SAC Capital (Point 72) and Blackstone Group Reputation Degrees

These 7-panel posters, as below, form the introduction and inaugural case study of a vigilance exercise in financial investments, initially.

The exercise name is "NoSmokeWithOutFire:Of Reputation" also abbreviated  as "NSWF:Reputation".

5th Oct 16 at time of "31-Years Low for GBP/USD at US$1.27 to GBP"

Did Blackstone Sponsor Insider Trading?

The past is often an indicator of the present and even of the future! 

Or simply the reverse and, may not be at all indicative of anything - à double entente! The point being: the title of this Loud Calumny post could equally have been “Does Blackstone Sponsor Insider Trading?”

Fund Portfolio Management - FPM, examines the increasingly accepted normality of "systemic corruption in corporate and political activities", and which the mainstream media  labels as “crony capitalism”.  A public induction information or label which grossly understates the scale of fraud, theft and malfeasance in the name of economics, by a cabal of business leaders. The deduction from such misrepresentation in the media is  that the beguiled public believes that this is the natural corrupt state of ethics in business. FPM prefers the nomenclature "Sickly Paradise", for the current mode of collusive capitalism referred to as technically as "oligarchies".

The damning evidence for this systemically rigged aspect of international economic life is through understanding the latent double-meanings in financial services, particularly nowadays.  Looking at a period of the last 30 years and inspecting the advent of financier billionaires, FPM have tracked and listed many purely self-serving professionals (and implicitly professions too), that are organised in society as worthwhile liquidity financiers for the public good (see relevant list below of the 5 billionaires at just Blackstone Group, which was founded in 1985 - 30 years ago!).

Public Reputation is a media-hyped generalisation to respect that these listed and other billionaires made money legitimately through industry skill luck and whatever else to succeed. The misused corporate intelligence by mainstream media is simply the requisite "organised lying" by various classes of mercantilism. This organised lying extends to the profession of government and politicians, who by their complicity as legislators condone and even perpetuate duplicitous activities. The stark “wealth inequality” in society in the new millennium is concomitant of this sickly paradise of billionaires.  FPM revealed the embodiment of this “sickly paradise” in its enterprising examination of Blackstone Group (BX) and S.A.C. Capital; the latter hedge-fund-sytematic cheat is abbreviated to "S.A.C." henceforth.

Even after the multi-billion dollar legal settlement with the government authorities in winter 2013 for a guilty corporate criminal conviction, Steven A. Cohen still has not, and probably cannot, be indicted on criminal charges. His management of an organisation culture manifest with insider trading suspicions since at least 1992, formerly bearing the initials of his full name, S.A.C. Capital, is much benignly reported in the sycophantic journalism of mainstream media. Mr Cohen's embroilment  in insider-trading allegations stem from as far back 1985, as alleged by Patricia Cohen, his former wife - she effing should know! S.A.C. changed its name to Point72 Asset Management after its guilty-plea and record penalty-fine conviction; a superficial makeover representing a shallow marketing and re-branding exercise. Done in complicity with #msm and #PublicRelations duplicity. Part of the main-name re-branding is "Point72", which is actually based on its current address! And would you believe it, S.A.C's address is and was, 72 Cummings Point Road, Stamford, Connecticut.

General Ethical Digression: This symptom of “too-big-to-jail” (as headlines satirically underplay), speaks hideous volumes of the protagonists’ natures and their ethical modus operandi in financial services, and extended organisations, if told in the context of reputation and calumny. Especially following that the decade long multi-agency investigation and legal prosecutions  turns out in the main to be a dumb-show of reprimanding white collar financial perpetrators for the cause and public-cost of “The Great Recession”. A public cost which imposed austerity instead of prosperity on the majority of the taxpaying population. The explanation of this dubious empty tactic is embedded in the political atmosphere of the day, where the tag “politicianRcriminals” seems highly appropriate. This latter aspect of crony capitalism is relevant, when considering that the President of The U.S. (#POTUS2016) elections is in November this year. American primaries or caucus for the nomination of the respective party leaders is currently underway.

In respect of serving the public interest - which is the genuine part of FPM’s mission and aim - the worst possible ending to a decade long investigations and prosecutions for insider-trading illegality / fraud and conspiracy has come about. This is the 30-years carry-on of excessive capitalism, mentioned as the sickly paradise, or corrupt crony capitalism, and elaborated with an inaugural case-in-point enterprise.

