28JAN09:
Q1-09 DOW: 8900
Q2-09 DOW: 7250
Q3-09 DOW: 5810
Q4-09 DOW: 3960
CITI NATIONALIZED
OBAMA GETS SICK 27AUG09:
Mini Crash 21SEP09 Predicted correctly:
Bailout=Bonuses
Demise of Bear Stearns
Demise of Lehman Bros.
Demise of AIG
Subprime would cause problems
Date of 2007 crash
CRAs were to blame
G20 riots were a party
Northern Rock run
Northern Rock Nationalization
HBOS and RBS demise
UBS really was Useless
Reuters Gets Sentimental (finalternatives) Big media is getting even bigger, or should we say, wiser. Today, Reuters launched a new “sentiment analysis” service in which computers read the news, judge whether it is positive or negative, and trigger trades based on the results. The service is being marketed to algorithmic traders, including hedge funds.
Reuters claims the system will enable customers to analyze news about thousands of companies before humans can even read the first headline of a newspaper. The information provider has already been offering a product called NewsScope, which allows its clients to use news content to drive automatic trading and respond to market moving events, but according to Peter Moss, who heads Reuters global enterprise solutions group, the new release allows the machines to “interpret the sentiment of news stories as they are published.”
For now, the system will only scan Reuters' own articles, but there are plans to add additional news sources.
According to Reuters, the new system works by assigning numerical “sentiment scores” to words or phrases which are then processed to give an overall positive, neutral or negative score to the company in the news article. These scores can be added together to calculate the prevailing sentiment for a company, a sector, an index, or even to assess global market sentiment. “Imagine a machine scanning hundreds of stories on companies' results, measuring the sentiment around them and incorporating that into algorithmic trading strategies,” said Moss.
Reuters collaborated with U.K.-based linguistics and software developer Corpora to develop the new system.
Fintag says April fool's jokes were 4 weeks ago? Still, I would love to see what they make of my rants. As much as I enjoyed the Priory I think once is enough.
Kat Launches New Broadside on Hedge Fund Replicators (allaboutalpha) Professor Harry Kat of the Cass Business School at City University, London, has been a thorn in the side of the hedge fund industry for several years now. And today (April 30), he released his latest attack on the sector, reserving his sharpest barbs for the hedge fund replicators themselves. In fact, he concludes his analysis by replicating both Goldman Sach's and Partners Groups own hedge fund replication offerings.
The latest paper is an extended version of Kat's earlier work “Alternative Route to Hedge Fund Replication”. He adds over 20 pages of succinct and pointed commentary on everything from the research of Andrew Lo, Thomas Schneeweis, Lars Jaeger, Bill Fung and David Hsieh to the hedge fund replication offerings of Merrill Lynch, Goldman Sachs, JP Morgan and Partners Group. If you are new to the whole “hedge fund replication” shtick, this is a must-read. And if you have been following this story for some time, you will find Kat's viewpoint typically concise - even if you don't agree with it.
Why Now?
We asked Kat why he chose now to revise his earlier work. Using his characteristic Robin Hood bravado, he explains:
“First, with the media attention given to the billion dollar bonuses that some hedge fund managers have taken home again, more and more investors are now realizing that, to a large extent, the hedge fund game is all about asset gathering and pocketing unjustifiable fees. Furthermore, investors realize and that in the end, they are paying for it all.”
He also told us that newly published results from various new hedge fund replication products now allow a more thorough analysis of their techniques. Kat tells us:
“...some more return data has become available over the past few months, which for a first time allows us to properly analyze the various products' performance and merits as portfolio diversifiers. The results are very interesting and confirm what I've suspected all along: that, despite the different marketing stories, the main product providers all offer more or less the same product. In addition, it shows that these products have a very high correlation with the stock market and therefore make lousy diversifiers.”
...
To conclude, Kat turns the tables on the hedge fund replicators - actually trying to replicate them. He compares Goldman's ART Index and Partners Groups' ABS Fund to Fund Creator's best attempt in order to settle this once and for all. Unfortunately, while Kat finds the market correlation of ART and ABS to be too high for comfort, the results of this comparison are somewhat less than clear:
“...over the period studied, the ART Index and the ABS fund have generated neither superior nor inferior returns.”
