LAS VEGAS (Reuters) – After a one-year pause, the hedge fund industry schmooze fest organized by Anthony Scaramucci, the investment manager who briefly served as President Donald Trump’s communications director, returned to the Las Vegas strip this week.
FILE PHOTO: Anthony Scaramucci, managing partner of Skybridge Capital, speaks at the SALT conference in Las Vegas May 14, 2014. REUTERS/Rick Wilking/File Photo
But the atmosphere at the 10th annual SALT Conference was much more subdued than in past years, when celebrity hedge fund managers rubbed shoulders with former U.S. presidents at private dinners, poolside parties and late-night gambling at the Bellagio hotel.
This time, organizers and attendees said they ditched that party vibe to debate investment ideas and listen to former White House officials talk geopolitics.
“The vast majority of institutional investors would rather be sitting around and having a discussion about structured credit tranches instead of going to splashy parties,” Eric Nierenberg, chief strategy officer at the $74 billion state pension fund for Massachusetts, said in an interview at the event.
“What we are trying to do is very sober,” he added.
For the first time, investors attending SALT outnumbered hedge fund managers, said Ray Nolte, co-chief investment officer of SkyBridge Capital, the investment company Scaramucci founded and which is affiliated with the conference. There were also more panels at the expense of longer networking breaks.
The superstar managers who previously attended – including Daniel Loeb, David Tepper, William Ackman, Ken Griffin and Steven A. Cohen – did not come. Avenue Capital Group’s Marc Lasry said he opted to watch the Milwaukee Bucks, a team he co-owns, beat the Boston Celtics, instead of flying to Vegas.
And at the pool party where musical artists like the Gipsy Kings once performed, there was a disc jockey spinning tunes. In the past there were also private concerts featuring One Republic and Duran Duran.
“We want to replace the perception that this is a boondoggle with the reality of what is being offered here,” Nolte told Reuters.
The conference has taken on new importance as hedge funds are making a comeback of sorts.
After facing criticism for more than a decade over high fees and lackluster returns, some institutional investors are returning to hedge funds that pursue niche strategies, in which performance is less correlated to market moves.
Among those paying $8,000 per ticket to hear some of those ideas were representatives of the Canadian Pension Plan Investments Board, the California Public Employees Retirement System (CalPERS), the Public Employees Retirement Association of Colorado, known as Colorado PERA, the City of El Paso Employees Retirement Trust and the West Palm Beach Police Pension Fund. Many had come for the first time.
Others were Scaramucci’s friends and business associates, celebrating SALT’s relaunch after two tumultuous years.
Scaramucci joined the Trump administration in 2017 as communications director, a job that lasted only 11 days. He also tried to sell SkyBridge, which invests $10 billion, to Chinese conglomerate HNA Group, but the effort failed.
In reviving his signature event, Scaramucci was thrilled to report that he drew the second-highest attendance in its history.
“The country has to fix a lot of problems,” he said in an interview. “I don’t know if we’ll fix them here, but we will certainly talk about them.”
Panelists included President Donald Trump’s former chief of staff, General John Kelly, who fired Scaramucci, as well as former Attorney General Jeff Sessions, former New Jersey Governor Chris Christie and former U.S. ambassador to Russia Michael McFaul.
Much of the confab focused on concerns that economic growth may slow, that volatility will pick up and that the stock market boom will come to an end.
Nolte is betting that investment grade debt will lose value while assets like residential mortgages will perform well. Amy McGarrity, chief investment officer of Colorado PERA, likes multi-strategy funds focused on Asia. MassPrim’s Nierenberg is scouring emerging markets for opportunities.
On one panel, economist Nouriel Roubini described cryptocurrencies as “the mother and father of all bubbles.” On another, former Countrywide Financial Corp CEO Angelo Mozilo here once again defended himself against accusations that he was a key architect of the 2007-2009 financial crisis. “Somehow, for some unknown reason, I got blamed for it,” he said.
Several attendees told Reuters they liked the faster-paced program and felt the subdued tone was more appropriate for the current times.
“The real test will be if there are jugglers and fire eaters at the pool party,” one hedge-fund manager joked.
There were not.
Reporting by Svea Herbst-Bayliss; editing by Lauren Tara LaCapra AND cYNTHIA oSTERMAN
BEVERLY HILLS, Calif. (Reuters) – Traditional stock-pickers in the hedge fund world have been struggling to justify their expenses and weak returns in recent years, as low-cost algorithmic funds have done better. Now, human managers are starting to embrace the technologies employed by their robot rivals to improve results.
FILE PHOTO: U.S. dollar notes are seen in front of a stock graph in this November 7, 2016 picture illustration. REUTERS/Dado Ruvic/Illustration
Prominent hedge fund managers, investors and consultants gathered at the Milken Global Conference in Beverly Hills this week said the industry is increasingly turning to big-data analysis, machine learning and other types of artificial intelligence to research investments or build on ideas.
