Levine on Wall Street: Bad for Hedge Funds, Good for Hostiles
It's a rough time for macro hedge funds.
The Wall Street Journal has a roundup of poor-performing big-name global macro hedge funds; the story is that "An unusual period of calm has exacerbated problems for many trading strategies dependent on volatile markets":
"I actually find myself daydreaming about winning 'Dancing With the Stars' on some days in the office," Mr. Jones, of Tudor, joked at an investment conference this spring. "It's gotten to be very difficult, when you depend on price movement to make a living, and there is none."
I mean, there's some price movement; Tudor's flagship fund is down 4.4 percent this year. Elsewhere in macro volatility, I sort of like Mark Carney's approach of saying that the Bank of England might raise rates "sooner than markets currently expect," which is a much clearer than "an extended period" and in some ways even clearer than giving a particular date; it tells you not "here's when we'll raise rates" (meh) but rather "asset prices are too high," which is news you can use. And "Will the major central banks evolve into mega-hedge funds?" If so they might be better bets than the actual global macro hedge funds.
It's a good time for hostile M&A.
A banker doing hostile deals says "This should be the easiest time on earth to win a hostile," anonymously I guess because he doesn't want to jinx himself in the press. There are sort of geological cycles of this stuff: In the 1970s and 1980s, people discovered hostile M&A; in the 1980s and 1990s boards discovered defensive tactics that could more or less shut down hostile deals; and in the 2000s and 2010s people discovered "corporate governance," which takes a pretty dim view of boards doing stuff to prevent themselves from being fired. It was only a matter of time before the governance movement led back to hostile M&A, and it has, with Carl Icahn reinventing himself as a governance advocate and activists teaming up with hostile bidders.
Speaking of which, DealBook has a good catch on Valeant's bid for Allergan: Goldman Sachs is advising Allergan on its defense, but a year ago underwrote Valeant's stock offering, making it awkward for Goldman to be too closely associated with Allergan's claims that Valeant is overvalued. Really, they don't mean it either way -- underwriting a stock offering doesn't mean you think the company is a good investment, and defending against a hostile deal by saying the bidder is overvalued doesn't mean you think it's a bad investment -- but you can't quite say that. Elsewhere John Hempton is doing a series on why he thinks Valeant is overvalued. He has questions on acquisition accounting: "Providing for redundancies for 750 employees when you bought a business that only had 646 employees sounds like over-provision to me."
And here are some claims about options markets, including that "options trading has represented activist investors building up a stake in a company they plan to take over." I have always thought that that was overblown -- why would you sell volatility to an activist who creates his own volatility? -- but I am coming around to it a little; people really seem to believe it.
The SEC wants to tighten capital requirements for broker-dealers.
The Securities and Exchange Commission requires that broker-dealers have a certain minimum capital, but compared to bank capital rules these requirements are sort of a joke. One way you can tell is that, in the global financial crisis, all the big broker-dealers disappeared, going bankrupt (Lehman), being sold in fire sales to big banks (Merrill, Bear), or converting into banks themselves (Goldman, Morgan Stanley). Now that it is irrelevant, SEC Commissioner Kara Stein gave a speech yesterday calling for the SEC to modernize its capital rules to "reduce the risk to the entire financial system of a large broker-dealer’s collapse." This is a perfectly sensible idea but a little late; the SEC reduced the risk of a large broker-dealer's collapse by letting all the large broker-dealers collapse.
Gardening leave arbitrage.
If you switch investment bank jobs every summer, you get the summer off, and you get paid for it, since banks tend to be pretty serious about enforcing paid gardening leave requirements. If you do this you might eventually run out of banks to work at, so it helps to be able to go back to ones you left. The ideal investment banking career consists of a (1) 9 months at Bank A, (2) quit for Bank B, (3) 3 months of gardening leave, (4) 9 months at Bank B, (5) quit for Bank A again, (6) 3 months of gardening leave, (7) repeat until retirement. Gary Antenberg hasn't done this but it looks like he's catching on.
You can buy bitcoins from the U.S. Marshals. Don't send e-mails to fraudsters with the subject line "Ssshhhh." Soon you'll have more online poker options. Some advice for your next performance review.
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