NakedShorts

Henry's Momentous July

Ditching Manny, ditching customer’s money

This nearly in: the back-story behind Boston Red Sox owner John Henry’s rare — well, in public — hissy-fit that last week culminated in first ballot Hall of Fame slugger “Manny being Manny” Ramirez finally being shipped to Los Angeles in exchange for a bag of used baseballs. NakedShorts has learned from “people close to the situation” that his hedge fund business will report July losses in the extremely nasty, even by the standards of Henry anciens, neighborhood of 20 per cent.

And if Henry is down that much, many of his peers among the longish-term trend following division of the not-so-much-commodity trading advisor division of the hedge fund universe will have racked up losses, although likely to a much lesser extent.

John W. Henry & Co had not posted July performance at pixel-time, but the loss blew a big hole in what had been a great year. The flagship JWH Global Analytics program, with almost half the firm’s $300 million in assets, was up 32.26 per cent this year, and 65 per cent for the last 12 months, through Jun. 30.

Financial and Metals, the now skeletal warhorse on which Henry built his money management reputation, had been up as much as 42.6 per cent, in mid-March; when the July numbers come it, it will be down 7.5 per cent for the year.

Fingers will quickly point to the unwinding long commodity trade as a primary cause of the losses, and while Global Analytics is the most heavily commodities-weighted program in the Henry armory, it is probably a little more complicated than that. While regulated as “commodity” trading advisors, Henry and his peers allocate most — often more than 80 per cent — of their assets to financial futures markets, including stocks, bonds and currencies.

And, sadly, it’s been a while since Henry’s trades were big enough to move financial markets. If the Dodgers make the play-offs, that’s something else again.

Manny is Manny and John Henry is offended
By Reid Cherner & Tom Weir
Game On (USA Today) Jul. 17 2008

Henry edges nearer the ledge

Legendary trading advisor John W. Henry & Co wrapped up its third consecutive losing year last month, beginning 2008 with barely $250 million under management, compared with around $1.75 billion a year earlier. While the firm estimated its assets under management at $285 million on Dec. 31 2007, that figure included some $40 million redeemed at year-end, according to a source familiar with the matter.

Only Henry’s GlobalAnalytics program was profitable in 2007, racking up an 18.68 percent gain; the International Foreign Exchange Program lost more than 30 percent, while the others lost between 4.8 percent and 15.4 percent.

The company’s latest disclosure document reports that it has made a rare modification to its Global Diversified and Financials & Metals programs, attempting to reduce the number of false trading signals and so eliminate trades that are whipsawed by trends that reverse before generating profits.

The big question is not so much whether the extensive research will enhance performance, but whether or not any of the remaining investors will be around long enough to find out.

The gift that keeps on giving

It’s been clear for a while that the travails of his remaining investors are far from the top of John Henry’s presumably World Series champagne-soaked agenda, but it’s always nice to new material for that forthcoming Harvard Business School case study on micro-management and prioritization:

Before the ALCS game, he’s making decisions about who will sit where in the VIP seats (even a few innings into the game, he’s using his BlackBerry to help people with their seating requests)...

Before the lifelong baseball fan can get to the fun part - the game - he has to meet with someone from John W. Henry & Co. “I’ll give him 30 minutes,” said Henry...

At the close of business Oct. 30, Cypress Fund—a John W. Henry & Co private placement invested in the firm’s financial and metals program—was down about 2.25 percent for October, bringing its year-to-date humblage to around 12 percent. Barring the always possible turnaround in the next couple of months, JWH is staring down the barrel of a fourth consecutive losing year.

For Henry, a year of struggle, success
by Frank Quaratiello
Boston Herald Oct. 31 2007
(BH photo by Stuart Cahill)

Asymmetric headlines, minutes apart

TheBostonChannel.com
Sep 25 2007 12:22 EDT

Earlier on NakedShorts

Habitat for Humanity (via Yahoo! Finance)
Sep 25 2007 11:45 EDT
(Forelock-tug: John Lothian)

The perils of premature victory laps

“Things are very volatile at this point.
That’s why we’re having a good month.
We’re hoping we’re finally
on the right side of these trends.”

