Over dinner in Sin City, Gore and hedge fund honchos talk taxes and Obama
Fund manager Anthony Scaramucci, also known as the “Mooch,” likes to bring big-name politicos to his annual hedge fund convention-cum-carouse, the Skybridge Alternatives Conference, or, as most simply call it: SALT.
Last year, Scaramucci procured former President George W. Bush to be SALT’s keynote speaker. This year, former vice-president Al Gore scored the keynote time-slot.
The enormous and palatial Grand Ballroom at the Bellagio Hotel was packed to the brim for Gore’s appearance, but Gore’s next date with SALT attendees was more exclusive. As was the case with Bush one year earlier, Gore’s talk was followed by a dinner for twenty or so handpicked guests at the Bellagio’s private Tuscany dining room.
Seated on either side of Gore were financier and Obama bundler Orin Kramer and Los Angeles Mayor Antonio Villaraigosa, according to someone who attended the dinner. Also at the table was hedge fund supremo Leon Cooperman of Omega Advisors, a panelist at SALT who had also been a guest at the Bush dinner last year (Bush’s dining partners in 2011 included SAC Capital’s Steve Cohen, Maverick Capital’s Lee Ainslie and Millenium Partners Israel Englander).
Gore was also joined by other Wall Street veterans including Frank Meyer, founder of Glenwood Capital, Barry Sternlicht, CEO of Starwood Capital Group, and Ted Seides, of Protege Partners, the person said, as well as other private investors.
Topics of conversation, not surprisingly, included the so-called Fiscal Cliff – billions in tax cuts set to expire at the end of the year – a topic that had peppered panel discussions all day; the so-called “Battle of the Bobs,” a 1993 showdown between then-President Bill Clinton’s labor secretary Bob Reich and his treasury secretary and former Goldman Sachs exec Bob Rubin, about how to restart the flailing economy; and Obama’s rocky relationship with Wall Street and tax hikes on America’s richest.
At one point during the “very spirited” but friendly debate, Al Gore turned to Leon Cooperman and asked if he would mind if his taxes were raised, according to two people at the dinner. Cooperman responded he cared less about his taxes being raised and more about President Obama dialing back anti-Wall Street rhetoric, the attendees said.
UF Weekend Reads
A dreary looking day in the NYC environs today, but that won’t overshadow birthday celebrations and other good news too cheer! A big shout to all UF members today. Oh, and fight for your right to party. Here then is Sam Forgione’s suggested readings.
From The New York Times:
A former managing director of Bain Capital has a telling beef with art-history majors.
From AR:
Hedge fund managers are still leaving their safety zones for emerging markets, even as John Paulson is recovering from his Sino-Forest bet, writes Jan Alexander.
From The Washington Post:
UF Weekend Reads
Nice weather today in NYC. Enjoy it today before Sunday’s deluge. Here’s Sam Forgione’s picks. You can now follow Sam on twitter @samuelforgione
From The New Yorker:
Nicholas Lemann explores new books that illustrate the ties between politics and the economy.
From BusinessWeek:
Lazard’s Michele Lamarche takes on the tough task of courting debt-strapped nations.
From Harvard Business Review:
Matthew, take a look at the following link, might be
interesting for you. HFT firms, FBI, trade secrets, bankruptcy, then, if you dig more, psychics, tax evasion, SEC violations, surveillance, company divorcing employees, etc. etc. lots of ugly stuff.
http://m.jsonline.com/more/news/14809767 5.htm
The end of European banking
The €1 trillion in ultracheap three-year loans the ECB doled out in December and February was supposed to have stabilized the entire European banking system. It appears to be having the opposite effect.
European banks — especially those that rely on ECB LTRO financing — are bracing themselves for an imminent downgrade, according to an article in yesterday’s Wall Street Journal:
While Moody’s hasn’t said whether and to what degree it will cut various banks’ ratings, officials at multiple top European banks said they expect their grades to be knocked down at least one notch…
As part of its downgrade reviews, Moody’s is examining the degree to which banks are reliant on the ECB loans and “what are the banks’ abilities to wean themselves off that funding,” said a person familiar with the matter. Heavy borrowing from the ECB “prompts more intense scrutiny” from Moody’s about the banks’ financial health, this person said.
