The Daily Alpha: Real Talk on Hedge Funds That Don’t Lose Money, Arconic’s Shakeup and Big Brother Investments

Apr 18 2017 | 10:53am ET

Today, we talk about the SEC’s ongoing investigation of a hedge fund that promises you can’t lose money, the downfall of Alcoa’s former CEO, and how 10 stocks are basically responsible for the S&P 500’s rally in 2017.

Hair of the Dog

A Shot and Chaser in the Same Headline: CalExit Campaign Leader Withdrawing Ballot Prop, Seeks Russian Citizenship

Quotes of the Day

“As any hedge fund manager knows, Alaska Permanent and Norges Bank Investment Management (the Norwegian fund Standing was referencing) invest huge amounts of capital with alternatives managers. You would be hard-pressed to find a Connecticut or London money management baron who disagrees with the idea of more sovereign wealth funds….”

It’s unclear if the man behind this argument offered a Jonathan Swift style satire, a late April Fools joke or may one day lead to a serious proposal that effectively makes hedge fund managers the world’s supreme overlords who provide all of the human cattle with hay, barn and feed.

So, here comes Guy Standing, a researcher in London who advocates for Universal Basic Income. In Davos, he carried on his 30-year crusade to provide a UBI for anyone regardless of whether they work or not.

So, how does he want to get hedge fund managers on board? He proposes the idea of more sovereign wealth funds like the Alaska Permanent and Norges Brank Investment Management. Because alternative managers receive a lot of money from these funds, what better way to get them on board, right?

Well, before we start branding this Hedge Fund Marxism, Charles Murray at the American Enterprise Institute chimes in that it would save money over the long term… because it would allow the U.S. to accomplish the libertarian goal of dismantling the big government social security system.

What could possibly go wrong?

“Our investigation is still ongoing.”

Candice Broce, a spokeswoman for Georgia Secretary of State Brian Kemp, told Bloomberg that…well…where to start?

The state is investigating Statim Holdings Inc., a hedge fund based in Atlanta that has guaranteed its investors will not lose money in its main hedge fund.

Yeah, this seems legit…

The SEC has been looking into the firm since it started a probe in 2015 when the company failed to comply with an audit. Simone Foxman at Bloomberg also takes part in a short interview where she unveils the numbers that were “extraordinary” in 2014 and 2015.

The red flags have been there. Missing signatures. Inconsistencies in documentations.

But it’s always interesting when you can’t get the heart of the most important thing…

What they are actually doing with the money.

“It was unclear to me in discussions with [its CEO] what the strategy was,” Foxman said.

“It is simply the latest debacle in a pattern of conduct in which the board has repeatedly excused, endorsed and participated in Dr. Kleinfeld’s poor leadership and attempts to entrench himself and his allies on the board.”

On Monday shares of Arconic rallied, but not because there was a spike in alumina pricing. 

Its CEO Klaus Kleinfeld – who oversaw the firm’s split from Alcoa last year – was supposed to at the helm of the high-growth business for a long time.

But yesterday – he stepped down after facing pressure from Elliott Management. But it was a new development that reportedly led to his departure.

His latest sin: He sent a letter in response to Elliott without his board’s approval.

Paul Singer’s shop has been on the offensive for quite some time, accusing Kleinfeld’s shop of wasting money – and missing profit targets. Two of the latest complaints centered on the firm’s purchase of its new Manhattan headquarters and a Jetsons-themed marketing campaign as part of its rebranding efforts.

So, when Kleinfeld sent a letter and didn’t consult his board, Elliott viewed the letter as “as a threat to intimidate or extort.” So, now there’s a new CEO.

And now Elliott may just win four new board seats when shareholders vote next month.

Good thing few of us write letters around here… because who actually has stamps anymore?

“If these businesses keep growing, then the stocks are going to keep going.”

Doug Foreman, chief investment officer and portfolio manager at Kayne Anderson Rudnick, explains that the herd mentality is alive and well on Wall Street.

In a piece by Chris Dieterich, we learn that 10 big stocks are the driving force behind the S&P 500’s run in 2017. It’s no surprise that everyone is piling on.

Shares of Apple, Facebook, and Amazon have accounted for one-third of the S&P 500’s advance this year. The others are Alphabet, Phillip Morris, Johnson & Johnson, Microsoft, Oracle, Visa and Proctor & Gamble.

While this is fascinating, a nod must be given to Jim Shuler in the comments section when discussing this article.

“Several of these stocks get promoted everyday on the business channels,” Shuler writes. “I find several of them closer to "Big Brother" than investments.

 

Hedge Fund and Private Equity Headlines

Reuters Activist hedge fund CIAM says Euro Disney's buyout offer not fair for minority investors

Hartford Courant: Hedge Fund Tax A Bad Idea

HedgeWeek: Seven new liquid alts funds launched in Q1

Wall Street Journal: Some Firms Resist Handing Over Keys to the Boardroom

Bloomberg: Blackwater Founder Erik Prince Said to Have Advised Trump Team

It’s Academic: Harvard University

Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit

“Our point estimates suggest that a one dollar increase in the minimum wage leads to a 14 percent increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating), but has no discernible impact for a 5-star restaurant (on a 1 to 5 star scale).”

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


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