Back to our case-in-point protagonists: Not only that a civil liability proceedings was the only punitive action against the targetted kingpin of this era's insider-trading enforcement, Mr Cohen as a reputed "Artful Dodger", has been given a mere proverbial “slap on the wrist” by the regulator and U.S. Justice. Government funded regulator of the securities laws in America, the Securities and Exchange Commission - S.E.C, in conjunction with Department of Justice - D.O.J. and even the Federal Bureau of Investigations - F.B.I. have all been expediently outwitted by the "Disgracefully Dubious Coign". View below and disseminate electronically the FPM poster showing Mr Cohen's public reputation, awarded 20th Jan 2016:

Does the occasional multi-billion settlement compensate for the systematic fraud that creates 1% of billionnaires while 99% wallow in austerity and debt-servitude? There is name-and-shame reprisals if not the furore of the public revolution still to face. Watch this space. For financial operators playing within the written rules of the zero-sum investments game, this “slap” is hardly appropriate for the grand larceny in the conduct of investment management, that S.A.C Capital admittedly conducted. Some real-money equity traders know their positions were shafted by illegal confidential information - right?

To date, the greatest future detriment to the long-term-saving publics' portfolios (pensions, endowments, sovereign wealth funds etc), has been that in this era of insider-trading crackdown, the law has been made EASIER to commit IT, of course without being caught. S.A.C. has been caught and punished for some USD$ 2 bn, yet Mr Cohen its undoubtable orchestrator is scott free, and has reportedly net worth of approximately, USD$ 10 bn - astonishing!  Is that the cost of a firm willing to sell their employees' souls to the devil, and for potentially doing some jail-time?! (Ed note: I do mere over-time when working, that's all!)

Preet Bharara, representing U.S. justice and acting as district attorney for Manhattan in this era of enforcement, is the running parody that FPM dub “The Punch and Judy Show”. The Department of Justice – DoJ in the U.S., have now had their numerous convictions and jail sentences for insider trading being vacated / quashed. The exoneration of insider-trading perpetrators,  yet earlier judged and convicted in U.S. Court proceedings, demonstrates disproportionate justice in financial services as at a historic low, not to say farcical shambles. Acquitted on a technicality of insider-trading laws, include S.A.C. heavyweight honcho Michael Steinberg. The other small fry at S.A.C. who is serving time for his crime is Mathew Martoma.

In the era of insider-trading investigations following the TMT-bubble crash at the turn of this century, Arthur J. Samberg, founder of Pequot Capital Management, and others were prosecuted largely on circumstantial evidence, given that insider trading by its ambiguous nature is difficult to prove. Read more of this historic account in New York Times from 2006: S.E.C. Is Reported to Be Examining a Big Hedge Fund. Again, remarkably some 30 or so years ago, these hard working Jewish coterie (See picture below, Dennis Levine later), actually served jail time as senior executive financiers in that era of insider-trading rackets. Lady Justice worked then, sadly she has nowadays been bought and paid-for!

Insider Traders Properly Punished in 1986 - left to right: Ivan Boesky, Michael Milken and Martin Siegel

No Smoke Without Fire: Of Repuatation
#NSWF:Reputation 

1) From the inaugural exhaustive study of insider trading, FPM grants the S.E.C. “Dog Without Teeth” Degree. FPM elaborating on this Federal regulator's stymied enforcement would not be as pertinent as a former trial attorney at the S.E.C. Jim Kidney's parting shot at his retirement. Read about it in extracted form here (The original full speech has been removed from public domain by S.E.C. workers union!)

2) One of S.A.C. Capital’s earliest and biggest backers was Blackstone Group’s division, Blackstone Alternative Asset Management - BAAM. A NSWF:Reputation Degree awarded to BAAM: “Sham Sponsoring Schwarz”[1] 

BAAM bragg on their corporate website:
“Blackstone Alternative Asset Management (BAAM®) is the world’s largest discretionary allocator to hedge funds, with $69 billion in assets under management as of December 31, 2015". 

