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The Morning Brief: Hedge Funds Beat Buffett in 2015
Score one for hedge funds — sort of. In Berkshire Hathaway CEO Warren Buffett’s famous wager against Protégé Partners that an index fund tracking the Standard & Poor’s 500 would outperform a portfolio of funds of funds over a ten-year period, the hedge funds came out on top for only the second out of the past eight years, as Carol Loomis reports for Fortune. The funds-of-funds portfolio notched a 1.7 percent gain in 2015, edging out the stock index fund, which returned 1.36 percent. But don’t break out the Dom Pérignon just yet: Over the first eight years of the bet, the index fund has returned 65.67 percent, on average, compared with just 21.87 percent for the funds of funds. Ouch. Still, as Protégé Partners co-founder Jeffrey Tarrant recently told Alpha, “I don’t give up until the fat lady sings.”
Another industry tracker reports that hedge funds had a dismal January. London-based data provider Preqin says its Hedge Fund Benchmark index lost 2.60 percent for the month, its worst monthly performance since May 2012. On the other hand, commodity trading advisers gained 1.38 percent in January, living up to their promise of providing uncorrelated returns. The Standard & Poor’s 500 stock index lost 5.07 percent last month, while the MSCI World index lost more than 6 percent. The equity-focused funds Preqin tracks lost 4.28 percent, by comparison. Alternative mutual funds lost 2.58 percent for the month.
At least one hedge fund manager is rooting for a Brexit. Toscafund Asset Management, the London-based hedge fund firm founded by former Tiger Management Europe chairman Martin Hughes, said in a report to clients that the U.K. would be a “better place” if it left the European Union, Bloomberg reports. “If the EU doesn’t want to reform we should leave it,” wrote Savvas Savouri, an economist at the firm, in a report titled “Britain Stands Up — Better to Exit the European Union,” according to Bloomberg. The report notes that British hedge fund managers have been divided on the prospect of the U.K. leaving the EU, with Odey Asset Management founder Crispin Odey in favor of a Brexit and Winton Capital Management founder David Harding firmly opposed. U.K. Prime Minister David Cameron has said he will hold a referendum on the issue by the end of 2017.
Renaissance Technologies co-CEO Robert Mercer’s family foundation in 2014 gave $500,000 to a group called Citizens for Self Governance, which is funding a Tea Party lawsuit against the Internal Revenue Service, according to a Bloomberg report. Mark Meckler, the group’s president, told Bloomberg in an e-mail that Mercer’s donation was to support the group’s Convention of States project, which “seeks to amend the U.S. constitution to restrict government reach,” according to the report. Meckler told Bloomberg that the donation was not related to the group’s financing of a federal lawsuit against the IRS for targeting Tea Party political groups and that to suggest so would be “dishonest and untrue.”
Renaissance, of course, has been tangling with the IRS since 2013 over a tax strategy that, according to a 2014 report from the Senate Subcommittee on Investigations, enabled Renaissance to avoid paying $6 billion in taxes over a decade. The IRS has since cracked down on the strategy. Mercer, who declined to comment to Bloomberg on the story, recently landed on Politico’s list of top campaign donors, having donated $12.5 million, most of which went to several super PACs supporting the campaign of presidential candidate Ted Cruz.