Unstructured Finance

By Matthew Goldstein

The Wall Street Journal used to run a feature in which some of its staffers would periodically pick stocks by throwing darts against a target. The idea was to see how many times stock picking by pure chance could outperform the picks of a bunch of experts.

The WSJ ended the popular feature several years ago but maybe it’s time from someone to bring it back and this time use darts to try to outperform some of top hedge funds managers. That’s because with the average hedge fund up about 1.2% during the first-half of the year, it would seem an investor on his or her own could do just as well picking stocks blindfolded.

Indeed, with the S&P500 up about 8 percent for the first half, the 3.7% gain for David Einhorn’s Greenlight Capital and the 3.9% gain for Dan Loeb’s Third Point don’t look so robust on second glance.

Sure, Einhorn and Loeb are beating a lot of their peers. And they are certainly doing better than John Paulson, who is well on his way to another losing year in his biggest fund. But for all the ink we in the media spill on hedge fund managers, you’d think more would be knocking it out of the park. (Sorry, David your 3rd place finish in the World Series of Poker was great but doesn’t count).

Now to be fair, hedge fund managers don’t just buy stocks like mutual funds. They also short them and buy plenty of other securities. In theory, hedge fund managers aren’t supposed to “kill it” with outsized performance in a given year, but “kill it” by making money for their investors in both good and bad market environments.

A dreary looking day in the NYC environs today, but that won’t overshadow birthday celebrations and other good news too cheer! A big shout to all UF members today. Oh, and fight for your right to party. Here then is Sam Forgione’s suggested readings.

From The New York Times:

A former managing director of Bain Capital has a telling beef with art-history majors.

From AR:

Hedge fund managers are still leaving their safety zones for emerging markets, even as John Paulson is recovering from his Sino-Forest bet, writes Jan Alexander.

By Matthew Goldstein and Jennifer Ablan

The year is not yet over and already the confessions are starting to roll in from some of the biggest U.S. money managers.

Bill Gross, manager of the world’s biggest bond fund, sent out a “mea culpa” letter late Friday to his many mom-and-pop investors, saying he’s sorry for putting up such bad numbers this year. Mea culpas from Pimco’s guiding light and the self-styled “bond king” are rare, largely because his Total Return Fund has long been one of the industry’s top performers.

But this year has been a tough one for Gross, who guessed wrong by betting heavily against U.S. Treasuries, which have turned out to be one of the biggest out-performers of 2011. The fixed income guru, who helps manage more than $1.2 trillion at Pimco, wasn’t farsighted enough to foresee a flight to Treasuries prompted by events like the European debt crisis, the battle over the U.S. debt ceiling and the general anemic state of the global economy.

By Matthew Goldstein

It’s been an ugly summer for hedge fund king John Paulson with two of his biggest funds down more than 25 percent. But what makes that poor performance all the more painful is how widespread it is being felt by wealthy individual investors around the globe.

Paulson’s flagship Advantage funds would appear to be exclusive terrain with a $10 million investment requirement. But that hefty entrance fee is something of a veneer because many of Paulson’s investors have gained entrance to his kingdom by plunking down as little as $100,000. That’s because Paulson’s Advantage funds are some of the most widely sold hedge fund portfolios on distribution platforms maintained by Wall Street firms, European banks and small investment advisory firms around the globe.

Paulson has built a powerful internal marketing force to make sure there is a steady stream of money from wealthy individual investors trying to get into his funds. This was one of the more surprising things my colleagues Jennifer Ablan, Svea Herbst-Bayliss and I found when we began taking a close look at Paulson’s problems this year.