Point72 Asset Management president Doug Haynes entertained the audience at Wednesday’s Absolute Return Symposium during his morning keynote address with a lively 45-minute talk about corporate culture — an especially important issue for his boss, Steve Cohen, the founder of Stamford, Connecticut–based hedge fund firm SAC Capital Advisors. Cohen set up Point72 as a family office in 2014 after SAC settled with the Securities and Exchange Commission, pleading guilty to insider trading charges, paying a record $1.8 billion fine and agreeing to return all outside money. Cohen initially recruited Haynes as managing director of human capital in February 2014 and asked him “to take an unflinching look at the culture” of the firm, Haynes explained: “I am the culture guy.”
He is, indeed. During a 22-year career at consulting firm McKinsey & Co., Haynes advised countless CEOs of major companies, including IBM chief Sam Palmisano, writing a chapter on culture for the tech exec’s 2015 book, Growing Global: Lessons for the New Enterprise.
Haynes began his talk with an unusual self-cross-examination, asking the question that was on the minds of many of the hedge fund investors in the room as a result of Cohen’s deal with the SEC earlier this year that would lift his lifetime ban: “When will Point72 raise outside money?” Haynes said that nothing has changed at the firm since the latest SEC settlement and that it isn’t seeking investors. “We’re not capital constrained, we’re talent constrained,” he added, going on to explain how Point72 identifies and retains portfolio managers who have demonstrated the ability to improve. The new focus on culture and developing talent seems to be working. In 2015, Point72 delivered a 15.5 percent return, according to Haynes, easily besting the average hedge fund, which was at best flat for the year.
Few people are better acquainted with the difficulties of short selling than Carson Block. He’s the founder of the research firm Muddy Waters, which gained overnight fame for its famous proclamation that Chinese paper company Sino-Forest was a fraud, and has since gone on to start a short-biased, activist hedge fund, Muddy Waters Capital. In a keynote address at the Absolute Return Symposium, held yesterday in Manhattan, Block noted that companies that are the target of short-seller attacks will stop at nothing to overcome them. Sino-Forest, for example, “spent $50 million to stop our research,” Block said.
But that hasn’t stopped Block and his colleagues, who have gone after a number of companies since then. Block says that when choosing which companies to short, his firm likes companies that are either outright frauds, engage in financial engineering or focus on what he calls backward-looking analysis. The firm’s approach ranges from a full-court press — such as the Sino-Forest call — or what Block calls “light-touch activism,” an approach he thinks is particularly well-suited for the credit markets. Block says the firm thinks the firm is looking to put on more credit-focused short bets this year. And one of the tools he’ll continue to use regardless of the campaign is Twitter. Block told attendees at the one-day conference that the social network is “a very important tool” for activists.
The portfolio managers from Fortress Investment Group who run an Asia-based credit fund have sounded more warning signs in support of their earlier prediction of an Asia credit collapse on par with 1997, according to a Bloomberg report. David Dredge, CIO for the Fortress Convex Asia Fund, told investors in a December letter that “more cracks are appearing in the hull of the good ship ‘Credit,’” namely the continued plunge in oil prices and the depreciation of onshore and offshore renminbi.
Fortress says two factors indicate that a credit crisis is on the horizon, according to the letter, which points out that credit default swap spreads have widened on companies including Noble Group, Freeport-McMoRan, Anglo American and Glencore. Dredge runs the fund along with co-portfolio managers Nicholas Heaney and Andy Wong. In its September letter to clients, the fund’s managers said that the emerging market selloff that started last summer will continue until at least the spring of 2017. Fortress declined to comment for the story.