Wall Street Folly

Tags: Autos, bailout, Barack Obama, Charlie Rangel, Citigroup, Ethlly challenged politicians, Fees, Goldman Sachs, JP Morgan, Nissan, Politics, recalls, TARP, Tim Geithner, U.S.. Treasury, Vikram Pandit

Tags: AIG, Alvarez & Marsal, Bankruptcy, Bears, Fees, Lehman Brothers, Marc Faber, Tim Geithner, U.S. Treasury; Bailout

• Geithner’s New York Fed Told AIG to Limit Swaps Disclosure
• Congress Has Hedge Funds, Buyout Firms in Tax Sights
• Citi hit by legal action in bankers’ pay battle
• Top banks invited to Basel risk talks
• Kumar set to appear in court in Galleon case
• Buffett’s Mars bar
• FDIC Weighs Tying Fees to Banks’ Pay Read the rest of this entry »

Tags: AIG, Antitrust, Carried Interest, FDIC, Galleon, GM, Healthcare, Hedge funds, Insider Trading, Jamie Dimon, Lloyd Blankfein, NY Fed, Raj Rajaratnam, Taxes, Tim Geithner, Warren Buffett

• AIG’s Rescue Bedevils U.S.
• Start Date Is Critical in Ponzi Plan
• Madoff liquidator seeks fees of $22.1m
• Fed Said to Ask Stress-Tested Banks to Submit Plans on TARP
• Billions in Lehman accounts unfrozen
• Black’s Apollo Revives Plan for New York Stock Exchange Listing
• U.K. Bankers Chafe Under the Microscope
• Nomura Fined $2.9 Million for Mis-marking Derivatives
• Murdoch courts trouble if he blocks Google on news Read the rest of this entry »

Tags: AIG, Apollo, Bernie Madoff, Carl Icahn, Fed, GM, Google, Lehman Brothers, Leon Black, Microsoft, Nomura, Politics, ponzi schemes, Rupert Murdoch, TARP

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Tags: Bain, Barclays, Cerberus, Fees, Hedge funds, HSBC, Lehman Brothers, Nomura, Och Ziff, Real Estate

It was just a few days ago that Art Samberg shocked the investment world saying he was shutting down Pequot Capital.  Now another big name fund is closing its doors.  James Pallotta will wind down his Raptor Global Funds which was spun out of Tudor Investment at the end of last year with $1.5 billion in assets after 2008 losses of 20% and big investor withdrawals.  He’ll start returning money to investors next month.   According to Bloomberg,  after taking off a few months off,  he’ll apparently develop a new investment strategy.   Hmmmmm.   Is it our imagination, or does it sound like a case of another fund manager escaping a high water mark to restart the fee meter? Read the rest of this entry »

Tags: closing the doors, Fees, Hedge funds, James Pallotta, Paul Tudor Jones, Raptor, Tudor Investment

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Tags: Dresner, Fees, Hedge funds, Revolving Door, Taxes, UK

One area on Wall Street will reap benefits from the stimulus plan:  Sellers of muni bonds….

Obama Showers Wall Street Fees With Muni Stimulus – Bloomberg

Tags: Barack Obama, Fees, Municipal Bonds, Politics

According to Morgan Stanley analyst Huw van Steenis, hedge funds are in for yet another rocky year in 2009 with expected asset declines of as much as $450 billion through market losses and redemptions……

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Tags: Credit Crunch, Fees, Hedge funds

• Buffett Says the U.S. Is in Midst of an ‘Economic Pearl Harbor’
• Hedge Fund Fees Too High?
• Ackermann Warns Banks Face 'Fragile Situation' as Economy Slows
• ‘Time to Sell’ Treasuries, Biggest Korean Fund Says

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Tags: Deutsche Bank, Fees, Hedge funds

We're always amazed when fund managers simply close big money losing funds (where they don't stand a chance of collecting fees until they make up losses)  only to start a new one with a brand spanking shiny new fee faucet that they can tap.    With two funds sustaining 2008 losses of over 60%, Tontine Partners leader Jeffrey Gendell doing just that — closing them and starting over with a new fee generating machine.   Tontine's new Total Return Fund will invest in stocks it thinks are undervalued, and won't use borrowed funds.  According to Bloomberg

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Tags: Fees, Hedge funds

Sandra Manzke, a hedge fund pioneer who founded Tremont Capital Management
and who now runs Maxam Capital Management, is fed up with the state of the hedge
fund business, its apparent decline in ethics and its out of whack fee
structure.  "I am appalled and disgusted by the activities of a number of hedge-fund
managers" she said in a letter sent to hundreds of hedge fund
managers.  She'd like to see the hedge funds come together as a group as
the " Hedge Fund Investors United Forum", where they set industry
standards.   According to the NY Post:

