The email, formal and foreboding, landed at 9:38 a.m. on Monday, March 2. 

“Can you please call me when you have a second to talk?” the Bridgewater Associates employee asked. 

The call, the email’s recipient knew, would not be good: Karen Karniol-Tambour, the hedge fund’s head of investment research, was scheduled to be a lunchtime speaker at an investment conference at Washington, D.C.’s Watergate Hotel just over 24 hours later. But at that moment, on March 2, a man in Westchester County — a mere 30 miles from Bridgewater’s two main campuses in Westport, Connecticut — was undergoing treatment as the first Eastern Seaboard case of Covid-19 with an unknown origin. Karniol-Tambour wasn’t going to make it, the conference organizer feared.

Bridgewater had been on high alert all weekend. The firm’s health security “posture” was the subject of ongoing discussions. Already, anyone who had traveled to certain areas — including the...

The story of Citibank’s mistaken $900 million loan repayment starts with shaving cream. 

More accurately, the intellectual property behind shaving cream owned by a Revlon subsidiary — along with many of Revlon’s other products.   

Back in 2016, personal care brand Revlon acquired Elizabeth Arden, a fellow makeup label and the one-time seller of Britney Spears’ fragrance line. 

Revlon paid cash for Elizabeth Arden, $870 million in total. After the deal closed in September 2016, Revlon took out two loans: a $1.8 billion senior secured term loan facility, and a $400 million senior secured asset-based revolving credit facility.  

The purchase took place at a pivotal time in the beauty industry. Direct-to-consumer startup Glossier was taking off, and its dewy, millennial pink branding and influencer-savvy marketing was changing the beauty business, leaving Revlon behind.  

“Revlon’s...

Some stocks look good for the wrong reasons.

Quantitative strategists at Bank of America Corp. have identified industries they view as “value traps,” including real estate investment trusts, telecommunications, and multi-utilities, according to their research note Tuesday. Value-trap industries have lagged their benchmark by 17 percentage points this year and have underperformed by 4 percentage points annually since 1997, the strategists warned.

Such stock traps have attractive valuations as well as falling price momentum and earnings revisions relative to the Standard & Poor’s 500 stock index. Investors should beware when their prices are declining faster than earnings are deteriorating, according to the strategists, whose tactical analysis is meant for investors with a one-to-three-month time horizon.

“Not all value is created equal,” they said. “Value managers lose by buying too early too many times.” 

True value...

The Department of Labor has proposed a solution in search of a problem by seeking to prevent 401(k) and other qualified retirement plans from offering funds from managers that consider environmental, social and governance factors as part of their due diligence analysis. 

Without providing any data or credible academic research to support the need for this rule making, the DOL has proposed a rule that will harm plan participants — the very group whose interests DOL is meant to protect. By largely casting aspersions on the consideration of ESG criteria, it prevents fiduciaries from considering the full range of long-term risks.  

Bad policies and practices harm companies’ reputations, affect consumers, and often lead to stock price declines. Climate change is widely seen as an environmental and financial risk for companies. Companies that fail to promote racial equity face real and meaningful challenges. Investors evaluate these...

Companies backed by venture capital have so far held out against the effects of Covid-19, according to data from PitchBook.

“Many early-stage VCs have been anticipating a drop valuations for many red-hot early-stage companies,” the data firm said in a mid-year report on U.S. valuations. “However, this decline has yet to materialize in the data.”

Prices instead grew on average during the first half of 2020, with the median valuation increasing to $30 million.

Angel and seed-stage investments exhibited the same trend on average, while median valuations for these companies stayed at about the same. According to PitchBook, median angel and seed-stage valuations were $6.5 million and $7.5 million, respectively, during the first half of 2020 — only about $100,000 below 2019 levels.

“While macroeconomic headwinds and the Covid-19 pandemic have battered the public markets, angel and seed-stage valuations have been largely insulated from...

Nicolai Tangen, the high-powered hedge fund executive whose appointment to lead Norway’s massive wealth fund sparked intense criticism, will sell his entire stake in the firm he founded and restructure how his personal fund investments are managed, the manager of the sovereign fund announced Monday. 

Tangen, who founded $20 billion hedge fund firm AKO Capital, is set to start his new job as chief executive of Norges Bank Investment Management, which manages Norway’s $1.1 trillion Government Pension Fund Global, on September 1. The announcement in March that Tangen would succeed Yngve Slyngstad as CEO ignited controversy on several fronts, from how he was recruited and hired — his name did not appear on an initial short list of candidates for the job — to potential conflicts of interest. 

The controversy grew more intense when Norwegian tabloids revealed that Tangen flew Slyngstad and others on a private jet in November to an...