When Moody’s finally cuts these banks’ ratings, it will be costly: Royal Bank of Scotland estimated in a recent filing that a one-notch downgrade would force the bank to post an additional £12.5 billion of collateral.
It’s not clear how much longer European banks can last in their current form, according to a recent Barclays research note. More radical solutions to banks’ woes may be needed, Barclays analysts Simon Samuels, Mike Harrison, and Nimish Rajkotia wrote:
European banks are now unique in their inability to fund… With sovereign debt issuance crowding out bank debt, we think it highly unlikely that the funding model that worked pre-crisis can be re-established.
The trio outlines a number of alternative funding models, from the politically problematic (“the ECB will simply have to fund the balance sheets of European banks for many years to come”) to the fanciful (“another potential solution… would be the creation of a European Freddie/Fannie”). The alternative that has the greatest chance of coming to pass seems to be a “meaningful deepening of the corporate bond market” and a shift away from large-scale corporate lending for European banks. There’s a lot of scope for the European corporate bond market to expand — only 10-15 percent of European corporate financing comes from the bond market vs. 50-70 percent for the U.S.
UF Weekend Reads
A beautiful spring day in the NYC metro area. Let’s Go Mets! Here’s this weekend’s stories courtesy of Sam Forgione.
From The New York Times:
Jennifer Medina reports that California’s economy is either booming and busting, depending on which city you’re in.
From The Nation:
William Greider has some suggestions on how the Federal Reserve can work with politicians to improve the housing crisis.
From Foreign Affairs:
Psst, Bank of America has got a deal for you
By Matthew Goldstein
Wanna buy a foreclosed home on a the cheap? Well, Bank of America has got one for you. Or to be precise, the big U.S. lender has got 556 formerly owner-occupied homes it is trying to unload right now in a bulk deal.
As my colleague Jennifer Ablan and I reported yesterday, BofA, for the second-time in five months, is seeking bids for a bulk sale of foreclosed homes. This second round is much bigger than the first and could be a sign the bank is moving aggressively to sell foreclosed homes with institutional investors eyeing the market.
After our story ran, a source provided a nice overview of the bulk deal that BofA has sought bids on–apparently the deadline for putting in a bid was April 4. According to the bulk sale fact sheet, BofA is trying to find buyers for pools of foreclosed homes in 7 states: Arizona, California, Florida, Georgia, Illinois, Nevada and Texas.
The opening bid for a buyer looking to scoop up all the homes was $68.8 million. But it appears, BofA also was willing to accept bids for the pool of homes in sale in each state.
The average beginning bid price for each home was $123,000.
The fact sheet provided by this source says nothing about the condition of the homes or street locations. Presumably a really motivated buyer got that information from the bank before entering a bid.
Whither the Yale model?
David Swensen has been called “Yale’s $8 billion man” for outperforming the average university endowment by that amount during the first 20 years of his tenure as Yale’s Chief Investment Officer. Chalk that outperformance up to the success of what’s become known as the “Yale model,” or the insight that institutional investors like endowments or pension funds can achieve outsize returns by allocating a large chunk of their assets to hedge funds, private equity, real estate, and other alternative investments.
As Swensen explained in a lecture he gave to Yale MBAs in 2008 , the Yale model rests on two core tenets: 1) “an equity bias for portfolios with a long time horizon,” because equities and equity-like alternative investments tend to rise in value in the long run; and 2) diversification, because by spreading investments among several asset classes with varying degrees of liquidity, ”for any given level of risk, you can increase the return.”
These days, though, it seems both of Swensen’s credos have become passé in the community of corporate pension fund managers, as Reuters’ Sam Forgione reported late last week:
For the first time in over a decade, more of the $1.246 trillion assets represented by the 100 largest U.S. corporate pension funds is now in bonds instead of equities, according to pension consulting firm Milliman…
“There will definitely be less demand for equities from corporate pensions if you look out the next several years,” said Aaron Meder, head of U.S. pension solutions for Legal and General Investment Management America. Corporations are “tired of the volatility in the stock market, so they want to de-risk their pensions,” he added.
