A new survey of large hedge fund investors found a high level of customer satisfaction. According to Credit Suisse’s eighth annual Hedge Fund Investor Survey, 87 percent of investors indicated that they would maintain or increase their hedge fund allocations in the coming year. However, other findings may suggest this confidence is not as great as the study’s promoters want you to think.
For example, the investors forecast a 3.5 percent increase in industry-wide assets under management. This would bring the industry total to more than the headline-grabbing $3 trillion level. However, this is actually a paltry gain, especially given that nearly two thirds of the survey participants expect returns to range between 5 percent and 10 percent. And performance is critical to this group. To get to 3.5 percent growth, you only need a combination of very little upward performance and very little net increase in new money.
Meanwhile, according to the survey, the most important factor when choosing hedge funds is returns. At the same time, two-thirds cited manager underperformance as the key reason for redeeming their funds in 2015. Indeed, a pair of recent studies suggested that investors are becoming more disenchanted with hedge funds over performance issues.
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Paul Singer’s Elliott Management has identified a new activist target. The New York hedge fund firm said it owns 8.8 percent of software maker Qlik Technologies. In a regulatory filing, Elliott acknowledged the company “operates in a highly strategic area of the technology industry with an attractive competitive position and a compelling product set,” which is not reflected in its stock market value. Elliott added that there are strategic and operational opportunities for Qlik Technologies that would “meaningfully increase value,” noting it has initiated discussions with management and the board. However, Elliott does not provide specific proposals for boosting the company’s value.
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Is this the moment that William Ackman has been waiting for? Herbalife admitted in a regulatory filing on Thursday that it provided erroneous data on “active new members” on certain 2015 earnings calls. The multi-level marketer of nutrition and health care products said it began tracking this metric in 2015. It attributed the errors to “database scripting errors.” Herbalife said it discovered the errors on March 1, saying it did not discover these errors earlier “because it had limited visibility into the likely rate of change in this metric upon its first use.”
Meanwhile, on Wednesday Andrew Ceresney, director of the Securities and Exchange Commission’s Division of Enforcement, said at a symposium on combating pyramid schemes and affinity frauds that some multi-level marketing programs “are actually pyramid schemes, in which participants profit not from the product they are selling but almost exclusively through recruiting other people to participate in the program.” This is the main allegation Ackman has made about Herbalife that led his hedge fund firm, Pershing Square Capital Management, to heavily bet against the company.
However, Ceresney added that in pyramid schemes, there is usually no genuine product or service. “Instead, participants in these schemes frequently claim to own, or be developing, some sort of ethereal technology service, such as Chinese media cloud computing services, voice over Internet services, Internet marketing through websites or undefined e-commerce services,” he said.
This is not the case with Herbalife, which does in fact have real tangible products, even if there is a debate over how much of them are sold to actual customers or other salespeople in the Herbalife chain. In any case, shares of Herbalife fell 7 percent on Thursday, to close at $52.42.
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Shares of Consol Energy surged another 9 percent or so, to close at $10.30. They are now up 20 percent over the past three trading days alone after the natural gas producer and coal miner said it would sell some assets and suspend its dividend. The stock price is also more than double its closing price when it hit rock-bottom in mid-January. The stock, which lost 76 percent last year, is one of the largest long holdings of David Einhorn’s Greenlight Capital.
