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Seekingalpha.com – Bill Ackman explains how hedge funds work, specifically with regard to investors in Pershing Square IV, his fund dedicated (disastrously) to going long Target.
Some of these investors, who are for the most part other hedge funds (that comprised approximately $1.3 billion of the original $2 billion of fund capital), have told me that they previously hedged a substantial portion, or in some cases 100% or more, of their exposure to Target through PSIV.
So a bunch of hedge funds invested in PSIV to go long Target (while paying Ackman his 2-and-20), and at the same time went short Target in order to hedge their PSIV exposure. And for this piece of genius they charge their own investors 2-and-20.
Gold Seek – Risk has quickly regained its status as a four-letter word.
No one wants to hear about it and no one wants to think about it. But those willing to take it on (pragmatically, mind you) will likely earn greater rewards than they would have at any other point in the past twenty years.
Right now, the herd is absolutely afraid of any risk at all…even good risks. My case in point is when the bond market went upside-down again yesterday. Investors were buying up the “safest” assets in the world as fast as they could.
At one point in the day, T-bills were yielding less than zero. Essentially, someone was willing to lend the government money for nothing, absolutely zero, in return.
It’s like selling dollar bills for 99 cents. It just doesn’t make any sense, but it does prove one thing; practically no one is willing to take on any risk right now. No one knows what’s going to happen next and the sidelines are a cozy, warm, and safe place to be. I can hear the beaten down hedge fund managers (that still has a job) now, “I may not get ahead, but I’m not going to fall behind either.”
Bloomberg – Five straight quarters of losses and a 70 percent slide in its stock this year haven’t stopped Merrill Lynch & Co. from allocating about $6.7 billion to pay bonuses.
Goldman Sachs Group Inc. and Morgan Stanley, both still on track for profitable years, have set aside about $13 billion for bonuses after three quarters, down 28 percent from a year ago. Even some employees at Lehman Brothers Holdings Inc., which declared the biggest bankruptcy in U.S. history last month, will get the same bonus they received a year ago.
The worst financial crisis since the Great Depression, a $700 billion taxpayer bailout, public outcry over excessive pay and the demise of three of the biggest securities firms won’t deter Wall Street from offering year-end rewards to employees on top of their salaries, compensation experts say.
