This week's highlights on hedge funds (May 24-30, 2010)

Here are some of the hottest headlines about the hedge fund industry of the week. Funds that I am focusing on are in Italics.



1 David Einhorn's Greenlight Capital raises $130 million for Gold Hedge Funds as Jon Paulson did at the start of 2010. (hedgetracker.com) It looks like they are not confident about the economy recovery and European Commission's effort in saving its members.

2 Pequot and Its Chief Settle Insider Complaint (Dealbook)

3 Hedge funds, such as Soros Fund Management and SAC Capital, are betting against the Euro. The financial pros believe the situation in Europe is going to deteriorate under the gloom of the PIGS's debt problem. Recently, rating agency Filtch downgraded the ratings of Spain's credit rating.

4 Greenlight Capital Fund Manager Einhorn Now Top Holder At NCR (WSJ)

5 Carried-Interest Tax Hike Delayed Until 2011 (FINalternatives)

Hedge Fund Tracking

Start from today, I will track news about hedge funds and their portfolios. Posts will be posted on a weekly basis.
For one of my school's projects, I will focus on 5 of them, posting anything new about them. They are: David Einhorn's Greenlight Capital, Dan Loeb's Third Point LLC, John Paulson's Paulson & Co, James Simons's Renaissance Technologies and Bill Ackman's Pershing Square Capital Management.
Take a look at how are these funds doing for the first quarter of 2010 (Data from the Marketfolly).

Greenlight Capital -1.33%

Third Point LLC
Offshore fund +15.58%
Ultra fund + 16.5%
Partners fund +16.9%

Paulson & Co
Advantage Plus fund -1.18%
Advantage fund -0.93%
International fund +o.47%
Credit fund +3.35%
Enhanced fund +0.99

Renaissance Technologies
RIEF +4.82%

Pershing Square Capital Management +5.62%



(To see performances of some of the most well known hedge funds for the first quarter of 2010, visit the Markt Folly http://www.marketfolly.com/2010/04/hedge-fund-performance-numbers-first.html).

Third Point LLC is a registered investment adviser based in New York, which manages about $3.4 billion of assets. The firm was founded in 1995 by Daniel S. Loeb, who is CEO and oversees all investment activity. Third Point employs an event driven, value oriented investment style.

Renaissance Technologies LLC is the most profitable investment management company which invests by using mathematical and statistical methods. It currently has more than 300 employees, and manage over $15 billion.

Paulson & Co was founded in 1994 by John Paulson. The firm specialized in merger arbitrage.

See the book The Greatest Trade Ever for more information about John's fund.

Pershing Square Capital Management is a deep value and activist-oriented hedge fund manager that was founded in 2003 by President and managing partner Bill Ackman. The firm was founded with backing by WMAC Investments, a subsidiary of holding company Leucadia Corporation (NYSE: LUK).

Greenlight Capital is a hedge fund management firm founded in 1996 by David Einhorn and former co-President Jeffrey A. Keswin. Greenlight Capital manages a series of value-oriented alternative investment vehicles including hedge funds and reinsurer Greenlight Capital Re. Greenlight Capital also manages a fund of funds and a private equity fund through its affiliates Greenlight Masters and Greenlight Private Equity Partners.