Stocks may be back up, but revenue is down at publicly traded asset managers, according to analysis by Casey Quirk.

The Deloitte-owned asset management consultant reported that median revenue fell 6.4 percent in the second quarter among listed traditional asset management firms. Compared with this time last year, median revenue slid 7.1 percent.

According to Casey Quirk, this decline was driven in part by investors moving assets to cheaper bond and cash funds amid continued uncertainty about how the Covid-19 pandemic would impact the economy. Fee discounting also contributed, with average realized fees declining 2.2 percent in the second quarter and 3.7 percent year-over-year.

“Capital markets are mostly returning to pre-pandemic crisis levels, yet asset manager financials are still feeling the impact from the brief and severe slump earlier in 2020,” the consulting firm said in a statement Monday.

[II Deep Dive: The Dirty Secret...

Chief executive officers are getting the benefit of luck as they struggle with their boards for power, according to new research from the University of North Carolina at Chapel Hill.

Luck — or exogenous shocks to performance such as markets conditions that are beyond the control of CEOs — should be filtered out by boards under standard economic theory, Turk Al Sabah, a researcher with UNC at Chapel Hill said in a preliminary draft of a paper this month. But contrary to the theory’s prediction that company heads should be assessed for their skillful performance, “we find that CEOs are rewarded power for luck.”  

Chief executives seeking to entrench their power following strong market performance are more likely to succeed at companies with weaker governance, according to the paper. Moreover, CEOs aren’t punished for bad luck to the same extent that they are rewarded for good luck, the study found.

“Power for luck is primarily...

Canada’s pension funds are beating peers globally in investment performance and are stronger at hedging against liability risks, according to research from McGill University and CEM Benchmarking. 

Their success is partly explained by the fact they are more likely to manage their assets in-house, McGill researchers Sebastien Betermier and Quentin Spehner, along with CEM’s Alexander Beath and Chris Flynn, wrote in a July paper. The authors’ findings are based on a study of pensions, endowments, and sovereign wealth funds globally between 2004 and 2018. 

Large Canadian funds in particular outperformed in all measures of the study, which analyzed returns, asset allocation strategies, and cost structures. The authors defined large funds as those managing more than $10 billion in assets in 2018.

“Not only did they generate greater returns for each unit of volatility risk, but they also did a superior job hedging their pension...

Markets may have bounced back quickly from March’s Covid-19 crash, but the asset management industry will not escape 2020 unscathed.

Global industry assets under management are expected to decline by $1.7 trillion this year, according to Cerulli Associates. The Boston-based research firm projected that industry assets would fall to $102.7 trillion from $104.4 trillion in 2019 — ending more than a decade of growth for money managers.

According to Justina Deveikyte, associate director of Cerulli’s European institutional practice, this global decline will be primarily driven by shrinking assets under management in the U.S. and Europe.

“Covid-19 and the associated economic crisis will have a substantial impact on the global asset management industry,” she said in an emailed statement. “However, moving beyond 2020, we expect the global asset management industry to recover and grow, fueled by increasing demand in developing countries...

After just over a year and a half at the California Public Employees' Retirement System, chief investment officer Ben Meng is resigning.  

CalPERS announced late Wednesday evening that Meng, who has been at the retirement system since January 2019, was stepping down immediately. 

Dan Bienvenue, the retirement system’s deputy chief investment officer, will serve as the interim CIO while CalPERS searches for a permanent successor.  

“I’m proud of the work we did to change the portfolio, build a skilled Investment Office, and set CalPERS on a strong path to achieve our return target,” Meng said in a statement published alongside the announcement. “But at this time, it’s important for me to focus on my health and on my family and move on to the next chapter in my life.” 

[II Deep Dive: CalPERS CIO Called Out By Ex-Head of Tail-Risk Program]

Meng helped CalPERs achieve a 4.7 percent return for fiscal...

Although Arena Investors is still being patient about putting money to work, Dan Zwirn, chief executive officer and chief investment officer, says the firm is weighing opportunities in several areas of credit.

Arena is looking at buying legacy investments from private credit firms, investing in convertible securities, and doing transactions with entrepreneur-owned small businesses, small commercial properties, and subprime consumer credit shut out from government largesse, according to Zwirn. He says that the extraordinary fiscal and monetary moves by the government to save the economy is allowing companies to obscure the real states of their balance sheets and push the reality of their financial pain into the future.

But the CEO argues that he’s not staying on the sidelines because even with the enormous amount of liquidity being pumped into the market, there are still plenty of struggling companies in need of financing. He expects the pool...

