Below is a short article on what family offices and some ultra high net worth investors are investing in right now:

Simon Mellon, who’ll be heading up Bonner & Partners Family Office, our soon-to-be-launched money management and tax optimization service, is keeping in close contact with Notes HQ.

Simon is a global finance insider with a decade’s worth of experience working in capital markets. And right now he’s advising investors to remain cautious until a clearer picture emerges about the market’s direction.

When I was a child I could never sit still on a long road journey. I was always asking, “Are we there yet? Are we there yet? ARE WE THERE YET???” My father would always reply “Nearly, son… Nearly,” even though we were still miles from our destination.

This is exactly how the financial markets seem to me right now. It’s been more than two years since the credit crisis kicked off, and I’m getting itchy in my seat: I want to be back out there playing with the other financial (whizz) kids. But it feels like the end of this current rocky road is still on the distant horizon.

Wall Street wants you to believe things improving… that we are on the road to recovery… and that “green shoots” are starting to appear in the economy. Call me a cynic, but I’m just not convinced. Read more…

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Hedge Fund ETFs | Video Explanation

Here is a short video with IndexIQ which offers a hedge fund ETF product. This video provides a pretty good high level explanation of the product. Discussions around how legitimate these products are surfaced at both of the last two hedge fund conferences I attended. If you are viewing this article via email please click here to watch the embedded video below.

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New Hedge Funds Launched in 2009

Here is a great video put out by Bloomberg on how hedge funds are being started almost every day. The news caster is quoted as saying that 8 hedge funds are being started in July 2009 which will manage over $2B total. While I’m sure that this reporter is trying to stress that these are not all small hedge fund shops, I can assure you that there are far more than 18 hedge funds launching in July. Capital for these hedge funds is coming from seed capital providers, large banks and institutions looking to benefit from the cyclical nature of the markets. Many of these new funds are using managed accounts to provide banks with more transparency and less liquidity risk. If you are viewing this article via email please click here to watch the embedded video below.

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Hedge Funds vs. Mutual Funds

I provided a quote yesterday to Daleela Farina, an author over at BloggingStocks.com. Here is an excerpt from an article she just published on hedge funds and mutual funds:

Has your broker repeatedly sold you on the “safe” investment vehicle, the mutual fund? Investing in a wide variety of prominent companies, with solid, long-term track records, mutual funds have been an easy-to-understand and popular investment choice for decades.

Mutual funds are hugely diversified, holding large stakes in recognizable names such as Google (GOOG), Citigroup (C), Walmart (WMT), Starbucks (SBUX), General Electric (GE), Bank of America (BAC), and Fannie Mae (FNM).

A few years ago, doubting these dominant brands would have been considered foolish. This narrow-minded thinking is representative of our formerly uneducated and naive views on the market. But after last year’s performance, mutual funds’ investment model has now been proven obsolete. Like the dinosaurs. source

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Investing in Diamonds

Here is a short video on investing in diamonds as an alternative investment. To view this video through your email inbox please click here.

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April 2009 Hedge Fund Performance

Here a recent video on hedge fund performance in April 2009. If you are viewing this through our email newsletter please click here to see the embedded video below.

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Bank Market Values

Market Values of US Banks 2009

A trader on the west just sent me the picture below. Click on the picture below to enlarge it, pretty interesting to see the differences between JPM and Citi.

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Below is a short piece on a recent family office merger. I believe these will increase in frequency as highly profitable leaders within this industry look to re-invest cash in smaller family offices. In many cases smaller family offices could use best practice processes, centralized due diligence and manager selection services of the larger family offices. Here is the article excerpt:

Multi-family office Stonehage Group has announced the merger of TriAlpha, its asset management arm, with ACP Partners to create a combined business owned 50:50 by the two groups that will be known initially as ACP TriAlpha and has some USD2.5bn in assets under management.

Founded in 1997, TriAlpha is an asset management house with an absolute return bias that manages a range of multi-manager hedge funds, multi-asset class funds and direct securities products for clients including institutions and high net worth families.

London-based ACP was founded in 2001 by Joseph Sassoon, former founder and head of Goldman Sachs’ European private wealth management business, and Alok Oberoi, who was head of Goldman’s Asian private wealth management business and subsequently chief operating officer of global private wealth management in New York. Brett Lankester, the former head of private wealth management for Goldman in the UK, joined ACP in 2007. source

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The Truth

The Truth About Hede Funds

“All Truth passes through Three Stages: First, it is Ridiculed…
Second, it is Violently Opposed…
Third, it is Accepted as being Self-Evident.”

- Arthur Schopenhauer (1778-1860)

I believe by 2012-2015 that the value of hedge funds will be self-evident. We are living through the ridicule and violent opposition but in the end there is a place for hedge funds and there will always be investors in hedge funds.

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UK banks, led the FTSE100 higher but ended mixed (FTSE350 banks down 1.3%, which is really just camera shake, even HSBC down 2%, but Barclays down 13% is serious! It may be because of its intention to tap Government funds though moderated by offering existing investors the chance to take preference shares or other instruments beforehand. HBOS led the FTSE100 risers again by a long way, up 31% to reach the Lloyd TSB offer price, while RBS added 5.8% and Lloyds TSB up 1%.