They insisted it is not a cost-cutting strategy to replace human managers. Rather, they are trying to improve performance with the help of technology.
“There is still a role for humans to figure out regime change and to figure out disruption, but those humans tend to do better when they are aided by quantitative tools,” said John McCormick, chief executive officer of Blackstone Group LP’s alternative asset management business.
Blackstone, the world’s biggest investor in the $3.3 trillion hedge fund industry, has found that the most successful ones within the analog realm are those that compliment human talent with sophisticated technology, McCormick said.
That evolution was a key focus of hedge fund panels and a hot topic on the sidelines at the Milken event. Managers at firms including D.E. Shaw & Co and Citadel, plus big U.S. and global pension funds, said it is a watershed moment for the industry, driven by market trends that have put enormous pressure on active fund managers.
The number of publicly traded companies has declined to about 3,500 – roughly half the number from two decades ago – offering managers fewer options to find outsize returns.
Meanwhile, investors are balking at the high cost structures of hedge funds, which often charge a 2 percent fee plus 20 percent or more of gains, especially as low-cost, passive investments like index funds have produced better results.
The mood worsened last year, as stock-oriented hedge funds lost about 7 percent, compared with a 4 percent decline in the Standard & Poor’s 500 Index.
“There are fewer tradable opportunities,” said Eddie Fishman, chief operating officer at D.E. Shaw Group, a $50 billion hedge fund firm. “People are not looking to add to long risky assets and there is such a pressure for uncorrelated returns.”
It is a much different dynamic than the run-up to the 2007-2009 financial crisis, when investors were clamoring for access to exclusive funds. A host of once-prominent hedge fund firms including Eric Mindich’s Eton Park and Richard Perry’s Perry Capital are now calling it quits.
People are “looking at the hedge fund industry as a giant poker table and asking themselves who is going to lose,” said Ilana Weinstein, chief executive of the IDW Group which recruits employees for Wall Street’s top hedge funds.
Other funds that focus on picking stocks, including Daniel Loeb’s Third Point, are hoping that quantitative science can help improve performance.
But even as firms embrace new technologies, managers and investors said attracting and retaining top talent is still crucial. While compensation is a key motivator, is it no longer the only one. Younger recruits especially want to feel that they have a real career path with meaningful challenges, Milken attendees said.
The “way to reduce the risk of firm failure is to attract other people,” said Blackstone’s McCormick, “because no one has a monopoly on the right way to invest.”
Reporting by Svea Herbst-Bayliss in Beverly Hills, California; Editing by Lauren Tara LaCapra and Lisa Shumaker
BOSTON (Reuters) – Borealis Strategic Capital Partners, which invests in new hedge funds, has written its first check to commit capital to Europe-oriented stock fund Vor Capital, two people familiar with the matter said on Friday.
Vor Capital launched a year ago with a plan to invest in mid-sized European internet companies. It is run by Brant Rubin, who previously worked for hedge fund Luxor Capital.
Borealis did not answer a call for comment. Vor did not return an email seeking comment.
The sources did not say how much Borealis was committing but one said it would bring Vor Capital’s total assets under management to roughly $100 million.
Many institutional investors are giving hedge funds the cold shoulder, criticizing their high fees and generally lackluster returns. But investors are still eager to find promising newcomers who could outperform existing rivals and often wait until an established investor has made a commitment that could prompt others to follow along.
During 2018, its first year in business, Vor delivered returns of 15 percent, a person familiar with the returns said. Since January the fund has returned roughly 10 percent and it made money in December 2018, a time when most hedge funds lost money, the source said.
The average hedge fund gained roughly 6 percent in the first three months of 2019 after having lost 5 percent last year, Hedge Fund Research data show.
Borealis plans to provide start-up capital to roughly four to six funds, including some that might pursue activist strategies, one of the people familiar with the matter said.
The firm is run by Scott Schweighauser and traces its roots to Aurora Investment Management, a fund of funds that once managed $14 billion in assets. Schweighauser was Aurora’s president and oversaw the firm’s liquidation in 2016 after its owner Natixis Global Asset Management decided to shut it down.
Borealis is getting into the seeding business at a time it is becoming ever tougher for new hedge funds to sign up clients. Firms like Blackstone Group, Paloma Partners, Protege Partners and Reservoir Capital Group also make start-up investments with new hedge funds.
Reporting by Svea Herbst-Bayliss, Editing by Rosalba O’Brien
LONDON (Reuters) – The new managers of Columna Commodities Fund, a Luxembourg hedge fund which went into liquidation in early 2017, have said they are suing its former managers Alter Domus for $56 million in lost assets and fees.