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Tags: Fees, Hedge funds

We've heard that for years, although most funds have been able to ignore the noise, with the fee machine happily chugging along.  With the mostly dismal returns produced so far in 2008, is that bubble finally about to burst?  Alexander Ineichen, a senior offer at UBS Global Asset Management who's on the investor steering committee of the Alternative Investment Management Association thinks that changes are imminent.  According to the Financial Times:

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Tags: Credit Crunch, Fees, Hedge funds

With all of the turmoil and new game changers appearing when you least expect
it causing tremendous market volatility, some of the best known hedge funds have been heading for cash for the year’s final stretch.  Some of
those stuffing the mattresses are SAC Capital’s Steve Cohen, Millenniumm
Partners’ Izzy Englander, and Paulson Capital’s John Paulson.

While that might be prudent, at least for the short run, that’s not why most
funds get paid the big bucks, especially with what’s paid on cash these
days.  Those guys will probably be able to get away with it since even
through the turmoil, they’ve fared better than most.  However, if smaller
funds try it, they might not be so successful.  In the hedge fund world,
it’s a game of ‘use it or lose it’ if you’re not justifying those fees.

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Tags: Fees, Hedge funds, Izzy Englander, Paulson & Co, SAC Capital

There are the rock stars, like Jim Simons, who can charge way more than the classic 2 and 20 hedge fund fee structure. But most hedge funds haven’t performed so well over the last year or two.  Now the unthinkable is finally happening.  The current market turmoil is separating the men from the boys — fees are facing downward pressure with some under siege funds voluntarily offering investors lower rates to stick with them.  And that could lead to a bigger shakeout of the haves and have nots.  This morning’s Wall Street Journal provides examples of some funds who are biting the bullet on their fees including Camulos Investors, down around 20% through early September and Ore Hill, down 7.1% through July…..

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Tags: Fees, Hedge funds

Oops: The principals at Atticus Capital, with over $20 billion
under management at its peak last year,  won’t be making the
estimated $250-300 million that they’re said to have each pulled in last year.  That’s because
the hedge funds run by Tim Barakett, David Slager and Jacob Rothschild haven’t done so
well this year — down by an estimated 5 billion (or 25%) — and they won’t be getting paid any fees.  According to the Financial Times:

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Tags: Atticus, Fees, Hedge funds

Fees generated by the big Wall Street banks and boutiques have dried up in a
big way and the Wall Street Journal’s Heard on the Street column suggests that there
may be more pain on the way.  And that could lead to consolidation.

Senior bankers warn that after a tough first half, the outlook has deteriorated further. Does the grim forecast mean that the long-rumored consolidation in investment banking will finally occur?

The damage caused by mortgage-backed securities remains the focus for investors. The investment banks might have taken most of the balance-sheet hits from their subprime problems, but other areas, in particular commercial real estate and higher-grade residential mortgages, have begun to show cracks. Continued credit-market weakness is likely to force further write-downs in the third quarter.

Bankers Face a Grim Fall
- Wall Street Journal

Tags: Fees, investment banking, M&A

The fee machine is breaking down: M&A bankers are bracing themselves for a scarcity of deals after the first quarter provided the biggest drop in dollar value of announced M&A deals in six years….

That is the message circulating through
Wall Street’s mergers-and-acquisitions departments following the biggest
quarterly decline in six years in the dollar value of deals announced.

It was clear by the end of last year that the merger business was in the midst
of a significant slowdown. The first quarter met the predictions of the most
pessimistic forecasters. The value of all global deals fell 24% from the first
quarter of 2007 to $736 billion. Many deal makers say 2008 is unlikely to get
much better, with some predicting declines of as much as 45%.

The number of deals globally continued to
rise in the first quarter, jumping 14% to 9,195.

There are "some bright spots," such as robust deal making in emerging
markets, but the merger business is likely in "for a tough time," says
Mark G. Shafir, chairman and global co-head of mergers and acquisitions at
Lehman Brothers Holdings Inc. "It’s a challenging environment right
now."

Deal Makers Brace For Even More Misery – Wall Street Journal

Tags: Fees, investment banking, M&A

A new survey from Ernst & Young says that one in seven hedge funds will raise money in the next two years via a public offering or selling a stake to another party.  It also says that funds expect their fees to drop:

The survey showed 80% of hedge-fund
managers expect management fees and performance fees to decrease in the next two
years. Fees are typically structured as two and 20, which means investors pay a
one-off charge of 2% of the assets run on their behalf by hedge fund managers as
well as 20% of future profits.

"The poorer performers will be
affected the most," said Julian Young, a partner in Ernst & Young’s
U.K. hedge-funds practice. "Although pressures on fees may be downward,
managers that consistently perform well will be able to continue to charge the
fee structure they want."