The drop in the FTSE’s afternoon session coincided with the expiration of a U.S. SEC’s ban on short selling in more than 950 financial stocks.It seems to me the ban should have been extended. LIBOR rates fell with the base rate cut. There is a possibility that the Fed will do more to force banks to start lending to one another across the Atlantic. This was not the best result for the UK so-called bail-out plan. One bit of good news is that oil is now 40% below its July peak!
The newspaper posters and banners are screaming “Darling’s £260bn Bail-out!”, “£500bn World’s Biggest Gamble Ever!”, “New World Order!” and the revolutionary Economist magazine’s September cover, “OH FUCK!”. The FT today has calculated the figure to be £400bn with headlines, “Banks thrown £400bn lifeline!”, “The great British bail-out” and “There can be no return to business as usual!” At a face the press yesterday, our Scottish First Minister, Alex Salmon, began by saying not many people know that the Chinese “May you live in interesting times!” is actually a curse! We got that one.

The New World Order is a gathering recognition that the boot is on Asia’s foot. Martin Wolf titles his full page essay on the subject “Asia’s revenge” seeing that the credit crunch infects one half of the world economy but not the other half. Actually, both halves are interdependent and complicit in this problem. For years economists like Wynne Godley, Francis Cripps and Alex Izurieta have accurately predicted the current crisis seeing its origins in the extreme imbalance that grew in world trade (+ FDI flows) whereby credit boom high deficit economies had to package and sell financial assets to the trade surplus countries in order to maintain their GDP growth. This was not without massive benefits for credit boom economies (high employment and low inflation) and for emerging economies (double-digit growth despite high inflation). So what is this New World Order apart from cynical and deriseful loss of confidence in banks and in neo-liberal “small government is beautiful” ideology?

Already, we see a massive 180-degree turnabout in the world trade trends. China and Japan have no external growth impulse from exports (exports have stopped growing) while the USA is now increasingly reliant on export-growth while imports slump. So far so good, except all economies are now slowing down and Japan, USA, UK, Ireland, Italy, others are either officially in recession or probably in recession or close to it (at least two quarters of negative growth in profits and earned income and/or measured as falling general spending.) But is this ‘new’? The world’s stock markets have all been falling this week on recession fears more than fears for the banking sectors’ problems. That we’ve come through recessions before is not a salve to those fearing this time will be deeper and longer than any time since the 1930s and maybe even worse than that!

Property and financial assets worth somewhere between $10 and $20 trillions (maybe one third ratio to annual global income) have evaporated. It appears to be like a spreading global epidemic, like necrotizing fasciitis caused by a financial streptococcus pyogenes (flesh-eating bacteria). Are there more such fasciitis to come?

The above graphic shows states of the USA named after those countries in the rest of the world with the same GDP values.

The present global financial crisis began modestly with property boils bursting in parts of the USA like parts of California, Florida, Nevada and Ohio, which infected banks’ mortgage-books worth a third of banking assets. Credit defaults like bacteria spores took a year to double and triple to about 6-8% in aggregate. Capital flight followed into government paper, cash deposits, equities, Europe, commodities (oil, food, gold etc.) and Emerging Markets until the last three in turn also began deflating as Europe’s finance sector crashed and global recession fears did for the rest. Somewhat hidden under residential property price falls in the US, parts of Europe and elsewhere has been the predictably faster fall in commercial property. Next, as consumer spending falters and private savings rise, will be falls in corporate profits and defaults in corporate debt that will match and then exceed defaults on household debts. Banks can roll-over some of these for fear of triggering a domino effect. Small business closures will rise by half to over 10% of all firms, employing about 2% of workforces, but new firm creation will fall dramatically and unemployment will rise by about 5% of the total workforce. Large employers may fire another 2-5% of the workforce depending on how prolonged any recession appears to be? Unemployment figures will lag the underlying reality by 6 months or so, just as actual GDP figures may take a year to catch up with ‘the actuality’.

But the sequence is a ripple effect. Recession impulses spreading out from the USA and the USA investor dominance (25% or more, usually much more) of all global markets with ebbs and flows of the tides of US dollars means that after US (Anglo-Saxon countries’) credit and economic cycles there are later peaks and troughs for Europe, then Asia and rest of the world, by which time USA et al. have recovered – and we can see early signs of recovery in the rising dollar, falling oil and large increases planned for 2009 budget deficits.

The remaining fear is that the banking sector will not be fit to resume normal service for some years. This risk was long recognised and discussed by bank regulators and a central aspect of Basel II Pillar II whereby banks should become far more cyclically aware but not (it was warned again and again) to the extent of acting severely pro-cyclically otherwise all the responsibility would rest with governments to refloat beached economies! Governments know this and were most anxious to intervene early and often to jump-start banks’ transmission mechanisms before hurricane Recession would land-fall. They failed, why? There were several institutional impossible obstacles, very broadly stated: 1. banks failing to act collectively to save themselves (continuing to jockey individually for commercial advantage); 2. political hesitancy and disbelief that missed psychological moments to restore confidence in the markets; 3. trusting belief in self-righting buoyancy of capitalist markets to automatically rediscover fundamental values and bounce back. Nothing controversial or unexpected about anyu of that, surely?

It is equally easy to describe the circumstances of boom to bust as banks and businesses sweating their assets to the maximum (a business virtue) and everyone else sweating their incomes to the maximum (and beyond) to invest in expensive assets (in a seller’s market) that should become more expensive and did so for years much faster than employment earnings rose. When the boils are lanced or bubbles burst, those most highly leveraged are the first to become technically insolvent. Cash was the joker only so long as property was King.

