economics

Largest Hedge Funds

mark tuminello top fiveAlthough all hedge funds put together estimate about 3 trillion dollars in assets, a large portion of that money comes from the top five hedge funds.  The biggest hedge funds manage around 1.6 trillion dollars, more than half of the number of assets that every hedge fund put together makes.  The following is a list of the largest hedge funds at the moment:

Number one is JPMorgan Chase through both Highbridge Capital Management and JPMorgan Chase Asset Management.  Although this hedge fund has lost around 9 billion dollars previous years due to funding, the company still makes over 45 billion dollars when it comes to assets.  JPMorgan Chase invests in almost anything – from real estate to arbitrage products.  One of their key mechanisms for gaining such an abundant income is hiring employees who each have different means of investment philosophies and managing styles.

The next two hedge funds with the highest incomes are Farallon Capital Management and Bridgewater Associates.  Though both of these hedge funds are based out of separate coastlines, each of these firms acquire roughly 36 billion dollars in assets.  San Francisco’s Farallon is a top choice for extremely wealthy individuals.  This hedge fund hosts various events which aim to capitalize on investment opportunities, particularly within the housing market.  Connecticut’s Bridgewater Association is exceptionally talented with thriving in emerging markets, currency, commodities, bonds, and equity investments.

Number three on this list of the largest hedge funds is New York’s Renaissance Technologies, who earns 35 billion dollars under their strategic management.  The Medallion Fund is Renaissance Technologies most well-known investment; it averages around 35% in annual returns, charges investors a 5% management fee, and has a 44% performance fee.  This hedge fund uses a global macro strategy when it comes to employment-making decisions, hiring only the top mathematically and scientifically driven individuals, as opposed to more financially consumed ones.

Also out of New York, Och-Ziff Capital Management is the fourth largest hedge fund, gaining around 33 billion dollars in assets.  This hedge fund invests most predominantly in real estate, private equity, and equity restructuring – mostly in foreign-based markets.  Although Och-Ziff Capital Management has experienced a rough time in the 2008 market, they are still rated in the top ranking hedge funds.

Lastly, D.E. Shaw is ranked number five on this list, earning around 32 billion dollars.  This other New York based hedge fund is an expert at buying out companies in trouble while simultaneously developing and financing newer ones.  D.E. Shaw takes pride in their extremely talented math-oriented staff, who use their computer skills to find most all of their market opportunities.

These top six hedge funds prove that online investment locating and hiring intelligent, fast paced employees are key to succeeding in an incredibly competitive market.

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Evolution of Hedge Funds : An Overview

mark tuminello hedge fund evolutionHedge funds, regardless of the name, are largely defined by their structural nature of incorporating various investment strategies and risk-management approaches, instead of their “hedging” characteristics. Hedge funds are essentially private partnerships providing the highest flexibility in establishing a portfolio. They allow provisions to make concentrated investments, use derivatives or leverage, allow investments in various markets and can be both long and short sides of the market.

In the past decade, the hedge fund industry has grown astoundingly from about 300 funds in 1990 to more than 10,000 in today’s times. It is estimated that these funds manage over $1.4 trillion in assets, onshore and offshore has is now increasingly monitored by the markets and the press. Alfred W Jones, in 1949, was the founder of the idea of hedge funds. He did so as he ‘hedged’ the market risk by short-selling and through effective use of leverage and this created led a steady trend of hedge funds outperforming mutual funds of that time.

It wasn’t until the 1960s, however, that hedge funds truly started to catch people’s eye, especially the eyes Pioneers like Warren Buffett and George Soros, who took a keen interest in Jones’ unique strategy and this led to the creation of over 130 hedge funds in the subsequent years. The attractive tendency of hedge funds, like real estate or private equity, to provide returns unlike those of traditional investments, increasingly attracted large number of institutional, and even individual investors.

In the 60s and 70s, hedge fund managers hedged their portfolios in the true sense of the word to make money on both long and short positions and in a few years, managed to make impressive profits for themselves, while delivering huge returns. Unfortunately, eventually, there were many investment professionals who saw hedge fund management as a way to make quick easy money, by bypassing the limiting infrastructure of the mutual fund industry.
Hedge fund managers today do not quite ‘hedge’ funds as much and have come a long way from Alfred Jones’ simple leverage and short-selling strategy. Many hedge funds, nowadays, take a more speculative approach and venture to achieve absolute returns.

