CNBC’s Kate Kelly offers insight on hedge funds’ muted returns. Leon Cooperman, Omega Advisors, also weighs in.
welcome back to the halftime show where our guest host lee cooperman joining us for the full year. he’s had a good year, up 22%, a good august as well and kate kelly has been taking a look at performance of other hedge funds in this year and, kate, it has been a fairly difficult year. it has been a difficult spite of years and there are a number of hedge funds that struggled to make these in return and beat the hedge fund benchmark and some are struggling and still below the high water mark and john paulson may be exhibit a. he has seen his assets essentially slashed in half in the last 18 months or so. take a look at the chart fro the other day. i was talking about the muted returns in august, where people are weren’t putting on a lot of bets of size or many weren’t. you see the two biggest macro funds, moore global and bref an howard flat on the month and tudor up a few percentage points for the year and flat for the month and he is beating the af ranl hedge fund if you take a look at the benchmark index and the average is up 2.4 something year-to-date and he is a little better than that. still, we’re not seeing whopping returns. there is a handful of players including our guest mr. cooperman who are really beating the competition right now and generating great ideas. take a look. these numbers have really not been put out yet. green light capital up 4% for the month of august and about 11% on the year, sac up 1.5% or so for the month of august, 8% for the year, 8 approximates for third point for perry partners and take a look also at maverick capital. that’s an interesting story. they struggled horribly in 2011. i believe their head money manager described it as something like the darkest year they have been through in 18 years and they were down 15% and all of the funds across the bo reasonable doubt are up north of 20% and i am told that has less to do with the equities rally and kind of what we’re seeing in the s&p and just smart short positions as much as anything else and things they had on last year and actually bounced back since then as well as of course long positions and it is really been a mixed bag and i think the players that are out performing probably feel even lonelier than usual in a good way. just on that note, can you speak to the difficulty in navigating the market this is year? i mean, obviously you have had a good year and many hedge funds have not. let me say this. we’re doing well because we thought that he with should have risk on the sheets. we’re now sitting here september 5, 6, 7, whatever the date is, a long race. to are this year the race is over december 31, so i don’t think i can talk about my performance and december 31 that sounts and these are all very good people that have excellent longer term records and i have always told investors with me you have to take a longer term view. we have years we under perform and years we out perform and over a 20-year history we beat it by 540 basis points and net of all fees and 70% net long on average and no leverage employed. only leverage in one year, 1993 up 71% and a lot of monthen in bonds and it is a long race and i think you just have to be with somebody you have confidence in, you trust, and you understand their strategy and philosophy and i am not a month to month kind of guy. i am a long-term investor, and i try to attract investors that have a longer term view. you haven’t had this problem, i don’t think, but what if you are a john paulson or lee ainsley and you have essentially below the high water mark and returns are negative and if you’re an investor in a fund like that, do you want to hang in there? do you feel like the approximate earn is manage the money for free and maybe there is a bounceback in store. i have been there and done that and business in 20 years and down years and i missed the significance of lehman in ’08, so we were down, a little less than the market but down substantially. down 2002 and half the market and essentially where am i going? first of all, i have a strong philosophy that if you have a highater mark that that is an asset of the investor, so if you throw in the towel when you are down, you are depriving your investor of an asset they’re entitled to. if the investor lost kofs in you or the market and wants the money back, you give it back. my view is in 2008 i had substantial redemptions. every redemption was made 100% for cash and nobody was gated and john weinberg, one of my mentors, deceased now had a favorite expression, lincoln freed the slaves, so i don’t want anybody to be an investor in my fund that doesn’t want to be an investor so they always get back the money per the doctor the and somebody has not lost confidence in you and wants to stay with you, you owe them that ability to come back with that so i have been there and i have done that and john paulson has a very formidable high water mark and i think he presented an opportunity to staff to eat the high water mark and pay them. getting them out of pocket no matter what this year? he has a big pocket so i guess he can afford to do. i think you have to make sure you just investing with people you understand and that you share their value system and you have a proper investment horizon and my first page of my marketing material says when people come and say what will they earn if we invest with you, i say i don’t know what you are going to earn but let me tell what you makes me happy. because what makes me happy doesn’t make you happy, i would rather you not invest with me because we’re doomed to have a failed relationship. my goal, number one, i don’t want to have a losing year. i am a hedge fund. i could be short. i could be out. if i am down for the year i got the market wrong and i can’t be happy with myself. second, the investor today can get an s&p 500 return for less than 10 basis points by going to an index fund. my second objective is to work my tail off to beat this mindless index called the s&p 500. believe me, it is not so easy as this yoer demonstrates. my third objective, i don’t want a leverage fund and all of my partners, my general partners and myself we account for over 20% of our assets and we would be happy making 12 to 15% return per annum and we want acceptable level of volatility. those are my goals. i have done it for 20 years point to point and i have had down years and those people that lost confidence in me got their money back if they wanted it and those that consistent lose confidence hung on and we’re substantially above. i think this is from memory now and the market is still well below price wise where it was in march of 2000 and including income and our capital is about 275% from march of 2000. if people take a long-term view we’ll do just fine. the other point i make is i look at omega in a simplistic fashion. it is a family office. okay? i am not going to take my money and give it to some individual that charges 2 and 20 and might not have my work ethic and might not be any smarter than my team is. so i am going to keep doing this as long as i can do it and i am going to honor high water marks and believe me i am worried. i think next year could be a down year for the market because no matter who is elected and i do have i a strong preference but no matter who is elected we have a lot of wick chop and can’t run triion deficits and not have retribution in the marketplace. for sure.