deadhand

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    Dead Hand Proxy Puts: A Case Study The creation of a so-called Dead Hand Proxy Put in the Healthways matter was especially egregious because it took place immediately after the board had agreed, under considerable shareholder pressure, that it would de-stagger its elections. The appearance then was that after giving up one defensive moat, the incumbents with the help of lenders immediately created for themselves another.

    There are a number of respects in which corporate law is moving, slowly but perceptibly, in the direction of shareholder sovereignty, against the various schemes by which incumbent boards have entrenched themselves. The consequences of this trend for the search for alpha are, as usual, unclear. In general, the trend may well be on the side of market efficiency, and efficiency is by definition bad for alpha. But the road is a bumpy one, and there will be a lot of exploitable inefficiencies along the way. Consider in this regard the existence of “proxy put provisions” in contemporary credit agreements: clauses that allow a lender to put its outstanding debt in the event of a change in corporate control. Deterrent Effect In most such agreements, in the event of a proxy contest, the incumbent board must decide whether to approve prospective candidates on a dissident slate. If it approves them, it is saying: “their presence on their board will not constitute a change in control for the purposes of those clauses, and so ...

Featured Post


The Skorina Report: The Best, The Rest & Our Pick for Public Endowment CIO of Decade

Charles Skorina looks at the top public endowments and discusses performance with Erik Lundberg.

This month we are pleased to bring you our annual survey of endowment performance at the Public Ivys, including many of America’s biggest, most prestigious, and best-endowed public universities. We think the performance of these endowments ought to be of interest not only to the endowment and foundation community, but to the investment world at large.  They include some extremely talented people getting results which rival investment organizations anywhere. And, they are important clients for many for-profit money managers all over the ...


The Skorina Report: Another try at herding Gotham’s five-headed fund

Guest columnist Charles Skorina looks at the five-headed NYC pension system with its new leader, Scott Evans.

By Charles Skorina In July, Scott Evans reported for duty as Chief Investment Officer in New York City's Bureau of Asset Management, where he'll manage $160 billion in employee pension funds. Traditionally the city's CIO is replaced when the political wheel turns, which it did last fall. Retiring Mayor Michael Bloomberg was succeeded by William De Blasio; and Comptroller John Liu, the independently-elected custodian of the city's pension funds, was replaced by Scott Stringer. Mr. Stringer beat back a last-minute primary challenge from disgraced ...

Guest Posts


The Skorina Report: The Best, The Rest & Our Pick for Public Endowment CIO of Decade
Charles Skorina looks at the top public endowments and discusses performance with Erik Lundberg.

This month we are pleased to bring you our annual survey of endowment performance at the Public Ivys, including many of America’s biggest, most prestigious, and best-endowed public universities. We think the performance of these endowments ought to be of interest not only to the endowment and foundation community, but to the investment world at large.  They include some extremely talented people getting results which rival investment organizations anywhere. And, they are important clients for many for-profit money managers all over the ...


Smart Beta

European Investor Satisfaction with Smart Beta ETFs
Two authors at EDHEC remind us that 15% of the assets in any ETF or ETF-like products for European investors were in smart-beta indexed products as of August 2014, and that this amount is growing. They discuss the extent to which investors are pleased with their results.

A new study by the EDHEC-Risk Institute has found that those who have invested in smart beta exchange traded funds are on the whole, pleased with the results. That is a statement that demands a bit of definition. Although the familiar sort of ETF is a passive instrument designed to track the performance of a financial index, often through the use of a capitalization/weighting scheme, the “smart beta” ETFs adopt a variety of alternative approaches to weighting, seeking to fill specific niches in an investors’ portfolio. Among the non-cap-weighting schemes listed by ...

Regulatory

Fractional Reserve Banking: From First Premises
Banks are in the liquidity transformation business, and that is a critical role. But the ossification of the institutions that perform that role, by tradition, assumption, and concomitant regulation, is a threat to its success.

Three quite recent stories bring forcefully to mind certain basic facts about banks, fractional reserves, and lenders of last resort. I propose looking at these issues from first premises, and I may suggest in due course some conclusions that matter greatly to the world of non-bank financing, including the hedge funds in that world. Bulletin: Dennis Hastert’s Indictment The first of these recent stories, jogging my quest for first premises, is the indictment of Dennis Hastert. Hastert is said to have structured bank withdrawals to evade reporting requirements and to have lied ...