That was John Henry in the Boston Herald Aug. 21 celebrating a 15 percent intra-month gain in his firm’s Financial & Metals Portfolio. The Market Gods were not pleased: F&M spat up most of that to finish up just three percent, taking the International Foreign Exchange program down more than 16 percent and wreaking less dramatic havoc in the Global Diversified—down 8.7 percent—and GlobalAnalytics—down 7.8 percent—programs.

The flagship Strategic Allocation Program lost an estimated 1.9 percent.

Investment losses, an estimated $15 million in redemptions and $30 million in downward revisions to Jul. 31 estimated assets under management combined to wipe almost 15 percent off John W. Henry & Co’s bankroll. Its Aug. 31 estimated assets now stand at just $432 million, or a quarter of the end-2006 figure.

Earlier on NakedShorts
Henry celebrates intramonth 15% gain
Aug. 22 2007

HenryWatch

Contagion Containment Chronicles

John W. Henry paid $16 million—$6 million less than the original asking price—for Dodgers’ owner Frank H. McCourt Jr’s 18,000-square-foot Brookline, Mass., mansion. Details over the Green Monster. Boston Globe photo.

Good idea, Bill. You’re welcome

Housing slump contained to Brookline

Not a winner

Already a winner

At last, a winner!

Subprime contagion contained to India

Lake Shore, in Latin America

An All Star Team in the Making?

Henry celebrates intramonth 15% gain

John W. Henry, chairman of John W. Henry & Co, broke his months-long silence about the performance of his sadly-shrunken investment company to tell the Boston Herald Monday that the firm’s Financial & Metals Portfolio was up 15 percent so far in August. (NakedShorts had earlier learned the program made 10 percent on Thu. Aug 16 alone but chose not to pass along the intelligence, fearing prejudice to a game then not even at the seventh inning stretch...but if it’s good enough for the boss to be provoking Market Gods, let’s help out).

“We don’t do well in times of low volatility,” Henry, lead owner of the Red Sox, said. “Things are very volatile at this point. That’s why we’re having a good month. We’re hoping we’re finally on the right side of these trends.”

The gain, if it sticks through Aug. 31, would bring the portfolio’s return since Mar. 31, when it ended a three-year 40 percent decline, to more than 27 percent. Of course, August isn’t over yet so maybe the Market Gods will help the cause by wheeling Eric Gagné out of the bullpen to serve up some more great big flat not-so-fastballs right in Henry’s wheelhouse. [That’s enough baseball metaphors—Ed].

And those 6-month T-Bills probably did pretty well too.

Reversing the curse: Henry optimistic on firm’s turnaround
By Herald staff
Boston Herald Aug. 21 2007

Another ‘great unwind’ continues

Three programs disappear from JWH line-up

The good news: John W. Henry & Co had a net asset inflow in July. The bad news: That $8 million was overwhelmed by more than $30 million in investment losses, dropping the firm’s total assets to just $501 million.

Like many of its peers, JWH was caught in the switches of late July, with its Financial and Metals Portfolio taking an 11.7 percent hit, and the International Foreign Exchange Program down 8 percent. The Strategic Allocation Program, which spreads its assets among the firm’s investment strategies, was down just 2.55 percent, implying a substantial allocation to JWH GlobalAnalytics, which lost just 1.6 percent to be the firmbest performing portfolio with a loss of just 1.58 percent.

Or adherence to the eponymous owner’s personal preference for carry-out over home cooking, detailed to the Boston Herald May. 30: “I’m 90 percent invested in six-month Treasury bills.”

In reporting assets this month, three strategies—the Currency Strategic Allocation Program, the Worldwide Bond Program and the Dollar Program—came off the board. The Currency SAP had assets of just $3 million at the end of June, while the others had had no client accounts for some time, and existed only to trade allocations from SAP.

Campbell takes a slappage

Henry’s F&M reverses its recent gains

Campbell & Co, the Baltimore-based commodity trading advisor, suffered badly in July, taking one of its biggest (and first double-digit) monthly losses—around 10.8 percent in its flagship FME Large program, and nearer 13 percent in its newer, and much smaller, multi-strategy offering—since May. 1990.

John W. Henry’s financial and metals portfolio is also said to have reversed its recent gains, dropping 8.5 percent. (The program had gained around 20 percent since Mar. 31 and had worked its way to being flat for the year.)

