Monday, October 31, 2016

Brevan Howard — one of the hedge fund industry's biggest names — is shrinking at a rapid rate

Brevan Howard — one of the hedge fund industry's biggest names — is shrinking at a rapid rate

boat drought asia reutersA wooden boat is seen stranded on the dry cracked riverbed of the Dawuhan Dam during drought season in Madiun, Indonesia's East Java province, October 5, 2015. Siswowidodo/Antara Foto/Reuters
Investors in Brevan Howard, one of the hedge fund industry's biggest names, are asking for their money back.
Brevan Howard Asset Management has received redemption requests for an additional $2 billion from the firm's flagship fund this year, according to people familiar with the matter.
A Brevan Howard spokesperson declined to comment.
That fund managed about $13.7 billion as of mid-September, according to HSBC. The latest redemption requests would take the fund down to around $11.7 billion, almost half the size it was a year ago. 
The Financial Times reported in early October that investors had pulled at least $5 billion this year. The $2 billion figure, which will be returned by year-end, is in addition to that number.
The withdrawals signify a changing tide for Brevan, a titan in the industry that as recently as 2013 managed about $40 billion firmwide. At one point, the flagship fund managed $27 billion, a fund size cofounder Alan Howard recently said was too large.
For one, some of its star talent has left to start their own firms. One of its founding partners, Chris Rokos, left in 2012 and has since launched multi-billion dollar fund Rokos Capital. Ben Melkman, who headed the firm's winning Argentina fund, left earlier this year and is setting up Light Sky Macro in New York.
The redemptions were somewhat expected as Brevan Howard has posted lackluster returns. In June, Business Insider reported that the firm was preparing for a "worst-case scenario" in which its assets would dramatically drop.
Brevan Howard's flagship fund posted a loss of about 2% last year, and is down 3.4% this year through October 28, according to HSBC data.
The Rhode Island State Investment Commission, a pension, voted last week to redeem its investments from Brevan Howard, among other hedge funds.
The losses have fed speculation that the firm might close shop to become a family office, managing founder Alan Howard's fortune. Howard, however, told the FT earlier this month that he has no plans to do so.
Brevan isn't alone in facing withdrawals. Investors have pulled a net $60 billion from the $3 trillion hedge fund industry this year, according to eVestment. 
More: Hedge Funds

General Electric is merging its oil and gas business with Baker Hughes

General Electric is merging its oil and gas business with Baker Hughes

Jeff Immelt General ElectricJeff Immelt, the General Electric Co. CEO, at a news conference in New Delhi in 2015. REUTERS/Adnan Abidi
General Electric Co., banking on a recovery in oil prices, said on Monday it would merge its oil and gas business with the No. 3 oil-field services provider, Baker Hughes Inc.
GE will own 62.5% of the new publicly traded company, which will have combined revenue of $32 billion, while Baker Hughes shareholders will own 37.5%.
Shareholders of Baker Hughes, which had a market value of about $26 billion as of Friday, will get a special one-time cash dividend from GE of $17.50 a share — or a total of $7.4 billion — after the deal closes.
Baker Hughes had planned to combine with its bigger rival Halliburton Co., but the transaction fell through in May because of opposition from regulators. That deal was valued at $34.6 billion when it was announced in November 2014.
The combination of GE Oil & Gas and Baker Hughes will create the second-largest player in the oil-field services industry in terms of revenue after Schlumberger.
The GE-Baker Hughes deal comes at a time when North American oil and gas producers are putting rigs back to work after a near freeze in activity caused by a slump in oil prices that began mid-2014. Global oil prices have risen by a third this year to trade near $50 a barrel.
GE said last week it believed the oil market had bottomed, but that demand for the gear the company makes would take longer to recover, probably until after the first half of next year.
GE's oil and gas business, which makes blowout preventers, pumps, and compressors used in exploration and production, accounted for 14% of the company's total revenue in 2015.
Baker Hughes supplies a variety of oil-field services, products, technology, and systems.
"This transaction creates an industry leader, one that is ideally positioned to grow in any market," GE CEO Jeff Immelt said in a statement.
"Oil and gas customers demand more productive solutions. This can only be achieved through technical innovation and service execution, the hallmarks of GE and Baker Hughes."
Lorenzo Simonelli, the CEO and president of GE Oil & Gas, will be CEO of the new company. Immelt will be chairman, and Baker Hughes CEO Martin Craighead will be vice chairman.
The companies said on Monday that the deal was expected to add $0.04 to GE's earnings per share by 2018 and $0.08 by 2020.
GE and Baker Hughes had said on Thursday they were in talks over potential partnerships. The Wall Street Journal first reported that the companies were in discussions.
Baker Hughes shares were up 12% at $66.20 in premarket trading on Monday. The stock had closed at $54.55 on Thursday ahead of the Journal report.
GE's shares were up 0.3% at $29.32 in light trading.
(Reporting by Ankit Ajmera and Swetha Gopinath in Bengaluru; Editing by Ted Kerr)
Read the original article on Reuters. Copyright 2016. Follow Reuters on Twitter.

