The SEC over the weekend announced the agenda and panelists for its December 5 staff roundtable on the use of proxy advisory firm services by institutional investors and hedge fund investment advisers.
The roundtable panelists are:
- Karen Barr – General Counsel, Investment Adviser Association
- Jeffrey Brown – Head of Legislative and Regulatory Affairs, Charles Schwab
- Mark Chen – Associate Professor of Finance, Georgia State University
- Michelle Edkins – Managing Director and Global Head Corporate Governance and Responsible Investment, BlackRock, Inc.
- Yukako Kawata – Partner, Davis Polk & Wardwell LLP
- Hoil Kim – Vice President, Chief Administrative Officer and General Counsel, GT Advanced Technologies, Inc.
- Eric Komitee – General Counsel, Viking Global Investors LP
- Jeff Mahoney – General Counsel, Council of Institutional Investors
- Nell Minow – Co-Founder and Board Member, GMI Ratings
- Trevor Norwitz – Partner, Wachtell, Lipton, Rosen & Katz
- Harvey Pitt – CEO, Kalorama Partners
- Katherine Rabin – CEO, Glass Lewis & Co. LLC
- Gary Retelny – President, Institutional Shareholder Services, Inc.
- Michael Ryan – Vice President, Business Roundtable, and former president and COO of Proxy Governance, Inc.
- Anne Sheehan – Director of Corporate Governance, CalSTRS
- Damon Silvers – Director of Policy and Special Counsel, AFL-CIO
- Darla Stuckey – Senior Vice President of Policy and Advocacy, Society of Corporate Secretaries
- Lynn Turner – Managing Director, LitiNomics, Inc.
The roundtable will be held at the SEC’s headquarters in Washington, D.C., and is open to the public on a first-come, first-served basis. The event also will be webcast live on the SEC’s website and will be archived for later viewing.
“Members of the public are welcome to submit comments on the topics to be addressed at the roundtable.” The SEC said, ” Comments may be submitted electronically or on paper; please use one method only. Any comments submitted will become part of the public record of the roundtable and posted on the SEC’s website. ”
All submissions should refer to File Number 4-670 and the file number should be included on the subject line if e-mail is used.
A former analyst for hedge fund Diamondback Capital Management claims that he received a bonus of over $2 million the same year his insider trading tips helped the hedge fund earn over $3.8 million. The hedge fund has been out of business since January 2013.
Jesse Tortora, according to Bloomberg, also alluded to a “Fight Club” mentality that ran through the firm’s management. “Rule number one about email list, there is no email list,” Tortora wrote in a March 2009 e-mail introducing a newcomer to the group (Bloomberg). “Rule number two, only data points can be sent, no sarcastic comments. Enjoy. Your perf[ormance] will go up by 100% in 2009 and your boss will love you. Game theory … look it up.”
“Game theory is the collection of individuals working together will exceed the individual working alone,” Tortora said in court. “So the sum of the parts collectively will be greater than the parts of the sum individually. That is why we decided to work together. It allowed us to be more effective, more efficient, and more profitable.”
Also charged by criminal authorities and sued by the SEC were Spyridon “Sam” Adondakis, an analyst for Anthony Chiasson; Danny Kuo, a vice president and fund manager at Whittier Trust Co.; Jon Horvath, a technology analyst at Sigma Capital Management; and Sandeep “Sandy” Goyal of mutual fund company Neuberger Berman Group LLC. All of those individuals have pled guilty and settled the SEC’s claims.
Tortora says that he was motivated to testify to get leniency in his own case. He is the first of 4 analysts to be witnesses for the prosecution. The case is U.S. v. Steinberg, 12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).
Another tech employee at a Silicon Valley-based semiconductor company has been charged for his role tipping nonpublic information used in connection with Raj Rajaratnam’s massive insider trading scheme.
The SEC alleges that Sam Miri, who worked in the communications division at Marvell Technology Group, tipped confidential information about the company’s financial performance to former Galleon Management portfolio manager Ali Far. He used the nonpublic information provided by Miri to trade Marvell securities on behalf of hedge funds that he founded after leaving Galleon. Far and Spherix Capital, who were among those earlier charged by the SEC in the Galleon matter, earned hundreds of thousands of dollars in illicit profits based on Miri’s tips. In exchange for the illegal tips, Far arranged four quarterly payments to Miri totaling approximately $10,000.
Miri, who lives in Palo Alto, Calif., has agreed to settle the SEC’s charges by paying more than $60,000 and being barred from serving as an officer or director of a public company.
“Miri finds himself playing the role of defendant because he chose to violate his duty to protect his employer’s confidential information by selling it to a hedge fund manager in exchange for quarterly payments,” said Sanjay Wadhwa, senior associate director for enforcement in the SEC’s New York Regional Office. “A total of 35 firms and individuals have now been held accountable for their varying roles in the Galleon scheme.”