What’s striking here isn’t that pension funds no longer share Swensen’s fondness for allocating money to hedge funds or private equity — after all, Swensen himself believes that the majority of institutional investors who can’t match the resources or qualifications of Yale’s Investment Office “should be 100 percent passive.” Rather, it’s that Swensen’s golden rules of asset management — stocks for the long run and diversification — seem to be out of fashion. Pension-fund managers that have years to ride out losses on their stock portfolios until they turn into gains are increasingly throwing in the towel in favor of less volatile, lower-returning bonds. The advantage of endowments and pension funds that Swensen has touted for years — a near-infinite time horizon — is being ignored.
This risk aversion among institutional investors is trickling down to the retail level, too. Mom-and-pop investors withdrew $4.43 billion from equity funds last week, the largest amount since the start of the year, data from the Investment Company Institute showed today. These investors are also showing a preference for fixed income: bond funds saw with $6.12 billion in inflows that same week, for a total of over $26 billion in the previous three weeks.
The question institutional investors are now asking is whether the events of the past few years require a re-appraisal of principles underpinning the Yale model. Hedge funds, one of Swensen’s darling asset classes, had a particularly bad 2011, with the average fund down nearly 5 percent and some stock-picking funds down 19 percent. The New York Times published a story earlier this week that claimed that over the past five years, a set of public workers’ pension funds that had more of their assets in hedge funds, private equity, and real estate posted lower returns and paid higher fees than those with stodgier portfolios.
UF Weekend Reads
Don’t get pranked tomorrow. Remember, it’s April Fool’s Day. Here are the latest Weekend Reads as selected by Sam Forgione.
From Fortune:
Hedge fund manager Paul Singer’s hardball approach has benefited Republican candidates as his fund battles in court with nation’s that have defaulted on their debt.
From The Guardian:
Zoe Williams writes about how Stephanie Flanders, the BBC economics editor and a former speechwriter for Tim Geithner, relishes bad news.
Diversity on Wall Street, or a lack thereof
By Matthew Goldstein
The shooting death of Trayvon Martin, an unarmed black teen in Florida, has evoked a lot of debate about race in America and the nation’s attitudes to what it means to be a minority.
There’s been a good deal written that major media organizations were slow to react to this tragic story, in part because there simply aren’t enough minority voices on staff. This point was highlighted recently in a story in The New York Times
That said, minorities also are underrepresented in the industry I spend most of my time writing about—Wall Street. And while it’s no secret that there are few minorities in the executives suites on Wall Street—there are not that many women, either—it’s worth taking look at some disturbing statistics.
A May 2010 by the General Accountability Office, which looked at the issue of diversity in the financial services industry, found that “overall diversity at the management level in the financial services industry did not change substantially from 1993 through 2008. Relying on data compiled by the Equal Employment Opportunity Commission, the GAO reported that minorities held just 10 percent of “senior-level” management positions at financial services firms.
In 2008, the EEOC data revealed that white males held 64 percent of all senior jobs, with African Americans holding 2.8 percent, Hispanics some 3 percent of all senior jobs and Asians holding 3.5 percent of top level jobs.
The GAO concluded that “without a sustained commitment” from the firms, “diversity at the management level may continue to remain generally unchanged over time.
“The EEOC data revealed that white males held 64 percent of all senior jobs, with African Americans holding 2.8 percent, Hispanics some 3 percent of all senior jobs and Asians holding 3.5 percent of top level jobs.”
DOESN’T THAT SAY IT ALL???
UF’s Weekend Reads
Here is the latest edition of Weekend Reads courtesy of Sam Forgione. Enjoy.
From Barron’s:
The managers of hedge fund Cassiopeia are teaching a lesson or two on trading volatility.
From Bloomberg Businessweek:
Matthew Philips addresses regulatory efforts to catch up with the glitch mob known as high-frequency traders.
