Elite Forex Blog - Market analysis & intelligence, see more at globalintelhub.com

Friday, January 18, 2019

Hedge Funds Suffer Massive $22.5 Billion In Q4 Outflows

While there were countless argument offered to explain December's near-record market drubbing, we said on several occasions last month that the simplest reason for last month's plunge was also the simplest one: faced with a mountain of redemption requests, hedge funds were forced to sell their holdings into a market that had never been more illiquid, which meant hitting each and every bid and culminating with the brief, December 24th bear market.

We now have confirmation, because according to Hedge Fund Research, investors fled hedge funds as markets plunged in the fourth quarter (or is that markets plunged as investors fled hedge funds), pulling a massive $22.5 billion, the most in more than two years. The exodus added to the total withdrawals of $34 billion in 2018, or about 1% of hedge fund industry assets, the largest quarterly outflow since Q4 2016 when investors redeemed about $70 billion.

Large fund outflows were concentrated in several firms which closed and returned capital to investors, with approximately two dozen firms experiencing net asset outflows of greater than $500 million for the quarter. Despite the overall negative trends on flows and performance, but reflecting the trend of larger hedge fund relative outperformance, approximately one dozen firms received net asset inflows of greater than $500 million for the quarter.

Flows by firm size also showed net outflows across all firm sizes, with firms managing greater than $5 billion experiencing outflows of $15.6 billion. Mid-sized firms managing between $1 and 5 billion saw outflows of $2.8 billion for the quarter, while firms managing less than $1 billion saw outflows of $4.1 billion.

"Hedge fund outflows in 4Q were driven by several factors, most notably investor reaction to steep losses in traditional asset investments and the sharp spike in equity market volatility leading to redemptions" stated Kenneth J. Heinz, President of HFR.

The spike in redemptions came as hedge funds suffered their worst performance since 2011 in a year marked by two corrections, a bear market, and a spike in year-end volatility.

Additionally, as Bloomberg notes, several big names exited the industry last year, including T. Boone Pickens, Leon Cooperman and Philippe Jabre, while virtually everyone else struggled to generate any alpha (with a few exceptions ). "Outflows also included several large fund closures," said HFR President Kenneth Heinz in the quarterly report, including instances of family office conversions and orderly, manager-initiated returns of investor capital.

Broken down by strategy, equity hedge funds suffered the biggest outflows, with investors pulling $16.8 billion in the quarter and a total of about $23 billion for the year, according to HFR. Hedge funds in this group fell 5.9% on an asset-weighted basis in 2018, the worst performers of all strategies tracked by HFR. Confirming that the redemptions were liquidity and not performance driven, even the year’s top performing macro managers, up 1.6%, ended 2018 with outflows of $12.3 billion.

There was a silver lining: event-driven (ED) funds brought in $6.4 billion in the quarter - the only strategy to see inflows - and $6.9 billion for the year, although performance weakness decreased total ED capital to $819 billion from the prior quarter. ED sub-strategy flows were driven by Distressed/Restructuring and Special Situations funds, which experienced inflows of $6.5 billion and $1.4 billion, respectively.

Fixed income-based Relative Value Arbitrage (RVA) strategies led industry performance in 2018, as the HFRI Relative Value Index (Asset Weighted) added +0.5 percent for the year, while the HFRI Relative Value (Total) Index posted a narrow decline of -0.2 percent for 2018. In 4Q18, RVA strategies experienced outflows of $5.4 billion, decreasing total RVA capital to $835 billion from the prior quarter.

"Trends in Macro, CTA, and RVA/Credit Multi-Strategies, and stronger relative outperformance of larger funds were all favorable throughout the intense market dislocations of December and 4Q. While the overall investor flows and performance trends were negative, it is likely that discriminating institutional investors which experienced or observed areas of strong performance through the most difficult equity and commodity trading environment in a decade will factor these positive dynamics into portfolio allocations for 2019."

With volatility set to return with a vengeance once this algo-driven bear market rally ends, 2019 promises to be just as challenging for the 2 and 20 crowd.

https://www.zerohedge.com/news/2019-01-18/hedge-funds-suffer-massive-225-billion-q4-outflows

Thursday, January 17, 2019

Pre IPO Product Life Cycle – the Hamburger Analogy

New York, NY (PreIPOSwap.com) 1/17/2019 — Pre IPO Swap focuses on Pre IPO companies. These are not necessarily ‘Unicorns’ but many are. We get asked what is a private late stage mature company that qualifies for Pre IPO? There isn’t a specific answer, some companies will be very late stage, others can be closer to the startup phase for example LYFT is not so old but already has filed for IPO.

