By matt levine
Some hedge funds had a good month, with equities long-short funds run by former SAC Capital employees doing particularly well. Jason Karp’s Tourbillon Capital Partners, Aaron Cowen’s Suvretta Capital Management, and Gabriel Plotkin’s Melvin Capital are all up on the year. Various non-SAC-alum funds are also doing well, although “the average hedge fund, as measured by the HFR Index, is down about 1 percent,” and the S&P is down 5.3 percent. One possible advantage of the recent market volatility might be that it will make it harder to talk about hedge funds as a unitary asset class with an undifferentiated strategy and similar, sub-market returns. That has never been especially accurate, but it seems to have been especially inaccurate recently.
As Don Steinbrugge, an industry veteran who analyses the sector for Agecroft Partners in Virginia, puts it: “As long as the expected return is higher for hedge funds than fixed income, we will continue to see money shift from fixed income to hedge funds.”
Consider that when you read comparisons of hedge fund performance to the S&P 500, as you did in the first paragraph of this newsletter. Elsewhere, Lee Cooperman thinks that “systemic/technical investors” are partly responsible for the crash. “A Pyrrhic Victory for Active Stock Pickers.” And “Why University Endowments are Large and Risky.”
The big parade happened, and if your theory was that China’s government was propping up stocks in anticipation of the parade, then I guess that is a bearish signal? (Or not, I mean, maybe private capital was just waiting until after the parade to come back in; market timing is hard.) Also perhaps bearish is the fact that China’s interventions, and its search for people to blame for the crash, “are damaging China’s credibility as a legitimate investment market.”
Here’s a good Mike Konczal post on college costs, student loans and educational subsidies. Konczal writes about New York Fed research finding that Pell Grants have only a modest effect on tuition, while “for every dollar in increased student loan availability colleges increased the sticker price of their tuition 65 cents.” He notes that Pell Grants are an actual tuition subsidy, but don’t seem to increase tuition. Loan availability does, though, which is weird, because the Modigliani-Miller theorem predicts that things shouldn’t cost more just because you borrow to finance them. One of my core beliefs about finance is that nobody believes in Modigliani- Miller, and Konczal’s conclusion is that it doesn’t hold in education finance because that market is not complete.
I read this research as implicitly concluding that the cost of higher education is low relative to where it would be if markets were “complete.” By complete I mean a situation in which students have perfect access to borrow against future outcomes. Students can’t do this now due to financial market imperfections, which is why the government provides student lending. But as finance does a better job of providing students with these options, or the government reworks markets to create these conditions, say in the form of human capital contracts, we are talking about a widespread increase in tuition.
But yesterday’s Wall Street JI realize that this is a pretty tenuous bond-market liquidity section. Here, have an article about the “Sudden Dry Spell for Bond Sales.”
Oops, no, it was fake. The FBI has things to say about how the scammers have become increasingly sophisticated, leading to their growing success. Another contributing factor might be that no one ever wants to talk on the phone any more, making it less likely that anyone will ever pick up the phone to verify e- mailed transfer instructions.
In other regulatory news, here’s a Securities and Exchange Commission action against a collateralized debt obligation manager for allegedly keeping restructuring fees instead of passing them on to clients. Here’s SEC Commissioner Luis Aguilar calling for reforms to the SEC’s waiver process; he does not seem to like my idea of just getting rid of it. And here is a story about how prosecutors and regulators search for suspicious phrases and acronyms in traders’ electronic communications:
Evasion techniques can get creative. Raj Rajaratnam, the fund manager convicted in 2011 of insider trading, would write “fon” instead of “phone.” Prosecutors said they suspected the intentional misspelling was meant to distract the all-seeing electronic Javert of Control-F.
Oh I will take the other side of that. In my experience powerful middle-aged men in finance, like texting teens, love using abbreviated misspellings. It makes them feel young and powerful and alive, plus it’s faster to type, though of course slower for the recipient to read.
We study the impact of emotions on real-world decisions made by loan officers by analyzing the loan conditions of loans granted immediately after a bank branch robbery. We find significant differences in conditions of the loans granted after a robbery compared to changes in loan conditions that occur contemporaneously at unaffected branches. In general loan officers seem to adopt so-called avoidance behaviour.
Loans at once carry a somewhat lower interest rate and a higher loan amount: the interest rate drops by 30 basis points (bps), for a mean interest rate of 17.2 percent, and the loan amount increases by 34 Million COP, for a mean loan amount of 928 million COP. It’s a bummer to ring the closing bell on a bad day for the market. Cheniere Energy’s Sabine Pass liquefied natural gas terminal in a Louisiana bayou. Market calls for US and Europe to end derivatives dispute.
