The Daily Alpha: Alternative Thinking on Hedge Fund Fees, and Limousine Liberalism at the Sohn Confe

The Daily Alpha: Alternative Thinking on Hedge Fund Fees, and Limousine Liberalism at the Sohn Confe

Garrett Baldwin

May 5, 2016

Alternative Thinking on Hedge Fund Fees, and Limousine Liberalism at the Sohn Conference

“We’re looking at alternative structures.”

The assault on “2 and 20” continues on Thursday, this time from the $185 billion New York State Common Retirement Fund. While attending the Milken Institute Global Conference, pension manager Vicki Fuller said that the fee model is “unfair.”

The third-largest public pension fund invests with Bridgewater Associates, D.E. Shaw, GoldenTree Asset Management, Paulson & Co., Trian Fund Management and ValueAct Capital. Last year, the New York State Common Retirement Fund paid $113 million on fees to hedge funds, which returned 5.9% to the pension funds.

If you aren’t happy with the returns, you don’t have to use hedge funds.

Go out and buy gold or the rights to oil wells.

Buy Berkshire Hathaway A class stock.

Invest in windmills!

There are plenty of people pushing for those these days… as we explore below.

“The plot of Billions closely resembles the investigation of SAC Capital's Steve Cohen for illegal trading activity.”

David Dayen of The American Prospect does not like hedge funds.

In perhaps one of the most ruthless rants against the industry that we’ve seen in a long time, he pillages the industry for its sins over the years, and essentially calls for the end of hedge funds as we know them.

Seriously… this is brutal.

But it’s also a good read, and well researched.

And, if you’re in the industry… this is what you’re up against from a political and social messaging strategy. There are some great truths, some half-truths, and some outright incorrect analysis of academic research on the industry.

But that doesn’t matter to the anti-hedge-fund crowd.

This is one man’s treatise on “all that is wrong” with the hedge fund industry today.

And it’s the type of article that will get a lot of traction this summer as politicians increasingly blame Wall Street for all of our problems – forgetting how Washington creates the loopholes that such pundits despise by attempting to plug another hole created by other backward-thinking policy.

Kudos to Dayen. It would take me a month to research, retort or acknowledge everything he has written in this piece. There are flaws in some arguments – mainly the 5% disclosure rule being pushed by Sen. Tammy Baldwin. If he thinks that this 13D requirement will stop wolf packs or net shorts, that’s just foolish.

And citing Hedge Clippers as a logical source of information?

Well… lets’ get to that…

“Cool! Literal limousine liberalism!

Thorton McHenry at DealBreaker knocks this one out of the park.

Hedge Clippers – an offshoot Occupy Wall Street movement aimed at hedge funds – is protesting the Sohn Conference. In fact, they’re trying to shut it down.

Why? Because certain hedge fund managers invest in fossil fuels… which they claim is causing cancer around the world. Here is how their math works, according to their Twitter messages.

“Hedge Funds + Dirty Energy= Cancer.”

In fact, they even got Mark Ruffalo to hold a sign out of a black car – emitting CO2 into the air – with that message.


Yes. This is an actual picture of “limousine liberalism.”

As McHenry explains, Ruffalo didn’t even get out of the car… it was still running.

Hedge Clippers will be disappointed, because their plan isn’t going to shut down the Sohn Conference. But that’s not going to stop their flawed line of reasoning…

By shutting speakers like David Einhorn, Stan Druckenmiller, and Paul Singer, Hedge Clippers argues they can shut down the Sohn Conference…

And if we shut down the Sohn Conference, we’ll force people to invest in more alternative energy…

And as we start invest in more alternative energy, we’ll build more safe energy like wind mills.

And if we build more windmills, we might kill more Bald Eagles, but don’t worry… because that’s actually now allowed by the Obama Administration.

Ugh… what time can you start drinking tequila on Cinco De Mayo?

"While hedge funds play dodge ball, investors go tubing."

Speaking of the Sohn Conference, it appears that speakers are struggling to find high-growth opportunities. Apparently, the markets are not really into any of the recommendations.

Here’s Reuters on what’s happening, and why conversations about fees have dominated the conference more than actual company recommendations.

“When Trump’s policies fail, as they will, American capitalism will unquestionably get blamed.”

Finally, as noted in previous Daily Alpha issues, we will not be endorsing anyone for President… unless it’s Exxon CEO Rex Tillerson. Every now and then, we’ll highlight the saddest commentary out there on why some of the nation’s leading commentators are choosing one tragic candidate over the other.

This comes from CapitalistPig Hedge Fund – and, sadly, it holds a lot of truth.

“Long term, the damage levied by Donald Trump to capitalism in America will be immeasurably worse than that wrought by Hillary Clinton,” Jonathan Hoenig writes.

This is what’s known as a best-worst argument.

Essentially, most Americans don’t really have a grasp of what capitalism is… and since they believe that whatever Trump is pushing must be capitalism from the GOP side– even if it’s the complete opposite (ending free trade, picking and choosing winners and losers, higher taxes, etc.) – it will doom capitalism’s reputation should his policies lead to failure.

Hoenig explains that it was Republican Herbert Hoover’s anti-free trade policies that helped usher in the FDR years and all of the “wonderful” social programs that will ultimately bankrupt this country roughly 100 years later.

The flaw here is that Hoenig believes that if voters do embrace Clinton’s bigger, failing government, somehow more Americans will one-day reject socialist policies and have an awakening.

“And when Hillary’s policies fail, as they will, her socialist ideas will rightfully be denounced,” he writes.

Well, no they won’t. At least not urgently. And not by the people who understand the difference and can effect immediate change.

And when that denouncement finally comes, that wake-up always happens too late… when a nation hits complete rock bottom. Once liberalization of socialized economies begins, they find themselves swiftly evolving into oligarchies that pervert capitalistic intentions. It also takes decades to dig out of that hole.

Yesterday, the President just stood in front of Flint, Michigan residents arguing that the solution to a government-created problem with its water supply was even more government. And the citizens cheered – oblivious to the fact that it was their government that caused the problem.

There is never a shortage of people who will tell ignorant voters that they can solve all of their problems – and if you think that Clinton’s failures won’t spur greater appetite for even more government intervention – look at Millennials calls for Bernie Sanders in the wake of the weakest economic recovery in the history of the Republic under a President who was already left of Sanders in terms of his voting record while a member of the Senate.

Neither Presidential situation ends well. If you need me, I’ll be growing blueberries in Chile, arbitraging and exploiting supply limitations of blueberries in North America during the winter months.


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