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Blog Post: ThreeToedSloth: Ten Years of Monster Raving Egomania and Utter Batshit Insanity

May 4, 2012 by MoneyScience   Comments (0)

Sometimes, all you can do is quote verbatim* from your inbox: Date: Tue, 17 Apr 2012 09:31:57 -0400 From: Stephen Wolfram To: Cosma Shalizi Subject: 10-year followup on "A New Kind of Science" Next month it'll be 10 years since I published "A New Kind of Science" ... and I'm planning to take stock of the decade of commentary, feedback and follow-on work about the book that's appeared. My archives show that you wrote an early review of the...

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Blog Post: Falkenblog: The Great Stagnation Rebuffed

May 4, 2012 by MoneyScience   Comments (0)

Given that toilet technology, the average speed on freeways, and productivity in general, has been stagnant for about 40 years, it's good to appreciate real innovations when you see it. Take the new New Zealand drinking game: Called possum, the game has quite simple rules: you sit in a tree and drink until you fall out of it.Part of being young is embracing one's freedom to be stupid, and this takes it to another level.

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Published / Preprint: Super-exponential bubbles in lab experiments: evidence for anchoring over-optimistic expectations on price. (arXiv:1205.0635v1 [q-fin.TR])

May 4, 2012 by MoneyScience   Comments (0)

We analyze a controlled price formation experiment in the laboratory that shows evidence for bubbles. We calibrate two models that demonstrate with high statistical significance that these laboratory bubbles have a tendency to grow faster than exponential due to positive feedback. We show that the positive feedback operates by traders continuously upgrading their over-optimistic expectations of future returns based on past prices rather than on realized returns.

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Blog Post: FinanceClippings: How is financial reform coming along...?

May 4, 2012 by MoneyScience   Comments (0)

How timely - just as I posted on the financial reform of Wall Street (or lack thereof), Felix Salmon has a post on the same topic - much more informative than mine of course.  He actually cites people in the know!

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Blog Post: FinanceClippings: Money Power and Wall Street - a few thoughts

May 3, 2012 by MoneyScience   Comments (0)

I caught the final episode of Money Power and Wall Street on Frontline last night (thanks to my DVR).  If you missed it you can watch it on the PBS website. Overall, I thought it was pretty good.  The documentary showed that private derivatives - custom made for a client - make up the largest part of bank's profits.  In particular the documentary focused on interest rate swaps and the numerous municipalities (here and abroad) that had been caught out after buying one of these...

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May 1, 2012: Managed Futures Pinnacle Awards; Wisdom Tree Receives Award; Volatility Returned Briefly in April

May 3, 2012 by Ron Sebonia   Comments (0)

Observations - Statistics - Commentary

Hedge Fund Marketing and the JOBS Act - Five Minutes with Bart Mallon, Cole-Frieman, Mallon & Hunt LLP

On April 5, 2012 President Obama signed into law the Jumpstart Our Business Startups Act (“JOBS Act”). Inserted into the Act were provisions on hedge fund marketing and accredited investor restrictions. John Lothian News Editor-at-Large Doug Ashburn spoke with Bart Mallon of Cole-Frieman, Mallon & Hunt LLP about the JOBS Act provisions, what they entail and how it will affect the hedge fund community.

Managed Futures Pinnacle Awards
CME Group and BarclayHedge proudly present the first and only awards event to recognize excellence exclusively in the managed futures space. On June 11, the Managed Futures Pinnacle Awards will honor the top managers in the industry today, and provide opportunities for managers to meet new investors.

Quote of the Day

"If you’re on a gurney, about to go into surgery, do you raise your hand and ask, “Can I have the cheapest surgeon?” No, you want the best surgeon. So I think the average investor has to think about having exposure to alternatives, because all that means is you have exposure to skill-based managers."

Mark Yusko, founder and head of Morgan Creek Capital Management, on the nature of alternative investments.

Managed Futures Scorecard 4/30/2012
Newedge Indices MTD Return YTD Return
Newedge CTA Index -0.06% -0.59%
Newedge CTA Trend Sub-Index 0.53% 0.81%
Newedge Trend Indicator -2.07% -3.39%
Newedge Short-Term Traders Index 0.06% -2.26%
Barclay Indices MTD Return YTD Return
Barclay CTA Index -0.55%
Barclay UCITS Index 5.78%
Barclay Hedge Fund Index 5.56%
BTOP FX Index 0.27% 0.77%
Morningstar Long/Short Com. Index 0.85% 3.13%

Lead Stories

WisdomTree Receives Award for 'Most Innovative ETF' for Managed Futures Strategy Fund (WDTI)
WisdomTree, an exchange-traded fund sponsor and asset manager, announced the WisdomTree Managed Futures Strategy Fund (WDTI) has been recognized as the 'Most Innovative ETF in 2011' by a committee of analysts who cover ETFs in connection with Capital Link's 11th Annual Closed-End Fund and Global ETF Forum.

Hedge funds in pole but is it enough? 
I do not doubt that hedge funds can produce a strong return for a reasonable amount of risk. But what I do doubt, and what investors need to know, is whether hedge fund managers really exploit the advantages of their business model well enough to justify the fees they charge.
**JK - This article brings up the good question of whether the hedge fund strategy is scalable. 

