Hedge Fund Stars Are Losing Their Sway

By Simone FoxmanSimone Foxman, Mathieu Benhamou and Jeremy Scott DiamondJeremy Scott Diamond

Just after 2:30 p.m. on Nov. 17, 2015, shares of Universal Insurance Holdings Inc. started tumbling—10 percent, 20 percent, 30 percent.

Hedge fund manager Anthony Bozza was inflicting the damage. Speaking at the Robin Hood Investors Conference in New York, the Lakewood Capital Management manager was attacking the insurer. The shares plunged in less than an hour and never fully recovered.

Universal Insurance Price

$35

Bozza speaks at

Robin Hood

30

25

20

15

11/14/14

11/15/16

Robin Hood—which takes place Thursday and Friday—is perhaps the most prominent hedge fund ideas event, where the stars of the industry share recommendations and attendees trade off them.

How influential are the managers at these conferences? To find out, we analyzed five years of calls—2013 through 2017—from three of the largest hedge fund events: Robin Hood, the Sohn Investment Conference in New York and the SkyBridge Alternatives Conference, or SALT. While the managers’ pronouncements consistently moved shares of the companies they targeted, their influence has been on the decline. Our analysis showed that stocks recommended at conferences moved on average 34 percent more than usual in 2016, down from 76 percent in 2013.

Conferences Lose Clout

To measure the managers’ impact, we computed a multiple for each call. We divided the change between the intraday high and low price for each stock on the day of the conference by its average intraday change for the year to get the multiple. The higher the number, the greater the influence.

Measuring Managers’ Effect

Bozza’s impact outshines all other stock picks at the Robin Hood conference in 2015.

Robin Hood attendees pay $7,500 or more to the charity for a ticket, but their motives aren’t purely altruistic. They get the first crack to trade on the managers’ pitches, often from their smartphones without leaving the room. Determining which conference gives you the most bang for your buck has everything to do with investment horizon.

While praise or criticism at Robin Hood tends to immediately move a stock more than at the other events, the long-term impact of ideas presented there may be more fleeting. If in 2013 you purchased 100 shares of each of the key stocks pitched at Robin Hood after the event, and then replaced those securities with 100 shares of the managers’ new picks each following year, you would trail the return of the S&P 500 Index by 24 percentage points. Sohn and SALT, however, do better.

Conferences Calls vs. S&P 500

The picks at Sohn and SALT beat the index.

Which managers have the most sway? Activist Keith Meister, a protégé of billionaire investor Carl Icahn, leads the pack. He influenced stocks on average 2.7 times their normal daily swing over the course of five presentations. His 2013 prediction at Sohn that TW Telecom Inc. could rise about 40 percent and be a takeover target for Level 3 Communications Inc.—a company in which he was also a shareholder—propelled shares of the companies to daily gains of 5.8 percent and 3.4 percent, respectively.

David Einhorn, a more frequent presenter than Meister, is the second most influential. He consistently moved stocks on average 1.7 times their normal daily swing. The Greenlight Capital founder’s most powerful presentation, which took place this year at Sohn, critiqued oilfield-services company Core Laboratories NV. The stock initially jumped, as investors were confused about the direction of Einhorn’s presentation, before falling as much as 9.3 percent intraday.

Many calls were duds. All the managers, except Bill Ackman, who gave five or more presentations during the five-year period made at least one recommendation that didn’t move a stock more than it might have on any other day. Such recommendations produced a multiple of one or lower.

Managers Scorecard

Keith Meister’s calls have had the most punch.

Note: Includes all managers who have made picks at conferences in at least 3 of the past 5 years and have made 5 or more picks in that time frame.

Besides the chance to rub shoulders with famed money managers such as Lee Ainslie and Paul Tudor Jones, is attending these events worth the price of admission? In 2015, if you had sold short 1,000 shares of Universal Insurance the moment Bozza started his presentation and closed the trade at the end of the day, you’d have made back your ticket price and more.

If your bets don’t work out, that’s fine. You were there for the good cause, right?