The Uber Wealthy Begin to Question the Viability of Hedge Funds

“It’s no secret that since 2008, most hedge funds have lagged the S&P 500. Because of that, now the world’s richest families are starting to wonder if hedge funds are really worth their incredibly expensive price tag.

And they’re starting to ask hedge fund managers some tough questions about it.

Yesterday, Bloomberg hosted a conference called “The Hedge Funds Summit” for (you guessed it) hedge funds and the people that invest in them. Many of the attendees were from Family Offices — investment houses where the fortunes of the world’s wealthy are put to work.

As you can imagine, hedge funds want a piece of that action. That’s why a solid portion of the afternoon was spent discussing Family Offices, though hedge funds probably didn’t like what these juicy potential clients had to say.

“We’re quite skeptical in general… of the hedge fund industry,” said Andrew K. Tsai, Co-Founder and managing principal, Chalkstream Capital Group.

Sixty-one percent of all hedge fund money is concentrated in the hands of the top 100 hedge funds, and Tsai went on to say that that concentration makes for some wacky correlations his office would stay rather away from.

However, Tsai did say that his office is willing to seed smart hedge fund managers that have solid strategies for specific sectors.

“We don’t think of hedge funds as an asset class, we think of them as a way to get exposure to something,” said John O’Hara, Senior Advisor and Managing Director, Rockefeller & Co…..”

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“Here’s the latest analyst to double down on bullishness, with stocks remaining near all-time highs.

Paul Murphy at FT Alphaville flags the latest call from Credit Suisse’s Andrew Garthwaite, who predicts the S&P will surge to 1900 in 2014 (it’s currently at 1631)….”

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“As America’s population ages, the hard sell is on for reverse mortgages. Promising happier days ahead, the former “Fonz,” actor Henry Winkler, is giving the hard sell in relentless television ads. But the housing crash and the fiscal state of today’s seniors are causing many of these loans to backfire.

Reverse mortgages were originally designed for seniors who wanted to take out their home equity to spend during retirement. Unlike a regular mortgage, they require no monthly payments, and the borrower can take out a lump sum or receive regular payments.

“The wealth in the home is, in most cases, wealth that is sitting idly when people have a hard time making ends meet on a day-to- day basis, so having access to that allows people to basically tap that cash to pay needs or to do more comprehensive financial planning,” said Peter Bell, of the National Reverse Mortgage Association….”

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“The U.S. Federal Reserve is poised to evaluate and potentially make changes to its massive monetary stimulus, a top Fed official who is critical of the Fed’s bond-buying program said on Tuesday.

“The plot now thickens,” Richard Fisher, president of the Dallas Federal Reserve Bank, said. He likened developments in the Fed’s monetary policy to a Shakespearean play starring a “daring captain,” Fed Chairman Ben Bernanke, steering the ship of the U.S. economy.

“Act IV, just beginning, will involve the drama of introspection, with the FOMC evaluating the utility of its navigational tactics, and, perhaps, fine-tuning them, if not altering the course,” Fisher said, referring to the Fed’s policy-setting Federal Open Market Committee, in remarks prepared for delivery to the C.D. Howe Institute Directors’ Dinner in Toronto. Fisher is not a voting member of the committee this year.

Asked if he was concerned about the impact of rising bond yields on the economy, he said it should be monitored but that policymakers could not let markets dictate policy.

“We cannot live in fear that gee whiz, the market is going to be unhappy that we are not giving them more monetary cocaine,” he said…..”

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“WASHINGTON (AP) — The Treasury Department says it will sell an additional 30 million shares ofGeneral Motors stock this month in its on-going effort to dispose of all of its remaining shares of the giant automaker acquired as part of the government’s bailout of GM.

Treasury said Wednesday that it would sell its shares in conjunction with the sale of 20 million shares of GM stock held by the UAW Retiree Medical Benefits Trust, bringing the total size of the sale to 50 million shares.

In December, Treasury sold 200 million shares of GM stock…”

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“TOKYO (Reuters) – Toyota Motor Corp is recalling about 242,000gas-electric hybrid vehicles worldwide, including the bestselling Prius model, due to a brake design flaw, the automaker said on Wednesday.

