NakedShorts

UBP sings for its Madoff clients

Private and Confidential –
For the Sole Use of UBP Investors

NakedShorts today received a video of a UBP marketing assistant, closely watched by her supervisor, vocalizing a document entitled ‘Update on the Madoff fraud case: Questions and Answers’ to a group of French-speaking investors. (The full document, featuring such reassuring sentiments as “Investors should rest assured that this affair has not affected the Bank” — “Hey, you mutts, it was your money!” — is available at the link below the video. A translation of the French lyrics is available after the jump). 

More come Monday.

UBP’s Primer on Madoff

by Bess Levin

Dealbreaker Dec 19 2008

InvestorLetterPalooza Weekend

I’m not sure whether the name Balyasny Asset Management LP ever blipped my radar before, or if I’d ever heard of principal Dmitry Balyasny. But, based on the evidence of his Q3:2008 investor letter, and its thoughtful, considered analysis of ‘The State of the Hedge Fund Industry,’ he may well be a keeper. 

I have a few takeaways from the recent experience:

1. Fundamental long/short, similar to statistical arbitrage last year, became a victim of its own success. The self-reinforcing cycle of more and more money going to firms with similar bets and strategies caused excessive crowding in positions, styles, and approaches.

2. Regardless of strategy, what separates money managers is their ability to adapt, their flexibility, and their humility. While stock selection generally works, by itself it is not sufficient to succeed in different market environments. Timing, market feel, and risk management skills are vastly more important and these are what investors should be paying for. In the ultimate example of market timing by a long only investor, Warren Buffett became extraordinarily wealthy by going to cash prior to the massive bear market in the 1970s.

InvestorLetterPalooza Day I

As threatened yesterday, the first 10. So let’s start with some famous last words.

Above all, we will survive because, unlike the fallen, our portfolios do not consist of great piles of manure, bought as if it were gold. If we own some manure, here or there, and we always do because we bought it on purpose, as the fine manure it is, and at bargain prices — for manure. It is not for nothing we live in farm country.

Hedge Fund Alert reported Oct. 22 that Whitebox Advisors had suspended redemptions, after Goldman Sachs doubled its collateral demands on the firm’s convertibles portfolio.

Let us gather together

by Andrew J. Redleaf

The Whitebox Advisor Sep. 30 2008

Moving right along, a shotgun blast for Hank & Ben:

This response to our own financial crisis seems dramatic and startling. In actuality, it is long overdue and is not a result of any creative thought. It is certainly a socialistic cure, however, one that was needed at this point in the crisis. The absurdity of the situation is that it took us so long to get here. The IMF has analyzed banking crises around the world and their position could be summarized in 10 simple steps to follow in such a crisis...

...Unfortunately, it appears that the government has failed to properly implement one critical step. 

Is the world going to [an Extinction Level Event]?

by Thomas J. Barrack Jr

Colony Capital Oct. 14 2008

Barrack’s letter names TPG’s David Bonderman as “the best and the brightest investor in the world.” You know where this is going.

In order to diversify the risk of the Washington Mutual investment, TPG's $1.35 billion commitment was split across three funds — $475 million to TPG V, $475 million to TPG VI and $400 million to TPG Financial Partners, a co-investment vehicle targeted at financial services opportunities...

...Unfortunately, the chaos and uncertainty of the financial and housing crises has led to the addition of Washington Mutual to the growing list of unsuccessful financial institution investments.

Re: Washington Mutual

by TPG Team

TPG Capital Sep. 25 2008

Meanwhile, elsewhere in Texas, betcha! McCain/Palin weren’t the only Republican Mavericks having a rough September. 

Maverick’s quarterly letters have always started with a brief sentence reviewing the strength or weakness of the previous quarter. Unfortunately, I cannot find words to describe our disappointment, embarrassment and shock over the above results. As you might suspect, in the past quarter our results were horrible in every sector and region in which we invest (although our returns in healthcare and emerging markets were arguably only disappointing.)

A September to remember

by Lee S. Ainslie III, Managing Partner

Maverick Capital Oct. 9 2008

Looking for scapegoats? Pretty much everywhere, in case you wondered.

Tomorrow: InvestorLetterPalooza! (Part I)

NakedShorts is, between other distractions, sorting through a shipment of almost 50 hedge fund investor letters and presentations of recent vintage. According to the source: 

Many of our agents gave their lives to secure this valuable information. 