Kat will be running a hedge fund by the end of the year. It will fail spectacularly as most academics spend too much time looking at historical numbers and not appreciating how difficult it is to make money. Hedgies only achieve million dollar bonuses if they satisfy their investors needs. Unhappy investors = walking investors = Hedge Fund Manager unemployment. Academics like Kat live off my taxes by scrounging grants from government bodies, enjoying nice index linked pensions and driving luxury cars made in Malaysia.
It's a timely question, given the steady drumbeat of record-setting buyout funds that have been announced in the past year or so (not to mention all the buzz about private equity firms that might go public). Wall Street lives for bragging rights, so it is only natural to ask who is on top. But crowning a No. 1 firm is not a simple matter, as Private Equity International explains in its May issue. It all depends on how you measure.
In launching its list of the world's 50 largest private equity firms, the magazine used an unconventional yardstick. Instead of looking at assets under management, it ranked the contenders by the amount of funds they have raised since the beginning of 2002.
By that measure, the winner is Washington-based Carlyle Group, which has collected $32.5 billion for direct private equity investments in the past five years. Kohlberg Kravis Roberts and the private equity arm of Goldman Sachs are close behind, with $31.1 billion and $31 billion, respectively, in capital raised since 2002. Rounding out the top five were Blackstone Group, at $28.4 billion, and Texas Pacific Group, at $23.5 billion.
In choosing its ranking method, Private Equity International said it wanted to capture a private equity firm's “current heft in the market,” including the “dry powder” it has handy to fund leveraged buyouts.
Another metric called “exposure” — defined as undrawn capital commitments plus the value of a firm's portfolio — suffers from two problems, the magazine said. It includes investments that a firm made many years ago (allowing old lions to rest on their laurels) and relies on subjective values for investments that a firm still holds.
Still, Private Equity International's list is bound to stir debate among private equity's heavy hitters. Measured by the value of its portfolio, Kohlberg Kravis is far larger than Carlyle: The magazine puts Kohlberg Kravis's portfolio at $74 billion, compared with $21.5 billion for Carlyle.
And Kohlberg Kravis certainly has “heft,” judging from its participation in recent buyout deals. The firm had a role in deals accounting for nearly half of the buyout volume in the first quarter of 2007, according to Dealogic.
Fund-raising numbers, meanwhile, are moving targets. The magazine gives Kohlberg Kravis credit for $16.1 billion in its latest fund, though the firm is hoping to raise far more.
Some other interesting takeaways from the magazine's rankings: All of the five largest firms were based in the United States, and all but one of the top 20 were based in the U.S. or London. (The exception was Toronto-based Teachers' Private Capital, in 20th place.)
Fintag says All good pirates read Pirate Equity International and much back slapping about the latest rape, pillage and asset stripping venture there is in the latest issue. We all like a list and PEI has ranked the top pirates, not by the size of their booty but on the number of ships they have. So with Carlyle, KKR, Goldman Sachs, Blackstone and TPG owning a large US dominated fleet, they been able collectively to plunder foreign companies like Imperialists of old. If invading countries is political suicide, then go through the back door and own their assets instead.
Owning a big company and you own a governments tax revenues. Think about that.
SOCIALIST BLOOD
Sarkozy turns on 'predator' hedge funds (telegraph) If there is one thing that unites both candidates in France's presidential run-off this Sunday, it is a shared belief that Anglo Saxon hedge funds are the great villains of modern civilisation.
Nicolas Sarkozy, the neo-Gaullist favourite, has vowed to "hit predators" with a tax on speculative investments - apparently a version of the Tobin tax, a staple of populist discourse in Europe for years.
"We can't tolerate hedge funds buying a company with debt, firing a quarter of the staff and then enriching themselves by selling it in pieces. We didn't create the euro to have capitalism without ethics or morals," he said. Mr Sarkozy is supposed to be the "free market" candidate.
But for all the hot rhetoric, France quietly hosts some 92 hedge funds - many of them on the cutting edge of arbitrage and structured products, and some linked to Mr Sarkozy's inner team of advisers. The country has the second biggest hedge fund sector in Europe.
"Look at what we do, not at what we say," said Vincent Kuhn, managing director of Bryan Garnier asset management in Paris.
"A sweet smell of sulphur surrounds the hedge fund industry here. We're lumped together with all the cosmopolitan speculators said to be wrecking the French economy," he said.
"Of course, the French love to regulate and they believe in the supremacy of politics over reality, but it never works and both candidates will end up toning down their policies."
