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Tuesday 28 October 2014

“A Penny For the Guy?”

FPM have strongly advocated the rolling back of the private sector excesses and greater Government planned, controlled and implemented initiatives to rejuvenate a corrupt and festering economic wound. This is indeed sea-change in Government policy we are calling for globally. A reversing of the so called “market liberalisation” trend started during Ronald Reagan and Margaret Thatcher’s administration on either side of the Atlantic Ocean during the heady 1980’s, is our call.  Instead of the appropriate Keynesian countercyclical fiscal policies; policies developed at the height of the Great Depression in his “The General Theory of Employment, Interest and Money” and published in 1936, we have continuity of monetarist policies, introduced by economist Milton Friedman, yet wholly inappropriate for the circumstance and seemingly abstract to political legislature.

Structural deficits are not advocated by Keynesian economists, only that “deficit spending is desirable and necessary as part of countercyclical fiscal policy”. Maynard Keynes

So we are in a economic milieu where global Government ‘structural deficits’ are actually expanding through monetary expansion (QE / money-printing etc), as extolled by Friedman (see below excerpt from Wikipedia); in vain attempt to kick-start economies from the need to stabilise it after the financial crisis tremors of 2007/08, seems in the main to be showing Wall Street bubbles and disturbingly more ‘creaming-off’ of the wealth of the nations by corporate elite CEOs and directors pretending to work in the name of shareholder and pension benefits.

During the 1960s, Friedman promoted an alternative macroeconomic policy known as "monetarism". He theorized there existed a "natural" rate of unemployment and argued that governments could only increase employment above this rate, e.g., by increasing aggregate demand, only for as long as inflation was accelerating. He argued that the Phillips curve was, in the long run, vertical at the "natural rate" and predicted what would come to be known as stagflation. Though opposed to the existence of the Federal Reserve System, Friedman argued that, given that it does exist, a steady, small expansion of the money supply was the only wise policy. Friedman was an economic adviser to Republican U.S. President Ronald Reagan.              

In a situation of national debt default or other financial or military crisis it would seem an instinct to huddle together for security. That is an early evolutionary social communal ideology for self-preservation. Citation of North Atlantic Treaty Organisation (N.A.T.O.) formation after WWII as vivid example (elaborated below). So it follows that desperate unions and strange bed-fellows are made in stringent times. This is seemingly what's happening in the world order play-book of today: with Russia and Europe vying for that strategically important East-West frontier country Ukraine; Hong Kong Pro Democracy protesters independently resisting China's overlord efforts; Anti-American Arab countries in turmoil between pro-West democracy or theological retrenchment; BRIC Bank set-up to negate bias IMF and World Bank support of established EU and USA economies, and so on. 

Just in case we're talking through our 'hat and hot air', witness the recent "should I go or should I stay" clash between Scottish unionists and separatists, after a 300-years-old marriage. In the Scottish Independent Referendum of 18 September 2014, the pro-union voters tactically won by 55% to 45% majority. An election won by fear because the sizeable conservative elder voters were scared into believing that the 'apple-cart' being disturbed heralds 'worse-before-better' syndrome. Long-term ideals being sacrificed for short-term benefits would not be an accusation but personal reality.  

Towards forming a pivotal and strategic alliance, whether one believes in the “New World Order” with ambitions of elite families controlling One World Government, EU is increasingly under the influence of USA policy diktat. One world government, initially via the spread of ‘Commercial Globalisation’, is seemingly intent in that direction. From missionary-driven European colonialism of pre-World War II through to multinational corporations imposing American economic imperialism; such institutional regimes with exploitation as an aim initially corrupt and ultimately destroy social freedoms, independence of local decisions and control and also individuality of thought and action. FPM principals are collectively and vehemently against Orwellian order of society (of the all-controlling "Big Brother" state), which we are ALL as yet unremittingly or unwittingly embroiled in by degrees already. The great hope and event is that all great movements are eventually checked by unheralded forces which are almost divine in emergence. Bearing such forces, we cite Mahatma Gandhi resisting the military might and nous of British Colonial Imperialism. Another example of an earlier era of unheralded yet almost divine forces resisting a seemingly incorrigible exploitation of slave trade was William Wilberforce and friends. The abolishment of the slavery in the British Empire resulted in the Slavery Abolition Act of 1833. And so on and so on is history littered with such heroes of humanity.