We like to compare any business to food as it’s something everyone understands. Let’s take the example of a Hamburger. The first step in the cycle is the farm where the cow grows up. Then at some point the cow is butchered and sent for processing. Wholesale, the beef is then sold to food companies where it ultimately becomes a Hamburger and sold at McDonalds. Finally, the end product is sold in thousands of locations across the world. The last step in the process is garbage – capitalism produces a lot of garbage. But science is inventing ways that garbage gets fed back into the system (for example, fertilizer).

So the question is – at what point do you want to invest in the company? When it’s still a cow? When the end product is being marketed on TV like McDonalds commercials? Or in the cleanup phase?

We have called these steps in the cycle Growth, Processing, Branding, Distribution, Waste. There are more detailed product cycles – this is simply to explain where Pre IPO is – typically it’s somewhere around Processing. It’s the wholesale market.

When a company goes public – that’s the branding phase. There is a road-show, the underwriter promotes the IPO so that when it hits the market there is interest (such as for Pinterest).

By the time the product – whatever it is – hits the end user (that’s the IPO) it’s been so watered down and over hyped it has little room for explosive growth. And frankly, they don’t want stocks moving triple digits in a year it makes other stocks look bad. They need to be tamed. Companies that don’t fit the profile stay private.

With Pre IPO we are looking for just the right amount of risk and reward. We want companies to already have been proven in the market – but before the marketing blitz. Before the compliance changes that go on to fit the profile of a public company. Ultimately, no matter what type of business you are – when you have to comply with rules it takes some of the zest out of your business; that’s usually a good thing. Public markets allow capitalism to function at its best. But for Pre IPO investors – they want to find the ‘Goldilocks Zone’ – not too risky, and just enough reward. See our Pitch to learn more, or follow our blog.

Sunday, January 13, 2019

CLASSIFIED: The most powerful investor you never heard of

Pre IPO Swap New York, NY 1/12/2019

Did you know that the CIA has its own Venture Fund? And did you know that Venture fund was key in starting Facebook and Google? As explained in the book Splitting Pennies – the world is not as it seems.

For many readers especially on Zero Hedge this comes as no surprise, as you are well aware of the octopus that wraps its tentacles around the globe. But it may surprise you how active In-Q-Tel is and how chummy they are with the rest of the VC community. It’s as if they are just another VC, but with another purpose. Let’s look at some of the stats, from Crunchbase:

Here’s a list of recent investments…

If you dig back you won’t see Google or Facebook on there – which is company policy for retail consumer investments that can impact the public (it’s kept secret behind an NDA). Here’s how it works – In-Q-Tel may invest in your startup but there’s a big catch. First, you have to sign an NDA which is enforced strongly – that you are not to disclose your partner. Second, you must agree to ‘cooperation’ when it comes to information sharing now or down the road, such as location data on people using Facebook, Google, or other systems – perhaps only to feed it into a big data brain at Palantir. Or perhaps for more street level surveillance. The surveillance is known by fact, not conspiracy theory – but by fact – due to the disclosure of classified documents by Edward Snowden. If it were not for Snowden, we could only guess about this. The name of the main program is PRISM but there are many others.

For those in the VC community that are deep in the know- the “Deep VCs” like Peter Thiel for example, the Snowden revelations would come as no surprise. MUST READ – No Place To Hide – the story of the NSA, PRISM, and Snowden (written by Greenwald).

But for others, it may come as a surprise that not only the CIA has its own VC fund, but that it sits on many corporate boards alongside many Wall St. firms and other VCs.

And of course, they always do well.

Let’s consider the doors they opened for Google, or in the case of Google it was more like the doors that were closed. Google was not the best search engine, it was not superior technology – it wasn’t even really very good. It just became a monopoly and crushed the competition. Many wonder how they were able to do it, and that this is part of the Entrepreneur “Magic” that few have. Well we can say in the case of Google there was no Magic they had a helping hand from a friend in the deep shadows. Google wanted to become huge – the CIA wants information (they always do, so we don’t use the past tense ‘wanted’). So it was a cozy and rational partnership – in exchange for making the right handshakes at the right time, allowing Google to become a global behemoth, all they needed to do was share a little information about users. Actually, a lot of information. No harm in that, right?