French hedge funds fled the country in the 1990s when stringent rules shut them out of the most lucrative trade. Most followed Ivan Briery's Voltaire fund to London.
Now the émigrés are trickling back to Paris as the AMF financial regulator adopts a "lighter touch" - a warning sign that London cannot take its dominance for granted. The reverse exodus includes Vincent Mordrel's Malo fund and Patrice Courty's Totem fund. Jean-Louis Juchault, president of Systeia Capital Management, says the rules have become so much more fund-friendly that France can give the Anglo Saxons a run for their money.
"If you want to be a French-domiciled fund, it is very easy now. We are finding that a lot of French expatriates who have worked in London are open to offers in Paris," he said.
Mr Kuhn says it costs roughly a third less to run a hedge fund in Paris, with much lower fees for lawyers. "We have less company-jumping too. It's open season at bonus time in the UK."
The French political elites may be disdainful, but shoppers are piling into hedge funds at supermarket chain Carrefour. All you need is proven savings of justEUR10,000 (GBP6,830).
Even so, France has a way to go yet. As one fund manager put it: "If you drive an Aston Martin in London, people will say: 'What a really beautiful car.' If you drive one here, they'll run a key down the side. We take égalité seriously."
Fintag says So you thought Sarkozy was a right winger? Not at all. Unfortunately it is not in the French blood to believe in laissez faire capitalism. There must be many a Frenchie Hedgie in turmoil as they earn millions as top derivative traders and structurers - for they are the best. Earning money and feeling guilty about it is not a great combination. Thank goodness I am British through and through with dirty finger nails, poor eating habits and a crap lover to boot.
And the Dutch bank is now considering going public with the questions over what is being seen in Amsterdam as unreasonable intransigence on the part of Royal Bank.
The Royal Bank's chief executive Sir Fred Goodwin is understood to have responded to the list with a terse "you don't need to know", infuriating ABN's management.
ABN, whose preferred option is a merger with Barclays, believes that RBS should provide details of how it could finance its bid and overcome the objections of regulators. They are also concerned about taxation issues, with the possibility of a 15 per cent capital gains tax bill if, as planned, Royal Bank bids for the group and sells the Brazilian business to its Spanish consortium partner, Banco Santander.
ABN's 25 questions cover what it sees as the risks it would face in agreeing to a deal with RBS.
The proposal would see RBS tabling a cash and share bid, with 30 per cent of the offer made in RBS shares and the remainder in cash put up by Santander and Fortis, the third member of the consortium that wants the Dutch retail banking operations.
Questions have been raised over whether they could raise around €40bn through what would be the biggest rights issues yet seen in Europe, although Santander is thought to have lined up disposals.
Yesterday, however, sources close to the consortium insisted that "any rights issues will be fully funded and underwritten". Sir Fred has already insisted that "we are good for the money" but has repeatedly refused to provide any further details over how his indicative offer might be financed.
Relations between the two sides have become increasingly strained in recent days, which could pose problems for the successful integration of the business after a deal is complete.
Hostile bids are rare in financial services because of the importance of key staff to these businesses and a risk that they could be alienated.
The Enterprise Court in the Netherlands will rule on Thursday whether ABN can proceed with a sale of its US business, LaSalle, to Bank of America for $21bn without a shareholder vote. That deal is widely seen as a poison pill to frustrate the ambitions of RBS, which is desperate to get its hands on the bank. However, Bank of America could seek to sue ABN if the sale is blocked, under the US contract of sale signed between the two which allows the deal to be broken only in the event of a counter-bidder for just LaSalle.
Bank of America could also attempt legal action against Royal Bank if it chose, through alleging "tortious interference" in its deal.
Yesterday a spokesman for the consortium denied widespread rumours that the Royal Bank was planning to sell its well-regarded Direct Line and Churchill insurance businesses to help further its ambitions.
Fintag says It's all so messy. But then what did you expect when a poorly run business runs straight into the arms of its old pal Barclays without seeking consent from its aggrieved shareholders?
The global banking giant HSBC pulled off the UK's largest-ever commercial property deal yesterday, selling its London headquarters for a record £1.1bn to the Spanish property group Metrovacesa.
The bank also sealed an agreement to lease back the Docklands tower block for the next 20 years at an annual rent of £43.5m - giving the Spanish investors an initial yield of just 4 per cent on their investment.