Toyota is recalling the Prius produced between March and October 2009, and the Lexus HS 250hmade between June and October 2009, spokeswoman Shino Yamada said.

The recalled vehicles could experience greater stopping distances when braking because of amechanical design flaw in a brake part, Yamada said.

That part, the brake pressure accumulator, could crack with fatigue and release nitrogen gas into the brake fluid, she said, adding that no accidents, injuries or deaths have been reported as a result of the defect….”

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“Apple Inc. (AAPL)’s first loss against Samsung Electronics Co. (005930) in a U.S. patent case could mean a ban on imports of some older devices including the iPhone 4 while lessening prospects of the largest smartphone makers ending their legal battles.

The U.S. International Trade Commission’s decision, posted in a notice on its website yesterday, covers the iPhone 4 and iPad 2 3G sold for use on networks operated by AT&T Inc. (T), T-Mobile US Inc. (TMUS) and two regional carriers, General Communication Inc. (GNCMA) in Alaska and CT Cube LP inTexas.

With dozens of lawsuits spread across four continents in their battle for a greater share of the $293.9 billion market for smartphones, each side can now claim a victory in the U.S. With plenty of litigation remaining, Samsung’s victory probably won’t bring the two sides closer to settling, said Will Stofega, a program director at Framingham, Massachusetts-based researcher IDC.

“There’s too much skin in the game now,” he said. “It’s almost so ugly I don’t think they’ll come to any agreement. Both companies have a lot of cash and are generating a lot of money. It’s not like they have to worry about paying the legal bills.”

Obama Review…”

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“Gold rebounded to trade above $1,400 an ounce as equities retreated and the dollar’s rally halted, boosting demand for the metal as a store of value. Silver, platinum and palladium increased.

Spot gold rose as much as 0.7 percent to $1,408.50 an ounce, and traded at $1,405.06 at 2:12 p.m. in Singapore. Prices decreased 0.9 percent yesterday. Cash silver advanced 0.4 percent to $22.6295 an ounce.

Gold dropped 16 percent this year as investors sold the metal from exchange-traded products at a record pace and the MSCI All-Country World Index rallied 7.8 percent. Asian stocks fell for the fourth time in five days, while the Dollar Index lost 0.2 percent. Assets in the SPDR Gold Trust declined to 1,010.45 metric tons, shrinking for the first time in a week….”

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“West Texas Intermediate traded near its highest intraday level in four days amid signs of a reduction in U.S. crude inventories.

Futures gained as much as 0.7 percent in New York. A government report today will show supplies declined by 800,000 barrels, according to a Bloomberg News survey. The American Petroleum Institute said yesterday that crude stockpiles shrank 7.8 million barrels last week, the most since Dec. 28. The U.S. will today extend waivers from sanctions for nine nations that import Iranian oil, a U.S. official said.

“The big drop in crude inventories in the API report is supporting things,” said Andy Sommer, a senior oil analyst at Axpo Trading AG in Dietikon, Switzerland, who predicts that Brent, the European benchmark, will trade from $100 to $105 a barrel this month. “The market is going to tighten going into the third quarter.”

WTI for July delivery climbed as much as 68 cents to $93.99 a barrel in electronic trading on theNew York Mercantile Exchange and was at $93.80 as of 12:51 p.m. London time. The volume of all futures traded was 28 percent below the 100-day average.

Brent for July settlement was 18 cents higher at $103.42 a barrel on the London-based ICE Futures Europe exchange. The European benchmark grade was at a premium of $9.64 to WTI. The spread was $9.93 yesterday, the widest based on closing prices since April.

Fuel Supplies…”

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“Germany’s 10-year bonds advanced, snapping two days of declines, as economic reports added to signs the recession in the 17-nation region is deepening.

French, Dutch and Austrian securities also gained as European stocks declined, boosting demand for the region’s safer fixed-income assets. Gross domestic product in the euro area fell 0.2 percent in the first quarter, while separate reports showed retail sales in the region fell in April and services shrank last month. The European Central Bank will keep its main interest rateat a record-low 0.5 percent tomorrow, a Bloomberg News survey of economists shows.