The core investment strategy of modern hedge fund is not hedging or market risk reduction, but rather to use the right kind of leverage to optimize market’s returns in a type of inflexible bet on market swings and many such funds have earned cash-like returns with outrageous fees. These questionable strategies, says Lee Levy in his article about Hedge fund worthiness, have earned a negative reputation for the hedge fund industry in today’s market but in the end the process is all about some managers developing new ways to critically analyze the market, while the rest stay with traditional reliable methods.

The 2008 catastrophe of markets crashes all over the world led to some of the most disastrous times in the hedge fund industry. Some of the brightest and most successful managers has losses of 30 percent or more and there was a fall in the number of assets under management, since many investors switched to cash investments and even treasury bills. However, the beauty of the diverse strategies used used by hedge fund managers meant that some had implemented strategies that actually tended to have greater returns in a more erratic market and they made money for the investors, inspite of the ill-fated financial crisis. In early 2009, the industry recuperated impressively and since then has risen steadily in popularity among many investors.

Only time will tell how this regularly misunderstood, occasionally mistrusted, often rightly so, continually evolving industry will fare in the future years but it’s propensity to adjust to shifting markets points towards a rather bright one.

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Eurozone Struggles

Mark Tuminello eurozoneThe economic outlook for the Eurozone isn’t pretty. Growth isn’t growing, deflation looms, and economists once on the fence about the future of the region are now deeming the initiative as a failure. That said, there are still a lot of economists and politicians keeping their fingers crossed that the Eurozone could still become an optimal currency area.

The euro was born during a major transition of global currency. When the IMF was first established, they established exchange rates more or less based off the value of the US dollar. US currency was in turn based on gold reserves, with direct convertibility. Nixon changed all this when he led the charge for the US to abandon the gold standard. Now world currencies free-floated against one another.

Part of the hope of the euro was that it would boost the economies of Europe by expanding their local market past each nation’s borders. Costs would go down, and trade and information would flow more freely. Sure, they were giving up monetary independence, but it felt like a good trade back then. After all, the dollar was doing so well back then that the currencies of Europe just couldn’t keep up.

Now, with some countries struggling much more than others, the lack of independent financial instruments have made it difficult to respond to negative economic shocks. Recovery from the tumult of the last decade hasn’t been smooth.

The fact of the matter is that the eurozone is now part of the global community. It isn’t likely to be disassembled, and so we need to learn how to optimize it to meet new challenges. It seems that countries that are struggling right now, like Greece, ought to develop some kind of financial instruments to prevent a continual state of crisis. Countries in better economic shape, like Germany, need to encourage this bit of independence, as they will also face the consequences if something should go terribly awry.

And then, the next step is probably for the economies of Europe to consolidate politically. The only way a union thrives is for it to be truly unified. Otherwise the citizens of Europe may be stuck with an economic environment whose benefits don’t outweigh the costs.

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Crunchbase

When Crunchbase essentially restarted their site a few months back, it was a little scary. They simply deleted all of the accounts on the site and made users start from scratch. Now, that’s not as big a deal as it might seem – there was really not much you could do on the old version of the site. It was really just a way to crowdsource information about businesses and professionals. So when I wanted to update some information about my listing, I had to create a new profile again. I was surprised to see that there still was nothing else I could do with the site other than basic edits to a public profile.

But when I logged in today, I saw that there were some changes…hopefully a sign that the site is planning even more additions, which would be a welcome change!

Now you can follow the profiles of businesses and professionals that are catalogued throughout the site. What does ‘follow’ mean on Crunchbase? I don’t quite know yet, but I’ll be keeping my eye on my email after following a few people and companies as a test.

In the meantime, I’d love it if you would follow me on Crunchbase. I hope to have exciting professional news coming out over the next few months and years, and this would be a great way to keep up with all of it!

Looking forward to more additions to Crunchbase functionality soon…

 

Mark Tuminello Crunchbase

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Alternative Investment Opportunities for Young People

Young people tend to have less spare money, which means their investments tend to be a little on the conservative side. A recent Guardian article discussed options for alternative investments that could be appropriate for people in their early 20′s who are willing to take on a little risk for some extra returns.

What’s really important to remember with investing is that there is no guarantee that there will be a return on the investment, and sometimes not even a recovery. It would be wise for any investor to be prepared for the worst.