But in doing so Google violated itself as well as prostituted its model and its users. Google still does this and is not nearly as flagrant as its brother Facebook, however Google shares more detailed ‘meta data’ which is actually more useful to Echelon systems like Palantir that rely on big data, not necessarily photos of what you ate for breakfast (but that can be helpful too, they say).

The metaphor is making a deal with the devil; you get what you want but it comes at a price. And that’s the price users pay to Google – they get service ‘free’ but at a huge cost, their privacy. Of course – this is all based on the concept of Freedom which really does exist in USA. You don’t have to use Google – there are many alternatives like the rising star Duck Duck Go:

But who cares about privacy; only criminals, hackers, programmers, super wealthy (UHNWI) and a few philosophers.

Google remains the dominant search platform and much more. Google exploits niche by niche even competing with Amazon’s Alexa service.

The argument here is that Google wouldn’t be Google without the help of the CIA. This isn’t our idea it’s a fact, you can read about it here on qz.com:

Two decades ago, the US intelligence community worked closely with Silicon Valley in an effort to track citizens in cyberspace. And Google is at the heart of that origin story. Some of the research that led to Google’s ambitious creation was funded and coordinated by a research group established by the intelligence community to find ways to track individuals and groups online. The intelligence community hoped that the nation’s leading computer scientists could take non-classified information and user data, combine it with what would become known as the internet, and begin to create for-profit, commercial enterprises to suit the needs of both the intelligence community and the public. They hoped to direct the supercomputing revolution from the start in order to make sense of what millions of human beings did inside this digital information network. That collaboration has made a comprehensive public-private mass surveillance state possible today.

There you have it – Google is the child of the digital revolution of the surveillance state. Why spy, when you can collect data electronically and analyze with machine learning?

The new spy is the web bot.

And the investors in Google did well – so that’s the investing story that matters here. It pays well to have friends in high places, and in dark places. Of all the investments In-Q-Tel made, almost all of them have done very well. That doesn’t mean that Palantir is going to grow to the size of Google, but it does provide natural support should a company backed by In-Q-Tel run into problems.

By the time Facebook came out, digital surveillance was already in the n-th generation of evolution, and they really stepped up their game. In the creepiest examples, Facebook doesn’t necessarily (and primarily) collect data on Facebook users – it does this too. But that’s just a given – you don’t need to perform surveillance on someone who gives all their data to the system willingly – you always know where they are and what they are doing at any given moment. The trick is to get information about those who may try to hide their activities, whether they are real terrorists or just paranoid geniuses.

How does Facebook do this? There are literally hundreds of programs running – but in one creepy example, Facebook collects photos that users take to analyze the environment surrounding. Incidentally, the location data is MUCH MORE accurate than you see on the retail front end. So you get the newspaper and see a gift in your mailbox for your birthday – you take a photo because the ribbons are hanging out. What shows up in the background? All kinds of information. What the neighbor is doing. License plate of the car driving by. Trash waiting to be picked up by the street. A child’s toy left by the sidewalk. You get the picture. Facebook users have been turned into sneaky little digital spies! While they are walking around with their ‘smartphones’ (should be called ‘dumbphones’) scrolling their walls and snapping photos away – they are taking photos of you too. That means, Facebook collects data for the CIA about users who don’t have Facebook accounts. This is the huge secret that the mainstream media doesn’t want to tell you. Deleting your Facebook account will do nothing – every time you go out in public you are being photographed, video recorded, and more – all going into big data artificial intelligence for analysis.

But here’s the best part. You own it! The CIA may have a bad reputation but it is part of the US Government, and thus – profits go back to the Treasury (those which are declared) or at least they are supposed to. Considering this, why is there a stigma about even talking about In-Q-Tel when in fact we should be more involved in any US Government operation when it is technically owned by the people and funded by taxpayers? Meaning, do taxpayers have rights to know what goes in in taxpayer funded entities, like In-Q-Tel? The big difference between In-Q-Tel and the CIA is that In-Q-Tel functions just like any other VC – they disclose most of their investments, they attend conferences, they accept business plans. You can literally submit your idea to In-Q-Tel and get funding. Of course, like any VC there’s a very small chance of being funded.

