Thursday, May 7, 2009

Hedge Fund Performance in 2008

Assets of the largest hedge funds in the Americas, those managing
$1 billion or more, decreased by 32.3% in the second half of 2008.

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These hedge funds now manage combined assets worth $1.134 trillion, a decline of $541 billion compared to last July.

Absolute Return’s Billion Dollar Club now includes 218 firms, each managing more than $1 billion, which is a decrease of 18.66% compared to the number of firms in July.

Most of these firms suffered drops in asset values resulting from investor redemptions and poor performance.

The number of hedge funds managing $10 billion or more has declined drastically. Around 31 large hedge funds managed assets of $512 billion as of January 1, 2009, compared to 47 firms managing $857 billion last July.

However, even though overall hedge fund assets have declined,assets are still concentrated among the largest hedge funds.

The top ten firms by size now manage $249.8 billion, which is more than 22% of all assets in the Billion Dollar Club compared to 20% of the club’s assets last July.

Bridgewater Associates and Soros Fund Management were the only two firms in the top ten to increase assets over 2008.

Bridgewater moved up to first place, with $38.6 billion under management whilst JPMorgan (including JPMorgan Asset Management and Highbridge Capital Management) dropped to second place, with $32.90 billion under management. Paulson & Co., moved up to third place, with $29 billion under management.

D. E. Shaw Group swapped places with Paulson to place fourth with $28.6 billion under management. Och-Ziff Capital Management remained in fifth place with $22.10 billion under management.

The biggest winner of 2008 was Baupost Group, which now manages $16.8 billion, an increase of $5.5 billion from last January (and a 48.67% growth in assets).

The biggest loser of 2008 in terms of dollars lost was Farallon Capital Management, which fell to eighth place from third as assets dropped 44.44% in 2008 to leave the firm with $20 billion at present, down $16 billion from last January.

A shocking 89% of firms declined in size over the second half of 2008 and 73%
declined in size over the past year.

New York remains the state with the greatest number of Billion Dollar Club members, as it is home to 121 firms managing combined assets of $680 billion. Connecticut is second largest, home to 29 firms managing a combined total of $149 billion worth of assets. California is third with 25 hedge funds in the state managing $96 billion.

TOP TEN U.S. HEDGE FUND FIRMS** (JANUARY 2009)

Firm Assets Under Management ($ billions)

Bridgewater Associates $38.60
JPMorgan $32.90
Paulson & Co. $29.00
D. E. Shaw Group $28.60
Och-Ziff Capital Management $22.10
Soros Fund Management $21.00
Goldman Sachs Asset Management $20.60*
Farallon Capital Management $20.00
Renaissance Technologies $20.00
Barclays Global Investors $17.00*

Source: Absolute Return
Unless noted otherwise, all asset figures are as of January 1, 2009.
* as of December 31
** the full Billion Dollar Club appears in Absolute Return’s March issue.

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Tips for Successful Resumes

Tip 1 - Use Titles or Headings That Match The Jobs You Want

With employers receiving hundreds of resumes you must make sure that your resume hooks an employer's attention within a 5-second glance.

A great way to do this is to use job titles and skill headings that relate to and match the jobs you want. For example, compare the headings Clint used in his before resume to the headings used in his after resume.

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Headings in Clint's resume before and after the resume:

Accounting / Recordkeeping became Management of A/R and A/P Accounts
Administrative became Computerized Accounting Applications
Computer Skills became Departmental Administration / Recordkeeping

Which set of headings are the strongest for an Accounts Payable / Receivable Manager position?

Even though Clint's title was Accounting Assistant, he actually managed over 1,000 A/R and A/P accounts. Using skill headings that market the true nature of Clint's job duties will generate him more interviews and higher salary offers.

Tip 2 - Use Design That Grabs Attention

Employers make snap judgments when glancing at your resume. If they see unrelated job titles or skills the likelihood is very high that they will make an immediate assumption that you are not qualified for the job you want.

Adding to this problem is the fact that employers don't have the time to read through each of your job descriptions to determine if you have the skills they need.

You Must Do That For Them! The design of your resume must highlight the most important information about your work experience, skills and education. At first glance this information forms the image that employers have of your skills and abilities.