Bloomberg
By matt levine
Some hedge funds had a good month, with equities long-short funds run by former SAC Capital employees doing particularly well. Jason Karp’s Tourbillon Capital Partners, Aaron Cowen’s Suvretta Capital Management, and Gabriel Plotkin’s Melvin Capital are all up on the year. Various non-SAC-alum funds are also doing well, although “the average hedge fund, as measured by the HFR Index, is down about 1 percent,” and the S&P is down 5.3 percent. One possible advantage of the recent market volatility might be that it will make it harder to talk about hedge funds as a unitary asset class with an undifferentiated strategy and similar, sub-market returns. That has never been especially accurate, but it seems to have been especially inaccurate recently.
As Don Steinbrugge, an industry veteran who analyses the sector for Agecroft Partners in Virginia, puts it: “As long as the expected return is higher for hedge funds than fixed income, we will continue to see money shift from fixed income to hedge funds.”
Consider that when you read comparisons of hedge fund performance to the S&P 500, as you did in the first paragraph of this newsletter. Elsewhere, Lee Cooperman thinks that “systemic/technical investors” are partly responsible for the crash. “A Pyrrhic Victory for Active Stock Pickers.” And “Why University Endowments are Large and Risky.”
The big parade happened, and if your theory was that China’s government was propping up stocks in anticipation of the parade, then I guess that is a bearish signal? (Or not, I mean, maybe private capital was just waiting until after the parade to come back in; market timing is hard.) Also perhaps bearish is the fact that China’s interventions, and its search for people to blame for the crash, “are damaging China’s credibility as a legitimate investment market.”
Here’s a good Mike Konczal post on college costs, student loans and educational subsidies. Konczal writes about New York Fed research finding that Pell Grants have only a modest effect on tuition, while “for every dollar in increased student loan availability colleges increased the sticker price of their tuition 65 cents.” He notes that Pell Grants are an actual tuition subsidy, but don’t seem to increase tuition. Loan availability does, though, which is weird, because the Modigliani-Miller theorem predicts that things shouldn’t cost more just because you borrow to finance them. One of my core beliefs about finance is that nobody believes in Modigliani- Miller, and Konczal’s conclusion is that it doesn’t hold in education finance because that market is not complete.
I read this research as implicitly concluding that the cost of higher education is low relative to where it would be if markets were “complete.” By complete I mean a situation in which students have perfect access to borrow against future outcomes. Students can’t do this now due to financial market imperfections, which is why the government provides student lending. But as finance does a better job of providing students with these options, or the government reworks markets to create these conditions, say in the form of human capital contracts, we are talking about a widespread increase in tuition.
But yesterday’s Wall Street JI realize that this is a pretty tenuous bond-market liquidity section. Here, have an article about the “Sudden Dry Spell for Bond Sales.”
Oops, no, it was fake. The FBI has things to say about how the scammers have become increasingly sophisticated, leading to their growing success. Another contributing factor might be that no one ever wants to talk on the phone any more, making it less likely that anyone will ever pick up the phone to verify e- mailed transfer instructions.
In other regulatory news, here’s a Securities and Exchange Commission action against a collateralized debt obligation manager for allegedly keeping restructuring fees instead of passing them on to clients. Here’s SEC Commissioner Luis Aguilar calling for reforms to the SEC’s waiver process; he does not seem to like my idea of just getting rid of it. And here is a story about how prosecutors and regulators search for suspicious phrases and acronyms in traders’ electronic communications:
Evasion techniques can get creative. Raj Rajaratnam, the fund manager convicted in 2011 of insider trading, would write “fon” instead of “phone.” Prosecutors said they suspected the intentional misspelling was meant to distract the all-seeing electronic Javert of Control-F.
Oh I will take the other side of that. In my experience powerful middle-aged men in finance, like texting teens, love using abbreviated misspellings. It makes them feel young and powerful and alive, plus it’s faster to type, though of course slower for the recipient to read.
We study the impact of emotions on real-world decisions made by loan officers by analyzing the loan conditions of loans granted immediately after a bank branch robbery. We find significant differences in conditions of the loans granted after a robbery compared to changes in loan conditions that occur contemporaneously at unaffected branches. In general loan officers seem to adopt so-called avoidance behaviour.
Loans at once carry a somewhat lower interest rate and a higher loan amount: the interest rate drops by 30 basis points (bps), for a mean interest rate of 17.2 percent, and the loan amount increases by 34 Million COP, for a mean loan amount of 928 million COP. It’s a bummer to ring the closing bell on a bad day for the market. Cheniere Energy’s Sabine Pass liquefied natural gas terminal in a Louisiana bayou. Market calls for US and Europe to end derivatives dispute.
Bloomberg
