Hedge Funds

Wall Street

How Bernie Madoff Is Still Calling the Shots on Wall Street

Back in 1998, my firm visited with a prominent money manager in New York City.

At the time, we were trying to raise money to invest in less‐than‐investment‐grade corporate debt. We attended the meeting and, to put it politely, we were given the brush off. That was no big deal – it happened all the time.

But what that money manager said struck us as very odd…

"Why should I give you guys money?" he asked. "You can't make me one point a month like my friend can."

We responded, "It's not a 'point‐a‐month' world." And that was that.

Several years later, in 2005, we were sitting in front of another group that said it was interested in raising money for us.

The talks proceeded to the point where we were invited to meet with the company's founder and his top lieutenants.

These gentlemen explained they were looking for another product to add to the offering of their "winningest" manager, who was producing "consistent monthly returns in the 80 to 100 basis-point range."

That they were looking for a new product wasn't unusual. But the manager's purported returns sure as hell were. Stranger still, they wouldn't name the manager. The guy's identity was treated like a national security secret.

What's more, these gentlemen stressed repeatedly that they could not consider a strategy that might potentially expose them to losses of as much as 2% a month. Of course, we told them it would be impossible to guarantee that there would never be monthly losses.

Needless to say, the talks went nowhere.

In 2008, barely three years after that bizarre, fruitless meeting, the "winningest" manager with the top-secret name was in handcuffs, perp-walked across every television and front page in the Western world.

We'd had a brush, of the faintest kind, with Bernie Madoff.

Because of simple common sense – the certain knowledge that it's not "a point-a-month world," and a grasp of the fact that any investment can lose money – neither we nor our clients were ever in danger from the con man's massive fraud.

But the same can't be said of Madoff's 4,800 victims, of course, who lost close to $65 billion. On top of the financial ruin, at least two people killed themselves as a result of the Ponzi scheme, including Madoff's own son.

Now here's the really horrible thing: You might think the book is closed on Bernie Madoff. But the story didn't end when they slammed the cell door shut on him at the Federal hoosegow at FCC Butner.

Federal Prisoner No. 61727-054, and every single money manager unwittingly "infected" by him, are still costing unsuspecting investors millions of dollars.

Let me show you why that's the case, and what you can do to make sure you're not among the next set of victims...

Market Crash

A Stock Market Crash Is Near When Hedge Fund Managers Do This

You can tell a stock market crash is lurking on the horizon by watching the behavior of hedge fund managers.

As a group, they've been fleeing stocks since early February. They believe the Federal Reserve's low interest rate policies, trouble in China, and a limp U.S. economy spell trouble for stocks.

Retail investors will want to protect themselves.

And the best strategy is to buy what these hedge fund managers have been buying...

Wall Street

Why Investors Shouldn't Bother with Hedge Funds Anymore

They call Wall Street's big hedge fund managers the "Masters of the Universe," the ultra-wealthy, extremely powerful, undisputed lords of finance who seem to exist in a gilt world that consists solely of London W1, the Upper East Side of Manhattan, and Greenwich, Connecticut.

But… all is not well in the ivory tower. The "Masters of the Universe" just might be an endangered species.

The financial media has been pumping out stories about struggling funds, disgraced managers, and fleeing investors, all quoting high-profile critics of hedge funds. Even the old Occupy Wall Street gang, jarred by the media from their long nap, is back with a new movement: "Hedge Clippers."

That's not just noise. There's a good reason for the growing widespread discontent with the antics of Wall Street's legendary "hedgies." Investor patience is running out. 

But luckily for us, the hedge funds' fall from heaven is likely to be a godsend to independent investors.

But first, a full disclosure: I used to be a hedge fund manager, so I've got an insider's view on what's happening here, and it's going to be big...

Trading Strategies

How We Crushed Wall Street's Biggest Hedge Funds in 2015

It's possible that there is no such thing as a truly bad year for a hedge fund manager; Wall Street's "Masters of the Universe" enjoy a unique prestige, along with the best that New York and London have to offer.

Their performance doesn't warrant that mystique, though.

You see, in 2015 the hedge fund investors who entrusted their money to the "Masters" saw their worst returns in four years, according to BarclayHedge Alternative Investment Databases' Hedge Fund Index.

They saved a fortune in capital gains taxes, it's true, but those investors booked a paltry 0.31% on average. An investor placing $1 million under management with the "average" fund would have earned just $3,100 on that money.

That's $3,100 before fees, of course. In practice, investors pay the fund 2% of their principal for the privilege of having their money "managed" by one of those Masters of the Universe, along with a 20% performance fee that's typically over some hurdle rate or return on investment.

On Wall Street they call that the "Two and Twenty." We call it bad money after good. There's just no other polite way to describe paying $20,000 for the privilege of booking $3,100.