The only sectors that cannot become technically insolvent, indeed the only truly fundamental values (in market confidence terms) are Governments (especially OECD governments) and the top 5% of households and half of major corporations that remain solvent even when all or most major asset classes have fallen in market price. Of these, only Governments are motivated and big enough to act counter-cyclically to restore general economic growth. There was a vague hope developing for years that if prudential rulebooks are successfully imposed on all banks they could and would become partners with governments in refinancing economies out of the inevitable holes they will find themselves in periodically? This private-partnership was most apparent when banks extended mortgage lending to low-income households thereby saving government the cost of building new public housing. Indeed, in the UK alone for over 20 years, at the rate that new social housing was built or replaced by direct government spending, most social housing would have to survive as long as Stone Henge! But, as the insightful reader will have noticed this brings us full-circle: was it not mortgages for the ‘sub-prime’ poor (a policy measure that appeared practical, neo-liberal, and new socialist) that started the present sorry mess?

Guest post by Banking on Economics

Australian Short Selling

Australia Drafts Short Selling Regulation

The Australian Treasury are seeking comments on their short selling exposure draft. The current legislation around short selling is complex and unclear and the absence of reporting covered short selling has heightened uncertainty about its real impact and contributed to a 30 day temporary ban being imposed on 21 September 2008.

I believe that concerns about the impact of short selling on the general level of sharemarkets is overstated, and that while there are benefits in producing clearer legislation in the area, it will do little to address the current difficulties facing the Australian and global financial systems.

I am concerned that para 14 says “The Bill will replace ASIC’s interim reporting requirements for covered short sales …” If the temporary ban on short selling remains in place until the Bill becomes an Act, then the Australian financial system will be seriously impacted in the meantime.

Notwithstanding these high level comments, the draft is well balanced and shows a good understanding of the issues. I note para 16 in particular which says that “The Government is not seeking to prohibit or discourage covered short selling activity.” That’s good.

The draft distinguishes between naked and covered short sales. This distinction is relevant in relation to the current interpretation of the reporting requirement for short sales. Beyond that, a short sale is a short sale and the economic impact of being naked or covered is not relevant. This is a red herring in the argument.

Para 16 uses stock lending activity to estimate an upper limit of short selling in Australian listed securities of 4%. It notes that stock lending can be used for other purposes than short selling. However, there is no discussion of the likelihood that stock lending transactions may pass through many hands (it is a deep and liquid market) before it finally reaches a short seller. I have no evidence to support this, but typically a fund manager will ask their prime broker for stock availability. The prime broker may draw the stock from their own/their client’s inventory or go to the market to borrow the stock for the manager. To the extent this occurs, stock lending activity will further overestimate short selling.

Para 22 argues that the absence of transparency in short selling may adversely impact investor confidence and market integrity, increasing the cost of capital and reducing investment activity. I would argue that the absence of short selling brought about by the temporary ban will also have this impact.

Para 23 discusses objectives. The first two points are side benefits to investors, but are inappropriate as objectives for any legislation. Providing information that is hard earned by one set of participants freely to others is unfair and unbalanced. In the case of the first point, “to provide a signal that individual securities may be overvalued”, assumes that short sellers are better judges of share value than other investors ie those holding the investments long. This is not necessarily the case. If it is the case, then why should legislation be introduced that makes it easier for poorer judges of value?

The discussion of gross or net reporting of short sales is not relevant. Only net short selling will have an economic impact.

The main weakness of option two (para 26) is that reporting will be made on a trade basis. This implies a significant accounting requirement to follow through the impact of the sale on existing positions and to correct for any trade failures etc. Is the position opening a new short sale, extending an existing, reducing an existing ie a purchase.

It will be more straight forward to report positions and not trades at designated points of time. This information should be published from the source of truth, which is not the trade advice received by the broker. Typically brokers do not carry a record of holdings for their clients and investors may use multiple brokers to achieve a desired position.

I believe the best source of this information is held by the investor or as is generally the case, the investor’s agent, the custodian or sub-custodian. Custodian’s that carry short positions on behalf of clients already capture, settle and report this data daily on a traded and settled basis. Positions will also include off-market transactions for which they act as custodian. There are fewer custodians, than either investors or brokers. This alternative was not mentioned at all in the exposure draft, but is likely to be the preferred route and impose lowest regulatory cost.

Also not mentioned is that Short Interest has been captured in other markets for some time. In the US, Short Interest is published by major exchanges fortnightly eg http://www.nasdaq.com/aspxcontent/shortinterests.aspx?symbol=MSFT&selected=MSFT shows Microsoft’s Short Interest history. What is the process employed in these markets? Can it be applied in Australia?

Will there be areas of activity not captured by using custodians? Offshore investors will presumably use sub-custodians. Users of direct market access systems will report trades to their custodian for setlement. Broker’s principal positions? Anything else?

Para 34 discusses the problem of different trading desk activity in the same firm. Using the custodian approach, each account will be aggregated across every security. The fact that some houses will have offsetting long positions is not relevant. The fact that one group in the house has borrowed stock (or sold in advance of borrowing stock or settling) as principal or for a client is what is required to be captured, and will be captured using this approach.

Para 34 also discusses whether short sale reporting should be delayed. The concern presently is that the data should be provided frequently and quickly as it is believed to be materially important. However, international experience is that data provided fortnightly serves the market well. In fact, there is little movement from one fortnight to the next. But where there is a commercial advantage for short sellers in those markets, I believe it is sufficiently preserved with this level of periodic reporting.

In summary, the use of brokers to collect short sale trade information at the point of the trade is not the most effective way of achieving the desired outcome. Periodic position reporting by custodians, and investors that do not have custodians, is likely to provide adequate transparency of short selling in Australian securities.

