tag:blogger.com,1999:blog-4815867514277794362.post8645701797136515704..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: Danger danger: The Wall Street Journal has no idea on how to do hedge fund due diligenceJohn Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger20125tag:blogger.com,1999:blog-4815867514277794362.post-39920104900176439922012-03-17T00:47:29.632+11:002012-03-17T00:47:29.632+11:00The money at the prime broker is OK provided the b...The money at the prime broker is OK provided the back office (say CITCO) and not the hedge fund holds the right to withdraw from the broker.<br /><br />No intermediate back office - no start.<br /><br />The question is can the hedge fund write a check to itself without you knowing and without your approval?John Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-64675712902731046662011-12-14T23:45:57.963+11:002011-12-14T23:45:57.963+11:00I enjoy every single post from you and kindly supp...I enjoy every single post from you and kindly support your opinion on this question.Avi playerhttp://avi-player.org/noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-78028337519305791612011-03-31T09:19:26.016+11:002011-03-31T09:19:26.016+11:00John:
Regarding Custody: If a small fund, that in...John:<br /><br />Regarding Custody: If a small fund, that in almost every way satisfies the requirements...custodies the money at their Prime Broker which is a well known company, is this satisfactory? Or should the fund add yet a further level of separation?Unknownhttps://www.blogger.com/profile/01476343409123125420noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-32667345141015901762011-03-22T10:13:25.189+11:002011-03-22T10:13:25.189+11:00When you say "asset custodian" are you r...When you say "asset custodian" are you referring to the administrator? I am U.S. based, and the administrator handles investor inflows/outflows as well as reporting performance to investors. I am not sure if they are synonymous or you're referring to something different.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-54553759012347606822011-03-20T12:55:26.684+11:002011-03-20T12:55:26.684+11:00Finally re an Australian fund. The returns don...Finally re an Australian fund. The returns don't look so pretty measured in AUD. (They are still acceptable - but it was tough fighting the AUD.)<br /><br />I suspect that the AUD will not give us so much grief in the future but I have no competitive advantage in picking currency and I am apt to be wrong.John Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-56617450063553840382011-03-20T12:53:23.167+11:002011-03-20T12:53:23.167+11:00The portfolio we have (and hence our returns) woul...The portfolio we have (and hence our returns) would not be possible with billions under management.<br /><br />Having worked at a shop that manages 20 billion I can assure you to do it well is amazingly hard work. I am not sure I want to go there - and frankly the team does not currently have the skills to go there. <br /><br />I would like to open an Australian domiciled hedge fund at some stage - but am unwilling to cut the fees to do it and the establishment costs are high which means we will only do it if worthwhile. But hey if you want to talk? <br /><br />Send me an email.<br /><br />JJohn Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-42415658712438964132011-03-20T08:34:09.949+11:002011-03-20T08:34:09.949+11:00John
Whats the plan with your fund? Are you going...John<br /><br />Whats the plan with your fund? Are you going to offer it to retail investors in Australia. Try to become the next platinum? Or would that raise too much money.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-11779345845812629972011-03-20T07:32:18.483+11:002011-03-20T07:32:18.483+11:00"talking your book" advocating positions..."talking your book" advocating positions you have in the hope interest in them and hence price of them might go up rather than talking about the world as it is.<br /><br />Most pejoratively used when a fund manager is trying to promote their way out of a losing position.John Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-10047460131261138092011-03-20T04:06:16.734+11:002011-03-20T04:06:16.734+11:00Hi, John,
I see a lot on the web comments that th...Hi, John,<br /><br />I see a lot on the web comments that this or that hedge fund manager is "talking his book". What does that mean, and is it something I should watch out for?Michael Rhttps://www.blogger.com/profile/10045827917076142231noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-17894663483131601982011-03-20T03:40:31.725+11:002011-03-20T03:40:31.725+11:00really great article. Simple, concise, and correct...really great article. Simple, concise, and correct. <br /><br />Buffet has said he's 100% confident that he could make 50% returns a year with a much smaller capital pool. Which makes perfect sense.<br /><br />just need to make sure a smaller fund has good controls.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-43417397793881399132011-03-19T10:59:05.047+11:002011-03-19T10:59:05.047+11:00In other words Jaap - my tests were at least in pa...In other words Jaap - my tests were at least in part designed to mitigate the effects of survivor bias.<br /><br />JJohn Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-66189305912790984542011-03-19T10:58:05.406+11:002011-03-19T10:58:05.406+11:00You are dead right about survivor bias... survivo...You are dead right about survivor bias... survivor bias is a problem.<br /><br />The frauds are not generally survivors (though Madoff provides an exception). They tend to live fast die young but have great "returns" until they don't.<br /><br />But the first test removes the frauds.<br /><br />The second test - leverae - removes the live-fast-die-young type.<br /><br />The third test - smart and sensible - genunine experts - tends to remove the lucky type. <br /><br />The fourth test - returns correlating with what they say - is darn useful for that too - because if the returns happen for reasons OTHER THAN WHAT THEY SAY then you can say luck.<br /><br />And run that test on this blog... was it "luck" that I had a big short position in China Agritech? <br /><br />Now suppose I had been short Japan because it was a macroeocnomic disaster and said so - and then there was an earthquake. And I had great returns. <br /><br />Would that be luck?<br /><br />Its impossible to remove survivor bias from your estimates - but things like correlating ex-ante statements to ex-post returns removes a fair whack of it.<br /><br />JJohn Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-33821263827649131022011-03-19T09:52:47.732+11:002011-03-19T09:52:47.732+11:00hi John,