Both advisors were hit by what is being described as a ‘perfect storm’ with virtually all their positions moving against them at month-end. Among the major contributing factors:

• Violent, certainly by the standard of recent years, whipsaw moves in stock markets worldwide;
• Fallout from the ‘subprime’ crisis, with the resulting noodle over to quality reversing the previous down-trend in Treasury prices; and
• Currency developments, including some carry-trade unwinding that saw the Japanese yen gaining against the US and other global currencies.

Campbell, like most of its peers, had a slow start to the year, with FME Large down about six percent through Mar. 31; however it had recovered those losses to be up by about five percent through Jun. 30.

A person familiar with the company said that "Campbell didn't do anything different or out of the ordinary, they usually catch the wave just right and this time the wave took them. They’ll pop up and recover very well." (Since that 1990 slappage, Campbell has had close to 20 double-digit up months, the most recent in Feb. 2004).

The same person said that most trend-followers took a pounding in July, although early indications are that most declines will be in the 4-5 percent range.

Staniewicz takes a hike from Henry

John W. Henry & Co lost another key executive yesterday when Jules Staniewicz, senior strategist and a member of the JWH investment policy committee, left the company under his own steam. The 15-year Henry veteran could not be reached for comment but is said to have no plans apart from taking some time to think about what is next.

According to people familiar with the company—not John Henry—Staniewicz was highly regarded at the firm, and among its customers. “JWH has lost a lot of high level people recently,” beginning with the January massacre that took out president Mark Rzepczynski and several other senior executives, “but this is as big as any of them,” said one.

Staniewicz was primarily responsible for the development of JWH Global Analytics program and, according to another person, “a very bright guy and one of the quickest wits I’ve ever been around.”

According to a biography in the JWH disclosure document, his responsibilities included long-term strategic planning for trading and investment strategies, and business development. Which, given the number of initiatives that have come to term before being still-born in recent years, and Staniewicz’s long-held affection for the meter of a different drum, leads inevitably to the conclusion that he’d finally had a gutsful.

Scraping along the guardrail

The John W. Henry narrative is full of tales of his night-owl proclivities. Not the bar-hopping club-jumping kind, but of the lights at his Boca Raton home burning into the teeny-tiny hours as he brings his legendary laser-like focus to the research process, tackling and testing and tuning new investment ideas. Incoming, from the-things-that-make-you-go-hmmm tray:

...But late at night, when no one else is around, he shelves all concerns about lagging funds and nagging Steinbrenners, focusing only on making it around Thunder Valley with all four fenders intact on his virtual race car.

“I have the whole setup. Three screens, steering wheel, shifter, you name it,” Henry says...

Roush banking that New Englanders love race cahs
by Ryan McGee
ESPN The Magazine Jul. 17 2007

Earlier on NakedShorts
Apr. 24 2007

Henry’s assets drop more than 50 percent

Merrill’s gone, performance showing turnaround

Merrill Lynch’s withdrawal of its mostly retail customers’ assets hit John W. Henry & Co last month, even as the trading advisor reported its best returns of the year.

Total assets under management reported at Jun. 30 dropped to an estimated $524 million, off $585 million, or more than 50 percent from the $1.1 billion reported May 31; adjusting for performance, however, net redemptions during the month totaled approximately $635 million.

The flagship Strategic Allocation Program was up an estimated 3.11 percent in June, even as its assets tumbled $560 million, to an estimated $142 million.

The Financial and Metals Portfolio, the firm’s longest-running program, turned in an estimated gain of 9.6 percent in June, adding to gains of 7.8 percent in April, and 5.9 percent in May. The program, which now has $147 million—putting it ahead of the Strategic Allocation Program for the first time in more than a few years—is now, barely, profitable in 2007, showing a 0.43 percent gain.

Other big June gainers included the GlobalAnalytics program, up 10.1 percent, and the Worldwide Bond program, which tacked 5.4 percent onto its May gain of 6.7 percent.

You, gentle reader, are, of course, surprised by none of this:

Henry’s real ‘life extension’ challenge I
A buy signal? On a perilous—but well-trod—path

...It’s never a good time for an asset manager to get cut off by Merrill, and this moment was spectacularly inopportune. Perhaps for Merrill and its customers, because JWH’s current decline—near 40 percent in its flagship Strategic Allocation program—is in the neighborhood of an historically reliable buy signal...