Columna, launched in 2013, was a top-performing fund in a stable known as LFP I SICAV, managed by Luxembourg Fund Partners.
Alter Domus, a Luxembourg fund platform and administrator that has financial backing from private equity giant Permira, bought Luxembourg Fund Partners in December 2017, after Columna’s collapse, when LFP I SICAV’s assets under management totaled nearly 400 million euros ($450 million).
In a statement released earlier this week, the new directors said they had launched a claim to recover investment losses, management and performance fees from Alter Domus Management Company. LFP I SICAV’s assets under management now total around 80 million euros.
Columna made double-digit gains in 2014, 2015 and 2016 investing in a range of commodity products, according to information it sent its investors. But it then closed abruptly in December 2016 without returning any of its assets.
An Alter Domus spokesman said the firm was only aware of “significant issues” with Columna between 2013 and 2016 after buying Luxembourg Fund Partners.
The spokesman declined to comment on the legal claim.
In a previous email, he said Alter Domus was looking into the issues with Columna and had “engaged various external firms to assist with our investigation, the findings of which has led to the commencement of legal actions”. He declined to comment further on the legal actions, saying they were ongoing.
Permira declined to comment.
After being asked by Columna investors to help, asset recovery specialist David Mapley was one of three directors appointed to a new board of LFP I SICAV late last year and authorized by the Luxembourg regulator in February 2019 to take over management of the fund stable from Alter Domus.
Luxembourg’s financial regulator declined to comment on individual firms or court cases.
Reporting by Carolyn Cohn, Simon Jessop and Maiya Keidan; editing by David Evans
LONDON (Reuters) – Generous salary and juicy bonus? Check. Client meetings at private members’ club? Check. Swanky Mayfair office? Check. Company maternity scheme? Maybe, we’ll get back to you.
Clare Flynn Levy, CEO of Essentia Analytics is seen in this undated handout photo obtained by Reuters March 28, 2019. Clare Flynn Levy/Handout via REUTERS
In the competition for talent, the hedge fund industry still has an edge over many other areas of finance, except, it would seem, when it comes to employing women.
Women are in the minority across the financial industry when it comes to top jobs. A Reuters analysis of regulatory filings shows the proportion is especially low among British hedge funds, most of which are private and not bound by disclosure rules.
Just seven women were hired or promoted last year as investment executives at 20 of Britain’s top private hedge funds, the lowest level in at least a decade, the analysis found. They took on 82 men in that period.
Of all the places to work in hedge funds, the investment team is the most coveted. Portfolio managers or traders decide where to invest client money and are traditionally the highest-paid members of staff. Such roles are a launch pad for star managers to set up their own firms in the future, establishing the next generation of hedge funds.
In Britain, these roles are registered with the Financial Conduct Authority (FCA) under a category known as the ‘CF 30’ function, which also comprises senior marketing jobs.
A Reuters analysis of CF 30 filings for 76 financial firms showed hedge funds registered women at a fraction of the rate of other finance companies.
(For a graphic on British hedge funds lag on diversity of key staff, click tmsnrt.rs/2UNZpml)
For an interactive version of the graphic showing registration rates across financial firms in Britain, click here tmsnrt.rs/2HA0lb3.
Hedge funds say they struggle to find women to work as portfolio managers and point out that women are better represented in other areas, including compliance and legal counsel. These are middle-office or back-office positions, rarely involved in investment calls.
People who work for or in financial services say more female candidates would emerge for trading positions if hedge funds cast the net wider for potential candidates, and offered better maternity packages and mentorships.
“Hedge funds will all say they don’t get female applicants but are they even looking for them? Do they care? The data suggests no they don’t,” said Yasmine Chinwala of think tank New Financial.
Unlike the rest of the financial sector, where large, listed companies are now required to disclose pay gaps between men and women, and are under public pressure to have more women in senior roles, hedge funds can mostly operate below the radar.
Usually privately-owned and run by their founders, they are not the target of government drives to improve female representation in finance.
“Public scrutiny, and more specifically, mandated government-backed scrutiny … delivers results,” said Chinwala. “These sectors have shown they are not going to make significant changes themselves without a big, concerted, external push.”
INVESTING BY NUMBERS
Three of the 20 top British hedge funds covered in the Reuters analysis commented about their record of hiring women.
“We have women represented across all functional areas of the firm as well as in senior management positions which are not covered by CF 30 registrations, which represents a small proportion of our staff,” a spokeswoman for Marshall Wace said.
The firm has registered three women in the CF 30 category since 2009 compared with 40 men over the same period.
“Algebris continues to invest in women’s careers, developing talent and creating the next generation of female leaders in finance,” said a spokesman for the firm, which registered nine women and 24 men as a CF 30 since 2009.