Tip 3 - Create Content That Sells


Resume design should get attention but it's really the content of your resume, the descriptions you include of your skills and abilities, that determine how many interviews you generate--as well as the level of salary offers you receive.

Compare the before and after statements from Clint's resume:

Maintained records for accounts receivable and accounts payable accounts became
Managed over 1,000 accounts receivable and payable accounts working directly with the Chief Financial Officer.

Which of these examples presents Clint as being more qualified, having higher skills and worth a higher salary?

As this example illustrates, our image of Clint is changed and elevated when we read the after example.

Tip 4 - Quantify and Use Power Words
As Clint's after statement demonstrates, using numbers to describe your achievements and responsibilities can greatly expand and elevate your image.

Using numbers and quantifying creates vivid images in our mind when we read them, whereas general statements like the before examples are easy to skip over or forget.

Giving numbers give a strong impression of accountability, capability and makes your experience proven and specific. Typically the more specific you can be in describing your duties the better.

Another strategy that is extremely important in controlling the image that employers develop about you--is to use Power Words or verbs that match the level of position you want.

For example, Clint wants to use the experience he's gained to move into a management position. To strengthen his image he should use as many "management oriented" words as possible. This will show his interviewers that he knows about "management talk" and he is familiar with management concepts.

Which example below do you think is the strongest?

Typical Verbs:
Gave work assignments to staff of entry level accounting clerks.

Power Words:
Directed workflow, supervised and trained accounting staff performing posting to general ledger, accounts receivable and payable accounts.


Tip 5 - Analyze Ads and Job Descriptions to Identify Key Words

Learning how to analyze the key words that employers provide in help wanted ads and job descriptions is a key element in creating powerful resumes.

For example, read the ad Clint found for an Accounts Receivable Manager below and see how many key words, phrases, or skill descriptions that it includes.

Accounts Receivable Manager

Seeking experienced A/R Manager to oversee accounts, manage billing and collections, train accounting and clerical staff, develop status reports for management and prepare monthly balance sheets. B.A. Degree or A.A. Degree with minimum of 2 years experience required.

Even though this ad is small it contains 12-13 key words or phrases that should be addressed in Clint's resume. This will make his potential employer aware of the fact that Clint has read the ad and understands what is expected of the position and that he has the ability and experience to fulfill these duties.

Clint can also key words from an ad like this to create headings for his resume such as:

Key Word Skill Headings


Management of A/R Accounts
Billing and Collections
Supervision of Accounting and Administrative Staff
Balance Sheet and Management Status Reports





Reference

Regina Pontow "Resume Writing"


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Lessons to learn from Yale and Harvard Endowment Funds

The highly praised asset allocation policies of US universities have produced disappointing results in 2008 and 2009.

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Diversification of asset allocations have been preached to investors for years. After the dotcom bubble burst at the start of the decade, investors were urged to buy alternative and niche assets to offset volatility in equity markets.

The endowment funds of US universities such as Yale and Harvard were held up as models of how a diversified portfolio of alternative assets could give double-digit returns despite fluctuations in equity markets, and many wealth managers set out to replicate these endowment funds for their clients.

But in the past year, investors have unfortunately found that their alternative asset allocation managers did poorly just like other managers. Both Yale and Harvard endowment funds recorded negative returns of more than 20% last year and Harvard this month announced it would cut a quarter of its in-house investment staff.

The diversification that was supposed to smooth out returns from various assets failed to deliver. This is quite a unique situation where most asset classes revealed that they moved in tandem i.e. bonds (junk), equity, property, commodities and interest rates. And many analysts have hailed this unique situation as a "depression".

Despite these results the mix of assets recommended by most wealth managers at the beginning of this year appears to be similar to those they were promoting a year ago.

According to an investment strategist at a large, Swiss private bank, this is due to the fact that many financial institutions have been too busy trying to sort out their internal mess to revise their investment models. He said: “A lot of people are rethinking their strategies but have not yet acted. The huge restructuring in the asset management and banking industry means asset allocation shifts have had to wait.”

Other wealth managers stand by their asset allocation models insisting that they are investing for the long term regardless of short term market fluctuations.

