When people talk about hedge fund blowups as a reason to not invest in hedge funds, how come they never talk about mutual funds like Bill Miller’s losing 3x as much money (-32% YTD on $60 billion) as Amaranth did: Top funds may have lost $4 billion on Freddie, Fannie this week alone Friday July 11, 8:17 pm ET By Muralikumar Anantharaman BOSTON (Reuters) - Some of the best known U.S. fund firms probably suffered significant losses in this week’s meltdown in the stocks of mortgage finance agencies Fannie Mae and Freddie Mac. Among the casualties may be the one-time star stock-picker Bill Miller at Legg Mason, whose funds have owned a series of companies that have been battered by the credit crisis and the weakening economy. Miller’s Legg Mason Capital Management, a unit of Legg Mason, owned 50.2 million Freddie shares as of end-March, which was up 71 percent from end-December, Reuters data showed. He is the only manager to have beaten the S&P 500 index for 15 straight years till 2006 through the $12.2 billion Value Trust fund, but performance has been poor subsequently. It was down 31.8 percent in 2008 through Thursday’s close compared with the 13.7 percent negative returns of the S&P index. Legg’s equity products, including Miller’s funds, had seen combined outflows of $27.6 billion for the quarters ended December 31 and March 31.
farley013 Wrote: ------------------------------------------------------- > When people talk about hedge fund blowups as a > reason to not invest in hedge funds, how come they > never talk about mutual funds like Bill Miller’s > losing 3x as much money (-32% YTD on $60 billion) > as Amaranth did: > > > Top funds may have lost $4 billion on Freddie, > Fannie this week alone > Friday July 11, 8:17 pm ET > By Muralikumar Anantharaman > > BOSTON (Reuters) - Some of the best known U.S. > fund firms probably suffered significant losses in > this week’s meltdown in the stocks of mortgage > finance agencies Fannie Mae and Freddie Mac. > > Among the casualties may be the one-time star > stock-picker Bill Miller at Legg Mason, whose > funds have owned a series of companies that have > been battered by the credit crisis and the > weakening economy. > > Miller’s Legg Mason Capital Management, a unit of > Legg Mason, owned 50.2 million Freddie shares as > of end-March, which was up 71 percent from > end-December, Reuters data showed. He is the only > manager to have beaten the S&P 500 index for 15 > straight years till 2006 through the $12.2 billion > Value Trust fund, but performance has been poor > subsequently. > > It was down 31.8 percent in 2008 through > Thursday’s close compared with the 13.7 percent > negative returns of the S&P index. Legg’s equity > products, including Miller’s funds, had seen > combined outflows of $27.6 billion for the > quarters ended December 31 and March 31. because people take pleasure in watching the wealthly fail… for whatever reason
In fairness you could also reference more pronounced “blow ups” like bsc, bayou (well, that was moree like fraud) or looking further back LTCM, where investors lost everything. As you know, HFs can use a lot of leverage (relative to mutual funds), so meaningful losses can trigger margin calls (which then trigger a liquidity issue, which can then prevent investor redemptions). The real answer however is that HFs are secretive, and used by the ultra wealthy, so the media takes special notice when they go down.
Because a “blow up” typically implies a near wipeout of equity. So while a mutual fund manager may or may not perform worse on an unlevered basis, the use of (usually) more significant leverage will lead to larger hits to the equity investors. That can result in margin calls and thus the cycle begins.
LTCM lost $4BB. Drop in the bucket for Miller.
I’m with you farley, Miller is still destroying more wealth.
I agree Farley.
I’m not a quant, but I think this equation is correct: -32%>-100%. More importantly: (1.47)(.68) = 1, whereas (1.47)(0) = 0. Besides, doing math like this on an asset basis is silly. This is why we look at time weighted returns.
I would think most investors are more concerned about their individual returns than about how big a fund is.
Yes, of course I would have rather had my money in Legg Mason Value Trust than in Amaranth, but the point is that Bill Miller has lost his investors a ton of money and you don’t really hear much about it in the press. He is down more than twice the benchmark (assuming its the S&P 500) and he is sustaining large capital outflows. By any measure, this is a blowup, and yet this article posted here is the first I have seen anyone calling him out (other than analysts covering LM stock). He was treated like a God by the media when he was on a streak that can largely be explained by luck, but his failures aren’t getting the same level of coverage. I find it odd.
when you are charging 2 and 20 i think you have a higher bar to set than the standard mutual fund. and a 30% drop is peanuts compared to most hedge fund failings.
