Unstructured Finance

Paul after PIMCO


By Jennifer Ablan and Matthew Goldstein

Paul McCulley says working at bond giant PIMCO was like being in Camelot. But in some ways, Bill Gross’s former top Federal Reserve watcher seems a lot happier and more at peace with himself since leaving the Newport Beach, Calif.-based firm at the end of 2010.

These days McCulley, who is credited with coining the phrase “shadow banking” to describe the role Wall Street banks and hedge funds play in pumping liquidity into the financial system, looks more like a professor at some liberal arts college than a once mighty money manager of some $50 billion.

His hair is long—down to his shoulders. He sports a beard and has lost 20 pounds. He regularly walks 8 miles a day and spends as much time fishing as he does thinking about ways to get the U.S. economy out of its current liquidity trap—a situation in which all the Fed’s priming of the pump does little until consumers can get relief from all the mortgage and credit card debt they accumulated in the past decade.

McCulley decided to leave PIMCO shortly after he got nixed from consideration by President Obama for a Federal Reserve governorship. McCulley doesn’ t like to talk about the consideration process but he admits that he always dreamed of being on the Fed.

But during a recent visit at his home, which sits on a lagoon and provides easy access to his two boats—Minksy Moment, an 18 foot electric Duffy boat,  and Moral Hazard, a 32 foot restored 1992 Blackfin fishing boat—McCulley says he’s moved beyond the thought of working for the central bank. He’s now putting much of his energies into private philanthropy, funding some start-up ventures and working as a senior fellow with the Global Interdependence  Center, a Philadelphia-based think tank.

Steer clear of the free lunch, says Noster

Diversification is meant to be the only free lunch in investing.

But according to hedge fund Noster Capital, with most markets looking toppy and with problems ahead, it’s not necessarily one that investors would be wise to tuck into.

“This is not the time to be invested in broad ETFs or in very diversified funds, because the indexes will likely not do much in aggregate,” it says in its end of year letter.

“We feel that most asset classes are currently approaching untenable levels, and while they could certainly grow dearer for some time to come, in most cases we have long passed the level where investors are being adequately remunerated for the risks they are taking.”

The hedge fund barbell

The fledgling market for hedge fund secondaries may be becoming barbell-shaped, according to Hedgebay.

RTR21D74The firm, which provides a market for those wishing to buy and sell illiquid hedge fund stakes, said there is growing evidence that trades are happening either at very high or at very low prices.

In November, for instance, the highest trade took place at 97 pct or net asset value, while the lowest was at 29 pct.

Improving situation at RAB Special Sits

Encouraging news today from RAB Special Situations after the listed fund (a feeder into the main hedge fund) reported a 10.5 percent NAV rise in May.

rtr1vujsWhile this is behind the index return, it nevertheless marks a welcome boost for a fund that has reflected many of the hedge fund industry’s recent problems.

Many of the fund’s investments in small-caps and private companies became much harder to sell last summer as markets seized up, meaning the hedge fund wasn’t able to meet investor demands for their cash back or pay down debt owed to the prime broker.

Going global

rtr1u4b7Global macro and managed futures (CTAs) are still where it’s at, it seems, when it comes to funds of hedge funds.

Nigel Davies’ poll of portfolio managers shows these are the two strategies they are expecting above average returns from in the first half of 2009.

It is little surprise that these two strategies have been picked out.

After funds of hedge funds’ worst-ever returns last year — a loss of 19.97 percent, according to Hedge Fund Research — managers are bound to look to those few strategies that did well.

Circuit City employees speak

Circuit City employees say they’re not surprised the struggling retailer is closing 155 stores in an attempt to remain solvent amid deteriorating liquidity and tighter credit conditions from vendors.

Employees interviewed by Reuters correspondent Chelsea Emery at Circuit City’s Paramus Towne Square, New Jersey store seemed resigned to difficut times ahead. The store is not among the 155 slated to close and employees who work there declined to give their last names.

“People thought (this news) was coming with the economy. It’s not a big surprise. They’ve (corporate headquarters) got to do what they’ve got to do. They’re not going to get bailed out like Lehman Brothers,” said television salesman Marko. “People aren’t going to buy plasma TVs when they can’t buy milk … We (employees) are trying to stay positive as we can.”