Oh, did I say agents?  I meant ‘investors.’

As a taste of things to come, the Sep. 25 communication from Stephen Feinberg and William L. Richter of Cerberus Partners LP, notable mostly for the absence — according to the Acrobat search function — of the word ‘Chrysler,’ and the appearance of the acronym GMAC only in the context of naming the individuals heading an RMBS/CMBS operation.

Quite remarkable, given the recent | news | flow. 

Dear Investors

by Stephen Stephen Feinberg and William L. Richter

Cerberus Partners LP Sep. 25 2008

Cerberus Seeks Access to Bank Bailout Funds

by Damian Paletta and John D. Stoll

The Wall Street Journal Oct. 29 2008

It’s ‘Dear Investor’ Day

Dan Benton throws in the Andor.

...“after 24 years in the investment business, I have decided to retire from managing outside capital” to devote more time to family and other interests...

Dan Loeb rolls his eyes.

As you may recall, the SEC conducted an audit of Third Point last year after we registered as an investment advisor. During the course of the audit, the examination staff noted that we regularly communicate with portfolio managers at other hedge funds about investment and trading ideas. The SEC later informed us that it had commenced a formal investigation of Third Point primarily relating to these types of communications. Such conversations permit us to test our hypotheses and refine our thinking and, as a result, we believe that participating in give-and-take with other managers is in the best interest of our investors. Our outside counsel has examined this matter thoroughly and assured us that our position is consistent with the securities laws and that we have not violated any law in connection with these communications.

Cassandra proffers a template.

But DSP Advisors LLC sees cause for optimism.

Dear Limited Partner

DSP Advisors LLC wishes to advise investors in DSP Right But Early LP (“The Fund”) that a side pocket (“The Landfill”) was recently established for certain investments (“LEH $10 puts Aug. expiry” or “The Trade”) that are currently asleep.

We were 100% right, got the timing 100% correct yet for technical reasons (i.e. expiration date passing with options OTM) it appears the investment may be implicated in a 100% loss.  Our track record will, however, under FAS 157, reflect how right we were despite market manipulation that was responsible unexpected difficulties with execution, timing and strike price of The Trade.

Additional Ron-O-Gram requests

The Insana Capital Management story didn’t move so much as an inch yesterday, although NakedShorts would like to add:

• Copies of presentations and other information about the ICP Legends Fund distributed by Deutsche Bank and/or its affiliates and
• ICP Legends Fund private placement and/or other offering documents

to his previously announced, and largely fulfilled, document wish list. Those sections disclosing, or not, arrangements under which DB participated in the fees generated from assets raised through its sales efforts are of particular interest. (As reported yesterday, Insana’s aggrieved investors, who may be whistling for their funds well into 2011, are muttering about lawyers at dawn in the context of allegedly undisclosed fee splits which would have reduced the revenues flowing to the management company.)

Any and all other documentary evidence  emailed to the grinning idiot at right is, as always, subject to the Judy Miller confidentiality agreement and Lifetime Free Subscription award. More tomorrow, assuming Team NakedShorts continues its so far Olympian efforts.

Earlier on NakedShorts

Insana Capital doesn’t leave ’em laughing
Aug. 12 2008

Insana upgrades, from Fort Lee to Scamford
Aug. 11 2008

Insana Capital doesn’t leave ’em laughing

A lingering death. And who shared the fees?

News the Bobbleheads forgot to pass along

Ron Insana’s bid to quietly slip the surly bonds of his excellent adventure in fund of hedge funds management for the waiting — start date: Sep. 2 — sinecure at SAC Capital Advisors LLC may not go smoothly. His Aug. 8 “I’m outtahere” note also announced the immediate suspension of redemptions to allow “equal treatment of investors while the general partner” — Ron, wearing his managing member of Insana Capital Holdings LLC hat — “considers the future operation of the partnership.”

Suspended redemptions? “Due to the lockups and withdrawal terms of the underlying funds, liquidation is expected to take a substantial amount of time, likely to be a year or longer.” Try more than two, barring charitable acts on the part of certain underlying managers, including one SAC Capital Advisors LLC.

But surely you won’t be charging fees while you consider “multiple options...including dissolution of the partnership” while having those “discussions with several highly qualified investment managers who are interested in assuming the investment management responsibilities for the partnership?” Hmmmm. That bit seems to have missed the cut.