Blackstone Group, as a prominent sponsor and investor in the discredited, disreputable and now defunct in name S.A.C. Capital, is attributed a degree of guilt by association, as well as others (on the “FPM Reputation Blacklist”). Our induction and deduction suggests that certain executives, especially its chief executive officer J. Tomlinson Hill, also known as Tom Hill, probably did know about illegal activities at Mr Cohen's firm, and perhaps actively encouraged it for the spectacular returns; and that Blackstone even chose to turn a blind eye about early suspicions and reputation for insider trading by S.A.C. Capital’s owner manager. FPM adduces this thick-as-thieves conclusion from its template analysis, and is not intended as any slighting slander, and indeed to speculate on reputation:

“Mr Hill, did you know about Steven A. Cohen’s insider trading reputation, and what was your basis for investing with a reputed cheat; was his evasion of legal indictment a reputable kudos as source of exceptional trading returns?” FPM Princpal

FPM cite below a summary of "Circumstantial Evidence", once used in law to convict illicit traders. From these, FPM adduces between the hidden motivations with the public pretext:

1) Blackstone Pulled-Out Its Investment With S.A.C. At The Last Hour -
By fleeing a sinking ship at the last moment demonstrates conviction and faith in S.A.C. being able to survive the regulatory and legal enforcement onslaught. FPM belives the last minute exit was less about courage and support that their man was innocent, and more about face-saving exercise done to avoid guilt by association, and to limit wild-fire damage to its reputation. Remember that hedge fund investing firms that had wittingly or otherwise invested in Bernard Madoff's fraud lost a lot of credibility for their due diligence e.g. Union Bancaire Privee - UBP

2) Blackstone Sponsored Convicted DiamondBack as Investors Too -
The S.A.C. related insider-trading investigations also included, now failed, Diamondback Capital. The fund manager there was Todd Newman. As a former S.A.C. Capital workers, along with another convicted manager and co-founder of Level Global Investors, Anthony Chiasson, they both were handed a landmark verdict in the appeals court. Their criminal inider-trading convictions verdict from December  2012 was overturned and reimbursement of fines to them is underway. Blackstone connections to those with an edge in hedge funds is well known in inner circles but discussing it publically is much a taboo as anti-semitic construed remarks. FPM has made lists of associates of Blackstone principals, potentially acting-up as rogue traders - talk about "laying off risk"!

3) Blackstone and S.A.C. Have Relationship of Decade or More -
Aside of the opportunity for complicity and duplicity in a long marriage, FPM is also concerned about the quality of relations between the principals of these billionaires. We have looked into their occasional functional "meetups" like Council For Foreign Relations - CFR:...  

4) Founders of Blackstone and SAC Both Share A Jewish Heritage - 
The social or racial grouping provide both exclusivity and mutuality for operating as a cabal (a word with Hebrew origins), helping traditionally to keep the wealth within a family. The darker behavioural aspects of such ethnocentric groups are numerous and many for the report, needless to say that secrets, especially confidential business information may be passed without expectation of betrayal. The term "thick as thieves" comes to mind for this context of insider-trading rings.

5) Blackstone's Stephen Schwarzman Worked with Dennis Levine - 
Mr Schwarzman, a co-founder of Blackstone and Mr Levine as convicted insider-trader in the mid-1980s worked together as Mergers and Acquisitions bankers at Great Recession blow-up bank Lehman Brothers.

Insider trader of mid-1980s Dennis Levine (Source: "Den of Thieves" / FPM)

"Dennis was stealing my deals... It’s the most traumatizing thing that’s happened in my business career, to know that the person…in the next office, is a thief... When we started Blackstone I vowed that would never happen, and it hasn’t...” Stephen Schwarzman

From the practical experience of Milken, Levine, Siegel and Boesky era of insider-trading enforcement cira 1986, Mr Schwarzman understood the mechanism of insider trading, as well as the super easy certain investment returns, from the special relationship between deal-makers and traders, who under Glass-Stegall were prohibited from co-operation by Chinese Walls.

6) J. Tomilson Hill (Tom Hill),  Managed Dennis Levine -
Mr Hill, now head of Blackstone Alternative Asset Management - BAAM, had as then head of "Mergers and Acquisitions at Smith Barney in New York 1979 recruited, or correctly, hand picked and groomed Dennis Levine (notice the old school slivked back similarity of the two men?)