FPM included the above paragraph of social-political economic commentary on our funds and investments forum originated enterprise, because of related phenomenon called Trans-Atlantic Trade and Investment Partnership (or TTIP) coming into our cross-fire sight. This means the global hegemony of today United States of America, whom are descendants of a former Europeans colonists and other diaspora of refugees, want to ally with their old world roots towards greater formidable business partnerships (from our survey, even effect to supersede powers of national Governments!). Clearly a path expected to lead to globalist ambitions. 

Of course, aside of Britain’s ‘special relationship’ with America, ‘Trans-Atlantic’ indicates closer economic ties between European Union and USA. At a time when the EU itself is having a crisis of existentialism, the megalomaniac globalist drivers are desperate or opportunistic to forge a thin-end-of-wedge shot-gun wedding! As was circumstances and timing of the creation of NATO, which was a military alliance of nations in 1949. Our ‘wet behind the ears’, yet people-elected from selected politicians (viz. Hong Kong Pro Democracy Protests), who visibly, necessarily and intrinsically are not wise like gerontocracy, are being apparently pulled on puppet strings. Corrupt politicians is not new but broken political machine where its members are self-vested puppets manipulated by powerful behind the scenes corporations and lobbyist using bogus statistics from unscientific polls conducted by public relations exercise, is in fact plutocracy i.e. rule of the wealth. Democracy, i.e. rule by the people, equals public relations propaganda.

Just in case FPM are accused of excessive fantasy and bemused ranting about real world events which get relegated to realms of conspiracy (as if bad things don’t actually happen clandestinely!), we cite below an easy to understand example from the venerated Private Eye - No.1377 late October 2014 edition:

Synopsis of Penny for the Guy (From Private Eye - No1377)

As activists in FPM 3-fold enterprise manifestation of 1) critical public relations of reputations, 2) promoting alternative M&A deals and 3) delivering mutual-alternative investment convergence, we are actively peaceful protest marching against unbound capitalism. If adherents of capitalism don't march then we must all be billionaires and super-wealthy!

Indeed we are meeting at 6pm at Trafalgar Square on 5th November, 2014 to join Climate Revolution as part of the Amonymous organised annual event since 2011.

Notably in the English cultural calendar, 5th  of November is the day celebrating Guy Fawkes and his group’s failed Gunpowder Plot of 5th November 1605 to blow-up Houses of Parliament. "A Penny For the Guy?" is the begging bowl chant of children with a Guy Fawkes dummy, collecting money or fund raising to celebrate by burning the Guy Fawkes effigy on a bonfire and while letting off fireworks.

Friday 10 October 2014

Fund Management Performance (20 Years)

This research note is a preliminary study of listed asset management companies (Amcos). The ultimate aim is a process of selection for “FPM Amco Long/Short Recommendations”. An opportunity to get direct equity exposure to asset management companies (Amcos) during this general market correction in many global equity capital markets, particularly with S+P 500 at 6-month lows is the market timing under consideration. Also, we discuss the costs and benefits of investing in select FPM Amco stocks.

We believe record levels for equity benchmarks such as the S+P 500 closing above 2000 for the first time ever in August, augurs continued economic stability which was initiated by concerted global government stimulus. FPM analysis indicate ‘animal spirits’ will only be slowly painstakingly and enduringly restored. Whether that is a lull in perception about stagnant tepid global economies or an opportunity to exploit the trading volatility, we advise the real-money investors in deciding overall allocation strategies.
FPM’s repeated macro economic view is that we are in a “pause for breath” amid fundamental structural changes in social-ecological political and other spheres (listed in “FPM Risk Assessment Matrix” and also in our “Accumulating Risk Trends – ARTs”); and ultimately in financial landscape, not just regionally but also globally.

”FPM certainly believes in this probability of ‘multiple-dip recession’ cycle started in 2007-08.” From  FPM Jan’13: Investment Sector Outlook for 2013: “Credit is a Lover on the Re-bound?”

The State-driven economic policy and resultant macro fundamentals which have flummoxed many institutional investors (no less the famed and topical Bill Gross of Pimco Advisors!) in their prediction and interpretation ever since the “game-changer financial crisis”. Indicatively we may expect to know what the next seven years are likely to herald from the “easing off” of credit-injection reflation policy; excepting the chaos scenario outcome from extended and unprecedented national debt and global debt accumulation! This is the key to macro economic scenario analysis today. In regards financial capital, as FPM have propounded since July 2009, that we are in an era of equity markets characterised by side-ways trending benchmarks with bouts of volatility and a tentative secular uptrend. Given geopolitical risk considerations, policy manipulated markets, and other downside risks (See FPM Risk Assessment Matrix), FPM believe there is not enough market impetus or volume to send us off a precipice to a lower low in the capital markets benchmark, anytime soon, despite increased uncertainty in high volatility periods.

