Sunday, April 21, 2013

Dan Loeb Shouted Down (sort of.....)

ok people, i'm back after a long - read 'default from the inception of this blog' - hiatus.  here's what's been on my mind.  it's a little disjointed, and feels like the start of something that i'd like to write more of later, so for the moment bear with me:

lately, the CII (council of institutional investors http://www.cii.org/) - private/public pension plans, retirement funds, etc - gathered for its annual meeting in DC to discuss all things pension-ey:  corporate governance, due diligence (translation: is my investment manager bernie madoff?) managing & meeting liabilities (translation: how the fucking hell will we pay for the retirement benefits of, well, everyone) and of course, everyone's favorite, achieving higher returns on investments which, thanks to wild underfunding, the 2008 financial crisis and a shit ton of marketing by the alternative asset management industry, have been increasingly heaped in private equity and hedge funds. 

among the many luminaries of this year's speaker faculty was dan loeb, founder and billionaire CEO of third point capital - a hedge fund.  Taibbi recently wrote about the sick audacity of loeb, an opponent of defined benefit pension plans, who had intended to speak to the CII in order to raise money from the very pension funds/retirement plans whose fundamental design and utility he was gunning to shred. 

just FYI, a defined pension fund plan is one that returns a portion of one's income during retirement, rather than simply returning private savings plus earnings on investments from a private account, such as a 401K.  us social security is the most recognizable example, followed by CalPERS (california public employee retirement system), CalSTRS (california state teachers retirement system) and other PERS.

facing organized questioning on his policy stance from numerous pension fund officers, loeb dropped out of the program.

it's a delightful little headline, and who knows - loeb might have had interesting things to say about the industry and he might have also been inclined to address the outrageous under performance of most (not all) hedge funds since 2007 - but the fact remains that there is something rotten in the state of alternative investment hype. 

some basic background on hedge funds  - broadly defined as 'giant pool of money with official permission to gamble on a broadly approved collection of financial instruments.'  to make money, hedge funds place bets and charge a two-tiered fee for their efforts: two percent on net assets under management and 20% performance on all investments  - the infamous 2 & 20. 


loeb, along with many of his fellow hedge fund moguls and private equity cousins, solicit pension fund money while simultaneously lobbying for the deeper evisceration of public finances.  an end to defined benefit plans and a broader conversion to investment-based (defined-contribution) plans.  lucrative for investment managers, and probably neatly profitable for people living well above a teacher's salary. 

now, if it were the case (as it sometimes is) that pension funds were earning FAR MORE on their alternative investments (pe/hf) than the rest of their portfolios, then we'd be in an even deeper quagmire.  MORE ON THIS IN A LATER POST.  but as it is, MOST hedge funds have utterly failed to outperform the S&P 500 and practically every other stock index.  meaning, pension funds can earn more money investing in stocks picked, at random, from the wall street journal, than by investing in most 2 & 20 hedge fund schemes. 

and yet, managers like loeb lobby to undermine the retirement security of public workers on one hand, while raking in fees on their investments with the other - often without delivering on promises of competitive returns. 





broad view to be developed in future posts:  public finance was whipped by a whirlwind financial crisis, brought about by institutions patently too large to fail or to police (another post!).  Facing a retiring baby generation of baby boomers and bleeding capital to fraud (another post - read LIBOR, etc), catastrophic incompetence and amoral profiteering (read 2008) and a shrinking tax base, they are encouraged to stake their survival on investments with the very institutions that lobby hardest against the regulation and public infrastructure that preserve and provide retirement capital.

let's not even get into the private equity & jobs question (ANOTHER POST!)









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