Hedge Funds v. Stock Market

No surprise here. 2/20 is hard to beat on broad, sustained basis...

A Limited Supply of Geniuses

In today’s Times, my colleages Jenny Anderson and Landon Thomas Jr. report that hedge funds as a group are underperforming the stock market.

That should be no surprise. Even with the wonders of leverage, outperforming the stock market by enough to overcome the typical hedge fund manager’s compensation of 2 percent of assests and 20 percent of profits ought to be very difficult. As a group, it is very unlikely that a large group of hedge funds could do so on a prolonged basis.

Some — including me — have long feared that hedge fund blow-ups would provoke the next big financial crisis. Perhaps that will be avoided, but here’s a forcecast:

Within 10 years, and probably less, those who paid the big management fees to hedge funds will be asking themselves, “What were we thinking,” and conventional wisdom will be as scornful of them as it is not of those who jumped into Internet stocks in early 2000.

Source is here

Modestly funny VC joke from PE HUB

Maybe you’ve heard this joke before, in one format or another, but, I have to say, it always cracks me up… A New Associate arrives early Monday morning to the VC firm where he is to begin work. His watch reads 6:24am. The front door failed to respond to his attempts to turn it.

He knocks. No answer.

He waits patiently, clutching the stack of newspapers previously strewn on the floor outside the front door. He wants to make a good impression. Wall Street Journal, New York Times, Mercury News, Financial Times.  It doesn't occur to him to crack one open to read while he waits. He hasn't read a hardcopy newspaper. Ever. He was a child of the Internet. But he understands that the old guys still liked the feel of newsprint — and he sure wants to impress the old guys.

Time passed.

Read the rest of the joke.

MBO and conflict of interest

not hard to find the conflict here. From dealbook

Management-led buyouts have always raised questions about conflicts of interest, because in such deals, the management that is supposed to represent shareholders is suddenly representing itself as well. That potential for conflict was especially evident this morning when Isadore Sharp, the chief executive and controlling shareholder of Four Seasons Hotels, made a $3.7 billion takeover bid for the company with the backing of Kingdom Hotels International, a company owned by a trust created by Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud; and Bill Gates’s Cascade Investment.

At first glance, the offer of $82 a share seems pretty decent; it represents a 28 percent premium to Four Season’s closing stock price on Friday. In early 2005, however, shareholders could have sold their stock for about that price on the open market.

And then there is the money Mr. Sharp will pocket in what essentially amounts to a sale to himself. According to a press release announcing the proposed buyout, Mr. Sharp stands to make $288 million as part of a 1989 incentive arrangement as a result of any deal. Now that’s an incentive!

Mr. Sharp also seems intent on preventing any rival offers, which raises questions about whether he is fulfilling his fiduciary duties to shareholders. In a statement, he said, “this transaction, with these investors, is the only one I am prepared to pursue.”

Management-led buyouts like this one play into the hands of critics who say they are rigged from the outset.

Executive Singing at BOA

While I hate to overlap 3x in one day with Dealbook, this is too priceless to miss See video here

This does not make one long for corporate america