sampler of some of Bridgewater’s comments to investors:

“Cash in the developed world is a terrible asset.” “We would be short cash of all the major developed currencies” And this: “Bonds will be a lousy investment but cash will be worse.”

UF Weekend reads – The PIMCO edition

Jenn Ablan likes to tell me that people are always writing about PIMCO and Bill Gross, the long reigning “king of bonds.” And when you think of it there’s a lot of truth to that assertion.

Gross’ mammoth $263 billion Total Return Fund gets endless coverage because–by its very size–it really is the bond market. It’s one reason why so much ink is spilled whenever the Total Return Fund has a month where investors pull more money out of the fund than put in.  And it’s why there’s so much analysis of what Gross & Co. are doing with Treasuries and mortgage-backed securities–and whether they are using lots of leverage and derivatives to boost exposures.

Then again, it’s hard to ignore Gross & Co. since the bond king and his co-partner and heir apparent, Mohamed El-Erian are on TV virtually everyday offering their views on just about anything doing with the economy.

Daniel Loeb goes long Chesapeake bonds; leaves activism to others

Daniel Loeb, who runs $8.7 billion at his hedge fund Third Point, has been an opportunistic buyer in the bonds of Chesapeake Energy, the embattled natural gas producer, according to sources familiar with the matter.

But Loeb, known to rattle the cages of companies for years (see: war with Yahoo), isn’t piggybacking on Carl Icahn’s or O. Mason Hawkins’s activist role in Chesapeake, demanding changes in management or the overhaul of its business practices.  Indeed, all the elements are there for a veteran agitator like Loeb, as Chesapeake has been embroiled in scandal over a controversial investment program involving CEO Aubrey McClendon.

But the New York-based hedge fund manager, who told his investors in June that Chesapeake is now his fund’s fourth largest position, could simply be making a straight investment play and leaving the rest to Icahn and Hawkins. Imagine that?

Einhorn’s Field of Dreams

By Matthew Goldstein

David Einhorn’s decision to plunk $200 million on the cash-strapped NY Mets could be a bullish development for investors holding the bonds to finance the baseball team’s new stadium.

At last look, most of the bonds that were sold in 2006 to finance the construction of Citi Fields were selling for between 79 cents and 85 cents on the dollar. The distressed price for the $547 million bond issuance is a reflection of the dire financial situation the Mets are in and the reason principal owner Fred Wilpon is selling a big minority stake to Einhorn.

But if Major League Baseball approves the deal with the Greenlight Capital hedge fund manager, it could boost the value of those stadium bonds.

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