Oil falls as non-OPEC yet to pledge concrete oil output steps

Oil falls as non-OPEC yet to pledge concrete oil output steps

A pump jack is seen at sunrise near Bakersfield, California October 14, 2014.  REUTERS/Lucy Nicholson/File Photo  A pump jack is seen at sunrise near Bakersfield Thomson Reuters
TOKYO (Reuters) - Oil prices extended declines on Monday after non-OPEC producers made no specific commitment to join OPEC in limiting oil output levels to prop up prices - a stance that suggested they wanted OPEC to solve its differences first.
Officials and experts from OPEC countries and non-OPEC nations including Azerbaijan, Brazil, Kazakhstan, Mexico, Oman and Russia met for consultations in Vienna on Saturday and only agreed to meet again in November before a scheduled regular OPEC meeting on Nov. 30, they said in a statement.
OPEC and non-OPEC said in a joint statement the meeting on Saturday was a "positive development" towards reaching a global output limiting deal on Nov. 30.
London Brent crude for December delivery was trading down 36 cents, or 0.7 percent, at $49.35 a barrel by 2250 GMT on Sunday after settling down 76 cents on Friday.
NYMEX crude for December delivery was down 36 cents, or 0.7 percent, at $48.34 a barrel, after closing down $1.02 on Friday.
Russia expects to increase its oil output by 0.7 percent next year and a further 0.9 percent in 2018, the draft federal budget showed.
Crude production is seen at a record-high 548 million tonnes in 2017 and 553 million tonnes in both 2018 and 2019, up from an estimated 544 million tonnes this year, the document showed.
The cabinet of the United Arab Emirates approved a 48.7 billion dirham ($13.3 billion) federal budget for 2017, almost steady from 2016, suggesting UAE authorities remain cautious about spending as low oil prices pressure state finances.
Money managers cut their net long U.S. crude futures and options positions for the first time in five weeks in the week ended Oct. 25, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.
(Reporting by Osamu Tsukimori; Editing by Richard Pullin)
Read the original article on Reuters. Copyright 2016. Follow Reuters on Twitter.

Saturday, October 29, 2016

FELDER: The probability of a market crash is 'as high as it's ever been'

FELDER: The probability of a market crash is 'as high as it's ever been'

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Screen Shot 2016 10 21 at 1.18.35 PMJesse FelderReal Vision TV
As short volatility market positions continue to build – largely as a consequence of central banks suppressing volatility to prevent recessions – maverick money manager Jesse Felder is warning the end result of the volatility trade could be a very painful lesson for investors with significant stock market repercussions.
Having started out at Bear Stearns before co-founding his own multi-billion-dollar hedge fund, Jesse Felder is now more at home educating the masses on the truth in financial markets through his blog The Felder Report. In an interview with Real Vision TV, Felder expresses his concern that the lack of volatility will inevitably create more volatility, the likes of which have never been seen before.
“I'm not calling for a stock market crash. I think that's asinine, but, and nobody knows the timing or anything, but if you want to look at what's the probability of that type of an event, it's probably got to be as high as it's ever been,” Felder said in the interview.
In addition to his concerns about volatility trading, the full length interview on Real Vision TV digs deep into Felder’s investment framework, as well as his recent Twitter wars and his views on which bubbles we are in. A short clip is available here, but you’ll have to take the free trial to Real Vision to get the complete picture.

