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Keeping Up with the (Paul Tudor) Joneses: a Hedge Fund Industry Update

Learn what sets hedge funds apart, the current state of the industry, and how hedge funds are involved in philanthropy.

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Keeping Up with the (Paul Tudor) Joneses: a Hedge Fund Industry Update

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  1. Keeping Up with the (Paul Tudor) Joneses: a Hedge Fund Industry Update Sponsored by

  2. TODAY’S CHAT • What’s different about hedge funds? • Current state of the industry • Prospects at hedge funds • Hedge funds and philanthropy

  3. FIRST OF (W)ALL (OF TEXT) Hedge funds are private partnerships in which the manager or general partner (GP) has a significant personal stake in the fund and is free to operate in a variety of markets and to utilize investments and strategies with variable long/short exposures and degrees of leverage.

  4. DIFFERENT HOW? In search of absolute returns Exotic investment strategies; outsized returns (but big risks) Not for everyone, literally Lock-up period & redemptions Also…

  5. HIGH-WATER MARKS Almost all hedge fund performance fee arrangements include a high-water mark provision  performance fees only apply to profits after losses in previous years have been recovered

  6. FOR INSTANCE… In 2011, an investor gives $500K to a HF. By year’s end, the investment’s value falls to $300K. In 2012, the HF realizes returns of 100% so the investment is now worth $600K. HWM provision means the investor must only pay performance fees on the gain between $500K and $600K.

  7. CITADEL INVESTMENTS

  8. HF INDUSTRY AUM $2.05T in AUM at end of 2012 Flat (marginal uptrend) from 2011 But BIG bounceback from 2009’s $1.29T

  9. AUM BY STRATEGY Helpful to familiarize yourself with various strategies Chart from BarclayHedge #3 #1 #2

  10. HF PERFORMANCE HFs returned 8% on average in 2012 5% returns through 5/10/13 (635 HFs closed in 2012) While…S&P returned 16% in 2012 and 15% thru 5/10

  11. STRATEGY RETURNS BarclayHedge

  12. TO KEEP AN EYE ON Real Estate (MBS) Event Driven (Herbalife) Currency (Euro debt crisis, Yen)

  13. LANDSCAPE New York City and London still tops Other Euro countries enticing HFs: Monaco, Malta, Switzerland Brazil is Latin American “beachhead”

  14. VIEW FROM FUND MANAGER’S WINDOW

  15. DOMESTIC REGS Dodd-Frank Act (Volcker Rule) JOBS Act (crowdsourcing investment opps) Carried interest?

  16. OVERSIGHT/DISCLOSURE GPs with >$150M must register with SEC Large HFs must publish brochure in “plain English” Smaller firms to feel $$ pinch of compliance

  17. EUROPEAN REGS Alternative Investment Fund Managers Directive (AIFMD) vs. Undertakings for Collective Investment in Transferable Securities (UCITS)

  18. UPCOMING EU CHANGES Harder to country shop Leverage and compensation curbs Affects non-EU funds operating in the EU UCITS-compliant funds underperforming

  19. WHERE TO FIND THE 411 Queued up for your viewing pleasure: SEC Investment Adviser site (adviserinfo.sec.gov) Schedule 13F SEC filings (whalewisdom.com) Investor letters (marketfolly.com)

  20. COMP EVALUATION Management fees (1% of AUM) 5% or “skin in the game” rule Deep dive

  21. HFs GIVING GLOBALLY RICE (Cambodia, India) Man Group (Japan) China Care Foundation (Bridgewater) Hedge Funds Care Robin Hood Foundation Robertson Foundation Blackstone Foundation Hintze Family Charitable Foundation (UK) Open Society Institute (Soros) Children’s Investment Fund Foundation

  22. CASE: ROBIN HOOD FDN Largest private poverty-fighting organization in NYC $326M in assets in 2011 Over $1B in charitable giving over 24 years; $154M in 2011 alone

  23. CASE: 100 WOMEN IN HEDGE FUNDS Mentoring (2013), women’s and family health (2014), education (2015) US, UK, and Switzerland Raised close to $30M to date

  24. CASE: HEDGE FUNDS CARE Operations in NYC and the Caymans International giving with focus on child abuse $45M raised for charity since 1988

  25. CASE: CHILDREN’S INVESTMENT FUND FDN Targeting $100M in charitable investments in 2013/14 Active since 2009 with US and UK boards Impact areas: child survival, hunger alleviation/nutrition, educational attainment, climate

  26. DONE! QUESTIONS? Thanks to Bill Powers, the AFP, and Alex Cocleaza ’12

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