Emso Asset Management said 35 percent of its employees were women and said it paid employees for the first 26 weeks of their 52 week maternity leave. It has registered nine women and 30 men as a CF 30 since 2009.
“Our diversity in employee base reflects the diversity of markets within which we make investments,” Chief Operating Officer Rory McGregor said in an emailed statement.
Emso was the only one of the 20 hedge funds to comment publicly on its maternity pay.
Paid leave after becoming a parent can vary widely between firms. One portfolio manager told Reuters she had to argue her case to get paid while on maternity leave. She declined to be named for fear of damaging her career.
Valerie Kosenko, at recruitment consultant Mondrian Alpha, said maternity pay was an important consideration for a lot of women looking to work in the hedge fund industry.
“I don’t think hedge funds gave a lot of thought to it at all. It’s something that hedge funds can definitely improve.”
The 10 largest U.S. hedge funds with a UK office – including Citadel and Millennium Management – registered slightly more women than their British counterparts, at nearly 13 percent, in 2018, according to the Reuters analysis.
A spokesman for Millennium declined to comment. Citadel did not respond to requests for comment.
CF 30 is an imperfect measure of diversity because firms can have a different interpretation of the FCA guidelines as to who should be registered.
Some firms register investor relations staff as CF 30. Women tend to be well-represented in such jobs, meaning that the CF 30 category may exaggerate the actual number of women hired or promoted to be traders.
In the decade covered by the Reuters analysis, the ratio of women employed under the CF 30 designation by 20 of the top private British hedge funds never went above 23 percent and averaged 16 percent.
WHY TRY?
There are no comparable figures on hedge funds’ portfolio manager hires in the United States, but data on U.S. firms founded in the last few years show the industry remains dominated by men. Women-led firms managed only about 3 percent of the assets in new funds launched between 2013 and 2017, according to figures from Hedge Fund Intelligence.
Jane Buchan, who spent nearly 20 years allocating money as chief executive of PAAMCO, one of the world’s biggest investors in hedge funds, says female money managers have to work harder to get investors to trust them.
“Women need to outperform significantly in order to have the same asset levels as men who perform worse,” said Buchan, who now runs her own fund, Martlet Asset Management.
“With this sort of outcome, which can be shown in academic studies and what many women perceive from their own interactions with investors, why try?”
Man Group, one of the few listed hedge funds, is the only UK hedge fund firm to sign up to the British government’s Women in Finance Charter, which sets targets to increase female representation in the upper echelons of the City.
The London-headquartered firm is targeting 25 percent female representation in senior management roles by the end of 2020 from 22 percent last year and has introduced a number of measures to improve gender diversity, including a returners program for women who left the industry.
It offers 18 weeks paid leave globally for new parents, male or female.
Man Group registered five women as a CF 30 last year, but that represented a re-categorization to comply with European rules rather than new hires.
“We have concentrated on making sure internal people can meet their potential, introduced a lot of mentoring, ensured that we always consider a female candidate and looked at things that have historically slowed down hiring women,” said Man’s chief executive officer, Luke Ellis.
Women held 13 percent of investment management roles at Man Group globally in 2018, up from 11 percent in 2017 and 8 percent in 2013, a source familiar with the matter told Reuters.
THE SLEAZY BITS
Interviews with nine women who work or worked as portfolio managers in Britain and the United States, said hedge funds could be a tough sector for female investment managers. Some of them had experienced disparaging comments about their appearance or their investment abilities.
Male colleagues making unwelcome advances at female co-workers on nights-out was not an unusual occurrence, according to seven women who worked in a variety of different roles for hedge funds, including as traders.
One hedge fund reassigned the female toilet on the trading floor as a men’s toilet, meaning women on the investment team had to walk to another part of the building, two of the women said.
None of the women, who requested anonymity to avoid damaging their careers, worked at the hedge funds named in this story.
Clare Flynn Levy, a former hedge fund portfolio manager who now runs her own behavioral analytics company, said women might put up with a toxic work culture for a while but ultimately they tended to leave.
“In retrospect, I think I used a combination of working very hard, laughing off the sleazy bits and occasionally putting my foot down if I felt someone had crossed a line,” she said.
Slideshow (3 Images)
Kosenko, the recruitment consultant, said she has had a hard time convincing women to join hedge funds where they might be the first female on the trading floor.
But with investors increasingly considering diversity when deciding where to put their money, some hedge funds are looking to shake up their ranks. Last year, Kosenko had five meetings with hedge fund clients about hiring women. In the first few months of this year, she has had four.
“I think in general the big trend is let’s grow the talent and let’s go outside of what we are used to — white males from Goldman Sachs,” she said.
Additional reporting by Svea Herbst in Boston and Carolyn Cohn and Kirstin Ridley in London. Editing by Carmel Crimmins