Before we pick the Amcos for the FPM Amco Portfolio we believe the general partner exposure is as valid as an investment in their underlying limited partner (LP) funds. Selecting appropriate sectors to allocate capital for speculative or investment purposes is shown in empirical research to be paramount to portfolio performance. So we have produced a select ETF constituent proxy of various asset class performances.

Amcos As Investment Fund Proxies

For all the greater transparency mandated by SEC regulation (such as expanded Form ADV and the exhaustive Form PF); yet NAV i.e. price history, particularly of alternative investment funds (AIFs) such as hedge funds and private equity funds, remain opaque. As might be expected for essentially still an over-the-counter OTC product structure, as compared with the long established staple of 401(k) pensions plans, the humble mutual fund. Aside of AIFs’ price-discovery issues, mutual fund prices do have greater price visibility and accessed via their ticker / monikers from public websites such as Yahoo Finance and Nasdaq.

For FPM’s 3-fold enterprise manifestation[1] agenda, we decided to take a proxy for the gamut of investment funds through their listed management companies – for which there is access to financial accounts and statements, as well as database of price history for research analysis.  While AMCOs maybe categorised as either predominantly applying “passive” or “active” management for the sake of broad distinguished identity. FPM enunciates the “convergence’ force as powerful. Then into further meaningful assessment of whether the management company is considered primarily as “traditional long-only”, “alternative investments” and / or “index trackers”  

1) Long Term (Established Amco) - Hold / Buy

For this ‘top-down’ recommendation analysis of the listed AMCOs for buy-and-hold portfolios we selected those with pre-2000 vintage (i.e. those managers publically trading before and after Asian Financial Crisis of 1997-98 and TMT-Bubble of 2000).

Fund Management Performance (20 Years or Inception History)
Compound Return %
Annual Return %

Eaton Vance Corp. (EV) (Oct 1994)
Aberdeen Asset Management PLC (ADN.L) (Oct 1994)
T. Rowe Price Group, Inc. (TROW) (Oct 1994)
Franklin Resources, Inc. (BEN) (Oct 1994)
Legg Mason, Inc. (LM) (Oct 1994)

2) Long Term (Established Amco) – Watch List

AllianceBernstein Holding L.P. (AB) (Oct 1994)
Invesco Ltd. (IVZ) (Aug 1995)
BlackRock Inc. (BLK)
See Full Research
See Full Research

3) Specialist Strategies (Noveau Aimco) – Hold / Buy

Fund Management Performance (20 Years or Inception)
Compound Return %
Annual Return %

Virtus Investment Partners, Inc. (VRTS) (Jan 2009)
Affiliated Managers Group, Inc. (AMG) (Nov 1997)
Gamco Investors Inc (GBL) (Feb 1999)

4) Established and Noveau Amco - Watch / Sell

For the ‘all-in’ SELL list we selected only those poor performing managers with over 5-years’ listed-price record. Again here we stress that this preliminary work is only intended as a top-down recommendation. Noticeably and unspectacularly the resulting list includes those managers specialised as alternative investment management companies - AIMCOs”. The reasonable explanation for most of these alternative managers’ underperformance perhaps stems from the partial public listing e.g. Blackstone Group have only a 10% public float. This is in “FPM Alt Kind - M&A” terms due to distribution rights priority of founding managing partners over shareholder distributions on operating profits.

Fund Management Performance (20 Years or Inception)
Compound Return %
Annual Return %
Fortress Investment Group LLC (FIG) (Feb 2007)
Man Group plc (EMG.L) (Oct 1994)
Och-Ziff Capital Management Group (OZM) (Nov 2007)
Calamos Asset Management (CLMS) (Oct 2004)
Blackstone Group, L.P. (The) (BX) (Jun 2007)

A prudent investor may suggest theses me-too newcomer ‘alternative’ listings are mainly a strategic phase acting mainly as an opportunity for the founders to cash-in a stake in their company via the initial public offering - IPO (and often a subsequent phase after a private stake sale for price discovery and market valuation purposes).