Morningstar has reported preliminary hedge fund performance for October 2013 as well as estimated asset flows through September. “Global stock and bond markets pulled back in the beginning of the 16-day U.S. government shutdown in October,” AJ D’Asaro, fund analyst at Morningstar, said. “Hedge funds as a whole managed to see through the short term volatility, and every Morningstar MSCI Hedge Fund Index increased during the month.”
The Morningstar MSCI Composite EW Hedge Fund Index rose 1.6% in October and 7.2% for the year through October. Single-strategy hedge funds experienced net outflows of $512 million in September. The systematic futures category led the losses, with outflows of $574 million in September, adding to its growing loss of $8.1 billion through the third quarter. In contrast, global macro hedge funds received net inflows of $646 million.
U.S. equity based hedge fund strategies profited the most as the perceived risk of a U.S. government shutdown and Federal Reserve tapering evaporated. The Morningstar MSCI North America Hedge Fund Index increased 1.6% for the month as the S&P 500 reached new all-time highs. Similarly, the Morningstar MSCI Small Cap Hedge Fund Index, which represents small-cap long-short equity strategies, rose 2.2% in October, while the Russell 2000 Index climbed 2.5%. The Morningstar MSCI North America Hedge Fund Index and the Morningstar MSCI Small Cap Hedge Fund Index have risen 10.6% and 17.4%, respectively, year-to-date through October while the S&P 500 and Russell 2000 Indexes increased 25.3% and 30.9%, respectively.
European equity-focused hedge funds also rallied strongly as earnings across the continent came in higher than expected, and inflation was lower than expected. The Morningstar MSCI Europe Hedge Fund Index advanced 2.2% in October and 9.6% for the year to date, compared with 4.3% and 21%, respectively, for the unhedged MSCI Europe NR stock index. Full report.
100 Women in Hedge Funds has raised $1.27 million for Best Buddies International through their New York Gala and other fundraising events in 2013.
Best Buddies is a global nonprofit that creates opportunities for one-to-one friendship, integrated employment and leadership development for people with intellectual and developmental disabilities (IDD).
At last night’s Gala, 100WHF presented its 2013 Effecting Change Award to Barbara G. Novick, Vice Chairman of BlackRock and its 2013 U.S. Industry Leadership Award to the late Karen Cook, Former Chief Investment Officer of Steinhardt Management Company, Inc. Karen Cook passed away on October 2, 2013 from Progressive Supranuclear Palsy (PSP), a rare neurodegenerative disease. Everett Cook, Karen’s husband and Co-Founder of Pouschine Cook Capital Management, LLC, accepted the award on her behalf. A special donation was collected for CurePSP, a foundation dedicated to PSP care, education and research.
Over 475 alternative investment industry leaders and professionals attended. David Gregory, journalist and host of NBC’s Meet the Press, served as Master of Ceremonies, and guests enjoyed a live musical performance by Grammy award winner, Macy Gray.
Since its formation in 2001, 100WHF has raised more than $33 million globally for philanthropic causes in the areas of Women’s and Family Health, Education and Mentoring. 100WHF’s three core pillars include industry education, peer leverage and philanthropy. Beneficiaries are chosen on a rotating basis by 100WHF’s Board of Directors, and the global philanthropic theme for 2013 is Mentoring.
A New York and Buenos Aires-based technical team yesterday launched an index with an app that allows users to follow hedge fund billionaires’ investment practices.
“The iBillionaire Index is designed to track and measure the performance of those who have, over time, reaped the biggest rewards on Wall Street: financial billionaires.” The start-up company said. “The index monitors the portfolios of leading billionaire investors, such as Warren Buffett, Carl Icahn, Daniel Loeb, David Tepper and David Einhorn.”
The index is composed of the top 30 large-cap equities listed on the S&P 500 in which financial billionaires have allocated the most funds, “Providing ample trading liquidity, a well-known benchmark, and better results to equity indexation than capitalization-weighted indices.” The company said, “Devised from 13F filings, the iBillionaire Index provides investors an efficient and effective way to follow the smart money. In essence, the index works as though one gathered a group of billionaires and asked them to come to a consensus as to which S&P 500 stocks are the best bets.”
Another New York hedgie has gotten himself in trouble with the SEC after he used nonpublic information about a clothing company to give the hedge fund where he worked a $3.2 million trading edge.
The SEC is charging Mark Megalli with insider trading, alleging that he obtained the inside information through a consulting agreement he had with Eric Martin, the former vice president of investor relations at youth clothing store Carter’s. The SEC has previously charged Martin among several others in its investigation into insider trading of Carter’s stock.
Martin, who had left Carter’s and started his own consulting firm, maintained contact with at least one company insider and obtained confidential information in advance of market-moving events that he supplied to Megalli so he could trade on it. Megalli enabled hedge fund Level Global Investors L.P. to avoid approximately $2.4 million in losses and make $853,655 in illicit profits by trading shares ahead of positive or negative news.