Guest post by Rick Steele

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James Cramer

James Cramer | Hedge Fund Video

Here is a 10 minute video interview with James Cramer regarding futures, hedge fund trading strategies, short selling, market manipulation and SEC rules around different trading techniques which he used and has seen others use within the hedge fund industry.

If you are reading this post via my daily hedge fund newsletter please click here now to watch this video.

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http://richard-wilson.blogspot.com/2008/10/james-cramer-video-interview-on-hedge.html

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Hedge Fund News

Hedge Fund Video Notes

Here is a short video on recent hedge fund developments related to A to B Capital, The Children’s Investmetn Fund and Avenue Capital. If you are reading this via my daily hedge fund newsletter please click here to watch the video now.

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Investment Marketing

Investment Marketing Hurdles for Hedge Funds

I just read an interesting article on AllAboutAlpha discussing the challenges today in marketing hedge funds to new potential investors. Within the piece AAA discusses how the US has one of the most restrictive regulatory regimes in the world when it comes to the hedge fund industry. The countries of Australia, Canada, Japan and China are all less restrictive.

Here’s a short excerpt from the article:

An article in this month’s Journal of Financial Transformation illustrates why this is. The piece, titled “Hedge fund marketing in an era of regulatory uncertainty” covers many of the issues faced by those trying to raise money in the US. It’s a great update on the ebb and flow of SEC edicts over the past year and was co-authored by hedge fund personality James Hedges. Here’s some of what Hedges suggests:

• Avoid speaking to the media about your funds – even if you’re not actively selling, but just “conditioning the market”.
• Avoid “print, radio and television advertisements or solicitations regarding funding or investment matters”.
• When giving presentations, “address the risks associated with hedge funds in general as well as the specific risks associated with the hedge fund being offered.”
• When your fund has a great year, make sure you “disclose the reasons for extraordinary performance…”
• No “mass mailings” except to “individual investors, or a discrete group of accredited investors”.

Click here to read the full article.

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Short Selling Ban

Short Selling Ban – How it has impacted Funds

The Boston Globe recently released an article on the short selling ban – it covers how different funds are being affected by the recent ban on the short selling of some securities.

While these are times when events seem to happen daily which should only happen bi-centennially I’m still surprised by how “business as usual” many professionals I work with and speak to in the industry seem to be. Even though many funds do have negative performance, often the worst since inception – I believe that many groups are confident that the losses may soon be regained. Many hedge fund marketers, consultants and niche service providers seem to be weathering the storm without too much pain yet.

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Run on Hedge Funds

Looming Run on Hedge Funds?

I just read this article on how part of this financial crises will involve a run on hedge funds. Any time industry performance is low there will be some redemptions, but I don’t think there will be any massive industry-changing run on individual hedge fund managers. What are you seeing?

Here’s the article:

The next stage will be a run on thousands of highly leveraged hedge funds. After a brief lock-up period, investors in such funds can redeem their investments on a quarterly basis; thus a bank-like run on hedge funds is highly possible. Hundreds of smaller, younger funds that have taken excessive risks with high leverage and are poorly managed may collapse. A massive shake-out of the bloated hedge fund industry is likely in the next two years. Source

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Blue Ridge Capital

Blue Ridge Capital | John A. Griffin Holdings Analysis

This post is being written as part of my Investment Securities Tool which analyzes the holdings of hedge fund managers.

Blue Ridge Capital is ran by John A. Griffin. Griffin is similar to Steve Mandel at Lone Pine Capital and Lee Ainslie at Maverick Capital in that they all are ‘Tiger Cubs’ (a.k.a. pupils of Julian Robertson while at Tiger Management). Griffin though, is more well known because he was Julian Robertson’s right hand man. So, needless to say, the dude knows his stuff. Blue Ridge seeks absolute returns by investing in companies who dominate their industries and shorting the companies who have fundamental problems. And, right off the bat that presents us with a bit of a problem in terms of analyzing 13F’s. 13F’s don’t show short positions, they show long positions (unless the firm is short through puts, which we *can* see). So, the inherent problem with analyzing Blue Ridge (or any fund for that matter) is that we can’t see the other side of their portfolio. But, this is increasingly important for Blue Ridge simply due to Griffin’s investment strategy and the fact that his long positions could in essence only represent half of the portfolio. Now, I use that loosely because there’s no way for me to know exactly how much of his portfolio is short. But, I do know that both Griffin at Blue Ridge and Lee Ainslie over at Maverick Capital (research on him coming later this week) like to effectively hedge with a balance of both long and short positions (like a TRUE hedge fund… not like some of these crazy funds these days with no true hedging). Here’s the thing: they don’t do pairs trades, so don’t classify it as that. In the past, I remember specifically being told by representatives at Maverick that they don’t pairs trade, even though a respective long and short could be in the same sector or sub-sector. So, make that distinction clear. But, we’ll work with what we’ve got (and believe me, it’s still a lot of solid info).

Before beginning, I would like to give a special shoutout to Alex Prywes for helping me with the daunting task of analyzing 13F filings. Alex has helped gather and sort through the data of numerous hedge funds (including the one below). Thanks to Alex’s help, we can now cover even more funds. And, on that note…. onto the 13F!