Recent large deals in the UK commercial property sector have yielded in the region of 4.5 to 5 per cent. It is believed the company was willing to accept the lower yield due to the high profile of the property.
The company said it aims to become one of the world's leading real-estate investors.
HSBC also secured an option to extend its lease for an additional five years at the end of the 20-year term. However, Metrovacesa, which is believed to have beat some 14 other bidders to secure the deal, has a 998-year lease on the property.
The sale of the 210-metre tower block locks in an investment return of more than 100 per cent for HSBC, which spent some £500m building the skyscraper at the turn of the millennium. The company moved into the building in 2002, and now has some 8,000 staff working in the block.
Metrovacesa's purchase shatters the recent record for UK commercial property deals, which was set only last month when Beacon Capital Partners, the US real estate investment group, snapped up Citypoint for £650m at a yield of 4.85 per cent.
Citypoint is one of the largest office blocks in the City of London, housing a number of offices, as well as a gym, shops, bars and restaurants.
The HSBC sale is the latest in a string of large commercial property deals in London over the past year. The investment banking group Evans Randall bought Sir Norman Foster's "Gherkin" - home to Swiss Re's UK headquarters - for £630m in February.
Tony McCurley, an executive director at CB Richard Ellis who worked on the sale of the HSBC tower, said a large number of investors were looking to gain a foothold in the London property market. "There's a huge amount of capital trying to buy in London at the moment, and it's coming from a very broad spread of investors," he said. "So the market's not dependent on any particular sector. In the first quarter of 2007, 60 per cent of commercial property deals were done by overseas investors." Mr McCurley said investors were attracted to London because it was a "safe haven", adding that analysts believed rents would continue to rise considerably over the next few years.
Marcus Langlands-Pearse, a property fund manager for New Star, said: "There were big uplifts in City of London and West End rents last year, and we're expecting to see uplifts of between 13 and 14 per cent again this year. It's purely down to supply and demand. London is taking over as the financial capital of the world and that's providing a massive demand for office space."
Several other high-profile London properties are expected to be sold over the next few months. The sale of Shell's headquarters in Waterloo, estimated to be worth around £520m, recently fell through for a second time.
However, it is thought the company is still seeking a buyer.
The American investment banks Merrill Lynch and Goldman Sachs are also currently seeking buyers for their London headquarters, both thought to be worth in the region of £600m. Aviva is also believed to be looking to sell its £400m headquarters opposite Lloyd's of London.
The UK's largest commercial property deals
HSBC HQ
* Year: 2007 * Address: Canada Square, London E14 * Corporate occupier: HSBC * Transaction type: Sale and leaseback * Purchaser: Metrovacesa * Term: 20 years * Capital value/yield: £1.1bn/4.0%
Citypoint
* Year: 2007 * Address: Ropemaker Street, London EC2 * Corporate occupier: Multiple occupiers * Transaction type: Sale and leaseback * Purchaser: Metrovacesa * Term: 20 years * Capital value/yield: £1.1bn/4.0%
'The Gherkin'
* Year: 2007 * Address: 30 St Mary's Axe, London EC3 (below) * Corporate occupier: Swiss Re * Transaction type: Sale & Leaseback * Purchaser: Evans Randall and IVG Immobilien AG * Term: 24 years * Capital value/yield: £630m /4.5%
Plantation Place
* Year: 2006 * Address: Plantation Place, London EC3 * Corporate occupier: Multiple occupiers including Accenture and Royal & SunAlliance * Transaction type: Investment sale * Purchaser: Consortium including Tishman International and Insight Investment * Term: N/A * Capital value/yield: £527m/5.1%
The Adelphi
* Year: 2006 * Address: Strand, London WC2 * Corporate occupier: Multiple occupiers * Transaction type: Investment sale * Purchaser: Istithmar * Term: N/A * Capital value/yield: £300m/5.0%
Fintag says You know there is a liquidity bubble when assets are bought that yield less than if you stuck the cash into a long term fixed rate deposit account.
The HSBC building yields 3.8%. Libor rates are 5% +. Now unless you think there will be rampant capital appreciation in the commercial property market (most believe its topped out) then this trade is madness. For HSBC it gives them the ability to escape the UK's high tax regime at a moment's notice and as everyone knows canary wharf is on a flood plain and is sinking [Editor: Do they?].
This is another "imperialistic" trade. Perhaps its to do with all the Brits living on the south coast of Spain?
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