7) Dennis Levine Alleged That Tom Hill Was Insider Trading -
Mr Levine claimed J, Tomilson Hill had a secret trading account and was swapping inside information with an investment banker at Dillion, Read and trading on deals leaked by others. Levine had remonstrated  that:

"I could bring Hill down with what I know!" 

(Source: James B. Stewart, "Den of Thieves", 1991)

etc etc!
(N.B. Mr Hill and Mr Schwarzman, as far as FPM principals know, have never been formally accused of any misuse of confidential information; Mr Levine has been convicted and is unashamedly whistle-blowing)/

Among other smoke signals, the smoke from the reputation wild-fire which FPM tracks, was that FPM's check of Form 4 and 13F filings for listed Blackstone suggests an opportunity to buy into the correction before the impending market crash. Aside of the geopolitical bomb, we believe a market-led crash catalyst to be high-yield debt bust in oil and other fossil fuels, or perhaps a hedge fund blow-up - ala Long Term Capital Management - LTCM.

 Blackstone redeemed its investment just before SAC Capital was expected to be found guilty of insider trading. Any respectable organisation connected with a firm spawning a litany of insider trading advocates (see FPM's "SAC Capital's Litany of Litigation and Proceedings" from an post from xxxx), could reasonably be expected to disassociate themselves for lasting reputation sake. Especially, as they seemingly promote such ethical corporate governance values (cough cough!) – see screen-dump below explaining Blackstone’s “Guiding Principles”:

Bullshit! No, indeed they can manage this corporate perfidy?!

For disregarding the Blackstone Group's Guiding Principles, and even betraying them, as the potential fall-guy. FPM's ©NSWF:Reputation, with considered and adduced opinion, award J Tomilson Hill a Degree of "Schwarz Bullshit Artist". Indeed, James B. Stewart's epochal coverage of the insider-trading era of mid-1980s with Milken and Boesky, in "Den of Thieves" suggests that, Mr Hill sensed that Dennis Levine was in his terms, a "bullshit artist". Hence FPM's NSWF:Reputation Degree.  What goes around comes around eh!

In summary, FPM's three posters advertising FPM's ®NSWF:Reputation: 

S.E.C: “Dog Without Teeth” Degree

B.A.A.M: "Sham Sponsoring Schwarz"

J Tomilson Hill "Schwarz Bullshit Artist"

Of the person's mentioned or the protagonists of this ©NSWF:Reputation post, whom FPM are careful not to falsely accuse and slander, or in high-English “calumniate”. Bearing in mind that a) it is not slander if it is the truth and b) a reputation verdict is merely that, and everyone and everything can or does have one, even under constitutional freedom of speech laws, and c) in a context of financial services research being especially speculative in their nature. FPM's reputation enterprise is based on ‘mosaic’ research is indeed a veritable due diligence.
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Advert for ©NSWF:Reputation:

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[1] This NSWF:Reputation Degree is no way implies that Stephan A. Schwarzman, co-founder of Blackstone, is guilty by association; simply that “Schwarz”  has German etymology, from schwarz, an adjective for black)

 

Is Neuberger Bergman The New Blackstone Group?

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FPM’s ‘NoSmokeWithoutFire:Reputation’ propagating enterprise is researching prospective ring leader Neuberger Berman Group LLC (an independent employee-owned investment firm established in 1939) and its investment affiliates for signs of illegal capitalism. Since our illuminating investigation into insider trading by Steven A. Cohen’s eponymous SAC Capital, and involvement of Blackstone Group as its biggest investor, we have compiled public domain surveys, and presented privately commissioned ratings of an entity’s reputation by degrees. This monitoring survey is mockingly entitled 'Potential Rogues And Affiliates Trading' - as below.

The rationale for organising and connecting Neuberger Bergman – "NB" affiliate map are manifold. One rationale we look at here in depth derives from the nature and contradiction of a class of investment funds known as ‘liquid alternatives’. Namely, “Neuberger Berman Absolute Return Multi-Manager Fund” , is an approximately US$2 bn mutual fund listed on the NASDAQ stock exchange in New York. 

