Daily Alpha
Daily Alpha: Hedge Fund Closures, Bill Ackman’s Blues, Dating Martin Shkreli, and GM Gets Lyfted

Daily Alpha
Daily Alpha: Hedge Fund Closures, Bill Ackman’s Blues, Dating Martin Shkreli, and GM Gets Lyfted

Garrett Baldwin

Here's what is on the brain today, January 5, 2016...

“The bear market in emerging market equities, which began in 2011, may eventually engulf developed markets too.”

It’s a tough day for stock pickers in emerging markets on news that Nick Barnes and Martin Taylor are shuttering hedge fund Nevsky Capital and returning money to investors.

It was 2013 when the fund was up double digits, but recent turmoil in emerging markets and competition from computer-driven trading strategies and index funds have diminished the fund’s money-making potential. Both managers will still be able to hang their hats knowing that they were able to provide an 18.4% annual gain since 2000, a figure that beat their peers by 10 times.

Bloomberg offers the eulogy.

For those who don’t recall Barnes and Taylor, these were two guys once willing to turn down roughly $70 million a year in fees because they wanted to manage $800 million per year and not the $3.3 billion they once had under management in the original fund.

The two reasons for scaling back?

One, they recognized that conviction was critical and that more money makes it harder to find things to invest in.

Second, they wanted to be able to invest in more of what they wanted to buy and own.

The key terms here are asset bloat and over-diversification. You might recall that these were two key reasons why many active managers are unable to outperform in passive managers, part of a story that Modern Trader featured on why do most active equity mutual funds underperform and the impact of portfolio drag.

In that piece, we spoke to Thomas Howard, Emeritus Professor of Finance at the University of Denver and CEO/Research Director of AthenaInvest. He has explored this question extensively and has reached an interesting conclusion.

Be sure to read this piece, as it outlines the three key metrics to better define on whether active managers are capable of outperforming passive ones. You’ll also find the top 10 funds available to investors. 

“Billionaire investor William Ackman's Pershing Square hedge fund ended 2015 with a 20.5 percent loss after Valeant Pharmaceuticals, a top holding, has battered in the second half of the year.”

The numbers are in.

Reuters breaks the story this morning.

“He messaged me, and I played along, asking what he did for a living. “Martin” said: “I’m that guy who has been in the news lately.”

The Washington Post has officially jumped the shark…

This morning, columnist/actress Jacklyn Collier takes to the pages of one of the nation’s most prominent papers to write several hundred words…

“My Tinder date with ‘Pharma bro’ Martin Shkreli”

It’s a trip into the rabbit hole that is Shrkeli’s mind and social skills.

But it’s also a debilitating eye-roller – part mocking, part sympathizing, and in a few ways… a bit too intrusive no matter who it is sitting across the table from her...

Simply put: when you have me feeling bad for Martin Shkreli for just a second, that should be a problem. And it’s tough to shake this one on an ethical level.

Going out with Martin Shkreli out of curiosity, as the writer puts it, is one thing.

But selling a write up about their conversation – I guess what matters, no matter how notorious someone is and how accessible – and in some ways vulnerable – is whether or not she actually asked him to be a subject of an interview. [This sentence brought to you by a Medill Ethics of Journalism class that sticks with me like a bad case of Catholic guilt.]

What’s even odder is that this isn’t the first time that a writer has used Tinder with Shkreli to get a story and coax a conversation, which was plastered all over the web shortly after – without disclosure. In fact, in that conversation, the writer constantly badgers him with questions about how “evil capitalism” is… You know, pre-first date sort of questions.

This is like a really bad digital version of a Newsroom episode gone awry.

“There’s a big chunk of the customer base that’s saying I want to get from A to B in a different way; I want to use a car, but I don’t want the hassle of owning one.”

That’s General Motors president Dan Ammann explaining why his company just wrote a $500 million check to the ride-sharing company Lyft to develop driverless cars.

It’s a nod to the recent statement by Uber CEO Travis Kalanick who aims to make ride-sharing cheaper than owning a car and produce a self-driving fleet by 2030.

This deal is everything to love about alternative investing.

It involves startups, technological disruption, disruption of other disruptions, private equity squabbling, unicorn valuations, Carl Icahn’s hair, technology that is going to essentially displace countless workers, and an interconnected industry of companies, investors, and engineers that resembles an M. C. Escher painting.


“Lower return expectations for hedge funds will dramatically change the relative demand for hedge fund strategies.”

Finally, each year, Agecroft Partners predicts the top hedge fund industry trends through their contact with more than 2,000 institutional investors and hundreds of hedge fund organizations. The hedge fund industry is very dynamic and both managers and investors can benefit from anticipating, and preparing for, what changes are likely to occur. Those who effectively evolve with the industry will succeed, while stagnant firms will be left behind.

Click here to read Agecroft’s predictions for the biggest trends in the hedge fund industry for 2016.

See you tomorrow...


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