Today's Post

    The Supreme Court and Securities Fraud: No Barking Tuesday Night The U.S. Supreme Court has just created a new, and confusing, standard for the trial of issuers who have made opinionated statements in offering documents. In certain contexts, to be determined ad hoc, the statement of an opinion, such as "we believe our practices are all lawful and value adding" can be a misleading omission of facts that might tend to the contrary conclusion.

    The Supreme Court as currently constituted is disinclined to make sweeping changes in the law on securities fraud and class actions. It has repeatedly had opportunities to do so, and repeatedly has issued split-the-difference opinions taking as small a step in one direction or another as it could manage. The latest case in this line of dogs that refuse to bark in the night is Omnicare v. Laborers District Council, decided by a unanimous court on March 24th. The Halliburton case in 2011, the Amgen case in 2013, and then the Halliburton case in its next incarnation, in 2014, all fit this pattern. All of these cases got to the Justices’ docket in the first place due to pressure by corporate managers unhappy that the fraud-on-the-market theory makes life too easy for plaintiffs’ lawyers. Yet the upshot of that series of cases has been modest. Halliburton and other defendants will hereafter be allowed to argue against the presumption that misstatements of fact by corporate officials impacted the market price, but the presumption ...

Featured Post

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 ...

One Ordinary Week in the Life of Climate Change

(March 24 update) We present here recent anecdotals on the subject of climate change.  It's a topic that affects many industries: insurance, real estate, energy (renewable and non-), food, water, national defense, to name a few.   Investment opportunities arise when there is a divergence of opinion, as is uniquely the case in the United States (unlike the other nations on Earth) on the subject of climate change.  There's an argument to be made that investors who accept the settled science ...

Guest Posts

The Skorina Report: Divestment vs. Fiduciary Duty Whose Money is it?
Guest columnist Charles Skorina takes a look at investment divestment..

What the divestment debate comes down to is how boards define their fiduciary duty. [Spoiler: We don't think divestment is a good idea] We're recruiters in the business of finding chief investment officers and senior asset managers, and our readers worry more about investing than divesting.  So you may be forgiven if you overlooked Global Divestment Day on Friday, February 13. It was spearheaded by Bill McKibben's 350.org/Fossil Free group with support from many other Green enthusiasts.  Mr. McKibben is the Pied Piper ...

Media Coverage of Hedge Funds

Does the hedge fund industry benefit society?
Guest columnist Donald Steinbrugge, CFA, looks at the bad rap hedge funds have gotten and talks about why it's not deserved.

By Donald A. Steinbrugge It is no secret that the hedge fund industry is viewed negatively by a large portion of the general public, but should it be?  Such a perception is driven primarily by the fact that most hedge funds are not permitted to market themselves to the general public, and because the mainstream media has a negative bias toward their coverage of the industry. The average person is inundated with negative articles creating the image that:  1.) Most hedge fund managers are dishonest and frequently commit fraud or violate ...


A Taylor-Swift Lawsuit: ‘I’ve Got a Blank Space Baby.’
This is the story of one high-frequency trading firm suing one or more others and giving detailed credence to everything that has been said over the last year or so by those who bemoan the rise of HFT firms.

In a class action lawsuit filed in the Northern District of Illinois, HTG Capital Partners claims that the U.S. Treasury futures market is rigged by a user of the HFT tactic of “spoofing.” Specifically, the CBOT in Chicago is the scene of the crime, of a “clear, discernable, and consistent pattern of manipulative and disruptive trading” in five, ten, and thirty-year Treasury futures. The intriguing part: who is HTG Capital Partners? HTG boasts on its webpage of “latency-sensitive algorithms implemented on multiple co-located facilities.” In short, this is an HFT firm suing ...


Intraday Momentum Confirmed: Day Traders Credited
The first half-hour return of the S&P 500 ETF predicts the last half-hour return of the same trading day rather well. Why isn't this effect arbitraged away and a random walk restored?

If a drunk is walking randomly around a lamppost, then the fact that his first step of the day was away from the lamp post is supposed to tell us nothing about the direction of his next step, or his last step of the day. Of course, in saying so I’m rather stretching that old thought experiment, because I have to assume that the experimenters have kept him drunk all day – perhaps with an IV – and have kept him walking. Still, there shouldn’t be any ‘momentum’ to play ...


Most Investors Sanguine About Central Clearing Mandates
The international push to mandate central clearing has expanded the clearinghouses "well beyond levels the market has ever seen," Greenwich Associates reminds us in a new report. This is an experiment, and there remains some grounds for uncertainty about the outcome.

A new report by Greenwich Associates looks at the pros and cons of central clearing from the point of view of participants in the interest-rate derivatives markets. The report is the result of a two-round survey. First, in 2014, GA interviewed 4,036 global fixed-income investors about their dealer relationships and use of various fixed-income products including interest-rate derivatives. Separately, GA conducted another 72 more in-depth interviews about market participant “views on systemic risk, the impacts of central clearing and … expectations for the interest-rate derivatives market going forward.” The participants came both from ...

Institutional Investing

Hedge Fund Investors and Managers: Concord and Discord
Investors in hedge funds want more transparency than they think they're getting, a fact that might not be clear to their managers.

Hedge fund managers and investors see eye-to-eye on some important subjects, according to a survey by Northern Trust. But the same survey also cautions: there is a termite in the firewood. The two groups don’t see at all eye-to-eye on transparency. First, the good news. Managers and investors are agreed that hiring the right people is a top priority for the industry looking ahead. Almost half of managers (45%), and a little more than half of the ...

Alternative energy investing

The Fossil Fuel Divestment Debate for Fiduciaries: It’s the Portfolio….
The typical investment manager is more likely to understand the divestment argument if he is shown that the dynamic effects of climate change on his fossil fuel portfolio holdings will be like a knife to the brain of one of TV's Walking Dead zombies, portfolio splatter included.

What's a Poor, Gainfully Employed Fiduciary to do? Charles Skorina discussed the fiduciary's obligation vis-a-vis the movement to divest fossil fuel investments from many endowment portfolios on these pages on March 5. He argues against divesting because of fiduciary responsibilities and says: "What the divestment debate comes down to is how boards define their fiduciary duty. Traditionally that duty included getting the best possible returns from donated funds consistent with an appropriate level of risk."  We'd agree that ...

Risk management

More Global Mandates, Fewer EM Mandates, and Other Changes
Eurekahedge's latest report gives a number of timelines for grappling with changes in the hedge fund world: since 2007; since January 2013; YTD January 2015. In any frame, you don't have to be a meteorologist....

The March 2015 report from Eurekahedge makes a point of how much the hedge fund world has changed since 2007. For example, the share of globally mandated funds has risen to 65.7%, up 8.1% from eight years ago, because geographic diversification has become an important part of diversification sans adjective. Eurekahedge makes the related but distinct point that investing in a globally mandated fund is a cautious way of getting some exposure to the emerging market ...


KPMG, MFA & AIMA: Institutional Investors & Customization
Surveys suggest that certain conspicuous ongoing trends will continue. For example, the classic 20 + 2 fee structure will continue to crumble, replaced by "customized" structures. A full 91% of the small hedge fund managers who filled out a survey agreed with this. A mere 76% of large hedge fund managers did likewise.

KPMG, the Managed Funds Association, and the Alternative Investment Management Association have jointly issued a report on the future of the hedge fund industry. The gist of the report will likely surprise few within the industry. What it amounts to is: certain conspicuous ongoing trends will continue. For example: institutional investors now drive and will continue to drive the growth of the industry. Most of the managers surveyed for the report say that pension funds in ...