NakedShorts Apr. 23 2007

HenryWatch

JWH Investment Programs & Performance

HenryWatch: Returns flat, assets splat

Trading advisor John W. Henry & Co was marginally profitable in May, with its flagship Strategic Allocation Program eking out a 35 bps (0.35 percent) gain, despite its Financial and Metals Portfolio making almost six percent and the Worldwide Bond Program—before last week’s fixed income inferno—tacking on 6.7 percent.

Total assets under management reported at May 31 dropped to an estimated $1.1 billion, down $154 million from the previous month; adjusting for performance, however, it appears that net redemptions during the month totaled approximately $162 million, a near 50 percent increase on April’s $110 million decline.

So what’s happened to the great asset collapse anticipated by NakedShorts and more precisely by The Wall Street Journal on May 29:

...Amid dreadful performance for more than a year, Merrill Lynch & Co. is pulling about $600 million of investment funds from Mr. Henry’s firm at the end of this month...[leaving] John W. Henry & Co. with just about $500 million…

Two, among several, possibilities:

• Timing: “The end of this month” covers a range of possibilities, including an effective redemption date of Jun. 1 or (slightly) later, meaning that the big hit has yet to come; or
• New assets: Investors playing the “double-down when the drawdown hits 40 percent” strategy have rushed to the rescue.

For what it’s worth, NakedShorts’ money (±2 cents) is on the former.

HenryWatch

JWH Investment Programs & Performance

HenryWatch: Investment advice

“I’m 90 percent invested in six-month treasury bills.”

Sounds like a plan.

Henry tells fans: Investment firm’s $lump won’t hurt Sox
By Jay Fitzgerald
Boston Herald May 30 2007

Welcome WSJ Readers

Any passing traffic noodling through here after reading today’s John Henry in a Slump report in The Wall Street Journal can find earlier coverage filed under HenryWatch.

John Henry in a Slump [$$]
by Gregory Zuckerman
The Wall Street Journal May 29 2007

HenryWatch: Sales chief strikes out

Jason Lysek, promoted to director of sales at John W. Henry & Co after the company’s Jan. 2007 management purge, quit to join Wachovia’s alternative investment group. The development was reported by Hedge Fund Alert this morning.

No word on a replacement. Reports that a director of redemptions will succeed Lysek are entirely made up.

Earlier NakedShorts coverage

HenryWatch: The buy signal worked

Past performance may not guarantee future results, but it’s sometimes close. Count on Merrill Lynch to get its retail investors out at a bottom, and count on John W. Henry & Co to manage a rebound when the drawdown hits 40 percent.

It’s never a good time for an asset manager to get cut off by Merrill, and this moment was spectacularly inopportune. Perhaps for Merrill and its customers, because JWH’s current decline—near 40 percent in its flagship Strategic Allocation program—is in the neighborhood of an historically reliable buy signal.
NakedShorts, Apr. 23 2007

In April, the performance-challenged trading advisor had its first profitable month since Nov. 2006, with the flagship Strategic Allocation program, accounting for more than 60 percent of its assets, up an estimated 2.35 percent; the long-running Financial & Metals program made 7.78 percent.  Both programs still have substantial losses over year-to-date, 12-month and 36-month periods.

The April gains were not large enough to outweigh the impact of continuing redemptions, based on estimates posted to the trading advisor’s website Friday, May 4. JWH’s assets under management declined by $62 million, to $1.26 billion; adjusting for performance, however, it appears that net redemptions during the month totaled approximately $110 million.

JWH Investment Programs & Performance

Earlier NakedShorts coverage after the jump:

Say hello to Pawtucket

Merrill Lynch works a walk (with its assets)

TRANSACTIONS
American League
RED SOX—John W. Henry & Co, the trading advisor owned by Red Sox principal John Henry, optioned to the investment management minor leagues for extended rehabilitation, following client concentration surgery.

[UPDATED May 7 2007] Merrill Lynch Alternative Investments has redeemed its remaining client assets advised by John W. Henry & Co from two funds—the JWH Strategic Allocation Fund, and the John W. Henry/Millburn Fund—striking another blow, of so far indeterminate size, at the trading advisor that made the fortune of Red Sox principal owner John Henry. (See recent NakedShorts coverage here and here).

