The Daily Alpha: Alternative Thinking on Union Swindlers, Oil Divestment and Hedge Fund Performance

Jun 9 2016 | 10:54am ET

The Daily Alpha - June 9, 2016
By Garrett Baldwin

"We think about 5% of the entire universe could be on a list of potential funds to look at.”

That’s Joe Marenda, managing director of Cambridge Associates. 

His argument is basically to avoid 95% of hedge funds out there today.

But how do you go about choosing the right one out of twenty these days?

Marenda has a set of cues he looks for when deciding…

They’re very insightful.

Aside from that, all we can ask is: “Who is running artwork at Business Insider?”

This article – for no good reason or relevance – also peppers in a picture of Citadel CEO Ken Griffin at the Milken Institute either having a discussion or measuring an imaginary fish.

And don’t get us started on the accompanying Zoolander-style photo of Dan Loeb.

“We intend also to be as aggressive as ever in exposing corruption wherever we find it — and it is too bad that we seem to find it everywhere we look."

What a week.

We defend the hedge fund industry against a handful of writers who are convinced the entire sector is full of criminals… and suddenly the industry criminals all come out of the woodwork within a day.

That quote above is from Manhattan U.S. Attorney Harvey Dent… Preet Bharara.

Boy, does this guy like justice.

The latest tale of greed and justice is about a hedge fund manager paying off a New York union chief to steer pension money to his firm.

It’s bad enough that the hedge fund manager was paying kick backs to this union chief to get control of the pension fund. Naturally, the whole plan went south after the hedge fund underperformed and could no longer afford the actual kickbacks.

But the real story starts when you realize that the whole scheme was uncovered pretty much on accident. Turns out that a cooperating witness from an investigation into the fundraising for NYC Mayor and once promising Marxist Bill De Blasio offered this canary song.

The Mayor is distancing himself from Jail Officers’ Union Chief Norman Seabrook – a man the mayor praised in October 2014. The New York Times notes De Blasio’s praise in thisretroactively horrifying piece about the union chief two months later.

In that stunning article, the NY Times explains that Seabrook did everything he could to stop investigations into police brutality at Rikers Island and forced out investigators who sought prison reform.

This guy actually dresses and looks like Gustavo Fring.

That said, he could be more unbalanced though than the Breaking Bad character.

“Last year, when prosecutors charged 10 officers in a beating that fractured an inmate’s nose and eye sockets, Mr. Seabrook vigorously defended them,” the Times writes.

The article goes onto explain that no one would dare speak badly about Seabrook in the city or at Rikers on the record because they were afraid that he would damage their careers.

Then there’s this about how he stopped actual court cases against officers charged with brutality and the victims who sought justice:

“Mr. Seabrook essentially shut down the city’s courts by sidelining the buses that ferry inmates to and from court, interviews and documents show. As a result, hundreds of inmates missed court dates, including Mr. Peterson, whose beating had been investigated and referred for prosecution by Ms. Finkle,” the Times writes.

But that was then…

And this is now… and the now part is somehow even more absurd.

Yesterday’s NYT piece on Seabrook’s arrest and lifestyle is an incredible descent down the rabbit hole of greed and public political power.

Having the power to direct the pension fund of the correctional union, he said to a New York real estate developer in 2014 that it was time “Norman Seabrook got paid.”

Because… don’t you know… all people who refer to themselves in the third person are rational individuals. It starts there… it ends with his wiretaps, subpoenas, and handoff bags at 
“a Torah dedication ceremony at a local synagogue.”

Read this if you read anything today.

It reads like an acid-riddled John Grisham novel.

Hollywood couldn’t invent this man if the writers tried for years.

"You have this environment where the tools that a talented hedge fund manager can use to try and drive performance just simply weren't available to them."

That’s Dynasty Financial CIO Scott Welch.

The Fed’s policies are certainly fueling wealth inequality in the U.S.

So, are they the reason why hedge fund performance has been so bad?

Welch makes a compelling argument that is worthy of quantifiable exploration.

That said, one shouldn’t resort for blaming someone else for their troubles.

Isn’t that the point of personal reliance and go-it-alone success that this industry has a habit of promoting?

“Asked the question directly of whether they could support divestment if doing so could lead to lower returns, nearly two out of three respondents said they could not.”


It turns out that retirees prefer to make money over making college students feel good about themselves…

This the conclusion of a report on the divestment movement and just how poorly these efforts turn out. As we pointed out in the Modern Trader Issue With Guns, divesting doesn’t work.

Now, for the first time, the Independent Petroleum Association of America (IPAA) decided to “quantify the opinions of those who stand to lose the most under activist-led divestment campaigns,” writes the organization.

They surveyed the actual pension beneficiaries.

Shocking to find that they like making money…

“In Texas, 88 percent of respondents said they would actively oppose divesting from oil and gas companies, and large majorities registered the same position in Pennsylvania (77 percent), Ohio (71 percent) and New York (72 percent) as well, among other states.”

The key line in this press release – one that is completely priceless – is this:

“Opposition levels reached a high of 75 percent after participants were presented with the argument that divesting from oil and natural gas firms makes no sense so long as society continues to rely on the products they produce as a key component of everyday life.”


Given that the world – not just the U.S. – relies on the oil and natural gas industry not only just to keep the light on, but also for an incredible amount of the actual revenue needed to pay for everything… you’re leaving money on the table every single day if you divest from something that is here to stay.

But at least you get to lecture everyone about their decisions later if you’ve gone green for green.

That moral superiority has to be worth the meager returns you receive investing in sustainable coffee beans.

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Garrett Baldwin is the voice of the The Daily Alpha and the features editor for Modern Trader magazine.

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