So what’s an investor’s take on this story? In-Q-Tel is not Freddie Mac there is nor a quasi-government entity; it’s not an NGO and there is no implicit guarantee that In-Q-Tel’s deals will do any better than Andreessen Horowitz.

However, their deals do very well. Companies they fund not only have the backing of the CIA explicitly, it’s not only about business – it’s about national security! Under that guise, it’s no wonder that companies like Google and Facebook rocket to the top.

We are not suggesting that investors double down on In-Q-Tel bets. We are only suggesting that at a minimum, we follow what they do. It’s a data point – a good source of information. And the best part is that it’s public.

Their most recent investment is in a virtual reality company in Boca Raton, FL called Immersive Wisdom:

Immersive Wisdom® is an enterprise software platform that allows users to collaborate in real-time upon diverse data sets and applications within a temporal and geospatially-aware Virtual, Mixed, and Augmented Reality space. Immersive Wisdom is hardware-agnostic and runs on VR, AR, as well as 2D displays. Regardless of geographic location, multiple users can be together in a shared virtual workspace, standing on maps, with instant access to relevant information from any available source. Users can simultaneously, and in real time, visualize, fuse, and act upon sensor inputs, cyber/network data, IoT feeds, enterprise applications, telemetry, tagged assets, 3D Models, LiDAR, imagery and UAV footage/streaming video, providing an omniscient, collaborative view of complex environments. Immersive Wisdom also acts as a natural human interface to multi-dimensional data sets generated by AI and machine learning systems. The platform includes a powerful SDK (Software Developer Kit) that enables the creation of customer-specific workflows as well as rapid integration with existing data sources/applications.

Cool stuff for sure – but it’s in early stages. Pre IPO Swap suggests real Pre IPO ‘unicorns’ not because of size, but because of the right mix of risk and reward. https://preiposwap.com/pitch See why we think so in our pitch.

In any analysis, it’s worth watching In-Q-Tel, which is a top source of funding and investment data we watch on www.preiposwap.com Pre IPO Swap.

To get real-time updates on companies like this, companies that In-Q-Tel invests in - www.preiposwap.com/follow follow our blog free.

Monday, January 7, 2019

Renaissance, Bridgewater And DE Shaw All Generated Remarkable Returns In 2018

In what was an abysmal year for most hedge funds, three investing icons successfully pulled their weight and generated outsized returns amid an otherwise dreary landscape.

Last week we reported that after correctly predicting the "significant risk of a correction", quant giant Renaissancemade an impressive 8.5% return in 2018 despite a 2.1% drop in December, solidly outperforming the broader market.

It wasn't just the secretive fund founded by chain-smoking codebreaker Jim Simons that blew past its competition last year. On Sunday, Bloomberg reported that Bridgewater's flagship Pure Alpha fund rose a remarkable 14.6%. This was no small feat for Bridgewater which also happens to be the world's biggest hedge fund with $160 billion in unlevered assets, and came at a time when hedge unds on average lost 6.7% in 2018, according to the HFRX Global Hedge Fund Index, as market trend and momentum both collapsed.

A just as impressive record is that since its inception in 1991, Pure Alpha Strategy has generated an average annualized return of 12% after fees, a track record which some have wondered if it is too good to be true.

And yet in a bizarre twist at the start of 2018, Bridgewater's Ray Dalio said on January 23 that "If you're holding cash, you're going to feel pretty stupid." Ironically, cash ended up being the best performing assets, while virtually every other asset class posted negative returns in 2018, making those holding anything but cash feeling pretty stupid. Which means that at some point between January and December, Ray Dalio quietly moved out of most assets although "surprisingly" he never made that shift public.

In any case it wasn't just Simons and Dalio: according to a Monday note from Bloomberg, the flagship fund of another computer scientist, David Shaw's, D.E. Shaw, also generated double-digit returns, gaining 11.2% last year.

The New York-based investment firm’s Composite fund invests across multiple strategies and is the company’s largest and longest-running. It returned 3.5 percent last month, the person said, as the S&P 500 Index sunk 9.2 percent.

And in yet another indication that Madoff was an amateur, DE Shaw's composite fund, which has about $14 billion in assets, amazingly hasn’t had a losing year over the past decade. In 2017, it gained 10.3%, the Bloomberg source said.