According to people familiar with the situation, speaking on condition of anonymity, Merrill funds accounted for about half JWH’s assets earlier this year; however, continuing heavy losses—Henry’s flagship Strategic Allocation program was down 12 percent through the first quarter, and had not had an annual profit since 2004—and consequent client redemptions may have already substantially reduced its exposure to Merrill’s decision.

JWH’s assets are still likely to drop, perhaps under the $1 billion mark, when the firm reports Apr. 2007 performance within the next few days [UPDATE: JWH assets declined to $1.26 billion]. Ironically, JWH was almost certainly profitable, and perhaps strongly so, during April, for the first time since Nov. 2006 [UPDATE: JWH was profitable in April].

Not for the first time in recent weeks, JWH spokesman and general counsel David Kozak had not responded to an email, sent Wednesday afternoon, by pixel time. (In fairness to Kozak, who is based in Connecticut (JWH is headquartered in Boca Raton, Fla.) it may be a systems issue: Andrew Willard, director of technology, was among JWH employees canned in a turn-of-the-year purge).

In other sort-of JWH-related news:

Henry’s real ‘life extension’ challenge II

Distractions; falling behind; and the buy signal

The first part of this article, looking at the challenges and questions confronting trading advisor John W. Henry & Co, and its eponymous owner, appeared yesterday.

It’s not exactly last week that Henry started enjoying the fruits of his investment prowess, and he’s hardly the first investment manager to have time-consuming interests away from the golden goose. According to the JWH disclosure document: “Since the beginning of 1987, [Henry] has devoted, and will continue to devote, a substantial amount of time to business other than JWH and its affiliates.”

His heavy-duty distractions did not begin until he became involved in major league baseball, although he had earlier owned a minor league franchise and was involved in a failed venture to secure an NHL expansion franchise in Florida.

Henry bought the Florida Marlins in 1998. After losing a bruising political fight over public financing for a new stadium for the Miami-based team, he upgraded to the Red Sox in 2002. His sporting interests expanded again last year, when he bought a 50 percent stake in the Jack Roush NASCAR team. Among his other ventures, apart from the Sirtris Pharmaceuticals stake: iRacing.com, set up to “create the world's most authentic, most sophisticated, most accurate PC-based racing simulations and grow a new branch of motor sport through real-time, online competition.”

Despite these distractions, he still keeps a close eye on the goose.

Henry’s real ‘life extension’ challenge I

A buy signal? On a perilous—but well-trod—path

The conclusion of this two-part article will be published tomorrow.

Search the phrase ‘“Red Sox” +immortal’ and Google helpfully pops up 182,000 references, more than a few pointing the general direction of the late slugger Ted Williams, today safely nestled in an Arizona cryogenic facility. Now, Red Sox principal owner, and investment manager—in that order, these days—John W. Henry has his own interests in the life extension business as the largest shareholder in Sirtris Pharmaceuticals, according to a recent Boston Globe article.

But on the life extension front, Henry’s real concern should be with John W. Henry & Co, his famously volatile commodity trading advisor, now confronting the biggest gut-check in its gut-check checkered 25-year history. Hedge Fund Alert reported Apr. 11 that Merrill Lynch Alternative Investments had ordered its financial advisors to stop putting their clients into JWH products.

It’s not like John Bogle decided that conventional index investing is a silly idea. But it’s close. Merrill Lynch has been a key contributor to JWH’s asset base since the 1980s. Its recent call almost certainly reflected two-years-and-counting of brutal performance, possibly compounded by this year’s round of senior management changes, apparently triggered by efforts to address those performance concerns. [JWH general counsel and spokesman David Kozak did not respond to an email message (Apr. 13), or a telephone call (Apr. 20) by pixel time].

It’s never a good time for an asset manager to get cut off by Merrill, and this moment was spectacularly inopportune. Perhaps for Merrill and its customers, because JWH’s current decline—near 40 percent in its flagship Strategic Allocation program—is in the neighborhood of an historically reliable buy signal.

But definitely for JWH, where some familiar storm flags—performance issues, management turnover, the owner’s flash toys, all early chapters in Due Diligence for Dummies—are flapping loudly. Together.