Morning Brief: A Skeptical Look at Hedge Fund Altruism
Bah humbug: A study finds that charitable donations flow when funds are doing poorly and looking for capital.
The old saw of “doing good to do well” is alive and well in hedge fund land, according to a study that tied hedge funds’ charitable contributions to their desire to find new clients.
“Managers of funds that are going through a period of poor performance and low net flows donate to stimulate future net flows. These strategic donations work, and these managers experience significantly higher net flows as a result of the donations,” concluded a study by business school professors Vikas Agarwal of Georgia State University, Yan Lu of the University of Central Florida, and Sugata Ray of the University of Alabama.
The study looked at 6,642 donations from 667 hedge fund managers between January 1994 and June 2016. It found that after giving, the hedge funds’ annualized inflows exceeded those of non-donating peers by an average of 9 percent.
“The probability for the managers of poorly performing funds to make a donation is almost double that for the managers of relatively well-performing funds,” the authors wrote. “If donations can help bring in more capital and can improve fund performance, managers of funds with higher fees can earn greater compensation.”
Furthermore, “the use of high-water marks is also positively related to donations, consistent with the possibility that poorly performing managers may want to attract new investors to their funds from whom they have a better chance of earning the incentive fee (since new flows will enter with a fresh high-water mark).”
A new activist position by Jeff Smith’s Starboard Value in Cars.com took off Tuesday morning, with the stock jumping 7 percent after Starboard announced a 9.9 percent stake in the online auto marketer.
Starboard disclosed its stake in a securities filing Monday after markets closed. In the filing, it said the shares were undervalued and that it may talk with third parties about business combinations or disposition of assets.
Starboard paid an average of $25.42 for its 821,308 shares. The stock closed at $29.23 on Wednesday, up 15 percent on the activist’s purchase price.
Despite broadly failing to outperform stock markets, hedge fund professionals are looking forward to big bonuses this year, Bloomberg reports.
They predict their bonuses will be 39 percent higher than last year’s, according to a survey of 500 buy-side investors by Odyssey Search Partners.
Respondents estimated they’d take home an average of $562,000 in bonus pay, up from $405,000 last year, Odyssey said. Sector heads, partners, and portfolio managers are looking to haul in $1.38 million on average — a 79 percent hike year-on-year.
The founder of Autonomy Capital — which has the biggest stake among hedge funds in defaulted Puerto Rico bonds — has another problem on his hands: an alleged angry ex-mistress.
Aline Marie Massel, 31, the former Miss Germany International, said she had a two-year relationship with Autonomy Capital CEO Robert Charles Gibbins, the New York Post first reported. He promised to buy her a Canadian estate and a Ugandan ostrich farm, she claimed, but gave her an STD instead.
More sordid details were given in her lawsuit filed in Manhattan Supreme Court, where she is suing Gibbins for $15 million in damages.
“These baseless allegations are without merit and Mr. Gibbins will defend himself vigorously,” a representative told Institutional Investor’s Alpha in a statement.