Putting Buffett To Shame

Putting Buffett To Shame
3844328 / Pixabay


With nearly $1 billion under management, much of it historically allocated to Berkshire Hathaway, Allan Mecham could be one of the greatest traders of all time. The “one-man band managing the portfolio,” as Mecham described himself in a September 29, 2017, letter to investors, produced gross returns that matched the S&P 500 and took in nearly $40 million in fees on the year.  But it is not just the ability to be able to convince investors to hand him a 15% performance fee (or 2.4% fixed fee) as opposed to utilizing much less expensive index funds that make Mecham stand out. The hedge fund also continues to deliver performance more than the underlying stocks in which he invests, a topic we previously addressed in ValueWalk.  But what makes Mecham more interesting is his calculating average annual performance before fees are taken out, a move that could result in a $500 million assets under management miscalculation.

The fact that Arlington Value Capital’s performance over a ten-year period is nearly double that of the fund’s largest holding, Berkshire Hathaway, as well as double that of many other holdings, initially raised questions.

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Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy, have produced a 12.6% annualised return over the past 26 years. The funds added 7.7% overall in the second half of 2022, outperforming the 3.4% return for Read More

After ValueWalk wrote a September 28, 2017, article questioning Arlington’s rather stunning performance, wondering how a fund could persistently deliver returns in up and down markets while outperforming the assets in which the fund invested, Mecham penned a letter to their investors the next day.

“An article about Arlington was posted by Valuewalk last night,”

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)www.valuewalk.com
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