This NB thematic hybrid fund depicts FPM convergence demystification in the asset management industry; where returns of constituent fund managers are being arbitrated as more NB profit rather than  full investment returns, even though the stake for investment is mostly the client's money. In fact the key appeal and popularity of the liquid alternative category is for American pension savers or 401K plans. Hedge funds are not intended by nature to be liquid, but this mutual fund version is structured so; which for the next contrived manipulated market panic selling due to idiosyncratic or systemic risk, will intrinsically show appropriate losses. Woe to the pensioners and the feeding trough they really represent under crony corrupt capitalism!

Indeed like the mentioned early days of Blackstone Group, there is a private equity division of Neuberger Bergman known as Dyal Capital Partners which sponsors emerging and existing hedge funds via stakeholding. As far as we can tell there are no cross-over holdings between Dyal and the NB liquid alternative mutual fund. FPM is familiar with the co-heads of that business having worked with the team in their former guise as a Lehman Brother division. This is food for monitoring ‘Alt M&A’ transactions. This corporate finance / rain-maker / deal activity is expected to be invigorated during the cyclical ‘shake-out’ from the next capital market turbulence [of a nature and type never seen before].

Our third proposition for citing NB is their long established heraldry in US finance and industrialism, through its CEO, George H. Walker the fourth. Who is the second cousin of George W. Bush, the last US president from that American dynastic family. FPM believe there are bound to be scrutable executive connections to feed through our ©NSWF:Reputation rating of corruption in crony capitalism.

Under FPM’s trident mission statement this US$251 bn asset manager NB ticked all the boxes; with its divisions’ activities in hedge funds and private equity comprising FPM’s triumvirate application primarily in alternative investments headed simply ‘Convergence’, ‘Alt M&A’ and ‘NSWF:Reputation’. The relatively new Blackstone Group Inc was formed only 30 years ago in 1985 yet has greater assets under management - AuM, closer to US$333 bn. This juxtaposition of Blackstone with Neuberger raises question of business strategy with the meteoric growth of the former compared with the age venerable latter. 

FPM have a stuff and nonsense view of liquid alternative investments. A category with an estimated US$234 bn[1] of monies invested must have an investment rational merely for its existence. However, the terms ‘absolute return’ fused with ‘mutual fund’ is a misnomer and contradictory by their original natures, which FPM invoke as simply ‘convergence’ of traditional long-only investments with edgier fandangled branded alternative investment category i.e. hedge funds. This confusion with nomenclature is asserted to investors as liquid alternatives.

Nothing about this NB multi-manager fund is reminiscent of a fund of hedge funds and the implied premise of absolute returns. It is at first glance merely an appeasement offering, like water for chocolate, as far as investors are concerned. Don’t take our word for it, look at the price action in Yahoo chart below since launch. And if you believe the smarter investors should be institutions rather than individuals then it was reported that only 20% of the fund’s investors are institutions.

NB Absolute Return Multi-Manager Fund Performance

Additionally, the real proof of a vehicle with ‘Absolute Return’ in its name should be stellar hedge fund performance. Yet average annualized returns of 5% over its three years existence is not a significant or remarkable track record, even in an era of zero cost-of-money, and beating the average hedge fund benchmark - See table above. Veritably the tell tale signs of the multi-manager vehicle is the convergence of active management alpha-seeking strategies with passively managed beta-tracking. The real raison d’etre for this fund is the way Neuberger Bergman allocates the fund investor’s money between its hand-picked hedge fund affiliates. NB has segregated account with each of its portfolio constituent manager, and therefore has look-through potency at the portfolio companies. This has many potential alternate alpha-return interpretations, least of all of them being to reduce investors’ operational risk!

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[1] Strategic Insight – New York based mutual fund research

 

Yaala! FPM on Davos 2015 and ‘Weaponisation’

Fossil Fuel Investment Sponsors Can Frack-Off!

("You're 'Avin A Laugh Alright!" a.k.a YAALA! - In this FPM digest written in a concise nature than our regular exhaustive deliberating posts, we aim to share some of our fund- and investments-related observations and activities. We anecdotally question and challenge established wisdom.)

In the below Bloomberg interview video we present a disingenuous investor in alternative shale gas who is clearly marketing to "greater-fool" buyers / investors: he doesn’t want to be left holding the baby! Evidence of our claim is that he used analogy of “throwing away the baby with the bathwater” to describe sell off in shale-related securities with its obvious built-in-flaws.