The following are Blue Ridge Capital’s current holdings as of June 30th 2008, as released in their most recent 13F filing with the SEC. The positions in this most recent 13F were compared to last quarter’s 13F and here are the changes made to their portfolio:

New Positions:
Anadarko Petroleum (APC): 2,335,000 shares. This position is 4.29% of Blue Ridge’s portfolio.
Visa Inc (V): 1,720,000 shares. 3.43% of Blue Ridge’s portfolio.
Vulcan materials: 1,500,000 shares. 2.20% of Blue Ridge’s portfolio.
Rowan Cos (RDC): 1,800,000 shares. 2.06% of Blue Ridge’s portfolio.
Amazon (AMZN): 940,000 shares. 1.69% of Blue Ridge’s portfolio.
Goodrich Petroleum (GDP): 650,000 shares. 1.32% of Blue Ridge’s portfolio.
Countrywide Financial: 1,433,000 shares. 0.15% of Blue Ridge’s portfolio.
Bare Escentuals (BARE): 281,500 shares. 0.13% of Blue Ridge’s portfolio.
Nutrisystem (NTRI): 233,000 shares. 0.08% of Blue Ridge’s portfolio.

Added to:
Federal National Mortgage (FNM): Increased position by 1104%. Position is now 2.77% of their portfolio.
Greenlight Capital Re Ltd (GLRE): Increased position by 76.5%. Position is now 0.20% of their portfolio.
Wyeth (WYE): Increased position by 62.86%. Position is now 6.71% of their portfolio.
Apple (AAPL): Increased position by 15.65%. Position is now 5.46% of their portfolio.
Grupo Televisa (TV): Increased position by 11.83%. Position is now 4.46% of their portfolio.
Echostar (SATS): Increased position by 9.97%. Position is now 1.61% of their portfolio.
Google (GOOG): Increased position by 6.09%. Position is now 6.75% of their portfolio.
Broadrige Financial (BR): Increased position by 0.84%. Position is now 3.71% of their portfolio.

Reduced Positions:
American Express (AXP): Reduced position by 23.98%. Position is now 6.05% of their portfolio.
Netflix (NFLX): Reduced position by 28.6%. Position is now 0.93% of their portfolio.
Walmart (WMT): Reduced position by 35.75%. Position is now 2.54% of their portfolio.
First Marblehead (FMD): Reduced position by 36.64%. Position is now 0.05% of their portfolio.
Elong Inc (LONG): Reduced position by 51.82%. Position is now 0.02% of their portfolio.
Grupo Aeroportuario Del Pacifico (PAC): Reduced position by 54.83%. Position is now 1.16% of their portfolio.
Crocs (CROX): Reduced position by 66.06%. Position is now 0.14% of their portfolio.

Removed Positions (Positions Blue Ridge sold out of completely):
America Movil (AMX)
Burlington Northern (BNI)
Coach (COH)
Corus Bankshares (CORS)
Fidelity National Information (FIS)
First American Corp California (FAF)
Formfactor (FORM)
Office Depot (ODP)
SLM Corp (SLM)
Smurfit Stone Container (SSCC)
St Joe Co (JOE)
Starbucks (SBUX)
WebMD Health (WBMD)

Positions with no change:
Covanta (CVA). Position is 5.27% of their portfolio.
Millipore (MIL). Position is 4.49% of their portfolio.
Charles Schwab (SCHW). Position is 4.32% of their portfolio.
Discovery Holding Co (DISCA). Position is 3.89% of their portfolio.
Martin Marietta Materials (MLM). Position is 3.41% of their portfolio.
Target (TGT). Position is 3.11% of their portfolio.
Thermo Fisher Scientific (TMO). Position is 2.90% of their portfolio.
Berkshire Hathaway (BRK.A). Position is 2.49% of their portfolio.
Fomento Economico Mexicano (FMX). Position is 2.31% of their portfolio.
Packaging Corp of America (PKG). Position is 2.18% of their portfolio.
Compton Petroleum Corp (CMZ). Position is 2.08% of their portfolio.
Research in Motion (RIMM). Position is 1.86% of their portfolio.
Eagle Materials (EXP). Position is 1.22% of their portfolio.
Fairfax Financial Holdings (FFH). Position is 1.18% of their portfolio.
American Express (AXP) Calls. Position is 0.64% of their portfolio.
MBIA (MBI). Position is 0.27% of their portfolio.
Federal Home Loan Mortgage (FRE). Position is 0.20% of their portfolio.
Evergreen Energy (EEE). Position is 0.12% of their portfolio.
Gold Reserve Inc (GRZ). Position is 0.10% of their portfolio.
Washington Mutual (WM) Puts. Position is 0.02% of their portfolio.
Perfect World Co (PWRD). Position is 0.01% of their portfolio.
Indymac Bancorp (IDMC). Position is 0.01% of their portfolio.

Top 10 holdings by % of portfolio:
1. Google (GOOG). 6.75% of the portfolio
2. Wyeth (WYE). 6.71% of the portfolio
3. American Express (AXP). 6.05% of the portfolio
4. Apple (AAPL). 5.46% of the portfolio
5. Covanta (CVA). 5.27% of the portfolio
6. Millipore (MIL). 4.49% of the portfolio
7. Grupo Televisa (TV). 4.46% of the portfolio
8. Charles Schwab (SCHW). 4.32% of the portfolio
9. Anadarko Petroleum (APC). 4.29% of the portfolio
10. Discovery Holding Co (DISCA). 3.89% of the portfolio

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Breakdown: First thing I noticed was Blue Ridge’s addition of Anadarko Petroleum (APC). They added it in mass, bringing it up to the fund’s 9th largest holding. Although I’ve seen many hedge funds adding this name over the past 2 quarters, do keep in mind that this filing was as of June 30th, 2008. Since then, natural gas prices, oil prices, and pretty much any stock in those sectors have all plummeted. But, it is worth noting that I have seen this name pop up on 13F filings much more frequently recently. And, Blue Ridge did make quite a hefty purchase. We’ll have to wait until next quarter to see whether it was a trade or an investment. In the past, when Griffin has brought a position up to a top 10 holding in one quarter, he has held onto the position. So, time to play the waiting game on that one. Also, he added quite a large new position in Visa (V), bringing it up to 3.43% of the portfolio after not even holding a position last go-round (leaving it just shy of being a top 10 holding).

