Ackman, Cohodes Warn of Private Equity Pain in Shakeout (Bloomberg)
As the panic spurred by the coronavirus erases trillions from equity markets, whipsaws bonds and crushes energy prices, there may still be another shoe to drop. Short-seller Marc Cohodes is warning that the resulting near freeze in leveraged lending will punish private equity funds that own highly indebted companies. The former hedge fund manager, who now invests his own money, is betting against the industry, which he says is headed for losses as firms mark down holdings.
Markets are Going Haywire. Billionaire Seth Klarman Explained in His Legendary, Out-of-Print Book Why He Never Listens to the Market, and You Shouldn’t Either (Business Insider)
Billionaire Seth Klarman‘s investing philosophy has been in something of a rut for years. But comparing his recent writings to investors to his nearly 30-year-old book show that he hasn’t changed the way he does things – and value might be making a return as the markets tumble due to coronavirus fears. Klarman has doubled down on his belief that the market does not reflect the true value of an investment because it’s based on the actions of others, not the underlying fundamentals. In his letter to investors at the beginning of this year, he said that “short-term market gyrations matter little unless one wishes to – or is forced to – transact.”
If Ray Dalio Isn’t Making Money Now, Neither Will You (Bloomberg)
(Bloomberg Opinion) — The coronavirus outbreak is costing hedge funds billions, as a massive dislocation across asset classes causes a breakdown in traditional relationships. In the past 10 days, bonds, stocks and even gold – a hedge against the prospect of central banks’ helicopter money — are falling in tandem. Funds that rely on computer algorithms and historical global macro trends are hurting. Take the risk parity trade, made popular by Bridgewater Associates LP. Such strategies bet on a near-perfect match between stock rallies and bond sell-offs — and it has worked out very well for the past decade.
Hedge Funds Hit by Losses in ‘Basis Trade’ (The Wall Street Journal)
Citadel, Millennium and ExodusPoint among funds affected. A wide swath of hedge funds was hit by the recent unwinding of the so-called basis trade last week. The basis trade is a long-running investment that seeks to exploit pricing gaps between Treasury securities and futures. It has been pitched as a stable, reliable source of returns with low volatility. While most of the funds have since rallied, their sudden and significant declines last week show there are heightened risks during times of market volatility. Citadel LLC’s global fixed-income unit last week was among those stung by the trade. A person familiar with Ken Griffin’s firm said the unit lost hundreds of millions partway through the week, with basis trade losses contributing to the decline.
Activist Battling Harley’s Board Urges Focus on Core Riders (Bloomberg)
The investor pressuring Harley-Davidson Inc. to replace two directors is urging the board to hire a new chief executive officer with marketing chops in a play to rebuild the storied brand. Impala Asset Management LLC filed documents Wednesday nominating two directors to the motorcycle maker’s board. If it’s successful, the fund has CEO candidates in mind who could take Harley back to basics and focus on the 35-year-old to 60-something American gearheads who buy expensive motorcycles, people familiar with Impala’s thinking said.
Greece Lightning… will it Strike Twice? (Hedge Week)
Covid-19 will impact Greek tourism, but with strong PMI figures in 2019 and a new stable government, hedge funds such as Greylock Capital see long-term opportunities in the country; in particular Greek debt and real estate. Hopefully, a repeat of its debt crisis in 2010 will not be repeated. Greece is showing signs of coming through its debt crisis. Last year, the IHS Markit Manufacturing PMI figure for Greece was the highest since 2000 and also the highest of all 31 countries covered by IHS Markit’s surveys. In sharp contrast, Germany, Greece’s bête noire during the debt crisis, reported the lowest average PMI worldwide last year.