“Don’t pay attention to the bottom line EPS numbers,” said Chris Kotowski, managing director of research at Oppenheimer & Co. in New York. “Reserve accounting distorts what’s reported as earnings. It’s not like it’s just JPMorgan. It’s the entire industry.”
via FT Alphaville » Loan loss reservations, US bank earnings.
In some respects, public pension funds are starting to go down a path long ago blazed by CALPERS, which was among the first to recognize how much hedge funds could boost investment returns. In the past few months, other public pension funds that have moved to cut out the middleman and changed their strategy to make direct investments in hedge funds include the $48 billion Massachusetts Pension Reserves Investment Trust, and the $8.7 billion Orange County Employees Retirement System.
via Special report: How investors turned the tables on hedge funds | Reuters.
Many of the trades appeared to have been stop-loss orders left in the market which would automatically buy yen as the currency hit certain levels. Others were unwinding so-called carry trades, which required them to buy yen and sell other currencies.
Conditions quickly deteriorated. Banks widened the gap between the prices where yen could be bought or sold to 50 or 100 so-called pips—tiny increments of currency prices. In normal trading, spreads are around 0.8 to one pip.
Currency trading is often seen as a 24-hour affair, but every day, around 5 p.m. in New York, most of the electronic trading platforms shut down for 10 or 15 minutes. At that time, there is a changing of the guard between New York staff and Asia. Computer systems are reset. Those thin conditions also mean that currencies are vulnerable to fast swings.
Those results ought to weigh on the minds of those planning to follow the Yale example. After all, institutional investors are able these days to invest in the main asset categories for very low fees of just a fraction of a percentage point. Handing over an annual fee of 1-2%, plus a 20% performance fee, to an alternative-asset manager throws away that advantage. As 2008 showed, the asset managers get rich but the investors still get clobbered.
It is unclear why it took until last week for Mr. Chau to formally strike back at Mr. Lewis and Mr. Eisman with an acerbic double character assassination disguised as an audaciously flimsy defamation lawsuit. (Sample transition: “7. Lewis admits that he was so unqualified [for his job as a junior bond salesman during the 1980s] that he feared that ‘someone was going to identify me, along with a lot of other people more or less like me, as a fraud.’ 8. Lewis escaped any charges of fraud and went on to write Liar’s Poker concerning his brief experience at Salomon Brothers, which became a bestseller and made him rich.”) Neither Mr. Chau nor his formidable attorney, Steven Molo, who now represents, among others, two of Bernard Madoff’s oldest investors in his bankruptcy case, returned calls from The Observer.
via Corrupt, Not Stupid! The Michael Lewis Lawsuit as Literary Criticism | The New York Observer.
Public funds will never have what it takes to win against the likes of Goldman. They should acknowledge that they will lose every game and protect themselves by playing as few as possible.
via Why Pension Fund Managers Generate Negative Alphas | March 2011.
Cognitive errors and misleading emotions, including overconfidence, blind many investors to their perverse skill at generating negative alphas. Such failings are not unique to individual investors; they are often joined by institutional investors, whom Wall Street bankers flatter as being sophisticated players, just before they are fleeced.
via Why Pension Fund Managers Generate Negative Alphas | March 2011.
No one we have spoken with is suggesting that John Doerr and Kleiner Perkins have broken any laws.But the sort of behavior described above would almost certainly be a non-starter in the public markets.For example, in the public markets, it is not illegal for major shareholders to buy and sell stock in companies they own–unless they have inside information. And a “board observer” like John Doerr would very likely have information that could be considered inside information.
via NO CONFLICT, NO INTEREST: John Doerr, Twitter, And The Rise Of Secondary Private Markets.
Overall, U.S. venture firms raised just 119 new funds totaling $11.6 billion last year, down from 215 funds with more than $40 billion in 2007, according to research firm VentureSource.
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