Next, I noticed he was adding more shares of Wyeth (WYE). This name was already a large fund holding, and he added to his position by 62%, bringing it up to the fund’s 2nd largest holding. Recently, there has definitiely been a rotation into any and all stocks relating to healthcare. This is no exception. Also worth noting is Griffin’s addition to his already large Apple (AAPL) position. He continues to add to this name and appears to be assembling a solid core position over time.

Even though Griffin made some purchases, he was definitely busier on the selling side of things. And, that makes me even more curious than usual as to what short positions he holds. But, because hedge funds are not required to disclose short positions in their 13F filings (except for Put positions), we are left in the dark on that one. But, anyways, onto the sales. Griffin was selling some consumer names in Netflix (NFLX) and Walmart (WMT). He only sold 20-30% of his positions there so it could just be some profit taking or position size reducing… nothing too major going on. We’ll keep an eye on it next quarter and see if he continues to sell those names. Two quarters ago, as I detailed in my Blue Ridge analysis, we saw that Griffin was starting to sell Coach (COH), Formfactor (FORM), and Smurfit Stone (SSCC). This past quarter, he continued that trend, selling off all the remaining shares in those companies. Additionally, he sold off 66% of his Crocs (CROX) position, which I’m sure was a source of pain for him, given how those shares have plummeted in value over time. Next quarter, it will be interesting to see whether or not he sells off the ‘cheap consumer’ plays such as Walmart (WMT) and Target (TGT).

Griffin also completely removed America Movil (AMX) from Blue Ridge’s portfolio. This is interesting, as this is the 2nd hedge fund so far we’ve seen completely sell out of this name. (Remember that AMX used to be one of the most common holdings amongst the various hedge funds I track). The stock has been in a downward spiral for numerous months and it appears that numerous hedge funds were the ones responsible for the exodus. In the coming week, we’ll see what Griffin’s ‘Tiger Cub’ buddies were up to with their respective AMX positions as well.

Also worth pointing out is that Griffin quickly sold out of Burlington Northern (BNI) completely. In the last 13F filing, we found out he had just added BNI as a new position. And, this time around, we find out that he has quickly sold out. This struck me as somewhat odd, just because practically all hedge funds I track have some sort of exposure to the rails. Maybe Griffin was just locking in some quick profits, or maybe there was something that turned him away from the name. Interesting move, nonetheless. Griffin also had a short stay in Office Depot (ODP). He sold completely out of his position this past quarter, having only added it as a new position in the last 13F filing.

Lastly, I just wanted to point out some of the larger positions that Blue Ridge continues to hold in their portfolio: Millipore (MIL), Covanta (CVA), Grupo Televisa (TV), and Charles Schwab (SCHW). These positions have been top 10 holdings for Blue Ridge for numerous quarters now and are definitely worth a look as they appear to be longer term plays for Griffin.

Blue Ridge Capital’s most interesting/peculiar move(s)? Increasing their stake in Fannie Mae (FNM) by over 1100%, bringing it up to 2.77% of the portfolio. (Keep in mind that these positions were as of June 30th, 2008). I only bring this up due to the recent developments in FNM and FRE. Whether it be for a trade or for an investment, John Griffin was definitely up to something here and we can only speculate as to what he’s been doing with this position in the past month and a half.

You can view Blue Ridge Capital’s most recent 13F as filed with the SEC here.

Guest post by Market Folly

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Tags: Blue Ridge Capital, Blue Ridge Capital Management, Blue Ridge Capital Hedge Fund, Blue Ridge Capital Hedge Fund Manager Jon John A Griffin, Blue Ridge LLC LP Fund Management

Future of Hedge Funds

Q & A: Future of Hedge Funds

Reporter Question: With both hedge funds and the large investment banks providing prime services to them both failing what do you think the future of the hedge fund industry looks like?

Answer: While times like this are painful for many investors and managers of hedge funds this type of “weeding out” is needed, at least some level for the hedge fund industry. Major databases report that there are between 7 and 10,000 hedge funds in existence. The number of hedge funds in existence is far greater than any of the databases report. There are thousands of hedge funds in Europe and America who have no need to register with a database, are seeding strategies or simply don’t have the man power or knowledge to know that they should be listed within these databases.

As the number of hedge funds in the industry has increased over the past 7 years institutional investors have raised the bar in terms of minimum assets, track record and risk management checks which all must be in place. Naturally it has become more challenging to raise assets as there are more fund fighting to raise capital. This competitiveness along with the current volatility in the markets has lead to a constant push to create new investment models and strategies. During a bull market these strategies seem to perform well but it is not until times like these in which these new ideas and many old are re-tested.

These markets and the recent downfall of some hedge funds will do many things to the future of the hedge fund industry:

1. Weed out the hedge funds started by those with minimal trading experienced based on momentum trades made during bull markets
2. Remind us all of the importance of risk management procedures at both the business and portfolio management levels
3. Encourage more hedge fund seeding and track record building before any active marketing is completed
4. Shift more due diligence focus from general risk management questions to potentially more pointed questions, including worst case scenarios which have been played out through Bear Stearns and now Lehman Brothers

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Fortis Investments

Fortis Investments & Hedge Fund Closures

While these closures might have come during a period when many people are questioning the future of hedge funds, they surely not the results of Fortis wanting to pull out of the hedge fund business because of the industry’s downfall. It looks like a specific case of bad performance and not enough talent to go around to market all of the firm’s products effectively. The end of hedge funds has been predicted at least 20 times since this HedgeFundBlogger.com was started.