I still deeply admire Bill Miller. His problem is that he invests in sectors he knows (financial, tech, media) and those sectors have gotten smoked. It would be pretty surprising to see Miller start investing in oil and commodities and the other few sectors that have done well this year. You want a buying opportunity, maybe LM Value is it. Miller’s portfolio is sector concentrated, but nobody believes that he is just rolling the dice and taking moral hazard. Hedge fund blow-ups are usually way more dramatic. Amaranth was a respected fund until we found out that some lunatic trader was operating with little restraint and blew up (-70%) in essentially a roll of the roulette wheel. Other hedge fund blow ups had similar stories - LTCM, crazy high leverage and a bone-headedly simple view for a bunch of smart guys; Askin Granite, “we can hedge these CMO’s” down 100% in a day; Koonmen’s Eifuku, 2/20 (or whatever) for picking 4 stocks down 100% in a day.
I don’t know Joey. I find I very rarely disagree with you, but in this case I must. I was at a conference with Miller at the podium speaking around 10:00 AM on 3/14/08, the Friday they announced the credit line with the Fed and JP Morgan. While he was speaking he noted that the outlook was improving and Bear’s stock was looking up that day on the news of the credit line. He was immediately informed by an audience member that the stock was, in fact, now down. By the Q&A portion, someone in the audience announced that Bear Stearns was down 20% and asked him if he would buy more. His response was something similar to, “Hell, yes!” I can’t admire a guy who is a supposed financial expert that doesn’t understand what happens when you combine illiquid assets, short-term funding and a crisis of confidence. He could have gotten his investors >$30/share that day if he wasn’t blinded by the value trap and his ego.
Interesting article. BTW, how do you pronounce “Muralikumar Anantharaman”? That’s an amazing name.
Agree with Tobias. Very few financials-focused hedge funds got it wrong over the last two years, long or short. Miller got it very wrong. P.S. It is ok to disagree with JDV, you’re not in North Korea and he’s not Kim Jong-Il. The only people who are not entitled to disagree with him are Chinese employees in his firm.
tobias Wrote: ------------------------------------------------------- > I don’t know Joey. I find I very rarely disagree > with you, but in this case I must. > > I was at a conference with Miller at the podium > speaking around 10:00 AM on 3/14/08, the Friday > they announced the credit line with the Fed and JP > Morgan. While he was speaking he noted that the > outlook was improving and Bear’s stock was looking > up that day on the news of the credit line. He was > immediately informed by an audience member that > the stock was, in fact, now down. By the Q&A > portion, someone in the audience announced that > Bear Stearns was down 20% and asked him if he > would buy more. His response was something similar > to, “Hell, yes!” > > I can’t admire a guy who is a supposed financial > expert that doesn’t understand what happens when > you combine illiquid assets, short-term funding > and a crisis of confidence. He could have gotten > his investors >$30/share that day if he wasn’t > blinded by the value trap and his ego. Well, maybe he’s just lost the touch. It happens. That’s a remarkable story.
JoeyDVivre Wrote: ------------------------------------------------------- > tobias Wrote: > -------------------------------------------------- > ----- > > I don’t know Joey. I find I very rarely > disagree > > with you, but in this case I must. > > > > I was at a conference with Miller at the podium > > speaking around 10:00 AM on 3/14/08, the Friday > > they announced the credit line with the Fed and > JP > > Morgan. While he was speaking he noted that the > > outlook was improving and Bear’s stock was > looking > > up that day on the news of the credit line. He > was > > immediately informed by an audience member that > > the stock was, in fact, now down. By the Q&A > > portion, someone in the audience announced that > > Bear Stearns was down 20% and asked him if he > > would buy more. His response was something > similar > > to, “Hell, yes!” > > > > I can’t admire a guy who is a supposed > financial > > expert that doesn’t understand what happens > when > > you combine illiquid assets, short-term funding > > and a crisis of confidence. He could have > gotten > > his investors >$30/share that day if he wasn’t > > blinded by the value trap and his ego. > > Well, maybe he’s just lost the touch. It happens. > That’s a remarkable story. OK - his support for Yahoo now says I was wrong. He’s lost it.
numi Wrote: ------------------------------------------------------- > Interesting article. BTW, how do you pronounce > “Muralikumar Anantharaman”? That’s an amazing > name. i have a guy on my team named ‘balakrishnan mudaliar sounderajan’ but then i see a short eastern european name, and i get even more freaked out
Here’s an article. http://money.cnn.com/2008/07/18/news/companies/levenson_funds.fortune/index.htm?postversion=2008071810
rohufish Wrote: ------------------------------------------------------- > i have a guy on my team named ‘balakrishnan > mudaliar sounderajan’ > wow. that’s pretty intense. is it typical for names of that culture to be that long? sometimes i’m amazed by some of the names i see from other nationalities, only to later find out that they’re about as common as “john smith.”