Don't Bank On It
Alternative Investing By GREGORY ZUCKERMAN - 
Leveraged loans and managed futures offer opportunities, but beware risks
**DA: Article quotes several wealth management executives who question the sometimes-high fee structures associated with managed futures. What did the pot call the kettle?

PerTrac: Largest Hedge Funds Continue to Dominate
Single-manager hedge funds with greater than $1 billion under management account for a mere 3.9% of reporting funds, but they control about 60% of the total single-manager hedge fund assets, according to a study conducted by PerTrac.

Actively Managed ETFs
With the launch on Thursday of three new funds offered by State Street, there are now 47 actively managed ETFs total, which compares to around 1,500 exchange-traded products overall. In spite of the relatively low numbers, actively managed funds represent the future of the industry, Morrison said.
**JK - Interesting look at actively managed ETFs.

Once Reviled, Hedge-Fund Manager Rebounds 
Rapidly hitting the buttons on his calculator, John Devaney totes up some of the things he had to jettison as his hedge fund crashed: a $36 million jet, $10 million helicopter, $45 million art collection and $22 million yacht called "Positive Carry," named for an investment strategy that rakes in easy money.

Merlin Develops Decomposition Tool for ETFs

Merlin’s ETF decomposition tool allows clients to run a position report that can tell them their total exposure to a stock, whether it is held outright or indirectly through an ETF. The tool can be used for risk management and to help attribute portions of fund performance to individual stocks.
**JK - At first glance, I'm not crazy about something being called a decomposition tool. But on second look, it's an interesting idea.

Managed Futures/Managed Funds

Eze Castle releases white paper on tech solutions for Form PF
Eze Castle has released a new white paper providing an in-depth examination of the challenges that Form Private Fund (Form PF) regulation poses to hedge funds. It also looks at the factors that customers should consider when making technology decisions for filing and data management.
**The White Paper, "Preparing for Form PF" can be accessed through the press release HERE.

Analysis: Smaller managed futures funds tempt investors
Smaller managed futures funds able to exploit niche commodity markets and the most volatile conditions are increasingly likely to win assets from investors disappointed with returns from the big trend-followers that dominate the industry.
**DA: No easy feat for a $10 billion fund to make a move in, say, the cocoa market without affecting the price.

Volatility Returned Briefly in April, Smacking Hedge Funds
Stock-trading hedge funds looking to extend their first-quarter rebound ran into a familiar adversary this month: a nervous market.

Managed Futures Strategies
In recent years, the asset class and investment approach has started to become democratized in more retail-friendly vehicles. Today investors can access the benefits of managed futures by not only investing with the traditional commodity trading advisors (CTAs), but also by investing in mutual funds and exchange-traded funds.

Analysis of Hedge Fund Influence in New York State Politics 
Of the Top 20 recipients of hedge fund dollars Governor Andrew Cuomo ($3,486,162.90) and former Governor Eliot Spitzer ($1,947,192.44) lead the list. 14 of the Top 20 recipients are statewide candidates, reflecting the sky-high contribution limits for these offices.

William Blair & Company Introduces Commodity Strategy Long/Short Fund
The Commodity Strategy Long/Short Fund is designed to give broad exposure to commodities and seeks to provide attractive risk-adjusted returns with low correlations to traditional asset classes. It is also expected to maintain the inflation protection of commodities investing, while maintaining the ability to profit in both up and down commodity markets. The fund is actively managed and uses a multi-manager approach, typically providing exposure to between 6 and 15 commodity trading strategies.

TFG Systems Appoints Marc Sharman to Manage Outsourcing Service to Hedge Funds
TFG will offer hedge funds an outsourced operations service, leveraging their industry expertise to manage fund operations, covering: trade confirmation, trade related settlements, trade feeds to relevant counterparties, reconciliation, and reporting.

Pensions and Institutions

A Chat With Mark Yusko
Mark Yusko is the founder and head of Morgan Creek Capital Management LLC. From 1998 to 2004, he led the endowment office at the University of North Carolina at Chapel Hill. Journal of Indexes caught up with him recently to discuss the nature of alternative investments.

Defined benefits are being re-imagined
Mitchell Schnurman, 
Traditional pensions are struggling for many reasons: low investment returns, too-generous benefits, and the happy fact that people are living longer than expected. But to understand why pensions can't seem to break a sorry cycle, look no further than what happened last week in Fort Worth.
**DA: From the article: "At the end of 2007, before the Great Recession and stock dive, Lockheed's accrued pension liability was about $1 billion. On Dec. 31, it was $13.5 billion." Yowza!

BlackRock Said to Plan Asia Investment Fund With CIC
CIC, the nation’s sovereign-wealth fund, and BlackRock will initially provide capital for the investments, which would be in Chinese companies and businesses that sell products in China, said the person, who asked not to be identified because the details aren’t public.