The following piece on Psigma Investment Management is being published as part of our daily effort to track hedge fund events in the industry. To review other hedge fund related announcements please see our Hedge Fund Tracker Tool.
__________________________________________________________

Fortis has closed three small hedge funds following its takeover of part of ABN Amro and merger of the Belgian and Dutch banks’ asset management businesses. Fortis Investments said it had shut down half of its stable of six hedge funds due to personnel changes, the need to switch staff to the enlarged long-only business and, in one case, poor performance. The closures were first reported by HFM Week.

The closures – two of which took place at the end of June, and the third at the end of last year – come amid widespread predictions that poor performance and withdrawals by investors will lead to a shrinkage of the industry after a decade-long boom.

Fortis said it planned to set up new funds as and when it spotted opportunities and staff, and would seed launches with its own money. The Fortis European long/short fund, at €120m ($167m) the largest of the three, is being shut after the decision to bring in the ABN European equity team, headed by Andrew King. Mr King did not want to run a hedge fund, Fortis said. The fund was down about 4 per cent so far this year when it was shut, about in line with the average equity hedge fund.

More……

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Prime Broker Survey

Prime Broker Survey Results

A new survey shows that more than one-third of hedge fund and CTA managers are dissatisfied with their prime brokers. The most notable dissatisfaction is with the prime brokers’ personal service. In 2007 80% of funds rated the personal service of their prime brokers as either “good” or “excellent”, this year only 63% gave their prime brokers high marks. This may be a result of the liquidity crisis, which 16% of the managers said negatively effected the relationship with their prime broker.

The survey also shows that many funds are happy with the cost of their prime brokers, with only 7% responding “poor”. However, a considerable 38% of managers rating their prime brokers as “poor” performers of capital introduction. Funds who consider themselves technologically advanced are the most satisfied with their prime brokers.

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Hedge Fund Definition

Q & A: Hedge Fund Definitions Resource?

Question: I have just been hired for a hedge fund analyst position and need to get up to speed on industry norms and definitions. Do you know how I could do so in just a few weeks time?

Answer: Yes, I have been building an online glossary for the hedge fund industry here: Hedge Fund Terms. Let me know if you need a specific definition and don’t see it there yet, we are constantly expanding this resource for individuals such as yourself. Here are some direct links to available definitions:

• Accredited Investor
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• What is a Hedge Fund?
• Sharpe Ratio
• Video:Discussing Hedge Fund Leverage
• Sortino Ratio
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Dr. Alan Starkie, “Wealthy families are “insti-viduals”, individuals who have institutional needs in terms of complexity and sophistication”. As a result the family office market is rapidly evolving, with more family offices, more MFOs, leading to more demands on providers of services, and more outsourcing expertise needs. There are some favorable trends and facts that support the needs of outside consultants; buying support consult is cheaper than build it internally, generation changes, acquisition, specialization, lack of omniscience, independency, advanced technology.

To keep pace and take advantage of the myriad opportunities, good consultants need to differentiate themselves in the industry through their objectivity, specialized services, product and service mix, and technological sophistication. Rather than focusing on performance, they should concentrate on providing a level of service commensurate with the demands of “insti-viduals.” If they fail to do this, the perception will remain that consultants lack value added and wattage, are not “on the line” for results, and are not candid in their advice. Read more…

- Richard

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Atticus Capital

Atticus Capital Hedge Fund Notes

Record losses is not exactly what most hedge funds are seeking to be known for right now. Anyone keeping up with manager developments right now know that many managers are struggling. Some reports say 2008 is shaping up to be the hedge fund industry’s worst performance in 18 years. On some level this is needed, just as recently as last month many hedge funds are still touting their positive performance with barely mentioning their portfolio or business risk controls – over the long-term you must pay attention to more than a goal to return 16+% a year. I’m not saying Atticus is one of these firms, with their size they surely have many controls in place. In general though, I believe the industry needs a shakeout every 7-9 years.

The following piece on Atticus Capital is being published as part of our daily effort to track hedge fund events in the industry. To review other hedge fund related announcements please see our Hedge Fund Tracker Tool.

Story #1: Atticus Closes Two Funds, Barakett Bids Farewell

Atticus Capital has shut down is reducing its operations by closing two of its funds. After receiving less than 5% of redemptions from investors, Timothy Barakett, the founder of Atticus Global, decided to shut down Atticus Global, Ltd. and Atticus Global, LP. Barakett founded Atticus with $6 million and expanding to roughly $20 billion in assets under management in 2007. He is returning $3 billion back to his investors, in a letter to his investors he explained his decision:

I have used the market’s recent strength to begin liquidating a significant amount of our holdings. We currently expect that the portfolio will be fully liquidated by September 30th and that we will be in a position to return approximately 95% of your capital in early October. The balance of investor capital will be returned after the final audit is completed, which should be later this year….

Read Story

Story #2:

Atticus Capital, the hedge fund manager co-chaired by Nathaniel Rothschild, will be reduced to bare bones after announcing plans to return $4 billion to investors.