D.E. Shaw was founded by computer scientist David Shaw and has more than $50 billion in assets under management, including $28 billion in hedge funds. Its Composite fund has largely been closed to new investors since mid-2013, but the group continues to build out new strategies and products. Recent areas of development have included private credit opportunities in Europe and renewables investing.

Some trivia: when DE Shaw was just two years old, a largely unknown 26-year-old took a job at D.E. Shaw and became one of the company's vice presidents in just four years; he was tasked with researching new business opportunities on the rapidly growing Internet, which was held tremendous potential in the early 1990s. That youngest made a list of 20 products he could sell online, and decided that books were the most viable option. When he couldn't get D.E. Shaw on board with the idea, he decided to branch out on his own.

A little under three decades later, that "relatively unknown" person is now the world's richest person.

https://www.zerohedge.com/news/2019-01-07/renaissance-bridgewater-and-de-shaw-all-generated-remarkable-returns-2018

Saturday, January 5, 2019

The PayPal Mafia: Who are they and where are Silicon Valley’s richest group of men now?

The company founded by Peter Thiel, Elon Musk and Max Levchin has spawned three billionaires, many, many millionaires and generation-defining companies. Here, we break down the key players from the most notorious group in Silicon Valley.

The picture above features some of the most poorly dressed men of the 2000s. Behold the outsized sportswear, the leather blazers, the silky shirts. But these men can afford to both laugh off our criticism and buy several new wardrobes. For they are the ‘PayPal Mafia’ and between them, these 13 men are worth billions and billions of dollars. And to be fair to them, they were styled as faux gangsters for the 2007 Fortune magazine shoot that birthed their infamous moniker. Mick Brown recently met PayPal co-founder Peter Thiel for an extraordinary Telegraph Magazine feature. The vast success enjoyed by Thiel and his former colleagues got us thinking: how did one company breed such a remarkable crop of entrepreneurs and capitalists? Click on the famous Fortune photograph below and discover exactly who the PayPal Mafia are.

The 'PalPal Mafia' photographed for a Fortune magazine feature in 2007. PHOTO: Robyn Twomey - Corbis Outline

1. Jawed Karim

Role in PayPal: Designed and implemented PayPal’s incendiary real-time anti-fraud system, among other key components of the business.

After PayPal: Karim, Chad Hurley (designer of PayPal’s first logo) and Steve Chen (another PayPal colleague and early Facebook employee) founded a video sharing site in 2005. They named it YouTube. Soon after developing the fledgling site, Karim enrolled at Stanford University where, despite having already displayed a certain acumen in this area, he chose to study computer science. He continued to act as an advisor to YouTube before cashing in 137,443 shares of stock (worth a cool $64 million) when Google purchased YouTube for $1.65 billion in November 2006. Now 35, Karim launched a business called Youniversity Ventures in 2008 aimed at helping students and graduates develop business ideas with early PayPal investors Kevin Hartz and Keith Rabols.

Estimated net worth: $140 million

2. Jeremy Stoppelman (below)

Role in PayPal: Joined PayPal as an engineer whilst it was known as X.com, eventually becoming the Vice President of Engineering.

Post-PayPal: Resigned soon after PayPal was picked up by eBay for $1.5 billion in 2003, taking a year to attend Harvard Business School. Inspired whilst poorly with flu and finding it tricky to find decent doctor recommendations, he and a former colleague Russel Simmons dreamed up the idea for online reviews site Yelp in 2004 and convinced former PayPal Chief Technology Officer Max Levchin to put up $1 million in initial funding. Steve Jobs convinced him to reject Google’s acquisition offer in 2010 and in 2012, Yelp became a public limited company. But it’s not been a smooth recent few years: Yelp reviewers leaving negative reviews have faced legal action from affronted businesses and the site’s faced accusations of handing positive reviews to advertisers.

Estimated net worth: $111-$222 million

PHOTO: Getty

3. Andrew McCormack

Role in PayPal: Joined in 2001, working closely as an assistant to Peter Thiel as the company prepared for its initial public offering (IPO)

After PayPal: Helped set-up another Thiel venture, hedge fund company Clarium Capital before founding a restaurant group in San Francisco. Currently a partner at venture capital firm Valar Ventures, he found his way back to Thiel in 2008 to join Thiel Capital via corporate development roles at eCount (now part of US banking conglomerate Citigroup) and Yahoo!.