“The data today looked dreadful,” said Soeren Moerch, head of fixed-income trading at Danske Bank A/S (DANSKE) in Copenhagen. “The ECB will probably not move tomorrow, but I would not be surprised if its rhetoric would turn a bit more dovish than last time. Europe has no growth. Stock losses also helped bunds.”

The 10-year bund yield dropped three basis points, or 0.03 percentage point, to 1.51 percent at 1:28 p.m. London time after climbing to 1.57 percent on June 3, the highest since Feb. 25. The 1.5 percent security maturing in May 2023 rose 0.28, or 2.80 euros per 1,000-euro ($1,309) face amount, to 99.89.

Euro-area GDP (EUGNEMUQ) fell 0.2 percent, the European Union’s statistics office in Luxembourg said today, confirming an estimate on May 15. A composite index based on a survey of purchasing managers in services and manufacturing industries in the region was at 47.7 last month, in line with an initial estimate on May 23, London-based Markit Economics said.

Yields Fall…”

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Unit labor cost rise much more than expected ……expectations were for 0.6%, Actual -4.3%

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“U.K. services growth accelerated more than economists forecast last month as signs mount that the recovery may strengthen, adding to the case for Bank of England policy makers to refrain from further stimulus.

A gauge of activity rose to 54.9, the highest in 14 months, from 52.9 in April, Markit Economics and the Chartered Institute of Purchasing and Supply said today in London. Economists had forecast 53.1, according to the median of 33 estimates in a Bloomberg News survey. Readings above 50 indicate expansion. The pound advanced.

Britain’s economy may be gaining traction after Markit’s reports this week on manufacturing and construction both showed growth. Bank of England officials start their two-day policy meeting today, and economists predict that they will probably keep their quantitative-easing target on hold. The meeting is the last for Governor Mervyn King before he retires and is succeeded by Mark Carney of the Bank of Canada.

The industry surveys “bode well for economic activity in the months ahead,” said James Knightley, an economist at ING Bank in London. “As such, there is little prospect of any BOE action tomorrow and it diminishes the likelihood of any shift in policy under Mark Carney in the next few months.”

The pound extended its advance against the dollar after the index. It was trading at $1.5351 as of 11.23 a.m. London time, up 0.3 percent from yesterday. Sterling strengthened to a two-week high against the euro.

Growth Accelerating…”

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“Goldman Sachs Group Inc. will lend $500 million to Alibaba Group Holding Ltd. as the company seeks $8 billion of loans, two people familiar with the matter said.

The pledge by the New York-based bank forms part of a facility that will cut debt costs forChina’s biggest e-commerce company, the people said yesterday, asking not to be identified because the details are private. Edward Naylor, a spokesman for Goldman Sachs in Hong Kong, declined to comment….”

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“The European Union imposed tariffs as high as 67.9 percent on solar panels from China in the largest EU commercial dispute of its kind, seeking to help revive a withering industry in Europe.

The duties punish Chinese manufacturers of solar panels for allegedly selling them in the 27-nation EU below cost, a practice known as dumping. Yingli Green Energy Holding Co., Wuxi Suntech Power Co. and Changzhou Trina Solar Energy Co. are among the more than 100 companies targeted.

EU producers such as Solarworld AG (SWV), Germany’s No. 1 maker of the renewable-energy technology, have suffered “material injury” as a result of dumped imports from China, the European Commission, the bloc’s trade authority in Brussels, said today in the Official Journal. The commission said 25,000 jobs in EU solar production would likely be lost without theimport taxes.

The EU’s action “is an emergency measure to give life-saving oxygen to a business sector in Europe that is suffering badly from this dumping,” European Trade Commissioner Karel De Gucht told reporters. The levies, due to take effect tomorrow at an initial lower rate of 11.8 percent, will be for six months and may be prolonged for five years.

The trade protection covers EU imports of crystalline silicon photovoltaic modules or panels, and cells and wafers used in them — shipments valued at 21 billion euros ($27.4 billion) in 2011. European companies including Solarworld have demanded punitive levies to counter growing competition fromChina following similar U.S. trade protection.

