Here’s a hot trading tip: following hedge fund managers into a stock is no guarantee of success, if the results of top picks touted at a famous hedge fund confab are any indicator. Several stocks talked up by famous managers at last year’s Ira Sohn value investing conference have significantly trailed the market since, according to an analysis of those picks in the Financial Times.
The annual gathering, which raises money for pediatric cancer research, features such hedge fund industry legends as Greenlight Capital’s David Einhorn and Pershing Square Capital’s William Ackman, whose big idea last year has notably flopped. Ackman touted ailing retailer JC Penney, whose stock has plummeted 37 percent in the year since the conference. Einhorn’s top ideas gained a mere 0.7 percent, according to the report; Apple, one of his picks, has fallen 16 percent. Ackman and Einhorn both presented at this year’s conference, held on Wednesday at Manhattan’s Lincoln Center.
But investors who backed Tiger Cub Philippe Laffont of Coatue Managementand Larry Robbins of Glenview Capital Management fared extremely well: Laffont’s two picks, Equinix and Virgin Media, are up almost 80 percent on average, the analysis showed. (Laffont’s savvy investments landed him on this year’s Rich List of the top earning hedge fund managers of 2012, as ranked by Institutional Investor’s Alpha.) Robbins boosted healthcare stocks and advocated selling power transition company ITC, for estimated gains of 60 percent. Investors who followed every top recommendation from each speaker at last year’s event would have earned 19 percent, or less than the 22 percent return achieved by a passive stock index, according to the report.
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Beware the inflows of March. Hedge funds took in a measly $817million in net new money that month, after taking in $11.4 billion in February, according to a TrimTabs/BarclayHedge survey of 3,409 hedge funds. What’s more, the hedge fund industry failed to beat the broader market, delivering a 1.1 percent return, compared with a gain of 3.6 percent for the S&P 500. Equity long-short hedge funds fared best in March, returning 3.3 percent, according to the report. But managers surveyed said they do not expect the stock market to do well in May, with various indicators showing that managers are turning bearish.
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The UK’s Serious Fraud Office could come under fire for its handling of the collapse of London hedge fund Weavering Capital in 2009, according to a Reuters report. Magnus Peterson, Weavering’s founder, is provisionally set to go on trial in October 2014. Weavering’s investors lost more than $530 million when it was revealed that the fund’s assets consisted of interest rate swap transactions with an offshore entity that Peterson also controlled. The SFO suspended its two and a half year investigation of Weavering in 2011, though Peterson was ordered to pay $450 million in damages in a civil suit. The SFO later resumed its investigation under new director David Green. Judge Alistair McCreath said the SFO will likely face “quite serious criticism” of the earlier decision to suspend the investigation, according to the report. The SFO had arrested two people in May 2009 on suspicion of fraud in the Weavering case but said it did not have enough evidence to convict them. Peterson maintains his innocence, according to Reuters.
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Credit trading strategies remain red hot – so much so that hedge funds are raiding investment banks for talented debt traders, hiring from such companies as Deutsche Bank, Barclays and Bank of America Corp., Bloomberg reports. As banks clamp down on proprietary trading and reel in risk, hedge funds such as New York-based credit specialist Blue Mountain Capital and Minnetonka, Minnesota-based Pine River Capital Management are rapidly beefing up their trading teams to keep up with investor demand for credit-focused strategies and are looking to Wall Street for talent. Blue Mountain has more than doubled its staff in the last two years through December, while Pine River expanded its workforce by a third last year, according to the report. Credit-focused hedge funds have taken in $108 billion since 2009, according to industry tracker Hedge Fund Research.
