Alternative Thinking on Hedge Fund Rankings, Bill Ackman’s Blues and Facebook Tyranny

Jun 22 2016 | 3:56pm ET

“Little-known Parametrica Global Master of Hong Kong takes the top spot, while past stalwarts like Pershing Square and Greenlight Capital don’t make this year’s list.

That’s Barron’s. 

The iconic financial paper has ranked the Top 100 hedge funds for 2016, and they make a point in the second headline to point out that Bill Ackman and David Einhorn won’t be receiving a plague this year.

Barn-storming to the top of the list is the Hong Kong-based Parametircal Global Master Fund, which provided a three-year compound return of nearly 30%. Its 2015 return was north of 44%.

The top 100 hedge funds averaged a return north of 10.5% in 2015, and the three-year average is a tad below 17%. Meanwhile, there are a lot of equity-long-short funds, indicating that good stock pickers are still around.

So while the industry as a whole is underperforming, it’s still very top heavy.

"My thing is if you don't like it, don't buy the stock. ... If you don't like the structure and the way you're investing with Zuckerberg, then don't invest in Zuckerberg."

That’s Ross Gerber, CEO of Gerber Kawasaki.

Here’s an interesting debate that we hope readers sound off on today.

The iron rule of Mark Zuckerberg.

CNBC had a debate yesterday about the new stock rules that basically make Zuckerberg the tyrant of Facebook so long as he is there. The “Mark’s way or the highway” part of the headline is basically the new culture statement of the company.

Which begs the question: When you own Facebook stock, are you investing in Facebook as a whole or are you investing in Mark Zuckerberg.

It’s important to note because Zuckerberg doesn’t have more than 50% of the stock anymore, a counterpoint made in the argument. If he wanted to maintain control, that majority stake is the traditional way to do it.

But today, we’re seeing more and more technology companies engage in these stock shifts to cement their founders as the eternal leaders of the firms. An activist might look at Facebook and say, “we can do it better,” but that is never going to happen. And how does that impact the culture of an organization like Facebook, known for its ability to attract top talent?

This is an interesting topic that goes beyond the CEO compensation and culture story that we just finished for our August issue of Modern Trader. You’ll want to catch up on that story, as we explore the tenure of Marissa Mayer – who may be handed a large, seven-figure check just because parts of Yahoo Inc. (YHOO) have been stripped and sold to the highest bidder. We also discuss the strong relationship between an esteemed company culture and stock performance over the last decade.

It’s much stronger than you think and one that offers big returns to investors.

“Herbalife claims that it has cleaned up its act in recent years. It hasn’t. These videos show that veteran distributors who have made misleading claims continue to have a prominent role at Herbalife.”

That’s Pershing Square Capital Management. 

Bill Ackman’s fund is back at it again, taking on Herbalife with a series of videos tackling the company’s marketing and recruiting practices. The video says that the bulk of Herbalife’s distributors don’t make money, and that its executives pad their pay while people at the bottom of the food chain struggle and lose money.

If that’s the case, Herbalife is just following the business model of today’s insurance industry, which is still legal.

It appears that Ackman is ditching the accusations that Herbalife’s marketing practices are illegal, and now focusing on the “fairness” of the operation.

Of course, at the core of this all, he still has a ten-figure bet against Herbalife which he has been chasing for years now. According to Fortune, the stock will need to be cut in half just for Pershing to break even on the short position.

It’s costing Pershing $100 million annually to hold the position.

So, that explains the Barron’s ranking…

“I just have a feeling that if we all wake up on the 24th and we’re still in, there’s going to be a gray cloud of depression over this country.”

That’s Michael Farmer, co-founder of RK Capital Management.

He’s weighing in on his support for the Brexit – a geopolitical event that seems to have shocked – shocked the media and the markets even though this vote was scheduled so long ago.

Perhaps it was the fact that few expected the country to be split on the vote a few days ahead of it. The gamblers these days are giving strong odds to the “Remain” vote.

But hedge funds are a big more split on it. That probably has to do with the fact that London’s hedge funds hold about 75% of all assets in the entire European Union’s hedge fund industry.

That’s the estimate from Hedge Fund Research here in Chicago. After all, sometimes volatility makes for big profits, and this last week has been great for trading.

The reason why “no one” – according to some media reports you might catch – expected the polls to be so close is because no one in the financial media ever talks to anyone outside of London, Pro-EU politicians, or the financial community. These are the people with the most to lose, and they’re very adamant about protecting what is theirs.

Want to get an alternative view of people who really don’t like the European Union – go talk to farmers. Talk to people living up in northern England who have decades of contempt for the European experiment. While a Brexit would be detrimental to the market, if anything – one hopes that the European Union wakes up now to the regulatory and structural mess it has evolved into over the last two decades. Serious structural reform is required, and saber rattling like the Brexit vote could – but probably won’t – fuel what needs to be done. However, so long as pro-EU leaders remain in power, no one should anticipate that the bureaucrats with little accountability and live tax-free are going to act in the interest of anyone but themselves.

More of the same.

That’s the EU way.


Survey: Wall Street Banks Still Top Silicon Valley, Hedge Funds for Freshly-Minted MBAs

Jun 21 2016 | 9:01pm ET

Contrary to concerns that Wall Street isn't as appealing to new graduates as it...

Guest Contributor

The Future of the Blockchain in Financial Services Communications

Jun 17 2016 | 1:05pm ET

Over the past year, a large portion of the financial services industry has awakened...