So the investors who bought into the Legends Fund, “an expression of the firm’s macroeconomic outlook as guided by Ron Insana?” “I will continue to make myself available for your questions and will continue to provide guidance to the business...It has been an honor to do business with all of you over the last 14 months...As I move on to new responsibilities, I hope that I may serve you in the future.” Gee Ron, we won’t let the door hit us on the way out. Oh, hang on, we’ll be whistling for our money in 2011 while you’re buffing Stevie’s whatever. Nice. 

Questions? Some he will likely face:

After the jump:

Read the ‘Dear Investor’ Letter

See the Legends Fund Jul. 2008 report

See the 2007 Financial Statements

An August blow out, in a good way

With hedge funds having pretty much had their heads handed too them in August—all the broad indexes were down, most in the 1.5-2 percent range, while some sub-sectors did much worse—it’s probably time for some contrarian news.

Balestra Capital Partners LP tacked 21.2 percent onto its gains of 35.7 percent in July, and 21 percent in June. Year-to-date, the global macro fund is up almost 125 percent, which has nicely removed the taste of last year’s 3.6 percent loss. And it wasn’t all unrealized gains:

Taking advantage of substantial increases in the valuations of the CDS on mortgage-backed CDO...we sold 37% of our holdings in August, booking profits of approximately $56 million. The single best performer was a $10 million notional value CDS that has cost a little more than $40,000 to carry during the roughly eight months that we held it, that produced a $6.7 million profit...

We continue to hold large positions in CDS of individual bonds that we believe to be vulnerable to ongoing economic and financial stress. We have increased our activity in hedging against a long-term decline in the US Dollar mainly by adding to our gold holdings. We are also maintaining short positions in the ABX index and junk bonds.

So September’s probably looking pretty good too.

Balestra Capital Partners LP
August 2007 Performance Report

Tewksbury smashed...by its lofty standard

Tewksbury Capital Mgt Ltd lost about 10 percent between Jul. 1 and Aug. 10, according to an investor who spoke with fund principals last Friday. While mild by the standards of other “quant crisis” losses, the decline was somewhat startling for investors used to the firm’s rare monthly declines being measured in basis points.

Closed to new investors since long before Matthew Tewksbury took over from Monroe Trout in 2002, the firm had continued the Trout heritage of consistent returns with few losing months, and last year made more than 30 percent on its $3-billion-plus asset base.

The investor said that while the decline was out of Tewksbury’s normal range, “the loss is relatively mild compared with some others, and I understand that investors are very supportive. They’re still well ahead and this is hardly the sort of thing that can’t be recovered. I don’t think anybody's planning an exit.”

Tewksbury was said to have told investors that, apart from taking some defensive measures similar to those announced by its peers, the firm was sticking with its signals and, as it does anyway, “watching the portfolio very closely.”

Another troubling 'Dear Investor' letter

[UPDATED] ‘Best blog’ follows LEND 50% pratfall

It's been an ugly few weeks for the recipients of ‘Dear Investor’—or, even worse, ‘Dear Client of Bear, Stearns & Co. Inc’—letters. Sowood. Renaissance. Tykhe. For starters. But spam, delivered this morning from the Piltdown Meltdown Man himself, is unquestionably the most troubling of all:

[UPDATE Aug 11, 7:00 pm: Sorry, I didn’t realize how troubling it really was.

Random musings: Remember, the Accredited Home Lenders (LEND - Cramer's Take - Stockpickr - Rating) deal will close unless the acquirer, Lone Star Funds, is insolvent. That’s how iron-clad that deal is. All the negative language that reporters quoted last week was included in the deal documents when it was first reported. Odd that it's just now getting focused on. I repeat, the language about insolvency was not new news. [Originally published Aug. 6 2007].

Jim Cramer's Best Blogs
TheStreet.com
8/11/2007 9:40 AM
If the item in question should mysteriously disappear, go to the .pdf here.

Regrettably, more than 12 hours before this (ahem) highlight was posted, LEND had, in after-hours trading Friday night, dropped 47.7 percent. Giving up its 45 percent gain that day.

