Unstructured Finance

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.”

OK, we get it. Dalio really hates cash–or at least holding too much of it in his Pure Alpha and All Weather portfolios, which combined have $141 billion in assets. BTW, Pure Alpha was up .8% last year, while All Weather was up 14.7%.

So just what does Dalio, who likes to play things close to the vest and security-protects his firm’s daily research notes, see as the thing to do with all that cash? Well, buy stocks and other risky assets–especially with the Federal Reserve intent on keeping interest rates as low as it can.

By Matthew Goldstein

Every time the insider trading investigation thrusts Stevie Cohen back into the spotlight, there’s always speculation about whether the billionaire trader will simply give back money to his outside investors and convert his $14 billion SAC Capital into a family office in order to avoid the unwanted headlines. But as tempting as that might be to the publicity-averse Cohen, the well-known trader has a big financial incentivel to keep managing money for his outside investors.

SAC Capital’s fee structure–one of the highest in the $2 trillion hedge fund industry–probably pays for a good chunk of Cohen’s overhead, say people in the hedge fund industry. These sources say that by charging a 3 percent asset management fee and skimming off as much as 50 percent of the firm’s trading profits, SAC Capital’s outside investors provide Cohen with a rich source of cash to pay his 900 or so employees.

Now sure, if Cohen were to return the roughly $6.3 billion in outside money that SAC Capital manages, he could reduce his workforce dramatically and move his operation out of its spacious offices at 72 Cummings Point Road in Stamford, Conn. But with billions of his own money invested in SAC Capital, Cohen would still need to employ a healthy crew of analysts and traders to manage his personal wealth in order to get the kind of double-digit returns he’s accustomed to. Last year, SAC Capital was up a little over 10 percent after accounting for fees–compared to the industry average of about 5 percent.

By Katya Wachtel

Last year was a sorry one for the $2 trillion hedge fund industry, when funds lost 5 percent on average. This year managers are doing better, up more than 5 percent for the year, according to the latest tracking data.

But those returns are a far cry from the 16.4 percent rise achieved by the S&P 500 this year, so what will hedge fund managers – who are supposed to be the smartest, savviest market players on the Street – do to juice returns?

For now at least, they’re not levering up in the hunt for yield. Certainly, they’re not ratcheting up portfolios to the levels seen pre-Lehman implosion, when returns were bountiful, and hedge fund managers reported leverage of 3.4, on average.