A white paper published in December by Ben Inker at Boston-based fund manager GMO, titled “When Diversification Failed”, looked to address these issues. Inker argued that following the dotcom bust, investors learnt the wrong lessons about asset allocation.

Observing how Yale and Harvard rode out the downturn with their broad mix of niche assets they rushed to mimic the endowments’ approach, encouraged by quantitative risk models that suggested such broad diversification not only improved returns but lowered risk, therefore enabling them to increase the proportion of risk assets in their portfolios.

What they ignored, according to Inker, was price risk, the risk associated with the valuation of an asset class – whether it is cheap or expensive on a historic basis. Diversifying without taking into account price risk is unlikely to produce the results investors expect. Yale and Harvard performed well during the dotcom downturn partly because they had diversified into niche assets during a period when those assets were cheap.

Inker’s conclusion was that having a well-diversified but static portfolio inevitably exposes investors to the risk of big losses during a sharp downturn, because it ignores the fact that the valuation of various asset classes will be more or less attractive at different times.

Inker said: “Rather than having a static allocation to each class of risk asset, it makes more sense to keep all of them on the menu, but shift the allocations as valuations, and therefore risk/return trade-offs, shift.” He noted that the big problem in the alternative sector is that many assets cannot be traded easily, so investors need to be confident they are being well compensated for the lack of liquidity.

Sally Tennant, UK chief executive of Swiss wealth manager Lombard Odier, said that a more dynamic approach – somewhere between strategic and tactical asset allocation – was called for. She said: “The chief investment officer and the investment engine have a greater burden to make calls that are shorter term.”

This does not mean trying to time markets each month, she said, but perhaps taking a 12 or 18-month view. Tennant said Lombard Odier was also rethinking the role of cash in its portfolios. She said: “It is time we started thinking of cash as an asset class, not a residual, and using it in a more dynamic way.”

This may sound obvious but creates a problem for many wealthy investors who want a reliable, all-weather portfolio they do not have to keep revising. Either they need to be more active themselves in allocating their assets or give more discretion to their wealth manager to do it for them – assuming they trust their adviser’s abilities.

Wealth management executives said trying to mimic Yale or Harvard was unlikely to work for private clients. Tennant said: “Yale and Harvard endowments are there in perpetuity and have a very different tax treatment to private clients, which means they are better placed to weather storms.”

Anthony Rosenfelder, managing director at Veritas Asset Management, echoed Inker’s view that many investors were wrong to try to copy the Yale-Harvard approach following the dotcom bubble. He said: “The lesson many investors took was to reduce their equity holdings and hire alternative asset managers. But getting the right managers was what really counted.”

David Swensen, the chief investment officer of Yale’s endowment, has underlined this point in an interview with the Wall Street Journal. He called funds of funds, which many private clients use to access alternative assets, “a cancer” on the investment world which “facilitate the flow of ignorant capital”.

This might seem a bit rich, given Swensen’s fund fell by a quarter last year. But Nicolas Sarkis, founder of wealth manager AlphaOne Advisers, said much of the negative performance at Yale was accounted for by mark-to-market valuations of illiquid assets.

He said: “Those assets won’t be sold at today’s prices. Mark-to-market valuations for private equity investments, for example, are to a large extent meaningless. The investment horizon is 10 years and unless you sell, you have not lost anything.”

Sarkis said a big problem with conventional asset allocation, revealed last year, was the carving up of the investment universe into buckets of assets such as equities, bonds and hedge funds within which individual securities have little in common. This can create the appearance of a diversified portfolio when securities in different buckets carry similar risks.

Michael O’Sullivan, global head of asset allocation for Credit Suisse’s private bank, said there was growing recognition of this fact. “The distinction between equities and bonds, for example, is becoming less clear. This is simply a spectrum of assets from risk-less to risky.”

Recognising this is likely to make diversification less neat but far more effective.

Ironically, for those investors who tried to copy Yale and suffered last year, sitting tight might be their best bet in terms of recovering losses, as the prospective value of risky assets has become far more attractive (see chart).

Inker said: “Institutions that insist on having static allocations are at least in a position where their target weights make far more sense today than they did in the past few years.”


Reference
James Rutter at Wealth Bulletin


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