Media Coverage of Hedge Funds

Vindication for Pirrong and Irwin: Why Are Trafigura’s Profits Up?
Trafigura has done quite well from the decline in crude oil prices in recent months. So well, in fact, as to throw a harsh light on a story that appeared in The New York Times in December 2013.

“The cost of living in this country must not be a football to be kicked about by gamblers."--President Harry S. Truman More than a year ago, reporter David Kocieniewski wrote a piece for The New York Times that took on an eye-catching headline, Academics Who Defend Wall St. Reap Reward. The article presumes a pet thesis of Kocieniewski’s, that speculation in futures drives up the price of the underlying. To this it added an auxiliary thesis, that anyone who questions that view is so obviously wrong that the contrarian must be ...

Regulatory

Basel: What Does IRRBB Demand from Supervisors or Bank Boards?
Central bankers now believe that they have to fix as supervisors what central bankers have wrought as money creators. The gnomes of Basel say that the interest rate risk management regime needs work because central bankers have given the world a prolonged period of exceptionally low interest rates, which has inevitably raised the stakes in this area.

The Basel Committee on Banking Supervision has posted its latest consultative document, this time on the supervision of interest rate risk in the banking book (IRRBB). I gather we should pronounce that acronym “Herb.” So, what does Herb want from the world? He needs banking supervisors to fix what money creators have created, setting aside for the nonce the fact that they are generally the same set of institutions. Why Now? The Basel Committee hasn’t addressed the specific issue of IRRBB for eleven years, and this review is meant ultimately to replace ...

Performance, Analytics & Metrics

The Core Satellite Model: How to Cut Hedge Fund Fees in Half Part II
Andrew Beer continues his discussion on slashing hedge fund fees without burning yourself or your clients.

By Andrew Beer A recent article discussed a potential solution to excessive hedge fund fees, the Investor Aggregation Model, but highlighted near term obstacles, including industry structure and agency issues. This note discusses a more realistic alternative: a Core-Satellite Model that builds on the experience of the traditional asset management industry and recent developments in delivering hedge fund returns at low cost and with liquidity. Twenty years ago, an institutional investor might have allocated to a dozen ...

Performance, Analytics & Metrics

Headline Factors and Hedge Fund Success
European mandated hedge funds, benefitting from improved expectations regarding that region, are up 5.54% year to date, says Eurekahedge. Wait: improved expectations? Yes, notwithstanding continued Greek drama.

The factors driving hedge fund returns in the various regions of the world are, roughly, what you might guess they are, if you’ve simply been reading the headlines of any mainstream news periodical. That’s the conclusion one reaches reading Eurekahedge’s latest report, on hedge fund performance around the world in May 2015 and in this year to date. The report refers for example to Bank of Japan’s “strong commitment to achieve its inflation rate target;” to ...

Performance, Analytics & Metrics

Mladina on Peeling the Onion: Looking for Idiosyncratic Skill
Factor models will evolve as researchers untangle what value is to be attributed to what factor. Model selection, then, has to remain flexible to keep pace with such research, and must of course remain useful for the investment decision makers.

Peter Mladina, the director of portfolio research for wealth management at Northern Trust, began a recent article with the contention that “diversification is the primary benefit of adding select hedge funds to a portfolio of traditional assets.” You might respond, “No big whoop.” Hardly radical. But Mladina infers some important corollaries, such as (1) that such investors should be looking for truly diversifying managers and (2) that finding real diversification through the hedge fund world is ...

Technology

Spoofing: The ‘It’ Enforcement Action
Spoofing is probably about as ubiquitous as texting-while-driving. And it is possible to make an example of a spoofer caught red-handed. But it isn't clear what purpose that will serve. The real problem is that a broken market contains a broken set of incentives.

Both the CME Group and its regulator, the CFTC, are reacting to recent demands that they beef up enforcement against spoofing. Perhaps over-reacting. Spoofing is becoming the new “it” violation, or at any rate the It enforcement action, in the same way that Edie Sedgwick was once the It Girl. The cases that have resulted from this pressure haven’t been change-the-world cases; they haven’t been targeted for the most part at targets that did anything of ...