So the eventual or initial market price trading history having little reflection to overall book value or performance expectations of the firm. In fact, Blackstone Alternative Asset Management (BAAM), the division of the Blackstone Group (BX) which manufacture hedge fund investments confirm in their February 2014 presentation that “Valuations for hedge fund GPs do not reflect longterm value”. This can be interpreted in two-ways: 1) no long-term value in investing in a hedge fund Aimco or 2) Markets’s valuation of Aimcos doesn’t reflect future expectations.

For Further Qualitative And Bottom-up Analysis:

Conclusion of our quant based preliminary ‘top-down’ recommendation of a select asset management companies and their fortunes for an investor in them.

FPM brand of fund analysis shows that an investment in traditional long-only asset management companies (Eaton Vance Corp. et al.) outperform those of relatively newly listed ‘alternative vintage’ of Och-Ziff Capital Management Group (publically est. 2007) and their brethren over the long term. Listed alternative investment management companies (“Aimcos”) are the relatively poor performing subset in the asset management industry. Och Ziff (OZM) is down 29% in dividend and split adjusted price terms from its public inception. While Eaton Vance (EV) is annualising comparable returns of 19% over the past 20 years.

“Public Inception” of an Amco is of grave strategic concern when essentially boutique businesses seek that trepidation of growth-obsessed to institutionalise. These concerns in considered the FPM’s Product Convergence Story (a.k.a. “Product Convergence or Incestuous Orgy in Alternatives”). When the premise of something changes one should change their opinion about it in equal measure!

Since not all breeds are made equal, of the Aimcos we noticed from our preliminary ‘top down’ survey of their quantitative metrics, we researched anew Virtus Investment Partners, Inc. (VRTS). This new Amco, which only publically listed in January 2009, had unbelievable (‘Green for Go’ Highlighted) total returns with dividend re-investment of 2,695% or 78.5% annualised. This naturally seemed bizarre when compared to other definitive Aimcos in that table above returning 15.7% and 12.5%, such as Affiliated Managers Group - listed Nov 1997, and “Gabelli”.
FPM already had coverage knowledge of Affiliated Managers Group and Gamco Investors Inc (GBL) (Listed Feb 1999).

Virtus Investment Partners, yet without the veritable ‘VIP’ ticker! is new on FPM coverage radar as a vivid example of how relevant bottom-up understanding complements top-down quant estimation. Virtus was founded in 1988, perhaps a phoenix rising out of the Black Monday Market Crash of 1987, but like Affiliated Managers Group, they maybe considered ‘Amco’ management company not unlike a multi-manager but with general partner relationships i.e. a platform for other affiliated managers under an umbrella label. For our full research report we reveal if Virtus are a business development company (BDC) category; like the coverage we initiated on Ares Management L.P. (ARES) of Ares Capital Corporation (ARCC)…

In FPM humongous SELL Recommendation[2] of Aimcos headed “Specialist Strategies (Noveau Aimco) – Switch / Sell”, we targeted Blackstone Group due to FPM coverage of their reputation risk from investor association with ‘guilty verdict’ institutions such as insider-trading Steven A. Cohen’s firm S.A.C. Capital (since re-branding as a family office renamed Point72 Asset Management).
We were concerned that Blackstone, now an AIM category behemoth and industry bellwether, is not adhering to its founding reputation risk principles. A seemingly ardent principle to the partnership co-founder Stephen A. Schwarzman, from the days of his office-next-door association with Dennis Levine; a former Lehman Brother’s colleague who was central to the mid-1980’s insider trading crackdown. “Blackstone is sensitive to reputation”, was recited as a holy mantra to the author of this investigative research during a due diligence meeting in 2007 with the then head of asset allocation.” (Source: FPM’s No Smoke Without Fire! 22 April 2013)

Also, we were less than impressed with Blackstone’s total returns figures, up 55.9% since public inception in June 2007 or only 6.2% annually. Despite Blackstone’s division Hedge Fund Solutions or BAAM (mentioned above), reporting in their February presentation in Florida of 22% CAGR in economic income; we believe the predominantly private equity advisory business is reeling from low transactional flow, perhaps hampered by easy money preventing corporations from needing their buyout contravention…

[1] 3-fold manifestation: No Smoke Without Fire – Reputation Risk, M&A of the Alt Kind and Alternative-Mutual Convergence 
[2] An analysis based cautiously on preliminary top-down quant observation of a select Amcos