Young people are familiar with crowd funding, and there are similar options in equity. This gathers up multiple smaller investments and turns it into a much larger one, opening up a variety of new options for people with less money to invest. Crowdcube, just one option, has only a $15 minimum. Because young investors will presumably have less money than the average person, it would be smart to make sure they only invest a small percentage of their liquid money into equity crowd funding. The Guardian offers a 5% maximum.

Another option are person-to-person lending, with companies like Lending Tree. Instead of putting money into a bank account, it goes into a protected account and lent to other people. There are risks of losing the money, but there are also significant gains to be made. Apparently no P2P platform have any worse than a 3% default rate, which is decent. Many companies have some kind of contingency money that can help recoup losses. These platforms offer much better returns than a standard savings account – up to 15%.

There has been a great deal of growth and increasing interest in groups like these, with lots of money being offered to startups. The space is still young and open to big players. There is a lot of potential. While a lot of the sites and platforms are very shiny and attractive, but young people still need to be informed and cautious about the industry.

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Global Trade Growth Slowing…

There has been some celebration in the news regarding the recovering US economy, with the GDP gaining some momentum again. A recent post on The Economist points out that any celebration ought to be tempered with a more macro view of things.

The blow to optimism comes on the heels of an updated forecast from the World Trade Organization, which reduced the prediction for international trade growth in 2014 from 4.6% to 3.1%. 2015 was also cut from 5.3% to 4%. It’s a significant reduction with large global implications, but the article points out that even the new forecast is optimistic. Trade from January to June of this year was 1.8% – which means in order to meet the prediction of 3.1%, we need a serious rebound before December.

The trouble is coming from South America. Sure, Asia’s exports are growing much faster than it’s imports, which isn’t helpful, but South American exports actually fell by nearly 1%. Imports were even worse, falling 3.4%.

Struggling and developing economies saw smaller growth rates than the larger powers, which means the pendulum of market share is still swinging out in terms of market share.

What’s strange is that we enjoyed a tremendous period of growth in 2010, which we haven’t matched yet. This is all a result of a slowing of growth in emerging markets. The lack of Chinese demand for imports isn’t helping, either. Then there are the geopolitical issues that have direct effects on the global economy, such as the tough winter in the US in the first quarter, the Russian sanctions, and the rise in Japanese sales tax.

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Art of Data Interpretation

Mark Tuminello CanadaWhat happens when a single government has two federal departments using the same economic numbers and come up with completely different analysis?

This is what happened in Canada this weekend. In October, specialists at Employment and Social Development Canada interpreted financial numbers and concluded that the middle class in Canada are in serious trouble. They even called the idea of the ‘Canadian Dream’ a myth.

It wasn’t good news for the country, who is dealing with similar economic woes as their friends to their south. Opposition parties looking to cash in on some new government seats jumped on the analysis, pointing out that some real change is needed if the middle class hopes to ever come out of the recession in one piece.

But along the way, many cabinet ministers dismissed the reports, calling them misleading.

Nearly a year later, Finance Canada has come up with their own analysis of the same numbers, which actually paints a very positive picture of the state of the middle class in Canada. They even go so far as to say that once they control for the changing composition of Canadian families, income has actually grown significantly since the seventies.

From the outside, it’s hard not to see this as anything more than political parties trying to score points before a federal election, which is coming up in a year in Canada.

But when it comes to finance and economics, there’s often more than one way to skin a cat. Getting raw data requires technical skill and precision. What is done with that data is another story. Interpreting data is an art, and a flawed one at that. How does one separate their strongly held political or social beliefs when interpreting the national economy.

In the world of finance, it’s considerably easier to avoid being 100% incorrect about assumptions or theories…but the art of the work is still fragile.

Consider the complexity of the findings of the Canadian data. One report notes that wages haven’t risen much in the past few decades, and that means families are struggling to keep up with inflation. The other report notes that the major influx of women in the labor force, continually rising since the seventies, more than made up for the stagnant wages, with more families earning more on the household level.

While there are often two ways to look at data, there is sometimes a an incentive to skew analysis toward your own benefit. That accusation is being thrown around in Canada at the moment. The incentives are there to cherry-pick data – the question is whether the reports were truly filed in good faith.

It seems the thing to do now would be to send the data to third-party organizations in the hopes of getting an unbiased perspective. Or maybe they’ll choose another federal department…

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