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Wednesday, December 8, 2021

Hedge-Fund Guy Points Toward Z-Shaped Recovery


Date: Thursday, June 25, 2009
Author: Mark Gilbert, Bloomberg.com

Dear investor, our statutory obligations demand that we update you on how well we’ve taken care of your money here at Coin-Toss Investment Management.

Attached to this missive is a picture illustrating our fund’s performance this year, showing how wonderfully our back- to-basics approach is working after the derivatives-inspired lunacy of recent years. We’re calling our new strategy “mark- to-flatline” -- slow and steady, it sure beats floundering on the double-black expert slopes of last year’s chaotic madness.

Any resemblance to a chart of how the Standard & Poor’s 500 Index has fared so far in 2009 is purely coincidental, although the more discerning among you may glean some insight into our current market strategy by laying one on top of the other and holding them up to the light. Transparency is a wonderful thing, our auditors keep telling me.

The more cynical among you might be tempted to ask what the difference is between a long-only hedge fund, such as ours has become, and a bog standard mutual fund. The answer, to be disarmingly honest, is found in our fee structure. Simple as that. We trust you will continue to find our services reassuringly expensive in these troubled times. Money should go to where it is welcomed and stay where it is well looked after and, trust me, no-one loves money quite as much as a hedge-fund guy with an unbreakable Ferrari habit.

Getting Paid

We do note, though, that some of our so-called competitors are offering to drop their fees. Lest this crazy talk sound at all tempting, we would remind you that any time someone is dropping something, either someone risks breaking a toe or someone is about to catch a cold. Sniffles and cracked digits have no place in the cut and thrust of hedge-fund management. We strive to be in the top quartile of everything we do, including getting paid.

An integral element of our top-down, bottom-picking approach to investing is the time we spend scrutinizing the economic evidence. The debate currently focuses on which letter of the alphabet the chart of global growth will most resemble. Current favorites are a V, a W, a U or an L. Funny how nobody ever suggests an O; call us old-fashioned, we think a cyclical view of the, errr, cycle still has a role to play.

WWW or Z

We had been betting on what we think of as a “dot-com” recovery, which would look more like a WWW; in line with the maverick approach for which we are justly famous, however, we now favor a Z-shaped outlook for the world economy. For additional insight into how this is shaping our sophisticated portfolio choices, please refer to the charts already mentioned.

So far, our efforts to wedge our snouts in the U.S. government’s various bailout troughs have, sadly, failed. We note, however, that Bernard Madoff is seeking to serve just 12 years for his $65 billion caper. Even the rusty abacus that serves as our algorithmic ideas generator can work that out at about $5.4 billion per year; we would happily spend six months as someone’s cell buddy for a couple of billion.

Our industry faces enormous challenges going forward, not least of which is how to cope with the onerous burden of regulation as the dead hand of government flops onto our Armani- clad shoulders. We are already as busy as a dog with two noses at a bone-smelling competition; the idea that we should have to fill out a form every single year disclosing where the money comes from and where it goes is, frankly, outrageous.

Downgrading the Raters

We recently were awarded a Hedge-Fund Operational Quality rating by Moody’s. We would like to claim that we’re not disclosing the results of the analysis, for fear of arousing envy and resentment among our less diligent peers; our score on the “compliance and truthfulness” section of the study suggests that might not be wise. Suffice it to say that it’s a good job nobody pays any attention to the credit-rating companies anymore, not even when Standard & Poor’s threatens to cut Her Majesty Queen Elizabeth’s top grade.

Some of our rivals have generated a lot of publicity by launching funds to jump on the hyperinflation bandwagon. The only evidence we see of rising prices is the cost of winning the annual auction for lunch with Warren Buffett, though we concede that if we’d matched the six-year 600 percent returns of Zhao Danyang at Pureheart Asset Management Co. in Hong Kong, we too might have been tempted to pony up more than $2 million to slice steak with the Oracle of Omaha.

Finally, we would like to give you a rare glimpse into what we feel is one of our most promising investments of the moment, involving Apple Inc., whose overpriced gadgets we have long admired. Our 21-year-old nephew, recently graduated with a degree in computing science, is busy coding a new application for the iTunes store that will run on the iPhone. At just $9.99 a pop, we are convinced there’s a huge market for an app calculator that works out what percentage of a chief executive officer’s body parts have to be replaced before the surgery becomes an event requiring disclosure to the shareholders.

Yours, Hedge-Fund Guy.

(Mark Gilbert is the London bureau chief and a columnist for Bloomberg News. The opinions expressed are his own.)

To contact the writer of this column: Mark Gilbert in London at magilbert@bloomberg.net