Video: Mark O’Hare, Founder & CEO, Preqin
AllAboutAlpha: Hedge Fund Trends & Alternative Investment Analysis 
Mark O’Hare, Founder & CEO, Preqin, discusses the future of alternative investments and their role in institutional portfolios, private equity, data transparency, and the need for education in the alternative investment industry.

Japanese Pensions Plan More Alternative Investments After AIJ
Retirement funds that plan to increase investments in the asset class, which includes hedge funds and private-equity funds, in the current fiscal year that started April 1 totaled 20.6 percent, according to the survey by JPMorgan’s Tokyo-based asset management unit. That was the most among 10 asset types.

Japan's Pension Fund Association (PFA) Selects MSCI's RiskMetrics HedgePlatform
MSCI Inc. MSCI -0.65% , a leading provider of investment decision support tools, announced today that Japan's Pension Fund Association (PFA) has chosen RiskMetrics HedgePlatform as their hedge fund transparency provider.

As private equity portfolios expand globally, emerging markets see growing share
Pensions & Investments 
More private equity investors are delving into emerging markets, but significant hurdles remain to finding sustained outperformance, according to consultants and pension fund executives.


Regulations face implementation hurdles and could curb innovation, warns NYSE Euronext 
Hedge Funds Review
Regulators in the US and EU face problems in implementation of the myriad rules created through Dodd-Frank and various European legislation, warns NYSE Euronext’s Garry Jones. The move to clearing over-the-counter derivatives on exchanges may be heading in the right direction on paper but implementation is going to be difficult on both sides of the Atlantic.

Hedge fund managers need to pay closer attention to details of regulation to avoid compliance pitfalls 
Hedge Funds Review
Hedge funds are in danger of missing important compliance criteria if they do not keep on top of the fine print of regulation, according to Marie Defalco, vice chair of the investment management group at US law firm Lowenstein Sandler. “You almost have to have someone in the house that’s focusing on [just regulation]. If you’re a smaller fund and you can’t afford in-house general counsel, you have to have someone that is doing the co-ordination with outside counsel, staying aware,” advises Defalco.
**DA: We refer to Dodd-Frank as the "Attorneys and Compliance Professionals' Full-Employment Act of 2010."

CFTC Sued by Fund Industry to Overturn Registration Rule
The U.S. Commodity Futures Trading Commission was sued by two business groups seeking to overturn a rule requiring mutual funds with commodities investments to register with the agency. The CFTC didn’t properly assess the costs and benefits when it imposed the regulation in a 4-1 vote in February, the U.S. Chamber of Commerce and the Investment Company Institute argue in a lawsuit filed today in federal court in Washington. The measure is unnecessary, they said, because mutual funds are already overseen by the Securities and Exchange Commission.
**DA: The cost-benefit red-herring is being used to challenge several sections of Dodd-Frank. For more on this, see the cost-benefit page on MarketsReformWiki

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Commentary: Attorney Bart Mallon on the JOBS Act and Hedge Fund Marketing

May 3, 2012 by Ron Sebonia   Comments (0)

Five Minutes with Bart Mallon, Cole-Frieman, Mallon & Hunt LLP

On April 5, 2012 President Obama signed into law the Jumpstart Our Business Startups Act (“JOBS Act”). Inserted into the Act were provisions on hedge fund marketing and accredited investor restrictions. John Lothian News Editor-at-Large Doug Ashburn spoke with Bart Mallon of Cole-Frieman, Mallon & Hunt LLP about the JOBS Act provisions, what they entail and how it will affect the hedge fund community.
Q: On April 5, 2012 President Obama signed into law the Jumpstart Our Business Startups Act (“JOBS Act”). Inserted into the Act were provisions on hedge fund marketing and accredited investor restrictions. What exactly do the provisions entail?
A: There is not actually any change in marketing provisions per se. What happened is the JOBS Act repealed earlier provisions in the securities laws which did not allow managers to have general solicitations with respect to their offerings. This essentially meant that managers could not solicit by advertising to the public through these private offerings and so managers really had to be careful when trying to grow the assets of their fund. One of the important things to note with respect to the provisions of the JOBS Act is that they can only market more freely if all of the investors of the fund are accredited investors. If they have non-accredited investors coming into the fund, then they cannot use these more liberal advertising means in order to solicit investors.
Q: Does this affect all types of fund structures?
A: For a 3(c)(1) fund structure, the accredited investor limit does not change. These managers are still limited to 99 individual investors. For 3(c)(7) funds, previously the limit was 499 investors. Now, that can be bumped up to 1999 investors. For 3(c)(7) funds, though, all investors must be qualified purchasers, which is actually a higher threshold than that of accredited investors.
Q: What do these marketing rules have to do with the JOBS Act, and why are they a part of it?
A: You have a couple things going on here. As people have been pointing out for a number of years, most of these securities laws were written in the 1930s, with the last one in 1940. The general nature of the industry has changed over the years; the JOBS Act is a reaction to some of the problems with these laws. Technological advances, and the ability of the internet to be a means of connecting with people in a way to market to potential investors - securities laws just do not address those issues. The JOBS Act was trying to find a way to balance investor protection of the securities laws with the ability for managers to go out and communicate and have a sort of certainty with respect to their activities on the internet.
Read the rest of the interview at

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