Hedge Fund Investors Are Sure Losers in Herbalife Fight

As Bill Ackman, Dan Loeb and Carl Icahn do battle over Herbalife Ltd., it is impossible to predict which hedge-fund manager has bet correctly and will “win.”

…..Ackman has been betting that Herbalife is operating a pyramid scheme and, therefore, is overvalued. Loeb has taken the opposite position. Icahn, meanwhile, has been rumored to have followed Loeb and gone long on the nutrition-products company.

What is certain is that as soon as Loeb placed a big long bet against Ackman’s short bet on Herbalife, investors in the funds, as a group, became the losers because of the way hedge- fund compensation works. If you are an investor in both the Ackman and Loeb funds, the total return before fees on the Herbalife trade will be 0 percent. Whatever Ackman makes, Loeb loses; and, vice versa. If Ackman makes $1 billion, Loeb loses $1 billion....

More?  Check out the coverage at http://www.theglobeandmail.com/globe-investor/inside-the-market/canadian-hedge-funds-worst-performers-of-2012/article8487275/

Guess which hedge funds were the worst performers of 2012

According to the Globe and Mail, hedge funds managers are supposed to be the smart money; market mavens whose sky-high fees are justified by their ability to outperform.  But guess what? The smart money might not be so smart, at least when markets are rising.

Figures from the latest TrimTabs/BarclayHedge hedge fund flow report showed an outflow of $14.2-billion (U.S.) during all of 2012.  Separate tracking of the performance of hedge funds by country of domicile showed that Canadian funds have the dubious distinction of being the world’s worst last year, with returns of a negative 5.2 per cent. Chinese and Hong Kong funds had the best performance, up 16.3 per cent...

Read all about it at http://www.theglobeandmail.com/globe-investor/inside-the-market/canadian-hedge-funds-worst-performers-of-2012/article8487275/

When What Happens In Vegas…..A Hedge Fund Manager's Brutal Take On The Biggest Slot Machine Company In The World

Nowadays on Wall Street, when you go to war, you present your case... thoroughly. So naturally, the battle between hedge fund manager Jason Ader (and his allies) and IGT (the biggest slot machine company in the world) is no exception.

Ader, who owns 3% of IGT, started a fight when he wrote a letter to IGT's management saying that he wanted to replace four (now three) of the company's board members (check out his Rescue IGT website here).

IGT has answered with a resounding 'no', and since the company services some of the biggest names in the casino world, Las Vegas' elite are being forced to pick sides or get out of the way.

Steve Wynn, for example, is throwing his weight behind Ader, Sheldon Adelson has chosen to stay out of the way….

More? Check out http://www.businessinsider.com/ader-investment-igt-presentation-2013-2

Big Investors Behind A Startup That Will Connect You With Wall Street's Elite

Dealbook’s Andrew Ross Sorkin reports: It sounds like a Rolodex for the 1 percent: two million deal makers, power brokers and business executives — not only their names, but in many cases the names of their spouses and children and associates, their political donations, their charity work and more — all at a banker’s fingertips.  Such is the promise of a new company called Relationship Science.

Never heard of it? Until recently, neither had I. But a few months ago, whispers began that this young company was assembling a vast trove of information about big names in corporate America. What really piqued my interest was that bankrolling this start-up were some Wall Street heavyweights, including Henry R. Kravis, Ronald O. Perelman, Kenneth G. Langone, Joseph R. Perella, Stanley F. Druckenmiller and Andrew Tisch.

It turns out that over the last two years, with a staff of more than 800 people, mostly in India, Relationship Science has been quietly building what it hopes will be the ultimate business Who’s Who. If it succeeds, it could radically change the way Wall Street does business….

Read all about it at http://dealbook.nytimes.com/2013/02/11/a-database-of-names-and-how-they-connect/?ref=business

Buyout-Boom Shakeout Seen Leaving One in Four to Starve

Private equity, an investing trade plied by 4,500 firms with $3 trillion in assets, is bracing for a shakeout that’s been brewing since the collapse of credit markets choked off a record leveraged-buyout binge, industry insiders told Bloomberg.

Firms that attracted an unprecedented $702 billion from investors from 2006 to 2008 must replenish their coffers for future deals and avoid a reduction in fee income when the investment periods on those older funds run out, typically after five years. As many as 708 firms face such deadlines through 2015, according to London-based researcher Preqin Ltd.

Private-equity firms pool money from investors including pension plans and endowments with a mandate to buy companies within five to six years, then sell them and return the funds with a profit after about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1.5 percent to 2 percent of committed funds and keep 20 percent of profit from investments....

Grab a fresh hankie and find out more at http://www.bloomberg.com/news/2013-02-12/buyout-boom-shakeout-seen-leaving-one-in-four-to-starve.html

Who’s on First: Wall Street Fading as Emerging-Market Banks Gain Share

From Bloomberg: Global investment banks based in Europe and the U.S., facing regulatory and cost-cutting pressures at home, are losing market share in emerging economies to smaller domestic competitors.

Credit Suisse , Morgan Stanley and Citi. are among Western securities firms seeing the biggest erosion in some developing markets, according to data compiled by Freeman & Co., a New York-based consulting company. Their share of investment-banking fees is being diluted by local banks including Brazil’s Grupo BTG Pactual SA, Russia’s VTB Capital and China’s Citic Securities Co., the data show.

The share of fees for U.S. and Western European firms in Latin America, the Middle East, China, India, Russia and Eastern Europe plunged to 43 percent last year from 69 percent in 2005, according to Freeman. The shift coincides with a decline in lending by European banks in emerging markets, making it harder to compete for assignments, the data show....

http://www.bloomberg.com/news/2013-02-12/wall-street-fading-as-emerging-market-banks-gain-share.html

Apple CEO Tim Cook Is Shredding Einhorn's Plan To Make Shareholders Billions

Business Insider's Jay Yarow is live blogging Apple CEO Tim Cook's talk at the Goldman Sachs technology conference in San Francisco.   Cook is ripping into hedge fund manager David Einhorn, the founder of Greenlight Capital who took aim at Apple's massive cash reserves it has on its balance sheet last week saying it has a "depression era mentality”.

Here's Cook's reponse from Yarow's live blog:   Apple doesn't have depression era mentality. Apple makes bold product bets. Last year $10 billion CapEx, do the same this year, investing in R&D, new products, supply chain, we're acquiring some companies. I think it's hard ... or at least my definition wouldn't include investing a pair of 10s over two years, and $45 billion back to shareholders, I don't know how a company with despression era mindset would have done all those things....

And more on the lawsuit...  It centers on Prop 2. Right of shareholders. It's not about whether returns additional cash to sharholders, not about how much to return to shareholders, not about mechanism to return it, it's about the right of shareholders. In 2012, we were looking at what we could do to improve goverence, one item that came out was we should eliminate a blank check preferred. Not that Apple can release preferred, but if we do it we need to go to our common shareholders.  Frankly, I find it bizarre that we would be sue for doing something that would be good for shareholders. It's a silly sideshow…..”

Read more: http://www.businessinsider.com/apples-tim-cook-is-ripping-into-einhorn-2013-2