always a pleasure to read your posts. ho...hi John,<br /><br />always a pleasure to read your posts. however, I have one comment on your preference for smaller hedge funds. couldn´t it be survivor-bias that the current well-respected funds did so well in their early years? i.e. it was a great time to invest in them. but then, how many of their rivals went bust? <br />maybe there is some research out there that could prove or disprove your thesis.<br /><br />on the other hand, I agree with your comment on using puts vs shorts. as a stock option´s market maker it is almost always a great time to be short premium, because people like to overpay for the insurance. <br />big shorts can be very painful too, but disasters don´t happen too frequently. it is painful to see puts expire time after time, bleeding more cash in the long run, than taking a major hit once in a while (as long as it doesn´t kill you).Jacobhttps://www.blogger.com/profile/15280566363678151025noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-36996700615747902552011-03-19T08:13:17.686+11:002011-03-19T08:13:17.686+11:00I really think you should start publishing your fi...I really think you should start publishing your findings more often. (1) By now, it is outright open season on the Chinese reverse-merger scams<br />(2) You have built enough credibility to move the market (not just CAGC and UTA but in general)<br />(3) While obviously self-serving, this will focus more people on the stock> this is good as there might be valid arguments against your thesis, or alternatively, valid additions<br /><br />Good luck--Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-91328339663230497662011-03-18T21:49:46.593+11:002011-03-18T21:49:46.593+11:00Laurent -
Send me an email and I will try to exp...Laurent - <br /><br />Send me an email and I will try to explain why. I think the answer deserves a blog post - <br /><br />Its not THE AGGREGATE SHORTS (I can understand being neutral). But it is the size of the shorts.<br /><br />15 longs of 7-8 percent each is a fairly diversified long portfolio.<br /><br />But an 8 percent short is really really dangerous - especially fraud shorts.<br /><br />Will explain - have before sort of ...<br /><br />JohnJohn Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-22641655466914054992011-03-18T21:42:26.079+11:002011-03-18T21:42:26.079+11:00Dear John- I allocate to hedge funds for a living,...Dear John- I allocate to hedge funds for a living, and I generally agree with all your comments. There is one thing that you said and I don't get though: that shorts must be smaller than longs. If you are talking about the aggregate position, well, I think it is a general market call and therefore should not be systematically one-sided.<br /><br />If you are talking about individual position size, I don't see why it should be the case (unless you have a very concentrated portfolio, in which case shorts might grow on you a bit too quickly when wrong). I generally consider that a similar approach to longs and shorts is a sign of a true absolute return mindset.<br /><br />Additionally- I would add to your list the importance of checking the quality and the robustness of leverage. For example- If you are a Long-Short manager, I would try and understand how and when your Prime Broker could unilaterally change the terms of funding: generally, unless this was negotiated otherwise, PBs have the ability to pull the plug overnight. When you run a large balance sheet in illiquid markets (credit, small caps) this is a significant risk.<br /><br />Thanks for your efforts on this blog- I always enjoy reading your posts.Unknownhttps://www.blogger.com/profile/04989849862244164660noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-1033199345522394462011-03-18T18:23:20.404+11:002011-03-18T18:23:20.404+11:00Glad you have a CAGC position.
I prefer to just f...Glad you have a CAGC position.<br /><br />I prefer to just flat short the stock. Why? Its cheaper and I have plenty of shorts.<br /><br />In the time we have run Bronte we have done puts on four stocks for a loser, a big winner and a small winner and a yet-to-be-decided. Its a good hit rate.<br /><br />But the basic view is that a 2 percent short is a big position. Its a big position because it hurts when you are wrong.<br /><br />However we use puts when we want to go bigger and we have a date of death. This time we had a date of death - the day the audit was due - so CAGC puts were my big winner.<br /><br />But almost all our short profits (and they are quite profitable) come from just straight shorts.<br /><br />--<br /><br />As a rule options are REALLY hard to time.<br /><br />JJohn Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-67635877018708498582011-03-18T17:53:33.386+11:002011-03-18T17:53:33.386+11:00I've always had a fondness for Australia and s...I've always had a fondness for Australia and since stumbling onto your blog 2 years ago I have an even deeper fondness. I have a small put position that looks like it will pay off on CAGC and if I'm ever in Aussie land I'll buy you a beer. With that said I do have 3 questions. Do you always use short vs. puts? If so, why? Lastly do you post on Yahoo message boards? I have seen a jlhempton post occasionally. I normally feel my IQ heading south when I read or post but sometimes I'm entertained and educated.Kylehttps://www.blogger.com/profile/16986381546580382771noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-78125304492678566872011-03-18T12:15:57.627+11:002011-03-18T12:15:57.627+11:00The Australian law is an ass regarding mutual fund...The Australian law is an ass regarding mutual funds (see the Single Responsible Entities stuff).<br /><br />I have been actively lobbying to change that. (See my submission to the Cooper review - and I recently travelled to Canberra to talk about these things with Treasury).<br /><br />Its possible but not required to do things right in Australia. <br /><br />Platinum holds the assets at State Street - the most reputable of the custodians.<br /><br />The Australian law imposes few if any duties on custodians - one of the big problems with Astarra.<br /><br />JJohn Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-42931783773558052062011-03-18T12:13:21.608+11:002011-03-18T12:13:21.608+11:00Well thought out critique as usual John, looks lik...Well thought out critique as usual John, looks like WSJ is taking one step forward and three step backwards.<br /><br />I thought the custodian methods would be similar to mutual funds. If you are investing in a perpetual Aust equities fund you are sending the cheques to the actual fund trustee, not perpetual pty ltd.Intrinsic Valuehttp://theintrinsicvalue.comnoreply@blogger.com