Alternative Thinking on New Jersey Hedge Hate, Japan’s Liquidity Trap, Bill Ackman’s Next Trade and Alternative Investments

Aug 4 2016 | 3:09pm ET

Here are the top quotes and lines from the alternative investment space on Wednesday, Aug. 3.

“But there’s another, even bigger reason why this stimulus isn’t going to do much to juice Japan’s economy. The economy is already at full employment.”

That’s Noah Smith, a smart man at Bloomberg.

This week, the Bank of Japan ordered another round of stimulus in order to bolster its economy. It turns out, the country is stuck in a liquidity trap. As Bloomberg’s Noah Smith writes, “Businesses and consumers have come to expect this regular flow of government spending -- having experienced it nonstop for over two decades, they’ve already accounted for it in their investment and consumption plans.”

Bloomberg has a chart of the nation’s stimulus actions dating back to 1992. It’s stunning.Basically, this latest round isn’t going to do anything. It just is more of the same.

It might not end today, tomorrow, or in the next five years… but how long can an air balloon stay afloat when the atmosphere is on fire?

It’s really time to talk more about publicly held debt. That’s what economists need to take some time out of their days of teaching this dismal science and educate the public on.

The addiction to cheap money is contagious.

This morning, the Bank of England announced its own massive Quantiative Easing boost and another cut from already record-low interest rates. The mission? To accomplish a different outcome from the Federal Reserve, the Bank of Japan, and the European Central Bank – all of whom has engaged in the same rounds of broken-record Keynesianism.

Good luck with that.

“You haven’t earned your fees and you haven’t been smarter and we aren’t going to pay for that asset class anymore.”

That’s New Jersey Investment Council Chairman and angry Princeton graduate Tom Byrne.

The States of Jersey’s pension system is going to cut its exposure to hedge funds from 12.5% to 6%. Why? Because they have been paying hedge fund managers too much money.

This has been a subject of immense curiousity for us, given that hedge funds actually have outperformed the returns offered by traditional assets. This is something we addressed in our June issue of Modern Trader. Here’s what we said about the pension crusade then.

“Hedge funds and alternative investments netted the New Jersey public employees’ state pension system a five-year annual return of 9.2%, beating the 7.9% return that was initially projected.

That’s net of fees paid to the funds to manage their money, which totaled $701.4 million. It’s a big chunk of change, which is why the AFL-CIO argues that management costs are too high and it’s time for someone else to manage its money.”

But why spend money to make money. The pension funds were doing fine, right?

“In 2015, the overall pension fund would have seen losses of 1.88%, if it hadn’t been for the 5.6% in gains offered by alternative asset managers.”


We will give Tom Byrne credit though. He did argue that that completely walking away from hedge funds would “fly in the face” of successful investment strategies, according to the New York Post.  Still, Byrne is another in the long line of critics of the “2 and 20” model.

The New Jersey pension funds – which also have deep political ties – also complain that hedge funds are a waste of public pension money.

They say that while ignoring while ignoring constant waste of taxpayer money – the same money that funds these projects and ultimately their retirement plans.

Example 1: New Jersey Waste on Public Spending Project.

Example 2: New Jersey Waste on Public Spending Project.

Example 3: New Jersey Waste on Public Spending Project.

Example 4: New Jersey Waste on Public Leaders

Example 5: New Jersey Waste on Public Spending Project.

Anyway, first thing to teach your kids: “When you grow up, you want to work in ‘public service’ in New Jersey.”

“Pershing said Mr. Ackman would remain on Canadian Pacific’s board until the next annual meeting, adding that the hedge fund intended to use the proceeds of the sale to make “one or more new investments.”

And so it goes, Bill Ackman is down on choo-choo trains. Despite being one of Ackman’s better positions, the hedge fund has unloaded a large stake in North America’s sixth-largest railroad, Canadian Pacific.

Pershing Square is trying to battle back from its 19% downturn this year. What’s Ackman’s next play? We’ll know soon.

Finally – Lists

There’s nothing more that the Internet likes more than lists.

10 Cats that look like Hitler. Cats who look like Donald Trump.

Buzzfeed has made a fortune just putting random things in order for mass consumption.

And here’s another list. A list of 10 alternative investments outside of stocks and bonds.

Editors note: Alternative investments are already outside of stocks and bonds… this was strangely worded.

It’s a good piece, and a great introduction to the world of alternative investments. Here’s the problem. It’s so macroeconomic and written from 30,000 feet, that it’s really difficult for anyone to find these actual investments.

Who are the companies? What are their missions? What are they selling? What are the returns?

That is going to be the subject of tomorrow’s Daily Alpha. We’ll outline a handful of these alternative assets and some companies and funds in this field. The end goal is to develop the Alpha Pages into a forum where we regularly explore these alternative assets.

If you’re in the space, please drop us a line.

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