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Hedge fund managers at conference forecast stock gains

Date: Wednesday, January 23, 2013
Author: Svea Herbst-Bayliss, Reuters

* Investors shift to stocks, US shares may benefit most

* Shift might help equity oriented hedge funds

* Many investors prefer big hedge funds to smaller players

BOCA RATON, Florida Jan 22 (Reuters) - After years of favoring fixed income, investors are ready to put their money back into equities and they might be rewarded with strong returns, especially in U.S. stocks, hedge fund managers and investors said at a conference on Tuesday.

"We have seen outflows from government bonds and the next big migration is going to be into equities," said Tim Garry, a portfolio manager at $3.7 billion Passport Capital.

This shift, the first since the 2008 financial crisis, could come as welcome news for thousands of hedge fund managers who specialize in stocks.

Debating exactly where strong returns might come from after a largely lackluster year for hedge funds was the key topic at the GAIM USA 2013 conference in Florida.

"There has been lots of money flowing into credit strategies, but I also think there are more returns to be made in equities," said Patrick Wolff, whose $120 million Grandmaster Capital Management gained 22 percent last year.

Wolff has a particular taste for U.S. stocks, noting the shares he expects to do best are from companies in regions that will not suffer big economic traumas.

"I'm a big proponent of Fortress America," he said, noting that conditions now appear ripe for stronger growth in the United States.

Even as many managers still believe that growth will come from countries such as China, Wolff declares himself a China bear who is worried the bubble of fast growth is ready to burst.

"I like to own businesses that are not exposed to this big risk factor," he said.

Hedge fund managers paid as much as $4,000 to attend one of the year's first industry conferences and mingle with investors on the manicured lawns at the Boca Raton Resort & Club at a time when pension funds, endowments and wealthy investors are eager to put new money to work.

But as a group, the industry has a lot to prove and explain after returning only 6 percent last year, far less than the Standard & Poor's 500 index' 13 percent.

The GAIM conference is the first of a handful of industry get-togethers this month that includes next week's Morgan Stanley Breakers conference, where some of the industry biggest stars converge in Palm Beach, Florida.

Steven Cohen, whose $14 billion SAC Capital Advisors is currently embroiled in the government's insider trading investigation, will be one of the big names flying to Florida. He is offering investors a chance to dine or golf with him, a person familiar with the conference said.

Cohen has been a sporadic guest at the Breakers conference in the last years and will appear this year only weeks before his investors have to decide whether to stay put or pull money out of his fund.

A spokesman for SAC declined to comment.

At the GAIM conference managers ticked off their ideas with some being thousands of miles away. Marko Dimitrijevic, who founded $1.7 billion Everest Capital, likes homebuilders in India.

Mark Yusko, who invests $7 billion with hedge funds as chief investment officer at Morgan Creek Capital likes a manager "who is kicking the crap out of everyone else by owning precious metals."

And Kyle Bass, who runs $1.1 billion Hayman Capital Management again expressed his concerns about Japan.

Besides wanting to hear where the big money can be made, managers and investors also debated who would be able to deliver those returns now after small investors roundly trounced their bigger rivals last year.

Conventional wisdom has long held that smaller managers with less than $1 billion in assets beat out the bigger funds and that may well suit the managers here, who tend to be on the smaller side with less than $5 billion in assets.

But many investors were still not ready to make that leap.

"You will see over time that smaller funds will outperform, but the larger ones add more downside protection," said Henry Davis, managing director at Arden Asset Management, which invests $7 billion for pension funds and other clients with some of the world's biggest and most prominent hedge fund managers.

Because of their size the bigger funds can often have better risk controls, he noted.

Many investors held private meetings with managers, but in the end, the biggest names were not in Florida, but at their offices in New York, Stamford and London.

"People who deliver on their promises are making good inroads," Morgan Creek's Yusko said, adding however that "the trend of going with the big names still isn't over."