Noted with interest (Subprime Edition)

[UPDATED Jun. 21 2007] Paul Ullman’s Highland Financial Holdings Group LLC was mentioned in despatches yesterday for the [UPDATE: Incorrectly] reported closure of its once $125 million Special Opportunities Fund (that, on information and belief, accounted for a relatively small proportion of Highland’s assets). Coincidentally, or not, Ullman appears to have abandoned the perceptive and timely Market Commentary section of the firm’s website a couple of months ago. In closing his most recent comment, he nailed it:

...if lenders and borrowers are free to take interest rate and credit risk, then cyclical peaks and troughs in lending activity, [and] profits and losses will naturally and inevitably occur. If the cost of innovation is boom and bust, but the overall outcome is an increase in the pool of risk capital available for use, then US regulatory policy should be geared to support innovation while guarding against the excess that will inevitably occur.

Guarding against excess. Now there’s a contrarian concept.

Market Commentary for March 2007
by Paul Ullman
Highland Financial Holdings

Subprime Street Is Feeling The Heat
by Roddy Boyd
The New York Post Jun. 20 2007

About-as-good-as-it’ll-get news

The Jan. 9 letter from Amaranth chief Nick Maounis, reporting that up to 60 percent of the funds’ greatly reduced capital had been returned to investors during the fourth quarter of 2006, is now available over on NakedShorts InvestorLetters. Quote of note, barely mentioned in the limited media coverage (after the jump):

[Soon to IPO] Fortress [Investment Group]: I wanted to take a moment to thank Fortress for their help and assistance – they have been instrumental in the process of ensuring an orderly and fair disposition of the positions.

So that’s a name to toss into the irresponsible media speculation inferno as to where Maounis, a highly-rated convertible arb manager in his own right, might next hang his hat.

Dear Investor
Amaranth
Jan. 9 2007

The Ritchie soap opera (Aria XVII)

The latest letter from Ritchie Capital Management LLC to its probably by now somewhat baffled investors is up over on NakedShorts’ InvestorLetters.

Confidential Communication to Investors in Ritchie Multi-Strategy Global Ltd

Radioactive? Nuh, just Simonized

Adam Geiger, chief investment officer of Ivy Asset Management Corp as recently as 8:00 am Monday, has become easily the biggest trophy in the Amaranth Collateral Career Damage trophy case. Taking the fall for the Bank of New York subsidiary’s touching faith in the continued success of the risk-defying exploits of Brian Hunter & The Enablers*, Geiger – with Ivy for a few days short of 10 years, and CIO since Jan. 2006 – gets the old “We thank Adam for his service, and wish him all the best in his new endeavors.”

Sad. But it seems that, with Ivy having had much of its year wiped out by the Amaranth debacle, a human sacrifice was required to appease the Gods of BoNY.

In an entirely related development, now five paras into the mopping up, “we have also made several modifications to the investment process by having risk management and operational due diligence report directly to Michael Singer, co-president.” Geiger’s replacement, Stuart Davies – now head of investments for Europe and Asia – will report to Sean Simon, co-president (and Son of Sandy, one of the firm’s founders).

The whole thing is over on NakedShorts InvestorLetters. Other coverage after the jump.

Spinning, spinning, spinning

The estimable Hedge Fund Alert reported last week that Tiger cub Tom McAuley’s North Sound Capital is, after a sustained period of stodgy performance, looking down the barrel of almost $1 billion of redemptions (roughly 40 percent of its Oct. 1 2006 assets) by year’s-end, along with an exodus – voluntary, and not – of various worker bees.

Which in the normal course of events might not be good news. But hustle on over to NakedShorts’ InvestorLetters to share McAuley’s “excitement for the positive impact we expect these changes to have in 2007.”

NakedShorts’ InvestorLetters: Bad news is good news

Motivational reading

The post-shooting “Dear clients, colleagues and friends” from Florian Homm, co-founder and chief investment officer of the London-based AIM-listed Absolute Capital Mgt Holdings, is over at NakedShorts' Investor Letters.

So, let's motivate him again!

Letters you’re glad you didn’t get

Posted over on NakedShorts’ InvestorLetters, a series of three missives – dated Jul. 27, Jul. 29 and Aug. 11, 2005 – from the virtuoso keyboard of Scammy Bayou.

But before you go charging over for the immortal snippet “It is with great regret, but with an overriding sense of pride and accomplishment in a job done to the best of our abilities…” and so much more, let me repeat:

The response to the latest edition to NakedShorts’ blog lineup has been totally underwhelming non-existent…and while I'm not planning to name names for the moment, a number of regular readers are known to have bazillions of them clogging up hard drives. So, in the spirit of the forthcoming Festivus, let's share...the email address at left would be fine.

The Bayou letters