Falling Fees Pressure Hedge Funds – Wall Street Journal

Tags: Fees, Hedge funds

This comes as no shock to us, but a new study by two Wharton professors cements the notion that the lion’s share of private equity winnings comes from the fees thhat an LBO can generate as opposed to profits from the underlying business.  And that could hurt their congressional crusade to prevent new taxes being heaped on them:

Private-equity firms say they are experts
at wringing profits out of flagging businesses. It turns out they are almost
twice as good at wringing fees out of their investors.

This finding — part of a study by two professors at the University of
Pennsylvania’s Wharton School — upends one of the deepest-held notions about
the buyout business: The bulk of the average private-equity firm’s earnings come
from profitably refashioning and reselling the businesses it buys.

The study shows that, on average, leveraged-buyout funds can expect to collect
$10.35 in management fees for every $100 they manage. In comparison, slightly
more than half as much — $5.41 for every $100 — comes from carried interest.

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Tags: Fees, Private equity

Private equity fees paid to Wall Street are on pace to set yet another record.  In the first half of this year, Blackstone Group  led the pack, spending $685.4 million, Apollo Management was #2 at $407.5 million, KKR was #3 at $334.8 million and CVC Capital Partners stood at #4 with a $309.1 million bill.  And with that kind of spending, private equity is looking for ways to keep more of those fees in house.  So they’re starting to imitate Goldman Sachs and its ability to play both sides.  That’s not good news for the Wall Street banks (or their bonus pools):

The windfall is occurring in a year when
private-equity firms announced about $670 billion of takeovers, more than double
the total at this time last year, according to Bloomberg data. Blackstone, the
New York-based firm founded by Stephen Schwarzman and Peter G. Peterson that
sold shares to the public last month, spent $685.4 million on financial advice
in the first half, Freeman & Co. said.

“They’re paying these fees because business is very good,” said Matthew
Rhodes-Kropf, a finance professor at Columbia University’s Columbia Business
School in New York. “Paying the fees gets you better deal flow. Everyone wants
to be the first call” when a company goes up for sale, he said.

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Tags: Apollo, Blackstone, Bonuses, Fees, Goldman Sachs, investment banking, KKR

Hedge-fund investors could earn greater returns at a fraction of the cost, according to research by Cass Business School Professor Harry Kat, who designed software to automatically mimic funds’ trading profits.

Synthetic funds would have outperformed 82 percent of the 2,000 hedge funds and 500 funds of hedge funds studied by Kat, a former head of equity derivatives at Bank of America Corp. Most of the gains generated by hedge funds were eaten up by fees, typically 2 percent of a portfolio and 20 percent of profits, he found after studying 15 years of monthly fund results.

“In most cases, managers aren’t good enough to make up for the massive fees that they charge,” said Kat, a professor of risk management at Cass, part of London’s City University, in an interview. “The combination of excessive fees and minimal opportunity in the market makes alternative investments really doubtful in terms of their value for portfolios.”

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Tags: Fees, Hedge funds

Earlier this year Alpha Magazine came out with their list of 25 highest paid hedge fund managers.  Renaissance Technologies’ Jim Simons sat atop the list, bringing home an estimated $1.5 billion last year for his superb performance.  And his funds are growing like weeds, so he stands to earn even more in the future.  His new Institutional Equities Fund, opened last year, is up 21 percent year to date, net of fees, and has doubled in assets to $8.5 billion since February.  And that computer-driven fund could handle $100 billion according to someone supposedly familiar with the operation.

With his long history of gangbuster performance, his fee structure waaaaaaay above the usual ‘2 and 20′ fees that many funds charge;  Simons’ is said to charge a whopping ‘5 and 44′.  Should his new fund grow to $100 billion — with his fee structure — well, you can do the math….

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Tags: Fees, Hedge funds, Jim Simons, Renaissance Technologies

Years ago, in the early days of the junk bond market, Mike Milken’s Drexel, then the only game in town, was able to get away with charging customers a 4% underwriting fee.  These days, with so much competition, fees are scraping along at all time lows — around 1.5%….

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Tags: Fees

Former Weil Gotschal lawyer extraordinaire and current Greenhill & Co. vice chairman Harvey Miller was handed a $4.6 million defeat on July 21, by U.S. Bankruptcy Judge Robert Drain. The judge ruled that Greenhill must return $4.6 million of an $11 million payment that the firm pocketed for its role as an adviser to Loral Space & Communications Ltd. in that company’s bankruptcy proceedings.  "

"It is one of the largest — if not the largest — fee cut in a bankruptcy case," says Lynn LoPucki, a UCLA bankruptcy-law professor."

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Tags: Bankruptcy, Fees, Greenhill, Harvey Miller