Investment and insurance giant Allianz is facing questions from the U.S. Securities and Exchange Commission and another lawsuit over major losses in its Structured Alpha volatility hedge funds, according to the company and court filings.

The regulator asked Allianz for information related to its Structured Alpha products, which incurred serious-to-fatal losses in March, the firm disclosed in its 2020 interim report. Allianz said it is cooperating fully with the SEC.

Separately, public pension funds for Fairfield, Connecticut, have followed the Arkansas teachers’ fund in suing Allianz Global Investors late this month.

Among the defunct and grievously injured volatility vehicles, the Allianz Global Investors funds stand out because they were owned by a deep-pocketed corporation. Standalone hedge funds that blew up, such as Malachite Capital, left little behind for burned investors to potentially recoup, although whispers of litigation...

Investors are paying their hedge fund managers much higher fees than they might think.

A new study from the National Bureau of Economic Research has found that, over the long run, the total performance fees paid by investors are more than 2.5 times higher than what they signed up for — and that’s before taking management fees into account, according to authors Itzhak Ben-David and Justin Birru of the Ohio State University and University of Arizona professor Andrea Rossi.

“During the 22-year sample period, investors paid about half of their aggregate gross profits as incentive fees — whereas the average contractual incentive fee is below 20 percent,” they wrote. “After including management fees, investors collected about 36 cents for each dollar of gross excess return generated by funds on their invested capital. The other 64 cents were paid as management and incentive fees.”

The study was based on analysis of nearly 6,000 hedge funds...

Former Bridgewater Associates’ co-chief executive officer Eileen Murray has filed an updated version of her complaint against the hedge fund firm, with fresh allegations of "brazen hypocrisy" at the $140 billion asset manager.

In late July, Murray filed a lawsuit against Bridgewater, alleging that the firm withheld her deferred compensation after she disclosed their ongoing gender discrimination, unequal pay, and breach of contract dispute to the Financial Industry Regulatory Authority. Murray was recently tapped to become the chairperson of the regulatory organization, known as FINRA.   

In an updated version of that earlier complaint, Murray accused Bridgewater of “publicly avowing transparency when it suits its interest, but seeking to harshly punish those who publicly report facts, which Bridgewater perceives to be damaging to its image.” 

Murray’s legal team filed the amended complaint on Tuesday with the United...

Aon’s investment consulting and OCIO unit has raised $349.9 million for an opportunistic credit strategy, the Chicago-based firm announced Tuesday.

The multi-manager fund, offered as part of Aon Investments USA’s outsourced-CIO platform, is “short- to medium-term” and “flexible” strategy that will target exposures to public credit, stressed credit, and real estate debt, according to the announcement. Russ Invinjack, a senior partner at the firm, said that Aon decided to develop the strategy “right in the midst of March as we saw the dislocation going on and the credit spreads.”

“It goes back to the great financial crisis,” he told Institutional Investor Tuesday. “We noticed that because of the demands on clients’ time that investing in numerous managers and deploying capital in a somewhat expedited manner was difficult.”

This time, he added, “we wanted to look to offense because we knew there would be opportunities that would come...

Hedge funds with artificial intelligence capabilities showed a huge competitive edge over investors that didn’t use AI, new research indicates. 

AI-led hedge funds produced cumulative returns of 34 percent in the three years through May, a report Tuesday from consulting and research firm Cerulli shows. That compares with a 12 percent gain for the global hedge fund industry over the same period. 

“There has long been suspicion of the ability of AI to react to unexpected events, such as the coronavirus pandemic,” said Justina Deveikyte, associate director of European institutional research at Cerulli, in a statement Tuesday. “But there is now a sense that the technology has advanced to the point where it is better able to adapt to unforeseen scenarios via the ever-growing amount of market data available.” 

Machine-learning algorithms in finance tend to recognize patterns in historical data, making it tough to...

Before the coronavirus pandemic hit, investment firm GAM Holding’s turnaround strategy seemed to be working.  

But its results for the first half of 2020 show that the pandemic — and subsequent market volatility — may have stymied GAM’s immediate comeback efforts after its 2018 bond fund liquidation.  

During the first half of 2020, the company’s outflows grew while its 2019 profits turned to 2020 losses. Prior to this year, following the implementation of some of its turnaround plan, GAM’s 2019 second-half net outflows had declined and its profits, compared to the first half of 2019, had improved. 

As for the first half of 2020, GAM’s earnings results, published on its website Tuesday, show that its underlying loss before taxes was CHF 2 billion (US$2.1 billion). This is compared to the first half of 2019, when the firm brought in CHF 2.1 billion, its presentation shows.   

Meanwhile, GAM...