But… in that same year, we showed that research-driven, independent investment can bring returns that crush the "Masters of the Universe," many times over. In any market, too.

Here's how it's done...

Hedge Funds

What Is George Soros' Fund CIO Scott Bessent Leaving Behind?

George Soros is losing his namesake fund's Chief Investment Officer Scott Bessent, who is departing from Soros Fund Management LLC to start his own $2 billion hedge fund.

Bessent is a hedge fund whiz who originally began working at Soros Fund Management in 1991 at the age of 29. He remained there for nine years before Soros closed his European fund operations.

Here's a look at George Soros' holdings - what Bessent will be leaving behind in his new pursuits...

hedge funds

Stocks the Largest Hedge Funds Are Buying Today

Some of the largest hedge funds show robust interest in tech, biotech and energy.

Shares of a top pick at one large hedge fund are up a meteoric 94.51% year to date.

Continue reading here for the names of large hedge funds' favorite stocks.

Hedge Funds

Top Hedge Funds Reveal These Best Investing Ideas

You don't have to invest in the top hedge funds to get the benefit of their stock-picking savvy.

By law, hedge funds must disclose their activity quarterly in 13-F filings. That gives retail investors a chance to pore over the holdings of the top hedge funds for ideas.

Hedge fund managers load up on their best ideas – typically their top five holdings.

This list of the top hedge funds and their top holdings should help get you started...

Investing tips

The Only Public Hedge Fund You Should Own

Hedge fund managers who offer shares to the general public have lost investors billions. Och-Ziff Capital Management Group has lost over half of its value since its debut during the financial crisis. Fortress Investment Group has lost three quarters over the same time period. But there is one hedge fund that just might live up to the hype. I'm going to tell you about it here.

Mind you, if you have $10,000 or more to invest, you can skip the whole hedge fund hoopla and invest in so called "liquidity products." These are hybrids between hedge funds and mutual funds – essentially, hedge funds that are registered with the Securities and Exchange Commission. Blackrock, Deutsche Asset Management, PIMCO and a host of others have been pumping these out in recent years.

Or, if you're determined to get alternative asset exposure, you could invest in one of the private equity firms that went public around the time of the financial crisis. The Blackstone Group has treaded water, falling far behind the S&P and notching an 8%-plus gain since it went public. KKR & Co. has actually notched a 142% return since its IPO, beating the S&P handily.

But the ranks of profitable hedge funds with public shares are very thin - until now...

Hedge funds

Stocks to Watch: Hedge Fund Managers Follow Our Lead

The latest 13F filings, which tell us what hedge fund managers were doing in the previous quarter, reveal several Money Morning picks among the most popular stocks.

In some cases, Money Morning made these picks stocks to watch well before the fund managers jumped in. But once you own a stock, it's always great to see the big money pile in behind you to help feed your gains.

Here's a look at some of the positive Q3 hedge fund trends that mirrored several of our long-standing stocks to watch...

Investing Tips

A Simple Way For the Average Guy to Have His Own "Hedge Fund"

Setting aside the $2.13 trillion under management, there is a certain mystique attached to hedge funds and the people, like George Soros, Carl Icahn, and John Paulson, who manage them.

At one time, hedge fund managers were counted among the "Masters of the Universe." Most of the "rich lists" include no small portion of these types.

But all of these big money managers ultimately live or die on performance.

If their fund takes a dive, the manager might not even draw a paycheck. Meanwhile, the wildly successful managers are compensated far and above what the average Wall Street or London über-banker receives.

But this year, the hedge funds have collectively lagged behind the S&P 500 by about 10% according to Goldman Sachs. Analysts there credit this underwhelming performance to overly bear-ish fund managers who like to short stocks like Johnson & Johnson (NYSE:JNJ), only to see the stocks head the other way.

Part of the allure of the hedge fund world is that they are usually open only to "accredited investors," certain high net worth individuals who meet the criteria, laid out in SEC Regulation D, rules 505 and 506, for investing in hedge funds [emphasis added].

Here are just a few of the criteria:

  • a bank, insurance company, registered investment company, business development company, or small business investment company;
  • a director, executive officer, or general partner of the company selling the securities;
  • a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;
  • a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
  • a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

A Poor Man's Hedge Fund

As for the rest of us, who may not be "accredited investors?" We're on our own-but not completely.

There are certain ways to taste the rarified air of the hedge fund crowd.

There is an ETF, the Global X Guru Holdings Index ETF (NYSEArca:GURU). Global X's methodology involves scouring the numerous 13F forms that fund managers are required to file. The fund searches for the best performing holdings among the hedge funds – the managers' top picks – with the least turnover, and takes you along for the ride. It's been called the "poor man's hedge fund."

GURU has been around a little less than a year, and has beaten the S&P 500 by a respectable 18 percent.

It's not bad, but their track record is thin on time and the truth is there are ways to do even better…

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