“The information was hot enough that Megalli sometimes conducted the trades while he was still on the phone with his source,” said William Hicks, associate regional director of the SEC’s Atlanta Regional Office. “After one profitable trade, Megalli bragged to his colleagues about being ‘max short’ in advance of negative news without mentioning his inside source.”
The SEC agreed not to prosecute Carter’s in return for the company’s extensive cooperation with the SEC’s investigation.
In order to comply with new regulatory changes, Goldman Sachs has said that it is winding down it’s hedge fund business, CNBC reports.
Lloyd Blankfein, CEO of the investment giant, indicated that clients will continue to demand some services prohibited under Volcker and while Goldman Sachs would still be permitted to co-invest with and provide liquidity to its investors, key businesses would no longer be as attractive as they once were.
The Volcker Rule is a specific section of the Dodd–Frank Wall Street Reform and Consumer Protection Act originally proposed by American economist and former United States Federal Reserve Chairman Paul Volcker to restrict banks from making certain kinds of speculative investments that do not benefit their customers.
Volcker argued that such speculative activity played a key role in the financial crisis of 2007–2010. The rule is often referred to as a ban on proprietary trading by commercial banks, whereby deposits are used to trade on the bank’s own accounts, although a number of exceptions to this ban were included in the Dodd-Frank law.
In a move to take advantage of the SEC’s ratification of the JOBS Act, $100 million hedge fund investor Topturn Capital has aligned itself with professional Australian surfer Joe Curren. The company believes this will set a new precedent in hedge fund marketing.
“We feel that how we represent our company will change the industry norm,” Greg Stewart, Co-Founder and Chief Investment Officer of Top Turn Capital, said. “People look at numbers all day everyday. We just brought in The Trojan Horse for our investment strategy by introducing a surfer into the equation.”
In the surfing lexicon, a ‘top turn’ refers to a surfer’s ability to re-position himself back into the momentum of moving water. Topturn Capital says that their approach to asset management parallels this analogy. The recent JOBS Act ruling presented them with the opportunity to add to their company and investment strategy, Topturn says.
“The SECs recent ratification of the Jobs Act has dramatically changed everything,” Dan Darchuck, Top Turn Capital’s Co-Founder and Managing Director, said in a press release obtained by HedgeCo. “When our industry leverages the ability to outwardly market alternative investments, things are going to get very competitive very quickly. We just happen to be leading the industry.”
The founder of hedge fund investment firm Bridgewater Associates and one of Time magazine’s 100 most influential people in the world in 2012, has put together a video explaining economics, “How The Economic Machine Works.”
ValueWalk has transcribed the 30 minute video, which includes interesting but simple tidbits such as, “The economy works like a simple machine but many people don’t understand it or they don’t agree on how it works, and this has led to a lot of needless economic suffering.”
“I feel a deep sense of responsibility to share my simple but practical economic template. Though it’s unconventional, it has helped me to anticipate and to side step the global financial crisis and it has worked well for me for over 30 years. Let’s begin. Though the economy might seem complex, it works in a simple mechanical way, it’s made up of a few simple parts and a lot of simple transactions that are repeated over and over again a zillion times.” Dalio says.
BridgeWater embraces a corporate culture that encourages transparency and the elimination of the decision making hierarchy, and in 2011 was the world’s largest hedge fund company with $122 billion in assets under management.
On credit, Dalio said, “Productivity matters most in the long run, but credit matters most in the short run. This is because productivity growth doesn’t fluctuate much, so it’s not a big driver of economic swings, debt is, because it allows us to consume more than we produce when we acquire it and it forces us to consume less than we produce when we have to pay it back.”
“Debt swings occur in two big cycles. One takes about five to eight years and the other takes about 75 to a hundred years, while most people feel the swings, they typically don’t see them as cycles because they see them too up close, day by day, week by week. In this chapter, we’re going to step back and look at these three big forces and how they interact to make up our experiences. As mentioned, swings around the line are not due to how much innovation or hard work there is, they’re primarily due to ho much credit there is. Let’s for a second imagine an economy without credit, in this economy, the only way I can increase my spending is to increase my income which requires me to be more productive and do more work. Increase productivity is the only way for growth. Since my spending is another person’s income, the economy grows every time I or anyone else is more productive. If we follow the transactions and play this out, we see a progression like the productivity growth line but because we borrow, we have cycles. This isn’t due to any laws or regulations, it’s due to human nature and the way that credit works. Think of borrowing as simply a way of pulling spending forward. In order to buy something you can’t afford, you need to spend more than you make. To do this, you essentially need to borrow from your future self. In doing so, you create a time in the future that you need to spend less than you make in order to pay it back, it very quickly resembles a cycle. Basically, anytime you borrow you create a cycle. This is as true for an individual as it is for the economy.”
Watch the whole video (scroll down)