Today's Top Stories Editor's Corner: Analysts newly bullish on Bank of America Also Noted: Spotlight On... Home equity lines surge again News From the Fierce Network:
Today's Top News1. Hedge fund winners and losers
Lists of hedge fund winners and losers tend to crop up around now, as the full-year data becomes available. Some previous lists only included data for part of the year, allowing for a lot of variation. The latest to come out is from HSBC Private Bank, which just released its list of the Top 20 performing funds. Mortgage funds fared well. BTG Pactual's small Distressed Mortgage Fund, which invests primarily in distressed non-agency RMBS, generated a return of 46 percent for the year, putting it at the top of the list. For the sake of comparison, the average hedge fund gained only 6 percent last year, as noted by Reuters. In notes that,
And the best-known of the losers in 2012? "John Paulson, once again, had at least two funds at the bottom of the HSBC pile at year-end. His Advantage Fund sank roughly 14 percent in 2012, and the levered version of that fund sank 21.5 percent. Those results come on top of Paulson's massive losses in 2011, when the Advantage Plus fund famously lost more than 50 percent, putting the New York based investor at the top of HSBC's loser list." For more: Related articles: Read more about: Hedge Fund Performance
2. What's to blame for bank moves on private equity?
It would be easy to blame the Volcker Rule for some the recent moves by banks such as Goldman Sachs, Bank of America and Citigroup to scale back their private equities units. In some cases, there's some truth to the concept. The WSJ, for example, recently noted that "the looming 'Volcker rule' is expected to sharply reduce the bank's investment in its own funds. That is forcing Goldman to make major changes in a $50 billion business that has reaped big profits for the bank and its employees and clients. Goldman likely will have to shrink the size of its own investment in its funds to just 3% from as much as 37% once the rule is finalized later this summer." That said, there may be sound reasons apart from looming rule to scale back. The facts is that, despite the Dell LBO, there may be some opportunity costs to staying heavily invested in the LBO business. There will undoubtedly be some big deals announced going forward, but they will be fewer, and banks would likely be wise to redeploy their investments, even if the rule imposed no changes. Indeed, for years, most private equity firms have been diversifying away from core buyout operations as their primary revenue source. We've seen a similar phenomenon in other areas. Dodd-Frank was widely blamed for leading banks to scale back some proprietary trading activities, but some of those activities had become much less profitable and perhaps were ripe for restructuring anyway. For more: :
Read more about: banks, Volcker Rule 3. Will S&P suffer the fate of Arthur Andersen?
An esteemed columnist with the New York Times raises some provocative parallels between Standard & Poor's, which stands accused of criminally handing out false credit ratings, and Arthur Andersen, which was dealt the so-called death penalty when it was found guilty of fraudulent tax audits of Enron. S&P wasn't hit with criminal charges, "But the allegations in the suit are reminiscent of what happened at Andersen, whose image had previously been of being the most independent, and most committed to quality accounting, of the major firms," the columnist notes. He concludes that, "S.& P., like Andersen, issued opinions that turned out to be disastrously wrong. The firm needs to prove those were honestly held opinions, not ones motivated by greed. If the government can prove otherwise, S.& P.'s future may be bleak." The notion that the government can put companies out of business via charges of fraud has been discussed ad nauseam since the Arthur Andersen death penalty. In this case, whether the company is at risk is a fair question. S&P faces a maximum penalty of $5 billion, which is pretty big chunk of change. Whether it could withstand that hit is unclear, but the firm shouldn't tempt fate on this. The best bet may be to settle, which would afford it more control over its losses and thus better allow it to move forward. That may be galling to the board, especially when most would agree that the other main credit rating firms were running their practices in identical ways. But the survival of the company should be the top priority. For more: Related articles:
Read more about: S&P, Arthur Andersen 4. Is Einhorn's suit against Apple epic or humdrum?
David Einhorn went on offense against Apple, filing a suit that has generated massive headlines and public discussion. Most saw this as a dramatic move by a hedge fund investor--one that has prodded at least one massive pension fund (CalPERS) to publically pledge its support--to take on a company that has been immune from shareholder criticism since 2005. The headline on a Reuters article, "Einhorn sues Apple, marks biggest investor challenge in years," is right on the money. That an Apple investor has broken ranks with management is certainly news. At the same time, the issue of Apple's reluctance to return some of its near $100 billion cash hoard to investors has been a running issue ever since the stock turned south. Apple has pledged to return $45 billion via buybacks and dividends. For Einhorn that's not good enough. The specific technical debate is over "a proposal by Apple to eliminate from its charter 'blank check' preferred stock. The board now has discretion to issue preferred stock but is asking shareholders at its annual meeting on February 27 to vote on a proposal that would first require shareholder approval." Einhorn sees that as a move that would make it harder for the company to implement a preferred share plan--which carries lots of advantages, including favorable tax treatment--that he has put forward. The company says that nothing it has put forward would prevent a preferred stock issuance, but Einhorn doesn't see it that way. In the end, we'll likely see some sort of deal worked out, one that just might result in Einhorn getting his preferred shares. For more:
Read more about: Hedge Funds, Apple 5. JPMorgan offers clients real estate rental products
The rush by private equity firms to set up funds that buy distressed retail real estate properties, hoping to rent them out at nice profits before selling the units for even nicer profits in the future, was strong last year. So strong that one had to wonder if the market was overbought already. I speculated that some late-comer funds might be forced to return investment funds to limited partners at some point. The issue became relevant again with the news that JPMorgan Chase will offer wealth management clients the chance to invest in a partnership that has bought more than 5,000 single family homes to rent in Florida, Arizona, Nevada and California, according to Bloomberg. The article notes that, "Investors can expect returns of as much as 8 percent annually from rental income as well as part of the profits when the homes are sold." JPMorgan "started pooling investments from its clients in mid- 2012 into a partnership to purchase distressed properties, betting that prices will rise over the next several years and provide investors with income from renters along the way…The firm uses a third-party manager to find homes, buy and manage them, he said, declining to name the firm. The goal is to sell the houses within three to four years in one of three ways: through an initial public offering of a real estate investment trust, a sale to an existing REIT or to an institutional buyer such as a pension fund." Is this a wise retail investment for clients now? Home values are on the rise, and there's lots of competition from other funds. But there hopefully is still time to realize the massive profits every one predicted. The trend in terms of rental income may not be as favorable as home ownership comes back into vogue. The biggest gains may be from selling the property sooner than expected. For more:
Read more about: real estate, mortgages Also NotedSPOTLIGHT ON... Home equity lines surge again Home equity loans as the foundation of mortgage-backed securities have a checkered past. When the economy starts to creak, these securities, no matter what their ratings, end up quite vulnerable. CNBC reports that home equity loans are suddenly popular again. Home prices are starting to rise, creating more equity, and the economy is starting to hum. But people seem to be spending less on luxuries and more on investments closer to home. Article Company News: Regulatory News:
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Monday, February 11, 2013
| 02.11.13 | Analysts newly bullish on Bank of America
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