Timothy Barakett, the 44-year-old Canadian who founded Atticus with $6 million in start-up cash in 1995, wrote to investors today to tell them that he would close two of his funds – Atticus Global, worth $3.4 billion, and $600 million Atticus Trading.

Just one fund, Atticus European, worth $1.1 billion and managed by Mr Barakett’s partner David Slager, will continue to operate.

Atticus’s downsizing is another sign that the era high-profile, aggressive hedge funds, that publicly berated companies’ management and flaunted their connections to the rich and famous, has ended.

At its height in 2007, Atticus was worth $20 billion but in the year to the end of July returned a negative 13.3 per cent, under-performing the widely-recognised Credit Suisse Tremont Hedge Fund Index, which showed a –9.3 per cent return over the same period.

Mr Barakett is best known in the UK for attempting to scupper Barclays’ $64 billion offer for ABN Amro, for which he argued Barclays’ was offering too much. Read more…

___________________________________

Story #3:

Atticus Capital, one of New York’s most powerful hedge funds, has lost more than $5bn (€3.4bn) this year, as its record as one of the world’s top performing money managers was damaged by the credit crunch.

The firm’s two flagship funds fell by a quarter and almost a third by the end of August, marking among the biggest losses in dollar terms ever recorded by a hedge fund. This was as a result of its strategy of taking large, concentrated bets and using few “short” positions betting on a fall in prices to lower risk. Atticus had $14bn under management at the end of July, according to letters to investors, down from a peak of more than $20bn last year.

The losses reflect widespread difficulties for Event Driven Hedge Funds, which aim to buy cheap stocks in the expectation of a catalyst that will boost their value. Atticus, co-chaired by Nathaniel Rothschild, son of Lord Jacob Rothschild, has been closely involved in several of the highest-profile deals of recent years, helping scuttle Deutsche Börse’s bid for the London Stock Exchange and Barclays’ bid for ABN Amro, among other activism.

The Event Driven Hedge Funds Sector – which includes activist investors – was among the most popular with hedge fund investors last year but has seen a race for the exit as investors switch to strategies seen as more likely to prosper during a bear market. Read more…
______________________

Story #4:

According to a media report, Atticus Capital, one of New York’s most powerful activist hedge fund the largest investor in Deutsche Börse, has put its entire stake in the German exchange into a special limited vehicle to block redemptions by clients and boost its negotiating strength with management.

According to the report published by the FT.com, the stake of just over 11 per cent held through shares and derivatives, made up almost a fifth of Atticus’s funds under management at the start of the year but has since halved in value.

According to the report, the losses have caused concern among some Atticus clients, who have expressed concern about such a liquid stock being put into a “side pocket.” The report says that Atticus argues that it wants to be able to represent themselves as solid investors in the German exchange, but the decision has not gone down to well with some of the hedge fund’s clients. Read more…

__________________

Story Update #4:

NEW YORK (Reuters) – Hedge fund company Atticus Capital denied market rumors it was liquidating its positions and closing down and said it had a large net capital position and was looking for investment opportunities, the Wall Street Journal reported on Thursday.

Atticus’s two main hedge funds have been hit with losses of between 25 percent and 32 percent this year through August, but investors are largely sticking with it, according to unnamed investors cited by the Journal. Read more…

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Single Family Office

Single Family Offices in Dubai

I just found this article about how Dubai’s DIFC is positioning itself as a center for single family offices. They seem to be very skilled at positioning themselves for new money to come in so I’m sure they will be successful in this area. The country is trying to build many legs to stand on – as they take advantage of their oil and tourism based wealth. Here is the article…

_________________________________

New regulations provide platform for setting up family holding companies at DIFC

The Dubai International Financial Centre (DIFC) today announced new regulations to encourage family businesses to establish Single Family Offices (SFOs) at DIFC.

Created in consultation with the DFSA, the DIFC Single Family Office (SFO) Regulations specifically address the needs of family-run institutions and create a platform for wealthy families to set up holding companies at DIFC to manage private family wealth and family structures anywhere in the world.

HE Dr. Omar Bin Sulaiman, Governor of the DIFC said: “In recent times, family offices have become highly significant on the global economic landscape. In the Middle East, where family-run businesses make up over 75 per cent of firms and have total assets in excess of US$1 trillion, the need for a specialised legal and regulatory framework is especially acute.”

“In contrast to conventional financial institutions, Single Family Offices (SFOs) have no direct public liability as all their shareholders are bloodline descendants of a common ancestor. As such, their regulatory requirements differ significantly. By establishing the new Regulations, DIFC is once again reaffirming its commitment to family businesses and the development of DIFC into a hub for local, regional and international family offices.”

The enactment of the Regulations follows a period of consultation where companies were invited to comment on the proposed Regulations. Having received highly positive feedback, the new Regulations will come into effect on 2 September 2008.

Central to the new Regulations are changes to the DIFC Single Family Offices (SFO) platform and consequential amendments to other DIFC and DFSA regulations such as the DFSA’s General Module and Glossary Module.

The Regulations offer distinct benefits to Single Family Offices (SFOs) as they exclude them from many of the regulatory constraints placed on conventional organisations located at DIFC. Read more…

- Richard

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Hedge Fund Subscription

Premium Hedge Fund Subscription Website

I have recently had someone join my team who will help me create a premium content subscription-based hedge fund service.

This will be available in 2009 and at this point we are seeking your direct feedback as to what it should include or not include. What is missing in the hedge fund marketplace? What, if it existed would be very valuable to your business to receive on a weekly or monthly basis?

Please email your ideas to Richard@HedgeFundGroup.org

Thank you in advance for the feedback, much appreciated.

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