Unstructured Finance

Jim Chanos, bad news bear, urges market prudence

Prominent short-seller Jim Chanos is probably one of the last true “bad news bears” you will find on Wall Street these days, save for Jim Grant and Nouriel Roubini. Almost everywhere you turn, money managers still are bullish on U.S. equities going into 2014 even after the Standard & Poor’s 500’s 27 percent returns year-to-date and the Nasdaq is back to levels not seen since the height of the dot-com bubble in 1999.

“We’re back to a glass half-full environment as opposed to a glass half-empty environment,” Chanos told Reuters during a wide ranging hour-long discussion two weeks ago. “If you’re the typical investor, it’s probably time to be a little bit more cautious.”

Chanos, president and founder of Kynikos Associates, admittedly knows it has been a humbling year for his cohort, with some short only funds even closing up shop.

But he told Reuters that the market is primed for short-sellers like him and as a result has gone out to raise capital for his mission: “Markets mean-revert and performance mean-reverts and even alpha mean-reverts if at least my last 30 years are any indication. And the time to be doing this is when you feel like the village idiot and not an evil genius, to paraphrase my critics.”

Chanos’ bearish views are so well respected that the New York Federal Reserve has even included him as one of the money managers on its investment advisory counsel. By his own admission, Chanos said he tends to be the one most skeptical on the markets.

Free from fraud? Get the certificate

Hedge funds wishing to demonstrate their honesty to a sceptical world can now pay for a risk assessment to show they have a low risk of fraud.

rtr23yfeFor $15,000-$20,000 Protean Fraud Risk Appraisal will use its database of every such financial crime since 1997 to see if a fund shows any suspicious characteristics.

“We’ve evaluated every single fraud and worked out the common areas where fraud has arisen,” partner Nathan Sewell tells me.

Dealing with stress

Hedge funds’ awful performance figures have been splashed all over the media for some time, but the effect this is having on the funds themselves could potentially be of deeper concern to investors.

rtr1g6tbAccording to a report by Moody’s, entitled “Market turmoil increases stress on hedge fund operations”, there are a multitude of potential dangers to watch out for as fund performance deteriorates and cost pressures grow.

For example — some hedge funds keen to save the pennies have combined previously independent jobs such as fund manager and portfolio valuer, affecting the quality of its operations, says the report.

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