Trading patterns in volatility products are fascinating, Felder said, having initially hardly been used when they were established around ten years ago, there has now been an explosion in assets in VIX futures and ETFs.
Initially just used for hedging, Felder said people gradually woke up to the fact that the way these products are constructed, they would be certain to go down in value over time “A lot of people came to the conclusion that this is just a no-brainer short. I can just short volatility and I'll inevitably make money,” he said.
Felder went on to say that the largest speculative net short position in VIX futures ever and by far was seen recently. In addition, there are billions of dollars in VIX ETFs, leveraged ETFs, as well as short volatility ETFs and long volatility ETFs. “And the long vol ones are all sold short,” he said. “The ETFs can create more shares to meet short selling demand.”
He pointed out that it was fascinating to see Bloomberg saying that demand for VXX is off the charts, indicating investors must be bearish. “Well that demand is to short sell VXX and when you look at it, it was something like 75% of the shares are sold short in VXX and across all of the volatility ETFs.”
Thinking about how it is going to play out in the markets, Felder said VIX went up 40% in one day just a couple of weeks ago, so one of the consequences of this is the volatility of volatility is really starting to soar like we've never seen before.
“So you have a massive short vol trade and vol goes up 40%. Then you have all these guys trying to cover their shorts, billions and billions of dollars of short volatility,” Felder said. “It's going to push volatility up higher. And then you think about OK, who's making a market in this stuff, right? Because, if all these guys are short vol, and then they try and cover their vol shorts the market makers are going to have to buy volatility. So they're going to be essentially short with-- buy volatility, so they're going to be short stocks, and so then they’ve got to offset that trade. The volatility trade has repercussions in the stock market.”
Essentially it’s the VIX tail wagging the S&P dog and with a massive short trade pushing volatility higher, you start to get concerned about all the volatility targeting funds out there.
“Think about all of these variable annuities or whatever, and say we will reduce our exposure when volatility goes up. Risk parity, trying to do the same thing. And there's just a massive amount of money that's now tied to volatility targeting and risk parity. And you can just start to see OK, that's a lot of risk structurally in the way investors are positioned in the markets that we have never seen before.”
How it works and how it is likely to play out are pretty big questions. “I don't think people, a lot of people are actually looking at that and saying you know that could create a 1987 type of selling to get selling, to get selling, to get selling,” he said.
The extreme case of endowment funds selling volatility to increase their meagre returns is happening now and Felder said even pension funds, who can’t buy enough corporate bonds have started selling credit default swaps as synthetic exposure to corporate bonds. He’s actually speechless at the thought of pension funds that were incredibly underfunded, now being your counterparty if you are buying CDS. 
Putting this into the context of the business cycle, the build up of risk in this area is seen as a consequence of central bank intervention to suppress volatility and Felder said the simple lesson we should all take from these cycles that we’ve seen over the last 20 years or so is that the longer we go without a downcycle, the more risk is built up.
“For every action there's an equal and opposite reaction,” Felder said. “It's nature. It's the way things work, and I think that's and I think that's what we really need to learn from these episodes. And I think we're going to learn another painful one yet at some point.
Real Vision is the world's only video-on-demand channel for finance. It's where the world's best investors share their ideas. You can sign up for a 7-day free trial here

Friday, October 28, 2016

Singapore's prime minister on Trans-Pacific Partnership: 'How can anybody believe' in US anymore?

Singapore's prime minister on Trans-Pacific Partnership: 'How can anybody believe' in US anymore?