Broader Crackdown…”

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“Australia’s economy expanded at the slowest annual pace in almost two years as manufacturers and builders detracted from growth, sending the nation’s currency lower as traders increased bets on further interest-rate cuts.

Gross domestic product expanded 2.5 percent in the first quarter from a year earlier, the weakest reading since the second quarter of 2011, a Bureau of Statistics report released in Sydney today showed. Economists predicted a 2.7 percent gain.

The Reserve Bank of Australia has slashed borrowing costs to 2.75 percent to combat currency strength that prompted Ford Motor Co. to cease operations and eliminate 1,200 jobs. Today’s report showed some of the nation’s most employment-intensive industries that the central bank has sought to stoke with record-low interest rates remain subdued.

“You’ve got a much lower reading coming out of what you might call the guts of the economy than you’ve got coming out of the total economy,” National Australia Bank Ltd. Chief EconomistAlan Oster said. “I still think they’ve got one more rate cut.”

The local dollar declined to 95.61 U.S. cents at 5:06 p.m. in Sydney, from 96.35 cents before the release. Overnight index swaps show a 63 percent chance the RBA rate will be 2.5 percent or lower after the board meets Aug. 6, up from 49 percent odds shown at 11 a.m. in Sydney.

Growth advanced 0.6 percent from the previous three months, when it expanded at the same pace, today’s report showed. The result compared with the median of 25 estimates in a Bloomberg News survey for a 0.7 percent gain.

Manufacturing Drag…”

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April was revised lower…..

“The yen strengthened versus the dollar and euro as Japanese stocks slumped after Prime Minister Shinzo Abe failed to provide additional detail on stimulus measures, boosting demand for safer assets.

The euro declined against the dollar after a report showed the region’s economy shrank in the three months through March, in line with an earlier estimate. A volatility measure of Group-of-Seven currencies approached the highest since February. Australia’s dollar fell after the nation’s gross domestic product grew at the slowest pace in almost two years. The pound advanced as a report showed services output in the U.K. expanded in May by the most in more than a year.

“There’s general disappointment that Abe didn’t announce anything that was surprising or new,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “There’s some disappointment in Japanese stocks and that’s pushing the yen up. The Aussie is likely to remain pressured after the GDP (AUNAGDPC) data.”

The yen advanced 0.5 percent to 99.58 per dollar as of 7:01 a.m. in New York after reaching 98.87 on June 3, the strongest since May 9. Japan’s currency appreciated 0.6 percent to 130.08 per euro. Europe’s shared currency dropped 0.1 percent to $1.3063.

Japan’s currency gained against all but one of its 16 major counterparts after the Topix index of shares closed down 3.2 percent….”

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“Japanese shares declined, with the Topix index deepening its correction, after Prime Minister Shinzo Abe’s speech on the country’s growth strategy disappointed investors and the yen strengthened.

Exporters such as Toyota Motor Corp. (7203) and Sony Corp. fell. Financial shares including brokerages, insurers and banks dropped. Tokyo Electric Power Co., also known as Tepco, led utilities lower after Abe failed to mention restarting the nation’s nuclear plants. Dentsu Inc., which has exclusive Asian broadcast rights for the 2014 World Cup, jumped 2.5 percent asJapan became the first team to qualify for the soccer tournament.

The Topix fell 3.2 percent to 1,090.03 at the close of trading in Tokyo, after initially rising as much as 1.2 in the afternoon session when Abe started his speech. The Nikkei 225 Stock Average lost 3.8 percent to 13,014.87, with volume 5.7 percent below the 30-day average. The yen gained to 99.59 per dollar after weakening to as much as 100.46 earlier.

“We’re going to have to reduce our expectations for Abenomics,” said Ayako Sera, a strategist at Sumitomo Mitsui Trust Bank Ltd., which has the equivalent of $325 billion in assets. “The initiatives are too small. The direction is right but the comments are all long-term. It looks like things are going to move too slowly.”

Abe’s speech outlined his growth strategy, the “third arrow” of an economic revival plan that seeks to build on his first two arrows, fiscal and monetary stimulus.

Third Arrow…”

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