Despite the longest economic expansion in U.S. history, the gap between the present value of liabilities and assets at U.S. state pensions is measured in trillions of dollars. To make matters worse, pensions are now faced with the reality that standard diversification — including extremely low-yielding bonds — may no longer serve as an effective hedge for equity risk. 

While I was at CalPERS, concerns arose in 2016 about the effectiveness of standard portfolio diversification as prescribed by Modern Portfolio Theory. We began to recognize that management of portfolio risk and equity tail risk, in particular, was the key driver of long-term compound returns. Subsequently, we began to explore alternatives to standard diversification, including tail-risk hedging. At present, the need to rethink basic portfolio construction and risk mitigation is even greater — as rising hope in Modern Monetary Theory to support financial markets is possibly...

Investments from emerging markets to infrastructure stand to win if Democrats gain Congressional seats and global policies like trade are no longer negotiated via President Trump’s Twitter account, according to investment professionals from Nuveen, who spoke at an online roundtable event on Tuesday.

Investors often fear the effect of increased fiscal spending historically favored by Democrats. But investments in bridges, toll roads, and other U.S. infrastructure could benefit from a new administration. Trump initially crowed that his administration would spend on infrastructure, but little came of it. Democrats could change that. 

“A key point is the increased spending that could come with a Democratic sweep. We see upside in infrastructure,” said Nathan Shetty, head of multi-asset portfolio management for Nuveen. He added that infrastructure could offer higher income opportunities as well as a hedge against...

In a sign of the times, GCM Grosvenor will become a public company through a SPAC.

The Chicago-based alternative investments firm is planning to go public by merging with a special purpose acquisition company in a deal valued at $2 billion. The 50-year-old firm has $57 billion in assets in private equity, infrastructure, real estate, credit, and absolute return investments.

“We have long valued having external shareholders and we wanted to preserve the accountability and focus that comes with that,” Michael Sacks, GCM Grosvenor’s chairman and CEO, said in a statement. 

GCM Grosvenor will combine with CF Finance Special Acquisition Corp, a SPAC backed by Cantor Fitzgerald, according to an announcement from both companies on Monday. After the company goes public, Sacks will continue to lead GCM Grosvenor, which is owned by management and Hellman & Friedman, a private equity firm. Hellman & Friedman, which has owned a...

Australia’s Christian Super has hired Mark Rider from Australia and New Zealand Banking Group to replace the fund’s longtime chief investment officer.

Rider, who previously spent seven years at ANZ Wealth and Private Banking, will succeed Tim Macready, according to a statement from Christian Super Monday. Macready, the fund’s CIO since 2005, will transition into a full-time role at Brightlight Group.

Christian Super, which manages AUD$1.6 billion (about $1.1 billion) in assets, invests based on its religious beliefs. According to its website, this means that the fund avoids companies that profit from gambling, abortion pills and contraceptives, stem cell research, and tobacco manufacturers. It also limits the amount it invests in companies that produce and distribute alcohol and cannabis.  

“Mark is a highly qualified and experienced investment leader, and his appointment will underpin Christian Super’s strong...

At 3:00 in the afternoon on Thursday, November 14, a small group of the world’s most powerful people prepared to board two chartered airplanes in two separate European capitals.

They were headed for Philadelphia for a weekend-long event that had been several years in the making for its creator, Nicolai Tangen, the Norwegian founder of one of Europe’s most successful hedge funds, London-based AKO Capital.

“You are all exceptional,” Tangen wrote in the program for the event. “You all want to extend your range and open your minds. But, like me, you may not always have sufficient time in your daily lives to do this, which is why I have had to whisk you away to learn not only from some of the world’s most inspiring speakers and professors, but also from each other.”

He called it the “dream seminar.” The 150 attendees included psychotherapist Esther Perel, former U.K. Conservative Party leader William Hague, celebrity chef Jamie Oliver,...

At 3:00 in the afternoon on Thursday, November 14, a small group of the world’s most powerful people prepared to board two chartered airplanes in two separate European capitals.

They were headed for Philadelphia for a weekend-long event that had been several years in the making for its creator, Nicolai Tangen, the Norwegian founder of one of Europe’s most successful hedge funds, London-based AKO Capital.

“You are all exceptional,” Tangen wrote in the program for the event. “You all want to extend your range and open your minds. But, like me, you may not always have sufficient time in your daily lives to do this, which is why I have had to whisk you away to learn not only from some of the world’s most inspiring speakers and professors, but also from each other.”

He called it the “dream seminar.” The 150 attendees included psychotherapist Esther Perel, former U.K. Conservative Party leader William Hague, celebrity chef Jamie Oliver, and...