Book Review: The Greatest Trade Ever by Gregory Zuckerman

Recently, I finished a book called The Greatest Trade Ever, written by Wall Street Journal columnist Greg Zuckerman. The book records some real stories of investors like John Paulson, who made billions of money during the sub- prime mortgage crisis in 2007 by betting against mortgage backed securities. By using tools like CDS (credit default swap), Paulson received large amounts of payments from the banks since the issuer of the CDS defaulted. Even the legendary investor George Soros asked John Paulson for a tutorial after the young man made 20 billion for his firm out of the worst financial downturn since the Great Depression. The book spends a lot of words on how Paulson decided to bet against the mortgage security which was thought to be very safe by the majority. It also describes the pressure that Paulson received from his clients and investors who were dubious about the CDS transaction.
I believe the transaction itself is, undoubtedly, the “greatest”. However, this does not mean that Paulson was the greatest or the smartest guy at that time. In fact, many people, though not the majority, had perceived the bubbles in the mortgage securities in the late 2006, including those who were lending money to the unqualified borrower. I know you are not convinced since nobody will dump their money if they know they are going to lose them all. An ordinary explanation would be that “people are greedy”. That is true, but not complete. The fact that people were conservative is the explanation for all these things happened! These financial pros, even successfully foresaw the crisis, would unlikely to bet against the market. The reason is that they had a job which would stop them from making the rational decisions. There were many traders and investors in the market, who were constantly competing for customers. Suppose you were trader who was selling mortgage securities to your clients in 2005, you would unlikely to do something that is going to lose your clients by stop selling the securities that were going up every day. Again, suppose you were a fund manager in 2005, you would unlikely to choose to risk your client’s money by betting against the real estate when it was going up. So no matter on the buy side or the sell side, you were doomed to fail. Even you were among the few who chose to take the risk, any gain in the housing prices would put you in a difficult situation. Frequent calls from your clients asking you to clean you positions, blame from your boss and laughter from your competitors. As someone who has used up all the savings to finish your business school and works like a dog for years, you do not want to lose your job on Wall Street. Besides, the tools used in the Paulson’s trade were brand new and only a few people had heard of them at that time. No one would like to try tools that they are not familiar with. This is why hardly any person could successfully make a fortune in the crisis. It was not just because people wanted to make money, but also because people wanted to survive by protecting themselves from any bad outcomes possible. Conservativeness is the ultimate human nature.

The entire book can be considered as a good biography of what happened in the crisis, however, it lacks the author’s own insight and analysis of the crisis. But still, it is a book worthy to read for those who are interested in what happened during the financial downturn.

what I have read this week (May 24)

1 Fiscal crises threaten Europe's generous benefits (AP)

2 HSBC Suffers Euro Collapse as Greek Debts Roil Banks （Bloomberg）

3 List of Most-Loved Hedge Fund Stocks, Via Goldman (WSJ)

4 Fed boss: Fed must be free from political meddling (Yahoo Finance)

5 2010's coming stock market crash: 1987 all over again (Fortune)

6 Ira Sohn Conference Notes: Investment Ideas From Hedge Fund Managers (market folly)

Also the following website provides good lessons to investor who wishes to use technical analysis
http://www.onlinetradingconcepts.com/index.html

What is behind Google’s takeover of AdMob？

The Federal Trade Commission (FTC) shocked the crowds by unanimously approving the takeover of AdMob Inc. by Google Inc. The FTC stated that the takeover will not undermine the competition in the emerging market of mobile advertising. The excuse is not quite convincing though. Mobile advertising is still an emerging industry and that is why Google may not appear as a Monopoly at the moment. Think about that, who would predict Microsoft to become a monopoly in the 1950s? The FTC has always been very tough on the mergers or takeovers that violate the antitrust law. But this time, its attitude has changed radically towards this Internet searching company. What is wrong?
Google seems to receive a lot of benefits from the federal government recently. It just received the permit from Federal Energy Regulatory Commission (FERC) to get into electric business by launching Google Energy. All the members in FERC agreed the Internet search giant to sell electricity like an electric utility. Google knows nothing about the energy industry, how come the FERC allowed it to serve utilities to the public? Google is becoming a conglomerate!
My opinion is that all these are very likely to be related to the closure of Google China. In January, Google, surprised others, threatened the Chinese government that it is going to leave China if the Chinese government fails to provide explanation for the cyber attack on several of its servers and Gmail accounts. In addition, Google asserted that it would no long obey the Chinese law to filter the local search results. Many young people in China praised the American company for its courage to flight for human rights.
However, the whole thing was dubious. It makes no sense for a public traded company to risk leaving one of the biggest Internet markets in the world. It was not being responsible to its investors by taking such a big risk when facing its unfriendly competitors, such as Apple Inc. and Microsoft Inc. How did a little company dare to start a war with a government, which caused the company to lose thousands of contracts in the mainland China? Undoubtedly, Google was bound to lose in front of a regime. The stalemate lasted 2 months and ended with Google closing its Chinese office in Beijing.
At that time, there were many people doubted that the American government was backing the searching engine. The US government is famous for using human rights as a tool to attack developing countries like China. Recent news suggests that Google’s move was very likely a move by the US to pressure China on its human rights issue. The recent approvals by the FTC and FERC are very likely the repayment by federal government for Google’s sacrifice during the battle with the Chinese government.
Although there are still many issues remain dubious and unsolved, we can predict that, in the future, there will be more favor come from the federal government to this Internet giant based in Mountain View, Calif.