Singapore's Prime Minister Lee Hsien LoongSingaporean Prime Minister Lee Hsien Loong. Kim Kyung-Hoon/Reuters
Singapore's constant calls for the US to quickly ratify a landmark Asia-Pacific trade pact underscores the entrepot city's frustration with the anti-free-trade rhetoric that has surfaced in Washington during the 2016 presidential campaign, observers say.
In an interview with the Time magazine published on Tuesday, Prime Minister Lee Hsien Loong repeated earlier warnings that a failure by the US Congress to ratify the 12-nation Trans-Pacific Partnership would diminish Washington's standing among Asian trade partners.
US President Barack Obama firmly backs the TPP — whose participants account for 40% of the global economy — but it is opposed by both of the major-party presidential nominees, Hillary Clinton and Donald Trump.
The deal does not include China, and it is seen as part of the Obama administration's Asian "rebalance" strategy amid Beijing's rising clout in the region.
After eight years of negotiations, the US, Japan, and 10 other Pacific Rim countries reached an agreement on the pact in October last year, but the US Congress has yet to ratify it. Observers say the legislative body is unlikely to do so during the "lame duck" session after the November 8 presidential election and before the inauguration of the new president on January 20.
"In every American election, crazy things are said. Positions are taken which the winners try very hard to forget afterwards," Lee said in the interview with Time's editor at large Ian Bremmer.
"On trade too, that has been true for some time. But this time it has been so nasty and harsh that I think Hillary, if she wins, will have a lot of things to un-speak which she will find very difficult to do," Lee said.
"I think TPP will be a casualty if it is not settled by January," Lee said, adding that the deal "probably will not be" ratified by Congress by then.
U.S. President Barack Obama (R) and Singapore's Prime Minister Lee Hsien Loong walk together to the Oval Office after an official arrival ceremony at the White House in Washington, U.S. August 2, 2016.  REUTERS/Jonathan ErnstUS President Barack Obama with Lee after an official arrival ceremony at the White House in Washington.Thomson Reuters
Observers say Singapore's Lee has been most vocal about the headwinds against ratifying the TPP in Capitol Hill because its failure could hurt the country's trade-reliant economy, already reeling from the effects of China's slowdown.
"This is a core economic interest. More so than the bigger economies with larger domestic markets, Singapore needs the trade deal to come through to see economic growth from increased external trade," said Chong Ja Ian, an assistant political science professor at the National University of Singapore.
Song Seng Wun, a Singapore-based economist with CIMB Private Bank, said Lee's comments echoed "the natural sense of frustration that Singapore feels about (US) domestic politics getting in the way" of the TPP's ratification. "From Singapore's standpoint, trade deals like the TPP are important because they help drive growth in external trade on which it is very dependent."
Song said the deadlock over a planned European Union-Canada trade deal because of a rejection of the pact by the French-speaking south of Belgium reflected global antipathy toward free-trade deals.
"Whether it is the US or Europe, it is increasingly difficult to convince people that they stand to benefit from trade deals in terms of job opportunities and income growth," Song said. "Politicians are not stupid. They can read the ground."
Some observers say there is still a slight chance the TPP could be passed before or after the presidential inauguration if Hillary Clinton wins on November 8.
Trump, the Republican nominee, has said killing the TPP and renegotiating the North American Free Trade Agreement would be among his economic priorities if elected.
clinton trumpRepublican presidential nominee Donald Trump and Democratic presidential nominee Hillary Clinton at the town-hall debate at Washington University in St. Louis on October 9. Getty
"One option is that the Clinton administration will pass the TPP with some modifications not long after her inauguration," said Chong of the National University of Singapore.
"What happens will also depend on what happens down ticket in the election … if the Democrats take control of the Senate, there is a better chance of the TPP being ratified," he said.
In the interview with Time magazine, Lee said a failure to ratify the TPP "would be a very big setback for America."
"Your standing goes down with many countries around the world," Lee said. "After you have gotten Vietnam to join, after you have gotten Japan to join, after Japanese Prime Minister Shinzo Abe has made very difficult arrangements on agriculture, cars, sugar, and dairy. Now you say, 'I walk away, that I do not believe in this deal.' How can anybody believe in you anymore?"
Trade-reliant Singapore is one of the founders of the TPP's predecessor, the P4 group, which includes Chile, Brunei, and New Zealand.
Trade ministers from the four countries plus the US, Japan, Australia, Vietnam, Mexico, Malaysia, Peru, and Canada signed the pact in Auckland in February.
The World Bank estimates it could raise gross domestic product by an average of 1.1% in participant countries by 2030.
Apart from the reduction of tariffs, the TPP also involves stricter rules to protect intellectual property and to level the playing field between state-linked firms and privately held companies.
Read the original article on South China Morning Post. Copyright 2016. Follow South China Morning Post on Twitter.

Amazon misses, stock falls

Amazon misses, stock falls

Jeff BezosAmazon CEO Jeff BezosChip Somodevilla/Getty
AMZN Amazon.Com
 785.00 7.05 (+0.90 %)

DisclaimerMore AMZN on Markets INSIDER »
It's a big miss on profits but nearly in-line with revenue expectations. Fourth quarter revenue guidance was lower than expected too.
Amazon stock was down as much as 7% in after hours, and is now down about 4.5%.
Here are the most important numbers:
  • EPS (GAAP): $0.52 per share vs. $0.78 per share average analyst estimate
  • Revenue: $32.7 billion vs. $32.69 billion average analyst estimate (up 29% year-over-year)
  • AWS (revenue): $3.23 billion vs. $3.13 billion expected (up 55% year-over-year)
Net income came in at $252 million, putting Amazon in the black for six straight quarters — an unusual situation for the company which historically reinvests profits into new growth opportunities. But that's lower than last quarter's $857 million, ending the previous three quarters' record-profit streak.
Part of the profit decline has to do with increased investments in areas like more fulfillment centers and video content. In the third quarter, the company opened 18 new fulfillment centers, and it's expected to nearly double its spend on video content through the second half of this year.
"We are in a period of advancing up our investments in the second half of 2016, even more so than in prior years," Amazon CFO Brian Olsavsky said in a press call Thursday. 
Investors were spooked by the lower than expected revenue guidance for fourth quarter, traditionally the biggest quarter for Amazon. The company's fourth quarter revenue guidance came in the range of $42 billion to $45.5 billion, slightly lower than analyst expectations of $42.18 billion to $46.27 billion.

Screen Shot 2016 10 27 at 2.27.35 PMAmazon
Amazon's cloud business, Amazon Web Services, continues to drive the company's growth. AWS is the most profitable business for Amazon, bringing in $861 million in operating income, more than double last year's $428 million, at a solid 26% margin. 
The company reported operating income of $575 million, up 41% from last year's $406 million.
Amazon ended the quarter with over 306,000 employees, a 38% increase from last year.
Amazon has been one of the best performing stocks in tech, jumping over 30% in the past year and more than doubling over the last 18 months. It is now the fourth largest public company in terms of market cap.
Screen Shot 2016 10 27 at 2.26.30 PMAmazon

Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.

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