The Daily Alpha: Alternative Thinking on Strong Hedge Fund Names, Socialized Medicine Pitches and Activist Interventions

Apr 3 2017 | 1:49pm ET

Real talk on alternative investments, business, finance & politics   

April 3, 2017

Quotes of the Day

"Hedge fund investors chase hedge fund names containing a special combination of words related to economics and geopolitics, or that convey power." 

Don’t underestimate the power of marketing… no matter how bad the product is.

According to researchers at the University of Buffalo, investors are smitten by hedge funds that have strong, powerful names.

And that’s even with these funds underperforming the ones with weaker names.

Add the word “Alpha,” “Prodigy” or some other strong moniker to upsell a fund, and the inflows increase by an average of more than $227,000 per year. 

Names with gravitas and power include:

  • Marathon Macro Strategic Allocation
  • Manchester Alpha Fund
  • Lionhart Aurora Venture Segregated Class A

Now to the performance. Despite the powerful names, the researchers said they were surprised that “funds with gravitas were not that hot in terms of performance.”

As CNBC explains, “hedge funds with positively associated name gravitas have annualized alphas up to 0.97 percent lower.”

Come on. Is anyone surprised by these results?

There has to be something that numbers are not telling us...

If it were that easy to attract capital based on these variables, someone would have already created the Burt Reynolds Deep Value Fund III, The Hans and Franz Global Alpha Flex Fund, or just called their new investment vehicle "Dolph Lundgren."

Guaranteed, all three would all have AUMs of $5 billion by now. 

“Asked Phil for a comment re: report about $2M gambling debt he allegedly paid in 2012. He said simply, "I don't know what else to add."

That’s 140 Twitter characters from Will Gray, a reporter at the Golf Channel

Once again, Billy Walters’ insider trading trial gets more interesting by the day. 

Over the weekend, the New York Post revealed that Walters was paid $1.95 million in gambling debts by professional golfer Phil Mickelson.  

Walters is facing accusations that he made $43 million on insider trading tips of a milk company, which as a story itself should be an ESPN 30 for 30. 

Walters allegedly received insider tips from former Dean Foods (NYSE: DF) chairman Tom C. Davis.

Mickelson agreed to pay off his gambling debts, and he will not face any charges. He will reportedly invoke the Fifth Amendment if called to testify at Davis’ trial.

"It takes a retailer like Sears a long time to die."

That is Greg Melich, Evercore senior managing director and head of consumer research. Sears Holding Corp. (Nasdaq: SHLD) may be slowly dying on its own, but it’s affecting Eddie Lampert’s hedge fund as well.

Lampert’s fund isn’t the only one that is overly exposed.  According to 13F filings, RBS and Fairholme both had stakes north of $200 million in SHLD stock on Dec. 31. If those are short-term bets, they’ve likely paid off since the stock has doubled from its 52-week lows. 

Barron's, however, reported last week that Fairholme still likes Sears, even after the more than 30% pop it received on the stock in recent months. On Monday, SHLD stock was up nearly 3% heading heading into the last 90 minutes of trading.

Still, it appears that everyone, everywhere – including leaders of the company – anticipate that the iconic retailer may not run a profit at any point this decade.  

"Our historical operating results indicate substantial doubt exists related to the company's ability to continue as a going concern,” the firm conceded two weeks ago

"I have always considered myself a conservative, but the UK system seems preferable to the monstrosity that has been created by Washington sausage making."

John Browne, a Senior Economic Consultant at Euro Pacific Capital, offers an “interesting” take on socialized medicine that was highlighted in the pages of Barron’s over the weekend. 

Browne argues that he isn’t a fan of “socialized anything,” but makes a sober argument out of why Republicans should embrace socialized medicine so that they can design the system – and keep it out of the hands of the “big spenders and class warriors.”

Of course, that assumes that the Republicans stay in power forever and that the Democrats don't double down or adopt Medicaid for all in the years ahead. 

Nationalized healthcare is inevitable, isn't it? 

Millennials have been dumbed down and grown fans of the socialized state, and they'll vote for the perceived "right" to someone else's money.  

But what is even more interesting about Browne's commentary is that it’s coming out with Euro Pacific Capital.

Euro Pac is Peter Schiff’s shop… 

Schiff has famously called for the government to get out of the healthcare market… 

Browne argues in favor of free enterprise and says that it is best to get a new system out of the hands of the people who would somehow make it worse.

But remember, Mr. Browne... Rep. Maxine Waters (D-Calif.) still somehow has a job, a sense of entitlement, a backward understanding of economics, and a leadership role after 26 years in Washington.

The class warriors... they are the ones who stay in Washington for decades.

The moderates disappear, and the fanatics of government intervention double and triple down on failed policy.

Mr. Browne's argument gives those class warriors an inch today, but they'll take miles over the decades in every industry where private businesses operate.

“Those behind the ‘bread war’ are going to pay, and don’t let them say later it is political persecution.”

That’s the Western Hemisphere’s dumbest dictator, Nicolas Maduro.

Venezuela has somehow descended into even worse economic chaos from the years of Hugo Chavez. 

The nation has slashed imports. 

Triple-digit inflation is the norm. 

And food shortages have led millions to wait desperately for a meal while the military has taken over the supply (and fueled a dangerous black market.) 

But don’t worry everyone. It’s not the government’s fault…

With breadlines growing longer, Maduro has taken aim at bakeries, particularly those who have the nerve to bake brownies and sweets instead of traditional bread loaves. 

Now, the country has seized bakeries… 

If this story reads like it's out of political satire, that's because it is…

Finalternatives Editor Garrett Baldwin spent five years working on a political allegory called The Man with The Big Red Balloon, which he released in December. The story is about a stranger who convinces a small town of farmers that they are running out of fresh air.

But long before the town is founded and the stranger arrives, 50 farmers must first escape a tyrant.

The key plot device that led to their exodus in the second chapter – their former King banned bakeries and threw the female protagonist's grandmother in jail for you guessed it – baking brownies and cakes. 

Of course, it took Nicolas Maduro five minutes for life to imitate art. 

Today’s Hedge Fund Reading List

Today’s Earnings Calendar and Stocks to Watch: 

  • Perrigo Co. (Nasdaq: PRGO) after the bell Monday.

Starboard Value held roughly 9.5 million shares of PRGO stock as of Dec. 31, according to Whale Wisdom. Other firm’s watching PRGO stock include Accipiter Capital Management, Moon Capital Management, Camber Capital Management and Breithorn Capital Management.

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Be sure to check out the award-winning Modern Trader and a very special offer for first-time readers andfollow @moderntradermag 

Garrett Baldwin is the voice of the The Daily Alpha and the features editor for Modern Trader magazine. Read his latest book, The Man with the Big Red Balloon.


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