 Oil Price Fall Is a Trader-Driven Decline: Sam Zell (Source: Bloomberg)

However, “feeling-before-knowing” about Mr Zell’s creed of person, we understand he is not the only one blowing the bubble in shale-gas related investments. From our Reputation Risk Activism based on our surveys we intend to expose others we believe are shamelessly making money from  moulding environmental human misery. The lead liquidity-funding sponsors in the shale gas bubble-blowing cabal, who tend to act in hierarchical heard-mentality, are usually the bigger fish in the pond. Enter David Rubinstein of the Carlyle Group. From the video excerpt Carlyle apparently have long-term investors succoured into various fund vehicles.

 Distressed Energy Debt `Attractive': Carlyle's Rubenstein  (Source: Bloomberg)

FPM have been actively recommending divestment of fossil-fuel energy companies, and SWITCHING into renewable-fuels focused companies. Since our recognition and realisation of the URGENCY of ecological threats about climate change, this is becoming less of a long-term strategy and more an exigent one. These financial billionaire sponsors do not worry about such environmental risks, as they would economically buy valuable safe havens on planet earth or elsewhere, which is not affected by the eco-Armageddon scenario. The other indispensable short-term factors adding to the volatility in this bubble-blown shale gas asset are political, regulatory and social movements, a.k.a geo-political concerns. We expect to share our quantitative analysis of SELL, SWITCH recommendations in energy companies.

E.U. Estrangement Before The Divorce (a.k.a Volatility)

FPM have been mooting the impractical nature of sewing-up into one collage the disparate countries of the initial European Union format, and worse still, the subsequent expanded mosaic mess oc now! Taking as example an aspect of over-reach in bureaucracy and flawed fundamental premises of the structural implementation of EU rules, it is inevitable that imbalances cannot continue indefinitely. Even with tinkering around the fringes of key principles to keep the unification ideology afloat while increasingly financially stressed. We expect to see more Government defaults, and not just ‘club-med’ countries in the EU zone but major ones. 

It may be esoteric knowledge that one of the so called tenets of EU treaty is that the “freedom of movement of people within member nations” was devised when the wealth parallels of members was similar. Nowadays it is impracticable that emigration from Poland or Romania to more prosperous countries can be controlled. Thereby labour mobility and its infinite supply distorts economic imbalances in member countries, such as creating deflationary cycle, i.e. excess supply of workers keeping wages subdued. Such business-friendly corporation effect doesn’t mitigate social environmental side-effects, such as on the country of destination of migrants where the quality of life is squeezed for its citizens. FPM’s staunch belief in eventual EU breakup is as committed as when George Soros famously broke the Bank of England. 

Below Blackstone Group’s new vice chairman John Studzinski diplomatically yet unequivocally articulates the estrangement phase of the shot-gun wedded partners of the EU trading bloc as increasing “volatility”. Events are evidentially unravelling the EU; the verdict does not come at once but the proceedings should build into it.

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)	3094.8%	18.9%
Aberdeen Asset Management PLC (ADN.L) (Oct 1994)	2969.1%	18.7%
T. Rowe Price Group, Inc. (TROW) (Oct 1994)	2443.9%	17.6%
Franklin Resources, Inc. (BEN) (Oct 1994)	1430.2%	14.6%
Legg Mason, Inc. (LM) (Oct 1994)	1119.4%	13.3%

2) Long Term (Established Amco) – Watch List

AllianceBernstein Holding L.P. (AB) (Oct 1994)	787.2%	11.5%
Invesco Ltd. (IVZ) (Aug 1995)	753.4%	11.8%
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)	2694.9%	78.5%
Affiliated Managers Group, Inc. (AMG) (Nov 1997)	1072.2%	15.7%
Gamco Investors Inc (GBL) (Feb 1999)	534.8%	12.5%

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)	-73.4%	-15.9%
Man Group plc (EMG.L) (Oct 1994)	-77.2%	-7.1%
Och-Ziff Capital Management Group (OZM) (Nov 2007)	-29.0%	-4.8%
Calamos Asset Management (CLMS) (Oct 2004)	-24.5%	-2.8%
Blackstone Group, L.P. (The) (BX) (Jun 2007)	55.9%	6.2%

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 long‐term 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…

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[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